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:
~~June~~September 30, 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 ~~August~~November 1, 2005

Common 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


~~Item 1.~~~~Financial Statements~~	PART I		~~Page~~

	FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements

	Consolidated Balance Sheets at ~~June~~September 30, 2005 (unaudited)
and December 31, 2004			3

	Consolidated Statements of Operations and Comprehensive (Loss) Income
for the three and ~~six~~nine months ended ~~June~~September 30, 2005 and 2004 (unaudited)			4


Consolidated Statements of Changes in Stockholders’ Equity for the
three and ~~six~~nine months ended ~~June~~September 30, 2005 and 2004 (unaudited)			5


Consolidated Statements of Cash Flows for the three and ~~six~~nine months
ended ~~June~~September 30, 2005 and 2004 (unaudited)			6

	Notes to Consolidated Interim Financial Statements (unaudited)			7

Item 2.	Management’s Discussion and Analysis of Financial Condition
and Results of Operations			22	23

Item 3.	Quantitative and Qualitative Disclosures ~~About~~about Market Risk			44	48

Item 4.	Controls and Procedures			45	49

	PART II
~~PART II~~
	OTHER INFORMATION
~~OTHER INFORMATION~~
Item 1.	Legal Proceedings	50
~~Item 1.~~~~Legal Proceedings~~			46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			46	50

Item 3.	Defaults Upon Senior Securities			46	50

Item 4.	Submission of Matters to a Vote of Security Holders			46	50

Item 5.	Other Information			46	50

Item 6.~~Exhibits~~	Exhibits		47	51

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value per share)
June 30,
2005 December 31,
2004
(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value
  (amortized cost: 2005, $5,758,995; 2004, $5,887,529) $ 6,047,949 $ 6,159,539
Equity securities, at market value (cost: 2005, $921,468; 2004, $571,717) 1,010,152 650,871
Short-term investments 294,254 517,824
Other invested assets (cost: 2005, $176,302; 2004, $113,050) 177,522 114,187
Cash 62,502 53,887
          Total investments and cash 7,592,379 7,496,308
Accrued investment income 80,285 82,351
Premiums receivable 1,133,635 1,063,879
Reinsurance receivables - unaffiliated 1,038,763 1,164,851
Reinsurance receivables - affiliated 1,329,369 1,395,555
Funds held by reinsureds 128,458 133,797
Deferred acquisition costs 209,041 204,124
Prepaid reinsurance premiums 350,141 368,450
Deferred tax asset 189,381 184,801
Taxes recoverable 4,520 -
Other assets 133,819 115,788
TOTAL ASSETS $ 12,189,791 $ 12,209,904
LIABILITIES:
Reserve for losses and adjustment expenses $ 7,017,782 $ 6,846,904
Unearned premium reserve 1,405,152 1,387,172
Funds held under reinsurance treaties 292,442 363,842
Losses in the course of payment 21,038 5,032
Contingent commissions 1,607 3,532
Other net payable to reinsurers 284,219 394,568
Current federal income taxes - 37,580
8.5% Senior notes due 3/15/2005 - 249,976
8.75% Senior notes due 3/15/2010 199,392 199,341
5.4% Senior notes due 10/15/2014 249,600 249,584
Junior subordinated debt securities payable 546,393 546,393
Accrued interest on debt and borrowings 10,041 16,426
Other liabilities 196,996 165,762
          Total liabilities 10,224,662 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 275,041 271,652
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 $139.9 million at 2005 and $133.4 million at 2004 259,770 247,660
Retained earnings 1,453,268 1,247,430
          Total stockholders' equity 1,965,129 1,743,792
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,189,791 $ 12,209,904
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)	September 30, 2005				December 31, 2004

	(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value
(amortized cost: 2005, $5,800,296; 2004, $5,887,529)	$	6,017,787		$	6,159,539
Equity securities, at market value (cost: 2005, $946,524; 2004, $571,717)		1,096,177			650,871
Short-term investments		398,552			517,824
Other invested assets (cost: 2005, $185,355; 2004, $113,050)		186,849			114,187
Cash		60,610			53,887

Total investments and cash		7,759,975			7,496,308
Accrued investment income		81,692			82,351
Premiums receivable		1,097,938			1,063,879
Reinsurance receivables - unaffiliated		1,026,252			1,164,851
Reinsurance receivables - affiliated		1,596,598			1,395,555
Funds held by reinsureds		127,931			133,797
Deferred acquisition costs		215,694			204,124
Prepaid reinsurance premiums		361,552			368,450
Deferred tax asset		223,276			184,801
Taxes recoverable		26,608			-
Other assets		156,083			115,788

TOTAL ASSETS	$	12,673,599		$	12,209,904

LIABILITIES:
Reserve for losses and adjustment expenses	$	7,628,165		$	6,846,904
Unearned premium reserve		1,430,103			1,387,172
Funds held under reinsurance treaties		282,933			363,842
Other net payable to reinsurers		343,471			394,568
Current federal income taxes		-			37,580
8.5% Senior notes due 3/15/2005		-			249,976
8.75% Senior notes due 3/15/2010		199,419			199,341
5.4% Senior notes due 10/15/2014		249,609			249,584
Junior subordinated debt securities payable		546,393			546,393
Accrued interest on debt and borrowings		9,041			16,426
Other liabilities		194,528			174,326

Total liabilities		10,883,662			10,466,112

Commitments and 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		276,536			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 $138.2 million at 2005 and $133.4 million at 2004		256,635			247,660
Retained earnings		1,279,716			1,247,430

Total stockholders' equity		1,789,937			1,743,792

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	12,673,599		$	12,209,904

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

EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME												EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
		Three Months Ended June 30,					Six Months Ended June 30,								Three Months Ended September 30,						Nine Months Ended September 30,

(Dollars in thousands)	(Dollars in thousands)	2005		2004			2005		2004			(Dollars in thousands)	2005			2004			2005			2004

		(unaudited)					(unaudited)						(unaudited)						(unaudited)
REVENUES:
Premiums earned		$	668,325	$	607,905		$	1,287,331	$	1,408,624			$	617,750		$	688,087		$	1,905,081		$	2,096,711
Net investment income			89,070		95,331			174,992		161,154				67,585			81,227			242,577			242,381
Net realized capital gains			18,203		77,504			19,688		50,458				18,633			9,388			38,321			59,846
Other income (expense)			5,223		(26,675	)		712		(43,935	)
Other expense														(15,240	)		(30,378	)		(14,528	)		(74,313	)

Total revenues			780,821		754,065			1,482,723		1,576,301				688,728			748,324			2,171,451			2,324,625

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses			429,323		387,983			863,452		981,206				748,550			569,889			1,612,002			1,551,095
Commission, brokerage, taxes and fees			154,034		114,530			271,184		283,204				122,092			142,792			393,276			425,996
Other underwriting expenses			24,797		22,315			49,193		41,578				24,997			20,171			74,190			61,749
Interest expense on senior notes			7,709		9,736			19,944		19,472				7,785			9,737			27,729			29,209
Interest expense on junior subordinated debt			9,362		9,248			18,724		13,667				9,362			9,363			28,086			23,030
Interest and fee expense on credit facility			47		334			94		658				73			339			167			997

Total claims and expenses			625,272		544,146			1,222,591		1,339,785				912,859			752,291			2,135,450			2,092,076

INCOME BEFORE TAXES			155,549		209,919			260,132		236,516
Income tax expense			36,624		50,128			54,294		69,385
(LOSS) INCOME BEFORE TAXES														(224,131	)		(3,967	)		36,001			232,549
Income tax (benefit) expense														(50,579	)		(11,666	)		3,715			57,719

NET INCOME		$	118,925	$	159,791		$	205,838	$	167,131
NET (LOSS) INCOME													$	(173,552	)	$	7,699		$	32,286		$	174,830

Other comprehensive income (loss), net of tax			79,952		(146,374	)		12,110		(121,429	)
Other comprehensive (loss) income, net of tax														(3,135	)		96,197			8,975			(25,232	)

COMPREHENSIVE INCOME		$	198,877	$	13,417		$	217,948	$	45,702
COMPREHENSIVE (LOSS) INCOME													$	(176,687	)	$	103,896		$	41,261		$	149,598

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


EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY	EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY													EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
		Three Months Ended June 30,						Six Months Ended June 30,									Three Months Ended September 30,						Nine Months Ended September 30,

((Dollars in thousands, except share amounts)	((Dollars in thousands, except share amounts)	2005			2004			2005			2004			((Dollars in thousands, except share amounts)	2005			2004			2005			2004

		(unaudited)						(unaudited)							(unaudited)						(unaudited)
COMMON STOCK (shares outstanding):
Balance, beginning of period			1,000			1,000			1,000			1,000				1,000			1,000			1,000			1,000
Issued during the period			-			-			-			-

Balance, end of period			1,000			1,000			1,000			1,000				1,000			1,000			1,000			1,000

ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period		$	274,532		$	268,270		$	271,652		$	263,290			$	275,041		$	271,014		$	271,652		$	263,290
Tax benefit from stock options exercised			460			2,699			3,290			7,634				1,445			44			4,735			7,678
Dividend from parent			49			45			99			90				50			46			149			136

Balance, end of period			275,041			271,014			275,041			271,014				276,536			271,104			276,536			271,104

ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period			179,818			233,250			247,660			208,305				259,770			86,876			247,660			208,305
Net increase (decrease) during the period			79,952			(146,374	)		12,110			(121,429	)
Net (decrease) increase during the period																(3,135	)		96,197			8,975			(25,232	)

Balance, end of period			259,770			86,876			259,770			86,876				256,635			183,073			256,635			183,073

RETAINED EARNINGS:
Balance, beginning of period			1,334,343			1,079,297			1,247,430			1,098,219				1,453,268			1,239,088			1,247,430			1,098,219
Net income			118,925			159,791			205,838			167,131
Net (loss) income																(173,552	)		7,699			32,286			174,830
Dividends paid			-			-			-			(26,262	)			-			-			-			(26,262	)

Balance, end of period			1,453,268			1,239,088			1,453,268			1,239,088				1,279,716			1,246,787			1,279,716			1,246,787

TREASURY SHARES AT COST:
Balance, beginning of period			(22,950	)		(22,950	)		(22,950	)		(22,950	)			(22,950	)		(22,950	)		(22,950	)		(22,950	)

Balance, end of period			(22,950	)		(22,950	)		(22,950	)		(22,950	)			(22,950	)		(22,950	)		(22,950	)		(22,950	)

TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD		$	1,965,129		$	1,574,028		$	1,965,129		$	1,574,028			$	1,789,937		$	1,678,014		$	1,789,937		$	1,678,014

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


EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS	EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS													EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
		Three Months Ended June 30,						Six Months Ended June 30,									Three Months Ended September 30,						Nine Months Ended September 30,

(Dollars in thousands)	(Dollars in thousands)	2005			2004			2005			2004			(Dollars in thousands)	2005			2004			2005			2004

		(unaudited)						(unaudited)							(unaudited)						(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	118,925		$	159,791		$	205,838		$	167,131
Adjustments to reconcile net income to net cash provided by
Net (loss) income															$	(173,552	)	$	7,699		$	32,286		$	174,830
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Increase in premiums receivable			(86,635	)		(13,235	)		(69,891	)		(121,292	)
(Increase) decrease in funds held by reinsureds, net			(30,687	)		9,513			(62,792	)		(37,700	)
Decrease (increase) in reinsurance receivables			273,557			(163,400	)		181,081			(141,453	)
Decrease (increase) in deferred tax asset			3,001			(15,734	)		(12,131	)		(19,176	)
Decrease (increase) in premiums receivable																36,759			5,552			(33,132	)		(115,740	)
Increase in funds held by reinsureds, net																(8,857	)		(24,056	)		(71,649	)		(61,756	)
Increase in reinsurance receivables																(254,000	)		(20,133	)		(72,919	)		(161,586	)
Increase in deferred tax asset																(32,179	)		(37,780	)		(44,310	)		(56,956	)
Increase in reserve for losses and loss adjustment expenses			103,822			205,226			186,883			501,229				599,349			427,235			786,232			928,464
(Decrease) increase in unearned premiums			(7,449	)		46,122			18,840			153,033
(Decrease) increase in other assets and liabilities			(187,540	)		138,782			(119,712	)		94,802
(Accrual of bond discount)/amortization of bond premium			(1,987	)		682			(908	)		834
Increase in unearned premiums																23,022			10,988			41,862			164,021
Increase (decrease) in other assets and liabilities																1,168			(126,674	)		(118,544	)		(41,769	)
Amortization of bond premium/(Accrual of bond discount)																2,469			(971	)		1,561			(137	)
Amortization of underwriting discount on senior notes			33			49			91			97				36			50			127			147
Realized capital gains			(18,203	)		(77,504	)		(19,688	)		(50,458	)			(18,633	)		(9,388	)		(38,321	)		(59,846	)

Net cash provided by operating activities			166,837			290,292			307,611			547,047				175,582			232,522			483,193			769,672

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale			92,100			100,051			136,595			206,983
Proceeds from fixed maturities matured/called - available for sales																83,136			92,879			219,731			299,862
Proceeds from fixed maturities sold - available for sale			638,512			353,213			725,686			579,238				81,473			25,042			807,159			604,280
Proceeds from equity securities sold			9,410			6,678			9,410			7,995				97,319			10,000			106,729			17,995
Proceeds from other invested assets sold			21,358			434			21,642			437				8,374			80			30,016			517
Cost of fixed maturities acquired - available for sale			(596,640	)		(509,959	)		(727,822	)		(1,105,603	)			(181,580	)		(349,841	)		(909,402	)		(1,455,444	)
Cost of equity securities acquired			(206,449	)		(101,462	)		(359,507	)		(209,692	)			(116,763	)		(93,094	)		(476,270	)		(302,786	)
Cost of other invested assets acquired			(67,761	)		(6,739	)		(73,151	)		(6,865	)			(25,716	)		(2,243	)		(98,867	)		(9,108	)
Net (purchases) sales of short-term securities			(52,996	)		(57,955	)		224,557			(414,527	)			(104,055	)		100,140			120,502			(314,387	)
Net decrease in unsettled securities transactions			(26,053	)		(56,664	)		(5,926	)		(19,392	)
Net (decrease) increase in unsettled securities transactions																(19,906	)		7,385			(25,832	)		(12,007	)
Proceeds from sale of subsidiary, net of cash disposed			-			-			-			(2,741	)			-			-			-			(2,744	)

Net cash used in investing activities			(188,519	)		(272,403	)		(48,516	)		(964,167	)			(177,718	)		(209,652	)		(226,234	)		(1,173,822	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from stock options exercised			460			2,699			3,290			7,634				1,445			44			4,735			7,678
Dividend from parent			49			45			99			90				50			46			149			136
Repayment of senior notes			-			-			(250,000	)		-				-			-			(250,000	)		-
Net proceeds from issuance of junior subordinated notes			-			-			-			319,997				-			-			-			329,897

Net cash provided by (used in) financing activities			509			2,744			(246,611	)		327,721				1,495			90			(245,116	)		337,711

EFFECT OF EXCHANGE RATE CHANGES ON CASH			(1,083	)		(1,200	)		(3,869	)		(3,507	)			(1,251	)		206			(5,120	)		(3,301	)

Net (decrease) increase in cash			(22,256	)		19,433			8,615			(92,906	)			(1,892	)		23,166			6,723			(69,740	)
Cash, beginning of period			84,758			29,755			53,887			142,094				62,502			49,188			53,887			142,094

Cash, end of period		$	62,502		$	49,188		$	62,502		$	49,188			$	60,610		$	72,354		$	60,610		$	72,354

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash transactions:
Income taxes paid, net		$	69,155		$	36,068		$	105,937		$	55,596			$	2,446		$	41,667		$	108,383		$	97,263
Interest paid		$	16,272		$	9,727		$	45,056		$	33,684			$	18,185		$	29,072		$	63,241		$	62,756
Non-cash financing transaction:
Non-cash dividend to parent		$	-		$	-		$	-		$	26,262			$	-		$	-		$	-		$	26,262
Non-cash tax benefit from stock options exercised		$	460		$	2,699		$	3,290		$	7,634			$	1,445		$	44		$	4,735		$	7,678
The accompanying notes are an integral part of the consolidated financial statements

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

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 ~~six~~nine months ended ~~June~~September 30, 2005 and 2004 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 ~~six~~nine months ended ~~June~~September 30, 2005 and 2004 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 and 2002 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 (“FIN 46”). FIN 46 addresses whether certain types of entities, referred to as 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 became effective, for entities that had not adopted FIN 46, as of December 24, 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”).

