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Home›Nominal return›EVEREST REINSURANCE HOLDINGS INC – 10-Q – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

EVEREST REINSURANCE HOLDINGS INC – 10-Q – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

By Adam Motte
May 12, 2022
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Industry conditions.

The worldwide reinsurance and insurance businesses are highly competitive, as
well as cyclical by product and market. As such, financial results tend to
fluctuate with periods of constrained availability, higher rates and stronger
profits followed by periods of abundant capacity, lower rates and constrained
profitability. Competition in the types of reinsurance and insurance business
that we underwrite is based on many factors, including the perceived overall
financial strength of the reinsurer or insurer, ratings of the reinsurer or
insurer by A.M. Best and/or Standard & Poor's, underwriting expertise, the
jurisdictions where the reinsurer or insurer is licensed or otherwise
authorized, capacity and coverages offered, premiums charged, other terms and
conditions of the reinsurance and insurance business offered, services offered,
speed of claims payment and reputation and experience in lines written.
Furthermore, the market impact from these competitive factors related to
reinsurance and insurance is generally not consistent across lines of business,
domestic and international geographical areas and distribution channels.



We compete in the U.S. and international reinsurance and insurance markets with
numerous global competitors. Our competitors include independent reinsurance and
insurance companies, subsidiaries or affiliates of established worldwide
insurance companies, reinsurance departments of certain insurance companies,
domestic and international underwriting operations, and certain government
sponsored risk transfer vehicles. Some of these competitors have greater
financial resources than we do and have established long term and continuing
business relationships, which can be a significant competitive advantage. In
addition, the lack of strong barriers to entry into the reinsurance business and
recently, the securitization of reinsurance and insurance risks through capital
markets provide additional sources of potential reinsurance and insurance
capacity and competition.



Worldwide insurance and reinsurance market conditions historically have been
competitive. Generally, there was ample insurance and reinsurance capacity
relative to demand, as well as additional capital from the capital markets
through insurance linked financial instruments. These financial instruments such
as side cars, catastrophe bonds and collateralized reinsurance funds, provided
capital markets with access to insurance and reinsurance risk exposure. The
capital markets demand for these products was being primarily driven by a low
interest environment and the desire to achieve greater risk diversification and
potentially higher returns on their investments. This increased competition was
generally having a negative impact on rates, terms and conditions; however, the
impact varies widely by market and coverage.



The industry continues to deal with the impacts of a global pandemic, COVID-19
and its subsequent variants. We continue to service and meet the needs of our
clients while ensuring the safety and health of our employees and customers.



Prior to the pandemic, there was a growing industry consensus that there was
some firming of (re)insurance rates for the areas impacted by the recent
catastrophes. The increased frequency of catastrophe losses that continued to be
experienced in 2022 and throughout 2021 appears to be further pressuring the
increase of rates. As business activity continues to regain strength, rates also
appear to be firming in most lines of business, particularly in the casualty
lines that had seen significant losses such as excess casualty and directors'
and officers' liability. Other casualty lines are experiencing modest rate
increase, while some lines such as workers' compensation were experiencing
softer market conditions. It is too early to tell what the impact on pricing
conditions will be, but it is likely to change depending on the line of business
and geography.



While we are unable to predict the full impact the pandemic will have on the
insurance industry as it continues to have a negative impact on the global
economy, we are well positioned to continue to service our clients. Our capital
position remains a source of strength, with high quality invested assets,
significant liquidity and a low operating expense ratio. Our diversified global
platform with its broad mix of products, distribution and geography is
resilient.



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The war in the Ukraine is ongoing and an evolving event. Economic and legal
sanctions have been levied against Russia, specific named individuals and
entities connected to the Russian government, as well as businesses located in
the Russian Federation and/or owned by Russian nationals by numerous countries,
including the United States. The significant political and economic uncertainty
surrounding the war and associated sanctions have impacted economic and
investment markets both within Russia and around the world. To the best of our
knowledge at this time, the Company has limited financial exposure related to
the Russian invasion of the Ukraine. However, given the ongoing nature of the
war and the high degree of uncertainty around both exposures and coverage, a
reasonable estimation of potential loss is not credible at this time.



                                       30
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Financial summary.

