SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission File Number:
MARCH 31, 2000 1-15731
- ---------------------- -----------------------
EVEREST RE GROUP, LTD.
-----------------------------
(Exact name of Registrant as specified in its charter)
BERMUDA NOT APPLICABLE
- --------------------------- ----------------------------
(State or other juris- (IRS Employer Identification
diction of incorporation Number)
or organization)
C/O ABG FINANCIAL & MANAGEMENT SERVICES, INC.
PARKER HOUSE
WILDEY BUSINESS PARK, WILDEY ROAD
ST. MICHAEL, BARBADOS
(246) 436-6287
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
- --------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at May 9, 2000
----- ----------------------------
COMMON SHARES, $.01 PAR VALUE 45,821,181
<PAGE>
EVEREST RE GROUP, LTD.
INDEX TO FORM 10-Q
PART I
FINANCIAL INFORMATION
---------------------
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
--------------------
Consolidated Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Operations and Comprehensive
Income for the three months ended March 31, 2000 and
1999 (unaudited) 4
Consolidated Statements of Changes in Shareholders'
Equity for the three months ended March 31, 2000 and
1999 (unaudited) 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited) 6
Notes to Consolidated Interim Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS 17
-----------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 24
----------------------------------------------------------
PART II
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS 25
-----------------
ITEM 2. CHANGES IN SECURITIES None
---------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
-------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
---------------------------------------------------
ITEM 5. OTHER INFORMATION None
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 25
--------------------------------
<PAGE>
Part I - Item 1
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value per share)
<TABLE>
<CAPTION>
March 31, December 31,
------------- -------------
2000 1999
------------- -------------
<S> <C> <C>
ASSETS: (unaudited)
Fixed maturities - available for
sale, at market value (amortized
cost: 2000, $4,389,893; 1999,
$3,940,625) $ 4,378,166 $ 3,885,278
Equity securities, at market value
(cost: 2000, $24,057; 1999,
$50,224) 46,511 90,693
Short-term investments 189,359 73,558
Other invested assets 28,453 27,482
Cash 67,022 62,227
------------- -------------
Total investments and cash 4,709,511 4,139,238
Accrued investment income 72,814 64,898
Premiums receivable 323,767 294,941
Reinsurance receivables 733,477 742,513
Funds held by reinsureds 167,768 157,237
Deferred acquisition costs 87,613 82,713
Prepaid reinsurance premiums 16,802 9,582
Deferred tax asset 181,424 188,326
Other assets 27,160 24,854
------------- -------------
TOTAL ASSETS $ 6,320,336 $ 5,704,302
============= =============
LIABILITIES:
Reserve for losses and adjustment
expenses $ 3,623,143 $ 3,646,992
Unearned premium reserve 338,156 308,563
Funds held under reinsurance
treaties 176,146 178,520
Losses in the course of payment 74,833 67,065
Contingent commissions 51,945 58,169
Other net payable to reinsurers 18,822 13,217
Current federal income taxes 4,411 (4,475)
8.5% Senior notes due 3/15/2005 249,560 -
8.75% Senior notes due 3/15/2010 198,953 -
Revolving credit agreement
borrowings 106,000 59,000
Accrued interest on debt and
borrowings 2,160 106
Other liabilities 103,116 49,663
------------- -------------
Total liabilities 4,947,245 4,376,820
------------- -------------
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;
45.8 million shares issued in 2000
and 50.9 million shares issued
in 1999 458 509
Additional paid-in capital 252,521 390,912
Unearned compensation (86) (109)
Accumulated other comprehensive
income, net of deferred income
taxes benefit of $1.1 million
in 2000 and deferred income taxes
benefit of $9.1 million in 1999 (497) (16,701)
Retained earnings 1,120,750 1,074,941
Treasury shares, at cost; 0.0
million shares in 2000 and 4.4
million shares in 1999 (55) (122,070)
------------- -------------
Total shareholders' equity 1,373,091 1,327,482
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 6,320,336 $ 5,704,302
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
REVENUES:
Premiums earned $ 266,184 $ 234,135
Net investment income 65,030 62,080
Net realized capital gain/(loss) 7,819 (2,186)
Other income 810 97
------------- -------------
Total revenues 339,843 294,126
------------- -------------
CLAIMS AND EXPENSES:
Incurred loss and loss adjustment
expenses 196,389 168,869
Commission, brokerage, taxes and
fees 65,658 61,651
Other underwriting expenses 11,676 11,527
Interest expense on senior notes 1,620 -
Interest expense on credit facility 1,463 -
------------- -------------
Total claims and expenses 276,806 242,047
------------- -------------
INCOME BEFORE TAXES 63,037 52,079
Income tax 14,479 10,837
------------- -------------
NET INCOME $ 48,558 $ 41,242
============= =============
Other comprehensive income/(loss),
net of tax 16,204 (29,850)
------------- -------------
COMPREHENSIVE INCOME $ 64,762 $ 11,392
============= =============
PER SHARE DATA:
Average shares outstanding (000's) 45,889 49,803
Net income per common share - basic $ 1.06 $ 0.83
============= =============
Average diluted shares outstanding
(000's) 46,005 50,026
Net income per common share - diluted $ 1.06 $ 0.82
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
COMMON SHARES (SHARES OUTSTANDING):
Balance, beginning of period 46,457,817 49,989,204
Issued during the period 8,500 16,800
Treasury shares acquired during the
period (650,400) (1,000,320)
Treasury shares reissued during the
period 1,780 1,056
------------- -------------
Balance, end of period 45,817,697 49,006,740
============= =============
COMMON SHARES (PAR VALUE):
Balance, beginning of period $ 509 $ 509
Retirement of common shares during
the period (51) -
Issued during the period - -
------------- -------------
Balance, end of period 458 509
------------- -------------
ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period 390,912 390,559
Retirement of treasury shares during
the period (138,546) -
Common shares issued during the period 157 307
Treasury shares reissued during the
period (2) 15
------------- -------------
Balance, end of period 252,521 390,881
------------- -------------
UNEARNED COMPENSATION:
Balance, beginning of period (109) (240)
Net increase during the period 23 40
------------- -------------
Balance, end of period (86) (200)