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 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. On June 29, 2005, the FASB met and reached a decision to issue the FASB Staff Position (“FSP”) FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” to replace the guidance set forth in paragraphs 10-18 of Issue 03-1 with references to existing other than temporary impairment guidance. FSP FAS 115-1 would be applied prospectively and the effective ~~for other than temporary impairment analysis conducted in~~date would be reporting periods beginning after ~~September 15, 2005. The Company is unable to predict the impact on other than temporary~~

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

December 15, 2005. 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 Debt And Equity Securities” and believes that unrealized losses in its investment portfolio are temporary in nature.

In December 2004, the 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”). As the Company implemented FAS 123 prospectively for grants issued on or after January 1, 2002, the Company does not expect the adoption of the statement to have a material impact on the Company’s financial condition or results of operations. The application of FAS 123(R) will become effective for fiscal years starting after June 15, 2005.

3. Capital Transactions

On June 27, 2005, Group ~~has~~filed 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~~providing for the issuance of up to $975.0 million of securities. Generally, under this shelf registration statement, Group iswas authorized to issue common shares, preferred shares, debt securities, warrants and hybrid securities, Holdings iswas authorized to issue debt securities and Capital Trust II and Everest Re Capital Trust III (“Capital Trust III”) ~~are~~were authorized to issue trust preferred securities. This shelf registration statement became effective on December 22, 2003 and was effectively exhausted with the October 6, 2005 transaction below. The following securities have been issued pursuant to that registration ~~statement, which at June 30, 2005 has a remaining balance of $405.0 million.~~statement.

On 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.

On October 6, 2004, Holdings completed a public offering of $250.0 million principal amount of 5.40% senior notes due October 15, 2014. The net proceeds were used to retire existing debt of Holdings, which came due on March 15, 2005.

On October 6, 2005, Group expanded the size of the remaining shelf registration to $486.0 million by filing under Rule 462(b) of the Securities Act of 1933, as amended, and General Instruction IV of Form S-3 promulgated thereunder. On the same date, Group entered into an agreement to issue 5,200,000 of its common shares at a price of $91.50 per share, which resulted in $475.8 million in proceeds received on October 12, 2005, before expenses of approximately $0.3 million. This transaction effectively exhausted the December 22, 2003 shelf registration.

4. Contingencies

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 enforce alleged rights. These disputes arise from time to time and as they arise are addressed,

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

For the Three and Nine Months ended September 30, 2005 and 2004

and ultimately resolved, through formal and informal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. While the final outcome of these matters cannot be predicted with certainty, the Company does not believe that any of these matters, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, an adverse resolution of one or more of these items in any one quarter or fiscal year could have a material adverse effect on the Company’s results of operations in that period.

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

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED
(continued)

For the Three and Six Months ended June 30, 2005 and 2004

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.

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 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 plaintiff’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

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED
(continued)

For the Three and Nine Months ended September 30, 2005 and 2004

than the product liability portion; (f) measures adopted by specific courts to ameliorate the worst procedural abuses; (g) an increase in settlement values being paid to asbestos claimants, especially those with cancer or functional impairment; (h) legislation in some states to address asbestos litigation issues; and (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.

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

For the Three and Six Months ended June 30, 2005 and 2004

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, 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 toward achieving reasonable negotiated settlements that limit Mt. McKinley’s liability to a given policyholder to a sum certain. In 2004 and thus far in 2005, the Company had concluded such settlements or reached agreement in principle with ~~several~~13 of its high profile policyholders. The Company has currently identified 1310 remaining 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 as reserves are adjusted to reflect the development of negotiations and, ultimately, potentially accelerated settlements.

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

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED
(continued)

For the Three and Nine Months ended September 30, 2005 and 2004

available to estimate the reinsurers’ ultimate exposure. At September 30, 2005 the Company had gross asbestos loss reserves of $649.4 million, of which $319.5 million was for assumed business and $329.9 million was for direct business.

Due to the uncertainties discussed above, the ultimate losses may vary materially from current loss reserves and, depending on coverage under the Company’s various reinsurance arrangements, could have a material adverse effect on the Company’s future financial condition, results of operations and/or cash flows.

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

For the Three and Six Months ended June 30, 2005 and 2004

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

		Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
		June 30,						June 30,							September 30,						September 30,
(Dollars in thousands)	(Dollars in thousands)	2005			2004			2005			2004			(Dollars in thousands)	2005			2004			2005			2004

Gross basis:
Beginning of period reserves		$	724,825		$	805,849		$	728,325		$	765,257			$	701,756		$	829,899		$	728,325		$	765,257
Incurred losses			-			53,300			18,000			119,300				49,550			20,000			67,550			139,300
Paid losses			(23,069	)		(29,250	)		(44,569	)		(54,658	)			(16,224	)		(31,645	)		(60,793	)		(86,303	)

End of period reserves		$	701,756		$	829,899		$	701,756		$	829,899			$	735,082		$	818,254		$	735,082		$	818,254

Net basis:
Beginning of period reserves		$	297,460		$	299,821		$	303,335		$	262,990			$	298,131		$	303,983		$	303,335		$	262,990
Incurred losses			5,202			2,975			5,902			7,162				4,779			1,232			10,681			8,394
Paid losses			(4,531	)		1,187			(11,106	)		33,831				16,858			3,556			5,752			37,387

End of period reserves		$	298,131		$	303,983		$	298,131		$	303,983			$	319,768		$	308,771		$	319,768		$	308,771

At ~~June~~September 30, 2005, the gross reserves for A&E losses were comprised of ~~$146.6~~$132.8 million representing case reserves reported by ceding companies, ~~$144.7~~$141.3 million representing additional case reserves established by the Company on assumed reinsurance claims, ~~$315.9~~$312.7 million representing case reserves established by the Company on direct insurance claims, including Mt. McKinley, and ~~$94.6~~$148.3 million representing incurred but not reported (“IBNR”) reserves.

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 ~~$38.6~~$12.2 million 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

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

For the Three and Nine Months ended September 30, 2005 and 2004

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 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.~~

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED
(continued)

For the Three and Six Months ended June 30, 2005 and 2004

owing to it. In other 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. 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.

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 ~~June~~September 30, 2005 was ~~$156.3~~$155.5 million.

Prior to the Company’s 1995 initial public offering, the Company purchased annuities from an unaffiliated life insurance company with an A+ (Superior) financial strength rating from A.M. Best to settle certain claim liabilities of the Company. Should the life insurance company become unable to make the annuity payments, the Company would be liable for those claim liabilities. The estimated cost to replace such annuities at ~~June~~September 30, 2005 was ~~$18.1~~$18.4 million.

5. Other Comprehensive (Loss) Income

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

		Three Months Ended						Six Months Ended							Three Months Ended					Nine Months Ended
		June 30,						June 30,							September 30,					September 30,
(Dollars in thousands)	(Dollars in thousands)	2005			2004			2005			2004			(Dollars in thousands)	2005			2004		2005			2004

Net unrealized appreciation
(depreciation) of investments,
Net unrealized (depreciation)
appreciation of investments,
net of deferred income taxes		$	83,380		$	(144,720	)	$	17,261		$	(117,104	)		$	(6,642	)	$	91,604	$	10,619		$	(25,500	)
Currency translation adjustments,
net of deferred income taxes			(3,428	)		(1,654	)		(2,998	)		(4,325	)			3,507			4,593		509			268
Additional minimum pension liability			-			-			(2,153	)		-				-			-		(2,153	)		-

Other comprehensive income (loss),
Other comprehensive (loss) income,
net of deferred income taxes		$	79,952		$	(146,374	)	$	12,110		$	(121,429	)		$	(3,135	)	$	96,197	$	8,975		$	(25,232	)

6. Trust Agreements

A subsidiary of the Company, Everest Re, has established a trust agreement as security for assumed losses payable ~~for~~to a non-affiliated ceding company, which effectively uses Everest Re’s investments as collateral. At ~~June~~September 30, 2005, the total amount on deposit in the trust account was ~~$21.3~~$20.7 million.

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED
(continued)

For the Three and Six Months ended June 30, 2005 and 2004

7. Senior Notes

On October 12, 2004, Holdings completed a public offering of $250.0 million principal amount of 5.40% senior notes due October 15, 2014. On March 14, 2000, Holdings completed public

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

For the Three and Nine Months ended September 30, 2005 and 2004

offerings of $200.0 million principal amount of 8.75% senior notes due March 15, 2010 and $250.0 million principal amount of 8.50% senior notes due and retired on March 15, 2005.

Interest expense incurred in connection with these senior notes was ~~$7.7~~$7.8 million and $9.7 million for the three months ended ~~June~~September 30, 2005 and 2004, respectively, and ~~$19.9~~$27.7 million and ~~$19.5~~$29.2 million for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004, respectively. Market value, which is based on quoted market price at ~~June~~September 30, 2005, was ~~$260.1~~$248.1 million for the 5.40% senior notes and ~~$234.4~~$227.2 million for the 8.75% senior notes.

8. Junior Subordinated Debt Securities Payable

On March 29, 2004, Holdings issued $329.9 million of 6.20% junior subordinated debt securities due March 29, 2034 to Capital Trust II. Holdings 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, Holdings issued $216.5 million of 7.85% junior subordinated debt securities due November 15, 2032 to Capital Trust. Holdings 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.

Fair value, which is primarily based on quoted market price of the related trust preferred securities at ~~June~~September 30, 2005, was ~~$314.4~~$308.0 million for the 6.20% junior subordinated debt securities and ~~$230.3~~$225.3 million for the 7.85% junior subordinated debt securities.

Interest expense incurred in connection with these junior subordinated notes was $9.4 million ~~and $9.2 million~~ for the three months ended ~~June~~September 30, 2005 and 2004, ~~respectively,~~ and ~~$18.7~~$28.1 million and ~~$13.7~~$23.0 million for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004, respectively.

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

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

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

For the Three and Six Months ended June 30, 2005 and 2004

There are certain regulatory and contractual restrictions on the ability of the Company’s operating subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. The insurance laws of the State of Delaware, where the Company’s direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or advances to the Company that exceed certain statutory thresholds. In addition, the terms of ~~Holdings’~~the Holdings Credit Facility (discussed in Note 9) require Everest Re, the Company’s principal insurance subsidiary, to maintain a certain statutory surplus level as

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

For the Three and Nine Months ended September 30, 2005 and 2004

measured at the end of each fiscal year. At December 31, 2004, $1,901.0 million of the $2,565.0 million in net assets of the Company’s consolidated subsidiaries were subject to the foregoing regulatory restrictions.

9. Credit Line

Effective October 10, 2003, Holdings entered into a ~~new~~ three year, $150.0 million senior revolving credit facility with a syndicate of lenders, replacing the December 21, 1999, three year senior revolving credit 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 as the “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 Holdings 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 depend upon Holdings’ senior unsecured debt rating.

The Holdings Credit Facility requires Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and 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.~~contributions after December 31, 2002. As of ~~June~~September 30, 2005, the Company was in compliance with these covenants.

During the three and ~~six~~nine months ended ~~June~~September 30, 2005 and 2004, there were no payments made and no incremental borrowings under the Holdings Credit Facility. As of ~~June~~September 30, 2005 and 2004, there were outstanding Holdings Credit Facility borrowings of $0.0 million and $70.0 million, respectively.

Interest expense and fees incurred in connection with the ~~credit line~~Holdings Credit Facility were ~~$0.0~~$0.1 million and ~~$0.1~~$0.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2005, ~~respectively. Interest expense~~respectively, and ~~fees incurred in connection with the borrowings were~~ $0.3 million and ~~$0.7~~$1.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2004, respectively.

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

For the Three and Six Months ended June 30, 2005 and 2004

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 (“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

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

For the Three and Nine Months ended September 30, 2005 and 2004

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)/underwriting results. Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred, commission and brokerage expenses and other underwriting expenses. 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.

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 ~~six~~nine months ended ~~June~~September 30, 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 12) and an increase in incurred losses and LAE for the ~~six~~nine months ended ~~June~~September 30, 2004 of $36.8 million relating to liability under the reserve indemnity agreement with Bermuda Re. The limit available under this agreement was fully exhausted at December 31, 2004.

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

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

U.S. Reinsurance

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2005 2004 2005 2004
Gross written premiums $ 376,568 $ 318,818 $ 726,368 $ 686,750
Net written premiums 283,163 241,301 551,937 535,589

Premiums earned $ 326,855 $ 250,218 $ 592,154 $ 545,183
Incurred losses and loss
adjustment expenses 228,391 170,328 420,369 382,101
Commission and brokerage 82,066 56,471 139,503 134,755
Other underwriting expenses 6,351 5,944 12,064 11,671
Underwriting gain $ 10,047 $ 17,475 $ 20,218 $ 16,656

U.S. Insurance

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2005 2004 2005 2004
Gross written premiums $ 270,780 $ 311,520 $ 545,108 $ 665,225
Net written premiums 181,455 203,962 381,227 468,137

Premiums earned $ 133,890 $ 180,238 $ 308,129 $ 353,659
Incurred losses and loss
adjustment expenses 97,888 124,319 222,606 269,167
Commission and brokerage 23,644 18,187 46,205 27,980
Other underwriting expenses 12,139 10,189 24,239 21,314
Underwriting gain $ 219 $ 27,543 $ 15,079 $ 35,198

U.S. Reinsurance
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2005			2004			2005			2004

Gross written premiums	$	374,309		$	362,129		$	1,100,677		$	1,048,879
Net written premiums		283,598			287,779			835,535			823,368
Premiums earned	$	263,059		$	266,611		$	855,213		$	811,794
Incurred losses and loss
adjustment expenses		499,648			267,820			920,017			649,921
Commission and brokerage		52,130			60,645			191,633			195,400
Other underwriting expenses		5,649			4,655			17,713			16,326

Underwriting loss	$	(294,368	)	$	(66,509	)	$	(274,150	)	$	(49,853	)

U.S. Insurance
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2005		2004		2005		2004

Gross written premiums	$	210,768	$	253,245	$	755,876	$	918,470
Net written premiums		179,336		167,826		560,563		635,963
Premiums earned	$	194,828	$	192,965	$	502,957	$	546,624
Incurred losses and loss
adjustment expenses		113,763		128,676		336,369		397,843
Commission and brokerage		33,106		24,118		79,311		52,098
Other underwriting expenses		13,575		11,153		37,814		32,467

Underwriting gain	$	34,384	$	29,018	$	49,463	$	64,216

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

Specialty Underwriting

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2005 2004 2005 2004
Gross written premiums $ 92,986 $ 102,533 $ 195,977 $ 224,590
Net written premiums 65,593 77,352 140,159 178,045