We monitor and evaluate our overall performance based upon financial results.
The following table displays a summary of the consolidated net income (loss),
ratios and stockholder's equity for the periods indicated:


                                                    Three Months Ended         Percentage
                                                         March 31,             Increase/
(Dollars in millions)                              2022            2021        (Decrease)
Gross written premiums                         $    2,205.0   $      2,133.3         3.4%
Net written premiums                                1,796.2          1,765.3         1.7%

REVENUES:
Premiums earned                                $    1,828.6   $      1,696.9         7.8%
Net investment income                                 156.1            147.7         5.7%
Net gains (losses) on investments                   (226.6)            135.0           NM
Other income (expense)                                (9.4)              4.0           NM
Total revenues                                      1,748.7          1,983.6       -11.8%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses        1,225.7          1,354.1        -9.5%
Commission, brokerage, taxes and fees                 384.6            349.9         9.9%
Other underwriting expenses                           117.8            109.8         7.3%
Corporate expense                                       5.8              4.6        25.9%
Interest, fee and bond issue cost amortization
expense                                                24.1             15.5        55.0%
Total claims and expenses                           1,757.9          1,833.8        -4.1%

INCOME (LOSS) BEFORE TAXES                            (9.2)            149.8      -106.1%
Income tax expense (benefit)                         (10.2)             30.3      -133.7%
NET INCOME (LOSS)                              $        1.1   $        119.4       -99.1%

                                                                                 Point
RATIOS:                                                                          Change
Loss ratio                                            67.0%            79.8%       (12.8)
Commission and brokerage ratio                        21.0%            20.6%          0.4
Other underwriting expense ratio                       6.4%             6.5%        (0.1)
Combined ratio                                        94.5%           106.9%       (12.4)

                                                    At              At         Percentage
                                                March 31,      December 31,    Increase/
(Dollars in millions)                              2022            2021        (Decrease)
Balance sheet data:
Total investments and cash                     $   19,540.5   $   19,718.8          -0.9%
Total assets                                       27,305.5       27,695.0          -1.4%

Provisions for claims and settlement expenses 13,403.6 13,121.2

         2.2%
Total debt                                          3,088.9        3,088.6           0.0%
Total liabilities                                  20,659.5       20,656.9           0.0%
Stockholder's equity                                6,646.0        7,038.0          -5.6%

(Some amounts may not reconcile due to rounding)
(NM, not meaningful)




                                       31
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Revenues.



Premiums. Gross written premiums increased by 3.4% to $2.2 billion for the three
months ended March 31, 2022, compared to $2.1 billion for the three months ended
March 31, 2021, reflecting a $112.1 million, or 15.7%, increase in our Insurance
business and a $40.4 million, or 2.8%, decrease in our reinsurance business. The
rise in insurance premiums was primarily due to increases in specialty casualty
business and other specialty business. The decrease in reinsurance premiums was
mainly due to a decline property pro rata business.



Net written premiums increased by 1.7% to $1.80 billion for the three months
ended March 31, 2022, compared to $1.77 billion for the three months ended March
31, 2021, which is consistent with the change in gross written premiums.
Premiums earned increased by 7.8% to $1.8 billion for the three months ended
March 31, 2022, compared to $1.7 billion for the three months ended March 31,
2021. The change in premiums earned relative to net written premiums is
primarily the result of timing; premiums are earned ratably over the coverage
period whereas written premiums are recorded at the initiation of the coverage
period. Accordingly, the significant increases in gross written premiums from
pro rata business during the latter half of 2021 contributed to the current
quarter percentage increase in net earned premiums.



Other income (expenses). We recorded other expenses of $9.4 million and other
income from $4.0 million for the three months ended March 31, 2022 and 2021,
respectively. The change is mainly the result of foreign currency fluctuations
exchange rate.

Net investment income. See the Consolidated Investment Results section below.

Net earnings (Losses) on investments. Refer to consolidated investment results
Section below.


Claims and Expenses.



Losses Incurred and Loss Settlement Costs. The following table shows our
losses incurred and loss adjustment expenses (“LAE”) for the periods indicated.

