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:
JUNE 30, 1999 1-13816
- --------------------- -----------------------
EVEREST REINSURANCE HOLDINGS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3263609
- ------------------------- ----------------------------
(State or other juris- (IRS Employer Identification
diction of incorporation Number)
or organization)
WESTGATE CORPORATE CENTER
LIBERTY CORNER, NEW JERSEY 07938-0830
-------------------------------------
(908) 604-3000
-------------------------------------
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 August 2, 1999
----- ----------------------------
COMMON STOCK, $.01 PAR VALUE 48,655,428
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
INDEX TO FORM 10-Q
PART I
FINANCIAL INFORMATION
---------------------
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
--------------------
Consolidated Balance Sheets at June 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Operations for the
three months and six months ended June 30, 1999
and 1998 (unaudited) 4
Consolidated Statements of Changes in Stockholders'
Equity for the three months and six months ended
June 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows for the
three months and six months ended June 30, 1999
and 1998 (unaudited) 6
Notes to Consolidated Interim Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS 13
-----------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
----------------------------------------------
MARKET RISK 22
-----------
PART II
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS 23
-----------------
ITEM 2. CHANGES IN SECURITIES 23
---------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
-------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23
---------------------------------------------------
ITEM 5. OTHER INFORMATION None
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24
--------------------------------
<PAGE>
Part I - Item 1
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value per share)
<TABLE>
<CAPTION>
June 30, December 31,
------------- -------------
ASSETS: 1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Fixed maturities - available for
sale, at market value (amortized
cost: 1999, $3,922,103; 1998,
$3,851,051) $ 4,008,122 $ 4,100,575
Equity securities, at market value
(cost: 1999, $91,264; 1998,
$91,787) 151,700 146,274
Short-term investments 53,725 34,846
Other invested assets 5,053 4,736
Cash 34,110 39,326
------------- -------------
Total investments and cash 4,252,710 4,325,757
Accrued investment income 64,640 64,220
Premiums receivable 275,536 261,488
Reinsurance receivables 853,461 981,959
Funds held by reinsureds 200,120 200,302
Deferred acquisition costs 73,985 70,753
Prepaid reinsurance premiums 12,759 8,592
Deferred tax asset 124,492 62,237
Other assets 83,852 21,420
------------- -------------
TOTAL ASSETS $ 5,941,555 $ 5,996,728
============= =============
LIABILITIES:
Reserve for losses and
adjustment expenses $ 3,718,180 $ 3,800,041
Unearned premium reserve 291,993 284,640
Funds held under reinsurance
treaties 177,808 195,169
Losses in the course of payment 69,249 64,630
Contingent commissions 107,199 111,344
Other net payable to reinsurers 23,264 18,731
Current federal income taxes (5,897) (581)
Revolving credit agreement
borrowings 35,000 -
Other liabilities 114,002 43,550
------------- -------------
Total liabilities 4,530,798 4,517,524
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value:
$0.01; 50 million shares
authorized; no shares issued
and outstanding (Includes
0.2 million shares of Series
A Junior Preferred Stock) - -
Common stock, par value: $0.01;
200 million shares authorized;
50.9 million shares issued in
1999 and 1998 509 509
Additional paid-in capital 390,891 390,559
Unearned compensation (160) (240)
Accumulated other comprehensive
income, net of deferred income
taxes ($46.7 million in 1999
and $99.8 million in 1998) 86,997 185,518
Retained earnings 1,001,906 928,500
Treasury stock, at cost; 2.2
million shares in 1999 and 0.9
million shares in 1998 (69,386) (25,642)
------------- -------------
Total stockholders' equity 1,410,757 1,479,204
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,941,555 $ 5,996,728
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Premiums earned $ 275,419 $ 264,726 $ 509,554 $ 506,062
Net investment income 64,570 62,525 126,650 122,538
Net realized capital
gain/(loss) (7,267) 2,523 (9,453) 2,506
Other income/(loss) (1,983) 649 (1,886) 2,195
---------- ---------- ---------- ----------
Total revenues 330,739 330,423 624,865 633,301
---------- ---------- ---------- ----------
CLAIMS AND EXPENSES:
Incurred loss and loss
adjustment expenses 196,852 195,552 365,721 374,144
Commission, brokerage,
taxes and fees 74,590 65,468 136,241 125,905
Other underwriting
expenses 12,457 12,393 23,984 24,217
---------- ---------- ---------- ----------
Total claims and
expenses 283,899 273,413 525,946 524,266
---------- ---------- ---------- ----------
INCOME BEFORE TAXES 46,840 57,010 98,919 109,035
Income tax 8,775 13,466 19,612 25,690
---------- ---------- ---------- ----------
NET INCOME $ 38,065 $ 43,544 $ 79,307 $ 83,345
========== ========== ========== ==========
Other comprehensive
income/(loss), net
of tax (68,671) 2,043 (98,521) 13,407
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME/
(LOSS) $ (30,606) $ 45,587 $ (19,214) $ 96,752
========== ========== ========== ==========
PER SHARE DATA:
Average shares
outstanding (000's) 48,679 50,480 49,238 50,481
Net income per
common share - basic $ 0.78 $ 0.86 $ 1.61 $ 1.65
========== ========== ========== ==========
Average diluted
shares outstanding
(000's) 48,897 50,799 49,459 50,799
Net income per common
share - diluted $ 0.78 $ 0.86 $ 1.60 $ 1.64
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
COMMON STOCK (shares
outstanding):
Balance, beginning of
period 49,006,740 50,482,326 49,989,204 50,479,271
Issued during the
period - 2,000 16,800 4,000
Treasury stock acquired
during period (353,800) (8,460) (1,354,120) (8,460)
Treasury stock reissued
during period 1,288 1,362 2,344 2,417
----------- ----------- ----------- -----------
Balance, end of period 48,654,228 50,477,228 48,654,228 50,477,228
=========== =========== =========== ===========
COMMON STOCK (par value):
Balance, beginning of
period $ 509 $ 508 $ 509 $ 508
Issued during the period - - - -
----------- ----------- ----------- -----------
Balance, end of period 509 508 509 508
----------- ----------- ----------- -----------
ADDITIONAL PAID IN
CAPITAL:
Balance, beginning of
period 390,881 389,928 390,559 389,876
Common stock issued
during the period - 34 307 67
Treasury stock reissued
during period 10 23 25 42
----------- ----------- ----------- -----------
Balance, end of period 390,891 389,985 390,891 389,985
----------- ----------- ----------- -----------
UNEARNED COMPENSATION:
Balance, beginning of
period (200) (436) (240) (514)
Net increase during the
period 40 101 80 179
----------- ----------- ----------- -----------
Balance, end of period (160) (335) (160) (335)
----------- ----------- ----------- -----------
ACCUMULATED OTHER
COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME
TAXES:
Balance, beginning of
period 155,668 163,683 185,518 152,319
Net increase (decrease)
during the period (68,671) 2,043 (98,521) 13,407
----------- ----------- ----------- -----------
Balance, end of period 86,997 165,726 86,997 165,726
----------- ----------- ----------- -----------
RETAINED EARNINGS:
Balance, beginning of
period 966,737 810,657 928,500 773,380
Net income 38,065 43,544 79,307 83,345
Dividends declared
($0.06 and $0.12 per
share in 1999 and
$0.05 and $0.10 per
share in 1998) (2,896) (2,524) (5,901) (5,048)
----------- ----------- ----------- -----------
Balance, end of period 1,001,906 851,677 1,001,906 851,677
----------- ----------- ----------- -----------
TREASURY STOCK AT COST:
Balance, beginning of
period (58,344) (8,061) (25,642) (8,086)
Treasury stock acquired
during period (11,072) (141) (43,799) (141)
Treasury stock reissued
during period 30 32 55 57
----------- ----------- ----------- -----------
Balance, end of period (69,386) (8,170) (69,386) (8,170)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS'
EQUITY, END OF PERIOD $ 1,410,757 $ 1,399,391 $ 1,410,757 $ 1,399,391
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES: (unaudited)
<S> <C> <C> <C> <C>
Net income $ 38,065 $ 43,544 $ 79,307 $ 83,345
Adjustments to reconcile
net income to net cash
provided by operating
activities:
(Increase) decrease in
premiums receivable 9,411 (17,637) (16,841) (26,309)
(Increase) decrease in
funds held, net (23,492) 2,442 (20,098) 7,673
