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Text: 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.
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.
2020 had its share of global challenges, that COVID-19 leads any discussion of the year.
The pandemic affected all our communities, our way of life, and resulted in an unimaginable death toll.
It affected all aspects of the world economies, including the insurance and reinsurance industry.
Despite unprecedented challenges and through the resilience and dedication of our team, Everest delivered solid 2020 results with excellent growth and improved underlying profitability.
Key steps we took last year include adding to our deep and talented management team, strengthening our balance sheet, enhancing our enterprise risk management and operational discipline, and further diversifying our business.
Most importantly, we have been a valued partner to our distributors and customers during a very perilous time.
With a strong foundation in place, we remain confident in continued operational and financial success across our business.
We are bullish about 2021.
We will continue to profitably grow the insurance segment, while continuing to grow and strengthen our position as a global and leading P&C reinsurer.
As we think about our positioning in the market, among our clients, partners and investors, we are guided by the following principles, by whichever's will seize opportunities and increase the value of our company.
First, we will deliver superior growth in book value per share over the cycle.
Second, we are an underwriting company.
One of our core competencies is the identification, underwriting, pricing and management of risk.
The ratification by line of business and geography is critical.
We have clearly defined and quantified risk appetites and we maintain strong enterprise risk management and performance monitoring.
Third, investment returns are a critical value driver and investment management is also a core competency.
We are further optimizing our invested assets via portfolio management strategy that is complementary to underwriting risk.
With a sizable invested asset base and significant cash flow, we seek to add value and diversify the sources of income to the company.
Fourth, we manage our capital to fuel long-term profitable growth, while continuing to expand our third-party capital capabilities.
And fifth, we will maintain our industry-leading financial strength.
We complement our core strengths with a low cost expense base in a flat entrepreneurial and responsive organization.
Our diversified reinsurance and insurance franchise, financial strength, deep distribution relationships, and leading customer solutions enable our continued performance in today's market.
We have robust momentum coming into 2021, and we are well positioned to continue diversifying our business for sustained profitable growth.
I will now discuss our group reinsurance and insurance results starting with the fourth quarter followed by our full-year 2020, and how these results position us well for 2021.
Starting with group results.
In the fourth quarter, we grew gross written premiums by 13% and net written premiums by 16%, with strong growth across both segments.
Our growth stems from a combination of new business opportunities, improved terms and conditions and rate levels, expanded shares on attractive renewals, and high retention rates on our existing book.
Our underlying combined ratio was 86.3%, a 4 point improvement over the fourth quarter of 2019, with both segments showing significant improvement in loss and expense ratios.
Net investment income was very strong at $222 million compared to $146 million in the prior-year quarter.
For 2020, Everest grew gross written premiums of 15% and net written premiums 17% year-over-year.
We delivered $514 million in net income and $300 million in operating income despite the COVID-19 loss provision, the prior year reserve strengthening, and an active Cat year.
Our dividend adjusted book value per share grew over 11%.
We are focused on delivering superior growth in book value per share over the market cycle.
The underlying combined ratio improved almost a point to 87.5% year-over-year, with our insurance segment improving 2.3 points to 94.2%.
Net investment income was in line with prior year despite the market volatility.
These results demonstrate the earnings power of Everest and our ability to thrive in any market.
We continue to diligently manage our portfolios to improve returns with a broad array of underwriting actions, including managing attachment points, limits, terms and conditions, targeted non-renewals, and many other actions.
This is the hard work of building and sustaining a profitable book.
Underwriting profitability remains at the core of everything that we do As previously announced, in the fourth quarter, we strengthened prior accident year reserves in our Reinsurance segment by $400 million.
The reserve strengthening does not change our view of current accident year loss picks, as we had already selected more conservative loss picks in response to general loss trends.
We are confident in the prior year reserving actions we took in the quarter and the quality of the in-force portfolio.
These decisive actions will serve us well.
In the fourth quarter, we also added $76 million primarily for third-party lines to our COVID-19 loss provision.
Despite a high frequency of storms in the fourth quarter, our manageable catastrophe losses of $70 million resulted from disciplined underwriting and the purposeful reduction of volatility over the last two years in our reinsurance portfolio.
For our Reinsurance Division, the fourth quarter continued our strong growth.
Gross written premiums grew 12% in the quarter and 15% in 2020.
The attritional combined ratio ex-COVID was 83.9%, an improvement from 87.4% in the prior fourth quarter.
January 1 is our largest renewal date, and this one was one of the strongest in many years.
The rate environment improved across most territories and lines of business, with loss impacted business seeing material increases.
Capacity is abundant, but reinsurers remain disciplined on pricing in terms and conditions.
