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Everest Re Group Reports First Quarter 2014 Results with 7% Growth in Premium, 17% Net Income Return on Equity, and 4% Growth in Book Value Per Share

HAMILTON, Bermuda--(BUSINESS WIRE)--Apr. 23, 2014-- Everest Re Group, Ltd. (NYSE:RE) today reported net income of $293.9 million, or $6.21 per diluted common share, for the first quarter of 2014, compared to net income of $384.3 million, or $7.50 per diluted common share, for the first quarter of 2013. Excluding realized capital gains and losses, after-tax operating income1 was $281.0 million, or $5.93 per diluted common share, for the first quarter 2014, compared to after-tax operating income1 of $301.1 million, or $5.88 per diluted common share, for the same period last year.

Commenting on the Company’s results, President and Chief Executive Officer, Dominic J. Addesso said, “Everest had another excellent quarter producing $281 million of after-tax operating income and a net income return on equity of 17%, driven by strong underwriting results with a combined ratio of 80.0%. The market is always challenging but we are continuing to find opportunities to grow premium and risk-adjusted returns, demonstrating the strength of our franchise and operating strategies.

We expect to close shortly on our first catastrophe bonds that will provide $450 million of property catastrophe risk coverage at very optimal pricing and terms and conditions. Alternative reinsurance capacity is increasingly part of our strategy, coming into play both offensively and defensively, as we seek ways to optimize our returns.”

Addesso continued, “During the quarter, we repurchased $250 million of our common shares and paid dividends of $35 million, the largest return of capital to shareholders in any single quarter, and yet shareholders equity held constant at $7 billion. We continue to build value for our shareholders with book value per share, adjusted for dividends, climbing 5% in the quarter.”

Operating highlights for the first quarter of 2014 included the following:

  • Gross written premiums increased 7% to $1.3 billion compared to the first quarter of 2013. Worldwide, reinsurance premiums, including the Mt. Logan Re segment, were up 12%, quarter over quarter, primarily driven by new growth opportunities at the January renewals. Insurance premiums were down 9% for the quarter largely due to a premium adjustment for crop business on lower than expected premium for the winter crop season.
  • The combined ratio was 80.0% for the quarter compared to 80.7% in the first quarter of 2013. Excluding catastrophe losses, reinstatement premiums, and prior year development, which was minimal in both quarters, the attritional combined ratio was comparable quarter over quarter.
  • Net investment income for the current quarter was $123.2 million, including limited partnership losses of $2.3 million.
  • Net after-tax realized and unrealized capital gains totaled $13.0 million and $55.3 million, respectively, for the quarter.
  • Cash flow from operations was $367.1 million compared to $259.4 million for the same period in 2013
  • For the quarter, the annualized after-tax operating income1 return on average adjusted shareholders’ equity2 was 16.6%.
  • During the quarter, the Company repurchased 1.7 million of its common shares at an average price of $147.71 and a total cost of $250.0 million. The repurchases were made pursuant to a share repurchase authorization, provided by the Company’s Board of Directors, under which there remains 2.9 million shares available.
  • Shareholders’ equity ended the quarter flat at $7.0 billion compared to year end 2013 despite returning capital of $285 million during the quarter in the form of dividends and share repurchases. Book value per share increased 4% from $146.57 at December 31, 2013 to $152.80 at March 31, 2014.

This news release contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the U.S. Federal securities laws. These statements involve risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements made on behalf of the Company. These risks and uncertainties include the impact of general economic conditions and conditions affecting the insurance and reinsurance industry, the adequacy of our reserves, our ability to assess underwriting risk, trends in rates for property and casualty insurance and reinsurance, competition, investment market fluctuations, trends in insured and paid losses, catastrophes, regulatory and legal uncertainties and other factors described in our latest Annual Report on Form 10-K. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Everest Re Group, Ltd. is a Bermuda holding company that operates through the following subsidiaries: Everest Reinsurance Company provides reinsurance to property and casualty insurers in both the U.S. and international markets. Everest Reinsurance (Bermuda), Ltd., including through its branch in the United Kingdom, provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers. Everest Reinsurance Company (Ireland), Limited provides reinsurance to non-life insurers in Europe. Mt. Logan Re, a segregated cell company, capitalized by the Company and third party investors, is a specialty reinsurer of catastrophe risks. Everest National Insurance Company and Everest Security Insurance Company provide property and casualty insurance to policyholders in the U.S. Everest Indemnity Insurance Company offers excess and surplus lines insurance in the U.S. Everest Insurance Company of Canada provides property and casualty insurance to policyholders in Canada. Additional information on Everest Re Group companies can be found at the Group’s web site at www.everestregroup.com.

A conference call discussing the first quarter results will be held at 10:30 a.m. Eastern Time on April 24, 2014. The call will be available on the Internet through the Company’s web site or at www.streetevents.com.

