FORM 10-K

		Page

PART I

Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	12
Item 3.	Legal Proceedings	1213
Item 4.	~~Reserved~~Mine Safety Disclosures	13


PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	3028
Item 8.	Financial Statements and Supplementary Data	3331
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	33 31
Item 9A.	Controls and Procedures	3331
Item 9B.	Other Information	3331

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	3432
Item 11.	Executive Compensation	3432
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34 32
Item 13.	Certain Relationships and Related Transactions, and Director Independence	3432
Item 14.	Principal Accountant Fees and Services	3432


PART IV

Item 15.	Exhibits and Financial Statement Schedules	3533

PART I

Unless otherwise indicated, all financial data in this document have been prepared using accounting principles generally accepted in the United States of America (“GAAP”). As used in this document, “Holdings” means Everest Reinsurance Holdings, Inc.; “Group” means Everest Re Group, Ltd.; “Holdings Ireland” means Everest Underwriting Group (Ireland) Limited; “Everest Re” means Everest Reinsurance Company and its subsidiaries (unless the context otherwise requires) and the “Company”, “we”, “us”, and “our” means Holdings and its subsidiaries (unless the context otherwise requires).

ITEM 1. BUSINESS

The Company.

Holdings, a Delaware corporation, is a wholly-owned subsidiary of Holdings Ireland. On December 30, 2008, Group contributed Holdings to its recently established Irish holding company, Holdings Ireland. Holdings Ireland is a direct subsidiary of Group and was established to serve as a holding company for the U.S. and Irish reinsurance and insurance subsidiaries. Group is a Bermuda holding company whose common shares are publicly traded in the U.S. on the New York Stock Exchange under the symbol “RE”. Group files an annual report on Form 10-K with the Securities and Exchange Commission (the “SEC”) with respect to its consolidated operations, including Holdings.

The Company’s principal business, conducted through its operating segments, is the underwriting of reinsurance and insurance in the U.S. and international markets. The Company had gross written premiums, in ~~2010,~~2012, of ~~$3.5~~$3.6 billion, with approximately ~~75%~~71% representing reinsurance and ~~25%~~29% representing insurance. Stockholder’s equity at December 31, ~~2010~~2012 was ~~$3.1~~$3.5 billion. The Company underwrites reinsurance both through brokers and directly with ceding companies, giving it the flexibility to pursue business based on the ceding company’s preferred reinsurance purchasing method. The Company underwrites insurance principally through general agent relationships, brokers and surplus lines brokers. Holdings’ active operating subsidiaries, excluding Mt. McKinley Insurance Company (“Mt. McKinley”), which is in runoff, are each rated A+ (“Superior”) by A.M. Best Company (“A.M. Best”), a leading provider of insurer ratings that assigns financial strength ratings to insurance companies based on their ability to meet their obligations to policyholders.

Following is a summary of the Company’s operating subsidiaries:

Everest Re, a Delaware insurance company and a direct subsidiary of Holdings, is a licensed property and casualty insurer and/or reinsurer in all states, the District of Columbia and Puerto Rico and is authorized to conduct reinsurance business in Canada, Singapore and Brazil. Everest Re underwrites property and casualty reinsurance for insurance and reinsurance companies in the U.S. and international markets. Everest Re has engaged in reinsurance transactions with Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”) ~~and~~, Everest International Reinsurance, Ltd. (“Everest International”) and Everest Insurance Company of Canada (“Everest Canada”), ~~affiliates,~~which are affiliated companies, primarily driven by enterprise risk and capital management considerations under which business is ceded at market rates and ~~terms (“the affiliated quota share agreement”).~~terms. At December 31, ~~2010~~2012 Everest Re had statutory surplus of ~~$2.5~~$2.6 billion.

Everest Insurance Company of Canada (“Everest Canada”), a Canadian insurance company and direct subsidiary of Everest Re, is licensed to write property and casualty insurance in all Canadian provinces. As of December 31, 2010, Everest Canada was an inactive entity; however, in January 2011, Everest Re contributed additional capital to Everest Canada in order to resume operating activities. The Company expects that Everest Canada will begin writing new insurance business in 2011.

Everest National Insurance Company (“Everest National”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed in 50 states and the District of Columbia and is authorized to write property and casualty insurance on an admitted basis in the jurisdictions in which it is licensed. The majority of Everest National’s business is reinsured by its parent, Everest Re.

Everest Indemnity Insurance Company (“Everest Indemnity”), a Delaware insurance company and a direct subsidiary of Everest Re, writes excess and surplus lines insurance business in the U.S. on a non-admitted basis. Excess and surplus lines insurance is specialty property and liability coverage that an insurer not licensed to write insurance in a particular jurisdiction is permitted to provide to insureds when the specific specialty coverage is unavailable from admitted insurers. Everest Indemnity is licensed in Delaware and is eligible to write business on a non-admitted basis in all other states, the District of Columbia and Puerto Rico. The majority of Everest Indemnity’s business is reinsured by its parent, Everest Re.

·	Everest Security Insurance Company (“Everest Security”), a Georgia insurance company and a direct subsidiary of Everest Re, writes property and casualty insurance on an admitted basis in Georgia and Alabama. The majority of Everest Security’s business is reinsured by its parent, Everest Re.

Mt. McKinley, a Delaware insurance company and a direct subsidiary of Holdings, was acquired by Holdings in September 2000 from The Prudential Insurance Company of America (“The Prudential”). In 1985, Mt. McKinley ceased writing new and renewal insurance and commenced a run-off operation to service claims arising from its previously written business. Effective September 19, 2000, Mt. McKinley and Bermuda Re entered into a loss portfolio transfer reinsurance agreement, whereby Mt. McKinley transferred, for arm’s length consideration, all of its net insurance exposures and reserves to Bermuda Re.

·	Heartland Crop Insurance, Inc. (“Heartland”), a Kansas based managing general agent and a direct subsidiary of Holdings, was acquired on January 2, 2011. Heartland specializes in crop insurance, which is written mainly through Everest National.

Reinsurance Industry Overview.

Reinsurance is an arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance or reinsurance company, the ceding company, against all or a portion of the insurance risks underwritten by the ceding company under one or more insurance contracts. Reinsurance can provide a ceding company with several benefits, including a reduction in its net liability on individual risks or classes of risks, catastrophe protection from large and/or multiple losses and/or a reduction in operating leverage as measured by the ratio of net premiums and reserves to capital. Reinsurance also provides a ceding company with additional underwriting capacity by permitting it to accept larger risks and write more business than would be acceptable relative to the ceding company’s financial resources. Reinsurance does not discharge the ceding company from its liability to policyholders; rather, it reimburses the ceding company for covered losses.

There are two basic types of reinsurance arrangements: treaty and facultative. Treaty reinsurance obligates the ceding company to cede and the reinsurer to assume a specified portion of a type or category of risks insured by the ceding company. Treaty reinsurers do not separately evaluate each of the individual risks assumed under their treaties, instead, the reinsurer relies upon the pricing and underwriting decisions made by the ceding company. In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk under a single insurance contract. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance, when purchased by ceding companies, usually is intended to cover individual risks not covered by their reinsurance treaties because of the dollar limits involved or because the risk is unusual.

Both treaty and facultative reinsurance can be written on either a pro rata basis or an excess of loss basis. Under pro rata reinsurance, the ceding company and the reinsurer share the premiums as well as the losses and expenses in an agreed proportion. Under excess of loss reinsurance, the reinsurer indemnifies the ceding company against all or a specified portion of losses and expenses in excess of a specified dollar amount, known as the ceding company's retention or reinsurer's attachment point, generally subject to a negotiated reinsurance contract limit.

In pro rata reinsurance, the reinsurer generally pays the ceding company a ceding commission. The ceding commission generally is based on the ceding company’s cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense and may contain profit sharing provisions, whereby the ceding commission is adjusted based on loss experience). Premiums paid by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a proportionate risk. There is usually no ceding commission on excess of loss reinsurance.

Reinsurers may purchase reinsurance to cover their own risk exposure. Reinsurance of a reinsurer's business is called a retrocession. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause insurers to purchase reinsurance: to reduce net liability on individual or classes of risks, protect against catastrophic losses, stabilize financial ratios and obtain additional underwriting capacity.

Reinsurance can be written through intermediaries, generally professional reinsurance brokers, or directly with ceding companies. From a ceding company's perspective, the broker and the direct distribution channels have advantages and disadvantages. A ceding company's decision to select one distribution channel over the other will be influenced by its perception of such advantages and disadvantages relative to the reinsurance coverage being placed.

Business Strategy.

The Company’s business strategy is to sustain its leadership position within targeted reinsurance and insurance markets, provide effective management throughout the property and casualty underwriting cycle and thereby achieve an attractive return for its stockholder. The Company’s underwriting strategies seek to capitalize on its i) financial strength and capacity, ii) global franchise, iii) stable and experienced management team, ~~iii)~~iv) diversified product and distribution offerings, ~~iv)~~v) underwriting expertise and disciplined approach, v)vi) efficient and low-cost operating structure and ~~vi)~~vii) effective enterprise risk management practices.

The Company offers treaty and facultative reinsurance and admitted and non-admitted insurance. The Company’s products include the full range of property and casualty reinsurance and insurance coverages, including marine, aviation, surety, errors and omissions liability (“E&O”), directors’ and officers’ liability (“D&O”), medical malpractice, other specialty lines, accident and health (“A&H”) and workers’ compensation.

The Company’s underwriting strategies emphasize underwriting profitability over premium volume. Key elements of this strategy include careful risk selection, appropriate pricing through strict underwriting discipline and adjustment of the Company’s business mix in response to changing market conditions. The Company focuses on reinsuring companies that effectively manage the underwriting cycle through proper analysis and pricing of underlying risks and whose underwriting guidelines and performance are compatible with its objectives.

The Company’s underwriting strategies emphasize flexibility and responsiveness to changing market conditions, such as increased demand or favorable pricing trends. The Company believes that its existing strengths, including its broad underwriting expertise, U.S. and international presence, strong financial ratings and substantial capital, facilitate adjustments to its mix of business geographically, by line of business and by type of coverage, allowing it to participate in those market opportunities that provide the greatest potential for underwriting profitability. The Company’s insurance operations complement these strategies by accessing business that is not available on a reinsurance basis. The Company carefully monitors its mix of business across all operations to avoid unacceptable geographic or other risk concentrations.

Capital Transactions.

The Company’s business operations are in part dependent on its financial strength and financial strength ratings, and the market’s perception of its financial strength. The Company’s stockholder’s equity was ~~$3,127.7~~$3,478.6 million and ~~$2,858.8~~$2,941.4 million at December 31, ~~2010~~2012 and ~~2009,~~2011, respectively. The Company possesses significant financial flexibility with access to the debt markets and, through its ultimate parent, equity markets, as a result of its perceived financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies. The Company’s capital position remains strong, commensurate with its financial ratings and the Company has ample liquidity to meet its financial obligations for the foreseeable future.

On ~~December 17, 2008,~~October 14, 2011. Group and Holdings renewed the shelf registration statement on Form S-3ASR with the SEC, as a Well Known Seasoned Issuer. This shelf registration statement can be used by Group to register common shares, preferred shares, debt securities, warrants, share purchase contracts and share purchase units; by Holdings to register debt securities and by Everest Re Capital Trust III (“Capital Trust III”) to register trust preferred securities.

On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.6% fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161.4 ~~million, which resulted in a pre-tax gain on debt repurchase of $78.3~~ million.

On March 15, 2010, the $200.0 million principal amount of 8.75% senior notes matured, and was paid off in cash.

Financial Strength Ratings.

The following table shows the current financial strength ratings of the Company’s operating subsidiaries as reported by A.M. Best, Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) and Moody’s Investors ~~Service,~~Services, Inc. (“Moody’s”). These ratings are based upon factors of concern to policyholders and should not be considered an indication of the degree or lack of risk involved in a direct or indirect equity investment in an insurance or reinsurance company.

All of the below-mentioned ratings are continually monitored and revised, if necessary, by each of the rating agencies. The ratings presented in the following table were in effect as of February 28, ~~2011.~~2013.

The Company believes that its ratings, in general, are important to its operations because they provide the Company’s customers and investors with an independent assessment of the Company’s underlying financial strength using a scale that provides for relative comparisons. Strong financial ratings are particularly important for reinsurance companies. Ceding companies must rely on their reinsurers to pay covered losses well into the future. As a result, a highly rated reinsurer is generally preferred.

Operating Subsidiary:	A.M. Best	Standard & Poor's	Moody's

Everest Re	A+ (Superior)	A+ (Strong)	Aa3 (Excellent)
Everest National	A+ (Superior)	A+ (Strong)	Not Rated
Everest Indemnity	A+ (Superior)	Not Rated	Not Rated
Everest Security	A+ (Superior)	Not Rated	Not Rated
~~Everest Canada~~	~~A+ (Superior)~~	~~Not Rated~~	~~Not Rated~~
Mt. McKinley	Not Rated	Not Rated	Not Rated

A.M. Best states that the “A+” (“Superior”) rating is assigned to those companies which, in its opinion, have a superior ability to meet their ongoing insurance policy and contract obligations based on A.M. Best’s comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance and business profile. Standard & Poor’s states that the “A+” rating is assigned to those insurance companies which, in its opinion, have strong financial security characteristics with respect to their ability to pay under its insurance policies and contracts in accordance with their terms. Moody’s states that insurance companies rated “Aa” offer excellent financial security. Together with the “Aaa” rated companies, “Aa” rated companies constitute what are generally known as high-grade companies, with “Aa” rated companies generally having somewhat larger long-term risks. On January 24, 2012, Moody’s affirmed the rating of Everest Re but changed the outlook on the ratings from stable to negative reflecting their opinion of

the likely direction of the ratings over the medium term (12 to 18 months). Management will continue to work with Moody’s over this time to address their concerns but it is not possible to predict the potential outcome. Management does not believe that a potential one notch downgrade would have a material adverse affect on the Company’s business.

Subsidiaries other than Everest Re may not be rated by some or any rating agencies because such ratings are not considered essential by the individual subsidiary’s customers or because of the limited nature of the subsidiary’s operations. In particular, Mt. McKinley is not rated because it is in run-off status.

Debt Ratings.

The following table shows the debt ratings by A.M. Best, Standard & Poor’s and Moody’s of the Holdings’ senior notes due October 15, 2014, long term notes due May 1, 2067 and Everest Re Capital Trust II’s (“Capital Trust II”) trust preferred securities due March 29, 2034, all of which are considered investment grade. Debt ratings are the rating agencies’ current assessment of the credit worthiness of an obligor with respect to a specific obligation.

	A.M. Best			Standard & Poor's		Moody's
Senior Notes		a-	(Strong)	A-	(Strong)	A3	(Good)
Long Term Notes		bbb	(Adequate)	BBB	(Adequate)	Baa1	(Adequate)
Trust Preferred Securities		bbb+	(Adequate)	BBB	(Adequate)	Baa1	(Adequate)

A debt rating of “a-” is assigned by A.M. Best where the issuer, in A.M. Best’s opinion, has a strong ability to meet the terms of the obligation. A.M. Best assigns a debt rating in the “bbb” range where the issuer, in A.M. Best’s opinion, has adequate ability to meet the terms of the obligation. Standard & Poor’s assigns a debt rating in the “A” range to issuers that exhibit strong capacity and willingness to meet its financial commitments on obligations as they come due. A debt rating in the “BBB” range is assigned by Standard & Poor’s where the issuers exhibit adequate protection parameters although adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. According to Moody’s, a debt rating of “A3” is assigned to issues that are considered upper-medium-grade obligations and subject to low credit risk. Obligations rated “Baa1” are subject to moderate credit risk and are considered medium-grade and as such may possess certain speculative characteristics. On January 24, 2012, Moody’s affirmed the ratings of the Company’s debt but changed the outlook on the ratings from stable to negative reflecting their opinion of the potential direction of the ratings over the medium term (12 to 18 months). The Company will continue to work with Moody’s over this time to address their concerns but it is not possible to predict the potential outcome. The Company does not believe that a one notch downgrade would have a material adverse affect on the Company’s business.

Competition.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As such, financial results tend to fluctuate with periods of constrained availability, high rates and strong profits followed by periods of abundant capacity, low rates and constrained profitability. Competition in the types of reinsurance and insurance business that ~~we underwrite~~the Company underwrites is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written. Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels.

~~We compete~~

The Company competes in the U.S. and international reinsurance and insurance markets with numerous global competitors. ~~Our~~The Company’s competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies and domestic and international underwriting operations, including underwriting syndicates at Lloyd’s. Some of these competitors have greater financial resources than ~~we do~~the Company and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and the potential for securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.

Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the casualty lines of business. Generally, there was ample insurance and reinsurance capacity relative to demand. We noted, however, that in many markets and lines during 2009 and 2010, the rates of decline have slowed, pricing in some segments was relatively flat and there was upward movement in some others, particularly property catastrophe coverage in Latin America and Australia where there have been significant losses. Competition and its effect on rates, terms and conditions vary widely by market and coverage yet ~~continues~~continued to be most prevalent in the U.S. casualty insurance and reinsurance markets. ~~The U.S. insurance markets in which we participate were extremely competitive as well.~~

~~Rates~~However, during the fourth quarter of 2012, the industry sustained significant losses from Superstorm Sandy and also sustained significant losses during 2011 from Australian floods, the New Zealand earthquake, the earthquake and tsunami in Japan, storms in the ~~international markets~~U.S., and the Thailand floods. It is too early to determine the longer term impact on market conditions as a result of these events. While the 2011 events have ~~generally been stable and we have seen some~~resulted in meaningful rate increases ~~particularly~~ for catastrophe ~~exposed business. We have grown our~~coverages in some global catastrophe prone regions, particularly areas impacted by these losses, whether the magnitude of these 2012 and 2011 losses is sufficient to increase rates and improve market conditions for other lines of business ~~in the Middle East, Latin America and Asia.~~remains to be seen.

Overall, ~~we believe~~the Company believes that current marketplace conditions, ~~offer pockets of~~particularly for catastrophe coverages, provide profit opportunities for usit given ~~our~~its strong ratings, distribution system, reputation and expertise. ~~We continue~~The Company continues to employ ~~our~~its strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in ~~our~~its overall portfolio.

Employees.

As of February 1, ~~2011,~~2013, the Company employed ~~616 persons, which includes the employees from the acquisition of Heartland Crop Insurance, Inc. in January 2011.~~644 persons. Management believes that employee relations are good. None of the Company’s employees are subject to collective bargaining agreements, and the Company is not aware of any current efforts to implement such agreements.

Available Information.

The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available free of charge through the Company’s internet website at http://~~www.everestre.com~~www.everestregroup.com as soon as reasonably practicable after such reports are electronically filed with the SEC.

ITEM 1A. RISK FACTORS

In addition to the other information provided in this report, the following risk factors should be considered when evaluating us. If the circumstances contemplated by the individual risk factors materialize, our business, financial condition and results of operations could be materially and adversely affected and our ability to service our debt, our debt ratings and our ability to issue new debt could decline significantly.

RISKS RELATING TO OUR BUSINESS

Fluctuations in the financial markets could result in investment losses.

Prolonged and severe disruptions in the public debt and equity markets, such as occurred during 2008, could result in significant realized and unrealized losses in our investment portfolio. For the year ended December 31, 2008, we incurred $489.2 million of ~~net~~ realized investment losses and $276.5 million of unrealized investment losses. Although financial markets have significantly improved ~~during 2009 and 2010,~~since 2008, they could deteriorate in the ~~future and again~~future. Such declines in the financial markets could result in ~~substantial~~significant realized and unrealized losses ~~which~~on investments and could have a material adverse impact on our results of operations, equity, business and insurer financial strength and debt ratings.

Our results could be adversely affected by catastrophic events.

We are exposed to unpredictable catastrophic events, including weather-related and other natural catastrophes, as well as acts of terrorism. Any material reduction in our operating results caused by the occurrence of one or more catastrophes could inhibit our ability to pay dividends or to meet our interest and principal payment obligations. Subsequent to April 1, 2010, we define a catastrophe as an event that causes a loss on property exposures before reinsurance of at least $10.0 million, before corporate level reinsurance and taxes. Prior to April 1, 2010, we used a threshold of $5.0 million. By way of illustration, during the past five calendar years, pre-tax catastrophe losses, net of contract specific reinsurance but before cessions under corporate reinsurance programs, were as follows:

Calendar year:	Pre-tax catastrophe losses			Pre-tax catastrophe losses
(Dollars in millions)
2012				$	235.8
2011					798.4
2010		$	267.1		267.1
2009			23.9		23.9
2008			202.4		202.4
2007			73.3
2006			209.6

Our losses from future catastrophic events could exceed our projections.

We use projections of possible losses from future catastrophic events of varying types and magnitudes as a strategic underwriting tool. We use these loss projections to estimate our potential catastrophe losses in certain geographic areas and decide on the purchase of retrocessional coverage or other actions to limit the extent of potential losses in a given geographic area. These loss projections are approximations, reliant on a mix of quantitative and qualitative processes, and actual losses may exceed the projections by a material amount, resulting in a material adverse effect on our financial condition and results of operations.

If our loss reserves are inadequate to meet our actual losses, our net income would be reduced or we could incur a loss.

We are required to maintain reserves to cover our estimated ultimate liability of losses and loss adjustment expenses (“LAE”) for both reported and unreported claims incurred. These reserves are only estimates of what we believe the settlement and administration of claims will cost based on facts and circumstances known to us. In setting reserves for our reinsurance liabilities, we rely on claim data supplied by our ceding companies and brokers and we employ actuarial and statistical projections. The information received from our ceding companies is not always timely or accurate, which can contribute to inaccuracies in our loss projections. Because of the uncertainties that surround our estimates of loss and LAE reserves, we cannot be certain that ultimate ~~loss~~losses and LAE payments will not exceed our estimates. If our reserves are deficient, we would be required to increase loss reserves in the period in which such deficiencies are identified which would cause a charge to our earnings and a reduction of capital. By way of illustration, during the past five calendar years, the reserve re-estimation process resulted in a decrease to our pre-tax net income in ~~four~~all of the years:

Calendar year:	Effect on pre-tax net income				Effect on pre-tax net income
(Dollars in millions)
(Dollars in millions)
2012					$	12.3	decrease
2011						14.8	decrease
2010		$	62.8	decrease		62.8	decrease
2009			70.0	decrease		70.0	decrease
2008			142.0	decrease		142.0	decrease
2007			275.7	decrease
2006			67.4	decrease

The difficulty in estimating our reserves is significantly more challenging as it ~~relate~~relates to reserving for potential asbestos and environmental (“A&E”) liabilities. At year end ~~2010, 7.2%~~2012, 5.4% of our gross reserves were comprised of A&E reserves. A&E liabilities are especially hard to estimate for many reasons, including the long delays between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly allocating liability for the asbestos or environmental damage. Legal tactics and judicial and legislative developments affecting the scope of insurers’ liability, which can be difficult to predict, also contribute to uncertainties in estimating reserves for A&E liabilities.

The failure to accurately assess underwriting risk and establish adequate premium rates could reduce our net income or result in a net loss.

Our success depends on our ability to accurately assess the risks associated with the businesses on which the risk is retained. If we fail to accurately assess the risks we retain, we may fail to establish adequate premium rates to cover our losses and LAE. This could reduce our net income and even result in a net loss.

In addition, losses may arise from events or exposures that are not anticipated when the coverage is priced. An example of an unanticipated event is the terrorist attacks on September 11, 2001. Neither the magnitude of loss on a single line of business nor the combined impact on several lines of business from an act of terrorism on such a large scale was contemplated when we priced our coverages. In addition to unanticipated events, we also face the unanticipated expansion of our exposures, particularly in long-tail liability lines. An example of this is the expansion over time of the scope of insurers’ legal liability within the mass tort arena, particularly for A&E exposures discussed above.

Decreases in pricing for property and casualty reinsurance and insurance could reduce our net income.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. These cycles, as well as other factors that influence aggregate supply and demand for property and casualty insurance and reinsurance products, are outside of our control. The supply of (re)insurance is driven by prevailing prices and levels of capacity that may fluctuate in response to a number of factors including large catastrophic losses and investment returns being realized in the insurance industry. Demand for (re)insurance is influenced by underwriting results of insurers and insureds, including catastrophe losses, and prevailing general economic conditions. If any of these factors were to result in a decline in the demand for (re)insurance or an overall increase in (re)insurance capacity, our net income could decrease.

If rating agencies downgrade the ratings of our insurance subsidiaries, future prospects for growth and profitability could be significantly and adversely affected.

Our active insurance company subsidiaries currently hold financial strength ratings assigned by third-party rating agencies which assess and rate the claims paying ability and financial strength of insurers and reinsurers. Our active subsidiaries carry an “A+” (“Superior”) rating from A.M. Best. Everest Re and Everest National hold an “A+” (“Strong”) rating from Standard & Poor’s. Everest Re holds an “Aa3” (“Excellent”) rating from Moody’s. Financial strength ratings are used by client companies and agents and brokers that place the business as an important means of assessing the financial strength and quality of reinsurers. A downgrade or withdrawal of any of these ratings might adversely affect our ability to market our insurance products and could have a material and adverse effect on future prospects for growth and profitability.

On January 24, 2012, Moody’s affirmed the ratings of Everest Re but changed the outlook on the ratings from stable to negative reflecting their opinion of the likely directions of the ratings over the medium term (12 to 18 months). We will continue to work with Moody’s over this time to address their concerns but it is not possible to predict the potential outcome.

On March 13, 2009, ~~Everest Re’s and Everest National’s ratings were downgraded one level by~~ Standard & Poor’s downgraded its ratings of Everest Re and Everest National one level to “A+”. ~~However, we cannot assure~~It is possible that a further downgrade will ~~not~~ occur in the future if we do not continue to meet the evolving criteria expected of our current rating. In that regard, several of the rating agencies are in the process of modifying their approaches to evaluating enterprise risk management and its impact on ratings. Therefore, we cannot predict the outcome of this reassessment or its potential impact upon our ratings.

Consistent with market practice, much of our treaty reinsurance business allows the ceding company to terminate the contract or seek collateralization of our obligations in the event of a rating downgrade below a certain threshold. The termination provision would generally be triggered if a rating fell below A.M. ~~Best’s~~Best Company’s A- rating level, which is three levels below Everest Re’s current rating of A+. To a lesser extent, Everest Re also has modest exposure to reinsurance contracts that contain provisions for obligatory funding of outstanding liabilities in the event of a rating agency downgrade. ~~That provision~~Those provisions would also generally be triggered if Everest Re’s rating fell below A.M. Best’s A- rating level.

The failure of our insureds, intermediaries and reinsurers to satisfy their obligations to us could reduce our ~~net~~ income.

In accordance with industry practice, we have uncollateralized receivables from insureds, agents and brokers and/or rely on agents and brokers to process our payments. We may not be able to collect amounts due from insureds, agents and brokers, resulting in a reduction to net income.

We are ~~also~~ subject to ~~the~~ credit risk of reinsurers in connection with retrocessional arrangements because the transfer of risk to a reinsurer does not relieve us of our liability to the insured. In addition, reinsurers may be unwilling to pay us even though they are able to do so. The failure of one or more of our reinsurers to honor their obligations to us in a timely fashion would impact our cash flow and reduce our net income and could cause us to incur a significant loss.

If we are unable or choose not to purchase reinsurance and transfer risk to reinsurers, our net income could be reduced or we could incur a net loss in the event of an unusual loss experience.

We are generally less reliant on the purchase of reinsurance than many of our competitors, in part because of our strategic emphasis on underwriting discipline and management of the cycles inherent in our business. We try to separate our risk taking process from our risk mitigation process in order to avoid developing too great a reliance on reinsurance. ~~The bulk of these cessions are to captives of program managers, who thereby share in the results of the business they produce.~~ We ~~otherwise~~ generally purchase reinsurance from other third parties only when we expect a net benefit. The percentage of business that we reinsure ~~to other than captives of program managers~~ may vary considerably from year to year, depending on our view of the relationship between cost and expected benefit for the contract period.

We have entered into affiliated whole account quota share reinsurance agreements for 2002 through ~~2010~~2012 and entered into a new quota share agreement for ~~2011~~2013 with Bermuda Re. We believe that the terms, conditions and pricing of the quota share agreements reflect arm’s length market conditions. In addition, we entered into a loss portfolio transfer agreement with Bermuda Re on October 1, 2008. These affiliated reinsurance arrangements allow us to more effectively leverage our capital, expertise, distribution platform and market presence than our stand alone capital position would otherwise allow.

Percentage of ceded written premiums to gross written premiums	2010	2009	2008	2007	2006	2012	2011	2010	2009	2008

Unaffiliated	7.4%	6.0%	6.0%	5.0%	3.9%	6.3%	5.0%	7.4%	6.0%	6.0%
Affiliated	41.1%	42.0%	36.2%	29.4%	24.2%	46.3%	45.8%	41.1%	42.0%	36.2%

Our affiliated quota share agreements reflect general reinsurance market terms and conditions and are negotiated on an arms’ length basis. As a result, there can be no assurance that these arrangements will continue beyond ~~2011.~~2013. If the quota shares are not renewed, we may have to reduce our premium volume and we may be more exposed to reductions in net income from large losses.

Our industry is highly competitive and we may not be able to compete successfully in the future.

Our industry is highly competitive and subject to pricing cycles that can be pronounced. We compete globally in the ~~U.S.~~United States and international reinsurance and insurance markets with numerous competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies and domestic and international underwriting operations, including underwriting ~~syndicates at Lloyd’s.~~

According to Standard & Poor’s, we rank among the top ten global reinsurance groups, in which almost three-quarters of the market share is concentrated. The worldwide premium available to the reinsurance market, for both life and non-life business, was estimated to be $157 billion in 2009 according to data compiled by the International Association of Insurance Supervisors. The top twenty groups in our industry represent just over 85% of these revenues. The leaders in this market are Munich Re, Swiss Re, Hannover Ruckversicherung AG, Berkshire Hathaway Inc., SCOR and syndicates at Lloyd’s. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships throughout the industry, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and the potential for securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.

We are dependent on our key personnel.

Our success has been, and will continue to be, dependent on ~~the~~our ability to retain the services of existing key executive officers and to attract and retain additional qualified personnel in the future. The loss of the services of any key executive officer or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct business. Generally, we consider key executive officers to be those individuals who have the greatest influence in setting overall policy and controlling operations: Chairman and Chief Executive Officer, Joseph V. Taranto (age ~~61)~~63), President, Dominic J. Addesso (age 59) and Executive Vice President and Chief Financial Officer, ~~Dominic J. Addesso~~Craig Howie (age ~~57)~~49). We currently have employment contracts with Mr. Taranto and Mr. Addesso. Mr. Taranto’s contract was filed with the SEC and provides for terms of employment ending on December 31, 2013. Mr. Addesso’s contract was filed with the SEC and provides for terms of employment ending December 31, 2016.

Our investment values and investment income could decline because they are exposed to interest rate, credit and market risks.

A significant portion of our investment portfolio consists of fixed income securities and smaller portions consist of equity securities and other investments. Both the fair market value of our invested assets and associated investment income fluctuate depending on general economic and market conditions. For example, the fair market value of our predominant fixed income portfolio generally increases or decreases inversely to fluctuations in interest rates. The market value of our fixed income securities could also decrease as a result of a downturn in the business cycle, ~~such as the downturn we are currently experiencing,~~ that causes the credit quality of such securities to deteriorate. The net investment income that we realize from future investments in fixed income securities will generally increase or decrease with interest rates.

Interest rate fluctuations also can cause net investment income from fixed income investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, to differ from the income anticipated from those securities at the time of purchase. In addition, if issuers of individual investments are unable to meet their obligations, investment income will be reduced and realized capital losses may arise.

The majority of our fixed income securities are classified as available for sale and temporary changes in the market value of these investments are reflected as changes to our ~~shareholders’~~stockholder’s equity. Our actively managed equity security ~~portfolio is~~portfolios are fair valued and any changes in fair value are reflected as net realized capital gains or losses. As a result, a decline in the value of ~~the~~our securities ~~in our portfolio~~ reduces our capital or could cause us to incur a loss.

We have invested a portion of our investment portfolio in equity securities. The value of these assets fluctuates with changes in the markets. In times of economic weakness, the fair value of these assets may decline, and may negatively impact net income. We also invest in non-traditional investments which have different risk characteristics than traditional fixed income and equity securities. These alternative investments are comprised primarily of private equity limited partnerships. The changes in value and investment ~~income~~ income/(loss) for these partnerships ~~are~~may be more volatile than over-the-counter securities.

The following table quantifies the portion of our investment portfolio that consists of fixed income securities, equity securities and ~~asset-backed~~ investments that carry prepayment risk.

	At					At
(Dollars in millions)	December 31, 2010		% of Total			December 31, 2012		% of Total
Mortgage-backed securities
Commercial	$	39.5		0.5	%	$	52.5		0.6	%
Agency residential		369.7		4.4	%		683.7		7.5	%
Non-agency residential		30.0		0.4	%		2.3		0.0	%
Other asset-backed		20.5		0.2	%		46.5		0.5	%
Total asset-backed		459.7		5.5	%		785.0		8.6	%
Other fixed income		5,140.2		62.0	%		4,746.4		52.3	%
Total fixed income, at market value		5,599.9		67.5	%		5,531.4		60.9	%
Fixed maturities, at fair value		180.5		2.2	%		41.5		0.5	%
Equity securities, at fair value		683.5		8.2	%		1,199.8		13.2	%
Other invested assets, at market value		406.9		4.9	%		420.7		4.6	%
Other invested assets, at fair value		788.1		9.5	%		1,068.7		11.8	%
Cash and short-term investments		635.0		7.7	%		813.3		9.0	%
Total investments and cash	$	8,293.9		100.0	%	$	9,075.5		100.0	%

(Some amounts may not reconcile due to rounding.)

We may experience foreign currency exchange losses that reduce our net income and capital levels.

Through our international operations, we conduct business in a variety of foreign (non-U.S.) currencies, principally ~~the Euro, the British pound,~~ the Canadian dollar and the Singapore dollar. Assets, liabilities, revenues and expenses denominated in foreign currencies are exposed to changes in currency exchange rates. Our functional currency is the U.S. dollar, and exchange rate fluctuations relative to the U.S. dollar may materially impact our results and financial position. In ~~2010,~~2012, we wrote ~~25.5%~~approximately 25.1% of our ~~reinsurance and insurance~~ coverages in non-U.S. currencies; as of December 31, ~~2010,~~2012, we maintained ~~13.1%~~approximately 16.4% of our investment portfolio in investments denominated in non-U.S. currencies. During ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, the impact on our quarterly pre-tax net income from exchange rate fluctuations ranged from a loss of ~~$23.3~~$12.2 million to a gain of ~~$54.6~~$24.1 million.

We are subject to cybersecurity risks that could negatively impact our business operations.

We are dependent upon our information technology platform, including our processing systems, data and electronic transmissions in our business operations. Security breaches could expose us to the loss or misuse of our information, litigation and potential liability. In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning of these systems could have a significant negative impact on our operations and possibly our results. An incident could also result in a violation of applicable privacy and other laws, damage our reputation, cause a loss of customers or give rise to ~~net income impacts, changes in foreign exchange rates resulted in pre-tax translation adjustments through~~monetary fines and other ~~comprehensive income (loss)~~penalties, which could be significant. Management is not aware of ~~$41.6 million and $43.2 million for the years ended December 31, 2010 and 2009, respectively. On~~ a ~~cumulative after-tax basis, translation~~cybersecurity incident that has had ~~increased equity by $84.0 million and $57.0 million as of December 31, 2010 and 2009, respectively.~~a material impact on our operations.

RISKS RELATING TO REGULATION

Insurance laws and regulations restrict our ability to operate and any failure to comply with those laws and regulations could have a material adverse effect on our business.

We are subject to extensive and increasing regulation under U.S., state and foreign insurance laws. These laws limit the amount of dividends that can be paid to us by our operating subsidiaries, impose restrictions on the amount and type of investments that we can hold, prescribe solvency, accounting and internal control standards that must be met and maintained and require us to maintain reserves. These laws also require disclosure of material inter-affiliate transactions and require prior approval of “extraordinary” transactions. Such “extraordinary” transactions include declaring dividends from operating subsidiaries that exceed statutory thresholds. These laws also generally require approval of changes of control of insurance

companies. The application of these laws could affect our liquidity and ability to pay dividends, interest and other payments on securities, as applicable, and could restrict our ability to expand our business operations through acquisitions of new insurance subsidiaries. We may not have or maintain all required licenses and approvals or fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us. These types of actions could have a material adverse effect on our business. To date, no material fine, penalty or restriction has been imposed on us for failure to comply with any insurance law or regulation.

As a result of the recent dislocation of the financial ~~market,~~markets, Congress and the Presidential administration in the United States, are contemplating ~~change~~changes in the way the financial services industry is regulated. It is possible that insurance regulation will be drawn into this process, and that federal regulatory initiatives in the insurance industry could emerge. In addition, regulatory bodies in Europe are developing a new capital adequacy directive for insurers and reinsurers. The future impact of such initiatives, if any, on our operation, net income (loss) or financial condition cannot be determined at this time.

RISK RELATING TO OUR SECURITIES

Because of our holding company structure, our ability to pay dividends, interest and principal is dependent on our receipt of dividends, loan payments and other funds from our subsidiaries.

We are a holding company, whose most significant ~~assets consist~~asset consists of the stock of our operating subsidiaries. As a result, our ability to pay dividends, interest or other payments on our securities in the future will depend on the earnings and cash flows of the operating subsidiaries and the ability of the subsidiaries to pay dividends or to advance or repay funds to us. This ability is subject to general economic, financial, competitive, regulatory and other factors beyond our control. Payment of dividends and advances and repayments from some of the operating subsidiaries are regulated by U.S., state and foreign insurance laws and regulatory restrictions, including minimum solvency and liquidity thresholds. Accordingly, the operating subsidiaries may not be able to pay dividends or advance or repay funds to us in the future, which could prevent us from paying dividends, interest or other payments on our securities.