Decrease in reinsurance
receivables 43,063 17,259 128,701 21,745
(Increase) decrease in
deferred tax asset (2,110) (7,230) (9,182) (9,185)
Increase (decrease) in
reserve for losses and
loss adjustment expense (41,487) 8,467 (62,848) 49,488
Increase (decrease) in
unearned premiums (1,343) (8,392) 8,648 (7,356)
(Increase) decrease in other
assets and liabilities (32,190) 16,929 (9,963) 6,116
Non cash compensation expense 40 101 80 179
Accrual of bond discount/
amortization of bond premium (1,228) (219) (2,540) (292)
Realized capital (gains)
losses 7,267 (2,523) 9,453 (2,506)
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (4,004) 52,741 104,717 122,898
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from fixed maturities
matured/called - available
for sale 50,048 40,643 123,679 70,626
Proceeds from fixed maturities
sold - available for sale 250,976 264,512 327,094 317,671
Proceeds from equity securities
sold 2,620 4,327 2,620 6,987
Proceeds from other invested
assets sold 131 5,357 131 6,671
Cost of fixed maturities
acquired - available for sale (299,940) (338,539) (537,645) (531,099)
Cost of equity securities
acquired (645) (6,778) (645) (8,187)
Cost of other invested
assets acquired (67) (150) (1,829) (445)
Net (purchases) sales of
short-term securities (22,653) 8,482 (18,715) (23,588)
Net increase (decrease) in
unsettled securities
transactions (6,023) (21,619) 14,051 7,273
----------- ----------- ----------- -----------
Net cash used in investing
activities (25,553) (43,765) (91,259) (154,091)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Acquisition of treasury
stock net of reissuances (11,032) (86) (43,719) (42)
Common stock issued during
the period - 34 307 67
Dividends paid to stockholders (2,896) (2,524) (5,901) (5,048)
Net borrowing on revolving
credit agreement 35,000 - 35,000 -
Net increase in collateral for
loaned securities - 3,855 - 31,753
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 21,072 1,279 (14,313) 26,730
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (1,980) (596) (4,361) 1,228
----------- ----------- ----------- -----------
Net increase (decrease) in
cash (10,465) 9,659 (5,216) (3,235)
Cash, beginning of period 44,575 38,684 39,326 51,578
----------- ----------- ----------- -----------
Cash, end of period $ 34,110 $ 48,343 $ 34,110 $ 48,343
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW
INFORMATION
Cash transactions:
Income taxes paid, net $ 28,839 $ 25,950 $ 33,634 $ 33,694
Non-cash financing
transaction:
Issuance of common stock $ 40 $ 101 $ 80 $ 179
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
1. GENERAL
The consolidated financial statements of Everest Reinsurance Holdings Inc. (the
"Company") for the three months and six months ended June 30, 1999 and 1998
include all adjustments, consisting of normal recurring accruals, which, in the
opinion of management, are necessary for a fair presentation of the results of
its single reportable segment 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 and six months ended June 30, 1999 and 1998 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, 1998, 1997 and
1996.
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 (i) the mitigation or remediation of environmental contamination
or (ii) 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: (i) potentially
long waiting periods between exposure and manifestation of any bodily injury or
property damage; (ii) difficulty in identifying sources of asbestos or
environmental contamination; (iii) difficulty in properly allocating
responsibility and/or liability for asbestos or environmental damage; (iv)
changes in underlying laws and judicial interpretation of those laws; (v)
potential for an asbestos or environmental claim to involve many insurance
providers over many policy periods; (vi) long reporting delays, both from
insureds to insurance companies and ceding companies to reinsurers; (vii)
historical data concerning asbestos and environmental losses, which is more
limited than historical information on other types of casualty claims; (viii)
questions concerning interpretation and application of insurance and reinsurance
coverage; and (ix) uncertainty regarding the number and identity of insureds
with potential asbestos or environmental exposure.
7
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
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 $375,000 of the first
$400,000 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 June 30, 1999
cessions under the Stop Loss Agreement have aggregated $339,179 with available
remaining limits net of coinsurance of $35,821. 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 REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
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 and six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross Basis:
Beginning of period
reserves $ 654,417 $ 469,666 $ 660,793 $ 446,132
Incurred losses 985 8,825 2,586 36,720
Paid losses (15,909) (11,923) (23,886) (16,284)
========== ========== ========== ==========
End of period
reserves $ 639,493 $ 466,568 $ 639,493 $ 466,568
========== ========== ========== ==========
Net Basis:
Beginning of period
reserves $ 379,828 $ 232,377 $ 263,542 $ 212,376
Incurred losses (1) - - - 2,222
Paid losses (2) (6,815) 20,515 109,471 38,294
---------- ---------- ---------- ----------
End of period
reserves $ 373,013 $ 252,892 $ 373,013 $ 252,892
========== ========== ========== ==========
</TABLE>
(1) Net of $0 and $0 in the three months and six months ended June 30, 1999 and
$0 and $20,000 in the three months and six months ended June 30, 1998 ceded
under the incurred loss reimbursement feature of the Stop Loss Agreement.
(2) Net of $0 and $118,800 in the three months and six months ended June 30,
1999 and $20,000 and $40,000 in the three months and six months ended June
30, 1998 ceded as paid losses under the Stop Loss Agreement.
At June 30, 1999, the gross reserves for asbestos and environmental losses were
comprised of $146,813 representing case reserves reported by ceding companies,
$64,094 representing additional case reserves established by the Company on
assumed reinsurance claims, $43,064 representing case reserves established by
the Company on direct excess insurance claims and $385,522 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 certain reimbursements under
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 100% protection from Gibraltar under a retrocessional
agreement in place since 1986. While there can be no assurance
9
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
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.
During the first quarter of 1999, Gibraltar disputed $63,000 ceded under the
Stop Loss Agreement in the fourth quarter of 1998 and, pursuant to the terms of
the Stop Loss Agreement, Gibraltar has placed the disputed amount in a trust.
Gibraltar has also disputed the Company's level of reserves previously ceded to
and paid by Gibraltar under the Stop Loss Agreement and claimed a refund of
$91,700. Pursuant to the terms of the Stop Loss Agreement, the Company and
Gibraltar have appointed an independent examiner to review the Company's
reserves underlying the disputed amounts to determine the appropriate amount of
cessions to Gibraltar, and the Company has placed the $91,700 in a trust. The
Company and Gibraltar have entered into a standstill agreement, advised the
independent examiner to cease his review and are attempting to resolve the
disputes. If the Company and Gibraltar are unable to resolve the disputes, the
independent examination process will be continued.
If the examination process does not resolve the disputes, the Stop Loss
Agreement provides for resolution through arbitration. In the event the cessions
to Gibraltar were determined to be excessive, the Company would reduce the
cession to Gibraltar by such excess, refund previous payments made by Gibraltar,
if applicable, and the unused portion of the limits of the Stop Loss Agreement
would be restored. Also, the Company would consider the independent examiners'
finding in its ongoing determination of appropriate reserve levels which may
lead to a corresponding reduction in the Company's gross reserves, and net
reserves to the extent of the coinsurance under the Stop Loss Agreement. In the
event the cessions are not determined to be excessive, Gibraltar would be
obligated to pay the disputed amount. Accordingly, if the disputes are resolved
in Gibraltar's favor, any adverse effect on the Company's financial condition
and results of operations would likely be limited to a reduction in cash flows
from operations with a corresponding impact on investment income.
