Everest Group pre-announced full-year 2024 earnings yesterday, disclosing about a 45 percent drop in net income attributable to a $1.7 billion boost in its casualty insurance reserves.

The company, which writes more than twice as much reinsurance premium as insurance premium, said it expects to report full-year 2024 net income in the range of $1.3 billion to $1.4 billion. For full-year 2023, Everest’s net income came in at $2.5 billion.

While Everest expects to officially publish final full-year results on Feb. 3, and has scheduled a preliminary reserving results presentation for investors and analysts for this morning (Jan. 28), in a statement released yesterday, the company said that it strengthened prior-year U.S. casualty insurance reserves by $1.1 billion and increased current accident year losses in U.S. casualty lines by another $206 million, totaling $1.3 billion.

“The reserve strengthening was driven by a combination of social inflation and portfolio concentrations in certain U.S. casualty lines classes,” Everest Group said in the statement.

“Our decisive actions this quarter follow a comprehensive reserve review,” said Jim Williamson, Everest president and chief executive officer, in a media statement. “As a result of these actions, our casualty reserves are positioned with a risk margin above the actuarial central estimate,” he said.

A slide presentation on the company’s website indicated that roughly $200 million of the $1.3 billion is “risk margin” that management has added above central estimates calculated by its actuaries.

Williamson, formerly the company’s executive vice president and chief operating officer, ascended to the CEO role earlier this month after USAA announced that Everest’s prior CEO, Juan Andrade, would take the helm at USAA in April.

Everest Group is adding another $315 million to loss reserves for some sports and leisure lines and $110 million to runoff asbestos and environmental exposures, as well as certain discontinued insurance programs and coverage classes—or $425 million in total.

As of Sept. 30, 2024, Everest held $27.5 billon in gross loss and loss adjustment expense reserves, but only 28 percent of the total—$7.6 billion—was on the books for the insurance segment.

While Everest Group is also strengthening prior-year U.S. casualty reserves in its reinsurance segment as a result of its year-end reserve review, the reinsurance boost of $684 million is fully offset by favorable development of reserves in property and mortgage lines.

During a third-quarter conference call, analysts repeatedly questioned Everest executives about the possibility of a large reserve addition at year-end after the leaders spoke about pulling back from certain casualty lines and subclasses in North America, which they considered prone to social inflation pressures, and also noted that an “annual long-tail deep dive” reserve study for the insurance segment was forthcoming. “We will continue to take a conservative approach to the findings,” Andrade said at the time.

In yesterday’s media statement, Williamson said, “The company has significantly fortified its U.S. casualty reserves, while taking aggressive underwriting action in certain classes exposed to social inflation, bolstering talent, and investing in our platform. We believe these actions strengthen our balance sheet and put Everest on a clear trajectory toward generating attractive returns throughout the cycle.”

A page of Everest’s Jan. 28 presentation (which was posted online on Monday) listed elevated exposure in several U.S. casualty businesses, including:

• Classes with public exposure such as sports and leisure, real estate, and habitational
• Guaranteed-cost policies in large-account general liability business
• Commercial auto and excess liability coverage of larger fleets in challenging jurisdictions

In October last year, Everest entered into a strategic agreement for Ryan Specialty to acquire certain assets of Everest’s EverSports and Entertainment Insurance business, an MGU serving customers in the Sports, Leisure and Entertainment market.

Everest is signaling further change in its online presentation, which refers to actions that will balance the portfolio—”accelerating growth in the most attractive short-tail and specialty lines.” The rebalancing is in progress, and halfway done, the presentation indicates. Everest also aims to transform its U.S. casualty platform with underwriting actions, which include actions to drive casualty “price adequacy in a single renewal,” restructuring policy offerings, shifting to more loss-sensitive business and aggressively shedding underperforming accounts, the presentation indicates.

So far this year, the impacts of social inflation have been a topic addressed on every fourth-quarter earnings conference call, including the most recent ones—the RLI Corp. call last Friday and the W.R. Berkley Corp. call yesterday.

When RLI Corp. reported 14 points of underwriting profit for 2024 last week—marking the 29th consecutive year of sub-100 combined ratios—the specialty insurer’s CEO didn’t take long to highlight “legal system abuse” as an ongoing challenge.

Five sentences into his opening remarks, after highlighting the underwriting discipline that made full-year underwriting profits possible across all three of RLI’s reporting segments—casualty, property and surety—Craig Kliethermes called out the need for continued rate increases in RLI’s commercial transportation segment and continued discipline to walk away from underpriced accounts.

“Legal system abuse, particularly in wheels-based businesses, is a frequent topic of discussion within our strong collaborative underwriting and claim feedback loop, and we fine-tune our underwriting approach where needed,” Kliethermes said.

While RLI reported favorable prior-year loss development during its report, Chief Financial Officer Todd Bryant noted that the company strengthened its casualty reserves for the 2024 accident years by about $18 million.

At W.R. Berkley, where CFO Rich Baio reported record full-year underwriting income of $1.1 billion, translating to a combined ratio of 90.3, President and CEO W. Robert Berkley Jr. led off his commentary noting that “much of the liability market…continues to be plagued by social inflation.”

“The combination of an emboldened plaintiffs bar along with, quite frankly, this jet fuel that they have in their back pocket otherwise known as litigation funding, continues just to up the game,” Berkley said.

He went on to note that social inflation does not apply to all product lines equally, highlighting lines where physical injury claims are common as the ones that are worrisome—so, commercial auto liability and medical malpractice as opposed to D&O, for example.

Berkley went on to call out the reinsurance market for what he characterized as a surprising and disappointing “slow or sluggish” response to social inflation.

“It is our suspicion that you are seeing a gradual groundswell that is building—and we will see discipline coming to the casualty reinsurance market, hopefully over the coming months and years,” he said.