Everest Re Group Reports Fourth Quarter And Full Year 2012 Earnings

Everest Re Group, Ltd. (NYSE: RE) today reported fourth quarter 2012 net income of $58.8 million, or $1.13 per diluted common share, compared to net income of $41.0 million, or $0.76 per diluted common share, for the fourth quarter of 2011. After-tax operating income 1, excluding realized capital gains and losses, was $41.7 million, or $0.80 per diluted common share, for the fourth quarter of 2012, compared to an after-tax operating loss 1 of $50.7 million, or $0.94 per common share, for the same period in 2011.

For the year ended December 31, 2012, net income was $829.0 million, or $15.79 per diluted common share, compared to a net loss of $80.5 million, or $1.49 per common share, for 2011. After-tax operating income 1, excluding realized capital gains and losses, was $715.2 million, or 13.62 per diluted common share, for the full year 2012, compared to an after-tax operating loss of $93.6 million or $1.73 per common share, for 2011.

Commenting on the Company’s results, Chairman and Chief Executive Officer, Joseph V. Taranto said, “Despite losses from Sandy and the industry suffering record crop losses, Everest had $1.0 billion in comprehensive income for 2012 and increased shareholder value by 18%. These results demonstrate the strength of our organization. We are pleased with how our portfolio is positioned post January renewals and expect another strong year in 2013.”

Operating highlights for the fourth quarter and full year of 2012 included the following:
  • Gross written premiums were $1.15 billion, an increase of 4% compared to the fourth quarter of 2011. Worldwide reinsurance premiums were generally flat while direct insurance premiums were up 21% in the period. For the full year, gross written premiums totaled $4.3 billion and, after adjusting for the impact of foreign exchange and reinstatement premiums, were up 2% compared to last year.
  • The combined ratio was 108.4% for the quarter and 93.8% for the year, compared to 130.3% and 118.5%, respectively, for the same periods in 2011. As previously announced, the fourth quarter included losses for Superstorm Sandy, which, on a net pre-tax basis, after reinstatement premiums, amounted to $287 million. For the full year, net pre-tax catastrophe losses totaled $361 million. Excluding catastrophe losses, reinstatement premiums and nominal favorable prior year loss development, the calendar year attritional combined ratio improved 3 points to 85.0% for 2012.
  • Net investment income amounted to $146 million for the quarter and $600 million for the full year 2012. This included limited partnership income of $17 million and $65 million in each period, respectively.
  • Net after-tax realized capital gains totaled $17 million for the quarter. For the full year, net after-tax realized and unrealized capital gains totaled $114 million and $154 million, respectively.
  • Cash flow from operations was $184 million for the quarter and $664 million for the full year 2012. This compared to $113 million and $660 million for the same periods, respectively, in 2011.
  • For the year, the after-tax operating income 1 return on average adjusted shareholders’ equity 2 was 12% and net income return on equity was 14%.
  • During the quarter, the Company repurchased 370,939 of its common shares at an average price of $107.72 and a total cost of $40 million. For the year, the Company repurchased 3.0 million of its common shares for a total cost of $290 million. During January, the Company repurchased an additional 343,981 shares for a total cost of $38 million, which will be reflected in first quarter 2013 reporting. The repurchases were made pursuant to a share repurchase authorization, provided by the Company’s Board of Directors, under which there remains 4.0 million shares available.
  • Shareholders’ equity ended the year at $6.7 billion, up 11% from the $6.1 billion at December 31, 2011. Book value per share increased 16% from $112.99 at year-end 2011 to $130.96 at December 31, 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 fourth quarter results will be held at 10:30 a.m. Eastern Time on February 7, 2013. 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) 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) $ 58,777 $ 1.13 $ 41,042 $ 0.76 $ 828,954 $ 15.79 $ (80,486 ) $ (1.49 )
After-tax net realized capital gains (losses)   17,126         0.33   91,726           1.70     113,792       2.17   13,114           0.24  
 
After-tax operating income (loss) $ 41,651       $ 0.80 $ (50,684 )       $ (0.94 ) $ 715,162     $ 13.62 $ (93,600 )       $ (1.73 )
 
