UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:

~~March 31,~~June 30, 2010

Commission file number:

1-14527

EVEREST REINSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		22-3263609
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

477 Martinsville Road

Post Office Box 830

Liberty Corner, New Jersey 07938-0830

(908) 604-3000

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive office)

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

YES

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		Accelerated filer
Non-accelerated filer	X	Smaller reporting company
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES

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

	Number of Shares Outstanding
Class	At ~~May~~August 1, 2010
Common Shares, $0.01 par value		1,000

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

EVEREST REINSURANCE HOLDINGS, INC.

Table of Contents

Form 10-Q

Page

PART I

FINANCIAL INFORMATION


Item 1.	Financial Statements

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

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

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

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

	Notes to Consolidated Interim Financial Statements (unaudited)		5

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4145

Item 4.	Controls and Procedures		4145

PART II

OTHER INFORMATION


Item 1.	Legal Proceedings	4245

Item 1A.	Risk Factors	4245

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42 45

Item 3.	Defaults Upon Senior Securities	42 45

Item 4.	Reserved	42 45

Item 5.	Other Information	42 46

Item 6.	Exhibits	42 46

Table of Contents

Part I

ITEM 1. FINANCIAL STATEMENTS

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,		June 30,		December 31,
(Dollars in thousands, except par value per share)	2010		2009		2010		2009
	(unaudited)				(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value	$	6,423,902	$	6,463,168	$	6,393,011	$	6,463,168
(amortized cost: 2010, $6,210,288; 2009, $6,255,759)
(amortized cost: 2010, $6,133,003; 2009, $6,255,759)
Fixed maturities - available for sale, at fair value		65,307		50,528		66,351		50,528
Equity securities - available for sale, at market value (cost: 2010, $15; 2009, $15)		12		13		12		13
Equity securities - available for sale, at fair value		394,548		380,025		340,377		380,025
Short-term investments		250,127		261,438		251,820		261,438
Other invested assets (cost: 2010, $398,189; 2009, $387,200)		397,829		386,326
Other invested assets (cost: 2010, $399,989; 2009, $387,200)						399,611		386,326
Other invested assets, at fair value		406,933		382,639		545,160		382,639
Cash		107,737		107,480		106,847		107,480
Total investments and cash		8,046,395		8,031,617		8,103,189		8,031,617
Accrued investment income		79,327		83,705		78,687		83,705
Premiums receivable		767,884		769,744		746,384		769,744
Reinsurance receivables - unaffiliated		631,814		618,081		635,129		618,081
Reinsurance receivables - affiliated		2,686,134		2,492,152		2,690,402		2,492,152
Funds held by reinsureds		158,154		156,223		156,702		156,223
Deferred acquisition costs		181,444		183,498		179,454		183,498
Prepaid reinsurance premiums		580,923		562,146		578,606		562,146
Deferred tax asset		212,462		210,493		245,231		210,493
Federal income tax recoverable		131,045		135,682
Federal income taxes recoverable						67,238		135,682
Other assets		166,016		136,234		196,985		136,234
TOTAL ASSETS	$	13,641,598	$	13,379,575	$	13,678,007	$	13,379,575

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	7,613,758	$	7,300,139	$	7,583,530	$	7,300,139
Unearned premium reserve		1,258,574		1,239,320		1,247,378		1,239,320
Funds held under reinsurance treaties		179,303		175,257		159,451		175,257
Losses in the course of payment		45,416		42,633		23,663		42,633
Commission reserves		47,027		50,897		42,432		50,897
Other net payable to reinsurers		583,219		444,535		529,226		444,535
Revolving credit borrowings						133,000		-
8.75% Senior notes due 3/15/2010		-		199,970		-		199,970
5.4% Senior notes due 10/15/2014		249,780		249,769		249,790		249,769
6.6% Long term notes due 05/01/2067		238,349		238,348		238,349		238,348
Junior subordinated debt securities payable		329,897		329,897		329,897		329,897
Accrued interest on debt and borrowings		12,092		9,885		4,892		9,885
Other liabilities		257,318		240,151		266,151		240,151
Total liabilities		10,814,733		10,520,801		10,807,759		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		324,156		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
Accumulated other comprehensive income (loss), net of deferred income tax expense (benefit) of
$109.6 million at 2010 and $89.9 million at 2009						203,523		166,978
Retained earnings (deficit)						2,342,569		2,370,611
Total stockholder's equity		2,826,865		2,858,774		2,870,248		2,858,774
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	13,641,598	$	13,379,575	$	13,678,007	$	13,379,575

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

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EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009			2010			2009
	(unaudited)						(unaudited)						(unaudited)
REVENUES:
Premiums earned	$	414,134		$	438,445		$	442,724		$	460,774		$	856,858		$	899,219
Net investment income		85,107			39,659			89,346			74,516			174,453			114,175
Net realized capital losses:
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		-			(574	)		-			(4,936	)		-			(5,510	)
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	)
transferred to other comprehensive income (loss)								-			-			-			-
Other net realized capital gains (losses)								(95,473	)		27,877			(100,780	)		(39,733	)
Total net realized capital gains (losses)								(95,473	)		22,941			(100,780	)		(45,243	)
Realized gain on debt repurchase		-			78,271			-			-			-			78,271
Other income (expense)		5,112			(114	)		8,709			(7,166	)		13,821			(7,280	)
Total revenues		499,046			488,077			445,306			551,065			944,352			1,039,142

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		427,004			289,195			314,749			246,108			741,753			535,303
Commission, brokerage, taxes and fees		67,841			88,219			88,197			86,923			156,038			175,142
Other underwriting expenses		32,714			31,308			35,371			34,858			68,085			66,166
Corporate expenses		2,226			1,318			1,463			1,878			3,689			3,196
Interest, fee and bond issue cost amortization expense		16,340			19,633			12,722			17,073			29,062			36,706
Total claims and expenses		546,125			429,673			452,502			386,840			998,627			816,513

(LOSS) INCOME BEFORE TAXES		(47,079	)		58,404
Income tax (benefit) expense		(2,150	)		12,740
INCOME (LOSS) BEFORE TAXES								(7,196	)		164,225			(54,275	)		222,629
Income tax expense (benefit)								(24,083	)		35,725			(26,233	)		48,465

NET (LOSS) INCOME	$	(44,929	)	$	45,664
NET INCOME (LOSS)							$	16,887		$	128,500		$	(28,042	)	$	174,164

Other comprehensive income, net of tax		11,746			38,480
Other comprehensive income (loss), net of tax								24,799			84,300			36,545			122,780

COMPREHENSIVE (LOSS) INCOME	$	(33,183	)	$	84,144
COMPREHENSIVE INCOME (LOSS)							$	41,686		$	212,800		$	8,503		$	296,944

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

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EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

	Three Months Ended							Three Months Ended					Six Months Ended
	March 31,							June 30,					June 30,
(Dollars in thousands, except share amounts)	2010			2009				2010		2009			2010			2009
	(unaudited)							(unaudited)					(unaudited)
COMMON STOCK (shares outstanding):
Balance, beginning of period		1,000			1,000				1,000		1,000			1,000			1,000
Balance, end of period		1,000			1,000				1,000		1,000			1,000			1,000

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	321,185		$	315,771			$	322,459	$	317,033		$	321,185		$	315,771
Share-based compensation plans		1,274			1,262				1,697		1,459			2,971			2,721
Balance, end of period		322,459			317,033				324,156		318,492			324,156			318,492

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		166,978			(72,063	)			178,724		(33,583	)		166,978			(72,063	)
Net increase during the period		11,746			38,480
Cumulative adjustment of initial adoption(1), net of tax									-		(15,500	)		-			(15,500	)
Net increase (decrease) during the period									24,799		84,300			36,545			122,780
Balance, end of period		178,724			(33,583	)			203,523		35,217			203,523			35,217

RETAINED EARNINGS:
RETAINED EARNINGS (DEFICIT):
Balance, beginning of period		2,370,611			1,959,260				2,325,682		2,004,924			2,370,611			1,959,260
Net (loss) income		(44,929	)		45,664
Cumulative adjustment of initial adoption(1), net of tax									-		15,500			-			15,500
Net income (loss)									16,887		128,500			(28,042	)		174,164
Balance, end of period		2,325,682			2,004,924				2,342,569		2,148,924			2,342,569			2,148,924

TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD	$	2,826,865		$	2,288,374			$	2,870,248	$	2,502,633		$	2,870,248		$	2,502,633

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

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

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EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009			2010			2009
	(unaudited)						(unaudited)						(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(44,929	)	$	45,664
Net income (loss)							$	16,887		$	128,500		$	(28,042	)	$	174,164
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
Decrease (increase) in premiums receivable								21,553			(61,149	)		24,883			(49,821	)
Decrease (increase) in funds held by reinsureds, net								(18,472	)		(671	)		(16,262	)		(165	)
Decrease (increase) in reinsurance receivables								(18,620	)		(100,495	)		(227,797	)		(153,465	)
Decrease (increase) in deferred tax asset								(46,121	)		(928	)		(54,415	)		32,976
Increase (decrease) in reserve for losses and loss adjustment expenses		303,114			(48,536	)		(12,762	)		(133,909	)		290,352			(182,445	)
Increase (decrease) in unearned premiums		17,379			(879	)		(10,237	)		(2,807	)		7,142			(3,686	)
Change in equity adjustments in limited partnerships		(9,414	)		34,093			(8,882	)		(1,968	)		(18,296	)		32,125
Change in other assets and liabilities, net		107,975			1,107			18,454			243,408			126,429			244,515
Non-cash compensation expense		1,195			1,262			1,685			1,445			2,880			2,707
Amortization of bond premium		3,546			2,271
Amortization of bond premium (accrual of bond discount)								1,071			2,707			4,617			4,978
Amortization of underwriting discount on senior notes		42			46			11			48			53			94
Realized gain on debt repurchase		-			(78,271	)		-			-			-			(78,271	)
Net realized capital losses		5,307			68,184
Net cash provided by operating activities		172,284			17,709
Net realized capital (gains) losses								95,473			(22,941	)		100,780			45,243
Net cash provided by (used in) operating activities								40,040			51,240			212,324			68,949

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		172,263			109,235			136,606			84,848			308,869			194,083
Proceeds from fixed maturities matured/called - available for sale, at fair value		-			5,570			-			-			-			5,570
Proceeds from fixed maturities sold - available for sale, at market value		165,485			44,778			206,078			8,316			371,563			53,094
Proceeds from fixed maturities sold - available for sale, at fair value		2,497			3,492			6,115			4,510			8,612			8,002
Proceeds from equity securities sold - available for sale, at fair value		21,342			1,634			51,400			10,591			72,742			12,225
Distributions from other invested assets		8,165			12,293			15,715			7,832			23,880			20,125
Cost of fixed maturities acquired - available for sale, at market value		(275,526	)		(261,238	)		(280,050	)		(348,542	)		(555,576	)		(609,780	)
Cost of fixed maturities acquired - available for sale, at fair value		(14,194	)		(13,310	)		(9,487	)		(3,243	)		(23,681	)		(16,553	)
Cost of equity securities acquired - available for sale, at fair value		(20,739	)		(8,976	)		(30,140	)		(10,320	)		(50,879	)		(19,296	)
Cost of other invested assets acquired		(9,740	)		(2,562	)		(8,634	)		(13,780	)		(18,374	)		(16,342	)
Cost of other invested assets acquired, at fair value		(47,032	)		-			(200,079	)		-			(247,111	)		-
Net change in short-term investments		12,085			188,866			(2,164	)		182,051			9,921			370,917
Net change in unsettled securities transactions		16,323			1,646			(51,843	)		22,688			(35,520	)		24,334
Net cash provided by investing activities		30,929			81,428
Net cash provided by (used in) investing activities								(166,483	)		(55,049	)		(135,554	)		26,379

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation		79			-			12			14			91			14
Net cost of senior notes maturing		(200,000	)		-			-			-			(200,000	)		-
Revolving credit borrowings								133,000			-			133,000			-
Net cost of debt repurchase		-			(83,026	)		-			-			-			(83,026	)
Net cash used in financing activities		(199,921	)		(83,026	)
Net cash provided by (used in) financing activities								133,012			14			(66,909	)		(83,012	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(3,035	)		(12,767	)		(7,459	)		3,388			(10,494	)		(9,379	)

Net increase in cash		257			3,344
Net increase (decrease) in cash								(890	)		(407	)		(633	)		2,937
Cash, beginning of period		107,480			92,264			107,737			95,608			107,480			92,264
Cash, end of period	$	107,737		$	95,608		$	106,847		$	95,201		$	106,847		$	95,201

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash transactions:
Income taxes paid	$	3,766		$	3,146
Income taxes paid (recovered)							$	(53,156	)	$	13,213		$	(49,390	)	$	16,359
Interest paid		13,899			17,808			19,866			19,764			33,765			37,572

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

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

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

~~1. GENERAL~~

GENERAL

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

~~2. BASIS OF PRESENTATION~~

2.	BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three and six months ended ~~March 31,~~June 30, 2010 and 2009 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis. Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The December 31, 2009 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results for the three and six months ended ~~March 31,~~June 30, 2010 and 2009 are not ~~necessarily indicat ive~~neces sarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2009, 2008 and 2007 included in the Company’s most recent Form 10-K filing.

All intercompany accounts and transactions have been eliminated.