                                           Three Months Ended March 31,
                       Current     Ratio %/     Prior     Ratio %/      Total      Ratio %/
(Dollars in millions)   Year      Pt Change     Years    Pt Change    Incurred    Pt Change
2022
Attritional           $ 1,138.5    62.3%       $     -     0.0%       $ 1,138.5    62.3%
Catastrophes               80.5     4.4%           6.7     0.4%            87.2     4.8%
Total                 $ 1,218.9    66.7%       $   6.7     0.4%       $ 1,225.7    67.0%
2021
Attritional           $ 1,078.4    63.6%       $ (1.0)    -0.1%       $ 1,077.4    63.5%
Catastrophes              260.5    15.4%          16.2     1.0%           276.7    16.4%
Total                 $ 1,338.9    79.0%       $  15.2     0.9%       $ 1,354.1    79.8%
Variance 2022/2021
Attritional           $    60.1    (1.3) pts   $   1.0      0.1 pts   $    61.1    (1.2) pts
Catastrophes            (180.0)   (11.0) pts     (9.4)    (0.6) pts     (189.5)   (11.6) pts
Total                 $ (119.9)   (12.3) pts   $ (8.4)    (0.5) pts   $ (128.4)   (12.8) pts




Incurred losses and LAE decreased by 9.5% to $1.2 billion for the three months
ended March 31, 2022 compared to $1.4 billion for the three months ended March
31, 2021, primarily due to a decline of $180.0 million in current year
catastrophe losses, partially offset by an increase of $60.1 million in current
year attritional losses. The increase in current year attritional losses was
mainly due to the impact of the increase in premiums earned. The current year
catastrophe losses of $80.5 million for the three months ended March 31, 2022
related to 2022 Australia floods ($70.5 million) and the 2022 March U.S. storms
($10.0 million). The current year catastrophe

                                       32
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losses of $260.5 million for the three months ended March 31, 2021 relative to
Texas winter storms ($253.0 million) and the 2021 floods in Australia ($7.5
million
).


Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees
increased to $384.6 million for the three months ended March 31, 2022 compared
to $349.9 million for the three months ended March 31, 2021. The increase was
mainly due to the impact of the increase in premiums earned and changes in the
mix of business.



Other Underwriting Expenses. Other underwriting expenses increased to $117.8
million for the three months ended March 31, 2022 compared to $109.8 million for
the three months ended March 31, 2021. The increases were mainly due to the
impact of increase in premiums earned and costs incurred to support the
expansion of the insurance business.



Corporate Expenses. Corporate expenses, which are general operating expenses
that are not allocated to segments, have increased to $5.8 million from $4.6
million for the three months ended March 31, 2022 and 2021, respectively. The
increase was mainly due to higher compensation costs from increased staff count.



Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and
other bond amortization expense was $24.1 million and $15.5 million for the
three months ended March 31, 2022 and 2021, respectively. The variance in
expense was primarily due to the issuance of $1.0 billion of senior notes in
October 2021. Interest expense was also impacted by the movements in the
floating interest rate related to the long term subordinated notes, which is
reset quarterly per the note agreement. The floating rate was 2.89% as of March
31, 2022.



Income Tax Expense (Benefit). We had income tax benefit of $10.2 million and
income tax expense of $30.3 million for the three months ended March 31, 2022
and 2021, respectively. Income tax expense is primarily a function of the
geographic location of the Company's pre-tax income and the statutory tax rates
in those jurisdictions. The effective tax rate ("ETR") is primarily affected by
tax-exempt investment income, foreign tax credits and dividends. Variations in
the ETR generally result from changes in the relative levels of pre-tax income,
including the impact of catastrophe losses, foreign exchange gains (losses) and
net gains (losses) on investments, among jurisdictions with different tax rates.



Net Income (Loss).

Our net income was $1.1 million and $119.4 million, for the three months ended
March 31, 2022 and 2021 respectively. The changes were primarily driven by the
financial component fluctuations explained above.



Reports.

Our combined ratio decreased by 12.4 points to 94.5% for the three months ended
March 31, 2022, compared to 106.9% for the three months ended March 31, 2021.
The loss ratio component decreased 12.8 points for the three months ended March
31, 2022 over the same period last year mainly due to a decline of $180.0
million in current year catastrophe losses. The commission and brokerage ratio
components increased slightly to 21.0% for the three months ended March 31, 2022
compared to 20.6% for the three months ended March 31, 2021 mainly due to
changes in the mix of business. The other underwriting expense ratios decreased
slightly to 6.4% for the three months ended March 31, 2022 compared to 6.5% for
the three months ended March 31, 2021.



