| |||||||||||||||||||||||
| |||||||||||||||||||||||
FOR THE QUARTERLY PERIOD ENDED:
March 31, 2010 | Commission file number: 1-14527 |
Delaware | 22-3263609 | ||||||||||||||||||||||
| |||||||||||||||||||||||
|
| ||||||||||||||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
YES | X | NO |
YES | NO |
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
|
|
| |||||||||||||||||||||||
| |||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
| |||||||||||||||||||||||||
Large accelerated filer | Accelerated filer | ||||||||||||||||||||||||
Non-accelerated filer | X | Smaller reporting company | |||||||||||||||||||||||
|
|
| |||||||||||||||||||||||
(Do not check if smaller reporting company) |
YES | NO | X |
| ||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||
| ||||||||||||||||||||||||
| Number of Shares Outstanding
| |||||||||||||||||||||||
Class | At May 1, 2010 | |||||||||||||||||||||||
Common | 1,000 |
Item 1. | Financial Statements | |||||||||||||||||||||||
| ||||||||||||||||||||||||
| |||||||
| |||||||
| |||||||
| |||||||
| |||||||
|
| ||||||
Consolidated Balance Sheets at | |||||||
1 | |||||||
2 | |||||||
3 | |||||||
4 | |||||||
5 | |||||||
Item 2. | |||||||
| |||||||
Item 3. |
| ||||||
Item 4. |
| ||||||
Item 1. | 42 | ||||||
| |||||||
Item 1A. | 42 | ||||||
| |||||||
|
| ||||||
|
| ||||||
Item 2. |
42 | ||||||
Item 3. |
42 | ||||||
Item 4. |
42 | ||||||
Item 5. |
42 | ||||||
Item 6. |
| ||||||
42 |
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. |
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. |
CHANGES IN STOCKHOLDER’S EQUITY
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. |
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. |
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. |
GENERAL
2. New
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.
first part of this guidance effective January 1, 2010.
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
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.
INVESTMENTS
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 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 |
of $2.0 million at December 31, 2009.
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 |
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 |
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 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 | ) |
and principal payments. Unrealized losses have decreased since year endDecember 31, 2009, as a result of improved conditions in the overall financial market.
market resulting from increased liquidity and lower interest rates.
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 | ) |
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 includesincluded 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.
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 |
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 | ) |
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
non-credit component.
March 31, 2010.
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.
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 | - | - |
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 | - | - |
| 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) |
CAPITAL TRANSACTIONS CONTINGENCIES 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 los ses. 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 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 ) Capital TransactionsSecurities 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.Contingenciesoutcomeoutcom 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.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, directlosses.
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 |
the Company would be liable for those claim liabilities. At June 30, 2009March 31, 2010 and December 31, 2008,2009, the estimated cost to replace such annuities was $23.6 million and $23.1 million, respectively.
OTHER COMPREHENSIVE INCOME 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 $ - 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) CREDIT LINE respectively. LETTERS OF CREDIT (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 TRUST AGREEMENTS SENIOR NOTES On March 15, 2010, the $200.0 million principal amount of 8.75% senior notes matured, and was paid in cash. LONG TERM SUBORDINATED NOTES JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE SEGMENT REPORTING 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 U.S. Insurance June 30, June 30, (Dollars in thousands) 2009 2008 2009 2008 Gross written premiums $ 213,511 $ 190,977 $ 418,228 $ 401,437 Net written premiums 104,358 104,182 225,510 214,352 Premiums earned $ 105,651 $ 121,114 $ 217,623 $ 264,210 Incurred losses and LAE 57,762 161,680 138,906 257,579 Commission and brokerage 9,849 22,892 21,867 43,640 Other underwriting expenses 19,152 15,900 36,433 30,242 Underwriting gain (loss) $ 18,888 $ (79,358) $ 20,417 $ (67,251)Other Comprehensive Income (Loss)other comprehensive income (loss) in the consolidated statements of operations and comprehensive income for the periods indicated: 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 (loss), net of tax, in the consolidated balance sheets for the periods indicated: 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 Credit LineJune 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.June 30, 2009March 31, 2010 and December 31, 2008, there were2009, the Holdings Credit Facility had outstanding letters of credit of $17.0 million and $28.0 million, respectively, under the Holdings Credit Facility.$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.Letters of CreditJune 30, 2009March 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 $ 16,951 12/31/2010 Total Citibank Holdings Credit Facility $ 150,000 $ 16,951 Trust AgreementsJune 30, 2009,March 31, 2010, the total amount on deposit in the trust account was $20.9$23.7 million.Senior NotesJune 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, 2009March 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.Long Term Subordinated NotesFebruaryFe 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.afteraf 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.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.$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, 2009March 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.Junior Subordinated Debt Securities PayableJune 30, 2009March 31, 2010 and December 31, 2008, was $264.6 million and $222.2 million,2009, respectively, for the 6.20% junior subordinated debt securities.June 30, 2009March 31, 2010 and 2008, and $10.2 million for the six months ended June 30, 2009 and 2008, respectively.2009.2008, $1,745.62009, $2,352.0 million of the $2,735.2$3,271.1 million in net assets of the Company’sCompany’ ;s consolidated subsidiaries were subject to the foregoing regulatory restrictions.Segment Resultsin a coordinated fashionindependently, 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.("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. Three Months Ended U.S. Reinsurance March 31, 2010 2009 $ 244,008 $ 264,331 128,462 139,432 $ 127,001 $ 146,333 90,108 90,141 27,218 31,919 7,806 7,562 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 |
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 |
RELATED-PARTY TRANSACTIONS
· | 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.
