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Everest Re Group Reports Second Quarter 2015 Results; 15% Annualized Operating ROE

HAMILTON, Bermuda--(BUSINESS WIRE)--Jul. 27, 2015-- Everest Re Group, Ltd. (NYSE:RE) today reported second quarter 2015 net income of $209.1 million, or $4.68 per diluted common share, compared to net income of $290.2 million, or $6.26 per diluted common share, for the second quarter of 2014. After-tax operating income1, excluding realized capital gains and losses, was $224.5 million, or $5.03 per diluted common share, for the second quarter of 2015, compared to after-tax operating income1 of $250.8 million, or $5.41 per diluted common share, for the same period last year.

For the six months ended June 30, 2015, net income was $532.0 million, or $11.88 per diluted common share, compared to $584.1 million, or $12.46 per diluted common share, for the first six months of 2014. After-tax operating income1, excluding realized capital gains and losses, was $554.4 million, or $12.38 per diluted common share, compared to $531.7 million or $11.35 per diluted common share, for the same period in 2014.

Commenting on the Company’s results, President and Chief Executive Officer, Dominic J. Addesso said, “Through the first six months, Everest generated over $550 million of operating earnings, providing an annualized operating return on equity of 15%. These are solid results, particularly when considering the headwinds of a market that remains quite challenging. Our dynamic and responsive approach to the market, however, has provided unique opportunities and enabled us to continue to deliver superior returns to our shareholders.”

Operating highlights for the second quarter of 2015 included the following:

  • Gross written premiums decreased 11% to $1.3 billion compared to the second quarter of 2014, but eliminating the unfavorable effects of foreign currency fluctuations, premiums were actually down 8.5%. Worldwide, reinsurance premiums, including the Mt. Logan Re segment, were down 13%, on a constant dollar basis, while insurance premiums, excluding crop business, were up 20%, quarter over quarter.
  • The combined ratio for the quarter was 86.3% compared to 84.7% in the second quarter of 2014. Excluding catastrophe losses, reinstatement premiums, and prior period loss development, the current quarter attritional combined ratio was 84.0% compared to 81.4% in the same period last year. The increase in the attritional ratio was primarily driven by a number of smaller loss events, not rising to the level of what would be classified as a catastrophe loss.
  • Catastrophe losses amounted to $30.0 million in the quarter, and included losses from the Northern Chile and New South Wales storm events that occurred during the quarter. The net impact of these losses, after reinstatement premiums, taxes, and non-controlling interest, was $22.6 million.
  • Net investment income for the quarter was $125.0 million, including limited partnership income of $6.7 million.
  • Net after-tax realized and unrealized capital losses totaled $15.4 million and $123.7 million, respectively, for the quarter.
  • Cash flow from operations was $227.9 million compared to $223.3 million for the same period in 2014.
  • Through the first six months of 2015, the annualized after-tax operating income1 return on average adjusted shareholders’ equity2 was 15.0%.
  • During the quarter, the Company repurchased 277,500 of its common shares at an average price of $179.95 and a total cost of $50.0 million. The repurchases were made pursuant to a share repurchase authorization, provided by the Company’s Board of Directors, under which there remains 5.6 million shares available.
  • Shareholders’ equity ended the quarter at $7.7 billion, up 4% compared to year end 2014. Book value per share increased 5% from $166.75 at December 31, 2014 to $174.84 at June 30, 2015.

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 28, 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 Six Months Ended
June 30, June 30,
(Dollars in thousands, except per share amounts) 2015   2014 2015   2014
(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) $ 209,057 $ 4.68 $ 290,184 $ 6.26 $ 532,035 $ 11.88 $ 584,117 $ 12.46
After-tax net realized capital gains (losses)   (15,448 )     (0.35 )   39,413     0.85   (22,344 )     (0.50 )   52,377     1.12
 
After-tax operating income (loss) $ 224,505     $ 5.03   $ 250,771   $ 5.41 $ 554,379     $ 12.38   $ 531,740   $ 11.35
 