------------- -------------
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period (16,701) 185,518
Net increase (decrease) during the
period 16,204 (29,850)
------------- -------------
Balance, end of period (497) 155,668
------------- -------------
RETAINED EARNINGS:
Balance, beginning of period 1,074,941 928,500
Net income 48,558 41,242
Dividends declared ($0.06 per share in
2000 and 1999) (2,749) (3,005)
------------- -------------
Balance, end of period 1,120,750 966,737
------------- -------------
TREASURY SHARES AT COST:
Balance, beginning of period (122,070) (25,642)
Retirement of treasury shares during
the period 138,399 -
Treasury shares acquired during the
period (16,426) (32,727)
Treasury shares reissued during the
period 42 25
------------- -------------
Balance, end of period (55) (58,344)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY, END OF
PERIOD $ 1,373,091 $ 1,455,251
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited)
Net income $ 48,558 $ 41,242
Adjustments to reconcile net income
to net cash provided by operating
activities:
(Increase) in premiums receivable (29,893) (26,252)
(Increase) decrease in funds held,
net (13,888) 3,394
Decrease in reinsurance receivables 8,697 85,638
(Increase) in deferred tax asset (2,756) (7,072)
(Decrease) in reserve for losses
and loss adjustment expenses (13,651) (21,361)
Increase in unearned premiums 30,275 9,991
Decrease in other assets and
liabilities 1,463 22,227
Non cash compensation expense 23 40
Accrual of bond discount/amortization
of bond premium (2,208) (1,312)
Amortization of underwriting discount
on senior notes 6 -
Realized capital (gains) losses (7,819) 2,186
------------- -------------
Net cash provided by operating
activities 18,807 108,721
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities
matured/called - available for sale 29,456 73,631
Proceeds from fixed maturities sold
- available for sale 97,690 76,118
Proceeds from equity securities sold 42,663 -
Cost of fixed maturities acquired -
available for sale (590,945) (237,705)
Cost of equity securities acquired (1,123) -
Cost of other invested assets acquired (1,530) (1,762)
Net (purchases) sales of short-term
securities (114,712) 3,938
Net increase in unsettled securities
transactions 48,302 20,074
------------- -------------
Net cash (used in) investing activities (490,199) (65,706)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury shares net of
reissuances (16,533) (32,687)
Common shares issued during the period 106 307
Dividends paid to shareholders (2,749) (3,005)
Proceeds from issuance of senior notes 448,507 -
Net borrowing on revolving credit
agreement 47,000 -
------------- -------------
Net cash provided by (used in) financing
activities 476,331 (35,385)
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (144) (2,381)
------------- -------------
Net increase in cash 4,795 5,249
Cash, beginning of period 62,227 39,326
------------- -------------
Cash, end of period $ 67,022 $ 44,575
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash transactions:
Income taxes paid, net $ 6,414 $ 4,795
Interest paid $ 923 $ -
Non-cash financing transaction:
Issuance of common shares $ 23 $ 40
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
1. GENERAL
On February 24, 2000, a corporate restructuring was completed and Everest Re
Group, Ltd. ("Group") became the new parent holding company of Everest
Reinsurance Holdings, Inc. ("Holdings"), which remains the holding company for
Group's U.S. operations. The "Company" means Group and its subsidiaries, except
when referring to periods prior to February 24, 2000, when it means Holdings and
its subsidiaries.
The consolidated financial statements of the Company for the three months ended
March 31, 2000 and 1999 include all adjustments, consisting of normal recurring
accruals, which, in the opinion of management, are necessary for a fair
presentation of the results on an interim basis. Certain financial information
which is normally included in annual financial statements prepared in accordance
with generally accepted accounting principles has been omitted since it is not
required for interim reporting purposes. The year end condensed balance sheet
data was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The results
for the three months ended March 31, 2000 and 1999 are not necessarily
indicative of the results for a full year. These financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto for the years ended December 31, 1999, 1998 and 1997.
2. CONTINGENCIES
The Company continues to receive claims under expired contracts which assert
alleged injuries and/or damages relating to or resulting from toxic torts, toxic
waste and other hazardous substances, such as asbestos. The Company's asbestos
claims typically involve potential liability for bodily injury from exposure to
asbestos or for property damage resulting from asbestos or products containing
asbestos. The Company's environmental claims typically involve potential
liability for (a) the mitigation or remediation of environmental contamination
or (b) bodily injury or property damages caused by the release of hazardous
substances into the land, air or water.
The Company's reserves include an estimate of the Company's ultimate liability
for asbestos and environmental claims for which ultimate value cannot be
estimated using traditional reserving techniques. There are significant
uncertainties in estimating the amount of the Company's potential losses from
asbestos and environmental claims. Among the complications are: (a) potentially
long waiting periods between exposure and manifestation of any bodily injury or
property damage; (b) difficulty in identifying sources of asbestos or
environmental contamination; (c) difficulty in properly allocating
responsibility and/or liability for asbestos or environmental damage; (d)
changes in underlying laws and judicial interpretation of those laws;
(e) potential for an asbestos or environmental claim to involve many
insurance providers over many policy periods; (f) long reporting delays,
both from insureds to insurance companies and ceding companies to
reinsurers; (g) historical data concerning asbestos and environmental
losses, which is more limited than historical information on other types
of casualty claims; (h) questions concerning interpretation and
application of insurance and reinsurance coverage; and (i)
7
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
uncertainty regarding the number and identity of insureds with potential
asbestos or environmental exposure.
