8-K: Everest Group Achieves Record Annual Net Income of $2.5 Billion in 2023

Everest Group reports a record-breaking year with $2.5 billion in net income and a 26.5% total shareholder return, driven by strong performance across its reinsurance and insurance segments.

Summary

• Everest Group announced its fourth quarter and full-year 2023 results, highlighting a record annual net income of $2.5 billion and operating income of $2.8 billion.
• The company achieved a 20.9% net income return on equity (ROE) and a 23.1% operating income ROE for the full year, with a total shareholder return of 26.5%.
• Gross written premiums reached $16.6 billion for the year, with a 20.9% year-over-year growth, including 26.4% growth in reinsurance and 10.3% in insurance.
• The combined ratio for the group was 90.9% for the year, with reinsurance at 86.4% and insurance at 103.0%.
• Net investment income increased by over $600 million to a record $1.4 billion for the year.
• The book value per share, excluding unrealized gains or losses on available-for-sale fixed maturity investments, increased by 23.8% to $320.95.
• The company generated a strong operating cash flow of $4.6 billion for the year.
• In the fourth quarter, net income was $804 million and operating income was $1.1 billion, with a 23.8% net income ROE and a 32.4% operating income ROE.
• The company successfully sold $3.3 billion of lower-yielding bonds and reinvested in higher-yielding securities, resulting in a $211 million after-tax net realized loss but extending duration from 2.7 to 3.3 years.
• A $578 million tax benefit was recognized from realized deferred taxes due to changes in Bermuda tax law, which is a preliminary estimate and subject to change.

Sentiment

Score: 9

Explanation: The document conveys a very positive sentiment due to record financial results, strong growth, and a high shareholder return. The company's strategic execution and future outlook are also presented optimistically.

Positives

• The company achieved record annual net income, operating income, and net investment income.
• The total shareholder return was a very strong 26.5% for the year.
• The company experienced significant growth in gross written premiums across both reinsurance and insurance segments.
• The book value per share saw a substantial increase.
• The company generated strong operating cash flow.
• The reinsurance segment showed a strong combined ratio of 78.8% in Q4.
• The company successfully optimized its investment portfolio by selling lower-yielding bonds and reinvesting in higher-yielding securities.
• The company recognized a significant tax benefit due to changes in Bermuda tax law.

Negatives

• The insurance segment had a high combined ratio of 132.4% in Q4, driven by reserve strengthening to address social inflation.
• The company incurred a $211 million after-tax net realized loss from the sale of lower-yielding bonds.
• The company experienced $451 million of pre-tax catastrophe losses for the full year and $143 million in Q4.
• The insurance segment had a significant reserve strengthening of $392 million to address social inflation.

Risks

• The company is exposed to catastrophe losses, as evidenced by the $451 million in pre-tax losses for the year.
• Social inflation continues to impact the insurance segment, requiring significant reserve strengthening.
• Changes in tax laws, such as the Bermuda Corporate Income Tax Act 2023, can impact the company's financial results.
• The company is subject to investment market fluctuations, which can affect investment income and realized gains or losses.
• The company is exposed to fluctuations in foreign currency exchange rates.

Future Outlook

The company is well-positioned for 2024 following successful January 1 renewals and expects to continue to achieve its strategic plan goals, with significant momentum across both businesses.

Management Comments

• 2023 was the most profitable year in our history.
• The Everest of today is a stronger and more sophisticated company.
• We are delivering leading financial returns and we are on track to achieve the targets we set out at our most recent Investor Day.
• Everest has entered 2024 stronger and better positioned to take advantage of market opportunities in both franchises.
• Looking ahead, we remain focused on achieving our strategic plan goals, with significant momentum across both businesses, and an exceptional team driving even greater value for our shareholders.

Industry Context

The results reflect a strong year for the insurance and reinsurance industry, with Everest Group demonstrating its ability to capitalize on market opportunities and deliver strong financial returns. The company's focus on disciplined underwriting and strategic capital management aligns with industry best practices.

Comparison to Industry Standards

• Everest's 20.9% net income ROE and 23.1% operating income ROE are strong compared to industry averages, which typically range from 10-15% for net income ROE and 12-18% for operating income ROE.
• The 26.5% total shareholder return is significantly higher than the average for the insurance sector, which often falls in the single to low double-digit range.
• Companies like RenaissanceRe and Arch Capital Group, which are also major players in the reinsurance space, have reported strong results, but Everest's growth in gross written premiums and net investment income is particularly noteworthy.
• The combined ratio of 90.9% for the group is competitive, with reinsurance at 86.4% being particularly strong, while the insurance segment's 103.0% indicates room for improvement compared to peers like Chubb and Travelers, which often aim for combined ratios below 95%.

Stakeholder Impact

• Shareholders benefit from the record financial results, high shareholder return, and increased book value per share.
• Employees are part of a successful and growing company.
• Customers benefit from the company's strong financial position and ability to provide best-in-class solutions.
• Suppliers and creditors benefit from the company's strong financial health and ability to meet its obligations.

Next Steps

• The company will continue to focus on achieving its strategic plan goals.
• The company will continue to optimize its hedging strategy.
• The company will continue to take advantage of market opportunities in both franchises.

Key Dates

Keywords

reinsurance, insurance, financial results, net income, operating income, gross written premium, combined ratio, investment income, shareholder return, catastrophe losses, Bermuda tax law, book value per share