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”).
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 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, 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. 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.
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, 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. |
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 | 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 |
INCOME TAXES
SUBSEQUENT EVENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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 naturewell.
The 2009 renewals rates,we have seen some increases, particularly for property catastrophescatastrophe exposed business. We have grown our business in the Middle East, Latin America and retrocessional coversAsia. 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.
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) |
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 the coverage period. 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 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.) $116.6$34.8 million, or 16.8%4.5%, for the three months ended June 30, 2009March 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,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 directorsinstitution 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.increaseddecreased by $21.5$15.2 million, or 5.0%3.5%, for the three months ended June 30, 2009March 31, 2010 compared to the three months ended June 30, 2008March 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%, forthat fluctuate based upon the six months ended June 30, 2009 compared tolevel 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, 2009March 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.decreasedincreased by 30.3% and 41.4%114.6% for the three and six months ended June 30, 2009March 31, 2010 compared to the three and six months ended June 30, 2008, respectively. These decreases wereMarch 31, 2009, primarily due to net investment incomegains from our limited partnership investmentspartnerships that invest in public and non-public securities, both equity and debt, which reportdebt. Gains related to us on a quarter lag and a year over year declinethese 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.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. NetFor 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 $45.2from sales and $0.6 million and $152.7 millionin 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.announced the commencement ofcommenced 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.ExpenseIncome (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, whichrespectively. 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.Loss Adjustment Expenses.LAE.The following tables presenttable presents our incurred losses and loss adjustment expenses (“LAE”) for all segmentsLAE for the periods indicated.
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.) |
Incurred losses and LAE were lower by $133.5 million, or 20.0%, for the sixthree months ended June 30, 2009 compared to the same period in 2008. The decreaseMarch 31, 2010 was the result of the reductionan increase in prior years’ attritional losses primarily due to the absence in 2009 of $85.3 million reserve strengthening on an auto loan credit program andexpected loss ratios, which more than offset a $32.6 million unfavorable arbitration decision on a reinsurance claim. In addition, current year attritional losses decreased $40.8 million primarily due to the decrease in earned premiums.
Commission, Brokerage, Taxes and Fees.Commission, brokerage, taxes and fees decreased by $24.6$20.4 million, or 22.1%23.1%, for the three months ended June 30, 2009March 31, 2010 compared to the same period in 20082009. The decrease was primarily the result of lower commission rates on property contracts in conjunction with the increase in reinstatement premiums, which have no brokerage commissions and by $46.3 million, or 20.9%, for the six months ended June 30, 2009 compared to the same periodchanges in 2008. The change in this directly variable expense was influenced by the change in the mix and blend of business and increased cessions under the affiliated quota share agreement.
Our
three months ended March 31, 2009.
Consolidated Investment Results
reporting lag.