The Company is named in various legal proceedings incidental to its normal
business activities. In the opinion of management, none of these proceedings is
likely to have a material adverse effect upon the financial condition, results
of operations or cash flows of the Company.
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 June 30, 1999 was $139,983.
10
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
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 June 30, 1999 was $11,224.
3. EARNINGS PER SHARE
Net income per common share has been computed as follows (Shares in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income (numerator) $ 38,065 $ 43,544 $ 79,307 $ 83,345
========== ========== ========== ==========
Weighted average common
and effect of dilutive
shares used in the
computation of net
income per share:
Average shares
outstanding -
basic (denominator) 48,679 50,480 49,238 50,481
Effect of dilutive
shares 218 319 221 318
---------- ---------- ---------- ----------
Average shares
outstanding -
diluted (denominator) 48,897 50,799 49,459 50,799
Net income per common
share:
Basic $ 0.78 $ 0.86 $ 1.61 $ 1.65
Diluted $ 0.78 $ 0.86 $ 1.60 $ 1.64
</TABLE>
As of June 30, 1999 and 1998 options to purchase 736,200 and 337,750 shares of
common stock, respectively, were outstanding but were not included in the
computation of diluted earnings per share for the three month and six 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 REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
4. OTHER COMPREHENSIVE INCOME
The Company's other comprehensive income / (loss) is comprised as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net unrealized appreciation
(depreciation) of investments,
net of deferred income taxes ($ 71,248) $ 4,392 ($ 102,412) $ 14,734
Currency translation
adjustments, net of deferred
income taxes 2,577 (2,349) 3,891 (1,327)
======== ======== ========= =========
Other comprehensive income/
(loss), net of deferred
income taxes ($ 68,671) $ 2,043 ($ 98,521) $ 13,407
======== ======== ========= =========
</TABLE>
5. CREDIT LINE
In June 1999, the Company renewed its 364 day revolving line of credit with
First Union National Bank. All of the terms and conditions of the original
credit facility remain in full force and effect, except that the maturity date
as extended is now June 10, 2000 and the statutory surplus maintenance
requirement and pricing terms have been amended. Outstanding borrowings under
the Company's revolving credit facility were $35,000 as of June 30, 1999,
reflecting short-term borrowings for general corporate liquidity purposes.
Interest expense incurred in connection with these borrowings was $283 for the
period ending June 30, 1999.
6. FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statements
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. In June 1999, SFAS
No. 137 was issued, which extended the effective date of SFAS No. 133 to all
fiscal quarters and fiscal years beginning after June 15, 2000. Management
believes that implementation of SFAS No. 133 and No. 137 will not have
a material impact on the financial position of the Company.
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PART I - ITEM 2
EVEREST REINSURANCE HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
PREMIUMS. Gross premiums written increased 5.9% to $283.2 million in the three
months ended June 30, 1999 from $267.5 million in the three months ended June
30, 1998 as the Company maintained a cautious approach to extremely competitive
market conditions. Factors contributing to this increase include a 10.0%
increase (to $108.1 million) in U.S. broker treaty operations, attributable to
growth in accident and health, non-standard auto and property business, a 9.2%
increase (to $52.1 million) in U.S. direct treaty reinsurance and insurance
operations, attributable to a large accident and health reinsurance treaty, the
impact of which offset declines elsewhere in these operations, a 6.5% increase
(to $76.5 million) in international premiums, largely attributable to growth in
the Company's Latin American and London operations, and a 1.9% increase (to
$30.8 million) in marine, aviation and surety premiums. These gains were
partially offset by a 19.3% decrease (to $15.8 million) in U.S. facultative
premiums.
Ceded premiums decreased to $11.8 million in the three months ended June 30,
1999 from $11.9 million in the three months ended June 30, 1998. This decrease
was principally attributable to decreases arising from changes to the Company's
catastrophe retrocessional protections partially offset by increases in contract
specific retrocessions on insurance operations.
Net premiums written increased by 6.2% to $271.4 million in the three months
ended June 30, 1999 from $255.6 million in the three months ended June 30, 1998
consistent with the increase in gross premiums written.
REVENUES. Net premiums earned increased by 4.0% to $275.4 million in the three
months ended June 30, 1999 from $264.7 million in the three months ended June
30, 1998, generally consistent with the increase in net premiums written and
changes in the Company's mix of business during the preceding twelve months.
Net investment income increased 3.3% to $64.6 million in the three months ended
June 30, 1999 from $62.5 million in the three months ended June 30, 1998,
principally reflecting the effect of investing the $165.1 million of cash flow
from operations in the twelve months ended June 30, 1999. The annualized pre-tax
yield on average cash and invested assets increased to 6.3% in the three months
ended June 30, 1999, from the 6.2% yield in the three months ended June 30,
1998, reflecting implementation of the Company's investment strategies in the
context of the generally higher interest rate environment.
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Net realized capital losses were $7.3 million in the three months ended June 30,
1999, reflecting realized capital losses on the Company's investments of $8.5
million which were partially offset by $1.2 million of realized capital gains,
compared to net realized capital gains of $2.5 million in the three months ended
June 30, 1998. The net realized capital gains in the three months ended June 30,
1998 reflected realized capital gains of $5.1 million which were offset by $2.6
million of realized capital losses. The realized capital losses in the three
months ended June 30, 1999 arose mainly from activity in the Company's taxable
and tax-exempt domestic fixed maturities portfolios, whereas the realized
capital losses in the three months ended June 30, 1998 were attributable to
activity in the Company's tax-exempt domestic fixed maturities portfolio. The
realized capital gains in the three months ended June 30, 1999 mainly arose from
activity in the Company's domestic equity portfolio, whereas the realized
capital gains in the three months ended June 30, 1998 were attributable to
activity in the Company's taxable domestic fixed maturities portfolio. The net
realized capital losses in the three months ended June 30, 1999 generally
reflect realized capital loss transactions, with corresponding reinvestment of
proceeds at current reinvestment rates, aimed at enhancing the Company's
long-term after-tax portfolio yield.
Other loss for the three months ended June 30, 1999 was $2.0 million compared to
other income of $0.6 million for the three months ended June 30, 1998. Other
loss and income for the respective periods are principally attributable to the
impact of fluctuations in foreign currency exchange rates. In addition, other
loss for the three months ended June 30, 1999 includes $0.3 million in interest
expense relating to the Company's revolving credit agreement.
EXPENSES. Incurred losses and loss adjustment expenses ("LAE") increased by 0.7%
to $196.9 million in the three months ended June 30, 1999 from $195.6 million in
the three months ended June 30, 1998. Catastrophe losses in the three months
ended June 30, 1999 were $6.2 million compared with $1.0 million in the three
months ended June 30, 1998. The catastrophe losses in the three months ended
June 30, 1999 resulted primarily from an event involving severe tornados in
Oklahoma ("Oklahoma Tornados"). Catastrophe losses include the pre-tax impact of
both current period events and favorable and unfavorable loss development on
prior period events and are net of reinsurance. The Company's loss and LAE ratio
decreased by 2.4 percentage points to 71.5% in the three months ended June 30,
1999 from 73.9% in the three months ended June 30, 1998. The decrease
principally results from changes in the Company's mix of business, including the
absence in the three months ended June 30, 1999 of the impact of certain
reinsurance treaties with higher expected losses and lower ceding commissions
which were reflected in the three months ended June 30, 1998, partially offset
by an increase in catastrophe losses in the three months ended June 30, 1999.
Net incurred losses and LAE for the three months ended June 30, 1999 reflected
ceded losses and LAE of $8.9 million with $0.0 million ceded under the Stop Loss
Agreement compared to ceded losses and LAE of $1.4 million in the three months
ended June 30, 1998, including $0.0 million ceded under the Stop Loss Agreement.
Underwriting expenses increased by 11.8% to $87.0 million in the three months
ended June 30, 1999 from $77.9 million in the three months ended June 30, 1998.
