Everest argues 2016-19 casualty problems fully ring-fenced
Everest Insurance believes it has fully ring-fenced the problem areas of its 2016-2019 casualty book that merited massive new reserves and expects no spillover into later years, related lines or its reinsurance segment, top officials have argued.
Under fire during an extended call with equity market analysts, top officials at Everest were called upon again and again to offer proof that $392 million in new reserves against 2016-2019 casualty risks are a one-and-done exercise.
“We believe this closes the book on the 2016-19 years,” CEO Juan Andrade said in repeat answers to repetitive analyst questioning.
In the Everest view, the under-reserved risks could be traced in bulk to the impact of inflation on a very isolated corner of the book, since remediated or shut-down, and very clear given the high rate of loss development.
“We are seeing reported loss patterns that are very seasoned, very mature,” CFO Mark Kociancic said. Visibility is high given payment ratios from 70-90%, he said.
“That is what gives us the confidence in that segment,” he said. “Less estimate involved, more precision.”
Problem areas can be localised in the main to two unspecified books in the general liability business.
Within general liability, CEO Andrade pointed to one programme now in run-off and another block of business “that we have aggressively re-underwritten in recent years.”
“That also gives us confidence on the go forward,” Andrade said.
The problem areas cannot leak into the 2020 and later years, management further insisted under continued questioning, citing the shutdown on those books, remediation of additional lines, cuts in limits and new rate taken from 2020, officials argued.
Nor will the problem show up in reinsurance, officials were further forced to argue. That calm comes in part on the smaller share of the reinsurance book tied to those lines and also the relative strength of reinsurance reserves following a booster given in 2020.
“I don't see any problem going forward on either side,” Kociancic said.
Comments follow word that Everest wrote $391 million in fresh reserves against primary casualty insurance in the fourth quarter, the lead factor in a 33.4% decline in fourth quarter underwriting profits.
Those added reserves, rendering a 40.8% unfavourable PYD ratio in the quarter, pushed the primary insurance segment to a $311 million underwriting loss. Other loss and cost ratios were largely flat against the prior year period.
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