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

Financial Accounting Standards Board Accounting Codification

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

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

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

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Application of Recently Issued Accounting Standard Changes

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

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

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

Other-Than-Temporary Impairments on Investment Securities. In April 2009, the FASB revised the authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary impairments on debt and equity securities. For available for sale debt securities that the Company has no intent to sell and more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment would be recognized in earnings, while the rest of the fair value loss would be recognized in accumulated ot her comprehensive income. The Company adopted this guidance effective April 1, 2009. Upon adoption the Company recognized a cumulative-effect adjustment increase in retained earnings (deficit) and decrease in accumulated other comprehensive income (loss) of $15.5 million, net of $8.3 million of tax.

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

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~~3. INVESTMENTS~~

3.	INVESTMENTS

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

	At March 31, 2010									At June 30, 2010
	Amortized		Unrealized		Unrealized			Market		Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value		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	$	143,316	$	7,565	$	(89	)	$	150,792
Obligations of U.S. states and political subdivisions		3,657,459		168,621		(22,244	)		3,803,836		3,469,450		181,595		(17,016	)		3,634,029
Corporate securities		644,008		36,228		(7,650	)		672,586		716,311		40,259		(10,378	)		746,192
Asset-backed securities		16,612		489		(1,971	)		15,130		28,733		505		(1,835	)		27,403
Mortgage-backed securities
Commercial		32,255		6,515		-			38,770		32,323		7,079		-			39,402
Agency residential		431,587		12,770		(30	)		444,327		419,199		19,424		(41	)		438,582
Non-agency residential		60,544		908		(1,763	)		59,689		59,943		1,719		(224	)		61,438
Foreign government securities		673,814		25,368		(9,389	)		689,793		705,682		30,964		(8,037	)		728,609
Foreign corporate securities		558,246		16,967		(12,748	)		562,465		558,046		19,546		(11,028	)		566,564
Total fixed maturity securities	$	6,210,288	$	271,381	$	(57,767	)	$	6,423,902	$	6,133,003	$	308,656	$	(48,648	)	$	6,393,011
Equity securities	$	15	$	-	$	(3	)	$	12	$	15	$	-	$	(3	)	$	12

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

In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings (deficit) into accumulated other comprehensive income in(loss), on April 1, 2009. At ~~March 31,~~June 30, 2010, the pre-tax cumulative unrealized appreciation on these corporate securities was ~~$1.0~~$0.5 million as compared to pre-tax cumulative unrealized depreciation of $2.0 million at December 31, 2009.

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

	At March 31, 2010				At December 31, 2009				At June 30, 2010				At December 31, 2009
	Amortized		Market		Amortized		Market		Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value		Cost		Value		Cost		Value
Fixed maturity securities – available for sale
Due in one year or less	$	292,804	$	292,765	$	334,054	$	335,948	$	261,435	$	261,286	$	334,054	$	335,948
Due after one year through five years		1,459,842		1,503,714		1,276,968		1,316,918		1,519,591		1,571,631		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		1,259,022		1,332,129		1,224,457		1,282,470
Due after ten years		2,720,341		2,816,703		2,762,340		2,863,960		2,552,757		2,661,140		2,762,340		2,863,960
Asset-backed securities		16,612		15,130		16,597		15,148		28,733		27,403		16,597		15,148
Mortgage-backed securities
Commercial		32,255		38,770		24,213		29,058		32,323		39,402		24,213		29,058
Agency residential		431,587		444,327		556,032		564,707		419,199		438,582		556,032		564,707
Non-agency residential		60,544		59,689		61,098		54,959		59,943		61,438		61,098		54,959
Total fixed maturity securities	$	6,210,288	$	6,423,902	$	6,255,759	$	6,463,168	$	6,133,003	$	6,393,011	$	6,255,759	$	6,463,168

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

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009			2010			2009
Increase during the period between the market value and cost
Increase (decrease) 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		$	46,864		$	77,437		$	50,017		$	167,026
Fixed maturity securities, cumulative other-than-temporary impairment adjustment								(470	)		(23,846	)		2,582			(23,846	)
Equity securities		(1	)		(6	)		-			2			(1	)		(4	)
Other invested assets		513			(1,641	)		(17	)		3,868			496			2,227
Change in unrealized appreciation, pre-tax		6,717			87,942
Deferred tax expense		(2,351	)		(30,780	)
Change in unrealized appreciation,
Change in unrealized appreciation (depreciation), pre-tax								46,377			57,461			53,094			145,403
Deferred tax benefit (expense)								(16,396	)		(28,457	)		(17,679	)		(59,237	)
Deferred tax benefit (expense), cumulative other-than-temporary impairment adjustment								164			8,346			(904	)		8,346
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in stockholder's equity	$	4,366		$	57,162		$	30,145		$	37,350		$	34,511		$	94,512

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

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

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

	Duration by security type of unrealized loss at March 31, 2010																Duration of Unrealized Loss at June 30, 2010 By Security Type
	Less than 12 months					Greater than 12 months					Total						Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross						Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized						Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation				Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	45,034	$	(1,962	)	$	515	$	(10	)	$	45,549	$	(1,972	)	U.S. government agencies and corporations	$	-	$	-		$	3,398	$	(89	)	$	3,398	$	(89	)
Obligations of U.S. states and political subdivisions		556		(6	)		406,437		(22,238	)		406,993		(22,244	)	Obligations of U.S. states and political subdivisions		5,008		(28	)		362,674		(16,988	)		367,682		(17,016	)
Corporate securities		36,887		(755	)		58,537		(6,895	)		95,424		(7,650	)			107,647		(3,068	)		72,766		(7,310	)		180,413		(10,378	)
Asset-backed securities		366		(214	)		8,243		(1,757	)		8,609		(1,971	)			1,018		-			6,562		(1,835	)		7,580		(1,835	)
Mortgage-backed securities
Agency residential		17,279		(30	)		-		-			17,279		(30	)			7,372		(41	)		-		-			7,372		(41	)
Non-agency residential		-		-			52,369		(1,763	)		52,369		(1,763	)			-		-			3,606		(224	)		3,606		(224	)
Foreign government securities		281,751		(4,040	)		62,240		(5,349	)		343,991		(9,389	)			86,610		(3,298	)		76,912		(4,739	)		163,522		(8,037	)
Foreign corporate securities		205,585		(6,649	)		63,717		(6,099	)		269,302		(12,748	)			72,297		(1,681	)		100,942		(9,347	)		173,239		(11,028	)
Total fixed maturity securities	$	587,458	$	(13,656	)	$	652,058	$	(44,111	)	$	1,239,516	$	(57,767	)		$	279,952	$	(8,116	)	$	626,860	$	(40,532	)	$	906,812	$	(48,648	)
Equity securities		-		-			12		(3	)		12		(3	)			12		(3	)		-		-			12		(3	)
Total	$	587,458	$	(13,656	)	$	652,070	$	(44,114	)	$	1,239,528	$	(57,770	)		$	279,964	$	(8,119	)	$	626,860	$	(40,532	)	$	906,824	$	(48,651	)

	Duration by maturity of unrealized loss at March 31, 2010															Duration of Unrealized Loss at June 30, 2010 By Maturity
	Less than 12 months					Greater than 12 months					Total					Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross					Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized					Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	30,601	$	(2,230	)	$	26,790	$	(3,602	)	$	57,391	$	(5,832	)	$	36,199	$	(1,221	)	$	37,097	$	(3,244	)	$	73,296	$	(4,465	)
Due in one year through five years		363,884		(4,798	)		72,638		(4,267	)		436,522		(9,065	)		141,671		(3,361	)		105,827		(5,922	)		247,498		(9,283	)
Due in five years through ten years		120,359		(2,735	)		48,247		(3,385	)		168,606		(6,120	)		80,959		(2,900	)		57,532		(4,156	)		138,491		(7,056	)
Due after ten years		54,969		(3,649	)		443,771		(29,337	)		498,740		(32,986	)		12,733		(593	)		416,236		(25,151	)		428,969		(25,744	)
Asset-backed securities		366		(214	)		8,243		(1,757	)		8,609		(1,971	)		1,018		-			6,562		(1,835	)		7,580		(1,835	)
Mortgage-backed securities		17,279		(30	)		52,369		(1,763	)		69,648		(1,793	)		7,372		(41	)		3,606		(224	)		10,978		(265	)
Total fixed maturity securities	$	587,458	$	(13,656	)	$	652,058	$	(44,111	)	$	1,239,516	$	(57,767	)	$	279,952	$	(8,116	)	$	626,860	$	(40,532	)	$	906,812	$	(48,648	)
Equity securities	$	-	$	-		$	12	$	(3	)	$	12	$	(3	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position as of ~~March 31,~~June 30, 2010 were ~~$1,239.5~~$906.8 million and ~~$57.8~~$48.7 million, respectively. There were no unrealized losses on a single security that exceeded ~~0.06%~~0.05% of the market value of the fixed maturity securities at ~~March 31,~~June 30, 2010. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The ~~$13.7~~$8.1 million of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of highly rated foreign government and domestic and foreign ~~government and~~ corporate securities. Of these unrealized losses, ~~$13.3~~$5.6 million were related to securities that were rated ~~inves tment~~inv estment grade by at least one nationally recognized statistical rating organization. The ~~$44.1~~$40.5 million of unrealized losses related to fixed maturity and equity securities in an unrealized loss position for more than one year related primarily to highly rated domestic and foreign government and corporate, municipal, asset-backed and mortgage-backed securities. Of these unrealized losses, ~~$36.9~~$33.1 million related to securities that were rated investment grade by at least one nationally

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~~related to securities that were rated investment grade by at least one nationally~~

recognized statistical rating organization. The non-investment grade securities with unrealized losses ~~are~~were mainly comprised of municipal and corporate securities. The gross unrealized depreciation greater than 12 months for mortgage-backed securities included ~~$0.2~~$0.3 million related to sub-prime and alt-A loans. In all instances, ~~there were no~~ projected cash ~~flow shortfalls~~flows were sufficient to recover the full book value of the investments and the related interest obligations. Unrealized losses have decreased since December 31, 2009, as a result of improved conditions in the overall financial market resulting from increased liquidity and lower interest rates.

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

	Duration by security type of unrealized loss at December 31, 2009																Duration of Unrealized Loss at December 31, 2009 By Security Type
	Less than 12 months					Greater than 12 months					Total						Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross						Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized						Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation				Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	44,943	$	(1,671	)	$	-	$	-		$	44,943	$	(1,671	)	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	)	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	)			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	)			366		(26	)		8,233		(1,883	)		8,599		(1,909	)
Mortgage-backed securities
Commercial		959		(34	)		3,312		(77	)		4,271		(111	)			959		(34	)		3,312		(77	)		4,271		(111	)
Agency residential		213,093		(1,691	)		-		-			213,093		(1,691	)			213,093		(1,691	)		-		-			213,093		(1,691	)
Non-agency residential		1,272		(31	)		47,202		(7,024	)		48,474		(7,055	)			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	)			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	)			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	)		$	590,055	$	(10,876	)	$	796,799	$	(61,057	)	$	1,386,854	$	(71,933	)
Equity securities		13		(2	)		-		-			13		(2	)			13		(2	)		-		-			13		(2	)
Total	$	590,068	$	(10,878	)	$	796,799	$	(61,057	)	$	1,386,867	$	(71,935	)		$	590,068	$	(10,878	)	$	796,799	$	(61,057	)	$	1,386,867	$	(71,935	)

	Duration by maturity of unrealized loss at December 31, 2009															Duration of Unrealized Loss at December 31, 2009 By Maturity
	Less than 12 months					Greater than 12 months					Total					Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross					Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized					Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	-	$	-		$	58,010	$	(4,887	)	$	58,010	$	(4,887	)	$	-	$	-		$	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	)		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	)		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	)		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	)		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	)		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	)	$	590,055	$	(10,876	)	$	796,799	$	(61,057	)	$	1,386,854	$	(71,933	)
Equity securities	$	13	$	(2	)	$	-	$	-		$	13	$	(2	)

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The aggregate market value and gross unrealized losses related to investments in an unrealized loss position as of December 31, 2009 were $1,386.9 million and $71.9 million, respectively. There were no unrealized losses on a single security that exceeded 0.11% of the market value of the fixed maturity securities at December 31, 2009. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $10.9 million of unrealized losses related to fixed maturity and equity securities that have been in an unrealized loss position for less than one year were generally comprised of highly rated domestic and foreign government and corporate and mortgage-backed securities. Of these unrealized losses, $10.7 million were ~~related~~relate d to securities that ~~wer e~~were rated investment grade by at least one nationally recognized statistical rating organization. The $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, domestic and foreign corporate, foreign government and mortgage-backed securities. Of these unrealized losses, $50.5 million related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The non-investment grade securities with unrealized losses ~~are~~were mainly comprised of corporate and commercial mortgage-backed securities. The gross unrealized depreciation greater than 12 months for mortgage-backed securities included ~~only~~ $0.07 million related to sub-prime and alt-A loans. In all instances, ~~there were no~~ projected cash ~~flow shortfalls~~flows were sufficient to recover the full book value of the investments and the related interest ~~obligations.~~obligations . The mortgage-backed securities still had ~~exce ss~~excess credit coverage and were current on interest and principal payments. Unrealized losses decreased since December 31, 2008, as a result of improved conditions in the overall financial market resulting from increased liquidity and lower interest rates.