Premiums earned $ 66,424 $ 77,705 $ 139,802 $ 177,358
Incurred losses and loss
adjustment expenses 39,024 42,041 88,878 105,907
Commission and brokerage 15,729 18,535 33,494 46,389
Other underwriting expenses 1,716 1,756 3,355 3,455
Underwriting gain $ 9,955 $ 15,373 $ 14,075 $ 21,607

International

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2005 2004 2005 2004
Gross written premiums $ 199,805 $ 159,781 $ 352,170 $ 308,253
Net written premiums 145,380 106,983 250,908 223,089

Premiums earned $ 141,156 $ 99,744 $ 247,246 $ 213,609
Incurred losses and loss
adjustment expenses 64,020 51,295 131,599 110,284
Commission and brokerage 32,595 21,337 51,982 43,118
Other underwriting expenses 3,030 2,752 6,017 5,470
Underwriting gain $ 41,511 $ 24,360 $ 57,648 $ 54,737

Specialty Underwriting
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2005			2004			2005			2004

Gross written premiums	$	51,891		$	127,975		$	247,868		$	352,565
Net written premiums		35,028			95,431			175,187			273,476
Premiums earned	$	38,219		$	93,070		$	178,021		$	270,428
Incurred losses and loss
adjustment expenses		49,504			71,574			138,382			177,481
Commission and brokerage		7,630			26,224			41,124			72,613
Other underwriting expenses		1,635			1,386			4,990			4,841

Underwriting (loss) gain	$	(20,550	)	$	(6,114	)	$	(6,475	)	$	15,493

International
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars in thousands)	2005		2004			2005		2004

Gross written premiums	$	188,296	$	204,084		$	540,466	$	512,337
Net written premiums		132,078		143,194			382,986		366,283
Premiums earned	$	121,644	$	135,441		$	368,890	$	349,050
Incurred losses and loss
adjustment expenses		85,635		101,819			217,234		212,103
Commission and brokerage		29,226		31,805			81,208		74,923
Other underwriting expenses		3,057		2,530			9,074		8,000

Underwriting gain (loss)	$	3,726	$	(713	)	$	61,374	$	54,024

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

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

		Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
		June 30,						June 30,							September 30,						September 30,
(Dollars in thousands)	(Dollars in thousands)	2005			2004			2005			2004			(Dollars in thousands)	2005			2004			2005			2004

Underwriting gain		$	61,732		$	84,751		$	107,020		$	128,197
Underwriting (loss) gain															$	(276,808	)	$	(44,318	)	$	(169,788	)	$	83,880
UK branch sale and related
transactions			-			-			-			(25,894	)			-			-			-			(25,894	)

Underwriting gain			61,732			84,751			107,020			102,303
Underwriting (loss) gain																(276,808	)		(44,318	)		(169,788	)		57,986
Net investment income			89,070			95,331			174,992			161,154				67,585			81,227			242,577			242,381
Net realized capital gains			18,203			77,504			19,688			50,458				18,633			9,388			38,321			59,846
Corporate (expense) income			(1,561	)		(1,674	)		(3,518	)		333
Corporate expense																(1,081	)		(447	)		(4,599	)		(115	)
Interest expense			(17,118	)		(19,318	)		(38,762	)		(33,797	)			(17,220	)		(19,439	)		(55,982	)		(53,236	)
Other income (expense)			5,223			(26,675	)		712			(43,935	)
Other expense																(15,240	)		(30,378	)		(14,528	)		(74,313	)

Income before taxes		$	155,549		$	209,919		$	260,132		$	236,516
(Loss) income before taxes															$	(224,131	)	$	(3,967	)	$	36,001		$	232,549

The Company produces business in its U.S. and ~~international~~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. No individual non-US country represented more than 5% of the Company’s revenues.

11. Investments — Interest Only Strips

The Company from time to time invests in interest only strips of mortgage-backed securities (“interest only strips”) in response to movement in, and levels of, capital market interest rates. 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 will decrease the average life of a mortgage pool and decrease expected cash flows. Conversely, 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. The market value of the interest only strips was ~~$68.4~~$51.1 million at ~~June~~September 30, 2005 and no such securities were held at ~~June~~September 30, 2004.

The Company accounts 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 Purchased 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

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

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. The Company recorded ano such realized capital losses due to impairments for the three months ended September 30, 2005 and 2004. The Company recorded pre-tax and after-tax realized capital ~~loss~~losses due to impairments of $4.1 million and $2.7 million, respectively, for the ~~three and six~~nine months ended ~~June~~September 30, 2005 and ~~pre-tax and after-tax realized capital loss due to impairments of~~ $43.9 million and $28.5 million, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2004. ~~There were no impairments recorded for~~In response to movements in capital market interest rates, the ~~three months ended June 30, 2004.~~Company liquidated a portion of an interest only strip portfolio during the third quarter of 2005 and recognized pre-tax and after-tax realized capital gains of $13.0 million and $8.5 million, respectively. As a result of liquidating ~~the~~an interest only strip investment portfolio during the second quarter of 2004, the Company recognized pre-tax and after-tax ~~net~~ realized capital gains of $77.6 million and $50.4 million, respectively.

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, with companies controlled by or affiliated with certain of its 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-length consideration. These transactions include:

Effective 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.

Effective 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.

For premiums earned and losses incurred for the period January 1, 2002 through December 31, 2002, Everest Re, Everest National Insurance Company and Everest Security Insurance Company entered into an Excess of Loss Reinsurance Agreement with Bermuda Re, covering workers’ compensation losses occurring on and after January 1, 2002, as 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.

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

For the Three and Nine Months ended September 30, 2005 and 2004

Effective 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”).

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

For the Three and Six Months ended June 30, 2005 and 2004

Effective 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.

Effective January 1, 2003, Everest Re entered into a whole account quota share 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.

Effective 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 cedes 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.

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

For the Three and Nine Months ended September 30, 2005 and 2004

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 Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2005 2004 2005 2004
Ceded written premiums $ 208,101 $ 223,580 $ 379,647 $ 240,193
Ceded earned premiums 224,534 191,350 396,773 227,207
Ceded losses and LAE (a) 139,076 164,801 235,139 182,582

Everest International

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2005 2004 2005 2004
Ceded written premiums $ 20,930 $ 12,947 $ 44,451 $ 19,187
Ceded earned premiums 19,391 7,078 40,919 9,889
Ceded losses and LAE 11,734 4,036 23,442 5,645

Bermuda Re
	Three Months Ended				Nine Months Ended
	September 30,				September 30,

(Dollars in thousands)	2005		2004		2005		2004

Ceded written premiums	$	151,285	$	198,859	$	530,932	$	439,052
Ceded earned premiums		139,881		198,847		536,654		426,054
Ceded losses and LAE (a)		248,001		231,680		483,140		414,262

Everest International
	Three Months Ended				Nine Months Ended
	September 30,				September 30,

(Dollars in thousands)	2005		2004		2005		2004

Ceded written premiums	$	14,824	$	18,867	$	59,275	$	38,054
Ceded earned premiums		12,625		13,120		53,544		23,009
Ceded losses and LAE		20,862		13,713		44,304		19,358

(a) Ceded losses and LAE include the Mt. McKinley loss portfolio transfer that 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 expenses on the consolidated statement 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 nine months ended September 30, 2004 was $36.8 million. The limit available under this agreement was fully exhausted at December 31, 2004.

13. Catastrophes

During the third quarter of 2005, there were two large hurricane events, Katrina and Rita, as well as other catastrophe losses, which resulted in significant incurred losses to the Company. For the third quarter of 2005, the incurred pre-tax catastrophe losses, net of reinstatement premiums of $33.7 million, were $432.5 million, of which Hurricane Katrina accounted for $347.7 million. Generally, catastrophe reinsurance provides coverage for one event; however, when limits are exhausted, some contractual arrangements provide for the availability of additional coverage upon the payment of additional premium. This additional premium is referred to as reinstatement premium. With respect to Hurricane Katrina, the unprecedented nature and scale of this hurricane, along with the lack of extensive data from ceding companies, has hampered the loss estimating process. Additionally, pending legal and regulatory issues may impact the amount of ultimate losses from these events. The Company’s loss estimate is based on a combination of

2021

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

modeled information, underwriter analysis, preliminary client discussions and a profile of exposed limits within the affected regions. The Company’s recorded loss for Hurricane Katrina represents its current best estimate for this event, but ultimate losses could differ, perhaps materially. Any adjustments to this estimate in future quarters will result in an impact to incurred losses when such adjustments are made.

14. Income Taxes

The company uses a projected annual effective tax rate in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“FAS 109”) to calculate its quarterly tax expense. Under this methodology, when an interim quarter’s pre-tax income (loss) varies significantly from a full year’s income projection, the tax impact resulting from the income variance is effectively spread between the impacted quarter and the remaining quarters of the year. Accordingly, the tax benefit resulting from the catastrophe losses in the third quarter of 2005 will effectively be spread between the third and fourth quarter of 2005. This may result in a lower than normal effective tax rate for the ~~six months ended June 30, 2004 was $36.8 million.~~fourth quarter of 2005, absent any other variations between projected and actual pre-tax income.

During the third quarter 2005, the Internal Revenue Service completed its examination of tax years 2000 through 2002, which years included the Company’s 2000 reorganization as well as several inter-affiliate reinsurance transactions. The ~~limit available under this agreement was fully exhausted at December 31, 2004.~~finalization of these tax years did not result in any material adjustment to the quarter’s tax provision.

15. Subsequent Events

On October 6, 2005, Group expanded the size of the remaining shelf registration by filing under Rule 462(b) of the Securities Act of 1933, as amended, and General Instruction IV of Form S-3 promulgated thereunder. On the same date, Group entered into an agreement to issue 5,200,000 of its common shares at a price of $91.50 per share, which resulted in $475.8 million in proceeds, before expenses of approximately $0.3 million. This transaction effectively exhausted the December 22, 2003 shelf registration.

During the later part of October 2005, Hurricane Wilma hit the Yucatan Peninsula and Florida. At this point in time, management is not yet able to estimate the impact that this hurricane will have on the Company’s financial results for the fourth quarter, as all of the information essential to the estimating process for this catastrophe loss is not yet available.

2122

Part I — Item 2.

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

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”), 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.~~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 lack of strong barriers to entry into the reinsurance business and the potential for securitization of reinsurance and insurance risks through capital markets provides an additional ~~source~~sources of potential reinsurance and insurance capacity and competition.

~~To date in~~Through 2004 and the first nine months of 2005, ~~and through 2004,~~ the favorable market conditions, which had developed during the period from 2000 through 2003, generally weakened. ~~There were signs that pricing~~Pricing for most property and casualty classes declined modestly. Competition increased modestly as well, in part due to the relative profitability achieved by many reinsurers over the period from 2002 through 2004, the attendant buildup of capital by these participants and growing pressures to effectively deploy this capital. 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 remained exposed to fundamental issues that had negatively impacted its aggregate capacity in 2002 and 2003, including weak investment market conditions and adverse loss emergence. All of these factors had tended to depress the industry’s aggregate financial performance and perceptions of financial strength of industry participants over this period, albeit with significant variation by individual market participant. The Company notes that the cumulative market softening to date has not yet offset the market strengthening

which occurred over 2001 to 2003 and ~~believes~~ that the rate of change, ~~may moderate as participants~~

~~refine~~even prior to third quarter 2005 catastrophe events, was subject to moderating influence arising from market participants’ refinement of their strategies for capital utilization and in particular for avoiding the excesses of past market cycles.

With the catastrophe loss experience of the third quarter of 2005, which included the industry’s single largest loss event ever, Hurricane Katrina, as well as other lesser but still significant catastrophe events, many participants in worldwide insurance and reinsurance markets saw their financial results impacted adversely. The impact of these depressed results on existing trends is difficult to predict. Some, including the Company, believe that the scope and scale of industry losses will lead to a fairly immediate and significant tightening of industry conditions, which, although most focused on catastrophe business impacted by the third quarter catastrophe events, will likely extend in differing degrees to virtually all worldwide property and casualty classes. This view is based on an assessment that the character and magnitude of the third quarter events will inevitably increase individual company managements’ assessment of both the capital required to support business and the returns appropriate to that capital. This assessment recognizes the likelihood that regulators and rating agencies will tighten capital adequacy criteria raising the expected capitalization level for most industry participants. Others suggest that the existing capital strength of industry participants, in part reflecting favorable financial performance over the 2002-2004 period, supplemented by capital raising activities since Hurricane Katrina, including by both, existing industry participants and potential new entrants, will be sufficient to support the industry’s aggregate exposures without requiring significant price increases or fundamental change in the pricing of industry products.

The Company has generally been disappointed by industry developments in 2005 and 2004, which have, at least prior to the catastrophe events in the third quarter of 2005, operated to modestly weaken pricing in most business classes and lines. ~~However, the~~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. However, the Company also notes that it, like many industry participants, is reexamining its view of price adequacy in light of 2005‘s third quarter catastrophe experience. Such reexamination includes consideration of: the magnitude and character of catastrophe exposures, the level of capital necessary to support its businesses as considered from both the Company and rating agency perspectives and the actual and potential volatility and variability of results, by product, business class and business unit, including with respect to the reliability of underlying statistical and modeling techniques. The Company cannot predict with any reasonable certainty whether and to what extent ~~these~~the trends and conditions noted earlier will persist, nor can it predict the eventual outcome of its own internal deliberations, or ~~conditions will persist. In particular,~~in aggregate, the ~~extent to which the cumulative effect~~deliberations of a weakening pricing environment will impact Company operations is unclear. Additionally, the continued growth of reinsurance capacity, particularly in 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~~as respects the ~~prospective level of competitive pressures.~~issues raised by the third quarter’s catastrophe experience.

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 (loss) income for the periods indicated:

		Three Months Ended					Six Months Ended						Three Months Ended						Nine Months Ended
		June 30,					June 30,						September 30,						September 30,

(Dollars in thousands)	(Dollars in thousands)	2005		2004			2005		2004			(Dollars in thousands)	2005			2004			2005			2004

Gross written premiums		$	940,139	$	892,652		$	1,819,623	$	1,884,818			$	825,264		$	947,433		$	2,644,887		$	2,832,251
Net written premiums			675,591		629,598			1,324,231		1,544,611				630,040			694,230			1,954,271			2,238,841
REVENUES:
Premiums earned		$	668,325	$	607,905		$	1,287,331	$	1,408,624			$	617,750		$	688,087		$	1,905,081		$	2,096,711
Net investment income			89,070		95,331			174,992		161,154				67,585			81,227			242,577			242,381
Net realized capital gains			18,203		77,504			19,688		50,458				18,633			9,388			38,321			59,846
Other income (expense)			5,223		(26,675	)		712		(43,935	)
Other expense														(15,240	)		(30,378	)		(14,528	)		(74,313	)

Total revenues			780,821		754,065			1,482,723		1,576,301				688,728			748,324			2,171,451			2,324,625

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment
expenses			429,323		387,983			863,452		981,206				748,550			569,889			1,612,002			1,551,095
Commission, brokerage, taxes and fees			154,034		114,530			271,184		283,204				122,092			142,792			393,276			425,996
Other underwriting expenses			24,797		22,315			49,193		41,578				24,997			20,171			74,190			61,749
Interest expense			17,118		19,318			38,762		33,797				17,220			19,439			55,982			53,236

Total claims and expenses			625,272		544,146			1,222,591		1,339,785				912,859			752,291			2,135,450			2,092,076

INCOME BEFORE TAXES			155,549		209,919			260,132		236,516
Income tax expense			36,624		50,128			54,294		69,385
(LOSS) INCOME BEFORE TAXES														(224,131	)		(3,967	)		36,001			232,549
Income tax (benefit) expense														(50,579	)		(11,666	)		3,715			57,719

NET INCOME		$	118,925	$	159,791		$	205,838	$	167,131
NET (LOSS) INCOME													$	(173,552	)	$	7,699		$	32,286		$	174,830

23Overall, the Company was extremely disappointed with its 2005 third quarter results, which were heavily impacted by incurred losses relating to Hurricane Katrina, which were approximately $348 million pre-tax and $226 million after-tax, both net of reinstatement premiums. Generally, catastrophe reinsurance provides coverage for one event; however, when limits are exhausted, some contractual arrangements provide for the availability of additional coverage upon the payment of additional premium. This additional premium is referred to as reinstatement premium. With respect to Hurricane Katrina, this was the single largest catastrophe event ever experienced by the Company, and more broadly, the reinsurance industry. These impacts from Hurricane Katrina, as well as impacts from other catastrophe losses and the components of incurred losses in general, are discussed later in this summary, which generally addresses significant individual line items in the order of their appearance on the Company’s income statement.