Commission, brokerage, taxes and fees increased by $9.1 million, principally
relating to the increase in premiums written and the impact of the previously
noted changes in the business mix. Other underwriting expenses increased by $0.1
million. The Company's expense ratio was 31.6% in the three months ended June
30, 1999 compared to 29.4% in the three months ended June 30, 1998.
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The Company's combined ratio decreased to 103.1% in the three months ended June
30, 1999 compared to 103.3% in the three months ended June 30, 1998.
INCOME TAXES. The Company recognized income tax expense of $8.8 million in the
three months ended June 30, 1999 compared to $13.5 million in the three months
ended June 30, 1998. The principal cause of this change was the increase in net
realized capital losses.
NET INCOME. Net income was $38.1 million in the three months ended June 30, 1999
compared to $43.5 million in the three months ended June 30, 1998. This
generally reflected stable underwriting results coupled with an increase in net
investment income, offset by increased realized capital losses, the result of
which lowered the overall taxes for the period.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
PREMIUMS. Gross premiums written increased 3.2% to $537.1 million in the six
months ended June 30, 1999 from $520.5 million in the six months ended June 30,
1998 as the Company maintained a cautious approach to extremely competitive
market conditions. Factors contributing to this increase included a 6.5%
increase (to $190.4 million) in U.S. broker treaty operations, attributable to
growth in accident and health, non-standard auto and property business, a 5.3%
increase (to $153.8 million) in international operations, mainly attributable to
the Company's London operation, and a 2.3% increase (to $60.9 million) in
marine, aviation and surety operations. These gains were partially offset by a
3.3% decrease (to $97.5 million) in U.S. direct treaty reinsurance and insurance
operations, attributable to a decrease in the Company's treaty portfolio
business partially offset by the impact of a large accident and health
reinsurance treaty, and a 2.3% decrease (to $34.5 million) in U.S. facultative
operations.
Ceded premiums increased to $23.1 million in the six months ended June 30, 1999
from $22.2 million in the six months ended June 30, 1998. This increase was
principally attributable to an increase in the Company's contract specific
retrocessions, particularly on insurance operations, the impact of which was
partially offset by a decrease arising from changes to the Company's catastrophe
retrocessional protections.
Net premiums written increased by 3.1% to $513.9 million in the six months ended
June 30, 1999 from $498.3 million in the six months ended June 30, 1998
reflecting the growth in gross premiums written, partially offset by the
increases in ceded premiums.
REVENUES. Net premiums earned increased by 0.7% to $509.6 million in the six
months ended June 30, 1999 from $506.1 million in the six months ended June 30,
1998, generally consistent with the growth in net premiums written and changes
in the Company's mix of business during the preceding twelve months.
Net investment income increased 3.4% to $126.7 million in the six months ended
June 30, 1999 from $122.5 million in the six months ended June 30, 1998,
reflecting the effect of investing the $165.1 million of cash flow from
operations in the twelve months ended June 30, 1999. The annualized pre-tax
yield on average cash and invested assets increased to 6.2% in the six months
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ended June 30, 1999, from the 6.1% yield in the six months ended June 30, 1998,
reflecting implementation of the Company's investment strategies in the context
of the generally higher interest rate environment.
Net realized capital losses were $9.5 million in the six months ended June 30,
1999, reflecting realized capital losses on the Company's investments of $10.9
million which were offset by $1.4 million of realized capital gains, compared to
net realized capital gains of $2.5 million in the six months ended June 30,
1998. The net realized capital gains in the six months ended June 30, 1998
reflected realized capital gains of $6.7 million which were offset by $4.2
million of realized capital losses. The realized capital losses in the six
months ended June 30, 1999 arose mainly from activity in the Company's taxable
and tax-exempt domestic fixed maturities portfolios, whereas the realized
capital losses in the six months ended June 30, 1998 were attributable to
activity in the Company's tax-exempt domestic fixed maturities portfolio. The
realized capital gains in the six months ended June 30, 1999 mainly arose from
activity in the Company's domestic equity portfolio, whereas the realized
capital gains in the six months ended June 30, 1998 were attributable to a
combination of the activity in the Company's taxable domestic fixed maturities
portfolio and domestic equity portfolio. The net realized capital losses in the
six months ended June 30, 1999 generally reflect realized capital loss
transactions, with corresponding reinvestment of proceeds at current
reinvestment rates, aimed at enhancing the Company's long-term after-tax
portfolio yield.
Other loss for the six months ended June 30, 1999 was $1.9 million compared to
other income of $2.2 million for the six months ended June 30, 1998. Other loss
and income for the respective periods are principally attributable to the impact
of fluctuations in foreign currency exchange rates. In addition, other loss for
the six months ended June 30, 1999 includes $0.3 million in interest expense
relating to the Company's revolving credit agreement.
EXPENSES. Incurred losses and LAE decreased by 2.3% to $365.7 million in the six
months ended June 30, 1999 from $374.1 million in the six months ended June 30,
1998. Catastrophe losses in the six months ended June 30, 1999 were $17.6
million compared with $7.0 million in the six months ended June 30, 1998. The
catastrophe losses in the six months ended June 30, 1999 resulted primarily from
the Rouge steel plant fire and the Oklahoma Tornados. Catastrophe losses include
the pre-tax impact of both current period events and favorable and unfavorable
development on prior period events and are net of reinsurance. The Company's
loss and LAE ratio decreased by 2.1 percentage points to 71.8% for the six
months ended June 30, 1999 from 73.9% in the six months ended June 30, 1998. The
decrease principally results from changes in the Company's mix of business,
including the absence in the six months ended June 30, 1999 of the impact of
certain reinsurance treaties with higher expected losses and lower ceding
commissions which were reflected in the six months ended June 30, 1998,
partially offset by an increase in catastrophe losses in the six months ended
June 30, 1999. Net incurred losses and LAE for the six months ended June 30,
1999 reflected ceded losses and LAE of $19.2 million, including $0.0 million
ceded under the Stop Loss Agreement, compared to ceded losses and LAE of $35.2
million in the six months ended June 30, 1998, including $20.0 million ceded
under the Stop Loss Agreement.
Underwriting expenses increased by 6.7% to $160.2 million in the six
months ended June 30, 1999 from $150.1 million in the six months ended
June 30, 1998. Commission and brokerage expenses increased by $10.3
million, principally reflecting the increase in premiums written together
with the previously discussed changes in the Company's business mix. Other
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underwriting expenses decreased by $0.2 million. The Company's expense ratio was
31.4% in the six months ended June 30, 1999 compared to 29.7% in the six months
ended June 30, 1998.
The Company's combined ratio decreased to 103.2% in the six months ended June
30, 1999 from 103.6% in the six months ended June 30, 1998.
INCOME TAXES. The Company recognized income tax expense of $19.6 million in the
six months ended June 30, 1999 compared to $25.7 million in the six months ended
June 30, 1998. The principal cause of this change was the increase in net
realized capital losses.
NET INCOME. Net income was $79.3 million in the six months ended June 30, 1999
compared to $83.3 million in the six months ended June 30, 1998. This generally
reflected stable underwriting results coupled with an increase in net investment
income, offset by increased realized capital losses, the result of which lowered
the overall taxes for the period.
FINANCIAL CONDITION
INVESTED ASSETS. Aggregate invested assets, including cash and short-term
investments, were $4,252.7 million at June 30, 1999 and $4,325.8 million at
December 31, 1998. The decrease in invested assets between December 31, 1998 and
June 30, 1999 resulted primarily from a decrease of $163.2 million in net
unrealized appreciation on fixed maturity investments and repurchases of the
Company's stock totaling $43.7 million partially offset by cash flow from
operations of $104.7 million generated during the six months ended June 30,
1999, an increase of $18.9 million in short-term investments and a $5.4 million
increase in net unrealized appreciation on the equity security portfolio.
