Everest divesting retail renewal rights to sharpen focus

Everest Group’s exit from global retail insurance will position the company to focus on more profitable lines, its top executives said Tuesday.

Everest announced late Monday it has definitive agreements to sell the renewal rights of its retail commercial insurance business to American International Group, releasing an estimated $2 billion in premium.

The transactions sharpen Everest’s focus on its core global reinsurance, global wholesale and specialty insurance businesses and position the company for strong performance across market cycles, Everest said in a statement.

AIG will obtain the rights to renew Everest’s U.S., U.K., European and Asia Pacific commercial retail business. Everest will retain all liability exposure and will continue to administer claims from the policies.

“Historically, our go-forward wholesale and specialty businesses outperformed our retail business by approximately 10 combined ratio points,” Everest President and CEO Jim Williamson said Tuesday during the company’s third-quarter earnings call.

“Year to date, total written premium was approximately $1.7 billion. The long-term profitability and growth outlooks for the market segments we’re focused on are excellent,” Mr. Williamson said.

Terms of the deal, which is subject to regulatory approvals, were not disclosed.

Everest expects to take a pre-tax non-operating charge of $250 million to $350 million associated with the transaction.

AIG said it expects to begin writing policies for existing Everest clients, except in the European Union, on Jan. 1, expanding to Everest’s EU portfolios in the first quarter.

“We expect these renewal rights transactions to drive incremental growth in our general insurance portfolio, and we will be able to write these policies within our existing balance sheet with no incremental capital required,” AIG Chairman and CEO Peter Zaffino said in a statement.

Jason Keen, previously Everest’s head of international, was named CEO to lead the restructured global wholesale and specialty insurance division. The division includes Everest Global Markets and Everest Evolution, in addition to underwriting programs, credit and political risk, surety, and accident and health business lines.

Everest also announced it entered into an adverse development cover reinsurance arrangement supported by Longtail Re, an affiliate of Stone Ridge Holdings Group, effective Oct. 1.

The agreement provides $1.2 billion of gross limit against future adverse reserve development arising from substantially all insurance policies written by Everest Insurance’s North American business for accident years 2024 and prior.

“This cover will help ensure the results of prior poor underwriting decisions no longer overshadow our strong current performance,” Mr. Williamson said.

The cover consists of two layers in excess of the $5.4 billion of North American insurance and other segment liability reserves. The first layer is $700 million and the second layer $500 million. Everest will have a co-participation of $100 million in each layer.

State National Insurance fronts the first layer, and MS Transverse Insurance fronts the second, Mr. Williamson told analysts during the call.

Everest reported third-quarter net income of $255 million, a 50% decline from the $509 million posted in the prior-year third quarter.

Net unfavorable reserve development of approximately $478 million in prior-year loss reserves resulted in a 12.4-point increase on the combined ratio for the group in the quarter.

In January, Everest announced a $1.7 billion reserve strengthening for its U.S. casualty insurance lines. It followed Mr. Williamson’s appointment as president and CEO just days earlier. Former CEO Juan C. Andrade resigned in early January to join USAA.

Everest stock fell 11.36% Tuesday, closing at $304.91.