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For the nine months ended September 30, 2009, net income was $609.8 million, or $9.94 per diluted common share, compared to a loss of $2.2 million or $0.04 per common share, for the first nine months of 2008. After-tax operating income(1), excluding realized capital gains and losses and the gain on the first quarter's debt repurchase, was $571.8 million for the first nine months of 2009, or $9.32 per diluted common share, compared to $383.2 million, or $6.18 per common share, for the same period in 2008.
Commenting on the Company's results, Chairman and Chief Executive Officer, Joseph V. Taranto said, "We have achieved yet another milestone in Everest's history with shareholders' equity topping more than $6 billion at quarter end. Book value per share has increased 25%, since the beginning of the year, benefitting from strong earnings and the financial market recovery to date. These results are a testament to the discipline and strength of the organization."
Operating highlights for the third quarter of 2009 included the following:
-- Gross written premiums increased 13% to $1.1 billion for the quarter compared to $999.2 million for the same period in 2008. Excluding the impact of foreign exchange, gross written premiums were up approximately 14%. Worldwide reinsurance premiums increased 12%, but adjusting for foreign exchange grew approximately 13%. Insurance premiums, which are entirely derived from the U.S. markets, were up 19%. This growth is being driven by a strong U.S. reinsurance property market, particularly for catastrophe exposed regions, the continued expansion of business in various international reinsurance markets and new program development on the insurance book.
-- The GAAP loss and combined ratios were 60.2% and 88.7%, respectively, for the quarter compared to 87.3% and 115.0%, respectively, in the third quarter of 2008. Last year's results were impacted by catastrophe losses, primarily emanating from Hurricanes Gustav and Ike. Excluding prior year development and catastrophe losses, the current year attritional loss ratio was 56.8%, up slightly from the 55.5% reported for last year's third quarter.
-- Net investment income was $165.4 million, relatively flat compared to the third quarter of 2008. Limited partnership income added $23.5 million for the quarter due in large part to income from partnerships investing in public equities.
-- Net after-tax realized capital gains totaled $19.3 million for the quarter, a major component, of which, includes after-tax fair value adjustments to the equity portfolio. This compares to net after-tax realized capital losses of $245.7 million in the same period last year.
-- Net after-tax unrealized capital gains totaled $343.5 million during the quarter, driven by a general decline in interest rates and a continued narrowing of credit spreads.
-- Cash flow from operations was $314.7 million compared to cash flows of $375.4 million in the same quarter last year.
-- For the quarter, the annualized after-tax operating income(1) return on average adjusted shareholders' equity(2) was 14.9% compared to 0.9% in 2008.
-- Shareholders' equity ended the quarter at $6.1 billion, up 23% from year-end 2008. Accordingly, book value per share increased 25% to $100.75 as of September 30, 2009 from $80.77 at year-end 2008.
-- The Company repurchased 491,731 of its common shares during the quarter and 1.2 million of its common shares since year end. Through September, the total cost of the repurchased shares under this program was $90.5 million, representing an average purchase price of $75.44 per share. The repurchases were made pursuant to a share repurchase authorization, provided by the Company's Board of Directors, under which there remains 4.6 million shares available.
This news release contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the U.S. Federal securities laws. These statements involve risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements made on behalf of the Company. These risks and uncertainties include the impact of general economic conditions and conditions affecting the insurance and reinsurance industry, the adequacy of our reserves, our ability to assess underwriting risk, trends in rates for property and casualty insurance and reinsurance, competition, investment market fluctuations, trends in insured and paid losses, catastrophes, regulatory and legal uncertainties and other factors described in our latest Annual Report on Form 10-K. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Everest Re Group, Ltd. is a Bermuda holding company that operates through the following subsidiaries: Everest Reinsurance Company provides reinsurance to property and casualty insurers in both the U.S. and international markets. Everest Reinsurance (Bermuda), Ltd., including through its branch in the United Kingdom, provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers. Everest Reinsurance Company (Ireland), Limited provides reinsurance to non-life insurers in Europe. Everest National Insurance Company and Everest Security Insurance Company provide property and casualty insurance to policyholders in the U.S. Everest Indemnity Insurance Company offers excess and surplus lines insurance in the U.S. Additional information on Everest Re Group companies can be found at the Group's web site at www.everestre.com.
A conference call discussing the third quarter results will be held at 8:30 a.m. Eastern Time on October 29, 2009. The call will be available on the Internet through the Company's web site or at www.streetevents.com.
Recipients are encouraged to visit the Company's web site to view supplemental financial information on the Company's results. The supplemental information is located at www.everestre.com in the "Financial Reports" section of the "Investor Center". The supplemental financial information may also be obtained by contacting the Company directly.