(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) 2012 2011 2012 2011
(unaudited) (unaudited)
REVENUES:
Premiums earned $ 1,119,396 $ 1,005,728 $ 4,164,628 $ 4,101,347
Net investment income 146,411 126,253 600,202 620,041
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities (120 ) (406 ) (10,022 ) (16,223 )
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss) - - - -
Other net realized capital gains (losses)   19,638     137,689     174,422     23,146  
Total net realized capital gains (losses) 19,518 137,283 164,400 6,923
Net derivative gain (loss) (318 ) 8,012 (9,738 ) (11,261 )
Other income (expense)   (12,357 )   8,655     3,318     (23,089 )
Total revenues   1,272,650     1,285,931     4,922,810     4,693,961  
 
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 931,275 1,019,928 2,745,265 3,726,204
Commission, brokerage, taxes and fees 228,327 248,721 952,701 950,521
Other underwriting expenses 53,727 42,113 207,659 182,403
Corporate expenses 7,293 4,539 23,976 16,461
Interest, fees and bond issue cost amortization expense   13,930     13,120     53,683     52,319  
Total claims and expenses   1,234,552     1,328,421     3,983,284     4,927,908  
 
INCOME (LOSS) BEFORE TAXES 38,098 (42,490 ) 939,526 (233,947 )
Income tax expense (benefit)   (20,679 )   (83,532 )   110,572     (153,461 )
 
NET INCOME (LOSS) $ 58,777 $ 41,042 $ 828,954 $ (80,486 )
 
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period (28,204 ) 38,340 174,025 91,481
Less: reclassification adjustment for realized losses (gains) included in net income (loss)   (13,974 )   (10,391 )   (19,676 )   (11,340 )

Total URA(D) on securities arising during the period
(42,178 ) 27,949 154,349 80,141
Foreign currency translation adjustments (4,427 ) (32,227 ) 22,698 (15,969 )
Pension adjustments   (10,142 )   (31,690 )   (6,976 )   (29,452 )
Total other comprehensive income (loss), net of tax   (56,747 )   (35,968 )   170,071     34,720  
 
COMPREHENSIVE INCOME (LOSS) $ 2,030   $ 5,074   $ 999,025   $ (45,766 )
 
EARNINGS PER COMMON SHARE:
Basic $ 1.14 $ 0.76 $ 15.85 $ (1.49 )
Diluted 1.13 0.76 15.79 (1.49 )
Dividends declared 0.48 0.48 1.92 1.92
 
 
             
 
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
 
 
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 $ 13,141,657 $ 12,293,524
(amortized cost: 2012, $12,444,880; 2011, $11,731,173)
Fixed maturities - available for sale, at fair value 41,470 113,606
Equity securities - available for sale, at market value (cost: 2012, $131,630; 2011, $463,620) 143,493 448,930
Equity securities - available for sale, at fair value 1,255,557 1,249,106
Short-term investments 860,379 685,332
Other invested assets (cost: 2012, $596,590; 2011, $558,232) 596,590 558,232
Cash   537,050     448,651  
Total investments and cash 16,576,196 15,797,381
Accrued investment income 130,209 130,193
Premiums receivable 1,237,859 1,077,548
Reinsurance receivables 659,081 580,339
Funds held by reinsureds 228,375 267,295
Deferred acquisition costs 303,268 378,026
Prepaid reinsurance premiums 71,107 85,409
Deferred tax asset 262,024 332,783
Income taxes recoverable 68,442 41,623
Other assets   241,346     202,958  
TOTAL ASSETS $ 19,777,907   $ 18,893,555  
 
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 10,069,055 $ 10,123,215
Future policy benefit reserve 66,107 67,187
Unearned premium reserve 1,322,525 1,412,778
Funds held under reinsurance treaties 2,755 2,528
Commission reserves 65,533 55,103
Other net payable to reinsurers 162,778 60,775
Losses in course of payment 191,076 18,392
5.4% Senior notes due 10/15/2014 249,907 249,858
6.6% Long term notes due 5/1/2067 238,357 238,354
Junior subordinated debt securities payable 329,897 329,897
Accrued interest on debt and borrowings 4,781 4,781
Equity index put option liability 79,467 69,729
Unsettled securities payable 48,830 8,793
Other liabilities   213,372     180,790  
Total liabilities   13,044,440     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) 67,105
and (2011) 66,455 outstanding before treasury shares 671 665
Additional paid-in capital 1,946,439 1,892,988
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $119,629 at 2012 and $112,969 at 2011 537,049 366,978
Treasury shares, at cost; 15,687 shares (2012) and 12,719 shares (2011) (1,363,958 ) (1,073,970 )
Retained earnings   5,613,266     4,884,714  
Total shareholders' equity   6,733,467     6,071,375  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,777,907   $ 18,893,555  
 
