Everest Group, Ltd. (EG) Business Profile

What it does

Everest Group is a Bermuda-based reinsurance and insurance company headquartered in Hamilton. It is led by President and Chief Executive Officer Jim Williamson. Its subsidiaries underwrite coverage in the United States and international markets.

Reinsurance is insurance for insurers. Everest agrees to reimburse another insurer for some or all of the covered losses on policies that insurer has written. This can help the client limit individual or catastrophe losses and give it capacity to write more business. Everest writes both contracts covering portfolios of risks and contracts negotiated for individual risks.

The company also sells commercial property, casualty and specialty insurance to businesses. Its customers include multinational corporations and mid-size commercial clients. Coverage ranges from property damage to liability and other specialty risks, and is distributed through brokers and agents as well as directly.

Everest manages Reinsurance and Insurance as its two reportable segments. An Other operating segment manages existing policies and settles losses from discontinued businesses, including asbestos and environmental exposures; it does not generally sell new insurance or reinsurance products. Everest has sold renewal rights for certain commercial retail insurance lines and is focusing its insurance business on wholesale and specialty markets.

How it makes money

Everest earns premiums for accepting insurance and reinsurance risks. Its underwriting result is earned premium less incurred losses and loss adjustment expenses, commissions, brokerage and other underwriting expenses. The company seeks to price and select risks so that premiums cover those costs. It generally collects premiums before paying claims and invests the money in the meantime; investment income provides additional funding for loss payments.

In reinsurance, treaty contracts cover specified categories of a client’s risks, while facultative contracts cover an individual insurance contract. Under a pro rata arrangement, Everest and the client share premiums, losses and expenses in an agreed proportion. Under excess-of-loss coverage, Everest pays covered losses above an agreed threshold, generally up to a contract limit. Pro rata arrangements generally involve a commission paid to the ceding insurer.

The reinsurance portfolio includes property, catastrophe, casualty and financial lines, as well as specialty risks. The Insurance segment writes commercial property, casualty and specialty policies. Policies can be renewed, but reinsurance submissions, including renewals, remain subject to Everest’s acceptance. The company also buys reinsurance of its own, including retrocessional protection for risks it has assumed as a reinsurer.

Everest earns premiums over the coverage period rather than recognizing them all when a policy is written. Claims may take years to be paid, so the company establishes reserves for estimated payments on reported and unreported losses. Actual payments can differ from those estimates.

Customers and how it sells

Everest’s reinsurance clients are insurers and reinsurers seeking protection for risks they have already underwritten. Its insurance customers include multinational corporations and mid-size commercial clients across industries. The company is not substantially dependent on any single customer or small group of customers.

The company writes reinsurance through brokers and directly with ceding companies. Direct placement lets it serve clients that prefer to deal with a reinsurer without an intermediary. Its insurance business uses wholesale and retail brokers, surplus lines brokers and program administrators, as well as direct and general-agent channels.

Everest’s global network serves customers across international markets. Its reinsurance offices and branches serve markets including the United States, Bermuda, Ireland, Canada, India, Singapore, the United Kingdom and Switzerland. The insurance operation also serves customers in North America, Europe, Singapore and South America.

The company has sold renewal rights for certain commercial retail lines in the United States, United Kingdom, Asia Pacific and some European Union countries. Everest says the transition of its commercial and retail insurance business to American International Group remains on track.

Suppliers and costs

Everest’s principal costs are claims and the expenses of assessing and settling them, along with commissions, brokerage, taxes, fees and other underwriting expenses.

Brokers are an important distribution channel rather than suppliers of manufactured goods. Reinsurance brokerage fees are generally paid by reinsurers. Marsh McLennan and Aon are among the brokers through which Everest writes reinsurance.

Everest buys reinsurance and retrocessional coverage to reduce its own exposure to large individual and catastrophe losses. Its purchasing decisions consider coverage terms, price, availability and whether counterparties can pay. The company also uses outside legal counsel, loss adjusters, engineers and some third-party claims providers, with oversight from its claims staff.