UK Branch Sale.Effective 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 reserve indemnity agreement for adverse development on loss and loss adjustment expenses (“LAE”) reserve

balances as of December 31, 2002, as well as made sale related adjustments for the 2003 and 2002 quota share cessions. The non-recurring impact on the results for the ~~six~~nine months ended ~~June~~September 30, 2004 was an increase in net written premiums of $139.8 million and an increase in premiums earned, incurred losses and LAE and underwriting expenses of $118.8 million, $113.7 million and $31.0 million, respectively.

Revenues. 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,~~2003, which 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 in 2004 and continuing in 2005, the Company ~~continued to adapt~~adapted 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. The classes most affected by these actions were workers’ compensation insurance, individual risk underwritten insurance and reinsurance, medical stop loss reinsurance and select U.S. casualty reinsurance classes.

Accordingly, gross written premiums for the three months ended ~~June~~September 30, 2005 were ~~$940.1~~$825.3 million, ~~an increase~~a decrease of ~~5.3%~~12.9% compared with ~~$892.7~~$947.4 million for the three months ended ~~June~~September 30, 2004. For the ~~six~~nine months ended ~~June~~September 30, 2005, gross written premiums were ~~$1,819.6~~$2,644.9 million, a decrease of ~~3.5%~~6.6% compared with ~~$1,884.8~~$2,832.3 million for the ~~six~~nine months ended ~~June~~September 30, 2004.

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 that market conditions, ~~although changing, remain~~which were softening prior to the occurrence of Hurricane Katrina, generally remained favorable and notes that it continues to see business opportunities in a variety of product classes and markets. The 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 ~~$675.6~~$630.0 million for the three months ended ~~June~~September 30, 2005, ~~an increase~~a decrease of ~~7.3%~~9.2% compared with ~~$629.6~~$694.2 million for the three months ended ~~June~~September 30, 2004. For the ~~six~~nine months ended ~~June~~September 30, 2005, net written premiums were ~~$1,324.2~~$1,954.3 million, a decrease of ~~14.3%~~12.7% compared with ~~$1,544.6~~$2,238.8 million for the ~~six~~nine months ended ~~June~~September 30, 2004. 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 ~~$668.3~~$617.8 million for the three months ended ~~June~~September 30, 2005, ~~an increase~~a decrease of ~~9.9%~~10.2% compared with ~~$607.9~~$688.1 million for the three months ended ~~June~~September 30, 2004. For the ~~six~~nine months ended ~~June~~September 30, 2005, premiums earned were ~~$1,287.3~~$1,905.1 million, a decrease of ~~8.6%~~9.1% compared with ~~$1,408.6~~$2,096.7 million for the ~~six~~nine months ended ~~June~~September 30, 2004. ~~These movements~~Included in the premium’s earned for the three and nine months ended September 30, 2005 were $33.7 million and $38.9 million, respectively, of reinstatement premiums of which $30.0 million was due to Hurricane Katrina. There were no such reinstatement premiums for the

three and nine months ended September 30, 2004. Overall premium fluctuations reflect period to period changes in net written premiums and business mix together with normal variability in earning 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 the reporting patterns of ceding companies also affect premiums earned. In addition, the 2004 premiums earned included $118.8 million due to the UK Branch Sale.

~~Incurred losses and LAE were $429.3~~Net investment income was $67.6 million for the three months ended ~~June~~September 30, 2005, ~~an increase~~a decrease of ~~10.7%~~16.8% compared with ~~$388.0~~$81.2 million for the three months ended ~~June~~September 30, 2004. For the nine months ended September 30, 2005, net investment income was $242.6 million, an increase of 0.1% compared with $242.4 million for the nine months ended September 30, 2004. Period to period changes in investment income are impacted by changes in the level and mix of invested assets, prevailing interest rates and the results from equity investments in limited partnerships, which tend to fluctuate quarter by quarter.

Premiums are generally collected over the first 12 to 15 months of the Company’s reinsurance and insurance contracts, while related losses are typically paid out over numerous years. This tends to generate cash flow from operations and this positive cash flow coupled with the increase in investable assets generates investment income. The Company’s cash flow from operations was $175.6 million for the three months ended September 30, 2005, a decrease of 24.5% compared with $232.5 million for the three months ended September 30, 2004. For the nine months ended September 30, 2005, the company’s cash flow from operations was $483.2 million, a decrease of 37.2% compared with $769.7 million for the nine months ended September 30, 2004. Cash flow from operations for the nine months ended September 30, 2005 in comparison with the nine months ended September 30, 2004 was impacted by the 2004 UK Branch Sale.

Net realized capital gains were $18.6 million and $38.3 million for the three and nine months ended September 30, 2005, respectively, reflecting portfolio management activities in response to interest rate and credit market movements, compared to net realized capital gains of $9.4 million and $59.8 million for the three and nine months ended September 30, 2004, respectively. The realized capital gains for the three and nine months ended September 30, 2004 were primarily the result of an early liquidation of a $20.0 million investment trust portfolio and gains on the sale of the Company’s interest only strips of mortgaged-backed securities (“interest only strips”) investment portfolio in the second quarter of 2004.

Expenses. Incurred losses and loss adjustment expenses (“LAE”) were $748.6 million for the three months ended September 30, 2005, an increase of 31.4% compared with $569.9 million for the three months ended September 30, 2004. This increase in incurred losses and LAE was primarily the result of ~~the increase in the premiums earned exposure base, coupled with a $31.7~~$311.8 million increase in catastrophe losses in the ~~second~~third quarter of 2005 compared with the ~~second~~third quarter of 2004. Partially offsetting these increases was a ~~decline in~~reversal with respect to prior year reserve development. Excluding the impact of catastrophes on prior year reserve development, favorable reserve development was ~~$25.5~~$55.4 million ~~less~~more in the ~~second~~third quarter of 2005 than the ~~second~~third quarter 2004, reflecting a movement from favorable development of ~~2004.~~$14.6 million to favorable development of $70.0 million. For the ~~six~~nine months ended ~~June~~September 30, 2005, incurred losses and LAE were ~~$863.5~~$1,612.0 million, ~~a decrease~~an increase of ~~12.0%~~3.9% compared with ~~$981.2~~$1,551.1 million for the ~~six~~nine months ended ~~June~~September 30, 2004. The ~~$117.8~~$60.9 million ~~decrease~~increase in

incurred losses and LAE for the ~~six~~nine months ended ~~June~~September 30, 2005 was principally related to ~~a $113.7~~catastrophe losses which increased $345.2 million comparing the nine months ended of 2005 with 2004. The major contributing factor was the third quarter 2005 property catastrophe events, particularly hurricanes Katrina, Rita, Emily and Dennis totaling $431.9 million, floods in India and Calgary totaling $12.0 million and storms in Ontario totaling $4.2 million. Partially offsetting this increase ~~in 2004 due to the UK Branch Sale, together with~~was a decrease in unfavorable net ~~unfavorable~~ prior period reserve adjustments, ~~which,~~ excluding the impact of catastrophe development, ~~declined~~which reversed to ~~$6.9~~a favorable prior period reserve adjustment of $63.4 million from ~~$47.7~~an unfavorable net prior period reserve adjustment of $33.1 million for the ~~six~~nine months ended ~~June~~September 30, 2005 as compared to the ~~six~~nine months ended ~~June~~September 30, ~~2004, respectively. The premiums earned exposure base decreased by 8.6%. In addition, catastrophe losses increased by $43.3 million, comparing the six months of 2005 with the six months of~~ 2004. Other factors impacting the level of incurred losses and LAE related to changes in volume as measured by earned premium; changes in rates and terms, as well as the effect of changes in prior period loss reserve estimates, also contributed.

Commission, brokerage and tax expense were ~~$154.0~~$122.1 million and ~~$114.5~~$142.8 million for the three months ended ~~June~~September 30, 2005 and 2004, respectively, and ~~$271.2~~$393.3 million and ~~$283.2~~$426.0 million for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004, respectively. The decrease for the ~~six~~nine months ended ~~June~~September 30, 2005 compared to ~~June~~September 30, 2004 was primarily the result of a $31.0 million increase due to the UK Branch Sale included in the ~~six~~nine months ended 2004. Other factors impacting the change in commission, brokerage and tax expense were changes in premium volume, including changes in volume through the various distribution channels, and changes in the mix of business.

Taxes and Net investment income was $89.1 million for the three months ended June 30, 2005, a decrease of 6.6% compared with $95.3 million for the three months ended June 30, 2004. For the six months ended June 30, 2005, net investment income was $175.0 million, an increase of 8.6% compared with $161.2 million for the six months ended June 30, 2004. The increase for the six months ended June 30, 2005 was primarily due to an increase in investable assets, up $940.3 million, or 14.1% as compared to June 30, 2004. Period to period changes in investment income are also impacted by the results from equity investments in limited partnerships which tend to fluctuate quarter by quarter.

Premiums are generally collected over the first 12 to 15 months of the Company’s reinsurance and insurance contracts, while related losses are typically paid out over numerous years. This difference in timing tends to generate cash flow from operations along with investment income. The Company’s cash flow from operations was $166.8 million for the three months ended June 30, 2005, a decrease of 42.5% compared with $290.3 million for the three months ended June 30,

2004, which had increased 30.1% compared with the three months ended June 30, 2003. For the six months ended June 30, 2005, the company’s cash flow from operations was $307.6 million, a decrease of 43.8% compared with $547.0 million for the six months ended June 30, 2004, which had increased 23.2% compared with the six months ended June 30, 2003. Cash flow from operations for the six months ended June 30, 2005 in comparison with the six months ended June 30, 2004 was impacted by the 2004 UK Branch Sale.
Net realized capital gains were $18.2 million and $19.7 million for the three and six months ended June 30, 2005, respectively, reflecting portfolio management activities in response to interest rate and credit market movements, compared to net realized capital gains of $77.5 million and $50.5 million for the three and six months ended June 30, 2004, respectively. The realized gains for the three and six months ended June 30, 2004 were primarily the result of gains on the sale of the Company’s interest only strips of mortgaged-backed securities (“interest only strips”) investment portfolio in the second quarter of 2004.

Income (Loss).The Company’s income tax (benefit) expense is primarily a function of the U.S. statutory tax rates and the impact from tax preferenced investment income. The Company ~~incurred~~generated income tax ~~expense~~benefits of ~~$36.6~~$50.6 million and ~~$50.1~~$11.7 million for the three months ended ~~June~~September 30, 2005 and 2004, respectively, ~~and $54.3~~in each case reflecting significant catastrophe losses in these quarters. Income tax expense of $3.7 million and ~~$69.4~~$57.7 million for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004, ~~respectively.~~respectively, reflected the expected effective tax rate derived from blended full year results. The decrease in tax expense ~~is principally due to~~in 2005 primarily reflected the increase in incurred losses and LAE, in part driven by greater catastrophe losses, coupled with a decrease in ~~net realized capital gains.~~premiums earned. Additionally, in conjunction with the transfer of the Company’s UK Branch to Bermuda Re, there were various tax items which gave rise to incremental net tax expenses in 2004.

~~Net~~The net loss of $173.6 million compared to net income ~~decreased to $118.9 million from $159.8~~of $7.7 million for the three months ended ~~June~~September 30, 2005 and 2004, respectively, and ~~increased~~net income of $32.3 million compared to ~~$205.8 million from $167.1~~$174.8 million for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004, ~~respectively. The~~respectively, generally reflected the catastrophe loss driven increase in ~~net income for~~incurred losses and LAE together with the ~~six months ended June 30, 2005 generally reflected increased investment results~~decrease in premiums earned and ~~other miscellaneous income,~~realized capital gains, partially offset by a decrease in ~~after tax realized capital gains.~~income taxes.

The Company’s stockholders’ equity increased to ~~$1,965.1~~$1,789.9 million ~~as of June~~at September 30, 2005 from $1,743.8 million ~~as of~~at December 31, 2004. The increase was primarily due to net income for the period together with an increase of unrealized appreciation on the Company’s investment portfolio.

Segment Information

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, commissions 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.

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

U.S. Insurance
U.S. Reinsurance										U.S. Reinsurance
		Three Months Ended				Six Months Ended					Three Months Ended						Nine Months Ended
		June 30,				June 30,					September 30,						September 30,
(Dollars in thousands)	(Dollars in thousands)	2005		2004		2005		2004		(Dollars in thousands)	2005			2004			2005			2004

Gross written premiums		$	270,780	$	311,520	$	545,108	$	665,225		$	374,309		$	362,129		$	1,100,677		$	1,048,879
Net written premiums			181,455		203,962		381,227		468,137			283,598			287,779			835,535			823,368
Premiums earned		$	133,890	$	180,238	$	308,129	$	353,659		$	263,059		$	266,611		$	855,213		$	811,794
Incurred losses and loss
adjustment expenses			97,888		124,319		222,606		269,167			499,648			267,820			920,017			649,921
Commission and brokerage			23,644		18,187		46,205		27,980			52,130			60,645			191,633			195,400
Other underwriting expenses			12,139		10,189		24,239		21,314			5,649			4,655			17,713			16,326

Underwriting gain		$	219	$	27,543	$	15,079	$	35,198
Underwriting loss											$	(294,368	)	$	(66,509	)	$	(274,150	)	$	(49,853	)

2729

U.S. Insurance
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2005		2004		2005		2004

Gross written premiums	$	210,768	$	253,245	$	755,876	$	918,470
Net written premiums		179,336		167,826		560,563		635,963
Premiums earned	$	194,828	$	192,965	$	502,957	$	546,624
Incurred losses and loss
adjustment expenses		113,763		128,676		336,369		397,843
Commission and brokerage		33,106		24,118		79,311		52,098
Other underwriting expenses		13,575		11,153		37,814		32,467

Underwriting gain	$	34,384	$	29,018	$	49,463	$	64,216

Specialty Underwriting
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2005			2004			2005			2004

Gross written premiums	$	51,891		$	127,975		$	247,868		$	352,565
Net written premiums		35,028			95,431			175,187			273,476
Premiums earned	$	38,219		$	93,070		$	178,021		$	270,428
Incurred losses and loss
adjustment expenses		49,504			71,574			138,382			177,481
Commission and brokerage		7,630			26,224			41,124			72,613
Other underwriting expenses		1,635			1,386			4,990			4,841

Underwriting (loss) gain	$	(20,550	)	$	(6,114	)	$	(6,475	)	$	15,493

International
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars in thousands)	2005		2004			2005		2004

Gross written premiums	$	188,296	$	204,084		$	540,466	$	512,337
Net written premiums		132,078		143,194			382,986		366,283
Premiums earned	$	121,644	$	135,441		$	368,890	$	349,050
Incurred losses and loss
adjustment expenses		85,635		101,819			217,234		212,103
Commission and brokerage		29,226		31,805			81,208		74,923
Other underwriting expenses		3,057		2,530			9,074		8,000

Underwriting gain (loss)	$	3,726	$	(713	)	$	61,374	$	54,024

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2005 2004 2005 2004
Underwriting gain $ 61,732 $ 84,751 $ 107,020 $ 128,197
UK branch sale and related
transactions - - - (25,894 )
Underwriting gain 61,732 84,751 107,020 102,303
Net investment income 89,070 95,331 174,992 161,154
Net realized capital gains 18,203 77,504 19,688 50,458
Corporate (expense) income (1,561 ) (1,674 ) (3,518 ) 333
Interest expense (17,118 ) (19,318 ) (38,762 ) (33,797 )
Other income (expense) 5,223 (26,675 ) 712 (43,935 )
Income before taxes $ 155,549 $ 209,919 $ 260,132 $ 236,516

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2005			2004			2005			2004

Underwriting (loss) gain	$	(276,808	)	$	(44,318	)	$	(169,788	)	$	83,880
UK branch sale and related
transactions		-			-			-			(25,894	)

Underwriting (loss) gain		(276,808	)		(44,318	)		(169,788	)		57,986
Net investment income		67,585			81,227			242,577			242,381
Net realized capital gains		18,633			9,388			38,321			59,846
Corporate expense		(1,081	)		(447	)		(4,599	)		(115	)
Interest expense		(17,220	)		(19,439	)		(55,982	)		(53,236	)
Other expense		(15,240	)		(30,378	)		(14,528	)		(74,313	)

(Loss) income before taxes	$	(224,131	)	$	(3,967	)	$	36,001		$	232,549

Three Months Ended JuneSeptember 30, 2005 compared to Three Months Ended JuneSeptember 30, 2004

As noted earlier, the principal driver of the quarter’s disappointing results was incurred losses related to Hurricane Katrina and other catastrophe events, which are discussed under the heading “Expenses” in the Financial Summary Section.