ITEM 1B.

~~ITEM 1B.~~ UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES~~ITEM 2. PROPERTIES~~

Everest Re’s corporate offices are located in approximately 230,500 square feet of leased office space in Liberty Corner, New Jersey. The Company’s other ~~ten~~fourteen locations occupy a total of approximately ~~93,114~~129,435 square feet, all of which are leased. Management believes that the above described office space is adequate for its current and anticipated needs.

Table of Contents~~ITEM 3. LEGAL PROCEEDINGS~~

ITEM 3.

LEGAL PROCEEDINGS

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance ~~reinsurance~~ and ~~other contractual~~reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. ~~While~~The Company considers the ~~final outcome~~statuses of these ~~matters cannot be predicted with certainty,~~proceedings when determining its reserves for unpaid loss and loss adjustment expenses.

Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company ~~does~~is not ~~believe that~~a party to any ~~of these matters, when finally resolved, will have a materially adverse effect on the Company’s financial position~~other material litigation or liquidity. However, an adverse resolution of one or more of these items in any one quarter or fiscal year could have a materially adverse effect on the Company’s results of operations in that period.arbitration.

ITEM 4.

MINE SAFETY DISCLOSURES

~~ITEM 4. RESERVED~~Not applicable.

PART II

~~ITEM 5.~~ ~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Holder of Common Stock.

As of December 31, ~~2010,~~2012, all of the Company’s common stock was owned by Holdings Ireland and was not publicly traded.

Dividend History and Restrictions.

The Company did not pay any dividends in ~~2010~~2012, 2011 and ~~2009. In 2008, the Company paid a $10.0 million dividend to Holdings Ireland.~~2010. The declaration and payment of future dividends, if any, by the Company will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, financial condition, business needs and growth objectives, capital and surplus requirements of its operating subsidiaries, regulatory restrictions, rating agency considerations and other factors. As an insurance holding company, the Company is dependent on dividends and other permitted payments from its subsidiaries to pay cash dividends to its stockholder. The payment of dividends to Holdings by Everest Re is subject to limitations imposed by Delaware law. Generally, Everest Re may only pay dividends out of its statutory earned surplus, which was ~~$1.6~~$1.7 billion at December 31, ~~2010,~~2012, and only after it has given 10 days prior notice to the Delaware Insurance Commissioner. During this 10-day period, the Commissioner may, by order, limit or disallow the payment of ordinary dividends if the Commissioner finds the insurer to be presently or potentially in financial distress. Further, the maximum amount of dividends that may be paid without the prior approval of the Delaware Insurance Commissioner in any twelve month period is the greater of (1) 10% of an insurer’s statutory surplus as of the end of the prior calendar year or (2) the insurer’s statutory net income, not including realized capital gains, for the prior calendar year. The maximum amount that is available for the payment of dividends by Everest Re in ~~2011~~2013 without prior regulatory approval is ~~$252.8~~$359.0 million.

Recent Sales of Unregistered Securities.

None.

~~ITEM 6. SELECTED FINANCIAL DATA~~

~~Information for Item 6 is not required pursuant to General Instruction I(2) of Form 10-K.~~

ITEM 6.

SELECTED FINANCIAL DATA

Information for Item 6 is not required pursuant to General Instruction I(2) of Form 10-K.

ITEM 7.~~ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION~~

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following is a discussion and analysis of our results of operations and financial condition. It should be read in conjunction with the Consolidated Financial Statements and accompanying notes thereto presented under ITEM 8, “Financial Statements and Supplementary Data”.

Industry Conditions.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As such, financial results tend to fluctuate with periods of constrained availability, high rates and strong profits followed by periods of abundant capacity, low rates and constrained profitability. Competition in the types of reinsurance and insurance business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written. Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels.

We compete in the U.S. and international reinsurance and insurance markets with numerous global competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies and domestic and international underwriting operations, including underwriting syndicates at Lloyd’s. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and the potential for securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.

Overall, we believe that current marketplace conditions, ~~offer pockets of~~particularly for catastrophe coverages, provide profit opportunities for us given our strong ratings, distribution system, reputation and expertise. We continue to employ our strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in our overall portfolio.

Financial Summary.

We monitor and evaluate our overall performance based upon financial results. The following table displays a summary of the consolidated net income (loss), ratios and stockholder’s equity for the periods indicated:

	Years Ended December 31,									Percentage Increase/(Decrease)
(Dollars in millions)	2012			2011			2010				2012/2011			2011/2010
Gross written premiums	$	3,569.4		$	3,558.5		$	3,467.8			0.3	%		2.6	%
Net written premiums		1,691.6			1,754.0			1,788.7			-3.6	%		-1.9	%

REVENUES:
Premiums earned	$	1,773.9		$	1,793.9		$	1,813.8			-1.1	%		-1.1	%
Net investment income		306.1			312.9			350.3			-2.2	%		-10.7	%
Net realized capital gains (losses)		391.7			(41.1	)		65.3		NM				-163.0	%
Other income (expense)		12.1			(11.7	)		12.1			-203.3	%		-197.3	%
Total revenues		2,483.9			2,053.9			2,241.5			20.9	%		-8.4	%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		1,249.7			1,877.6			1,477.5			-33.4	%		27.1	%
Commission, brokerage, taxes and fees		310.7			338.7			335.1			-8.3	%		1.1	%
Other underwriting expenses		170.6			154.3			139.8			10.5	%		10.4	%
Corporate expense		8.8			6.1			5.9			44.3	%		3.5	%
Interest, fee and bond issue cost amortization expense		50.7			50.8			54.6			0.0	%		-6.9	%
Total claims and expenses		1,790.6			2,427.4			2,012.8			-26.2	%		20.6	%

INCOME (LOSS) BEFORE TAXES		693.3			(373.5	)		228.8		NM			NM
Income tax expense (benefit)		173.0			(170.7	)		(36.6	)		-201.4	%	NM
NET INCOME (LOSS)	$	520.3		$	(202.8	)	$	265.4		NM				-176.4	%

RATIOS:										Point Change
Loss ratio		70.5	%		104.7	%		81.5	%		(34.2	)		23.2
Commission and brokerage ratio		17.5	%		18.9	%		18.5	%		(1.4	)		0.4
Other underwriting expense ratio		9.6	%		8.6	%		7.6	%		1.0			1.0
Combined ratio		97.6	%		132.2	%		107.6	%		(34.6	)		24.6


	At December 31,									Percentage Increase/ (Decrease)
(Dollars in millions)		2012			2011			2010			2012/2011			2011/2010
Balance sheet data:
Total investments and cash	$	9,075.5		$	8,396.3		$	8,293.9			8.1	%		1.2	%
Total assets		15,088.0			14,349.2			13,845.7			5.1	%		3.7	%
Loss and loss adjustment expense reserves		8,143.1			8,290.6			7,652.3			-1.8	%		8.3	%
Total debt		818.2			818.1			868.1			0.0	%		-5.8	%
Total liabilities		11,609.3			11,407.8			10,717.9			1.8	%		6.6	%
Stockholder's equity		3,478.6			2,941.4			3,127.7			18.3	%		-6.0	%

(NM, not meaningful)
(Some amounts may not reconcile due to rounding)

Years Ended December 31, Percentage Increase/(Decrease)
(Dollars in millions)
2010 2009 2008 2010/2009 2009/2008
Gross written premiums $ 3,467.8 $ 3,334.1 $ 2,894.8 4.0 % 15.2 %
Net written premiums 1,788.7 1,735.3 1,675.4 3.1 % 3.6 %

REVENUES: ��
Premiums earned $ 1,813.8 $ 1,785.1 $ 1,881.8 1.6 % -5.1 %
Net investment income 350.3 262.1 363.1 33.7 % -27.8 %
Net realized capital gains (losses) 65.3 56.9 (489.2 ) 14.7 % -111.6 %
Realized gain on debt repurchase - 78.3 - -100.0 % NM
Other income (expense) 12.1 0.4 57.9 NM -99.4 %
Total revenues 2,241.5 2,182.7 1,813.6 2.7 % 20.4 %

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 1,477.5 1,091.7 1,465.6 35.3 % -25.5 %
Commission, brokerage, taxes and fees 335.1 344.6 398.6 -2.8 % -13.6 %
Other underwriting expenses 139.8 142.6 124.3 -1.9 % 14.7 %
Corporate expense 5.9 7.7 5.6 -24.0 % 38.2 %
Interest, fee and bond issue cost amortization expense 54.6 70.9 79.0 -23.0 % -10.3 %
Total claims and expenses 2,012.8 1,657.5 2,073.1 21.4 % -20.0 %

INCOME (LOSS) BEFORE TAXES 228.8 525.2 (259.5 ) -56.4 % NM
Income tax expense (benefit) (36.6 ) 129.4 (134.7 ) -128.3 % -196.0 %
NET INCOME (LOSS) $ 265.4 $ 395.9 $ (124.8 ) -33.0 % NM

RATIOS: Point Change
Loss ratio 81.5 % 61.2 % 77.9 % 20.3 (16.7 )
Commission and brokerage ratio 18.5 % 19.3 % 21.2 % (0.8 ) (1.9 )
Other underwriting expense ratio 7.6 % 7.9 % 6.6 % (0.3 ) 1.3
Combined ratio 107.6 % 88.4 % 105.7 % 19.2 (17.3 )

At December 31, Percentage Increase/ (Decrease)
(Dollars in millions) 2010 2009 2008 2010/2009 2009/2008
Balance sheet data:
Total investments and cash $ 8,293.9 $ 8,031.6 $ 7,395.1 3.3 % 8.6 %
Total assets 13,869.4 13,379.6 12,866.6 3.7 % 4.0 %
Loss and loss adjustment expense reserves 7,652.3 7,300.1 7,420.0 4.8 % -1.6 %
Total debt 868.1 1,018.0 1,179.1 -14.7 % -13.7 %
Total liabilities 10,741.7 10,520.8 10,663.7 2.1 % -1.3 %
Stockholder's equity 3,127.7 2,858.8 2,203.0 9.4 % 29.8 %

(NM, not meaningful)

(Some amounts may not reconcile due to rounding)

Revenues.

Premiums. Gross written premiums increased by ~~$133.6~~0.3% to $3,569.4 million ~~or 4.0%,~~ in ~~2010~~2012 compared to ~~2009,~~$3,558.5 million in 2011, reflecting an ~~increase of $125.5 million in our reinsurance business and $8.1~~$80.1 million increase in our insurance ~~business. The increase in reinsurance premiums was primarily the result of increased writings~~business, partially offset by a $69.2 million decrease in our U.S. treaty property and international books of business, driven by a combination of new business, increased participations on renewal contracts, rate increases in select areas and economic and insurance growth in several regions.reinsurance business. The increase in insurance premiums was primarily due to ~~increased writings~~the growth in ~~professional liability~~crop and ~~California workers’ compensation business,~~primary A&H medical stop loss insurance, partially offset by the termination and runoff of several large casualty programs. The decreases in reinsurance premiums was primarily due to the non-renewal of a ~~reduction~~large Florida quota share reinsurance contract and a $27.7 million decline due to movement in ~~the audit premium accrual~~foreign exchange rates, partially offset by increases in new business and rate increases on renewals, particularly for ~~workers’ compensation business.~~catastrophe exposed contracts. Net written premiums ~~increased~~decreased by ~~$53.4~~3.6% to $1,691.6 million ~~or 3.1%,~~ in ~~2010~~2012 compared to ~~2009.~~$1,754.0 million in 2011. The ~~fluctuations~~variance between the changes in gross and net written premiums ~~in comparison to the fluctuations in gross written premiums were~~was primarily attributable to ~~fluctuations~~the growth in ~~cessions under~~ the ~~affiliated quota share agreement.~~crop business, for which the Company uses a higher level of reinsurance. Premiums earned ~~increased $28.8~~decreased by 1.1% to $1,773.9 million ~~or 1.6%,~~ in ~~2010~~2012 compared to ~~2009. The change in net premiums earned is relatively consistent with the increase in net written premiums.~~

$1,793.9 million in 2011. The fluctuations in premiums earned in comparison to net written premiums were primarily attributable to changes in the mix of business, particularly crop insurance which has a different premiums earning pattern.

Gross written premiums increased by ~~$439.3~~2.6% to $3,558.5 million ~~or 15.2%,~~ in ~~2009~~2011 compared to ~~2008,~~$3,467.8 million in 2010, reflecting ana $103.7 million increase ~~of $368.6~~in our insurance business, partially offset by a $12.9 million decrease in our reinsurance ~~business and $70.8 million in our insurance~~ business. The increased reinsurance business was primarily attributable to increased rates on property business, in both the international and U.S. markets, new crop hail quota share treaty business, expanded participation on renewal contracts and new writings as ceding companies continued to favor reinsurers, such as Everest, with strong financial ratings. Theyear over year increase in insurance premiums ~~were~~was primarily due to the acquisition of Heartland, which provided $169.6 million of new crop insurance business, our recent initiative in ~~the~~primary medical stop loss insurance, which added $54.0 million of premium and improved premium rates on our California workers’ compensation business, partially offset by our reduced participation on a large casualty program. The decrease in reinsurance premiums was due to the continued reduction in U.S. casualty business, the loss of several large crop reinsurance contracts, as well as the planned reduction of catastrophe exposed business in certain territories, partially offset by higher reinstatement premiums, $24.5 million resulting from catastrophe losses and ~~financial institution D&O and E&O lines~~favorable foreign exchange impact, year over year, of ~~business, which were new offerings for us in 2009.~~$33.4 million. Net written premiums ~~increased~~decreased by ~~$59.9~~1.9% to $1,754.0 million ~~or 3.6%,~~ in ~~2009~~2011 compared to ~~2008.~~$1,788.7 million in 2010. The ~~disproportionate variance~~fluctuations in net written premiums ~~as compared~~relative to the change in gross written premiums ~~is primarily~~were due to a combination of a higher percentage of premiums ceded under an affiliated quota share agreement and a lower level of ceded reinsurance in the Insurance segment due to the ~~increase~~planned reduction in ~~cessions under the affiliated quota share agreement.~~one casualty program. Premiums earned decreased ~~$96.7~~1.1% to $1,793.9 million ~~or 5.1%,~~ in ~~2009~~2011 compared to ~~2008.~~$1,813.8 million in 2010. The change in net premiums earned ~~relative to~~is relatively consistent with the decline in net written ~~premiums is the result of timing; premiums are earned ratably over the coverage period, whereas written premiums are recorded at the initiation of the coverage period.~~premiums.

Net Investment Income. Net investment income ~~increased $88.3 million, or 33.7%,~~decreased by 2.2% to ~~$350.3~~$306.1 million in ~~2010,~~2012 compared with net investment income of ~~$262.1~~$312.9 million in ~~2009, primarily as a result of a $73.9 million increase in investment income from our limited partnerships.~~2011. Net pre-tax investment income, as a percentage of average invested assets was 3.7% in 2012 compared to 3.9% in 2011. The decline in income and yield was primarily the result of lower reinvestment rates for the fixed income portfolio, partially offset by additional dividend income from equity investments.

Net investment income decreased 10.7% to $312.9 million in 2011 compared with net investment income of $350.3 million in 2010, primarily due to a $58.2 million decline in income from our fixed maturities, reflective of reducing our municipal bond exposures and declining reinvestment rates. These decreases were partially offset by an increase of $19.5 million in income from equities due to our expanded public equity portfolio and emerging market debt mutual funds. Net pre-tax investment income, as a percentage of average invested assets, was 3.9% in 2011 compared to 4.4% in ~~2010, compared to 3.4% for 2009.~~2010. The variance in this yield was primarily the result of fluctuations in our limited partnership income.

Net investment income decreased by 27.8% in 2009 compared to 2008, primarily due to approximately $747.0 million of transferred investments at the end of 2008 in conjunction with a loss portfolio transfer agreement with an affiliate, lower yields on new money and an increase in losses from our limited partnership investments that principally invest in public and non-public securities, both equity and debt. As a result, net pre-tax investment income, as a percentage of average invested assets, was 3.4% for 2009 compared to 4.5% for 2008.

Net Realized Capital Gains (Losses). Net realized capital gains were ~~$65.3~~$391.7 million, ~~and $56.9 million in 2010 and 2009, respectively, and~~ net realized capital losses were ~~$489.2~~$41.1 million and net realized capital gains were $65.3 million in ~~2008.~~2012, 2011 and 2010, respectively. Of the ~~$65.3~~$391.7 million, there were $364.5 million of gains from fair value re-measurements and $33.9 million of net realized capital gains from sales on our fixed maturity and equity securities, partially offset by $6.6 million of other-than-temporary impairments on our available for sale fixed maturity securities. The net realized capital losses of $41.1 million in 2011 were the result of $16.7 million of losses from fair value re-measurements, $14.5 million of other-than-temporary impairments on our available for sale fixed maturity securities and $9.9 million of net realized capital losses from sales on our fixed maturity and equity securities. The net realized capital gains of $65.3 million in 2010 were the result of $93.8 million of gains inof fair value re-measurements, ~~which were~~ partially offset by $26.4 million of net realized capital losses from sales on our fixed maturity and equity securities and $2.1 million of other-than-temporary impairments on our available for sale fixed maturity securities. The net realized capital gains of $56.9 million in 2009 were the result of $80.3 million of gains in fair value re-measurements, partially offset by $17.9 million of net realized capital losses from sales on our fixed maturity and equity securities and $5.5 million in other-than-temporary impairments on our available for sale fixed maturity securities. The net realized capital losses in 2008 were primarily the result of the credit crisis impacting the global financial markets, which drove down the values of equity and fixed income securities. The components of the $489.2 million of realized losses in 2008 were $221.2 million of losses in fair value re-measurements, $193.5 million of net realized capital losses from sales of fixed maturity and equity securities and $74.5 million in other-than-temporary impairments on our available for sale fixed maturity securities.

~~Realized Gain on Debt Repurchase.~~ On March 19, 2009, we commenced a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes due 2067. Upon expiration of the tender offer, we had reduced our outstanding debt by $161.4 million, which resulted in a pre-tax gain on debt repurchase of $78.3 million.impairments.

Other Income (Expense). We recorded other income of $12.1 million, ~~$0.4~~other expense of $11.7 million and ~~$57.9~~other income of $12.1 million in ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, respectively. The changes were primarily due to fluctuations in currency exchange rates for the corresponding periods and fluctuations in the amortization of deferred gains on retroactive reinsurance agreements with ~~affiliates and fluctuations in currency exchange rates for the corresponding periods.~~affiliates.

Claims and Expenses.

Incurred Losses and Loss Adjustment Expenses. The following table presents our incurred losses and loss adjustment expenses (“LAE”) for the periods indicated.

		Years Ended December 31,																						Years Ended December 31,
		Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/					Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)		Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2010
Attritional (a)		$	1,144.1			63.1	%		$	66.2			3.7	%		$	1,210.4			66.7	%
Catastrophes (b)			270.5			14.9	%			(3.4	)		-0.2	%			267.1			14.7	%
A&E			-			0.0	%			-			0.0	%			-			0.0	%
Total		$	1,414.6			78.0	%		$	62.8			3.5	%		$	1,477.5			81.5	%

2009
(Dollars in millions)																								Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2012
Attritional (a)		$	999.6			56.0	%		$	67.7			3.8	%		$	1,067.3			59.8	%			$	991.6			55.9	%		$	22.2			1.3	%		$	1,013.8			57.2	%
Catastrophes			22.1			1.2	%			1.8			0.1	%			23.9			1.3	%				245.9			13.9	%			(10.1	)		-0.6	%			235.8			13.3	%
A&E			-			0.0	%			0.4			0.0	%			0.4			0.0	%				-			0.0	%			0.1			0.0	%			0.1			0.0	%
Total		$	1,021.7			57.2	%		$	70.0			3.9	%		$	1,091.7			61.2	%			$	1,237.5			69.8	%		$	12.2			0.7	%		$	1,249.7			70.5	%

2008
2011
Attritional (a)		$	1,134.8			60.3	%		$	128.4			6.8	%		$	1,263.1			67.1	%			$	1,073.9			59.9	%		$	5.3			0.3	%		$	1,079.2			60.2	%
Catastrophes			188.7			10.0	%			13.7			0.7	%			202.4			10.8	%				788.9			44.0	%			9.5			0.5	%			798.4			44.5	%
A&E			-			0.0	%			-			0.0	%			-			0.0	%				-			0.0	%			-			0.0	%			-			0.0	%
Total		$	1,323.5			70.3	%		$	142.0			7.5	%		$	1,465.6			77.9	%			$	1,862.8			103.9	%		$	14.8			0.8	%		$	1,877.6			104.7	%

Variance 2010/2009
2010
Attritional (a)		$	144.5			7.1		pts	$	(1.5	)		(0.1	)	pts	$	143.1			6.9		pts		$	1,144.1			63.1	%		$	66.2			3.7	%		$	1,210.4			66.7	%
Catastrophes			248.4			13.7		pts		(5.2	)		(0.3	)	pts		243.2			13.4		pts			270.5			14.9	%			(3.4	)		-0.2	%			267.1			14.7	%
A&E			-			-		pts		(0.4	)		-		pts		(0.4	)		-		pts			-			0.0	%			-			0.0	%			-			0.0	%
Total		$	392.9			20.8		pts	$	(7.2	)		(0.4	)	pts	$	385.8			20.3		pts		$	1,414.6			78.0	%		$	62.8			3.5	%		$	1,477.5			81.5	%

Variance 2009/2008
Variance 2012/2011
Attritional (a)																								$	(82.3	)		(4.0	)	pts	$	16.9			1.0		pts	$	(65.4	)		(3.0	)	pts
Catastrophes																									(543.0	)		(30.1	)	pts		(19.6	)		(1.1	)	pts		(562.6	)		(31.2	)	pts
A&E																									-			-		pts		0.1			-		pts		0.1			-		pts
Total																								$	(625.3	)		(34.1	)	pts	$	(2.6	)		(0.1	)	pts	$	(627.9	)		(34.2	)	pts

Variance 2011/2010
Attritional (a)		$	(135.2	)		(4.3	)	pts	$	(60.6	)		(3.0	)	pts	$	(195.8	)		(7.3	)	pts		$	(70.2	)		(3.2	)	pts	$	(60.9	)		(3.4	)	pts	$	(131.2	)		(6.5	)	pts
Catastrophes			(166.6	)		(8.8	)	pts		(11.9	)		(0.6	)	pts		(178.5	)		(9.5	)	pts			518.4			29.1		pts		12.9			0.7		pts		531.3			29.8		pts
A&E			-			-		pts		0.4			-		pts		0.4			-		pts			-			-		pts		-			-		pts		-			-		pts
Total		$	(301.8	)		(13.1	)	pts	$	(72.0	)		(3.6	)	pts	$	(373.9	)		(16.7	)	pts		$	448.2			25.9		pts	$	(48.0	)		(2.7	)	pts	$	400.1			23.2		pts

(a) Attritional losses exclude catastrophe and A&E losses.	(a) Attritional losses exclude catastrophe and A&E losses.																						(a) Attritional losses exclude catastrophe and A&E losses.
(b) Effective with the 2010 reporting period, a catastrophe is a property event with expected reported losses of at least $10.0 million.
All prior periods reflect a catastrophe as a property event with expected reported losses of at least $5.0 million.
(Some amounts may not reconcile due to rounding.)	(Some amounts may not reconcile due to rounding.)																						(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE decreased by 33.4% to $1,249.7 million for the year ended December 31, 2012 compared to $1,877.6 million in 2011, representing 34.2 loss ratio points. Current year catastrophe losses were lower by $543.0 million, or 30.1 points, period over period. The $245.9 million of current year catastrophe losses for 2012 related to Superstorm Sandy ($203.4 million), U.S. storms ($30.0 million) and Hurricane Isaac ($12.6 million). The $788.9 million of current year catastrophe losses for 2011 related primarily to the Japanese earthquake and tsunami ($344.1 million), the 2011 New Zealand earthquake ($166.8 million), the Thailand floods ($131.2 million), U.S. storms ($40.3 million), the 2011 Australian floods ($37.1 million) and Hurricane Irene ($22.4 million) as well as $33.4 million of IBNR reserves for these 2011 catastrophe events collectively, which were not allocated to a specific event. During 2012, $27.4 million of the IBNR reserve was allocated to specific 2011 catastrophes, leaving $6.0 million of unallocated IBNR reserves at December 31, 2012. Current year attritional losses decreased $82.3 million, representing 4.0 loss ratio points, due to a shift in mix of business towards excess of loss business, which generally has lower attritional losses, and the impact of year over year cessions under our affiliated quota share agreements resulting from changes in ceding percentages.

Incurred losses and LAE increased by ~~$385.8~~27.1% to $1,877.6 million ~~or 35.3%, for the year ended December 31, 2010~~in 2011 compared to ~~the same period~~$1,477.5 million in ~~2009. Of the $385.8 million increase, current~~2010. Current year catastrophe losses increased ~~$248.4~~$518.4 million ~~(13.7~~(29.1 points), period over period, primarily due to 2011 losses ondiscussed above. The $270.5 million of current year catastrophe losses for 2010 related primarily to the ~~Chilean~~Chile earthquake ($196.9 million), the 2010 New Zealand earthquake ~~Australian~~($36.4 million) and the 2010 Australia hailstorms and floods and the Canadian hailstorm. The current year attritional losses also increased $144.5 million (7.1 points) reflecting higher expected loss ratios on current year business due to prevailing market conditions.($33.9 million). Partially offsetting ~~these higher current year losses~~the catastrophe increase was a decrease of $7.2 million, or 0.4 points, in prior year loss development as the 2010 reserve studies indicated net favorable reserve development and loss estimates for prior year catastrophes were reduced.

Incurred losses and LAE were lower by $373.9 million, or 25.5%, in 2009 compared to 2008. The absence, in 2009, of any large catastrophe losses as experienced in 2008, reduced the loss ratio 8.8 points, or $166.6 million, period over period. The $135.2 million decrease, period over period, in current year attritional losses was the result of a decrease in earned premiums; the shift to property business, which tends to have lower losses, as opposed to casualty business and changes in the ceding percentages under the affiliated quota share agreement. The $72.0 million, 3.6 point decrease in prior years’ unfavorable reserve development, primarily attritional losses, was principally due to no additional development on the run-off auto loan credit insurance program in 2009 compared to the $85.3 million incurred in 2008.

the decrease in attritional losses of $131.2 million, primarily due to the non-recurrence of prior years’ development, the decrease in premiums earned and changes in the mix of business.

Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees decreased by ~~$9.5~~8.3% to $310.7 million ~~or 2.8%, for the year ended December 31, 2010~~in 2012 compared to $338.7 million in 2011. The 2012 decrease is due primarily to an increase in excess of loss business which carries a lower commission than pro rata business, and growth in crop insurance on a direct distribution basis, which has lower acquisition costs, partially offset by the ~~same period in 2009. The change was primarily the result~~one-time effect of the ~~mix~~non-renewal of ~~business~~the Florida quota share and ~~lower contingent commissions on~~ the ~~specialty underwriting book~~adoption of ~~business.~~new accounting standards concerning the accounting for acquisition costs.

Commission, brokerage, taxes and fees ~~decreased~~increased by ~~$54.0~~1.1% to $338.7 million ~~or 13.6%,~~ in ~~2009~~2011 compared to $335.1 million in 2010. The variance was primarily the ~~same period in 2008. The change in this directly variable expense was influenced by the decline in net earned premiums, changes~~result of fluctuations in the mix of business and ~~increased cessions under~~a change in the affiliated quota share agreement.

Other Underwriting Expenses. Other underwriting expenses ~~which have remained stable in relation to premium volume,~~ were $170.6 million, $154.3 million and $139.8 million ~~$142.6 million~~in 2012, 2011 and ~~$124.3 million~~2010, respectively. The increase in other underwriting expense for 2012 compared to 2011 was mainly due to higher employee benefit plan expenses. The increase in other underwriting expenses for 2011 compared to 2010 ~~2009 and 2008, respectively.~~was mainly due to expenses of Heartland, which was acquired in January, 2011.

Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were ~~$5.9~~$8.8 million, ~~$7.7~~$6.1 million and ~~$5.6~~$5.9 million for the years ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, respectively. These ~~expenses~~increases were previously included as underwriting expenses and therefore included in the other underwriting expense ratio. Effective January 1, 2010, these expenses were removed from the calculation of the other underwriting expense ratio and prior periods were recalculatedalso primarily due to ~~conform.~~higher employee benefit plan expenses.

Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense was $50.7 million, $50.8 million and $54.6 million in 2012, 2011 and ~~$70.9 million for~~ 2010, ~~and 2009,~~ respectively. The decrease from 2010 to 2011 was primarily due to the ~~combination of the repurchase~~maturing of debt in March, ~~2009 and the maturing of senior notes in~~ 2010.

Interest, fees and other bond amortization expense was $70.9 million and $79.0 million for 2009 and 2008, respectively. The decrease, period over period, was primarily due to the partial repurchase of our long term subordinated notes in March 2009.

Income Tax Expense (Benefit). We had ~~an income tax benefit of $36.6 million in 2010, an~~ income tax expense of ~~$129.4~~$173.0 million and income tax benefits of $170.7 million and $36.6 million in ~~2009~~2012, 2011 and ~~an income tax benefit of $134.7 million in 2008.~~2010, respectively. Our income tax is primarily a function of the statutory tax rates coupled with the impact from tax-preferenced investment income. ~~The taxes for 2010 included a $48.9 million benefit resulting from a favorable Internal Revenue Service (“IRS”) audit settlement. Absent these types of unusual items, variations~~Variations in our effective tax rate generally result from changes in the ~~level~~relative levels of pre-tax income. The increases in tax expense were mainly due to the improvement in taxable income resulting from lower catastrophe losses in 2012. The 2012 income tax expense also reflects tax benefits of $17.5 million realized due to corrections of understatement in the deferred tax asset account and $31.9 million of tax benefits from a reduction in our reserve for uncertain tax positions due to the re-measurement of our exposure following the closing of an IRS audit. The tax benefit in 2010 resulted primarily from a tax audit settlement.

Net Income (Loss).

Our net income was ~~$265.4~~$520.3 million and ~~$395.9~~our net loss was $202.8 million in ~~2010~~2012 and ~~2009,~~2011, respectively. The decrease was primarily driven by a few large catastrophe losses in 2010 compared to no similar catastrophe events in 2009 and the realized gain on debt repurchase in 2009, partially offset by an increase in net realized capital gains and a reduction in income taxes, in addition to the other components discussed above.

~~Our net income was $395.9 million, in 2009, compared to a net loss of $124.8 million, in 2008. This~~ increase was primarily driven by ~~after-tax net realized capital gains,~~the decline in ~~2009, compared to after-tax net realized capital losses, in 2008. In addition, there were fewer~~ catastrophe losses in ~~2009~~2012 compared to ~~2008.~~2011.

Our net loss was $202.8 million in 2011 compared to a net income of $265.4 million in 2010. The variance was primarily driven by higher catastrophe losses in 2011.

Ratios.

Our combined ratio ~~increased~~decreased by ~~19.2~~34.6 points to ~~107.6%~~97.6% in ~~2010~~2012 compared to ~~88.4%~~132.2% in ~~2009.~~2011. The loss ratio component ~~increased 20.3~~decreased 34.2 points in ~~2010,~~2012 over the same period last year ~~principally~~primarily due to the decline in catastrophe losses in 2012 compared to 2011. The commission and brokerage ratio component decreased slightly over the same period last year due to an increase in ~~current year catastrophe losses as~~excess of loss business which carries a ~~result~~lower commission than pro rata business, and growth in crop insurance on a direct distribution basis, which has lower acquisition costs, partially offset by the one-time effect of the ~~Chilean earthquake, Australian hailstorms and floods, New Zealand earthquake~~non-renewal of the Florida quota share and the ~~Canadian hailstorm. Both~~adoption of new accounting standards concerning the accounting for acquisition costs. The other underwriting expense ratio component ~~and the commission and brokerage ratio component declined~~increased slightly ~~over~~from the same ~~periods~~period last ~~year.~~year due to higher employee benefit costs.

Our combined ratio ~~decreased~~increased by ~~17.3~~24.6 points to ~~88.4%~~132.2% in ~~2009~~2011 compared to ~~105.7%~~107.6% in ~~2008.~~2010. The loss ratio component ~~decreased 16.7~~increased by 23.2 points in ~~2009 compared to~~2011, over the same period last year, principally due to ~~the significant decrease in catastrophe losses and lower~~higher current year ~~attritional~~catastrophe losses as a result of the ~~mix~~Japan earthquake, New Zealand earthquake, Thailand floods, U.S. storms and ~~blend of business.~~the Australia floods. The commission and brokerage expense ratio ~~component decreased by 1.9 points~~increased slightly to 18.9% in ~~2009~~2011 compared to ~~the same period last year, due to mix of business, while the~~18.5% in 2010. The other underwriting expense ratio component increased ~~by 1.3 points~~to 8.6% in ~~2009~~2011 compared to ~~2008.~~7.6% in 2010 due primarily to the acquisition of Heartland.

Stockholder's Equity.

Stockholder's equity increased by ~~$269.0~~$537.2 million to ~~$3,127.7~~$3,478.6 million at December 31, ~~2010~~2012 from ~~$2,858.8~~$2,941.4 million at December 31, ~~2009,~~2011, principally as a result of ~~$265.4~~$520.3 million of net income, ~~$27.0~~$10.0 million of unrealized appreciation on investments, net of tax, $7.0 million of net foreign currency translation adjustments, and ~~$6.6~~$6.8 million of share-based compensation transactions, partially offset by ~~$28.2~~$7.0 million of ~~unrealized depreciation on investments,~~ net ~~of tax, and $1.8 million of pension~~benefit plan obligation adjustments.

Stockholder's equity ~~increased~~decreased by ~~$655.8~~$186.3 million to ~~$2,858.8~~$2,941.4 million at December 31, ~~2009~~2011 from ~~$2,203.0~~$3,127.7 million at December 31, ~~2008,~~2010, principally as a result of ~~$395.9~~$202.8 million of net ~~income; $219.0~~loss, $29.5 million of net benefit plan obligation adjustments and $0.9 million of foreign currency translation adjustments, partially offset by $41.1 million of unrealized appreciation on investments, net of ~~tax; $28.1 million of foreign currency translation adjustments; $7.5 million of pension adjustments~~tax, and ~~$5.4~~$6.4 million of share-based compensation transactions.

Consolidated Investment Results

Net Investment Income.

Net investment income ~~increased 33.7%~~decreased 2.2% to ~~$350.3~~$306.1 million in ~~2010~~2012 compared to ~~$262.1~~$312.9 million in ~~2009.~~2011. The ~~increase in 2010, period over period,~~decrease was primarily due to ~~an increase~~a decline in ~~recorded gains~~income from our ~~limited partnership investments and an increase in~~fixed maturities resulting from lower reinvestment rates, partially offset by additional dividend income from ~~owning more shares of our parent’s common shares.~~equity investments.

Net investment income decreased ~~27.8%~~10.7% to ~~$262.1~~$312.9 million in ~~2009 from $363.1~~2011 compared to $350.3 million in ~~2008,~~2010, primarily due to ~~approximately $747.0~~a $58.2 million ~~of transferred investments at the end of 2008~~decline in ~~conjunction with a loss portfolio transfer agreement with an affiliate, lower yields on new money and losses~~income from our ~~limited partnership investments that principally invest~~fixed maturities, reflective of reducing our municipal bond exposures and declining reinvestment rates. These decreases were partially offset by an increase of $19.5 million in income from equities due to our expanded public equity portfolio and ~~non-public securities, both equity and debt.~~emerging market debt mutual funds.

The following table shows the components of net investment income for the periods indicated:

	Years Ended December 31,									Years Ended December 31,
(Dollars in millions)	2010			2009			2008			2012			2011			2010
Fixed maturities	$	290.5		$	286.0		$	313.7		$	216.8		$	232.3		$	290.5
Equity securities		10.2			3.6			6.0			39.3			29.7			10.2
Short-term investments and cash		0.4			3.5			28.6			1.1			1.1			0.4
Other invested assets
Limited partnerships		45.5			(28.5	)		13.2			39.7			42.3			45.5
Dividends from Parent's shares		14.0			8.0			7.2			18.7			18.6			14.0
Other		1.3			0.1			2.3			3.8			2.7			1.3
Total gross investment income		361.8			272.7			370.9
Total gross investment income											319.4			326.8			361.8
Interest debited (credited) and other expense		(11.5	)		(10.6	)		(7.8	)		(13.2	)		(13.9	)		(11.5	)
Total net investment income	$	350.3		$	262.1		$	363.1		$	306.1		$	312.9		$	350.3
(Some amounts may not reconcile due to rounding)

The following table shows a comparison of various investment yields for the periods indicated:

	2010	2009	2008	2012	2011	2010
Imbedded pre-tax yield of cash and invested assets at December 31	3.6%	3.7%	4.3%	3.4%	3.6%
Imbedded after-tax yield of cash and invested assets at December 31	2.8%	3.1%	3.5%	2.4%	2.7%	2.8%

Annualized pre-tax yield on average cash and invested assets	4.4%	3.4%	4.5%	3.7%	3.9%	4.4%
Annualized after-tax yield on average cash and invested assets	3.5%	2.9%	3.6%	2.7%	3.0%	3.5%

Net Realized Capital Gains (Losses).

