UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: Commission file number: 
                September 30, 2004March 31, 2005                                    1-14527                
    
EVEREST REINSURANCE HOLDINGS, INC. 
(Exact name of registrant as specified in its charter) 
    
                Delaware                                     22-3263609     
(State or other jurisdiction of (I.R.S. Employer 
incorporation or organization) Identification No.) 
    
477 Martinsville Road   
Post Office Box 830   
Liberty Corner, New Jersey 07938-0830   
(908) 604-3000   
(Address, including zip code, and telephone number, including area code,   
of registrant's principal executive office)   
    

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to the filing requirements for the past 90 days.

 YES      X     NO               


Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act).

 YES            NO      X        


Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

   Number of Shares Outstanding 
                           Class  at November 1, 2004May 2, 2005
Common Shares,Stock, $.01 par value  1,000 






The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form
with the reduced disclosure format permitted by General Instruction H of Form 10-Q.



EVEREST REINSURANCE HOLDINGS, INC.

Index To Form 10-Q

PART I

FINANCIAL INFORMATION

ITEMItem 1.  FINANCIAL STATEMENTSFinancial Statements   Page 
   
                  Consolidated Balance Sheets at September 30, 2004March 31, 2005 (unaudited)     
                     and December 31, 20032004   3 
 
                  Consolidated Statements of Operations and Comprehensive Income     
                     for the three and nine months ended September 30,March 31, 2005 and 2004
                     and 2003 (unaudited)   4 
 
                  Consolidated Statements of Changes in Stockholders’ Equity for the     
                     three and nine months ended September 30,March 31, 2005 and 2004 and 2003
(unaudited)   5 
 
                  Consolidated Statements of Cash Flows for the three and ninemonths ended     
                     months ended September 30,March 31, 2005 and 2004 and 2003 (unaudited)   6 
 
                  Notes to Consolidated Interim Financial Statements (unaudited)   7 
 
ITEMItem 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OFManagement’s Discussion and Analysis of Financial Condition  
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONand Results of Operation   2221 
 
ITEMItem 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKQuantitative and Qualitative Disclosures About Market Risk   4537 
 
ITEMItem 4.   CONTROLS AND PROCEDURESControls and Procedures   4638 
 

PART II

OTHER INFORMATION


ITEM 1.PART IILEGAL PROCEEDINGS 47 
 
ITEM 2.CHANGES IN SECURITIES, USE OF PROCEEDS
AND ISSUER PURCHASES OF EQUITY SECURITIES47
ITEM 3.DEFAULTS UPON SENIOR SECURITIES47
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS47
ITEM 5.                                                     OTHER INFORMATION  
Item 1.Legal Proceedings 4739 
 
ITEM 6.Item 2.   EXHIBITS AND REPORTS ON FORM 8-KUnregistered Sales of Equity Securities and Use of Proceeds   4839
Item 3.Defaults Upon Senior Securities39
Item 4.Submission of Matters to a Vote of Security Holders39
Item 5.Other Information39
Item 6.Exhibits40 


EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS

   September 30, December 31,
(Dollars in thousands, except par value per share)   2004  2003 
   (unaudited)
ASSETS:  
Fixed maturities - available for sale, at market value  
  (amortized cost: 2004, $5,776,520; 2003, $5,649,269)  $6,020,878 $5,942,899 
Equity securities, at market value (cost: 2004, $437,372; 2003, $146,407)   455,306  154,381 
Short-term investments   427,596  113,186 
Other invested assets (cost: 2004, $89,289; 2003, $59,183)   89,992  59,801 
Cash   72,354  142,094 
          Total investments and cash   7,066,126  6,412,361 
Accrued investment income   85,711  83,023 
Premiums receivable   1,017,643  988,039 
Reinsurance receivables - unaffiliated   1,199,522  1,245,891 
Reinsurance receivables - affiliated   1,358,758  1,156,615 
Funds held by reinsureds   139,710  142,775 
Deferred acquisition costs   210,997  220,677 
Prepaid reinsurance premiums   373,027  353,764 
Deferred tax asset   230,304  159,758 
Other assets   133,115  106,462 
TOTAL ASSETS  $11,814,913 $10,869,365 
LIABILITIES:  
Reserve for losses and adjustment expenses  $6,681,791 $6,227,078 
Unearned premium reserve   1,428,129  1,357,671 
Funds held under reinsurance treaties   397,654  450,936 
Losses in the course of payment   29,826  2,577 
Contingent commissions   3,919  3,811 
Other net payable to reinsurers   294,241  370,604 
Current federal income taxes   51,071  40,945 
8.5% Senior notes due 3/15/2005   249,949  249,874 
8.75% Senior notes due 3/15/2010   199,317  199,245 
Junior subordinated debt securities payable   546,393  216,496 
Revolving credit agreement borrowings   70,000  70,000 
Interest accrued on debt and borrowings   4,028  13,695 
Other liabilities   180,581  119,569 
          Total liabilities   10,136,899  9,322,501 
STOCKHOLDERS' EQUITY:  
Common stock, par value: $0.01; 3000 shares authorized;  
  1,000 shares issued and outstanding (2004 and 2003)   -  - 
Additional paid-in capital   271,104  263,290 
Treasury shares, at cost; 0.5 million shares (2004 and 2003)   (22,950) (22,950)
Accumulated other comprehensive income, net of deferred income  
   taxes of $98.6 million at 2004 and $112.2 million at 2003   183,073  208,305 
Retained earnings   1,246,787  1,098,219 
          Total stockholders' equity   1,678,014  1,546,864 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $11,814,913 $10,869,365 

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




EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value per share)
March 31,
2005		 December 31,
2004		 
(unaudited) 
ASSETS:      
Fixed maturities - available for sale, at market value  
  (amortized cost: 2005, $5,886,477; 2004, $5,887,529)  $6,076,122 $6,159,539 
Equity securities, at market value (cost: 2005, $724,776; 2004, $571,717)   784,466  650,871 
Short-term investments   241,413  517,824 
Other invested assets (cost: 2005, $121,059; 2004, $113,050)   122,304  114,187 
Cash   84,758  53,887 
          Total investments and cash   7,309,063  7,496,308 
Accrued investment income   85,847  82,351 
Premiums receivable   1,047,240  1,063,879 
Reinsurance receivables - unaffiliated   1,150,788  1,164,851 
Reinsurance receivables - affiliated   1,499,459  1,395,555 
Funds held by reinsureds   133,727  133,797 
Deferred acquisition costs   209,687  204,124 
Prepaid reinsurance premiums   365,146  368,450 
Deferred tax asset   235,449  184,801 
Other assets   145,051  115,788 
TOTAL ASSETS  $12,181,457 $12,209,904 
LIABILITIES:  
Reserve for losses and adjustment expenses  $6,928,107 $6,846,904 
Unearned premium reserve   1,413,545  1,387,172 
Funds held under reinsurance treaties   330,905  363,842 
Losses in the course of payment   32,192  5,032 
Contingent commissions   1,147  3,532 
Other net payable to reinsurers   458,395  394,568 
Current federal income taxes   29,587  37,580 
8.5% Senior notes due 3/15/2005   -  249,976 
8.75% Senior notes due 3/15/2010   199,367  199,341 
5.4% Senior notes due 10/15/2014   249,592  249,584 
Junior subordinated debt securities payable   546,393  546,393 
Accrued interest on debt and borrowings   9,229  16,426 
Other liabilities   217,255  165,762 
          Total liabilities   10,415,714  10,466,112 
Commitments & Contingencies (Note 4)  

STOCKHOLDERS' EQUITY:		  
Common stock, par value: $0.01; 3,000 shares authorized;  
  1,000 shares issued (2005 and 2004)   -  - 
Additional paid-in capital   274,532  271,652 
Treasury shares, at cost; 0.5 million shares (2005 and 2004)   (22,950) (22,950)
Accumulated other comprehensive income, net of deferred income  
   taxes of $96.8 million at 2005 and $133.4 million at 2004   179,818  247,660 
Retained earnings   1,334,343  1,247,430 
          Total stockholders' equity   1,765,743  1,743,792 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $12,181,457 $12,209,904 
The accompanying notes are an integral part of the consolidated financial statements  

3

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME

      Three Months Ended      Nine Months Ended
         September 30,       September 30,
(Dollars in thousands)   2004  2003  2004  2003 
           (unaudited)        (unaudited)
REVENUES:  
Premiums earned  $688,087 $776,895 $2,096,711 $1,974,187 
Net investment income   81,227  70,619  242,381  211,010 
Net realized capital gains (losses)   9,388  (11,843) 59,846  (23,922)
Other expense (income)   (30,378) 625  (74,313) 1,202 
Total revenues   748,324  836,296  2,324,625  2,162,477 
CLAIMS AND EXPENSES:  
Incurred losses and loss adjustment expenses   569,889  571,914  1,551,095  1,419,312 
Commission, brokerage, taxes and fees   142,792  158,158  425,996  418,380 
Other underwriting expenses   20,171  20,973  61,749  60,012 
Interest expense on senior notes   9,737  9,733  29,209  29,197 
Interest expense on junior subordinated debt   9,363  4,249  23,030  12,747 
Interest expense on credit facility   339  327  997  1,035 
Total claims and expenses   752,291  765,354  2,092,076  1,940,683 
 
(LOSS) INCOME BEFORE TAXES   (3,967) 70,942  232,549  221,794 
 
Income tax (benefit) expense   (11,666) 10,451  57,719  45,785 
 
NET INCOME  $7,699 $60,491 $174,830 $176,009 
Other comprehensive income (loss), net of tax   96,197  (74,279) (25,232) 41,226 
COMPREHENSIVE INCOME (LOSS)  $103,896 $(13,788)$149,598 $217,235 

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




EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME

Three Months Ended
March 31,
(Dollars in thousands)2005 2004 
(unaudited)

REVENUES:		      
Premiums earned  $619,006 $800,719 
Net investment income   85,922  65,823 
Net realized capital gains (losses)   1,485  (27,046)
Other expense   (4,511) (17,260)
Total revenues   701,902  822,236 
CLAIMS AND EXPENSES:  
Incurred losses and loss adjustment expenses   434,129  593,223 
Commission, brokerage, taxes and fees   117,150  168,674 
Other underwriting expenses   24,396  19,262 
Interest expense on senior notes   12,235  9,736 
Interest expense on junior subordinated debt   9,362  4,419 
Interest expense on credit facility   47  324 
Total claims and expenses   597,319  795,638 
INCOME BEFORE TAXES   104,583  26,598 
Income tax expense   17,670  19,258 
NET INCOME  $86,913 $7,340 
Other comprehensive (loss) income, net of tax   (67,842) 24,945 
COMPREHENSIVE INCOME  $19,071 $32,285 
The accompanying notes are an integral part of the consolidated financial statements  

4

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS’ EQUITY

      Three Months Ended    Nine Months Ended
          September 30,       September 30,
(Dollars in thousands, except share amounts)   2004  2003  2004  2003 
             (unaudited)          (unaudited)
COMMON STOCK (shares outstanding):  
Balance, beginning of period   1,000  1,000  1,000  1,000 
Issued during the period   -  -  -  - 
Balance, end of period   1,000  1,000  1,000  1,000 
COMMON STOCK (par value):  
Balance, beginning of period  $- $- $- $- 
Issued during the period   -  -  -  - 
Balance, end of period   -  -  -  - 
ADDITIONAL PAID IN CAPITAL:  
Balance, beginning of period   271,014  259,711  263,290  259,508 
Tax benefit from stock options exercised   44  1,606  7,678  1,809 
Dividend from parent   46  -  136  - 
Balance, end of period   271,104  261,317  271,104  261,317 
ACCUMULATED OTHER COMPREHENSIVE INCOME,  
NET OF DEFERRED INCOME TAXES:  
Balance, beginning of period   86,876  253,662  208,305  138,156 
Net increase (decrease) during the period   96,197  (74,280) (25,232) 41,226 
Balance, end of period   183,073  179,382  183,073  179,382 
RETAINED EARNINGS:  
Balance, beginning of period   1,239,088  1,007,252  1,098,219  891,734 
Net income   7,699  60,491  174,830  176,009 
Dividends paid   -  -  (26,262) - 
Balance, end of period   1,246,787  1,067,743  1,246,787  1,067,743 
TREASURY SHARES AT COST:  
Balance, beginning of period   (22,950) (22,950) (22,950) (22,950)
Treasury shares acquired during the period   -  -  -  - 
Balance, end of period   (22,950) (22,950) (22,950) (22,950)
TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD  $1,678,014 $1,485,492 $1,678,014 $1,485,492 

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




EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY

Three Months Ended
March 31,
(Dollars in thousands, except share amounts)2005 2004 
(unaudited)

COMMON STOCK (shares outstanding):		      
Balance, beginning of period   1,000  1,000 
Issued during the period   -  - 
Balance, end of period   1,000  1,000 
ADDITIONAL PAID IN CAPITAL:  
Balance, beginning of period  $271,652 $263,290 
Tax benefit from stock options exercised   2,830  4,935 
Dividend from parent   50  45 
Balance, end of period   274,532  268,270 
ACCUMULATED OTHER COMPREHENSIVE INCOME,  
NET OF DEFERRED INCOME TAXES:  
Balance, beginning of period   247,660  208,305 
Net (decrease) increase during the period   (67,842) 24,945 
Balance, end of period   179,818  233,250 
RETAINED EARNINGS:  
Balance, beginning of period   1,247,430  1,098,219 
Net income   86,913  7,340 
Dividends paid   -  (26,262)
Balance, end of period   1,334,343  1,079,297 
TREASURY SHARES AT COST:  
Balance, beginning of period   (22,950) (22,950)
Treasury shares acquired during the period   -  - 
Balance, end of period   (22,950) (22,950)
TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD  $1,765,743 $1,557,867 
The accompanying notes are an integral part of the consolidated financial statements  

5

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

   Three Months EndedNine Months Ended
      September 30,   September 30,
(Dollars in thousands)   2004  2003  2004  2003 
           (unaudited)         (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income  $7,699 $60,491 $174,830 $176,009 
    Adjustments to reconcile net income to net cash provided by  
     operating activities, net of effects from the sale of subsidiary:  
     Decrease (increase) in premiums receivable   5,552  (60,278) (115,740) (249,742)
     (Increase) decrease in funds held by reinsureds, net   (24,056) (646) (61,756) 15,836 
     Increase in reinsurance receivables   (20,133) (134,764) (161,586) (306,787)
     Increase in deferred tax asset   (37,780) (6,906) (56,956) (17,819)
     Increase in reserve for losses and loss adjustment expenses   427,235  374,912  928,464  780,262 
     Increase in unearned premiums   10,988  117,403  164,021  435,631 
     Decrease in other assets and liabilities   (126,674) (35,154) (41,769) (82,211)
     Amortization of bond premium/accrual of bond discount   (971) (1,050) (137) (5,456)
     Amortization of underwriting discount on senior notes   50  46  147  135 
     Realized capital (gains) losses   (9,388) 11,843  (59,846) 23,922 
Net cash provided by operating activities   232,522  325,897  769,672  769,780 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Proceeds from fixed maturities matured/called - available for sale   92,879  182,695  299,862  451,886 
Proceeds from fixed maturities sold - available for sale   25,042  88,168  604,280  402,181 
Proceeds from equity securities sold   10,000  7,759  17,995  8,056 
Proceeds from other invested assets sold   80  3  517  244 
Cost of fixed maturities acquired - available for sale   (349,841) (577,342) (1,455,444) (1,624,881)
Cost of equity securities acquired   (93,094) (6,095) (302,786) (10,254)
Cost of other invested assets acquired   (2,243) (5,197) (9,108) (6,757)
Net sales (purchases) of short-term securities   100,140  (36,318) (314,387) (63,580)
Net increase (decrease) in unsettled securities transactions   7,385  45,147  (12,007) 65,742 
Proceeds from sale of subsidiary, net of cash disposed   -  -  (2,744) - 
Net cash used in investing activities   (209,652) (301,180) (1,173,822) (777,363)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Tax benefit from stock options exercised   44  1,606  7,678  1,809 
Dividend from parent   46  -  136  - 
Proceeds from junior subordinated notes   -  -  329,897  - 
Net cash provided by financing activities   90  1,606  337,711  1,809 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   206  (7,231) (3,301) 1,899 
Net increase (decrease) in cash   23,166  19,092  (69,740) (3,875)
 
Cash, beginning of period   49,188  93,876  142,094  116,843 
Cash, end of period  $72,354 $112,968 $72,354 $112,968 
SUPPLEMENTAL CASH FLOW INFORMATION:  
Cash transactions:  
  Income taxes paid, net  $41,667 $818 $97,263 $46,856 
  Interest paid  $29,072 $23,859 $62,756 $52,495 
Non-cash financing transaction:  
  Non-cash dividend to parent  $- $- $26,262 $- 

