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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.
Everest delivered an outstanding second quarter with strong growth and excellent underwriting and investment performance.
We set multiple records for our company on both the top and bottom lines.
These results serve as the foundation for our exceptional net income result of over $1 billion through the first half of 2021, and another important step to achieving our three-year strategic plan objectives and the delivery of superior results to our shareholders.
Everest achieved an annualized total shareholder return of 22.5% through the first half of 2021, while exceeding our three-year strategic planned target of 13%.
We capitalized on market opportunities to expand our franchises in both reinsurance and insurance, driven by relentless execution and the strength of our value proposition to our clients and brokers.
Disciplined underwriting drove strong profitability in both reinsurance and insurance, and our investment return was a quarterly record for the company.
The standout performance this quarter demonstrate the progress we have made in executing our strategy and the quality of Everest's diversified earnings.
As I discussed at our Investor Day in June, our strategy has three building blocks.
First is building our underwriting franchises.
We are growing our specialty P&C insurance platform while expanding its margins.
We are solidifying our leadership position in global P&C reinsurance, while we are growing and diversifying this business.
Our investment portfolio is a core tool to generate solid returns, and we're optimizing the portfolio while sharpening our strategy.
Second, we continuously pursue operational excellence.
This starts with underwriting discipline, supported by a system of management oversight and checks and balances.
Beyond underwriting, we are transforming the operating model of the company to achieve greater scalability over time.
We are also optimizing capital within our underwriting and investment portfolios.
Capital is valued and respected.
We are using the most efficient sources of underwriting capital from the capital markets, including ILS investors.
In our industry, those who execute best, win.
We're leveraging our flat, agile organization to deliver best-in-class service and risk solutions to our brokers and customers.
They routinely site our responsiveness and capabilities as a key reason why they choose to do more business with Everest.
Finally, ESG principles are core to Everest.
This includes focusing on the culture our company.
Culture is one of our key differentiators, and it is one of the reasons we can attract and keep top talent.
Our culture fuels our success by helping our team be the best it can possibly be.
We're investing in the talent of the organization as well as the diversity of our team.
At Everest, we have three drivers of earnings.
The first driver is about building a high-quality specialty commercial P&C insurer, the underwriting excellence and a compelling value proposition.
We are embedding data and analytics across the organization, enabling more effective pricing and decision-making.
This means we make better underwriting decisions at improved loss ratios.
We are improving our claims outcomes while delivering excellent service to our clients, and we're focusing our distribution efforts to be more sales and results oriented.
Our second driver of earnings is Everest leading global P&C reinsurance platform.
We enjoy the leading market position of a fully scaled platform, and we are focused on continuing to grow and optimize our reinsurance business.
We're executing an underwriting transformation by improving operational oversight, governance and controls.
Our reinsurance division is entrepreneurial and nimble.
We will maintain it within a framework of pricing, reserving and process discipline.
We're further diversifying into higher-margin opportunities.
And finally, we're expanding our risk financing by further partnering with capital markets and ILS investors.
The third core driver of earnings is the investment portfolio.
We have a high-quality portfolio, and we're focused on the efficient use of capital.
The successful execution of our strategies in all three drivers of earnings is clearly evident in our results.
I will now discuss our group reinsurance and insurance first quarter 2021 results.
Starting with the group results.
We grew gross written premiums by 35% and net written premiums by 39%.
Our growth was broad and diversified, stemming from: one, increased exposures and new business opportunities as the U.S. economy recovers; two, continued double-digit rate increases; three, expanded shares on attractive renewals; and four, strong renewal retention.
The combined ratio was 89.3%, an 8-point improvement year-over-year.
The attritional combined ratio was 87.6%, almost a four point better than prior year, with both segments expanding margins.
We generated $274 million in underwriting profit compared to $51 million in the second quarter last year.
Underwriting profitability remains at the core of everything we do.
Net investment income was simply outstanding at $407 million, compared to $38 million in the prior year second quarter.
These strong operating results led to a net income for the quarter of $680 million, resulting in an annualized return on equity of over 28%.
Gross written premiums in reinsurance were up 40% over the second quarter of 2020.
We are pleased with the ongoing execution of our 2021 plan.
This growth was broad-based in the areas we discussed during Investor Day as attractive.
We achieved this growth while also coming off or reducing shares on less attractive business.
We drove continued targeted growth in property cap, which we achieved while lowering our PMLs in peak zones, thus reducing expected volatility and improving risk-adjusted economics.