Premiums. Gross written premiums ~~increased 5.3%~~decreased 12.9% to ~~$940.1~~$825.3 million infor the three months ended ~~June~~September 30, 2005 from ~~$892.7~~$947.4 million infor the three months ended ~~June~~September 30, 2004, asreflecting continued impact of competitive pressures on pricing coupled with the Company ~~realized growth opportunities while continuing to maintain~~maintaining a disciplined underwriting approach. Premium ~~growth~~decline areas included a ~~25.1%~~59.5% ($~~40.0~~76.1 million) decrease in the Specialty Underwriting operation, primarily resulting from a $55.9 million decrease in A&H business and a $24.1 million decrease in surety business, partially offset by a $3.9 million increase in marine and aviation business. The U.S. Insurance operation decreased 16.8% ($42.5 million), principally as a result of a $35.5 million decrease in workers’ compensation business, primarily resulting from the 2004 termination of the American All-Risk Insurance Services, Inc. contract, and a $6.9 million decrease in program business outside of the workers’ compensation class. The International operation decreased 7.7% ($15.8 million), primarily due to a ~~$34.5~~$31.7 million ~~increase in Asian business and a $19.6 million increase~~decrease in international business written through the Miami and New Jersey offices, representing primarily Latin American business, partially offset by a ~~$12.7~~$15.5 million ~~decrease~~increase in ~~business written in Canada.~~Asian business. The U.S. Reinsurance operation increased ~~18.1%~~3.4% ($~~57.8~~12.2 million), principally reflecting a ~~$44.5 million increase in treaty casualty business and a $17.8~~$71.7 million increase in treaty property business, partially offset by a ~~$7.8~~$49.4 million decrease in treaty casualty business and a $9.6 million decrease in facultative business. The U.S. Insurance operation decreased 13.1% ($40.7 million), principally as a result of a $74.8 million decrease in workers’ compensation business, primarily resulting from the 2004 termination of the American All-Risk Insurance Services, Inc. contract, partially offset by a $34.1 million increase in program business outside of the workers’ compensation class. The Specialty Underwriting operation decreased 9.3% ($9.5 million), primarily resulting from a $28.6 million decrease in A&H business partially offset by an $11.8 million increase in marine and aviation business and a $7.3 million increase in surety business.

Ceded premiums ~~increased~~decreased to ~~$264.5~~$195.2 million for the three months ended ~~June~~September 30, 2005 from ~~$263.1~~$253.2 million for the three months ended ~~June~~September 30, 2004. Ceded premiums primarily relate to cessions under the Bermuda Re and Everest International quota share agreements.

Net written premiums ~~increased~~decreased by ~~7.3%~~9.2% to ~~$675.6~~$630.0 million for the three months ended ~~June~~September 30, 2005 from ~~$629.6~~$694.2 million for the three months ended ~~June~~September 30, 2004, reflecting the ~~increase~~decrease in gross written premiums, partially offset by the ~~slight increase~~decrease in ceded premiums.

Premium Revenues.Net premiums earned ~~increased~~decreased by ~~9.9%~~10.2% to ~~$668.3~~$617.8 million infor the three months ended ~~June~~September 30, 2005 from ~~$607.9~~$688.1 million infor the three months ended ~~June~~September 30, 2004. Contributing to this ~~increase~~decrease was a ~~41.5%~~58.9% ($~~41.4~~54.9 million) ~~increase~~decrease in the Specialty Underwriting operation, a 10.2% ($13.8 million) decrease in the International operation and a ~~30.6%~~1.3% ($~~76.6~~3.6 million) ~~increase~~decrease in the U.S. Reinsurance operation, partially offset by a ~~25.7%~~1.0% ($~~46.3~~1.9 million) ~~decrease~~increase in the U.S. Insurance ~~operation and a 14.5% ($11.3 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 earning 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 the reporting patterns of ceding companies also affect premiums earned.

Expenses. Incurred losses and LAE increased by ~~10.7%~~31.4% to ~~$429.3~~$748.6 million infor the three months ended ~~June~~September 30, 2005 from ~~$388.0~~$569.9 million infor the three months ended ~~June~~September 30, 2004. The increase in incurred losses and LAE was principally attributable to the increase in estimated ~~catastrophe~~ losses due to property catastrophes mainly driven by Hurricane Katrina with incurred losses of $377.7 million, but also reflecting incurred losses related to hurricanes Rita ($37.5 million), Emily ($11.5 million) and Dennis ($5.3 million), floods in India ($9.4 million) and Calgary ($2.6 million) and storms in Ontario ($4.2 million). The 2005 results also reflect unfavorable development on 2004 catastrophes of $19.5 million. Additionally, Hurricane Katrina estimates are subject to considerable uncertainty due to the timing, complexity and unusual nature of the underlying ceding company exposures. These estimates reflect management’s best judgment based on all available information, but ultimate losses could differ, perhaps materially. This increase in incurred losses and LAE also reflects variability in premiums earned and changes in the loss expectation assumptions for business written, as well as the net prior period reserve development and catastrophe losses discussed above. Incurred losses and LAE were also impacted by changes in the pricing of the underlying business, as well as variability relating to changes in the mix of business by class and type.

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, 2005 reflected ceded losses and LAE of $303.7 million compared to ceded losses and LAE for the three months ended September 30, 2004 of $272.0 million. Ceded losses and LAE for the three months ended September 30, 2005 included $230.6 million of ceded losses relating to the quota share reinsurance transactions between Everest Re and Bermuda Re and Everest International as compared with ceded losses of $182.6 million for the three months ended September 30, 2004.

The following table shows the net catastrophe losses for each of the Company’s operating segments for the three months ended September 30, 2005 and 2004:

(Dollars in thousands)	Segment Net Catastrophe Losses

Segment		2005		2004

U.S. Reinsurance		$	395.0	$	116.6
U.S. Insurance			-		-
Specialty Underwriting			43.4		8.4
International			27.8		29.4

Total		$	466.2	$	154.4

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. The Company defines a catastrophe as a property event with expected reported losses of at least $5.0 million before corporate level reinsurance and taxes. Effective for the third quarter of 2005, industrial risk ~~loss events including~~losses have been excluded from catastrophe losses with prior periods adjusted for comparison purposes. Catastrophe losses, net of contract specific cessions, were $466.2 million for the three months ended September 30, 2005, related principally to aggregate estimated losses mainly driven by Hurricane Katrina with catastrophe losses of $377.7 million, but also reflected catastrophe losses related to hurricanes Rita ($37.5 million), Emily ($11.5 million) and Dennis ($5.3 million), floods in India ($9.4 million) and Calgary ($2.6 million) and storms in Ontario ($4.2 million). The 2005 results also reflect unfavorable development on 2004 catastrophes of $19.5 million. Additionally, Hurricane Katrina estimates are subject to considerable uncertainty due to the timing, complexity and unusual nature of the underlying ceding company exposures. These estimates reflect management’s best judgment based on all available information, but ultimate losses could differ, perhaps materially. Catastrophe losses, net of contract specific cessions, were $154.4 million in the three months ended September 30, 2004, principally due to $186.8 million of estimated aggregate losses from hurricanes Charley, Frances, ~~and~~ Ivan and ~~industrial fire~~Jeanne and Pacific typhoon activity, partially offset by a $30.6 million reserve reduction related to the World Trade Center events.

The following table shows net prior period reserve adjustments for each of the Company’s operating segments for the three months ended September 30, 2005 and 2004:

(Dollars in thousands)	Segment Net Prior Period Reserve Adjustments

Segment		2005			2004

U.S. Reinsurance		$	0.1		$	(51.8	)
U.S. Insurance			(25.6	)		3.1
Specialty Underwriting			(22.3	)		2.8
International			(4.2	)		(1.0	)

Total		$	(52.0	)	$	(46.9	)

Net favorable prior period reserve adjustments for the three months ended September 30, 2005 were $52.0 million compared to net favorable prior period reserve adjustments of $46.9 million for the three months ended September 30, 2004. For the three months ended September 30, 2005, the net favorable reserve adjustments included net favorable reserve adjustments for non-asbestos and environmental (“A&E”), non-catastrophe of $74.9 million, partially offset by net unfavorable catastrophe development of $18.1 million and net unfavorable A&E adjustments of $4.8 million. The favorable reserve adjustments for the three months ended September 30, 2004 included net favorable catastrophe adjustments of $32.3 million and non-A&E, non-catastrophe adjustments of $15.8 million, partially offset by net unfavorable development on A&E reserve adjustments of $1.2 million. It is important to note that 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, generally mitigating, in part, the impact of loss development, and that such impacts are recorded as part of the overall reserve evaluation process.

The U.S. Reinsurance segment accounted for $0.1 million of net unfavorable prior period reserve adjustments for the three months ended September 30, 2005, and net favorable prior period reserve adjustments of $51.8 million for the three months ended September 30, 2004. A&E accounted for $4.8 million and $1.2 million of net unfavorable reserve adjustments for the three months ended September 30, 2005 and 2004, respectively. Catastrophe losses accounted for $13.2 million of unfavorable net prior period reserve adjustments and $34.5 million of favorable net prior period reserve adjustments for the three months ended September 30, 2005 and 2004, respectively. Other non-A&E, non-catastrophe net favorable prior period reserve adjustments were $17.9 million and $18.5 million for the three months ended September 30, 2005 and 2004, respectively.

The U.S. Insurance segment reflected $25.6 million of net favorable prior period reserve adjustments for the three months ended September 30, 2005 and $3.1 million of net unfavorable prior period reserve adjustments for the three months ended September 30, 2004. These prior period reserve adjustments were principally due to liability classes relating to accident years 2000 through 2004.

The Specialty Underwriting segment had $22.3 million of net favorable prior period reserve adjustments for the three months ended September 30, 2005 and $2.8 million of net unfavorable prior period reserve adjustments for the three months ended September 30, 2004. The September 30, 2005 net favorable prior period reserve adjustments related principally to $26.3 million favorable non-A&E, non-catastrophe reserve adjustments primarily related to marine, aviation

and surety business classes, partially offset by unfavorable catastrophe development of $4.0 million related to the marine business. The September 30, 2004 net unfavorable prior period reserve adjustment related principally to $3.2 million unfavorable catastrophe development.

The International segment had $4.2 million and $1.0 million of net favorable prior period adjustments for the three months ended September 30, 2005 and 2004, respectively. The September 30, 2005 net favorable prior period reserve adjustments related primarily to favorable non-A&E, non-catastrophe reserve development on the Canadian and Asian business of $5.0 million, partially offset by unfavorable property catastrophe loss development. The September 30, 2004 favorable development was related to catastrophe losses on International and Asian business.

The segment components of the increase in ~~Canada~~incurred losses and LAE for the three months ended September 30, 2005 over the three months ended September 30, 2004 were a 86.6% ($231.8 million) increase in the U.S. Reinsurance operation, partially offset by a 30.8% ($22.1 million) decrease in the Specialty Underwriting operation, a 15.9% ($16.2 million) decrease in the International operation and an 11.6% ($14.9 million) decrease in the U.S. Insurance operation. These changes reflect variability in premiums earned and changes in the loss expectation assumptions for business written, as 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 the pricing of the underlying business, as well as variability relating to changes in the mix of business by class and type.

The Company’s loss ratio, which is calculated by dividing incurred losses and LAE by net premiums earned, increased by 38.4 percentage points to 121.2% for the three months ended September 30, 2005 from 82.8% for the three months ended September 30, 2004, which reflected the impact of the changes in premiums earned and incurred losses and LAE discussed 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, 2005 and 2004. The loss ratios for all operations were impacted by the factors noted above.

Segment Loss Ratios

Segment	2005			2004

U.S. Reinsurance		189	.9%		100	.5%
U.S. Insurance		58	.4%		66	.7%
Specialty Underwriting		129	.5%		76	.9%
International		70	.4%		75	.2%

The Company’s expense ratio, which is calculated by dividing underwriting expenses by net premiums earned, was 23.8% for the three months ended September 30, 2005 compared to 23.7% for the three months ended September 30, 2004.

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

Segment Expense Ratios

Segment	2005			2004

U.S. Reinsurance		22	.0%		24	.4%
U.S. Insurance		24	.0%		18	.3%
Specialty Underwriting		24	.3%		29	.7%
International		26	.5%		25	.3%

Segment underwriting expenses decreased by 10.2% to $146.0 million for the three months ended September 30, 2005 from $162.5 million for the three months ended September 30, 2004. Commission, brokerage, taxes and fees decreased by $20.7 million, principally reflecting decreases in premium volume and changes in the mix and distribution channel of business. Segment other underwriting expenses increased by $4.2 million, as the Company continued to expand operations to support its business. Contributing to the segment underwriting expense decreases were a 66.4% ($18.3 million) decrease in the Specialty Underwriting operation, an 11.5% ($7.5 million) decrease in the U.S. Reinsurance operation and a 6.0% ($2.1 million) decrease in the International operation, partially offset by a 32.4% ($11.4 million) increase in the U.S. Insurance 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 specific reinsurance, as well as the underwriting performance of the underlying business.

The Company’s combined ratio, which is the sum of the loss and expense ratios, increased by 38.5 percentage points to 145.0% for the three months ended September 30, 2005 compared to 106.5% for the three months ended September 30, 2004.