Equity.

Stockholder's equity decreased by $392.0 million to $6.6 billion at March 31,
2022 from $7.0 billion at December 31, 2021, principally as a result of $392.0
million of net unrealized depreciation on investments, net of tax and $1.9
million of net foreign currency translation adjustments, partially offset by
$1.1 million of net income and $0.8 million of net benefit plan obligation
adjustments, net of tax. The movement in the unrealized depreciation on
investments was driven by the change in interest rates on the Company's fixed
maturity portfolio.



                                       33
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Consolidated investment results

Net investment income.

Net investment income increased to $156.1 million for the three months ended
March 31, 2022 compared to $147.7 million for the three months ended March 31,
2021. The increase was primarily the result of increases in income from fixed
maturity securities and other alternative investments, partially offset by a
decline in income from limited partnerships. The limited partnership income
primarily reflects increases in their reported net asset values. As such, until
these asset values are monetized and the resultant income is distributed, they
are subject to future increases or decreases in the asset value, and the results
may be volatile.

The following table shows the components of net investment income for the
periods indicated:


                                                    Three Months Ended
                                                        March 31,
(Dollars in millions)                                2022         2021
Fixed maturities                                  $     94.4    $   85.1
Equity securities                                        4.2         2.9
Short-term investments and cash                          0.2         0.1
Other invested assets
Limited partnerships                                    43.5        52.2
Dividends from preferred shares of affiliate             7.8         7.8
Other                                                   11.8         6.0
Gross investment income before adjustments             161.9       154.1
Funds held interest income (expense)                     2.8         3.5
Interest income from Parent                              1.8         1.3
Gross investment income                                166.5       158.9
Investment expenses                                     10.4        11.2
Net investment income                             $    156.1    $  147.7

(Some amounts may not add up due to rounding.)



The following table shows a comparison of various investment yields for the
periods indicated.


                                                           Three Months Ended
                                                               March 31,
                                                          2022            2021

Annualized pre-tax return on average and invested cash
assets

                                                        3.3%          

3.8%

Annualized after-tax yield on average cash and
invested assets                                               2.6%            3.1%




                                       34
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Net earnings (Losses) on investments.

The following table shows the composition of our net gains (losses) on
investments for the periods indicated:

                                                           Three Months Ended March 31,
(Dollars in millions)                                     2022           2021       Variance
Realized gains (losses) from dispositions:
Fixed maturity securities
Gains                                                 $        3.2    $      6.3   $    (3.2)
Losses                                                       (8.2)         (2.4)        (5.8)
Total                                                        (5.1)           3.9        (9.0)
Equity securities, fair value
Gains                                                          3.5          12.3        (8.8)
Losses                                                      (11.8)         (6.1)        (5.7)
Total                                                        (8.3)           6.2       (14.5)
Other invested assets
Gains                                                          4.3           1.4          2.9
Losses                                                       (0.3)         (0.1)        (0.2)
Total                                                          3.9           1.3          2.6
Short Term Investments:
Gains                                                            -             -            -
Losses                                                       (0.1)             -        (0.1)
Total                                                        (0.1)             -        (0.1)
Total net realized gains (losses) from dispositions
Gains                                                         10.9          20.1        (9.1)
Losses                                                      (20.5)         (8.6)       (11.9)
Total                                                        (9.6)          11.5       (21.0)

Allowances for credit losses:                                (1.6)         

(7.1) 5.5

Gains (losses) from fair value adjustments:
Equity securities, fair value                              (130.8)          37.6      (168.4)
Other invested assets, fair value                           (84.6)          93.1      (177.7)
Total                                                      (215.4)         

130.6 (346.0)

Total net gains (losses) on investments               $    (226.6)    $    

135.0 $(361.6)

(Some amounts may not add up due to rounding.)



Net gains (losses) on investments during the three months ended March 31, 2022
primarily relate to net losses from fair value adjustments on equity securities
in the amount of $130.8 million as a result of equity market declines during the
first quarter of 2022 and net losses of $84.6 million from fair value
adjustments on other invested assets.



Segment results.

The Company manages its reinsurance and insurance operations as autonomous units
and key strategic decisions are based on the aggregate operating results and
projections for these segments of business.