Recipients are encouraged to visit the Company’s web site to view supplemental financial information on the Company’s results. The supplemental information is located at www.everestregroup.com in the “Financial Reports” section of the “Investor Center”. The supplemental financial information may also be obtained by contacting the Company directly.

___________________________

1The Company generally uses after-tax operating income (loss), a non-GAAP financial measure, to evaluate its performance. After-tax operating income (loss) consists of net income (loss) excluding after-tax net realized capital gains (losses) as the following reconciliation displays:

    Three Months Ended
March 31,
(Dollars in thousands, except per share amounts) 2014     2013
  (unaudited)  
Per Diluted   Per Diluted
Common Common
Amount   Share Amount   Share
 
Net income (loss) $ 293,933 $ 6.21 $ 384,343 $ 7.50
After-tax net realized capital gains (losses)   12,964     0.27   83,271     1.63
 
After-tax operating income (loss) $ 280,969   $ 5.93 $ 301,072   $ 5.88
 
(Some amounts may not reconcile due to rounding.)
 

Although net realized capital gains (losses) are an integral part of the Company’s insurance operations, the determination of net realized capital gains (losses) is independent of the insurance underwriting process. The Company believes that the level of net realized capital gains (losses) for any particular period is not indicative of the performance of the underlying business in that particular period. Providing only a GAAP presentation of net income (loss) makes it more difficult for users of the financial information to evaluate the Company’s success or failure in its basic business, and may lead to incorrect or misleading assumptions and conclusions. The Company understands that the equity analysts who follow the Company focus on after-tax operating income (loss) in their analyses for the reasons discussed above. The Company provides after-tax operating income (loss) to investors so that they have what management believes to be a useful supplement to GAAP information concerning the Company’s performance.

2Adjusted shareholders’ equity excludes net after-tax unrealized (appreciation) depreciation of investments

--Financial Details Follow--

 
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended
March 31,
(Dollars in thousands, except per share amounts)   2014     2013  
(unaudited)
REVENUES:
Premiums earned $ 1,144,490 $ 1,088,759
Net investment income 123,157 145,781
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities - (191 )
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss) - -
Other net realized capital gains (losses)   21,126     126,926  
Total net realized capital gains (losses) 21,126 126,735
Net derivative gain (loss) (1,661 ) 15,285
Other income (expense)   (3,296 )   (8,887 )
Total revenues   1,283,816     1,367,673  
 
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 619,409 592,644
Commission, brokerage, taxes and fees 246,002 233,046
Other underwriting expenses 50,638 52,946
Corporate expenses 4,945 5,717
Interest, fees and bond issue cost amortization expense   7,568     13,481  
Total claims and expenses   928,562     897,834  
 
INCOME (LOSS) BEFORE TAXES 355,254 469,839
Income tax expense (benefit)   53,232     85,496  
 
NET INCOME (LOSS) $ 302,022 $ 384,343
Net (income) loss attributable to noncontrolling interests   (8,089 )   -  
NET INCOME (LOSS) ATTRIBUTABLE TO EVEREST RE GROUP $ 293,933 $ 384,343
 
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period 53,471 (46,802 )
Reclassification adjustment for realized losses (gains) included in net income (loss)   1,874     (4,091 )
Total URA(D) on securities arising during the period 55,345 (50,893 )
 
Foreign currency translation adjustments (2,637 ) (21,066 )
 
Benefit plan actuarial net gain (loss) for the period - -
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)   771     1,346  
Total benefit plan net gain (loss) for the period   771     1,346  
Total other comprehensive income (loss), net of tax   53,479     (70,613 )
Other comprehensive (income) loss attributable to noncontrolling interests   -     -  
Total other comprehensive income (loss), net of tax attributable to Everest Re Group   53,479     (70,613 )
 
COMPREHENSIVE INCOME (LOSS) $ 347,412   $ 313,730  
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO EVEREST RE GROUP:
Basic $ 6.26 $ 7.56
Diluted 6.21 7.50
Dividends declared 0.75 0.48
 
 
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
 
March 31, December 31,
(Dollars and share amounts in thousands, except par value per share)   2014     2013  
(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value $ 13,019,176 $ 12,636,907
(amortized cost: 2014, $12,708,891; 2013, $12,391,164)
Fixed maturities - available for sale, at fair value - 19,388
Equity securities - available for sale, at market value (cost: 2014, $156,000; 2013, $148,342) 153,822 144,081
Equity securities - available for sale, at fair value 1,398,430 1,462,079
Short-term investments 1,363,852 1,214,199
Other invested assets (cost: 2014, $485,771; 2013, $508,447) 485,771 508,447
Cash   385,404     611,382  
Total investments and cash 16,806,455 16,596,483
Accrued investment income 116,910 119,058
Premiums receivable 1,427,171 1,453,114
Reinsurance receivables 653,109 540,883
Funds held by reinsureds 224,961 228,000
Deferred acquisition costs 375,393 363,721
Prepaid reinsurance premiums 78,305 81,779
Income taxes 136,513 178,334
Other assets   293,578     246,664  
TOTAL ASSETS $ 20,112,395   $ 19,808,036  
 