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

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009			2010			2009
Fixed maturity securities	$	73,555		$	70,329		$	75,862		$	71,610		$	149,417		$	141,938
Equity securities		2,404			694			2,618			730			5,022			1,424
Short-term investments and cash		77			2,211			75			842			152			3,054
Other invested assets
Limited partnerships		9,414			(34,093	)		8,882			1,968			18,296			(32,125	)
Other		1,798			2,771			4,457			2,258			6,255			5,029
Total gross investment income		87,248			41,912			91,894			77,408			179,142			119,320
Interest credited and other expense		(2,141	)		(2,253	)
Interest debited (credited) and other expense								(2,548	)		(2,892	)		(4,689	)		(5,145	)
Total net investment income	$	85,107		$	39,659		$	89,346		$	74,516		$	174,453		$	114,175

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

The Company had contractual commitments to invest up to an additional ~~$132.5~~$119.9 million in limited partnerships at ~~March 31,~~June 30, 2010. These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2014.

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

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009			2010			2009
Fixed maturity securities, market value:
Other-than-temporary impairments	$	-		$	(560	)	$	-		$	(4,936	)	$	-		$	(5,510	)
Losses from sales		(777	)		(28,094	)
Gains (losses) from sales								1,617			(401	)		840			(28,481	)
Fixed maturity securities, fair value:
Gains from sales		83			96
Gains (losses) from sales								190			133			273			229
Gains (losses) from fair value adjustments		3,000			(42	)		(2,518	)		2,010			482			1,968
Equity securities, fair value:
Gains (losses) from sales		1,894			(446	)		(2,893	)		5,630			(999	)		5,184
Gains (losses) from fair value adjustments		13,231			(16,923	)		(30,017	)		17,296			(16,786	)		373
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	)
Gains (losses) from fair value adjustments								(61,853	)		3,203			(84,590	)		(19,012	)
Short-term investment gains (losses)								1			6			-			6
Total net realized capital gains (losses)							$	(95,473	)	$	22,941		$	(100,780	)	$	(45,243	)

Proceeds from the sales of fixed maturity securities for the three months ended ~~March 31,~~June 30, 2010 and 2009 were ~~$168.0~~$212.2 million and ~~$48.3~~$12.8 million, respectively. Gross gains of ~~$1.8~~$5.5 million and ~~$1.5~~$0.8 million and gross losses of ~~$2.5~~$3.7 million and ~~$29.6~~$1.0 million were realized on those fixed maturity securities sales for the three months ended ~~March 31,~~June 30, 2010 and 2009, respectively. Proceeds from sales of equity securities for the three months ended ~~March 31,~~June 30, 2010 and 2009 were ~~$21.3~~$51.4 million and ~~$1.6~~$10.6 million, respectively. Gross gains of ~~$2.4~~$1.2 million and ~~$0.2~~$5.7 million and gross losses of ~~$0.5~~$4.1 million and $0.0 million were realized on those equity sales for the three months ended June 30, 2010 and 2009, respectively.

Proceeds from the sales of fixed maturity securities for the six months ended June 30, 2010 and 2009 were $380.2 million and $61.1 million, respectively. Gross gains of $7.3 million and $2.3 million and gross losses of $6.2 million and $30.6 million were realized on those fixed maturity securities sales for the six months ended June 30, 2010 and 2009, respectively. Proceeds from sales of equity securities for the six months ended June 30, 2010 and 2009 were $72.7 million and $12.2 million, respectively. Gross gains of $3.6 million and $5.9 million and gross losses of $4.6 million and $0.7 million were realized on those equity sales for the ~~three~~six months ended ~~March 31,~~June 30, 2010 and 2009, respectively.

The Company records fair value re-measurements as net realized capital gains ~~or losses~~(losses) in the consolidated statements of operations and comprehensive income (loss) ~~income.~~. The Company recorded ~~$6.5 million and $39.2 million in~~ net realized capital losses of $94.4 million and net realized capital gains of $22.5 million for the three months ended June 30, 2010 and 2009, respectively, and net realized capital losses of $100.9 million and $16.7 million for the six months ended June 30, 2010 and 2009, respectively, due to fair value re-measurements on fixed maturity and equity securities and other invested assets, at fair ~~value, for~~value.

For the three and six months ended ~~March 31, 2010 and 2009.~~

~~At March 31,~~June 30, 2010, the Company had no write-downs in the value of securities deemed to be impaired on an other-than-temporary basis ~~included~~ in net realized capital ~~losses. At March 31,~~gains (losses). For the three and six months ended June 30, 2009, the Company ~~had $0.6~~recorded $4.9 million and $5.5 million, respectively, of write-downs in the value of securities deemed to be impaired on an other-than-temporary basis ~~included~~ in net realized capital ~~losses.~~gains (losses). The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.

~~4. FAIR VALUE~~

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4.	FAIR VALUE

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

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

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about future cash flows and risk-adjusted discount ~~rates~~rate s to determine fair value. The Company made no such adjustments at ~~March 31,~~June 30, 2010.

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

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

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

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

			Fair Value Measurement Using:								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)	March 31, 2010		(Level 1)		(Level 2)		(Level 3)		June 30, 2010		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	137,306	$	-	$	137,306	$	-	$	150,792	$	-	$	150,792	$	-
Obligations of U.S. States and political subdivisions		3,803,836		-		3,803,836		-		3,634,029		-		3,634,029		-
Corporate securities		672,586		-		665,656		6,930		746,192		-		739,227		6,965
Asset-backed securities		15,130		-		8,762		6,368		27,403		-		20,841		6,562
Mortgage-backed securities
Commercial		38,770		-		38,770		-		39,402		-		39,402		-
Agency residential		444,327		-		444,327		-		438,582		-		438,582		-
Non-agency residential		59,689		-		59,233		456		61,438		-		60,941		497
Foreign government securities		689,793		-		689,793		-		728,609		-		728,609		-
Foreign corporate securities		562,465		-		562,465		-		566,564		-		566,564		-
Total fixed maturities, market value		6,423,902		-		6,410,148		13,754		6,393,011		-		6,378,987		14,024

Fixed maturities, fair value		65,307		-		65,307		-		66,351		-		66,351		-
Equity securities, market value		12		12		-		-		12		12		-		-
Equity securities, fair value		394,548		393,535		1,013		-		340,377		340,377		-		-
Other invested assets, fair value		406,933		406,933		-		-		545,160		545,160		-		-

There were no significant transfers between Level 1 and Level 2 for the ~~three~~six months ended ~~March 31,~~June 30, 2010.

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

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

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

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

													By Asset
	By Asset												Three Months Ended June 30, 2010										Six Months Ended June 30, 2010
	Corporate		Asset-backed			Non-agency							Corporate			Asset-backed		Non-agency					Corporate			Asset-backed		Non-agency
(Dollars in thousands)	Securities		Securities			RMBS			Total				Securities			Securities		RMBS			Total		Securities			Securities		RMBS			Total
Beginning balance January 1, 2010	$	6,930	$	6,258		$	426		$	13,614
Beginning balance													$	6,930		$	6,368	$	456		$	13,754	$	6,930		$	6,258	$	426		$	13,614
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		-		-			25			25				(1	)		-		24			23		(1	)		-		49			48
Included in other comprenhensive income		-		(78	)		41			(37	)
Included in other comprehensive income (loss)														36			122		51			209		36			44		92			172
Purchases, issuances and settlements		-		188			(36	)		152				-			72		(34	)		38		-			260		(70	)		190
Transfers in and/or (out) of Level 3		-		-			-			-				-			-		-			-		-			-		-			-
Ending balance March 31, 2010	$	6,930	$	6,368		$	456		$	13,754
Ending balance													$	6,965		$	6,562	$	497		$	14,024	$	6,965		$	6,562	$	497		$	14,024

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

	Summary
	Three Months Ended					Six Months Ended
	June 30,					June 30,
(Dollars in thousands)	2010		2009			2010		2009
Assets:
Balance, beginning of period	$	13,754	$	7,464		$	13,614	$	10,967
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		23		21			48		(4	)
Included in other comprehensive income (loss)		209		375			172		556
Purchases, issuances and settlements		38		(3,054	)		190		(79	)
Transfers in and/or (out) of Level 3		-		7,001			-		367
Balance, end of period	$	14,024	$	11,807		$	14,024	$	11,807

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	)

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5.	CAPITAL TRANSACTIONS

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

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

~~5. CAPITAL TRANSACTIONS~~

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

~~6. CONTINGENCIES~~

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6.	CONTINGENCIES

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance, reinsurance and other contractual agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. While the final outcom e of these matters cannot be predicted with certainty, the Company does not believe that any of these matters, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, an adverse resolution of one or more of these items in any one quarter or fiscal year could have a material adverse effect on the Company’s results of operations in that period.

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

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

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

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

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009			2010			2009
Gross basis:
Beginning of period reserves	$	638,674		$	786,842		$	625,208		$	768,761		$	638,674		$	786,842
Incurred losses		-			-			-			-			-			-
Paid losses		(13,466	)		(18,081	)		(11,073	)		(64,254	)		(24,539	)		(82,335	)
End of period reserves	$	625,208		$	768,761		$	614,135		$	704,507		$	614,135		$	704,507

Net basis:
Beginning of period reserves	$	430,421		$	485,296		$	419,230		$	475,209		$	430,421		$	485,296
Incurred losses		-			-			-			-			-			-
Paid losses		(11,191	)		(10,087	)		(6,579	)		(19,830	)		(17,770	)		(29,917	)
End of period reserves	$	419,230		$	475,209		$	412,651		$	455,379		$	412,651		$	455,379

At ~~March 31,~~June 30, 2010, the gross reserves for A&E losses were comprised of ~~$139.0~~$133.9 million representing case reserves reported by ceding companies, ~~$142.6~~$136.8 million representing additional case reserves established by the Company on assumed reinsurance claims, ~~$61.9~~$58.7 million representing case reserves established by the Company on direct excess insurance claims, including Mt. McKinley and ~~$281.7~~$284.8 million representing IBNR reserves.

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With respect to asbestos only, at ~~March 31,~~June 30, 2010, the Company had gross asbestos loss reserves of ~~$595.8~~$586.1 million, or ~~95.3%~~95.4%, of total A&E reserves, of which ~~$465.9~~$459.3 million was for assumed business and ~~$129.9~~$126.8 million was for direct business.

Management believes that these uncertainties and factors continue to render reserves for A&E and particularly asbestos losses significantly less subject to traditional actuarial analysis than reserves for other types of losses. The Company establishes reserves to the extent that, in the judgment of management, the facts and prevailing law reflect an exposure for the Company or its ceding companies.

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

In 1993 and prior, the Company had a business arrangement with The Prudential Insurance Company of America (“The Prudential”) wherein, for a fee, the Company accepted settled claim payment obligations of certain property and casualty insurers, and, concurrently, became the owner of the annuity or assignee of the annuity proceeds funded by the property and casualty insurers specifically to fulfill these fully settled obligations. In these circumstances, the Company would be liable if The Prudential, which has an A+ (Superior) financial strength rating from A.M. Best Company (“A.M. Best”), was unable to make the annuity payments. At ~~March 31,~~June 30, 2010 and December 31, 2009, the estimated cost to replace all such annuities for which the Company was contingently liable was ~~$152.8~~$156.0 million and ~~$ 152.3~~$1 52.3 million, respectively.

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Prior to its 1995 initial public offering, the Company had purchased annuities from an unaffiliated life insurance company with an A+ (Superior) financial strength rating from A.M. Best to settle certain claim liabilities of the company. Should the life insurance company become unable to make the annuity payments, the Company would be liable for those claim liabilities. At ~~March 31,~~June 30, 2010 and December 31, 2009, the estimated cost to replace such annuities was $25.6 million and $24.6 ~~million.~~million, respectively.

7.	OTHER COMPREHENSIVE INCOME (LOSS)

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

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009			2010			2009
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
Unrealized appreciation (depreciation) ("URA(D)") on
securities arising during the period
URA(D) of investments - temporary	$	3,666		$	87,942		$	46,846			75,709		$	50,512		$	163,651
URA(D) of investments - non-credit OTTI		3,051			-			(469	)		5,598			2,582			5,598
Tax expense from URA(D) arising during the period		(2,351	)		(30,780	)
Tax benefit (expense) from URA(D) arising during the period								(16,232	)		(28,457	)		(18,583	)		(59,237	)
Total URA(D) on securities arising during the period, net of tax		4,366			57,162			30,145			52,850			34,511			110,012

Foreign currency translation adjustments		10,726			(28,742	)		(8,896	)		45,819			1,830			17,077
Tax (expense) benefit from foreign currency translation		(3,754	)		10,060
Tax benefit (expense) from foreign currency translation								3,114			(16,037	)		(640	)		(5,977	)
Net foreign currency translation adjustments		6,972			(18,682	)		(5,782	)		29,782			1,190			11,100

Pension adjustments		628			-			671			1,900			1,299			1,900
Tax expense on pension		(220	)		-
Tax benefit (expense) on pension								(235	)		(232	)		(455	)		(232	)
Net pension adjustments		408			-			436			1,668			844			1,668

Other comprehensive income, net of tax	$	11,746		$	38,480
Other comprehensive income (loss), net of tax							$	24,799		$	84,300		$	36,545		$	122,780

~~The following table presents the components of accumulated other comprehensive income, 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

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~~8. CREDIT LINE~~The following table presents the components of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets for the periods indicated:

	June 30,			December 31,
(Dollars in thousands)	2010			2009
URA(D) on securities, net of deferred taxes
Temporary	$	168,403		$	135,570
Non-credit, OTTI		353			(1,325	)
Total unrealized appreciation (depreciation) on investments, net of deferred taxes		168,756			134,245
Foreign currency translation adjustments, net of deferred taxes		58,191			57,001
Pension adjustments, net of deferred taxes		(23,424	)		(24,268	)
Accumulated other comprehensive income (loss)	$	203,523		$	166,978

8.	CREDIT FACILITY

Holdings Credit Facility

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

The Holdings Credit Facility requires Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and Everest Re to maintain its statutory surplus at $1.5 billion plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, 2005, which at ~~March 31,~~June 30, 2010, was ~~$1,933.8~~$1,954.2 million. As of ~~March 31,~~June 30, 2010, Holdings was in compliance with all Holdings Credit Facility covenants.