Much of our growth came from our core trading partners that are looking to grow with Everest because of our strong ratings and balance sheet, significant capacity and the ability to ride across all lines.
The attritional combined ratio, ex COVID-19 pandemic impact was 86.1% for the quarter, a 60 basis point improvement year-over-year, resulting from our continued focus on loss and expense management.
We see risk-adjusted returns expanding in almost all treaties and classes of business globally.
We're also benefiting from investments in data and analytics.
As you can see in our results, our focused actions improved the quality and profitability of the book.
We are writing a more balanced portfolio with improved economics at an appropriate level of risk.
We have achieved improved portfolio economics across all of our 2021 property renewal dates.
We improved in every dimension.
We increased top line, increased margin and achieved higher ROEs.
In casualty and professional lines, primary rate increases continued to outpace expected loss trends.
Jim Williamson is available to provide additional details during the Q&A.
Our insurance division continued its strong performance with excellent growth in underwriting results.
We continue to expand margins as we execute our strategy.
We wrote over $1 billion in gross written premiums for the first time in a quarter.
This represents 25% growth year-over-year or 30% growth, excluding workers' compensation.
This growth is driven by disciplined cycle management, new business opportunities, continued double-digit rate increases and strong renewal retention on existing business.
We're also starting to see a steady improvement in overall economic activity.
The growth was well diversified in target classes of business, where market conditions are prime for profitable growth, including specialty casualty, professional liability, property, transactional liability and trade credit and political risk.
We are pleased with this diversification as it is a core tenet of our strategy.
We also delivered strong underwriting results with a 93.5% combined ratio, a 10-point improvement over the same period last year, which was impacted by COVID.
The underlying performance was also excellent with a 92.1% attritional combined ratio, a 1.6% improvement over last year and almost four points better than the second quarter of 2019.
Renewal rate increases continued to exceed our expectations for loss trend, up 14% in the quarter, excluding workers' compensation, and up 11%, including workers' compensation.
Rate increases were led by excess casualty, up 22%; property, up 16%; financial lines, up 14% and general liability, up 9%.
We are building a diversified portfolio, steering our mix toward product lines with better rate adequacy and higher long-term margins.
We also continued to manage average limits deployed to mitigate volatility.
We are pleased with the progress we have made.
And this strategic direction and granular portfolio management should continue to possibly impact our results going forward.
We continue to thoughtfully manage the workers' compensation line, which now represents 10% of our second quarter premiums, down from 14% year-over-year.
While this line remains profitable, we have pared back monoline guaranteed cost writings and shifted to more loss sensitive loss ratable business, where we share more risk with our customers with more focus on risk mitigation.
Workers' compensation is an area of expertise at Everest, and we're monitoring market conditions closely for potential opportunities, but these efforts illustrate our disciplined cycle management.
Lastly, our strong position in both the E&S and retail channels continues to give us access to a wide set of opportunities.
Mike Karmilowicz is available to provide additional details during the Q&A.
In summary, Everest had an outstanding second quarter with strong growth and exceptional underwriting and investment performance.
We have vibrant and well-diversified reinsurance and insurance businesses with experienced leadership and underwriting teams providing industry-leading solutions to our customers.
We have significant momentum as we continue to execute our strategic plan.
The company has excellent financial strength, top talent and a prudent capital management philosophy.
We are focused on sustained profitable growth, a more diversified, targeted and deliberate mix of business and superior risk-adjusted returns.
We believe the relentless and disciplined execution of our strategy will result in maximizing shareholder returns.
I am confident in Everest's future and our ability to deliver on our commitments to customers and shareholders.
Everest reported excellent results for the second quarter of 2021, with robust premium growth, excellent underwriting results and truly outstanding investment returns.
I'll provide more detail on these points over the next few minutes.
For the second quarter of 2021, Everest reported gross written premium of $3.2 billion, representing 35% growth over the same quarter a year ago.
By segment, reinsurance grew 40% to $2.1 billion and insurance reported its first-ever $1 billion top line quarter, representing 25% growth year-over-year.
Turning to net income.
For the second quarter, Everest reported net income of $680 million, resulting in an annualized return on equity of 28%.
We also reported net operating income of $587 million, equal to operating earnings of $14.63 per share and an annualized operating return on equity of 24.5%.
All three of our earnings engines provided meaningful contributions with significant underwriting income from both our reinsurance and insurance franchises, capped off by net investment income of $407 million, a record quarterly net investment income result.
The underwriting income during the quarter of $274 million reflects Everest's disciplined execution of our strategy to grow and expand margins.