The Reinsurance operation writes risks on a worldwide basis in property and
casualty reinsurance and specialty lines of business, on both a treaty and
facultative basis, through reinsurance brokers, as well as directly with ceding
companies. Business is written in the United States as well as through branches
in Canada and Singapore. The Insurance operation writes property and casualty
insurance directly and through brokers, surplus lines brokers and general agents
within the United States.



                                       35
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These segments are managed independently, but conform with corporate guidelines
with respect to pricing, risk management, control of aggregate catastrophe
exposures, capital, investments and support operations. Management generally
monitors and evaluates the financial performance of these operating segments
based upon their underwriting results.



Underwriting results include earned premium less losses and LAE incurred,
commission and brokerage expenses and other underwriting expenses. We measure
our underwriting results using ratios, in particular loss, commission and
brokerage and other underwriting expense ratios, which respectively, divide
incurred losses, commissions and brokerage and other underwriting expenses by
premiums earned.


The Company does not maintain separate balance sheet data for its operations
segments. Accordingly, the Company does not review or assess the financial condition
results of its operating segments based on balance sheet data.


Our loss and LAE reserves are management's best estimate of our ultimate
liability for unpaid claims. We re-evaluate our estimates on an ongoing basis,
including all prior period reserves, taking into consideration all available
information and, in particular, recently reported loss claim experience and
trends related to prior periods. Such re-evaluations are recorded in incurred
losses in the period in which the re-evaluation is made.



The following presents the underwriting results for each of our segments for
the periods indicated:


Reinsurance.

The following table presents the technical results and the ratios for the
Reinsurance segment for the periods indicated.

                                       Three Months Ended March 31,
(Dollars in millions)            2022        2021      Variance    % Change
Gross written premiums         $ 1,379.7   $ 1,420.1   $  (40.4)       -2.8%
Net written premiums             1,185.3     1,208.8      (23.5)       -1.9%

Premiums earned                $ 1,209.3   $ 1,177.2   $    32.1        2.7%
Incurred losses and LAE            820.5       970.3     (149.8)      -15.4%
Commission and brokerage           315.3       290.6        24.8        8.5%
Other underwriting expenses         31.0        36.3       (5.3)      -14.6%
Underwriting gain (loss)       $    42.5   $ (120.0)   $   162.5      135.5%

                                                                   Point Chg
Loss ratio                         67.8%       82.4%                  (14.6)
Commission and brokerage ratio     26.1%       24.7%                     1.4
Other underwriting ratio            2.6%        3.1%                   (0.5)
Combined ratio                     96.5%      110.2%                  (13.7)

(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)




Premiums. Gross written premiums decreased by 2.8% to $1.38 billion for the
three months ended March 31, 2022 from $1.42 billion for the three months ended
March 31, 2021 primarily due to a decline in property pro rata business. Net
written premiums decreased by 1.9% to $1.19 billion for the three months ended
March 31, 2022 compared to $1.21 billion for the three months ended March 31,
2021, which is consistent with the change in gross written premiums. Premiums
earned increased 2.7% to $1.21 billion for the three months ended March 31, 2022
compared to $1.18 billion for the three months ended March 31, 2021. The change
in premiums earned relative to net written premiums is the result of timing;
premiums are earned ratably over the coverage period whereas written premiums
are recorded at the initiation of the coverage period. Accordingly, the
increases in gross written premiums from pro rata business during the latter
half of 2021 contributed to the current quarter percentage increase in net
earned premiums.



                                       36
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Losses incurred and LAE. The following tables show the losses incurred and
LAE for the Reinsurance segment for the periods indicated.

                                           Three Months Ended March 31,
                       Current     Ratio %/     Prior     Ratio %/      Total      Ratio %/
(Dollars in millions)   Year      Pt Change     Years    Pt Change    Incurred    Pt Change
2022
Attritional           $   737.6    61.0%       $   0.4     0.0%       $   738.0    61.0%
Catastrophes               75.5     6.2%           7.0     0.6%            82.5     6.8%
Total segment         $   813.1    67.2%       $   7.4     0.6%       $   820.5    67.8%
2021
Attritional           $   741.8    63.0%       $     -     0.0%       $   741.8    63.0%
Catastrophes              213.0    18.1%          15.5     1.3%           228.5    19.4%
Total segment         $   954.8    81.1%       $  15.5     1.3%       $   970.3    82.4%
Variance 2022/2021
Attritional           $   (4.2)    (2.0) pts   $   0.4        - pts   $   (3.8)    (2.0) pts
Catastrophes            (137.5)   (11.9) pts     (8.5)    (0.7) pts    