Three Months Ended | Six Months Ended | ||||||
June 30, | June 30, | ||||||
(Dollars in millions) | 2009 |
| 2008 | 2009 |
| 2008 | |
Fixed maturity securities | $ 71.6 | $ 77.9 | $ 141.9 | $ 152.0 | |||
Equity securities | 0.7 | 1.7 | 1.4 | 3.4 | |||
Short-term investments and cash | 0.8 | 6.6 | 3.1 | 19.5 | |||
Other invested assets | |||||||
Limited partnerships | 2.0 | 21.3 | (32.1) | 19.7 | |||
Other | 2.3 | 1.9 | 5.0 | 4.6 | |||
Total gross investment income | 77.4 | 109.4 | 119.3 | 199.2 | |||
Interest credited and other expense | (2.9) | (2.4) | (5.1) | (4.2) | |||
Total net investment income | $ 74.5 | $ 107.0 | $ 114.2 | $ 195.0 | |||
(Some amounts may not reconcile due to rounding) |
Three Months Ended | ||||||||
March 31, | ||||||||
(Dollars in millions) | 2010 | 2009 | ||||||
Fixed maturities | $ | 73.6 | $ | 70.3 | ||||
Equity securities | 2.4 | 0.7 | ||||||
Short-term investments and cash | 0.1 | 2.2 | ||||||
Other invested assets | ||||||||
Limited partnerships | 9.4 | (34.1 | ) | |||||
Other | 1.8 | 2.8 | ||||||
Total gross investment income | 87.2 | 41.9 | ||||||
Interest credited and other expense | (2.1 | ) | (2.3 | ) | ||||
Total net investment income | $ | 85.1 | $ | 39.7 | ||||
(Some amounts may not reconcile due to rounding.) |
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% |
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% |
Losses. 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) Segment Results. 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) Incurred Losses and LAE.The following 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 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.) windstorm Xynthia. 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) Incurred Losses and LAE.The following 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, Current Ratio%/ Prior Ratio%/ Total Ratio%/ (Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change 2009 Attritional $ 155.4 71.4% $ (16.5) -7.6% $ 138.9 63.8% Catastrophes - 0.0% - 0.0% - 0.0% Total segment $ 155.4 71.4% $ (16.5) -7.6% $ 138.9 63.8% 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 Attritional $ (25.7) 2.9 pts $ (93.2) (36.6) pts $ (118.9) (33.7) pts Catastrophes - - pts 0.2 0.1 pts 0.2 0.1 pts Total segment $ (25.7) 2.9 pts $ (93.0) (36.6) pts $ (118.7) (33.7) pts (Some amounts may not reconcile due to rounding.) (Some amounts may not reconcile due to rounding.) 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% Gains (Losses).gains (losses)losses for the periods indicated: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.) gainslosses 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 foron 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 toincluded $39.1 million of fair value re-measurements for the six months ended June 30, 2009on equity securities and 2008, respectively. This improvement was primarily due to the reductionother 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 millionon our available for the six months ended June 30, 2009 and 2008, respectively.Reinsurance Company’s (“Everest Re”) branchesRe’s br anches in Canada and Singapore and offices in Miami and New Jersey.in a coordinated fashionindependently, 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. 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.) increaseddecreased by 32.8%7.7% to $266.2$244.0 million for the three months ended June 30, 2009March 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 $20.9partially 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 increaseddecreased by 19.6%7.9% to $156.8$128.5 million for the three months ended June 30, 2009March 31, 2010 compared to $131.1$139.4 million for the three months ended June 30, 2008,March 31, 2009, primarily due to increasedthe decrease in gross written premiums in conjunction with increased cessions under the affiliated quota share agreement.premiums. Premiums earned increaseddecreased by 11.6%13.2% to $180.7$127.0 million for the three months ended June 30, 2009March 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.tables presenttable presents the incurred losses and LAE for the U.S. Reinsurance segment for the periods indicated. 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.) were higher by $1.7remained 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 $27.7March 31, 2010 and 2009. The $18.0 million (14.2 points) increase in current yearcatastrophe 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 $29.2consisted of $12.9 million for the six months ended June 30, 2009 compared toChilean 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 2008.18.3%14.7% to $37.2$27.2 million for the three months ended June 30, 2009 from $45.5March 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 fluctuationdecline 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.Segment other underwriting expenses for the six months ended June 30, 2009 and 2008 were $15.6 million. 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.) 11.8%11.5% to $213.5$228.2 million for the three months ended June 30, 2009 from $191.0March 31, 2010 compared to $204.7 million for the three months ended June 30, 2008. Approximately two-thirds ($15 million) ofMarch 31, 2009. Growth was derived from the growth was due to our entry intodirect 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 slightlydecreased by 0.2%15.4% to $104.4$102.5 million for the three months ended June 30, 2009March 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 byMarch 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 $121.1March 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.tables presenttable presents the incurred losses and LAE for the U.S. Insurance segment for the periods indicated. Three Months Ended March 31, Current Ratio %/ Prior Ratio %/ Total Ratio %/ 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 % $ 80.0 71.5 % $ 1.1 1.0 % $ 81.1 72.5 % - 0.0 % - 0.0 % - 0.0 % $ 80.0 71.5 % $ 1.1 1.0 % $ 81.1 72.5 % Variance 2010/2009 $ (5.8 ) 1.9 pts $ (2.4 ) (2.2 ) pts $ (8.1 ) (0.4 ) pts - - pts - - pts - - pts $ (5.8 ) 1.9 pts $ (2.4 ) (2.2 ) pts $ (8.1 ) (0.4 ) pts (Some amounts may not reconcile due to rounding.)