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




EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended
March 31,
(Dollars in thousands)2005 2004 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income  $86,913 $7,340 
    Adjustments to reconcile net income to net cash provided by  
     operating activities:  
     Decrease (increase) in premiums receivable   16,744  (108,057)
     Increase in funds held by reinsureds, net   (32,105) (47,213)
     (Increase) decrease in reinsurance receivables   (92,476) 21,947 
     Increase in deferred tax asset   (15,132) (3,442)
     Increase in reserve for losses and loss adjustment expenses   83,061  296,003 
     Increase in unearned premiums   26,289  106,911 
     Increase (decrease) in other assets and liabilities   67,828  (43,981)
     Amortization of bond premium   1,079  152 
     Amortization of underwriting discount on senior notes   58  48 
     Realized capital (gains) losses   (1,485) 27,047 
Net cash provided by operating activities   140,774  256,755 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Proceeds from fixed maturities matured/called - available for sale   44,495  106,932 
Proceeds from fixed maturities sold - available for sale   87,174  226,025 
Proceeds from equity securities sold   -  1,317 
Proceeds from other invested assets sold   284  3 
Cost of fixed maturities acquired - available for sale   (131,182) (595,644)
Cost of equity securities acquired   (153,058) (108,230)
Cost of other invested assets acquired   (5,390) (126)
Net sales (purchases) of short-term securities   277,553  (356,572)
Net increase in unsettled securities transactions   20,127  37,272 
Proceeds from sale of subsidiary, net of cash disposed   -  (2,741)
Net cash provided by (used in) investing activities   140,003  (691,764)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Tax benefit from stock options exercised   2,830  4,935 
Dividend from parent   50  45 
Repayment of senior notes   (250,000) - 
Net proceeds from issuance of junior subordinated notes   -  319,997 
Net cash (used in) provided by financing activities   (247,120) 324,977 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (2,786) (2,307)
Net increase (decrease) in cash   30,871  (112,339)
Cash, beginning of period   53,887  142,094 
Cash, end of period  $84,758 $29,755 
SUPPLEMENTAL CASH FLOW INFORMATION:  
Cash transactions:  
  Income taxes paid, net  $36,782 $19,528 
  Interest paid  $28,784 $23,957 
Non-cash financing transaction:  
  Non-cash dividend to parent  $- $26,262 
  Non-cash tax benefit from stock options exercised  $2,830 $4,935 

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

6



EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Threethree months ended March 31, 2005 and Nine Months Ended September 30, 2004 and 2003

1.  General

As used in this document, “Holdings” means Everest Reinsurance Holdings, Inc.; “Group” means Everest Re Group, Ltd. (Holdings’ parent); “Bermuda Re” means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; “Everest Re” means Everest Reinsurance Company, a subsidiary of Holdings, and its subsidiaries (unless the context otherwise requires); and the “Company” means Holdings and its subsidiaries.

The consolidated financial statements of the Company for the three and nine months ended September 30,March 31, 2005 and 2004 and 2003 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis. Certain financial information, which is normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America, has been omitted since it is not required for interim reporting purposes. The year end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America. The results for the three and nine months ended September 30,March 31, 2005 and 2004 and 2003 are not necessarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2004, 2003 2002 and 20012002 included in the Company’s most recent Form 10-K filing.

2.  New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 46, “Consolidation of Variable Interest Entities (“VIEs”) (“FIN 46”). FIN 46 addresses whether certain types of entities, referred to as VIEs,variable interest entities (“VIEs”), should be consolidated or deconsolidated in a company’s financial statements. During October 2003, the FASB deferred the effective date of FIN 46 provisions for VIEs created prior to February 1, 2003 to the first reporting period ending after December 15, 2003. During December 2003, the FASB issued FIN 46R, replacing FIN 46. FIN 46R is effective, for entities that had not adopted FIN 46 as of December 24, 2003, no later than the end of the first reporting period that ends on or after March 15, 2004.2003. The Company adopted FIN 46R in the first quarter of 2004, resulting in the deconsolidation of Everest Re Capital Trust (“Capital Trust”) and Everest Re Capital Trust II (“Capital Trust II”). The 2003 consolidated balance sheet and statement of operations and comprehensive income have been restated to reflect the deconsolidation.

Capital Trust II and Capital Trust are wholly owned finance subsidiaries of Holdings that issued trust preferred securities on March 29, 2004 ($320 million of trust preferred securities) and November 14, 2002 ($210 million of trust preferred securities), respectively.

The proceeds of the March 29, 2004 and November 14, 2002 trust preferred securities offerings, together with Holdings’ investments in Capital Trust II ($9.9 million) and Capital Trust ($6.5 million), which are held as equity investments on the consolidated balance sheets, were used to purchase from Holdings $329.9 million of 6.20% junior subordinated debt securities and $216.5 million of 7.85% junior subordinated debt securities, respectively.

7

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2004 and 2003

The impact of the deconsolidation effectively substituted Holdings’ junior subordinated debt securities, which are held by Capital Trust and Capital Trust II, for the trust preferred securities previously reported.

In March 2004, the FASB’s Emerging Issue Task Force (“EITF”) reached a final consensus on Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. This issue establishes guidance for determining whether to record impairment losses associated with investments in certain equity and debt securities. The application of this issue was required for reporting periods beginning after June 15, 2004. On September 30, 2004, the FASB issued a final FASB Staff Position EITF Issue 03-1-1, which delayed the effective date for the measurement and recognition guidance included in paragraphs 10 through 20 of EITF Issue 03-1. The Company is unable to predict the impact on other-than-temporary impairments until the guidance is finalized. Currently, the Company continues to apply Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“FAS 115”), and the Securities and Exchange Commission (“SEC”)‘s Staff Accounting Bulletin Topic 5:M, “Other Than Temporary Impairment Of Certain Investments In

7

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the three months ended March 31, 2005 and 2004

Debt And Equity Securities,”Securities” and believes that unrealized losses in its investment portfolio are temporary in nature.

In December 2004, FASB issued FASB Statement No. 123(R) “Share-Based Payment” (“FAS 123(R)”). FAS 123(R) requires all share-based compensation awards granted, modified or settled after December 15, 1994 to be accounted for using the fair value method of accounting. Under the modified prospective application, compensation cost is recognized for the outstanding, non-vested awards based on the grant date fair value of those awards as calculated under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-based Compensation” (“FAS 123”). The Company does not expect the adoption of the statement to have a material impact on the Company’s financial condition or results of operation. The application of FAS 123(R) will become effective for fiscal years starting after June 15, 2005.

3.  Capital Transactions

Group has a shelf registration statement on Form S-3 on file with the SEC, which was declared effective by the SEC on December 22, 2003, that provides for the issuance of up to $975.0 million of securities. Generally, under this shelf registration statement, Group is authorized to issue common shares, preferred shares, debt securities, warrants and hybrid securities, Holdings is authorized to issue debt securities and Capital Trust II and Everest Re Capital Trust III (“Capital Trust III”) are authorized to issue trust preferred securities. The following securities have been issued pursuant to that registration statement, which at October 7, 2004March 31, 2005 has a remaining balance of $405.0 million.

oOn March 29, 2004, Capital Trust II, an unconsolidated affiliate, issued trust preferred securities resulting in a takedown from the shelf registration statement of $320 million. In conjunction with the issuance of Capital Trust II’s trust preferred securities, Holdings issued $329.9 million of 6.20% junior subordinated debt securities due March 29, 2034 to Capital Trust II. Part of the proceeds from the junior subordinated debt securities issuance was used for capital contributions to Holdings’ operating subsidiaries.

oOn October 6, 2004, the Company completed a public offering of $250.0 million principal amount of 5.40% senior notes due October 6, 2014, pursuant to its currently effective shelf registration statement.15, 2014. The net proceeds will be utilizedwere used to retire existing debt of the Company, which is comingcame due inon March 2005, and for other general corporate purposes.15, 2005.

On July 30, 2002, Group filed a shelf registration statement on Form S-3 with the SEC, providing for the issuance of up to $475.0 million of securities. Generally, under this shelf registration statement, Group was authorized to issue common shares, preferred shares, debt securities,

8

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2004 and 2003

warrants and hybrid securities, Holdings was authorized to issue debt securities and Capital Trust was authorized to issue trust preferred securities. This shelf registration statement became effective on September 26, 2002 and was effectively exhausted with the April 23, 2003 transaction described below. The following securities were issued pursuant to that registration statement.

oOn November 14, 2002, Capital Trust, an unconsolidated affiliate, issued trust preferred securities resulting in a takedown from the shelf registration statement of $210 million. In conjunction with the issuance of Capital Trust’s trust preferred securities, Holdings issued $216.5 million of 7.85% junior subordinated debt securities due November 15, 2032 to Capital Trust. The proceeds from the junior subordinated debt securities issuance were primarily used for capital contributions to Holdings’ operating subsidiaries.

oOn April 23, 2003, Group expanded the size of the remaining shelf registration to $318 million by filing a Post-Effective Amendment under Rule 462(b) of the Securities Act of 1933, as amended, and General Instruction IV of Form S-3 promulgated there under. On the same date, Group issued 4,480,135 of its common shares at a price of $70.75 per share, which resulted in $317.0 million in proceeds, before expenses of approximately $0.2 million.

4.  Contingencies

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

8

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the three months ended March 31, 2005 and 2004

The Company’s reserves include an estimate of the Company’s ultimate liability for asbestos and environmental (“A&E”) claims. This estimate is made based on judgmental assessment of the underlying exposures as the result of (1) long and variable reporting delays, both from insureds to insurance companies and from ceding companies to reinsurers; (2) historical data, which is more limited and variable on A&E losses than historical information on other types of casualty claims; and (3) unique aspects of A&E exposures for which ultimate value cannot be estimated using traditional reserving techniques. There are significant uncertainties in estimating the amount of the Company’s potential losses from A&E claims. Among the uncertainties are: (a) potentially long waiting periods between exposure and manifestation of any bodily injury or property damage; (b) difficulty in identifying sources of asbestos or environmental contamination; (c) difficulty in properly allocating responsibility and/or liability for asbestos or environmental damage; (d) changes in underlying laws and judicial interpretation of those laws; (e) the potential for an asbestos or environmental claim to involve many insurance providers over many policy periods; (f) questions concerning interpretation and application of insurance and

9

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2004 and 2003

reinsurance coverage; and (g) uncertainty regarding the number and identity of insureds with potential asbestos or environmental exposure.

With respect to asbestos claims in particular, several additional factors have emerged in recent years that further compound the difficulty in estimating the Company’s liability. These developments include: (a) continued growth in the number of claims filed, in part reflecting a much more aggressive plaintiffplaintiff’s bar and including claims against defendants formerly regarded as “peripheral”; (b) a disproportionate percentage of claims filed by individuals with no functional injury, which should have little to no financial value but that have increasingly been considered in jury verdicts and settlements; (c) the growth in the number and significance of bankruptcy filings by companies as a result of asbestos claims (including, more recently, bankruptcy filings in which companies attempt to resolve their asbestos liabilities in a manner that is prejudicial to insurers and forecloses insurers from the negotiation of bankruptcy plans); (d) the concentration of claims in a small number of states that favor plaintiffs; (e) the growth in the number of claims that might impact the general liability portion of insurance policies rather than the product liability portion; (g)(f) measures adopted by specific courts to ameliorate the worst procedural abuses; (h)(g) an increase in settlement values being paid to asbestos claimants, especially those with cancer or functional impairment; (i)(h) legislation in some states to address asbestos litigation issues; and (j)(i) the potential that other states or the U.S. Congress may adopt legislation on asbestos litigation.

Management believes that these uncertainties and factors continue to render reserves for A&E and particularly asbestos losses significantly less subject to traditional actuarial analysis than reserves for other types of losses. Given these uncertainties, management believes that no meaningful range for such ultimate losses can be established. The Company establishes reserves to the extent that, in the judgment of management, the facts and prevailing law reflect an exposure for the Company or its ceding companies.

In connection with the Company’s acquisition of Mt. McKinley Insurance Company (“Mt. McKinley”), which has significant exposure to A&E claims, Prudential Property and Casualty Insurance Company (“Prupac”), a subsidiary of The Prudential Insurance Company of America (“The Prudential”), provided reinsurance to Mt. McKinley covering 80% ($160.0 million) of the first $200.0 million of any adverse development of Mt. McKinley’s reserves as of September 19,

9

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the three months ended March 31, 2005 and 2004

2000 and The Prudential guaranteed Prupac’s obligations to Mt. McKinley. In late 2003, Prupac was purchased by LM Property and Casualty Insurance Company (“LM”) and all obligations of Prupac continue to be guaranteed by The Prudential. Cessions under this reinsurance agreement exhausted the limit available under the contract at December 31, 2003.

With respect to Mt. McKinley, where the Company has a direct relationship with policyholders, the Company’s aggressive litigation posture and the uncertainties inherent in the asbestos coverage and bankruptcy litigation have provided an opportunity to actively engage in settlement negotiations with a number of those policyholders who have potentially significant asbestos liabilities. Those discussions are oriented towards achieving reasonable negotiated settlements that limit Mt. McKinley’s liability to a given policyholder to a sum certain. In 2004, the Company had concluded such settlements or reached agreement in principle with several of its high profile policyholders. The Company has currently identified 15 policyholders based on their past claim activity and/or potential future liabilities as “High Profile Policyholders” and its settlement efforts are generally directed at such policyholders, in part because their exposures have developed to the point where both the policyholder and the Company have sufficient information to be motivated to settle. The Company believes that this active approach will ultimately result in a more cost-effective liquidation of Mt. McKinley’s liabilities than a passive approach, although it may also introduce additional variability in Mt. McKinley’s losses and cash flows.

There is less potential for similar settlements with respect to the Company’s reinsurance asbestos claims. Ceding companies, with their direct obligation to insureds and overall responsibility for claim settlements, are not consistently aggressive in developing claim settlement information and conveying this information to reinsurers, which can introduce significant and perhaps inappropriate delays in the reporting of asbestos claims/exposures to reinsurers. These delays not only extend the timing of reinsurance claim settlements, but also restrict the information available to estimate the reinsurers’ ultimate exposure.

Due to the uncertainties discussed above, the ultimate losses attributable to A&E and particularly asbestos may be subject to more variability than are non-A&Evary materially from current losses reserves and, depending on coverage under the Company’s various reinsurance arrangements, such variation could have a material adverse effect on the Company’s future financial condition, results of operations and/or cash flows.

10

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Threethree months ended March 31, 2005 and Nine Months Ended September 30, 2004 and 2003

The following table shows the development of prior yearsummarizes incurred losses with respect to A&E reserves on both a gross and net of retrocessional basis for the periods indicated:

 Three Months EndedNine Months Ended
 September 30,September 30,Three Months Ended
March 31,
(Dollars in thousands)  2004  2003  2004  2003 (Dollars in thousands)20052004
Gross basis:       
Beginning of period reserves $829,899 $646,159 $765,257 $667,922  $728,325 $765,257 
Incurred losses  20,000  56,323  139,300  73,996   18,000  66,000 
Paid losses  (31,645) (9,702) (86,303) (49,138)  (21,500) (25,408)
End of period reserves $818,254 $692,780 $818,254 $692,780  $724,825 $805,849 
Net basis:  
Beginning of period reserves $303,983 $237,529 $262,990 $243,157  $303,335 $262,990 
Incurred losses  1,232  5,154  8,394  13,620   700  4,187 
Paid losses  3,556  11,839  37,387  (2,255)  (6,575) 32,644 
End of period reserves $308,771 $254,522 $308,771 $254,522  $297,460 $299,821 

At September 30, 2004,March 31, 2005, the gross reserves for A&E losses were comprised of $146.9$138.1 million representing case reserves reported by ceding companies, $141.3$147.2 million representing additional case reserves established by the Company on assumed reinsurance claims, $326.8$319.2 million representing case reserves established by the Company on direct insurance claims including Mt. McKinley, and $203.3$120.3 million representing incurred but not reported reserves (“IBNR”).

Mt. McKinley is a reinsurer of Everest Re. Under a series of transactions dating to 1986, Mt. McKinley reinsured several components of Everest Re’s business. In particular, Mt. McKinley provided stop loss protection, in connection with the Company’s October 5, 1995 initial public offering, for any adverse loss development on Everest Re’s June 30, 1995 (December 31, 1994 for catastrophe losses) reserves, with $375.0 million in limits, of which $41.6$38.6 remains available (the “Stop Loss Agreement”). The Stop Loss Agreement and other reinsurance contracts between Mt. McKinley and Everest Re remain in effect following the Company’s acquisition of Mt. McKinley. However, these contracts became transactions with affiliates effective on the date of the Mt. McKinley acquisition. Effective September 19, 2000, Mt. McKinley and Bermuda Re entered into a loss portfolio transfer reinsurance agreement, whereby Mt. McKinley transferred, for what management believes to be arm’s-length consideration, all of its net reinsurance exposures and reserves to Bermuda Re.

The Company does not believe that there are any other material pending legal proceedings to which it or any of its subsidiaries is a party or of which any of their properties are the subject.

