RE.N - Q3 2020 Everest Re Group Ltd Earnings Call
EVENT DATE/TIME: OCTOBER 30, 2020 / 12:00PM GMT
Co. reported YTD net income of $451m and 3Q20 net income of $243m.
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John Paul Doucette Everest Re Group, Ltd. - Executive VP, President & CEO of the Reinsurance Division Jon Levenson Everest Re Group, Ltd. - Head of IR
Juan Carlos Andrade Everest Re Group, Ltd. - President, CEO & Director Mark Kociancic Everest Re Group, Ltd. - Executive VP & Group CFO
Michael Karmilowicz Everest Re Group, Ltd. - President & CEO of the Everest Insurance® Division
CONFERENCE CALL PARTICIPANTS
Brian Robert Meredith UBS Investment Bank, Research Division - MD, Financials Research Sector Head & Global Insurance Strategist Elyse Beth Greenspan Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst
Joshua David Shanker BofA Merrill Lynch, Research Division - MD
Meyer Shields Keefe, Bruyette, & Woods, Inc., Research Division - MD
Michael David Zaremski Crédit Suisse AG, Research Division - Research Analyst
Ryan James Tunis Autonomous Research LLP - Partner of Property & Casualty Insurance Yaron Joseph Kinar Goldman Sachs Group, Inc., Research Division - Research Analyst
Welcome to the Everest Re Group Earnings conference call. This call is being webcast and will also be available for replay on the Everest website later today.
I now like to turn the call over to Jon Levenson, Head of Investor Relations.
Jon Levenson - Everest Re Group, Ltd. - Head of IR
Good morning, and welcome to the Everest Re Group Limited 2020 Third Quarter Earnings Conference Call. The Everest executives leading today's call are Juan Andrade, President and Chief Executive Officer; Mark Kociancic, Executive Vice President and Chief Financial Officer. We are also joined by other members of the Everest management team.
Before we begin, I will preface the comments on today's call by noting that Everest SEC filings include extensive disclosures with respect to forward-looking statements. Management comments regarding estimates, projections and similar are subject to the risks, uncertainties and assumptions as noted in these filings. Management may also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement.
With that, I turn the call over to Juan Andrade.
Juan Carlos Andrade - Everest Re Group, Ltd. - President, CEO & Director
Good morning, everyone, and thank you for joining the call. For nearly 50 years, Everest has been a source of strength for our customers. This has never been more important than in today's public health, economic, social and natural catastrophe-impacted environment. Our business is running smoothly. We're performing well. And our people continue to demonstrate the passion, professionalism and resilience that differentiates Everest.
I am thankful to our employees for their hard work and perseverance in delivering the solid results we're reporting today. I am particularly proud of Everest recently being named by Business Insurance as one of the best places to work in 2020, a meaningful achievement in the current environment.
The economic recovery is uneven, and there was significant natural catastrophe activity in the quarter. Despite this, Everest has continued to grow and generate operating profit. Our broadly diversified Reinsurance and Insurance franchise, our financial strength, deep distribution relationships and our focus on providing solutions to our customers represent the foundation that position us well for the strength we see in the reinsurance and Insurance Markets today.
In addition, we have added 2 exceptionally talented and seasoned global executives to our management team. Mark Kociancic, our new Group Chief Financial Officer, joins us from SCOR, where he was the group CFO since 2013. Jim Williamson, our new Group Chief Operating Officer, joins us from Chubb. Both of these executives have made an immediate impact to Everest. I want to thank Craig Howie for his commitment and contributions to the company. Craig has played an important role in the growth and evolution of Everest. Craig will remain with the company until the end of 2020 to assist Mark with a smooth and seamless transition.
We have also further fortified our already strong capital base with a $1 billion senior notes offering completed on October 7. This is very efficient long-term 30-year capital at a low 3.5% coupon.
As I said in the second quarter earnings call, we have the capital to play offense in this improving market, and we also have capital flexibility. We chose to exercise some of this flexibility opportunistically, given the state of credit markets and the low borrowing rates available. We will seek to deploy these proceeds as favorable market opportunities continue to develop and in support of our overall strategy to grow book value over time. Our already strong company is now even stronger.
Everest's strength is evidenced by our third quarter results for the group, where despite the high frequency of natural catastrophe activity, we achieved 16% gross written premium growth and improved attritional combined ratio of 85.8%, excluding cat and pandemic impacts, net investment income of $234 million, operating income profit of $97 million, net income of $243 million, book value per share growth of 7% from year-end 2019 or 9% adjusted for dividends, and a record shareholders' equity of $9.6 billion.