At ~~March 31,~~June 30, 2010, the Company had outstanding $133.0 million of short-term loans and $17.0 million of letters of credit under the Holdings Credit Facility. At December 31, 2009, the Company had outstanding $28.0 million of letters of credit under the Holdings Credit ~~Facility had~~Facility. The following table summarizes outstanding letters of credit and/or borrowings as of ~~$17.0 million and $28.0 million, respectively.~~June 30, 2010.

(Dollars in thousands)
Bank	Commitment		In Use		Date of Loan	Maturity/Expiry Date
Citibank Holdings Credit Facility	$	150,000	$	25,000	5/7/2010	8/9/2010
				25,000	5/10/2010	8/10/2010
				25,000	5/14/2010	8/16/2010
				25,000	5/19/2010	8/19/2010
				20,000	6/11/2010	9/13/2010
				13,000	6/15/2010	9/15/2010
Total short-term borrowings				133,000
Total letters of credit				16,951		12/31/2010

Total Citibank Holdings Credit Facility	$	150,000	$	149,951

Costs incurred in connection with the Holdings Credit Facility were ~~$9.3~~$130.2 thousand and ~~$26.3~~$31.5 thousand for the three months ended ~~March 31,~~June 30, 2010 and 2009, respectively, and $165.8 thousand and $57.8 thousand for the six months ended June 30, 2010 and 2009, respectively.

~~9. LETTERS OF CREDIT~~

~~The Citibank Holdings Credit Facility involves a syndicate~~

Table of lenders (see Note 8), with Citibank acting as administrative agent. At March 31, 2010 and December 31, 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 March 31, 2010.Contents

(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

9.	TRUST AGREEMENTS

~~10. TRUST AGREEMENTS~~

A subsidiary of the Company, Everest Re, has established a trust agreement, which effectively uses Everest Re’s investments as collateral, as security for assumed losses payable to a non-affiliated ceding company. At ~~March 31,~~June 30, 2010, the total amount on deposit in the trust account was ~~$23.7~~$24.6 million.

~~11.~~

10.	SENIOR NOTES

On October 12, 2004, Holdings completed a public offering of $250.0 million principal amount of 5.40% senior notes due October 15, 2014. On March 14, 2000, Holdings completed a public offering of $200.0 million principal amount of 8.75% senior notes due March 15, 2010. On March 15, 2010, the $200.0 million principal amount of 8.75% senior notes matured, and was paid in cash.

Interest expense incurred in connection with these senior notes was ~~$7.1~~$3.4 million and $7.8 million for the three months ended ~~March 31,~~June 30, 2010 and 2009, respectively, and $10.4 million and $15.6 million for the six months ended June 30, 2010 and 2009, respectively. Market value, which is based on quoted market ~~price~~prices at ~~March 31,~~June 30, 2010 and December 31, 2009, was ~~$261.0~~$256.6 million and $256.1 million, respectively, for the 5.40% senior notes and $200.0 million for the 8.75% senior notes at December 31, 2009.

11.	LONG TERM SUBORDINATED NOTES

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~~12. LONG TERM SUBORDINATED NOTES~~

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

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

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

Interest expense incurred in connection with these long term notes was $3.9 million ~~and $6.5 million~~ for the three months ended ~~March 31,~~June 30, 2010 and 2009, and $7.9 million and $10.4 million for the six months ended June 30, 2010 and 2009, respectively. Market value, which is based on quoted market prices at ~~March 31,~~June 30, 2010 and December 31, 2009, was ~~$204.1~~$206.4 million and $176.5 million on the outstanding 6.6% long term subordinated notes, respectively.

~~13. JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE~~

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12.	JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE

On March 29, 2004, Holdings issued $329.9 million of 6.20% junior subordinated debt securities due, March 29, 2034, to Everest Re Capital Trust II (“Capital Trust II”). Holdings may redeem the junior subordinated debt securities before their maturity at 100% of their principal amount plus accrued interest as of the date of redemption. The securities may be redeemed in whole or in part, on one or more occasions at any time on or after March 30, 2009; or at any time, in whole, but not in part, within 90 days of the occurrence and continuation of a determination that the Trust may become subject to tax or the Investment Company Act.

Fair value, which is primarily based on the quoted market price of the related trust preferred securities was ~~$289.6~~$269.7 million and $272.6 million at ~~March 31,~~June 30, 2010 and December 31, 2009, respectively, for the 6.20% junior subordinated debt securities.

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

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Capital Trust II is a wholly owned finance subsidiary of Holdings.

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

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

There are certain regulatory and contractual restrictions on the ability of the Company’s operating subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. The insurance laws of the State of Delaware, where the Company’s direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or advances to the Company that exceed certain statutory thresholds. In addition, the terms of the Holdings Credit Facility (discussed in Note 8) require Everest Re, the Company’s principal insurance subsidiary, to maintain a certain statutory surplus level as measured at the end of each fiscal year. At December 31, 2009, $2,352.0 million of the $3,271.1 million in net assets of the Company’ ;s consolidated subsidiaries were subject to the foregoing regulatory restrictions.

~~14.~~

13.	SEGMENT REPORTING

The Company, through its subsidiaries, operates in four segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting and International. The U.S. Reinsurance operation writes property and casualty reinsurance, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S. The U.S. Insurance operation writes property and casualty insurance primarily through general agents, brokers and surplus lines brokers within the U.S. The Specialty Underwriting operation writes accident and health (“A&H”), marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies. The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada and Singapore and offices in Miami and New Jersey.

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

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

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

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

Three Months Ended
U.S. Reinsurance March 31,
(Dollars in thousands) 2010 2009
Gross written premiums $ 244,008 $ 264,331
Net written premiums 128,462 139,432

Premiums earned $ 127,001 $ 146,333
Incurred losses and LAE 90,108 90,141
Commission and brokerage 27,218 31,919
Other underwriting expenses 7,806 7,562
Underwriting gain $ 1,869 $ 16,711

	Three Months Ended				Three Months Ended				Six Months Ended
U.S. Insurance	March 31,
U.S. Reinsurance					June 30,				June 30,
(Dollars in thousands)	2010		2009		2010		2009		2010		2009
Gross written premiums	$	228,237	$	204,717	$	268,215	$	266,151	$	512,223	$	530,482
Net written premiums		102,467		121,152		150,462		156,751		278,924		296,183

Premiums earned	$	101,166	$	111,972	$	162,492	$	180,697	$	289,493	$	327,030
Incurred losses and LAE		72,950		81,144		84,346		85,963		174,454		176,104
Commission and brokerage		1,641		12,018		35,854		37,209		63,072		69,128
Other underwriting expenses		16,577		17,281		9,377		8,023		17,183		15,585
Underwriting gain	$	9,998	$	1,529
Underwriting gain (loss)					$	32,915	$	49,502	$	34,784	$	66,213

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					Three Months Ended					Six Months Ended
International	March 31,
U.S. Insurance						June 30,					June 30,
(Dollars in thousands)	2010			2009		2010			2009		2010		2009
Gross written premiums	$	275,350		$	250,750	$	204,941		$	213,511	$	433,178	$	418,228
Net written premiums		145,209			135,356		80,812			104,358		183,279		225,510

Premiums earned	$	147,069		$	143,304	$	86,187		$	105,651	$	187,353	$	217,623
Incurred losses and LAE		236,485			92,527		71,800			57,762		144,750		138,906
Commission and brokerage		30,447			34,215		6,098			9,849		7,739		21,867
Other underwriting expenses		6,380			4,620		16,279			19,152		32,856		36,433
Underwriting (loss) gain	$	(126,243	)	$	11,942
Underwriting gain (loss)						$	(7,990	)	$	18,888	$	2,008	$	20,417

	Three Months Ended						Six Months Ended
Specialty Underwriting	June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009
Gross written premiums	$	65,855		$	57,188		$	131,742		$	116,111
Net written premiums		37,823			32,126			75,062			64,731

Premiums earned	$	39,342		$	32,495		$	78,240		$	69,331
Incurred losses and LAE		34,512			23,160			61,973			48,543
Commission and brokerage		8,972			8,858			17,507			18,925
Other underwriting expenses		2,407			1,999			4,358			3,844
Underwriting gain (loss)	$	(6,549	)	$	(1,522	)	$	(5,598	)	$	(1,981	)

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	Three Months Ended					Six Months Ended
International	June 30,					June 30,
(Dollars in thousands)	2010			2009		2010			2009
Gross written premiums	$	306,998		$	274,253	$	582,348		$	525,003
Net written premiums		166,046			153,964		311,255			289,320

Premiums earned	$	154,703		$	141,931	$	301,772		$	285,235
Incurred losses and LAE		124,091			79,223		360,576			171,750
Commission and brokerage		37,273			31,007		67,720			65,222
Other underwriting expenses		7,308			5,684		13,688			10,304
Underwriting gain (loss)	$	(13,969	)	$	26,017	$	(140,212	)	$	37,959

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

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(Dollars in thousands)	2010			2009			2010			2009			2010			2009
Underwriting (loss) gain	$	(113,425	)	$	29,723
Underwriting gain (loss)							$	4,407		$	92,885		$	(109,018	)	$	122,608
Net investment income		85,107			39,659			89,346			74,516			174,453			114,175
Net realized capital losses		(5,307	)		(68,184	)
Net realized capital gains (losses)								(95,473	)		22,941			(100,780	)		(45,243	)
Realized gain on debt repurchase		-			78,271			-			-			-			78,271
Corporate expense		(2,226	)		(1,318	)		(1,463	)		(1,878	)		(3,689	)		(3,196	)
Interest, fee and bond issue cost amortization expense		(16,340	)		(19,633	)		(12,722	)		(17,073	)		(29,062	)		(36,706	)
Other income (expense)		5,112			(114	)		8,709			(7,166	)		13,821			(7,280	)
(Loss) income before taxes	$	(47,079	)	$	58,404
Income (loss) before taxes							$	(7,196	)	$	164,225		$	(54,275	)	$	222,629

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

14.	RELATED-PARTY TRANSACTIONS

Parent

~~15. RELATED-PARTY TRANSACTIONS~~On September 21, 2004, Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its subsidiary Holdings to purchase up to an aggregate of 5,000,000 of Group’s common shares through open market transactions, privately negotiated transactions or both. On July 21, 2008 and on February 24, 2010, the Executive Committee of Group’s Board of Directors, approved amendments to repurchase an additional 5,000,000 common shares for each amendment, bringing the total amount of Group’s common shares authorized to be repurchased by Group and/or Holdings to 15,000,000.

As of June 30, 2010, Holdings held 7,708,707 common shares of Group, which it had purchased in the open market between February 1, 2007 and June 25, 2010, for a total purchase price of $665.3 million. Holdings reports these purchases as other invested assets, fair value, in the consolidated balance sheets with changes in fair value re-measurement recorded in net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss). Dividends received on these common shares of $5.6 million for the six months ended June 30, 2010, were reported in net investment income in the consolidated statements of operations and comprehensive income (loss).

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Outside Directors

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

Affiliates

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

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

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

For premiums earned and losses incurred for the period January 1, 2002 through December 31, 2002, Everest Re, Everest National Insurance Company and Everest Security Insurance Company entered into an Excess of Loss Reinsurance Agreement with Bermuda Re, covering workers’ compensation losses occurring on and after January 1, 2002, as respects new, renewal and in force policies effective on that date through December 31, 2002. Bermuda Re is liable for any loss exceeding $100,000 per occurrence, with its liability not to exceed $150,000 per occurrence.

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

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

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

Effective January 1, 2004, Everest Re and Bermuda Re amended the whole account quota share through which Everest Re previously ceded 25.0% of its business to Bermuda Re so that effective January 1, 2004 Everest Re ceded 22.5% to Bermuda Re and 2.5% to Everest International of the net retained liability on all new and renewal covered business written during the term of this agreement. This amendment remained in effect through December 31, 2005.

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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.

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Effective January 1, 2009, Everest Re, Bermuda Re and Everest International amended the whole account quota share whereby, for all new and renewal casualty and property business recorded on or after January 1, 2009, Everest Re 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.

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

	Three Months Ended				Three Months Ended				Six Months Ended
Bermuda Re	March 31,				June 30,				June 30,
(Dollars in thousands)	2010		2009		2010		2009		2010		2009
Ceded written premiums	$	320,031	$	284,766	$	325,719	$	271,299	$	645,750	$	556,065
Ceded earned premiums		288,158		274,068		326,072		275,068		614,230		549,136
Ceded losses and LAE (a)		288,446		140,867		194,630		191,732		483,076		332,599

	Three Months Ended				Three Months Ended				Six Months Ended
Everest International	March 31,				June 30,				June 30,
(Dollars in thousands)	2010		2009		2010		2009		2010		2009
Ceded written premiums	$	28,312	$	38,348	$	20,629	$	45,534	$	48,941	$	83,882
Ceded earned premiums		40,332		34,336		34,172		37,947		74,504		72,283
Ceded losses and LAE		24,016		19,400		39,770		17,155		63,786		36,555

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

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

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15.	INCOME TAXES

~~16. INCOME TAXES~~

The Company uses a projected annual effective tax rate to calculate its quarterly tax expense in accordance with FASB guidance. Under this methodology, when an interim quarter’s pre-tax income (loss) varies significantly from a full year’s income (loss) projection, the tax impact resulting from the income (loss) variance is effectively spread between the impacted quarter and the remaining quarters of the year, except for discreet items impacting an individual quarter.