Although these complications have become less severe in recent years, management
believes that these factors continue to render reserves for asbestos and
environmental losses significantly less subject to traditional actuarial methods
than are reserves on other types of losses. Given these uncertainties,
management believes that no meaningful range for such ultimate losses can be
established. The Company establishes reserves to the extent that, in the
judgement of management, the facts and prevailing law reflect an exposure for
the Company or its ceding company. In connection with its initial public
offering in October 1995, the Company purchased an aggregate stop loss
retrocession agreement (the "Stop Loss Agreement") from Gibraltar Casualty
Company ("Gibraltar"), an affiliate of the Company's former parent, The
Prudential Insurance Company of America ("The Prudential"). This coverage
protects the Company's consolidated earnings against up to $375.0 million of the
first $400.0 million of adverse development, if any, on the Company's
consolidated reserves for losses, allocated loss adjustment expenses and
uncollectible reinsurance at June 30, 1995 (December 31, 1994 for catastrophe
losses). Through March 31, 2000, cessions under the Stop Loss Agreement have
aggregated $285.6 million with available remaining limits net of coinsurance of
$89.4 million. Due to the uncertainties discussed above, the ultimate losses may
vary materially from current loss reserves and, if coverage under the Stop Loss
Agreement is exhausted, could have a material adverse effect on the Company's
future financial condition, results of operations and cash flows.
8
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
The following table shows the development of prior year asbestos and
environmental reserves on both a gross and net of retrocessional basis for the
three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
(dollar amounts in thousands) Three Months Ended
March 31,
2000 1999
---------------------------
<S> <C> <C>
Gross basis:
Beginning of period reserves $ 614,236 $ 660,793
Incurred losses - 1,601
Paid losses (16,190) (7,977)
---------------------------
End of period reserves $ 598,046 $ 654,417
===========================
Net basis:
Beginning of period reserves $ 365,069 $ 263,542
Incurred losses (1) - -
Paid losses (2) (7,984) 116,286
---------------------------
End of period reserves $ 357,085 $ 379,828
===========================
</TABLE>
(1) No losses were ceded in either the three months ended March 31, 2000 or in
the three months ended March 31, 1999 under the incurred loss reimbursement
feature of the Stop Loss Agreement.
(2) No losses were ceded in the three months ended March 31, 2000 and $118.8
million were ceded as paid losses under the Stop Loss Agreement in the
three months ended March 31, 1999.
At March 31, 2000, the gross reserves for asbestos and environmental losses were
comprised of $131.3 million representing case reserves reported by ceding
companies, $74.7 million representing additional case reserves established by
the Company on assumed reinsurance claims, $45.3 million representing case
reserves established by the Company on direct excess insurance claims and $346.8
million representing incurred but not reported ("IBNR") reserves.
To the extent loss reserves on assumed reinsurance need to be increased and were
not ceded to unaffiliated reinsurers under existing reinsurance agreements, the
Company would be entitled to partial reimbursements consistent with the terms of
the Stop Loss Agreement. To the extent loss reserves on direct excess insurance
policies needed to be increased and were not ceded to unaffiliated reinsurers
under existing reinsurance agreements, the Company would be entitled to
9
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
100% protection from Gibraltar under a retrocessional agreement in place since
1986. While there can be no assurance that reserves for and losses from these
claims would not increase in the future, management believes that the Company's
existing reserves and ceded reinsurance arrangements, including reimbursements
available under the Stop Loss Agreement, lessen the probability that such
increases, if any, would have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
On February 24, 2000, Holdings announced an agreement with The Prudential to
acquire all of the issued and outstanding shares of Gibraltar for approximately
$52.0 million. Closing of the acquisition will be subject to the satisfaction of
customary closing conditions and the receipt of regulatory approvals.
Upon the closing of the acquisition, the Company's current reinsurance contracts
with Gibraltar, including the Stop Loss Agreement, will remain in effect.
However, these contracts will become transactions with affiliates with the
financial impact eliminated through inter-company accounts. The Prudential's
guarantee of Gibraltar's obligations to the Company will be terminated and The
Prudential will be released from its obligations.
In connection with the acquisition, The Prudential will provide reinsurance to
Gibraltar covering 80% of the first $200.0 million of any adverse development in
Gibraltar's reserves.
The Company is involved from time to time in ordinary routine litigation and
arbitration proceedings incidental to its business. The Company does not believe
that there are any other material pending legal proceedings to which it or any
of its subsidiaries or their properties are subject.
The Prudential sells annuities which are purchased by property and casualty
insurance companies to settle certain types of claim liabilities. In 1993 and
prior, the Company, for a fee, accepted the claim payment obligation of the
property and casualty insurer, and, concurrently, became the owner of the
annuity or assignee of the annuity proceeds. In these circumstances, the Company
would be liable if The Prudential were unable to make the annuity payments. The
estimated cost to replace all such annuities for which the Company was
contingently liable at March 31, 2000 was $141.3 million.
The Company has purchased annuities from an unaffiliated life insurance company
to settle certain claim liabilities of the Company. Should the life insurance
company become unable to make the annuity payments, the Company would be liable.
The estimated cost to replace such annuities at March 31, 2000 was $11.9
million.
10
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
3. EARNINGS PER SHARE
Net income per common share has been computed as follows (shares in thousands,
except per share amounts):
<TABLE>
<CAPTION>
(dollar amounts in thousands except
per share amounts) Three Months Ended
March 31,
2000 1999
--------------------------
<S> <C> <C>
Net income (numerator) $ 48,558 $ 41,242
==========================
Weighted average common and effect of
Average shares outstanding -
basic (denominator) 45,889 49,803
Effect of dilutive shares 116 223
--------------------------
Average shares outstanding -
diluted (denominator) 46,005 50,026
Net income per common share:
Basic $ 1.06 $ 0.83
Diluted $ 1.06 $ 0.82
</TABLE>
As of March 31, 2000 and 1999, options to purchase 1,554,100 and 736,500 shares
of common stock, respectively, were outstanding but were not included in the
computation of diluted earnings per share for the three month periods ended on
such dates, because the options' exercise price was greater than the average
market price of the common shares during the period.