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 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

11

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Threethree months ended March 31, 2005 and Nine Months Ended September 30, 2004 and 2003

enforce alleged rights. Such disputes are resolved through formal and informal means, including litigation and arbitration.

In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company also regularly evaluates those positions, and, where appropriate, establishes or adjusts insurance reserves to reflect its evaluation. The Company’s aggregate reserves take into account the possibility that the Company may not ultimately prevail in each and every disputed matter. The Company believes its aggregate reserves reduce the potential that an adverse resolution of one or more of these matters, at any point in time, would have a material impact on the Company’s financial condition or results of operations. However, there can be no assurances that adverse resolutions of such matters in any one period or in the aggregate will not result in a material adverse effect on the Company’s results of operations.operations.

In 1993 and prior, the Company had a business arrangement with 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”), were unable to make the annuity payments. The estimated cost to replace all such annuities for which the Company was contingently liable at September 30, 2004March 31, 2005 was $155.0$155.6 million.

Prior to its 1995 initial public offering, the Company had 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 estimated cost to replace such annuities at September 30, 2004March 31, 2005 was $17.0$17.7 million.

5.  Other Comprehensive Income

The following table presents the components of other comprehensive income for the periods indicated:

   Three Months EndedNine Months Ended
   September 30, September 30,
(Dollars in thousands)   2004  2003  2004  2003
Net unrealized appreciation  
   (depreciation) of investments,  
   net of deferred income taxes  $91,604 $(69,979)$(25,500)$31,168
Currency translation  
   adjustments, net of deferred  
   income taxes   4,593  (4,301) 268  10,058
Other comprehensive income  
   (loss), net of deferred income  
   taxes  $96,197 $(74,280)$(25,232)$41,226

12

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2004 and 2003

Three Months Ended
March 31,
(Dollars in thousands)20052004
Net unrealized (depreciation) appreciation      
    of investments, net of deferred income taxes  $(66,119)$27,616 
Currency translation adjustments, net of  
    deferred income taxes   430  (2,671)
Additional minimum pension liability   (2,153) - 
Other comprehensive (loss) income, net of  
    deferred income taxes  $(67,842)$24,945 

6. Letters of Credit

The Company has arrangements available for the issuance of letters of credit, which letters are generally collateralized by the Company’s cash and investments. Under these arrangements, at September 30, 2004 and December 31, 2003, letters of credit in an aggregate amount of $0.0 million and $104.3 million, respectively, were issued and outstanding, generally supporting reinsurance provided by the Company’s non-U.S. operations. Effective January 1, 2004, Everest Re sold its United Kingdom branch to Bermuda Re, a Bermuda insurance company and direct subsidiary of Group. The outstanding letters of credit supporting reinsurance provided by the London branch were transferred to Bermuda Re as part of the sale transaction.

7.  Trust Agreements

A subsidiary of the Company, Everest Re, has established a trust agreement as security for assumed losses payable offor a non-affiliated ceding company, which effectively uses CompanyEverest Re’s investments as collateral. At September 30, 2004,March 31, 2005, the total amount on deposit in the trust account was $18.6$19.3 million.

12

8.EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the three months ended March 31, 2005 and 2004

7.  Senior Notes

On October 12, 2004, the Company completed a public offering of $250.0 million principal amount of 5.40% senior notes due October 15, 2014. On March 14, 2000, the Company completed public offerings of $200.0 million principal amount of 8.75% senior notes due March 15, 2010 and $250.0 million principal amount of 8.5%8.50% senior notes due and retired on March 15, 2005.

Interest expense incurred in connection with these senior notes was $12.2 million and $9.7 million for each of the three months ended September 30,March 31, 2005 and 2004, and 2003 and $29.2respectively. Market value, which is based on quoted market price at March 31, 2005 was $250.9 million for each of the nine months ended September 30, 20045.4% senior notes and 2003.$232.4 million for the 8.75% senior notes.

9.8.  Junior Subordinated Debt Securities Payable

On March 29, 2004, the Company issued $329.9 million of 6.20% junior subordinated debt securities due March 29, 2034.2034 to Capital Trust II. The Company can redeem the junior subordinated debt securities before their maturity at 100% of their principal amount plus accrued interest as of the date of redemption, 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 specific events.

On November 14, 2002, the Company issued $216.5 million of 7.85% junior subordinated debt securities due November 15, 2032.2032 to Capital Trust. The Company can redeem the junior subordinated debt securities before their maturity at 100% of their principal amount plus accrued interest as of the date of redemption, in whole or in part, on one or more occasions at any time on or after November 14, 2007; or at any time, in whole, but not in part, within 90 days of the occurrence and continuation of specific events.

13

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

ForFair value, which is primarily based on quoted market price of the Threerelated trust preferred securities at March 31, 2005, was $224.9 million for the 7.85% junior subordinated debt securities and Nine Months Ended September 30, 2004 and 2003

$302.9 million for the 6.20% junior subordinated debt securities.

Interest expense incurred in connection with these junior subordinated notes was $9.4 million and $4.2$4.4 million for the three months ended September 30,March 31, 2005 and 2004, and 2003, respectively, and $23.0 million and $12.7 million for the nine months ended September 30, 2004 and 2003, respectively.

Capital Trust and Capital Trust II are wholly owned finance subsidiaries of Holdings.the Company.

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

There are certain regulatory and contractual restrictions on the ability of Holdings’the Company’s operating subsidiaries to transfer funds to Holdingsthe Company in the form of cash dividends, loans or advances. The insurance laws of the State of Delaware, where Holdings’the Company’s direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay

13

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the three months ended March 31, 2005 and 2004

dividends or make loans or advances to Holdingsthe Company that exceed certain statutory thresholds. In addition, the terms of theHoldings’ Credit Facility (discussed in Note 9 below) require Everest Re, Holdings’the Company’s principal insurance subsidiary, to maintain a certain statutory surplus level as measured at the end of each fiscal year. At December 31, 2003, $1,561.12004, $1,901.0 million of the $2,264.0$2,565.0 million in net assets of Holdings’the Company’s consolidated subsidiaries were subject to the foregoing regulatory restrictions.

10.9.  Credit Line

Effective October 10, 2003, the Company entered into a new three year, $150.0 million senior revolving credit facility with a syndicate of lenders, replacing itsthe December 21, 1999, three year senior revolving credit facility.facility, which expired on December 19, 2003. Both the October 10, 2003 and December 21, 1999 senior revolving credit agreements, which have similar terms, are referred to collectively as the “Credit“Holdings Credit Facility”. Wachovia Bank is the administrative agent for the Holdings Credit Facility. The Holdings Credit Facility is used for liquidity and general corporate purposes. The Holdings Credit Facility provides for the borrowing of up to $150.0 million with interest at a rate selected by the CompanyHoldings equal to either, (1) the Base Rate (as defined below) or (2) an adjusted London InterBank Offered Rate (“LIBOR”) plus a margin. The Base Rate is the higher of the rate of interest established by Wachovia Bank from time to time as its prime rate or the Federal Funds rate, in each case plus 0.5% per annum. The amount of margin and the fees payable for the Holdings Credit Facility dependdepends upon the Company’s senior unsecured debt rating.

The Holdings Credit Facility requires the Company to maintain a debt to capital ratio of not greater than 0.35 to 1 and a minimum interest coverage ratio of 2.5 to 1 and requires Everest Re to maintain its statutory surplus at $1.0 billion plus 25% of future aggregate net income and 25% of future aggregate capital contributions earned or received after January 1, 2003.contributions. As of September 30, 2004,March 31, 2005, the Company was in compliance with these covenants.

During the three and nine months ended September 30,March 31, 2005 and 2004, and 2003, respectively, the Company madethere were no payments onmade and had no additionalincremental borrowings under the Holdings Credit Facility. As of September 30,March 31, 2005 and 2004, and December 31, 2003, the Company hadthere were outstanding Holdings Credit Facility borrowings of $0.0 million and $70.0 million.million, respectively.

14

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2004 and 2003

Interest expense and fees incurred in connection with these borrowings was $0.3the credit line were $0.0 million for each of the three months ended September 30, 2004March 31, 2005. Interest expense and 2003 and $1.0fees incurred in connection with the borrowings were $0.3 million for each of the ninethree months ended September 30, 2004 and 2003.March 31, 2004.

11.10.  Segment Reporting

The Company, through its subsidiaries, operates in four segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting and International. The U.S. Reinsurance operation writes property and casualty reinsurance, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S. The U.S. Insurance operation writes property and casualty insurance primarily through general agent relationships and surplus lines brokers within the U.S. The Specialty Underwriting operation writes accident and health

14

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the three months ended March 31, 2005 and 2004

(“A&H”), marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies. The International operation writes property and casualty reinsurance through Everest Re’s branches in Canada and Singapore, in addition to foreign business written through Everest Re’s Miami and New Jersey offices.

These segments are managed in a carefully coordinated fashion with strong elements of central control, including with respect to capital, investments and support operations. As a result, management monitors and evaluates the financial performance of these operating segments based upon their underwriting gain (loss) or /underwriting results. Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred, commission and brokerage expenses and other underwriting expenses. The CompanyutilizesCompany utilizes inter-affiliate reinsurance, but such reinsurance generally does not impact segment results, as business is generally reported within the segment in which the business was first produced.

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.

Effective January 1, 2004, Everest Re sold the net assets of its United Kingdom branch to Bermuda Re, a Bermuda insurance company and direct subsidiary of Group, for $77.0 million. In connection with the sale, Everest Re provided Bermuda Re with a reserve indemnity agreement providing for indemnity payments of up to 90% of £25 million in the event December 31, 2002 loss and LAE reserves develop adversely. The impact on the financial statements for the ninethree months ended September 30,March 31, 2004 was a dividend to Group of $26.3 million as net assets sold exceeded the purchase price, an underwriting gain of $10.9 million due to the sale related transactions of the 2003 and 2002 whole account quota shares with Bermuda Re (discussed in Note 14) and13) an increase in the current period incurred losses and LAE for the three months ended March 31, 2004 of $36.8 million relating to liability under the reserve indemnity agreement with Bermuda Re. Business for the UK branchThe limit available under this agreement was previously reported as part of the Company’s International segment.fully exhausted at December 31, 2004.

15

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Threethree months ended March 31, 2005 and Nine Months Ended September 30, 2004 and 2003

The following tables present the relevant underwriting results for the operating segments for the periods indicated:

                      U.S. Reinsurance
 
   Three Months Ended  Nine Months Ended 
   September 30,  September 30, 
(Dollars in thousands)   2004  2003  2004  2003 
Gross written premiums  $362,129 $533,497 $1,048,879 $1,259,026 
Net written premiums   287,779  412,614  823,368  951,193 
               
Premiums earned  $266,611 $336,747 $811,794 $786,943 
Incurred losses and loss  
 adjustment expenses   267,820  266,010  649,921  597,590 
Commission and brokerage   60,645  80,828  195,400  188,385 
Other underwriting expenses   4,655  4,935  16,326  15,341 
Underwriting loss  $(66,509)$(15,026)$(49,853)$(14,373)

                      U.S. Insurance
 
   Three Months Ended  Nine Months Ended 
   September 30,  September 30, 
(Dollars in thousands)   2004  2003  2004  2003 
Gross written premiums  $253,245 $221,604 $918,470 $808,297 
Net written premiums   167,826  135,145  635,963  563,565 
               
Premiums earned  $192,965 $173,680 $546,624 $505,448 
Incurred losses and loss  
 adjustment expenses   128,676  131,843  397,843  368,927 
Commission and brokerage   24,118  21,152  52,098  81,221 
Other underwriting expenses   11,153  9,231  32,467  25,714 
Underwriting gain  $29,018 $11,454 $64,216 $29,586 

                             Specialty Underwriting
 
   Three Months Ended  Nine Months Ended 
   September 30,  September 30, 
(Dollars in thousands)   2004  2003  2004  2003 
Gross written premiums  $127,975 $124,090 $352,565 $393,762 
Net written premiums   95,431  94,316  273,476  301,388 
               
Premiums earned  $93,070 $91,688 $270,428 $295,538 
Incurred losses and loss  
 adjustment expenses   71,574  58,649  177,481  202,747 
Commission and brokerage   26,224  23,427  72,613  78,128 
Other underwriting expenses   1,386  1,473  4,841  4,392 
Underwriting (loss) gain  $(6,114)$8,139 $15,493 $10,271 
U.S. Reinsurance
Three Months Ended
March 31,
(Dollars in thousands)20052004
Gross written premiums  $349,800 $367,932 
Net written premiums   268,774  294,388 

Premiums earned		  $265,299 $294,965 
Incurred losses and loss adjustment expenses   191,978  211,773 
Commission and brokerage   57,437  78,284 
Other underwriting expenses   5,713  5,727 
Underwriting gain (loss)  $10,171 $(819)

U.S. Insurance
Three Months Ended
March 31,
(Dollars in thousands)20052004
Gross written premiums  $274,328 $353,705 
Net written premiums   199,772  264,175 

Premiums earned		  $174,239 $173,421 
Incurred losses and loss adjustment expenses   124,718  144,848 
Commission and brokerage   22,561  9,793 
Other underwriting expenses   12,100  11,125 
Underwriting gain  $14,860 $7,655 

Specialty Underwriting
Three Months Ended
March 31,
(Dollars in thousands)20052004
Gross written premiums  $102,991 $122,057 
Net written premiums   74,566  100,693 

Premiums earned		  $73,378 $99,653 
Incurred losses and loss adjustment expenses   49,854  63,866 
Commission and brokerage   17,765  27,854 
Other underwriting expenses   1,639  1,699 
Underwriting gain  $4,120 $6,234 

16

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Threethree months ended March 31, 2005 and Nine Months Ended September 30, 2004 and 2003

International InternationalInternational
 Three Months Ended  Nine Months Ended 
 September 30,  September 30, Three Months Ended
March 31,
(Dollars in thousands)  2004  2003  2004  2003 (Dollars in thousands)20052004
Gross written premiums $204,084 $275,798 $512,337 $645,462   $152,365 $148,472 
Net written premiums  143,194  198,598  366,283  431,927   105,528  116,106 
         
Premiums earned $135,441 $174,780 $349,050 $386,258  $106,090 $113,865 
Incurred losses and loss 
adjustment expenses  101,819  115,410  212,103  250,048 
Incurred losses and loss adjustment expenses  67,579  58,989 
Commission and brokerage  31,805  32,751  74,923  70,646   19,387  21,781 
Other underwriting expenses  2,530  4,221  8,000  11,491   2,987  2,718 
Underwriting (loss) gain $(713)$22,398 $54,024 $54,073 
Underwriting gain $16,137 $30,377 

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

   Three Months Ended Nine Months Ended 
   September 30, September 30, 
(Dollars in thousands)  2004 2003  2004 2003
Underwriting (loss) gain from segments  $(44,318)$26,965 $83,880 $79,557 
UK branch sale and related  
   transactions   -  -  (25,894) - 
Underwriting (loss) gain   (44,318) 26,965  57,986  79,557 
Net investment income   81,227  70,619  242,381  211,010 
Net realized capital gains (losses)   9,388  (11,843) 59,846  (23,922)
Corporate expense   (447) (1,115) (115) (3,074)
Interest expense   (19,439) (14,309) (53,236) (42,979)
Other (expense) income   (30,378) 625  (74,313) 1,202 
(Loss) income before taxes  $(3,967)$70,942 $232,549 $221,794 

The comparability of the International segment underwriting results has been impacted by the sale of the UK branch from Everest Re to Bermuda Re. In order to provide comparability, the 2003 results for the International segment need to be adjusted to exclude the UK branch activity. Effectively, these adjustments remove the UK branch from 2003 in the International segment underwriting results allowing for the comparability of the results period over period.

17

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2004 and 2003

The following table reflects the underwriting results for the International segment as reported for the three and nine months ended September 30, 2004 and proforma for the three and nine months ended September 30, 2003:

 Three Months Ended Nine Months Ended 
September 30, September 30, 
 International International International International 
 Segment Segment Segment Segment 
 2004 2003 2004 2003 
(Dollars in thousands)As Reported Proforma As Reported Proforma 
Gross written premiums$ 204,084 $ 135,520 $ 512,337 $ 325,662 
Ceded written premiums  (60,890)  (48,132)  (146,054)  (131,875)
Net written premiums$ 143,194 $ 87,388 $ 366,283 $ 193,787 
 
Premiums earned$ 135,441 $ 82,093 $ 349,050 $ 183,050 
Incurred losses and loss adjustment 
  expenses  101,819   47,780   212,103   106,275 
Commission, brokerage, taxes and fees  31,805   17,537   74,923   35,319 
Other underwriting expenses  2,530   2,233   8,000   6,906 
Underwriting (loss) gain$ (713)$ 14,543 $ 54,024 $ 34,550 
Three Months Ended
March 31,
(Dollars in thousands)20052004
Underwriting gain  $45,288 $43,447 
UK branch sale and related transactions   -  (25,894)
Underwriting gain   45,288  17,553 
Net investment income   85,922  65,823 
Realized gain (loss)   1,485  (27,046)
Corporate (expense) income   (1,957) 2,007 
Interest expense   (21,644) (14,479)
Other expense   (4,511) (17,260)
Income before taxes  $104,583 $26,598 

The Company produces foreign business in its U.S. and international operations. The net income and assets of the individual foreign countries in which the Company writes business are not identifiable in the Company’s financial records. Other than the U.S., no other country represented more than 5% of the Company’s revenues.