The Company recognizes accrued interest related to unrecognized tax benefits and penalties in income taxes. For the three and six months ended ~~March 31,~~June 30, 2010, the Company expensed approximately $1.1 million and $2.2 million, respectively, in interest and penalties.

~~17.~~

16.	SUBSEQUENT EVENTS

The Company has evaluated known recognized and non-recognized subsequent events. The Company does not have any subsequent events to report.

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~~ITEM 2.~~

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

Industry Conditions.

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

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

Starting in the latter part of 2007 and continuing into 2010 there has been a significant slowdown in the global economy, which has negatively impacted the financial resources of the industry. Excessive availability and use of credit, particularly by individuals, led to increased defaults on sub-prime mortgages in the U.S. and elsewhere, falling values for houses and many commodities and contracting consumer spending. The significant increase in default rates negatively impacted the value of asset-backed securities held by both foreign and domestic institutions. The defaults have led to a corresponding increase in foreclosures, which have driven down housing values, resulting in additional losses on asset-backed securities. During the third and fourth quarters of 2008, credit markets det eriorated dramatically, evidenced by widening credit spreads and dramatically reduced availability of credit. Many financial institutions, including some insurance entities, experienced liquidity crises due to immediate demands for funds for withdrawals or collateral, combined with falling asset values and their inability to sell assets to meet the increased demands. As a result, several financial institutions ~~have~~ failed or ~~been~~were acquired at distressed prices, while others ~~have~~ received loans from the U.S. government to continue operations. The liquidity crisis significantly increased the spreads on fixed maturity securities and, at the same time, had a dramatic and negative impact on the stock markets around the world. The combination of losses on securities from failed or impaired companies combined with the decline in values of fixed maturity and equity securities resulted in significant declines in the capital bases of most insurance and reinsurance companies. While ~~there~~ther e was significant improvement in the financial markets during 2009 and into 2010, ~~recent~~ concerns about ~~the ability of some European countries to repay their bonds has~~interest rates, deflation and sovereign debt levels have hindered financial market recoveries. It is too early to predict the timing and extent of the impact these financial market fluctuations will have on insurance and reinsurance market conditions.

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

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The reinsurance industry has experienced a period of falling rates and volume, particularly in the casualty lines of business. Profit opportunities have become generally less available over time; however, the unfavorable trends seem to be softening. We are now seeing smaller rate declines, pockets of stability and some increases in some markets and for some coverages. During the first quarter of 2010, the devastating Chilean earthquake coupled with severe storms in Europe and Australia resulted in significant catastrophe losses to the industry. It is too early to gauge the market impacts from these losses, but we feel that market conditions should improve for catastrophe coverages in the geographical regions of these losses.

Rates in the international markets have generally been stable and we have seen some increases, particularly for catastrophe exposed business. We have grown our business in the Middle East, Latin America and Asia. We are expanding our international reach with 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 the future.

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

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Financial Summary.

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

	Three Months Ended						Percentage			Three Months Ended						Percentage			Six Months Ended						Percentage
	March 31,						Increase/			June 30,						Increase/			June 30,						Increase/
(Dollars in millions)	2010			2009			(Decrease)			2010			2009			(Decrease)			2010			2009			(Decrease)
Gross written premiums	$	813.5		$	778.7			4.5	%	$	846.0		$	811.1			4.3	%	$	1,659.5		$	1,589.8			4.4	%
Net written premiums		413.4			428.5			-3.5	%		435.1			447.2			-2.7	%		848.5			875.7			-3.1	%

REVENUES:
Premiums earned	$	414.1		$	438.4			-5.5	%	$	442.7		$	460.8			-3.9	%	$	856.9		$	899.2			-4.7	%
Net investment income		85.1			39.7			114.6	%		89.3			74.5			19.9	%		174.5			114.2			52.8	%
Net realized capital losses		(5.3	)		(68.2	)		-92.2	%
Net realized capital gains (losses)											(95.5	)		22.9		NM				(100.8	)		(45.2	)		122.8	%
Realized gain on debt repurchase		-			78.3		NA				-			-		NA				-			78.3		NA
Other income (expense)		5.1			(0.1	)	NM				8.7			(7.2	)		-221.6	%		13.8			(7.3	)	NM
Total revenues		499.0			488.1			2.2	%		445.3			551.1			-19.2	%		944.4			1,039.1			-9.1	%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		427.0			289.2			47.7	%		314.7			246.1			27.9	%		741.8			535.3			38.6	%
Commission, brokerage, taxes and fees		67.8			88.2			-23.1	%		88.2			86.9			1.5	%		156.0			175.1			-10.9	%
Other underwriting expenses		32.7			31.3			4.5	%		35.4			34.9			1.5	%		68.1			66.2			2.9	%
Corporate expense		2.2			1.3			69.0	%		1.5			1.9			-22.1	%		3.7			3.2			15.4	%
Interest, fee and bond issue cost amortization expense		16.3			19.6			-16.8	%		12.7			17.1			-25.5	%		29.1			36.7			-20.8	%
Total claims and expenses		546.1			429.7			27.1	%		452.5			386.8			17.0	%		998.6			816.5			22.3	%

(LOSS) INCOME BEFORE TAXES		(47.1	)		58.4			-180.6	%
INCOME (LOSS) BEFORE TAXES											(7.2	)		164.2			-104.4	%		(54.3	)		222.6			-124.4	%
Income tax (benefit) expense		(2.2	)		12.7			-116.9	%		(24.1	)		35.7			-167.4	%		(26.2	)		48.5			-154.1	%
NET (LOSS) INCOME	$	(44.9	)	$	45.7			-198.4	%
NET INCOME (LOSS)										$	16.9		$	128.5			-86.9	%	$	(28.0	)	$	174.2			-116.1	%

RATIOS:							Point Change									Point Change									Point Change
Loss ratio		103.1	%		66.0	%		37.1			71.1	%		53.4	%		17.7			86.6	%		59.5	%		27.1
Commission and brokerage ratio		16.4	%		20.1	%		(3.7	)		19.9	%		18.9	%		1.0			18.2	%		19.5	%		(1.3	)
Other underwriting expense ratio		7.9	%		7.1	%		0.8			8.0	%		7.5	%		0.5			7.9	%		7.4	%		0.5
Combined ratio		127.4	%		93.2	%		34.2			99.0	%		79.8	%		19.2			112.7	%		86.4	%		26.3


	At			At			Percentage												At			At			Percentage
	March 31,			December 31,			Increase/												June 30,			December 31,			Increase/
(Dollars in millions)		2010			2009		(Decrease)												2010			2009			(Decrease)
Balance sheet data:
Total investments and cash	$	8,046.4		$	8,031.6			0.2	%										$	8,103.2		$	8,031.6			0.9	%
Total assets		13,641.6			13,379.6			2.0	%											13,678.0			13,379.6			2.2	%
Loss and loss adjustment expense reserves		7,613.8			7,300.1			4.3	%											7,583.5			7,300.1			3.9	%
Total debt		818.0			1,018.0			-19.6	%											951.0			1,018.0			-6.6	%
Total liabilities		10,814.7			10,520.8			2.8	%											10,807.8			10,520.8			2.7	%
Stockholder's equity		2,826.9			2,858.8			-1.1	%											2,870.2			2,858.8			0.4	%

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

Revenues.

Premiums. Gross written premiums increased by $34.9 million, or 4.3%, for the three months ended June 30, 2010 compared to the three months ended June 30, 2009, reflecting an increase of $43.5 million in our reinsurance business, partially offset by a decline of $8.6 million in our insurance business. Gross written premiums increased by $69.7 million, or 4.4%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009, reflecting an increase of $54.7 million in our reinsurance business and $15.0 million in our insurance business. The increase in reinsurance premiums was the result of increased writings from Brazil, Asia and Canadian locations. The increase in insurance premiums were primarily in t he workers’ compensation, Florida property and financial institution D&O and E&O lines of business.

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~~Revenues.~~

~~Premiums.~~ ~~Gross~~Net written premiums ~~increased~~decreased by ~~$34.8~~$12.1 million, or ~~4.5%~~2.7%, for the three months ended ~~March 31,~~June 30, 2010 compared to the three months ended ~~March 31,~~June 30, 2009 ~~reflecting an increase of $23.5~~and by $27.2 million, or 3.1%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. The decrease in ~~our insurance business and $11.3 million in our reinsurance business. The increase in insurance~~net written premiums ~~were primarily in the workers’ compensation, Florida property and financial institution D&O and E&O lines of business. The increase in reinsurance business~~ was primarily ~~attributable~~due to ~~strong growth in U.S. property, South America and Asian markets, partially offset by~~increased reinsurance on the newer insurance program business as well as increased cessions on an existing insurance program. Premiums earned decreased ~~writings in the U.S. casualty, crop reinsurance, marine and European markets. Net written premiums decreased by $15.2~~$18.1 million, or ~~3.5%~~3.9%, for the three months ended ~~March 31,~~June 30, 2010 compared to the three months ended ~~March 31, 2009. This change was primarily due to ceded premiums that generally relate to specific reinsurance purchased~~June 30, 2009 and by ~~the U.S. Insurance operation and that fluctuate based upon the level of premiums written in the individual reinsured programs. Premiums earned decreased $24.3~~$42.4 million, or ~~5.5%~~4.7%, for the ~~three~~six months ended ~~March 31,~~June 30, 2010 compared to the ~~three~~six months ended ~~March 31,~~June 30, 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 at the initiation of the coverage period.

Net Investment Income. Net investment income increased by ~~114.6%~~19.9% for the three months ended ~~March 31,~~June 30, 2010, compared to the three months ended ~~March 31,~~June 30, 2009, and by 52.8% for the six months ended June 30, 2010, compared to the six months ended June 30, 2009, primarily due to net investment gains from our limited partnerships that invest in public and non-public securities, both equity and debt. Gains related to these limited partnerships were ~~$9.4~~$8.9 million and $2.0 million for the three months ended ~~March 31,~~June 30, 2010 and 2009, respectively. Gains related to these limited partnerships were $18.3 million for the six months ended June 30, 2010, compared with losses of ~~$34.1~~$32.1 million for the comparable period in 2009. ~~As a result, net~~Net pre-tax investment ~~income,~~incom e, as a percentage of average invested assets, was up at ~~4.4%~~4.5% for the three months ended ~~March 31,~~June 30, 2010, compared to ~~2.1%~~4.0% for the three months ended ~~March 31,~~June 30, 2009 and at 4.4% for the six months ended June 30, 2010, compared to 3.0% for the six months ended June 30, 2009. The variances in these yields were primarily due to the fluctuations in limited partnership income.

Net Realized Capital ~~Losses.~~Gains (Losses). Net realized capital losses were ~~$5.3 million and $68.2~~$95.5 million for the three months ended ~~March 31,~~June 30, 2010, which consisted of a $94.4 million loss in fair value re-measurements and ~~2009, respectively. For~~$1.1 million of loss from sales on our available for sale fixed maturity and equity securities. Net realized capital gains were $22.9 million for the three months ended ~~March 31,~~June 30, 2009, which consisted of a $22.5 million gain in fair value re-measurements, $5.4 million of gains from sales of fixed maturity and equity securities, partially offset by $4.9 million of other-than-temporary impairments on our available for sale fixed maturity securities.

Net realized capital losses were $100.8 million for the six months ended June 30, 2010, ~~we recorded $6.5~~which consisted of a $100.9 million loss ~~due to~~in fair value re-measurements, which were partially offset by ~~$1.2~~$0.1 million of ~~net~~gains from sales on our available for sale fixed maturity and equity securities. Net realized capital ~~gains from sales. For~~losses were $45.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2009, ~~we recorded $39.1~~which consisted of $23.1 million of losses from sales of fixed maturity and equity securities, $16.6 million loss ~~due to~~in fair value re-measurements ~~$28.5~~and $5.5 million ~~of net realized capital losses from sales and $0.6 million~~loss in other-than-temporary impairments on our available for sale fixed maturity securities.

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

Other Income (Expense). We recorded other income of ~~$5.1~~$8.7 million and $13.8 million for the three and six months ended June 30, 2010, respectively, and other expense of ~~$0.1~~$7.2 million and $7.3 million for the three and six months ended ~~March 31, 2010 and~~June 30, 2009, respectively. The ~~variances~~changes were primarily due to ~~changes~~the result of fluctuations in foreign currency exchange rates and the deferrals on retroactive reinsurance agreements with affiliates for the corresponding periods.

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Claims and Expenses.

Incurred Losses and LAE. The following ~~table presents~~tables present our incurred losses and LAE for the periods indicated.