Incurred losses and LAE decreased by 46.1% to $138.9 million for the six months ended June 30, 2009 from $257.6 million for the six months ended June 30, 2008, primarily driven by the absence of the 2008 $85.3 million prior years’ attritional loss development on an auto loan credit program and the decrease in 2009 of the current year attritional losses,was primarily due to the decrease in earned premiums.
premium and favorable prior year’s reserve development, partially offset by higher expected attritional loss ratios.
$36.4 million and $30.2 million for the six months ended June 30, 2009 and 2008, respectively. These increases are primarily due to compensation costs.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
(Dollars in millions) | 2009 |
| 2008 |
| Variance | % Change | 2009 |
| 2008 |
| Variance | % Change | |
Gross written premiums | $ 57.2 | $ 84.2 | $ (27.0) | -32.1% | $ 116.1 | $ 139.1 | $ (23.0) | -16.5% | |||||
Net written premiums | 32.1 | 57.3 | (25.2) | -43.9% | 64.7 | 94.2 | (29.5) | -31.3% | |||||
| |||||||||||||
Premiums earned | $ 32.5 | $ 55.5 | $ (23.0) | -41.4% | $ 69.3 | $ 91.0 | $ (21.7) | -23.8% | |||||
Incurred losses and LAE | 23.2 | 25.9 | (2.8) | -10.6% | 48.5 | 44.1 | 4.4 | 10.0% | |||||
Commission and brokerage | 8.9 | 11.8 | (2.9) | -24.8% | 18.9 | 21.8 | (2.8) | -13.0% | |||||
Other underwriting expenses | 2.0 | 1.8 | 0.2 | 9.0% | 3.8 | 4.2 | (0.4) | -9.4% | |||||
Underwriting (loss) gain | $ (1.5) | $ 15.9 | $ (17.4) | -109.6% | $ (2.0) | $ 20.9 | $ (22.8) | -109.5% | |||||
| |||||||||||||
Point Chg | Point Chg | ||||||||||||
Loss ratio | 71.3% | 46.7% | 24.6 | 70.0% | 48.5% | 21.5 | |||||||
Commission and brokerage ratio | 27.3% | 21.2% | 6.1 | 27.3% | 23.9% | 3.4 | |||||||
Other underwriting expense ratio | 6.1% | 3.4% | 2.7 | 5.6% | 4.7% | 0.9 | |||||||
Combined ratio | 104.7% | 71.3% | 33.4 | 102.9% | 77.1% | 25.8 | |||||||
| |||||||||||||
(Some amounts may not reconcile due to rounding) |
Three Months Ended March 31, (Dollars in millions) 2010 2009 Variance % Change Gross written premiums $ 65.9 $ 58.9 $ 7.0 11.8 % Net written premiums 37.2 32.6 4.6 14.2 % Premiums earned $ 38.9 $ 36.8 $ 2.1 5.6 % Incurred losses and LAE 27.5 25.4 2.1 8.2 % Commission and brokerage 8.5 10.1 (1.5 ) -15.2 % Other underwriting expenses 2.0 1.8 0.1 5.7 % Underwriting gain (loss) $ 1.0 $ (0.5 ) $ 1.4 NM Point Chg Loss ratio 70.6 % 68.9 % 1.7 Commission and brokerage ratio 21.9 % 27.3 % (5.4 ) Other underwriting expense ratio 5.1 % 5.0 % 0.1 Combined ratio 97.6 % 101.2 % (3.6 ) (NM, not meaningful) (Some amounts may not reconcile due to rounding.) decreasedincreased by 32.1%11.8% to $57.2$65.9 million for the three months ended June 30, 2009 from $84.2March 31, 2010 compared to $58.9 million for the three months ended June 30, 2008,March 31, 2009. This was driven by a strong demand in our A&H business, $7.0 million, as more and more employers are self insuring their medical programs leading to more opportunities for us in the medical stop loss business. Net written premiums increased by 14.2% to $37.2 million for the three months ended March 31, 2010 compared to $32.6 million for the three months ended March 31, 2009, primarily as a result of the intentional decreaseincrease in gross writings combined with the change in the marine and A&H lines. Net written premiums decreased by 43.9%business mix. Premiums earned increas ed to $32.1$38.9 million for the three months ended June 30, 2009March 31, 2010 compared to $57.3$36.8 million for the three months ended June 30, 2008, as a result of the decrease in gross writings combined with the increase in cessions under the affiliated quota share reinsurance agreement. Premiums earned decreased by 41.4% to $32.5 million for the three months ended June 30, 2009 compared to $55.5 million for the three months ended June 30, 2008, in line with the change in net written premiums.Gross written premiums decreased by 16.5% to $116.1 million for the six months ended June 30, 2009 from $139.1 million for the six months ended June 30, 2008, primarily due to a $24.2 million in marine premiums. Net written premiums decreased by 31.3% to $64.7 million for the six months ended June 30, 2009 compared to $94.2 million for the six months ended June 30, 2008, as a result of the decrease in gross writings and increased cessions under the affiliated quota share agreement. Premiums earned decreased by 23.8% to $69.3 million for the six months ended June 30, 2009 compared to $91.0 million for the six 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.