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

Segment Combined Ratios

Segment	2005			2004

U.S. Reinsurance		211	.9%		124	.9%
U.S. Insurance		82	.4%		85	.0%
Specialty Underwriting		153	.8%		106	.6%
International		96	.9%		100	.5%

Investment Results.Net investment income decreased 16.8% to $67.6 million for the three months ended September 30, 2005 from $81.2 million for the three months ended September 30, 2004, despite an increase in invested assets from $7.1 billion at September 30, 2004 to $7.8 billion at September 30, 2005, principally reflecting variability in investment income from equity investments in limited partnerships, which tend to fluctuate quarter by quarter. Investment (loss) income for these limited partnerships for the three months ended September 30, 2005 and 2004 was $8.2 million loss and $6.4 million income, respectively.

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


	2005			2004

Imbedded pre-tax yield of cash and invested assets at September 30, 2005 and 2004		4	.4%		4	.5%
Imbedded after-tax yield of cash and invested assets at September 30, 2005 and 2004		3	.6%		3	.7%
Annualized pre-tax yield on average cash and invested assets for the three months ended September 30, 2005 and 2004		3	.7%		4	.9%
Annualized after-tax yield on average cash and invested assets for the three months ended September 30, 2005 and 2004		3	.1%		3	.9%

Net realized capital gains of $18.6 million for the three months ended September 30, 2005 reflected realized capital gains on the Company’s investments of $19.5 million, resulting principally from $13.0 million of gains on the partial sale of the interest only strip portfolio and $6.5 million gain on equity sales, partially offset by $0.9 million of realized capital losses. Net realized capital gains of $9.4 million for the three months ended September 30, 2004 reflected realized capital gains on the Company’s investments of $10.2 million, resulting primarily from the early liquidation of an investment portfolio trust, partially offset by $0.9 million of realized capital losses.

Other expense for the three months ended September 30, 2005 and 2004 were $15.2 million and $30.4 million, respectively. The change in other income for the three months ended September 30, 2005 as compared to the three months ended September 30, 2004 was primarily due to a decrease in deferred gains on a retroactive reinsurance agreement with a non-consolidating affiliate.

Corporate underwriting expenses not allocated to segments were $1.1 million for the three months ended September 30, 2005 compared to $0.4 million for the three months ended September 30, 2004.

Interest expense and fees for the three months ended September 30, 2005 and 2004 were $17.2 million and $19.4 million, respectively. Interest expense and fees for the three months ended September 30, 2005 included $7.8 million related to the senior notes, $9.3 million related to the junior subordinated debt securities and $0.1 million related to the Company’s revolving credit facility. Interest expense and fees for the three months ended September 30, 2004 included $9.7 million related to the senior notes, $9.4 million related to the junior subordinated debt securities and $0.3 million related to borrowings under the Company’s revolving credit facility. Interest expense on senior notes decreased to $7.8 million for the three months ended September 30, 2005 from $9.7 million for the three months ended September 30, 2004 as the 5.4% senior notes issued on October 12, 2004 effectively replaced the 8.5% senior notes due March 15, 2005, which were retired.

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 ~~Middle East.~~impact from tax preferenced investment income. The Company recognized an income tax benefit of $50.6 million for the three months ended September 30, 2005 compared to an income tax benefit of $11.7 million for the three months ended September 30, 2004. The increase in tax benefit reflected the increase in incurred losses related to catastrophes resulting, ultimately, in a substantial pre-tax loss for the period.

Net (Loss) Income.Net loss was $173.6 million for the three months ended September 30, 2005 compared to net income of $7.7 million for the three months ended September 30, 2004, with the change primarily reflecting an increase in incurred losses, partially offset by related tax benefits.

Nine Months Ended September 30, 2005 compared to Nine Months Ended September 30, 2004

As noted earlier, the principal driver of the disappointing year to date results was incurred losses related to Hurricane Katrina and other third quarter 2005 catastrophe events, which are discussed under the heading “Expenses”.

Premiums. Gross written premiums decreased 6.6% to $2,644.9 million for the nine months ended September 30, 2005 from $2,832.3 million for the nine months ended September 30, 2004, reflecting increased competitive pressures on pricing. Premium decline areas included a 29.7% ($104.7 million) decrease in the Specialty Underwriting operation, resulting primarily from a $106.0 million decrease in A&H business and a $21.0 million decrease in surety business, partially offset by a $22.2 million increase in marine and aviation business. The U.S. Insurance operation decreased 17.7% ($162.6 million), principally as a result of a $223.9 million decrease in workers’ compensation business, primarily resulting from the 2004 termination of the American All-Risk Insurance Services, Inc. contract, partially offset by a $61.4 million increase in program business outside of the workers’ compensation class. The International operation increased 5.5% ($28.1 million), primarily due to a $70.3 million increase in Asian business, partially offset by a $23.6 million decrease in international business written through the Miami and New Jersey offices, representing primarily Latin American business. The U.S. Reinsurance operation increased 4.9% ($51.8 million), principally reflecting a $161.2 million increase in treaty property business, partially offset by a $79.9 million decrease in treaty casualty business and a $24.7 million decrease in facultative business.

Ceded premiums increased to $690.6 million for the nine months ended September 30, 2005 from $593.4 million for the nine months ended September 30, 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.

Net written premiums decreased by 12.7% to $1,954.3 million for the nine months ended September 30, 2005 from $2,238.8 million for the nine months ended September 30, 2004, reflecting the decrease in gross written premiums combined with the increase in ceded premiums.

Premium Revenues.Net premiums earned decreased by 9.1% to $1,905.1 million for the nine months ended September 30, 2005 from $2,096.7 million for the nine months ended September 30, 2004. In 2004, net premiums earned included a $118.8 million positive impact from the UK Branch Sale. Also contributing to this decrease were a 34.2% ($92.4 million) decrease in the Specialty Underwriting operation and an 8.0% ($43.7 million) decrease in the ~~impact~~U.S. Insurance operation, partially offset by a 5.7% ($19.8 million) increase in the International operation and a 5.3% ($43.4 million) increase 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 the reporting patterns of ceding companies also affect premiums earned.

Expenses. Incurred losses and LAE increased by 3.9% to $1,612.0 million for the nine months ended September 30, 2005 from $1,551.1 million for the nine months ended September 30, 2004. The increase in incurred losses and LAE was principally related to catastrophe losses and changes in the Company’s mix of business, partially offset by the decrease in reserve adjustments for prior period losses and a $113.7 million increase included in 2004 related to the UK Branch sale. These changes reflect variability in premiums earned and changes in the loss expectation assumptions for business written, as well as the net prior period reserve development and catastrophe losses discussed below. Incurred losses and LAE were also ~~contributed.~~impacted by changes in the pricing of the underlying business, as well as variability relating to changes in the mix of business by class and type.

The Company’s loss and LAE reserves reflect estimates of ultimate claim liability. Such estimates are re-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 re-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 business and operations require analyses and adjustments, both qualitative and quantitative, at these various levels. Additionally, the attribution of reserves, changes in reserves and incurred losses between accident year and underwriting year requires 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 ~~three~~nine months ended ~~June~~September 30, 2005 reflected ceded losses and LAE of ~~$173.7~~$622.9 million compared to ceded losses and LAE for the ~~three~~nine months ended ~~June~~September 30, 2004 of ~~$205.3~~$537.7 million. Ceded losses and LAE ~~for the three months ended June 30, 2005 included $147.7 million of ceded losses~~ relating to the quota share reinsurance transactions ~~between Everest Re~~with affiliates were $481.6 million and ~~Bermuda Re and Everest International as compared with ceded losses of $110.7~~$287.7 million for the ~~three~~nine months ended ~~June~~September 30, ~~2004.~~2005 and 2004, respectively. Ceded losses and LAE in 2004 reflected a $76.9 million reduction due to the UK Branch Sale.

The following table shows the net catastrophe losses for each of the Company’s operating segments for the ~~three~~nine months ended ~~June~~September 30, 2005 and 2004:

(Dollars in thousands)	Segment Net Catastrophe Losses						Segment Net Catastrophe Losses

Segment		2005		2004				2005		2004

U.S. Reinsurance		$	19.8	$	(0.2	)		$	413.4	$	116.5
U.S. Insurance			-		-				-		-
Specialty Underwriting			4.9		0.7				49.9		9.2
International			7.7		0.2				37.3		29.7

Total		$	32.4	$	0.7			$	500.6	$	155.4

~~net of contract specific cessions, were $32.4 million~~Effective for the ~~three months ended June 30,~~third quarter of 2005, ~~relating principally to aggregate estimated~~industrial risk losses have been excluded from ~~hurricanes Charley, Frances and Ivan, typhoon Songda, Suncor Refinery and ASE-Semi Conductor Loss.~~catastrophe losses with prior periods adjusted for comparison purposes. Catastrophe losses, net of contract specific cessions, were ~~$0.7~~$500.6 million for the ~~three~~nine months ended ~~June~~September 30, ~~2004.~~2005, related principally to aggregate estimated losses mainly driven by Hurricane Katrina with catastrophe losses of $377.7 million, but also reflected catastrophe losses related to hurricanes Rita ($37.5 million), Emily ($11.5 million) and Dennis ($5.3 million) and floods in India ($9.4 million) and Calgary ($2.6 million) and storms in Ontario ($4.2 million). The 2005 results also reflect unfavorable development on 2004 catastrophes of $56.2 million. Additionally, Hurricane Katrina estimates are subject to considerable uncertainty due to the timing, complexity and unusual nature of the underlying ceding company exposures. These estimates reflect management’s best judgment based on all available information, but ultimate losses could differ, perhaps materially. Catastrophe losses, net of contract specific cessions, were $155.4 million in the nine months ended September 30, 2004, related principally to aggregate estimated losses of $186.8 million from hurricanes Charley ($53.6 million), Frances ($48.4 million), Ivan ($44.3 million) and Jeanne ($36.8 million) and Pacific typhoons ($3.8 million), which were partially offset by $30.2 million of reserve reductions related to the World Trade Center events.

The following table shows net prior period reserve adjustments for each of the Company’s operating segments for the ~~three~~nine months ended ~~June~~September 30, 2005 and 2004:

(Dollars in thousands)	Segment Net Prior Period Reserve Adjustments							Segment Net Prior Period Reserve Adjustments

Segment		2005			2004				2005			2004

U.S. Reinsurance		$	28.1		$	24.5			$	42.6		$	(14.0	)
U.S. Insurance			6.1			6.5				(23.1	)		21.2
Specialty Underwriting			5.7			(7.6	)			(15.0	)		(4.9	)
International			(17.2	)		0.2				(15.4	)		(0.6	)

Total		$	22.7		$	23.6			$	(10.9	)	$	1.7

Net favorable prior period reserve adjustments, which include catastrophe development, for the nine months ended September 30, 2005 were $10.9 million compared to net unfavorable prior period reserve adjustments ~~for the three months ended June 30, 2005, which mainly reflected catastrophe development, were $22.7 million compared to $23.6~~of $1.7 million for the ~~three~~nine months ended ~~June~~September 30, 2004. For

the ~~three~~nine months ended ~~June~~September 30, 2005, the net ~~unfavorable~~favorable reserve adjustments included net favorable non-A&E, non-catastrophe prior period reserve adjustments of $74.1 million, partially offset by net unfavorable catastrophe development of ~~$25.1~~$52.5 million and net unfavorable ~~asbestos and environmental (“~~A~~&E”)~~&E adjustments of ~~$5.2~~$10.7 million. The net unfavorable reserve adjustments for the nine months ended September 30, 2004 included net unfavorable non-A&E, non-catastrophe adjustments of $24.7 million and net unfavorable A&E adjustments of $8.4 million, partially offset by ~~non-A&E~~net favorable ~~development. The reserve adjustments~~catastrophe development of $31.4 million, which included a $30.2 million reduction in reserves for the ~~three months ended June 30, 2004 included A&E adjustments of $3.0 million and non-A&E adjustments, primarily on casualty business, of $20.6 million.~~World Trade Center events. It is important to note that 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, generally mitigating, in part, the impact of loss development, and that such impacts are recorded as part of the overall reserve evaluation process.

The U.S. Reinsurance segment accounted for ~~$28.1~~$42.6 million of net unfavorable prior period reserve adjustments for the ~~three~~nine months ended ~~June~~September 30, 2005, which included ~~$22.9~~$31.7 million of net unfavorable catastrophe development, $10.7 million of net unfavorable A&E adjustments and $0.2 million of net unfavorable non-A&E, non-catastrophe prior period reserve ~~adjustments as compared to net unfavorable non-A&E~~adjustments. Net favorable prior period reserve adjustments of ~~$21.5~~$14.0 million for the ~~three~~nine months ended ~~June~~September 30, ~~2004. Asbestos exposures accounted for $5.2~~2004 included $34.7 million ~~and $3.0~~of net favorable catastrophe development, partially offset by $12.3 million of net unfavorable non-A&E, non-catastrophe reserve adjustments ~~for the three months ended June 30, 2005~~ and ~~2004, respectively.~~$8.4 million of net unfavorable A&E reserve adjustments.

The U.S. Insurance segment reflected ~~$6.1~~$23.1 million of net favorable prior period reserve adjustments for the nine months ended September 30, 2005 and ~~$6.5~~$21.2 million of net unfavorable prior period reserve adjustments for the ~~three~~nine months ended ~~June~~September 30, ~~2005 and 2004, respectively. These prior period reserve adjustments were principally due to liability classes relating to accident years 2000 through 2003.~~

The Specialty Underwriting segment had $5.7 million of net unfavorable prior period reserve adjustments for the three months ended June 30, 2005 and $7.6 million of net favorable prior period reserve adjustments for the three months ended June 30, 2004. ~~The June 30, 2005 net unfavorable prior period reserve adjustments related principally to catastrophe loss development on the marine and aviation classes of business.~~

The International segment had $17.2 million of net favorable prior period adjustments for the three months ended June 30, 2005, and $0.2 million of net unfavorable prior period reserve adjustments for the three months ended June 30, 2004. The June 30, 2005 net favorable prior period reserve adjustments related primarily to favorable non-asbestos non-catastrophe reserve development on the Canadian and Asian business of $19.9 million, partially offset by property catastrophe loss development.

The segment components of the increase in incurred losses and LAE for the three months ended June 30, 2005 over the three months ended June 30, 2004 were a 34.1% ($58.1 million) increase in the U.S. Reinsurance operation and a 24.8% ($12.7 million) increase in the International operation, partially offset by a 21.3% ($26.4 million) decrease in the U.S. Insurance operation and a 7.2% ($3.0 million) decrease in the Specialty Underwriting operation. These changes reflect variability in premiums earned and changes in the loss expectation assumptions for business written, as 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 the pricing of the underlying business, as well as variability relating to changes in the mix of business by class and type.

The Company’s loss ratio, which is calculated by dividing incurred losses and LAE by net premiums earned, increased by 0.4 percentage point to 64.2% in the three months ended June 30, 2005 from 63.8% in the three months ended June 30, 2004, reflecting the impact of the changes in premiums earned and incurred losses and LAE discussed 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 June 30, 2005 and 2004. The loss ratios for all operations were impacted by the factors noted above.

Segment Loss Ratios
Segment 2005 2004
U.S. Reinsurance 69 .9% 68 .1%
U.S. Insurance 73 .1% 69 .0%
Specialty Underwriting 58 .7% 54 .1%
International 45 .4% 51 .4%

The Company’s expense ratio, which is calculated by dividing underwriting expenses by net premiums earned, was 26.8% for the three months ended June 30, 2005 compared to 22.5% for the three months ended June 30, 2004.