11
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
4. OTHER COMPREHENSIVE INCOME
The Company's other comprehensive income / (loss) is comprised as follows:
<TABLE>
<CAPTION>
(dollar amounts in thousands) Three Months Ended
March 31,
2000 1999
-------------------------
<S> <C> <C>
Net unrealized appreciation
(depreciation) of investments,
net of deferred income taxes $ 17,044 ($ 31,164)
Currency translation (840) 1,314
-------------------------
Other comprehensive
income/(loss), net of deferred
income taxes $ 16,204 ($ 29,850)
=========================
</TABLE>
5. CREDIT LINE
On December 21, 1999, the Company's subsidiary, Holdings, entered into a
three-year senior revolving credit facility with a syndicate of lenders (the
"Credit Facility"). First Union National Bank is the administrative agent for
the Credit Facility. The Credit Facility will be used for liquidity and general
corporate purposes and to refinance existing debt under Holdings' prior credit
facility, which has been terminated. The Credit Facility provides for the
borrowing of up to $150.0 million with interest at a rate selected by the
Company equal to either (i) the Base Rate (as defined below) or (ii) an adjusted
London InterBank Offered Rate ("LIBOR") plus a margin. The Base Rate is the
higher of the rate of interest established by First Union National Bank from
time to time as its prime rate or the Federal Funds rate plus 0.5% per annum.
The amount of margin and the fees payable for the Credit Facility depend upon
Holdings' senior unsecured debt rating. The Company has guaranteed all of
Holdings' obligations under the Credit Facility.
The Credit Facility requires Group to maintain a debt to capital ratio of not
greater than 0.35 to 1, Holdings to maintain a minimum interest coverage ratio
of 2.5 to 1 and Everest Reinsurance Company ("Everest Re") to maintain its
statutory surplus at $850.0 million plus 25% of future aggregate net income and
25% of future aggregate capital contributions. The Company was in compliance
with these requirements at March 31, 2000 as well as for the three months ended
March 31, 2000.
12
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
As of March 31, 2000 and 1999, Holdings had outstanding credit line borrowings
of $106.0 million and $0.0 million, respectively. Interest expense incurred in
connection with these borrowings was $1.5 million and $0.0 million for the three
months ended March 31, 2000 and 1999, respectively.
6. SENIOR NOTES
During the first quarter of 2000, Holdings completed a public offering of $200.0
million principal amount of 8.75% senior notes due March 15, 2010 and $250.0
million principal amount of 8.5% senior notes due March 15, 2005. Holdings
distributed $400.0 million of these proceeds to the Company of which $250.0
million was used by the Company to capitalize Everest Reinsurance (Bermuda),
Ltd.
Interest expense incurred in connection with these senior notes was $1.6 million
for the three months ended March 31, 2000.
7. SEGMENT REPORTING
The Company, through its subsidiaries, operates in six segments: U.S. Broker
Treaty, U.S. Direct Treaty Reinsurance and Insurance, U.S. Facultative, Marine,
Aviation and Surety, International and Bermuda. The U.S. Broker Treaty operation
writes property, accident and health and casualty reinsurance through
reinsurance brokers within the United States. The U.S. Direct Treaty Reinsurance
and Insurance operation writes property and casualty reinsurance directly with
ceding companies and primary property and casualty insurance through agency
relationships and program administrators within the United States. The U.S.
Facultative operation writes property, casualty and specialty business through
brokers and directly with ceding companies within the United States. The Marine,
Aviation and Surety operation writes marine, aviation and surety business within
the United States and worldwide. The International operation writes reinsurance
through the Company's branches in Belgium, London, Canada, Hong Kong and
Singapore, in addition to foreign "home-office" business. The U.S. Facultative,
Marine, Aviation and Surety and International operations write business through
brokers and directly with ceding companies. The Bermuda operation has not yet
begun writing business; therefore, there are no underwriting results for this
segment in the current period disclosures.
13
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
These segments are managed in a carefully coordinated fashion with strong
elements of central control, including with respect to capital, investments and
support operations. As a result, management monitors and evaluates the financial
performance of these operating segments based upon their underwriting gain or
loss ("underwriting results"). Underwriting results include earned premium less
incurred loss and loss adjustment expenses, commission and brokerage expenses
and other underwriting expenses. The Company does not review and evaluate the
financial results of its operating segments based upon balance sheet data.
The following tables present the relevant underwriting results for the operating
segments for the three months ended March 31, 2000 and 1999, with all dollar
values presented in thousands.
<TABLE>
<CAPTION>
U.S. BROKER TREATY
- -------------------------------------------------------------------------------
2000 1999
----------------------------------
<S> <C> <C>
Earned premiums $ 106,064 $ 75,325
Incurred losses and loss
adjustment expenses 77,302 68,129
Commission and brokerage 22,048 19,880
Other underwriting expenses 2,344 2,235
----------------------------------
Underwriting gain/(loss) $ 4,370 ($ 14,919)
==================================
</TABLE>
<TABLE>
<CAPTION>
U.S. DIRECT TREATY REINSURANCE AND INSURANCE
- -------------------------------------------------------------------------------
2000 1999
<S> <C> <C>
Earned premiums $ 52,785 $ 36,030
Incurred losses and loss adjustment 33,695 25,075
Commission and brokerage 15,551 10,073
Other underwriting expenses 3,280 2,201
----------------------------------
Underwriting gain/(loss) $ 259 ($ 1,319)
==================================
</TABLE>
14
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
U.S. FACULTATIVE
- -------------------------------------------------------------------------------
2000 1999
----------------------------------
<S> <C> <C>
Earned premiums $ 16,849 $ 19,029
Incurred losses and loss adjustment 11,041 11,287
Commission and brokerage 3,479 4,198
Other underwriting expenses 1,501 1,493
----------------------------------
Underwriting gain/(loss) $ 828 $ 2,051
==================================
</TABLE>
<TABLE>
<CAPTION>
MARINE, AVIATION AND SURETY
- -------------------------------------------------------------------------------
2000 1999
----------------------------------
<S> <C> <C>
Earned premiums $ 24,288 $ 31,371
Incurred losses and loss adjustment 17,851 20,290
Commission and brokerage 8,778 9,349
Other underwriting expenses 916 869
----------------------------------
Underwriting gain/(loss) ($ 3,257) $ 863
==================================
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL
- -------------------------------------------------------------------------------
2000 1999
----------------------------------
<S> <C> <C>
Earned premiums $ 66,197 $ 72,380
Incurred losses and loss adjustment 56,502 44,088
Commission and brokerage 15,800 18,151
Other underwriting expenses 3,386 3,559
----------------------------------
Underwriting gain/(loss) ($ 9,491) $ 6,582
==================================
</TABLE>
The following table reconciles the underwriting results for the operating
segments to income before tax as reported in the consolidated statements of
operations and comprehensive income, with all dollar values presented in
thousands:
<TABLE>
<CAPTION>
2000 1999
----------------------------------
<S> <C> <C>
Underwriting gain (loss) ($ 7,291) ($ 6,742)
Net investment income 65,030 62,080
Realized gain (loss) 7,819 (2,186)
Corporate expenses (248) (1,170)
Interest expense (3,083) -
Other income (expense) 810 97
----------------------------------
Income before taxes $ 63,037 $ 52,079
==================================
</TABLE>
15
<PAGE>
EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
The Company writes premium in the United States and selected international
markets. The revenues, net income and identifiable assets of any individual
non-U.S. country in which the Company writes business are in each case, less
than 10% of the Company's consolidated results.