(146.0) (12.6) points
Total Segment $(141.7) (13.9) dots $(8.1) (0.7) points $(149.8) (14.6) dots



Incurred losses decreased by 15.4% to $820.5 million for the three months ended
March 31, 2022, compared to $970.3 million for the three months ended March 31,
2021. The decrease was primarily due to a decrease of $137.5 million in current
year catastrophe losses. The current year catastrophe losses of $75.5 million
for the three months ended March 31, 2022 related primarily to 2022 Australia
floods ($70.5 million) and the 2022 March U.S. storms ($5.0 million). The $213.0
million of current year catastrophe losses for the three months ended March 31,
2021 related to Texas winter storms ($205.5 million), and the 2021 Australia
floods ($7.5 million).



Segment Expenses. Commission and brokerage expenses increased to $315.3 million
for the three months ended March 31, 2022 compared to $290.6 million for the
three months ended March 31, 2021. The increase was mainly due to the impact of
the increase in premiums earned and changes in the mix of business.



Segment other underwriting expenses decreased to $31.0 million for the three
months ended March 31, 2022 from $36.3 million for the three months ended March
31, 2021. The decrease was mainly due to was mainly due to lower variable
compensation expenses.



Insurance.

The following table presents the technical results and the ratios for the
Insurance segment for the periods indicated.

                                      Three Months Ended March 31,
(Dollars in millions)           2022      2021      Variance    % Change
Gross written premiums         $ 825.3   $ 713.3   $    112.1       15.7%
Net written premiums             610.9     556.5         54.3        9.8%

Premiums earned                $ 619.3   $ 519.7   $     99.5       19.2%
Incurred losses and LAE          405.2     383.8         21.5        5.6%
Commission and brokerage          69.3      59.3         10.0       16.9%
Other underwriting expenses       86.8      73.5         13.3       18.1%
Underwriting gain (loss)       $  58.0   $   3.2   $     54.8          NM

                                                                Point Chg
Loss ratio                       65.4%     73.8%                    (8.4)
Commission and brokerage ratio   11.2%     11.4%                    (0.2)
Other underwriting ratio         14.0%     14.1%                    (0.1)
Combined ratio                   90.6%     99.4%                    (8.8)

(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)




                                       37
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Premiums. Gross written premiums increased by 15.7% to $825.3 million for the
three months ended March 31, 2022 compared to $713.3 million for the three
months ended March 31, 2021. The rise in gross written premiums was primarily
due to increases in specialty casualty business and other specialty business.
Net written premiums increased by 9.8% to $610.9 million for the three months
ended March 31, 2022 compared to $556.5 million for the three months ended March
31, 2021. The difference between the change in net earned premiums compared to
the change in gross written premiums is due to varying utilization of
reinsurance. Premiums earned increased 19.2% to $619.3 million for the three
months ended March 31, 2022 compared to $519.7 million for the three months
ended March 31, 2021. The change in premiums earned is the result of timing;
premiums are earned ratably over the coverage period whereas written premiums
are recorded at the initiation of the coverage period. Accordingly, the
significant increases in gross written premiums during the latter half of 2021
contributed to the current quarter percentage increase in net earned premiums.



Losses incurred and LAE. The following tables show the losses incurred and
LAE for the Insurance segment for the periods indicated.

                                          Three Months Ended March 31,
                      Current     Ratio %/     Prior     Ratio %/      Total      Ratio %/
(Dollars in millions)   Year     Pt Change     Years    Pt Change    Incurred    Pt Change
2022
Attritional           $  400.9    64.7%       $ (0.4)    -0.1%       $   400.5    64.7%
Catastrophes               5.0     0.8%         (0.3)     0.0%             4.7     0.8%
Total segment         $  405.9    65.5%       $ (0.7)    -0.1%       $   405.2    65.4%
2021
Attritional           $  336.6    64.8%       $ (1.0)    -0.2%       $   335.6    64.6%
Catastrophes              47.5     9.1%           0.7     0.1%            48.2     9.3%
Total segment         $  384.1    73.9%       $ (0.3)    -0.1%       $   383.8    73.8%
Variance 2022/2021
Attritional           $   64.3    (0.1) pts   $   0.6      0.1 pts   $    64.9      0.1 pts
Catastrophes            (42.5)    (8.3) pts     (0.9)    (0.1) pts      (43.4)    (8.5) pts
Total segment         $   21.8    (8.4) pts   $ (0.3)        - pts   $    21.5    (8.4) pts




