Everest Re Group Ltd. (RE)

Q2 2010 Earnings Conference Call

July 29, 2010 10:30 am ET

Executives

Beth Farrell -IR

Joe Taranto - CEO

Dom Addesso - CFO

Analysts

Cliff Gallant - KBW

Jay Gelb - Barclays Capital

Matthew Heimermann - JP Morgan

Vinay Misquith - Creidt Suisse

Brian Meredith - UBS

Ron Bobman - Capital Returns Management

Presentation

Operator

Good day everyone, welcome to the Everest Re Group Ltd second quarter 2010 earnings release call. Today’s conference is being recorded. At this time for opening remarks and introductions I would like to turn the conference over to Ms. Beth Farrell, Vice President of Investor Relations. Please go ahead ma’am.

Beth Farrell

Thank you Michael, good morning and welcome to Everest Re Group second quarter 2010 earnings conference call. With me today are Joe Taranto, the company’s Chairman and Chief Executive Officer, Ralph Jones, President and Chief Operating Officer, and Dom Addesso, Chief Financial Officer.

Before we begin I will preface our comments by noting that our SEC filings include extensive disclosures with respect to forward-looking statements. In that regard I know such statements made during today’s call which are forward-looking in nature, such as statements about projections, estimates, expectations and the like are subject to various risks. As you know actual results could differ materially from current projections or expectations. Our SEC filings have a full listing of the risks that investors should consider in connection with such statements.

Now let me turn the call over to Joe.

Joe Taranto

Thanks Beth, good morning. We are pleased to have posted after tax operating income of $185 million for the second quarter even though we increased our provision for the first quarter catastrophes, particularly the Chilean earthquake. For the quarter the annualized operating ROE was 13.1%. This result demonstrates the underlying strength of our underwriting portfolio. We are also pleased to have increased book value per share by roughly $4.50 from $102.87 at year end to $107.31 as our investments performed well, and our share buybacks added value. Dom will take you through the financial highlights shortly. Gross written premiums increased 4% to roughly $1 billion. Adjusting for foreign exchange, gross written premiums were up 5%. Our growth came from our reinsurance operation, particularly our international operation. Insurance premiums were in fact down 4%. Although the markets remained competitive, we’ve been able to selectively grow our business by focusing on those markets with the best profit opportunity.

Ralph will take you through the underwriting particulars momentarily, including the July 1 renewals for both the international book and for Florida. In Florida, although catastrophe rates were down 10% to 15% for the industry we improved our overall portfolio, since most of our portfolio is pro-rata and our pro-rata clients have improved their position, because reinsurance costs are less, and because they’ve been granted meaningful underlying rate increases. Again, Ralph will get into this in greater detail.

In the quarter we repurchased 2.7 million shares at a cost of $200 million. This represents 4.5% of the outstanding shares at the end of the first quarter. 5.2 million shares remain available under the current authorization. In March 2009, we put out a tender offer for $0.50 on the dollar for $400 million of the hybrid bonds we previously floated in the market. They were trading in the market at $0.45 on the dollar, as there was much fear in the market. 40% of the holders took the deal. Today one year later these bonds are selling at twice the value. This transaction was a hard market transaction for us. I go through this example to let you know that I view buying back our stock today, much the same. When it comes to buying back our stock, it’s a hard market. We will continue to invest our earnings into buying our stock. We will do it in a way where our capital and our ratings remain as strong as ever.

Last, I will be retiring, December 31 of this year as CEO. I will remain as Chairman of the Board. Effective January 1, 2011 Ralph will become CEO. I have had the privilege of working with many wonderful people at Everest over the last 16 years. Those people have helped me grow the company from a modest size to the global franchise it is today with over $6 billion of capital. I thank them all.

For the past two years I have with Ralph Jones, I have been impressed with his breadth of experience, his intelligence and his leadership. The Board and I are confident that Ralph and our team will continue to effectively grow Everest in 2011, and beyond. As Chairman I will help Ralph and Everest in any way that I can. Ralph.

Ralph Jones

Thank you Joe, I am thrilled at the opportunity to lead the Everest franchise next year. You set the bar pretty high during your tenure as CEO Joe. During the last 10 years the average growth and book value per share was over 14%. Even with all the challenges of the decade, from 9-11, to Hurricane Katrina, then financial meltdown, it’s a pretty high standard of achievement in our industry. It’s a great company, I like the people, I like our position of strength, and I like our prospects. Thank you Joe for the opportunity.

Overall it was a good quarter; we wrote just over $1 billion in written premium at a 93 combined. The largest segment is international which includes Canada, Latin America, Asia-Pacific, and the Middle East and Africa, which wrote in total $307 million in written premium for international in the second quarter, up 12% in US dollars and 9% in base currencies in the countries in which we operate. Much of the growth came from new business in Brazil, rate increases in Australia, and in Latin America, but mostly in Chile, and larger signings in Canada and in South Africa. Combined ratio for international was 106% in the quarter, and that included 26 points of the cap loss from the earthquake in Chile.

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