(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) 2015 2014 2015 2014
(unaudited) (unaudited)
REVENUES:
Premiums earned $ 1,332,398 $ 1,272,317 $ 2,639,475 $ 2,416,807
Net investment income 125,046 131,224 247,629 254,381
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities (16,238 ) (389 ) (42,256 ) (389 )
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss) - - - -
Other net realized capital gains (losses)   (7,940 )   59,405     7,573     80,531  
Total net realized capital gains (losses) (24,178 ) 59,016 (34,683 ) 80,142
Net derivative gain (loss) 6,445 3,774 6,203 2,113
Other income (expense)   (3,925 )   (13,871 )   42,148     (17,167 )
Total revenues   1,435,786     1,452,460     2,900,772     2,736,276  
 
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 790,661 735,697 1,513,126 1,355,106
Commission, brokerage, taxes and fees 294,917 283,687 582,084 529,689
Other underwriting expenses 63,951 58,414 124,615 109,052
Corporate expenses 5,925 3,899 11,388 8,844
Interest, fees and bond issue cost amortization expense   9,026     8,978     18,016     16,546  
Total claims and expenses   1,164,480     1,090,675     2,249,229     2,019,237  
 
INCOME (LOSS) BEFORE TAXES 271,306 361,785 651,543 717,039
Income tax expense (benefit)   35,834     63,860     77,001     117,092  
 
NET INCOME (LOSS) $ 235,472 $ 297,925 $ 574,542 $ 599,947
Net (income) loss attributable to noncontrolling interests   (26,415 )   (7,741 )   (42,507 )   (15,830 )
NET INCOME (LOSS) ATTRIBUTABLE TO EVEREST RE GROUP $ 209,057 $ 290,184 $ 532,035 $ 584,117
 
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period (136,481 ) 85,921 (53,276 ) 139,392
Reclassification adjustment for realized losses (gains) included in net income (loss)   12,747     2,169     34,930     4,043  
Total URA(D) on securities arising during the period (123,734 ) 88,090 (18,346 ) 143,435
 
Foreign currency translation adjustments 54,337 (763 ) (48,003 ) (3,400 )
 
Benefit plan actuarial net gain (loss) for the period - - - -
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)   1,609     770     3,213     1,541  
Total benefit plan net gain (loss) for the period   1,609     770     3,213     1,541  
Total other comprehensive income (loss), net of tax   (67,788 )   88,097     (63,136 )   141,576  
Other comprehensive (income) loss attributable to noncontrolling interests   -     -     -     -  
Total other comprehensive income (loss), net of tax attributable to Everest Re Group   (67,788 )   88,097     (63,136 )   141,576  
 
COMPREHENSIVE INCOME (LOSS) $ 141,269   $ 378,281   $ 468,899   $ 725,693  
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO EVEREST RE GROUP:
Basic $ 4.72 $ 6.32 $ 11.99 $ 12.58
Diluted 4.68 6.26 11.88 12.46
Dividends declared 0.95 0.75 1.90 1.50
 
       
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
 
 
June 30, December 31,
(Dollars and share amounts in thousands, except par value per share) 2015 2014
(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value $ 13,474,801 $ 13,101,067
(amortized cost: 2015, $13,213,596; 2014, $12,831,159)
Fixed maturities - available for sale, at fair value 228 1,509
Equity securities - available for sale, at market value (cost: 2015, $147,512; 2014, $148,326) 137,516 140,210
Equity securities - available for sale, at fair value 1,483,803 1,447,820
Short-term investments 1,901,807 1,705,932
Other invested assets (cost: 2015, $665,153; 2014, $601,925) 665,153 601,925
Cash   338,901     437,474  
Total investments and cash 18,002,209 17,435,937
Accrued investment income 108,829 111,075
Premiums receivable 1,445,180 1,397,983
Reinsurance receivables 682,878 670,854
Funds held by reinsureds 233,447 228,192
Deferred acquisition costs 350,551 398,408
Prepaid reinsurance premiums 179,448 154,177
Income taxes 206,400 184,762
Other assets   273,954     236,436  
TOTAL ASSETS $ 21,482,896   $ 20,817,824  
 
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 9,783,570 $ 9,720,813
Future policy benefit reserve 59,456 59,820
Unearned premium reserve 1,562,078 1,728,745
Funds held under reinsurance treaties 78,553 3,932
Commission reserves 88,008 87,990
Other net payable to reinsurers 160,248 139,841
Losses in course of payment 251,980 157,527
4.868% Senior notes due 6/1/2044 400,000 400,000
6.6% Long term notes due 5/1/2067 238,366 238,364
Accrued interest on debt and borrowings 3,537 3,537
Equity index put option liability 40,819 47,022
Unsettled securities payable 72,834 41,092
Other liabilities   257,056     316,469  
Total liabilities   12,996,505     12,945,152  
 