Incurred losses and LAE increased by 5.6% to $405.2 million for the three months
ended March 31, 2022 compared to $383.8 million for the three months ended March
31, 2021, mainly due to an increase of $64.3 million in current year attritional
losses which is primarily related to the impact of the increase in premiums
earned, partially offset by a decrease of $42.5 million in current year
catastrophe losses. The $5.0 million of current year catastrophe losses for the
three months ended March 31, 2022, related to the 2022 March U.S. storms. The
$47.5 million of current year catastrophe losses for the three months ended
March 31, 2021, related to Texas winter storms.



Segment Expenses. Commission and brokerage increased to $69.3 million for the
three months ended March 31, 2022 compared to $59.3 million for the three months
ended March 31, 2021. The increase was mainly due to the impact of the increase
in premiums earned.



Segment other underwriting expenses increased to $86.8 million for the three
months ended March 31, 2022 compared to $73.5 million for the three months ended
March 31, 2021. The increase was mainly due to the impact of the increase in
premiums earned and increased expenses related to the continued build out of the
insurance business.


Market-sensitive instruments.

The SEC's Financial Reporting Release #48 requires registrants to clarify and
expand upon the existing financial statement disclosure requirements for
derivative financial instruments, derivative commodity instruments and other
financial instruments (collectively, "market sensitive instruments"). We do not
generally enter into market sensitive instruments for trading purposes.

                                       38
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Our current investment strategy seeks to maximize after-tax income through a
high quality, diversified, taxable and tax-preferenced fixed maturity portfolio,
while maintaining an adequate level of liquidity. Our mix of taxable and
tax-preferenced investments is adjusted periodically, consistent with our
current and projected operating results, market conditions and our tax position.
The fixed maturity securities in the investment portfolio are comprised of
non-trading available for sale securities. Additionally, we have invested in
equity securities.



The overall investment strategy considers the scope of present and anticipated
Company operations. In particular, estimates of the financial impact resulting
from non-investment asset and liability transactions, together with our capital
structure and other factors, are used to develop a net liability analysis. This
analysis includes estimated payout characteristics for which our investments
provide liquidity. This analysis is considered in the development of specific
investment strategies for asset allocation, duration and credit quality. The
change in overall market sensitive risk exposure principally reflects the asset
changes that took place during the period.



Interest Rate Risk. Our $19.5 billion investment portfolio, at March 31, 2022,
is principally comprised of fixed maturity securities, which are generally
subject to interest rate risk and some foreign currency exchange rate risk, and
some equity securities, which are subject to price fluctuations and some foreign
exchange rate risk. The overall economic impact of the foreign exchange risks on
the investment portfolio is partially mitigated by changes in the dollar value
of foreign currency denominated liabilities and their associated income
statement impact.



Interest rate risk is the potential change in value of the fixed maturity
securities portfolio, including short-term investments, from a change in market
interest rates. In a declining interest rate environment, it includes prepayment
risk on the $1.7 billion of mortgage-backed securities in the $12.8 billion
fixed maturity portfolio. Prepayment risk results from potential accelerated
principal payments that shorten the average life and thus the expected yield of
the security.



The table below displays the potential impact of market value fluctuations and
after-tax unrealized appreciation on our fixed maturity portfolio (including
$573.5 million of short-term investments) for the period indicated based on
upward and downward parallel and immediate 100 and 200 basis point shifts in
interest rates. For legal entities with a U.S. dollar functional currency, this
modeling was performed on each security individually. To generate appropriate
price estimate on mortgage-backed securities, changes in prepayment expectations
under different interest rate environments were taken into account. For legal
entities with non-U.S. dollar functional currency, the effective duration of the
involved portfolio of securities was used as a proxy for the market value change
under the various interest rate change scenarios.


