Everest Re Group Reports Second Quarter 2012 Earnings

Everest Re Group, Ltd. (NYSE: RE) today reported second quarter 2012 net income of $214.6 million, or $4.08 per diluted common share, compared to net income of $131.3 million, or $2.41 per diluted common share, for the second quarter of 2011. After-tax operating income 1, excluding realized capital gains and losses, was $223.0 million, or $4.25 per diluted common share, for the second quarter of 2012, compared to after-tax operating income 1 of $134.0 million, or $2.46 per diluted common share, for the same period last year.

For the six months ended June 30, 2012, net income was $519.3 million, or $9.79 per diluted common share, compared to a net loss of $184.6 million, or $3.40 per common share, for the first six months of 2011. After-tax operating income 1, excluding realized capital gains and losses, was $462.9 million, or $8.72 per diluted common share, compared to an after-tax operating loss of $189.6 million or $3.49 per common share, for the same period in 2011.

Commenting on the Company’s results, Chairman and Chief Executive Officer, Joseph V. Taranto said, “This has been an exceptional year with 10% growth in book value per share, adjusted for dividends, through the first six months of the year. Strong market dynamics coupled with the strategic positioning of our underwriting portfolio has provided significant margin expansion as evidenced by our underwriting results, with a combined ratio of 89%. Add to this the investment earnings generated off of our sizable portfolio and we produced an annualized operating return on equity of 16%. These are all strong metrics and point to the strength of our franchise and our operating strategy.”

Operating highlights for the second quarter of 2012 included the following:
  • Gross written premiums were $909 million, down 8% compared to the second quarter of 2011, primarily driven by the non-renewal of a large Florida quota share reinsurance contract in the quarter, which resulted in a portfolio return of the unearned premium reserve. Excluding the impact of this transaction, gross written premiums would have been up 12%. The underwriting portfolio continues to be strategically rebalanced away from quota share business and towards excess of loss business, providing improved overall margins.
  • The loss and combined ratio for the quarter were 58.6% and 89.0%, respectively, compared to 70.8% and 98.0% in 2011. Excluding catastrophe losses, reinstatement premiums, and prior period loss development, the current quarter attritional loss ratio was 56.1% and the current quarter attritional combined ratio was 86.8%. This compared to 59.7% and 87.2%, respectively, for the same period last year.
  • Net investment income for the quarter was $149.3 million, down 6% compared to last year, primarily driven by declining reinvestment rates.
  • Net after-tax realized and unrealized capital losses totaled $8.5 million and $2.0 million, respectively, for the quarter.
  • Cash flow from operations was $138.8 million compared to $150.6 million for the same period in 2011. Higher catastrophe loss payouts and taxes contributed to the decline this year.
  • For the quarter, the annualized after-tax operating income 1 return on average adjusted shareholders’ equity 2 was 15.3% compared to 9.5% in 2011.
  • During the quarter, the Company repurchased 990,957 of its common shares at an average price of $100.89 and a total cost of $100 million. For the year, the Company repurchased 2.4 million of its common shares for a total cost of $225 million. The repurchases were made pursuant to a share repurchase authorization, provided by the Company’s Board of Directors, under which there remains 4.9 million shares available.
  • Shareholders’ equity ended the quarter at $6.4 billion, up 6% from the $6.1 billion at December 31, 2011. Book value per share increased 9.5% from $112.99 at December 31, 2011 to $123.75 at June 30, 2012.

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. 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 26, 2012. 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) 2012   2011 2012     2011
(unaudited) (unaudited)
 
Per Diluted Per Diluted Per Diluted Per
Common Common Common Common
Amount   Share Amount   Share Amount   Share Amount   Share
 
Net income (loss) $ 214,551 $ 4.08 $ 131,312 $ 2.41 $ 519,255 $ 9.79 $ (184,582 ) $ (3.40 )
After-tax net realized capital gains (losses)   (8,462 )     (0.16 )   (2,661 )     (0.05 )   56,314     1.06   5,007       0.09  
                       
After-tax operating income (loss) $ 223,013     $ 4.25   $ 133,971     $ 2.46   $ 462,941   $ 8.72 $ (189,590 )   $ (3.49 )
 