The company employed 3,064 people. Its operations do not involve manufacturing products.

Competitive position

Everest competes in global and local insurance and reinsurance markets with companies based in the United States, Bermuda, Europe and elsewhere. It also faces alternative risk providers, including captives, catastrophe bonds and pools. Competition can turn on price, the amount of coverage available, and policy terms and conditions. Everest does not name individual competitors in its description of these markets.

Financial strength, product range, brand recognition, relationships with clients and brokers, distribution, claims management and customer service are among the ways insurers and reinsurers differentiate themselves. Everest’s active operating subsidiaries each have an A+ financial strength rating from A.M. Best. The company also writes through brokers and directly, with an international network.

Our reading: Financial strength and ratings support Everest’s ability to compete for clients, but they are not exclusive advantages in a market where other insurers also compete on financial strength. Our reading: Its geographic reach and broker and client relationships provide distribution advantages, although much of its reinsurance business flows through a concentrated group of brokers.

Everest says it writes the majority of its catastrophe excess-of-loss business on a non-concurrent basis and believes this provides some protection from competitive pressures. It expects competitive market conditions at upcoming renewals. Our reading: Contract terms can help preserve differentiation, but they do not remove exposure to competition on price and capacity.

Growth opportunities

Everest’s strategy is to adjust its mix of business as pricing and other market conditions change, prioritizing underwriting profitability over premium volume. In reinsurance, it seeks opportunities across property, casualty, financial and specialty lines while reducing participation where terms do not meet its return thresholds.

In the latest reported quarter, Everest reduced exposure to U.S. casualty lines and business where rates were not adequate. Reinsurance treaty gross written premium fell year over year on a constant-dollar basis, excluding reinstatement premiums. The company continues to see opportunities in global specialty and financial risk portfolios.

In insurance, Everest is focusing on global wholesale and specialty business after selling renewal rights for certain commercial retail lines. Global Wholesale & Specialty gross written premium increased year over year in the latest reported quarter, with international growth across financial lines, marine and other specialty classes, partly offset by aviation.

Everest also identifies construction, including data-center and manufacturing projects, as an area where it has products and underwriting expertise. Its reinsurance business includes a renewable energy vertical. The company expects conditions at upcoming renewals to remain competitive and says it will adjust participation when deals do not meet its return thresholds.

Structural risks

• A single hurricane, earthquake or other event can generate losses across multiple policies and reinsurance contracts. Actual catastrophe losses can exceed projections, and models are inherently imprecise. Everest reported pre-tax catastrophe losses in the latest quarter, net of estimated recoveries and reinstatement premiums.
• Claims can take years to emerge and settle. If reserves are insufficient, Everest must recognize the shortfall, potentially taking a material earnings charge. The company reported overall net unfavorable development in the latest quarter, driven largely by casualty reinsurance reserve strengthening.
• Social inflation, litigation funding and uncertain legal outcomes can increase claims costs. Everest says the U.S. casualty reinsurance environment remains challenging and that ceding commissions are high relative to underlying performance.
• If Everest cannot renew or replace its own reinsurance on favorable terms, or at all, it may write less business or retain more exposure to large losses. Its adverse development cover excludes certain liabilities, including asbestos and environmental reserves.
• A decline in financial strength ratings could affect Everest’s standing with clients and brokers and its ability to grow. Changes in interest rates also affect the fair value of available-for-sale fixed-income investments and shareholders’ equity.

Bottom line

Our reading

Everest is principally a global reinsurer, supplemented by commercial insurance and investment income; its ability to earn underwriting profits depends on pricing risk and settling claims for less than the premiums and expenses associated with them (item1; item7). Its reach, ratings and relationships support distribution, but catastrophe losses, uncertain casualty reserves and competitive pricing can materially affect results (item1; item1a; call_prepared).