12. Derivatives

The Company has remaining in its product portfolio a credit default swap, which it no longer offers. This product meets the definition of a derivative under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”). The Company’s position in this contract is unhedged and is accounted for as a derivative in accordance with FAS 133. Accordingly, this contract is carried at fair value and is recorded in “Other liabilities” in the balance sheet and changes in fair value are recorded in the statement of operations and comprehensive income.

13.11.  Investments — Interest Only Strips

Commencing with the second quarter of 2003 and through the second quarter of 2004, the Company had investments in interest only strips of mortgage-backed securities (“interest only strips”). These securities give the holder the right to receive interest payments at a stated coupon rate on an underlying pool of mortgages. The interest payments on the outstanding mortgages are guaranteed by entities generally rated AAA. The ultimate cash flow from these investments is primarily dependent upon the average life of the mortgage pool. Generally, as market interest rates and, more specifically, market mortgage rates decline, mortgagees tend to refinance which

17

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the three months ended March 31, 2005 and 2004

will decrease the average life of a mortgage pool and decrease expected cash flows. Conversely,

18

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2004 and 2003

as market interest rates and, more specifically, mortgage rates rise, repayments will slow and the ultimate cash flows will tend to rise. Accordingly, the market value of these investments tends to increase as general interest rates rise and decline as general interest rates fall. These movements are generally counter to the impact of interest rate movements on the Company’s other fixed income investments. As interest rates rose during the second quarter of 2004, the Company fully liquidated its interest only strip investment portfolio.

The Company accounted for its investment in interest only strips in accordance with Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on PurchasesPurchased and Retained Beneficial Interests in Securitized Financial Assets”(“EITF 99-20”). EITF 99-20 sets forth the rules for recognizing interest income on all credit-sensitive mortgage and asset-backed securities and certain prepayment-sensitive securities, including agency interest only strips, whether purchased or retained in securitization, as well as the rules for determining when these securities must be written down to fair value because of impairment. EITF 99-20 requires decreases in the valuation of residual interests in securitizations to be recorded as a reduction to the carrying value of the residual interests through a charge to earnings, rather than an unrealized loss in stockholders’ equity, when any portion of the decline in fair value is attributable to, as defined by EITF 99-20, an impairment loss. This portfolio was liquidated during the second quarter of 2004 and as such there were no impairments recorded for the three months ended September 30, 2004. The Company recorded a realized capital lossesloss due to impairments of $28.5 million, net of income tax benefit of $15.4 million for the ninethree months ended September 30, 2004 and $13.7 million, net of income tax benefit of $7.4 million for the nine months ended September 30, 2003. As a result of liquidating the interest only strip investment portfolio during the second quarter of 2004, the Company recognized pre-tax realized gains of $77.6 million.March 31, 2004.

14.12.  Related-Party Transactions

During the normal course of business, the Company, through its affiliates, engages in reinsurance and brokerage and commission business transactions, which management believes to be at arm’s- length,arm’s-length, with companies controlled by or affiliated with certain of Group’sits outside directors. Such transactions, individually and in the aggregate, are not material to the Company’s financial condition, results of operations and cash flows.

The Company engages in reinsurance transactions with Bermuda Re and Everest International Reinsurance, Ltd. (“Everest International”) under which business is ceded for what management believes to be arm’s lengtharm’s-length consideration. These transactions include:

 oEffective September 19, 2000, Mt. McKinley and Bermuda Re entered into a loss portfolio transfer reinsurance agreement, whereby Mt. McKinley transferred all of its net insurance exposures and reserves to Bermuda Re.

 oEffective October 1, 2001, Everest Re and Bermuda Re entered into a loss portfolio reinsurance agreement, whereby Everest Re transferred all of its Belgium branch net insurance exposures and reserves to Bermuda Re and subsequently closed its Belgium branch.

1918

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Threethree months ended March 31, 2005 and Nine Months Ended September 30, 2004 and 2003

 oFor 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 respects new, renewal and in force policies effective on that date through December 31, 2002. Bermuda Re is liable for any loss exceeding $100,000 per occurrence, with its liability not to exceed $150,000 per occurrence.

 oEffective January 1, 2002 for the 2002 underwriting year, Everest Re ceded 20% of its net retained liability to Bermuda Re through a quota share reinsurance agreement (“whole account quota share”).

 oEffective January 1, 2003, Everest Re and Bermuda Re amended the whole account quota share, through which Everest Re previously ceded 20% of its business to Bermuda Re so that effective January 1, 2003 Everest Re ceded 25% to Bermuda Re of the net retained liability on all new and renewal policies underwritten during the term of this agreement.

 oEffective January 1, 2003, and continuing through March 2004, Everest Re hasentered into a whole account quota share reinsurance agreement with Bermuda Re, whereby Everest Re’s Canadian branch cedes to Bermuda Re 50% of its net retained liability on all new and renewal property business.

 oEffective January 1, 2004, Everest Re and Bermuda Re amended the whole account quota share through which Everest Re previously ceded 25% of its business to Bermuda Re so that effective January 1, 2004 Everest Re will cede 22.5% to Bermuda Re and 2.5% to Everest International of the net retained liability on all new and renewal covered business written during the term of this agreement.

2019

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Threethree months ended March 31, 2005 and Nine Months Ended September 30, 2004 and 2003

The following table summarizes the premiums and losses ceded by the Company to Bermuda Re and Everest International, respectively, for the periods indicated:

                  Bermuda Re
 
   Three Months EndedNine Months Ended
   September 30,September 30,
(Dollars in thousands)   2004  2003  2004  2003 
Ceded written premiums  $198,859 $269,487 $439,052 $704,579 
Ceded earned premiums   198,847  218,663  426,054  561,902 
Ceded losses and LAE (a)   231,680  140,868  414,262  361,083 

                     Everest International
 
   Three Months EndedNine Months Ended
   September 30,September 30,
(Dollars in thousands)   2004  2003  2004  2003 
Ceded written premiums  $18,867 $– $38,054 $– 
Ceded earned premiums   13,120  –  23,009  – 
Ceded losses and LAE   13,713  –  19,358  – 
Bermuda Re
Three Months Ended
March 31,
(Dollars in thousands)2005 2004 
Ceded written premiums  $171,546 $16,613 
Ceded earned premiums   172,239  35,857 
Ceded losses and LAE (a)   96,063  17,781 

Everest International
Three Months Ended
March 31,
(Dollars in thousands)2005 2004 
Ceded written premiums  $23,521 $6,240 
Ceded earned premiums   21,528  2,811 
Ceded losses and LAE   11,708  1,609 

(a)  Ceded losses and LAE relates toinclude the Mt. McKinley loss portfolio transfer and constitutethat constitutes losses ceded under retroactive reinsurance and therefore, in accordance with FAS 113, “Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts,” a deferred gain on retroactive reinsurance is reflected in other expenseexpenses on the consolidated statementsstatement of operations.

Effective January 1, 2004, Everest Re sold the net assets of its UK branch to Bermuda Re. In connection with the sale, Everest Re provided Bermuda Re with a reserve indemnity agreement allowing for indemnity payments of up to 90% of £25.0 million in the event December 31, 2002 losses and LAE reserves develop adversely. The amount included in incurred losses and LAE for the ninethree months ended September 30,March 31, 2004 was $36.8 million.

15. Subsequent Events

On October 6, 2004, the Company completed a public offering of $250.0 million principal amount of 5.40% senior notes due October 6, 2014, pursuant to its currently effective shelf registration statement, leaving a remaining balance on the registration statement of $405 million. The net proceeds will be utilized to retire existing debt of the Company, which is coming due in March 2005, and for other general corporate purposes.limit available under this agreement was fully exhausted at December 31, 2004.

2120

Part I — Item 2.

EVEREST REINSURANCE HOLDINGS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

RESULTS OF OPERATIONS

Industry Conditions

The worldwide reinsurance and insurance businesses are highly competitive yet cyclical by product and market. Competition with respect to the types of reinsurance and insurance business in which the Company is engaged 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 Company and/or Standard & Poor’s (“S&P”) Rating Services,, 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. These factors operate at the individual market participant level to varying degrees, as applicable to the specific participant’s circumstances. They also operate in aggregate across the reinsurance industry more generally, contributing, in combination with background economic conditions and variations in the reinsurance buying practices of insurance companies (by participant and in the aggregate), to cyclical movements in reinsurance rates, terms and conditions and ultimately reinsurance industry aggregate financial results.

The Company competes in the U.S. and international reinsurance and insurance markets with numerous international and domestic reinsurance and insurance companies. 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 the Company and have established long-term and continuing business relationships throughout the industry, which can be a significant competitive advantage. In addition, the potential for securitization of reinsurance and insurance risks through capital markets provides an additional source of potential reinsurance and insurance capacity and competition.

Thus farTo date in 2005 and through 2004, the favorable market conditions, which had developed during 2000 through 2003, have generally begun to weaken.weakened. There arewere signs that pricing for most property classes has declined modestly and that pricing for most casualty classes has starteddeclined modestly. Competition increased modestly as well, in part due to soften. Competition is increasing despitethe relative profitability achieved by many reinsurers over 2002 through 2004 and the attendant buildup of capital by these participants. However, this profitability and capital buildup varied significantly by market participant, reflecting the fact that the industry was impacted by significant catastrophe losses in the second half of 2004 and generally still remainsremained exposed to fundamental issues that had negatively impacted its aggregate capacity in 2002 and 2003, including weak investment market conditions and adverse loss emergence. BothAll of these tendfactors had tended to depress the industry’s aggregate financial performance and perceptions of financial strength of industry participants. It is unclear whether the property catastrophe losses experienced by the industry in the three months ended September 30, 2004 will reverse, stop or even moderate the current year’s trends, particularly as respects property classes.

Through 2003, reinsurance and insurance markets had generally continued to firm, reflecting the continuing, although diminishing, implications of losses arising from the terrorist attacks of September 11, 2001 and, more broadly, the impact of aggregate company reactions to broad and growing recognition that competition in the late 1990s reached extremes in many classes and markets, which ultimately led to inadequate pricing and overly broad terms, conditions and coverages. The effect of these extremes, which became apparent through excessive loss emergence, varied widely by company depending on product offerings, markets accessed, underwriting and operating practices, competitive strategies and business volumes. Across all market participants however, the aggregate general effect was depressed financial results and erosion of the industry capital base. Coupledover this period, albeit with deteriorating investment market conditions

22

and results, and renewed concerns regarding longer-term industry specific issues, including asbestos exposure and sub-par capital returns, these financial impacts introduced substantial, and in some cases extreme, pressure for the initiation and/or strengthening of corrective actionsignificant variation by individual market participants. These pressures, aggregating across industry participants, reinforced the trend established in 2000 through 2003 toward firming prices, more restrictive terms and conditions, tightened coverage availability across most classes and markets and increasing concern with respect to the financial security of insurance and reinsurance providers.participant.

21

The Company has generally been somewhat disappointed by industry developments thus far in 2005 and 2004, which have generally operated to modestly weaken pricing in most business classes and lines. However, the Company notes that it continues to see opportunities for profitable writings in a variety of classes and lines owing mainly to the general adequacy of underlying pricing. The Company cannot predict with any reasonable certainty whether and to what extent these trends or conditions will persist andpersist. In particular, the extent to which the cumulative effect of a weakening pricing environment will impact Company operations is unclear. Additionally, the continued growth of reinsurance capacity, particularly in particular whether the property catastrophe losses experienced by the industry in the three months ended September 30, 2004 will lessen competitive pressures, particularly for the property classes of business. Notwithstanding these catastrophe losses,Bermuda, changes in the Lloyd’s market, and the potential reemergence of a market share orientation among some industry participants, combined with improving and in some cases strong financial results, continue to contribute to uncertainty about the prospective level of competitive pressures.

Financial Summary

The Company’s management monitors and evaluates overall Company performance based upon financial results. The following table displays a summary of the consolidated net income for the periods indicated:

Consolidated Net Income         
 Three Months Ended  Nine Months Ended 
 September 30,  September 30, Three Months Ended
March 31,
(Dollars in thousands) 2004  2003  2004  2003 (Dollars in thousands)2005 2004 
Gross written premiums$947,433 $1,154,989 $2,832,251 $3,106,547   $879,484 $992,166 
Net written premiums 694,230  840,673  2,238,841  2,248,073   648,640  915,013 
        
REVENUES:  
Premiums earned$688,087 $776,895 $2,096,711  1,974,187  $619,006 $800,719 
Net investment income 81,227  70,619  242,381  211,010   85,922  65,823 
Net realized capital gains (losses) 9,388  (11,843) 59,846  (23,922)  1,485  (27,046)
Other (expense) income (30,378) 625 (74,313) 1,202
Other expense  (4,511) (17,260)
Total revenues 748,324  836,296  2,324,625  2,162,477   701,902  822,236 
        
CLAIMS AND EXPENSES:  
Incurred losses and loss adjustment expenses 569,889  571,914  1,551,095  1,419,312   434,129  593,223 
Commission, brokerage, taxes and fees 142,792  158,158  425,996  418,380   117,150  168,674 
Other underwriting expenses 20,171  20,973  61,749  60,012   24,396  19,262 
Interest expense 19,439  14,309  53,236  42,979   21,644  14,479 
Total claims and expenses 752,291  765,354  2,092,076  1,940,683   597,319  795,638 
        
(LOSS) INCOME BEFORE TAXES (3,967) 70,942  232,549  221,794 
Income tax (benefit) expense (11,666) 10,451  57,719  45,785 
INCOME BEFORE TAXES  104,583  26,598 
Income tax expense  17,670  19,258 
NET INCOME$7,699 $60,491 $174,830 $176,009  $86,913 $7,340 

23

Underwriting gain (loss) or underwriting results isEffective January 1, 2004, Everest Re sold its UK branch to Bermuda Re (“UK Branch Sale”) and in conjunction with the sale, Everest Re provided a non-GAAP standard measure of performance used with related ratio analysis by the Company to evaluate financial performance of its reinsurance operations and is considered an important measure of profitability by analysts and investors in the insurance industry. Underwriting gain (loss) is calculated as premiums earned less incurred lossesreserve indemnity agreement for adverse development on loss and loss adjustment expenses (“LAE”); commission, brokerage, taxes and fees; and non-corporate other underwriting expenses. The following tables provide reconciliations from net income to underwriting results and total underwriting results by segment for the periods indicated:

Underwriting Results              
   Three Months Ended  Nine Months Ended 
   September 30,  September 30, 
(Dollars in thousands)   2004  2003  2004  2003 
Net income (from table above)  $7,699 $60,491 $174,830 $176,009 
    Net investment income   (81,227) (70,619) (242,381) (211,010)
    Net realized capital (gains) losses   (9,388) 11,843  (59,846) 23,922 
    Other expense (income)   30,378  (625) 74,313  (1,202)
    Corporate expense   447  1,115  115  3,074 
    Interest expense   19,439  14,309  53,236  42,979 
    Income tax (benefit) expense   (11,666) 10,451  57,719  45,785 
Underwriting (loss) gain   (44,318) 26,965  57,986  79,557 
    UK branch sale and related transactions   -  -  25,894  - 
Underwriting (loss) gain from segments  $(44,318)$26,965 $83,880 $79,557 
               
Loss ratio   82.8% 73.6% 74.0% 71.9%
Commission and expense ratio   20.8  20.4  20.3  21.2 
Other underwriting expense ratio   2.9  2.7  2.9  3.0 
Combined ratio   106.5% 96.7% 97.2% 96.1%
               
               
Underwriting Results By Segment  
   Three Months Ended  Nine Months Ended 
   September 30,  September 30, 
(Dollars in thousands)   2004  2003  2004  2003 
U.S. Reinsurance  $(66,509)$(15,026)$(49,853)$(14,373)
U.S. Insurance   29,018  11,454  64,216  29,586 
Specialty Underwriting   (6,114) 8,139  15,493  10,271 
International   (713) 22,398  54,024  54,073 
Underwriting (loss) gain  $(44,318)$26,965 $83,880 $79,557 

The comparability reserve balances as of the above financial results has been impacted by the sale of the UK branch from Everest Re to Bermuda Re and the associated Everest Re and Bermuda Re reserve indemnity agreement,December 31, 2002, as well as made sale related adjustments tofor the 2003 and 2002 quota share cessions. In order to provide comparability of the financial results between the years, the 2003 results need to be adjusted to exclude the UK branch activity. ForThe non-recurring impact on the three months ended September 30, 2003, grossMarch 31, 2004 results was an increase in net written premiums net written premiums,of $139.8 million and an increase in premiums earned, incurred losses and

22

LAE and underwriting expenses would decrease by $140.3 million, $111.2 million, $92.7 million, $67.6 million and $17.2 million, respectively, resulting in a net decrease in underwriting gain of $7.9 million. For the nine months ended September 30, 2003, gross written premiums, net written premiums, premiums earned, incurred losses and LAE and underwriting

24

expenses would decrease by $319.8 million, $238.1 million, $203.2 million, $143.8 million and $39.9 million, respectively, resulting in a net decrease in underwriting gain of $19.5 million. Effectively, these adjustments remove the UK branch from the three and nine month 2003 underwriting results.

