EVEREST REINSURANCE HOLDINGS, INC.

Form 10-Q

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

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.~~

~~Table of Contents~~ ~~Form 10-Q~~
				~~Page~~
~~PART I~~

~~FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements~~

	Consolidated Balance Sheets at ~~June 30, 2009~~March 31, 2010 (unaudited) and
		December 31, ~~2008~~2009	1

	Consolidated Statements of Operations and Comprehensive (Loss) Income ~~(Loss)~~ for
		the three ~~and six~~ months ended ~~June 30,~~March 31, 2010 and 2009 ~~and 2008~~ (unaudited)	2

	Consolidated Statements of Changes in Stockholder’s Equity for the three
		~~and six~~ months ended ~~June 30,~~March 31, 2010 and 2009 ~~and 2008~~ (unaudited)	3

	Consolidated Statements of Cash Flows for the three ~~and six~~ months ended
		~~ended June 30,~~March 31, 2010 and 2009 ~~and 2008~~ (unaudited)	4

	Notes to Consolidated Interim Financial Statements (unaudited)		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and
		Results of Operation	24 26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43 41

Item 4.	Controls and Procedures		43 41

PART II

OTHER INFORMATION


Item 1.	Legal Proceedings		42
~~PART II~~
Item 1A.	Risk Factors		42
~~OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~			43

~~Item 1A.~~	~~Risk Factors~~			43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43 42

Item 3.	Defaults Upon Senior Securities	43 42

Item 4.	~~Submission of Matters to a Vote of Security Holders~~Reserved	44 42

Item 5.	Other Information	44 42

Item 6.	Exhibits	44
				42

Table of Contents

Part I

ITEM 1. FINANCIAL STATEMENTS

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

June 30,
December 31,
(Dollars in thousands, except par value per share)
2009
2008

(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value
$     6,039,433
$     5,511,856
(amortized cost: 2009, $5,994,880; 2008, $5,610,483)
Fixed maturities - available for sale, at fair value
48,269
43,090
Equity securities - available for sale, at market value (cost: 2009, $15; 2008, $15)
12
16
Equity securities - available for sale, at fair value
132,443
119,815
Short-term investments
555,721
918,712
Other invested assets (cost: 2009, $364,591; 2008, $400,498)
358,909
392,589
Other invested assets, at fair value
297,738
316,750
Cash
95,201
92,264
Total investments and cash
7,527,726
7,395,092
Accrued investment income
81,035
82,860
Premiums receivable
765,278
714,035
Reinsurance receivables - unaffiliated
630,024
637,890
Reinsurance receivables - affiliated
2,643,547
2,480,016
Funds held by reinsureds
160,415
147,287
Deferred acquisition costs
170,704
192,096
Prepaid reinsurance premiums
476,395
456,180
Deferred tax asset
419,621
518,042
Federal income tax recoverable
71,718
70,299
Other assets
83,343
172,825
TOTAL ASSETS
$ 13,029,806
$   12,866,622

LIABILITIES:
Reserve for losses and adjustment expenses
$     7,264,051
$     7,419,993
Unearned premium reserve
1,176,266
1,176,834
Funds held under reinsurance treaties
147,731
134,698
Losses in the course of payment
59,398
35,805
Commission reserves
34,823
45,531
Other net payable to reinsurers
546,907
378,800
8.75% Senior notes due 3/15/2010
199,894
199,821
5.4% Senior notes due 10/15/2014
249,748
249,728
6.6% Long term notes due 05/01/2067
238,347
399,643
Junior subordinated debt securities payable
329,897
329,897
Accrued interest on debt and borrowings
9,885
11,217
Other liabilities
270,226
281,687
Total liabilities
10,527,173
10,663,654

Commitments and Contingencies (Note 6)

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 3,000 shares authorized;
1,000 shares issued and outstanding (2009 and 2008)
-
-
Additional paid-in capital
318,492
315,771
Accumulated other comprehensive income (loss), net of deferred income tax expense of
$18.3 million at 2009 and tax benefit of $38.8 million at 2008
35,217
(72,063)
Retained earnings
2,148,924
1,959,260
Total stockholder's equity
2,502,633
2,202,968
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
$   13,029,806
$    12,866,622

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

	March 31,		December 31,
(Dollars in thousands, except par value per share)	2010		2009
	(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value	$	6,423,902	$	6,463,168
(amortized cost: 2010, $6,210,288; 2009, $6,255,759)
Fixed maturities - available for sale, at fair value		65,307		50,528
Equity securities - available for sale, at market value (cost: 2010, $15; 2009, $15)		12		13
Equity securities - available for sale, at fair value		394,548		380,025
Short-term investments		250,127		261,438
Other invested assets (cost: 2010, $398,189; 2009, $387,200)		397,829		386,326
Other invested assets, at fair value		406,933		382,639
Cash		107,737		107,480
Total investments and cash		8,046,395		8,031,617
Accrued investment income		79,327		83,705
Premiums receivable		767,884		769,744
Reinsurance receivables - unaffiliated		631,814		618,081
Reinsurance receivables - affiliated		2,686,134		2,492,152
Funds held by reinsureds		158,154		156,223
Deferred acquisition costs		181,444		183,498
Prepaid reinsurance premiums		580,923		562,146
Deferred tax asset		212,462		210,493
Federal income tax recoverable		131,045		135,682
Other assets		166,016		136,234
TOTAL ASSETS	$	13,641,598	$	13,379,575

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	7,613,758	$	7,300,139
Unearned premium reserve		1,258,574		1,239,320
Funds held under reinsurance treaties		179,303		175,257
Losses in the course of payment		45,416		42,633
Commission reserves		47,027		50,897
Other net payable to reinsurers		583,219		444,535
8.75% Senior notes due 3/15/2010		-		199,970
5.4% Senior notes due 10/15/2014		249,780		249,769
6.6% Long term notes due 05/01/2067		238,349		238,348
Junior subordinated debt securities payable		329,897		329,897
Accrued interest on debt and borrowings		12,092		9,885
Other liabilities		257,318		240,151
Total liabilities		10,814,733		10,520,801

Commitments and Contingencies (Note 6)

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 3,000 shares authorized;
1,000 shares issued and outstanding (2010 and 2009)		-		-
Additional paid-in capital		322,459		321,185
Accumulated other comprehensive income, net of deferred income tax expense of
$96.2 million at 2010 and $89.9 million at 2009		178,724		166,978
Retained earnings		2,325,682		2,370,611
Total stockholder's equity		2,826,865		2,858,774
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	13,641,598	$	13,379,575

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

Table of Contents

~~EVEREST REINSURANCE HOLDINGS, INC.~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~AND COMPREHENSIVE INCOME (LOSS)~~

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2009
2008
2009
2008
(unaudited)
(unaudited)
REVENUES:
Premiums earned
$   460,774
$ 471,414
$   899,219
$    971,444
Net investment income
74,516
106,981
114,175
194,958
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities
(4,936)
(3,291)
(5,510)
(4,061)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income
-
-
-
-
Other net realized capital gains (losses)
27,877
(47,504)
(39,733)
(148,634)
Total net realized capital gains (losses)
22,941
(50,795)
(45,243)
(152,695)
Realized gain on debt repurchase
-
-
78,271
-
Other expense
(7,166)
(2,717)
(7,280)
(23,990)
Total revenues
551,065
524,883
1,039,142
989,717

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
246,108
359,112
535,303
668,817
Commission, brokerage, taxes and fees
86,923
111,563
175,142
221,454
Other underwriting expenses
36,736
30,752
69,362
63,025
Interest, fee and bond issue cost amortization expense
17,073
19,746
36,706
39,488
Total claims and expenses
386,840
521,173
816,513
992,784

INCOME (LOSS) BEFORE TAXES
164,225
3,710
222,629
(3,067)
Income tax expense (benefit)
35,725
(9,942)
48,465
(21,359)

NET INCOME
$   128,500
$     13,652
$   174,164
$      18,292

Other comprehensive income (loss), net of tax
84,300
(58,135)
122,780
(77,817)

COMPREHENSIVE INCOME (LOSS)
$   212,800
$   (44,483)
$   296,944
$   (59,525)

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

~~Table of Contents~~

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF

~~CHANGES IN STOCKHOLDER’S EQUITY~~

OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands, except share amounts)
2009

2008
2009

2008

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

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period
$    317,033
$    311,489
$    315,771
$     310,206
Share-based compensation plans
1,459
1,435
2,721
2,718
Balance, end of period
318,492
312,924
318,492
312,924

ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period
(33,583)
143,594
(72,063)
163,276
Cumulative effect to adopt FSP FAS 115-2⁽¹⁾, net of tax
(15,500)
-
(15,500)
-
Net increase (decrease) during the period
84,300
(58,135)
122,780
(77,817)
Balance, end of period
35,217
85,459
35,217
85,459

RETAINED EARNINGS:
Balance, beginning of period
2,004,924
2,098,657
1,959,260
2,094,017
Cumulative effect to adopt FSP FAS 115-2⁽¹⁾, net of tax
15,500
-
15,500
-
Net income
128,500
13,652
174,164
18,292
Balance, end of period
2,148,924
2,112,309
2,148,924
2,112,309

TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD
$   2,502,633
$ 2,510,692
$ 2,502,633
$ 2,510,692

⁽¹⁾FASB Staff Position No. FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" ("FSP FAS 115-2")

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

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
	(unaudited)
REVENUES:
Premiums earned	$	414,134		$	438,445
Net investment income		85,107			39,659
Net realized capital losses:
Other-than-temporary impairments on fixed maturity securities		-			(574	)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income		-			-
Other net realized capital losses		(5,307	)		(67,610	)
Total net realized capital losses		(5,307	)		(68,184	)
Realized gain on debt repurchase		-			78,271
Other income (expense)		5,112			(114	)
Total revenues		499,046			488,077

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		427,004			289,195
Commission, brokerage, taxes and fees		67,841			88,219
Other underwriting expenses		32,714			31,308
Corporate expenses		2,226			1,318
Interest, fee and bond issue cost amortization expense		16,340			19,633
Total claims and expenses		546,125			429,673

(LOSS) INCOME BEFORE TAXES		(47,079	)		58,404
Income tax (benefit) expense		(2,150	)		12,740

NET (LOSS) INCOME	$	(44,929	)	$	45,664

Other comprehensive income, net of tax		11,746			38,480

COMPREHENSIVE (LOSS) INCOME	$	(33,183	)	$	84,144

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

Table of Contents

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

	Three Months Ended
	March 31,
(Dollars in thousands, except share amounts)	2010			2009
	(unaudited)
COMMON STOCK (shares outstanding):
Balance, beginning of period		1,000			1,000
Balance, end of period		1,000			1,000

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	321,185		$	315,771
Share-based compensation plans		1,274			1,262
Balance, end of period		322,459			317,033

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		166,978			(72,063	)
Net increase during the period		11,746			38,480
Balance, end of period		178,724			(33,583	)

RETAINED EARNINGS:
Balance, beginning of period		2,370,611			1,959,260
Net (loss) income		(44,929	)		45,664
Balance, end of period		2,325,682			2,004,924

TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD	$	2,826,865		$	2,288,374

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

Table of Contents

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
(unaudited)
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$    128,500
$     13,652
$ 174,164
$       18,292
Adjustments to reconcile net income to net cash provided by operating activities:
(Increase) decrease in premiums receivable
(61,149)
2,038
(49,821)
49,337
(Increase) decrease in funds held by reinsureds, net
(671)
1,424
(165)
(1,016)
Increase in reinsurance receivables
(100,495)
(126,206)
(153,465)
(70,611)
(Increase) decrease in deferred tax asset
(928)
(30,956)
32,976
(91,637)
Decrease in reserve for losses and loss adjustment expenses
(133,909)
(17,046)
(182,445)
(40,300)
Decrease in unearned premiums
(2,807)
(62,346)
(3,686)
(142,005)
Change in equity adjustments in limited partnerships
(1,968)
(21,323)
32,125
(15,262)
Change in other assets and liabilities, net
243,408
25,155
244,515
67,100
Non-cash compensation expense
1,445
1,427
2,707
2,633
Amortization of bond premium
2,707
2,593
4,978
2,668
Amortization of underwriting discount on senior notes
48
45
94
88
Realized gain on debt repurchase
-
-
(78,271)
-
Net realized capital (gains) losses
(22,941)
50,795
45,243
152,695
Net cash provided by (used in) operating activities
51,240
(160,748)
68,949
(68,018)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value
84,848
94,255
194,083
263,662
Proceeds from fixed maturities matured/called - available for sale, at fair value
-
-
5,570
-
Proceeds from fixed maturities sold - available for sale, at market value
8,316
71,435
53,094
86,146
Proceeds from fixed maturities sold - available for sale, at fair value
4,510
-
8,002
-
Proceeds from equity securities sold - available for sale, at fair value
10,591
33
12,225
229,055
Distributions from other invested assets
7,832
1,036
20,125
11,211
Cost of fixed maturities acquired - available for sale, at market value
(348,542)
(846,454)
(609,780)
(1,279,528)
Cost of fixed maturities acquired - available for sale, at fair value
(3,243)
-
(16,553)
-
Cost of equity securities acquired - available for sale, at fair value
(10,320)
(6)
(19,296)
(40,964)
Cost of other invested assets acquired
(13,780)
(11,762)
(16,342)
(20,104)
Cost of other invested assets acquired, at fair value
-
(24,901)
-
(125,738)
Net change in short-term securities
182,051
918,172
370,917
885,455
Net change in unsettled securities transactions
22,688
(54,372)
24,334
(5,710)
Net cash (used in) provided by investing activities
(55,049)
147,436
26,379
3,485

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation
14
8
14
85
Net cost of debt repurchase
-
-
(83,026)
-
Net cash provided by (used in) financing activities
14
8
(83,012)
85

EFFECT OF EXCHANGE RATE CHANGES ON CASH
3,388
3,561
(9,379)
21,902

Net (decrease) increase in cash
(407)
(9,743)
2,937
(42,546)
Cash, beginning of period
95,608
113,644
92,264
146,447
Cash, end of period
$       95,201
$   103,901
$    95,201
$     103,901

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash transactions:
Income taxes paid
$       13,213
$     53,523
$     16,359
$       58,345
Interest paid
$       19,764
$     25,087
$     37,572
$       38,974

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

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(44,929	)	$	45,664
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease in premiums receivable		3,330			11,328
Decrease in funds held by reinsureds, net		2,210			506
Increase in reinsurance receivables		(209,177	)		(52,970	)
(Increase) decrease in deferred tax asset		(8,294	)		33,904
Increase (decrease) in reserve for losses and loss adjustment expenses		303,114			(48,536	)
Increase (decrease) in unearned premiums		17,379			(879	)
Change in equity adjustments in limited partnerships		(9,414	)		34,093
Change in other assets and liabilities, net		107,975			1,107
Non-cash compensation expense		1,195			1,262
Amortization of bond premium		3,546			2,271
Amortization of underwriting discount on senior notes		42			46
Realized gain on debt repurchase		-			(78,271	)
Net realized capital losses		5,307			68,184
Net cash provided by operating activities		172,284			17,709

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		172,263			109,235
Proceeds from fixed maturities matured/called - available for sale, at fair value		-			5,570
Proceeds from fixed maturities sold - available for sale, at market value		165,485			44,778
Proceeds from fixed maturities sold - available for sale, at fair value		2,497			3,492
Proceeds from equity securities sold - available for sale, at fair value		21,342			1,634
Distributions from other invested assets		8,165			12,293
Cost of fixed maturities acquired - available for sale, at market value		(275,526	)		(261,238	)
Cost of fixed maturities acquired - available for sale, at fair value		(14,194	)		(13,310	)
Cost of equity securities acquired - available for sale, at fair value		(20,739	)		(8,976	)
Cost of other invested assets acquired		(9,740	)		(2,562	)
Cost of other invested assets acquired, at fair value		(47,032	)		-
Net change in short-term investments		12,085			188,866
Net change in unsettled securities transactions		16,323			1,646
Net cash provided by investing activities		30,929			81,428

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation		79			-
Net cost of senior notes maturing		(200,000	)		-
Net cost of debt repurchase		-			(83,026	)
Net cash used in financing activities		(199,921	)		(83,026	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(3,035	)		(12,767	)

Net increase in cash		257			3,344
Cash, beginning of period		107,480			92,264
Cash, end of period	$	107,737		$	95,608

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash transactions:
Income taxes paid	$	3,766		$	3,146
Interest paid		13,899			17,808

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

Table of Contents

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2010 and 2009 ~~and 2008~~

1. ~~General~~

GENERAL

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

2. BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three ~~and six~~ months ended ~~June 30,~~March 31, 2010 and 2009 ~~and 2008~~ 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 accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The ~~year end~~December 31, 2009 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results for the three ~~and six~~ months ended ~~June 30,~~March 31, 2010 and 2009 ~~and 2008~~ are not necessarily ~~indicative~~indicat ive 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, 2009, 2008 ~~2007~~ and ~~2006~~2007 included in the Company’s most recent Form 10-K filing.