There is a flight to quality, where Everest's strong balance sheet and highly rated financial strength set us apart.
Customer and broker demand for Everest capacity is strong, as highlighted by our increased shares and preferential signings on treaties, counterparties actively want to do more business with Everest.
Our responsiveness, ability to deploy significant capital and reputation as problem solvers in the market were critical to a successful renewal season.
We saw outstanding results in Latin America, in the U.S. and Canada, as well as meaningful growth in Continental Europe.
We had notable wins on large deals and increased our share with core customers and in territories and classes we found the most attractive, including facultative business.
We continue to expand and diversify the portfolio as we execute to achieve a stronger, more diversified and more profitable book.
Specific to our January 1 property book, total limit outstanding increased with an increase in rate online and significant improvements in the combined ratio, ROE,risk adjusted return and increased dollars of expected margin.
We have a stronger and more profitable portfolio.
John Doucette is available to provide additional details during the Q&A.
Our insurance division continued its solid execution as evidenced by our results in both the fourth quarter and the full-year of 2020.
Gross written premiums grew 15% or 18%, excluding terminated programs, with gross written premium of $872 million in the quarter and over $3.2 billion for 2020.
Both fourth quarter and full-year 2020 revenues are milestones for the Insurance Division.
Everest Insurance delivered an improved attritional combined ratio of 93.8% for the fourth quarter, a 4.3 point improvement over the fourth quarter of 2019 and 94.2% for the full year 2020, a 2.3 point improvement over 2019.
These results were driven by portfolio and expense management and are consistent with expanding insurance margin.
We achieved record renewal rate increases of 21% in the fourth quarter, excluding workers' compensation, and up 14% including workers' compensation, where we are seeing rates flatten.
Rate is outpacing our expected loss trend and renewal retention across the entire portfolio was strong.
The rate we achieved is a function of market conditions and disciplined, proactive underwriting actions across our businesses.
After years of soft pricing and rising loss costs, pricing adjustments are necessary, and we expect they will continue throughout 2021.
Consistent with prior quarters, these increases are led by property, up 21%; excess casualty, up 50%; D&O, up 35%; and commercial auto, up 17%.
We are also seeing widespread increases in other lines of business, which had been slower to turn, most notably, general liability, now up 9%.
We are managing the insurance portfolio to build a diversified business and see our mixed or product lines that are in higher long-term margins.
Our position in both the E&S and retail channels give us access to a wide set of opportunities.
Mike Karmilowicz is available to provide additional details during the Q&A.
We have a vibrant and well diversified reinsurance and insurance business, with experienced teams providing industry-leading solutions to our customers.
Building on the achievements of 2020, we will continue diversifying our business for profitable growth and sustained momentum throughout 2021.
The company is on solid ground, with excellent financial strength ratings, top talent, and a prudent capital management philosophy.
We are focused on sustained profitable growth, a more diversified mix of business and superior risk-adjusted returns.
The relentless execution of our strategies result in maximizing shareholder returns.
I am confident in Everest's future and on our ability to deliver the commitments to our customers, shareholders and the marketplace.
2020 showed us all just how resilient we truly are now.
As Juan discussed, in our pre-release outlined, Everest had strong underlying results for the quarter and the year with positive net income in Q4, improving underlying margin, continued growth and an excellent capital position.
I'll touch on these over the next few minutes.
The positive quarterly net income result was achieved despite a prior year reserve strengthening charge of $400 million, a COVID provision of $76 million, and catastrophe losses of $70 million.
This clearly demonstrates the diversification and earnings power of Everest.
Everest reported net income of $64 million for the quarter and $514 million for the year, resulting in a return on equity of 5.8% for 2020.
We had a $44 million operating loss for Q4, given the charges, and generated an operating income of $300 million for the year.
Our net income in the quarter reflect strong investment income performance and improved attritional loss and combined ratios, offset by Cat, COVID and reserve charges, the catastrophe losses of $70 million are pre-tax and net of reinsurance, with $60 million from reinsurance and $10 million from insurance, driven by hurricane Delta, Zeta, and the Australian Queensland hailstorm.
The estimate implied market share of industry losses, is just over 60 basis points for Everest.
This is an excellent result, reflecting the underwriting and risk management initiatives of the past two years.
There was also no development from prior Cats in the Q4 charge.
Year-to-date, the results include catastrophe losses of $425 million compared to $576 million during 2019.
All amounts are pre-tax and net of reinstatement premiums.
In the fourth quarter, we added $76 million to our COVID loss provision, reflecting the ongoing nature of this event and our consistent reserving philosophy.