The following tables reflect the reconciliation from reported to proforma segment underwriting results for the periods indicated:

 Three Months Ended September 30, 2003
 
     UK Branch     
(Dollars in thousands)As Reported Adjustment Proforma 
Gross written premiums$ 1,154,989 $ (140,278)$ 1,014,711 
Ceded written premiums  314,316   (29,068)  285,248 
Net written premiums$ 840,673 $ (111,210)$ 729,463 
 
Premiums earned$ 776,895 $ (92,687)$ 684,208 
Incurred losses and loss adjustment expenses  571,914   (67,630)  504,284 
Commission, brokerage, taxes and fees  158,158   (15,214)  142,944 
Other underwriting expense  19,858   (1,988)  17,870 
Underwriting gain from segments$ 26,965 $ (7,855)$ 19,110 
 
Loss ratio 73.6%      73.7% 
Commission ratio      20.4           20.9
Other underwriting expense ratio       2.5         2.6
Combined ratio 96.5%    97.2% 

 Nine Months Ended September 30, 2003
 
     UK Branch     
(Dollars in thousands)As Reported Adjustment Proforma 
Gross written premiums$ 3,106,547 $ (319,800)$ 2,786,747 
Ceded written premiums  858,474   (81,660)  776,814 
Net written premiums$ 2,248,073 $ (238,140)$ 2,009,933 
 
Premiums earned$ 1,974,187 $ (203,208)$ 1,770,979 
Incurred losses and loss adjustment expenses  1,419,312   (143,773)  1,275,539 
Commission, brokerage, taxes and fees  418,380   (35,327)  383,053 
Other underwriting expense  56,938   (4,585)  52,353 
Underwriting gain from segments$ 79,557 $ (19,523)$ 60,034 
 
Loss ratio 71.9%      72.0% 
Commission ratio      21.2           21.6
Other underwriting expense ratio        2.9          3.0
Combined ratio 96.0%    96.6% 

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Additionally, in order to provide comparability of the financial results between the years, the 2004 results need to be adjusted to exclude the one-time effects associated with the branch sale wherein ceded written premiums would increase by $139.8 million, net written premiums would decrease by $139.8 million and premiums earned, incurred losses and LAE and underwriting expenses would decrease by $118.8 million, $113.7 million and $31.0 million, respectively, resulting in a net increase in underwriting gain of $25.9 million. This adjusts the nine months ended September 30, 2004 underwriting results to exclude the one-time effects related to the sale.

The following table reflects the reconciliation from reported to proforma segment underwriting results for the period indicated:

 Nine Months Ended September 30, 2004
 
     UK Branch     
(Dollars in thousands)As Reported Adjustment Proforma 
Gross written premiums$ 2,832,251 $ – $ 2,832,251 
Ceded written premiums  593,410   139,751   733,161 
Net written premiums$ 2,238,841 $ (139,751)$ 2,099,090 
 
Premiums earned$ 2,096,711 $ (118,815)$ 1,977,896 
Incurred losses and loss adjustment expenses  1,551,095   (113,747)  1,437,348 
Commission, brokerage, taxes and fees  425,996   (30,962)  395,034 
Other underwriting expense  61,634   -   61,634 
Underwriting gain$ 57,986 $ 25,894 $ 83,880 
 
Loss ratio 74.0%      72.7% 
Commission ratio      20.3           20.0
Other underwriting expense ratio        2.9          3.1
Combined ratio 97.2%    95.8% 

In the remainder of this Financial Summary section and the following Segment Information section, all analyses relate to the comparable proforma information, except where indicated.respectively.

As indicated in the preceding “Industry Conditions” section, the reinsurance and insurance industry generally experienced favorable market conditions from 2001 through 2003. These favorable market conditions coupled with the Company’s financial strength, strategic positioning and market and underwriting expertise, enabled the Company to increase its volume of business significantly over this period. With the change in trend established thus far in 2004 and with little clarity regarding the impact of third quarter property catastrophe losses on prospective market conditions,continuing in 2005, the Company continued to adapt its operations to slow its rate of growth and even decrease writings for some classes of business and reemphasize its focus on profitability as opposed to volume. ForThe classes most affected by these actions were workers’ compensation insurance, individual risk underwritten reinsurance, medical stop loss reinsurance and select U.S. casualty reinsurance classes.

Accordingly, gross written premiums for the three months ended September 30, 2004, gross written premiumsMarch 31, 2005 were $947.4$879.5 million, a decrease of 6.6% from11.4% compared with $992.2 million for the same period of 2003. On a year to date basis, gross written premiums increased to $2,832.3 million, an increase of 1.6% over 2003. In contrast, gross written premiumsthree months ended March 31, 2004, which had increased 55.8% during fiscal year 2003 in comparison3.2% compared with 2002.

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In June 2004, the Company received notification of termination with respect to its contract with an insurance agency that produced the majority of its California workers’ compensation business. Under the terms of the contract, the agency continued to produce business exclusively for the Company through October 15, 2004. The business produced under this relationship will continue in force through the policy expiration dates or cancellation. In 2003, under this contract, the agency produced approximately 14% of the Company’s full year gross written premium. However, in 2004, this percentage has been expected to decline due to increasing competition and a de-emphasis of this distribution channel. The Company does not believe that the termination of this contract will have a material adverse effect on future Company operations.three months ended March 31, 2003.

Due to the nature of its businesses, the Company is unable to precisely differentiate between the effects of price changes as compared to the effects of changes in exposure. Similarly, because individual reinsurance arrangements often reflect revised coverages, structuring, pricing, terms and/or conditions from period to period, the Company is unable to differentiate between the premium volumes attributable to new business as compared to renewal business. Management believes, however, that on balance, the Company’s growth is reasonably balanced between growthgross written premium decline has been primarily due to a reduction in exposures underwritten, and increasedalong with slight pricing and/or improved terms and conditions.declines. Management believes further that market conditions, although changing, remain generally more favorable for casualty business classes than for property business classes; however, management notes that it continues to see business opportunities in mosta variety of product classes and markets. Although premium volumes on a year to date basis have increased, theThe Company continues to decline business that does not meet its objectives regarding underwriting profitability.

Net written premiums, comprised of gross written premiums less ceded premiums, were $694.2$648.6 million for the three months ended September 30, 2004March 31, 2005, a decrease of 4.8%29.1% compared to 2003. On a year to date basis, net written premiums were $2,099.1with $915.0 million an increase of 4.4% compared to 2003. These reflect premiums ceded of $253.2 million (26.7% of gross written premiums) and $285.2 million (28.1% of gross written premiums) for the three months ended September 30,March 31, 2004, and 2003, respectively, and $733.2 million (25.9% of gross written premiums) and $776.8 million (27.9% of gross written premiums) forwhich had increased 33.6% compared with the ninethree months ended September 30, 2004 and 2003, respectively.March 31, 2003. The majority of cessions in both periods continue to relate to the quota share reinsurance between Everest Re and Bermuda Re and Everest International Reinsurance, Ltd. (“Everest International”). In addition, the 2004 net written premiums included $139.8 million due to the UK Branch Sale.

Premiums earned were $688.1$619.0 million for the three months ended September 30,March 31, 2005, a decrease of 22.7% compared with $800.7 million for the three months ended March 31, 2004, an increase of 0.6%which had increased 50.6% compared to 2003. On a year to date basis, premiums earned were $1,977.9 million, an increase of 11.7% compared towith the three months ended March 31, 2003. These increasesmovements reflect period to period changes in net written premiums and business mix together with normal variability in earningsearning patterns. Business mix changes occur not only as the Company shifts emphasis between products, lines of business, distribution channels and markets, but also as individual contracts renew or non-renew, almost always with changes in coverage, structure, prices and/or terms, and as new contracts are accepted with coverages, structures, prices and/or terms different from those of expiring contracts. Changes in estimates related to unreported reinsurance activity also affect premiums earned. In addition, the 2004 premiums earned included $118.8 million due to the UK Branch Sale.

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Incurred losses and LAE were $569.9$434.1 million for the three months ended September 30, 2004, an increaseMarch 31, 2005, a decrease of 13.0%26.8% compared to 2003. On a year to date basis, incurred losses and LAE were $1,437.3 million, an increase of 12.7% compared to 2003. The major contributing factor for these increases was the increase in incurred losses and LAE due to the third quarter property catastrophe events, particularly hurricanes Charley, Frances, Ivan and Jeanne, of $183.0with $593.2 million for the three months ended September 30,March 31, 2004, which had increased 57.7% compared with the three months ended March 31, 2003. The $159.1 million decrease in incurred losses and LAE was principally related to $113.7 million in 2004 due to the UK Branch Sale, together with a decrease in net adverse prior period reserve adjustments to $18.4 million for the three months ended March 31, 2005 from $24.9 million for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004. Other factors includingcontributing to the level ofdecline in incurred

27

losses and LAE related toincluded changes in volume as measured by earned premium, changes in rates and the effect ofterms and changes in prior period loss reserve estimates, also contributed. Incurred lossesestimates.

Commission, brokerage and LAEtax expense were impacted by net favorable prior period reserve adjustments of $19.9$117.2 million and $168.7 million for the three months ended September 30,March 31, 2005 and 2004, respectively, with the decrease largely due to premium volume changes and adverse development of $1.6 million for the nine months ended September 30, 2004. Reductionschanges in the reserves related toCompany’s business mix. In addition, the World Trade Center events was the primary factor. Incurred losses and LAE were impacted by adverse development of $48.2 million and $115.9 million for the three and nine months ended September 30, 2003, respectively, principally related to adverse developments on the Company’s casualty and asbestos exposures.

Commission,2004 commission, brokerage and tax expense decreased $0.2included $31.0 million or 0.1% for the three months ended September 30, 2004 and increased $12.0 million or 3.1% for the nine months ended September 30, 2004. The 0.1% decrease for the three months ended September 30, 2004 compared to September 30, 2003 primarily reflects changes in the mix of business and commission rates. The 3.1% increase for the nine months ended September 30, 2004 compared to September 30, 2003 is generally the result of the increasing premium volume. Other underwriting expenses also increased due to the increase in business for the nine months ended September 30, 2004 compared to September 30, 2003.UK Branch Sale.

Net investment income increased to $81.2 million, an increase of 15.0%, from $70.6was $85.9 million for the three months ended September 30,March 31, 2005, an increase of 30.5% compared with $65.8 million for the three months ended March 31, 2004, which had decreased 2.8% compared to the three months ended September 30, 2003, andMarch 31, 2003. The increase was primarily due to $242.4the increase in investable assets, up $761.6 million, an increase of 14.9%, from $211.0 million for the nine months ended September 30, 2004or 11.6% at March 31, 2005 as compared to March 31, 2004, as well as $9.4 million of additional income from other asset investments.

Premiums are generally collected over the ninefirst 12 to 15 months ended September 30, 2003. Net investment income for the three and nine months ended, September 30, 2004 included a $5.4 million and $29.7 million increase, respectively, arising from an atypical increase in the value of one of the Company’s limited partnership investments. Excluding this increase, the netreinsurance and insurance contracts, while related losses are typically paid out over numerous years. This tends to generate cash flow from operations along with investment income increase generally reflected growth in the Company’s cash and invested assets coupled with a generally variable and lower interest rate environment.

income. The Company’s cash flow from operations was $232.5 million, a decrease of 28.7% from $325.9$140.8 million for the three months ended September 30, 2004March 31, 2005, a decrease of 45.2% compared towith $256.8 million for the three months ended September 30, 2003 and to $769.7 million, a slight decrease from $769.8 million forMarch 31, 2004, which had increased 16.3% compared with the ninethree months ended September 30, 2004 compared to the nine months ended September 30,March 31, 2003. Coupled with the issuance of junior subordinated debt securities, this contributed to the growthCash flow from operations in the Company’s total investmentsfirst quarter of 2005 was negatively impacted by an additional $65.6 million of catastrophe loss payments and cash to $7,066.1$17.3 million as of September 30, 2004 from $6,412.4 million at December 31, 2003.income tax payments period over period.

Net realized capital gains were $9.4 million and $59.8$1.5 million for the three and nine months ended September 30, 2004, respectively,March 31, 2005, reflecting normal portfolio management activities, compared to net realized capital losses of $11.8 million and $23.9$27.0 million for the three and nine months ended September 30, 2003, respectively.March 31, 2004. The net realized capital gains inlosses for the three months ended March 31, 2004 were primarily the result of $43.9 million of write-downs in the gains on the salevalue of the interest only strips of mortgage-backed securities (“interest only strips”) investment portfolio. The net realized capital losses in 2003 were primarily the result of valuation adjustments on the interest only strip portfolio in accordance with Emerging Issues Task Force No. 99-20, “Recognitionsecurities deemed to be impaired on an other than temporary basis, partially offset by $17.0 million of Interest Incomenet realized gains.

The Company’s income tax expense is primarily a function of the U.S. statutory tax rates and Impairment on Purchases and Beneficial Interests in Securitized Financial Assets” (EITF 99-20”).

the impact from tax preferenced investment income. The Company incurred an income tax benefitexpenses of $11.7$17.7 million and an income tax expense of $10.5$19.3 million for the three months ended September 30,March 31, 2005 and 2004, and 2003, respectively, and an income tax expense of $57.7 million and $45.8 million for the nine months ended September 30,

28

2004 and 2003, respectively. The decrease in tax expense for the three months ended September 30, 2004 as compared to 2003 primarily reflected the impact of the catastrophe losses on 2004 underwriting results, which were partially offset by additional taxable net investment income and taxable realized capital gains. The increase in tax expense for the nine months ended September 30, 2004 as compared to 2003 generally reflected the impact of realized capital gains and increased investment income, partially offset by the impact of catastrophe losses on underwriting results. Additionally, in conjunction with the transfer of the Company’s UK branchBranch to Bermuda Re, there were various tax issues givingitems which gave rise to incremental net tax expenses and benefits, affecting the variability between years.in 2004.

The decreaseincrease in net income to $7.7$86.9 million from $60.5$7.3 million for the three months ended September 30,March 31, 2005 and 2004, and 2003, respectively, generally reflected a decreaseincreased investment results, realized capital gains and an increase in underwriting results due to the impact of property and catastrophe event losses including hurricanes Charley, Frances, Ivan, and Jeanne and related tax benefits associated with those losses, partially offset by improved investment results and realized capital gains. The decrease in net income to $174.8 million from $176.0 million for the nine months ended September 30, 2004 and 2003, respectively, generally reflected a decrease in underwriting results due to the catastrophes and increased income taxes, partially offset by improved investment results and realized capital gains.results.

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The Company’s stockholders’ equity increased to $1,678.0$1,765.7 million at September 30, 2004as of March 31, 2005 from $1,546.9$1,743.8 million atas of December 31, 2003. This2004. The increase was primarily due to net income for the period, partially offset by reductionsa decrease in net unrealized appreciation on the Company’s fixed maturity portfolio and dividends paid.portfolio.

Segment Information

The Company, through its subsidiaries, operates in four segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting and International. The U.S. Reinsurance operation writes property and casualty reinsurance, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S. The U.S. Insurance operation writes property and casualty insurance primarily through general agent relationships 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 property and casualty reinsurance through Everest Re’s branches in Canada and Singapore, in addition to foreign business written through Everest Re’s Miami and New Jersey offices.

These segments are managed in a carefully coordinated fashion with strong elements of central control, including with respect to capital, investments and support operations. As a result, management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting gain (loss) or underwriting results. Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses and are analyzed using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissioncommissions and brokerage and other underwriting expenses by earned premium. The Company utilizes inter-affiliate reinsurance but such reinsurance generally does not impact segment results, as business is generally reported within the segment in which the business was first produced.