 
                       
 
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Three Months Ended Twelve Months Ended
December 31, December 31,
(Dollars in thousands) 2012 2011 2012 2011
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 58,777 $ 41,042 $ 828,954 $ (80,486 )
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable (33,771 ) (75,692 ) (153,694 ) (235,560 )
Decrease (increase) in funds held by reinsureds, net (3,791 ) 784 42,298 18,236
Decrease (increase) in reinsurance receivables (19,302 ) (10,061 ) (55,274 ) 97,549
Decrease (increase) in current income taxes (48,217 ) 75,497 (26,831 ) 82,702
Decrease (increase) in deferred tax asset 16,013 (120,471 ) 64,909 (194,029 )
Decrease (increase) in prepaid reinsurance premiums 34,759 (3,098 ) 16,358 46,374
Increase (decrease) in reserve for losses and loss adjustment expenses 235,945 247,859 (169,595 ) 826,230
Increase (decrease) in future policy benefit reserve 374 5,217 (1,080 ) 4,185
Increase (decrease) in unearned premiums (46,193 ) 39,179 (98,418 ) (39,822 )
Increase (decrease) in other net payable to reinsurers (64,576 ) 20,849 100,566 4,911
Increase (decrease) in losses in course of payment 85,895 (34,035 ) 173,232 18,477
Change in equity adjustments in limited partnerships (17,013 ) 10,504 (63,779 ) (56,549 )
Change in other assets and liabilities, net (20,125 ) 34,332 76,788 108,611
Non-cash compensation expense 9,158 4,740 31,984 17,693
Amortization of bond premium (accrual of bond discount) 16,049 13,488 61,844 47,872
Amortization of underwriting discount on senior notes 14 13 52 49
Net realized capital (gains) losses   (19,518 )   (137,283 )   (164,400 )   (6,923 )
Net cash provided by (used in) operating activities   184,478     112,864     663,914     659,520  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value 535,686 354,593 1,830,582 1,702,973
Proceeds from fixed maturities matured/called - available for sale, at fair value - - 1,300 12,775
Proceeds from fixed maturities sold - available for sale, at market value 273,838 376,593 913,139 1,732,246
Proceeds from fixed maturities sold - available for sale, at fair value 11,991 2,526 84,917 65,158
Proceeds from equity securities sold - available for sale, at market value 150,015 - 280,807 27,207
Proceeds from equity securities sold - available for sale, at fair value 171,823 92,480 558,740 247,227
Distributions from other invested assets 31,422 23,256 84,454 166,273
Cost of fixed maturities acquired - available for sale, at market value (1,184,638 ) (944,353 ) (3,328,409 ) (3,238,113 )
Cost of fixed maturities acquired - available for sale, at fair value (791 ) (2,456 ) (7,955 ) (27,481 )
Cost of equity securities acquired - available for sale, at market value (6,445 ) (7,254 ) (26,571 ) (127,837 )
Cost of equity securities acquired - available for sale, at fair value (121,461 ) (70,867 ) (426,507 ) (755,734 )
Cost of other invested assets acquired (8,688 ) (7,000 ) (58,369 ) (64,832 )
Cost of businesses acquired - - - (63,100 )
Net change in short-term investments 112,153 149,585 (175,043 ) 100,969
Net change in unsettled securities transactions   (30,872 )   (21,883 )   35,085     13,563  
Net cash provided by (used in) investing activities   (65,967 )   (54,780 )   (233,830 )   (208,706 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net 1,605 3,761 21,473 12,269
Purchase of treasury shares (39,963 ) (8,251 ) (289,988 ) (92,490 )
Revolving credit borrowings - - - (50,000 )
Dividends paid to shareholders   (24,735 )   (25,786 )   (100,402 )   (103,848 )
Net cash provided by (used in) financing activities   (63,093 )   (30,276 )   (368,917 )   (234,069 )
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   3,074     (22,863 )   27,232     (26,502 )
 
Net increase (decrease) in cash 58,492 4,945 88,399 190,243
Cash, beginning of period   478,558     443,706     448,651     258,408  
Cash, end of period $ 537,050   $ 448,651   $ 537,050   $ 448,651  
 
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered) $ 5,291 $ (38,618 ) $ 59,754 $ (44,537 )
Interest paid 21,072 20,262 53,008 51,647
 
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 -
 
 

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