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Everest Re Group Reports Record Operating Earnings for 2014; Net Income Return on Equity of 17%

HAMILTON, Bermuda--(BUSINESS WIRE)--Feb. 4, 2015-- Everest Re Group, Ltd. (NYSE:RE) today reported fourth quarter 2014 net income available to common shareholders of $340.1 million, or $7.47 per diluted common share, compared to net income of $364.6 million, or $7.54 per diluted common share, for the fourth quarter of 2013. After-tax operating income1 available to common shareholders, excluding realized capital gains and losses, was $331.5 million, or $7.28 per diluted common share, for the fourth quarter of 2014, compared to $303.4 million, or $6.28 per diluted common share, for the same period in 2013.

For the year ended December 31, 2014, net income available to common shareholders was $1.2 billion, or $25.91 per diluted common share, compared to net income of $1.3 billion, or $25.44 per diluted common share, for 2013. After-tax operating income1 available to common shareholders, excluding realized capital gains and losses, was $1.1 billion, or $24.71 per diluted common share, for the full year 2013, compared to $1.1 billion or $21.47 per diluted common share, for 2013.

Commenting on the Company’s results, President and Chief Executive Officer, Dominic J. Addesso said, “Everest has had another stellar year with 10% growth in premium, 15% growth in operating earnings per share, and 16% growth in book value per share, adjusted for dividends. While it is a challenging marketplace, Everest continues to find and create opportunities for profitable growth due to our broadly diversified platform. Post January renewals, we remain confident in our ability to continue to generate strong returns for our shareholders.”

Operating highlights for the fourth quarter and full year of 2014 included the following:

  • Gross written premiums for the quarter were $1.4 billion, an increase of 7% compared to the fourth quarter of 2013. For the full year, gross written premiums grew 10% to $5.7 billion with worldwide reinsurance premiums, including the Mt. Logan Re segment, up 15%. Direct insurance premiums were down 4% for the year.
  • The combined ratio was 80.5% for the quarter and 82.8% for the year, compared to 81.5% and 84.5%, respectively, for the same periods in 2013. The quarter included $15.0 million of catastrophe losses for the Brisbane, Australia hail storm that occurred in November, offset by reserve take downs on prior year catastrophe loss events. For the full year, catastrophe losses, net of reinstatement premiums totaled $56.0 million. Excluding catastrophe losses, reinstatement premiums and favorable prior year loss development, the calendar year attritional combined ratio was 82.0% compared to 81.0% for 2013.
  • Net investment income amounted to $134.0 million for the quarter and $530.6 million for the full year 2014. This included limited partnership income of $15.2 million and $40.9 million in each period, respectively.
  • Net after-tax realized capital gains totaled $8.7 million for the quarter and $55.5 million for the full year. Unrealized capital gains, net of tax, amounted to $22.1 million for the full year, largely driven by changes in interest rates.
  • Cash flow from operations was $387.9 million for the quarter and $1.3 billion for the full year 2014. This compared to $273.3 million and $1.1 billion for the same periods, respectively, in 2013.
  • For the year, the after-tax operating income1 return on average adjusted shareholders’ equity2 was 16.3% and net income return on equity was 17.1%.
  • During the quarter, the Company repurchased 590,791 of its common shares at an average price of $169.38 and a total cost of $100.1 million. For the year, the Company repurchased 3.2 million of its common shares for a total cost of $500.0 million. During January, the Company repurchased an additional 213,754 shares for a total cost of $36.0 million, which will be reflected in first quarter 2015 reporting. The repurchases were made pursuant to a share repurchase authorization, provided by the Company’s Board of Directors, under which there remains 6.1 million shares available.
  • Shareholders’ equity ended the year at $7.5 billion, up 7% from the $7.0 billion at December 31, 2013. Book value per share increased 14% from $146.57 at year-end 2013 to $166.75 at December 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 fourth quarter results will be held at 10:30 a.m. Eastern Time on February 5, 2015. 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 Twelve Months Ended
December 31, December 31,
(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)* $ 340,123 $ 7.47 $ 364,638 $ 7.54 $ 1,199,156 $ 25.91 $ 1,259,382 $ 25.44
After-tax net realized capital gains (losses)   8,655   0.19   61,285   1.27   55,469   1.20   196,829   3.98
 
After-tax operating income (loss)* $ 331,468 $ 7.28 $ 303,353 $ 6.28 $ 1,143,687 $ 24.71 $ 1,062,553 $ 21.47
 
* attributable to common shareholders
(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 Twelve Months Ended
December 31, December 31,
(Dollars in thousands, except per share amounts) 2014 2013 2014 2013
(unaudited) (unaudited)
REVENUES:
Premiums earned $ 1,362,330 $ 1,287,496 $ 5,169,135 $ 4,753,543
Net investment income 134,046 126,127 530,570 548,509
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities (39,007 ) (861 ) (39,502 ) (1,052 )
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss) - - - -
Other net realized capital gains (losses)   52,359     95,490     123,548     301,279  
Total net realized capital gains (losses) 13,352 94,629 84,046 300,227
Net derivative gain (loss) (15,567 ) 11,039 (11,599 ) 44,044
Other income (expense)   24,272     (2,169 )   18,437     (5,487 )
Total revenues   1,518,433     1,517,122     5,790,589     5,640,836  
 