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Effective January 1, 2004, Everest Re sold its United Kingdom branch to Bermuda Re, a Bermuda insurance company and a direct subsidiary of Group. Prior to 2004, business for this branch was previously included in the results of the International segment. The comparability of the financial results has been impacted by the sale of the UK branch from Everest Re to Bermuda Re. In order to provide comparability of the financial results between the years, the three months ended September 30, 2003 results for the International segment need to be adjusted to exclude the UK branch activity wherein gross written premiums, net written premiums, premiums earned, incurred losses and LAE and underwriting expenses would decrease by $140.3 million, $111.2 million, $92.7 million, $67.6 million, and $17.2 million, respectively, resulting in a net decrease in underwriting gain of $7.9 million. For the nine months ended September 30, 2003, gross written premiums, net written premiums, premiums earned, incurred losses and LAE and underwriting expenses would decrease by $319.8 million, $238.1 million, $203.2 million, $143.8 million and $39.9 million, respectively, resulting in a net decrease in underwriting gain of $19.5 million. Effectively, these adjustments remove the UK branch from the three and nine month 2003 International underwriting results making period over period results comparable.25

30

The following tables reflect reconciliations from reported to proformapresent the relevant underwriting results for the International segmentoperating segments for the periods indicated.indicated:

   Three Months Ended September 30, 2003
 
       UK Branch    
(Dollars in thousands)  As Reported Adjustment Proforma
Gross written premiums  $275,798 $(140,278)$135,520 
Ceded written premiums   77,200  (29,068) 48,132 
Net written premiums  $198,598 $(111,210)$87,388 
 
Premiums earned  $174,780 $(92,687)$82,093 
Incurred losses and loss adjustment expenses   115,410  (67,630) 47,780 
Commission, brokerage, taxes and fees   32,751  (15,214) 17,537 
Other underwriting expense   4,221  (1,988) 2,233 
Underwriting gain  $22,398 $(7,855)$14,543 
 
Loss ratio  66.0%    58.2% 
Commission ratio           18.7             21.4
Other underwriting expense ratio             2.5            2.7
Combined ratio  87.2%  82.3% 

   Nine Months Ended September 30, 2003
 
       UK Branch    
(Dollars in thousands)  As Reported Adjustment Proforma
Gross written premiums  $645,462 $(319,800)$325,662 
Ceded written premiums   213,535  (81,660) 131,875 
Net written premiums  $431,927 $(238,140)$193,787 
 
Premiums earned  $386,258 $(203,208)$183,050 
Incurred losses and loss adjustment expenses   250,048  (143,773) 106,275 
Commission, brokerage, taxes and fees   70,646  (35,327) 35,319 
Other underwriting expense   11,491  (4,585) 6,906 
Underwriting gain  $54,073 $(19,523)$34,550 
 
Loss ratio  64.7%    58.1% 
Commission ratio           18.3             19.3
Other underwriting expense ratio             3.0            3.7
Combined ratio  86.0%  81.1% 
U.S. Reinsurance
Three Months Ended
March 31,
(Dollars in thousands)20052004
Gross written premiums  $349,800 $367,932 
Net written premiums   268,774  294,388 

Premiums earned		  $265,299 $294,965 
Incurred losses and loss adjustment expenses   191,978  211,773 
Commission and brokerage   57,437  78,284 
Other underwriting expenses   5,713  5,727 
Underwriting gain (loss)  $10,171 $(819)

U.S. Insurance
Three Months Ended
March 31,
(Dollars in thousands)20052004
Gross written premiums  $274,328 $353,705 
Net written premiums   199,772  264,175 

Premiums earned		  $174,239 $173,421 
Incurred losses and loss adjustment expenses   124,718  144,848 
Commission and brokerage   22,561  9,793 
Other underwriting expenses   12,100  11,125 
Underwriting gain  $14,860 $7,655 

Specialty Underwriting
Three Months Ended
March 31,
(Dollars in thousands)20052004
Gross written premiums  $102,991 $122,057 
Net written premiums   74,566  100,693 

Premiums earned		  $73,378 $99,653 
Incurred losses and loss adjustment expenses   49,854  63,866 
Commission and brokerage   17,765  27,854 
Other underwriting expenses   1,639  1,699 
Underwriting gain  $4,120 $6,234 

All26

International
Three Months Ended
March 31,
(Dollars in thousands)20052004
Gross written premiums  $152,365 $148,472 
Net written premiums   105,528  116,106 

Premiums earned		  $106,090 $113,865 
Incurred losses and loss adjustment expenses   67,579  58,989 
Commission and brokerage   19,387  21,781 
Other underwriting expenses   2,987  2,718 
Underwriting gain  $16,137 $30,377 

The following table reconciles the comparative analysis in this Segment Information section relatesunderwriting results for the operating segments to the proforma informationincome before tax as reported in the above table except where indicated otherwise.consolidated statements of operations and comprehensive income for the periods indicated:

Three Months Ended
March 31,
(Dollars in thousands)20052004
Underwriting gain  $45,288 $43,447 
UK branch sale and related transactions   -  (25,894)
Underwriting gain   45,288  17,553 
Net investment income   85,922  65,823 
Realized gain (loss)   1,485  (27,046)
Corporate (expense) income   (1,957) 2,007 
Interest expense   (21,644) (14,479)
Other expense   (4,511) (17,260)
Income before taxes  $104,583 $26,598 

Three Months Ended September 30, 2004March 31, 2005 compared to Three Months Ended September 30, 2003March 31, 2004

Premiums.Gross written premiums decreased 6.6%11.4% to $947.4$879.5 million in the three months ended September 30, 2004March 31, 2005 from $1,014.7$992.2 million in the three months ended September 30, 2003,

March 31,

2004, reflecting increased competitive pressures on pricing, particularly onpricing. Areas of premium decline included a 22.4% ($79.4 million) decrease in the U.S. Reinsurance propertyInsurance operation principally as a result of a $113.6 million decrease in workers’ compensation business, primarily resulting from the 2004 termination of a contract with American All-Risk Insurance Services, Inc., partially offset by a $34.2 million increase in program business outside of the workers’ compensation class. The Specialty Underwriting operation decreased 15.6% ($19.1 million), resulting primarily from a $21.5 million decrease in A&H business and casualty classes ofa $4.1 million decrease in surety business, partially offset by a $6.5 million increase in marine and aviation business.

Adjusting to these market conditions, the The U.S. Reinsurance operation decreased 32.1%4.9% ($171.418.1 million), principally reflecting a $128.8$74.9 million decrease in treaty casualty business a $19.4 million decrease in treaty property business and a $13.7$7.3 million decrease in facultative business, partially offset by a $71.8 million increase in treaty property business. Partially offsetting these decreases were areas where the Company continued to grow. The International operation saw a 50.6%2.6% ($68.63.9 million) increase, primarily due to a $49.9$20.4 million increase in Asian business, partially offset by an $11.6 million decrease in international business written through the Miami and New Jersey offices,

27

representing primarily Latin American business and a $19.4 million increase in Asian business. The U.S. Insurance operation grew 14.3% ($31.6 million), principally as a result of a $53.3 million increase in program business outside of the workers’ compensation class, partially offset by a $21.7$4.8 million decrease in workers’ compensation business. The effect of the previously noted cancellation of the Company’s largest California workers’ compensation agency arrangement will impact this segment although not until the quarter ending December 31, 2004 and subsequent quarters. The Specialty Underwriting operation increased 3.1% ($3.9 million), resulting primarily from a $10.6 million increasebusiness written in marine and aviation business and a $5.1 million increase in surety business, partially offset by an $11.8 million decrease in A&H business, reflective of softening in pricing of this business class.Canada.

Ceded premiums decreasedincreased to $253.2$230.8 million for the three months ended September 30,March 31, 2005, from $77.2 million for the three months ended March 31, 2004. The increase in ceded premiums was primarily related to a reduction in ceded premiums of $139.8 million in 2004 due to the UK Branch Sale coupled with an increase in cessions under the Bermuda Re and Everest International quota share agreements and unaffiliated cessions in 2005.

Net written premiums decreased to $648.6 million for the three months ended March 31, 2005, a decrease of 29.1% from $285.2$915.0 million for the three months ended March 31, 2004, principally reflecting a decrease in gross written premiums as mentioned above, combined with an increase in ceded premiums.

Premium Revenues.    Net premiums earned decreased by 22.7% to $619.0 million in the three months ended September 30, 2003. The decrease in ceded premiums is primarily related to reduced cessions under the Bermuda Re quota share agreements due to the decrease in gross written premiums and the absence of cessions, in 2004, under the corporate level aggregate reinsurance coverages.

Net written premiums decreased to $694.2 for the three months ended September 30, 2004, down 4.8%March 31, 2005 from $729.5 million for the three months ended September 30, 2003, reflecting the decrease in gross written premiums partially offset by the decrease in ceded written premiums.

Premium Revenues.    Net premiums earned increased to $688.1 million, or 0.6%, in the three months ended September 30, 2004 from $684.2$800.7 million in the three months ended September 30, 2003. ContributingMarch 31, 2004. In 2004, net premiums earned included $118.8 million from the UK Branch Sale. Also contributing to this increasedecrease was a 65%26.4% ($53.326.3 million) increasedecrease in the Specialty Underwriting operation, a 10.1% ($29.7 million) decrease in the U.S. Reinsurance operation and a 6.8% ($7.8 million) decrease in the International operation, an 11.1%partially offset by a 0.5% ($19.30.8 million) increase in the U.S. Insurance operation and a 1.5% ($1.4 million) increase in the Specialty Underwriting operation, partially offset by a 20.8% ($70.1 million) decrease in the U.S. Reinsurance operation. All of these changes reflect period to period changes in net written premiums and business mix, together with normal variability in earnings patterns. Business mix changes occur not only as the Company shifts emphasis between products, lines of business, distribution channels and markets, but also as individual contracts renew or non-renew, almost always with changes in coverage, structure, prices and/or terms, and as new contracts are accepted with coverages, structures, prices and/or terms different from those of expiring contracts. As premium reporting, earnings, loss and commission characteristics derive from the provisions of individual contracts, the continuous turnover of individual contracts, arising from both strategic shifts and day to day underwriting, can and does introduce appreciable background variability in various underwriting line items. Changes in estimates related to unreported reinsurance activity also affect premiums earned.

Expenses.    Incurred losses and LAE increaseddecreased by 13.0%26.8% to $569.9$434.1 million in the three months ended September 30, 2004March 31, 2005 from $504.3$593.2 million in the three months ended September 30, 2003.March 31, 2004. The increasedecrease in incurred losses and LAE was principally attributabledue to $113.7 million included in 2004 relating to the increaseUK Branch Sale and in estimated

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catastrophe losses due to property catastrophe events including hurricanes Charley, Frances, Ivan and Jeanne, partially offset by net favorable2005, the decrease in reserve adjustments for prior period reserve adjustments.losses, the decrease in net premiums earned and the impact of changes in the Company’s mix of business.

The Company’s loss and LAE reserves reflect estimates of ultimate claim liability. Such estimates are reevaluatedre-evaluated on an ongoing basis, including re-estimates of prior period reserves, taking into consideration all available information and, in particular, newly reported loss and claim experience. The effect of such reevaluations impactre-evaluations impacts incurred losses for the current period. The Company notes that its analytical methods and processes operate at multiple levels, including individual contracts, groupings of like contracts, classes and lines of business, internal business units, segments, legal entities, and in the aggregate. The complexities of the Company’s businessesbusiness and operations require analyses and adjustments, both qualitative and quantitative, at these various levels. Additionally, the attribution of reserves, changechanges in reserves and incurred losses between accident year and underwriting year requirerequires adjustments and allocations, both

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qualitative and quantitative, at these various levels. All of these processes, methods and practices appropriately balance actuarial science, business expertise and management judgment in a manner intended to assure the accuracy, precision and consistency of the Company’s reserving practices, which are fundamental to the Company’s operation. The Company notes, however, that the underlying reserves remain estimates, which are subject to variation, and that the relative degree of variability is generally least when reserves are considered in the aggregate and generally increases as the focus shifts to more granular data levels.

Incurred losses and LAE for the three months ended September 30, 2004March 31, 2005 reflected ceded losses and LAE of $272.0$145.5 million which includes $46.7 million in ceded catastrophe losses compared to ceded losses and LAE infor the three months ended September 30, 2003March 31, 2004 of $170.3$60.4 million. The increase inCeded losses and LAE for the three months ended March 31, 2005 included $103.3 million of ceded losses was primarily the result of an increase in cessions to Bermuda Re under the Mt. McKinley loss portfolio transfer and increases in premiums earned subjectrelating to the quota share agreements.reinsurance transactions between Everest Re and Bermuda Re and Everest International as compared with ceded losses of $82.5 million for the three months ended March 31, 2004, reflecting a $76.9 million reduction due to the UK Branch Sale.

Incurred losses and LAE include catastrophe losses, which include the impact of both current period events and favorable and adverse development on prior period events and are net of reinsurance. Individual catastrophe losses are reported net of specific reinsurance, but before recoveries under corporate level reinsurance and potential incurred but not reported (“IBNR”) reserve offsets. AThe Company defines a catastrophe isas a property event with expected reported losses of at least $5.0 million before corporate level reinsurance and taxes. Catastrophe losses, net of contract specific cessions, were $154.5$13.3 million infor the three months ended September 30, 2004,March 31, 2005, relating principally due to $186.8losses of $16.8 million of estimated aggregate lossesprimarily from hurricanes Charley Frances,and Ivan, typhoon Songda and Jeanne and Pacific typhoon activity,Suncor Refinery, which were partially offset by a $30.6$3.5 million of net reserve reductiontakedowns related to the World Trade Center events.pre-2004 catastrophes. Catastrophe losses, net of contract specific cessions, were $11.3$1.8 million infor the three months ended September 30, 2003.March 31, 2004.

The following table shows the net catastrophe losses for each of the Company’s operating segments for the three months ended March 31, 2005 and 2004:

(Dollars in thousands)Segment Net Catastrophe Losses
Segment2005 2004 
U.S. Reinsurance $4.8 $0.1 
U.S. Insurance  -  - 
Specialty Underwriting  1.6  0.1 
International  6.9  1.6 
    Total $13.3 $1.8 

Net favorableadverse prior period reserve adjustments, which include catastrophe development, for the three months ended March 31, 2005 were $18.4 million compared to $24.9 million for the three months ended March 31, 2004. For the three months ended March 31, 2005, the net adverse reserve adjustments included net adverse asbestos and environmental (“A&E”) adjustments of $0.7 million and net adverse non-A&E adjustments of $17.7 million. The reserve adjustments for the three months ended September 30,March 31, 2004 were $19.9 million compared to net adverse prior period reserve adjustments of $48.2 million for the three months ended September 30, 2003. The favorable reserve adjustments for the three months ended September 30, 2004 included net favorable non-asbestos and environmental (“A&E”) adjustments of $21.1 million, partially offset by net adverse development on A&E reserve adjustments of $1.2 million. For the three months ended September 30, 2003, adverse reserve adjustments included A&E adjustments of $5.2$4.2 million and non-A&E net adverse adjustments of $43.0$20.7 million. It is important to note that adverse non-A&E accident year reserve development arises from the re-evaluation of accident year results and that such re-evaluations may also impact premiums and commissions attributed by accident year,

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generally mitigating, in part, the impact of loss development, and that such impacts are recorded as part of the overall reserve evaluation.

The U.S. Reinsurance segment accounted for $24.7 million of favorable net prior period reserve adjustments for the three months ended September 30, 2004 and $26.7$14.4 million of net adverse prior period reserve adjustments for the three months ended September 30, 2003. Asbestos exposures accounted for $1.2March 31, 2005, which included $13.7 million and $5.2of unfavorable non-A&E prior period reserve adjustments mainly relating to casualty lines as compared to net adverse non-A&E prior period reserve adjustments of $8.9 million for the three months ended September 30, 2004March 31, 2004. Asbestos exposures accounted for $0.7 million and 2003, respectively. The favorable development$4.2 million of net adverse reserve adjustments for the three months ended September 30,March 31, 2005 and 2004, was principally due to a $34.8 million reserve reduction related to the catastrophe losses from the World Trade Center events. Non-A&E adverse development for the three months ended September 30, 2003 principally reflected adjustments to professional liability and casualty business classes.respectively.

The U.S. Insurance segment reflected $3.1$3.6 million of net favorable prior period reserve adjustments for the three months ended March 31, 2005 and $8.3$11.6 million of net adverse prior period reserve adjustments for the three months ended September 30,March 31, 2004. The March 31, 2004 prior period reserve adjustments were principally due to non-workers’ compensation programs and 2003, respectively, reflecting minor reserve adjustments.related to accident years 2000 through 2002.

The Specialty Underwriting segment had $2.8 million and $3.0$1.6 million of net adverse prior period reserve adjustments for the three months ended September 30, 2004March 31, 2005 and 2003, respectively,$0.1 million net prior period reserve adjustments for the three months ended March 31, 2004. The March 31, 2005 net adverse prior period reserve adjustments related principally related to catastrophe loss development on the marine and aviation classes of business in 2004 and loss development on the surety class of business in 2003.business.

The International segment had $1.0$6.0 million, relating primarily to property catastrophe loss development on the Asian, International and Canadian business, and $0.1 million of net favorableadverse prior period reserve adjustments for the three months ended September 30,March 31, 2005 and 2004, andrespectively.

