Everest Re cedes more premium on cat losses, as growth continues

While growing its business substantially again in the third-quarter, it seems that global insurance and reinsurance company Everest Re ceded more of its written premiums to reinsurance capacity, either to third-party capital investors in Mt. Logan Re, or its retrocessionaires, as the significant catastrophe losses drove it to an underwriting loss for the third-quarter of 2021.

Everest Re has reported 25% growth in gross written premiums in Q3 2021, with 43.2% growth in the insurance book and 19.2% on the reinsurance side.

This impressive expansion has continued to deliver more risk for Everest Re to manage and the company has made a commitment to leveraging different capital sources more readily to assist.

In the third-quarter Everest Re reported $635 million of catastrophe losses, largely from hurricane Ida and the European floods, which drove the company to a pre-tax underwriting loss of $323 million.

However, its net loss was only $73.5 million for the quarter and net operating loss just $52.6 million, which has pleased analysts this morning.

Everest Re Group President & CEO Juan C. Andrade commented on the results, “During the third quarter of 2021, Everest made significant progress toward the strategic plan objectives detailed in the June investor day presentation. We achieved outstanding top line premium growth across both of our insurance and reinsurance businesses, continued to improve the attritional profitability for our Insurance Division, remained focused on risk appetite discipline and the diversification of our business, demonstrated strong expense management, delivered excellent investment income results, opportunistically reduced our cost of capital, and returned capital to our shareholders. Despite the high frequency and severity of the natural catastrophe activity in the quarter, we also benefited from the de-risking of the CAT portfolio and we remain on track to achieve our total shareholder return objective. We continue to consistently demonstrate our ability to relentlessly execute against our plans regardless of the external environment.”

The derisking of the catastrophe portfolio has involved more use of outside capital, with retrocession said to be increasingly a lever Everest Re is willing to use, alongside its third-party capital, reinsurance sidecar like vehicle Mt. Logan Re Ltd. that is backed by investors.

Given the scale of catastrophe losses suffered in Q3, it’s no surprise therefore that Everest Re ceded more of its gross premiums during the period, with the gap between gross and net having widened in Q3.

One driver of this will have been the significant catastrophe losses experienced, but others could be the appetite to derisk on the catastrophe side more readily, perhaps involving greater use of retro, or in sharing a little more premium again with the investors in Mt. Logan Re, as Everest did in the prior quarter.

“The cumulative, deliberate, and purposeful actions we have taken to reduce volatility have reduced our company’s risk profile,” Everest Re said.

Mt. Logan Re and how the company leverages retro, sit within a range of levers Everest Re has available to help it better manage its cat risk on the reinsurance side.

While this growth continues, managing the catastrophe exposure using third-party capital and retrocession may only become more important for the company.