The combined ratio was 89.3% for the quarter, compared to 97.5% last year.
Catastrophe losses during the quarter of $45 million are pre-tax and net of reinsurance and reinstatement premiums, with $35 million in the reinsurance segment and $10 million in the insurance segment, representing additional IBNR provisions for Winter Storm Uri.
Reinsurance segment cat loss includes a provision for minor events and preliminary IBNR for the European convective storms of late June.
Finally, I note we have not added to our COVID-19 incurred loss provision, which remains at $511 million, with the vast majority remaining as IBNR.
Second quarter results continue to reflect the impact of our underwriting and portfolio management initiatives.
Our underlying attritional profitability remained strong during the second quarter.
Excluding the catastrophe losses, reinstatement premiums, prior year development and COVID-19 pandemic impact, the attritional loss ratio for the group was 60.3% in the second quarter of 2021, compared to 60% in the second quarter of 2020.
The year-to-date attritional loss ratio for the group was 60.5% compared with 60.7% a year ago.
The attritional combined ratio for the group was 87.6% for the second quarter compared to 88.5% for the second quarter of 2020, representing a 0.9 point improvement.
Year-to-date, attritional combined ratio for the group was 87.4% compared with 89.1% a year ago, representing a 1.7 point improvement.
For insurance, the attritional loss ratio improved to 64.2% in the second quarter of 2021 compared with 65.1% year-over-year.
The attritional combined ratio for insurance improved to 92.1% as compared to 93.7% over the same period of time.
Our U.S. insurance business, which makes up the majority of our insurance business overall continues to run very well with an attritional combined ratio in the high 80s.
For reinsurance, the second quarter 2021 attritional loss ratio was 59.1% compared with 58.2% a year ago.
The increase was due to a mix of business shift and more prudent initial loss picks.
The attritional combined ratio was 86.1% for the second quarter, down from 86.7% for the second quarter of 2020.
The group commission ratio of 21.8% for the second quarter of 2021 was down 100 basis points from 22.8% reported in Q2 2020, largely due to changes in the composition of our business mix.
The expense ratio remained low at 5.5% for the quarter as compared with 5.8% reported a year ago, and the expense ratio continues to benefit with our continued focus on expense management and the increased scale and efficiency of our operating model.
For the second quarter, investment income had an exceptional result of $407 million as compared to $38 million for Q2 2020.
Alternative investments accounted for $266 million of income during the second quarter, largely due to increases in the reported net asset values of our diversified limited partnership investments.
And as a reminder, we report our LP income one quarter in arrears.
And in 2020, the market and the world were starting to experience the impact of COVID-19, while so far, in 2021, results continue to benefit from economic and financial markets recovery.
Invested assets at the end of the second quarter totaled $27.1 billion compared to $21.6 billion at the end of Q2 2020 and $25.5 billion at year-end 2020.
Approximately 80% of our invested assets are comprised of a well-diversified high credit quality bond portfolio with a duration of 3.6 years.
The remaining investments are allocated to equities and other investment assets, which include private equity investments, cash and short-term investments.
Our effective tax rate on operating income for the second quarter of 2021 was 9.3% and 10.6% on net income.
This was a favorable variance versus our estimated tax rate of approximately 11% based on the geographic distribution of income.
For the first six months of 2021, Everest generated a record $1.6 billion of operating cash flow, compared to $1.1 billion for the first half of 2020, reflecting the strength of our premium growth year-over-year.
Our balance sheet remains very strong with a capital structure that allows for the efficient deployment of capital and ample capacity to continue to execute on market opportunities.
Shareholders' equity was $10.4 billion at the end of the second quarter 2021, compared with $9.7 billion at year-end 2020.
We repurchased $16.8 million of shares in the quarter.
Our debt leverage ratio is 13.3% or approximately 15.5% inclusive of our $310 million short-term loans from the Federal Home Loan Bank.
Book value per share was $260.32 at the end of the second quarter compared with $241.57 at the end of Q1 2021, reflecting dividend adjusted growth of 8.4%.
And I'll close with one final number.
The total shareholder return or TSR target that we detailed in our Investor Day a few weeks ago, recall that TSR is defined as the annual growth in book value per share, excluding unrealized gains and losses on fixed maturity investments plus dividends per share.
And for the year-to-date, the TSR number is 22.5% annualized.

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q2 operating earnings per share $14.63.
qtrly gross written premium growth of 35% and net written premium growth of 39%.

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