(1)The Company generally uses after-tax operating income, a non-GAAP financial measure, to evaluate its performance. After-tax operating income consists of net income excluding after-tax net realized capital gains (losses) as the following reconciliation displays:
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share amounts) 2009 2008 2009 2008
(unaudited) (unaudited)
Per Diluted Per Per Diluted Per
Common Common Common Common
Amount Share Amount Share Amount Share Amount Share
Net income (loss) $ 228,618 $ 3.75 $ (233,127 ) $ (3.79 ) $ 609,762 $ 9.94 $ (2,167 ) $ (0.04 )
After-tax net realized capital gains/(losses) 19,254 0.32 (245,734 ) (3.99 ) (12,866 ) (0.21 ) (385,406 ) (6.22 )
After-tax gain on tender of debt - - - - 50,876 0.83 - -
After-tax operating income $ 209,364 $ 3.43 $ 12,607 $ 0.20 $ 571,752 $ 9.32 $ 383,239 $ 6.18
Although net realized capital gains (losses) are an integral part of the Company's insurance operations, the determination of net realized capital gains (losses) is independent of the insurance underwriting process. The Company believes that the level of net realized capital gains (losses) for any particular period is not indicative of the performance of the underlying business in that particular period. Providing only a GAAP presentation of net income makes it more difficult for users of the financial information to evaluate the Company's success or failure in its basic business, and may lead to incorrect or misleading assumptions and conclusions. The Company understands that the equity analysts who follow the Company focus on after-tax operating income in their analyses for the reasons discussed above. The Company provides after-tax operating income to investors so that they have what management believes to be a useful supplement to GAAP information concerning the Company's performance.
(2)Adjusted shareholders' equity excludes net after-tax unrealized (appreciation) depreciation of investments.
--Financial Details Follow--
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share amounts) 2009 2008 2009 2008
(unaudited) (unaudited)
REVENUES:
Premiums earned $ 975,380 $ 931,859 $ 2,864,578 $ 2,785,927
Net investment income 165,387 164,478 401,350 490,527
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities - (153,435 ) (13,210 ) (159,935 )
Other-than-temporary impairments on fixed maturity securities - - - -
transferred to other comprehensive income
Other net realized capital gains (losses) 31,063 (139,930 ) 2,598 (301,379 )
Total net realized capital gains (losses) 31,063 (293,365 ) (10,612 ) (461,314 )
Realized gain on debt repurchase - - 78,271 -
Net derivative (expense) income (2,118 ) 14,943 (470 ) 13,228
Other expense (13,204 ) (8,243 ) (15,995 ) (23,570 )
Total revenues 1,156,508 809,672 3,317,122 2,804,798
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 587,247 813,668 1,723,937 1,963,760
Commission, brokerage, taxes and fees 229,257 218,045 684,509 689,905
Other underwriting expenses 48,937 40,335 134,409 120,307
Interest, fees and bond issue cost amortization expense 17,376 19,795 54,634 59,376
Total claims and expenses 882,817 1,091,843 2,597,489 2,833,348
INCOME (LOSS) BEFORE TAXES 273,691 (282,171 ) 719,633 (28,550 )
Income tax expense (benefit) 45,073 (49,044 ) 109,871 (26,383 )
NET INCOME (LOSS) $ 228,618 $ (233,127 ) $ 609,762 $ (2,167 )
Other comprehensive income (loss), net of tax 376,448 (248,664 ) 681,727 (421,714 )
COMPREHENSIVE INCOME (LOSS) $ 605,066 $ (481,791 ) $ 1,291,489 $ (423,881 )
EARNINGS PER COMMON SHARE:
Basic $ 3.76 $ (3.79 ) $ 9.97 $ (0.04 )
Diluted $ 3.75 $ (3.79 ) $ 9.94 $ (0.04 )
Dividends declared $ 0.48 $ 0.48 $ 1.44 $ 1.44
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
(Dollars in thousands, except par value per share) 2009 2008
(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value $ 12,637,625 $ 10,759,612
(amortized cost: 2009, $12,175,370; 2008, $10,932,076)
Fixed maturities - available for sale, at fair value 52,815 43,090
Equity securities - available for sale, at market value (cost: 2009, 16,572 16,900
$14,244; 2008, $14,915)
Equity securities - available for sale, at fair value 158,456 119,829
Short-term investments 1,340,481 1,889,799
Other invested assets (cost: 2009, $644,320; 2008, $687,265) 642,025 679,356
Cash 265,075 205,694
Total investments and cash 15,113,049 13,714,280
Accrued investment income 149,193 149,215
Premiums receivable 979,127 908,110
Reinsurance receivables 625,138 657,169
Funds held by reinsureds 382,062 331,817
Deferred acquisition costs 367,663 354,992
Prepaid reinsurance premiums 104,356 79,379
Deferred tax asset 245,471 442,367
Federal income taxes recoverable 44,810 32,295
Other assets 118,022 176,966
TOTAL ASSETS $ 18,128,891 $ 16,846,590
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 8,889,681 $ 8,840,660
Future policy benefit reserve 66,153 66,172
Unearned premium reserve 1,467,392 1,335,511
Funds held under reinsurance treaties 89,859 83,431
