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Everest Re Group Reports Second Quarter Results with 12% Growth in Premium, 17% Net Income Return on Equity, and 5% Growth in Book Value per Share

HAMILTON, Bermuda--(BUSINESS WIRE)--Jul. 23, 2014-- Everest Re Group, Ltd. (NYSE:RE) today reported second quarter 2014 net income of $290.2 million, or $6.26 per diluted common share, compared to net income of $275.6 million, or $5.56 per diluted common share, for the second quarter of 2013. After-tax operating income1, excluding realized capital gains and losses, was $250.8 million, or $5.41 per diluted common share, for the second quarter of 2014, compared to after-tax operating income1 of $253.2 million, or $5.10 per diluted common share, for the same period last year.

For the six months ended June 30, 2014, net income was $584.1 million, or $12.46 per diluted common share, compared to $660.0 million, or $13.09 per diluted common share, for the first six months of 2013. After-tax operating income1, excluding realized capital gains and losses, was $531.7 million, or $11.35 per diluted common share, compared to $554.2 million or $10.99 per diluted common share, for the same period in 2013.

Commenting on the Company’s results, President and Chief Executive Officer, Dominic J. Addesso said, “Everest continues to generate strong earnings, despite a challenging marketplace. We are seeing select market opportunities, which is driving top-line growth and producing excellent underwriting margins and double digit returns on equity. This is driving growth in shareholder value with book value per share, adjusted for dividends, up over 10% through the first six months of the year. We continue to strategically maneuver our underwriting portfolio to find the best opportunities and look forward to continuing this strong pace through the remainder of the year.”

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

  • Gross written premiums increased 12% to $1.4 billion compared to the second quarter of 2013. Worldwide, reinsurance premiums, including the Mt. Logan Re segment, were up 16% while insurance premiums were flat, quarter over quarter. Growth opportunities in U.S. property and specialty lines continue to drive the growth in the reinsurance book.
  • The combined ratio for the quarter was 84.7% compared to 87.6% in the second quarter of 2013. Excluding catastrophe losses, reinstatement premiums, and prior period loss development, the current quarter attritional combined ratio was 81.4% compared to 80.2% in the same period last year.
  • Catastrophe losses amounted to $45.0 million in the quarter, arising from the Chile earthquake that occurred during the quarter and late reported losses from severe snowstorms in Japan during February. The net impact of these losses, after reinstatement premiums, taxes, and non-controlling interest, was $32.1 million.
  • Net investment income for the quarter was $131.2 million, including limited partnership income of $6.2 million.
  • Net after-tax realized and unrealized capital gains totaled $39.4 million and $88.1 million, respectively, for the quarter.
  • Cash flow from operations was $223.3 million compared to $179.6 million for the same period in 2013.
  • For the quarter, the annualized after-tax operating income1 return on average adjusted shareholders’ equity2 was 14.6%.
  • During the quarter, the Company repurchased 475,092 of its common shares at an average price of $157.78 and a total cost of $75.0 million. Subsequent to the quarter, the Company purchased an additional 64,827 shares for a total cost of $10.3 million. Through the date of this release, the Company had repurchased 2.2 million of its common shares for a total cost of $335.2 million. The repurchases were made pursuant to a share repurchase authorization, provided by the Company’s Board of Directors, under which there remains 2.3 million shares available.
  • Shareholders’ equity ended the quarter at $7.3 billion. Book value per share increased 9.3% from $146.57 at December 31, 2013 to $160.27 at June 30, 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 second quarter results will be held at 10:30 a.m. Eastern Time on July 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     Six Months Ended
June 30, June 30,
(Dollars in thousands, except per share amounts) 2014   2013 2014   2013
  (unaudited)     (unaudited)  
   
Per Diluted Per Diluted Per Diluted Per Diluted
Common Common Common Common
Amount   Share Amount   Share Amount   Share Amount   Share
 
Net income (loss) $ 290,184 $ 6.26 $ 275,642 $ 5.56 $ 584,117 $ 12.46 $ 659,985 $ 13.09
After-tax net realized capital gains (losses)   39,413     0.85   22,492     0.45   52,377     1.12   105,763     2.10
 
After-tax operating income (loss) $ 250,771   $ 5.41 $ 253,150   $ 5.10 $ 531,740   $ 11.35 $ 554,222   $ 10.99
 
(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 Six Months Ended
June 30, June 30,
(Dollars in thousands, except per share amounts)   2014     2013     2014     2013  
(unaudited) (unaudited)
REVENUES:
Premiums earned $ 1,272,317 $ 1,151,533 $ 2,416,807 $ 2,240,292
Net investment income 131,224 148,729 254,381 294,510
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities (389 ) - (389 ) (191 )
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss) - - - -
Other net realized capital gains (losses)   59,405     33,905     80,531     160,831  
Total net realized capital gains (losses) 59,016 33,905 80,142 160,640
Net derivative gain (loss) 3,774 12,081 2,113 27,366
Other income (expense)   (13,871 )   8,295     (17,167 )   (592 )
Total revenues   1,452,460     1,354,543     2,736,276     2,722,216  
 