~~2. New~~

All intercompany accounts and transactions have been eliminated.

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

Financial Accounting ~~Pronouncements~~Standards Board Accounting Codification

Financial Accounting Standards Board Launched Accounting Codification.

In ~~December 2008,~~June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing the FASB Accounting Standards CodificationTM (“Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other no n-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.

Following the Codification, the FASB will no longer issue new standards in the form of Statements, FASB Staff ~~Position Financial~~Positions or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards ~~(“FAS”) 132(R)-1 “Employers’~~Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.

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

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Application of Recently Issued Accounting Standard Changes

Subsequent Events. In May 2009, the FASB issued authoritative guidance for subsequent events, which was later modified in February 2010, that addresses the accounting for and disclosure of subsequent events not addressed in other applicable U.S. GAAP. The Company implemented the new disclosure requirement beginning with the second quarter of 2009 and included it in the Notes to Consolidated Interim Financial Statements.

Improving Disclosures ~~about Postretirement Benefit Plan Assets” (“FAS 132(R)-1”). FAS 132(R)-1 requires additional~~About Fair Value Measurements. In January 2010, the FASB amended the authoritative guidance for disclosures ~~about plan assets. Additional disclosures include investment policies and strategies,~~on fair value ~~of each major plan asset category, inputs~~measurements. Effective for interim and ~~valuation techniques used to develop fair value and any significant concentrations of risk. This FASB Staff Position is effective for fiscal years ending~~annual reporting periods beginning after December 15, ~~2009.~~2009, the guidance requires a new separate disclosure for: significant transfers in and out of Level 1 and 2 and the reasons for the transfers; and provided clarification on existing disclosures to include: fair value measurement disclosures by class of assets and liabilities and disclosure on valuation techniques and inputs used to measure fair value that fall in either Level 2 or Level 3. Effective for interim and annual reporting periods beginning after December 15, 2010, the guidance requires another new separate disclosure in regards to Level 3 fair value measurements in that, the period activity will present separately information about purchases, sales, issuances and settlements. Comparative disclosures shall be required only for periods ending after initial adoption. The Company ~~will adopt FAS 132(R)-1 for~~has implemented the ~~reporting period ending December 31, 2009.~~

first part of this guidance effective January 1, 2010.

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

Other-Than-Temporary Impairments on Investment Securities. In April 2009, the FASB ~~Staff Position (“FSP”) No. FAS 157-4 “Determining Fair Value When~~revised the ~~Volume and Level of Activity~~authoritative guidance for the ~~Asset or Liability Have Significantly Decreased~~recognition and ~~Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”). FSP FAS 157-4 provides additional~~presentation of other-than-temporary impairments. This new guidance amends the recognition guidance for ~~estimating fair value in accordance with FAS No. 157 “Fair Value Measurements” (“FAS 157”) when~~other-than-temporary impairments of debt securities and expands the ~~volume~~financial statement disclosures for other-than-temporary impairments on debt and ~~level of activity~~equity securities. For available for ~~the asset or liability have significantly decreased and to identify circumstances that indicate a transaction is not orderly. In addition, FSP FAS 157-4 emphasizes~~sale debt securities that the ~~objective~~Company has no intent to sell and more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment would be recognized in earnings, while the rest of the fair value ~~measurement remains~~loss would be recognized in accumulated ot her comprehensive income. The Company adopted this guidance effective April 1, 2009. Upon adoption the ~~same, to arrive at~~Company recognized a cumulative-effect adjustment increase in retained earnings and decrease in accumulated other comprehensive income (loss) of $15.5 million, net of $8.3 million of tax.

Measurement of Fair Value in Inactive Markets. In April 2009, the FASB revised the authoritative guidance for fair value measurements and disclosures, which reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly ~~transaction. FSP FAS 157-4 is effective for interim~~transaction between market participants at the measurement date under current market conditions. It also reaffirms the need to use judgment in determining if a formerly active market has become inactive and ~~annual reporting periods ending after June 15, 2009, and is applied prospectively. The Company adopted FSP FAS 157-4 effective April 1, 2009.~~in determining fair values when the market has become inactive. There was no impact to the Company’s financial statements ~~as a result of adopting FAS 157-4 for the second quarter of 2009.~~

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2”). FSP FAS 115-2 amends the other-than-temporary guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 is effective for interim and annual reporting periods ending after June 15, 2009, and is applied prospectively with an adjustment to reclassify the non-credit portion of any other-than-temporary payments previously recorded through earnings to accumulated other comprehensive income. The Company adopted FSP FAS 115-2 effective April 1, 2009. Upon adoption of FSP FAS 115-2, the

upon adoption.

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~~Company recognized a $15.5 million cumulative-effect adjustment from retained earnings, net of $8.3 million of tax.~~

In April 2009, the FASB issued FSP FAS 107-1 and FSP APB 28-1 “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107 “Disclosures about Fair Value of Financial Instruments” and APB Opinion No. 28 “Interim Financial Reporting” to require complete disclosures in both the interim and annual financial reporting. FSP FAS 107-1 and APB 28-1 is effective for interim and annual reporting periods ending after June 15, 2009, and is applied prospectively. The Company adopted FSP FAS 107-1 and APB 28-1 effective April 1, 2009.

In May 2009, the FASB issued FAS 165 “Subsequent Events” (“FAS 165”). FAS 165 establishes principles and requirements for the recognition, nonrecognition and disclosure of subsequent events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FAS 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively.

3. ~~Investments~~

INVESTMENTS

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

At June 30, 2009
Amortized
Unrealized
Unrealized
Market
(Dollars in thousands)
Cost

Appreciation

Depreciation

Value
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$     127,336
$           5,692
$            (221)
$       132,807
Obligations of U.S. states and political subdivisions
3,775,122
130,508
(80,283)
3,825,347
Corporate securities
602,970
17,837
(39,066)
581,741
Asset-backed securities
20,067
446
(3,112)
17,401
Mortgage-backed securities
Commercial
22,826
2,256
(504)
24,578
Agency residential
362,950
7,645
(75)
370,520
Non-agency residential
62,235
242
(13,300)
49,177
Foreign government securities
549,575
27,511
(4,599)
572,487
Foreign corporate securities
471,799
11,337
(17,761)
465,375
Total fixed maturity securities
$ 5,994,880
$        203,474
$    (158,921)
$ 6,039,433
Equity securities
$               15
$                 (3)
$                   -
$               12

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	At March 31, 2010
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	135,763	$	3,515	$	(1,972	)	$	137,306
Obligations of U.S. states and political subdivisions		3,657,459		168,621		(22,244	)		3,803,836
Corporate securities		644,008		36,228		(7,650	)		672,586
Asset-backed securities		16,612		489		(1,971	)		15,130
Mortgage-backed securities
Commercial		32,255		6,515		-			38,770
Agency residential		431,587		12,770		(30	)		444,327
Non-agency residential		60,544		908		(1,763	)		59,689
Foreign government securities		673,814		25,368		(9,389	)		689,793
Foreign corporate securities		558,246		16,967		(12,748	)		562,465
Total fixed maturity securities	$	6,210,288	$	271,381	$	(57,767	)	$	6,423,902
Equity securities	$	15	$	-	$	(3	)	$	12

At December 31, 2008
Amortized
Unrealized
Unrealized
Market
(Dollars in thousands)
Cost

Appreciation

Depreciation

Value
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$      139,776
$          15,456
$                   -
$    155,232
Obligations of U.S. states and political subdivisions
3,846,754
113,885
(164,921)
3,795,718
Corporate securities
482,533
18,404
(64,620)
436,317
Asset-backed securities
13,795
7
(4,441)
9,361
Mortgage-backed securities
Commercial
6,516
-
(1,067)
5,449
Agency residential
170,299
4,838
(33)
175,104
Non-agency residential
54,816
-
(18,252)
36,564
Foreign government securities
467,935
32,538
(7,776)
492,697
Foreign corporate securities
428,059
6,602
(29,247)
405,414
Total fixed maturity securities
$   5,610,483
$        191,730
$     (290,357)
$   5,511,856
Equity securities
$              15
$                   1
$                   -
$                16

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

In accordance with ~~FSP FAS 115-2,~~FASB guidance, the Company reclassified ~~previously~~the non-credit portion of other-than-temporary impairments from retained earnings into accumulated other comprehensive ~~income. The~~income, in 2009. At March 31, 2010, the pre-tax ~~amount of this reclassification~~cumulative unrealized appreciation on these corporate securities was ~~$23.8~~$1.0 million ~~all of which were corporate securities. At June 30, 2009, the~~as compared to pre-tax cumulative unrealized depreciation ~~on these securities had improved and the remaining unrealized depreciation for the corporate securities was $7.4 million.~~

of $2.0 million at December 31, 2009.

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

At June 30, 2009
Amortized

Market
(Dollars in thousands)
Cost

Value
Fixed maturity securities – available for sale
Due in one year or less
$        304,219
$        299,302
Due after one year through five years
1,149,421
1,176,831
Due after five years through ten years
1,205,886
1,236,291
Due after ten years
2,867,276
2,865,333
Asset-backed securities
20,067
17,401
Mortgage-backed securities
Commercial
22,826
24,578
Agency residential
362,950
370,520
Non-agency residential
62,235
49,177
Total fixed maturity securities
$     5,994,880
$    6,039,433

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	At March 31, 2010				At December 31, 2009
	Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value
Fixed maturity securities – available for sale
Due in one year or less	$	292,804	$	292,765	$	334,054	$	335,948
Due after one year through five years		1,459,842		1,503,714		1,276,968		1,316,918
Due after five years through ten years		1,196,303		1,252,804		1,224,457		1,282,470
Due after ten years		2,720,341		2,816,703		2,762,340		2,863,960
Asset-backed securities		16,612		15,130		16,597		15,148
Mortgage-backed securities
Commercial		32,255		38,770		24,213		29,058
Agency residential		431,587		444,327		556,032		564,707
Non-agency residential		60,544		59,689		61,098		54,959
Total fixed maturity securities	$	6,210,288	$	6,423,902	$	6,255,759	$	6,463,168

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

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities
$          77,437
$        (81,382)
$        167,026
$      (119,041)
Fixed maturity securities FAS 115-2 adjustment
(23,846)
-
(23,846)
-
Equity securities
2
-
(4)
-
Other invested assets
3,868
908
2,227
(890)
Change in unrealized appreciation (depreciation), pre-tax
57,461
(80,474)
145,403
(119,931)
Deferred tax (expense) benefit
(28,457)
28,166
(59,237)
41,975
Deferred tax benefit FAS 115-2 adjustment
8,346
-
8,346
-
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in stockholder's equity
$          37,350
$        (52,308)
$         94,512
$        (77,956)

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Increase during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	6,205		$	89,589
Equity securities		(1	)		(6	)
Other invested assets		513			(1,641	)
Change in unrealized appreciation, pre-tax		6,717			87,942
Deferred tax expense		(2,351	)		(30,780	)
Change in unrealized appreciation,
net of deferred taxes, included in stockholder's equity	$	4,366		$	57,162

The Company frequently reviews its fixed maturity securities investment portfolio for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized value at the time of review. The Company then assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. Generally, a change in a security’s value caused by a change in the market or interest rate environment does not constitute an other-than-temporary impairment, but rather a temporary decline in market value. Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income. If the Company determines that the decline is other-than-temporary and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the carrying value of the investment is written down to fair value. The fair value adjustment that is credit related is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income. The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income, net of tax, and is included in accumulated other comprehensive income in the Company’s consolidated balance sheets. The Company’s assessments are based on the issuers current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default ~~rates~~ra tes on ~~mortgage~~mortgage-backed and ~~asset backed~~asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

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

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

Duration by security type of unrealized loss at June 30, 2009
Less than 12 months
Greater than 12 months

Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in thousands)
Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$             6,911
$             (221)
$                    -
$                    -
$             6,911
$             (221)
Obligations of U.S. states and political subdivisions
391,227
(18,984)
696,387
(61,299)
1,087,614
(80,283)
Corporate securities
83,274
(7,499)
163,824
(31,567)
247,098
(39,066)
Asset-backed securities
2,707
(56)
5,093
(3,056)
7,800
(3,112)
Mortgage-backed securities
Commercial
-
-
5,384
(504)
5,384
(504)
Agency residential
11,168
(75)
1,144
-
12,312
(75)
Non-agency residential
1,640
(42)
41,064
(13,258)
42,704
(13,300)
Foreign government securities
110,081
(3,149)
25,425
(1,450)
135,506
(4,599)
Foreign corporate securities
153,917
(11,430)
36,747
(6,331)
190,664
(17,761)
Total fixed maturity securities
$         760,925
$        (41,456)
$        975,068
$     (117,465)
$      1,735,993
$     (158,921)

Duration by maturity of unrealized loss at June 30, 2009
Less than 12 months
Greater than 12 months

Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in thousands)
Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation
Fixed maturity securities
Due in one year or less
$           73,207
$         (8,509)
$         29,811
$             (813)
$         103,018
$          (9,322)
Due in one year through
five years
154,350
(3,445)
60,004
(11,508)
214,354
(14,953)
Due in five years through
ten years
67,434
(2,905)
143,092
(9,101)
210,526
(12,006)
Due after ten years
450,419
(26,424)
689,476
(79,225)
1,139,895
(105,649)
Asset-backed securities
2,707
(56)
5,093
(3,056)
7,800
(3,112)
Mortgage-backed securities
12,808
(117)
47,592
(13,762)
60,400
(13,879)
Total fixed maturity securities
$         760,925
$         (41,456)
$        975,068
$      (117,465)
$    1,735,993
$     (158,921)

	Duration by security type of unrealized loss at March 31, 2010
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	45,034	$	(1,962	)	$	515	$	(10	)	$	45,549	$	(1,972	)
Obligations of U.S. states and political subdivisions		556		(6	)		406,437		(22,238	)		406,993		(22,244	)
Corporate securities		36,887		(755	)		58,537		(6,895	)		95,424		(7,650	)
Asset-backed securities		366		(214	)		8,243		(1,757	)		8,609		(1,971	)
Mortgage-backed securities
Agency residential		17,279		(30	)		-		-			17,279		(30	)
Non-agency residential		-		-			52,369		(1,763	)		52,369		(1,763	)
Foreign government securities		281,751		(4,040	)		62,240		(5,349	)		343,991		(9,389	)
Foreign corporate securities		205,585		(6,649	)		63,717		(6,099	)		269,302		(12,748	)
Total fixed maturity securities	$	587,458	$	(13,656	)	$	652,058	$	(44,111	)	$	1,239,516	$	(57,767	)
Equity securities		-		-			12		(3	)		12		(3	)
Total	$	587,458	$	(13,656	)	$	652,070	$	(44,114	)	$	1,239,528	$	(57,770	)

	Duration by maturity of unrealized loss at March 31, 2010
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	30,601	$	(2,230	)	$	26,790	$	(3,602	)	$	57,391	$	(5,832	)
Due in one year through five years		363,884		(4,798	)		72,638		(4,267	)		436,522		(9,065	)
Due in five years through ten years		120,359		(2,735	)		48,247		(3,385	)		168,606		(6,120	)
Due after ten years		54,969		(3,649	)		443,771		(29,337	)		498,740		(32,986	)
Asset-backed securities		366		(214	)		8,243		(1,757	)		8,609		(1,971	)
Mortgage-backed securities		17,279		(30	)		52,369		(1,763	)		69,648		(1,793	)
Total fixed maturity securities	$	587,458	$	(13,656	)	$	652,058	$	(44,111	)	$	1,239,516	$	(57,767	)
Equity securities	$	-	$	-		$	12	$	(3	)	$	12	$	(3	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position as of ~~June 30, 2009~~March 31, 2010 were ~~$1,736.0~~$1,239.5 million and ~~$158.9~~$57.8 million, respectively. There were no unrealized losses on a single security that exceeded ~~.25%~~0.06% of the market value of the fixed maturity securities at ~~June 30, 2009.~~March 31, 2010. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The ~~$41.5~~$13.7 million of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of highly rated domestic and foreign government ~~municipal,~~and corporate ~~bonds and mortgage-backed~~ securities. Of these unrealized losses, ~~$41.0~~$13.3 million were related to securities that were rated ~~investment~~inves tment grade ~~or better~~ by at least one nationally recognized statistical rating organization. The ~~$117.5~~$44.1 million of unrealized losses related to fixed maturity and equity securities in an unrealized loss position for more than one year ~~also~~ related primarily to highly rated ~~municipal,~~domestic and foreign government and corporate ~~bonds and mortgage-backed~~ securities. Of these unrealized losses, ~~$93.9~~$36.9 million

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related to securities that were rated investment grade ~~or better~~ by at least one nationally recognized statistical rating organization. The non-investment grade securities with unrealized losses are mainly comprised of ~~non-credit other-than-temporary impaired~~municipal and corporate securities. The gross unrealized depreciation greater than 12 months for mortgage-backed securities included $0.2 million related to sub-prime and ~~non-agency residential mortgage-backed securities.~~alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. ~~The mortgage-backed securities still have excess credit coverage and are current on interest~~

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~~and principal payments.~~ Unrealized losses have decreased since ~~year end~~December 31, 2009, as a result of improved conditions in the overall financial ~~market.~~

market resulting from increased liquidity and lower interest rates.