This additional provision is predominantly IBNR for third-party lines.
This amount includes $56 million in the Reinsurance segment and $20 million in the insurance segment, and is in addition to the $435 million of pandemic losses estimated in the first nine months of 2020.
Our fourth quarter estimates were not impacted by the recent UK Supreme Court ruling, as we had taken a prudent approach to loss assessment, leading up to that ruling.
For the full year 2020, the total pandemic loss provision is $511 million, of which more than 80% is classified as IBNR.
Everest had an underwriting loss in Q4 of $219 million due to the prior year reserve adjustment charge as compared to an underwriting loss of $29 million for Q4 2019.
As Juan mentioned, we booked $400 million prior year reserve strengthening in the fourth quarter exclusively for the Reinsurance Division, primarily within long tail casualty segments, such as GL, auto liability, and professional lines for accident years 2015 through 2018.
The reserve charge also includes actions on non-Cat property lines primarily for the 2017 through 2019 accident years, and driven by a few large losses to aggregate programs.
Our reserve studies indicate that the Insurance Division overall has strong an adequate reserve levels.
At a granular level, we address some redundancies and deficiencies with no overall financial impact.
The lines we strengthened included professional liability in the 2015 through 2018 accident years.
This was offset by releases and other lines.
Turning to Everest's market position and growth on a year-to-date basis, gross written premium was $10.
5 billion, up $1.3 billion or 15% compared to 2019.
This reflects strong and diversified growth in both segments with reinsurance up 15% and insurance up 15% compared to 2019.
Our underlying attritional loss and combined ratios are strong and improving, excluding the catastrophe losses and impact from the COVID-19 pandemic, the attritional combined ratio was 87.5% for 2020 compared to 88.4% for 2019.
Excluding the pandemic loss estimate, the group attritional loss ratio for 2020 was 60.1%, down from 60.2% for 2019, with insurance improving from 66% the 64.8%.
For reinsurance, the 2020 attritional combined ratio, excluding the pandemic loss estimate and prior year reserve charge was 85.2%, down from 85.5% in 2019.
For insurance, the 2020 attritional combined ratio, excluding the pandemic loss estimate was 94.2% compared to 96.5% in 2019.
Our U.S. franchise, which makes up the majority of our insurance business continues to run at an attritional combined ratio in the low '90s, excluding the pandemic loss estimate.
The group commission ratio of 21.6% year-to-date was down from 23% in 2019, largely due to business mix, a one-time significant contingent commission in the Reinsurance segment during 2019, and higher ceding commission in the Insurance segment.
The group expense ratio remains low at 5.8% for 2020 versus 6% for 2019, as we benefited from premium growth and continued focus on expense management.
Q4 investment income had a strong performance of $222 million compared to $146 million for Q4 2019.
For the full year, pre-tax investment income was $642 million versus $647 million for 2019.
The fixed income portfolio generated $542 million of investment income year-to-date compared to $520 million for the same period last year.
Limited partnerships recorded $91 million of income quarter-to-date, largely due to fair market value adjustments.
The limited partnership result was due to the continued improvement of the economy and financial markets.
As a reminder, we report our limited partnership income one quarter in arrears.
Invested assets grew 23% to $25.4 billion versus $20.7 billion last year end.
This strong invested asset growth was due to $2.9 billion of operating cash flow and the proceeds of our debt issue.
The pre-tax yield to maturity on the investment portfolio was just under 3%, down from 3.4% one year ago.
Approximately 80% of our invested assets are comprised of a well diversified, high credit quality bond portfolio with duration of 3.6 years.
The remaining portfolio is allocated to equities and other invested assets, which are largely private equity investments, with the residual amount in short-term investments and cash.
Our effective tax rate on operating income for 2020 was 7.7% and 12.1% on net income.
For 2021, we expect our tax rate to be approximately 12%, which reflects an annual Cat load of about 6 points of loss ratio.
Everest generated record operating cash flows of $2.9 billion compared to $1.9 billion in 2019, reflecting the strength of our growing premiums in 2020 year-over-year and a more modest level of claims paid.
Everest enjoys very strong financial strength with ample capacity to execute on market opportunities.
Shareholders' equity was $9.7 billion at year-end 2020, up from $9.1 billion at year-end 2019.
Net book value per share stood at $243.25, up 11% versus year-end 2019, adjusted for dividends.
Everest's strong balance sheet was further strengthened by the 30-year $1 billion senior notes offering completed in early October 2020.
This is long-term capital for Everest and enhances the efficiency of our capital structure, with our debt leverage now standing at 16.4%.

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q4 net profit 64 million usd.
qtrly gross written premium growth of 13%.

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