Losses in the course of payment 47,219 45,654
Commission reserves 41,877 52,460
Other net payable to reinsurers 51,676 51,138
8.75% Senior notes due 3/15/2010 199,931 199,821
5.4% Senior notes due 10/15/2014 249,759 249,728
6.6% Long term notes due 5/1/2067 238,347 399,643
Junior subordinated debt securities payable 329,897 329,897
Accrued interest on debt and borrowings 12,821 11,217
Equity index put option liability 61,022 60,552
Unsettled securities payable 157,305 1,476
Other liabilities 141,000 158,875
Total liabilities 12,043,939 11,886,235
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $0.01; 50 million shares authorized; - -
no shares issued and outstanding
Common shares, par value: $0.01; 200 million shares authorized; 658 656
(2009) 65.8 million and (2008) 65.6 million issued
Additional paid-in capital 1,836,342 1,824,552
Accumulated other comprehensive income (loss), net of deferred 332,564 (291,851 )
income tax expense of $117.9 million at 2009 and tax benefit of
$16.5 million at 2008
Treasury shares, at cost; 5.4 million shares (2009) and 4.2 million (482,824 ) (392,329 )
shares (2008)
Retained earnings 4,398,212 3,819,327
Total shareholders' equity 6,084,952 4,960,355
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,128,891 $ 16,846,590
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2009 2008 2009 2008
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 228,618 $ (233,127 ) $ 609,762 $ (2,167 )
Adjustments to reconcile net income to net cash provided by
operating activities:
Decrease (increase) in premiums receivable 10,974 9,685 (48,369 ) 23,195
Increase in funds held by reinsureds, net 7,458 (7,133 ) (23,327 ) (33,500 )
Decrease (increase) in reinsurance receivables 34,620 (25,938 ) 78,435 (12,877 )
Decrease (increase) in deferred tax asset 5,771 59,187 59,989 (31,615 )
Increase (decrease) in reserve for losses and loss adjustment 26,614 291,530 (152,544 ) 357,606
expenses
Decrease in future policy benefit reserve (1,168 ) (3,972 ) (20 ) (11,524 )
Increase (decrease) in unearned premiums 103,568 17,019 114,033 (137,396 )
Change in equity adjustments in limited partnerships (23,512 ) 21,051 29,964 5,453
Change in other assets and liabilities, net (56,631 ) (54,159 ) (24,819 ) (33,827 )
Non-cash compensation expense 3,534 2,941 10,290 13,511
Amortization of bond premium 5,912 4,905 12,793 9,381
Amortization of underwriting discount on senior notes 48 45 142 133
Realized gain on debt repurchase - - (78,271 ) -
Net realized capital (gains) losses (31,063 ) 293,365 10,612 461,314
Net cash provided by operating activities 314,743 375,399 598,670 607,687
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, 364,585 154,577 924,998 701,138
at market value
Proceeds from fixed maturities matured/called - available for sale, - - 5,570 -
at fair value
Proceeds from fixed maturities sold - available for sale, at market 109,963 95,500 239,621 225,447
value
Proceeds from fixed maturities sold - available for sale, at fair 4,010 - 12,012 -
value
Proceeds from equity securities sold - available for sale, at market 23,067 - 24,143 -
value
Proceeds from equity securities sold - available for sale, at fair 11,309 345,063 23,548 674,297
value
Distributions from other invested assets 27,280 52,045 50,591 65,926
Cost of fixed maturities acquired - available for sale, at market (840,561 ) (582,558 ) (2,203,804 ) (2,435,862 )
value
Cost of fixed maturities acquired - available for sale, at fair value (2,548 ) (11,444 ) (19,101 ) (11,444 )
Cost of equity securities acquired - available for sale, at market - (16 ) - (456 )
value
Cost of equity securities acquired - available for sale, at fair (12,948 ) (181,408 ) (32,247 ) (330,789 )
value
Cost of other invested assets acquired (11,882 ) (176,333 ) (36,624 ) (224,432 )
Net change in short-term securities (229,898 ) 55,779 561,164 1,019,830
Net change in unsettled securities transactions 104,102 (52,820 ) 157,430 (58,562 )
Net cash used in investing activities (453,521 ) (301,615 ) (292,699 ) (374,907 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net 1,114 2,292 1,502 2,053
Purchase of treasury shares (41,077 ) (25,006 ) (90,495 ) (150,744 )
Net cost of debt repurchase - - (83,026 ) -
Dividends paid to shareholders (29,100 ) (29,463 ) (88,189 ) (89,133 )
Net cash used in financing activities (69,063 ) (52,177 ) (260,208 ) (237,824 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH 616 (23,855 ) 13,618 (21,893 )
Net (decrease) increase in cash (207,225 ) (2,248 ) 59,381 (26,937 )
Cash, beginning of period 472,300 225,878 205,694 250,567
Cash, end of period $ 265,075 $ 223,630 $ 265,075 $ 223,630
SUPPLEMENTAL CASH FLOW INFORMATION
Cash transactions:
Income taxes paid (recovered) $ 2,983 $ (97,418 ) $ 70,762 $ 3,286
Interest paid $ 14,194 $ 13,937 $ 52,318 $ 53,004
SOURCE: Everest Re Group, Ltd.
Everest Global Services, Inc. Elizabeth B. Farrell, 908-604-3169 Vice President, Investor Relations
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