NONCONTROLLING INTERESTS:
Redeemable noncontrolling interests - Mt. Logan Re   759,729     421,552  
 
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; (2015) 68,555
and (2014) 68,336 outstanding before treasury shares 685 683
Additional paid-in capital 2,084,636 2,068,807
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $20,968 at 2015 and $20,715 at 2014 (14,819 ) 48,317
Treasury shares, at cost; 24,363 shares (2015) and 23,650 shares (2014) (2,610,878 ) (2,485,897 )
Retained earnings   8,267,038     7,819,210  
Total shareholders' equity attributable to Everest Re Group   7,726,662     7,451,120  
TOTAL LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY $ 21,482,896   $ 20,817,824  
 
 
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
       
 
Six Months Ended
June 30,
(Dollars in thousands) 2015 2014
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 574,542 $ 599,947
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable (51,422 ) (97,827 )
Decrease (increase) in funds held by reinsureds, net 68,245 2,148
Decrease (increase) in reinsurance receivables (32,526 ) (137,077 )
Decrease (increase) in income taxes (20,898 ) 15,257
Decrease (increase) in prepaid reinsurance premiums (28,916 ) (68,346 )
Increase (decrease) in reserve for losses and loss adjustment expenses 113,567 8,055
Increase (decrease) in future policy benefit reserve (364 ) (1,144 )
Increase (decrease) in unearned premiums (160,849 ) 96,803
Increase (decrease) in other net payable to reinsurers 23,867 100,546
Increase (decrease) in losses in course of payment 95,003 161,990
Change in equity adjustments in limited partnerships (12,840 ) (3,200 )
Distribution of limited partnership income 18,332 13,430
Change in other assets and liabilities, net 26,768 (56,872 )
Non-cash compensation expense 10,364 9,768
Amortization of bond premium (accrual of bond discount) 25,514 27,068
Amortization of underwriting discount on senior notes 2 28
Net realized capital (gains) losses   34,683     (80,142 )
Net cash provided by (used in) operating activities   683,072     590,432  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value 1,172,211 1,047,509
Proceeds from fixed maturities matured/called - available for sale, at fair value - 875
Proceeds from fixed maturities sold - available for sale, at market value 731,673 606,476
Proceeds from fixed maturities sold - available for sale, at fair value 1,613 20,763
Proceeds from equity securities sold - available for sale, at market value 4,599 8,672
Proceeds from equity securities sold - available for sale, at fair value 300,620 304,892
Distributions from other invested assets 27,705 22,520
Cost of fixed maturities acquired - available for sale, at market value (2,448,121 ) (2,458,723 )
Cost of fixed maturities acquired - available for sale, at fair value (234 ) (1,309 )
Cost of equity securities acquired - available for sale, at market value (5,541 ) (10,619 )
Cost of equity securities acquired - available for sale, at fair value (317,650 ) (183,314 )
Cost of other invested assets acquired (98,890 ) (34,388 )
Net change in short-term investments (199,226 ) (423,677 )
Net change in unsettled securities transactions   4,475     20,633  
Net cash provided by (used in) investing activities   (826,766 )   (1,079,690 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net 5,468 13,143
Purchase of treasury shares (124,981 ) (324,951 )
Net proceeds from issuance of senior notes - 400,000
Third party investment in redeemable noncontrolling interest 296,848 123,700
Subscription advances for third party redeemable noncontrolling interest - 77,500
Dividends paid to shareholders (84,207 ) (69,061 )
Dividends paid on third party investment in redeemable noncontrolling interest   (41,178 )   -  
Net cash provided by (used in) financing activities   51,950     220,331  
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (6,829 )   (885 )
 
Net increase (decrease) in cash (98,573 ) (269,812 )
Cash, beginning of period   437,474     611,382  
Cash, end of period $ 338,901   $ 341,570  
 
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered) $ 93,352 $ 97,241
Interest paid 17,907 15,018

Source: Everest Re Group, Ltd.

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