Everest Re catastrophe XoL pull-back continues in Q1

Global insurance and reinsurance firm Everest Re continues to take steps to reduce its exposure to property catastrophe related volatility, with its writings of catastrophe excess-of-loss reinsurance business falling to just 16% of its first-quarter book.

The company reported $406 million of Net Operating Income for the first-quarter of 2022, resulting in a 16.2% annualized Operating ROE and Net Income of $298 million

At the same time, Everest Re underwrote $3.2 billion of gross premiums during the period, with 9% growth across the group, but more emphasis placed on insurance again.

Reinsurance premiums grew by 6% in the quarter, but the Everest Re insurance business grew by 15% for the period.

The company reported $115 million of catastrophe losses for Q1 2022, after reinsurance and retrocession effects, largely from the Australian flood losses, European storms, and March 2022 severe weather events in the United States.

The reinsurance combined ratio was the lowest segment for the company, at 91.4%, compared to 91.6% for insurance, as the effects of Everest Re’s changes in business mix filter through.

“Everest is off to a strong start in 2022 with first quarter results that reflect our relentless focus on profitability and margin expansion. Excellent performance across our underwriting businesses, as well as investments, contributed to $406 million in net operating income and a 16.2% annualized operating return on equity. Our discipline, strength and resilience stand out in the increasingly volatile external environment, which is compounded by a web of macroeconomic, geopolitical and societal issues. As underwriters, the protection and stability we provide has never been more important, and we continue to be a source of strength in the face of global uncertainty,” commented Everest Re Group President & CEO Juan C. Andrade.

The company said it has limited exposure to the Russian invasion of the Ukraine, but noted the high degree of uncertainty around both exposure and coverage with the conflict, so said that no loss provision is being established at this time.

Everest Re has specifically highlighted a reduction in catastrophe volatility as it stepped back a bit from cat exposed business at the January renewals.

While targeting growth in some casualty classes, Everest Re optimised its property portfolio to reduce catastrophe volatility and maximise returns, the company said.

Here, Everest Re’s third-party capital vehicle Mt Logan Re will have been helpful, allowing the company to put out bigger lines in catastrophe excess-of-loss reinsurance business while retaining less volatility on its balance-sheet.

The company said these targeted underwriting actions are helping it to reduce its attritional loss ratio, so improving its performance and lowering volatility.

Following a number of years of catastrophe reduction and optimisation, Everest Re now puts its 1-in-100 year US wind PML exposure as a percentage of group equity at just 5.8%, down from 11.4% in 2017.

In addition, the company has lowered its exposure to US quake risk and other peak zone perils as well.

Property catastrophe excess-of-loss business now constitutes just 16% of Everest Re’s book, down from 26% in 2017.

In Q1 2022, just 16% of writings in reinsurance were property cat XoL focused, compared to 19.5% in the prior year period, wile pro-rata property also reduced 5% year-on-year as a percentage of the Everest Re reinsurance book.

Mt. Logan Re, acting as a collateralized reinsurance sidecar and fund-like vehicle, bringing third-party investors into Everest Re’s capital structure, has been a critical lever for this reduction in catastrophe risk, alongside its Kilimanjaro Re catastrophe bond program.