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 $104.7 million and $122.9 million in the six months ended June
30, 1999 and 1998, respectively. Recoveries under the Company's Stop Loss
Agreement with Gibraltar contributed $79.0 million and $20.6 million of such net
cash flows in the six months ended June 30, 1999 and 1998, respectively. Through
June 30, 1999 cessions under the Stop Loss Agreement have aggregated $339.2
million with available remaining limits net of coinsurance of $35.8 million.
Excluding the Stop Loss recoveries, management believes the decrease in net cash
flows from operating activities reflects changes in the Company's mix of
business and variability in the payout of loss reserves.
Proceeds and applications from sales and acquisitions of investment assets were
$467.6 million and $558.9 million, respectively, in the six months ended June
30, 1999, compared to $409.2 million and $563.3 million, respectively, in the
six months ended June 30, 1998 reflecting normal portfolio management activity.
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.
In June 1999, the Company renewed its 364 day revolving
line of credit with First Union National Bank. Outstanding
borrowings under the Company's revolving credit facility were
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$35.0 million as of June 30, 1999, reflecting short-term borrowings for general
corporate liquidity purposes. Interest expense incurred in connection with these
borrowings was $0.3 million for the period ending June 30, 1999.
STOCKHOLDERS' EQUITY. The Company's stockholders' equity decreased to $1,410.8
million as of June 30, 1999, from $1,479.2 million as of December 31, 1998
principally reflecting a decrease of $102.4 million in unrealized appreciation
on investments, net of deferred taxes, and $43.7 million in treasury stock
acquired in the six months ended June 30, 1999, offset by net income of $79.3
million for the six months ended June 30, 1999. Dividends of $5.9 million were
declared and paid by the Company in the six months ended June 30, 1999. During
the six months ended June 30, 1999, the Company repurchased 1.354 million shares
of its common stock at an average price of $32.32 per share, raising the total
repurchases under the Company's authorized repurchase program to 1.871 million
shares at an average price of $32.70 per share. The total repurchase
expenditures to date is $61.2 million.
GIBRALTAR CESSION. During the first quarter of 1999, Gibraltar disputed $63.0
million ceded under the Stop Loss Agreement in the fourth quarter of 1998 and,
pursuant to the terms of the Stop Loss Agreement, Gibraltar has placed the
disputed amount in a trust. Gibraltar has also disputed the Company's level of
reserves previously ceded to and paid by Gibraltar under the Stop Loss Agreement
and claimed a refund of $91.7 million. Pursuant to the terms of the Stop Loss
Agreement, the Company and Gibraltar have appointed an independent examiner to
review the Company's reserves underlying the disputed amounts to determine the
appropriate amount of cessions to Gibraltar, and the Company has placed the
$91.7 million in a trust. The Company and Gibraltar have entered into a
standstill agreement, advised the independent examiner to cease his review and
are attempting to resolve the disputes. If the Company and Gibraltar are unable
to resolve the disputes, the independent examination process will be continued.
If the examination process does not resolve the disputes, the Stop Loss
Agreement provides for resolution through arbitration. In the event the cessions
to Gibraltar were determined to be excessive, the Company would reduce the
cession to Gibraltar by such excess, refund previous payments made by Gibraltar,
if applicable, and the unused portion of the limits of the Stop Loss Agreement
would be restored. Also, the Company would consider the independent examiners'
finding in its ongoing determination of appropriate reserve levels which may
lead to a corresponding reduction in the Company's gross reserves, and net
reserves to the extent of the coinsurance under the Stop Loss Agreement. In the
event the cessions are not determined to be excessive, Gibraltar would be
obligated to pay the disputed amount. Accordingly, if the disputes are resolved
in Gibraltar's favor, any adverse effect on the Company's financial condition
and results of operations would likely be limited to a reduction in cash flows
from operations with a corresponding impact on investment income.
MARKET SENSITIVE INSTRUMENTS. The Company's risks associated with market
sensitive instruments have not changed materially since the period ended
December 31, 1998.
YEAR 2000 ISSUES. Many computers, software programs and microprocessors
embedded in certain equipment (collectively, "systems") were designed to
accommodate only two-digit date fields to represent a given year (e.g., "98"
represents 1998). It is possible that such systems will not be able to
accurately process data containing information relating to dates before,
during or after the year 2000. It is also possible that such systems
could fail entirely, although in many instances the consequences of a
system not being "year 2000 compliant" are unknown. The "year
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2000 issue" has the potential to affect the Company through (i) the disruption
of the processing of business and general corporate transactions, both at the
Company and between the Company and other business entities with which it
interacts, and (ii) claims which may be brought asserting that costs associated
with the issue may be covered under insurance or reinsurance contracts in which
the Company participates.
READINESS. The Company has been actively engaged in a project to mitigate the
potential effects of the year 2000 issue. For each segment of its internal
computer processing environment (mainframe, midrange and PC equipment), the
Company has a multi-phase plan that involves (a) the identification and
assessment of year 2000 compliance, (b) the design and development of remedies
(including the replacement of non-compliant systems if needed), (c) testing of
year 2000 readiness and (d) the implementation of fully integrated year
2000-compliant processing. The Company has substantially completed all year 2000
preparations for its technology infrastructure, including mainframe, mid-range
and PC operating systems, networks, voice and data telecommunications, buildings
and facilities, and vendor software products that are critical to the business.
The Company continues to develop its year 2000 contingency plans, mitigate
exposures with respect to less critical software applications and monitor and
test its technology environment for compliance.
The Company has continued to actively survey its significant business partners
(e.g., ceding companies) and service providers (e.g., banks) concerning their
compliance status. The information received to date has not identified any
significant barriers to year 2000 compliance, and the Company believes that
these entities will be sufficiently compliant that the year 2000 issue will not
cause disruption to the Company's business.
COSTS. The Company's historical and expected future costs to make its systems
year 2000 compliant are not material. The total expected out-of-pocket costs of
the year 2000 effort are approximately $0.6 million, of which approximately $0.5
million had been incurred as of June 30, 1999. These figures include only
expenses specifically related to Year 2000 compliance and do not include the
cost of hardware or software acquisitions made in the normal course of business.
RISKS. The Company does not rely on computer-dependent transactions to the same
extent as many other businesses. However, in the event that the Company's
internal processing environment could not be made year 2000-compliant, or in the
event that significant business partners or service providers or other business
entities experienced serious year 2000 problems, the Company could experience
disruption in its business. Such disruption could conceivably take several
forms: (a) having to compile information and process transactions manually, (b)
if compliance problems persisted, impairing the Company's ability to receive
premiums from and make claim payments to its ceding companies, (c) impairing the
Company's ability to obtain information about its investments or (d) impairing
the value of the Company's fixed maturity and equity investments, if the
entities underlying those investments themselves have substantial year 2000
costs, liabilities or disruptions. Any or all of the types of possible
disruptions in such a "worst case scenario" could materially increase the cost
of doing business, could impair the Company's ability to make required
regulatory filings and could materially affect the Company's results of
operations, liquidity or financial condition. However, based upon current
information, the Company does not expect such scenarios to occur and does not
expect material disruption to its business.
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CONTINGENCY PLANS. Although it has considered various scenarios concerning the
possible effects of the year 2000 issue, the Company does not yet have formal
contingency plans relating to either its internal processing environment or its
external business contacts. The Company is implementing a "by function"
contingency planning process, focusing primarily on year 2000 mission-critical
processes, and the Company expects to complete development of these contingency
plans prior to the end of 1999.
POTENTIAL CLAIMS EXPOSURE. Individuals or entities which experience business
disruption, increased costs or other problems associated with the year 2000
issue may assert claims, which could be substantial, against their own insurance
carrier to recover such costs or against other entities for damages, which
entities may in turn assert that such potential damages are covered by
insurance. It is not yet possible to determine the extent to which any such
claims will be made against insurers, whether such claims will be held to have
merit or whether any such claims may be made against insurance or reinsurance
contracts in which the Company participates. With respect to prospective
business, the Company works with brokers and ceding companies to attempt to
determine whether prospective or existing business written carries potential
year 2000 exposures. If the ceding company, in the Company's opinion, is
adequately underwriting the exposures, the Company may not exclude such
exposures from its contracts. If the ceding company is not adequately addressing
the issue, the Company will attempt to exclude those exposures from its
contracts or non-renew those contracts. There can be no assurance, however, that
such business will be completely free of potential exposure to claims related to
the year 2000 issue.