(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) 2012 2011 2012 2011
(unaudited) (unaudited)
REVENUES:
Premiums earned $ 1,037,800 $ 1,039,835 $ 2,035,778 $ 2,051,281
Net investment income 149,329 158,618 301,767 337,323
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities (466 ) - (6,354 ) (14,767 )
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss) - - - -
Other net realized capital gains (losses)   (16,114 )   (4,845 )   88,493     22,078  
Total net realized capital gains (losses) (16,580 ) (4,845 ) 82,139 7,311
Net derivative gain (loss) (16,306 ) (3,371 ) (10,123 ) 4,154
Other income (expense)   27,812     (13,446 )   21,618     (16,833 )
Total revenues   1,182,055     1,176,791     2,431,179     2,383,236  
 
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 607,870 735,789 1,210,336 1,985,565
Commission, brokerage, taxes and fees 265,789 237,374 503,292 473,831
Other underwriting expenses 49,675 45,897 98,170 90,853
Corporate expenses 6,075 3,790 10,736 7,718
Interest, fees and bond issue cost amortization expense   13,244     13,116     26,422     26,114  
Total claims and expenses   942,653     1,035,966     1,848,956     2,584,081  
 
INCOME (LOSS) BEFORE TAXES 239,402 140,825 582,223 (200,845 )
Income tax expense (benefit)   24,851     9,513     62,968     (16,263 )
 
NET INCOME (LOSS) $ 214,551 $ 131,312 $ 519,255 $ (184,582 )
 
Other comprehensive income (loss), net of tax :
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period (9,020 ) 108,484 71,107 67,677
Less: reclassification adjustment for realized losses (gains) included in net income (loss)   6,972     3,153     7,214     19,471  
Total URA(D) on securities arising during the period (2,048 ) 111,637 78,321 87,148
Foreign currency translation adjustments (24,997 ) 10,683 (9,127 ) 39,505
Pension adjustments   983     746     1,967     1,492  
Total other comprehensive income (loss), net of tax   (26,062 )   123,066     71,161     128,145  
 
COMPREHENSIVE INCOME (LOSS) $ 188,489   $ 254,378   $ 590,416   $ (56,437 )
 
EARNINGS PER COMMON SHARE:
Basic $ 4.10 $ 2.42 $ 9.81 $ (3.40 )
Diluted 4.08 2.41 9.79 (3.40 )
Dividends declared 0.48 0.48 0.96 0.96
 
 
           
 
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
 
 
June 30, December 31,
(Dollars and share amounts in thousands, except par value per share) 2012 2011
(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value $ 12,480,411 $ 12,293,524
(amortized cost: 2012, $11,845,861; 2011, $11,731,173)
Fixed maturities - available for sale, at fair value 62,831 113,606
Equity securities - available for sale, at market value (cost: 2012, $335,081; 2011, $463,620) 331,212 448,930
Equity securities - available for sale, at fair value 1,215,455 1,249,106
Short-term investments 947,600 685,332
Other invested assets (cost: 2012, $593,459; 2011, $558,232) 593,459 558,232
Cash   398,851     448,651  
Total investments and cash 16,029,819 15,797,381
Accrued investment income 129,309 130,193
Premiums receivable 971,599 1,077,548
Reinsurance receivables 598,399 580,339
Funds held by reinsureds 259,375 267,295
Deferred acquisition costs 285,034 378,026
Prepaid reinsurance premiums 76,583 85,409
Deferred tax asset 294,683 332,783
Income taxes recoverable 40,004 41,623
Other assets   218,446     202,958  
TOTAL ASSETS $ 18,903,251   $ 18,893,555  
 
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 9,890,827 $ 10,123,215
Future policy benefit reserve 66,269 67,187
Unearned premium reserve 1,241,592 1,412,778
Funds held under reinsurance treaties 2,646 2,528
Commission reserves 44,646 55,103
Other net payable to reinsurers 78,366 51,564
5.4% Senior notes due 10/15/2014 249,882 249,858
6.6% Long term notes due 5/1/2067 238,355 238,354
Junior subordinated debt securities payable 329,897 329,897
Accrued interest on debt and borrowings 4,781 4,781
Equity index put option liability 79,851 69,729
Other liabilities   258,788     217,186  
Total liabilities   12,485,900     12,822,180  
 
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; (2012) 66,944
and (2011) 66,455 outstanding before treasury shares 669 665
Additional paid-in capital 1,924,313 1,892,988
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $117,348 at 2012 and $112,969 at 2011 438,139 366,978
Treasury shares, at cost; 15,087 shares (2012) and 12,719 shares (2011) (1,298,969 ) (1,073,970 )
Retained earnings   5,353,199     4,884,714  
Total shareholders' equity   6,417,351     6,071,375  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,903,251   $ 18,893,555  
 