8. FUTURE APPLICATION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement requires all derivatives to be
recognized as either assets or liabilities in the statement of financial
position and to be measured at fair value. This statement shall be effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
Management believes that the statement will not have a material impact on the
financial position of the Company.
9. RELATED-PARTY TRANSACTIONS
During the normal course of business, the Company, through its affiliates,
engages in arms-length reinsurance and brokerage and commission business
transactions with companies controlled or affiliated with its outside directors.
Such transactions, individually and in the aggregate, are immaterial to the
Company's financial condition, results of operations and cash flows.
16
<PAGE>
PART I - ITEM 2
EVEREST RE GROUP, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
RESTRUCTURING
On February 24, 2000, a corporate restructuring was completed and Everest Re
Group, Ltd. ("Group") became the new parent holding company of Everest
Reinsurance Holdings, Inc. ("Holdings"), which remains the holding company for
Group's U.S. operations. The "Company" means Group and its subsidiaries, except
when referring to periods prior to February 24, 2000, when it means Holdings and
its subsidiaries.
SEGMENT INFORMATION
The Company, through its subsidiaries, operates in six segments: U.S. Broker
Treaty, U.S. Direct Treaty Reinsurance and Insurance, U.S. Facultative, Marine,
Aviation and Surety, International and Bermuda. The U.S. Broker Treaty operation
writes property, accident and health and casualty reinsurance through
reinsurance brokers within the United States. The U.S. Direct Treaty Reinsurance
and Insurance operation writes property and casualty reinsurance directly with
ceding companies and primary property and casualty insurance through agency
relationships and program administrators within the United States. The U.S.
Facultative operation writes property, casualty and specialty business through
brokers and directly with ceding companies within the United States. The Marine,
Aviation and Surety operation writes marine, aviation and surety business within
the United States and worldwide. The International operation writes reinsurance
through the Company's branches in Belgium, London, Canada, Hong Kong and
Singapore, in addition to foreign "home-office" business. The U.S. Facultative,
Marine, Aviation and Surety and International operations write business through
brokers and directly with ceding companies. The Bermuda operation has not yet
begun writing business; therefore, there are no underwriting results for this
segment in the current period disclosures.
These segments are managed in a carefully coordinated fashion with strong
elements of central control, including with respect to capital, investments and
support operations. As a result, management monitors and evaluates the financial
performance of these operating segments based upon their underwriting results.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
PREMIUMS. Gross premiums written increased 19.8% to $304.3 million in the three
months ended March 31, 2000 from $253.9 million in the three months ended March
31, 1999 as the Company took advantage of selected growth opportunities, while
continuing to generally maintain a very disciplined underwriting approach.
Premium growth areas included a 54.3% ($24.7 million) increase in the U.S.
17
<PAGE>
Direct Treaty Reinsurance and Insurance operation, mainly attributable to growth
in primary insurance and accident and health writings, and a 50.7% ($41.7
million) increase in the U.S. Broker Treaty operation, attributable to growth
across its property and casualty lines, including from several large casualty
reinsurance treaties. These increases were partially offset by a 19.2% ($3.6
million) decrease in the U.S. Facultative operation, a 16.8% ($5.1 million)
decrease in the Marine, Aviation and Surety operation and a 9.5% ($7.4 million)
decrease in the International operation reflecting the continued highly
competitive current market conditions faced by these operations. The Company
continued to decline business that did not meet its objectives regarding
underwriting profitability.
Ceded premiums increased to $16.7 million in the three months ended March 31,
2000 from $11.4 million in the three months ended March 31, 1999. This increase
was principally attributable to higher utilization of contract specific
retrocessions in the U.S. Broker Treaty and U.S. Direct Reinsurance and
Insurance operations.
Net premiums written increased by 18.6% to $287.5 million in the three months
ended March 31, 2000 from $242.5 million in the three months ended March 31,
1999 consistent with the increase in gross premiums written.
PREMIUM REVENUES. Net premiums earned increased by 13.7% to $266.2 million in
the three months ended March 31, 2000 from $234.1 million in the three months
ended March 31, 1999. Contributing to this increase was a 46.5% ($16.8 million)
increase in the U.S. Direct Treaty Reinsurance and Insurance operation and a
40.8% ($30.7 million) increase in the U.S. Broker Treaty operation. These
increases were partially offset by a 22.6% ($7.1 million) decrease in the
Marine, Aviation and Surety operation, an 11.5% ($2.2 million) decrease in the
U.S. Facultative operation and an 8.5% ($6.2 million) decrease in the
International operation. All of these changes reflect period to period changes
in net written premiums together with normal variability in earnings patterns.