EURO CONVERSION. On January 1, 1999 eleven of the fifteen member countries of
the European Union (the "participating countries") established fixed conversion
rates between their existing sovereign currencies (the "legacy currencies") and
the Euro. The Company has established the necessary procedures to accept the
Euro as a new currency in which it does business. The nature of the Company's
reinsurance business and its investments is such that the impact of the Euro
conversion has not been and is not expected to be material to the Company's
business, operations or financial condition. Although systems which support the
Company's United Kingdom and Belgian operations require modifications to enable
conversion of legacy currency historical data and to accommodate conversions in
accordance with European Union requirements, which modifications by the system
vendor are essentially complete subject to final testing, a failure of the
vendor to complete the system modifications is not expected to be material to
the Company's business, operations or financial condition. Beginning January 1,
2002, new Euro-denominated bills and coins will be issued and by July 1, 2002,
the participating countries' legacy currencies will no longer be legal tender
for any transactions. The Company has operations in Belgium and the United
Kingdom, both members of the European Union; Belgium became a participating
country on January 1, 1999. The Company has not yet determined when it will
convert the functional currency for its Belgian operation to the Euro.
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, 1998 set forth cautionary
statements identifying important factors, among others, that in some cases have
affected and that could cause its 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
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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,
plans for future operations, common stockholders' equity (including book value
per share), 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. Undue reliance on any
forward-looking statements should be avoided. 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.
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PART I - ITEM 3
EVEREST REINSURANCE HOLDINGS, INC.
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, 1998.
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EVEREST REINSURANCE HOLDINGS, INC.
OTHER INFORMATION
Part II - ITEM 1. LEGAL PROCEEDINGS
The Company is subject to litigation and arbitration in the normal course of its
business. Management does not believe that any such pending litigation or
arbitration will have a material adverse effect on the Company's results of
operations, financial condition and cash flows.
Part II - ITEM 2. CHANGES IN SECURITIES
c) Information required by Item 701 of Regulation S-K:
(a) On April 1, 1999, 1,288 common shares of the Company
(previously held Treasury shares) were distributed.
(b) The securities were distributed to the Company's four
non-employee directors.
(c) The securities were issued as compensation to the non-employee
directors for services rendered to the Company during the
first quarter of 1999.
(d) Exemption from registration was claimed pursuant to Section
4(2) of the Securities Act of 1933. There was no public
offering and the participants in the transactions were the
Company and its non-employee directors.
(e) Not applicable.
Part II - ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting was held on May 20, 1999.
b) Thomas J. Gallagher and William F. Galtney, Jr. were elected at the
Annual Meeting as Directors of the Company for a term expiring in 2002.
The term of office of the following Directors continued after the
meeting: Martin Abrahams, Kenneth J. Duffy, John R. Dunne, and Joseph
V. Taranto.
c) (1) The following Directors were elected:
Votes Votes
For Withheld
----- --------
Thomas J. Gallagher 43,767,782 1,492,094
William F. Galtney, Jr. 43,768,486 1,491,390
23
<PAGE>
(2) A new Executive Performance Annual Incentive Plan ("Plan") was
approved by the stockholders. The holders of 43,635,048 shares
voted in favor of the Plan; the holders of 1,588,080 shares
voted against the Plan; and the holders of 36,745 shares
abstained. There were no broker non-votes.
Part II - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit Index:
Exhibit No. Description Location
----------- ----------- --------
*10.25 Resolution adopted by Board of Filed herewith
Directors on April 1, 1999 awarding
stock options to outside directors
*10.26 Executive Performance Annual Filed herewith
Incentive Plan adopted by
stockholders on May 20, 1999
10.27 First Amendment to Credit Agreement Filed herewith
and Extension dated June 10, 1999
Between Everest Reinsurance
Holdings, Inc. and First Union
National Bank
11.1 Statement regarding computation Filed herewith
of per-share earnings
27 Financial Data Schedule Filed herewith
- --------------
* Management contract or compensatory plan or arrangement.
b) There were no reports on Form 8-K filed during the three-month
period ending June 30, 1999.
Omitted from this Part II are items which are inapplicable or to which the
answer is negative for the period covered.
24
<PAGE>
EVEREST REINSURANCE HOLDINGS, INC.
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 Reinsurance Holdings, Inc.
(Registrant)
- By: /S/ Stephen L. Limauro
------------------------------
Stephen L. Limauro
Duly Authorized Officer, Senior Vice
President and Comptroller
Dated: August 2, 1999
Exhibit 10.25
RESOLUTION OF BOARD OF DIRECTORS ADOPTED APRIL 1, 1999
AWARD OF STOCK OPTIONS TO OUTSIDE DIRECTORS
-------------------------------------------
WHEREAS, the Board of Directors believes that it is advisable and
in the best interests of the Company and its stockholders to award
non-employee directors options to purchase common stock of the Company in
order to increase the ownership interest in the Company of non-employee
directors whose services are considered essential to the Company's
continued progress, to align such interests with those of the stockholders
of the Company and to provide a further incentive to serve as a director
of the Company; and
WHEREAS, the Company has sufficient treasury shares of its Common
Stock available to provide for such awards to non-employee directors.
NOW THEREFORE, BE IT RESOLVED, that effective April 1, 1999,
Martin Abrahams, Kenneth J. Duffy, John R. Dunne and William F. Galtney,
Jr. are each hereby awarded non-qualified stock options to purchase 6,500
shares of Common Stock at the average of the highest and lowest sale price
of the Common Stock as reported on the Composite Transaction Tape of the
New York Stock Exchange on April 1, 1999, or if no sale of the Common
Stock is reported for such date, the next preceding day for which there is
a reported sale; and
FURTHER RESOLVED, that each award of options as set forth in the
preceding resolution shall be evidenced by an award agreement setting
forth the number of shares of Common Stock subject to the award and other
terms and conditions applicable to the award and that no person shall have
any rights under any award unless and until the person to whom such award
shall have been granted shall have executed and delivered to the Company
an award agreement, provided, however that the execution and delivery of
such an award agreement shall not be a pre-condition to the granting of
such award; and
FURTHER RESOLVED, that the form of Stock Option Agreement for
Non-Employee Directors dated March 31, 1999 (copy attached hereto and
ordered filed in the minute book) is hereby approved for each of the
awards set forth in the preceding resolutions; and
FURTHER RESOLVED, that the Company reserve and set aside from
shares of the Company's Common Stock held in its treasury 26,000 shares of
such Common Stock deliverable upon exercise of stock options approved in
the preceding resolutions, such reservation and setting aside to continue
so long as and to the extent required to satisfy the exercise of the
options awarded in the preceding resolutions; and
<PAGE>
FURTHER RESOLVED, that the officers of the Company are hereby
authorized to execute and deliver Stock Option Agreements for Non-Employee
Directors in the form approved in the next preceding resolution on April
1, 1999 evidencing the awards approved herein, and to do or cause to be
done all acts and things necessary and appropriate to effectuate the
intent and purposes of this and the immediately preceding resolutions.
Exhibit 10.26
EVEREST REINSURANCE HOLDINGS, INC.
EXECUTIVE PERFORMANCE ANNUAL INCENTIVE PLAN
1. PURPOSE
-------
The purpose of the Everest Reinsurance Holdings, Inc. Executive
Performance Annual Incentive Plan (the "Plan") is to provide incentive for
executives who are in a position to contribute materially to the success of the
Company and its Subsidiaries; to reward their accomplishments; to motivate
future accomplishments; and to aid in attracting and retaining executives of the
caliber necessary for the continued success of the Company and its Subsidiaries.