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 713,671 725,915 2,906,534 2,800,251
Commission, brokerage, taxes and fees 315,378 253,858 1,135,586 977,558
Other underwriting expenses 68,235 69,419 240,400 237,126
Corporate expenses 4,619 8,174 23,421 24,817
Interest, fees and bond issue cost amortization expense   9,563     7,638     38,533     46,118  
Total claims and expenses   1,111,466     1,065,004     4,344,474     4,085,870  
 
INCOME (LOSS) BEFORE TAXES 406,967 452,118 1,446,115 1,554,966
Income tax expense (benefit)   49,704     85,370     187,652     289,706  
 
NET INCOME (LOSS) $ 357,263 $ 366,748 $ 1,258,463 $ 1,265,260
Net (income) loss attributable to noncontrolling interests   (17,140 )   (2,110 )   (59,307 )   (5,878 )
NET INCOME (LOSS) ATTRIBUTABLE TO EVEREST RE GROUP $ 340,123 $ 364,638 $ 1,199,156 $ 1,259,382
 
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period (64,614 ) (55,530 ) 704 (395,797 )
Reclassification adjustment for realized losses (gains) included in net income (loss)   23,033     534     21,392     (6,977 )
Total URA(D) on securities arising during the period (41,581 ) (54,996 ) 22,096 (402,774 )
 
Foreign currency translation adjustments (57,043 ) 13,066 (95,417 ) (162 )
 
Benefit plan actuarial net gain (loss) for the period (39,110 ) 17,837 (39,110 ) 17,837
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)   654     1,617     3,020     5,778  
Total benefit plan net gain (loss) for the period   (38,456 )   19,454     (36,090 )   23,615  
Total other comprehensive income (loss), net of tax   (137,080 )   (22,476 )   (109,411 )   (379,321 )
Other comprehensive (income) loss attributable to noncontrolling interests   -     -     -     -  
Total other comprehensive income (loss), net of tax attributable to Everest Re Group   (137,080 )   (22,476 )   (109,411 )   (379,321 )
 
COMPREHENSIVE INCOME (LOSS) $ 203,043   $ 342,162   $ 1,089,745   $ 880,061  
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO EVEREST RE GROUP:
Basic $ 7.54 $ 7.62 $ 26.16 $ 25.67
Diluted 7.47 7.54 25.91 25.44
Dividends declared 0.95 0.75 3.20 2.19
 
       
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
 
 
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 $ 13,101,067 $ 12,636,907
(amortized cost: 2014, $12,831,159; 2013, $12,391,164)
Fixed maturities - available for sale, at fair value 1,509 19,388
Equity securities - available for sale, at market value (cost: 2014, $148,326; 2013, $148,342) 140,210 144,081
Equity securities - available for sale, at fair value 1,447,820 1,462,079
Short-term investments 1,705,932 1,214,199
Other invested assets (cost: 2014, $601,925; 2013, $508,447) 601,925 508,447
Cash   437,474     611,382  
Total investments and cash 17,435,937 16,596,483
Accrued investment income 111,075 119,058
Premiums receivable 1,397,983 1,453,114
Reinsurance receivables 670,854 540,883
Funds held by reinsureds 228,192 228,000
Deferred acquisition costs 398,408 363,721
Prepaid reinsurance premiums 154,177 81,779
Income taxes 184,762 178,334
Other assets   236,436     246,664  
TOTAL ASSETS $ 20,817,824   $ 19,808,036  
 
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 9,720,813 $ 9,673,240
Future policy benefit reserve 59,820 59,512
Unearned premium reserve 1,728,745 1,579,945
Funds held under reinsurance treaties 3,932 2,692
Commission reserves 87,990 66,160
Other net payable to reinsurers 139,841 116,387
Losses in course of payment 157,527 332,631
4.868% Senior notes due 6/1/2044 400,000 -
5.4% Senior notes due 10/15/2014 - 249,958
6.6% Long term notes due 5/1/2067 238,364 238,361
Accrued interest on debt and borrowings 3,537 4,781
Equity index put option liability 47,022 35,423
Unsettled securities payable 41,092 53,867
Other liabilities   316,469     333,425  
Total liabilities   12,945,152     12,746,382  
 
NONCONTROLLING INTERESTS:
Redeemable noncontrolling interests - Mt. Logan Re   421,552     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) 68,336
and (2013) 67,965 outstanding before treasury shares 683 680
Additional paid-in capital 2,068,807 2,029,774
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $20,715 at 2014 and $57,661 at 2013 48,317 157,728
Treasury shares, at cost; 23,650 shares (2014) and 20,422 shares (2013) (2,485,897 ) (1,985,873 )
Retained earnings   7,819,210     6,765,967  
Total shareholders' equity attributable to Everest Re Group   7,451,120     6,968,276  
TOTAL LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY $ 20,817,824   $ 19,808,036  
 