Incurred Losses and LAE.The following tables presenttable presents the incurred losses and LAE for the Specialty Underwriting 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 | $ 28.2 | 86.8% | $ (6.7) | -20.7% | $ 21.5 | 66.1% | ||||||||
Catastrophes | - | 0.0% | 1.7 | 5.2% | 1.7 | 5.2% | ||||||||
Total segment | $ 28.2 |
| 86.7% |
| $ (5.0) |
| -15.5% |
| $ 23.2 |
| 71.3% |
| ||
| ||||||||||||||
2008 | ||||||||||||||
Attritional | $ 45.1 | 81.4% | $ (19.2) | -34.7% | $ 25.9 | 46.7% | ||||||||
Catastrophes | - | 0.0% | - | 0.0% | - | 0.0% | ||||||||
Total segment | $ 45.1 |
| 81.4% |
| $ (19.2) |
| -34.7% |
| $ 25.9 |
| 46.7% |
| ||
| ||||||||||||||
Variance 2009/2008 | ||||||||||||||
Attritional | $ (17.0) | 5.3 | pts | $ 12.5 | 14.0 | pts | $ (4.4) | 19.4 | pts | |||||
Catastrophes | - | - | pts | 1.7 | 5.2 | pts | 1.7 | 5.2 | pts | |||||
Total segment | $ (17.0) |
| 5.3 | pts | $ 14.2 |
| 19.2 | pts | $ (2.8) |
| 24.6 | 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 | $ | 26.6 | 68.3 | % | $ | (0.3 | ) | -0.7 | % | $ | 26.3 | 67.6 | % | ||||||||||||||||||||||||||||
Catastrophes | - | 0.0 | % | 1.2 | 3.0 | % | 1.2 | 3.0 | % | ||||||||||||||||||||||||||||||||
Total segment | $ | 26.6 | 68.3 | % | $ | 0.9 | 2.3 | % | $ | 27.5 | 70.6 | % | |||||||||||||||||||||||||||||
2009 | |||||||||||||||||||||||||||||||||||||||||
Attritional | $ 50.8 | 73.3% | $ (5.8) | -8.4% | $ 44.9 | 64.8% | $ | 22.6 | 61.3 | % | $ | 0.9 | 2.4 | % | $ | 23.5 | 63.7 | % | |||||||||||||||||||||||
Catastrophes | - | 0.0% | 3.6 | 5.2% | 3.6 | 5.2% | - | 0.0 | % | 1.9 | 5.2 | % | 1.9 | 5.2 | % | ||||||||||||||||||||||||||
Total segment | $ 50.8 |
| 73.3% |
| $ (2.2) |
| -3.2% |
| $ 48.5 |
| 70.0% |
| $ | 22.6 | 61.3 | % | $ | 2.8 | 7.6 | % | $ | 25.4 | 68.9 | % | |||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||
2008 | |||||||||||||||||||||||||||||||||||||||||
Attritional | $ 65.0 | 71.4% | $ (22.2) | -24.4% | $ 42.7 | 47.0% | |||||||||||||||||||||||||||||||||||
Catastrophes | - | 0.0% | 1.4 | 1.5% | 1.4 | 1.5% | |||||||||||||||||||||||||||||||||||
Total segment | $ 65.0 |
| 71.4% |
| $ (20.8) |
| -22.9% |
| $ 44.1 |
| 48.5% |
| |||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||
Variance 2009/2008 | |||||||||||||||||||||||||||||||||||||||||
Variance 2010/2009 | |||||||||||||||||||||||||||||||||||||||||
Attritional | $ (14.2) | 1.9 | pts | $ 16.4 | 16.0 | pts | $ 2.2 | 17.9 | pts | $ | 4.0 | 7.0 | pts | $ | (1.2 | ) | (3.1 | ) | pts | $ | 2.8 | 3.9 | pts | ||||||||||||||||||
Catastrophes | - | - | pts | 2.2 | 3.7 | pts | 2.2 | 3.7 | pts | - | - | pts | (0.7 | ) | (2.2 | ) | pts | (0.7 | ) | (2.2 | ) | pts | |||||||||||||||||||
Total segment | $ (14.2) |
| 1.9 | pts | $ 18.6 |
| 19.7 | pts | $ 4.4 |
| 21.5 | pts | $ | 4.0 | 7.0 | pts | $ | (1.9 | ) | (5.3 | ) | pts | $ | 2.1 | 1.7 | pts | |||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) | (Some amounts may not reconcile due to rounding.) | (Some amounts may not reconcile due to rounding.) |
2010.