The following table presents the composition of our net realized capital gains (losses) for the periods indicated:

	Years Ended December 31,									2010/2009			2009/2008			Years Ended December 31,									2012/2011			2011/2010
(Dollars in millions)	2010			2009			2008			Variance			Variance			2012			2011			2010			Variance			Variance
Gains (losses) from sales:
Fixed maturity securities, market value
Gains	$	7.6		$	7.3		$	7.0		$	0.3		$	0.3		$	14.8		$	38.3		$	7.6		$	(23.5	)	$	30.7
Losses		(41.0	)		(41.4	)		(94.4	)		0.4			53.0			(9.1	)		(55.0	)		(41.0	)		45.9			(14.0	)
Total		(33.3	)		(34.1	)		(87.4	)		0.8			53.3			5.7			(16.7	)		(33.3	)		22.4			16.6

Fixed maturity securities, fair value
Gains		0.8			0.8			-			-			0.8			6.3			1.1			0.8			5.2			0.3
Losses		-			(0.2	)		-			0.2			(0.2	)		(0.6	)		(2.0	)		-			1.4			(2.0	)
Total		0.8			0.7			-			0.2			0.6			5.7			(0.9	)		0.8			6.6			(1.7	)

Equity securities, market value
Gains		-			8.0			-			(8.0	)		8.0			-			0.2			-			(0.2	)		0.2
Losses		-			-			-			-			-			-			(0.2	)		-			0.2			(0.2	)
Total		-			8.0			-			(8.0	)		8.0			-			-			-			-			-

Equity securities, fair value
Gains		11.4			8.4			6.4			3.0			2.0			40.8			15.7			11.4			25.1			4.3
Losses		(5.3	)		(0.9	)		(112.3	)		(4.4	)		111.4			(18.2	)		(8.0	)		(5.3	)		(10.2	)		(2.7	)
Total		6.2			7.5			(105.9	)		(1.4	)		113.4			22.6			7.6			6.2			15.0			1.5

Short-term assets
Gains		-			-			-			-			-
Losses		-			-			(0.2	)		-			0.2
Total		-			-			(0.2	)		-			0.2

Total net realized gains (losses) from sales
Gains		19.9			24.5			13.4			(4.7	)		11.1			61.9			55.3			19.9			6.6			35.5
Losses		(46.3	)		(42.5	)		(206.9	)		(3.8	)		164.4			(28.0	)		(65.2	)		(46.3	)		37.2			(18.9	)
Total		(26.4	)		(17.9	)		(193.5	)		(8.5	)		175.5			33.9			(9.9	)		(26.4	)		43.8			16.5

Other than temporary impairments:		(2.1	)		(5.5	)		(74.5	)		3.4			69.0			(6.6	)		(14.5	)		(2.1	)		7.9			(12.4	)

Gains (losses) from fair value adjustments:
Fixed maturities, fair value		15.1			9.3			1.5			5.8			7.8			1.9			(15.5	)		15.1			17.4			(30.6	)
Equity securities, fair value		52.8			30.9			(134.9	)		21.9			165.8			111.2			7.2			52.8			104.0			(45.6	)
Other invested assets, fair value		25.9			40.1			(87.8	)		(14.2	)		127.9			251.4			(8.4	)		25.9			259.8			(34.3	)
Total		93.8			80.3			(221.2	)		13.5			301.5			364.5			(16.7	)		93.8			381.2			(110.5	)

Total net realized gains (losses)	$	65.3		$	56.9		$	(489.2	)	$	8.4		$	546.0		$	391.7		$	(41.1	)	$	65.3		$	432.8		$	(106.4	)

(Some amounts may not reconcile due to rounding)

Net realized capital gains were $391.7 million, net realized capital losses were $41.1 million and net realized capital gains were $65.3 million in 2012, 2011 and 2010, ~~compared~~respectively. In 2012, we recorded $364.5 million of gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $33.9 million of net realized capital gains from sales of ~~$56.9~~fixed maturity and equity securities, partially offset by $6.6 million of other-than-temporary impairments on fixed maturity securities. The fixed maturity sales in 2012 related primarily to maintaining a balanced foreign currency exposure and the equity sales related primarily to reducing our equity exposure. In 2011, we recorded $16.7 million of losses due to fair value re-measurements on fixed maturity and equity securities and other invested assets, $14.5 million of other-than-temporary impairments on fixed maturity securities and $9.9 million of net realized capital losses from sales of ~~$489.2 million in 2009~~fixed maturity and ~~2008, respectively.~~equity securities. In 2010, we recorded $93.8 million ofin gains due to fair value re-measurements on fixed maturity and equity securities and other invested assets, partially offset by $26.4 million of net realized capital losses from sales of fixed maturity and equity securities and $2.1 million of other-than-temporary impairments on fixed maturity securities. The losses in 2011 and 2010 included the impact of selling part of our municipal bond portfolio ~~in the latter part of the year~~ as credit concerns arose in this market sector. We ~~will be~~were able to carry ~~these~~the 2010 realized losses back for income tax purposes to offset previously realized gains. This carry back availability expired at the end of 2010. ~~In 2009, we recorded $80.3 million of gains due to fair value re-measurements on fixed maturity and equity~~

~~securities~~

Segment Results.

During the quarter ended September 30, 2011, we realigned our reporting segments to reflect recent changes in the type and volume of business written. We previously reported the results of Marine & Aviation, Surety, A&H Reinsurance and A&H Primary operations as a separate segment—Specialty Underwriting. The A&H primary business, which is a relatively new line of business for us, has increased significantly, representing approximately 2% of premiums earned and is projected to continue to grow. The A&H primary business is better aligned with the Insurance reporting segment based on the similarities of this business with those businesses already reflected in the Insurance segment. The other ~~invested assets, partially offset by $17.9 million~~operating units included in the Specialty Underwriting segment would have encompassed less than 8% of ~~net realized capital losses from sales of fixed maturity~~our premiums earned and ~~equity securities and $5.5 million of other-than-temporary impairments on fixed maturity securities. In 2008, we recorded $221.2 million in losses due~~their volume is projected to ~~fair value re-measurements primarily on equity securities as~~remain approximately 8%. As a result of the ~~global financial markets credit crisis, 193.5 million~~size of ~~losses from sales of our fixed maturity~~these remaining operating units and ~~equity portfolios and $74.5 million of other-than-temporary impairments on fixed maturity securities.~~their similarity to the business reported within U.S. Reinsurance, they have been reclassified to the U.S. Reinsurance segment. There has been no change to the International reporting segment. We have restated all segment information for prior years to conform to the new reporting segment structure.

~~Segment Results.~~

~~Through our subsidiaries, we operate in four segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting and International.~~ The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S. The U.S. Insurance operation writes property and casualty insurance primarily through general agents, brokers and surplus lines brokers within the U.S. The Specialty Underwriting operation writes A&H, marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies. The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada, ~~and~~ Singapore and through offices in Brazil, Miami and New Jersey. The Insurance operation writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S and Canada.

These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.

Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.

Our loss and LAE reserves are our best estimate of our ultimate liability for unpaid claims. We re-evaluate our estimates on an ongoing basis, including all prior period reserves, taking into consideration all available information and, in particular, recently reported loss claim experience and trends related to prior periods. Such re-evaluations are recorded in incurred losses in the period in which the re-evaluation is made.

The following discusses the underwriting results for each of our segments for the periods indicated:

U.S. Reinsurance.

The following table presents the underwriting results and ratios for the U.S. Reinsurance segment for the periods indicated.

		Years Ended December 31,									2010/2009						2009/2008								Years Ended December 31,									2012/2011						2011/2010
(Dollars in millions)		2010			2009			2008			Variance			% Change			Variance			% Change					2012			2011			2010			Variance			% Change			Variance			% Change
Gross written premiums		$	1,143.7		$	1,172.3		$	957.9		$	(28.6	)		-2.4	%	$	214.4			22.4	%		$	1,310.7		$	1,346.8		$	1,395.4		$	(36.1	)		-2.7	%	$	(48.6	)		-3.5	%
Net written premiums			633.3			660.6			569.9			(27.3	)		-4.1	%		90.7			15.9	%			659.7			688.5			773.6			(28.8	)		-4.2	%		(85.1	)		-11.0	%

Premiums earned		$	630.8		$	676.4		$	685.1		$	(45.6	)		-6.7	%	$	(8.7	)		-1.3	%		$	722.4		$	697.7		$	777.7		$	24.6			3.5	%	$	(80.0	)		-10.3	%
Incurred losses and LAE			445.3			344.5			560.0			100.8			29.3	%		(215.5	)		-38.5	%			582.4			623.1			556.5			(40.7	)		-6.5	%		66.6			12.0	%
Commission and brokerage			135.1			142.1			159.7			(7.0	)		-4.9	%		(17.6	)		-11.0	%			168.6			156.0			169.3			12.6			8.1	%		(13.3	)		-7.9	%
Other underwriting expenses			33.9			36.2			32.2			(2.2	)		-6.2	%		4.0			12.4	%			44.8			39.3			42.5			5.5			14.0	%		(3.2	)		-7.6	%
Underwriting gain (loss)		$	16.5		$	153.6		$	(66.8	)	$	(137.2	)		-89.3	%	$	220.4		NM				$	(73.4	)	$	(120.7	)	$	9.3		$	47.3			-39.2	%	$	(130.0	)	NM

														Point Chg						Point Chg																Point Chg						Point Chg
Loss ratio			70.6	%		50.9	%		81.7	%					19.7						(30.8	)			80.6	%		89.3	%		71.6	%					(8.7	)					17.7
Commission and brokerage ratio			21.4	%		21.0	%		23.3	%					0.4						(2.3	)			23.3	%		22.4	%		21.8	%					0.9						0.6
Other underwriting expense ratio			5.4	%		5.4	%		4.7	%					-						0.7				6.3	%		5.6	%		5.4	%					0.7						0.2
Combined ratio			97.4	%		77.3	%		109.7	%					20.1						(32.4	)			110.2	%		117.3	%		98.8	%					(7.1	)					18.5

(NM, not meaningful)
(NM, not meaningful)
(Some amounts may not reconcile due to rounding)	(Some amounts may not reconcile due to rounding)																						(Some amounts may not reconcile due to rounding)

Premiums. Gross written premiums decreased by ~~2.4%~~2.7% to ~~$1,143.7~~$1,310.7 million in 2012 from $1,346.8 million in 2011, primarily due to the non-renewal of a large Florida quota share reinsurance contract, partially offset by increased new business and higher premium rates on renewals, particularly for contracts with catastrophe exposed risks. Net written premiums decreased 4.2% to $659.7 million in 2012 compared to $688.5 million in 2011, which is in line with the decrease in gross written premiums. Premiums earned increased 3.5% to $722.4 million in 2012 compared to $697.7 million in 2011. The variance difference between premiums earned and net written premiums is primarily attributable to the non-renewal of the large Florida quota share reinsurance contract, which had a larger negative impact on gross and net written premiums, increases in new business, rate increases on renewals, particularly for catastrophe exposed contracts and changes in the mix of business.

Gross written premiums decreased by 3.5% to $1,346.8 million in 2011 from $1,395.4 million in 2010, ~~from $1,172.3 million in 2009,~~ primarily due to ~~a $40.7 million (48.2%) decrease in the~~reduced reinsurance premiums for accident and health, crop ~~hail quota share treaties, a $32.4 million (8.9%) decrease in U.S. treaty casualty volume~~ and ~~a $28.6 million (29.2%) decrease in facultative volume,~~marine business, partially offset by a ~~$73.7~~$24.4 million ~~(11.8%)~~ increase in ~~treaty property volume.~~reinstatement premiums due to higher catastrophe loss activity in the period. Net written premiums decreased ~~4.1%~~11.0% to ~~$633.3~~$688.5 million in ~~2010~~2011 compared to ~~$660.6~~$773.6 million ~~for 2009,~~in 2010, primarily due to the decrease in gross written ~~premiums.~~premiums and a higher percentage of premium ceded under an affiliated quota share agreement. Premiums earned decreased ~~6.7%~~10.3% to ~~$630.8~~$697.7 million in ~~2010~~2011 compared to ~~$676.4~~$777.7 million in ~~2009,~~2010, primarily due to the decline in net written premiums.

Gross written premiums increased by 22.4% to $1,172.3 million in 2009 from $957.9 million in 2008, primarily due to $103.9 million (40.0%) increase in U.S. treaty casualty volume, $84.6 million from the new crop hail quota share treaties, a $15.8 million (2.6%) increase in treaty property volume and a $10.5 million (12.0%) increase in facultative volume. Our treaty casualty premiums were higher as we wrote more quota share business as a replacement for business previously written on an excess of loss business. Net written premiums increased by 15.9% to $660.6 million in 2009 compared to $569.9 million in 2008, primarily due to the increase in gross written premiums combined with increased cessions under the affiliated quota share agreements. Premiums earned decreased by 1.3% to $676.4 million in 2009 compared to $685.1 million in 2008. The change in premiums earned relative to net written premiums is primarily the result of timing on proportional contracts where premiums are earned ratably over the coverage period whereas written premiums are recorded on the initiation of the coverage period.

Incurred Losses and LAE. The following table presents the incurred losses and LAE for the U.S. Reinsurance segment for the periods indicated.

		Years Ended December 31,																						Years Ended December 31,
		Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/					Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)		Year			Pt Change				Years			Pt Change				Incurred			Pt Change					Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2012
Attritional																								$	349.6			48.4	%		$	1.0			0.1	%		$	350.5			48.5	%
Catastrophes																									235.3			32.6	%			(3.6	)		-0.5	%			231.7			32.1	%
A&E																									-			0.0	%			0.1			0.0	%			0.1			0.0	%
Total segment																								$	584.9			81.0	%		$	(2.5	)		-0.4	%		$	582.4			80.6	%

2011
Attritional																								$	399.5			57.2	%		$	37.4			5.4	%		$	436.9			62.6	%
Catastrophes																									176.6			25.3	%			9.6			1.4	%			186.2			26.7	%
A&E																									-			0.0	%			-			0.0	%			-			0.0	%
Total segment																								$	576.1			82.5	%		$	47.0			6.8	%		$	623.1			89.3	%

2010
Attritional		$	365.9			58.1	%		$	60.0			9.5	%		$	425.9			67.6	%			$	469.5			60.4	%		$	63.3			8.1	%		$	532.8			68.5	%
Catastrophes			17.2			2.7	%			2.1			0.3	%			19.4			3.1	%				17.5			2.3	%			6.2			0.8	%			23.7			3.1	%
A&E			-			0.0	%			-			0.0	%			-			0.0	%				-			0.0	%			-			0.0	%			-			0.0	%
Total segment		$	383.1			60.8	%		$	62.1			9.8	%		$	445.3			70.6	%			$	487.0			62.7	%		$	69.5			8.9	%		$	556.5			71.6	%

2009
Variance 2012/2011
Attritional		$	314.4			46.5	%		$	34.9			5.2	%		$	349.3			51.6	%			$	(49.9	)		(8.8	)	pts	$	(36.4	)		(5.3	)	pts	$	(86.4	)		(14.1	)	pts
Catastrophes			-			0.0	%			(5.2	)		-0.8	%			(5.2	)		-0.8	%				58.7			7.3		pts		(13.2	)		(1.9	)	pts		45.5			5.4		pts
A&E			-			0.0	%			0.4			0.1	%			0.4			0.1	%				-			-		pts		0.1			-		pts		0.1			-		pts
Total segment		$	314.4			46.5	%		$	30.1			4.4	%		$	344.5			50.9	%			$	8.8			(1.5	)	pts	$	(49.5	)		(7.2	)	pts	$	(40.7	)		(8.7	)	pts

2008
Attritional		$	346.6			50.6	%		$	46.1			6.7	%		$	392.7			57.3	%
Catastrophes			152.1			22.2	%			15.2			2.2	%			167.3			24.4	%
A&E			-			0.0	%			-			0.0	%			-			0.0	%
Total segment		$	498.7			72.8	%		$	61.3			8.9	%		$	560.0			81.7	%

Variance 2010/2009
Attritional		$	51.5			11.6		pts	$	25.1			4.3		pts	$	76.6			16.0		pts
Catastrophes			17.2			2.7		pts		7.3			1.1		pts		24.6			3.9		pts
A&E			-			-		pts		(0.4	)		(0.1	)	pts		(0.4	)		(0.1	)	pts
Total segment		$	68.7			14.3		pts	$	32.0			5.4		pts	$	100.8			19.7		pts

Variance 2009/2008
Variance 2011/2010
Attritional		$	(32.2	)		(4.1	)	pts	$	(11.2	)		(1.5	)	pts	$	(43.4	)		(5.6	)	pts		$	(70.0	)		(3.2	)	pts	$	(25.9	)		(2.7	)	pts	$	(95.9	)		(5.9	)	pts
Catastrophes			(152.1	)		(22.2	)	pts		(20.4	)		(3.0	)	pts		(172.5	)		(25.2	)	pts			159.1			23.0		pts		3.4			0.6		pts		162.5			23.6		pts
A&E			-			-		pts		0.4			0.1		pts		0.4			0.1		pts			-			-		pts		-			-		pts		-			-		pts
Total segment		$	(184.3	)		(26.3	)	pts	$	(31.2	)		(4.4	)	pts	$	(215.5	)		(30.7	)	pts		$	89.1			19.8		pts	$	(22.5	)		(2.1	)	pts	$	66.6			17.7		pts

(Some amounts may not reconcile due to rounding.)	(Some amounts may not reconcile due to rounding.)																						(Some amounts may not reconcile due to rounding.)

Incurred losses decreased 6.5% to $582.4 million in 2012 compared to $623.1 million in 2011, primarily due to a decrease in attritional losses of $86.4 million (14.1 points) partially offset by the $58.7 million (7.3 points) increase in current year catastrophe losses. The current year attritional losses decreased $49.9 million due primarily to a shift in business to excess of loss contracts which generally have lower attritional losses than pro rata contracts and prior years’ attritional losses decreased by $36.4 million due to less reserve development in 2012. The $235.3 million of current year catastrophe losses for 2012 related to Superstorm Sandy ($193.5 million), U.S. storm losses ($29.9 million) and Hurricane Isaac ($11.9 million). The $176.6 million of current year catastrophe losses for 2011 related primarily to the Japanese earthquake and tsunami ($48.3 million), the 2011 New Zealand earthquake ($42.4 million), U.S. storms ($39.6 million), Hurricane Irene ($18.4 million), the Thailand floods ($11.4 million) and the 2011 Australian floods ($3.9 million).

Incurred losses were ~~$100.8~~$66.6 million ~~(19.7~~(17.7 points) higher at ~~$445.3~~$623.1 million in ~~2010~~2011 compared to ~~$344.5~~$556.5 million in ~~2009,~~2010, primarily as a result of the ~~$51.5~~$159.1 million ~~(11.6~~(23.0 points) increase in 2011 current year catastrophe losses discussed above. The $17.5 million of current year catastrophe losses for 2010 related primarily to the Chile earthquake ($9.0 million) and the 2010 New Zealand earthquake ($8.4 million). Partially offsetting this increase, the current year attritional losses ~~reflective of current competitive market conditions, $25.1~~decreased $70.0 million ~~(4.3~~(3.2 points) increase in prior year attritional losses and a $24.6 million (3.9 points) increase in catastrophe losses, due to the New Zealand and Chilean earthquakes. The increase in prior years’ attritional losses was primarily driven by reserve strengthening in casualty lines for construction liability claims.

Incurred losses were $215.5 million (30.7 points) lower at $344.5 million in 2009 compared to $560.0 million in 2008, primarily as a result of the $172.5 million (25.2 points) decrease in catastrophe losses due to the absence of current year catastrophes in 2009. Attritional losses were $43.4 million (5.6 points) lower,, primarily due to ~~improved results on property business.~~

~~Segment Expenses.~~ ~~Commission and brokerage expenses decreased 4.9% to $135.1 million~~a shift in ~~2010 compared to $142.1 million~~the mix of business, with a higher level of excess of loss business in ~~2009, primarily due to~~the current year, which carries a lower attritional loss ratio, than pro rata business as well as the decline in ~~premiums earned. Segment other underwriting expenses in 2010 decreased slightly to $33.9 million from $36.2 million in 2009.~~earned premiums.

Commission and brokerage expenses decreased 11.0% to $142.1 million in 2009 compared to $159.7 million in 2008, primarily due to the change in the mix and type of business written and the increased cessions under the affiliated quota share agreement. Segment other underwriting expenses were $36.2 million and $32.2 million in 2009 and 2008, respectively. The increase was due to growth in staff and related benefits.

~~U.S. Insurance.~~

Segment Expenses. Commission and brokerage expenses increased 8.1% to $168.6 million in 2012 compared to $156.0 million in 2011. These variances were primarily due to the increase in premiums earned and the effect resulting from commissions of the non-renewed Florida quota share contract. Segment other underwriting expenses increased to $44.8 million in 2012 compared to $39.3 million for the same period in 2011. These increases were primarily due to higher share-based compensation and employee benefit plan expenses.

Commission and brokerage expenses decreased 7.9% to $156.0 million in 2011 compared to $169.3 million in 2010. This decrease was primarily due to the decline in premiums earned. Segment other underwriting expenses decreased to $39.3 million in 2011 compared to $42.5 million for the same period in 2010. This decline was due to reduced operating costs for the segment.

International.

The following table presents the underwriting results and ratios for the ~~U.S. Insurance~~International segment for the periods indicated.

		Years Ended December 31,									2010/2009						2009/2008							Years Ended December 31,									2012/2011						2011/2010
(Dollars in millions)		2010			2009			2008			Variance			% Change			Variance			% Change				2012			2011			2010			Variance			% Change			Variance			% Change
Gross written premiums		$	850.7		$	842.6		$	771.8		$	8.1			1.0	%	$	70.8			9.2	%		$	1,209.5		$	1,242.6		$	1,207.0		$	(33.1	)		-2.7	%	$	35.7			3.0	%
Net written premiums			363.7			352.1			398.7			11.6			3.3	%		(46.6	)		-11.7	%			550.7			615.1			641.4			(64.3	)		-10.5	%		(26.3	)		-4.1	%

Premiums earned		$	399.8		$	382.8		$	482.7		$	17.0			4.4	%	$	(99.9	)		-20.7	%		$	572.5		$	636.7		$	626.3		$	(64.2	)		-10.1	%	$	10.4			1.7	%
Incurred losses and LAE			353.9			317.8			422.2			36.1			11.4	%		(104.4	)		-24.7	%			261.5			856.1			561.9			(594.7	)		-69.5	%		294.3			52.4	%
Commission and brokerage			27.8			29.8			68.2			(2.0	)		-6.7	%		(38.4	)		-56.3	%			124.6			142.3			136.2			(17.7	)		-12.5	%		6.1			4.5	%
Other underwriting expenses			69.7			74.6			64.3			(5.0	)		-6.6	%		10.3			16.0	%			29.3			27.3			27.6			2.0			7.3	%		(0.3	)		-1.2	%
Underwriting gain (loss)		$	(51.6	)	$	(39.4	)	$	(72.0	)	$	(12.2	)		31.0	%	$	32.6			-45.3	%		$	157.1		$	(389.0	)	$	(99.4	)	$	546.2			-140.4	%	$	(289.6	)	NM

														Point Chg						Point Chg																Point Chg						Point Chg
Loss ratio			88.5	%		83.0	%		87.5	%					5.5						(4.5	)			45.7	%		134.5	%		89.7	%					(88.8	)					44.8
Commission and brokerage ratio			7.0	%		7.8	%		14.1	%					(0.8	)					(6.3	)			21.8	%		22.3	%		21.7	%					(0.5	)					0.6
Other underwriting expense ratio			17.4	%		19.5	%		13.3	%					(2.1	)					6.2				5.0	%		4.3	%		4.5	%					0.7						(0.2	)
Combined ratio			112.9	%		110.3	%		114.9	%					2.6						(4.6	)			72.5	%		161.1	%		115.9	%					(88.6	)					45.2

(Some amounts may not reconcile due to rounding)	(Some amounts may not reconcile due to rounding)																						(Some amounts may not reconcile due to rounding)

Premiums. Gross written premiums ~~increased~~decreased by ~~1.0%~~2.7% to ~~$850.7~~$1,209.5 million in ~~2010~~2012 compared to ~~$842.6~~$1,242.6 million in ~~2009. This was~~2011, primarily due to ~~increased writings~~a shift in ~~professional liability~~the mix of business towards excess of loss business, which generates a lower premium rate commensurate with lower loss exposure, a $25.0 million decline due to the impact of foreign exchange rate movement and ~~California workers’ compensation business, partially offset by~~ a ~~reduction~~lower level of reinstatement premiums in ~~audit premiums for workers’ compensation business.~~2012. Net written premiums ~~increased 3.3%~~decreased by 10.5% to ~~$363.7~~$550.7 million in ~~2010~~2012 compared to ~~$352.1~~$615.1 million in ~~2009,~~2011, primarily due to the ~~increase~~decline in gross written ~~premiums.~~premiums and the impact of changes in our affiliated quota share agreements. Premiums earned ~~increased 4.4%~~decreased by 10.1% to ~~$399.8~~$572.5 million in ~~2010~~2012 compared to ~~$382.8~~$636.7 million in ~~2009.~~2011. The change in premiums earned is ~~relatively consistent with the increase in net written premium.~~

Gross written premiums increased by 9.2% to $842.6 million in 2009 compared to $771.8 million for 2008. Most of the new premium was derived from our entry into the financial institution D&O and E&O market and additional property insurance written in Florida, where rates to exposure remain attractive. Net written premiums decreased by 11.7% to $352.1 million in 2009 compared to $398.7 million for 2008, as the increase in gross written premiums was offset by an increase in ceded written premiums. Premiums earned decreased 20.7% to $382.8 million in 2009 compared to $482.7 million for 2008. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period, in additioncomparable to the ~~impact of the affiliated quota share agreement.~~

~~Incurred Losses and LAE.~~ ~~The following table presents the incurred losses and LAE for the U.S. Insurance segment for the periods indicated.~~

Years Ended December 31,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2010
Attritional $ 324.0 81.0 % $ 29.9 7.5 % $ 353.9 88.5 %
Catastrophes - 0.0 % - 0.0 % - 0.0 %
Total segment $ 324.0 81.0 % $ 29.9 7.5 % $ 353.9 88.5 %

2009
Attritional $ 291.8 76.2 % $ 26.0 6.8 % $ 317.8 83.0 %
Catastrophes - 0.0 % - 0.0 % - 0.0 %
Total segment $ 291.8 76.2 % $ 26.0 6.8 % $ 317.8 83.0 %

2008
Attritional $ 335.0 69.4 % $ 87.4 18.1 % $ 422.4 87.5 %
Catastrophes - 0.0 % (0.2 ) 0.0 % (0.2 ) 0.0 %
Total segment $ 335.0 69.4 % $ 87.2 18.1 % $ 422.2 87.5 %

Variance 2010/2009
Attritional $ 32.2 4.8 pts $ 3.9 0.7 pts $ 36.1 5.5 pts
Catastrophes - - pts - - pts - - pts
Total segment $ 32.2 4.8 pts $ 3.9 0.7 pts $ 36.1 5.5 pts

Variance 2009/2008
Attritional $ (43.2 ) 6.8 pts $ (61.4 ) (11.3 ) pts $ (104.6 ) (4.5 ) pts
Catastrophes - - pts 0.2 - pts 0.2 - pts
Total segment $ (43.2 ) 6.8 pts $ (61.2 ) (11.3 ) pts $ (104.4 ) (4.5 ) pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by 11.4% to $353.9 million in 2010 compared to $317.8 million in 2009. The increase was primarily due to the $32.2 million increase in current years’ attritional losses, primarily due to higher expected loss ratios on several programs, reflective of current market conditions. The 2010 prior years’ unfavorable development of $29.9 million was primarily the result of reserve strengthening on several terminated programs.

Incurred losses and LAE decreased by 24.7% to $317.8 million in 2009 compared to $422.2 million in 2008. This decrease was due to the decrease in net earned premiums and less unfavorable prior years’ attritional development. Unfavorable prior years’ attritional reserve development was $61.4 million less in 2009 compared to 2008. The 2009 unfavorable attritional reserve development of $26.0 million was primarily the result of reserve strengthening on contractor’s liability programs, package policy business and workers’ compensation business. The 2008 unfavorable attritional reserve development of $87.4 million was primarily the result of the $85.3 million reserve strengthening for an auto loan credit insurance program.

~~Segment Expenses.~~ Commission and brokerage expenses decreased by 6.7% to $27.8 million in 2010 compared to $29.8 million in 2009. The decrease is primarily due to the impact of variations in reinsurance ceded, particularly under the affiliated quota share agreement. Segment other underwriting expenses in 2010 decreased to $69.7 million from $74.6 million in 2009. The decrease is the result of management’s direct actions to reduce expenses.

~~Commission and brokerage expenses decreased by 56.3% to $29.8 million in 2009 compared to $68.2 million in 2008. The variance was primarily due to the~~ change in the mix of business written and additional cessions under the affiliated quota share agreement. Segment other underwriting expenses were $74.6 million and $64.3 million for 2009 and 2008, respectively. The increase was primarily due to costs associated with the expanded infrastructure in support of expanding our direct lines of business.

~~Specialty Underwriting.~~

~~The following table presents the underwriting results and ratios for the Specialty Underwriting segment for the periods indicated.~~

Years Ended December 31, 2010/2009 2009/2008
(Dollars in millions) 2010 2009 2008 Variance % Change Variance % Change
Gross written premiums $ 266.4 $ 234.8 $ 260.4 $ 31.7 13.5 % $ (25.6 ) -9.8 %
Net written premiums 150.3 132.9 167.7 17.4 13.1 % (34.8 ) -20.7 %

Premiums earned $ 157.0 $ 139.1 $ 168.4 $ 17.8 12.8 % $ (29.3 ) -17.4 %
Incurred losses and LAE 116.4 96.3 116.3 20.2 20.9 % (20.0 ) -17.2 %
Commission and brokerage 35.9 40.9 40.9 (5.0 ) -12.2 % - 0.0 %
Other underwriting expenses 8.6 8.7 8.1 (0.1 ) -1.7 % 0.7 8.2 %
Underwriting gain (loss) $ (4.0 ) $ (6.8 ) $ 3.1 $ 2.8 -41.8 % $ (9.9 ) NM

Point Chg Point Chg
Loss ratio 74.2 % 69.2 % 69.0 % 5.0 0.2
Commission and brokerage ratio 22.9 % 29.4 % 24.3 % (6.5 ) 5.1
Other underwriting expense ratio 5.4 % 6.3 % 4.8 % (0.9 ) 1.5
Combined ratio 102.5 % 104.9 % 98.1 % (2.4 ) 6.8

(NM, not meaningful)
(Some amounts may not reconcile due to rounding)

~~Premiums.~~ Gross written premiums increased by 13.5% to $266.4 million in 2010 compared to $234.8 million in 2009, primarily due to an increase in A&H business with its entry into the stop-loss primary market for coverages on self-insured companies in 2010 and increased writings on special per risk reinsurance programs. Correspondingly, net written premiums increased 13.1% to $150.3 million in 2010 compared to $132.9 million in 2009. Premiums earned increased 12.8% to $157.0 million in 2010 compared to $139.1 million in 2009, relatively consistent with the increase in net written premiums.

Gross written premiums ~~decreased~~increased by ~~9.8%~~3.0% to ~~$234.8~~$1,242.6 million in ~~2009~~2011 compared to ~~$260.4~~$1,207.0 million ~~for 2008,~~in 2010, primarily due to ~~a $33.7 million decrease~~the effects of foreign exchange. Eliminating this effect, premiums were essentially flat. Growth from increased rate levels, particularly in ~~marine premiums and a $5.9 million decrease in surety premiums, partially~~regions recently affected by catastrophe losses was offset by ~~a $10.0 million increase in aviation premiums and a $2.7 million increase in A&H premiums.~~the termination of business that did not meet our current pricing targets. Net written premiums decreased by ~~20.7%~~4.1% to ~~$132.9~~$615.1 million in ~~2009~~2011 compared to ~~$167.7~~$641.4 million in ~~2008~~2010, primarily due to the ~~decrease~~change in ~~gross writings coupled with the increased cessions under the~~our affiliated quota share agreement. Premiums earned ~~decreased~~increased by 1.7% to ~~$139.1~~$636.7 million in ~~2009~~2011 compared to ~~$168.4~~$626.3 million in ~~2008.~~2010. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

~~Incurred Losses and LAE.~~ ~~The following table presents the incurred losses and LAE for the Specialty Underwriting segment for the periods indicated.~~

Years Ended December 31,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2010
Attritional $ 108.8 69.3 % $ 3.3 2.1 % $ 112.1 71.4 %
Catastrophes 0.3 0.2 % 4.1 2.6 % 4.4 2.8 %
Total segment $ 109.1 69.5 % $ 7.4 4.7 % $ 116.4 74.2 %

2009
Attritional $ 97.0 69.7 % $ (5.7 ) -4.1 % $ 91.3 65.6 %
Catastrophes - 0.0 % 4.9 3.5 % 4.9 3.5 %
Total segment $ 97.0 69.7 % $ (0.7 ) -0.5 % $ 96.3 69.2 %

2008
Attritional $ 103.2 61.3 % $ (1.2 ) -0.7 % $ 102.0 60.6 %
Catastrophes 10.5 6.2 % 3.8 2.2 % 14.3 8.5 %
Total segment $ 113.7 67.5 % $ 2.6 1.5 % $ 116.3 69.0 %

Variance 2010/2009
Attritional $ 11.8 (0.4 ) pts $ 9.0 6.2 pts $ 20.8 5.8 pts
Catastrophes 0.3 0.2 pts (0.8 ) (0.9 ) pts (0.5 ) (0.7 ) pts
Total segment $ 12.1 (0.2 ) pts $ 8.1 5.2 pts $ 20.1 �� 5.0 pts

Variance 2009/2008
Attritional $ (6.2 ) 8.4 pts $ (4.5 ) (3.4 ) pts $ (10.7 ) 5.0 pts
Catastrophes (10.5 ) (6.2 ) pts 1.2 1.3 pts (9.3 ) (4.9 ) pts
Total segment $ (16.7 ) 2.2 pts $ (3.3 ) (2.1 ) pts $ (20.0 ) 0.1 pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by 20.9% to $116.4 million in 2010 compared to $96.3 million in 2009, due to an increase in net premiums earned coupled with an increase in the loss ratio. Current year attritional losses increased $11.8 million as a result of losses on the offshore oil rig in the Gulf and higher expected loss ratios in A&H and surety lines of business. In addition, prior years’ attritional losses increased $9.0 million (6.2 points) due to unfavorable reserve development on select specialty classes of business in 2010 compared to favorable reserve development in 2009.

Incurred losses and LAE decreased by 17.2% to $96.3 million in 2009 compared to $116.3 million in 2008, primarily as a result of the decline in earned premiums, a decrease in catastrophe losses on the marine book of business, period over period, in addition to more favorable reserve development on prior years’ attritional losses for the surety and A&H lines.

~~Segment Expenses.~~ Commission and brokerage expenses decreased 12.2% to $35.9 million in 2010 compared to $40.9 million in 2009. The decrease was due to the changes in the mix of business, with a higher level of excess of loss marine business and primary A&H business in 2010, both of which carry lower commission ratios. Lower contingent commissions on the surety and aviation books of business, driven by changes in the expected profitability of this business also favorably impacted the commission ratio. Segment other underwriting expenses decreased slightly to $8.6 million in 2010 compared to $8.7 million in 2009.

Commission and brokerage expenses remained flat at $40.9 million for 2009 compared to 2008 despite the decline in earned premiums, primarily due to the mix in business, period over period. Segment other underwriting expenses were $8.7 million and $8.1 million for 2009 and 2008, respectively.

~~International.~~

~~The following table presents the underwriting results and ratios for the International segment for the periods indicated.~~

Years Ended December 31, 2010/2009 2009/2008
(Dollars in millions)
2010 2009 2008 Variance % Change Variance % Change
Gross written premiums $ 1,207.0 $ 1,084.5 $ 904.7 $ 122.5 11.3 % $ 179.8 19.9 %
Net written premiums 641.4 589.7 539.1 51.6 8.8 % 50.6 9.4 %

Premiums earned $ 626.3 $ 586.7 $ 545.6 $ 39.6 6.7 % $ 41.1 7.5 %
Incurred losses and LAE 561.9 333.2 367.1 228.7 68.6 % (33.9 ) -9.2 %
Commission and brokerage 136.2 131.7 129.7 4.5 3.4 % 1.9 1.5 %
Other underwriting expenses 27.6 23.1 19.8 4.6 19.8 % 3.3 16.7 %
Underwriting gain (loss) $ (99.4 ) $ 98.8 $ 28.9 $ (198.2 ) -200.6 % $ 69.8 241.4 %

Point Chg Point Chg
Loss ratio 89.7 % 56.8 % 67.3 % 32.9 (10.5 )
Commission and brokerage ratio 21.7 % 22.4 % 23.8 % (0.7 ) (1.4 )
Other underwriting expense ratio 4.5 % 4.0 % 3.6 % 0.5 0.4
Combined ratio 115.9 % 83.2 % 94.7 % 32.7 (11.5 )

(Some amounts may not reconcile due to rounding)

~~Premiums.~~ Gross written premiums increased by 11.3% to $1,207.0 million in 2010 compared to $1,084.5 million in 2009, due to continued strong growth in premiums written through the Brazil, Miami and New Jersey offices, a $42.7 million increase; Asia, a $55.7 million increase; and Canada, a $24.2 million increase; resulting from a combination of new business, rate increases in select areas, and economic and insurance growth in some markets. Also contributing to the increase was $16.0 million in reinstatement premiums from the Chilean earthquake and Calgary hailstorm. Net written premiums increased by 8.8% to $641.4 million in 2010 compared to $589.7 million in 2009, principally as a result of the increase in gross written premiums. Premiums earned increased by 6.7% to $626.3 million in 2010 compared to $586.7 million in 2009 consistent with the trend noted for net written premiums.