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

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

Duration by security type of unrealized loss at December 31, 2008
Less than 12 months
Greater than 12 months

Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in thousands)
Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$                   -
$                   -
$                   -
$                  -
$                    -
$                    -
Obligations of U.S. states and political subdivisions
1,471,807
(146,292)
176,555
(18,629)
1,648,362
(164,921)
Corporate securities
189,385
(42,278)
97,407
(22,342)
286,792
(64,620)
Asset-backed securities
4,230
(62)
3,983
(4,379)
8,213
(4,441)
Mortgage-backed securities
Commercial
2,474
(450)
2,974
(617)
5,448
(1,067)
Agency residential
3,291
(29)
466
(4)
3,757
(33)
Non-agency residential
-
-
36,171
(18,252)
36,171
(18,252)
Foreign government securities
79,063
(7,715)
2,759
(61)
81,822
(7,776)
Foreign corporate securities
167,132
(13,702)
67,537
(15,545)
234,669
(29,247)
Total fixed maturity securities
$      1,917,382
$     (210,528)
$         387,852
$      (79,829)
$     2,305,234
$      (290,357)

Duration by maturity of unrealized loss at December 31, 2008
Less than 12 months
Greater than 12 months

Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in thousands)
Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation
Fixed maturity securities
Due in one year or less
$           87,124
$         (8,412)
$          22,024
$         (1,516)
$        109,148
$         (9,928)
Due in one year through
five years
198,004
(10,813)
52,705
(5,676)
250,709
(16,489)
Due in five years through
ten years
145,943
(10,767)
85,396
(17,662)
231,339
(28,429)
Due after ten years
1,476,316
(179,995)
184,133
(31,723)
1,660,449
(211,718)
Asset-backed securities
4,230
(62)
3,983
(4,379)
8,213
(4,441)
Mortgage-backed securities
5,765
(479)
39,611
(18,873)
45,376
(19,352)
Total fixed maturity securities
$      1,917,382
$     (210,528)
$        387,852
$       (79,829)
$     2,305,234
$     (290,357)

	Duration by security type of unrealized loss at December 31, 2009
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	44,943	$	(1,671	)	$	-	$	-		$	44,943	$	(1,671	)
Obligations of U.S. states and political subdivisions		559		(4	)		452,018		(24,252	)		452,577		(24,256	)
Corporate securities		45,045		(1,056	)		118,153		(12,368	)		163,198		(13,424	)
Asset-backed securities		366		(26	)		8,233		(1,883	)		8,599		(1,909	)
Mortgage-backed securities
Commercial		959		(34	)		3,312		(77	)		4,271		(111	)
Agency residential		213,093		(1,691	)		-		-			213,093		(1,691	)
Non-agency residential		1,272		(31	)		47,202		(7,024	)		48,474		(7,055	)
Foreign government securities		159,493		(2,158	)		69,109		(4,529	)		228,602		(6,687	)
Foreign corporate securities		124,325		(4,205	)		98,772		(10,924	)		223,097		(15,129	)
Total fixed maturity securities	$	590,055	$	(10,876	)	$	796,799	$	(61,057	)	$	1,386,854	$	(71,933	)
Equity securities		13		(2	)		-		-			13		(2	)
Total	$	590,068	$	(10,878	)	$	796,799	$	(61,057	)	$	1,386,867	$	(71,935	)

	Duration by maturity of unrealized loss at December 31, 2009
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	-	$	-		$	58,010	$	(4,887	)	$	58,010	$	(4,887	)
Due in one year through five years		192,929		(2,975	)		140,349		(9,129	)		333,278		(12,104	)
Due in five years through ten years		137,196		(2,934	)		54,279		(3,401	)		191,475		(6,335	)
Due after ten years		44,240		(3,185	)		485,414		(34,656	)		529,654		(37,841	)
Asset-backed securities		366		(26	)		8,233		(1,883	)		8,599		(1,909	)
Mortgage-backed securities		215,324		(1,756	)		50,514		(7,101	)		265,838		(8,857	)
Total fixed maturity securities	$	590,055	$	(10,876	)	$	796,799	$	(61,057	)	$	1,386,854	$	(71,933	)
Equity securities	$	13	$	(2	)	$	-	$	-		$	13	$	(2	)

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The aggregate market value and gross unrealized losses related to investments in an unrealized loss position as of December 31, ~~2008~~2009 were ~~$2,305.2~~$1,386.9 million and ~~$290.4~~$71.9 million, respectively. There were no unrealized losses on a single security that exceeded ~~0.35%~~0.11% of the market value of the fixed maturity securities at December 31, ~~2008.~~2009. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The ~~$210.5~~$10.9 million of unrealized losses related to fixed maturity and equity securities that have been in an unrealized loss position for less than one year were generally comprised of highly rated ~~municipal,~~government, corporate ~~bonds~~ and mortgage-backed ~~securities with the losses primarily the result of widening credit spreads from the financial markets crisis during the latter part of the year.~~securities. Of these unrealized losses, ~~$206.9~~$10.7 million were related to securities that ~~were~~wer e rated investment grade ~~or better~~ by at least one

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nationally recognized statistical rating organization. The ~~$79.8~~$61.1 million of unrealized losses related to securities in an unrealized loss position for more than one year also related primarily to highly rated municipal, corporate ~~bonds~~ and mortgage-backed ~~securities and were also the result of widening credit spreads during the latter part of the year.~~securities. Of these unrealized losses, ~~$65.2~~$50.5 million related to securities that were rated investment grade ~~or better~~ by at least one nationally recognized statistical rating organization. The non-investment grade securities with unrealized losses are mainly comprised of corporate and commercial mortgage-backed securities. The gross unrealized depreciation greater than 12 months for mortgage-backed securities ~~includes~~included only ~~$0.1~~$0.07 million related to sub-prime and alt-A loans.

In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still had exce ss credit coverage and were current on interest and principal payments. Unrealized losses decreased since December 31, 2008, as a result of improved conditions in the overall financial market resulting from increased liquidity and lower interest rates.

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

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
Fixed maturity securities
$          71,610
$          77,921
$        141,938
$        151,986
Equity securities
730
1,554
1,424
3,112
Short-term investments and cash
842
6,564
3,054
19,464
Other invested assets
Limited partnerships
1,968
21,324
(32,125)
19,708
Other
2,258
2,059
5,029
4,970
Total gross investment income
77,408
109,422
119,320
199,240
Interest credited and other expense
(2,892)
(2,441)
(5,145)
(4,282)
Total net investment income
$          74,516
$        106,981
$        114,175
$        194,958

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Fixed maturity securities	$	73,555		$	70,329
Equity securities		2,404			694
Short-term investments and cash		77			2,211
Other invested assets
Limited partnerships		9,414			(34,093	)
Other		1,798			2,771
Total gross investment income		87,248			41,912
Interest credited and other expense		(2,141	)		(2,253	)
Total net investment income	$	85,107		$	39,659

The Company reports results from limited partnership investments on the equity basis of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company indentifies the decline.

The Company had contractual commitments to invest up to an additional ~~$163.6~~$132.5 million in limited partnerships at ~~June 30, 2009.~~March 31, 2010. These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2014.

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

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
Fixed maturity securities, market value:
Other-than-temporary impairments
$           (4,936)
$          (3,291)
$          (5,510)
$          (4,061)
Losses from sales
(401)
(566)
(28,481)
(914)
Fixed maturity securities, fair value:
Gain from sales
133
-
229
-
Gains from fair value adjustments
2,010
-
1,968
-
Equity securities, fair value:
Gains (losses) from sales
5,630
27
5,184
(11,569)
Gains (losses) from fair value adjustments
17,296
(9,063)
373
(64,121)
Other invested assets, fair value:
Gains (losses) from fair value adjustments
3,203
(37,872)
(19,012)
(72,000)
Short-term investment gains (losses)
6
(30)
6
(30)
Total net realized capital gains (losses)
$           22,941
$         (50,795)
$        (45,243)
$       (152,695)

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Fixed maturity securities, market value:
Other-than-temporary impairments	$	-		$	(560	)
Losses from sales		(777	)		(28,094	)
Fixed maturity securities, fair value:
Gains from sales		83			96
Gains (losses) from fair value adjustments		3,000			(42	)
Equity securities, fair value:
Gains (losses) from sales		1,894			(446	)
Gains (losses) from fair value adjustments		13,231			(16,923	)
Other invested assets, fair value:
Losses from fair value adjustments		(22,737	)		(22,215	)
Short-term investment losses		(1	)		-
Total net realized capital losses	$	(5,307	)	$	(68,184	)

Proceeds from the sales of fixed maturity securities for the three months ended ~~June 30,~~March 31, 2010 and 2009 ~~and 2008~~ were ~~$12.8~~$168.0 million and ~~$71.4~~$48.3 million, respectively. Gross gains of ~~$0.8~~$1.8 million and ~~$0.2~~$1.5 million and gross

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losses of ~~$1.0~~$2.5 million and ~~$0.8~~$29.6 million were realized on those fixed maturity securities sales for the three months ended ~~June 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively. Proceeds from sales of equity securities for the three months ended ~~June 30,~~March 31, 2010 and 2009 ~~and 2008~~ were ~~$10.6~~$21.3 million and ~~$0.0~~$1.6 million, respectively. Gross gains of ~~$5.7~~$2.4 million and ~~$0.1~~$0.2 million and gross losses of $0.5 million and $0.7 million were realized on those equity sales for the three months ended ~~June 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively. ~~No losses were realized on the sales of equity securities for the three months ended June 30, 2009 and 2008.~~

Proceeds from sales of fixed maturity securities for the six months ended June 30, 2009 and 2008 were $61.1 million and $86.1 million, respectively. Gross gains of $2.3 million and $1.1 million and gross losses of $30.6 million and $2.0 million were realized on those fixed maturity securities sales for the six months ended June 30, 2009 and 2008, respectively. Proceeds from sales of equity securities for the six months ended June 30, 2009 and 2008 were $12.2 million and $229.1 million, respectively. Gross gains of $5.9 million and $2.1 million and gross losses of $0.7 million and $13.7 million were realized on those equity sales for the six months ended June 30, 2009 and 2008, respectively.

Included in net realized capital losses was $4.9 million and $3.3 million for the three months ended June 30, 2009 and 2008, respectively, and $5.5 million and $4.1 million for the six months ended June 30, 2009 and 2008, respectively, of write-downs in the value of securities deemed to be impaired on an other-than-temporary basis.

~~At June 30, 2009 the Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.~~

~~4. Fair Value~~

The Company records fair value re-measurements as net realized capital gains or losses in the consolidated statements of operations and comprehensive ~~income~~ (loss). income. The Company recorded ~~$22.5~~$6.5 million ~~in net realized capital gains~~ and ~~$16.7~~$39.2 million in net realized capital losses due to fair value ~~re-measurement~~re-measurements on fixed maturity ~~securities,~~and equity securities and other invested assets, at fair value, for the three ~~and six~~ months ended ~~June 30, 2009, respectively. The~~March 31, 2010 and 2009.

At March 31, 2010, the Company ~~recorded $46.9 million and $136.1 million~~had no write-downs in the value of securities deemed to be impaired on an other-than-temporary basis included in net realized capital ~~losses due~~losses. At March 31, 2009, the Company had $0.6 million of write-downs in the value of securities deemed to ~~fair value re-measurement~~be impaired on ~~fixed maturity~~an other-than-temporary basis included in net realized capital losses. The Company had no other-than-temporary impaired securities ~~equity securities~~where the impairment had both a credit and ~~other invested assets, at fair value, for the three and six months ended June 30, 2008, respectively.~~

non-credit component.

4. FAIR VALUE

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

In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers. The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. In addition, the Company tests the prices on a random basis to an independent pricing source. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions

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about future cash flows and risk-adjusted discount rates to determine fair value. The Company made no such adjustments at ~~June 30, 2009.~~

March 31, 2010.

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

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significant inputs are unobservable (including assumptions about risk) are categorized as Level 3, Significant Unobservable Inputs. These securities include broker priced securities and valuation of less liquid securities such as commercial mortgage-backed securities.

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

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

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

Fair Value Measurement Using:
Quoted Prices

in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in thousands)
June 30, 2009
(Level 1)

(Level 2)

(Level 3)
Assets:
Fixed maturities, market value
$             6,039,433
$                     -
$        6,027,626
$             11,807
Fixed maturities, fair value
48,269
-
48,269
-
Equity securities, market value
12
12
-
-
Equity securities, fair value
132,443
129,191
3,252
-
Other invested assets, fair value
297,738
297,738
-
-

		Fair Value Measurement Using:					Fair Value Measurement Using:
		Quoted Prices					Quoted Prices
		in Active	Significant				in Active		Significant
		Markets for	Other	Significant			Markets for		Other		Significant
		Identical	Observable	Unobservable			Identical		Observable		Unobservable
		Assets	Inputs	Inputs			Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2008	(Level 1)	(Level 2)	(Level 3)	March 31, 2010		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value	$ 5,511,856	$ -	$ 5,500,889	$ 10,967
U.S. Treasury securities and obligations of
U.S. government agencies and corporations					$	137,306	$	-	$	137,306	$	-
Obligations of U.S. States and political subdivisions						3,803,836		-		3,803,836		-
Corporate securities						672,586		-		665,656		6,930
Asset-backed securities						15,130		-		8,762		6,368
Mortgage-backed securities
Commercial						38,770		-		38,770		-
Agency residential						444,327		-		444,327		-
Non-agency residential						59,689		-		59,233		456
Foreign government securities						689,793		-		689,793		-
Foreign corporate securities						562,465		-		562,465		-
Total fixed maturities, market value						6,423,902		-		6,410,148		13,754

Fixed maturities, fair value	43,090	-	43,090	-		65,307		-		65,307		-
Equity securities, market value	16	16	-	-		12		12		-		-
Equity securities, fair value	119,815	119,092	723	-		394,548		393,535		1,013		-
Other invested assets, fair value	316,750	316,750	-	-		406,933		406,933		-		-

There were no significant transfers between Level 1 and Level 2 for the three months ended March 31, 2010.