International.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
(Dollars in millions) | 2009 |
| 2008 |
| Variance | % Change | 2009 |
| 2008 |
| Variance | % Change | |
Gross written premiums | $ 274.3 | $ 219.0 | $ 55.3 | 25.2% | $ 525.0 | $ 405.4 | $ 119.6 | 29.5% | |||||
Net written premiums | 154.0 | 133.2 | 20.8 | 15.6% | 289.3 | 249.5 | 39.9 | 16.0% | |||||
| |||||||||||||
Premiums earned | $ 141.9 | $ 133.0 | $ 9.0 | 6.7% | $ 285.2 | $ 256.2 | $ 29.0 | 11.3% | |||||
Incurred losses and LAE | 79.2 | 87.3 | (8.1) | -9.2% | 171.8 | 161.8 | 9.9 | 6.1% | |||||
Commission and brokerage | 31.0 | 31.3 | (0.3) | -1.1% | 65.2 | 57.8 | 7.5 | 12.9% | |||||
Other underwriting expenses | 5.7 | 4.7 | 0.9 | 19.7% | 10.3 | 9.8 | 0.5 | 5.1% | |||||
Underwriting gain | $ 26.0 | $ 9.6 | $ 16.4 | 171.4% | $ 38.0 | $ 26.8 | $ 11.1 | 41.5% | |||||
| |||||||||||||
Point Chg | Point Chg | ||||||||||||
Loss ratio | 55.8% | 65.6% | (9.8) | 60.2% | 63.2% | (3.0) | |||||||
Commission and brokerage ratio | 21.8% | 23.6% | (1.8) | 22.9% | 22.5% | 0.4 | |||||||
Other underwriting expense ratio | 4.1% | 3.6% | 0.5 | 3.6% | 3.8% | (0.2) | |||||||
Combined ratio | 81.7% | 92.8% | (11.1) | 86.7% | 89.5% | (2.8) | |||||||
| |||||||||||||
(Some amounts may not reconcile due to rounding) |
Incurred Losses and LAE.The following 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 $ 77.3 54.4% $ 3.4 2.4% $ 80.7 56.9% Catastrophes - 0.0% (1.5) -1.1% (1.5) -1.1% Total segment $ 77.3 54.4% $ 2.0 1.4% $ 79.2 55.8% 2008 Attritional $ 78.2 58.8% $ 4.0 3.0% $ 82.2 61.8% Catastrophes 6.0 4.5% (0.9) -0.7% 5.1 3.9% Total segment $ 84.2 63.3% $ 3.1 2.3% $ 87.3 65.6% Variance 2009/2008 Attritional $ (0.9) (4.4) pts $ (0.5) (0.6) pts $ (1.5) (4.9) pts Catastrophes (6.0) (4.5) pts (0.6) (0.4) pts (6.6) (4.9) pts Total segment $ (6.9) (8.9) pts $ (1.1) (0.9) pts $ (8.1) (9.8) pts Three Months Ended March 31, (Dollars in millions) 2010 2009 Variance % Change Gross written premiums $ 275.4 $ 250.8 $ 24.6 9.8 % Net written premiums 145.2 135.4 9.9 7.3 % Premiums earned $ 147.1 $ 143.3 $ 3.8 2.6 % Incurred losses and LAE 236.5 92.5 144.0 155.6 % Commission and brokerage 30.4 34.2 (3.8 ) -11.0 % Other underwriting expenses 6.4 4.6 1.8 38.1 % Underwriting (loss) gain $ (126.2 ) $ 11.9 $ (138.2 ) NM Point Chg Loss ratio 160.8 % 64.6 % 96.2 Commission and brokerage ratio 20.7 % 23.9 % (3.2 ) Other underwriting expense ratio 4.3 % 3.2 % 1.1 Combined ratio 185.8 % 91.7 % 94.1 (NM, not meaningful) (Some amounts may not reconcile due to rounding.) 25.2%9.8% to $274.3$275.4 million for the three months ended June 30, 2009 from $219.0March 31, 2010 compared to $250.8 million for the three months ended June 30, 2008. As a result of ourMarch 31, 2009. Continued strong financial strength ratings, we continue to see increased participations on treatiesgrowth in most regions,Brazil, $9.9 million increase, and Asia, $10.3 million increase, were partially offset by lower writings in Canada, $2.3 million decrease. Asia has the largest growth from both new business writings and preferential signings, including preferential termsincreased participation on contracts in Japan and conditions. In addition, rates,Taiwan. Also included, were $7.0 million in some markets, also contributed toreinstatement premiums from the increased written premiums. Partially offsetting these increases was the impact, approximately $13 million, of change in foreign rates, period over period, as foreign currencies weakened. Premiums written through the Brazil, Miami and New Jersey offices increased by $47.7 million (34.7%) and through the Asian branch increased by $10.2 million (21.2%), while premiums for the Canadian branch decreased by $2.6 million (7.9%).Chilean earthquake. Net written premiums increased by 15.6%7.3% to $154.0$145.2 million for the three months ended June 30, 2009March 31, 2010 compared to $133.2 million$135.4 millio n for the three months ended June 30, 2008,March 31, 2009, primarily due to the increase in gross written premiums which were partially offset by increasedcoupled with the increase in cessions under the affiliated quota share agreement.share. Premiums earned increased by 6.7%2.6% to $141.9$147.1 million for the three months ended June 30, 2009March 31, 2010 compared to $133.0$143.3 million for the three months ended June 30, 2008, consistent withMarch 31, 2009, as a result of the increase in net written premiums. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned notably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.Gross written premiums increased by 29.5% to $525.0 million for the six months ended June 30, 2009 from $405.4 million for the six months ended June 30, 2008. Premiums written through the Brazil, Miami and New Jersey offices increased by $101.5 million (40.0%) and through the Asian branch increased by $24.5 million (31.9%), while premiums for the Canadian branch decreased by $6.3 million (8.4%). The impact on gross written premiums, period over period, of the weakening of foreign currencies was approximately $35 million. Net written premiums increased by 16.0% to $289.3 million for the six months ended June 30, 2009 compared to $249.5 million for the six months ended June 30, 2008. Premiums earned increased by 11.3% to $285.2 million for the six months ended June 30, 2009 compared to $256.2 million for the six months ended June 30, 2008. Variance explanations for the six months were similar to factors as those discussed above for the three months.tables presenttable presents the incurred losses and LAE for the International segment for the periods indicated.
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 | $ | 91.3 | 62.1 | % | $ | (3.5 | ) | -2.4 | % | $ | 87.8 | 59.7 | % | ||||||||||||||||||||||||||||
Catastrophes | 149.5 | 101.7 | % | (0.9 | ) | -0.6 | % | 148.7 | 101.1 | % | |||||||||||||||||||||||||||||||
Total segment | $ | 240.8 | 163.7 | % | $ | (4.3 | ) | -2.9 | % | $ | 236.5 | 160.8 | % | ||||||||||||||||||||||||||||
2009 | |||||||||||||||||||||||||||||||||||||||||
Attritional | $ 158.6 | 55.6% | $ 5.1 | 1.8% | $ 163.7 | 57.4% | $ | 81.3 | 56.7 | % | $ | 1.7 | 1.2 | % | $ | 83.0 | 57.9 | % | |||||||||||||||||||||||
Catastrophes | 9.1 | 3.2% | (1.0) | -0.4% | 8.1 | 2.8% | 9.1 | 6.3 | % | 0.5 | 0.3 | % | 9.5 | 6.7 | % | ||||||||||||||||||||||||||
Total segment | $ 167.6 |
| 58.8% |
| $ 4.1 |
| 1.4% |
| $ 171.8 |
| 60.2% |
| $ | 90.4 | 63.1 | % | $ | 2.2 | 1.5 | % | $ | 92.5 | 64.6 | % | |||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||
2008 | |||||||||||||||||||||||||||||||||||||||||
Attritional | $ 148.3 | 57.9% | $ 1.5 | 0.6% | $ 149.8 | 58.5% | |||||||||||||||||||||||||||||||||||
Catastrophes | 10.8 | 4.2% | 1.2 | 0.5% | 12.0 | 4.7% | |||||||||||||||||||||||||||||||||||
Total segment | $ 159.1 |
| 62.1% |
| $ 2.7 |
| 1.1% |
| $ 161.8 |
| 63.2% |
| |||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||
Variance 2009/2008 | |||||||||||||||||||||||||||||||||||||||||
Variance 2010/2009 | |||||||||||||||||||||||||||||||||||||||||
Attritional | $ 10.3 | (2.3) | pts | $ 3.6 | 1.2 | pts | $ 13.9 | (1.1) | pts | $ | 10.0 | 5.4 | pts | $ | (5.2 | ) | (3.6 | ) | pts | $ | 4.8 | 1.8 | pts | ||||||||||||||||||
Catastrophes | (1.7) | (1.0) | pts | (2.2) | (0.8) | pts | (3.9) | (1.9) | pts | 140.4 | 95.4 | pts | (1.4 | ) | (0.9 | ) | pts | 139.2 | 94.4 | pts | |||||||||||||||||||||
Total segment | $ 8.5 |
| (3.3) | pts | $ 1.4 |
| 0.3 | pts | $ 9.9 |
| (3.0) | pts | $ | 150.4 | 100.6 | pts | $ | (6.5 | ) | (4.4 | ) | pts | $ | 144.0 | 96.2 | pts | |||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) | (Some amounts may not reconcile due to rounding.) | (Some amounts may not reconcile due to rounding.) |
Incurred losses and LAEalso increased by 6.1% to $171.8 million for the six months ended June 30, 2009 compared to $161.8 million for the six months ended June 30, 2008. The segment losses increased by $9.9 million, primarily due to increased attritional losses, partially offset by the decreasean increase in catastrophe losses, period over period.