Gross written premiums increased by 19.9% to $1,084.5 million in 2009 compared to $904.7 million in 2008. As a result of our strong financial strength ratings, we saw increased participations on treaties in most regions, new business writings and preferential signings, including preferential terms and conditions. In addition, rates, in some markets, also contributed to the increased written premiums. Premiums written through the Brazil, Miami and New Jersey offices increased by $122.9 million (21.3%), the Asian branch increased by $32.4 million (17.1%) and the Canadian branch premiums increased by $24.5 million (17.7%). Net written premiums increased by 9.4% to $589.7 million in 2009 compared to $539.1 million in 2008, primarily due to the increase in gross written premiums coupled with the increase in cessions under the affiliated quota share. Premiums earned increased by 7.5% to $586.7 million in 2009 compared to $545.6 million in 2008, generally consistent with the increase in net written premiums.

2824

Incurred Losses and LAE. The following table presents the incurred losses and LAE for the International segment for the periods indicated.

		Years Ended December 31,																						Years Ended December 31,
		Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/					Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)		Year			Pt Change				Years			Pt Change				Incurred			Pt Change					Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2012
Attritional																								$	270.4			47.3	%		$	(8.4	)		-1.5	%		$	262.0			45.9	%
Catastrophes																									6.0			1.0	%			(6.5	)		-1.1	%			(0.5	)		-0.1	%
Total segment																								$	276.4			48.4	%		$	(14.9	)		-2.6	%		$	261.5			45.7	%

2011
Attritional																								$	302.8			47.6	%		$	(56.8	)		-8.9	%		$	246.0			38.7	%
Catastrophes																									610.5			95.9	%			(0.3	)		-0.1	%			610.2			95.8	%
Total segment																								$	913.3			143.5	%		$	(57.1	)		-9.0	%		$	856.1			134.5	%

2010
Attritional		$	345.4			55.1	%		$	(26.9	)		-4.3	%		$	318.5			50.8	%			$	345.4			55.1	%		$	(26.9	)		-4.3	%		$	318.5			50.8	%
Catastrophes			253.0			40.4	%			(9.6	)		-1.5	%			243.4			38.9	%				253.0			40.4	%			(9.6	)		-1.5	%			243.4			38.9	%
Total segment		$	598.4			95.5	%		$	(36.5	)		-5.8	%		$	561.9			89.7	%			$	598.4			95.5	%		$	(36.5	)		-5.8	%		$	561.9			89.7	%

2009
Variance 2012/2011
Attritional		$	296.4			50.5	%		$	12.5			2.1	%		$	309.0			52.7	%			$	(32.4	)		(0.3	)	pts	$	48.4			7.4		pts	$	16.0			7.2		pts
Catastrophes			22.1			3.8	%			2.1			0.4	%			24.2			4.1	%				(604.5	)		(94.9	)	pts		(6.2	)		(1.0	)	pts		(610.7	)		(95.9	)	pts
Total segment		$	318.5			54.3	%		$	14.7			2.5	%		$	333.2			56.8	%			$	(636.9	)		(95.1	)	pts	$	42.2			6.4		pts	$	(594.6	)		(88.8	)	pts

2008
Attritional		$	350.0			64.2	%		$	(3.9	)		-0.7	%		$	346.1			63.4	%
Catastrophes			26.1			4.8	%			(5.0	)		-0.9	%			21.1			3.9	%
Total segment		$	376.1			68.9	%		$	(9.0	)		-1.6	%		$	367.1			67.3	%

Variance 2010/2009
Attritional		$	49.0			4.6		pts	$	(39.4	)		(6.4	)	pts	$	9.5			(1.9	)	pts
Catastrophes			230.9			36.6		pts		(11.7	)		(1.9	)	pts		219.2			34.8		pts
Total segment		$	279.9			41.2		pts	$	(51.2	)		(8.3	)	pts	$	228.7			32.9		pts

Variance 2009/2008
Variance 2011/2010
Attritional		$	(53.6	)		(13.7	)	pts	$	16.5			2.8		pts	$	(37.1	)		(10.7	)	pts		$	(42.6	)		(7.5	)	pts	$	(29.9	)		(4.6	)	pts	$	(72.5	)		(12.1	)	pts
Catastrophes			(4.0	)		(1.0	)	pts		7.2			1.3		pts		3.1			0.2		pts			357.5			55.5		pts		9.3			1.4		pts		366.8			56.9		pts
Total segment		$	(57.6	)		(14.6	)	pts	$	23.6			4.1		pts	$	(33.9	)		(10.5	)	pts		$	314.9			48.0		pts	$	(20.6	)		(3.2	)	pts	$	294.2			44.8		pts

(Some amounts may not reconcile due to rounding.)	(Some amounts may not reconcile due to rounding.)																						(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE decreased 69.5% to $261.5 million in 2012 compared to $856.1 million in 2011, representing 88.8 loss ratio points. The decrease was principally due to a $604.5 million (94.9 points) decrease in current year catastrophes. The $6.0 million of 2012 current year catastrophes related primarily to Superstorm Sandy ($5.9 million). The $610.5 million of 2011 current year catastrophes related primarily to the Japanese earthquake and tsunami ($295.8 million), the 2011 New Zealand earthquake ($124.4 million), the Thailand floods ($119.8 million) and the 2011 Australian flood ($33.2 million). Attritional losses increased by $16.0 million (7.2 points) primarily due to less favorable reserve development in 2012 than in 2011.

Incurred losses and LAE increased ~~68.6%~~52.4% to $856.1 million in 2011 compared to $561.9 million in ~~2010 compared to $333.2 million in 2009.~~2010. The increase was principally due to a ~~$230.9~~$357.5 million ~~(36.6~~(55.5 points) increase in 2011 current year catastrophes as discussed above. The $253.0 million of current year catastrophe losses for 2010 related primarily to the ~~Chilean~~Chile earthquake ($187.8 million), the 2010 Australian hailstorms and floods ($33.8 million) and the 2010 New Zealand earthquake ~~and the Canadian hailstorm compared to the absence in 2009 of any similar large events. Attritional~~($28.0 million). Current year attritional losses ~~also increased~~decreased by $42.6 million (7.5 points), primarily due to ~~the increased premiums earned and higher expected loss ratios, which were partially offset by favorable development of prior years’ attritional reserves.~~

Incurred losses and LAE decreased by 9.2% to $333.2 million in 2009 compared to $367.1 million in 2008. Fluctuations in the current year attritional loss ratio between 2009 and 2008 were the result of changesa shift in the mix of business ~~written coupled with the changes in ceding percentages from the affiliated quota share agreements. In addition, the segment had~~towards property, catastrophe and excess of loss business, which generally carries a lower ~~2009 current year catastrophe losses. Offsetting the decrease was unfavorable prior~~loss ratio. Prior years’ ~~loss development in 2009 compared~~attritional losses decreased by $29.9 million (4.6 points) due to favorable development on non-catastrophe property business in ~~2008, which had a 4.1 point impact on the loss ratio.~~Singapore and other international markets.

Segment Expenses. Commission and brokerage expenses ~~increased 3.4%~~decreased 12.5% to ~~$136.2~~$124.6 million in ~~2010~~2012 compared to ~~$131.7~~$142.3 million in ~~2009. The increase was primarily in line~~2011. This is consistent with the ~~increases~~reduction in ~~premiums earned.~~earned premium and a shift in the mix of business towards property catastrophe and excess of loss business which have lower commission rates. Segment other underwriting expenses increased to $29.3 million in ~~2010 were $27.6 million~~2012 compared to ~~$23.1~~$27.3 million in ~~2009.~~2011. The ~~increase was consistent with the growth in premiums earned resulting in stable other underwriting expense ratios for the periods.~~increases relate to higher personnel benefit costs.

Commission and brokerage expenses increased 1.5% to $131.7 million in 2009 compared to $129.7 million in 2008. The increase was primarily due to the growth in premiums earned in conjunction with the blend of business mix. Segment other underwriting expenses were $23.1 million and $19.8 million for 2009 and 2008, respectively.

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Commission and brokerage expenses increased 4.5% to $142.3 million in 2011 compared to $136.2 million in 2010. These variances were due to the changes in premiums and the mix of business. Segment other underwriting expenses decreased slightly to $27.3 million in 2011 compared to $27.6 million in 2010.

Insurance.

The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated.

	Years Ended December 31,									2012/2011						2011/2010
(Dollars in millions)	2012			2011			2010			Variance			% Change			Variance			% Change
Gross written premiums	$	1,049.2		$	969.1		$	865.4		$	80.1			8.3	%	$	103.7			12.0	%
Net written premiums		481.2			450.4			373.7			30.8			6.8	%		76.6			20.5	%

Premiums earned	$	479.0		$	459.4		$	409.8		$	19.6			4.3	%	$	49.6			12.1	%
Incurred losses and LAE		405.8			398.4			359.0			7.5			1.9	%		39.3			10.9	%
Commission and brokerage		17.5			40.4			29.6			(22.8	)		-56.5	%		10.8			36.5	%
Other underwriting expenses		96.5			87.7			69.7			8.8			10.0	%		18.1			25.9	%
Underwriting gain (loss)	$	(40.9	)	$	(67.0	)	$	(48.5	)	$	26.2			-39.0	%	$	(18.5	)		38.3	%

													Point Chg						Point Chg
Loss ratio		84.7	%		86.7	%		87.6	%					(2.0	)					(0.9	)
Commission and brokerage ratio		3.7	%		8.8	%		7.2	%					(5.1	)					1.6
Other underwriting expense ratio		20.1	%		19.1	%		17.0	%					1.0						2.1
Combined ratio		108.5	%		114.6	%		111.8	%					(6.1	)					2.8

(Some amounts may not reconcile due to rounding)

Premiums. Gross written premiums increased by 8.3% to $1,049.2 million in 2012 compared to $969.1 million in 2011. This increase was primarily driven by crop and primary A&H medical stop loss business, partially offset by the termination and runoff of several large casualty programs. Net written premiums increased 6.8% to $481.2 million in 2012 compared to $450.4 million for 2011. The lower increase in net written premiums in comparison to gross written premiums is primarily attributable to a higher level of reinsurance employed for the crop business. Premiums earned increased 4.3% to $479.0 million in 2012 compared to $459.4 million in 2011. The change in premiums earned is relatively consistent with the increase in net written premiums.

Gross written premiums increased by 12.0% to $969.1 million in 2011 compared to $865.4 million in 2010. This was due to strategic portfolio changes with growth in short-tail business, primarily driven by the acquisition of Heartland, which provided $169.6 million of new crop insurance premium in 2011 and $54.0 million growth in A&H primary business, partially offset by the reduction of a large casualty program. Net written premiums increased 20.5% to $450.4 million in 2011 compared to $373.7 million for the same period in 2010 due to higher gross premiums and reduced levels of ceded reinsurance, primarily due to the reduction of the large casualty program. Premiums earned increased 12.1% to $459.4 million in 2011 compared to $409.8 million in 2010. The change in premiums earned is consistent with the change in net written premiums.

Incurred Losses and LAE. The following table presents the incurred losses and LAE for the Insurance segment for the periods indicated.

	Years Ended December 31,
	Current			Ratio %/				Prior			Ratio %/				Total		Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred		Pt Change
2012
Attritional	$	371.6			77.5	%		$	29.6			6.2	%		$	401.2		83.7	%
Catastrophes		4.6			1.0	%			-			0.0	%			4.6		1.0	%
Total segment	$	376.2			78.4	%		$	29.6			6.2	%		$	405.8		84.7	%

2011
Attritional	$	371.7			80.9	%		$	24.7			5.4	%		$	396.4		86.3	%
Catastrophes		1.8			0.4	%			0.2			0.0	%			2.0		0.4	%
Total segment	$	373.5			81.3	%		$	24.9			5.4	%		$	398.4		86.7	%

2010
Attritional	$	329.2			80.3	%		$	29.9			7.3	%		$	359.0		87.6	%
Catastrophes		-			0.0	%			-			0.0	%			-		0.0	%
Total segment	$	329.2			80.3	%		$	29.9			7.3	%		$	359.0		87.6	%

Variance 2012/2011
Attritional	$	(0.1	)		(3.4	)	pts	$	4.9			0.8		pts	$	4.8		(2.6	)	pts
Catastrophes		2.8			0.6		pts		(0.2	)		-		pts		2.6		0.6		pts
Total segment	$	2.7			(2.9	)	pts	$	4.7			0.8		pts	$	7.4		(2.0	)	pts

Variance 2011/2010
Attritional	$	42.5			0.6		pts	$	(5.2	)		(1.9	)	pts	$	37.3		(1.3	)	pts
Catastrophes		1.8			0.4		pts		0.2			-		pts		2.0		0.4		pts
Total segment	$	44.3			1.0		pts	$	(5.0	)		(1.9	)	pts	$	39.3		(0.9	)	pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by 1.9% to $405.8 million in 2012 compared to $398.4 million in 2011. This was primarily due to an increase of $4.8 million in attritional losses resulting primarily from higher prior years’ losses in 2012 resulting from development on excess casualty and workers’ compensation reserves and a $2.8 million increase in current year catastrophe losses due primarily to Superstorm Sandy ($4.0 million).

Incurred losses and LAE increased by 10.9% to $398.4 million in 2011 compared to $359.0 million in 2010. This increase was primarily due to an increase of $42.5 million (0.6 points) in current year attritional losses primarily due to higher net premiums earned. The $24.7 million of prior years’ development was primarily attributable to excess casualty and California workers’ compensation reserves.

Segment Expenses. Commission and brokerage expenses decreased 56.5% to $17.5 million in 2012 compared to $40.4 million in 2011, driven by growth in direct distribution business, which has lower acquisition costs and changes in our affiliated quota share agreements. Segment other underwriting expenses in 2012 increased to $96.5 million from $87.7 million in 2011. These increases are primarily the result of increased personnel benefit costs.

Commission and brokerage expenses increased 36.5% to $40.4 million in 2011 compared to $29.6 million in 2010. These increases were primarily the result of an increase in net premiums earned and changes in distribution, mix of business and ceded reinsurance. Segment other underwriting expenses in 2011 increased to $87.7 million from $69.7 million in 2010. These increases were primarily due to the expenses of the newly acquired Heartland.

SAFE HARBOR DISCLOSURE

This report 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 federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic events on our financial statements and the ability of our subsidiaries to pay dividends. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause our actual events or results to be materially different from our expectations include those discussed under the caption ITEM 1A, “Risk Factors”. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Sensitive Instruments.

The SEC’s Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial statement disclosure requirements for derivative financial instruments, derivative commodity instruments and other financial instruments (collectively, “market sensitive instruments”). We do not generally enter into market sensitive instruments for trading purposes.

Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, taxable and tax-preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity. Our mix of taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating results, market conditions and our tax position. The fixed maturity securities in the investment portfolio are comprised of non-trading available for sale securities. Additionally, we have invested in equity securities.

The overall investment strategy considers the scope of present and anticipated Company operations. In particular, estimates of the financial impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated payout characteristics for which our investments provide liquidity. This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit quality. The change in overall market sensitive risk exposure principally reflects the asset changes that took place during the period.

Interest Rate Risk. Our ~~$8.3~~$9.1 billion investment portfolio, at December 31, ~~2010,~~2012, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price ~~fluctuations.~~fluctuations and some foreign exchange rate risk. The overall economic impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar value of foreign currency denominated liabilities and their associated income statement impact.

Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the ~~$439.2~~$738.5 million of mortgage-backed securities in the ~~$5,780.4~~$5,572.9 million fixed maturity portfolio. Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.

3028

The tables below display the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including ~~$516.9~~$465.5 million of short-term investments) for the periods indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimates for mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For legal entities with non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under the various interest rate change scenarios.

	Impact of Interest Rate Shift in Basis Points															Impact of Interest Rate Shift in Basis Points
	At December 31, 2010															At December 31, 2012
(Dollars in millions)		-200			-100			0			100			200			-200			-100			0			100			200
Total Market/Fair Value	$	6,769.2		$	6,546.0		$	6,297.3		$	6,032.8		$	5,778.3		$	6,318.8		$	6,179.6		$	6,038.4		$	5,887.7		$	5,727.5
Market/Fair Value Change from Base (%)		7.5	%		3.9	%		0.0	%		-4.2	%		-8.2	%		4.6	%		2.3	%		0.0	%		-2.5	%		-5.2	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	306.7		$	161.7		$	-		$	(171.9	)	$	(337.4	)	$	182.2		$	91.7		$	-		$	(98.0	)	$	(202.1	)

	Impact of Interest Rate Shift in Basis Points															Impact of Interest Rate Shift in Basis Points
	At December 31, 2009															At December 31, 2011
(Dollars in millions)		-200			-100			0			100			200			-200			-100			0			100			200
Total Market/Fair Value	$	7,393.3		$	7,105.3		$	6,775.1		$	6,418.1		$	6,076.8		$	5,913.2		$	5,782.7		$	5,644.3		$	5,490.5		$	5,327.6
Market/Fair Value Change from Base (%)		9.1	%		4.9	%		0.0	%		-5.3	%		-10.3	%		4.8	%		2.5	%		0.0	%		-2.7	%		-5.6	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	401.8		$	214.6		$	-		$	(232.1	)	$	(453.9	)	$	174.8		$	90.0		$	-		$	(100.0	)	$	(205.9	)

We had ~~$7,652.3~~$8,143.1 million and ~~$7,300.1~~$8,290.6 million of gross reserves for losses and LAE as of December 31, ~~2010~~2012 and ~~2009,~~December 31, 2011, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration that is reasonably consistent with our fixed income portfolio.

Equity Risk. Equity risk is the potential change in fair and/or market value of the common stock and preferred stock portfolios arising from changing ~~equity~~ prices. Our equity investments consist of a diversified portfolio of individual ~~securities and mutual funds, which invest principally in high quality common and preferred stocks that are traded on major exchanges.~~securities. The primary objective of the equity portfolio is to obtain greater total return relative to bonds over time through market appreciation and income.

3129

The tables below display the impact on fair/market value and after-tax change in fair/market value of a 10% and 20% change in equity prices up and down for the periods indicated.

	Impact of Percentage Change in Equity Fair/Market Values												Impact of Percentage Change in Equity Fair/Market Values
	At December 31, 2010												At December 31, 2012
(Dollars in millions)		-20%			-10%			0%		10%		20%		-20%			-10%			0%		10%		20%
Fair/Market Value of the Equity Portfolio	$	546.8		$	615.1		$	683.5	$	751.8	$	820.2	$	959.9		$	1,079.9		$	1,199.9	$	1,319.8	$	1,439.8
After-tax Change in Fair/Market Value		(88.9	)		(44.4	)		-		44.4		88.9		(156.0	)		(78.0	)		-		78.0		156.0

	Impact of Percentage Change in Equity Fair/Market Values												Impact of Percentage Change in Equity Fair/Market Values
	At December 31, 2009												At December 31, 2011
(Dollars in millions)		-20%			-10%			0%		10%		20%		-20%			-10%			0%		10%		20%
Fair/Market Value of the Equity Portfolio	$	304.0		$	342.0		$	380.0	$	418.0	$	456.0	$	965.7		$	1,086.4		$	1,207.1	$	1,327.8	$	1,448.5
After-tax Change in Fair/Market Value		(49.4	)		(24.7	)		-		24.7		49.4		(156.9	)		(78.5	)		-		78.5		156.9

Foreign Exchange Risk. Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for these foreign operations are the Singapore and Canadian ~~Dollars, the British Pound Sterling and the Euro.~~Dollars. We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our corresponding operating liabilities. In accordance with FASB guidance, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar. This translation amount is reported as a component of other comprehensive income. As of December 31, ~~2010,~~2012, there has been no material change in exposure to foreign exchange rates as compared to December 31, ~~2009.~~2011.

The tables below display the potential impact of a parallel and immediate 10% and 20% increase and decrease in foreign exchange rates on the valuation of invested assets subject to foreign currency exposure for the periods indicated. This analysis includes the after-tax impact of translation from transactional currency to functional currency as well as the after-tax impact of translation from functional currency to the U.S. dollar reporting currency.

	Change in Foreign Exchange Rates in Percent												Change in Foreign Exchange Rates in Percent
	At December 31, 2010												At December 31, 2012
(Dollars in millions)		-20%			-10%			0%		10%		20%		-20%			-10%			0%		10%		20%
Total After-tax Foreign Exchange Exposure	$	(81.4	)	$	(45.3	)	$	-	$	52.0	$	109.0	$	(182.5	)	$	(91.3	)	$	-	$	91.3	$	182.5

Change in Foreign Exchange Rates in Percent
At December 31, 2009
(Dollars in millions) -20% -10% 0% 10% 20%
Total After-tax Foreign Exchange Exposure $ (63.2 ) $ (35.6 ) $ - $ 41.5 $ 87.4

	Change in Foreign Exchange Rates in Percent
	At December 31, 2011
(Dollars in millions)		-20%			-10%			0%		10%		20%
Total After-tax Foreign Exchange Exposure	$	(175.7	)	$	(87.8	)	$	-	$	87.8	$	175.7

3230

ITEM 9.~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~

~~ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page F-1 are filed as part of this report.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.~~ITEM 9A. CONTROLS AND PROCEDURES~~

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2010.~~2012. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our assessment we concluded that, as of December 31, ~~2010,~~2012, our internal control over financial reporting is effective based on those criteria.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report due to the Company’s status as a non-accelerated filer.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth quarter.

~~ITEM 9B. OTHER INFORMATION~~

ITEM 9B.

OTHER INFORMATION

None.

3331

PART III

ITEM 10. ~~ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE~~

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information for Item 10 is not required pursuant to General Instruction I(2) of Form 10-K.

ITEM 11.~~ITEM 11. EXECUTIVE COMPENSATION~~

EXECUTIVE COMPENSATION

Information for Item 11 is not required pursuant to General Instruction I(2) of Form 10-K.

~~ITEM 12.~~ ~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS~~

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information for Item 12 is not required pursuant to General Instruction I(2) of Form 10-K.

ITEM 13.~~ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE~~

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information for Item 13 is not required pursuant to General Instruction I(2) of Form 10-K.

ITEM 14. ~~ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES~~

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The PricewaterhouseCoopers LLP (and its worldwide affiliates) fees incurred are as follows for the periods indicated:

(Dollars in thousands) 2010 2009
(1) Audit Fees $ 2,116.1 $ 1,995.6
(2) Audit-Related Fees 78.9 78.9
(3) Tax Fees 135.9 138.5
(4) All Other Fees 2.3 5.4

(Dollars in thousands)			2012		2011
	(1)	Audit Fees	$	2,154.6	$	2,319.2
	(2)	Audit-Related Fees		83.6		78.9
	(3)	Tax Fees		88.5		119.6
	(4)	All Other Fees		2.8		2.8

Audit fees include the annual audit and quarterly financial statement reviews, subsidiary audits, and procedures required to be performed by the independent auditor to be able to form an opinion on our consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review. Audit fees may also include statutory audits or financial audits for our subsidiaries or affiliates and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.

Audit-related fees include assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, including due diligence services pertaining to potential business acquisitions/dispositions, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rule making authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements.

Tax fees include tax compliance, tax planning and tax advice and is granted general pre-approval by Group’s Audit Committee.

All other fees represent an accounting research subscription and software.

PricewaterhouseCoopers LLP used no leased employees on the Company’s audit engagement.

Under its Charter and the “Audit and Non-Audit Services Pre-Approval Policy” (the “Policy”), ~~Group’s~~the Audit Committee ~~or its delegate (one or more of its members)~~ is required to pre-approve the audit and non-audit services to be performed by the independent ~~auditor.~~auditors. The Policy ~~requires that~~mandates specific approval by the Audit Committee for any service that has not received a general pre-approval or that exceeds pre-approved cost levels or budgeted ~~amounts requires specific approval by Group’s Audit Committee or its delegate.~~amounts. For both specific and general pre-approval, ~~Group’s~~the Audit Committee ~~will consider~~considers whether such services are consistent with the SEC’s rules on auditor independence. ~~Group’s~~The Audit Committee ~~will~~ also ~~consider~~considers whether the independent ~~auditor is~~auditors are best positioned to provide the most effective and efficient service and whether the service might enhance ~~our~~the Company’s ability to manage or control risk or improve audit quality. ~~Group’s~~The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such ~~services and~~services. It may determine, for each fiscal year, the appropriate ratio between the total amount of ~~fees for~~ audit, audit-related and tax fees and a total amount of fees for certain permissible non-audit services classified below as “All Other Fees” ~~above.~~. All such factors ~~will be~~are considered as a whole, and no one factor is determinative. ~~Group’s~~The Audit Committee ~~has~~further considered whether the performance by PricewaterhouseCoopers LLP of the non-audit related services disclosed below is compatible with maintaining their independence. The Audit Committee approved all of the audit-related fees, tax fees and all other fees for 2012 and 2011.

Some of the fees listed above were not pre-approved by Group’s Audit Committee after the beginning of the engagement pursuant to the waiver of the pre-approval requirement for certain de minimis non-audit services described in section 10A of the Securities Exchange Act of 1934 and applicable regulations.

PART IV

ITEM 15.~~ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES~~

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibits

The exhibits listed on the accompanying Index to Exhibits on page E-1 are filed as part of this report except that the certifications in Exhibit 32 are being furnished to the SEC, rather than filed with the SEC, as permitted under applicable SEC rules.

Financial Statements and Schedules.

The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page F-1 are filed as part of this report.

3533

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March ~~30, 2011.~~19, 2013.

	EVEREST REINSURANCE HOLDINGS, INC.


	By:	/S/ JOSEPH V. TARANTO
		Joseph V. Taranto (Chairman and Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/S/ JOSEPH V. TARANTO	Chairman and Chief Executive Officer and Director (Principal Executive Officer)	March ~~30, 2011~~19, 2013
Joseph V. Taranto

/S/ ~~DOMINIC J. ADDESSO~~CRAIG HOWIE	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	March ~~30, 2011~~19, 2013
~~Dominic J. Addesso~~Craig Howie

/S/ KEITH T. SHOEMAKER	Comptroller (Principal Accounting Officer)	March ~~30, 2011~~19, 2013
Keith T. Shoemaker

~~INDEX TO EXHIBITS~~

~~Exhibit No.~~

	~~2.1~~	Agreement and Plan of Merger among Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd. and Everest Re Merger Corporation, incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4 (No. 333-87361)

	~~3.1~~	~~Certificate of Incorporation of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (No. 333-05771)~~

	~~3.2~~	By-Laws of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 3.2 to the Everest Reinsurance Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000

	~~4.1~~	Indenture, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000

	~~4.2~~	First Supplemental Indenture relating to the 8.5% Senior Notes due March 15, 2005, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank, as Trustee, incorporated herein by reference to Exhibit 4.2 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000

	~~4.3~~	Second Supplemental Indenture relating to the 8.75% Senior Notes due March 15, 2010, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank, as Trustee, incorporated herein by reference to Exhibit 4.3 to the Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000

	~~4.4~~	Junior Subordinated Indenture, dated November 14, 2002, between Everest Reinsurance Holdings, Inc. and JPMorgan Chase Bank as Trustee, incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-3 (No. 333-106595)

	~~4.5~~	Second Supplemental Indenture relating to Holdings 6.20% Junior Subordinated Debt Securities due March 29, 2034, dated as of March 29, 2004, among Holdings, Group and JPMorgan Chase Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 30, 2004 (the “March 30, 2004 8-K”)

	~~4.6~~	~~Amended and Restated Trust Agreement of Everest Re Capital Trust II, dated as of March 29, 2004, incorporated herein by reference to Exhibit 4.2 to the March 30, 2004 8-K~~

	~~4.7~~	~~Guarantee Agreement, dated as of March 29, 2004, between Holdings and JPMorgan Chase Bank, incorporated herein by reference to Exhibit 4.3 to the March 30, 2004 8-K~~

	~~4.8~~	~~Expense Agreement, dated as of March 29, 2004, between Holdings and Everest Re Capital Trust II, incorporated herein by reference to Exhibit 4.4 to the March 30, 2004 8-K~~

	4.9	Third Supplemental Indenture relating to Holdings 5.40% Senior Notes due October 15, 2014, dated as of October 12, 2004, among Holdings and JPMorgan Chase Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on October 12, 2004

*	~~10.1~~	Employment Agreement with Joseph V. Taranto executed on July 15, 1998, incorporated herein by reference to Exhibit 10.21 to Everest Reinsurance Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (the “second quarter 1998 10-Q”)

~~E-1~~

*	~~10.2~~	Amendment of Employment Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd. and Joseph V. Taranto dated February 15, 2000, incorporated herein by reference to Exhibit 10.29 to Everest Re Group, Ltd. Annual Report on Form 10-K for the year ended December 31, 1999 (the “1999 10-K”)

*	~~10.3~~	~~Change of Control Agreement with Joseph V. Taranto effective July 15, 1998, incorporated herein by reference to Exhibit 10.22 to the second quarter 1998 10-Q~~

*	~~10.4~~	Amendment of Change of Control Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd. and Joseph V. Taranto dated February 15, 2000, incorporated herein by reference to Exhibit 10.30 to the 1999 10-K

	~~10.5~~	Stock Purchase Agreement between The Prudential Insurance Company of America and Everest Reinsurance Holdings, Inc. for the sale of common stock of Gibraltar Casualty Company dated February 24, 2000, incorporated herein by reference to Exhibit 10.32 to the 1999 10-K

	~~10.6~~	Amendment No. 1 to Stock Purchase Agreement between The Prudential Insurance Company of America and Everest Reinsurance Holdings, Inc. for the sale of common stock of Gibraltar Casualty Company dated August 8, 2000, incorporated herein by reference to Exhibit 10.1 to the Everest Re Group, Ltd. Quarterly Report on Form 10-Q for the quarter ended June 30, 2000

	~~10.7~~	Proportional Excess of Loss Reinsurance Agreement entered into between Gibraltar Casualty Company and Prudential Property and Casualty Insurance Company, incorporated herein by reference to Exhibit 10.24 to the Everest Re Group, Ltd. Annual Report on Form 10-K for the year ended December 31, 2000 (the “2000 10-K”)

	~~10.8~~	~~Guarantee Agreement made by The Prudential Insurance Company of America in favor of Gibraltar Casualty Company, incorporated herein by reference to Exhibit 10.25 to the 2000 10-K~~

*	~~10.9~~	Amendment of Employment Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated March 30, 2001, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Report on Form 10-Q for the quarter ended March 31, 2001 (the “first quarter 2001 10-Q”)

*	~~10.10~~	Amendment of Employment Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated April 20, 2001, incorporated herein by reference to Exhibit 10.2 to the first quarter 2001 10-Q

*	~~10.11~~	Amendment of Change of Control Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated March 30, 2001, incorporated herein by reference to Exhibit 10.3 to the first quarter 2001 10-Q

*	~~10.12~~	Amendment of Employment Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group Ltd., Everest Global Services Inc. and Joseph V. Taranto, dated April 18, 2003, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on April 21, 2003

*	~~10.13~~	Amendment of Employment Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated August 31, 2005, incorporated by reference to Exhibit 10.1 to Everest Re Group, Ltd. From 8-K filed on August 31, 2005

~~E-2~~

		~~10.14~~	Credit Agreement, dated August 23, 2006, between Everest Reinsurance Holdings, Inc., the lenders named therein and Citibank N.A., as administrative agent, providing for $150.0 million five year senior revolving credit facility, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. This new agreement replaces the October 10, 2003 three year senior revolving credit facility which expired on October 10, 2006

	*	~~10.15~~	Employment Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Craig E. Eisenacher, dated December 18, 2006, incorporated by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on December 5, 2006

	*	~~10.16~~	Amendment to Employment Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc. and Joseph V. Taranto, dated April 5, 2007, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on April 5, 2007

	*	~~10.17~~	Amendment to Change of Control Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services and Joseph V. Taranto, dated April 5, 2007, incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on April 5, 2007

	*	~~10.18~~	Amendment to Change of Control Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated January 1, 2009, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on January 2, 2009

		~~10.19~~	~~Completion of Tender Offer relating to Everest Reinsurance Holdings, Inc. 6.60% Fixed to Floating Rate Long Term Subordinated Notes (LoTS~~SM~~) dated March 19, 2009, incorporated herein by reference to Exhibit 99.1 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2009~~

	*	~~10.20~~	Amendment of Employment Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Global Services, Inc., Everest Re Group, Ltd. and Joseph V. Taranto, dated September 25, 2009, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on October 1, 2009

		~~23.1~~	~~Consent of PricewaterhouseCoopers LLP, filed herewith~~

		~~31.1~~	~~Section 302 Certification of Joseph V. Taranto, filed herewith~~

		~~31.2~~	~~Section 302 Certification of Dominic J. Addesso, filed herewith~~

		~~32.1~~	~~Section 906 Certification of Joseph V. Taranto and Dominic J. Addesso, filed herewith~~

* Management contract or compensatory plan or arrangement.

INDEX TO EXHIBITS

Exhibit No.

	2.	1	Agreement and Plan of Merger among Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd. and Everest Re Merger Corporation, incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4 (No. 333-87361)

	3.	1	Certificate of Incorporation of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (No. 333-05771)

	3.	2	By-Laws of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 3.2 to the Everest Reinsurance Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000

	4.	1	Indenture, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000

	4.	2	Second Supplemental Indenture relating to the 8.75% Senior Notes due March 15, 2010, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank, as Trustee, incorporated herein by reference to Exhibit 4.3 to the Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000

	4.	3	Junior Subordinated Indenture, dated November 14, 2002, between Everest Reinsurance Holdings, Inc. and JPMorgan Chase Bank as Trustee, incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-3 (No. 333-106595)

	4.	4	Second Supplemental Indenture relating to Holdings 6.20% Junior Subordinated Debt Securities due March 29, 2034, dated as of March 29, 2004, among Holdings, Group and JPMorgan Chase Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 30, 2004 (the “March 30, 2004 8-K”)

	4.	5	Amended and Restated Trust Agreement of Everest Re Capital Trust II, dated as of March 29, 2004, incorporated herein by reference to Exhibit 4.2 to the March 30, 2004 8-K

	4.	6	Guarantee Agreement, dated as of March 29, 2004, between Holdings and JPMorgan Chase Bank, incorporated herein by reference to Exhibit 4.3 to the March 30, 2004 8-K

	4.	7	Expense Agreement, dated as of March 29, 2004, between Holdings and Everest Re Capital Trust II, incorporated herein by reference to Exhibit 4.4 to the March 30, 2004 8-K

	4.	8	Third Supplemental Indenture relating to Holdings 5.40% Senior Notes due October 15, 2014, dated as of October 12, 2004, among Holdings and JPMorgan Chase Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on October 12, 2004

	10.	1	Credit Agreement, dated August 23, 2006, between Everest Reinsurance Holdings, Inc., the lenders named therein and Citibank N.A., as administrative agent, providing for $150.0 million five year senior revolving credit facility, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. This new agreement replaces the October 10, 2003 three year senior revolving credit facility which expired on October 10, 2006

~~E-3~~

E-1


10.	2	Completion of Tender Offer relating to Everest Reinsurance Holdings, Inc. 6.60% Fixed to Floating Rate Long Term Subordinated Notes (LoTSSM) dated March 19, 2009, incorporated herein by reference to Exhibit 99.1 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2009

*10.	3	Employment Agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Joseph V. Taranto, dated January 1, 2011, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2011

*10.	4	Change of Control Agreement between and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated January 1, 2011, incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2011

*10.	5	Employment Agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Dominic J. Addesso, dated June 16, 2011, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on June 20, 2011

*10.	6	Employment Agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Joseph V. Taranto, dated January 1, 2011, This employment supersedes the prior agreement between registrant and Joseph V. Taranto dated March 25, 2011. This new agreement dated January 1, 2011, incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on June 20, 2011

10.	7	Credit Agreement, dated August 15, 2011, between Everest Reinsurance Holdings, Inc., the lenders named therein and Citibank, National Association, as administrative agent, providing for a $150.0 million three year revolving credit facility, incorporated herein by reference to Exhibit 10.30 to Everest Re Group, Ltd. Form 10K filed on February 29, 2012. This new agreement replaces the August 23, 2006 five year senior revolving credit facility

*10.	8	Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Dominic J. Addesso, dated July 1, 2012, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012

*10.	9	Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Joseph V. Taranto, dated July 1, 2012, incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012

*10.	10	Change of Control Agreement between and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated January 1, 2012, incorporated herein by reference to Exhibit 10.3 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012

E-2

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


23.	1	Consent of PricewaterhouseCoopers LLP, filed herewith

31.	1	Section 302 Certification of Joseph V. Taranto, filed herewith

31.	2	Section 302 Certification of Craig Howie, filed herewith

32.	1	Section 906 Certification of Joseph V. Taranto and Craig Howie, filed herewith

101.	INS	XBRL Instance Document

101.	SCH	XBRL Taxonomy Extension Schema

101.	CAL	XBRL Taxonomy Extension Calculation Linkbase

101.	DEF	XBRL Taxonomy Extension Definition Linkbase

101.	LAB	XBRL Taxonomy Extension Label Linkbase

101.	PRE	XBRL Taxonomy Extension Presentation Linkbase

* Management contract or compensatory plan or arrangement.

E-3

EVEREST REINSURANCE HOLDINGS, INC.

		Pages

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets at December 31, ~~2010~~2012 and ~~2009~~2011		F-3

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended
	December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	F-4

Consolidated Statements of Changes in Stockholder’s Equity for the Years Ended
	December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	F-5

Consolidated Statements of Cash Flows for the Years Ended
	December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	F-6

Notes to Consolidated Financial Statements		F-7

Schedules

I	Summary of Investments Other Than Investments in Related Parties at December 31, ~~2010~~2012	S-1

II	Condensed Financial Information of Registrant:

	Balance Sheets as of December 31, ~~2010~~2012 and ~~2009~~2011	S-2

	Statements of Operations for the Years Ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	S-3

	Statements of Cash Flows for the Years Ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	S-4

III	Supplementary Insurance Information for the Years Ended
	December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	S-5

IV	Reinsurance for the Years Ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010	S-6

Schedules other than those listed above are omitted for the reason that they are not applicable or the information is

otherwise contained in the Financial Statements.