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

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2009		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	134,291	$	-	$	134,291	$	-
Obligations of U.S. States and political subdivisions		3,853,859		-		3,853,859		-
Corporate securities		635,381		-		628,451		6,930
Asset-backed securities		15,148		-		8,890		6,258
Mortgage-backed securities
Commercial		29,058		-		29,058		-
Agency residential		564,707		-		564,707		-
Non-agency residential		54,959		-		54,533		426
Foreign government securities		659,217		-		659,217		-
Foreign corporate securities		516,548		-		516,548		-
Total fixed maturities, market value		6,463,168		-		6,449,554		13,614

Fixed maturities, fair value		50,528		-		50,528		-
Equity securities, market value		13		13		-		-
Equity securities, fair value		380,025		379,058		967		-
Other invested assets, fair value		382,639		382,639		-		-

The following tables present the activity under Level 3, fair value measurements using significant unobservable inputs for fixed maturity investments, for the periods indicated:

Three Months Ended

Six Months Ended

June 30,

June 30,
(Dollars in thousands)
2009

2008

2009

2008
Assets:

Balance, beginning of period
$             7,464

$            34,092

$           10,967

$           78,709
Total gains or (losses) (realized/unrealized)

Included in earnings (or changes in net assets)
21

(1,976)

(4)

(2,314)
Included in other comprehensive income
375

349

556

(588)
Purchases, issuances and settlements
(3,054)

839

(79)

(5,204)
Transfers in and/or (out) of Level 3
7,001

(16,172)

367

(53,471)
Balance, end of period
$           11,807

$            17,132

$           11,807

$           17,132

The amount of total gains or losses for the period included in earnings

(or changes in net assets) attributable to the change in unrealized

gains or losses relating to assets still held at the reporting date
$                    -

$            (3,674)

$             (131)

$          (4,061)

By Asset
Corporate Asset-backed Non-agency
(Dollars in thousands) Securities Securities RMBS Total
Beginning balance January 1, 2010 $ 6,930 $ 6,258 $ 426 $ 13,614
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets) - - 25 25
Included in other comprenhensive income - (78 ) 41 (37 )
Purchases, issuances and settlements - 188 (36 ) 152
Transfers in and/or (out) of Level 3 - - - -
Ending balance March 31, 2010 $ 6,930 $ 6,368 $ 456 $ 13,754

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

(Some amounts may not reconcile due to rounding.)

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Summary
Three Months Ended
March 31,
(Dollars in thousands) 2010 2009
Assets:
Balance, beginning of period $ 13,614 $ 10,967
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets) 25 (25 )
Included in other comprehensive income (37 ) 181
Purchases, issuances and settlements 152 2,975
Transfers in and/or (out) of Level 3 - (6,634 )
Balance, end of period $ 13,754 $ 7,464

The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized
gains or losses relating to assets still held at the reporting date $ - $ (131 )

5. ~~Capital Transactions~~

CAPITAL TRANSACTIONS

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

6. ~~Contingencies~~

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 are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. While the final ~~outcome~~outcom e 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 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.

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

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The Company’s reserves include an estimate of the Company’s ultimate liability for asbestos and environmental (“A&E”) claims. As of ~~June 30, 2009,~~March 31, 2010, approximately ~~10%~~8% of the Company’s gross reserves were an estimate of the Company’s ultimate liability for A&E claims. The Company’s A&E liabilities emanate from Mt. McKinley Insurance Company’s (“Mt. McKinley”), a direct subsidiary of the Company, direct

~~Table of Contents~~

insurance business and Everest Re’s assumed reinsurance business. All of the contracts of insurance and reinsurance under which the Company has received claims during the past three years, expired more than 20 years ago. There are significant uncertainties surrounding the Company’s reserves for its A&E ~~losses.~~

los ses.

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

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
Gross basis:
Beginning of period reserves
$       768,761
$      901,040
$    786,842
$   922,843
Incurred losses
-
-
-
-
Paid losses
(64,254)
(30,042)
(82,335)
(51,845)
End of period reserves
$       704,507
$      870,998
$    704,507
$   870,998

Net basis:
Beginning of period reserves
$       475,209
$      524,063
$    485,296
$   537,549
Incurred losses
-
-
-
-
Paid losses
(19,830)
(10,547)
(29,917)
(24,033)
End of period reserves
$       455,379
$      513,516
$    455,379
$   513,516

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Gross basis:
Beginning of period reserves	$	638,674		$	786,842
Incurred losses		-			-
Paid losses		(13,466	)		(18,081	)
End of period reserves	$	625,208		$	768,761

Net basis:
Beginning of period reserves	$	430,421		$	485,296
Incurred losses		-			-
Paid losses		(11,191	)		(10,087	)
End of period reserves	$	419,230		$	475,209

At ~~June 30, 2009,~~March 31, 2010, the gross reserves for A&E losses were comprised of ~~$138.1~~$139.0 million representing case reserves reported by ceding companies, ~~$148.1~~$142.6 million representing additional case reserves established by the Company on assumed reinsurance claims, ~~$89.5~~$61.9 million representing case reserves established by the Company on direct excess insurance claims, including Mt. McKinley and ~~$328.8~~$281.7 million representing ~~incurred but not reported (“IBNR”)~~IBNR reserves.

With respect to asbestos only, at ~~June 30, 2009,~~March 31, 2010, the Company had gross asbestos loss reserves of ~~$660.6~~$595.8 million, or ~~93.8%~~95.3%, of total A&E reserves, of which ~~$501.5~~$465.9 million was for assumed business and ~~$159.1~~$129.9 million was for direct business.

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. 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.

Due to the uncertainties, the ultimate losses attributable to A&E, and particularly asbestos, may be subject to more variability than are non-A&E reserves and such variation, 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 cash flows.

In 1993 and prior, the Company had a business arrangement with The Prudential Insurance Company of America (“The Prudential”) wherein, for a fee, the Company accepted settled claim payment obligations of certain property and casualty insurers, and, concurrently, became the owner of the annuity or assignee of the annuity proceeds funded by the property and casualty insurers specifically to fulfill these fully settled obligations. In these circumstances, the Company would be liable if The Prudential, which has an A+ (Superior) financial strength rating from A.M. Best Company (“A.M. Best”), was unable to make the annuity payments. At ~~June 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, the estimated cost to replace all such annuities for which the Company was contingently liable was ~~$153.0~~$152.8 million and ~~$152.1~~$ 152.3 million, respectively.

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Prior to its 1995 initial public offering, the Company had purchased annuities from an unaffiliated life insurance company with an A+ (Superior) financial strength rating from A.M. Best to settle certain claim liabilities of the company. Should the life insurance company become unable to make the annuity payments,

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the Company would be liable for those claim liabilities. At ~~June 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, the estimated cost to replace such annuities was ~~$23.6 million and $23.1 million, respectively.~~

$24.6 million.

7. ~~Other Comprehensive Income (Loss)~~

OTHER COMPREHENSIVE INCOME

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

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
Unrealized appreciation (depreciation) ("URA(D)") of investments ⁽¹⁾
URA(D) of investments
$       81,307
$    (80,474)
$   169,249
$  (119,931)
Tax (expense) benefit
(28,457)
28,166
(59,237)
41,975
URA(D), net of tax
52,850
(52,308)
110,012
(77,956)

Foreign currency translation adjustments
45,819
(9,940)
17,077
(762)
Tax (expense) benefit
(16,037)
3,479
(5,977)
267
Net foreign currency translation adjustments
29,782
(6,461)
11,100
(495)

Pension adjustment
1,900
975
1,900
975
Tax expense
(232)
(341)
(232)
(341)
Net pension adjustment
1,668
634
1,668
634

Other comprehensive income (loss), net of deferred taxes
$       84,300
$    (58,135)
$   122,780
$    (77,817)

(1)
The following are the components of URA(D) of investments:

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
URA(D) of investments - temporary
$       71,883
$   (80,474)
$     159,825
$  (119,931)
Tax (expense) benefit
(25,159)
28,166
(55,939)
41,975
Net URA(D) of investments - temporary
$       46,724
$   (52,308)
$     103,886
$   (77,956)

URA(D) of investments - credit OTTI
$         3,826
$               -
$         3,826
$               -
Tax (expense) benefit
(1,339)
-
(1,339)
-
Net URA(D) of investments - credit OTTI
$         2,487
$               -
$         2,487
$              -

URA(D) of investments - non-credit OTTI
$         5,598
$               -
$         5,598
$              -
Tax (expense) benefit
(1,959)
-
(1,959)
-
Net URA(D) of investments - non-credit OTTI
$         3,639
$               -
$         3,639
$               -

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
URA(D) of investments - temporary	$	3,666		$	87,942
URA(D) of investments - non-credit OTTI		3,051			-
Tax expense from URA(D) arising during the period		(2,351	)		(30,780	)
Total URA(D) on securities arising during the period, net of tax		4,366			57,162

Foreign currency translation adjustments		10,726			(28,742	)
Tax (expense) benefit from foreign currency translation		(3,754	)		10,060
Net foreign currency translation adjustments		6,972			(18,682	)

Pension adjustments		628			-
Tax expense on pension		(220	)		-
Net pension adjustments		408			-

Other comprehensive income, net of tax	$	11,746		$	38,480

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

June 30,
December 31,
(Dollars in thousands)
2009
2008
Unrealized appreciation (depreciation) on investments, net of deferred taxes:
Temporary
$          27,577
$        (69,248)
Credit, other-than-temporary impairments
2,487
-
Non-credit, other-than-temporary impairments
(4,800)
-
Foreign currency translation adjustments, net of deferred taxes
40,006
28,906
Pension adjustments, net of deferred taxes
(30,053)
(31,721)
Accumulated other comprehensive income (loss)
$          35,217
$        (72,063)

	March 31,			December 31,
(Dollars in thousands)	2010			2009
URA(D) on securities, net of deferred taxes
Temporary	$	137,953		$	135,570
Non-credit, OTTI		658			(1,325	)
Total unrealized appreciation (depreciation) on investments, net of deferred taxes		138,611			134,245
Foreign currency translation adjustments, net of deferred taxes		63,973			57,001
Pension adjustments, net of deferred taxes		(23,860	)		(24,268	)
Accumulated other comprehensive income	$	178,724		$	166,978

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8. ~~Credit Line~~

CREDIT LINE

Effective August 23, 2006, Holdings entered into a five year, $150.0 million senior revolving credit facility with a syndicate of lenders, referred to as the “Holdings Credit Facility”. Citibank N.A. is the administrative agent for the Holdings Credit Facility. The Holdings Credit Facility may be used for liquidity and general corporate purposes. The Holdings Credit Facility provides for the borrowing of up to $150.0 million with interest at a rate selected by Holdings equal to either, (1) the Base Rate (as defined below) or (2) a periodic fixed rate equal to the Eurodollar Rate plus an applicable margin. The Base Rate means a fluctuating interest rate per annum in effect from time to time to be equal to the higher of (a) the rate of interest publicly announced by Citibank as its prime rate or (b) 0.5% per annum above the Federal Funds Rate, in each case plus the applicable margin. The amount of margin and the fees payable for the Holdings Credit Facility depends upon Holdings’ senior unsecured debt rating.

The Holdings Credit Facility requires Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and Everest Re to maintain its statutory surplus at $1.5 billion plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, 2005, which at ~~June 30, 2009,~~March 31, 2010, was ~~$1,860.5~~$1,933.8 million. As of ~~June 30, 2009,~~March 31, 2010, Holdings was in compliance with all Holdings Credit Facility covenants.

At ~~June 30, 2009~~March 31, 2010 and December 31, ~~2008, there were~~2009, the Holdings Credit Facility had outstanding letters of credit of $17.0 million and $28.0 million, ~~respectively, under the Holdings Credit Facility.~~

respectively.

Costs incurred in connection with the Holdings Credit Facility were ~~$31,514~~$9.3 thousand and ~~$34,370~~$26.3 thousand for the three months ended ~~June 30,~~March 31, 2010 and 2009, ~~and 2008, respectively, and $57,842 and $60,161 for the six months ended June 30, 2009 and 2008,~~ respectively.

9. ~~Letters of Credit~~

LETTERS OF CREDIT

The Citibank Holdings Credit Facility involves a syndicate of lenders (see Note 8), with Citibank acting as administrative agent. At ~~June 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, letters of credit for $17.0 million and $28.0 million, respectively, were issued and outstanding. The following table summarizes the Company’s letters of credit at ~~June 30, 2009.~~

March 31, 2010.

(Dollars in thousands)
Bank
Commitment

In Use

Date of Expiry
Citibank Holdings Credit Facility
$            150,000
$             27,959
12/31/2009
Total Citibank Holdings Credit Facility
$            150,000
$             27,959

(Dollars in thousands)
Bank Commitment In Use Date of Expiry
Citibank Holdings Credit Facility $ 150,000 $ 16,951 12/31/2010
Total Citibank Holdings Credit Facility $ 150,000 $ 16,951

10. ~~Trust Agreements~~

TRUST AGREEMENTS

A subsidiary of the Company, Everest Re, has established a trust agreement, which effectively uses Everest Re’s investments as collateral, as security for assumed losses payable to a non-affiliated ceding company. At ~~June 30, 2009,~~March 31, 2010, the total amount on deposit in the trust account was ~~$20.9~~$23.7 million.

11. ~~Senior Notes~~

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 a public offering of $200.0 million principal amount of 8.75% senior notes due March 15, 2010.

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

Interest expense incurred in connection with these senior notes was $7.1 million and $7.8 million for the three months ended ~~June 30,~~March 31, 2010 and 2009, ~~and 2008, and $15.6 million for the six months ended June 30, 2009 and 2008.~~respectively. Market value, which is based on quoted market price at ~~June 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, was ~~$247.8~~$261.0 million and ~~$186.2~~$256.1 million, respectively, for the 5.40% senior notes and ~~$208.4~~$200.0 million ~~and $156.8 million, respectively,~~ for the 8.75% senior ~~notes.~~

notes at December 31, 2009.

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12. ~~Long Term Subordinated Notes~~

LONG TERM SUBORDINATED NOTES

On April 26, 2007, Holdings completed a public offering of $400.0 million principal amount of 6.6% fixed to floating rate long term subordinated notes with a scheduled maturity date of May 15, 2037 and a final maturity date of May 1, 2067. During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest will be at the annual rate of 6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month London Interbank Offered Rate (“LIBOR”) plus 238.5 basis points, reset quarterly, payable quarterly in arrears on ~~February~~Fe bruary 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded semi-annually for periods prior to May 15, 2017, and compounded quarterly for periods from and including May 15, 2017.

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

On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the ~~6.60%~~6.6% fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161.4 million, which resulted in a pre-tax gain on debt repurchase of $78.3 million.

Interest expense incurred in connection with these long term notes was $3.9 million and ~~$6.6~~$6.5 million for the three months ended ~~June 30,~~March 31, 2010 and 2009, ~~and 2008, respectively, and $10.4 million and $13.2 million for the six months ended June 30, 2009 and 2008,~~ respectively. Market value, which is based on quoted market prices at ~~June 30, 2009~~March 31, 2010 and December 31, ~~2008,~~2009, was ~~$157.4~~$204.1 million and $176.5 million on the outstanding 6.6% long term subordinated notes, ~~of $238.6 million and $168.0 million on outstanding 6.6% long term subordinated notes of $399.6 million,~~ respectively.

13. ~~Junior Subordinated Debt Securities Payable~~

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

Fair value, which is primarily based on the quoted market price of the related trust preferred securities was $289.6 million and $272.6 million at ~~June 30, 2009~~March 31, 2010 and December 31, ~~2008, was $264.6 million and $222.2 million,~~2009, respectively, for the 6.20% junior subordinated debt securities.

Interest expense incurred in connection with these junior subordinated notes was $5.1 million for the three months ended ~~June 30, 2009~~March 31, 2010 and ~~2008, and $10.2 million for the six months ended June 30, 2009 and 2008, respectively.~~

2009.

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Capital Trust II is a wholly owned finance subsidiary 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 II’s payment obligations with respect to the trust preferred securities.

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

There are certain regulatory and contractual restrictions on the ability of 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 the Holdings Credit Facility (discussed in Note 8) require Everest Re, the Company’s principal insurance subsidiary, to maintain a certain statutory surplus level as measured at the end of each fiscal year. At December 31, ~~2008, $1,745.6~~2009, $2,352.0 million of the ~~$2,735.2~~$3,271.1 million in net assets of the ~~Company’s~~Company’ ;s consolidated subsidiaries were subject to the foregoing regulatory restrictions.

14. ~~Segment Results~~

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 agents, brokers and surplus lines brokers within the U.S. The Specialty Underwriting operation writes accident and health (“A&H”), marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies. The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada and Singapore and offices in Miami and New Jersey.

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

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

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.