expected loss ratios.
Market Sensitive Instruments.
Our
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 Interest Rate Shift in Basis Points | ||||||||||||||||||||
At March 31, 2010 | ||||||||||||||||||||
(Dollars in millions) | -200 | -100 | 0 | 100 | 200 | |||||||||||||||
Total Market/Fair Value | $ | 7,335.1 | $ | 7,061.8 | $ | 6,739.3 | $ | 6,382.6 | $ | 6,045.8 | ||||||||||
Market/Fair Value Change from Base (%) | 8.8 | % | 4.8 | % | 0.0 | % | -5.3 | % | -10.3 | % | ||||||||||
Change in Unrealized Appreciation | ||||||||||||||||||||
After-tax from Base ($) | $ | 387.2 | $ | 209.6 | $ | - | $ | (231.9 | ) | $ | (450.8 | ) |
present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will includeinc lude investment income over time from the investment portfolio until the claims are paid. Our fixed income portfolio hasloss and loss reserve obligations have an expected duration that is reasonably consistent with our loss and loss reserve obligations.
fixed income portfolio.
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 |
Part 1, ITEM 1A. We undertake no obligation to update /S/DOMINIC J. ADDESSO Dominic J. Addesso Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) Impact of Percentage Change in Equity Fair/Market Values At March 31, 2010 (Dollars in millions) -20% -10% 0% 10% 20% Fair/Market Value of the Equity Portfolio $ 315.6 $ 355.1 $ 394.6 $ 434.0 $ 473.5 After-tax Change in Fair/Market Value (51.3 ) (25.6 ) - 25.6 51.3 CurrencyExchange Risk.Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Generally, we prefer to maintain the capital of our operations in U.S. dollar assets, although this varies by regulatory jurisdiction in accordance with market needs. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for ourthese foreign operations are the Canadian Dollar, the British Pound Sterling and the Euro. We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our correspondingcorresp onding operating liabilities. In accordance with FAS No. 52 “Foreign Currency Translation”,FASB guidance, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar. This translation amount is reported as a component of other comprehensive income. As of June 30, 2009March 31, 2010, there has been no material change in exposure to foreign exchange rates as compared to December 31, 2008.2009.Safe Harbor Disclosure.catastrophec atastrophe exposure, the effects of catastrophic events on our financial statements and the ability of our subsidiaries to pay dividends. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause our actual events or results to be materially different from our expectations include the uncertainties that surround the impact on our financial statements and liquidity resulting from changes in the global economy and credit markets, the estimating of reserves for losses and LAE, those discussed in Note 6 of Notes to Consolidated Financial Statements (unaudited) included in this report and the risks described under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, PART I,oro r revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.OfficerOf ficer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely toouro ur 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 our results of operations in that period.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNone.None.Exhibit Index:Exhibit No.Description31.1 Section 302 Certification of Joseph V. Taranto31.2 Section 302 Certification of Dominic J. Addesso32.1 Section 906 Certification of Joseph V. Taranto and Dominic J. AddessoContentsthe Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.Everest Reinsurance Holdings, Inc. (Registrant) SignaturesPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.Everest Reinsurance Holdings, Inc.(Registrant)Dated: August 14, 2009