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

Segment Expense Ratios
Segment 2005 2004
U.S. Reinsurance 27 .0% 24 .9%
U.S. Insurance 26 .7% 15 .7%
Specialty Underwriting 26 .3% 26 .1%
International 25 .2% 24 .2%

Segment underwriting expenses increased by 31.1% to $177.3 million in the three months ended June 30, 2005 from $135.2 million in the three months ended June 30, 2004. Commission, brokerage, taxes and fees increased by $39.5 million, principally reflecting increases in premium volume, changes in the mix and distribution channels of business and decreases in premium based taxes. Segment other underwriting expenses increased by $2.6 million, as the Company continued to expand operations to support its increased business volume. Contributing to the increases in segment underwriting expenses were a 47.9% ($11.5 million) increase in the International operation, a 41.7% ($26.0 million) increase in the U.S. Reinsurance operation and a 26.1% ($7.4 million) increase in the U.S. Insurance operation, which were partially offset by a 14.0% ($2.8 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 specific reinsurance, as well as the underwriting performance of the underlying business.

The Company’s combined ratio, which is the sum of the loss and expense ratios, increased by 4.7 percentage points to 91.0% in the three months ended June 30, 2005 compared to 86.3% in the three months ended June 30, 2004.

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

Segment Combined Ratios
Segment 2005 2004
U.S. Reinsurance 96 .9% 93 .0%
U.S. Insurance 99 .8% 84 .7%
Specialty Underwriting 85 .0% 80 .2%
International 70 .6% 75 .6%

~~Investment Results.~~ Net investment income decreased 6.6% to $89.1 million for the three months ended June 30, 2005 from $95.3 million for the three months ended June 30, 2004, principally reflecting the effects of a persistently low interest rate environment partially offset by the increase of investable assets to $7.6 billion at June 30, 2005 as compared to $6.7 billion at June 30, 2004. Period to period changes in investment income are also impacted by the results from equity investments in limited partnerships, which tend to fluctuate quarter by quarter. Investment income for these limited partnerships for the three months ended June 30, 2005 and 2004 was $8.4 million and $25.0 million, respectively.

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

2005 2004
Imbedded pre-tax yield of cash and invested assets at
   June 30, 2005 and June 30, 2004 4 .4% 4 .5%
Imbedded after-tax yield of cash and invested assets at
   June 30, 2005 and June 30, 2004 3 .6% 3 .7%
Annualized pre-tax yield on average cash and invested
   assets for the three months ended June 30, 2005 and 2004 5 .0% 6 .0%
Annualized after-tax yield on average cash and invested
   assets for the three months ended June 30, 2005 and 2004 4 .0% 4 .6%

Net realized capital gains of $18.2 million for the three months ended June 30, 2005 reflected realized capital gains on the Company’s investments of $23.6 million, resulting principally from transactions to realign the investment portfolio in response to the interest and credit market conditions, partially offset by $5.4 million of realized capital losses, which included $4.1 million related to 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 No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets (“EITF 99-20”). Net realized capital gains of $77.5 million for the three months ended June 30, 2004 reflected realized capital gains on the Company’s investments of $78.1 million, principally on its interest only strips, partially offset by $0.6 million of realized capital losses, which included $0.5 million related to the write-downs in the value of securities deemed to be impaired on an other than temporary basis.

Other income for the three months ended June 30, 2005 was $5.2 million compared to other expense of $26.7 million for the three months ended June 30, 2004. The change in other income for the three months ended June 30, 2005 was primarily due to a decrease in deferred gains on a retroactive reinsurance agreement with a non-consolidating affiliate in 2004.

~~Corporate underwriting expenses not allocated to segments were $1.6 million for the three months ended June 30, 2005 compared to $1.7 million for the three months ended June 30, 2004.~~

Interest expense and fees for the three months ended June 30, 2005 and 2004 were $17.1 million and $19.3 million, respectively. Interest expense and fees for the three months ended June 30, 2005 included $7.7 million relating to the senior notes and $9.4 million relating to the junior subordinated debt securities and $.05 million relating to the Company’s revolving credit facility. Interest expense and fees for the three months ended June 30, 2004 included $9.7 million relating to the senior notes, $9.3 million relating to the junior subordinated debt securities and $0.3 million relating to borrowings under the Company’s revolving credit facility. Interest expense on senior notes decreased to $7.7 million for the three months ended June 30, 2005 from $9.7 million for the three months ended June 30, 2004 as the 5.4% senior notes issued on October 12, 2004 effectively replaced the 8.5% senior notes due March 15, 2005 which were retired.

~~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 $36.6 million for the three months ended June 30, 2005 compared to $50.1 million for the three months ended June 30, 2004. The decrease in taxes primarily reflects the decrease in net realized capital gains.

~~Net Income.~~ Net income was $118.9 million for the three months ended June 30, 2005 compared to net income of $159.8 million for the three months ended June 30, 2004, with the change primarily reflecting a decrease in after-tax net realized capital gains and deferred gains on a retroactive reinsurance agreement with a non-consolidating affiliate.

Six Months Ended June 30, 2005 compared to Six Months Ended June 30, 2004

~~Premiums.~~ Gross written premiums decreased 3.5% to $1,819.6 million in the six months ended June 30, 2005 from $1,884.8 million in the six months ended June 30, 2004, reflecting increased competitive pressures on pricing. Premium decline areas included an 18.1% ($120.1 million) decrease in the U.S. Insurance operation, principally as a result of a $188.4 million decrease in workers’ compensation business, primarily resulting from the 2004 termination of the American All-Risk Insurance Services, Inc. contract, partially offset by a $68.3 million increase in program business outside of the workers’ compensation class. The Specialty Underwriting operation decreased 12.7% ($28.6 million), resulting primarily from a $50.1 million decrease in A&H business, partially offset by an $18.3 million increase in marine and aviation business and a $3.2 million increase in surety business. The International operation increased 14.2% ($43.9 million), primarily due to a $54.8 million increase in Asian business and an $8.0 million increase in international business written through the Miami and New Jersey offices, representing primarily Latin American business, partially offset by a $17.5 million decrease in business written in Canada. The U.S. Reinsurance operation increased 5.8% ($39.6 million), principally reflecting an $89.5 million increase in treaty property business, partially offset by a $30.5 million decrease in treaty casualty business and a $15.1 million decrease in facultative business.

Ceded premiums increased to $495.4 million for the six months ended June 30, 2005 from $340.2 million for the six months ended June 30, 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.

Net written premiums decreased by 14.3% to $1,324.2 million for the six months ended June 30, 2005 from $1,544.6 million for the six months ended June 30, 2004, reflecting the decrease in gross written premiums combined with the increase in ceded premiums.

~~Premium Revenues.~~ Net premiums earned decreased by 8.6% to $1,287.3 million in the six months ended June 30, 2005 from $1,408.6 million in the six months ended June 30, 2004. In 2004, net premiums earned included a $118.8 million positive impact from the UK Branch Sale. Also contributing to this decrease was a 21.2% ($37.6 million) decrease in the Specialty Underwriting operation and a 12.9% ($45.5 million) decrease in the U.S. Insurance operation, partially offset by a 15.7% ($33.6 million) increase in the International operation and an 8.6% ($47.0 million) increase 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 the reporting patterns of ceding companies also affect premiums earned.~~

~~Expenses.~~ Incurred losses and LAE decreased by 12.0% to $863.5 million in the six months ended June 30, 2005 from $981.2 million in the six months ended June 30, 2004. The decrease in incurred losses and LAE was principally attributable to a $113.7 million increase included in 2004 relating to the UK Branch Sale, the impact of changes in the Company’s mix of business and an increase in catastrophe losses, partially offset by the decrease in reserve adjustments, net of catastrophe losses, for prior period losses.

Incurred losses and LAE for the six months ended June 30, 2005 reflected ceded losses and LAE of $319.2 million compared to ceded losses and LAE for the six months ended June 30, 2004 of $265.7 million. Ceded losses and LAE relating to the quota share reinsurance transactions with affiliates were $251.0 million and $105.1 million for the six months ended June 30, 2005 and 2004, respectively. Ceded losses and LAE in 2004 reflected a $76.9 million reduction due to the UK Branch Sale.

~~The following table shows the net catastrophe losses for each of the Company’s operating segments for the six months ended June 30, 2005 and 2004:~~

(Dollars in thousands) Segment Net Catastrophe Losses
Segment 2005 2004
U.S. Reinsurance $ 24.6 $ (0.2 )
U.S. Insurance - -
Specialty Underwriting 6.5 0.8
International 14.6 1.8
Total $ 45.7 $ 2.4

defines a catastrophe as 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 $45.7 million for the six months ended June 30, 2005, relating principally to aggregate estimated losses from hurricanes Charley, Frances, and Ivan, typhoon Songda, Tsunami storms, Suncor Refinery and ASE-Semi Conductor. Catastrophe losses, net of contract specific cessions, were $2.4 million in the six months ended June 30, 2004.

~~The following table shows net prior period reserve adjustments for each of the Company’s operating segments for the six months ended June 30, 2005 and 2004:~~

(Dollars in thousands) Segment Net Prior Period Reserve Adjustments
Segment 2005 2004
U.S. Reinsurance $ 43.0 $ 37.6
U.S. Insurance 2.5 18.1
Specialty Underwriting 7.3 (7.6 )
International (11.0 ) 0.3
Total $ 41.8 $ 48.4

Net unfavorable prior period reserve adjustments, which include catastrophe development, for the six months ended June 30, 2005 were $41.8 million compared to $48.4 million for the six months ended June 30, 2004. For the six months ended June 30, 2005, the net unfavorable reserve adjustments included net catastrophe development of $34.9 million, net unfavorable A&E adjustments of $5.9 million and non-A&E unfavorable development of $1.0 million. The reserve adjustments for the six months ended June 30, 2004 included net unfavorable A&E adjustments of $7.2 million, catastrophe development of $0.7 million and net unfavorable non-A&E adjustments, primarily on casualty classes, of $40.5 million. It is important to note that 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, generally mitigating, in part, the impact of loss development, and that such impacts are recorded as part of the overall reserve evaluation process.

The U.S. Reinsurance segment accounted for $43.0 million of net unfavorable prior period reserve adjustments for the six months ended June 30, 2005, which included $37.1 million of unfavorable non-A&E prior period reserve adjustments as compared to net unfavorable prior period reserve adjustments of $30.4 million for the six months ended June 30, 2004. Asbestos exposures accounted for $5.9 million and $7.2 million of unfavorable reserve adjustments for the six months ended June 30, 2005 and 2004, respectively.

~~The U.S. Insurance segment reflected $2.5 million and $18.1 million of net unfavorable prior period reserve adjustments for the six months ended June 30, 2005 and 2004, respectively.~~ These prior period reserve adjustments were principally due to casualty classes related to accident years 2000 through 2003.

The Specialty Underwriting segment had ~~$7.3~~$15.0 million and $4.9 million of net favorable prior period reserve adjustments for the nine months ended September 30, 2005 and, 2004. Non-A&E, non-catastrophe development accounted for $25.6 million and $8.8 million favorable net prior period reserve adjustments for the nine months ended September 30, 2005 and 2004, respectively, principally on the marine, aviation and surety classes of business in 2005 and the marine, aviation and A&H classes of business in 2004. Catastrophe development accounted for $10.6 million and $3.9 million of net unfavorable prior period reserve adjustments for the ~~six~~nine months ended ~~June~~September 30, 2005 and ~~$7.6~~2004, respectively, and was primarily on the marine and aviation classes of business.

The International segment had $15.4 million and $0.6 million of net favorable prior period reserve adjustments for the ~~six~~nine months ended ~~June 30, 2004. The June 30, 2005 net unfavorable prior period reserve adjustments related principally to catastrophe loss development on the marine and aviation classes of business.~~

~~The International segment had $11.0 million of net favorable prior period reserve adjustments for the six months ended June~~September 30, 2005 and ~~$0.3 million of net unfavorable prior period reserve adjustments for the six months ended June 30, 2004.~~2004, respectively. The ~~June~~September 30, 2005 net favorable prior period reserve adjustments related primarily to favorable non-asbestos, non-catastrophe reserve development of ~~$19.9~~$25.6 million, primarily on ~~the Asian and Canadian~~property business classes, partially offset by $10.2 million of property catastrophe loss development.

The Company’s loss ratio, which is calculated by dividing incurred losses and LAE by net premiums earned, ~~decreased~~increased by ~~2.6~~10.6 percentage points to ~~67.1% in~~84.6% for the ~~six~~nine months ended ~~June~~September 30, 2005 from ~~69.7% in~~74.0% for the ~~six~~nine months ended ~~June~~September 30, 2004, reflecting ~~the impact of the UK Branch Sale in 2004,~~ the impact of the changes in premiums earned and incurred losses and LAE discussed above, the impact of the UK Branch Sale in 2004, 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 ~~six~~nine months ended ~~June~~September 30, 2005 and 2004. The loss ratios for all operations were impacted by the factors noted above.

Segment Loss Ratios
Segment	Segment	2005			2004			Segment	2005				2004

U.S. Reinsurance			71	.0%		70	.1%				107	.6%			80	.1%
U.S. Insurance			72	.2%		76	.1%			66	.9%			72	.8%
Specialty Underwriting			63	.6%		59	.7%				77	.7%			65	.6%
International			53	.2%		51	.6%			58	.9%			60	.8%

The segment components of the ~~decrease~~increase in incurred losses and LAE for the ~~six~~nine months ended ~~June~~September 30, 2005 over the ~~six~~nine months ended ~~June~~September 30, 2004 were a ~~17.3%~~41.6% ($~~46.6~~270.1 million) ~~decrease~~increase in the U.S. ~~Insurance~~Reinsurance operation and a ~~16.1%~~2.4% ($~~17.0~~5.1 million) increase in the International operation, partially offset by a 22.0% ($39.1 million) decrease in the Specialty Underwriting operation, ~~partially offset by a 19.3% ($21.3 million) increase in the International operation~~ and a ~~10.0%~~15.5% ($~~38.3~~61.5 million) ~~increase~~decrease in the U.S. ~~Reinsurance~~Insurance operation. These changes reflect variability in premiums earned and changes in the loss expectation assumptions for business written, as 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 the pricing of the underlying business, as well as variability relating to changes in the mix of business by class and type, which in general reflected a more favorable mix.

The Company’s expense ratio, which is calculated by dividing underwriting expenses by net premiums earned, was ~~24.9%~~24.5% for the ~~six~~nine months ended ~~June~~September 30, 2005 compared to ~~23.1%~~23.2% for the ~~six~~nine months ended ~~June~~September 30, 2004.

The following table shows the expense ratios for each of the Company’s operating segments for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004.

Segment Expense Ratios
Segment	Segment	2005			2004			Segment	2005				2004

U.S. Reinsurance			25	.6%		26	.8%				24	.5%			26	.0%
U.S. Insurance			22	.9%		13	.9%			23	.3%			15	.5%
Specialty Underwriting			26	.3%		28	.1%				25	.9%			28	.7%
International			23	.5%		22	.8%			24	.5%			23	.7%

Segment underwriting expenses increased by ~~7.7%~~1.4% to ~~$316.9~~$462.9 million in the ~~six~~nine months ended ~~June~~September 30, 2005 from ~~$294.2~~$456.7 million in the ~~six~~nine months ended ~~June~~September 30, 2004. Commission, brokerage, taxes and fees ~~increased~~decreased by ~~$18.9~~$1.8 million, principally reflecting ~~changes~~decreases in premium volume and changes in the mix and distribution ~~channels~~channel of business, ~~and~~partially offset by an increase in premium based taxes. Segment other underwriting expenses increased by ~~$3.8~~$8.0 million, as the Company continued to expand operations to support its ~~increased~~ business activity. Contributing to the ~~increase in~~ segment underwriting expense increases were a ~~42.9%~~38.5% ($~~21.1~~32.6 million) increase in the U.S. Insurance operation ~~a 19.4%~~and an 8.9% ($~~9.4~~7.4 million) increase in the International ~~operation and a 3.5% ($5.1 million) increase in the U.S. Reinsurance~~ operation, which were partially offset by a ~~26.1%~~40.5% ($~~13.0~~31.3 million) decrease in the Specialty Underwriting operation and a 1.1% ($2.4 million) decrease in the U.S. Reinsurance 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 specific reinsurance, as well as the underwriting performance of the underlying business.