The following table shows net adverse prior period reserve adjustments for each of $5.0 millionthe Company’s operating segments for the three months ended September 30, 2003.March 31, 2005 and 2004:

(Dollars in thousands)Segment Net Prior Period Reserve Adjustments
Segment2005 2004 
U.S. Reinsurance $14.4 $13.1 
U.S. Insurance  (3.6) 11.6 
Specialty Underwriting  1.6  0.1 
International  6.0  0.1 
    Total $18.4 $24.9 

The segment components of the increasedecrease in incurred losses and LAE infor the three months ended September 30, 2004March 31, 2005 from the three months ended September 30, 2003March 31, 2004 were a 113.1%21.9% ($54.014.0 million) increase in the International operation, a 22.0% ($12.9 million) increasedecrease in the Specialty Underwriting operation, a 13.9% ($20.1 million) decrease in the U.S. Insurance operation and a 0.7%9.3% ($1.819.8 million) increasedecrease in the U.S. Reinsurance operation, partially offset by a 2.4%14.6% ($3.28.6 million) decreaseincrease in the U.S. InsuranceInternational operation. These changes generally reflect variability in premiums earned due to increases in premiums written subject to the quota share agreements,and changes in the loss expectation assumptions for business written, andas well as the net prior period reserve development and catastrophe losses discussed above. Incurred losses and LAE for each operation were also impacted by changes in

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the pricing of the underlying business, as well as variability relating to changes in the mix of business by class and type.type, which in general reflected a more favorable mix.

The Company’s loss and LAE ratio, which is calculated by dividing incurred losses and LAE by net premiums earned, increaseddecreased by 9.14.0 percentage points to 82.8%70.1% in the three months ended September 30, 2004March 31, 2005 from 73.7%74.1% in the three months ended September 30, 2003,March 31, 2004, reflecting the impact of the UK Branch Sale in 2004, as well as the impact of the changes in premiums earned and incurred losses and LAE discussed above.above, as well as changes in the underlying business mix and aggregate rates, terms and conditions.

The following table shows the loss ratios for each of the Company’s operating segments for the three months ended September 30, 2004March 31, 2005 and 2003.2004. The loss ratios for all operations were impacted by the factors noted above.

       
Segment Loss Ratios
Segment   2004 2003
U.S. Reinsurance   100.5% 79.0%
U.S. Insurance   66.7% 75.9%
Specialty Underwriting   76.9% 64.0%
International   75.2% 58.2%

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Segment Loss Ratios
Segment2005 2004
U.S. Reinsurance   72.4%  71.8%
U.S. Insurance   71.6%  83.5%
Specialty Underwriting   67.9%  64.1% 
International   63.7%  51.8%

Segment underwriting expenses increaseddecreased by 1.1%12.2% to $162.5$139.6 million in the three months ended September 30, 2004March 31, 2005 from $160.8$159.0 million in the three months ended September 30, 2003.March 31, 2004. Commission, brokerage, taxes and fees decreased by $0.2$20.6 million, primarily due toprincipally reflecting decreases in premium volume, changes in the mix of business and commission rates.increases in premium based taxes. Segment other underwriting expenses increased by $1.9 million.$1.2 million, as the Company continued to expand operations to support its business volume. Contributing to the increasesegment underwriting expenses decrease were a 34.3% ($10.1 million) decrease in expenses wasthe Specialty Underwriting operation, a 73.7%24.8% ($14.620.9 million) increasedecrease in the U.S. Reinsurance operation and an 8.7% ($2.1 million) decrease in the International operation, partially offset by a 16.1% ($4.965.7% (13.7 million) increase in the U.S. Insurance operation reflecting higher premium based taxes and a 10.9% ($2.7 million) increase in the Specialty Underwriting operation, principally offset by a 23.9% ($20.5 million) decrease in the U.S. Reinsurance operation.distribution channel expenses. The changes for each operation’s expenses principally resulted from changes in commission expenses related to changes in premium volume and business mix by class and type and, in some cases, changes in the use of specific reinsurance, including with Bermuda Re, andas well as the underwriting performance of the underlying business. The Company’s expense ratio, which is calculated by dividing underwriting expenses by net premiums earned, was 23.7%22.9% for the three months ended March 31, 2005 compared to 23.5% for the three months ended March 31, 2004.

The following table shows the expense ratios for each of the Company’s operating segments for the three months ended September 30, 2004March 31, 2005 and 2003.2004.

Segment Expense Ratios
Segment2005 2004
U.S. Reinsurance   23.8%  28.5%
U.S. Insurance   19.9%  12.1%
Specialty Underwriting   26.5%  29.6% 
International   21.1%  21.5%

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The Company’s combined ratio, which is the sum of the loss and expense ratios, increaseddecreased by 9.14.6 percentage points to 106.5%93.0% in the three months ended September 30, 2004March 31, 2005 compared to 97.4%97.6% in the three months ended September 30, 2003, reflectingMarch 31, 2004, primarily due to the increase in the lossUK Branch Sale impact on 2004 and expense ratiosother items as previously discussed.discussed above.

The following table shows the combined ratios for each of the Company’s operating segments for the three months ended September 30, 2004March 31, 2005 and 2003.2004. The combined ratios for all operations were impacted by the loss and expense ratio variability noted above.

      
Segment Combined Ratios
Segment  2004 2003Segment2005 2004
U.S. Reinsurance  124.9% 104.5%  96.2%  100.3%
U.S. Insurance  85.0% 93.4%  91.5%  95.6%
Specialty Underwriting  106.6% 91.1%  94.4%  93.7% 
International  100.5% 82.3%  84.8%  73.3%

Investment Results.Net investment income increased 15.0%30.5% to $81.2$85.9 million for three months ended September 30, 2004March 31, 2005 from $70.6$65.8 million in the three months ended September 30, 2003,March 31, 2004, principally reflecting the effects of investing $1,050.8 million of cash flow from operations for the twelve months ended September 30,increase in investable assets to $7.3 billion at March 31, 2005 as compared to $6.5 billion at March 31, 2004, as well as $320.0 of net proceeds from the issuance of junior subordinated debt securities in March 2004, all partially offset by the effects of the lower interest rate environment and a $6.0 million decrease from the impact of the UK branch sale. Additionally, $5.4 million included in 2004 net investment income is an atypical increase in the carrying value of a limited partnership investment.

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

    2004 2003
Imbedded pre-tax yield of cash and invested assets at  
  September 30, 2004 and September 30, 2003   4.5% 4.7%
Imbedded after-tax yield of cash and invested assets at  
  September 30, 2004 and September 30, 2003   3.7% 3.9%
Annualized pre-tax yield on average cash and invested  
  assets for the three months ended September 30, 2004 and 2003   4.9% 5.0%
Annualized after-tax yield on average cash and invested  
  assets for the three months ended September 30, 2004 and 2003   3.9% 4.0%

Net realized capital gains were $9.4 million for the three months ended September 30, 2004, reflecting realized capital gains on the Company’s investments of $10.2 million, partially offset by $0.8 million of realized capital losses. Net realized capital losses of $11.8 million in the three months ended September 30, 2003 reflected realized capital losses on the Company’s investments of $22.5 million, which included $1.2 million relating to write-downs in the value of securities deemed to be impaired on an other than temporary basis and $21.1 million related to the impairment on interest only strips in accordance with EITF 99-20, partially offset by $10.6 million of realized capital gains, which included $5.3 million of realized capital gains on the interest only strips.

The Company has in its product portfolio a credit default swap, which it no longer offers. This product meets the definition of a derivative under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Investments and Hedging Activities” (“FAS 133”). There was no net derivative expense from this credit default transaction for each of the three months ended September 30, 2004 and 2003.

Other expense for the three months ended September 30, 2004 was $30.4 million compared to other income of $0.6 million for the three months ended September 30, 2003. This change was primarily due to a deferred gain on a retroactive reinsurance agreement, in accordance with FAS 113, to Bermuda Re.

Interest expense for the three months ended September 30, 2004 and 2003 was $19.4 million and $14.3 million, respectively. Interest expense for the three months ended September 30, 2004 included $9.7 million relating to the senior notes, $9.4 million relating to the junior subordinated debt securities and $0.3 million relating to borrowings under the senior revolving credit agreements (“Credit Facility”). Interest expense for the three months ended September 30, 2003 included $9.7 million relating to the senior notes, $4.2 million relating to the junior subordinated debt securities and $0.3 million relating to borrowings under the Credit Facility. The increase in interest expense for the junior subordinated debt securities is due to the additional issuance of $320 million of debt securities in March 2004.

Income Taxes.    The Company recognized income tax benefit of $11.7 million in the three months ended September 30, 2004 compared to an income tax expense of $10.5 million in the three months ended September 30, 2003. The decrease in taxes generally reflects the impact of the third quarter catastrophe losses on the underwriting results, partially offset by the impact of additional taxable net investment income and taxable realized capital gains. Additionally, in

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conjunction with the transfer of the Company’s UK branch to Bermuda Re, there were various tax issues giving rise to net expenses and benefits, affecting the variability between years.

Net Income.    Net income was $7.7 million in the three months ended September 30, 2004 compared to net income of $60.5 million in the three months ended September 30, 2003, reflecting a decrease in underwriting results due to the third quarter 2004 catastrophe losses, partially offset by an improvement in investment income and realized capital gains and decreased income taxes.

Nine Months Ended September 30, 2004 compared to Nine Months Ended September 30, 2003

Premiums.    Gross written premiums increased 1.6% to $2,832.3 million in the nine months ended September 30, 2004 from $2,786.7 million in the nine months ended September 30, 2003, as the Company took advantage of the generally attractive rates, terms and conditions available in its markets, including selected growth opportunities, while continuing to maintain a disciplined underwriting approach.

Premium growth areas included a 57.3% ($186.7 million) increase in the International operations, primarily due to a $133.0 million increase in international business written through the Miami and New Jersey offices representing primarily Latin American business, a $38.7 million increase in Asian business and a $16.6 million increase in Canadian business. The U.S. Insurance operation grew 13.6% ($110.2 million) principally as a result of a $166.0 million increase in program business other than workers’ compensation, partially offset by a $55.8 million decrease in workers’ compensation business, which was primarily due to increased competition. The effect of the previously noted cancellation of the Company’s largest California workers’ compensation agency arrangement will impact this segment although not until the quarter ending December 31, 2004 and subsequent quarters. The Specialty Underwriting operation decreased 10.5% ($41.2 million), resulting primarily from a $62.1 million decrease in A&H business, partially offset by an increase in marine and aviation business of $11.1 million and an increase in surety business of $9.8 million. The U.S. Reinsurance operation decreased 16.7% ($210.1 million), principally relating to an $81.0 million decrease in treaty casualty business, a $57.9 decrease in treaty property business and a $56.5 million decrease in facultative business.

Ceded premiums decreased to $733.2 million for the nine months ended September 30, 2004 from $776.8 million for the nine months ended September 30, 2003. Ceded premiums decreased primarily due to the absence of cessions, in 2004, under the corporate level aggregate reinsurance coverages, partially offset by an increase in cessions under the Bermuda Re and Everest International quota share agreements.

Net written premiums increased by 4.4% to $2,099.1 million in the nine months ended September 30, 2004 from $2,009.9 million in the nine months ended September 30, 2003 reflecting the increase in gross written premiums, combined with the decrease in ceded premiums.

Premium Revenues.    Net premiums earned increased by 11.7% to $1,977.9 million in the nine months ended September 30, 2004 from $1,771.0 million in the nine months ended September 30, 2003. Contributing to this increase were a 90.7% ($166.0 million) increase in the International operation, an 8.1% ($41.2 million) increase in the U.S. Insurance operation and a

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3.2% ($24.9 million) increase in the U.S. Reinsurance operation, partially offset by an 8.5% ($25.1 million) decrease in the Specialty Underwriting operation. All of these changes reflect period to period changes in net written premiums and business mix, together with normal variability in earnings patterns. Business mix changes occur not only as the Company shifts emphasis between products, lines of business, distribution channels and markets, but also as individual contracts renew or non-renew, almost always with changes in coverage, structures, prices and/or terms, and as new contracts are accepted with coverages, structures, prices and/or terms different from those of expiring contracts. As premium reporting, earnings, loss and commission characteristics derive from the provisions of individual contracts, the continuous turnover of individual contracts, arising from both strategic shifts and day to day underwriting, can and does introduce appreciable background variability in various underwriting line items.

Expenses.    Incurred losses and LAE increased by 12.7% to $1,437.3 in the nine months ended September 30, 2004 from $1,275.5 million in the nine months ended September 30, 2003. The increase in incurred losses and LAE was principally attributable to the increase in net premiums earned, the impact of changes in the Company’s mix of business, the provision for estimated catastrophe losses from hurricanes Charley, Frances, Ivan and Jeanne and Pacific typhoons, and reserve adjustments for prior period losses.

The Company’s loss and LAE reserves reflect estimates of ultimate claim liability. Such estimates are reevaluated on an ongoing basis, including re-estimates of prior period reserves, taking into consideration all available information and, in particular, newly reported loss and claim experience. The effect of such reevaluations impacts incurred losses for the current period. The Company notes that its analytical methods and processes operate at multiple levels including individual contracts, groupings of like contracts, classes and lines of business, internal business units, segments, legal entities, and in the aggregate. The complexities of the Company’s business and operations require analyses and adjustments, both qualitative and quantitative, at these various levels. Additionally, the attribution of reserves, change in reserves and incurred losses, between accident year and underwriting year require adjustments and allocations, both qualitative and quantitative, at these various levels. All of these processes, methods and practices appropriately balance actuarial science, business expertise and management judgment in a manner intended to assure the accuracy, precision and consistency of the Company’s reserving practices, which are fundamental to the Company’s operation. The Company notes, however, that the underlying reserves remain estimates, which are subject to variation, and that the relative degree of variability is generally least when reserves are considered in the aggregate and generally increases as the focus shifts to more granular data levels.

Incurred losses and LAE for the nine months ended September 30, 2004 reflected ceded losses and LAE of $614.6 million compared to ceded losses and LAE for the nine months ended September 30, 2003 of $429.3 million. Ceded losses and LAE for the nine months ended September 30, 2004 and 2003 included $537.7 million and $317.4 million, respectively, of ceded losses relating to the quota share reinsurance transactions between Everest Re on the one hand and Bermuda Re and Everest International on the other hand.

Incurred losses and LAE include catastrophe losses, which include the impact of both current period events and favorable and unfavorable development on prior period events, and are net of reinsurance. Individual catastrophe losses are reported net of specific reinsurance, but before recoveries under corporate level reinsurance and potential IBNR reserve offsets. A catastrophe is a property event with expected reported losses of at least $5.0 million before corporate level

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reinsurance and taxes. Catastrophe losses, net of contract specific cessions, were $157.0 million in the nine months ended September 30, 2004, relating principally to aggregate estimated losses of $186.8 million from hurricanes Charley, Frances, Ivan, and Jeanne and Pacific typhoons, which were partially offset by $30.2 million of reserve reductions related to the World Trade Center events, compared to $30.9 million in the nine months ended September 30, 2003.

Net adverse prior period reserve adjustments for the nine months ended September 30, 2004 were $1.6 million compared to net adverse prior period reserve adjustments of $115.9 million for the nine months ended September 30, 2003. The adverse reserve adjustments for the nine months ended September 30, 2004 included A&E adjustments of $8.4 million and net favorable prior period reserve adjustments on the non-A&E exposures, primarily due to favorable development of $30.2 million related to the World Trade Center events, partially offset by reserve strengthening in insurance classes. For the nine months ended September 30, 2003, reserve adjustments included $13.6 million related to A&E and $102.3 million on non-A&E lines of business, principally all of which related to casualty reinsurance and insurance.

The U.S. Reinsurance segment accounted for $14.1 million favorable net prior period reserve adjustments for the nine months ended September 30, 2004, which included $34.8 million of favorable development due to the reserve reduction related to the catastrophe losses from the World Trade Center events, and net adverse prior period reserve adjustments of $79.6 million for the nine months ended September 30, 2003. Asbestos exposures accounted for $8.4 million and $13.6 million of adverse development for the nine months ended September 30, 2004 and 2003, respectively. The non-A&E development in 2003 was principally attributable to professional liability and casualty business classes.

The U.S. Insurance segment reflected $21.2 million and $8.3 million of net adverse prior period reserve adjustments for the nine months ended September 30, 2004 and 2003, respectively. The September 30, 2004 adverse prior period reserve adjustments were principally due to casualty classes relating to accident years 2000 through 2002.

The Specialty Underwriting segment had $4.9 million of favorable prior period reserve adjustments for the nine months ended September 30, 2004, principally related to favorable net prior period reserve adjustments in the marine, aviation and A&H business lines, and net adverse prior period reserve adjustments of $18.0 million for the nine months ended September 30, 2003, principally related to the surety line of business.

The International segment had $0.6 million of favorable prior period reserve adjustments for the nine months ended September 30, 2004 and $10.0 million of net adverse prior period reserve adjustments for the nine months ended September 30, 2003.

The segment components of the increase in incurred losses and LAE for the nine months ended September 30, 2004 from the nine months ended September 30, 2003 were an 99.6% ($105.8 million) increase in the International operation, an 8.8% ($52.3 million) increase in the U.S. Reinsurance operation and a 7.8% ($28.9 million) increase in the U.S. Insurance operation, partially offset by a 12.5% ($25.3 million) decrease in the Specialty Underwriting operation. These changes generally reflect variability in premiums earned, changes in the loss expectation assumptions for businesses written and the net prior period reserve development discussed above. Incurred losses and LAE for each operation were also impacted by variability relating to changes in mix of business by class and type.