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

Three Months Ended
Six Months Ended
U.S. Reinsurance
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
Gross written premiums
$      266,151
$      200,348
$      530,482
$      434,067
Net written premiums
156,751
131,096
296,183
278,515

Premiums earned
$      180,697
$      161,891
$      327,030
$      360,007
Incurred losses and LAE
85,963
84,230
176,104
205,279
Commission and brokerage
37,209
45,549
69,128
98,289
Other underwriting expenses
8,023
6,887
15,585
15,660
Underwriting gain
$        49,502
$        25,225
$        66,213
$        40,779

	Three Months Ended		Six Months Ended		Three Months Ended
U.S. Insurance	June 30,		June 30,
U.S. Reinsurance					March 31,
(Dollars in thousands)	2009	2008	2009	2008	2010		2009
Gross written premiums	$ 213,511	$ 190,977	$ 418,228	$ 401,437	$	244,008	$	264,331
Net written premiums	104,358	104,182	225,510	214,352		128,462		139,432

Premiums earned	$ 105,651	$ 121,114	$ 217,623	$ 264,210	$	127,001	$	146,333
Incurred losses and LAE	57,762	161,680	138,906	257,579		90,108		90,141
Commission and brokerage	9,849	22,892	21,867	43,640		27,218		31,919
Other underwriting expenses	19,152	15,900	36,433	30,242		7,806		7,562
Underwriting gain (loss)	$ 18,888	$ (79,358)	$ 20,417	$ (67,251)
Underwriting gain					$	1,869	$	16,711

Three Months Ended
Six Months Ended
Specialty Underwriting
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
Gross written premiums
$        57,188
$        84,202
$      116,111
$      139,113
Net written premiums
32,126
57,302
64,731
94,223

Premiums earned
$        32,495
$        55,451
$        69,331
$        91,001
Incurred losses and LAE
23,160
25,917
48,543
44,132
Commission and brokerage
8,858
11,781
18,925
21,758
Other underwriting expenses
1,999
1,834
3,844
4,245
Underwriting (loss) gain
$        (1,522)
$        15,919
$        (1,981)
$        20,866

	Three Months Ended		Six Months Ended		Three Months Ended
International	June 30,		June 30,
U.S. Insurance					March 31,
(Dollars in thousands)	2009	2008	2009	2008	2010		2009
Gross written premiums	$ 274,253	$ 218,984	$ 525,003	$ 405,362	$	228,237	$	204,717
Net written premiums	153,964	133,164	289,320	249,450		102,467		121,152

Premiums earned	$ 141,931	$ 132,958	$ 285,235	$ 256,226	$	101,166	$	111,972
Incurred losses and LAE	79,223	87,285	171,750	161,827		72,950		81,144
Commission and brokerage	31,007	31,341	65,222	57,767		1,641		12,018
Other underwriting expenses	5,684	4,747	10,304	9,801		16,577		17,281
Underwriting gain	$ 26,017	$ 9,585	$ 37,959	$ 26,831	$	9,998	$	1,529

	Three Months Ended
Specialty Underwriting	March 31,
(Dollars in thousands)	2010		2009
Gross written premiums	$	65,887	$	58,923
Net written premiums		37,239		32,605

Premiums earned	$	38,898	$	36,836
Incurred losses and LAE		27,461		25,383
Commission and brokerage		8,535		10,067
Other underwriting expenses		1,951		1,845
Underwriting gain (loss)	$	951	$	(459	)

	Three Months Ended
International	March 31,
(Dollars in thousands)	2010			2009
Gross written premiums	$	275,350		$	250,750
Net written premiums		145,209			135,356

Premiums earned	$	147,069		$	143,304
Incurred losses and LAE		236,485			92,527
Commission and brokerage		30,447			34,215
Other underwriting expenses		6,380			4,620
Underwriting (loss) gain	$	(126,243	)	$	11,942

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

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2009

2008
2009

2008
Underwriting gain (loss)
$       92,885
$     (28,629)
$     122,608
$        21,225
Net investment income
74,516
106,981
114,175
194,958
Net realized capital gains (losses)
22,941
(50,795)
(45,243)
(152,695)
Realized gain on debt repurchase
-
-
78,271
-
Corporate expense
(1,878)
(1,384)
(3,196)
(3,077)
Interest, fee and bond issue cost amortization expense
(17,073)
(19,746)
(36,706)
(39,488)
Other expense
(7,166)
(2,717)
(7,280)
(23,990)
Income (loss) before taxes
$     164,225
$          3,710
$     222,629
$       (3,067)

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Underwriting (loss) gain	$	(113,425	)	$	29,723
Net investment income		85,107			39,659
Net realized capital losses		(5,307	)		(68,184	)
Realized gain on debt repurchase		-			78,271
Corporate expense		(2,226	)		(1,318	)
Interest, fee and bond issue cost amortization expense		(16,340	)		(19,633	)
Other income (expense)		5,112			(114	)
(Loss) income before taxes	$	(47,079	)	$	58,404

The Company produces business in the U.S. and internationally. The net income deriving from and assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company’s financial records. Based on gross written premium, other than the U.S., no other country represented more than 5% of the Company’s revenues.

15. ~~Related-Party Transactions~~

RELATED-PARTY TRANSACTIONS

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

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

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.

·	Effective January 1, 2002 for the 2002 underwriting year, Everest Re ceded 20.0% of its net retained liability to Bermuda Re through a quota share reinsurance agreement (“whole account quota share”). This agreement remained in effect through December 31, 2002.

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.

Effective January 1, 2002 for the 2002 underwriting year, Everest Re ceded 20.0% of its net retained liability to Bermuda Re through a quota share reinsurance agreement (“whole account quota share”).

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Effective January 1, 2003, Everest Re and Bermuda Re amended the whole account quota share, through which Everest Re previously ceded 20.0% of its business to Bermuda Re so that effective January 1, 2003 Everest Re ceded 25.0% to Bermuda Re of the net retained liability on all new and renewal policies underwritten during the term of this agreement. This amendment remained in effect through December 31, 2003.

·	Effective January 1, 2003, Everest Re entered into a whole account quota share with Bermuda Re, whereby Everest Re’s Canadian branch ceded to Bermuda Re 50.0% of its net retained liability on all new and renewal property business. This agreement remained in effect through December 31, 2006.

Effective January 1, 2004, Everest Re and Bermuda Re amended the whole account quota share through which Everest Re previously ceded 25.0% of its business to Bermuda Re so that effective January 1, 2004 Everest Re ceded 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. This amendment remained in effect through December 31, 2005.

Effective January 1, 2006, Everest Re, Bermuda Re and Everest International amended the whole account quota share so that for all new and renewal business recorded on or after January 1, 2006, Everest Re ceded 31.5% and 3.5% of its casualty business to Bermuda Re and Everest International, respectively, and Everest Re ceded 18.0% and 2.0% of its property business to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one occurrence on the property business exceed $125.0 million (20.0% of $625.0 million). The property portion of this amendment remained in effect through December 31, 2006. The casualty portion of this amendment remained in effect through December 31, 2007.

Effective January 1, 2007, Everest Re and Bermuda Re amended the whole account quota share so that for all new and renewal business recorded on or after January 1, 2007, Everest Re ceded 60.0% of its Canadian branch property business to Bermuda Re. This amendment remained in effect through December 31, 2009.

Effective January 1, 2007, Everest Re, Bermuda Re and Everest International amended the whole account quota share so that for all new and renewal property business recorded on or after January 1, 2007, Everest Re ceded 22.5% and 2.5% to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one occurrence on the property business exceed $130.0 million. This amendment remained in effect through December 31, 2007.

Effective January 1, 2008, Everest Re, Bermuda Re and Everest International amended the whole account quota share whereby, for all new and renewal casualty and property business recorded on or after January 1, 2008, Everest Re ceded 36.0% and 4.0% to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one catastrophe occurrence on the property business exceed $130.0 million or in the aggregate for each underwriting year for all property catastrophes exceed $275.0 million. This amendment remained in effect through December 31, 2008.

Effective October 1, 2008, Everest Re and Bermuda Re entered into a loss portfolio transfer reinsurance agreement, whereby Everest Re transferred a percentage of its net loss reserves ($747.0 million) corresponding to all existing open and future liabilities at December 31, 2007, arising from policies, insurance or reinsurance written or renewed by or on behalf of Everest Re during the period of January 1, 2002 through December 31, 2007, classified by Everest Re as casualty.

Effective January 1, 2003, Everest Re entered into a whole account quota share with Bermuda Re, whereby Everest Re’s Canadian branch ceded to Bermuda Re 50.0% of its net retained liability on all new and renewal property business. This remained in effect through December 31, 2006.

Effective January 1, 2006, Everest Re, Bermuda Re and Everest International amended the whole account quota share so that for all new and renewal business recorded on or after January 1, 2006, Everest Re ceded 31.5% and 3.5% of its casualty business to Bermuda Re and Everest International, respectively, and Everest Re ceded 18.0% and 2.0% of its property business to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one occurrence on the property business exceed $125.0 million. The property portion of this amendment remained in effect through December 31, 2006. The casualty portion remained in effect through December 31, 2007.

Effective January 1, 2007, Everest Re and Bermuda Re amended the whole account quota share so that for all new and renewal business recorded on or after January 1, 2007, Everest Re cedes 60.0% of its Canadian branch property business to Bermuda Re.

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Effective January 1, 2009, Everest Re, Bermuda Re and Everest International amended the whole account quota share whereby, for all new and renewal casualty and property business recorded on or after January 1, 2009, Everest Re cedes 36% and 8% to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one occurrence exceed $150.0 million or in the aggregate for each underwriting year for all occurrences exceed $325.0 million.

Effective January 1, 2009, Everest Re, Bermuda Re and Everest International amended the whole account quota share whereby, for all new and renewal casualty and property business recorded on or after January 1, 2009, Everest Re ceded 36.0% and 8.0% to Bermuda Re and Everest International, respectively. However, in no event shall the loss cessions to Bermuda Re and Everest International relating to any one occurrence exceed $150.0 million or in the aggregate for each underwriting year for all occurrences exceed $325.0 million. This amendment remained in effect through December 31, 2009.

Effective January 1, 2010, Everest Re entered into a whole account quota share with Bermuda Re, whereby Everest Re’s Canadian branch cedes to Bermuda Re 60.0% of its net retained liability on all new and renewal property business recorded on or after January 1, 2010. However, in no event shall the loss cessions to Bermuda Re relating to any one occurrence exceed $350.0 million (60% of $583.3 million).

Effective January 1, 2010, Everest Re entered into a whole account quota share with Bermuda Re, whereby for all new and renewal business recorded on or after January 1, 2010, Everest Re cedes 44.0% of its net retained liability to Bermuda Re. However, in no event shall the loss cessions to Bermuda Re relating to any one occurrence exceed $150.0 million or in the aggregate for each underwriting year for all such occurrences exceed $325.0 million.

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

Three Months Ended
Six Months Ended
Bermuda Re
June 30,
June 30,
(Dollars in thousands)
2009
2008
2009
2008
Ceded written premiums
$        271,299
$        206,681
$        556,065
$        420,820
Ceded earned premiums
275,068
218,156
549,136
424,114
Ceded losses and LAE (a)
191,732
114,534
332,599
210,935

	Three Months Ended		Six Months Ended		Three Months Ended
Everest International	June 30,		June 30,
Bermuda Re					March 31,
(Dollars in thousands)	2009	2008	2009	2008	2010		2009
Ceded written premiums	$ 45,534	$ 21,516	$ 83,882	$ 43,700	$	320,031	$	284,766
Ceded earned premiums	37,947	22,623	72,283	43,778		288,158		274,068
Ceded losses and LAE(a)	17,155	11,709	36,555	22,256		288,446		140,867

	Three Months Ended
Everest International	March 31,
(Dollars in thousands)	2010		2009
Ceded written premiums	$	28,312	$	38,348
Ceded earned premiums		40,332		34,336
Ceded losses and LAE		24,016		19,400

(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,”~~FASB guidance, a deferred gain on retroactive reinsurance is reflected in other expenses on the consolidated ~~statement~~statements of operations and comprehensive income.

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

24
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16. ~~Income Taxes~~

INCOME TAXES

The Company uses a projected annual effective tax rate ~~in accordance with FASB Statement No. 109, “Accounting for Income Taxes” (“FAS 109”),~~ to calculate its quarterly tax ~~expense.~~expense in accordance with FASB guidance. Under this methodology, when an interim quarter’s pre-tax income (loss) varies significantly from a full year’s income (loss) projection, the tax impact resulting from the income (loss) variance is effectively spread between the impacted quarter and the remaining quarters of the year, except for discreet items impacting an individual quarter.

The Company recognizes accrued interest related to unrecognized tax benefits and penalties in income taxes. For the three ~~and six~~ months ended ~~June 30, 2009,~~March 31, 2010, the Company expensed approximately ~~$0.6~~$1.1 million ~~and $2.6 million, respectively,~~ in interest and penalties.

17. ~~Subsequent Events~~

SUBSEQUENT EVENTS

The Company has evaluated known recognized and ~~nonrecognized~~non-recognized subsequent ~~events through August 14, 2009, the date the financial statements were available to be issued.~~events. The Company does not have any subsequent events to report.

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~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION~~

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Industry Conditions.

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

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

Starting in the latter part of 2007 ~~throughout 2008~~ and continuing into ~~2009,~~2010 there has been a significant slowdown in the global economy, which has negatively impacted the financial resources of the industry. Excessive availability and use of credit, particularly by individuals, led to increased defaults on sub-prime mortgages in the U.S. and elsewhere, falling values for houses and many commodities and contracting consumer spending. The significant increase in default rates negatively impacted the value of asset-backed securities held by both foreign and domestic institutions. The defaults have led to a corresponding increase in foreclosures, which have driven down housing values, resulting in additional losses on ~~the~~ asset-backed securities. During the third and fourth quarters of 2008, ~~the~~ credit markets ~~deteriorated~~det eriorated dramatically, evidenced by widening credit spreads and dramatically reduced availability of credit. Many financial institutions, including some insurance entities, experienced liquidity crises due to immediate demands for funds for withdrawals or collateral, combined with falling asset values and their inability to sell assets to meet the increased demands. As a result, several financial institutions have failed or been acquired at distressed prices, while others have received loans from the U.S. government to continue operations. The liquidity crisis significantly increased the spreads on fixed ~~maturities~~maturity securities and, at the same time, had a dramatic and negative impact on the stock markets around the world. The combination of losses on securities from failed or impaired companies combined with the decline in values of fixed maturity and equity securities ~~has~~ resulted in significant declines in the capital bases of most insurance and reinsurance companies. While there was ~~some slight~~significant improvement in the financial markets during 2009 and into 2010, recent concerns about the ~~first half~~ability of ~~2009, it~~some European countries to repay their bonds has hindered financial market recoveries. It is too early to predict the timing and extent of the impact ~~the capital deterioration~~these financial market fluctuations will have on insurance and reinsurance market conditions. There is an expectation that these events will ultimately result in increased rates for insurance and reinsurance in certain segments of the market, but there is no assurance that this will be the case.

Worldwide insurance and reinsurance market conditions continued to be very competitive. Generally, there was ample insurance and reinsurance capacity relative to demand. We noted, however, that in many markets and lines during 2009 and into 2010, the rates of decline have slowed, pricing in some segments was relatively flat and there was upward movement in some others, particularly property catastrophe coverage. Competition and its

~~Table of Contents~~

effect on rates, terms and conditions vary widely by market and coverage yet continues to be most prevalent in the U.S. casualty insurance and reinsurance markets. The U.S. insurance markets in which we participate were extremely competitive as ~~well, particularly in the workers’ compensation, public entity and contractor sectors. While our growth in existing programs has slowed, given the specialty nature~~well.

Table of our business and our underwriting discipline, we believe the impact on the profitability of our business will be less pronounced than on the market generally. In addition, we continue to opportunistically add new programs and lines of business to enhance growth and profitability.

Rates in the international markets have generally been more adequate than in the U.S., and we have seen some increases, particularly for catastrophe exposed business. We have grown our business in the Middle East, Latin America and Asia. We are expanding our international reach with the opening of a new office in Brazil to capitalize on the recently expanded opportunity for professional reinsurers in that market and on the economic growth expected for Brazil in the future.

Contents

The reinsurance industry has experienced a period of falling rates and volume, particularly in the casualty lines of business. Profit opportunities have become generally less available over time; however, the unfavorable trends ~~appear~~seem to ~~have abated somewhat.~~be softening. We are now seeing smaller rate declines, pockets of stability and some increases in some markets and for some coverages. ~~As a result~~During the first quarter of ~~very~~2010, the devastating Chilean earthquake coupled with severe storms in Europe and Australia resulted in significant ~~investment and~~ catastrophe losses ~~incurred by both primary insurers and reinsurers over~~to the past year, but principally in the last six months of 2008, industry-wide capital declined and rating agency scrutiny increased. There is an expectation that given the rate softening that has occurred over the past several quarters, the industry-wide decline in capital combined with volatile and unreceptive markets and a looming recession, will lead to a hardening of insurance and reinsurance marketplace rates, terms and conditions.industry. It is too early to gauge the ~~extent of hardening, if any,~~market impacts from these losses, but we feel that ~~will occur; however, it appears that much of the redundant capital~~market conditions should improve for catastrophe coverages in the ~~industry has~~geographical regions of these losses.