           
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Three Months Ended Twelve Months Ended
December 31, December 31,
(Dollars in thousands) 2014 2013 2014 2013
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 357,263 $ 366,748 $ 1,258,463 $ 1,265,260
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable 300,927 183,945 45,282 (217,678 )
Decrease (increase) in funds held by reinsureds, net 5,094 (323 ) (1,835 ) 162
Decrease (increase) in reinsurance receivables 70,444 196,128 (186,014 ) 118,963
Decrease (increase) in income taxes 46,036 83,840 31,340 213,848
Decrease (increase) in prepaid reinsurance premiums 22,392 8,736 (79,086 ) (12,777 )
Increase (decrease) in reserve for losses and loss adjustment expenses 23,013 (98,134 ) 195,524 (374,027 )
Increase (decrease) in future policy benefit reserve 2,187 (5,743 ) 308 (6,595 )
Increase (decrease) in unearned premiums (94,388 ) (42,769 ) 161,149 261,959
Increase (decrease) in other net payable to reinsurers (72,574 ) (108,745 ) 29,410 (45,043 )
Increase (decrease) in losses in course of payment (339,311 ) (262,644 ) (174,206 ) 142,192
Change in equity adjustments in limited partnerships (15,026 ) (5,212 ) (39,464 ) (45,905 )
Distribution of limited partnership income 9,955 8,249 51,120 56,982
Change in other assets and liabilities, net 67,533 10,900 35,419 (57,212 )
Non-cash compensation expense 6,477 16,756 21,197 31,844
Amortization of bond premium (accrual of bond discount) 11,204 16,181 49,214 66,461
Amortization of underwriting discount on senior notes 3 13 46 54
Net realized capital (gains) losses   (13,352 )   (94,629 )   (84,046 )   (300,227 )
Net cash provided by (used in) operating activities   387,877     273,297     1,313,821     1,098,261  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value 504,415 502,752 2,142,693 2,415,730
Proceeds from fixed maturities matured/called - available for sale, at fair value - - 875 7,213
Proceeds from fixed maturities sold - available for sale, at market value 761,719 247,030 1,811,801 1,092,387
Proceeds from fixed maturities sold - available for sale, at fair value 12,611 3,175 36,467 21,573
Proceeds from equity securities sold - available for sale, at market value 5,727 393 16,901 46,142
Proceeds from equity securities sold - available for sale, at fair value 131,555 245,886 584,069 705,831
Distributions from other invested assets 56,218 20,392 115,482 100,081
Cost of fixed maturities acquired - available for sale, at market value (943,210 ) (749,741 ) (4,672,633 ) (3,543,776 )
Cost of fixed maturities acquired - available for sale, at fair value (414 ) (1,398 ) (24,098 ) (6,196 )
Cost of equity securities acquired - available for sale, at market value (6,143 ) (5,172 ) (18,016 ) (59,756 )
Cost of equity securities acquired - available for sale, at fair value (183,586 ) (196,786 ) (446,457 ) (621,038 )
Cost of other invested assets acquired (103,829 ) (6,872 ) (224,740 ) (21,935 )
Net change in short-term investments (213,161 ) (350,043 ) (497,983 ) (357,451 )
Net change in unsettled securities transactions   (17,929 )   11,710     (4,433 )   (2,808 )
Net cash provided by (used in) investing activities   3,973     (278,674 )   (1,180,072 )   (224,003 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net 2,374 (172 ) 17,839 51,500
Purchase of treasury shares (100,082 ) (71,959 ) (500,024 ) (621,915 )
Net cost of junior subordinated debt securities redemption - - - (329,897 )
Net cost of senior notes maturing (250,000 ) - (250,000 ) -
Proceeds from issuance of senior notes - - 400,000 -
Third party investment in redeemable noncontrolling interest - - 136,200 87,500
Subscription advances for third party redeemable noncontrolling interest 40,000 143,000 40,000 143,000
Dividends paid to shareholders (42,879 ) (35,961 ) (145,913 ) (106,681 )
Dividends paid on third party investment in redeemable noncontrolling interest   -     -     (10,334 )   -  
Net cash provided by (used in) financing activities   (350,587 )   34,908     (312,232 )   (776,493 )
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (5,592 )   (7,683 )   4,575     (23,433 )
 
Net increase (decrease) in cash 35,671 21,848 (173,908 ) 74,332
Cash, beginning of period   401,803     589,534     611,382     537,050  
Cash, end of period $ 437,474   $ 611,382   $ 437,474   $ 611,382  
 
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered) $ 6,895 $ 4,384 $ 153,455 $ 69,302
Interest paid 24,274 14,866 39,424 38,390

Source: Everest Re Group, Ltd.

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