 
                     
 
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2012 2011 2012 2011
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 214,551 $ 131,312 $ 519,255 $ (184,582 )
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable 70,139 (35,074 ) 107,410 (153,497 )
Decrease (increase) in funds held by reinsureds, net 10,673 22,645 8,407 39,488
Decrease (increase) in reinsurance receivables (33,809 ) 537 (13,027 ) 17,755
Decrease (increase) in income taxes recoverable 4,768 49,873 1,459 (7,433 )
Decrease (increase) in deferred tax asset 3,956 (17,582 ) 33,961 1,658
Decrease (increase) in prepaid reinsurance premiums 3,130 22,319 9,123 39,346
Increase (decrease) in reserve for losses and loss adjustment expenses (95,066 ) 146,938 (267,230 ) 693,385
Increase (decrease) in future policy benefit reserve (574 ) (176 ) (919 ) (394 )
Increase (decrease) in unearned premiums (186,162 ) (106,556 ) (173,569 ) (113,687 )
Increase (decrease) in other net payable to reinsurers 30,025 (6,899 ) 26,903 (29,583 )
Change in equity adjustments in limited partnerships (15,972 ) (14,309 ) (28,492 ) (50,614 )
Change in other assets and liabilities, net 92,669 (64,275 ) 119,003 60,963
Non-cash compensation expense 7,652 4,212 13,374 7,658
Amortization of bond premium (accrual of bond discount) 16,200 12,818 30,966 25,570
Amortization of underwriting discount on senior notes 12 12 25 24
Net realized capital (gains) losses   16,580     4,845     (82,139 )   (7,311 )
Net cash provided by (used in) operating activities   138,772     150,640     304,510     338,746  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value 381,216 372,401 791,593 810,665
Proceeds from fixed maturities matured/called - available for sale, at fair value - 5,875 - 12,775
Proceeds from fixed maturities sold - available for sale, at market value 203,240 336,770 421,318 867,680
Proceeds from fixed maturities sold - available for sale, at fair value 1,862 17,168 61,143 50,120
Proceeds from equity securities sold - available for sale, at market value 34,549 110 54,792 27,206
Proceeds from equity securities sold - available for sale, at fair value 53,950 37,000 297,606 93,667
Distributions from other invested assets 12,798 40,535 21,017 127,094
Cost of fixed maturities acquired - available for sale, at market value (641,902 ) (582,696 ) (1,254,576 ) (1,537,328 )
Cost of fixed maturities acquired - available for sale, at fair value (2,382 ) (7,148 ) (5,506 ) (15,224 )
Cost of equity securities acquired - available for sale, at market value (6,202 ) (28,683 ) (12,654 ) (115,811 )
Cost of equity securities acquired - available for sale, at fair value (79,934 ) (213,658 ) (193,279 ) (342,300 )
Cost of other invested assets acquired (16,680 ) (27,544 ) (28,592 ) (52,102 )
Cost of businesses acquired - - - (63,100 )
Net change in short-term investments (5,025 ) (130,222 ) (262,730 ) 2,717
Net change in unsettled securities transactions   (32,856 )   175,061     5,966     47,201  
Net cash provided by (used in) investing activities   (97,366 )   (5,031 )   (103,902 )   (86,740 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net 15,344 5,879 17,955 7,557
Purchase of treasury shares (100,000 ) - (224,999 ) (37,611 )
Revolving credit borrowings - - - (10,000 )
Dividends paid to shareholders   (25,129 )   (26,081 )   (50,770 )   (52,126 )
Net cash provided by (used in) financing activities   (109,785 )   (20,202 )   (257,814 )   (92,180 )
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (4,817 )   1,969     7,406     (6,711 )
 
Net increase (decrease) in cash (73,196 ) 127,376 (49,800 ) 153,115
Cash, beginning of period   472,047     284,147     448,651     258,408  
Cash, end of period $ 398,851   $ 411,523   $ 398,851   $ 411,523  
 
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered) $ 12,617 $ (24,471 ) $ 23,801 $ (12,546 )
Interest paid 20,387 20,259 26,085 25,778
 
Non-cash transaction:
Net assets acquired and liabilities assumed from business acquisitions - - - 19,130
Conversion of equity securities - available for sale, at market value, to fixed
maturity securities - available for sale, at market value, including accrued
interest at time of conversion 92,981 - 92,981 -
 
 

Copyright Business Wire 2010

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