	Three Months Ended March 31,																				Three Months Ended June 30,
	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	%		$	265.5			60.0	%		$	9.7			2.2	%		$	275.2			62.2	%
Catastrophes		165.2		39.9	%			2.8			0.7	%			168.0			40.6	%
Catastrophes (b)																						45.9			10.4	%			(6.4	)		-1.4	%			39.5			8.9	%
A&E		-		0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%
Total	$	433.4		104.7	%		$	(6.4	)		-1.6	%		$	427.0			103.1	%		$	311.4			70.3	%		$	3.3			0.8	%		$	314.7			71.1	%

2009
Attritional (a)	$	257.4		58.7	%		$	20.2			4.6	%		$	277.6			63.3	%		$	284.8			61.8	%		$	(37.0	)		-8.0	%		$	247.8			53.8	%
Catastrophes		9.1		2.1	%			2.5			0.6	%			11.6			2.7	%			-			0.0	%			(1.7	)		-0.4	%			(1.7	)		-0.4	%
A&E		-		0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%
Total	$	266.5		60.8	%		$	22.7			5.2	%		$	289.2			66.0	%		$	284.8			61.8	%		$	(38.7	)		-8.4	%		$	246.1			53.4	%

Variance 2010/2009
Attritional (a)	$	10.8		6.1		pts	$	(29.5	)		(6.8	)	pts	$	(18.6	)		(0.8	)	pts	$	(19.3	)		(1.8	)	pts	$	46.7			10.2		pts	$	27.4			8.4		pts
Catastrophes		156.1		37.8		pts		0.3			0.1		pts		156.4			37.9		pts		45.9			10.4		pts		(4.7	)		(1.0	)	pts		41.2			9.3		pts
A&E		-		-		pts		-			-		pts		-			-		pts		-			-		pts		-			-		pts		-			-		pts
Total	$	166.9		43.9		pts	$	(29.1	)		(6.8	)	pts	$	137.8			37.1		pts	$	26.6			8.5		pts	$	42.0			9.2		pts	$	68.6			17.7		pts

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

	Six Months Ended June 30,
	Current			Ratio %/				Prior			Ratio %/				Total		Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred		Pt Change
2010
Attritional (a)	$	533.8			62.3	%		$	0.4			0.1	%		$	534.2		62.3	%
Catastrophes (b)		211.1			24.6	%			(3.5	)		-0.4	%			207.5		24.2	%
A&E		-			0.0	%			-			0.0	%			-		0.0	%
Total	$	744.9			86.9	%		$	(3.1	)		-0.4	%		$	741.8		86.6	%

2009
Attritional (a)	$	542.3			60.3	%		$	(16.9	)		-1.9	%		$	525.4		58.4	%
Catastrophes		9.1			1.0	%			0.9			0.1	%			9.9		1.1	%
A&E		-			0.0	%			-			0.0	%			-		0.0	%
Total	$	551.3			61.3	%		$	(16.0	)		-1.8	%		$	535.3		59.5	%

Variance 2010/2009
Attritional (a)	$	(8.5	)		2.0		pts	$	17.3			2.0		pts	$	8.8		3.9		pts
Catastrophes		202.0			23.6		pts		(4.4	)		(0.5	)	pts		197.6		23.1		pts
A&E		-			-		pts		-			-		pts		-		-		pts
Total	$	193.6			25.6		pts	$	12.9			1.4		pts	$	206.5		27.1		pts

(a) Attritional losses exclude catastrophe and A&E losses.
(b) Effective with the June 30, 2010 reporting period, which includes June 30, 2010 year-to-date and the quarter results, a catastrophe is a property event with expected reported losses of
at least $10.0 million. All prior periods reflect a catastrophe as a property event with expected reported losses of at least $5.0 million.
(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by ~~$137.8~~$68.6 million, or ~~47.7%~~27.9%, for the three months ended ~~March 31,~~June 30, 2010 compared to the three months ended ~~March 31,~~June 30, 2009. Of the ~~$137.8~~$68.6 million increase, current year catastrophe losses increased ~~$156.1~~$45.9 million, ~~corresponding to a loss ratio increase of 37.8~~or 10.4 points, period over period, primarily due to the ~~Chile~~Chilean earthquake, ~~Australian hailstorms and winterstorm Xynthia.~~partially offset by the takedown of Windstorm Xynthia as this catastrophe loss was less than we anticipated. The ~~$10.8~~$27.4 million increase in attritional losses ~~for the three months ended March 31, 2010~~ was primarily the result of ~~an increase~~unfavorable loss development on prior years’ attritional loss reserves in ~~expected~~2010 as compared to favorable loss ~~ratios, which more than offset a decrease~~development on prior years’ attritional loss reserves in ~~earned premiums.~~2009.

Incurred losses and LAE increased by $206.5 million, or 38.6%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Of the $206.5 million increase, current year catastrophe losses increased $202.0 million, or 23.6 points, period over period, primarily due to the Chilean earthquake and Australian hailstorms.

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Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees ~~decreased~~increased by ~~$20.4~~$1.3 million, or ~~23.1%~~1.5%, for the three months ended ~~March 31,~~June 30, 2010 compared to the same period in 2009. ~~The decrease was~~Commission, brokerage, taxes and fees decreased by $19.1 million, or 10.9%, for the six months ended June 30, 2010 compared to the same period in 2009, primarily the result of lower ~~commission rates on property contracts in conjunction with the increase in reinstatement~~ premiums ~~which have no brokerage commissions~~earned and ~~changes in cessions under the affiliated quota share agreement.~~mix of business.

Other Underwriting Expenses. Other underwriting expenses were ~~$32.7~~$35.4 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$31.3~~$34.9 million for the three months ended ~~March 31,~~June 30, 2009, and $68.1 million for the six months ended June 30, 2010 compared to $66.2 million for the six months ended June 30, 2009. ~~The increase was primarily~~Other underwriting expense increases were relatively consistent across our reinsurance business, due to normal growth in expenses but decreased for our insurance business due to cost containment measures for the ~~increase in staff~~three and ~~staff related expenses.~~six months ended June 30, 2010 and 2009.

Corporate Expenses. Corporate expenses, which are expenses that are not allocated to segments, were ~~$2.2~~$1.5 million and ~~$1.3~~$1.9 million for the three months ended ~~March 31,~~June 30, 2010 and 2009, respectively, and $3.7 million and $3.2 million for the six months ended June 30, 2010 and 2009, respectively. These expenses were previously included as underwriting expenses and therefore included in the other underwriting expense ratio. Effective January 1, 2010, these expenses were removed from the calculation of the other underwriting expense ratio and prior periods were recalculated to conform.

Interest, Fees and Bond Issue Cost Amortization Expense. Interest and other expense was ~~$16.3~~$12.7 million and ~~$19.6~~$17.1 million for the three months ended ~~March 31,~~June 30, 2010 and 2009, respectively, and $29.1 million and $36.7 million for the six months ended June 30, 2010 and 2009, respectively. ~~The decrease was~~These decreases were primarily due to the combination of the repurchase of debt in the first quarter of 2009 and maturing of debt in ~~the first quarter of~~ 2010.

Income Tax (Benefit) Expense. We had an income tax ~~benefit~~benefits of ~~$2.2~~$24.1 million and an$26.2 million for the three and six months ended June 30, 2010, respectively. We had income tax expense of ~~$12.7~~$35.7 million and $48.5 million for the three and six months ended ~~March 31, 2010 and~~June 30, 2009, respectively. The period over period variance was primarily due to pre-tax losses in 2010 versus pre-tax income in 2009. Our income tax is primarily a function of the statutory tax rate coupled with the impact from tax-preferenced investment income.

~~Table of Contents~~

Net Income (Loss) ~~Income.~~.

We reported net income of $16.9 million and a net loss of ~~$44.9 million and net income of $45.7~~$28.0 million for the three and six months ended ~~March 31,~~June 30, 2010, respectively, compared to net income of $128.5 million and $174.2 million for the three and six months ended June 30, 2009, respectively. This change was the result of the items discussed above.

Ratios.

Our combined ratio increased by ~~34.2~~19.2 points to ~~127.4%~~99.0% for the three months ended ~~March 31,~~June 30, 2010 compared to ~~93.2%~~79.8% for the three months ended ~~March 31,~~June 30, 2009. Our combined ratio increased by 26.3 points to 112.7% for the six months ended June 30, 2010 compared to 86.4% for the six months ended June 30, 2009. The loss ratio component increased ~~37.1~~17.7 points and 27.1 points for the three and six months ended ~~March 31,~~June 30, 2010 ~~compared to~~over the same period last year, principally due to the ~~37.8~~10.4 point and 23.6 point increase in current year catastrophe losses as a result of the Chilean earthquake and Australian ~~hailstorms and winterstorm Xynthia.~~hailstorms. The commission and brokerage ratio component increased by 1.0 points and decreased by ~~3.7~~1.3 points for the three and six months ended ~~March 31,~~June 30, 2010, ~~compared to~~respectively, over the same period last year, ~~due to lower rates on property contracts,~~primarily as a resul t of the mix in business quarter over quarter and reinstatement premiums, which are fully earned, but have no commission ~~on reinstatement premiums and blend and mix of business,~~expense, year over year, while the other underwriting expense ratio component ~~increased slightly by 0.8 points for~~was relatively flat over the ~~three months ended March 31, 2010 compared to the three months ended March 31, 2009.~~same period last year.

Stockholder's Equity.

Stockholder's equity ~~decreased~~increased by ~~$31.9~~$11.5 million to ~~$2,826.9~~$2,870.2 million at ~~March 31,~~June 30, 2010 from $2,858.8 million at December 31, 2009, principally as a result of ~~$44.9 million of net loss, partially offset by $7.0 million of foreign currency translation adjustments, $4.4~~$34.5 million of unrealized appreciation on investments, net of tax, ~~$1.3~~$3.0 million of share-based compensation transactions, $1.2 million of foreign currency translation adjustments and ~~$0.4~~$0.8 million of pension ~~adjustments.~~adjustments, partially offset by $28.0 million of net loss.

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Consolidated Investment Results

Net Investment Income.

Net investment income increased ~~114.6%~~19.9% to ~~$85.1~~$89.3 million for the three months ended ~~March 31,~~June 30, 2010 ~~from $39.7~~compared to $74.5 million for the three months ended ~~March 31,~~June 30, 2009, and increased 52.8% to $174.5 million for the six months ended June 30, 2010 compared to $114.2 million for the six months ended June 30, 2009. The increase for the six months, period over period, was primarily due to an increase in recorded gains in 2010 as opposed to recorded losses in 2009 from our limited partnership investments. The losses in 2009 were the result of 2008 fourth quarter losses from those limited partnerships that invested in non-public securities and ~~are~~were on a quarter reporting lag.

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

	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
(Dollars in millions)	2010			2009			2010			2009			2010			2009
Fixed maturities	$	73.6		$	70.3		$	75.8		$	71.6		$	149.4		$	141.9
Equity securities		2.4			0.7			2.6			0.7			5.0			1.4
Short-term investments and cash		0.1			2.2
Short-term investments and cash								0.1			0.8			0.2			3.1
Other invested assets
Limited partnerships		9.4			(34.1	)		8.9			2.0			18.3			(32.1	)
Other		1.8			2.8			4.5			2.3			6.3			5.0
Total gross investment income		87.2			41.9			91.9			77.4			179.2			119.3
Interest credited and other expense		(2.1	)		(2.3	)
Interest debited (credited) and other expense								(2.6	)		(2.9	)		(4.7	)		(5.1	)
Total net investment income	$	85.1		$	39.7		$	89.3		$	74.5		$	174.5		$	114.2
(Some amounts may not reconcile due to rounding.)

~~Table of Contents~~

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

	At	At	At	At
	March 31,	December 31,	June 30,	December 31,
	2010	2009	2010	2009
Imbedded pre-tax yield of cash and invested assets	3.8%	3.7%	3.9%	3.7%
Imbedded after-tax yield of cash and invested assets	3.1%	3.1%	3.1%	3.1%

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

~~Net Realized Capital Losses.~~

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

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.)

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2010	2009	2010	2009
Annualized pre-tax yield on average cash and invested assets	4.5%	4.0%	4.4%	3.0%
Annualized after-tax yield on average cash and invested assets	3.6%	3.3%	3.6%	2.7%

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Net Realized Capital Gains (Losses).

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

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in millions)	2010			2009			Variance			2010			2009			Variance
Gains (losses) from sales:
Fixed maturity securities, market value
Gains	$	5.4		$	0.5		$	4.9		$	7.0		$	2.0		$	5.0
Losses		(3.7	)		(0.9	)		(2.8	)		(6.2	)		(30.5	)		24.3
Total		1.6			(0.4	)		2.0			0.8			(28.5	)		29.3

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

Equity securities, fair value
Gains		1.2			5.7			(4.5	)		3.6			5.9			(2.3	)
Losses		(4.1	)		-			(4.1	)		(4.6	)		(0.7	)		(3.9	)
Total		(2.9	)		5.7			(8.6	)		(1.0	)		5.2			(6.2	)

Total net realized gains (losses) from sales
Gains		6.8			6.3			0.5			10.9			8.2			2.7
Losses		(7.8	)		(0.9	)		(6.9	)		(10.8	)		(31.3	)		20.5
Total		(1.1	)		5.4			(6.5	)		0.1			(23.1	)		23.2

Other-than-temporary impairments:		-			(4.9	)		4.9			-			(5.5	)		5.5

Gains (losses) from fair value adjustments:
Fixed maturities, fair value		(2.5	)		2.0			(4.5	)		0.5			2.0			(1.5	)
Equity securities, fair value		(30.0	)		17.3			(47.3	)		(16.8	)		0.4			(17.2	)
Other invested assets, fair value		(61.9	)		3.2			(65.1	)		(84.6	)		(19.0	)		(65.6	)
Total		(94.4	)		22.5			(116.9	)		(100.9	)		(16.7	)		(84.3	)

Total net realized capital gains (losses)	$	(95.5	)	$	22.9		$	(118.4	)	$	(100.8	)	$	(45.2	)	$	(55.6	)

(Some amounts may not reconcile due to rounding.)