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 735,697 711,590 1,355,106 1,304,234
Commission, brokerage, taxes and fees 283,687 242,067 529,689 475,113
Other underwriting expenses 58,414 54,901 109,052 107,847
Corporate expenses 3,899 6,168 8,844 11,885
Interest, fees and bond issue cost amortization expense   8,978     17,362     16,546     30,843  
Total claims and expenses   1,090,675     1,032,088     2,019,237     1,929,922  
 
INCOME (LOSS) BEFORE TAXES 361,785 322,455 717,039 792,294
Income tax expense (benefit)   63,860     46,813     117,092     132,309  
 
NET INCOME (LOSS) $ 297,925 $ 275,642 $ 599,947 $ 659,985
Net (income) loss attributable to noncontrolling interests   (7,741 )   -     (15,830 )   -  
NET INCOME (LOSS) ATTRIBUTABLE TO EVEREST RE GROUP $ 290,184 $ 275,642 $ 584,117 $ 659,985
 
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period 85,921 (272,540 ) 139,392 (319,342 )
Reclassification adjustment for realized losses (gains) included in net income (loss)   2,169     (1,828 )   4,043     (5,919 )
Total URA(D) on securities arising during the period 88,090 (274,368 ) 143,435 (325,261 )
 
Foreign currency translation adjustments (763 ) 13,751 (3,400 ) (7,315 )
 
Benefit plan actuarial net gain (loss) for the period - - - -
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)   770     1,345     1,541     2,691  
Total benefit plan net gain (loss) for the period   770     1,345     1,541     2,691  
Total other comprehensive income (loss), net of tax   88,097     (259,272 )   141,576     (329,885 )
Other comprehensive (income) loss attributable to noncontrolling interests   -     -     -     -  
Total other comprehensive income (loss), net of tax attributable to Everest Re Group   88,097     (259,272 )   141,576     (329,885 )
 
COMPREHENSIVE INCOME (LOSS) $ 378,281   $ 16,370   $ 725,693   $ 330,100  
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO EVEREST RE GROUP:
Basic $ 6.32 $ 5.60 $ 12.58 $ 13.19
Diluted 6.26 5.56 12.46 13.09
Dividends declared 0.75 0.48 1.50 0.96
 
 
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
 
June 30, 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 $ 13,577,366 $ 12,636,907
(amortized cost: 2014, $13,173,675; 2013, $12,391,164)
Fixed maturities - available for sale, at fair value - 19,388
Equity securities - available for sale, at market value (cost: 2014, $149,024; 2013, $148,342) 151,377 144,081
Equity securities - available for sale, at fair value 1,424,792 1,462,079
Short-term investments 1,636,937 1,214,199
Other invested assets (cost: 2014, $509,396; 2013, $508,447) 509,396 508,447
Cash   341,570     611,382  
Total investments and cash 17,641,438 16,596,483
Accrued investment income 120,559 119,058
Premiums receivable 1,551,615 1,453,114
Reinsurance receivables 685,643 540,883
Funds held by reinsureds 226,845 228,000
Deferred acquisition costs 368,117 363,721
Prepaid reinsurance premiums 150,206 81,779
Income taxes 141,887 178,334
Other assets   305,334     246,664  
TOTAL ASSETS $ 21,191,644   $ 19,808,036  
 
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 9,704,463 $ 9,673,240
Future policy benefit reserve 58,368 59,512
Unearned premium reserve 1,677,971 1,579,945
Funds held under reinsurance treaties 3,337 2,692
Commission reserves 54,073 66,160
Other net payable to reinsurers 217,041 116,387
Losses in course of payment 494,640 332,631
4.868% Senior notes due 6/1/2044 400,000 -
5.4% Senior notes due 10/15/2014 249,984 249,958
6.6% Long term notes due 5/1/2067 238,362 238,361
Accrued interest on debt and borrowings 6,133 4,781
Equity index put option liability 33,309 35,423
Unsettled securities payable 88,463 53,867
Other liabilities   266,724     333,425  
Total liabilities   13,492,868     12,746,382  
 
NONCONTROLLING INTERESTS:
Redeemable noncontrolling interests - Mt. Logan Re   375,908     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) 68,280
and (2013) 67,965 outstanding before treasury shares 683 680
Additional paid-in capital 2,052,682 2,029,774
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $79,020 at 2014 and $57,661 at 2013 299,304 157,728
Treasury shares, at cost; 22,589 shares (2014) and 20,422 shares (2013) (2,310,824 ) (1,985,873 )
Retained earnings   7,281,023     6,765,967  
Total shareholders' equity attributable to Everest Re Group   7,322,868     6,968,276  
TOTAL LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY $ 21,191,644   $ 19,808,036  
 