Rates in the international markets have generally been ~~depleted~~stable and ~~the stage is set for firmer markets.~~

~~The 2009 renewals rates,~~we have seen some increases, particularly for ~~property catastrophes~~catastrophe exposed business. We have grown our business in the Middle East, Latin America and ~~retrocessional covers~~Asia. We are expanding our international reach with our new office in Brazil to capitalize on the recently expanded opportunity for professional reinsurers in that market and on the economic growth expected for Brazil in ~~international markets, were generally firmer compared to a year ago.~~

the future.

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

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Financial Summary.

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

Three Months Ended
Percentage
Six Months Ended
Percentage
June 30,
Increase/
June 30,
Increase/
(Dollars in millions)
2009
2008
(Decrease)
2009
2008
(Decrease)
Gross written premiums
$         811.1
$         694.5
16.8%
$        1,589.8
$          1,380.0
15.2%
Net written premiums
447.2
425.7
5.0%
875.7
836.5
4.7%

REVENUES:
Premiums earned
$         460.8
$         471.4
-2.3%
$           899.2
$             971.4
-7.4%
Net investment income
74.5
107.0
-30.3%
114.2
195.0
-41.4%
Net realized capital gains (losses)
22.9
(50.8)
-145.2%
(45.2)
(152.7)
-70.4%
Gain on tender of debt
-
-
NM
78.3
-
NM
Other expense
(7.2)
(2.7)
163.7%
(7.3)
(24.0)
-69.7%
Total revenues
551.1
524.9
5.0%
1,039.1
989.7
5.0%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
246.1
359.1
-31.5%
535.3
668.8
-20.0%
Commission, brokerage, taxes and fees
86.9
111.6
-22.1%
175.1
221.5
-20.9%
Other underwriting expenses
36.7
30.8
19.5%
69.4
63.0
10.1%
Interest, fee and bond issue cost amortization expense
17.1
19.7
-13.5%
36.7
39.5
-7.0%
Total claims and expenses
386.8
521.2
-25.8%
816.5
992.8
-17.8%

INCOME (LOSS) BEFORE TAXES
164.2
3.7
NM
222.6
(3.1)
NM
Income tax expense (benefit)
35.7
(9.9)
NM
48.5
(21.4)
NM
NET INCOME
$         128.5
$         13.7
NM
$          174.2
$              18.3
NM

Point
Point
RATIOS:
Change
Change
Loss ratio
53.4%
76.2%
(22.8)
59.5%
68.8%
(9.3)
Commission and brokerage ratio
18.9%
23.7%
(4.8)
19.5%
22.8%
(3.3)
Other underwriting expense ratio
7.9%
6.5%
1.4
7.7%
6.5%
1.2
Combined ratio
80.2%
106.4%
(26.2)
86.7%
98.1%
(11.4)

At
At
Percentage
June 30,
December 31,
Increase/
(Dollars in millions)
2009
2008
(Decrease)
Balance sheet data:
Total investments and cash
$        7,527.7
$         7,395.1
1.8%
Total assets
13,029.8
12,866.6
1.3%
Loss and loss adjustment expense reserves
7,264.1
7,420.0
-2.1%
Total debt
1,017.9
1,179.1
-13.7%
Total liabilities
10,527.2
10,663.7
-1.3%
Stockholder's equity
2,502.6
2,203.0
13.6%

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

Three Months Ended Percentage
March 31, Increase/
(Dollars in millions) 2010 2009 (Decrease)
Gross written premiums $ 813.5 $ 778.7 4.5 %
Net written premiums 413.4 428.5 -3.5 %

REVENUES:
Premiums earned $ 414.1 $ 438.4 -5.5 %
Net investment income 85.1 39.7 114.6 %
Net realized capital losses (5.3 ) (68.2 ) -92.2 %
Realized gain on debt repurchase - 78.3 NA
Other income (expense) 5.1 (0.1 ) NM
Total revenues 499.0 488.1 2.2 %

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 427.0 289.2 47.7 %
Commission, brokerage, taxes and fees 67.8 88.2 -23.1 %
Other underwriting expenses 32.7 31.3 4.5 %
Corporate expense 2.2 1.3 69.0 %
Interest, fee and bond issue cost amortization expense 16.3 19.6 -16.8 %
Total claims and expenses 546.1 429.7 27.1 %

(LOSS) INCOME BEFORE TAXES (47.1 ) 58.4 -180.6 %
Income tax (benefit) expense (2.2 ) 12.7 -116.9 %
NET (LOSS) INCOME $ (44.9 ) $ 45.7 -198.4 %

RATIOS: Point Change
Loss ratio 103.1 % 66.0 % 37.1
Commission and brokerage ratio 16.4 % 20.1 % (3.7 )
Other underwriting expense ratio 7.9 % 7.1 % 0.8
Combined ratio 127.4 % 93.2 % 34.2

At At Percentage
March 31, December 31, Increase/
(Dollars in millions) 2010 2009 (Decrease)
Balance sheet data:
Total investments and cash $ 8,046.4 $ 8,031.6 0.2 %
Total assets 13,641.6 13,379.6 2.0 %
Loss and loss adjustment expense reserves 7,613.8 7,300.1 4.3 %
Total debt 818.0 1,018.0 -19.6 %
Total liabilities 10,814.7 10,520.8 2.8 %
Stockholder's equity 2,826.9 2,858.8 -1.1 %

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

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Revenues.

Premiums.Gross written premiums increased by ~~$116.6~~$34.8 million, or ~~16.8%~~4.5%, for the three months ended ~~June 30, 2009~~March 31, 2010 compared to the three months ended ~~June 30, 2008,~~March 31, 2009, reflecting an increase of ~~$94.1~~$23.5 million in our insurance business and $11.3 million in our reinsurance ~~business and $22.5 million in our insurance~~ business. Gross written premiums increased by $209.8 million, or 15.2%, for the six months ended June 30, 2009 compared to the six months ended June 30, 2008, reflecting an increase of $193.1 million in our reinsurance business and $16.8 million in our insurance business. The increased reinsurance business was primarily attributable to increased rates on property business, in both the international and U.S. markets, the new crop hail quota share treaty business,

~~Table of Contents~~

~~expanded participation on renewal contracts and new writings as ceding companies continue to favor reinsurers such as us, with strong financial ratings.~~ The increase in insurance premiums were primarily in the workers’ compensation, Florida property and financial ~~institutions directors~~institution D&O and ~~officers (“D&O”) and errors and omissions (“~~E~~&O”)~~&O lines of business. The increase in reinsurance business ~~which is a new offering for us.~~

was primarily attributable to strong growth in U.S. property, South America and Asian markets, partially offset by decreased writings in the U.S. casualty, crop reinsurance, marine and European markets. Net written premiums ~~increased~~decreased by ~~$21.5~~$15.2 million, or ~~5.0%~~3.5%, for the three months ended ~~June 30, 2009~~March 31, 2010 compared to the three months ended ~~June 30, 2008~~March 31, 2009. This change was primarily due to ceded premiums that generally relate to specific reinsurance purchased by the U.S. Insurance operation and ~~$39.2 million, or 4.7%, for~~that fluctuate based upon the ~~six months ended June 30, 2009 compared to~~level of premiums written in the six months ended June 30, 2008. For the six months ended June 30, 2009 compared to June 30, 2008, the 15.2% increase in gross written premiums in conjunction with a 31.4% increase in cessions under the affiliated quota share agreement, generated the increase of net written premiums.individual reinsured programs. Premiums earned decreased ~~by $10.6~~$24.3 million, or ~~2.3%~~5.5%, for the three months ended ~~June 30, 2009~~March 31, 2010 compared to the three months ended ~~June 30, 2008 and decreased $72.2 million, or 7.4%, for the six months ended June 30, 2009 compared to the six months ended June 30, 2008.~~March 31, 2009. The change in net premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period, whereas written premiums are recorded onat the initiation of ~~coverage.~~

the coverage period.

Net Investment Income.Net investment income ~~decreased~~increased by ~~30.3% and 41.4%~~114.6% for the three ~~and six~~ months ended ~~June 30, 2009~~March 31, 2010 compared to the three ~~and six~~ months ended ~~June 30, 2008, respectively. These decreases were~~March 31, 2009, primarily due to net investment ~~income~~gains from our limited ~~partnership investments~~partnerships that invest in public and non-public securities, both equity and ~~debt, which report~~debt. Gains related to ~~us on a quarter lag and a year over year decline~~these limited partnerships were $9.4 million for the three months ended March 31, 2010 compared with losses of $34.1 million for the comparable period in ~~invested assets resulting from the October 1, 2008 loss portfolio transfer agreement with Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”).~~2009. As a result, ~~of the decline in limited partnership income,~~ net pre-tax investment income, as a percentage of average invested assets, was ~~4.0% and 3.0%~~up at 4.4% for the three ~~and six~~ months ended ~~June 30, 2009, respectively,~~March 31, 2010 compared to ~~4.9% and 4.6%~~2.1% for the three ~~and six~~ months ended ~~June 30, 2008, respectively.~~March 31, 2009.

Net Realized Capital ~~Gains (Losses).~~Losses.Net ~~realized capital gains were $22.9 million and net~~ realized capital losses were ~~$50.8~~$5.3 million and $68.2 million for the three months ended ~~June 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively. ~~Net~~For the three months ended March 31, 2010, we recorded $6.5 million loss due to fair value re-measurements, which were partially offset by $1.2 million of net realized capital gains from sales. For the three months ended March 31, 2009, we recorded $39.1 million loss due to fair value re-measurements, $28.5 million of net realized capital losses ~~were $45.2~~from sales and $0.6 million ~~and $152.7 million~~in other-than-temporary impairments on our available for the six months ended June 30, 2009 and 2008, respectively. The realized gains and losses reflected for each period were primarily a function of changes in the fair value of our investment in an affiliated entity’s shares and public equity securities portfolio. During 2008, our equity securities portfolio was much larger and the equity markets were declining rapidly. Conversely in 2009, our equity securities portfolio has been reduced and the equity markets stabilized.sale fixed maturity securities.

Realized Gain on Debt Repurchase.On March 19, 2009, we ~~announced the commencement of~~commenced a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes due 2067. Upon expiration of the tender offer, we had reduced our outstanding debt by $161.4 million, which resulted in a pre-tax gain on debt repurchase of $78.3 ~~million for the six months ended June 30, 2009.~~million.

Other ~~Expense~~Income (Expense).. We recorded other income of $5.1 million and other expense of ~~$7.2 million and $7.3~~$0.1 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2010 and 2009, ~~respectively, and $2.7 million and $24.0 million for the three and six months ended June 30, 2008, respectively, which~~respectively. The variances were primarily due to changes in foreign currency exchange rates and the deferrals on retroactive reinsurance agreements with affiliates ~~and changes in foreign currency exchange rates~~ for the corresponding periods.

Table of Contents

Claims and Expenses.

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

Three Months Ended June 30,
Current
Ratio%/
Prior
Ratio%/
Total
Ratio%/
(Dollars in millions)
Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2009
Attritional (a)
$        284.8
61.8%
$       (37.0)
-8.0%
$       247.8
53.8%
Catastrophes
-
0.0%
(1.7)
-0.4%
(1.7)
-0.4%
A&E
-

0.0%

-

0.0%

-

0.0%

Total segment
$        284.8

61.8%

$       (38.7)

-8.4%

$       246.1

53.4%

2008
Attritional (a)
$        291.2
61.8%
$         55.1
11.7%
$       346.3
73.5%
Catastrophes
12.0
2.6%
0.8
0.2%
12.8
2.7%
A&E
-

0.0%

-

0.0%

-

0.0%

Total segment
$        303.2

64.3%

$         55.9

11.9%

$       359.1

76.2%

Variance 2009/2008
Attritional (a)
$          (6.4)
-
pts
$       (92.1)
(19.7)
pts
$       (98.5)
(19.7)
pts
Catastrophes
(12.0)
(2.6)
pts
(2.5)
(0.5)
pts
(14.5)
(3.1)
pts
A&E
-

-
pts
-

-
pts
-

-
pts
Total segment
$        (18.4)

(2.5)
pts
$       (94.6)

(20.3)
pts
$     (113.0)

(22.8)
pts

	Six Months Ended June 30,										Three Months Ended March 31,
	Current	Ratio%/		Prior	Ratio%/		Total	Ratio%/			Current		Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year	Pt Change		Years	Pt Change		Incurred	Pt Change			Year		Pt Change				Years			Pt Change				Incurred			Pt Change
2010
Attritional (a)											$	268.2		64.8	%		$	(9.3	)		-2.2	%		$	259.0			62.5	%
Catastrophes												165.2		39.9	%			2.8			0.7	%			168.0			40.6	%
A&E												-		0.0	%			-			0.0	%			-			0.0	%
Total											$	433.4		104.7	%		$	(6.4	)		-1.6	%		$	427.0			103.1	%

2009
Attritional (a)	$ 542.3	60.3%		$ (16.9)	-1.9%		$ 525.4	58.4%			$	257.4		58.7	%		$	20.2			4.6	%		$	277.6			63.3	%
Catastrophes	9.1	1.0%		0.9	0.1%		9.9	1.1%				9.1		2.1	%			2.5			0.6	%			11.6			2.7	%
A&E	-	0.0%		-	0.0%		-	0.0%				-		0.0	%			-			0.0	%			-			0.0	%
Total segment	$ 551.3	61.3%		$ (16.0)	-1.8%		$ 535.3	59.5%
Total											$	266.5		60.8	%		$	22.7			5.2	%		$	289.2			66.0	%

2008
Variance 2010/2009
Attritional (a)	$ 583.1	60.0%		$ 60.6	6.2%		$ 643.6	66.3%			$	10.8		6.1		pts	$	(29.5	)		(6.8	)	pts	$	(18.6	)		(0.8	)	pts
Catastrophes	16.8	1.7%		8.4	0.9%		25.2	2.6%				156.1		37.8		pts		0.3			0.1		pts		156.4			37.9		pts
A&E	-	0.0%		-	0.0%		-	0.0%				-		-		pts		-			-		pts		-			-		pts
Total segment	$ 599.9	61.8%		$ 69.0	7.1%		$ 668.8	68.8%

Variance 2009/2008
Attritional (a)	$ (40.8)	0.3	pts	$ (77.5)	(8.1)	pts	$ (118.3)	(7.8)	pts
Catastrophes	(7.7)	(0.7)	pts	(7.5)	(0.8)	pts	(15.2)	(1.5)	pts
A&E	-	-	pts	-	-	pts	-	-	pts
Total segment	$ (48.6)	(0.5)	pts	$ (85.0)	(8.9)	pts	$ (133.5)	(9.3)	pts
Total											$	166.9		43.9		pts	$	(29.1	)		(6.8	)	pts	$	137.8			37.1		pts

(a) Attritional losses exclude catastrophe and A&E losses.	(a) Attritional losses exclude catastrophe and A&E losses.									(a) Attritional losses exclude catastrophe and A&E losses.
(Some amounts may not reconcile due to rounding.)	(Some amounts may not reconcile due to rounding.)									(Some amounts may not reconcile due to rounding.)

The following tables show a comparison of various investment yields for the periods indicated:

At June 30,
At December 31,
2009
2008
Imbedded pre-tax yield of cash and invested assets
3.9%
4.3%
Imbedded after-tax yield of cash and invested assets
3.2%
3.5%

Three Months Ended
Six Months Ended
June 30,
June 30,
2009
2008
2009
2008
Annualized pre-tax yield on average cash and invested assets
4.0%
4.9%
3.0%
4.6%
Annualized after-tax yield on average cash and invested assets
3.3%
3.8%
2.7%
3.6%

~~Table of Contents~~

	At	At
	March 31,	December 31,
	2010	2009
Imbedded pre-tax yield of cash and invested assets	3.8%	3.7%
Imbedded after-tax yield of cash and invested assets	3.1%	3.1%

Three Months Ended
March 31,
2010 2009
Annualized pre-tax yield on average cash and invested assets 4.4% 2.1%
Annualized after-tax yield on average cash and invested assets 3.5% 2.1%

Net Realized Capital ~~Gains (Losses).~~

Losses.