Our growth in the quarter stems from a combination of new business opportunities, improved rate levels and high retention rates on our existing book. The underwriting loss for the quarter was driven by the previously announced $300 million in catastrophe losses. This is in the context of an estimated $35 billion industry loss in the third quarter. We also added $125 million to our COVID-19 loss provision, reflecting the ongoing nature of this event and our prudent reserving philosophy. This provision is predominantly IBNR.
Excluding catastrophes and the pandemic impact, our attritional combined ratios for the group in each of our segments, Reinsurance at 83% and Insurance at 94%, improved year-over-year and are reflective of the earnings generating power of the Everest franchise. Underwriting profitability remains at the core of everything we do. On a 9-month year-to-date basis, Everest has grown 15% and delivered an 88% attritional combined ratio, excluding the pandemic impact.
Everest Reinsurance had 20% quarterly growth year-over-year. We executed our strategies to underwrite a high-performing book of business with higher economic returns and lower volatility. We executed on reinsurance opportunities in several classes, including facultative risk, Property & Casualty and in certain territories, including the U.S., Canada and Latin America.
Traditional capital from highly-rated carriers, like Everest, has become more relevant and supply is tight. We see the favorable pricing environment continuing for the foreseeable future. We also continue to be disciplined and rigorously evaluate each transaction. John Doucette is available to provide additional details on market conditions during the Q&A.
Everest Insurance had solid execution in the quarter with continued underlying margin improvement over 2019 and 6% growth year-over-year, despite exposure reductions in certain lines given the current economic environment. The attritional combined ratio, excluding the pandemic impact, improved to 94% for the quarter compared to 96% in the third quarter of 2019.
We are strategically managing the Insurance portfolio to build a more diversified business and steer our mix towards product lines that earn higher margins over the long term. Our significant position in both E&S and Retail channels give us access to a wide set of opportunities. For the quarter, the main insurance growth drivers were continued rate momentum of plus 19% excluding workers' compensation, and plus 13% including workers' compensation. We had strong growth across property, excess casualty and D&O, where market capacity is constrained and we are seeing the strongest rate increases and better terms.
We had continued strength in the excess and surplus line space. And we also had strong renewal retention in both our Retail and E&S businesses. Mike Karmilowicz is available to provide additional details on market conditions during the Q&A.
Regarding the ongoing COVID-19 pandemic, the $125 million loss provision in the third quarter was comprised of $110 million for Reinsurance and $15 million for Insurance. Our overall COVID-19 loss provision year-to-date is $435 million, of which 85% is IBNR. Consistent with our analytical rigor, we continue to take a measured approach to our COVID-19 loss estimation that is based on credible, fact-based and supportable information.
We instituted a thorough loss estimation process at the start of the pandemic. It is conducted team by team and contract by contract. As events unfold and more data becomes available, we are continuously testing our estimates. The claims data we're seeing is consistent with our expectations.
It is also important to reiterate that as a reinsurer, our analysis is specific to each situation. And similar to reserving, we have established an equally prudent and rigorous claims process. We evaluate claims presented based on existing policy and contract terms and conditions.
Lastly, we remain comfortable with the exposure and loss reserves in our Mortgage business in the context of the ongoing economic uncertainty from the pandemic.
In summary, Everest continued to perform well in the third quarter despite the uncertainty in the world today. We continue to purposely seek the best opportunities to write business at attractive returns. We have a talented team, a diversified global platform and a strong capital position, all of which allows us to provide attractive solutions to our clients and capture the improving opportunities in front of us.
Now let me welcome Mark Kociancic to the call and turn it over to him for additional details on the financials. Mark?
Mark Kociancic - Everest Re Group, Ltd. - Executive VP & Group CFO
Thank you, Juan, and good morning, everyone. I am very excited to be joining the great team here at Everest with its excellent talent base and culture. I look forward to contributing to the company's continuing growth and success. I think my industry experience and skill sets will be assets to further augment the great foundation that has been built here at Everest.
Everest delivered a strong set of financial results for the third quarter of 2020. We achieved significant net income and positive operating income, continued our growth into favorable market conditions and strengthened our already robust capital position. For the third quarter of 2020, Everest reported strong net income of $243 million. This is more than double the $104 million of net income for the third quarter of 2019. On a year-to-date basis, net income was $451 million compared to $792 million for the first 9 months of 2019.
Year-to-date, net income included $67 million of net after-tax realized capital gains compared to $90 million in the first 9 months of 2019. Third quarter results were driven by strong premium growth across the group, strong investment income performance and improved attritional loss and combined ratios. We also had Q3 catastrophe activity of $300 million, pretax and net of reinsurance and reinstatement premiums. And we added $125 million COVID-19 pandemic loss provision.
Year-to-date, our COVID-19 provision stands at $435 million. And as Juan stated, it's predominantly IBNR. The group experienced an underwriting loss in Q3 of $115 million due to the elevated level of natural catastrophes in the quarter as compared to an underwriting loss of $28 million in 2019.