EXPENSES. Incurred loss and loss adjustment expenses ("LAE") increased by 16.3%
to $196.4 million in the three months ended March 31, 2000 from $168.9 million
in the three months ended March 31, 1999. The increase in incurred losses and
LAE was principally attributable to the increase in net premiums earned together
with modest strengthening of prior period reserves in select areas and a
reinsurance treaty with higher losses, and correspondingly lower commissions,
partially offset by lower catastrophe losses. Incurred losses and LAE include
catastrophe losses, which include the impact of both current period events and
favorable and unfavorable development on prior period events and are net of
reinsurance. Net catastrophe losses in the three months ended March 31, 2000
were $3.0 million, mainly reflecting modest net adverse development on 1999
catastrophe events, compared to net catastrophe losses of $11.4 million in the
three months ended March 31, 1999. Net incurred losses and LAE for the three
months ended March 31, 2000 reflected ceded losses and LAE of $16.8 million with
$0.0 million ceded under the Stop Loss Agreement compared to ceded losses and
LAE of $10.3 million in the three months ended March 31, 1999, with $0.0 million
ceded under the Stop Loss Agreement.
Contributing to the increase in incurred losses and LAE in the three months
ended March 31, 2000 from the three months ended March 31, 1999 were a 34.4%
($8.6 million) increase in the U.S. Direct Treaty Reinsurance and Insurance
operation principally as a result of increased premium volume, a 28.2% ($12.4
million) increase in the International operation due to unfavorable development
of prior years catastrophe losses and modest strengthening of prior period
18
<PAGE>
non-catastrophe reserves in the three months ended March 31, 2000 contrasted
against favorable development of prior years catastrophe losses for the three
months ended March 31, 1999, and a 13.5% ($9.2 million) increase in the U.S.
Broker Treaty operation, attributable to the increased premium volume as well as
a reinsurance treaty with higher losses, and correspondingly lower commissions.
These increases were partially offset by a 12.0% ($2.4 million) decrease in the
Marine, Aviation and Surety operation mainly reflecting lower premium volume and
a 2.2% ($0.2 million) decrease in the U.S. Facultative operation. Incurred
losses and LAE for each operation were impacted by variability relating to
changes in the level of premium volume and mix of business by class and type.
The Company's loss and LAE ratio ("loss ratio"), which is calculated by dividing
incurred losses and LAE by premiums earned, increased by 1.7 percentage points
to 73.8% for the three months ended March 31, 2000 from 72.1% for the three
months ended March 31, 1999 reflecting the incurred losses and LAE discussed
above. The International, Marine, Aviation and Surety and U.S. Facultative
operations' loss ratios increased to 85.4%, 73.5% and 65.5% for the three months
ended March 31, 2000 from 60.9%, 64.7% and 59.3% for the three months ended
March 31, 1999, respectively. The U.S. Broker Treaty and U.S. Direct Treaty
Reinsurance and Insurance operations' loss ratios decreased to 72.9% and 63.8%
for the three months ended March 31, 2000 from 90.4% and 69.6% for the three
months ended March 31, 1999, respectively. The loss ratios for all operations
are impacted by the factors noted above as well as by changes in mix of business
by class and type.
Underwriting expenses increased by 5.7% to $77.3 million in the three months
ended March 31, 2000 from $73.2 million in the three months ended March 31,
1999. Commission, brokerage, taxes and fees increased by $4.0 million,
principally relating to the increase in premiums written and changes in the
business mix. Other underwriting expenses increased by $0.1 million.
Contributing to these underwriting expense increases were a 53.4% ($6.6 million)
increase in the U.S. Direct Treaty Reinsurance and Insurance operation and a
10.3% ($2.3 million) increase in the U.S. Broker Treaty operation. The increase
in the U.S. Broker Treaty operation was generally consistent with increased
premium volume, partially offset by the impact of a reinsurance treaty with
lower commissions and higher losses as noted earlier. These increases were
partially offset by a 12.5% ($0.7 million) decrease in the U.S. Facultative
operation, an 11.6% ($2.5 million) decrease in the International operation and a
5.1% ($0.5 million) decrease in the Marine, Aviation and Surety operation. The
changes for each operation's expenses principally resulted from changes in
commission expenses related to changes in premium volume and business mix by
class and type. The Company's expense ratio, which is calculated by dividing
underwriting expenses by premiums earned, was 29.1% for the three months ended
March 31, 2000 compared to 31.2% for the three months ended March 31, 1999.
The Company's combined ratio, which is the sum of the loss and expense ratios,
decreased to 102.8% in the three months ended March 31, 2000 compared to 103.4%
in the three months ended March 31, 1999. The U.S. Broker Treaty and U.S. Direct
Treaty Reinsurance and Insurance operations' combined ratios decreased to 95.9%
and 99.5% for the three months ended March 31, 2000 from 119.8% and 103.7% for
the three months ended March 31, 1999, respectively. The International, Marine,
Aviation and Surety and U.S. Facultative operations' combined ratios increased
to 114.3%, 113.4% and 95.1% for the three months ended March 31, 2000 from
90.9%, 97.2% and 89.2% for the three months ended March 31, 1999, respectively.
These changes reflect the loss and expense ratio variability noted above.
19
<PAGE>
Interest expense for the three months ended March 31, 2000 was $3.1 million
compared to $0.0 million for the three months ended March 31, 1999. Interest
expense for the three months ended March 31, 2000 reflects $1.6 million relating
to Holdings' issuance of senior notes and $1.5 million relating to Holdings'
borrowing under it's revolving credit facility.
Other income for the three months ended March 31, 2000 was $0.8 million compared
to $0.1 million for the three months ended March 31, 1999. Other income for the
respective periods was principally attributable to the impact of fluctuations in
foreign currency exchange rates.
INVESTMENTS. Net investment income increased 4.8% to $65.0 million in the three
months ended March 31, 2000 from $62.1 million in the three months ended March
31, 1999, principally reflecting the effect of investing the $113.5 million of
cash flow from operations in the twelve months ended March 31, 2000 as well as
the investment of the proceeds from Holdings' debt issuance. The annualized
pre-tax yield on average cash and invested assets decreased to 5.9% in the three
months ended March 31, 2000, from the 6.1% yield in the three months ended March
31, 1999 reflecting the investment of the proceeds of Holdings' debt issuance
late in the three months ended March 31, 2000. The imbedded pre-tax yield of
cash and invested assets at March 31, 2000 was 6.5% compared with 6.2% at
December 31, 1999, reflecting the additional funds invested over the intervening
period as well as the continued emphasis on enhancing investment yields through
changes in asset mix.