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

Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in millions)
2009

2008

Variance
2009

2008

Variance
Gains (losses) from sales:
Fixed maturity, market value
Gains
$          0.5
$         0.2
$         0.3
$          2.0
$         1.1
$         0.9
Losses
(0.9)
(0.8)
(0.1)
(30.5)
(2.0)
(28.5)
Total
(0.4)
(0.6)
0.2
(28.5)
(0.9)
(27.6)

Fixed maturity securities, fair value
Gains
0.1
-
0.1
0.3
-
0.3
Losses
-
-
-
(0.1)
-
(0.1)
Total
0.1
-
0.1
0.2
-
0.2

Equity securities, fair value
Gains
5.7
-
5.7
5.9
2.1
3.8
Losses
-
-
-
(0.7)
(13.7)
13.0
Total
5.7
-
5.7
5.2
(11.6)
16.8

Total net realized gains (losses) from sales
Gains
6.3
0.2
6.1
8.2
3.2
5.0
Losses
(0.9)
(0.8)
(0.1)
(31.3)
(15.7)
(15.6)
Total
5.4
(0.6)
6.0
(23.1)
(12.5)
(10.6)

Other than temporary impairments:
(4.9)
(3.3)
(1.6)
(5.5)
(4.1)
(1.4)

Gains (losses) from fair value adjustments:
Fixed maturities, fair value
2.0
-
2.0
2.0
-
2.0
Equity securities, fair value
17.3
(9.0)
26.3
0.4
(64.1)
64.5
Other invested assets, fair value
3.2
(37.9)
41.1
(19.0)
(72.0)
53.0
Total
22.5
(46.9)
69.4
(16.6)
(136.1)
119.5

Total net realized gains (losses)
$         22.9
$      (50.8)
$        73.7
$       (45.2)
$    (152.7)
$      107.5

(Some amounts may not reconcile due to rounding)

~~We recorded $22.5 million in net~~

	Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance
Gains (losses) from sales:
Fixed maturity securities, market value
Gains	$	1.7		$	1.5			0.2
Losses		(2.5	)		(29.6	)		27.1
Total		(0.8	)		(28.1	)		27.3

Fixed maturity securities, fair value
Gains		0.1			-			0.1
Losses		-			-			0.0
Total		0.1			-			0.1

Equity securities, fair value
Gains		2.4			0.2			2.2
Losses		(0.5	)		(0.7	)		0.2
Total		1.9			(0.4	)		2.3

Total net realized gains (losses) from sales
Gains		4.2			1.7			2.5
Losses		(3.0	)		(30.3	)		27.3
Total		1.2			(28.5	)		29.7

Other-than-temporary impairments:		-			(0.6	)		0.6

Gains (losses) from fair value adjustments:
Fixed maturities, fair value		3.0			-			3.0
Equity securities, fair value		13.2			(16.9	)		30.1
Other invested assets, fair value		(22.7	)		(22.2	)		(0.5	)
Total		(6.5	)		(39.1	)		32.6

Total net realized capital losses	$	(5.3	)	$	(68.2	)	$	62.9

(Some amounts may not reconcile due to rounding.)

Table of Contents

Net realized capital ~~gains~~losses were $5.3 million and ~~$46.9~~$68.2 million for the three months ended March 31, 2010 and 2009, respectively. For the three months ended March 31, 2010, we recorded a $6.5 million in ~~net realized capital~~ losses due to fair value re-measurements ~~for~~on fixed maturity and equity securities and other invested assets, partially offset by $1.2 million of net realized capital gains from sales of fixed maturity and equity securities. For the three months ended ~~June 30,~~March 31, 2009, and 2008, respectively. This increase was primarily the result of improved financial markets. In addition, we recorded other-than-temporary impairments of $4.9 million and $3.3 million for the three months ended June 30, 2009 and 2008, respectively.

~~We recorded $16.6 million and $136.1 million in~~ net realized capital losses ~~due to~~included $39.1 million of fair value re-measurements ~~for the six months ended June 30, 2009~~on equity securities and ~~2008, respectively. This improvement was primarily due to the reduction~~other invested assets, $28.5 million of net realized capital losses from sales and $0.6 million in ~~our equity security holdings as we reposition our investment portfolio combined with the improved financial markets. In addition, we recorded~~ other-than-temporary impairments ~~of $5.5 million and $4.1 million~~on our available for ~~the six months ended June 30, 2009 and 2008, respectively.~~

sale fixed maturity securities.

~~Table of Contents~~

Segment Results.

Through our subsidiaries, we operate in four segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting and International. The U.S. Reinsurance operation writes property and casualty reinsurance, 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 agents, brokers and surplus lines brokers within the U.S. The Specialty Underwriting operation writes accident and health (“A&H”), marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies. The International operation writes non-U.S. property and casualty reinsurance through Everest ~~Reinsurance Company’s (“Everest Re”) branches~~Re’s br anches in Canada and Singapore and offices in Miami and New Jersey.

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

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

Table of Contents

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

U.S. Reinsurance.

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

Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in millions)
2009

2008

Variance
% Change
2009

2008

Variance
% Change
Gross written premiums
$         266.2
$      200.3
$        65.8
32.8%
$        530.5
$    434.1
$       96.4
22.2%
Net written premiums
156.8
131.1
25.7
19.6%
296.2
278.5
17.7
6.3%

Premiums earned
$         180.7
$      161.9
$        18.8
11.6%
$        327.0
$      360.0
$     (33.0)
-9.2%
Incurred losses and LAE
86.0
84.2
1.7
2.1%
176.1
205.3
(29.2)
-14.2%
Commission and brokerage
37.2
45.5
(8.3)
-18.3%
69.1
98.3
(29.2)
-29.7%
Other underwriting expenses
8.0
6.9
1.1
16.5%
15.6
15.6
(0.1)
-0.5%
Underwriting gain
$           49.5
$        25.2
$        24.3
96.2%
$          66.2
$        40.8
$       25.4
62.4%

Point Chg
Point Chg
Loss ratio
47.6%
52.0%
(4.4)
53.8%
57.0%
(3.2)
Commission and brokerage ratio
20.6%
28.1%
(7.5)
21.1%
27.3%
(6.2)
Other underwriting expense ratio
4.4%
4.3%
0.1
4.9%
4.4%
0.5
Combined ratio
72.6%
84.4%
(11.8)
79.8%
88.7%
(8.9)

(Some amounts may not reconcile due to rounding)

	Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance			% Change
Gross written premiums	$	244.0		$	264.3		$	(20.3	)		-7.7	%
Net written premiums		128.5			139.4			(11.0	)		-7.9	%

Premiums earned	$	127.0		$	146.3		$	(19.3	)		-13.2	%
Incurred losses and LAE		90.1			90.1			-			0.0	%
Commission and brokerage		27.2			31.9			(4.7	)		-14.7	%
Other underwriting expenses		7.8			7.6			0.2			3.2	%
Underwriting gain	$	1.9		$	16.7		$	(14.8	)		-88.8	%

										Point Chg
Loss ratio		71.0	%		61.6	%					9.4
Commission and brokerage ratio		21.4	%		21.8	%					(0.4	)
Other underwriting expense ratio		6.1	%		5.2	%					0.9
Combined ratio		98.5	%		88.6	%					9.9

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

Premiums.Gross written premiums ~~increased~~decreased by ~~32.8%~~7.7% to ~~$266.2~~$244.0 million for the three months ended ~~June 30, 2009~~March 31, 2010 from ~~$200.3~~$264.3 million for the three months ended ~~June 30, 2008,~~March 31, 2009, primarily due to ~~$24.4~~$20.3 million ~~from several new~~(23.2%) decrease in U.S. treaty casualty volume, a $13.4 million (63.6%) decrease in facultative volume and a $5.3 million (30.5%) decrease in the crop hail quota share treaties, ~~a $20.9~~partially offset by an $18.6 million ~~(35.4%) increase in treaty casualty volume, a $16.2 million (14.0%~~(13.5%) increase in treaty property ~~volume and a $4.3 million (17.5%) increase in facultative~~ volume. Our treaty casualty premiums were higher as we are writing more quota share business, which in part, is driven by the capital concerns of our ceding company costumers looking for broader reinsurance support. The crop hail business is a new 2009 line of business for us and we anticipate similar volume in each of the remaining quarters of 2009. Net written premiums ~~increased~~decreased by ~~19.6%~~7.9% to ~~$156.8~~$128.5 million for the three months ended ~~June 30, 2009~~March 31, 2010 compared to ~~$131.1~~$139.4 million for the three months ended ~~June 30, 2008,~~March 31, 2009, primarily due to ~~increased~~the decrease in gross written ~~premiums in conjunction with increased cessions under the affiliated quota share agreement.~~premiums. Premiums earned ~~increased~~decreased by ~~11.6%~~13.2% to ~~$180.7~~$127.0 million for the three months ended ~~June 30, 2009~~March 31, 2010 compared to ~~$161.9~~$146.3 million for the three months ended ~~June 30, 2008.~~March 31, 2009. The change in premiums earned relative to net written premiums is primarily the result of timing; premiums, for proportionate contracts, are earned ratably over the coverage period whereas written premiums are recorded on the initiation of the coverage ~~period and the impact of changes in the affiliated quota share agreement.~~period.

Gross written premiums increased by 22.2% to $530.5 million for the six months ended June 30, 2009 from $434.1 million for the six months ended June 30, 2008, primarily due to $41.6 million from the new crop hail quota share treaties, a $39.0 million (30.4%) increase in treaty casualty volume and a $17.6 million (7.0%) increase in treaty property volume, partially offset by a $1.8 million (3.4%) decrease in facultative volume. Net written premiums increased by 6.3% to $296.2 million for the six months ended June 30, 2009 compared to $278.5 million for the six months ended June 30, 2008, primarily due to increased gross written premiums in conjunction with increased cessions under the affiliated quota share agreement. Premiums earned decreased by 9.2% to $327.0 million for the six months ended June 30, 2009 compared to $360.0 million for the six months ended June 30, 2008. Variances for the six months were reflective of the change in premium volume, timing and cessions under the affiliated quota share reinsurance agreement.

Table of Contents

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

Three Months Ended June 30,
Current
Ratio%/
Prior
Ratio%/
Total
Ratio%/
(Dollars in millions)
Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2009
Attritional
$          104.0
57.6%
$          (16.2)
-8.9%
$             87.8
48.6%
Catastrophes
-
0.0%
(1.9)
-1.0%
(1.9)
-1.0%
A&E
-

0.0%

-

0.0%

-

0.0%

Total segment
$          104.0

57.6%

$          (18.0)

-10.0%

$             86.0

47.6%

2008
Attritional
$            76.3
47.1%
$              0.1
0.1%
$             76.4
47.2%
Catastrophes
6.0
3.7%
1.9
1.2%
7.9
4.9%
A&E
-

0.0%

-

0.0%

-

0.0%

Total segment
$            82.3

50.8%

$              2.0

1.2%

$             84.2

52.0%

Variance 2009/2008
Attritional
$            27.7
10.4
pts
$          (16.2)
(9.0)
pts
$             11.5
1.4
pts
Catastrophes
(6.0)
(3.7)
pts
(3.7)
(2.2)
pts
(9.7)
(5.9)
pts
A&E
-

-
pts
-

-
pts
-

-
pts
Total segment
$            21.7

6.8
pts
$          (20.0)

(11.2)
pts
$               1.7

(4.4)
pts

	Three Months Ended March 31,
	Current		Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred			Pt Change
2010
Attritional	$	76.2		60.0	%		$	(4.2	)		-3.3	%		$	71.9			56.6	%
Catastrophes		15.7		12.3	%			2.5			2.0	%			18.2			14.3	%
A&E		-		0.0	%			-			0.0	%			-			0.0	%
Total segment	$	91.9		72.3	%		$	(1.7	)		-1.4	%		$	90.1			71.0	%

2009
Attritional	$	73.5		50.2	%		$	16.5			11.2	%		$	90.0			61.5	%
Catastrophes		-		0.0	%			0.2			0.1	%			0.2			0.1	%
A&E		-		0.0	%			-			0.0	%			-			0.0	%
Total segment	$	73.5		50.2	%		$	16.6			11.4	%		$	90.1			61.6	%

Variance 2010/2009
Attritional	$	2.7		9.8		pts	$	(20.7	)		(14.5	)	pts	$	(18.1	)		(4.9	)	pts
Catastrophes		15.7		12.3		pts		2.3			1.9		pts		18.0			14.2		pts
A&E		-		-		pts		-			-		pts		-			-		pts
Total segment	$	18.4		22.1		pts	$	(18.3	)		(12.8	)	pts	$	-			9.4		pts

(Some amounts may not reconcile due to rounding.)

Six Months Ended June 30,
Current
Ratio%/
Prior
Ratio%/
Total
Ratio%/
(Dollars in millions)
Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2009
Attritional
$        177.5
54.3%
$           0.3
0.1%
$       177.8
54.4%
Catastrophes
-
0.0%
(1.7)
-0.5%
(1.7)
-0.5%
A&E
-

0.0%

-

0.0%

-

0.0%

Total segment
$        177.5

54.3%

$         (1.4)

-0.4%

$       176.1

53.8%

2008
Attritional
$        188.8
52.4%
$           4.5
1.3%
$       193.3
53.7%
Catastrophes
6.0
1.7%
6.0
1.7%
12.0
3.3%
A&E
-

0.0%

-

0.0%

-

0.0%

Total segment
$        194.8

54.1%

$         10.5

2.9%

$       205.3

57.0%

Variance 2009/2008
Attritional
$        (11.2)
1.9
pts
$         (4.2)
(1.2)
pts
$       (15.5)
0.7
pts
Catastrophes
(6.0)
(1.7)
pts
(7.7)
(2.2)
pts
(13.7)
(3.9)
pts
A&E
-

-
pts
-

-
pts
-

-
pts
Total segment
$        (17.2)

0.2
pts
$       (11.9)

(3.3)
pts
$       (29.2)

(3.2)
pts

(Some amounts may not reconcile due to rounding.)

Incurred losses ~~were higher by $1.7~~remained flat at $90.1 million for the three months ended ~~June 30, 2009 compared the three months ended June 30, 2008, primarily due to a $27.7~~March 31, 2010 and 2009. The $18.0 million (14.2 points) increase in ~~current year~~catastrophe losses was offset by a decrease in attritional losses ~~principally as a result~~ of ~~a higher reserve ratio on the new crop hail business, partially offset by $16.2~~$18.1 million ~~favorable development of prior years’ attritional losses and $9.7 million decrease due to the absence of~~(4.9 points). The 2010 catastrophe losses ~~in 2009.~~

~~Incurred losses were lower by $29.2~~consisted of $12.9 million for the ~~six months ended June 30, 2009 compared to~~Chilean earthquake and $2.8 million for the six months ended June 30, 2008, primarily due to a decrease in current year attritional losses of $11.2 million as a result of the decrease in earned premiums, the absence of catastrophe losses in 2009 and lower prior years’ reserve development in 2009 compared to 2008.

windstorm Xynthia.

Segment Expenses.Commission and brokerage expenses decreased ~~18.3%~~14.7% to ~~$37.2~~$27.2 million for the three months ended ~~June 30, 2009 from $45.5~~March 31, 2010 compared to $31.9 million for the three months ended ~~June 30, 2008. Commission and brokerage expenses decreased 29.7% to $69.1 million for the six months ended June 30,~~March 31, 2009, ~~from $98.3 million for the six months ended June 30, 2008. These decreases were~~ primarily due to the ~~fluctuation~~decline in premiums earned ~~in conjunction with the change in the mix~~ and ~~type of business written and the increased cessions under the affiliated quota share agreement.~~lower commissions on property business. Segment other underwriting expenses were ~~$8.0~~$7.8 million and ~~$6.9~~$7.6 million for the three months ended ~~June 30,~~March 31, 2010 and 2009, ~~and 2008,~~ respectively.

Table of Contents

~~Segment other underwriting expenses for the six months ended June 30, 2009 and 2008 were $15.6 million.~~

U.S. Insurance.