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder

of Everest Reinsurance Holdings, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Everest Reinsurance Holdings, Inc. and its subsidiaries (the “Company”) at December 31, ~~2010~~2012 and ~~2009,~~2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2010~~2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for other-than-temporary impairments of debt securities in 2009.~~

PricewaterhouseCoopers LLP

New York, New York

March ~~30, 2011~~19, 2013

F-2

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,				December 31,
(Dollars in thousands, except par value per share)	2010		2009		2012		2011

ASSETS:
Fixed maturities - available for sale, at market value	$	5,599,940	$	6,463,168
(amortized cost: 2010, $5,438,359; 2009, $6,255,759)
Fixed maturities - available for sale, at market value					$	5,531,410	$	5,107,028
(amortized cost: 2012, $5,289,619; 2011, $4,880,654)
Fixed maturities - available for sale, at fair value		180,482		50,528		41,470		113,606
Equity securities - available for sale, at market value (cost: 2010, $15; 2009, $15)		13		13
Equity securities - available for sale, at market value (cost: 2012, $15; 2011, $15)						13		10
Equity securities - available for sale, at fair value		683,454		380,025		1,199,848		1,207,053
Short-term investments		516,885		261,438		465,550		423,663
Other invested assets (cost: 2010, $405,401; 2009, $387,200)		406,916		386,326
Other invested assets (cost: 2012, $420,744; 2011, $379,342)						420,744		379,342
Other invested assets, at fair value		788,142		382,639		1,068,711		817,352
Cash		118,092		107,480		347,720		348,267
Total investments and cash		8,293,924		8,031,617		9,075,466		8,396,321
Accrued investment income		70,874		83,705		54,914		55,849
Premiums receivable		643,257		769,744		1,001,267		856,375
Reinsurance receivables - unaffiliated		670,168		618,081		650,261		570,128
Reinsurance receivables - affiliated		2,708,193		2,492,152		2,976,992		2,901,174
Funds held by reinsureds		171,179		156,223		161,694		176,156
Deferred acquisition costs		184,247		183,498		97,522		166,806
Prepaid reinsurance premiums		629,323		562,146		557,460		625,391
Deferred tax asset		183,924		210,493		214,175		366,490
Federal income taxes recoverable		142,421		135,682
Income taxes recoverable						61,244		39,014
Other assets		171,923		136,234		236,955		195,476
TOTAL ASSETS	$	13,869,433	$	13,379,575	$	15,087,950	$	14,349,180

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	7,652,303	$	7,300,139	$	8,143,055	$	8,290,619
Unearned premium reserve		1,287,476		1,239,320		1,093,822		1,239,705
Funds held under reinsurance treaties		180,377		175,257		90,079		123,479
Losses in the course of payment		13,089		42,633		179,774		11,002
Commission reserves		37,796		50,897		39,324		40,353
Other net payable to reinsurers		467,486		444,535		900,794		629,871
Revolving credit borrowings		50,000		-
8.75% Senior notes due 3/15/2010		-		199,970
5.4% Senior notes due 10/15/2014		249,812		249,769		249,907		249,858
6.6% Long term notes due 05/01/2067		238,351		238,348
6.6% Long term notes due 5/1/2067						238,357		238,354
Junior subordinated debt securities payable		329,897		329,897		329,897		329,897
Accrued interest on debt and borrowings		4,793		9,885		4,781		4,781
Unsettled securities payable						48,830		8,793
Other liabilities		230,312		240,151		290,724		241,075
Total liabilities		10,741,692		10,520,801		11,609,344		11,407,787

Commitments and Contingencies (Note 16)

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 3,000 shares authorized;
1,000 shares issued and outstanding (2010 and 2009)		-		-
1,000 shares issued and outstanding (2012 and 2011)						-		-
Additional paid-in capital		327,767		321,185		340,223		333,416
Accumulated other comprehensive income (loss), net of deferred income tax expense (benefit) of
$88,289 at 2010 and $89,912 at 2009		163,966		166,978
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $99,544 at 2012 and $94,118 at 2011						184,867		174,790
Retained earnings		2,636,008		2,370,611		2,953,516		2,433,187
Total stockholder's equity		3,127,741		2,858,774		3,478,606		2,941,393
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	13,869,433	$	13,379,575	$	15,087,950	$	14,349,180

The accompanying notes are an integral part of the consolidated financial statements.

F-3

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010

REVENUES:
Premiums earned	$	1,813,823		$	1,785,060		$	1,881,782		$	1,773,898		$	1,793,855		$	1,813,823
Net investment income		350,344			262,086			363,053			306,145			312,933			350,344
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		(2,106	)		(5,510	)		(74,500	)		(6,634	)		(14,522	)		(2,106	)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss)		-			-			-			-			-			-
Other net realized capital gains (losses)		67,397			62,438			(414,686	)		398,336			(26,594	)		67,397
Total net realized capital gains (losses)		65,291			56,928			(489,186	)		391,702			(41,116	)		65,291
Realized gain on debt repurchase		-			78,271			-
Other income (expense)		12,074			366			57,921			12,136			(11,745	)		12,074
Total revenues		2,241,532			2,182,711			1,813,570			2,483,881			2,053,927			2,241,532

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		1,477,450			1,091,676			1,465,560			1,249,744			1,877,603			1,477,450
Commission, brokerage, taxes and fees		335,061			344,577			398,610			310,699			338,655			335,061
Other underwriting expenses		139,832			142,610			124,339			170,604			154,331			139,832
Corporate expenses		5,867			7,722			5,587			8,764			6,073			5,867
Interest, fee and bond issue cost amortization expense		54,553			70,883			78,979			50,746			50,763			54,553
Total claims and expenses		2,012,763			1,657,468			2,073,075			1,790,557			2,427,425			2,012,763

INCOME (LOSS) BEFORE TAXES		228,769			525,243			(259,505	)		693,324			(373,498	)		228,769
Income tax expense (benefit)		(36,628	)		129,392			(134,748	)		172,995			(170,677	)		(36,628	)

NET INCOME (LOSS)	$	265,397		$	395,851		$	(124,757	)	$	520,329		$	(202,821	)	$	265,397

Other comprehensive income (loss), net of tax		(3,012	)		254,541			(235,339	)
Other comprehensive income (loss), net of tax :
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period											9,390			22,049			(51,265	)
Less: reclassification adjustment for realized losses (gains) included in net income (loss)											633			20,240			23,029
Total URA(D) on securities arising during the period											10,023			42,289			(28,236	)
Foreign currency translation adjustments											7,030			(2,805	)		27,039
Pension adjustments											(6,976	)		(29,452	)		(1,815	)
Total other comprehensive income (loss), net of tax											10,077			10,032			(3,012	)

COMPREHENSIVE INCOME (LOSS)	$	262,385		$	650,392		$	(360,096	)	$	530,406		$	(192,789	)	$	262,385

The accompanying notes are an integral part of the consolidated financial statements.

F-4

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDER’S EQUITY

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands, except share amounts)	2010			2009			2008			2012		2011			2010

COMMON STOCK (shares outstanding):
Balance, beginning of period		1,000			1,000			1,000			1,000		1,000			1,000
Balance, end of period		1,000			1,000			1,000			1,000		1,000			1,000

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	321,185		$	315,771		$	310,206		$	333,416	$	327,767		$	321,185
Share-based compensation plans		6,582			5,414			5,565			6,807		6,441			6,582
Reclasssification due to sale of subsidiary to related party											-		(792	)		-
Balance, end of period		327,767			321,185			315,771			340,223		333,416			327,767

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		166,978			(72,063	)		163,276			174,790		163,966			166,978
Cumulative adjustment of initial adoption(1), net of tax		-			(15,500	)		-
Reclasssification due to sale of subsidiary to related party											-		792			-
Net increase (decrease) during the period		(3,012	)		254,541			(235,339	)		10,077		10,032			(3,012	)
Balance, end of period		163,966			166,978			(72,063	)		184,867		174,790			163,966

RETAINED EARNINGS:
Balance, beginning of period		2,370,611			1,959,260			2,094,017			2,433,187		2,636,008			2,370,611
Cumulative adjustment of initial adoption(1), net of tax		-			15,500			-
Net income (loss)		265,397			395,851			(124,757	)		520,329		(202,821	)		265,397
Dividends declared		-			-			(10,000	)
Balance, end of period		2,636,008			2,370,611			1,959,260			2,953,516		2,433,187			2,636,008

TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD	$	3,127,741		$	2,858,774		$	2,202,968		$	3,478,606	$	2,941,393		$	3,127,741

(1) The cumulative adjustment to accumulated other comprehensive income (loss), net of deferred income taxes, and retained earnings, represents the effect of initially
adopting new guidance for other-than-temporary impairments of debt securities.

The accompanying notes are an integral part of the consolidated financial statements.

F-5

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	265,397		$	395,851		$	(124,757	)	$	520,329		$	(202,821	)	$	265,397
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable		131,870			(51,103	)		82,398			(141,501	)		(214,581	)		131,870
Decrease (increase) in funds held by reinsureds, net		(8,910	)		31,915			2,426			(17,897	)		(62,082	)		(8,910	)
Decrease (increase) in reinsurance receivables		(271,644	)		15,207			(50,349	)		(152,887	)		(96,003	)		(271,644	)
Decrease (increase) in current income taxes											(22,149	)		79,504			(13,560	)
Decrease (increase) in deferred tax asset		28,192			170,490			(112,021	)		146,888			(187,967	)		28,192
Decrease (increase) in prepaid reinsurance premiums		(66,408	)		(103,677	)		(26,377	)		68,312			3,655			(66,408	)
Increase (decrease) in reserve for losses and loss adjustment expenses		318,301			(175,589	)		(42,354	)		(206,435	)		674,001			318,301
Increase (decrease) in unearned premiums		40,729			54,760			(181,240	)		(150,747	)		(46,182	)		40,729
Increase (decrease) in other net payable to reinsurers											270,776			153,508			22,072
Increase (decrease) in losses in course of payment											169,698			(3,440	)		(29,810	)
Change in equity adjustments in limited partnerships		(45,463	)		28,467			30,985			(38,579	)		(42,047	)		(45,463	)
Change in other assets and liabilities, net		(54,761	)		24,992			(38,725	)		44,032			72,989			(33,463	)
Non-cash compensation expense		6,382			5,384			4,983			6,803			6,166			6,382
Non-cash loss portfolio transfer transaction		-			-			315
Amortization of bond premium (accrual of bond discount)		8,614			11,665			9,257			19,124			10,125			8,614
Amortization of underwriting discount on senior notes		76			192			179			52			49			76
Realized gain on debt repurchase		-			(78,271	)		-
Net realized capital (gains) losses		(65,291	)		(56,928	)		489,186			(391,702	)		41,116			(65,291	)
Net cash provided by (used in) operating activities		287,084			273,355			43,906			124,117			185,990			287,084

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		676,822			445,817			486,174			927,867			695,921			676,822
Proceeds from fixed maturities matured/called - available for sale, at fair value		-			15,358			1,900			1,300			12,775			-
Proceeds from fixed maturities sold - available for sale, at market value		953,714			102,396			140,139			476,491			1,209,150			953,714
Proceeds from fixed maturities sold - available for sale, at fair value		20,237			14,778			-			84,917			65,158			20,237
Proceeds from equity securities sold - available for sale, at market value		-			23,028			(15	)		-			27,096			-
Proceeds from equity securities sold - available for sale, at fair value		230,562			43,483			777,250			546,463			237,849			230,562
Proceeds from sale of subsidiary to related party											-			61,005			-
Distributions from other invested assets		60,283			28,460			94,082			48,688			121,176			60,283
Cost of fixed maturities acquired - available for sale, at market value		(785,831	)		(1,152,966	)		(1,362,282	)		(1,784,344	)		(1,455,940	)		(785,831	)
Cost of fixed maturities acquired - available for sale, at fair value		(134,324	)		(27,555	)		(43,414	)		(7,955	)		(27,481	)		(134,324	)
Cost of equity securities acquired - available for sale, at market value											-			(27,059	)		-
Cost of equity securities acquired - available for sale, at fair value		(475,047	)		(265,272	)		(322,530	)		(404,051	)		(746,604	)		(475,047	)
Cost of other invested assets acquired		(33,021	)		(43,628	)		(76,384	)		(51,512	)		(53,070	)		(33,021	)
Cost of other invested assets acquired, at fair value		(379,591	)		(25,840	)		(150,744	)		-			(37,611	)		(379,591	)
Cost of businesses acquired											-			(63,100	)		-
Net change in short-term investments		(254,160	)		666,882			364,811			(42,027	)		89,735			(254,160	)
Net change in unsettled securities transactions		(11,773	)		6,042			7,436			35,075			13,467			(11,773	)
Net cash provided by (used in) investing activities		(132,129	)		(169,017	)		(83,577	)		(169,088	)		122,467			(132,129	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation		200			30			582			4			275			200
Net cost of senior notes maturing		(200,000	)		-			-			-			-			(200,000	)
Revolving credit borrowings		50,000			-			-			-			(50,000	)		50,000
Net cost of debt repurchase		-			(83,026	)		-
Dividends paid to stockholder		-			-			(10,000	)
Net cash provided by (used in) financing activities		(149,800	)		(82,996	)		(9,418	)		4			(49,725	)		(149,800	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		5,457			(6,126	)		(5,094	)		44,420			(28,557	)		5,457

Net increase (decrease) in cash		10,612			15,216			(54,183	)		(547	)		230,175			10,612
Cash, beginning of period		107,480			92,264			146,447			348,267			118,092			107,480
Cash, end of period	$	118,092		$	107,480		$	92,264		$	347,720		$	348,267		$	118,092

SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)	$	(51,360	)	$	30,859		$	(46,666	)	$	38,548		$	(62,137	)	$	(51,360	)
Interest paid		58,921			71,256			77,948			50,072			50,091			59,921

Non-cash transaction:
Net assets acquired and liabilities assumed from business acquisitions											-			19,130			-

The accompanying notes are an integral part of the consolidated financial statements.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008~~2010

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Business and Basis of Presentation.

Everest Reinsurance Holdings, Inc. (“Holdings”), a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited (“Holdings Ireland”), which is a direct subsidiary of Everest Re Group, Ltd. (“Group”), through its subsidiaries, principally provides property and casualty reinsurance and insurance in the United States of America and internationally. As used in this document, “Company” means Holdings and its subsidiaries. On December 30, 2008, Group contributed the Company to its ~~recently established~~ Irish holding company, Holdings Ireland.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The statements include all of the following domestic and foreign direct and indirect subsidiaries of the Company: Everest Reinsurance Company (“Everest Re”), Everest National Insurance Company (“Everest National”), Everest Indemnity Insurance Company (“Everest Indemnity”), Everest Security Insurance Company (“Everest Security”), Heartland Crop Insurance, Inc. (“Heartland”), Specialty Insurance Group, Inc. (“Specialty”), Everest Insurance Company of Canada (“Everest Canada”), Premiere Insurance Underwriting Services (“Premiere”), Mt. Whitney Securities, Inc., Everest Reinsurance Company – Escritório de Representação No Brasil Ltda. (“Everest Brazil”), Mt. McKinley Managers, L.L.C., Workcare Southeast, Inc., Workcare Southeast of Georgia, Inc.~~, Everest Specialty Underwriters, LLC (“Holdings Specialty”)~~ and Mt. McKinley Insurance Company (“Mt. McKinley”). The Company sold Everest Canada and Premiere to Holdings Ireland, an affiliated company, during the fourth quarter of 2011. All amounts are reported in U.S. dollars.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate actual results could differ, possibly materially, from those estimates.

All intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the ~~2010~~2012 presentation.

B. Investments.

Fixed maturity and equity security investments available for sale, at market value, reflect unrealized appreciation and depreciation, as a result of temporary changes in market value during the period, in stockholder’s equity, net of income taxes in “accumulated other comprehensive income (loss)” in the consolidated balance sheets. Fixed maturity, equity securities and other invested assets carried at fair value reflect fair value re-measurements as net realized capital gains and losses in the consolidated statements of operations and comprehensive income (loss). The Company records changes in fair value for its fixed maturities-available for sale, at market value through shareholders’ equity, net of taxes in accumulated other comprehensive income (loss) since cash flows from these investments will be primarily used to settle its reserve for losses and loss adjustment expense liabilities. The Company anticipates holding these investments for an extended period as the cash flow from interest and maturities will fund the projected payout of these liabilities. Fixed maturities carried at fair value represent a portfolio of convertible bond securities, which have characteristics similar to equity securities and at times, designated foreign denominated fixed maturity securities, which will be used to settle loss and loss adjustment reserves in the same currency. The Company carries all of its equity securities at fair value except for mutual fund investments whose underlying investments are comprised of fixed maturity securities. For equity securities, available for sale, at fair value, the Company reflects changes in value as net realized capital gains and losses since these securities may be sold in the near term depending on financial market conditions. Other

F-7

invested assets, at fair value, are comprised of common shares of the Company’s ultimate parent, Everest Re Group, Ltd. Interest income on all fixed maturities and dividend income on all equity securities are included as part of net investment income in the consolidated statements of operations and comprehensive income (loss). Unrealized ~~gains (losses)~~losses on fixed maturities, which are deemed other-than-temporary and related to the credit quality of a security, are charged to net income (loss) as net realized capital ~~gains (losses).~~losses. Short-term investments are stated at cost, which approximates market value. Realized gains or losses on sales of investments are determined on the basis of identified cost. For non-publicly traded securities, market prices are determined through the use of pricing models that evaluate securities relative to the U.S. Treasury yield curve, taking into account the issue type, credit quality, and cash flow characteristics of each security. For publicly traded securities, market value is based on quoted market prices or valuation models that use observable market inputs. When a sector of the financial markets is inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. Retrospective adjustments are employed to recalculate the values of asset-backed securities. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used to effect the calculation of projected and

~~F-7~~

~~Index~~

prepayments for pass-through security types. Other invested assets include limited partnerships, rabbi trusts and an affiliated entity. Limited partnerships and the affiliated entity are accounted for under the equity method of accounting, which can be recorded on a monthly or quarterly lag.

C. Uncollectible Receivable Balances.

The Company provides reserves for uncollectible reinsurance recoverable and premium receivable balances based on management’s assessment of the collectability of the outstanding balances. Such reserves are presented in the table below for the periods indicated.

	Years Ended December 31,				Years Ended December 31,
(Dollars in thousands)	2010		2009		2012		2011
Reinsurance recoverable and premium receivables	$	34,121	$	65,585	$	31,638	$	33,430

The decline in reserve for uncollectible reinsurance was primarily due to a $30,000 thousand write-off of a reinsurance receivable balance with a corresponding reduction in the provision of uncollectible reinsurance. This write-off of the reinsurance receivable had no impact upon 2010 net income as the reserve for uncollectability had been fully established in previous periods.

D. Deferred Acquisition Costs.

Acquisition costs, consisting principally of commissions and brokerage expenses and certain premium taxes and fees incurred at the time a contract or policy is issued and that vary with and are directly related to the Company’s reinsurance and insurance business, are deferred and amortized over the period in which the related premiums are earned. Deferred acquisition costs are limited to their estimated realizable value by line of business based on the related unearned premiums, anticipated claims and claim expenses and anticipated investment income. Deferred acquisition costs amortized to income are presented in the table below for the periods indicated.

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Deferred acquisition costs	$	335,061	$	344,577	$	398,610	$	310,699	$	338,655	$	335,061

E. Reserve for Losses and Loss Adjustment Expenses.

The reserve for losses and loss adjustment expenses (“LAE”) is based on individual case estimates and reports received from ceding companies. A provision is included for losses and LAE incurred but not reported (“IBNR”) based on past experience. A provision is also included for certain potential liabilities relating to asbestos and environmental (“A&E”) exposures, which liabilities cannot be estimated using traditional reserving techniques. See also Note 3. The reserves are reviewed periodically and any changes in estimates are reflected in earnings in the period the adjustment is made. The Company’s loss and LAE reserves represent management’s best estimate of the ultimate liability. Loss and LAE reserves are presented gross of reinsurance receivables and incurred losses and LAE are presented net of reinsurance.

F-8

Accruals for commissions are established for reinsurance contracts that provide for the stated commission percentage to increase or decrease based on the loss experience of the contract. Changes in estimates for such arrangements are recorded as commission expense. Commission accruals for contracts with adjustable features are estimated based on expected loss and LAE.

F. Premium Revenues.

Written premiums are earned ratably over the periods of the related insurance and reinsurance contracts. Unearned premium reserves are established relative to the unexpired contract period. Such reserves are established based upon reports received from ceding companies or estimated using pro rata methods based on statistical data. Reinstatement premiums represent additional premium received on reinsurance coverages, most prevalently catastrophe related, when limits have been depleted under the original reinsurance contract and additional coverage is granted. Written and earned premiums and the related costs, which have not yet been reported to the Company, are estimated and accrued. Premiums are net of ceded reinsurance.

~~F-8~~

~~Index~~

G. Prepaid Reinsurance Premiums.

Prepaid reinsurance premiums represent unearned premium reserves ceded to other reinsurers. Prepaid reinsurance premiums for any foreign reinsurers comprising more than 10% of the outstanding balance at December 31, ~~2010~~2012 were collateralized either through a trust arrangement or letters of credit, thereby limiting the credit risk to the Company.

H. Income Taxes.

The Company and its wholly-owned subsidiaries file a consolidated U.S. federal income tax return. Foreign branches of subsidiaries file local tax returns as required. Deferred income taxes have been recorded to recognize the tax effect of temporary differences between the financial reporting and income tax bases of assets and liabilities, which arise because of differences between GAAP and income tax accounting rules.

I. Foreign Currency.

Assets and liabilities relating to foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date; revenues and expenses are translated into U.S. dollars using average exchange rates in effect during the reporting period. Gains and losses resulting from translating foreign currency financial statements, net of deferred income taxes, are excluded from net income (loss) and accumulated in stockholder’s equity. Gains and losses resulting from foreign currency transactions, other than debt securities available for sale, are recorded through the consolidated statements of operations and comprehensive income (loss) in other income (expense). Gains and losses resulting from changes in the foreign currency exchange rates on debt securities, available for sale at market value, are recorded in the consolidated balance sheets in accumulated other comprehensive income (loss) as unrealized appreciation (depreciation). and any losses which are deemed other-than-temporary are changed to net income (loss) as net realized capital loss.

J. Segmentation.

The Company, through its subsidiaries, operates in ~~four~~three segments: U.S. Reinsurance, ~~U.S. Insurance, Specialty Underwriting~~International and ~~International.~~Insurance. See also Note 18.

K. Retroactive Reinsurance.

Premiums on ceded retroactive contracts are earned when written with a corresponding reinsurance recoverable established for the amount of reserves ceded. The initial gain, if applicable, is deferred and amortized into income over an actuarially determined expected payout period. Any future loss is recognized immediately and charged against earnings.

~~L. Application of Recently Issued Accounting Standard Changes.~~

~~Financial Accounting Standards Board Launched Accounting Codification.~~ ~~In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing the FASB Accounting Standards Codification~~TM (“Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.

Following the Codification, the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.

GAAP is not intended to be changed as a result of the FASB’s Codification, but it will change the way the guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in the accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009. The Company’s adoption of this guidance impacts the way the Company references U.S. GAAP accounting standards in the financial statements and Notes to Consolidated Financial Statements.

F-9

L. Application of Recently Issued Accounting Standard Changes.

Intangibles-Goodwill or Other. In September 2011, the Financial Accounting Standards Board (“FASB”) amended the authoritative guidance for disclosures on Goodwill Impairment. The amendment allows an entity first to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis in determining whether it is necessary to perform the two-step goodwill impairment test. This guidance is effective for periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012.

Presentation of Comprehensive Income. In June 2011, FASB issued amendments to existing guidance to provide two alternatives for the presentation of comprehensive income. Components of net income and comprehensive income can either be presented within a single, continuous financial statement or be presented in two separate but consecutive financial statements. The Company has chosen to present the components of net income and comprehensive income in a single, continuous financial statement. The guidance is effective for reporting periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012.

Common Fair Value Measurement. In May 2011, FASB issued amendments to existing guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. The amendments change wording used to describe many GAAP fair value measurement requirements and disclosures. FASB does not intend for the amendments to cause a change in application of fair value accounting guidance. The guidance is effective for reporting periods beginning after December 15, 2011. The Company implemented this guidance prospectively as of January 1, 2012.

Treatment of Insurance Contract Acquisition Costs. In October 2010, the FASB issued authoritative guidance for the accounting for costs associated with acquiring or renewing insurance contracts. The guidance identifies the incremental direct costs of contract acquisition and costs directly related to acquisition activities that should be capitalized. This guidance is effective for reporting periods beginning after December 15, 2011. The Company ~~will adopt~~implemented this guidance ~~prospectively,~~ as of January 1, ~~2012.~~

~~Subsequent Events.~~ ~~In May 2009,~~2012 and determined that $7,215 thousand of previously deferrable acquisition costs will be expensed during 2012 and the FASB issued authoritative guidance for subsequent events, which was later modified in February 2010, that addresses the accounting for and disclosure of subsequent events not addressed in other applicable U.S. GAAP. The Company implemented the new disclosure requirement beginning with the secondfirst quarter of ~~2009 and included it~~2013, including $5,818 thousand of previously deferrable acquisition costs expensed in 2012. If the ~~Notes to Consolidated Interim Financial Statements.~~guidance had been applicable for the prior periods, the Company would have expensed $7,462 thousand of deferrable acquisition costs during 2011.

Improving Disclosures About Fair Value Measurements. In January 2010, the FASB amended the authoritative guidance for disclosures on fair value measurements. Effective for interim and annual reporting periods beginning after December 15, 2009, the guidance requires a new separate disclosure for: significant transfers in and out of Level 1 and 2 and the reasons for the transfers; and provided clarification on existing disclosures to include: fair value measurement disclosures by class of assets and liabilities and disclosure on valuation techniques and inputs used to measure fair value that fall in either Level 2 or Level 3. The Company implemented this guidance effective January 1, 2010. Effective for interim and annual reporting periods beginning after December 15, 2010, the guidance requires another new separate disclosure in regards to Level 3 fair value measurements in that, the period activity will present separately information about purchases, sales, issuances and settlements. Comparative disclosures shall be required only for periods ending after initial adoption. The Company implemented this guidance beginning with the third quarter of 2010.

~~Interim Disclosures About Fair Value of Financial Instruments.~~ In April 2009, the FASB revised the authoritative guidance for disclosures about fair value of financial instruments. This new guidance requires quarterly disclosures on the qualitative and quantitative information about the fair value of all financial instruments including methods and significant assumptions used to estimate fair value during the period. These disclosures were previously only done annually. The Company adopted this disclosure beginning with the second quarter of 2009 and included it in the Notes to Consolidated Interim Financial Statements.

~~Other-Than-Temporary Impairments on Investment Securities.~~ In April 2009, the FASB revised the authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary impairments on debt and equity securities. For available for sale debt securities that the Company has no intent to sell and more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment would be recognized in earnings, while the rest of the fair value loss would be recognized in accumulated other comprehensive income (loss). The Company adopted this guidance effective April 1, 2009. Upon adoption the Company recognized a cumulative-effect adjustment increase in retained earnings and decrease in accumulated other comprehensive income (loss) as follows:

(Dollars in thousands)
Cumulative-effect adjustment, gross $ 23,846
Tax (8,346 )
Cumulative-effect adjustment, net $ 15,500

~~Measurement of Fair Value in Inactive Markets.~~ In April 2009, the FASB revised the authoritative guidance for fair value measurements and disclosures, which reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. It also reaffirms the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. There was no impact to the Company’s financial statements upon adoption.

F-10

~~Fair Value Disclosures about Pension Plan Assets.~~ In December 2008, the FASB revised the authoritative guidance for employers’ disclosures about pension plan assets. This new guidance requires additional disclosures about the components of plan assets, investment strategies for plan assets and significant concentrations of risk within plan assets. The Company, in conjunction with fair value measurement of plan assets, will separate plan assets into the three fair value hierarchy levels and provide a roll forward of the changes in fair value of plan assets classified as Level 3 in the current 2009 annual consolidated financial statements. These disclosures have no effect on the Company’s accounting for plan benefits and obligations.

2. INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity and equity security investments, carried at market value, are as follows for the periods indicated:

	At December 31, 2010									At December 31, 2012
	Amortized		Unrealized		Unrealized			Market		Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value		Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	153,263	$	2,450	$	(5,146	)	$	150,567	$	77,611	$	1,448	$	(869	)	$	78,190
Obligations of U.S. states and political subdivisions		2,809,514		116,920		(24,929	)		2,901,505		1,214,990		78,096		(1,123	)		1,291,963
Corporate securities		688,938		42,522		(9,775	)		721,685		1,510,186		61,137		(6,471	)		1,564,852
Asset-backed securities		19,860		705		(14	)		20,551		44,070		2,417		-			46,487
Mortgage-backed securities
Commercial		31,887		7,618		-			39,505		45,157		7,534		(67	)		52,624
Agency residential		355,928		13,975		(212	)		369,691		672,724		12,722		(1,724	)		683,722
Non-agency residential		29,373		912		(317	)		29,968		1,933		429		(33	)		2,329
Foreign government securities		731,930		32,678		(15,567	)		749,041		732,277		51,461		(3,735	)		780,003
Foreign corporate securities		617,666		20,939		(21,178	)		617,427		990,671		46,850		(6,281	)		1,031,240
Total fixed maturity securities	$	5,438,359	$	238,719	$	(77,138	)	$	5,599,940	$	5,289,619	$	262,094	$	(20,303	)	$	5,531,410
Equity securities	$	15	$	-	$	(2	)	$	13	$	15	$	-	$	(2	)	$	13

At December 31, 2009
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Appreciation Depreciation Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $ 132,348 $ 3,614 $ (1,671 ) $ 134,291
Obligations of U.S. states and political subdivisions 3,694,267 183,848 (24,256 ) 3,853,859
Corporate securities 618,507 30,298 (13,424 ) 635,381
Asset-backed securities 16,597 460 (1,909 ) 15,148
Mortgage-backed securities
Commercial 24,213 4,956 (111 ) 29,058
Agency residential 556,032 10,366 (1,691 ) 564,707
Non-agency residential 61,098 916 (7,055 ) 54,959
Foreign government securities 638,204 27,700 (6,687 ) 659,217
Foreign corporate securities 514,493 17,184 (15,129 ) 516,548
Total fixed maturity securities $ 6,255,759 $ 279,342 $ (71,933 ) $ 6,463,168
Equity securities $ 15 $ - $ (2 ) $ 13

	At December 31, 2011
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	77,351	$	2,475	$	(287	)	$	79,539
Obligations of U.S. states and political subdivisions		1,558,615		102,815		(525	)		1,660,905
Corporate securities		1,200,941		45,070		(17,776	)		1,228,235
Asset-backed securities		44,351		758		(6	)		45,103
Mortgage-backed securities
Commercial		41,953		7,187		(1,266	)		47,874
Agency residential		528,946		16,209		(1,762	)		543,393
Non-agency residential		24,139		470		(320	)		24,289
Foreign government securities		733,814		57,437		(2,602	)		788,649
Foreign corporate securities		670,544		29,421		(10,924	)		689,041
Total fixed maturity securities	$	4,880,654	$	261,842	$	(35,468	)	$	5,107,028
Equity securities	$	15	$	-	$	(5	)	$	10

The $780,003 thousand of foreign government securities at December 31, 2012 included $90,169 thousand of European sovereign securities. Approximately 48.9%, 15.8%, 11.6%, 7.3% and 5.4% of European Sovereign Securities represented securities held in the governments of France, the United Kingdom, Sweden, the Netherlands and Austria, respectively. No other countries represented more than 5% of the European sovereign securities. The Company held no sovereign securities of Portugal, Italy, Ireland, Greece or Spain at December 31, 2012.

F-11

In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings into accumulated other comprehensive income (loss), on April 1, 2009. The table below presents the pre-tax cumulative unrealized appreciation (depreciation) on those corporate securities, for the periods indicated:

	At December 31,					At December 31,
(Dollars in thousands)	2010		2009			2012		2011
Pre-tax cumulative unrealized appreciation (depreciation)	$	823	$	(2,039	)	$	399	$	635

The amortized cost and market value of fixed maturity securities are shown in the following table by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.

	At December 31, 2010				At December 31, 2009				At December 31, 2012				At December 31, 2011
	Amortized		Market		Amortized		Market		Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value		Cost		Value		Cost		Value
Fixed maturity securities – available for sale
Due in one year or less	$	212,728	$	207,739	$	334,054	$	335,948	$	329,474	$	330,149	$	224,406	$	223,507
Due after one year through five years		1,642,227		1,681,497		1,276,968		1,316,918		2,380,093		2,462,430		2,055,299		2,129,437
Due after five years through ten years		1,203,497		1,253,609		1,224,457		1,282,470		1,008,653		1,064,579		955,253		1,009,893
Due after ten years		1,942,859		1,997,380		2,762,340		2,863,960		807,515		889,090		1,006,307		1,083,532
Asset-backed securities		19,860		20,551		16,597		15,148		44,070		46,487		44,351		45,103
Mortgage-backed securities
Commercial		31,887		39,505		24,213		29,058		45,157		52,624		41,953		47,874
Agency residential		355,928		369,691		556,032		564,707		672,724		683,722		528,946		543,393
Non-agency residential		29,373		29,968		61,098		54,959		1,933		2,329		24,139		24,289
Total fixed maturity securities	$	5,438,359	$	5,599,940	$	6,255,759	$	6,463,168	$	5,289,619	$	5,531,410	$	4,880,654	$	5,107,028

The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods as indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010			2009			2012			2011
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	(45,828	)	$	329,881		$	15,653		$	66,765
Fixed maturity securities, cumulative other-than-temporary impairment adjustment , upon adoption		-			(23,846	)
Fixed maturity securities, other-than-temporary impairment								(236	)		(188	)
Fixed maturity securities, reclassification due to sale of subsidiary to related party, pre-tax								-			(1,785	)
Equity securities		(1	)		(3	)		3			(3	)
Other invested assets		2,389			7,035			-			(1,515	)
Change in unrealized appreciation (depreciation), pre-tax		(43,440	)		313,067			15,420			63,274
Deferred tax benefit (expense)		15,204			(117,920	)		(5,480	)		(22,837	)
Deferred tax benefit (expense), cumulative other-than-temporary impairment adjustment, upon adoption		-			8,346
Deferred tax benefit (expense), other-than-temporary impairment								83			66
Deferred tax benefit (expense), reclassification due to sale of subsidiary to related party								-			625
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in stockholder's equity	$	(28,236	)	$	203,493		$	10,023		$	41,128

The Company frequently reviews all of its fixed maturity, available for sale securities ~~investment portfolio~~ for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized cost at the time of review. The Company then assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. Generally, a change in a security’s value caused by a change in the market, or interest rate or foreign exchange environment does not constitute an other-than-temporary impairment, but rather a temporary decline in market value. Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company determines that the decline is other-than-temporary and the Company does not have the intent to sell the

F-12

security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the

~~F-12~~

~~Index~~

carrying value of the investment is written down to fair value. The fair value adjustment that is credit or foreign exchange related is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company’s consolidated balance sheets. The Company’s assessments are based on the issuers current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

The majority of the Company’s equity securities available for sale at market value are primarily comprised of mutual fund investments whose underlying securities consist of fixed maturity securities. When a fund’s value reflects an unrealized loss, the Company assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company considers the composition of its portfolios and their related markets, reports received from the portfolio managers and discussions with portfolio managers. If the Company determines that the declines are temporary and it has the ability and intent to continue to hold the investments, then the declines are recorded as unrealized losses in accumulated other comprehensive income (loss). If declines are deemed to be other-than-temporary, then the carrying value of the investment is written down to fair value and recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).

Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company’s asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected ~~and~~ prepayments for pass-through security types.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:

Duration of Unrealized Loss at December 31, 2010 By Security Type
Less than 12 months Greater than 12 months Total
Gross Gross Gross
Unrealized Unrealized Unrealized
(Dollars in thousands) Market Value Depreciation Market Value Depreciation Market Value Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $ 47,985 $ (1,916 ) $ 43,264 $ (3,230 ) $ 91,249 $ (5,146 )
Obligations of U.S. states and political subdivisions 336,522 (9,519 ) 171,812 (15,410 ) 508,334 (24,929 )
Corporate securities 74,389 (2,715 ) 33,109 (7,060 ) 107,498 (9,775 )
Asset-backed securities 3,900 (14 ) - - 3,900 (14 )
Mortgage-backed securities
Agency residential 20,867 (212 ) - - 20,867 (212 )
Non-agency residential - - 22,439 (317 ) 22,439 (317 )
Foreign government securities 92,123 (3,776 ) 124,807 (11,791 ) 216,930 (15,567 )
Foreign corporate securities 120,294 (5,512 ) 121,304 (15,666 ) 241,598 (21,178 )
Total fixed maturity securities $ 696,080 $ (23,664 ) $ 516,735 $ (53,474 ) $ 1,212,815 $ (77,138 )
Equity securities - - 13 (2 ) 13 (2 )
Total $ 696,080 $ (23,664 ) $ 516,748 $ (53,476 ) $ 1,212,828 $ (77,140 )

Duration of Unrealized Loss at December 31, 2010 By Maturity
Less than 12 months Greater than 12 months Total
Gross Gross Gross
Unrealized Unrealized Unrealized
(Dollars in thousands) Market Value Depreciation Market Value Depreciation Market Value Depreciation
Fixed maturity securities
Due in one year or less $ 5,982 $ (319 ) $ 48,233 $ (8,089 ) $ 54,215 $ (8,408 )
Due in one year through five years 186,524 (9,059 ) 129,197 (11,559 ) 315,721 (20,618 )
Due in five years through ten years 139,896 (4,356 ) 92,692 (8,215 ) 232,588 (12,571 )
Due after ten years 338,911 (9,704 ) 224,174 (25,294 ) 563,085 (34,998 )
Asset-backed securities 3,900 (14 ) - - 3,900 (14 )
Mortgage-backed securities 20,867 (212 ) 22,439 (317 ) 43,306 (529 )
Total fixed maturity securities $ 696,080 $ (23,664 ) $ 516,735 $ (53,474 ) $ 1,212,815 $ (77,138 )

	Duration of Unrealized Loss at December 31, 2012 By Security Type
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	8,058	$	(292	)	$	3,386	$	(577	)	$	11,444	$	(869	)
Obligations of U.S. states and political subdivisions		38,754		(1,072	)		5,781		(51	)		44,535		(1,123	)
Corporate securities		122,138		(1,566	)		62,492		(4,905	)		184,630		(6,471	)
Asset-backed securities		-		-			-		-			-		-
Mortgage-backed securities
Commercial		-		-			10,729		(67	)		10,729		(67	)
Agency residential		177,336		(1,042	)		54,595		(682	)		231,931		(1,724	)
Non-agency residential		-		-			446		(33	)		446		(33	)
Foreign government securities		13,958		(105	)		34,355		(3,630	)		48,313		(3,735	)
Foreign corporate securities		44,945		(565	)		53,672		(5,716	)		98,617		(6,281	)
Total fixed maturity securities	$	405,189	$	(4,642	)	$	225,456	$	(15,661	)	$	630,645	$	(20,303	)
Equity securities		-		-			13		(2	)		13		(2	)
Total	$	405,189	$	(4,642	)	$	225,469	$	(15,663	)	$	630,658	$	(20,305	)

F-13

	Duration of Unrealized Loss at December 31, 2012 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	5,875	$	(24	)	$	19,291	$	(2,833	)	$	25,166	$	(2,857	)
Due in one year through five years		103,313		(1,671	)		110,161		(10,564	)		213,474		(12,235	)
Due in five years through ten years		57,225		(678	)		16,385		(1,008	)		73,610		(1,686	)
Due after ten years		61,440		(1,227	)		13,849		(474	)		75,289		(1,701	)
Asset-backed securities		-		-			-		-			-		-
Mortgage-backed securities		177,336		(1,042	)		65,770		(782	)		243,106		(1,824	)
Total fixed maturity securities	$	405,189	$	(4,642	)	$	225,456	$	(15,661	)	$	630,645	$	(20,303	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, ~~2010~~2012 were ~~$1,212,828~~$630,658 thousand and ~~$77,140~~$20,305 thousand, respectively. There were no unrealized losses on a single issuer that exceeded ~~0.09%~~0.02% of the market value of the fixed maturity securities at December 31, ~~2010.~~2012. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The ~~$23,664~~$4,642 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were ~~generally~~primarily comprised of ~~highly rated~~domestic corporate securities, state and municipal ~~foreign government and domestic and foreign corporate~~securities as well as agency residential mortgage-backed securities. Of these unrealized losses, ~~$23,424~~$3,281 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The ~~$53,476~~$15,661 thousand of unrealized losses related to fixed maturity ~~and equity~~ securities in an unrealized loss position for more than one year ~~also~~ related primarily to ~~highly rated~~ domestic and foreign corporate securities as well as foreign government ~~and municipal~~ securities. Of these unrealized losses, ~~$48,165~~$14,401 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The non-investment grade securities with unrealized losses were mainly comprised of corporate securities, with the majority representing floating interest rate bank loan securities. The gross unrealized depreciation ~~greater than 12 months~~ for mortgage-backed securities included ~~$32~~$33 thousand related to sub-prime and alt-A loans. In all instances, there were no projected cash ~~flows were sufficient~~flow shortfalls to recover the full book value of the investments and the related interest obligations. ~~Unrealized losses~~The mortgage-backed securities still have ~~increased slightly since December 31, 2009, as a result of volatility in the foreign corporate securities sector.~~excess credit coverage and are current on interest and principal payments.

The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.

F-14

	Duration of Unrealized Loss at December 31, 2009 By Security Type															Duration of Unrealized Loss at December 31, 2011 By Security Type
	Less than 12 months					Greater than 12 months					Total					Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross					Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized					Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	44,943	$	(1,671	)	$	-	$	-		$	44,943	$	(1,671	)	$	-	$	-		$	3,452	$	(287	)	$	3,452	$	(287	)
Obligations of U.S. states and political subdivisions		559		(4	)		452,018		(24,252	)		452,577		(24,256	)		-		-			7,518		(525	)		7,518		(525	)
Corporate securities		45,045		(1,056	)		118,153		(12,368	)		163,198		(13,424	)		342,959		(8,449	)		75,998		(9,327	)		418,957		(17,776	)
Asset-backed securities		366		(26	)		8,233		(1,883	)		8,599		(1,909	)		819		(6	)		-		-			819		(6	)
Mortgage-backed securities
Commercial		959		(34	)		3,312		(77	)		4,271		(111	)		9,292		(1,266	)		-		-			9,292		(1,266	)
Agency residential		213,093		(1,691	)		-		-			213,093		(1,691	)		151,951		(1,695	)		7,199		(67	)		159,150		(1,762	)
Non-agency residential		1,272		(31	)		47,202		(7,024	)		48,474		(7,055	)		41		-			20,693		(320	)		20,734		(320	)
Foreign government securities		159,493		(2,158	)		69,109		(4,529	)		228,602		(6,687	)		12,777		(269	)		40,743		(2,333	)		53,520		(2,602	)
Foreign corporate securities		124,325		(4,205	)		98,772		(10,924	)		223,097		(15,129	)		77,458		(2,025	)		94,182		(8,899	)		171,640		(10,924	)
Total fixed maturity securities	$	590,055	$	(10,876	)	$	796,799	$	(61,057	)	$	1,386,854	$	(71,933	)	$	595,297	$	(13,710	)	$	249,785	$	(21,758	)	$	845,082	$	(35,468	)
Equity securities		13		(2	)		-		-			13		(2	)		-		-			10		(5	)		10		(5	)
Total	$	590,068	$	(10,878	)	$	796,799	$	(61,057	)	$	1,386,867	$	(71,935	)	$	595,297	$	(13,710	)	$	249,795	$	(21,763	)	$	845,092	$	(35,473	)

~~F-14~~

	Duration of Unrealized Loss at December 31, 2011 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	9,583	$	(59	)	$	26,204	$	(4,486	)	$	35,787	$	(4,545	)
Due in one year through five years		213,809		(4,754	)		137,972		(9,576	)		351,781		(14,330	)
Due in five years through ten years		186,061		(5,484	)		37,964		(2,391	)		224,025		(7,875	)
Due after ten years		23,741		(446	)		19,753		(4,918	)		43,494		(5,364	)
Asset-backed securities		819		(6	)		-		-			819		(6	)
Mortgage-backed securities		161,284		(2,961	)		27,892		(387	)		189,176		(3,348	)
Total fixed maturity securities	$	595,297	$	(13,710	)	$	249,785	$	(21,758	)	$	845,082	$	(35,468	)

~~Index~~

Duration of Unrealized Loss at December 31, 2009 By Maturity
Less than 12 months Greater than 12 months Total
Gross Gross Gross
Unrealized Unrealized Unrealized
(Dollars in thousands) Market Value Depreciation Market Value Depreciation Market Value Depreciation
Fixed maturity securities
Due in one year or less $ - $ - $ 58,010 $ (4,887 ) $ 58,010 $ (4,887 )
Due in one year through five years 192,929 (2,975 ) 140,349 (9,129 ) 333,278 (12,104 )
Due in five years through ten years 137,196 (2,934 ) 54,279 (3,401 ) 191,475 (6,335 )
Due after ten years 44,240 (3,185 ) 485,414 (34,656 ) 529,654 (37,841 )
Asset-backed securities 366 (26 ) 8,233 (1,883 ) 8,599 (1,909 )
Mortgage-backed securities 215,324 (1,756 ) 50,514 (7,101 ) 265,838 (8,857 )
Total fixed maturity securities $ 590,055 $ (10,876 ) $ 796,799 $ (61,057 ) $ 1,386,854 $ (71,933 )

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, ~~2009~~2011 were ~~$1,386,867~~$845,092 thousand and ~~$71,935~~$35,473 thousand, respectively. There were no unrealized losses on a single ~~security~~issuer that exceeded ~~0.11%~~0.09% of the market value of the fixed maturity securities at December 31, ~~2009.~~2011. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The ~~$10,878~~$13,710 thousand of unrealized losses related to fixed maturity ~~and equity~~ securities that have been in an unrealized loss position for less than one year were generally comprised of ~~highly rated government,~~ domestic and foreign corporate securities as well as commercial and agency residential mortgage-backed securities. Of these unrealized losses, ~~$10,658~~$5,635 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The ~~$61,057~~$21,758 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to ~~highly rated municipal,~~ domestic and foreign corporate and foreign government ~~and mortgage-backed~~ securities. Of these unrealized losses, ~~$50,505~~$15,880 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The non-investment grade securities with unrealized losses were mainly comprised of corporate ~~and commercial mortgage-backed~~securities, with the majority representing a large number of short duration, floating interest rate bank loan securities. The gross unrealized depreciation ~~greater than 12 months~~ for mortgage-backed securities included ~~$79~~$56 thousand related to sub-prime and alt-A loans. In all instances, there were no projected cash ~~flows were sufficient~~flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still ~~had~~have excess credit coverage and ~~were~~are current on interest and principal payments.

F-15

Other invested assets, at fair value, is comprised of common shares of the Company’s ultimate parent, Group. At December 31, ~~2010,~~2012, the Company held ~~9,291,933~~9,719,971 shares of Group representing ~~14.6%~~15.9% of the total outstanding shares.

The components of net investment income are presented in the table below for the periods indicated:

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010
Fixed maturity securities	$	290,454		$	286,031		$	313,651		$	216,796		$	232,287		$	290,454
Equity securities		10,190			3,573			5,968			39,284			29,694			10,190
Short-term investments and cash		407			3,484			28,553			1,051			1,078			407
Other invested assets
Limited partnerships		45,464			(28,467	)		13,191			39,696			42,349			45,464
Dividends from Parent's shares		14,029			7,987			7,214			18,663			18,645			14,029
Other		1,274			74			2,280			3,851			2,741			1,274
Total gross investment income		361,818			272,682			370,857			319,341			326,794			361,818
Interest debited (credited) and other investment expense		(11,474	)		(10,596	)		(7,804	)		(13,196	)		(13,861	)		(11,474	)
Total net investment income	$	350,344		$	262,086		$	363,053		$	306,145		$	312,933		$	350,344

The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the

~~F-15~~

~~Index~~

Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company ~~indentifies~~identifies the decline.

The Company had contractual commitments to invest up to an additional ~~$123,483~~$67,980 thousand in limited partnerships at December 31, ~~2010.~~2012. These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2016.

The components of net realized capital gains (losses) are presented in the table below for the periods indicated:

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010
Fixed maturity securities, market value:
Other-than-temporary impairments	$	(2,106	)	$	(5,510	)	$	(74,500	)	$	(6,634	)	$	(14,522	)	$	(2,106	)
Gains (losses) from sales		(33,323	)		(34,100	)		(87,410	)		5,660			(16,652	)		(33,323	)
Fixed maturity securities, fair value:
Gain (losses) from sales		775			682			102			5,675			(905	)		775
Gains (losses) from fair value adjustments		15,091			9,337			1,473			1,941			(15,518	)		15,091
Equity securities, market value:
Gains (losses) from sales		-			8,041			-			-			37			-
Equity securities, fair value:
Gains (losses) from sales		6,153			7,513			(105,931	)		22,562			7,644			6,153
Gains (losses) from fair value adjustments		52,790			30,908			(134,907	)		111,155			7,200			52,790
Other invested assets, fair value:
Gains (losses) from fair value adjustments		25,912			40,048			(87,786	)		251,359			(8,400	)		25,912
Short-term investment gains (losses)		(1	)		9			(227	)		(16	)		-			(1	)
Total net realized capital gains (losses)	$	65,291		$	56,928		$	(489,186	)	$	391,702		$	(41,116	)	$	65,291

The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) both fair value re-measurements and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis as displayed in the table above. The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.

F-16

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010
Proceeds from sales of fixed maturity securities	$	973,951		$	117,174		$	140,139		$	561,408		$	1,274,308		$	973,951
Gross gains from sales		8,436			8,174			7,060			21,051			39,363			8,436
Gross losses from sales		(40,984	)		(41,592	)		94,368			(9,716	)		(56,920	)		(40,984	)

Proceeds from sales of equity secuities	$	230,562		$	66,511		$	777,235		$	546,463		$	264,945		$	230,562
Gross gains from sales		11,446			16,437			6,339			40,808			15,875			11,446
Gross losses from sales		(5,293	)		(883	)		(112,270	)		(18,246	)		(8,194	)		(5,293	)

Securities with a carrying value amount of ~~$1,308,806~~$1,478,079 thousand at December 31, ~~2010,~~2012, were on deposit with various state or governmental insurance departments in compliance with insurance laws.

~~F-16~~

~~Index~~

3. RESERVES FOR LOSSES AND LAE

Reserves for losses and LAE.

Activity in the reserve for losses and LAE is summarized for the periods indicated:

	At December 31,									At December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010
Gross reserves at January 1	$	7,300,139		$	7,419,993		$	7,538,704		$	8,290,619		$	7,652,303		$	7,300,139
Less reinsurance recoverables		(3,051,704	)		(3,045,692	)		(2,279,417	)		(3,374,427	)		(3,265,528	)		(3,051,704	)
Net reserves at January 1		4,248,435			4,374,301			5,259,287			4,916,192			4,386,775			4,248,435

Incurred related to:
Current year		1,414,604			1,021,687			1,323,520			1,237,486			1,862,836			1,414,604
Prior years		62,846			69,989			142,040			12,258			14,767			62,846
Total incurred losses and LAE		1,477,450			1,091,676			1,465,560			1,249,744			1,877,603			1,477,450

Paid related to:
Current year		277,177			183,566			305,122			365,805			447,182			277,177
Prior years		1,086,262			1,117,940			1,931,267			1,097,353			894,242			1,086,262
Total paid losses and LAE		1,363,438			1,301,506			2,236,389			1,463,158			1,341,424			1,363,438

Foreign exchange/translation adjustment		24,328			83,964			(114,157	)		(4,693	)		(6,762	)		24,328

Net reserves at December 31		4,386,775			4,248,435			4,374,301			4,698,085			4,916,192			4,386,775
Plus reinsurance recoverables		3,265,528			3,051,704			3,045,692			3,444,970			3,374,427			3,265,528
Gross reserves at December 31	$	7,652,303		$	7,300,139		$	7,419,993		$	8,143,055		$	8,290,619		$	7,652,303

(Some amounts may not reconcile due to rounding.)

Prior years’ reserves increased by ~~$62,846~~$12,258 thousand, ~~$69,989~~$14,767 thousand and ~~$142,040~~$62,846 thousand for the years ended December 31, 2012, 2011 and 2010, ~~2009~~respectively. The increase for 2012 was attributable to a $29,612 thousand increase in insurance business, primarily related to development on contractors’ liability and ~~2008, respectively.~~ workers compensation reserves, partially offset by the $17,354 thousand decrease in reinsurance business, primarily related to favorable development on treaty casualty reserves.

The increase for 2011 was attributable to a $71,896 thousand increase in insurance and U.S. reinsurance business, primarily related to development on contractors’ liability, excess casualty and California workers compensation reserves, partially offset by the $57,129 thousand decrease in non-US reinsurance business, primarily related to favorable development on non-catastrophe property reserves.

F-17

Prior years’ reserve development for 2010 was the result of $29,884 thousand increase in US insurance reserves, primarily due to reserve strengthening on several terminated programs and $32,962 thousand increase in reinsurance reserves, as a result of losses from contractors’ liability exposure.

The increase for 2009 was the result of $25,989 thousand increase in US insurance business, primarily contractor liability exposures, and $44,000 thousand in reinsurance reserves, in both domestic and international, as a result of losses from sub-prime exposures and property, partially offset by favorable development on other casualty lines.

~~The increase for 2008 was primarily attributable to the $85,300 thousand reserve development for a run-off auto loan credit insurance program.~~

Reinsurance Receivables. Reinsurance receivables for both paid and unpaid losses totaled ~~$3,378,361~~$3,627,253 thousand and ~~$3,110,233~~$3,471,302 thousand at December 31, ~~2010~~2012 and ~~2009,~~2011, respectively. At December 31, ~~2010, $2,525,787~~2012, $2,881,060 thousand, or ~~74.8%~~79.4%, was receivable from Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”)~~, $182,406~~ and $181,535 thousand, or ~~5.4%, was receivable from Everest International Reinsurance, Ltd. (“Everest International”) and $171,750 thousand, or 5.1%~~5.0%, was receivable from C.V. Starr (Bermuda). Bermuda Re ~~Everest International~~ and CV Starr (Bermuda) receivables are ~~all~~fully collateralized by trust agreements. No other retrocessionaire accounted for more than 5% of reinsurance receivables.

The Company continues to receive claims under expired insurance and reinsurance contracts asserting injuries and/or damages relating to or resulting from environmental pollution and hazardous substances, including asbestos. Environmental claims typically assert liability for (a) the mitigation or remediation of environmental contamination or (b) bodily injury or property damage caused by the release of hazardous substances into the land, air or water. Asbestos claims typically assert liability for bodily injury from exposure to asbestos or for property damage resulting from asbestos or products containing asbestos.

~~F-17~~

~~Index~~

The Company’s reserves include an estimate of the Company’s ultimate liability for A&E claims. The Company’s A&E liabilities emanate from Mt. McKinley, a direct subsidiary of the Company, direct insurance business and Everest Re’s assumed reinsurance business. All of the contracts of insurance and reinsurance under which the Company has received claims during the past three years, expired more than 20 years ago. There are significant uncertainties surrounding the Company’s reserves for its A&E losses.

A&E exposures represent a separate exposure group for monitoring and evaluating reserve adequacy. The following table summarizes incurred losses with respect to A&E reserves on both a gross and net of reinsurance basis for the periods indicated:

	At December 31,									At December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010
Gross basis:
Beginning of period reserves	$	638,674		$	786,843		$	922,843		$	499,911		$	554,790		$	638,674
Incurred losses		-			-			-			132			753			-
Paid losses		(83,884	)		(148,169	)		(136,000	)		(57,222	)		(55,632	)		(83,884	)
End of period reserves	$	554,790		$	638,674		$	786,843		$	442,821		$	499,911		$	554,790

Net basis:
Beginning of period reserves	$	430,421		$	485,296		$	537,549		$	341,251		$	382,507		$	430,421
Incurred losses		(300	)		(4,715	)		-			17			(30	)		(300	)
Paid losses		(47,614	)		(50,160	)		(52,253	)		(35,799	)		(41,226	)		(47,614	)
End of period reserves	$	382,507		$	430,421		$	485,296		$	305,469		$	341,251		$	382,507

At December 31, ~~2010,~~2012, the gross reserves for A&E losses were comprised of ~~$135,422~~$138,449 thousand representing case reserves reported by ceding companies, ~~$116,129~~$90,637 thousand representing additional case reserves established by the Company on assumed reinsurance claims, ~~$38,880~~$36,667 thousand representing case reserves established by the Company on direct excess insurance claims, including Mt. McKinley and ~~$264,360~~$177,068 thousand representing IBNR reserves.

With respect to asbestos only, at December 31, ~~2010,~~2012, the Company had gross asbestos loss reserves of ~~$530,353~~$422,849 thousand, or ~~95.6%~~95.5%, of total A&E reserves, of which ~~$426,179~~$339,654 thousand was for assumed business and ~~$104,174~~$83,195 thousand was for direct business.

F-18

4. FAIR VALUE

The Company’s fixed maturity and equity securities are primarily managed by third party investment asset managers. The investment asset managers obtain prices from nationally recognized pricing services. These services seek to utilize market data and observations in their evaluation process. They use pricing applications that vary by asset class and incorporate available market information and when fixed maturity securities do not trade on a daily basis the services will apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate scenarios for securities that have prepayment features.

In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers. The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. The Company made no such adjustments at December 31, ~~2010~~2012 and ~~2009.~~2011.

~~F-18~~The Company internally manages a small public equity portfolio which had a fair value at December 31, 2012 of $61,893 thousand and all prices were obtained from publically published sources.

~~Index~~

Equity securities in U.S. denominated currency are categorized as Level 1, Quoted Prices in Active Markets for Identical Assets, since the securities are actively traded on an exchange and prices are based on quoted prices from the exchange. Equity securities traded on foreign exchanges are categorized as Level 2 due to potential foreign exchange adjustments to fair or market value.

Fixed maturity securities are generally categorized as Level 2, Significant Other Observable Inputs, since a particular security may not have traded but the pricing services are able to use valuation models with observable market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority. Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk) are categorized as Level 3, Significant Unobservable Inputs. These securities include broker priced securities.

At December 31, 2012 and 2011, all Level 3 fixed maturity securities, were priced using single non-binding broker quotes since prices for these securities were not provided by normal pricing service companies. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company.

Other invested assets, at fair value, are categorized as Level 1, Quoted Prices in Active Markets for Identical Assets, since the securities are shares of the Company’s parent, which are actively traded on an exchange and the price is based on a quoted price.

F-19

The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated:

			Fair Value Measurement Using:								Fair Value Measurement Using:
			Quoted Prices								Quoted Prices
			in Active		Significant						in Active		Significant
			Markets for		Other		Significant				Markets for		Other		Significant
			Identical		Observable		Unobservable				Identical		Observable		Unobservable
			Assets		Inputs		Inputs				Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2010		(Level 1)		(Level 2)		(Level 3)		December 31, 2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	150,567	$	-	$	150,567	$	-	$	78,190	$	-	$	78,190	$	-
Obligations of U.S. States and political subdivisions		2,901,505		-		2,901,505		-		1,291,963		-		1,291,963		-
Corporate securities		721,685		-		721,685		-		1,564,852		-		1,564,852		-
Asset-backed securities		20,551		-		19,590		961		46,487		-		41,638		4,849
Mortgage-backed securities
Commercial		39,505		-		39,505		-		52,624		-		52,624		-
Agency residential		369,691		-		369,691		-		683,722		-		654,324		29,398
Non-agency residential		29,968		-		29,510		458		2,329		-		2,324		5
Foreign government securities		749,041		-		749,041		-		780,003		-		780,003		-
Foreign corporate securities		617,427		-		613,792		3,635		1,031,240		-		1,019,819		11,421
Total fixed maturities, market value		5,599,940		-		5,594,886		5,054		5,531,410		-		5,485,737		45,673

Fixed maturities, fair value		180,482		-		180,482		-		41,470		-		41,470		-
Equity securities, market value		13		13		-		-		13		13		-		-
Equity securities, fair value		683,454		683,454		-		-		1,199,848		1,059,288		140,560		-
Other invested assets, fair value		788,142		788,142		-		-		1,068,711		1,068,711		-		-

There were no ~~significant~~ transfers between Level 1 and Level 2 for the twelve months ended December 31, ~~2010.~~2012.

~~F-19~~F-20

The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated:

			Fair Value Measurement Using:								Fair Value Measurement Using:
			Quoted Prices								Quoted Prices
			in Active		Significant						in Active		Significant
			Markets for		Other		Significant				Markets for		Other		Significant
			Identical		Observable		Unobservable				Identical		Observable		Unobservable
			Assets		Inputs		Inputs				Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2009		(Level 1)		(Level 2)		(Level 3)		December 31, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	134,291	$	-	$	134,291	$	-	$	79,539	$	-	$	79,539	$	-
Obligations of U.S. States and political subdivisions		3,853,859		-		3,853,859		-		1,660,905		-		1,660,905		-
Corporate securities		635,381		-		628,451		6,930		1,228,235		-		1,228,235		-
Asset-backed securities		15,148		-		8,890		6,258		45,103		-		29,057		16,046
Mortgage-backed securities
Commercial		29,058		-		29,058		-		47,874		-		47,874		-
Agency residential		564,707		-		564,707		-		543,393		-		543,393		-
Non-agency residential		54,959		-		54,533		426		24,289		-		24,282		7
Foreign government securities		659,217		-		659,217		-		788,649		-		788,649		-
Foreign corporate securities		516,548		-		516,548		-		689,041		-		686,505		2,536
Total fixed maturities, market value		6,463,168		-		6,449,554		13,614		5,107,028		-		5,088,439		18,589

Fixed maturities, fair value		50,528		-		50,528		-		113,606		-		113,606		-
Equity securities, market value		13		13		-		-		10		10		-		-
Equity securities, fair value		380,025		379,058		967		-		1,207,053		1,090,959		116,094		-
Other invested assets, fair value		382,639		382,639		-		-		817,352		817,352		-		-

The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated:

		By Asset
		December 31, 2010														December 31, 2009												December 31, 2012															December 31, 2011
		Corporate			Asset-backed			Foreign		Non-agency						Corporate			Asset-backed		Non-agency							Asset-backed			Foreign			Non-agency			Agency						Asset-backed			Foreign			Non-agency
(Dollars in thousands)		Securities			Securities			Corporate		RMBS			Total			Securities			Securities		RMBS			Total				Securities			Corporate			RMBS			RMBS			Total			Securities			Corporate			RMBS			Total
Beginning balance		$	6,930		$	6,258		$	-	$	426		$	13,614		$	7,000		$	3,409	$	558		$	10,967			$	16,046		$	2,536		$	7		$	-		$	18,589		$	961		$	3,635		$	458		$	5,054
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)			(1	)		(258	)		1		105			(153	)		(1	)		-		77			76
Included in earnings																													114			(33	)		3			(3	)		81			194			(7	)		11			198
Included in other comprehensive income (loss)			71			2,101			268		76			2,516			(69	)		2,483		32			2,446				696			144			(1	)		(164	)		675			(659	)		(66	)		54			(671	)
Purchases, issuances and settlements			(7,000	)		(7,140	)		3,366		(149	)		(10,923	)		-			-		(241	)		(241	)			4,411			18,057			(4	)		29,565			52,029			15,550			2,609			(168	)		17,991
Transfers in and/or (out) of Level 3			-			-			-		-			-			-			366		-			366				(16,418	)		(9,283	)		-			-			(25,701	)		-			(3,635	)		(348	)		(3,983	)
Ending balance		$	-		$	961		$	3,635	$	458		$	5,054		$	6,930		$	6,258	$	426		$	13,614			$	4,849		$	11,421		$	5		$	29,398		$	45,673		$	16,046		$	2,536		$	7		$	18,589

The amount of total gains or losses for the period included																											The amount of total gains or losses for the period included
in earnings (or changes in net assets) attributable to the																											in earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets																											change in unrealized gains or losses relating to assets
still held at the reporting date		$	-		$	-		$	-	$	-		$	-		$	-		$	-	$	(58	)	$	(58	)	still held at the reporting date	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-

(Some amounts may not reconcile due to rounding.)	(Some amounts may not reconcile due to rounding.)																										(Some amounts may not reconcile due to rounding.)

~~F-20~~F-21

5. CREDIT FACILITY

Effective August ~~23, 2006, Holdings~~15, 2011, the Company entered into a ~~five~~new three year, $150,000 thousand ~~senior~~unsecured revolving credit facility with a syndicate of lenders, replacing the August 23, 2006 five year senior revolving credit facility. Both the August 15, 2011 and August 23, 2006 revolving credit agreements, which have similar terms, are referred to as the “Holdings Credit Facility”. Citibank N.A. is the administrative agent for the Holdings Credit Facility. The Holdings Credit Facility may be used for liquidity and general corporate purposes. The Holdings Credit Facility provides for the borrowing of up to $150,000 thousand with interest at a rate selected by Holdings equal to either, (1) the Base Rate (as defined below) or (2) a periodic fixed rate equal to the Eurodollar Rate plus an applicable margin. The Base Rate means a fluctuating interest rate per annum in effect from time to time to be equal to the higher of (a) the rate of interest publicly announced by Citibank as its ~~prime~~base rate, or (b) 0.5% per annum above the Federal Funds Rate or (c) 1% above the one month London Interbank Offered Rate (“LIBOR”), in each case plus the applicable margin. The amount of margin and the fees payable for the Holdings Credit Facility depends upon Holdings’ senior unsecured debt rating.

The Holdings Credit Facility requires Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and Everest Re to maintain its statutory surplus at ~~$1,500,000~~$1,875,000 thousand plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, ~~2005,~~2010, which at December 31, ~~2010,~~2012, was ~~$1,989,417~~$1,990,497 thousand. As of December 31, ~~2010, Holdings~~2012, the Company was in compliance with all Holdings Credit Facility covenants.

The following table summarizes outstanding letters of credit and/or borrowings for the periods indicated:

(Dollars in thousands)	At December 31, 2010						At December 31, 2009						At December 31, 2012						At December 31, 2011
Bank	Commitment		In Use		Date of Loan	Maturity/Expiry Date	Commitment		In Use		Date of Loan	Maturity/Expiry Date	Commitment		In Use		Date of Loan	Maturity/Expiry Date	Commitment		In Use		Date of Loan	Maturity/Expiry Date
Citibank Holdings Credit Facility	$	150,000	$	50,000	12/16/2010	1/18/2011	$	150,000	$	-			$	150,000	$	-			$	150,000	$	-
Total revolving credit borrowings				50,000						-						-						-
Total letters of credit				9,527		12/31/2011				27,959		12/31/2010				1,551		12/31/2013				5,020		12/31/2012

Total Citibank Holdings Credit Facility	$	150,000	$	59,527			$	150,000	$	27,959			$	150,000	$	1,551			$	150,000	$	5,020

The following table presents the costs incurred in connection with the Holdings Credit Facility for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Credit facility fees incurred	$	457	$	226	$	145	$	582	$	476	$	457

6. SENIOR NOTES

The table below displays Holdings’ outstanding senior notes. Market value is based on quoted market ~~prices.~~

December 31, 2010 December 31, 2009
Consolidated Balance Consolidated Balance
(Dollars in thousands) Date Issued Date Due Principal Amounts Sheet Amount Market Value Sheet Amount Market Value
5.40% Senior notes 10/12/2004 10/15/2014 $ 250,000 $ 249,812 $ 267,500 $ 249,769 $ 256,100
8.75% Senior notes (matured and paid on March 15, 2010) 03/14/2000 03/15/2010 $ 200,000 $ - $ - $ 199,970 $ 200,000
prices, but due to limited trading activity, these senior notes are considered Level 2 in the fair value hierarchy.

~~F-21~~

					December 31, 2012				December 31, 2011
					Consolidated Balance				Consolidated Balance
(Dollars in thousands)	Date Issued	Date Due	Principal Amounts		Sheet Amount		Market Value		Sheet Amount		Market Value
5.40% Senior notes	10/12/2004	10/15/2014	$	250,000	$	249,907	$	266,390	$	249,858	$	251,370
8.75% Senior notes (matured and paid on March 15, 2010)	03/14/2000	03/15/2010	$	200,000	$	-	$	-	$	-	$	-

~~Index~~

Interest expense incurred in connection with these senior notes is as follows for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Interest expense incurred	$	17,219	$	31,190	$	31,175	$	13,548	$	13,546	$	17,219

F-22

7. LONG TERM SUBORDINATED NOTES

The table below displays Holdings’ outstanding fixed to floating rate long term subordinated notes. Market value is based on quoted market ~~prices.~~prices, but due to limited trading activity, these subordinated notes are considered Level 2 in the fair value hierarchy.

Maturity Date

December 31, 2010

December 31, 2009

Maturity Date

December 31, 2012

December 31, 2011

Original

Consolidated Balance

Original

Consolidated Balance

(Dollars in thousands)

Date Issued

Principal Amount

Scheduled

Final

Sheet Amount

Market Value

Sheet Amount

Market Value

Date Issued

Principal Amount

Scheduled

Final

Sheet Amount

Market Value

Sheet Amount

Market Value

6.6% Long term subordinated notes

04/26/2007

400,000

05/15/2037

05/01/2067

238,351

227,825

238,348

176,534

04/26/2007

400,000

05/15/2037

05/01/2067

238,357

242,138

238,354

210,195

During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest will be at the annual rate of 6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded semi-annually for periods prior to May 15, 2017, and compounded quarterly for periods from and including May 15, 2017.

Holdings can redeem the long term subordinated notes prior to May 15, 2017, in whole but not in part at the applicable redemption price, which will equal the greater of (a) 100% of the principal amount being redeemed and (b) the present value of the principal payment on May 15, 2017 and scheduled payments of interest that would have accrued from the redemption date to May 15, 2017 on the long term subordinated notes being redeemed, discounted to the redemption date on a semi-annual basis at a discount rate equal to the treasury rate plus an applicable spread of either 0.25% or 0.50%, in each case plus accrued and unpaid interest. Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at 100% of the principal amount plus accrued and unpaid interest; however, redemption on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant. This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes.

On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161,441 ~~thousand, which resulted in a pre-tax gain on debt repurchase of $78,271~~ thousand.

Interest expense incurred in connection with these long term subordinated notes is as follows for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Interest expense incurred	$	15,748	$	18,322	$	26,404	$	15,748	$	15,748	$	15,748

~~F-22~~F-23

8. JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE

The following table displays Holdings’ outstanding junior subordinated debt securities due to Everest Re Capital Trust II (“Capital Trust II”), a wholly owned finance subsidiary of Holdings. Fair value is primarily based on the quoted market price of the related trust preferred ~~securities.~~securities, and as such, these securities are considered Level 2 under the fair value hierarchy.

					December 31, 2010				December 31, 2009								December 31, 2012				December 31, 2011
					Consolidated Balance				Consolidated Balance								Consolidated Balance				Consolidated Balance
(Dollars in thousands)	Date Issued	Date Due	Amount Issued		Sheet Amount		Fair Value		Sheet Amount		Fair Value		Date Issued	Date Due	Amount Issued		Sheet Amount		Fair Value		Sheet Amount		Fair Value
6.20% Junior subordinated debt securities	03/29/2004	03/29/2034	$	329,897	$	329,897	$	294,825	$	329,897	$	272,553	03/29/2004	03/29/2034	$	329,897	$	329,897	$	333,225	$	329,897	$	326,313

Holdings may redeem the junior subordinated debt securities before their maturity at 100% of their principal amount plus accrued interest as of the date of redemption. The securities may be redeemed, in whole or in part, on one or more occasions at any time on or after March 30, 2009; or at any time, in whole, but not in part, within 90 days of the occurrence and continuation of a determination that the Trust may become subject to tax or the Investment Company Act.

Interest expense incurred in connection with these junior subordinated debt securities is as follows for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Interest expense incurred	$	20,454	$	20,454	$	20,454	$	20,454	$	20,454	$	20,454

Holdings considers that the mechanisms and obligations relating to the trust preferred securities, taken together, constitute a full and unconditional guarantee by Holdings of Capital Trust II’s payment obligations with respect to their trust preferred securities.

Capital Trust II will redeem all of the outstanding trust preferred securities when the junior subordinated debt securities are paid at maturity on March 29, 2034. The Company may elect to redeem the junior subordinated debt securities, in whole or in part, at any time on or after March 30, 2009. If such an early redemption occurs, the outstanding trust preferred securities would also be proportionately redeemed.

There are certain regulatory and contractual restrictions on the ability of Holdings’ operating subsidiaries to transfer funds to Holdings in the form of cash dividends, loans or advances. The insurance laws of the State of Delaware, where Holdings’ direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or advances to Holdings that exceed certain statutory thresholds. In addition, the terms of Holdings Credit Facility (discussed in Note 5) require Everest Re, Holdings’ principal insurance subsidiary, to maintain a certain statutory surplus level as measured at the end of each fiscal year. At December 31, ~~2010, $2,293,643~~2012, $2,272,346 thousand of the ~~$2,929,526~~$3,068,916 thousand in net assets of Holdings’ consolidated subsidiaries were subject to the foregoing regulatory restrictions.

9. TRUST AGREEMENTS

A subsidiary of the Company, Everest Re, has established a trust agreement, which effectively uses Everest Re’s investments as collateral, as security for assumed losses payable to a non-affiliated ceding company. At December 31, ~~2010,~~2012, the total amount on deposit in the trust account was ~~$13,716~~$139,921 thousand.

~~F-23~~F-24

10. OPERATING LEASE AGREEMENTS

The future minimum rental commitments, exclusive of cost escalation clauses, at December 31, ~~2010,~~2012, for all of the Company’s operating leases with remaining non-cancelable terms in excess of one year are as follows:

(Dollars in thousands)
2011	$	7,008
2012		10,024
2013		9,531	$	10,305
2014		7,958		10,192
2015		8,195		11,072
2016				11,162
2017				10,526
Thereafter		41,215		36,365
Net commitments	$	83,929	$	89,622

(Some amounts may not recconcile due to rounding.)

All of these leases, the expiration terms of which range from ~~2011~~2017 to ~~2020,~~2024, are for the rental of office space. Rental expense was ~~$11,769~~$12,232 thousand, ~~$10,489~~$12,656 thousand and ~~$9,524~~$11,769 thousand for the years ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, respectively.