                                               Impact of Interest Rate Shift in Basis Points
                                                             At March 31, 2022
(Dollars in millions)                     -200         -100          -           100          200
Total Market/Fair Value                $ 14,125.2   $ 13,755.2   $ 13,385.1   $ 13,015.1   $ 12,645.1
Market/Fair Value Change from Base (%)       5.5%         2.8%         0.0%        -2.8%        -5.5%
Change in Unrealized Appreciation
After-tax from Base ($)                $    584.6   $    292.3   $        -   $  (292.3)   $  (584.6)




We had $13.4 billion and $13.1 billion of gross reserves for losses and LAE as
of March 31, 2022 and December 31, 2021, respectively. These amounts are
recorded at their nominal value, as opposed to present value, which would
reflect a discount adjustment to reflect the time value of money. Since losses
are paid out over a period of time, the present value of the reserves is less
than the nominal value. As interest rates rise, the present value of the
reserves decreases and, conversely, as interest rates decline, the present value
increases. These movements are the opposite of the interest rate impacts on the
fair value of investments. While the difference between present value and
nominal value is not reflected in our financial statements, our financial
results will include investment income over time from the investment portfolio
until the claims are paid. Our loss and loss reserve obligations have an
expected duration that is reasonably consistent with our fixed income portfolio.

                                       39
--------------------------------------------------------------------------------




Equity Risk. Equity risk is the potential change in fair and/or market value of
the common stock, preferred stock and mutual fund portfolios arising from
changing prices. Our equity investments consist of a diversified portfolio of
individual securities. The primary objective of the equity portfolio is to
obtain greater total return relative to our core bonds over time through market
appreciation and income.





The table below displays the impact on fair/market value and after-tax change in
fair/market value of a 10% and 20% change in equity prices up and down for the
periods indicated.


                                                Impact of Percentage Change

in fair values/market values

                                                                    At March 31, 2022
(Dollars in millions)                         -20%            -10%             0%            10%         20%

Fair/market value of equity portfolio $1,385.4 $1,558.6 $

    1,731.8    $ 1,905.0   $ 2,078.1
After-tax Change in Fair/Market Value          (273.6)         (136.8)               -        136.8       273.6




Foreign Currency Risk. Foreign currency risk is the potential change in value,
income and cash flow arising from adverse changes in foreign currency exchange
rates. Each of our non-U.S. ("foreign") operations maintains capital in the
currency of the country of its geographic location consistent with local
regulatory guidelines. Each foreign operation may conduct business in its local
currency, as well as the currency of other countries in which it operates. The
primary foreign currency exposures for these foreign operations are the
Singapore and Canadian Dollars. We mitigate foreign exchange exposure by
generally matching the currency and duration of our assets to our corresponding
operating liabilities. In accordance with FASB guidance, the impact on the
market value of available for sale fixed maturities due to changes in foreign
currency exchange rates, in relation to functional currency, is reflected as
part of other comprehensive income. Conversely, the impact of changes in foreign
currency exchange rates, in relation to functional currency, on other assets and
liabilities is reflected through net income as a component of other income
(expense). In addition, we translate the assets, liabilities and income of
non-U.S. dollar functional currency legal entities to the U.S. dollar. This
translation amount is reported as a component of other comprehensive income.



SAFE HARBOR DISCLOSURE

This report contains forward-looking statements within the meaning of the U.S.
federal securities laws. We intend these forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements in the
federal securities laws. In some cases, these statements can be identified by
the use of forward-looking words such as "may", "will", "should", "could",
"anticipate", "estimate", "expect", "plan", "believe", "predict", "potential"
and "intend". Forward-looking statements contained in this report include
information regarding our reserves for losses and LAE, the CARES Act, the impact
of the TCJA, the adequacy of our provision for uncollectible balances, estimates
of our catastrophe exposure, the effects of catastrophic and pandemic events on
our financial statements and the ability of our subsidiaries to pay dividends.
Forward-looking statements only reflect our expectations and are not guarantees
of performance. These statements involve risks, uncertainties and assumptions.
Actual events or results may differ materially from our expectations. Important
factors that could cause our actual events or results to be materially different
from our expectations include those discussed under the caption ITEM 1A, "Risk
Factors" in the Company's most recent 10-K filing. We undertake no obligation to
update or revise publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.

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