Everest Re reveals CAT & COVID losses, plus $400m social inflation reserve hit

Global insurance and reinsurance group Everest Re has pre-announced a range of charges being applied to its fourth-quarter and 2020 results, due to catastrophe losses, continued impacts from the COVID-19 pandemic and a $400 million reserve charge driven by social inflation trends in casualty lines.

The company still says that it expects to report full year 2020 net income of between $475 million and $525 million, with operating income of $275 million to $325 million, despite these additional costs.

Everest Re has estimated its fourth-quarter 2020 pre-tax net catastrophe losses at $70 million, after accounting for any reinsurance recoveries and reinstatement premiums.

This includes losses from hurricanes Delta, Zeta, Eta, Iota, and also the Queensland Australia Hailstorm, with $60 million of the catastrophe losses expected to fall to the firm’s reinsurance segment and $10 million to its insurance segment.

In addition, Everest Re has also added another $76 million of pre-tax net Covid-19 pandemic losses for the fourth quarter, which it says are primarily for third-party lines.

These additional COVID-19 losses include $56 million from Everest Re’s reinsurance segment and $20 million from insurance lines and is in addition to the $435 million of pandemic losses the company had already revealed in 2020.

For full year 2020, Everest Re has lifted its pandemic loss provision to $511 million, with over 80% of this still IBNR.

The final charge impact Everest Re has pre-announced before its earnings is that after a comprehensive review of all reinsurance and insurance reserves, the company is strengthening its prior year loss reserves by $400 million.

That’s equal to 3.0% of net loss reserves as of September 30th 2020 and Everest said that this is all applied to its reinsurance segment, largely within long-tail classes for the 2015-2018 accident years.

Notably, the company puts the reserve strengthening as largely within general liability, professional lines, and auto liability and its CEO says this action is to recognise social inflation trends.

Everest Re’s reserve charge also includes actions on certain non-catastrophe property lines, the company explained, largely for the 2017-2019 accident years and driven by a few large losses to aggregate reinsurance programs.

Juan C. Andrade, Everest Re President and CEO, explained, “We remain focused on the relentless execution of our strategies to create a diversified portfolio that achieves superior risk adjusted returns and value to our shareholders and customers. The decisive reserving actions we are announcing today recognize the social inflation trends affecting the overall U.S. Casualty market and enhance our already strong balance sheet. We have proactively acted on the affected portfolios and we have confidence in our in-force book. We are bullish about our future and the earnings generating power of our franchise.

“Everest continues to benefit from excellent financial strength and strong enterprise risk management. The fundamentals of our business are strong. Our Company is well positioned to succeed in any market conditions, as evidenced by our growth and our improved underlying results despite the many global challenges in 2020. Our strong management team, employees, global platform, and excellent capabilities continue to provide superior solutions to our business partners and customers.”

Analysts, it seems, had been anticipating some reserve strengthening to come from Everest Re, but the $400 million is perhaps more than most expected to see.

As a result, it’s thought there could be some read-across to other companies with similar lines of business and exposure to social inflationary trends.

As always with Everest Re, its worth highlighting that there is a chance some of the catastrophe loss impact from Q4 2020 will have been shared with investors in Everest Re’s collateralised reinsurance sidecar-like vehicle Mt. Logan Re.

Mt. Logan Re supports Everest Re’s catastrophe exposure, through the sharing of underwriting returns and also losses with third-party investors through an aligned strategy.

Any losses ceded to Mt. Logan Re from this latest quarterly catastrophe loss activity are unlikely to be significant, more attritional in nature based on where Everest Re’s loss estimate sits.