Net realized capital losses were ~~$5.3~~$95.5 million and ~~$68.2~~net realized capital gains were $22.9 million for the three months ended ~~March 31,~~June 30, 2010 and 2009, respectively. ~~For~~We recorded $94.4 million of losses and $22.5 million of gains due to fair value re-measurements on fixed maturity and equity securities and other invested assets, and $1.1 million of net realized capital losses and $5.4 million of net realized capital gains from sales of fixed maturity and equity securities for the three months ended ~~March 31,~~June 30, 2010 and 2009, respectively. In addition, we did not record any other-than-temporary impairments for the three months ended June 30, 2010 compared to $4.9 million recorded ~~a $6.5~~for the three months ended June 30, 2009.

Net realized capital losses were $100.8 million inand $45.2 million for the six months ended June 30, 2010 and 2009, respectively. We recorded $100.9 million and $16.7 million of losses due to fair value re-measurements on fixed maturity and equity securities and other invested assets, ~~partially offset by $1.2~~and $0.1 million of net realized capital gains ~~from sales of fixed maturity~~ and ~~equity securities. For the three months ended March 31, 2009, net realized capital losses included $39.1 million of fair value re-measurements on equity securities and other invested assets, $28.5~~$23.1 million of net realized capital losses from sales of fixed maturity and ~~$0.6 million in~~equity securities for the six months ended June 30, 2010 and 2009, respectively. In addition, we did not record any other-than-temporary impairments ~~on our available~~ for ~~sale fixed maturity securities.~~the six months ended June 30, 2010 compared to $5.5 million recorded for the six months ended June 30, 2009.

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Segment Results.

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

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

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

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

U.S. Reinsurance.

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

	Three Months Ended March 31,													Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in millions)	2010			2009			Variance			% Change				2010			2009			Variance			% Change			2010			2009			Variance			% Change
Gross written premiums	$	244.0		$	264.3		$	(20.3	)		-7.7	%		$	268.2		$	266.2		$	2.1			0.8	%	$	512.2		$	530.5		$	(18.3	)		-3.4	%
Net written premiums		128.5			139.4			(11.0	)		-7.9	%			150.5			156.8			(6.3	)		-4.0	%		278.9			296.2			(17.3	)		-5.8	%

Premiums earned	$	127.0		$	146.3		$	(19.3	)		-13.2	%		$	162.5		$	180.7		$	(18.2	)		-10.1	%	$	289.5		$	327.0		$	(37.5	)		-11.5	%
Incurred losses and LAE		90.1			90.1			-			0.0	%			84.3			86.0			(1.6	)		-1.9	%		174.5			176.1			(1.7	)		-0.9	%
Commission and brokerage		27.2			31.9			(4.7	)		-14.7	%			35.9			37.2			(1.4	)		-3.6	%		63.1			69.1			(6.1	)		-8.8	%
Other underwriting expenses		7.8			7.6			0.2			3.2	%			9.4			8.0			1.4			16.9	%		17.2			15.6			1.6			10.3	%
Underwriting gain	$	1.9		$	16.7		$	(14.8	)		-88.8	%
Underwriting gain (loss)														$	32.9		$	49.5		$	(16.6	)		-33.5	%	$	34.8		$	66.2		$	(31.4	)		-47.5	%

										Point Chg													Point Chg												Point Chg
Loss ratio		71.0	%		61.6	%					9.4				51.9	%		47.6	%					4.3			60.3	%		53.8	%					6.5
Commission and brokerage ratio		21.4	%		21.8	%					(0.4	)			22.1	%		20.6	%					1.5			21.8	%		21.1	%					0.7
Other underwriting expense ratio		6.1	%		5.2	%					0.9				5.7	%		4.4	%					1.3			5.9	%		4.9	%					1.0
Combined ratio		98.5	%		88.6	%					9.9				79.7	%		72.6	%					7.1			88.0	%		79.8	%					8.2

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

Premiums. Gross written premiums ~~decreased~~increased by ~~7.7%~~0.8% to ~~$244.0~~$268.2 million for the three months ended ~~March 31,~~June 30, 2010 from ~~$264.3~~$266.2 million for the three months ended ~~March 31,~~June 30, 2009, primarily due to ~~$20.3~~an $11.3 million ~~(23.2%~~(14.1%) ~~decrease~~increase in U.S. treaty casualty volume and an $8.4 million (6.3%) increase in treaty property volume, partially offset by a ~~$13.4~~$13.9 million ~~(63.6%) decrease in facultative volume and a $5.3 million (30.5%~~(57.1%) decrease in the crop hail quota share treaties ~~partially offset by an $18.6~~and a $3.5 million ~~(13.5%~~(12.2%) ~~increase~~decrease in ~~treaty property~~facultative volume. Net written premiums decreased by ~~7.9%~~4.0% to ~~$128.5~~$150.5 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$139.4~~$156.8 million for the three months ended ~~March 31,~~June 30, 2009, primarily due to ~~the decrease~~a 7.6% increase in ~~gross written premiums.~~cessions. Premiums earned ~~decreased~~decr eased by ~~13.2%~~10.1% to ~~$127.0~~$162.5 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$146.3~~$180.7 million for the three months ended ~~March 31,~~June 30, 2009. The change in premiums earned relative to net written premiums is primarily the result of ~~timing;~~timing on proportional contracts where premiums ~~for proportionate contracts,~~ are earned ratably over the coverage period whereas written premiums are recorded on the initiation of the coverage period.

Gross written premiums decreased by 3.4% to $512.2 million for the six months ended June 30, 2010 from $530.5 million for the six months ended June 30, 2009, primarily due to a $19.2 million (46.0%) decrease in the crop hail quota share treaties, a $16.9 million (33.9%) decrease in facultative volume and a $9.0 million (5.4%) decrease in U.S. treaty casualty volume, partially offset by a $27.0 million (10.0%) increase in treaty property volume. Net written premiums decreased by 5.8% to $278.9 million for the six months ended June 30, 2010 compared to $296.2 million for the six months ended June 30, 2009, primarily due to the decrease in gross written premiums. Premiums earned decreased by 11.5% to $289.5 million for the six months ended June 30, 2010 compared to $327.0 million for the six months ended June 30, 2009 . Variances for net written premiums and premiums earned for the six months were driven by similar factors as those discussed above for the three months.

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

	Three Months Ended March 31,																				Three Months Ended June 30,
	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	$	76.2		60.0	%		$	(4.2	)		-3.3	%		$	71.9			56.6	%		$	79.0			48.6	%		$	9.7			6.0	%		$	88.7			54.6	%
Catastrophes		15.7		12.3	%			2.5			2.0	%			18.2			14.3	%			(2.8	)		-1.7	%			(1.6	)		-1.0	%			(4.4	)		-2.7	%
A&E		-		0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%
Total segment	$	91.9		72.3	%		$	(1.7	)		-1.4	%		$	90.1			71.0	%		$	76.2			46.9	%		$	8.1			5.0	%		$	84.3			51.9	%

2009
Attritional	$	73.5		50.2	%		$	16.5			11.2	%		$	90.0			61.5	%		$	104.0			57.6	%		$	(16.2	)		-8.9	%		$	87.8			48.6	%
Catastrophes		-		0.0	%			0.2			0.1	%			0.2			0.1	%			-			0.0	%			(1.9	)		-1.0	%			(1.9	)		-1.0	%
A&E		-		0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%
Total segment	$	73.5		50.2	%		$	16.6			11.4	%		$	90.1			61.6	%		$	104.0			57.6	%		$	(18.0	)		-10.0	%		$	86.0			47.6	%

Variance 2010/2009
Attritional	$	2.7		9.8		pts	$	(20.7	)		(14.5	)	pts	$	(18.1	)		(4.9	)	pts	$	(25.0	)		(9.0	)	pts	$	25.9			14.9		pts	$	0.9			6.0		pts
Catastrophes		15.7		12.3		pts		2.3			1.9		pts		18.0			14.2		pts		(2.8	)		(1.7	)	pts		0.3			-		pts		(2.5	)		(1.7	)	pts
A&E		-		-		pts		-			-		pts		-			-		pts		-			-		pts		-			-		pts		-			-		pts
Total segment	$	18.4		22.1		pts	$	(18.3	)		(12.8	)	pts	$	-			9.4		pts	$	(27.8	)		(10.7	)	pts	$	26.1			15.0		pts	$	(1.7	)		4.3		pts

(Some amounts may not reconcile due to rounding.)

	Six Months Ended June 30,
	Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2010
Attritional	$	155.2			53.6	%		$	5.5			1.9	%		$	160.7			55.5	%
Catastrophes		12.9			4.4	%			0.9			0.3	%			13.8			4.8	%
A&E		-			0.0	%			-			0.0	%			-			0.0	%
Total segment	$	168.1			58.1	%		$	6.4			2.2	%		$	174.5			60.3	%

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	%

Variance 2010/2009
Attritional	$	(22.3	)		(0.7	)	pts	$	5.2			1.8		pts	$	(17.1	)		1.1		pts
Catastrophes		12.9			4.4		pts		2.6			0.8		pts		15.5			5.3		pts
A&E		-			-		pts		-			-		pts		-			-		pts
Total segment	$	(9.4	)		3.8		pts	$	7.8			2.6		pts	$	(1.6	)		6.5		pts

(Some amounts may not reconcile due to rounding.)

Incurred losses ~~remained flat~~were $1.7 million (4.3 points) lower at ~~$90.1~~$84.3 million for the three months ended ~~March 31,~~June 30, 2010 and 2009. The $18.0 million (14.2 points) increase in catastrophe losses was offset by a decrease in attritional losses of $18.1 million (4.9 points). The 2010 catastrophe losses consisted of $12.9 million for the Chilean earthquake and $2.8 million for the windstorm Xynthia.

~~Segment Expenses.~~ ~~Commission and brokerage expenses decreased 14.7%~~compared to ~~$27.2~~$86.0 million for the three months ended ~~March 31,~~June 30, 2009, primarily as a result of an upward adjustment in the second quarter of 2009 to the Crop Hail current year expected loss ratio and a $2.8 million decrease in current year catastrophe losses from the reversal of the first quarter estimate of Windstorm Xynthia, partially offset by unfavorable development in prior years’ losses in 2010 compared to ~~$31.9~~favorable development in 2009.

Incurred losses were $1.6 million (6.5 points) lower at $174.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2010 compared to $176.1 million for the six months ended June 30, 2009, primarily as a result of the $22.3 million decrease in current year attritional losses, principally the Crop Hail business, partially offset by a $15.5 million (5.3 points) increase in catastrophe losses primarily due to the decline in premiums earned and lower commissions on property business. Segment other underwriting expenses were $7.8 million and $7.6 million for the three months ended March 31, 2010 and 2009, respectively.Chilean earthquake.

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Segment Expenses. Commission and brokerage expenses decreased 3.6% to $35.9 million for the three months ended June 30, 2010 compared to $37.2 million for the three months ended June 30, 2009. Commission and brokerage expenses decreased 8.8% to $63.1 million for the six months ended June 30, 2010 compared to $69.1 million for the six months ended June 30, 2009. These variances were due to the changes in premiums earned and the mix of business.

Segment other underwriting expenses were $9.4 million and $8.0 million for the three months ended June 30, 2010 and 2009, respectively. Segment other underwriting expenses were $17.2 million and $15.6 million for the six months ended June 30, 2010 and 2009, respectively. These increases were due to normal growth in overall operating expenses.

U.S. Insurance.

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

	Three Months Ended March 31,													Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in millions)	2010			2009			Variance			% Change				2010			2009			Variance			% Change			2010			2009			Variance			% Change
Gross written premiums	$	228.2		$	204.7		$	23.5			11.5	%		$	204.9		$	213.5		$	(8.6	)		-4.0	%	$	433.2		$	418.2		$	15.0			3.6	%
Net written premiums		102.5			121.2			(18.7	)		-15.4	%			80.8			104.4			(23.5	)		-22.6	%		183.3			225.5			(42.2	)		-18.7	%

Premiums earned	$	101.2		$	112.0		$	(10.8	)		-9.7	%		$	86.2		$	105.7		$	(19.5	)		-18.4	%	$	187.4		$	217.6		$	(30.3	)		-13.9	%
Incurred losses and LAE		73.0			81.1			(8.2	)		-10.1	%			71.8			57.8			14.0			24.3	%		144.8			138.9			5.8			4.2	%
Commission and brokerage		1.6			12.0			(10.4	)		-86.3	%			6.1			9.8			(3.8	)		-38.1	%		7.7			21.9			(14.1	)		-64.6	%
Other underwriting expenses		16.6			17.3			(0.7	)		-4.1	%			16.3			19.2			(2.9	)		-15.0	%		32.9			36.4			(3.6	)		-9.8	%
Underwriting gain	$	10.0		$	1.5		$	8.5		NM
Underwriting gain (loss)														$	(8.0	)	$	18.9		$	(26.9	)		-142.3	%	$	2.0		$	20.4		$	(18.4	)		-90.2	%

										Point Chg													Point Chg												Point Chg
Loss ratio		72.1	%		72.5	%					(0.4	)			83.3	%		54.7	%					28.6			77.3	%		63.8	%					13.5
Commission and brokerage ratio		1.6	%		10.7	%					(9.1	)			7.1	%		9.3	%					(2.2	)		4.1	%		10.0	%					(5.9	)
Other underwriting expense ratio		16.4	%		15.4	%					1.0				18.9	%		18.1	%					0.8			17.5	%		16.8	%					0.7
Combined ratio		90.1	%		98.6	%					(8.5	)			109.3	%		82.1	%					27.2			98.9	%		90.6	%					8.3

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

Premiums. Gross written premiums ~~increased~~decreased by ~~11.5%~~4.0% to ~~$228.2~~$204.9 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$204.7~~$213.5 million for the three months ended ~~March 31, 2009. Growth was derived from the direct specialty operation in New York, additional property insurance written in Florida and the workers’ compensation business.~~June 30, 2009, as we continue to adjust our book of business to achieve an appropriate underwriting margin. Net written premiums decreased by ~~15.4%~~22.6% to ~~$102.5~~$80.8 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$121.2~~$104.4 million for the three months ended ~~March 31,~~June 30, 2009, ~~reflective of the change in business mix and cessions.~~due to increased reinsurance ceded on certain programs. Ceded premiums generally relate to the affiliated quota share agreement and third party specific reinsurance purchased for ~~i ndividual~~individual reinsured programs. Premiums earned decreased ~~9.7%~~18.4% to ~~$101.2~~$86.2 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$112.0~~$105.7 million for the three months ended ~~March 31,~~June 30, 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.