Net realized capital gains were $7.8 million in the three months ended March 31,
200, reflecting realized capital gains on the Company's investments of $17.4
million, which were partially offset by $9.6 million of realized capital losses,
compared to net realized capital losses of $2.2 million in the three months
ended March 31, 1999. The net realized capital losses in the three months ended
March 31, 1999 reflected realized capital losses of $2.5 million which, were
offset by $0.3 million of realized capital gains. The realized capital gains in
the three months ended March 31, 2000 arose mainly from activity in the
Company's domestic equity portfolio, whereas the realized capital gains in the
three months ended March 31, 1999 were attributable to activity in the Company's
foreign taxable fixed maturities portfolio. The realized capital losses in the
three months ended March 31, 2000 arose mainly from activity in the Company's
tax-exempt fixed maturities portfolio, whereas the realized capital losses in
the three months ended March 31, 1999 mainly arose from activity in the
Company's taxable fixed maturities portfolio.
INCOME TAXES. The Company recognized income tax expense of $14.5 million in the
three months ended March 31, 2000 compared to $10.8 million in the three months
ended March 31, 1999. The principal cause of this change was the increase in net
realized capital gains.
NET INCOME. Net income was $48.6 million in the three months ended March 31,
2000 compared to $41.2 million in the three months ended March 31, 1999. This
increase generally reflects the increases in net realized capital gains,
together with the improved underwriting and investment results, partially offset
by increased interest expense.
FINANCIAL CONDITION
INVESTED ASSETS. Aggregate invested assets, including cash and short-term
investments, were $4,709.5 million at March 31, 2000 and $4,139.2 million at
December 31, 1999. The increase in invested assets between December 31, 1999 and
March 31, 2000 resulted primarily from Holdings' issuance of senior notes
totaling $450.0 million, the proceeds of which have been invested, $47.0 million
20
<PAGE>
in credit facility borrowings, $43.6 million in net unrealized appreciation of
the Company's fixed maturity investments and $18.8 million in cash flows from
operations generated during the three months ended March 31, 2000, partially
offset by $18.0 million in net unrealized depreciation of the Company's equity
portfolio and $16.4 million in share repurchases.
LIQUIDITY. The Company's liquidity requirements are met on both a short- and
long-term basis by funds provided by premiums collected, investment income,
collected reinsurance receivables balances and from the sale and maturity of
investments together with the availability of funds under the Company's
revolving credit facility. The Company's net cash flows from operating
activities were $18.8 million and $108.7 million in the three months ended March
31, 2000 and 1999, respectively. These cash flows were impacted by recoveries
under the Company's Stop Loss Agreement with Gibraltar, which contributed $9.5
million and $79.0 million of such net cash flows in the three months ended March
31, 2000 and 1999, respectively, as well as by net catastrophe loss payments of
$14.8 million and $8.0 million in the three months ended March 31, 2000 and
1999, respectively. Through March 31, 2000, cessions under the Stop Loss
Agreement have aggregated $285.6 million with available remaining limits net of
coinsurance of $89.4 million. Excluding the Stop Loss Agreement recoveries,
management believes the decrease in net cash flows from operating activities
generally reflects changes in the Company's mix of business and variability in
the payout of loss reserves.
On February 24, 2000, Holdings announced an agreement with The Prudential to
acquire all of the issued and outstanding shares of Gibraltar for approximately
$52.0 million. Closing of the acquisition will be subject to the satisfaction of
customary closing conditions and the receipt of regulatory approvals.
Upon the closing of the acquisition, the Company's current reinsurance contracts
with Gibraltar, including the Stop Loss Agreement, will remain in effect.
However, these contracts will become transactions with affiliates with the
financial impact eliminated through inter-company accounts. The Prudential's
guarantee of Gibraltar's obligations to the Company will be terminated and The
Prudential will be released from its obligations.
In connection with the acquisition, The Prudential will provide reinsurance to
Gibraltar covering 80% of the first $200.0 million of any adverse development in
Gibraltar's reserves.
Proceeds from sales, calls and maturities and investment asset acquisitions were
$218.1 million and $708.3 million, respectively, in the three months ended March
31, 2000, compared to $173.8 million and $239.5 million, respectively, in the
three months ended March 31, 1999. The activity in the three months ended March
31, 2000 generally reflected normal portfolio management activity aimed at
enhancing the Company's portfolio yield along with investment asset acquisitions
made utilizing the proceeds from Holdings' debt issuance. The Company's current
investment strategy seeks to maximize after-tax income through a high quality,
diversified, duration sensitive, taxable bond and tax-exempt municipal bond
portfolio, while maintaining an adequate level of liquidity.
On December 21, 1999, Holdings entered into a three-year senior revolving credit
facility with a syndicate of lenders (the "Credit Facility"), which replaced its
prior credit facility which had been extended in June 1999 and increased from
$50.0 million to $75.0 million on November 9, 1999. First Union National Bank is
the administrative agent for the Credit Facility. The Credit Facility will be
21
<PAGE>
used for liquidity and general corporate purposes and to refinance existing debt
under Holdings' prior credit facility, which has been terminated. The Credit
Facility provides for the borrowing of up to $150.0 million with interest at a
rate selected by Holdings equal to either (i) the Base Rate (as defined below)
or (ii) an adjusted London InterBank Offered Rate ("LIBOR") plus a margin. The
Base Rate is the higher of the rate of interest established by First Union
National Bank from time to time as its prime rate or the Federal Funds rate plus
0.5% per annum. The amount of margin and the fees payable for the Credit
Facility depend upon Holdings' senior unsecured debt rating. The Company has
guaranteed all of Holdings' obligations under the Credit Facility.
The Credit Facility requires the Company to maintain a debt to capital ratio of
not greater than 0.35 to 1, Holdings to maintain a minimum interest coverage
ratio of 2.5 to 1 and Everest Re to maintain its statutory surplus at $850.0
million plus 25% of future aggregate net income and 25% of future aggregate
capital contributions. The Company was in compliance with these requirements at
March 31, 2000 as well as for the three months ended March 31, 2000.