The Company’s combined ratio, which is the sum of the loss and expense ratios, ~~decreased~~increased by ~~0.7~~12.0 percentage ~~point~~points to ~~92.0% in~~109.2% for the ~~six~~nine months ended ~~June~~September 30, 2005 compared to ~~92.7% in~~97.2% for the ~~six~~nine months ended ~~June~~September 30, 2004.

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

Segment Combined Ratios
Segment	Segment	2005			2004			Segment	2005				2004

U.S. Reinsurance			96	.6%		96	.9%				132	.1%			106	.1%
U.S. Insurance			95	.1%		90	.1%			90	.2%			88	.3%
Specialty Underwriting			89	.9%		87	.8%				103	.6%			94	.3%
International			76	.7%		74	.4%			83	.4%			84	.5%

Investment Results.Net investment income increased ~~8.6%~~0.1% to ~~$175.0~~$242.6 million for the ~~six~~nine months ended ~~June~~September 30, 2005 from ~~$161.2~~$242.4 million for the ~~six~~nine months ended ~~June~~September 30, 2004, principally reflecting ~~the effects of the~~a $0.7 billion year over year increase ~~of investable~~in invested assets, to $7.6 billion at June 30, 2005 as compared to $6.7 billion at June 30, 2004, partially offset by the effects of a lower interest rate environment. Period to period changes in investment income are also impacted by the resultscoupled with variability from equity investments in limited partnerships, which tend to fluctuate period to period. Investment income for these limited partnerships for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004 was ~~$17.7~~$9.5 million and ~~$26.0~~$32.5 million, respectively.

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

2005 2004
Imbedded pre-tax yield of cash and invested assets at
   June 30, 2005 and December 31, 2004 4 .4% 4 .5%
Imbedded after-tax yield of cash and invested assets at
   June 30, 2005 and December 31, 2004 3 .6% 3 .6%
Annualized pre-tax yield on average cash and invested
   assets for the six months ended June 30, 2005 and 2004 4 .9% 5 .1%
Annualized after-tax yield on average cash and invested
   assets for the six months ended June 30, 2005 and 2004 3 .9% 4 .0%


	2005			2004

Imbedded pre-tax yield of cash and invested assets at September 30, 2005 and December 31, 2004		4	.4%		4	.5%
Imbedded after-tax yield of cash and invested assets at September 30, 2005 and December 31, 2004		3	.6%		3	.6%
Annualized pre-tax yield on average cash and invested assets for the nine months ended September 30, 2005 and 2004		4	.5%		5	.0%
Annualized after-tax yield on average cash and invested assets for the nine months ended September 30, 2005 and 2004		3	.6%		3	.9%

Net realized capital gains were ~~$19.7~~$38.3 million for the ~~six~~nine months ended ~~June~~September 30, 2005, which reflected realized capital gains on the Company’s investments of ~~$28.6~~$48.1 million, resulting primarily from transactions to realign the investment portfolio in response to the interest and credit market conditions, coupled with gains from the partial sale of the Company’s interest only strip portfolio, partially offset by ~~$8.9~~$9.8 million of realized capital losses, which included $4.1 million related to write-downs in the value of interest only strips deemed to be impaired on an other than temporary basis in accordance with EITF 99-20. Net realized capital gains ~~of $50.5~~were $59.8 million for the ~~six~~nine months ended ~~June~~September 30, 2004, which reflected realized capital gains on the Company’s investments of ~~$95.1~~$105.4 million, which included $77.6 million on the sale of interest only strip investments, partially offset by ~~$44.7~~$45.5 million of realized capital losses, 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 EITF ~~99-20.~~99-20, prior to liquidation of the interest only strip portfolio during the second quarter of 2004.

Other ~~income~~expense for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004 was ~~$0.7~~$14.5 million ~~compared to other expense of $43.9~~and $74.3 million, ~~for the six months ended June 30, 2004. This~~respectively. The change in other ~~income~~expense for the ~~six~~nine months ended ~~June~~September 30, 2005 was primarily due to a decrease in deferred gains on a retroactive reinsurance agreement with an unconsolidated affiliate.

Corporate underwriting expenses not allocated to segments were ~~$3.5~~$4.6 million for the ~~six~~nine months ended ~~June~~September 30, 2005 as compared to ~~corporate underwriting income of $0.3~~$0.1 million for the ~~six~~nine months ended ~~June~~September 30, 2004.

Interest expense and fees for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004 were ~~$38.8~~$56.0 million and ~~$33.8~~$53.2 million, respectively. Interest expense and fees for the ~~six~~nine months ended ~~June~~September 30, 2005 included ~~$19.9~~$27.7 million ~~relating~~related to the senior notes, ~~$18.7~~$28.1 million ~~relating~~related to the junior subordinated debt securities and ~~$0.1~~$0.2 million ~~relating~~related to the credit line under the Company’s revolving credit facility. Interest expense and fees for the ~~six~~nine months ended ~~June~~September 30, 2004 included ~~$19.5~~$29.2 million ~~relating~~related to the senior notes, ~~$13.7~~$23.0 million ~~relating~~related to the junior subordinated debt securities and ~~$0.7~~$1.0 million ~~relating~~related to borrowings under the Company’s revolving credit facility. The change in interest expense on the senior notes to ~~$19.9~~$27.7 million for the ~~six~~nine months ended ~~June~~September 30, 2005 from ~~$19.5~~$29.2 million for the ~~six~~nine months ended ~~June~~September 30, 2004 was due to the issuance of new senior notes on October 12, 2004, partially offset by the retirement of the senior notes due 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 ~~$54.3~~$3.7 million for the ~~six~~nine months ended ~~June~~September 30, 2005 compared to ~~$69.4~~$57.7 million infor the ~~six~~nine months ended ~~June~~September 30, 2004. The decrease in taxes

generally reflects the decrease in ~~net realized capital gains, partially offset by~~ the ~~growth of taxable net investment income.~~Company’s pre-tax income due to the significant increase in incurred losses related to catastrophes. Additionally, in conjunction with the transfer of the UK branch to Bermuda Re, there were various tax items which gave rise to incremental net tax expense in 2004.

Net Income.Net income was ~~$205.8~~$32.3 million for the ~~six~~nine months ended ~~June~~September 30, 2005 compared to net income of ~~$167.1~~$174.8 million for the ~~six~~nine months ended ~~June~~September 30, 2004, with the change primarily reflecting an increase in ~~net investment income and other income,~~catastrophe losses, partially offset by ~~a decrease in net after-tax realized capital gains.~~continued strong non-catastrophe operating results and tax benefits.

Market Sensitive Instruments.The Securities and Exchange Commission 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 ~~continues to expand its investments~~invests in

equity ~~securities, principally public equity index~~ securities, which it believes will enhance the risk-adjusted total return of the investment portfolio. Such investments account for ~~51.4%~~61.2% of the Company’s stockholders’ equity at ~~June~~September 30, 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 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 Company’s ~~$7.6~~$7.8 billion investment portfolio at ~~June~~September 30, 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 the foreign exchange risks on 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 ~~$565.5~~$542.3 million of mortgage-backed securities in the ~~$6,047.9~~$6,017.8 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 ~~June~~September 30, 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 June 30, 2005 Interest Rate Shift in Basis Points
As of September 30, 2005 Interest Rate Shift in Basis Points																As of September 30, 2005 Interest Rate Shift in Basis Points

	-200			-100			0			100			200				-200			-100			0			100			200

Total Market Value	$	7,013.2		$	6,671.4		$	6,342.2		$	5,971.6		$	5,583.5				$	7,064.1		$	6,746.1		$	6,416.3		$	6,043.6		$	5,661.8
Market Value Change from Base (%)		10.6	%		5.2	%		0.0	%		-5.8	%		-12.0	%				10.1	%		5.1	%		0.0	%		-5.8	%		-11.8	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	436.1		$	213.9		$	-		$	(240.9	)	$	(493.2	)			$	421.0		$	241.3		$	-		$	(242.3	)	$	(490.4	)

The Company had ~~$7,017.8~~$7,628.2 million and $6,846.9 million of reserves for losses and LAE as of ~~June~~September 30, 2005 and December 31, 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’s financial results will include investment income over time from 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. 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 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’s equity investments are mainly 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 June 30, 2005 Change in Equity Values in Percent
As of September 30, 2005 Change in Equity Values in Percent													As of September 30, 2005 Change in Equity Values in Percent

	-20%			-10%			0%		10%		20%			-20%			-10%			0%			10%			20%

Market Value of the Equity Portfolio	$	808.1		$	909.1		$	1,010.2	$	1,111.2	$	1,212.2			$	876.9		$	986.6		$	1,096.2		$	1,205.8		$	1,315.4
After-tax Change in Unrealized Appreciation	$	(131.3	)	$	(65.7	)	$	-	$	65.7	$	131.3			$	(142.5	)	$	(71.3	)	$	-		$	71.3		$	142.5

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 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 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 ~~June~~September 30, 2005 there has been no material change in exposure to foreign exchange rates as compared to December 31, 2004.

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, including the most recent hurricanes, 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 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 the 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 looking statements, whether as a result of new information, future events or otherwise.

4347

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.

4448

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 concluded 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.

4549

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, 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 enforce alleged rights. ~~Such~~These disputes arise from time to time and as they arise are addressed, and ultimately resolved, through ~~formal~~both informal and ~~informal~~formal means, including ~~litigation~~negotiated resolution, arbitration and ~~arbitration.~~

litigation. In all such ~~matters,~~mattes, 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~~While the ~~possibility that~~final outcome of these matters cannot be predicted with certainty, the Company ~~may~~does not ~~ultimately prevail in each and every disputed matter. The Company believes its aggregate reserves reduce~~believe that any of these matters, when finally resolved, will have a material adverse effect on the ~~potential that~~Company’s financial position or liquidity. However, 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~~items in any one ~~period~~quarter or ~~in the aggregate will not result in~~fiscal year could have a material adverse effect on the Company’s results of ~~operations.~~operations in that period.

In May 2005, the Company received and responded to a subpoena from the SEC seeking information regarding certain loss mitigation insurance products. Group, the Company’s parent, has stated that the Company will fully cooperate with this and any future inquiries and that the Company does not believe that it has engaged in any improper business practices with respect to loss mitigation insurance products.

The Company’s insurance subsidiaries have also received and have responded to broadly distributed information requests by state regulators including among others, from Delaware and Georgia.

Part II –- Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Part II – Item 3. Defaults Upon Senior Securities

None

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

None

Part II – Item 5. Other Information

None

4650

Part II – Item 6. Exhibits

Exhibit Index:

Exhibit No.

Description

31.1

Section 302 Certification of Joseph V. Taranto

31.2

Section 302 Certification of Stephen L. Limauro

32.1

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

4751

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

	~~Executive Vice President and~~
	Chief Financial Officer

	~~(Duly Authorized Officer and Principal~~
	~~Financial Officer)~~

~~Dated: August 15,~~

(Duly Authorized Officer and Principal Financial Officer)

Dated: November 14

, 2005

EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value per share)	June 30, 2005			December 31, 2004

	(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value
(amortized cost: 2005, $5,758,995; 2004, $5,887,529)	$	6,047,949		$	6,159,539
Equity securities, at market value (cost: 2005, $921,468; 2004, $571,717)		1,010,152			650,871
Short-term investments		294,254			517,824
Other invested assets (cost: 2005, $176,302; 2004, $113,050)		177,522			114,187
Cash		62,502			53,887

Total investments and cash		7,592,379			7,496,308
Accrued investment income		80,285			82,351
Premiums receivable		1,133,635			1,063,879
Reinsurance receivables - unaffiliated		1,038,763			1,164,851
Reinsurance receivables - affiliated		1,329,369			1,395,555
Funds held by reinsureds		128,458			133,797
Deferred acquisition costs		209,041			204,124
Prepaid reinsurance premiums		350,141			368,450
Deferred tax asset		189,381			184,801
Taxes recoverable		4,520			-
Other assets		133,819			115,788

TOTAL ASSETS	$	12,189,791		$	12,209,904

LIABILITIES:
Reserve for losses and adjustment expenses	$	7,017,782		$	6,846,904
Unearned premium reserve		1,405,152			1,387,172
Funds held under reinsurance treaties		292,442			363,842
Losses in the course of payment		21,038			5,032
Contingent commissions		1,607			3,532
Other net payable to reinsurers		284,219			394,568
Current federal income taxes		-			37,580
8.5% Senior notes due 3/15/2005		-			249,976
8.75% Senior notes due 3/15/2010		199,392			199,341
5.4% Senior notes due 10/15/2014		249,600			249,584
Junior subordinated debt securities payable		546,393			546,393
Accrued interest on debt and borrowings		10,041			16,426
Other liabilities		196,996			165,762

Total liabilities		10,224,662			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		275,041			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 $139.9 million at 2005 and $133.4 million at 2004		259,770			247,660
Retained earnings		1,453,268			1,247,430

Total stockholders' equity		1,965,129			1,743,792

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	12,189,791		$	12,209,904

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

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

EVEREST REINSURANCE HOLDINGS, INC.

Index To Form 10-Q

PART I

FINANCIAL INFORMATION

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

1. General

2. New Accounting Pronouncements

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

3. Capital Transactions

4. Contingencies

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

For the Three and Nine Months ended September 30, 2005 and 2004

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

For the Three and Six Months ended June 30, 2005 and 2004

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

For the Three and Nine Months ended September 30, 2005 and 2004

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

For the Three and Six Months ended June 30, 2005 and 2004

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

For the Three and Nine Months ended September 30, 2005 and 2004

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

For the Three and Six Months ended June 30, 2005 and 2004

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

For the Three and Nine Months ended September 30, 2005 and 2004

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

For the Three and Six Months ended June 30, 2005 and 2004

5. Other Comprehensive (Loss) Income

6. Trust Agreements

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

For the Three and Six Months ended June 30, 2005 and 2004

7. Senior Notes

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

For the Three and Nine Months ended September 30, 2005 and 2004

8. Junior Subordinated Debt Securities Payable

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

For the Three and Six Months ended June 30, 2005 and 2004

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

For the Three and Nine Months ended September 30, 2005 and 2004

9. Credit Line

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

For the Three and Six Months ended June 30, 2005 and 2004

10. Segment Reporting

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

For the Three and Nine Months ended September 30, 2005 and 2004

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

11. Investments — Interest Only Strips

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

12. Related-Party Transactions

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

For the Three and Nine Months ended September 30, 2005 and 2004

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

For the Three and Six Months ended June 30, 2005 and 2004

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

For the Three and Nine Months ended September 30, 2005 and 2004

13. Catastrophes

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

For the Three and SixNine Months ended JuneSeptember 30, 2005 and 2004

14. Income Taxes

15. Subsequent Events

Part I — Item 2.

EVEREST REINSURANCE HOLDINGS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Industry Conditions

Financial Summary

Segment Information

Three Months Ended JuneSeptember 30, 2005 compared to Three Months Ended JuneSeptember 30, 2004

Nine Months Ended September 30, 2005 compared to Nine Months Ended September 30, 2004

Six Months Ended June 30, 2005 compared to Six Months Ended June 30, 2004

Part I – Item 3.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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