11. INCOME TAXES

All the income of ~~Holdings’~~Holdings' U.S. subsidiaries is subject to the applicable federal, foreign, state and local taxes on corporations. Additionally, the income of foreign branches of the ~~Company’s~~Company's insurance operating companies is subject to various income taxes. The provision for income taxes in the consolidated ~~statements~~statement of operations and comprehensive income (loss) has been determined in accordance with the individual income of each entity and the respective applicable tax laws. The provision reflects the permanent differences between financial and taxable income relevant to each entity. The significant components of the provision are as follows for the periods indicated:

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012		2011			2010
Current tax expense (benefit):
U.S.	$	(73,747	)	$	(49,644	)	$	(48,382	)	$	18,498	$	660		$	(73,747	)
Foreign		9,797			8,184			26,081			10,545		19,227			9,797
Total current tax expense (benefit)		(63,950	)		(41,460	)		(22,301	)		29,043		19,887			(63,950	)
Total deferred U.S. tax expense (benefit)		27,322			170,852			(112,447	)		143,952		(190,564	)		27,322
Total income tax expense (benefit)	$	(36,628	)	$	129,392		$	(134,748	)	$	172,995	$	(170,677	)	$	(36,628	)

A reconciliation of the U.S. ~~federal~~Federal income tax rate to ~~the Company’s~~company's effective tax rate is as follows for the periods indicated:

	Years Ended December 31,																Years Ended December 31,
	2010					2009						2008
(Dollars in thousands)																	2012					2011					2010
Expected income tax provision at the U.S. statutory tax rate	$	80,069		35.0	%	$	183,835		35.0	%		$	(90,826	)	-35.0	%	$	242,664		35.0	%	$	(130,724	)	35.0	%	$	80,069		35.0	%
Increase (reduction) in taxes resulting from:
Tax exempt income		(56,457	)	-24.7	%		(60,378	)	-11.5	%	��		(61,840	)	-23.8	%		(20,623	)	-3.0	%		(33,672	)	9.0	%		(56,457	)	-24.7	%
Tax audit settlement		(48,867	)	-21.4	%		(13,069	)	-2.5	%			-		0.0	%
Dividend received deduction		(2,535	)	-1.1	%		(1,409	)	-0.3	%			(2,762	)	-1.1	%		(7,924	)	-1.1	%		(6,517	)	1.7	%		(2,535	)	-1.1	%
Proration		8,510		3.7	%		9,139		1.7	%			9,437		3.6	%		3,138		0.5	%		5,080		-1.4	%		8,510		3.7	%
Tax audit settlement																		(2,508	)	-0.4	%		(710	)	0.2	%		(48,867	)	-21.4	%
Uncertain tax positions																		(31,912	)	-4.6	%		8,139		-2.2	%		(5,237	)	-2.3	%
Other, net		(17,348	)	-7.6	%		11,274		2.1	%			11,243		4.3	%		(9,840	)	-1.4	%		(12,273	)	3.3	%		(12,111	)	-5.3	%
Total income tax provision and effective tax rate	$	(36,628	)	-16.0	%	$	129,392		24.6	%		$	(134,748	)	-51.9	%	$	172,995		25.0	%	$	(170,677	)	45.7	%	$	(36,628	)	-16.0	%

~~F-24~~F-25

During 2012, the Internal Revenue Service ("IRS") completed its audit of the Company for the 2007 and 2008 tax years. At the conclusion of the audit, the Company paid additional federal income taxes of $12,747 thousand plus interest of $1,702 thousand. The additional tax liability resulted primarily from adjustments to the timing of the Company’s utilization of foreign tax credits and, therefore, including interest but net of a permanent benefit from previously unrecorded tax exempt income, this resulted in a $354 thousand income tax benefit. Also as a result of closing the IRS audit, the Company was able to remeasure its exposure and take down its reserve for uncertain tax positions by $31,912 thousand and related interest by $2,154 thousand, resulting in an income tax benefit of $34,067 thousand.

The Company identified net understatements in its Deferred tax asset account of $17,520 thousand during 2012. The understatements resulted from differences between filed and recorded amounts that had accumulated over several prior periods. The Company corrected these understatements, resulting in a $17,520 thousand income tax benefit included in the income tax expense (benefit) caption in the Consolidated Statements of Operations and Comprehensive Income (Loss) and increased net income for the same amount. The Company also increased its Deferred tax asset in its Consolidated Balance Sheets by $17,520 thousand. The Company believes that the out of period adjustments are immaterial to these financial statements and to all prior periods. As such, the Company has not restated any prior period amounts.

Deferred income taxes reflect the tax effect of the temporary differences between the value of assets and liabilities for financial statement purposes and such values as measured by the U.S. tax laws and regulations. The principal items making up the net deferred income tax ~~asset~~assets are as follows for the periods indicated:

	At December 31,
(Dollars in thousands)	2012		2011
Deferred tax assets:
Loss reserve	$	159,320	$	183,883
Foreign tax credits		90,941		74,253
Net operating loss carryforward		64,353		167,089
Alternative minimum tax credits		64,088		21,438
Deferred expenses		40,200		19,351
Unearned premium reserve		37,558		43,020
Unfunded pension liability		33,660		29,903
Deferred gain on reinsurance		30,265		31,464
Deferred compensation		6,690		7,243
Uncollectible reinsurance reserve		5,675		5,675
Investment impairments		3,009		4,478
Other assets		10,646		17,717
Total deferred tax assets		546,405		605,514

Deferred tax liabilities:
Net unrealized fair value income		139,374		20,990
Net unrealized investment gains		84,934		76,452
Net unrealized foreign currency gains		42,747		45,837
Deferred acquisition costs		33,969		58,571
Gain on tender of debt		27,395		27,395
Bond market discount		3,050		2,902
Other liabilities		761		6,877
Total deferred tax liabilities		332,230		239,024

Net deferred tax assets	$	214,175	$	366,490

At December 31,
(Dollars in thousands) 2010 2009
Deferred tax assets:
Reserve for losses and LAE $ 177,237 $ 166,943
Foreign tax credits 55,026 46,472
Unearned premium reserve 46,146 47,266
AMT credits 41,693 10,561
Deferred gain on reinsurance 35,903 39,371
Minimum pension 14,045 13,068
Deferred compensation 7,271 7,485
Uncollectible reinsurance 5,675 16,175
Investment impairments 3,988 5,528
Other assets 31,503 34,708
Total deferred tax assets 418,487 387,576

Deferred tax liabilities:
Deferred acquisition costs 64,487 63,531
Net unrealized appreciation of investments 78,478 46,147
Foreign currency translation 45,234 30,675
Gain on debt repurchase 27,395 27,395
Accrued market discount on bonds 3,062 3,493
Other liabilities 15,906 5,842
Total deferred tax liabilities 234,562 177,083

Net deferred tax assets $ 183,924 $ 210,493

(Some amounts may not reconcile due to rounding.)

F-26

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the periods indicated is as follows:

(Dollars in thousands)	2010			2009			2008		2012			2011		2010
Balance at January 1	$	29,010		$	34,366		$	29,132	$	31,912		$	23,773	$	29,010
Additions based on tax positions related to the current year		7,119			6,997			5,234		-			8,139		7,119
Additions for tax positions of prior years		-			-			-		-			-		-
Reductions for tax positions of prior years		-			-			-		(31,912	)		-		-
Settlements with taxing authorities		(12,356	)		(12,353	)		-		-			-		(12,356	)
Lapses of applicable statutes of limitations		-			-			-		-			-		-
Balance at December 31	$	23,773		$	29,010		$	34,366	$	-		$	31,912	$	23,773

~~The~~

As a result of closing the 2007 and 2008 IRS audit during 2012, the Company was able to remeasure its exposure and take down its reserve for uncertain tax positions by $31,912 thousand and accrued interest of $2,154 thousand. Thus, the entire amount of ~~the~~ unrecognized tax benefits ~~would affect~~at December 31, 2011 and 2010 were recognized and beneficially affected the effective tax rate ~~if recognized.~~

In 2010, the Company favorably settled a 2003 and 2004 IRS audit. The Company recorded a net overall tax benefit including accrued interest of $25,920 thousand. In addition, the Company was also able to take down a $12,356 thousand FIN 48 reserve that had been established regarding the 2003 and 2004 IRS audit.in 2012. The Company is no longer subject to ~~U.S.~~U.S federal, state and local or foreign income tax examinations by tax authorities for years before ~~2007.~~2009.

~~F-25~~In 2010, the Company favorably settled a 2003 and 2004 IRS audit. During the years ended December 31, 2011 and 2010, the Company recorded a net overall tax benefit including accrued interest of $710 thousand and $25,920 thousand respectively. In addition, in 2010, the Company was able to take down a $12,356 thousand reserve for uncertain tax positions that had been established with respect to 2003 and 2004.

~~Index~~

The Company recognizes accrued interest related to net unrecognized tax benefits and penalties in income taxes. During the ~~years~~year ended December 31, ~~2010, 2009~~2012, 2011 and ~~2008,~~2010 the Company accrued and recognized a net ~~expense~~ expense/(benefit) of approximately ~~($9,938)~~$(2,154) thousand, ~~$1,563~~$957 thousand and ~~$2,446~~$(9,938) thousand, respectively, in interest and penalties. Included within the 2010 net expense (benefit) of ~~($9,938)~~$(9,938) thousand is ~~($10,591)~~$(10,591) thousand of accrued interest related to the 2003 and 2004 IRS audit.

The Company is not aware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

For U.S. income tax purposes the Company has foreign tax credit ~~carryforwards~~carry forwards of ~~$55,026~~$90,941 thousand that begin to expire in ~~2014.~~2017 and net operating loss carryforwards of $183,866 thousand that begin to expire in 2031. In addition, for U.S. income tax purposes the Company has ~~$41,693~~$64,088 thousand of Alternative Minimum Tax credits that do not expire. Management believes that it is more likely than not that the Company will realize the benefits of its net deferred tax assets and accordingly, no valuation allowance has been recorded for the periods presented.

~~Tax~~The Company has recorded tax benefits ~~of $164 thousand and $76 thousand~~ related to share-based compensation deductions for dividends on restricted stock, vestings of restricted stock and exercised stock options ~~exercised~~ in ~~2010~~2012 and ~~2009,~~2011 respectively ~~are reflected~~of $2 thousand and $(11) thousand in additional paid-in capital inon the ~~stockholder’s~~shareholders' equity section of the consolidated balance sheets.

F-27

12. REINSURANCE

The Company utilizes reinsurance agreements to reduce its exposure to large claims and catastrophic loss occurrences. These agreements provide for recovery from reinsurers of a portion of losses and LAE under certain circumstances without relieving the ceding company of its obligations to the policyholders. Losses and LAE incurred and premiums earned are reported after deduction for reinsurance. In the event that one or more of the reinsurers were unable to meet their obligations under these reinsurance agreements, the Company would not realize the full value of the reinsurance recoverable balances. The Company may hold partial collateral, including letters of credit, trust accounts and funds held, under these agreements. See also Note ~~1C.~~1C and Note 3.

Premiums written and earned and incurred losses and LAE are comprised of the following for the periods indicated:

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010
Written premiums:
Direct	$	823,305		$	824,267		$	778,243		$	1,050,248		$	808,526		$	823,305
Assumed		2,644,451			2,509,850			2,116,545			2,519,142			2,749,993			2,644,451
Ceded		(1,679,045	)		(1,598,816	)		(1,219,426	)		(1,877,789	)		(1,804,508	)		(1,679,045	)
Net written premiums	$	1,788,711		$	1,735,301		$	1,675,362		$	1,691,601		$	1,754,011		$	1,788,711

Premiums earned:
Direct	$	823,734		$	808,634		$	839,251		$	1,032,576		$	867,340		$	823,734
Assumed		2,602,704			2,471,667			2,235,381			2,687,521			2,734,765			2,602,704
Ceded		(1,612,615	)		(1,495,241	)		(1,192,850	)		(1,946,199	)		(1,808,250	)		(1,612,615	)
Net premiums earned	$	1,813,823		$	1,785,060		$	1,881,782		$	1,773,898		$	1,793,855		$	1,813,823

Incurred losses and LAE:
Direct	$	703,229		$	654,409		$	655,964		$	910,136		$	738,823		$	703,229
Assumed		1,946,124			1,348,581			1,439,019			1,630,386			2,491,002			1,946,124
Ceded		(1,171,903	)		(911,314	)		(629,423	)		(1,290,778	)		(1,352,222	)		(1,171,903	)
Net incurred losses and LAE	$	1,477,450		$	1,091,676		$	1,465,560		$	1,249,744		$	1,877,603		$	1,477,450

The Company engages in reinsurance transactions with Bermuda Re, Everest International Reinsurance, Ltd. (“Everest International”) and Everest ~~International, affiliates,~~Canada, which are affiliated companies primarily driven by enterprise risk and capital management considerations under which business is ceded at market rates and terms.

~~F-26~~F-28

The table below represents affiliated quota share reinsurance agreements ("whole account quota share") for all new and renewal business for the indicated coverage period:

(Dollars in thousands)
Percent Assuming Single Aggregate
Coverage Period Ceding Company Ceded Company Type of Business Occurrence Limit Limit

01/01/2002-12/31/2002 Everest Re 20.0 % Bermuda Re property / casualty business $ - $ -

01/01/2003-12/31/2003 Everest Re 25.0 % Bermuda Re property / casualty business - -

01/01/2004-12/31/2005 Everest Re 22.5 % Bermuda Re property / casualty business - -
Everest Re 2.5 % Everest International property / casualty business - -

01/01/2006-12/31/2006 Everest Re 18.0 % Bermuda Re property business 125,000 (1) -

Everest Re
2.0 % Everest International property business - -

01/01/2006-12/31/2007 Everest Re 31.5 % Bermuda Re casualty business - -
Everest Re 3.5 % Everest International casualty business - -

01/01/2007-12/31/2007 Everest Re 22.5 % Bermuda Re property business 130,000 (1) -
Everest Re 2.5 % Everest International property business - -

01/01/2008-12/31/2008 Everest Re 36.0 % Bermuda Re property / casualty business 130,000 (1) 275,000 (2)
Everest Re 4.0 % Everest International property / casualty business - -

01/01/2009-12/31/2009 Everest Re 36.0 % Bermuda Re property / casualty business 150,000 (1) 325,000 (2)
Everest Re 8.0 % Everest International property / casualty business - -

01/01/2010-12/31/2010
Everest Re 44.0 % Bermuda Re property / casualty business 150,000 325,000

01/01/2011 Everest Re 50.0 % Bermuda Re property / casualty business 150,000 300,000

01/01/2003-12/31/2006 Everest Re- Canadian Branch 50.0 % Bermuda Re property business - -
01/01/2007-12/31/2009 Everest Re- Canadian Branch 60.0 % Bermuda Re property business - -
01/01/2010-12/31/2010
Everest Re- Canadian Branch 60.0 % Bermuda Re property business 350,000 -
01/01/2011 Everest Re- Canadian Branch 60.0 % Bermuda Re property business 350,000 -

(1) The single occurance limit is applied before the loss cessions to either Bermuda Re or Everest International.

(2) The aggregate limit is applied before the loss cessions to either Bermuda Re or Everest International.

(Dollars in thousands)
		Percent			Assuming		Single			Aggregate
Coverage Period	Ceding Company	Ceded			Company	Type of Business	Occurrence Limit			Limit

01/01/2002-12/31/2002	Everest Re		20.0	%	Bermuda Re	property / casualty business	$	-		$	-

01/01/2003-12/31/2003	Everest Re		25.0	%	Bermuda Re	property / casualty business		-			-

01/01/2004-12/31/2005	Everest Re		22.5	%	Bermuda Re	property / casualty business		-			-
	Everest Re		2.5	%	Everest International	property / casualty business		-			-

01/01/2006-12/31/2006	Everest Re		18.0	%	Bermuda Re	property business		125,000	(1)		-
	Everest Re		2.0	%	Everest International	property business		-			-

01/01/2006-12/31/2007	Everest Re		31.5	%	Bermuda Re	casualty business		-			-
	Everest Re		3.5	%	Everest International	casualty business		-			-

01/01/2007-12/31/2007	Everest Re		22.5	%	Bermuda Re	property business		130,000	(1)		-
	Everest Re		2.5	%	Everest International	property business		-			-

01/01/2008-12/31/2008	Everest Re		36.0	%	Bermuda Re	property / casualty business		130,000	(1)		275,000	(2)
	Everest Re		4.0	%	Everest International	property / casualty business		-			-

01/01/2009-12/31/2009	Everest Re		36.0	%	Bermuda Re	property / casualty business		150,000	(1)		325,000	(2)
	Everest Re		8.0	%	Everest International	property / casualty business		-			-

01/01/2010-12/31/2010	Everest Re		44.0	%	Bermuda Re	property / casualty business		150,000			325,000

01/01/2011-12/31/2011	Everest Re		50.0	%	Bermuda Re	property / casualty business		150,000			300,000

01/01/2012	Everest Re		50.0	%	Bermuda Re	property / casualty business		100,000			200,000

01/01/2003-12/31/2006	Everest Re- Canadian Branch		50.0	%	Bermuda Re	property business		-			-
01/01/2007-12/31/2009	Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		-			-
01/01/2010-12/31/2010	Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		350,000	(3)		-
01/01/2011-12/31/2011	Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		350,000	(3)		-
01/01/2012-12/31/2012	Everest Re- Canadian Branch		75.0	%	Bermuda Re	property / casualty business		206,250	(3)		412,500	(3)
01/01/2013	Everest Re- Canadian Branch		75.0	%	Bermuda Re	property / casualty business		150,000	(3)		412,500	(3)

01/01/2012	Everest Canada		80.0	%	Everest Re- Canadian Branch	property business		-			-

(1) The single occurance limit is applied before the loss cessions to either Bermuda Re or Everest International.
(2) The aggregate limit is applied before the loss cessions to either Bermuda Re or Everest International.
(3) Amounts shown are Canadian dollars.

~~F-27~~F-29

For premiums earned and losses incurred for the period January 1, 2002 through December 31, 2002, Everest Re, Everest National Insurance Company and Everest Security Insurance Company entered into an Excess of Loss Reinsurance Agreement with Bermuda Re, covering workers’ compensation losses occurring on and after January 1, 2002, as respect to new, renewal and in force policies effective on that date through December 31, 2002. The table below represents Bermuda Re's liability limits for any losses per one occurrence.

	Liability Limits
(Dollars in thousands)	Exceeding		Not to Exceed
Losses per one occurrence	$	100,000	$	150,000

The table below represents loss portfolio transfer reinsurance agreements whereby net insurance exposures and reserves were transferred to an affiliate.

(Dollars in thousands)

Effective	Transferring	Assuming	% of Business or			Covered Period
Date	Company	Company	Amount of Transfer			of Transfer

09/19/2000	Mt. McKinley	Bermuda Re		100	%	All years
10/01/2001	Everest Re (Belgium Branch)	Bermuda Re		100	%	All years
10/01/2008	Everest Re	Bermuda Re	$	747,022		01/01/2002-12/31/2007

The following tables summarize the premiums and losses ceded by the Company to Bermuda Re and Everest International, respectively, and premiums and losses assumed by the Company from Everest Canada for the periods indicated:

Bermuda Re	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012			2011		2010
Ceded written premiums	$	1,375,778	$	1,181,875	$	947,344	$	1,649,473		$	1,627,298	$	1,375,778
Ceded earned premiums		1,282,720		1,142,223		915,706		1,701,811			1,565,561		1,282,720
Ceded losses and LAE (a)		923,123		699,515		467,717		1,095,331			1,226,832		923,123

Everest International	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)		2010		2009		2008		2012			2011		2010
Ceded written premiums	$	48,128	$	217,708	$	99,633	$	1,828		$	885	$	48,128
Ceded earned premiums		99,731		182,436		95,835		3,535			18,238		99,731
Ceded losses and LAE		93,648		100,768		54,380		(2,815	)		5,084		93,648


Everest Canada							Years Ended December 31,
(Dollars in thousands)								2012			2011		2010
Assumed written premiums							$	17,216		$	388	$	-
Assumed earned premiums								15,455			94		-
Assumed losses and LAE								9,489			57		-

(a) Ceded losses and LAE include the Mt. McKinley loss portfolio transfer that constitutes losses ceded under retroactive reinsurance and therefore, in accordance with FASB guidance, a deferred gain on retroactive reinsurance is reflected in other expenses on the consolidated statements of operations and comprehensive income (loss).

Everest Re sold net assets of its UK branch to Bermuda Re and provided Bermuda Re with a reserve indemnity agreement allowing for indemnity payments of up to 90% of ₤25.0 million of the excess of 2002 and prior reserves, provided that any recognition of profit from the reserves for 2002 and prior underwriting years is taken into account. The limit available under this agreement was fully exhausted at December 31, 2004.

~~F-28~~F-30

13. COMPREHENSIVE INCOME (LOSS)

The following table presents the components of comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010

Net income (loss)	$	265,397		$	395,851		$	(124,757	)	$	520,329		$	(202,821	)	$	265,397
Other comprehensive income (loss), before tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
URA(D) of investments - temporary		(81,731	)		294,401			(438,383	)		14,682			34,109			(81,731	)
URA(D) of investments - non-credit OTTI		2,862			10,943			-			(236	)		(188	)		2,862
URA(D) on securities arising during the period		(78,869	)		305,344			(438,383	)		14,446			33,921			(78,869	)
Less: reclassification adjustment for realized losses included in net income (loss)		35,429			31,569			161,910
Less: reclassification adjustment for realized losses (gains) included in net income (loss)											974			31,138			35,429
Total URA(D) on securities arising during the period		(43,440	)		336,913			(276,473	)		15,420			65,059			(43,440	)
Foreign currency translation adjustments		41,597			43,223			(46,872	)		10,815			(4,316	)		41,597
Pension adjustments		(2,792	)		11,466			(38,714	)		(10,732	)		(45,310	)		(2,792	)
Total other comprehensive income (loss), before tax		(4,635	)		391,602			(362,059	)		15,504			15,434			(4,635	)

Income tax benefit (expense) related to items of other comprehensive income (loss):
Tax benefit (expense) on URA(D) arising during the period
Tax benefit (expense) on URA(D) of investments - temporary		28,606			(103,041	)		153,434			(5,139	)		(11,939	)		28,606
Tax benefit (expense) on URA(D) of investments - non-credit OTTI		(1,002	)		(3,830	)		-			83			66			(1,002	)
Tax benefit (expense) on URA(D) on securities arising during the period		27,604			(106,871	)		153,434			(5,056	)		(11,873	)		27,604
Tax reclassification due to realized gains (losses) included in net income (loss)		(12,400	)		(11,049	)		(56,669	)
Less: reclassification of tax expense (benefit) on realized losses (gains) included in net income (loss)											(341	)		(10,898	)		(12,400	)
Total tax benefit (expense) from URA(D) arising during the period		15,204			(117,920	)		96,765			(5,397	)		(22,771	)		15,204
Tax benefit (expense) from foreign currency translation		(14,558	)		(15,128	)		16,405			(3,786	)		1,511			(14,558	)
Tax benefit (expense) on pension		977			(4,013	)		13,550			3,756			15,858			977
Total income tax benefit (expense) related to items of other comprehensive income (loss):		1,623			(137,061	)		126,720			(5,427	)		(5,402	)		1,623
Other comprehensive income (loss), net of tax		(3,012	)		254,541			(235,339	)		10,077			10,032			(3,012	)
Comprehensive income (loss)	$	262,385		$	650,392		$	(360,096	)	$	530,406		$	(192,789	)	$	262,385

The following table presents the components of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010			2009			2012			2011

Beginning balance of URA (D) on securities	$	134,245		$	(69,248	)	$	147,140		$	106,009
Current period change in URA (D) of investments - temporary		(30,096	)		204,818			10,177			42,413
Current period change in URA (D) of investments - non-credit OTTI		1,860			(1,325	)		(154	)		(122	)
Current period change in URA (D) of investments - reclassification due to sale of subsidiary to related party								-			(1,160	)
Ending balance of URA (D) on securities		106,009			134,245			157,163			147,140

Beginning balance of foreign currency translation adjustments		57,001			28,906			83,185			84,040
Current period change in foreign currency translation adjustments		27,039			28,095			7,030			(2,807	)
Current period change in foreign currency translation adjustments - reclassification due to sale of subsidiary to related party								-			1,952
Ending balance of foreign currency translation adjustments		84,040			57,001			90,215			83,185

Beginning balance of pension		(24,268	)		(31,721	)		(55,535	)		(26,083	)
Current period change in pension		(1,815	)		7,453			(6,976	)		(29,452	)
Ending balance of pension		(26,083	)		(24,268	)		(62,511	)		(55,535	)

Ending balance of accumulated other comprehensive income (loss)	$	163,966		$	166,978		$	184,867		$	174,790

~~F-29~~F-31

14. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans.

The Company maintains both qualified and non-qualified defined benefit pension plans for its U.S. employees employed prior to April 1, 2010. Generally, the Company computes the benefits based on average earnings over a period prescribed by the plans and credited length of service. The Company’s non-qualified defined benefit pension plan, affected in October 1995, provides compensating pension benefits for participants whose benefits have been curtailed under the qualified plan due to Internal Revenue Code limitations.

Although not required to make contributions under IRS regulations, the following table summarizes the Company’s contributions to the defined benefit pension plans for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Company contributions	$	6,759	$	7,851	$	23,843	$	267	$	3,223	$	6,759

The following table summarizes the Company’s pension expense for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Pension expense	$	10,783	$	10,772	$	5,943	$	16,542	$	10,874	$	10,783

The following table summarizes the status of these defined benefit plans for U.S. employees for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010			2009			2012			2011
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	118,166		$	102,907		$	175,364		$	138,392
Service cost		6,944			6,015			9,370			7,548
Interest cost		7,052			6,385			7,971			7,702
Actuarial loss		14,631			6,808			21,786			26,802
Benefits paid		(8,401	)		(3,949	)		(2,332	)		(5,080	)
Projected benefit obligation at end of year		138,392			118,166			212,159			175,364

Change in plan assets:
Fair value of plan assets at beginning of year		100,728			75,798			101,304			114,470
Actual return on plan assets		15,623			21,113			15,568			(11,309	)
Actual contributions during the year		6,760			7,851			267			3,223
Administrative expenses paid		(240	)		(85	)
Benefits paid		(8,401	)		(3,949	)		(2,332	)		(5,080	)
Fair value of plan assets at end of year		114,470			100,728			114,807			101,304

Funded status at end of year	$	(23,922	)	$	(17,438	)	$	(97,352	)	$	(74,060	)

Amounts recognized in the consolidated balance sheets for the periods indicated:

	At December 31,						At December 31,
(Dollars in thousands)	2010			2009			2012			2011
Other assets (due beyond one year)	$	952		$	8,394		$	-		$	-
Other liabilities (due within one year)		(2,560	)		(8,679	)		(5,497	)		(3,497	)
Other liabilities (due beyond one year)		(22,314	)		(17,153	)		(91,855	)		(70,563	)
Net amount recognized in the consolidated balance sheet	$	(23,922	)	$	(17,438	)
Net amount recognized in the consolidated balance sheets							$	(97,352	)	$	(74,060	)

~~F-30~~F-32

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) for the periods indicated:

	At December 31,						At December 31,
(Dollars in thousands)	2010			2009			2012			2011
Prior service cost	$	(217	)	$	(266	)	$	(119	)	$	(168	)
Accumulated income (loss)		(36,219	)		(33,708	)		(85,820	)		(78,755	)
Accumulated other comprehensive income (loss)	$	(36,436	)	$	(33,974	)	$	(85,939	)	$	(78,923	)

Other changes in other comprehensive income (loss) for the periods indicated are as follows:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010			2009			2012			2011
Other comprehensive income (loss) at December 31, prior year	$	(33,974	)	$	(46,567	)	$	(78,923	)	$	(36,436	)
Net gain (loss) arising during period		(7,220	)		8,076			(13,961	)		(47,177	)
Recognition of amortizations in net periodic benefit cost:
Prior service cost		49			49			49			49
Actuarial loss		4,709			4,468			6,896			4,641
Other comprehensive income (loss) at December 31, current year	$	(36,436	)	$	(33,974	)	$	(85,939	)	$	(78,923	)

Net periodic benefit cost for U.S. employees included the following components for the periods indicated:

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010
Service cost	$	6,944		$	6,015		$	5,174		$	9,370		$	7,548		$	6,944
Interest cost		7,052			6,385			5,916			7,971			7,702			7,052
Expected return on assets		(7,971	)		(6,145	)		(6,583	)		(7,743	)		(9,067	)		(7,971	)
Amortization of actuarial loss from earlier periods		2,467			3,663			601			6,896			3,367			2,467
Amortization of unrecognized prior service cost		49			49			51			49			49			49
Settlement		2,242			805			784			-			1,275			2,242
Net periodic benefit cost	$	10,783		$	10,772		$	5,943		$	16,542		$	10,874		$	10,783

Other changes recognized in other comprehensive income (loss):
Other comprehensive income (loss) attributable to change from prior year		2,462			(12,593	)					7,017			42,487

Total recognized in net periodic benefit cost and other
comprehensive income (loss)	$	13,244		$	(1,821	)				$	23,559		$	53,361

(Some amounts may not reconcile due to rounding.)

The estimated transition obligation, actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year are ~~$0.0~~$0 thousand, ~~$2,191.7~~$7,415 thousand and ~~$49.1~~$49 thousand, respectively.

The weighted average discount rates used to determine net periodic benefit cost for 2012, 2011 and 2010 ~~2009~~were 4.60%, 5.60% and ~~2008 were~~ 6.10%~~, 6.25% and 6.55%~~, respectively. The rate of compensation increase used to determine the net periodic benefit cost for ~~2010, 2009~~2012, 2011 and ~~2008~~2010 was 4.0%~~, 4.0% and 4.5%, respectively.~~. The expected long-term rate of return on plan assets for 2012, 2011 and 2010 ~~2009~~was 7.75%, 8.0% and ~~2008 was~~ 8.0%, respectively, and was based on expected portfolio returns and allocations.

The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation atfor year end 2012, 2011 and 2010 ~~2009,~~were 4.00%, 4.60% and ~~2008 were~~ 5.60%~~, 6.10% and 6.25%~~, respectively.

~~F-31~~F-33

The following table summarizes the accumulated benefit obligation for the periods indicated:

	At December 31,				At December 31,
(Dollars in thousands)	2010		2009		2012		2011
Qualified Plan	$	91,254	$	73,969	$	148,107	$	118,981
Non-qualified Plan		19,141		21,898		25,579		21,231
Total	$	110,395	$	95,867	$	173,686	$	140,212

The following table displays the plans with projected benefit obligations in excess of plan assets for the periods indicated:

	At December 31,				At December 31,
(Dollars in thousands)	2010		2009		2012		2011
Qualified Plan
Projected benefit obligation	NA		NA		$	181,617	$	146,350
Fair value of plan assets	NA		NA			114,807		101,304
Non-qualified Plan
Projected benefit obligation	$	24,874	$	25,831	$	30,542	$	29,014
Fair value of plan assets		-		-		-		-

The following table displays the plans with accumulated benefit obligations in excess of plan assets for the periods indicated:

	At December 31,				At December 31,
(Dollars in thousands)	2010		2009		2012		2011
Qualified Plan
Accumulated benefit obligation	NA		NA		$	148,107	$	118,981
Fair value of plan assets	NA		NA			114,807		101,304
Non-qualified Plan
Accumulated benefit obligation	$	19,141	$	21,898	$	25,579	$	21,231
Fair value of plan assets		-		-		-		-

The following table displays the expected benefit payments in the periods indicated:

(Dollars in thousands)
2011	$	4,829
2012		5,367
2013		7,068	$	8,567
2014		7,363		7,233
2015		7,078		6,582
2016				6,759
2017				7,299
Next 5 years		42,644		48,914

Plan assets consist of shares in investment trusts with approximately ~~66%~~68%, ~~31%~~29% and 3% of the underlying assets consisting of equity securities, fixed maturities and cash, respectively. The Company manages the qualified plan investments for U.S. employees. The assets in the plan consist of debt and equity mutual funds. Due to the long term nature of the plan, the target asset allocation has historically been 70% equities and 30% bonds.

~~F-32~~F-34

The following ~~table presents~~tables present the fair value measurement levels for the qualified plan assets at fair value for the periods indicated:

			Fair Value Measurement Using:								Fair Value Measurement Using:
			Quoted Prices								Quoted Prices
			in Active		Significant						in Active		Significant
			Markets for		Other		Significant				Markets for		Other		Significant
			Identical		Observable		Unobservable				Identical		Observable		Unobservable
			Assets		Inputs		Inputs				Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2010		(Level 1)		(Level 2)		(Level 3)		December 31, 2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash	$	356	$	356	$	-	$	-	$	-	$	-	$	-	$	-
Short-term investments, which approximates fair value (a)		2,728		2,728		-		-		3,343		3,343		-		-
Mutual funds, fair value
Fixed income (b)		35,334		35,334		-		-		33,783		33,783		-		-
Equities (c)		65,793		65,793		-		-		63,065		63,065		-		-
Multi-strategy equity fund, fair value (d)		10,259		-		-		10,259		9,092		-		-		9,092
Private equity limited partnership (e)										5,524		-		-		5,524
Total	$	114,470	$	104,211	$	-	$	10,259	$	114,807	$	100,191	$	-	$	14,616

(a)	This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.

(b)	This category includes three fixed income funds, which invest in investment grade securities of corporations, governments and government agencies with approximately half in U.S. securities and half in international securities.

(c)

This category includes eight funds, which invest in small, mid and multi-cap equity securities including common stocks, securities convertible into common stock and securities with common stock characteristics, such as rights and warrants, with approximately ~~two-thirds~~three-fourths in U.S. equities and ~~one-third~~one-fourth in international equities.

(d)	This category consists of a privately held fund of U.S. and international equity funds and may include currency hedges for the foreign funds. The ~~underlying~~fair value is provided by the external investment manager.

(e)	This category consists of two private equity limited partnerships.

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash	$	317	$	317	$	-	$	-
Short-term investments, which approximates fair value (a)		3,109		3,109		-		-
Mutual funds, fair value
Fixed income (b)		33,573		33,573		-		-
Equities (c)		55,423		55,423		-		-
Multi-strategy equity fund, fair value (d)		7,891		-		-		7,891
Private equity limited partnership (e)		991		-		-		991
Total	$	101,304	$	92,422	$	-	$	8,882

(a)	This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.

(b)	This category includes three fixed income funds, which invest in investment grade securities of corporations, governments and government agencies with approximately half in U.S. securities and half in international securities.

(c)

This category includes eight funds, which invest in small, mid and multi-cap equity securities including common stocks, securities convertible into common stock and securities with common stock characteristics, such as rights and warrants, with approximately three-fourths in U.S. equities and one-fourth in international equities.

(d)	This category consists of a privately held fund of U.S. and international equity funds ~~are valued at their net asset value.~~and may include currency hedges for the foreign funds. The fair value is provided by the external investment manager.

(e)	This category consists of a private equity limited partnership.

F-35

The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs for fixed maturity investments, for the period indicated:

	Years Ended December 31,				Years Ended December 31,
(Dollars in thousands)	2010		2009		2012			2011
Assets:
Balance, beginning of period	$	6,564	$	-	$	8,882		$	10,259
Actual return on plan assets:
Relating to assets still held at the reporting date		1,776		564
Relating to assets sold during the period		7		-
Purchases, issuances and settlements		1,912		6,000
Realized gains (losses)						(22	)		21
Unrealized gains (losses)						997			(2,380	)
Purchases and capital contributions						5,955			1,200
Investment income earned on assets						118			(95	)
Sales and capital distributions						(1,314	)		(123	)
Transfers in and/or (out) of Level 3		-		-		-			-
Balance, end of period	$	10,259	$	6,564	$	14,616		$	8,882

The amount of total gains (losses) for the period included in changes in
net assets attributable to the change in unrealized gains (losses)
relating to assets still held at the reporting date					$	1,019		$	(2,401	)

(Some amounts may not reconcile due to rounding.)

The Company does not expect to make any contributions to the qualified plan in ~~2011.~~2013.

Defined Contribution Plans.

The Company also maintains both qualified and non-qualified defined contribution plans (“Savings Plan” and “Non-Qualified Savings Plan”, respectively) covering U.S. employees. Under the plans, the Company contributes up to a maximum 3% of the participants’ compensation based on the contribution percentage of the employee. The Non-Qualified Savings Plan provides compensating savings plan benefits for participants whose benefits have been curtailed under the Savings Plan due to Internal Revenue Code limitations. In addition, effective for new hires (and rehires) on or after April 1, 2010, the Company will contribute between 3% and 8% of an employee’s earnings for each payroll period based on the employee’s age. These contributions will be 100% vested after three years.

~~F-33~~

~~Index~~

The following table presents the Company’s incurred expenses related to these plans for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Incurred expenses	$	1,801	$	1,631	$	1,396	$	3,209	$	2,062	$	1,801

In addition, the Company maintains several defined contribution pension plans covering non-U.S. employees. Each non-U.S. office (Brazil, Canada and Singapore) maintains a separate plan for the non-U.S. employees working in that location. The Company contributes various amounts based on salary, age and/or years of service. The contributions as a percentage of salary for the branch offices range from ~~7.8%~~6.7% to ~~9.1%~~9.2%. The contributions are generally used to purchase pension benefits from local insurance providers. The following table presents the Company’s incurred expenses related to these plans for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Incurred expenses	$	377	$	317	$	256	$	412	$	419	$	377

F-36

Post-Retirement Plan.

The Company sponsors a Retiree Health Plan for employees employed prior to April 1, 2010. This plan provides healthcare benefits for eligible retired employees (and their eligible dependants), who have elected coverage. The Company anticipates that most covered employees will become eligible for these benefits if they retire while working for the Company. The cost of these benefits is shared with the retiree. The Company accrues the post-retirement benefit expense during the period of the employee’s service.

The following medical cost trend rates were used to determine net cost and benefit obligations: a healthcare inflation rate for pre-Medicare claims of ~~8.1%~~7.7% in ~~2010~~2012 was assumed to decrease gradually to 4.5% in 2027 and then remain at that level; and a healthcare inflation rate for post-Medicare claims of ~~6.4%~~6.3% in ~~2010~~2012 was assumed to decrease gradually to 4.5% in 2027 and then remain at that level.