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The Company’s loss and LAE ratio, which is calculated by dividing incurred losses and LAE by net premiums earned, increased by 0.7 percentage points to 72.7% in the nine months ended September 30, 2004 from 72.0% in the nine months ended September 30, 2003, reflecting the impact of the changes in premiums earned and incurred losses and LAE discussed above, as well as changes in business mix.

The following table shows the loss ratios for each of the Company’s operating segments for the nine months ended September 30, 2004 and 2003. The loss ratios for all operations were impacted by the factors noted above.

       
Segment Loss Ratios
Segment   2004 2003
U.S. Reinsurance   80.1% 75.9%
U.S. Insurance   72.8% 73.0%
Specialty Underwriting   65.6% 68.6%
International   60.8% 58.1%

Segment underwriting expenses increased by 4.9% to $456.7 million in the nine months ended September 30, 2004 from $435.4 million in the nine months ended September 30, 2003. Commission, brokerage, taxes and fees increased by $12.0 million, principally reflecting an increase in premium volume and changes in the mix of business. Segment other underwriting expenses increased by $9.3 million as the Company continues to expand operations to support its increased business volume. Contributing to the segment underwriting expense increases were a 96.4% ($40.7 million) increase in the International operation and a 3.9% ($8.0 million) increase in the U.S. Reinsurance operation, partially offset by a 20.9% ($22.4 million) decrease in the Insurance operations and a 6.1% ($5.1 million) decrease in the Specialty Underwriting operation. The changes for each operation’s expenses principally resulted from changes in commission expenses related to changes in premium volume and business mix by class and type and, in some cases, changes in the use of reinsurance, including with Bermuda Re, and the underwriting performance of the underlying business. The Company’s expense ratio, which is calculated by dividing underwriting expenses by net premiums earned, was 23.1% for the nine months ended September 30, 2004 compared to 24.8% for the nine months ended September 30, 2003.

The Company’s combined ratio, which is the sum of the loss and expense ratios, decreased by 1.0 percentage points to 95.8% in the nine months ended September 30, 2004 compared to 96.8% in the nine months ended September 30, 2003.

The following table shows the combined ratios for each of the Company’s operating segments for the nine months ended September 30, 2004 and 2003. The combined ratios for all operations were impacted by the loss and expense ratio variability noted above.

       
Segment Combined Ratios
Segment   2004 2003
U.S. Reinsurance   106.1% 101.8%
U.S. Insurance   88.3% 94.1%
Specialty Underwriting   94.3% 96.5%
International   84.5% 81.1%

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Investment Results.     Net investment income increased 14.9% to $242.4 million in the nine months ended September 30, 2004 from $211.0 million in the nine months ended September 30, 2003, principally reflecting the effects of investing $1,050.8 million of cash flow from operations for the twelve months ended September 30, 2004 as well as $320.0 of net proceeds from the issuance of junior subordinated debt securities in March 2004, all partially offset by a $ 6.0 million decrease from the impact of the sale of the UK branch, and also reflect the effects of the generally lower interest rate environment. The increase also reflected $29.7 million representing an atypical increase in the carrying value of a limited partnership investment.asset investments.

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

    2004 2003
Imbedded pre-tax yield of cash and invested assets at  
  September 30, 2004 and December 31, 2003   4.5% 4.7%
Imbedded after-tax yield of cash and invested assets at  
  September 30, 2004 and December 31, 2003   3.7% 3.9%
Annualized pre-tax yield on average cash and invested  
  assets for the nine months ended September 30, 2004 and 2003   5.0% 5.2%
Annualized after-tax yield on average cash and invested  
  assets for the nine months ended September 30, 2004 and 2003   3.9% 4.2%
 
 2005 2004
Imbedded pre-tax yield of cash and invested assets at
    March 31, 2005 and December 31, 2004		   4.6%  4.5%
Imbedded after-tax yield of cash and invested assets at
    March 31, 2005 and December 31, 2004		   3.7%  3.6%
Annualized pre-tax yield on average cash and invested
    assets for the three months ended March 31, 2005 and 2004		   4.8%  4.3% 
Annualized after-tax yield on average cash and invested
    assets for the three months ended March 31, 2005 and 2004		   3.8%  3.5%

Net realized capital gains of $59.8were $1.5 million infor the ninethree months ended September 30, 2004March 31, 2005, which reflected realized capital gains on the Company’s investments of $105.4$5.0 million, including $77.6 million on the sale of interest only strip investments, partially offset by $45.5$3.5 million of realized capital losses. Net realized capital losses of $27.0 million for the three months ended March 31, 2004 reflected realized capital losses on the Company’s investments of $44.1 million, which included $43.9 million related to the write-downs in the value of interest only strips deemed to be impaired on an other than temporary basis in accordance with Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (“EITF 99-20, prior to liquidation of the interest only strip portfolio during the second quarter of 2004. Net realized capital losses were $23.9 million in the nine months ended September 30, 2003, reflecting realized capital losses on the Company’s investments of $41.4 million, which included $15.3 million relating to write downs in the value of securities deemed to be impaired on an other than temporary basis, and $21.1 million related to the impairment on interest only strips in accordance with EITF 99-20,99-20”), partially offset by $17.5$17.0 million of realized capital gains, which included $5.3 million realized capital gains on the interest only strip investments.

The Company has in its product portfolio a credit default swap, which it no longer offers. This product meets the definition of a derivative under FAS 133. There was no net derivative expense from this credit default transaction for the nine months ended September 30, 2004 and 2003.gains.

Other expense for the ninethree months ended September 30,March 31, 2005 and 2004 was $74.3$4.5 million compared toand $17.3 million, respectively. This change in other income of $1.2 millionexpense for the ninethree months ended September 30, 2003. This changeMarch 31, 2005 was primarily due to a deferred gain ondecreased deferrals of recoverables under a retroactive reinsurance agreement with an affiliate.

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Corporate underwriting expenses not allocated to segments increased to $2.0 million for the three months ended March 31, 2005 compared with corporate underwriting income of $2.0 million for the three months ended March 31, 2004, primarily due to changes in accordance with FAS 113, to Bermuda Re.accruals.

Interest expense and fees for the ninethree months ended September 30,March 31, 2005 and 2004 and 2003 was $53.2were $21.6 million and $43.0$14.5 million, respectively. Interest expense and fees for the ninethree months ended September 30, 2004March 31, 2005 included $29.2$12.2 million relating to the senior notes $23.0and $9.4 million relating to the junior subordinated debt securities. Interest expense and fees for the three months ended March 31, 2004 included $9.7 million relating to the senior notes, $4.4 million relating to the junior subordinated debt securities and $1.0$0.3 million relating to borrowings under the Company’s revolving credit facility. InterestThe change in the interest expense for the nine months ended September 30, 2003 included $29.2 million

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relating toon the senior notes $12.7to $12.2 million relatingfor the three months ended March 31, 2005 from $9.7 million for the three months ended March 31, 2004 was due to the junior subordinated debt securities and $1.0 million relating to borrowings underissuance on new senior notes on October 12, 2004, partially offset by the revolving credit facility.retirement of the senior notes due on March 15, 2005.

Income Taxes.    The Company’s income tax expense is primarily a function of its statutory tax rate, the level of its pre-tax income and the impact from tax preferenced investment income. The Company recognized an income tax expense of $57.7 million compared to $45.8$17.7 million for the ninethree months ended September 30, 2004 and 2003, respectively. The increase in taxes generally reflectsMarch 31, 2005 compared to $19.3 million for the impact of improved net investment income and realized capital gains, partially offset by a decrease in underwriting related to increased catastrophe losses.three months ended March 31, 2004. Additionally, in conjunction with the transfer of the Company’s UK branch to Bermuda Re, there were various tax issues givingitems which gave rise to incremental net expenses and benefits, affecting the variability between years.tax expense in 2004.

Net Income.Net income was $174.8$86.9 million infor the ninethree months ended September 30, 2004March 31, 2005 compared to net income of $176.0$7.3 million infor the ninethree months ended September 30, 2003,March 31, 2004, reflecting improved investment income, and realized capital gains results, partially offset by a decrease in underwriting results and increased income taxes.underwriting results.

Market Sensitive Instruments.The Securities and Exchange Commission’sCommission 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”). The Company does not generally enter into market sensitive instruments for trading purposes.

The Company’s current investment strategy generally 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. The Company actively considers total return performance, in particular as respects the potential for variability in the unrealized appreciation/depreciation component of its stockholders’ equity account as investment conditions shift. The Company’s mix of taxable and tax-preferenced investments is adjusted continuously, consistent with its current and projected operating results, market conditions and the Company’s tax position. The fixed maturities in the investment portfolio are comprised of non-trading available for sale securities. Additionally, the Company investscontinues to expand its investments in equity securities, principally public equity index securities, which it believes will enhance the risk-adjusted total return of the investment portfolio. The Company has also engaged in a small numberSuch investments account for 44.4% of credit default swaps.the Company’s stockholders’ equity at March 31, 2005 as compared to 37.3% at December 31, 2004.

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 the Company’s capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated payout characteristics

33

for which the investments of the Company 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.

The Company’s $7.1$7.3 billion investment portfolio at March 31, 2005 is principally comprised of fixed maturity securities, which are subject to interest rate risk and foreign currency rate risk, and equity securities, which are subject to equity price risk. The impact of thesethe foreign exchange risks inon the investment portfolio is generally mitigated by changes in the value of operating assets and liabilities and their associated income statement impact.

Interest rate risk is the potential change in value of the fixed maturity portfolio, including short-term investments, due to change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the $511.2$468.2 million of mortgage-backed securities in the $6,020.9

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$6,076.1 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.

The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on the Company’s fixed maturity portfolio as of September 30, 2004March 31, 2005 based on parallel 200 basis point shifts in interest rates up and down in 100 basis point increments. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimates on mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For legal entities with a 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. All amounts are in U.S. dollars and are presented in millions.

As of September 30, 2004
Interest Rate Shift in Basis Points
As of March 31, 2005
Interest Rate Shift in Basis Points		As of March 31, 2005
Interest Rate Shift in Basis Points
      -200      -100     0     100      200 -200 -100 0 100 200
Total Market Value $7,323.7$6,890.1$6,448.5$6,012.2$5,606.3  $7,124.0 $6,729.1 $6,317.5 $5,885.4 $5,469.2 
Market Value Change from Base (%)  13.6% 6.8% 0.0% -6.8% -13.1%  12.8% 6.5% 0.0% -6.8% -13.4%
Change in Unrealized Appreciation  
After-tax from Base ($) $568.9$287.0$ -$(283.6)$(547.4) $524.2 $267.5$- $(280.9)$(551.4)

The Company had $6,681.8$6,928.1 million and $6,227.1$6,846.9 million of reserves for lossesloss and adjustment expensesLAE as of September 30, 2004March 31, 2005 and December 31, 2003.2004. These amounts are recorded at their nominal or estimated ultimate payment amount, as opposed to fair 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 fair value of the reserves is less than the nominal value. As interest rates rise, the fair value of the reserves decreases and, conversely, if interest rates decline, the fair value will increase. These movements are the opposite of the interest rate impacts on the fair value of investments since reserves are future obligations. While the difference between fair value and nominal value is not reflected in the Company’s financial statements, the Company’Company’s financial results will benefitinclude investment income over time as income is earned onfrom the investment portfolio until the claims are paid. The Company’s loss and loss reserve obligations have an expected duration that is reasonably consistent with the Company’s fixed income portfolio, and approximately equal such assets.portfolio. The existence of such obligations, and the variable differential between ultimate and fair value, which in theory applies equally to invested assets and insurance liability, provides substantial mitigation of the economic effects of

34

interest rate variability even though such mitigation is not reflected in the Company’s financial statements.

Equity risk is the potential change in market value of the common stock and preferred stock portfolios arising from changing equity prices. The Company invests in exchange traded and mutual funds, which invest principally in high quality common and preferred stocks that are traded on the major exchanges in the U.S. The primary objective in managing the equity portfolio is to provide long-term capital growth through market appreciation and income.

The table below displays the impact on market value and after-tax unrealized appreciation of a 20% change in equity prices up and down in 10% increments for the period indicated. The growth in exposure is primarily due to the growth in the equity portfolio. All amounts are in U.S. dollars and are presented in millions.

As of March 31, 2005
Change in Equity Values in Percent
 -20% -10% 0% 10% 20%
Market Value of the Equity Portfolio  $627.6 $706.0 $784.5 $862.9 $941.4 
After-tax Change in Unrealized
     Appreciation		  $(102.0)$(51.0)$- $51.0 $102.0 

Foreign currency rate risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of the Company’s non-U.S. (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Generally, the Company prefers to maintain the capital of its foreign operations in U.S. dollar assets, although this varies by regulatory jurisdiction in accordance with market needs. 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 Canadian Dollar, the British Pound Sterling and the Euro. The Company mitigates foreign exchange exposure by a general matching of the currency and duration of its assets to its corresponding operating liabilities. In

43

accordance with Financial Accounting Standards Board Statement No. 52, the Company translates 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 September 30, 2004March 31, 2005 there has been no material change in exposure to foreign exchange rates as compared to MarchDecember 31, 2004.

Equity risk is the potential change in market value of the common stock and preferred stock portfolios arising from changing equity prices. The Company invests in high quality common and preferred stocks that are traded on the major exchanges in the U.S. and funds investing in such securities. The primary objective in managing the equity portfolio is to provide long-term capital growth through market appreciation and income.

As of September 30, 2004
Change in Equity Values in Percent
  -20%  -10%  0% 10%  20% 
Market Value of the Equity Portfolio$364.2 $409.8 $455.3$500.8 $546.4 
 
After-tax Change in Unrealized  
  Appreciation$(59.2)$(29.6)$-$29.6 $59.2 

Safe Harbor Disclosure.This report contains forward-looking statements within the meaning of the U.S. federal securities laws. The Company intends 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 the Company’s reserves for losses and LAE, including reserves for A&E claims, the adequacy of the Company’s provision for uncollectible balances, estimates of the Company’s catastrophe exposure, and the effects of catastrophic events on the Company’s financial statements and the ability of the Company’s subsidiaries to pay dividends. Forward-looking statements only reflect the Company’s expectations and are not guarantees of

35

performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from the Company’s expectations. Important factors that could cause the Company’s actual events or results to be materially different from itsthe Company’s expectations include the uncertainties that surround the estimating of reserves for losses and LAE, those discussed in Note 4 of Notes to Consolidated Financial Statements (unaudited) included in this report and the risks described under the caption “Risk Factors” in the Company’s most recent Annual Report on Form 10-K, Part II, Item 7. The Company undertakes no obligation to update or revise publicly any forward-lookingforward looking statements, whether as a result of new information, future events or otherwise.

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Part I – Item 3.

EVEREST REINSURANCE HOLDINGS, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Market Risk Instruments.    See "Market Sensitive Instruments" in Part I - Item 2.

4537

Part I – Item 4.

EVEREST REINSURANCE HOLDINGS, INC.
CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company’s management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer believeconcluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

4638

EVEREST REINSURANCE HOLDINGS, INC.
OTHER INFORMATION

Part II – Item 1. 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, and reinsurance agreements and other more general contracts.contractual agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other disputes,matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. Such disputes are resolved through formal and informal means, including litigation and arbitration.

In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company also regularly evaluates those positions, and where appropriate, establishes or adjusts insurance reserves to reflect its evaluation. The Company’s aggregate reserves take into account the possibility that the Company may not ultimately prevail in each and every disputed matter. The Company believes its aggregate reserves reduce the potential that an adverse resolution of one or more of these matters, at any point in time, would have a material impact on the Company’s financial condition or results of operations. However, there can be no assurance that adverse resolutions of such matters in any one period or in the aggregate will not result in a material adverse effect on the Company’s results of operations.

Part II - Item 2. Changes inUnregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities

None

Part II – Item 3. Defaults Upon Senior Securities

None

Part II–II - Item 4. Submission of Matters to a Vote of Security Holders

None

Part II – Item 5. Other Information

None

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Part II – Item 6. Exhibits and Reports on Form 8-K

(a)Exhibit Index:

 Exhibit No.Description

 31.1Section 302 Certification of Joseph V. Taranto

 31.2Section 302 Certification of Stephen L. Limauro

 32.1Section 906 Certification of Joseph V. Taranto and Stephen L. Limauro


(b)Reports on Form 8-K:

None

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Everest Reinsurance Holdings, Inc.

Signatures

Pursuant to the requirements 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.

 Everest Reinsurance Holdings, Inc.
 (Registrant)
  
  
 /s/ STEPHEN L. LIMAURO                     
 
 Stephen L. Limauro
 Executive Vice President and
   Chief Financial Officer
  
 (Duly Authorized Officer and Principal
 Financial Officer)













Dated: November 15, 2004May 12, 2005