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 9,611,114 $ 9,673,240
Future policy benefit reserve 58,089 59,512
Unearned premium reserve 1,658,734 1,579,945
Funds held under reinsurance treaties 2,706 2,692
Commission reserves 57,312 66,160
Other net payable to reinsurers 116,883 116,387
Losses in course of payment 439,708 332,631
5.4% Senior notes due 10/15/2014 249,971 249,958
6.6% Long term notes due 5/1/2067 238,361 238,361
Accrued interest on debt and borrowings 12,092 4,781
Equity index put option liability 37,083 35,423
Unsettled securities payable 95,322 53,867
Other liabilities   182,341     333,425  
Total liabilities   12,759,716     12,746,382  
 
NONCONTROLLING INTERESTS:
Redeemable noncontrolling interests - Mt. Logan Re   315,168     93,378  
 
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $0.01; 50,000 shares authorized;
no shares issued and outstanding - -
Common shares, par value: $0.01; 200,000 shares authorized; (2014) 68,171
and (2013) 67,965 outstanding before treasury shares 682 680
Additional paid-in capital 2,036,320 2,029,774
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $65,137 at 2014 and $57,661 at 2013 211,207 157,728
Treasury shares, at cost; 22,114 shares (2014) and 20,422 shares (2013) (2,235,856 ) (1,985,873 )
Retained earnings   7,025,158     6,765,967  
Total shareholders' equity attributable to Everest Re Group   7,037,511     6,968,276  
TOTAL LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY $ 20,112,395   $ 19,808,036  
 
 
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three Months Ended
March 31,
(Dollars in thousands)   2014     2013  
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 302,022 $ 384,343
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable 25,533 (53,067 )
Decrease (increase) in funds held by reinsureds, net 3,399 4,584
Decrease (increase) in reinsurance receivables (114,898 ) (92,736 )
Decrease (increase) in income taxes 34,417 64,227
Decrease (increase) in prepaid reinsurance premiums 2,359 3,446
Increase (decrease) in reserve for losses and loss adjustment expenses (56,348 ) (127,942 )
Increase (decrease) in future policy benefit reserve (1,423 ) (796 )
Increase (decrease) in unearned premiums 80,016 54,323
Increase (decrease) in other net payable to reinsurers 1,176 4,188
Increase (decrease) in losses in course of payment 107,003 148,773
Change in equity adjustments in limited partnerships 2,313 (17,356 )
Distribution of limited partnership income 8,600 33,686
Change in other assets and liabilities, net (23,959 ) (43,814 )
Non-cash compensation expense 4,427 5,614
Amortization of bond premium (accrual of bond discount) 13,572 18,607
Amortization of underwriting discount on senior notes 14 13
Net realized capital (gains) losses   (21,126 )   (126,735 )
Net cash provided by (used in) operating activities   367,097     259,358  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value 490,745 612,044
Proceeds from fixed maturities matured/called - available for sale, at fair value 875 3,000
Proceeds from fixed maturities sold - available for sale, at market value 328,709 254,496
Proceeds from fixed maturities sold - available for sale, at fair value 20,763 3,664
Proceeds from equity securities sold - available for sale, at market value 534 1,229
Proceeds from equity securities sold - available for sale, at fair value 178,598 106,175
Distributions from other invested assets 17,077 50,016
Cost of fixed maturities acquired - available for sale, at market value (1,163,440 ) (1,016,289 )
Cost of fixed maturities acquired - available for sale, at fair value (1,309 ) (1,295 )
Cost of equity securities acquired - available for sale, at market value (8,546 ) (1,566 )
Cost of equity securities acquired - available for sale, at fair value (92,329 ) (122,617 )
Cost of other invested assets acquired (4,961 ) (6,684 )
Net change in short-term investments (152,715 ) 78,507
Net change in unsettled securities transactions   1,564     (8,467 )
Net cash provided by (used in) investing activities   (384,435 )   (47,787 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net 2,121 26,918
Purchase of treasury shares (249,983 ) (238,632 )
Third party investment in redeemable noncontrolling interest 70,700 -
Dividends paid to shareholders   (34,742 )   (24,231 )
Net cash provided by (used in) financing activities   (211,904 )   (235,945 )
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   3,264     11,460  
 
Net increase (decrease) in cash (225,978 ) (12,914 )
Cash, beginning of period   611,382     537,050  
Cash, end of period $ 385,404   $ 524,136  
 
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered) $ 16,260 $ 19,188
Interest paid 174 6,001

Source: Everest Re Group, Ltd.

Everest Global Services, Inc.
Elizabeth B. Farrell, 908-604-3169
Vice President, Investor Relations