2. DEFINITIONS
-----------
The following terms as used herein shall have the meaning specified:
(a) "Award" means a performance incentive bonus paid pursuant to
the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986 as amended.
Reference to a specific section of the Code shall include such
section, any valid regulation promulgated thereunder, and any
comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or
regulation.
(d) "Committee" means the Committee appointed by the Board to
administer the Plan. The Committee shall consist of no fewer
than two members of the Board. The members of the Committee
shall be appointed by, and serve at the pleasure of, the
Board. Each member of the Committee shall qualify as an
"outside director" under Code Section 162 (m).
(e) "Company" means Everest Reinsurance Holdings, Inc. or any
successor corporation.
(f) "Participant" means a corporate officer of the Company or a
Subsidiary selected by the Committee in its sole discretion to
participate in the Plan.
(g) "Performance Criteria" means the following measures of
performance:
o net income, before or after taxes
o operating income, before or after taxes
o premiums earned
o earnings per share
o return on stockholders' equity
o return on assets
o appreciation in and/or maintenance of the price of
the common stock or any other publicly traded
securities of the Company
o comparisons with various stock market indices
<PAGE>
o market share
o statutory combined ratio
o expense ratio
o reductions in costs and expense growth
o gross or net premium growth
A performance criteria may be applied by the Committee as a measure of
the performance of any, all, or any combination of the Company or a
Subsidiary.
(h) "Performance Goal" means the goal or goals established for a
Participant by the Committee in accordance with paragraph 4
(a).
(i) "Subsidiary" means any corporation in which the Company,
directly or indirectly, controls 50% or more of the total
combined voting power of all classes of such corporation's
stock.
(j) "Target Awards" means the amount of the target award
established for each Participant by the Committee in
accordance with paragraph 4 (a).
3. TERM
----
The Plan shall be effective as of January 1, 1999, subject to approval
by a vote of the shareholders at the 1999 Annual Meeting of
Shareholders, and such shareholder approval shall be a condition to the
right of any Participant to receive any benefits hereunder. As long as
the Plan remains in effect, it shall be resubmitted to shareholders as
necessary to enable the Plan to continue to qualify as
performance-based compensation under Section 162(m) of the Code.
4. AWARDS
------
(a) Within ninety (90) days after the beginning of each year,
the Committee, in its sole discretion, shall select
Participants for the year and establish in writing (i)
objective Performance Goal or Goals for each Participant for
that year based on one or more of the Performance Criteria
(ii) the specific award amounts that will be paid to each
Participant if the Performance Goal or Goals are achieved
(the "Target Award") and (iii) an objective method by which
such amounts will be calculated, which calculation will be
based upon a comparison of actual performance to the
the Performance Goal or Goals. The calculation of the amount
of an Award shall be objectively determinable. The maximum
Award that may be paid to any Participant under the Plan for
any year will be $2 million. The selection of a Participant
for any given year does not mean that the Participant will be
selected or will be entitled to be selected as a Participant
in any subsequent year.
(b) The Committee, in its sole discretion, may eliminate or
reduce, but not increase, any Award calculated under the
methodology established in accordance with paragraph 4 (a).
2
<PAGE>
(c) As soon as practicable following each year while the Plan is
in effect, the Committee shall determine and certify in
writing the extent to which the Performance Goal or Goals
applicable to each Participant for the year were achieved and
the amount of the Award, if any, to be made. Awards will be
paid to the Participants in cash following such certification
by the Committee and no later than ninety (90) days following
the close of the year with respect to which the Awards are
made, unless a Participant has elected to defer all or a
portion of such payment pursuant to the Company's or a
Subsidiary's Deferred Compensation Plan, in which event,
payment of the amount deferred will be made in accordance with
the terms of the Deferred Compensation Plan.
(d) No Award will be paid to any Participant who is not an
employee of the Company on the last day of the year, except
that if during the last eight (8) months of the year, the
Participant retires, dies, or is involuntarily terminated,
the Participant may be entitled to a prorated Award as and
to the extent determined by the Committee in its sole
discretion. If a Participant is on disability for more than
four (4) months of the year, the Participant will be entitled
to a prorated Award. Participants, who resign voluntarily
after the end of the year, but before Award payments are
payments are actually made, will be eligible for an Award as
and to the extent determined by the Committee in its sole
discretion. The provisions of this subparagraph are subject
to the terms of any written agreement between a Participant
and the Company.
(e) In no event shall the total amount of Awards granted to the
Participants in any one year exceed ten percent (10%) of the
Company's average annual income before taxes for the preceding
five years.
5. ADMINISTRATION
--------------
(a) The Plan shall be administered by the Committee. The Committee
shall have all discretion and authority necessary or
appropriate to administer the Plan and to interpret the
provisions of the Plan, consistent with qualification of the
Plan as performance-based compensation under Code Section 162
(m). Any determination, decision or action of the Committee in
connection with the construction, interpretation,
administration or application of the Plan shall be final,
conclusive and binding upon all persons.
(b) No member of the Committee or the Board shall be liable for
any action taken or determination made in good faith with
respect to the Plan or any Award thereunder, and the Company
shall defend and indemnify Committee and Board members for any
actions taken or decisions made in good faith under the Plan.
6. MISCELLANEOUS
-------------
(a) NON-ASSIGNABILITY. No Award shall be assignable or
transferable (including pursuant to a pledge or security
interest) other than by will or by laws of descent and
distribution.
3
<PAGE>
(b) WITHHOLDING TAXES. Whenever payments under the Plan are to be
made, the Company and/or the Subsidiary shall withhold
therefrom an amount sufficient to satisfy any applicable
governmental withholding tax requirements related thereto.
(c) AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any
time and without notice to any corporate officer of the
Company or a Subsidiary suspend, discontinue, revise, amend or
terminate the Plan; provided, that any such revision, or
amendment which requires approval of the Company's
shareholders in order to maintain the qualification of Awards
as performance-based compensation pursuant to Code Section 162
(m) shall not be made without such approval.
(d) NON-UNIFORM DETERMINATIONS. The Committee's determinations
under the Plan need not be uniform and may be made by it
selectively among persons who receive, or are eligible to
receive, Awards under the Plan, whether or not such persons
are similarly situated. Without limiting the generality of the
foregoing, the Committee shall be entitled, among other
things, to make non-uniform and selective determinations and
to establish non-uniform and selective Performance Goals.
(e) OTHER PAYMENTS OR AWARDS. Nothing contained in the Plan shall
be deemed in any way to limit or restrict the Company, its
Subsidiaries, or the Committee from making any award or
payment to any person under any other plan, arrangement or
understanding, whether now existing or hereafter in effect.
(f) PAYMENTS TO OTHER PERSONS. If payments are legally required to
be made to any person other than the person to whom any amount
is available under the Plan, payments shall be made
accordingly. Any such payment shall be a complete discharge of
the liability of the Company, its Subsidiaries, and the
Committee.
(g) UNFUNDED PLAN. A Participant shall have no interest in any
fund or specified asset of the Company or a Subsidiary.
Nothing contained in the Plan, and no action taken pursuant
to its provisions, shall create or be construed to create a
trust of any kind, or a fiduciary relationship between the
Company or its Subsidiaries and any Participant, beneficiary,
legal representative or any other person. To the extent that
any person acquires a right to receive payments from the
Company and its Subsidiaries under the Plan, such right shall
be no greater than the right of an unsecured general creditor
of the Company and its Subsidiaries. All payments to be made
hereunder shall be paid from the general funds of the Company
and its Subsidiaries and no special or separate fund shall be
established and no segregation of assets shall be made to
assure payment of such amounts. The Plan is not intended
to be an employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended.
(h) LIMITS OF LIABILITY. Neither the Company, its Subsidiaries,
nor any member of the Board or of the Committee, nor any other
person participating in any determination of any question
under the Plan, or in the interpretation, administration or
application of the Plan, shall have any liability to any party
for any good faith action taken or not taken under the Plan.