       
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands)   2014     2013     2014     2013  
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 297,925 $ 275,642 $ 599,947 $ 659,985
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable (123,360 ) (167,239 ) (97,827 ) (220,306 )
Decrease (increase) in funds held by reinsureds, net (1,251 ) (16,828 ) 2,148 (12,244 )
Decrease (increase) in reinsurance receivables (22,179 ) 26,758 (137,077 ) (65,978 )
Decrease (increase) in income taxes (19,160 ) (7,498 ) 15,257 56,729
Decrease (increase) in prepaid reinsurance premiums (70,705 ) (10,354 ) (68,346 ) (6,908 )
Increase (decrease) in reserve for losses and loss adjustment expenses 64,403 (47,200 ) 8,055 (175,142 )
Increase (decrease) in future policy benefit reserve 279 229 (1,144 ) (567 )
Increase (decrease) in unearned premiums 16,787 72,212 96,803 126,535
Increase (decrease) in other net payable to reinsurers 99,370 25,577 100,546 29,765
Increase (decrease) in losses in course of payment 54,987 81,362 161,990 230,135
Change in equity adjustments in limited partnerships (5,513 ) (18,994 ) (3,200 ) (36,350 )
Distribution of limited partnership income 4,830 9,409 13,430 43,095
Change in other assets and liabilities, net (32,913 ) (31,052 ) (56,872 ) (74,866 )
Non-cash compensation expense 5,341 4,551 9,768 10,165
Amortization of bond premium (accrual of bond discount) 13,496 16,900 27,068 35,507
Amortization of underwriting discount on senior notes 14 14 28 27
Net realized capital (gains) losses   (59,016 )   (33,905 )   (80,142 )   (160,640 )
Net cash provided by (used in) operating activities   223,335     179,584     590,432     438,942  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value 556,764 706,674 1,047,509 1,318,718
Proceeds from fixed maturities matured/called - available for sale, at fair value - 4,213 875 7,213
Proceeds from fixed maturities sold - available for sale, at market value 277,767 376,688 606,476 631,184
Proceeds from fixed maturities sold - available for sale, at fair value - 13,678 20,763 17,342
Proceeds from equity securities sold - available for sale, at market value 8,138 44,194 8,672 45,423
Proceeds from equity securities sold - available for sale, at fair value 126,294 252,594 304,892 358,769
Distributions from other invested assets 5,443 24,437 22,520 74,453
Cost of fixed maturities acquired - available for sale, at market value (1,295,283 ) (1,105,870 ) (2,458,723 ) (2,122,159 )
Cost of fixed maturities acquired - available for sale, at fair value - (1,411 ) (1,309 ) (2,706 )
Cost of equity securities acquired - available for sale, at market value (2,073 ) (51,921 ) (10,619 ) (53,487 )
Cost of equity securities acquired - available for sale, at fair value (90,985 ) (121,327 ) (183,314 ) (243,944 )
Cost of other invested assets acquired (29,427 ) (4,617 ) (34,388 ) (11,301 )
Net change in short-term investments (270,962 ) 53,629 (423,677 ) 132,136
Net change in unsettled securities transactions   19,069     64,135     20,633     55,668  
Net cash provided by (used in) investing activities   (695,255 )   255,096     (1,079,690 )   207,309  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net 11,022 19,651 13,143 46,569
Purchase of treasury shares (74,968 ) (211,323 ) (324,951 ) (449,955 )
Revolving credit borrowings - 40,000 - 40,000
Net cost of junior subordinated debt securities redemption - (329,897 ) - (329,897 )
Net proceeds from issuance of senior notes 400,000 - 400,000 -
Third party investment in redeemable noncontrolling interest 53,000 - 123,700 -
Subscription advances for third party redeemable noncontrolling interest 77,500 - 77,500 -
Dividends paid to shareholders   (34,319 )   (23,315 )   (69,061 )   (47,546 )
Net cash provided by (used in) financing activities   432,235     (504,884 )   220,331     (740,829 )
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (4,149 )   (14,796 )   (885 )   (3,336 )
 
Net increase (decrease) in cash (43,834 ) (85,000 ) (269,812 ) (97,914 )
Cash, beginning of period   385,404     524,136     611,382     537,050  
Cash, end of period $ 341,570   $ 439,136   $ 341,570   $ 439,136  
 
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered) $ 80,981 $ 47,550 $ 97,241 $ 66,738
Interest paid 14,844 17,280 15,018 23,281

Source: Everest Re Group, Ltd.

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