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

Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in millions)
2009

2008

Variance
% Change
2009

2008

Variance
% Change
Gross written premiums
$     213.5
$     191.0
$        22.5
11.8%
$   418.2
$    401.4
$       16.8
4.2%
Net written premiums
104.4
104.2
0.2
0.2%
225.5
214.4
11.2
5.2%

Premiums earned
$     105.7
$     121.1
$     (15.5)
-12.8%
$   217.6
$    264.2
$     (46.6)
-17.6%
Incurred losses and LAE
57.8
161.7
(103.9)
-64.3%
138.9
257.6
(118.7)
-46.1%
Commission and brokerage
9.8
22.9
(13.0)
-57.0%
21.9
43.6
(21.8)
-49.9%
Other underwriting expenses
19.2
15.9
3.3
20.5%
36.4
30.2
6.2
20.5%
Underwriting gain (loss)
$      18.9
$    (79.4)
$        98.2
-123.8%
$     20.4
$    (67.3)
$       87.7
-130.4%

Point Chg
Point Chg
Loss ratio
54.7%
133.5%
(78.8)
63.8%
97.5%
(33.7)
Commission and brokerage ratio
9.3%
18.9%
(9.6)
10.0%
16.5%
(6.5)
Other underwriting expense ratio
18.1%
13.1%
5.0
16.8%
11.5%
5.3
Combined ratio
82.1%
165.5%
(83.4)
90.6%
125.5%
(34.9)

(Some amounts may not reconcile due to rounding)

	Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance			% Change
Gross written premiums	$	228.2		$	204.7		$	23.5			11.5	%
Net written premiums		102.5			121.2			(18.7	)		-15.4	%

Premiums earned	$	101.2		$	112.0		$	(10.8	)		-9.7	%
Incurred losses and LAE		73.0			81.1			(8.2	)		-10.1	%
Commission and brokerage		1.6			12.0			(10.4	)		-86.3	%
Other underwriting expenses		16.6			17.3			(0.7	)		-4.1	%
Underwriting gain	$	10.0		$	1.5		$	8.5		NM

										Point Chg
Loss ratio		72.1	%		72.5	%					(0.4	)
Commission and brokerage ratio		1.6	%		10.7	%					(9.1	)
Other underwriting expense ratio		16.4	%		15.4	%					1.0
Combined ratio		90.1	%		98.6	%					(8.5	)

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

Premiums.Gross written premiums increased by ~~11.8%~~11.5% to ~~$213.5~~$228.2 million for the three months ended ~~June 30, 2009 from $191.0~~March 31, 2010 compared to $204.7 million for the three months ended ~~June 30, 2008. Approximately two-thirds ($15 million) of~~March 31, 2009. Growth was derived from the ~~growth was due to our entry into~~direct specialty operation in New York, additional property insurance written in Florida and the ~~financial institution D&O and E&O market. The remaining increase was primarily due to increases for Florida property, environmental and California~~ workers’ compensation ~~lines of~~ business. Net written premiums ~~increased slightly~~decreased by ~~0.2%~~15.4% to ~~$104.4~~$102.5 million for the three months ended ~~June 30, 2009~~March 31, 2010 compared to ~~$104.2~~$121.2 million for the three months ended ~~June 30, 2008. The change in net written premiums was primarily due to the increase in gross written premiums, partially offset by~~March 31, 2009, reflective of the change in business mix and cessions. Ceded premiums generally relate to the affiliated quota share agreement and third party specific reinsurance ~~cessions.~~purchased for i ndividual reinsured programs. Premiums earned decreased ~~12.8%~~9.7% to ~~$105.7~~$101.2 million for the three months ended ~~June 30, 2009 from $121.1~~March 31, 2010 compared to $112.0 million for the three months ended ~~June 30, 2008.~~March 31, 2009. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage ~~period and the impact of the affiliated quota share agreement.~~period.

Gross written premiums increased by 4.2% to $418.2 million for the six months ended June 30, 2009 from $401.4 million for the six months ended June 30, 2008. Net written premiums increased by 5.2% to $225.5 million for the six months ended June 30, 2009 compared to $214.4 million for the six months ended June 30, 2008. Premiums earned decreased 17.6% to $217.6 million for the six months ended June 30, 2009 from $264.2 million for the six months ended June 30, 2008. Variances for the six months were driven by the factors enumerated for the above three months.

~~Table of Contents~~

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

Three Months Ended June 30,
Current
Ratio%/
Prior
Ratio%/
Total
Ratio%/
(Dollars in millions)
Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2009
Attritional
$           75.4
71.3%
$       (17.6)
-16.7%
$         57.8
54.7%
Catastrophes
-
0.0%
-
0.0%
-
0.0%
Total segment
$           75.4

71.3%

$       (17.6)

-16.7%

$         57.8

54.7%

2008
Attritional
$           91.6
75.7%
$         70.3
58.0%
$        161.9
133.7%
Catastrophes
-
0.0%
(0.2)
-0.2%
(0.2)
-0.2%
Total segment
$           91.6

75.7%

$         70.1

57.8%

$        161.7

133.5%

Variance 2009/2008
Attritional
$         (16.2)
(4.3)
pts
$       (87.9)
(74.7)
pts
$      (104.1)
(79.0)
pts
Catastrophes
-
-
pts
0.2
0.2
pts
0.2
0.2
pts
Total segment
$         (16.2)

(4.4)
pts
$       (87.7)

(74.5)
pts
$      (103.9)

(78.8)
pts

	Six Months Ended June 30,										Three Months Ended March 31,
	Current	Ratio%/		Prior	Ratio%/		Total	Ratio%/			Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year	Pt Change		Years	Pt Change		Incurred	Pt Change			Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2010
Attritional											$	74.2			73.4	%		$	(1.3	)		-1.2	%		$	73.0			72.1	%
Catastrophes												-			0.0	%			-			0.0	%			-			0.0	%
Total segment											$	74.2			73.4	%		$	(1.3	)		-1.2	%		$	73.0			72.1	%

2009
Attritional	$ 155.4	71.4%		$ (16.5)	-7.6%		$ 138.9	63.8%			$	80.0			71.5	%		$	1.1			1.0	%		$	81.1			72.5	%
Catastrophes	-	0.0%		-	0.0%		-	0.0%				-			0.0	%			-			0.0	%			-			0.0	%
Total segment	$ 155.4	71.4%		$ (16.5)	-7.6%		$ 138.9	63.8%			$	80.0			71.5	%		$	1.1			1.0	%		$	81.1			72.5	%

2008
Attritional	$ 181.1	68.5%		$ 76.7	29.0%		$ 257.8	97.6%
Catastrophes	-	0.0%		(0.2)	-0.1%		(0.2)	-0.1%
Total segment	$ 181.1	68.5%		$ 76.5	29.0%		$ 257.6	97.5%

Variance 2009/2008
Variance 2010/2009
Attritional	$ (25.7)	2.9	pts	$ (93.2)	(36.6)	pts	$ (118.9)	(33.7)	pts		$	(5.8	)		1.9		pts	$	(2.4	)		(2.2	)	pts	$	(8.1	)		(0.4	)	pts
Catastrophes	-	-	pts	0.2	0.1	pts	0.2	0.1	pts			-			-		pts		-			-		pts		-			-		pts
Total segment	$ (25.7)	2.9	pts	$ (93.0)	(36.6)	pts	$ (118.7)	(33.7)	pts		$	(5.8	)		1.9		pts	$	(2.4	)		(2.2	)	pts	$	(8.1	)		(0.4	)	pts

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

	At June 30, 2009
	Amortized	Unrealized	Unrealized	Market
(Dollars in thousands)	Cost	Appreciation	Depreciation	Value
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$ 127,336	$ 5,692	$ (221)	$ 132,807
Obligations of U.S. states and political subdivisions	3,775,122	130,508	(80,283)	3,825,347
Corporate securities	602,970	17,837	(39,066)	581,741
Asset-backed securities	20,067	446	(3,112)	17,401
Mortgage-backed securities
Commercial	22,826	2,256	(504)	24,578
Agency residential	362,950	7,645	(75)	370,520
Non-agency residential	62,235	242	(13,300)	49,177
Foreign government securities	549,575	27,511	(4,599)	572,487
Foreign corporate securities	471,799	11,337	(17,761)	465,375
Total fixed maturity securities	$ 5,994,880	$ 203,474	$ (158,921)	$ 6,039,433
Equity securities	$ 15	$ (3)	$ -	$ 12

	At December 31, 2008
	Amortized	Unrealized	Unrealized	Market
(Dollars in thousands)	Cost	Appreciation	Depreciation	Value
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$ 139,776	$ 15,456	$ -	$ 155,232
Obligations of U.S. states and political subdivisions	3,846,754	113,885	(164,921)	3,795,718
Corporate securities	482,533	18,404	(64,620)	436,317
Asset-backed securities	13,795	7	(4,441)	9,361
Mortgage-backed securities
Commercial	6,516	-	(1,067)	5,449
Agency residential	170,299	4,838	(33)	175,104
Non-agency residential	54,816	-	(18,252)	36,564
Foreign government securities	467,935	32,538	(7,776)	492,697
Foreign corporate securities	428,059	6,602	(29,247)	405,414
Total fixed maturity securities	$ 5,610,483	$ 191,730	$ (290,357)	$ 5,511,856
Equity securities	$ 15	$ 1	$ -	$ 16

	By Asset
	Corporate		Asset-backed			Non-agency
(Dollars in thousands)	Securities		Securities			RMBS			Total
Beginning balance January 1, 2010	$	6,930	$	6,258		$	426		$	13,614
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		-		-			25			25
Included in other comprenhensive income		-		(78	)		41			(37	)
Purchases, issuances and settlements		-		188			(36	)		152
Transfers in and/or (out) of Level 3		-		-			-			-
Ending balance March 31, 2010	$	6,930	$	6,368		$	456		$	13,754

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

(Some amounts may not reconcile due to rounding.)

	Summary
	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Assets:
Balance, beginning of period	$	13,614		$	10,967
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		25			(25	)
Included in other comprehensive income		(37	)		181
Purchases, issuances and settlements		152			2,975
Transfers in and/or (out) of Level 3		-			(6,634	)
Balance, end of period	$	13,754		$	7,464

The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized
gains or losses relating to assets still held at the reporting date	$	-		$	(131	)

(1)	The following are the components of URA(D) of investments:

		Three Months Ended		Six Months Ended
		June 30,		June 30,
	(Dollars in thousands)	2009	2008	2009	2008
	URA(D) of investments - temporary	$ 71,883	$ (80,474)	$ 159,825	$ (119,931)
	Tax (expense) benefit	(25,159)	28,166	(55,939)	41,975
	Net URA(D) of investments - temporary	$ 46,724	$ (52,308)	$ 103,886	$ (77,956)

	URA(D) of investments - credit OTTI	$ 3,826	$ -	$ 3,826	$ -
	Tax (expense) benefit	(1,339)	-	(1,339)	-
	Net URA(D) of investments - credit OTTI	$ 2,487	$ -	$ 2,487	$ -

	URA(D) of investments - non-credit OTTI	$ 5,598	$ -	$ 5,598	$ -
	Tax (expense) benefit	(1,959)	-	(1,959)	-
	Net URA(D) of investments - non-credit OTTI	$ 3,639	$ -	$ 3,639	$ -

(Dollars in thousands)
Bank	Commitment	In Use	Date of Expiry
Citibank Holdings Credit Facility	$ 150,000	$ 27,959	12/31/2009
Total Citibank Holdings Credit Facility	$ 150,000	$ 27,959

	Three Months Ended		Percentage	Six Months Ended		Percentage
	June 30,		Increase/	June 30,		Increase/
(Dollars in millions)	2009	2008	(Decrease)	2009	2008	(Decrease)
Gross written premiums	$ 811.1	$ 694.5	16.8%	$ 1,589.8	$ 1,380.0	15.2%
Net written premiums	447.2	425.7	5.0%	875.7	836.5	4.7%

REVENUES:
Premiums earned	$ 460.8	$ 471.4	-2.3%	$ 899.2	$ 971.4	-7.4%
Net investment income	74.5	107.0	-30.3%	114.2	195.0	-41.4%
Net realized capital gains (losses)	22.9	(50.8)	-145.2%	(45.2)	(152.7)	-70.4%
Gain on tender of debt	-	-	NM	78.3	-	NM
Other expense	(7.2)	(2.7)	163.7%	(7.3)	(24.0)	-69.7%
Total revenues	551.1	524.9	5.0%	1,039.1	989.7	5.0%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses	246.1	359.1	-31.5%	535.3	668.8	-20.0%
Commission, brokerage, taxes and fees	86.9	111.6	-22.1%	175.1	221.5	-20.9%
Other underwriting expenses	36.7	30.8	19.5%	69.4	63.0	10.1%
Interest, fee and bond issue cost amortization expense	17.1	19.7	-13.5%	36.7	39.5	-7.0%
Total claims and expenses	386.8	521.2	-25.8%	816.5	992.8	-17.8%

INCOME (LOSS) BEFORE TAXES	164.2	3.7	NM	222.6	(3.1)	NM
Income tax expense (benefit)	35.7	(9.9)	NM	48.5	(21.4)	NM
NET INCOME	$ 128.5	$ 13.7	NM	$ 174.2	$ 18.3	NM

			Point			Point
RATIOS:			Change			Change
Loss ratio	53.4%	76.2%	(22.8)	59.5%	68.8%	(9.3)
Commission and brokerage ratio	18.9%	23.7%	(4.8)	19.5%	22.8%	(3.3)
Other underwriting expense ratio	7.9%	6.5%	1.4	7.7%	6.5%	1.2
Combined ratio	80.2%	106.4%	(26.2)	86.7%	98.1%	(11.4)

				At	At	Percentage
				June 30,	December 31,	Increase/
(Dollars in millions)				2009	2008	(Decrease)
Balance sheet data:
Total investments and cash				$ 7,527.7	$ 7,395.1	1.8%
Total assets				13,029.8	12,866.6	1.3%
Loss and loss adjustment expense reserves				7,264.1	7,420.0	-2.1%
Total debt				1,017.9	1,179.1	-13.7%
Total liabilities				10,527.2	10,663.7	-1.3%
Stockholder's equity				2,502.6	2,203.0	13.6%

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

	Three Months Ended June 30,
	Current	Ratio%/		Prior	Ratio%/		Total	Ratio%/
(Dollars in millions)	Year	Pt Change		Years	Pt Change		Incurred	Pt Change
2009
Attritional (a)	$ 284.8	61.8%		$ (37.0)	-8.0%		$ 247.8	53.8%
Catastrophes	-	0.0%		(1.7)	-0.4%		(1.7)	-0.4%
A&E	-	0.0%		-	0.0%		-	0.0%
Total segment	$ 284.8	61.8%		$ (38.7)	-8.4%		$ 246.1	53.4%

2008
Attritional (a)	$ 291.2	61.8%		$ 55.1	11.7%		$ 346.3	73.5%
Catastrophes	12.0	2.6%		0.8	0.2%		12.8	2.7%
A&E	-	0.0%		-	0.0%		-	0.0%
Total segment	$ 303.2	64.3%		$ 55.9	11.9%		$ 359.1	76.2%

Variance 2009/2008
Attritional (a)	$ (6.4)	-	pts	$ (92.1)	(19.7)	pts	$ (98.5)	(19.7)	pts
Catastrophes	(12.0)	(2.6)	pts	(2.5)	(0.5)	pts	(14.5)	(3.1)	pts
A&E	-	-	pts	-	-	pts	-	-	pts
Total segment	$ (18.4)	(2.5)	pts	$ (94.6)	(20.3)	pts	$ (113.0)	(22.8)	pts

	At June 30,	At December 31,
	2009	2008
Imbedded pre-tax yield of cash and invested assets	3.9%	4.3%
Imbedded after-tax yield of cash and invested assets	3.2%	3.5%

	Impact of Interest Rate Shift in Basis Points
	At June 30, 2009
(Dollars in millions)	-200		-100		0		100		200
Total Market/Fair Value	$ 7,315.1		$ 6,992.9		$ 6,643.4		$ 6,296.8		$ 5,977.3
Market/Fair Value Change from Base (%)	10.1	%	5.3	%	0.0	%	-5.2	%	-10.0	%
Change in Unrealized Appreciation
After-tax from Base ($)	$ 436.6		$ 227.1		$ -		$ (225.3)		$ (433.0)

	Impact of Percentage Change in Equity Fair/Market Values
	At June 30, 2009
(Dollars in millions)	-20%	-10%	0%	10%	20%
Fair/Market Value of the Equity Portfolio	$ 106.0	$ 119.2	$ 132.5	$ 145.7	$ 158.9
After-tax Change in Fair/Market Value	$ (17.2)	$ (8.6)	$ -	$ 8.6	$ 17.2