4
<PAGE>
(i) NO RIGHT TO EMPLOYMENT. Nothing contained in this Plan shall
confer upon any Participant any right to continue in the
employ or other service of the Company or a Subsidiary, or
constitute any contract or limit in any way the right of the
Company or a Subsidiary to change such person's compensation
or other benefits or to terminate the employment or other
service of such person with or without cause.
(j) INVALIDITY. If any term or provision contained herein shall to
any extent be invalid or unenforceable, such term or provision
shall be reformed so that it is valid and such invalidity or
unenforceability shall not affect any other provision or part
hereof.
(k) APPLICABLE LAW. The Plan shall be governed by the laws of the
State of Delaware as determined without regard to the conflict
of law principles thereof.
(l) CODE SECTION 162 (M). It is the intent of the Company that all
Awards under the Plan qualify as performance-based
compensation for purposes of Code Section 162 (m) so that the
Company's tax deduction for such Awards is not disallowed in
whole or in part under Code Section 162 (m). The Plan is to be
applied and interpreted accordingly.
(m) SUCCESSORS. The obligations of the Company and its
Subsidiaries under this Plan shall be binding upon any
organization that shall succeed to all or substantially all of
the Company's or a Subsidiary's assets.
5
Exhibit 10.27
FIRST AMENDMENT TO CREDIT AGREEMENT
AND EXTENSION
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND EXTENSION, dated as of the
10th day of June, 1999 (this "Amendment"), is made among EVEREST REINSURANCE
HOLDINGS, INC., a Delaware corporation (the "Borrower"), and FIRST UNION
NATIONAL BANK (the "Lender").
RECITALS
A. The borrower and the Lender are parties to a Credit Agreement, dated as
of June 16, 1997 (as amended, the "Credit Agreement"), providing for the
availability of a revolving credit facility to the Borrower upon the terms and
conditions set forth therein. Capitalized terms used herein without definition
shall have the meanings given to them in the Credit Agreement.
B. The Borrower has requested that the Lender (i) extend the maturity date
of the revolving credit facility and (ii) agree to certain amendments to the
Credit Agreement. The Lender has agreed to extend the maturity date and effect
such amendments upon the terms and conditions set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
AMENDMENTS
1.1 MARGIN PERCENTAGE. The definition of "Margin Percentage" in SECTION 1.1
of the Credit Agreement is hereby amended and restated in its entirety as
follows:
"Margin Percentage" shall mean, at any time, (a) if
to be added to the LIBOR Rate pursuant to SECTION 2.6 for
purposes of determining the Adjusted LIBOR Rate, 0.40%, and
(b) if to be used in calculating the facility fee payable
pursuant to SECTION 2.7, 0.10%.
1.2 STATUTORY SURPLUS. SECTION 6.2 of the Credit Agreement is hereby amended
by deleting the reference to $575,000,000" and replacing it with $800,000,000".
<PAGE>
ARTICLE II
EXTENSION OF MATURITY DATE
Pursuant to SECTION 2.16 of the Credit Agreement, the Borrower has
requested that the Lender extend the Maturity Date to June 10, 2000. The Lender,
subject to the terms and conditions of this Amendment, hereby extends the
Maturity Date to June 10, 2000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Lender as follows:
3.1 REPRESENTATIONS AND WARRANTIES. After giving effect to this Amendment,
each of the representations and warranties of the Borrower contained in the
Credit Agreement and in the other Credit Documents is true and correct on and as
of the date hereof with the same effect as if made on and as of the date hereof
(except to the extent any such representation or warranty is expressly stated
to have been made as of a specific date, in which case such representation or
warranty is true and correct as of such date).
3.2 NO DEFAULT. After giving effect to this Amendment, no Default or Event
of Default has occurred and is continuing.
ARTICLE IV
MISCELLANEOUS
4.1 EFFECT OF AMENDMENT. From and after the effective date of the amendments
to the Credit Agreement set forth herein, all references to the Credit Agreement
set forth in any other Credit Document or other agreement or instrument shall,
unless otherwise specifically provided, be references to the Credit Agreement as
amended by this Amendment and as may be further amended, modified, or restated
or supplemented from time to time. This Amendment is limited as specified and
shall not constitute or be deemed to constitute an amendment, modification or
waiver of any provision of the Credit Agreement except as expressly set forth
herein. Except as expressly amended hereby, the Credit Agreement shall remain in
full force and effect in accordance with its terms.
4.2 GOVERNING LAW. This Amendment shall be governed by and construed and
enforced in accordance with the laws of the State of New Jersey (without regard
to the conflicts of law provisions thereof).
2
<PAGE>
4.3 EXPENSES. The Borrower agrees to pay upon demand all reasonable
out-of-pocket costs and expenses of the Lender (including, without limitation,
the reasonable fees and expenses of counsel to the Lender) in connection with
the preparation, negotiation, execution and delivery of this Amendment and the
other Credit Documents delivered in connection herewith.
4.4 SEVERABILITY. To the extent any provision of this Amendment is prohibited
by or invalid under the applicable law of any jurisdiction, such provision shall
be ineffective only to the extent of such prohibition or invalidity and only in
any such jurisdiction, without prohibiting or invalidating such provision in
any other jurisdiction or the remaining provisions of this Amendment in any
jurisdiction.
4.5 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon, inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.
4.6 CONSTRUCTION. The headings of the various sections and subsections of
this Amendment have been inserted for convenience only and shall not in any
way affect the meaning or construction of any of the provisions hereof.
4.7 COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. This Amendment
shall become effective upon the execution and delivery of a counterpart hereof
by each of the parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the date first above written.
EVEREST REINSURANCE HOLDINGS, INC.
By: /S/ Stephen L. Limauro
-------------------------------------
Title: Senior Vice President and Comptroller
-------------------------------------
FIRST UNION NATIONAL BANK
By: /S/ Thomas L. Stitchberry
-------------------------------------
Title: Senior Vice President
-------------------------------------
4
Exhibit 11.1
EVEREST REINSURANCE HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
For The Three Months and Six Months Ended June 30, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net Income (Numerator) $ 38,065 $ 43,544 $ 79,307 $ 83,345
============ ============ ============ ============
Weighted average common
and effect of dilutive
shares used in the
computation of net
income per share:
Average shares outstanding
- basic (denominator) 48,678,533 50,479,901 49,237,702 50,480,627
Effect of dilutive shares:
Options outstanding 218,645 310,130 220,489 313,928
Options exercised - 27 483 283
Options cancelled 18 9,210 9 4,605
------------ ------------ ------------ ------------
Average share outstanding
- diluted (denominator) 48,897,196 50,799,268 49,458,683 50,799,443
Net Income per common share:
Basic $ 0.78 $ 0.86 $ 1.61 $ 1.65
Diluted 0.78 0.86 1.60 1.64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
EVEREST REINSURANCE HOLDINGS, INC. AND SUBSIDIARIES FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EVEREST
REINSURANCE HOLDINGS, INC.'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 4,008,122
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 151,700
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,218,600
<CASH> 34,110
<RECOVER-REINSURE> 853,461
<DEFERRED-ACQUISITION> 73,985
<TOTAL-ASSETS> 5,941,555
<POLICY-LOSSES> 3,718,180
<UNEARNED-PREMIUMS> 291,993
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 509
<OTHER-SE> 1,410,248
<TOTAL-LIABILITY-AND-EQUITY> 5,941,555
509,554
<INVESTMENT-INCOME> 126,650
<INVESTMENT-GAINS> (9,453)
<OTHER-INCOME> (1,886)
<BENEFITS> 365,721
<UNDERWRITING-AMORTIZATION> (3,665)
<UNDERWRITING-OTHER> 163,890
<INCOME-PRETAX> 98,919
<INCOME-TAX> 19,612
<INCOME-CONTINUING> 79,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,307
<EPS-BASIC> 1.61
<EPS-DILUTED> 1.60
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