At March 31, 2000 and 1999, Holdings had outstanding borrowings under the Credit
Facility of $106.0 million and $0.0 million, respectively. Interest expense
incurred in connection with these borrowings was $1.5 million and $0.0 million
for the periods ended March 31, 2000 and 1999, respectively.
During the first quarter of 2000, Holdings completed a public offering of $200.0
million principal amount of 8.75% senior notes due March 15, 2010 and $250.0
million principal amount of 8.5% senior notes due March 15, 2005. Holdings
distributed $400.0 million of these proceeds to the Company of which $250.0
million was used by the Company to capitalize Everest Reinsurance (Bermuda),
Ltd. Interest expense incurred in connection with these senior notes was $1.6
million for the three months ended March 31, 2000.
SHAREHOLDERS' EQUITY. The Company's shareholders' equity increased to $1,373.1
million as of March 31, 2000, from $1,327.5 million as of December 31, 1999,
principally reflecting net income of $48.6 million for the three months ended
March 31, 2000 and an increase of $17.0 million in unrealized appreciation on
investments, net of deferred taxes, partially offset by $16.4 million in
treasury shares acquired in the three months ended March 31, 2000. Dividends of
$2.7 million were declared and paid by the Company in the three months ended
March 31, 2000. During the three months ended March 31, 2000, the Company
repurchased 0.650 million of its common shares at an average price of $25.24 per
share, raising the total repurchases under the Company's authorized repurchase
program to 4.720 million shares at an average price of $27.60 per share with a
total repurchase expenditure to date of $130.4 million. At March 31, 2000, 2.180
million shares remained under the existing repurchase authorization. As part of
the Company's restructuring, the treasury shares held by the Company prior to
February 24, 2000 were retired, resulting in a reduction to treasury shares with
a corresponding reduction of paid in capital and common shares.
MARKET SENSITIVE INSTRUMENTS. The Company's risks associated with market
sensitive instruments have not changed materially since the period ended
December 31, 1999.
SAFE HARBOR DISCLOSURE. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act"), the Company in its
Form 10-K for the fiscal year ended December 31, 1999 set forth cautionary
statements identifying important factors, among others, that could cause its
22
<PAGE>
actual results to differ materially from those which might be projected,
forecasted or estimated in its forward-looking statements, as defined in the
Act, made by or on behalf of the Company in press releases, written statements
or documents filed with the Securities and Exchange Commission, or in its
communications and discussions with investors and analysts in the normal course
of business through meetings, phone calls and conference calls. These cautionary
statements supplement other factors contained in this report which could cause
the Company's actual results to differ materially from those which might be
projected, forecasted or estimated in its forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the Company's results to differ materially from
such forward-looking statements. Such forward-looking statements may include,
but are not limited to, projections of premium revenue, investment income, other
revenue, losses, expenses, earnings (including earnings per share), cash flows,
and common shareholders' equity (including book value per share), plans for
future operations, investments, financing needs, capital plans, dividends, plans
relating to products or services of the Company, and estimates concerning the
effects of litigation or other disputes, as well as assumptions for any of the
foregoing and are generally expressed with words such as "believes,"
"estimates," "expects," "anticipates," "plans," "projects," "forecasts,"
"goals," "could have," "may have" and similar expressions. 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.
23
<PAGE>
PART I - ITEM 3
EVEREST RE GROUP, LTD.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
MARKET RISK INSTRUMENTS. The Company's risks associated with market
sensitive instruments have not changed materially since the period ended
December 31, 1999.
24
<PAGE>
EVEREST RE GROUP, LTD.
OTHER INFORMATION
PART II - ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in ordinary routine litigation and
arbitration proceedings incidental to its business. The Company does not believe
that there are any other material pending legal proceedings to which it or any
of it subsidiaries or their properties are subject.
PART II - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit Index:
Exhibit No.
-----------
11.1 Statement regarding computation of per share earnings, filed
herewith.
27.1 Financial Data Schedule, filed herewith.
b. Reports on Form 8-K
A report on Form 8-K dated February 23, 2000 was filed on February
24, 2000 reporting the completion of a corporate restructuring
involving the Company and reporting that Holdings entered into an
agreement with The Prudential Insurance Company of America to
acquire Gibraltar Casualty Company.
25
<PAGE>
EVEREST RE GROUP, LTD.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Everest Re Group, Ltd.
(Registrant)
- By: /S/ Stephen L. Limauro
----------------------------------------
Stephen L. Limauro
Duly Authorized Officer, Senior Vice President
and Chief Financial Officer
Dated: May 9, 2000
Exhibit 11.1
EVEREST RE GROUP, LTD.
COMPUTATION OF EARNINGS PER SHARE
For The Quarter Ended March 31, 2000 and 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------------------------------
<S> <C> <C>
Net Income (Numerator) $ 48,558 $ 41,242
============ ============
Weighted average common and
effect of dilutive shares
used in the computation of
net income per share:
Average shares outstanding
- basic (denominator) 45,888,694 49,803,083
Effect of dilutive shares:
Options outstanding 115,686 222,336
Options cancelled 48 -
Options exercised 613 963
------------ ------------
Average share outstanding
- diluted (denominator) 46,005,041 50,026,382
Net Income per common share:
Basic $ 1.06 $ 0.83
Diluted 1.06 0.82
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
EVEREST RE GROUP, LTD. AND SUBSIDIARIES FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EVEREST RE
GROUP, LTD.'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 4,378,166
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 46,511
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,642,489
<CASH> 67,022
<RECOVER-REINSURE> 733,477
<DEFERRED-ACQUISITION> 87,613
<TOTAL-ASSETS> 6,320,336
<POLICY-LOSSES> 3,623,143
<UNEARNED-PREMIUMS> 338,156
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 458
<OTHER-SE> 1,372,633
<TOTAL-LIABILITY-AND-EQUITY> 6,320,336
266,184
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<INCOME-TAX> 14,479
<INCOME-CONTINUING> 48,558
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</TABLE>