Changes in the assumed healthcare cost trend can have a significant effect on the amounts reported for the healthcare plans. A one percent change in the rate would have the following effects on:

	Percentage		Percentage			Percentage		Percentage
	Point Increase		Point Decrease			Point Increase		Point Decrease
(Dollars in thousands)	($ Impact)		($ Impact)			($ Impact)		($ Impact)
a. Effect on total service and interest cost components	$	406	$	(321	)	$	617	$	(478	)
b. Effect on accumulated post-retirement benefit obligation		3,003		(2,426	)		5,905		(4,611	)

The following table presents the post-retirement benefit expenses for the periods indicated:

Years Ended December 31,
(Dollars in thousands) 2010 2009 2008
Post-retirement benefit expenses $ 1,947 $ 1,769 $ 1,411

~~F-34~~

	Years Ended December 31,
(Dollars in thousands)	2012		2011		2010
Post-retirement benefit expenses	$	3,141	$	2,258	$	1,947

~~Index~~

The following table summarizes the status of this plan for the periods indicated:

	At December 31,						At December 31,
(Dollars in thousands)	2010			2009			2012			2011
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	14,919		$	12,356		$	21,462		$	16,754
Service cost		1,017			902			1,677			1,165
Interest cost		849			780			1,033			934
Actuarial loss		412			1,213			4,136			2,930
Excise tax cost								11			53
Benefits paid		(443	)		(332	)		(381	)		(374	)
Benefit obligation at end of year		16,754			14,919			27,938			21,462

Change in plan assets:
Fair value of plan assets at beginning of year		-			-			-			-
Employer contributions		443			332			381			374
Benefits paid		(443	)		(332	)		(381	)		(374	)
Fair value of plan assets at end of year		-			-			-			-

Funded status at end of year	$	(16,754	)	$	(14,919	)	$	(27,938	)	$	(21,462	)

Amounts recognized in the consolidated balance sheets for the periods indicated:

	At December 31,						At December 31,
(Dollars in thousands)	2010			2009			2012			2011
Other liabilities (due within one year)	$	(377	)	$	(323	)	$	(472	)	$	(470	)
Other liabilities (due beyond one year)		(16,377	)		(14,596	)		(27,466	)		(20,992	)
Net amount recognized in the consolidated balance sheets	$	(16,754	)	$	(14,919	)	$	(27,938	)	$	(21,462	)

F-37

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) for the periods indicated:

	At December 31,						At December 31,
(Dollars in thousands)	2010			2009			2012			2011
Accumulated income (loss)	$	(3,692	)	$	(3,361	)	$	(10,231	)	$	(6,516	)
Accumulated other comprehensive income (loss)	$	(3,692	)	$	(3,361	)	$	(10,231	)	$	(6,516	)

Other changes in other comprehensive income (loss) for the periods indicated are as follows:

Years Ended December 31,
(Dollars in thousands) 2010 2009
Other comprehensive income (loss) at December 31, prior year $ (3,361 ) $ (2,234 )
Net gain (loss) arising during period (412 ) (1,213 )
Recognition of amortizations in net periodic benefit cost:
Actuarial loss (gain) 81 86
Other comprehensive income (loss) at December 31, current year $ (3,692 ) $ (3,361 )

~~F-35~~

	Years Ended December 31,
(Dollars in thousands)	2012			2011
Other comprehensive income (loss) at December 31, prior year	$	(6,516	)	$	(3,692	)
Net gain (loss) arising during period		(4,147	)		(2,983	)
Recognition of amortizations in net periodic benefit cost:
Actuarial loss (gain)		432			159
Other comprehensive income (loss) at December 31, current year	$	(10,231	)	$	(6,516	)

~~Index~~

Net periodic benefit cost included the following components for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Service cost	$	1,017	$	902	$	732	$	1,677	$	1,165	$	1,017
Interest cost		849		780		664		1,033		934		849
Net loss recognition		81		87		15		432		159		81
Net periodic cost	$	1,947	$	1,769	$	1,411	$	3,142	$	2,258	$	1,947

Other changes recognized in other comprehensive income (loss):
Other comprehensive gain (loss) attributable to change from prior year		331		1,127				3,715		2,823

Total recognized in net periodic benefit cost and
other comprehensive income (loss)	$	2,278	$	2,896			$	6,857	$	5,081

The estimated transition obligation, actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are ~~$0.0~~$0 thousand, ~~$145.1~~$614 thousand and ~~$0.0~~$0 thousand, respectively.

The weighted average discount rates used to determine net periodic benefit cost for 2012, 2011 and 2010 ~~2009~~were 4.60%, 5.60% and ~~2008 were~~ 6.10%~~, 6.25% and 6.55%~~, respectively.

The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation at year end 2012, 2011 and 2010 ~~2009~~were 4.00%, 4.60% and ~~2008 were~~ 5.60%~~, 6.10% and 6.25%~~, respectively.

The following table displays the expected benefit payments in the ~~periods~~years indicated:

(Dollars in thousands)
2011	$	377
2012		442
2013		532	$	472
2014		609		538
2015		751		672
2016				760
2017				820
Next 5 years		5,500		6,403

F-38

15. DIVIDEND RESTRICTIONS AND STATUTORY FINANCIAL INFORMATION

Dividend Restrictions.

Delaware law provides that an insurance company which is a member of an insurance holding company system and is domiciled in the state shall not pay dividends without giving prior notice to the Insurance Commissioner of Delaware and may not pay dividends without the approval of the Insurance Commissioner if the value of the proposed dividend, together with all other dividends and distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory surplus or (2) net income, not including realized capital gains, each as reported in the prior year’s statutory annual statement. In addition, no dividend may be paid in excess of unassigned earned surplus. At December 31, ~~2010,~~2012, Everest Re has ~~$252,752~~$359,026 thousand available for payment of dividends in ~~2011~~2013 without the need for prior regulatory approval.

Statutory Financial Information.

Everest Re prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the National Association of Insurance Commissioners (“NAIC”) and the Delaware Insurance Department. Prescribed statutory accounting practices are set forth in the NAIC Accounting Practices and Procedures Manual. The capital and statutory surplus of Everest Re was ~~$2,527,519~~$2,612,995 thousand and ~~$2,789,740~~$2,322,115 thousand at December 31, ~~2010~~2012 and ~~2009,~~2011, respectively. The statutory net income of Everest Re was ~~$218,452 thousand, $442,735~~$359,816 thousand and ~~$74,398~~net loss was $326,400 thousand for the years ended December 31, ~~2010, 2009~~2012 and ~~2008,~~2011 and the statutory net income of Everest Re was $218,452 thousand for the year ended December 31, 2010, respectively.

~~F-36~~

~~Index~~

16. CONTINGENCIES

Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company ~~does~~is not ~~believe that~~a party to any ~~of these matters, when finally resolved, will have a~~other material ~~adverse effect on the Company’s financial position~~litigation or liquidity. However, an adverse resolution of one or more of these items in any one quarter or fiscal year could have a material adverse effect on the Company’s results of operations in that period.arbitration.

In 1993 and prior, the Company had a business arrangement with The Prudential Insurance Company of America (“The Prudential”) wherein, for a fee, the Company accepted settled claim payment obligations of certain property and casualty insurers, and, concurrently, became the owner of the annuity or assignee of the annuity proceeds funded by the property and casualty insurers specifically to fulfill these fully settled obligations. In these circumstances, the Company would be liable if The Prudential, which has an A+ (Superior) financial strength rating from A.M. Best Company (“A.M. Best”), was unable to make the annuity payments. The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:

Years Ended December 31,
(Dollars in thousands) 2010 2009
$ 150,560 $ 152,340

	Years Ended December 31,
(Dollars in thousands)	2012		2011
	$	144,628	$	143,447

F-39

Prior to its 1995 initial public offering, the Company purchased annuities from an unaffiliated life insurance company with an A+ (Superior) financial strength rating from A.M. Best to settle certain claim liabilities of the company. Should the life insurance company become unable to make the annuity payments, the Company would be liable for those claim liabilities. The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:

Years Ended December 31,
(Dollars in thousands) 2010 2009
$ 26,542 $ 24,568

	Years Ended December 31,
(Dollars in thousands)	2012		2011
	$	29,132	$	27,634

17. RELATED-PARTY TRANSACTIONS

Parent

Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its subsidiary Holdings to purchase Group’s common shares through open market transactions, privately negotiated transactions or both. The table below represents the amendments to the share repurchase program for the common shares approved for repurchase.

Common Shares
Authorized for
Amendment Date Repurchase
(Dollars in thousands)
09/21/2004 $ 5,000,000
07/21/2008 5,000,000
02/24/2010 5,000,000
$ 15,000,000

	Common Shares
	Authorized for
Amendment Date	Repurchase
(Dollars in thousands)

09/21/2004	$	5,000,000
07/21/2008		5,000,000
02/24/2010		5,000,000
02/22/2012		5,000,000
	$	20,000,000

~~F-37~~

~~Index~~

As of December 31, ~~2010,~~2012, Holdings held ~~9,291,933~~9,719,971 common shares of Group, which it had purchased in the open market between February 1, 2007 and ~~November 12, 2010.~~March 8, 2011. The table below represents the total purchase price for these common shares purchased.

(Dollars in thousands)
Total purchase price		$	797,760			$	835,371

Holdings reports these purchases as other invested assets, fair value, in the consolidated balance sheets with changes in fair value re-measurement recorded in net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss). The following table presents the dividends received on these common shares that are reported as net investment income in the consolidated statements of operations and comprehensive income (loss) for the period indicated.

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Dividends received	$	14,029	$	7,987	$	7,214	$	18,663	$	18,645	$	14,029

Affiliated Companies

During the fourth quarter of 2011, the Company sold its subsidiaries, Everest Canada and Premiere, to an affiliated company, Holdings Ireland. Holdings Ireland is a direct subsidiary of Group, the Company’s ultimate parent. The Company sold the subsidiaries to Holdings Ireland for $61,005 thousand, which was the book value of the subsidiaries as of September 30, 2011.

F-40

Everest Global Services, Inc. (“~~Everest Global”~~Global Services”), an affiliate of Holdings, provides centralized management and home office services, through a management agreement, to Holdings and other affiliated companies within Holdings’ consolidated structure. Services provided by Everest Global include executive managerial services, legal services, actuarial services, accounting services, information technology services and others.

The following table presents the expenses incurred by Holdings from services provided by Everest Global for the periods indicated.

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Expenses incurred	$	62,740	$	53,015	$	46,926	$	78,398	$	61,108	$	62,740

Outside Directors

During the normal course of business, the Company, through its affiliates, engages in insurance and brokerage and commission business transactions, with companies controlled by or affiliated with one or more of ~~its~~Group’s outside directors. Such transactions, individually and in the aggregate, are not material to the Company’s financial condition, results of operation and cash flows. See also Note 12.

18. SEGMENT REPORTING

During the quarter ended September 30, 2011, the Company realigned its reporting segments to reflect recent changes in the type and volume of business written. The Company ~~through its subsidiaries, operates~~previously reported the results of Marine & Aviation, Surety, Accident and Health (“A&H”) Reinsurance and A&H Primary operations as a separate segment—Specialty Underwriting. The A&H primary business, which is a relatively new line of business for the Company, has increased significantly, representing approximately 2% of premiums earned and is projected to continue to grow. The A&H primary business is better aligned with the Insurance reporting segment based on the similarities of this business with those businesses already reflected in ~~four segments:~~the Insurance segment. The other operating units included in the Specialty Underwriting segment would have encompassed less than 8% of the Company’s premiums earned and their volume is projected to remain approximately 8%. As a result of the size of these remaining operating units and their similarity to the business reported within U.S. Reinsurance, they have been reclassified to the U.S. ~~Insurance, Specialty Underwriting and International.~~ Reinsurance segment. There has been no change to the International reporting segment. The Company has restated all segment information for prior years to conform to the new reporting segment structure.

The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S. The U.S. Insurance operation writes property and casualty insurance primarily through general agents, brokers and surplus lines brokers within the U.S. The Specialty Underwriting operation writes accident and health (“A&H”), marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies. The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada, ~~and~~ Singapore and through offices in Brazil, Miami and New Jersey. The Insurance operation writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S. and Canada.

~~F-38~~

~~Index~~

Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. Underwriting results are measured using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.

F-41

The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the Company does not review and evaluate the financial results of its operating segments based upon balance sheet data.

U.S. Reinsurance	Years Ended December 31,							Years Ended December 31,
(Dollars in thousands)	2010		2009		2008			2012			2011			2010
Gross written premiums	$	1,143,696	$	1,172,304	$	957,900		$	1,310,683		$	1,346,830		$	1,395,433
Net written premiums		633,321		660,595		569,866			659,692			688,524			773,615

Premiums earned	$	630,780	$	676,415	$	685,075		$	722,384		$	697,737		$	777,704
Incurred losses and LAE		445,270		344,481		559,985			582,436			623,113			556,529
Commission and brokerage		135,117		142,119		159,677			168,606			156,026			169,327
Other underwriting expenses		33,940		36,181		32,180			44,776			39,290			42,510
Underwriting gain (loss)	$	16,453	$	153,634	$	(66,767	)	$	(73,434	)	$	(120,692	)	$	9,338

U.S. Insurance Years Ended December 31,
(Dollars in thousands) 2010 2009 2008
Gross written premiums $ 850,661 $ 842,564 $ 771,798
Net written premiums 363,682 352,077 398,723

Premiums earned $ 399,769 $ 382,802 $ 482,729
Incurred losses and LAE 353,886 317,753 422,183
Commission and brokerage 27,841 29,848 68,238
Other underwriting expenses 69,676 74,627 64,324
Underwriting gain (loss) $ (51,634 ) $ (39,426 ) $ (72,016 )

Specialty Underwriting	Years Ended December 31,
International									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008		2012		2011			2010
Gross written premiums	$	266,447		$	234,774		$	260,422	$	1,209,523	$	1,242,609		$	1,206,953
Net written premiums		150,349			132,915			167,677		550,732		615,064			641,359

Premiums earned	$	156,979		$	139,140		$	168,399	$	572,466	$	636,681		$	626,295
Incurred losses and LAE		116,422			96,267			116,277		261,473		856,131			561,872
Commission and brokerage		35,937			40,946			40,948		124,552		142,273			136,166
Other underwriting expenses		8,570			8,719			8,055		29,294		27,307			27,646
Underwriting gain (loss)	$	(3,950	)	$	(6,792	)	$	3,119	$	157,147	$	(389,030	)	$	(99,389	)

International Years Ended December 31,
(Dollars in thousands) 2010 2009 2008
Gross written premiums $ 1,206,953 $ 1,084,476 $ 904,668
Net written premiums 641,359 589,714 539,096

Premiums earned $ 626,295 $ 586,703 $ 545,579
Incurred losses and LAE 561,872 333,175 367,115
Commission and brokerage 136,166 131,664 129,747
Other underwriting expenses 27,646 23,083 19,780
Underwriting gain (loss) $ (99,389 ) $ 98,781 $ 28,937

Insurance	Years Ended December 31,
(Dollars in thousands)	2012			2011			2010
Gross written premiums	$	1,049,184		$	969,079		$	865,371
Net written premiums		481,177			450,423			373,737

Premiums earned	$	479,048		$	459,437		$	409,824
Incurred losses and LAE		405,835			398,359			359,049
Commission and brokerage		17,541			40,356			29,568
Other underwriting expenses		96,534			87,734			69,676
Underwriting gain (loss)	$	(40,862	)	$	(67,012	)	$	(48,469	)

~~F-39~~

~~Index~~

The following table reconciles the underwriting results for the operating segments to income (loss) before taxes as reported in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:

	Years Ended December 31,									Years Ended December 31,
(Dollars in thousands)	2010			2009			2008			2012			2011			2010
Underwriting gain (loss)	$	(138,520	)	$	206,197		$	(106,727	)	$	42,851		$	(576,734	)	$	(138,520	)
Net investment income		350,344			262,086			363,053			306,145			312,933			350,344
Net realized capital gains (losses)		65,291			56,928			(489,186	)		391,702			(41,116	)		65,291
Realized gain on debt repurchase		-			78,271			-
Corporate expense		(5,867	)		(7,722	)		(5,587	)		(8,764	)		(6,073	)		(5,867	)
Interest, fee and bond issue cost amortization expense		(54,553	)		(70,883	)		(78,979	)		(50,746	)		(50,763	)		(54,553	)
Other income (expense)		12,074			366			57,921			12,136			(11,745	)		12,074
Income (loss) before taxes	$	228,769		$	525,243		$	(259,505	)	$	693,324		$	(373,498	)	$	228,769

F-42

The Company produces business in the U.S. and internationally. The net income deriving from ~~and~~ assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company’s financial records. Based on gross written premium, the table below presents the largest country, other than the U.S., in which the Company writes business, for the periods indicated:

	Years Ended December 31,						Years Ended December 31,
(Dollars in thousands)	2010		2009		2008		2012		2011		2010
Canada	$	186,861	$	162,695	$	138,178	$	148,529	$	185,184	$	186,861

Approximately ~~27.0%~~21.1%, ~~22.7%~~29.9% and ~~21.6%~~27.0% of the Company’s gross written premiums in ~~2010, 2009~~2012, 2011 and ~~2008,~~2010, respectively, were sourced through the Company’s largest intermediary.

19. ~~SUBSEQUENT EVENT~~ACQUISITIONS

~~At the end of 2010 and into January 2011, there were significant floods in Northeastern Australia. The Company currently estimates the pre-tax losses impacting~~During the first quarter of 2011, the Company made several acquisitions to expand its domestic and Canadian insurance operations. Below are descriptions of the transactions.

On January 2, 2011, the Company acquired the entire business and operations of Heartland Crop Insurance, Inc. (“Heartland”) of Topeka, Kansas for $55,000 thousand in cash, plus contingent payments in future periods based upon achievement of performance targets. Heartland is a managing general agent specializing in crop insurance.

On January 28, 2011, the Company acquired the entire business and operations of Premiere of Toronto, Canada. Premiere is a managing general agent specializing in entertainment and sports and leisure risks. On January 31, 2011, the Company acquired the renewal rights and operations of the financial ~~statements to be $23,000 thousand. On February 22, 2011, there was an earthquake in New Zealand.~~ lines business of Executive Risk Insurance Services, Ltd. (“Executive Risk”) of Toronto, Canada. The financial lines business of Executive Risk mainly underwrites Directors and Officers Liability, Fidelity, and Errors and Omissions Liability.

The Company ~~currently estimates~~subsequently sold both Premiere and the ~~range~~financial lines of ~~pre-tax losses impacting~~business of Executive Risk to an affiliated company, Holdings Ireland in the ~~first~~fourth quarter ~~2011 financial statements to be between $64,000 thousand and $83,000 thousand. In addition, on March 11, 2011, there was an earthquake and tsunami in Japan. Due to the recentness~~ of ~~this event,~~2011.

Overall, the Company ~~is unable~~recorded $46,215 thousand of goodwill and $26,903 thousand of intangible assets related to ~~estimate~~these acquisitions, which are reported as part of other assets within the ~~amount~~consolidated balance sheets. Intangible assets of ~~losses at this time. However,~~$7,417 thousand related to these acquisitions were subsequently sold as part of the sale of Premiere and the financial lines of business of Executive Risk to Holdings Ireland. All remaining intangible assets recorded as part of these acquisitions will be amortized on a straight line basis over seven years, subject to recoverability tests.

20. SUBSEQUENT EVENTS

The Company ~~anticipates that this earthquake will adversely impact first quarter 2011 financial statements.~~has evaluated known recognized and non-recognized subsequent events. The Company does not have any subsequent events to report.

~~F-40~~F-43

~~20.~~21. UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data for the periods indicated:

	2010										2012
(Dollars in thousands)	1st Quarter			2nd Quarter			3rd Quarter		4th Quarter		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter

Operating data:
Gross written premiums	$	813,482		$	846,009		$	973,659	$	834,606	$	857,191	$	732,879	$	1,010,883	$	968,437
Net written premiums		413,377			435,143			497,873		442,318		427,379		339,432		458,866		465,924

Premiums earned		414,134			442,724			465,302		491,663		433,711		438,470		427,112		474,605
Net investment income		85,107			89,346			74,212		101,679		81,242		74,206		76,342		74,355
Net realized capital gains (losses)		(5,307	)		(95,473	)		159,569		6,502		176,141		82,589		95,943		37,029
Total claims and underwriting expenses		527,559			438,317			445,610		540,857		377,402		428,041		359,279		566,325
Net income (loss)		(44,929	)		16,887			168,652		124,787		214,724		125,653		155,985		23,967

	2011
(Dollars in thousands)	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter

Operating data:
Gross written premiums	$	886,399		$	811,508		$	923,180		$	937,431
Net written premiums		460,083			410,002			439,835			444,093

Premiums earned		459,393			452,050			442,862			439,550
Net investment income		87,132			84,459			78,325			63,017
Net realized capital gains (losses)		40,476			(68,184	)		(179,036	)		165,628
Total claims and underwriting expenses		679,757			432,337			435,649			822,846
Net income (loss)		(97,533	)		8,807			261			(114,356	)

2009
(Dollars in thousands) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Operating data:
Gross written premiums $ 778,721 $ 811,103 $ 916,276 $ 828,017
Net written premiums 428,545 447,199 452,655 406,902

Premiums earned 438,445 460,774 438,320 447,521
Net investment income 39,659 74,516 65,492 82,419
Net realized capital gains (losses) (68,184 ) 22,941 101,394 777
Total claims and underwriting expenses 408,722 367,889 357,440 444,812
Net income (loss) 45,664 128,500 164,141 57,546

~~F-41~~F-44

SCHEDULE I – SUMMARY OF INVESTMENTS -

OTHER THAN INVESTMENTS IN RELATED PARTIES

DECEMBER 31, ~~2010~~2012

Column A	Column B		Column C		Column D
					Amount
					Shown in
			Market		Balance
(Dollars in thousands)	Cost		Value		Sheet
Fixed maturities-available for sale
Bonds:
U.S. government and government agencies	$	77,611	$	78,190	$	78,190
State, municipalities and political subdivisions		1,214,990		1,291,963		1,291,963
Foreign government securities		732,277		780,003		780,003
Foreign corporate securities		990,671		1,031,240		1,031,240
Public utilities		79,235		84,266		84,266
All other corporate bonds		1,447,997		1,499,221		1,499,221
Mortgage - backed securities
Commercial		45,157		52,624		52,624
Agency residential		672,724		683,722		683,722
Non-agency residential		1,933		2,329		2,329
Redeemable preferred stock		27,024		27,852		27,852
Total fixed maturities-available for sale		5,289,619		5,531,410		5,531,410
Fixed maturities - available for sale, at fair value(1)		41,068		41,470		41,470
Equity securities - available for sale, at market value		15		13		13
Equity securities - available for sale, at fair value(1)		1,035,179		1,199,848		1,199,848
Short-term investments		465,550		465,550		465,550
Other invested assets		420,744		420,744		420,744
Other invested assets, at fair value (1)		835,371		1,068,711		1,068,711
Cash		347,720		347,720		347,720

Total investments and cash	$	8,435,266	$	9,075,466	$	9,075,466

Column A Column B Column C Column D
Amount
Shown in
Market Balance
(Dollars in thousands) Cost Value Sheet
Fixed maturities-available for sale
Bonds:
U.S. government and government agencies $ 153,263 $ 150,567 $ 150,567
State, municipalities and political subdivisions 2,809,514 2,901,505 2,901,505
Foreign government securities 731,930 749,041 749,041
Foreign corporate securities 617,666 617,427 617,427
Public utilities 54,212 57,907 57,907
All other corporate bonds 634,442 667,152 667,152
Mortgage - backed securities
Commercial 31,887 39,505 39,505
Agency residential 355,928 369,691 369,691
Non-agency residential 29,373 29,968 29,968
Redeemable preferred stock 20,144 17,177 17,177
Total fixed maturities-available for sale 5,438,359 5,599,940 5,599,940
Fixed maturities - available for sale, at fair value(1)
168,928 180,482 180,482
Equity securities - available for sale, at market value 15 13 13
Equity securities - available for sale, at fair value(1)
615,813 683,454 683,454
Short-term investments 516,885 516,885 516,885
Other invested assets 405,401 406,916 406,916
Other invested assets, at fair value (1)
797,760 788,142 788,142
Cash 118,092 118,092 118,092

Total investments and cash $ 8,061,253 $ 8,293,924 $ 8,293,924

(1) Original cost does not reflect adjustments, which have been realized through the statements of operations and comprehensive income.

(1)Original cost does not reflect adjustments, which have been realized through the statements of operations and comprehensive income.

~~S-1~~

S-1

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

CONDENSED BALANCE SHEETS

At December 31,
(Dollars and share amounts in thousands, except par value per share) 2010 2009
ASSETS:
Fixed maturities - available for sale, at market value $ 813 $ 131,961
(amortized cost: 2010, $800; 2009, $133,295)
Equity securities - available for sale, at fair value 69,608 19,945
Other invested assets, at market value 12,943 12,943
Other invested assets, at fair value 788,142 382,639
Short-term investments 122,105 7,049
Cash 1,369 1,259
Total investments and cash 994,980 555,796
Investment in subsidiaries, at equity in the underlying net assets 2,929,526 3,271,079
Accrued investment income 1 597
Federal income taxes recoverable 90,146 63,233
Other assets 11,213 15,164
TOTAL ASSETS $ 4,025,866 $ 3,905,869

LIABILITIES:
Revolving credit borrowings $ 50,000 $ -
8.75% Senor notes due 3/15/2010 - 199,970
5.4% Senior notes due 10/15/2014 249,812 249,769
6.6% Long term notes due 5/1/2067 238,351 238,348
Junior subordinated debt securities payable 329,897 329,897
Accrued interest on debt and borrowings 4,793 9,885
Deferred tax liability 24,178 18,818
Due to subsidiaries 667 -
Other liabilities 427 408
Total liabilities 898,125 1,047,095

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 3,000 shares authorized;
1,000 shares issued and outstanding (2010 and 2009) - -
Additional paid-in capital 327,767 321,185
Accumulated other comprehensive income (loss), net of deferred income
tax expense (benefit) of $88,289 at 2010 and $89,812 at 2009 163,966 166,978
Retained earnings (deficit) 2,636,008 2,370,611
Total stockholder's equity 3,127,741 2,858,774
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 4,025,866 $ 3,905,869

See notes to consolidated financial statements.

	At December 31,
(Dollars and share amounts in thousands, except par value per share)	2012		2011
ASSETS:
Fixed maturities - available for sale, at market value	$	13,327	$	15,065
(amortized cost: 2012, $13,051; 2011, $15,103)
Equity securities - available for sale, at fair value		61,893		43,896
Other invested assets, at market value		12,943		12,943
Other invested assets, at fair value		1,068,711		817,352
Short-term investments		45,983		44,489
Cash		289		327
Total investments and cash		1,203,146		934,072
Investment in subsidiaries, at equity in the underlying net assets		3,068,916		2,763,172
Accrued investment income		165		244
Advances to affiliates		37,700		12,000
Income taxes recoverable		99,614		43,381
Other assets		25,908		28,617
TOTAL ASSETS	$	4,435,449	$	3,781,486

LIABILITIES:
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
Deferred tax liability		121,127		13,855
Due to subsidiaries		1,084		914
Other liabilities		11,690		2,434
Total liabilities		956,843		840,093

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 3,000 shares authorized;
1,000 shares issued and outstanding (2012 and 2011)		-		-
Additional paid-in capital		340,223		333,416
Accumulated other comprehensive income (loss), net of deferred income
tax expense (benefit) of $99,544 at 2012 and $94,118 at 2011		184,867		174,790
Retained earnings		2,953,516		2,433,187
Total stockholder's equity		3,478,606		2,941,393
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	4,435,449	$	3,781,486

See notes to consolidated financial statements.

~~S-2~~

S-2

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

CONDENSED STATEMENTS OF OPERATIONS

Years Ended December 31,
(Dollars in thousands) 2010 2009 2008
REVENUES:
Net investment income $ 15,436 $ 9,567 $ 11,863
Net realized capital gains (losses) 25,070 40,000 (87,786 )
Realized gain on debt repurchase - 78,271 -
Other income (expense) (227 ) (207 ) (186 )
Net income (loss) of subsidiaries 245,753 360,065 (23,542 )
Total revenues 286,032 487,696 (99,651 )

EXPENSES:
Interest expense 54,496 70,855 78,979
Corporate expense 3,462 3,609 3,219
Total expenses 57,958 74,464 82,198

INCOME (LOSS) BEFORE TAXES 228,074 413,232 (181,849 )
Income tax expense (benefit) (37,323 ) 17,381 (57,092 )

NET INCOME (LOSS) $ 265,397 $ 395,851 $ (124,757 )

See notes to consolidated financial statements.

	Years Ended December 31,
(Dollars in thousands)	2012			2011			2010
REVENUES:
Net investment income	$	21,526		$	21,619		$	15,436
Net realized capital gains (losses)		254,680			(1,789	)		25,070
Other income (expense)		(371	)		(191	)		(227	)
Net income (loss) of subsidiaries		377,963			(181,912	)		245,753
Total revenues		653,798			(162,273	)		286,032

EXPENSES:
Interest expense		50,685			50,736			54,496
Corporate expense		7,108			3,353			3,462
Total expenses		57,793			54,089			57,958

INCOME (LOSS) BEFORE TAXES		596,005			(216,362	)		228,074
Income tax expense (benefit)		75,676			(13,541	)		(37,323	)

NET INCOME (LOSS)	$	520,329		$	(202,821	)	$	265,397

Other comprehensive income (loss), net of tax :
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period		9,390			22,049			(51,265	)
Less: reclassification adjustment for realized losses (gains) included in net income (loss)		633			20,240			23,029
Total URA(D) on securities arising during the period		10,023			42,289			(28,236	)
Foreign currency translation adjustments		7,030			(2,805	)		27,039
Pension adjustments		(6,976	)		(29,452	)		(1,815	)
Total other comprehensive income (loss), net of tax		10,077			10,032			(3,012	)

COMPREHENSIVE INCOME (LOSS)	$	530,406		$	(192,789	)	$	262,385

See notes to consolidated financial statements.

~~S-3~~

S-3

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

CONDENSED STATEMENTS OF CASH ~~FLOW~~

Years Ended December 31,
(Dollars in thousands) 2010 2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 265,397 $ 395,851 $ (124,757 )
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in (earnings) deficit of subsidiaries (245,753 ) (360,065 ) 23,542
Dividends received from subsidiaries 590,000 60,000 285,000
Increase (decrease) in accrued interest on debt and borrowings (5,091 ) (1,332 ) -
Decrease (increase) in federal income tax recoverable (26,913 ) (17,102 ) 8,110
Decrease (increase) in deferred tax asset 4,889 41,377 (26,383 )
Change in other assets and liabilities, net 5,232 (2,301 ) 2,194
Amortization of bond premium (accrual of bond discount) 571 58 -
Amortization of underwriting discount on senior notes 76 192 179
Realized gain on debt repurchase - (78,271 ) -
Net realized capital losses (gains) (25,070 ) (40,000 ) 87,786
Net cash provided by (used in) operating activities 563,338 (1,593 ) 255,671

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value 7,581 - -
Proceeds from fixed maturities sold - available for sale, at market value 124,957 - -
Proceeds from equity maturities sold - available for sale, at fair value 20,842 - -
Cost of fixed maturities acquired - available for sale, at market value (800 ) (133,353 ) -
Cost of equity securities acquired - available for sale, at fair value (71,161 ) (19,993 ) -
Cost of other invested assets acquired, at fair value (379,591 ) (25,841 ) (150,747 )
Net change in short-term investments (115,056 ) 264,781 (95,556 )
Net cash provided by (used in) investing activities (413,228 ) 85,594 (246,303 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholder - - (10,000 )
Net cost of senior notes maturing (200,000 ) - -
Revolving credit borrowings 50,000 - -
Net cost of debt repurchase - (83,026 ) -
Net cash provided by (used in) financing activities (150,000 ) (83,026 ) (10,000 )

Net increase (decrease) in cash 110 975 (632 )
Cash, beginning of period 1,259 284 916
Cash, end of period $ 1,369 $ 1,259 $ 284

Non-cash financing transaction:
Non-cash contribution from parent $ 6,582 $ 5,414 $ 5,565
Non-cash contribution to subsidiaries (6,582 ) (5,414 ) (5,565 )

See notes to consolidated financial statements.
FLOWS

	Years Ended December 31,
(Dollars in thousands)	2012				2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	520,329			$	(202,821	)	$	265,397
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in (earnings) deficit of subsidiaries		(377,963	)			181,912			(245,753	)
Dividends received from subsidiaries		100,000				75,000			590,000
Increase (decrease) in accrued interest on debt and borrowings		-				(13	)		(5,091	)
Decrease (increase) in federal income tax recoverable		(56,234	)			46,765			(26,913	)
Decrease (increase) in deferred tax asset		107,163				(10,306	)		4,889
Change in other assets and liabilities, net		(13,486	)			(27,391	)		5,232
Amortization of bond premium (accrual of bond discount)		303				80			571
Amortization of underwriting discount on senior notes		52				49			76
Net realized capital losses (gains)		(254,680	)			1,789			(25,070	)
Net cash provided by (used in) operating activities		25,484				65,064			563,338

CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in subsidiaries		(11,102	)			(19,051	)		-
Proceeds from fixed maturities matured/called - available for sale, at market value		1,749				394			7,581
Proceeds from fixed maturities sold - available for sale, at market value		-				-			124,957
Proceeds from equity maturities sold - available for sale, at fair value		13,659				32,323			20,842
Cost of fixed maturities acquired - available for sale, at market value		-				(14,777	)		(800	)
Cost of equity securities acquired - available for sale, at fair value		(28,334	)			-			(71,161	)
Cost of other invested assets acquired, at fair value		-				(37,611	)		(379,591	)
Cost of business acquired		-				(55,000	)		-
Net change in short-term investments		(1,494	)			77,616			(115,056	)
Net cash provided by (used in) investing activities		(25,522	)			(16,106	)		(413,228	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net cost of senior notes maturing		-				-			(200,000	)
Revolving credit borrowings		-				(50,000	)		50,000
Net cash provided by (used in) financing activities		-		��		(50,000	)		(150,000	)

Net increase (decrease) in cash		(38	)			(1,042	)		110
Cash, beginning of period		327				1,369			1,259
Cash, end of period	$	289			$	327		$	1,369

Non-cash financing transaction:
Non-cash contribution from parent	$	6,807			$	5,650		$	6,582
Non-cash contribution to subsidiaries		(6,807	)			(5,650	)		(6,582	)

See notes to consolidated financial statements.

~~S-4~~

S-4

SCHEDULE III – SUPPLEMENTARY INSURANCE INFORMATION

Column A	Column B		Column C		Column D		Column E		Column F		Column G		Column H		Column I		Column J		Column B		Column C		Column D		Column E		Column F		Column G		Column H		Column I		Column J
			Reserve								Incurred										Reserve								Incurred
Geographic Area			for Losses								Loss and		Amortization								for Losses								Loss and		Amortization
	Deferred		and Loss		Unearned				Net		Loss		of Deferred		Other		Net		Deferred		and Loss		Unearned				Net		Loss		of Deferred		Other		Net
	Acquisition		Adjustment		Premium		Premiums		Investment		Adjustment		Acquisition		Operating		Written		Acquisition		Adjustment		Premium		Premiums		Investment		Adjustment		Acquisition		Operating		Written
(Dollars in thousands)	Costs		Expenses		Reserves		Earned		Income		Expenses		Costs		Expenses		Premium		Costs		Expenses		Reserves		Earned		Income		Expenses		Costs		Expenses		Premium
December 31, 2012
Domestic																			$	35,272	$	6,263,961	$	854,151	$	1,201,432	$	258,469	$	988,271	$	186,147	$	141,310	$	1,140,869
International																				62,250		1,879,094		239,671		572,466		47,676		261,473		124,552		29,294		550,732
Total																			$	97,522	$	8,143,055	$	1,093,822	$	1,773,898	$	306,145	$	1,249,744	$	310,699	$	170,604	$	1,691,601

December 31, 2011
Domestic																			$	93,950	$	6,099,606	$	976,332	$	1,157,174	$	260,923	$	1,021,472	$	196,382	$	127,024	$	1,138,947
International																				72,856		2,191,013		263,373		636,681		52,010		856,131		142,273		27,307		615,064
Total																			$	166,806	$	8,290,619	$	1,239,705	$	1,793,855	$	312,933	$	1,877,603	$	338,655	$	154,331	$	1,754,011

December 31, 2010
Domestic	$	104,862	$	5,944,708	$	998,755	$	1,187,528	$	306,256	$	915,578	$	198,895	$	112,186	$	1,147,352	$	104,862	$	5,944,708	$	998,755	$	1,187,528	$	306,256	$	915,578	$	198,895	$	112,186	$	1,147,352
International		79,385		1,707,595		288,721		626,295		44,088		561,872		136,166		27,646		641,359		79,385		1,707,595		288,721		626,295		44,088		561,872		136,166		27,646		641,359
Total	$	184,247	$	7,652,303	$	1,287,476	$	1,813,823	$	350,344	$	1,477,450	$	335,061	$	139,832	$	1,788,711	$	184,247	$	7,652,303	$	1,287,476	$	1,813,823	$	350,344	$	1,477,450	$	335,061	$	139,832	$	1,788,711

December 31, 2009
Domestic	$	114,937	$	5,952,679	$	988,901	$	1,198,357	$	224,405	$	758,501	$	212,913	$	119,527	$	1,145,587
International		68,561		1,347,460		250,419		586,703		37,681		333,175		131,664		23,083		589,714
Total	$	183,498	$	7,300,139	$	1,239,320	$	1,785,060	$	262,086	$	1,091,676	$	344,577	$	142,610	$	1,735,301

December 31, 2008
Domestic	$	132,771	$	6,279,851	$	962,884	$	1,336,203	$	323,896	$	1,098,445	$	268,863	$	104,559	$	1,136,266
International		59,325		1,140,142		213,950		545,579		39,157		367,115		129,747		19,780		539,096
Total	$	192,096	$	7,419,993	$	1,176,834	$	1,881,782	$	363,053	$	1,465,560	$	398,610	$	124,339	$	1,675,362

~~S-5~~

S-5