Gross written premiums increased by 3.6% to $433.2 million for the six months ended June 30, 2010 compared to $418.2 million for the six months ended June 30, 2009. Growth was derived from our direct specialty lines and increased rates on the workers’ compensation business. Net written premiums decreased by 18.7% to $183.3 million for the six months ended June 30, 2010 compared to $225.5 million for the six months ended June 30, 2009, once again due to increased reinsurance ceded on certain programs. Premiums earned decreased 13.9% to $187.4 million for the six months ended June 30, 2010 compared to $217.6 million for the six months ended June 30, 2009 due to timing as explained above.

Table of Contents

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

	Three Months Ended March 31,																					Three Months Ended June 30,
	Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/				Current			Ratio %/				Prior			Ratio %/				Total		Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred			Pt Change				Year			Pt Change				Years			Pt Change				Incurred		Pt Change
2010
Attritional	$	74.2			73.4	%		$	(1.3	)		-1.2	%		$	73.0			72.1	%		$	70.6			81.9	%		$	1.2			1.4	%		$	71.8		83.3	%
Catastrophes		-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-		0.0	%
Total segment	$	74.2			73.4	%		$	(1.3	)		-1.2	%		$	73.0			72.1	%		$	70.6			81.9	%		$	1.2			1.4	%		$	71.8		83.3	%

2009
Attritional	$	80.0			71.5	%		$	1.1			1.0	%		$	81.1			72.5	%		$	75.4			71.3	%		$	(17.6	)		-16.7	%		$	57.8		54.7	%
Catastrophes		-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-			0.0	%			-		0.0	%
Total segment	$	80.0			71.5	%		$	1.1			1.0	%		$	81.1			72.5	%		$	75.4			71.3	%		$	(17.6	)		-16.7	%		$	57.8		54.7	%

Variance 2010/2009
Attritional	$	(5.8	)		1.9		pts	$	(2.4	)		(2.2	)	pts	$	(8.1	)		(0.4	)	pts	$	(4.8	)		10.6		pts	$	18.8			18.1		pts	$	14.0		28.6		pts
Catastrophes		-			-		pts		-			-		pts		-			-		pts		-			-		pts		-			-		pts		-		-		pts
Total segment	$	(5.8	)		1.9		pts	$	(2.4	)		(2.2	)	pts	$	(8.1	)		(0.4	)	pts	$	(4.8	)		10.6		pts	$	18.8			18.1		pts	$	14.0		28.6		pts

(Some amounts may not reconcile due to rounding.)

	Six Months Ended June 30,
	Current			Ratio %/				Prior			Ratio %/				Total		Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred		Pt Change
2010
Attritional	$	144.8			77.3	%		$	-			0.0	%		$	144.8		77.3	%
Catastrophes		-			0.0	%			-			0.0	%			-		0.0	%
Total segment	$	144.8			77.3	%		$	-			0.0	%		$	144.8		77.3	%

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	%

Variance 2010/2009
Attritional	$	(10.6	)		5.9		pts	$	16.5			7.6		pts	$	5.9		13.5		pts
Catastrophes		-			-		pts		-			-		pts		-		-		pts
Total segment	$	(10.6	)		5.9		pts	$	16.5			7.6		pts	$	5.9		13.5		pts

(Some amounts may not reconcile due to rounding.)

~~Table of Contents~~

Incurred losses and LAE ~~decreased~~increased by ~~10.1%~~24.3% to ~~$73.0~~$71.8 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$81.1~~$57.8 million for the three months ended ~~March 31,~~June 30, 2009. The ~~decrease~~increase, period over period, was primarily due to favorable development in 2009 of prior years’ attritional reserves, specifically net casualty losses.

Incurred losses and LAE increased by 4.2% to $144.8 million for the ~~decrease in earned premium and favorable prior year’s reserve development, partially offset by higher expected attritional loss ratios.~~six months ended June 30, 2010 compared to $138.9 million for the six months ended June 30, 2009. The increase was primarily due to similar factors as discussed above for the three months.

Segment Expenses. Commission and brokerage expenses decreased by ~~86.3%~~38.1% to ~~$1.6~~$6.1 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$12.0~~$9.8 million for the three months ended ~~March 31, 2009, which was~~June 30, 2009. Commission and brokerage expenses decreased by 64.6% to $7.7 million for the six months ended June 30, 2010 compared to $21.9 million for the six months ended June 30, 2009. These decreases were primarily ~~due to~~ the ~~fluctuation~~result of ~~cessions under the affiliated quota share agreement.~~ a decline in net premiums earned in conjunction with additional reinsurance cessions.

Segment other underwriting expenses ~~were $16.6~~for the three months ended June 30, 2010 decreased to $16.3 million ~~and $17.3~~from $19.2 million for the three months ended ~~March 31,~~June 30, 2009. Segment other underwriting expenses for the six months ended June 30, 2010 ~~and 2009, respectively, as a~~decreased to $32.9 million from $36.4 million for the six months ended June 30, 2009. These decreases were the result of management’s direct actions to reduce expenses.

Table of Contents

Specialty Underwriting.

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

	Three Months Ended March 31,													Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in millions)	2010			2009			Variance			% Change				2010			2009			Variance			% Change			2010			2009			Variance			% Change
Gross written premiums	$	65.9		$	58.9		$	7.0			11.8	%		$	65.9		$	57.2		$	8.7			15.2	%	$	131.7		$	116.1		$	15.6			13.5	%
Net written premiums		37.2			32.6			4.6			14.2	%			37.8			32.1			5.7			17.7	%		75.1			64.7			10.3			16.0	%

Premiums earned	$	38.9		$	36.8		$	2.1			5.6	%		$	39.3		$	32.5		$	6.8			21.1	%	$	78.2		$	69.3		$	8.9			12.8	%
Incurred losses and LAE		27.5			25.4			2.1			8.2	%			34.5			23.2			11.4			49.0	%		62.0			48.5			13.4			27.7	%
Commission and brokerage		8.5			10.1			(1.5	)		-15.2	%			9.0			8.9			0.1			1.3	%		17.5			18.9			(1.4	)		-7.5	%
Other underwriting expenses		2.0			1.8			0.1			5.7	%			2.4			2.0			0.4			20.4	%		4.4			3.8			0.5			13.4	%
Underwriting gain (loss)	$	1.0		$	(0.5	)	$	1.4		NM				$	(6.5	)	$	(1.5	)	$	(5.0	)	NM			$	(5.6	)	$	(2.0	)	$	(3.6	)		182.6	%

										Point Chg													Point Chg												Point Chg
Loss ratio		70.6	%		68.9	%					1.7				87.7	%		71.3	%					16.4			79.2	%		70.0	%					9.2
Commission and brokerage ratio		21.9	%		27.3	%					(5.4	)			22.8	%		27.3	%					(4.5	)		22.4	%		27.3	%					(4.9	)
Other underwriting expense ratio		5.1	%		5.0	%					0.1				6.1	%		6.1	%					-			5.6	%		5.6	%					-
Combined ratio		97.6	%		101.2	%					(3.6	)			116.6	%		104.7	%					11.9			107.2	%		102.9	%					4.3

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

Premiums. Gross written premiums increased by ~~11.8%~~15.2% to $65.9 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$58.9~~$57.2 million for the three months ended ~~March 31,~~June 30, 2009. This was driven by a strong ~~demand~~growth in our A&H business, ~~$7.0 million,~~both the travel accident business as ~~more and more employers are self insuring their~~well as several new self-funded medical ~~programs leading to more opportunities for us~~accounts, partially offset by a decrease in ~~the medical stop loss~~marine business. Net written premiums increased by ~~14.2%~~17.7% to ~~$37.2~~$37.8 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$32.6~~$32.1 million for the three months ended ~~March 31,~~June 30, 2009, primarily as a result of the increase in gross ~~writings~~written premiums combined with the change in business mix. Premiums earned ~~increas ed~~increased 21.1% to ~~$38.9~~$3 9.3 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$36.8~~$32.5 million for the three months ended ~~March 31,~~June 30, 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.

Gross written premiums increased by 13.5% to $131.7 million for the six months ended June 30, 2010 compared to $116.1 million for the six months ended June 30, 2009. Net written premiums increased 16.0% to $75.1 million for the six months ended June 30, 2010 compared to $64.7 million for the six months ended June 30, 2009. Premiums earned increased 12.8% to $78.2 million for the six months ended June 30, 2010 compared to $69.3 million for the six months ended June 30, 2009. Variances for the six months were driven by similar factors as those discussed above for the three months.

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Table of Contents

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

	Three Months Ended March 31,																				Three Months Ended June 30,
	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	%		$	32.2		81.9	%		$	0.7			1.9	%		$	33.0			83.8	%
Catastrophes		-		0.0	%			1.2			3.0	%			1.2			3.0	%			-		0.0	%			1.6			4.0	%			1.6			4.0	%
Total segment	$	26.6		68.3	%		$	0.9			2.3	%		$	27.5			70.6	%		$	32.2		81.9	%		$	2.3			5.8	%		$	34.5			87.7	%

2009
Attritional	$	22.6		61.3	%		$	0.9			2.4	%		$	23.5			63.7	%		$	28.2		86.8	%		$	(6.7	)		-20.7	%		$	21.5			66.1	%
Catastrophes		-		0.0	%			1.9			5.2	%			1.9			5.2	%			-		0.0	%			1.7			5.2	%			1.7			5.2	%
Total segment	$	22.6		61.3	%		$	2.8			7.6	%		$	25.4			68.9	%		$	28.2		86.7	%		$	(5.0	)		-15.5	%		$	23.2			71.3	%

Variance 2010/2009
Attritional	$	4.0		7.0		pts	$	(1.2	)		(3.1	)	pts	$	2.8			3.9		pts	$	4.0		(4.9	)	pts	$	7.4			22.6		pts	$	11.5			17.7		pts
Catastrophes		-		-		pts		(0.7	)		(2.2	)	pts		(0.7	)		(2.2	)	pts		-		-		pts		(0.1	)		(1.2	)	pts		(0.1	)		(1.2	)	pts
Total segment	$	4.0		7.0		pts	$	(1.9	)		(5.3	)	pts	$	2.1			1.7		pts	$	4.0		(4.9	)	pts	$	7.3			21.3		pts	$	11.3			16.4		pts

(Some amounts may not reconcile due to rounding.)

	Six Months Ended June 30,
	Current		Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred			Pt Change
2010
Attritional	$	58.8		75.1	%		$	0.5			0.6	%		$	59.2			75.7	%
Catastrophes		-		0.0	%			2.7			3.5	%			2.7			3.5	%
Total segment	$	58.8		75.1	%		$	3.2			4.1	%		$	62.0			79.2	%

2009
Attritional	$	50.8		73.3	%		$	(5.8	)		-8.4	%		$	44.9			64.8	%
Catastrophes		-		0.0	%			3.6			5.2	%			3.6			5.2	%
Total segment	$	50.8		73.3	%		$	(2.2	)		-3.2	%		$	48.5			70.0	%

Variance 2010/2009
Attritional	$	8.0		1.8		pts	$	6.3			9.0		pts	$	14.3			10.9		pts
Catastrophes		-		-		pts		(0.9	)		(1.7	)	pts		(0.9	)		(1.7	)	pts
Total segment	$	8.0		1.8		pts	$	5.4			7.3		pts	$	13.5			9.2		pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by ~~8.2%~~49.0% to ~~$27.5~~$34.5 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$25.4~~$23.2 million for the three months ended ~~March 31,~~June 30, 2009, primarily ~~as a~~the result of an increase in ~~expected loss ratios, which increased~~ current year attritional ~~losses, 3.9 points,~~reserves for the offshore oil rig in ~~2010.~~the Gulf.

Incurred losses and LAE increased by 27.7% to $62.0 million for the six months ended June 30, 2010 compared to $48.5 million for the six months ended June 30, 2009. This increase was driven by the same factor as discussed above for the three months.

Segment Expenses. Commission and brokerage expenses ~~decreased 15.2%~~increased 1.3% to ~~$8.5~~$9.0 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$10.1~~$8.9 million for the three months ended ~~March 31, 2009~~June 30, 2009. This slight increase was primarily driven by the increase in premiums earned in combination with the mix of business. Commission and brokerage expenses decreased 7.5% to $17.5 million for the six months ended June 30, 2010 compared to $18.9 million for the six months ended June 30, 2009. This decrease was primarily driven by the mix in business as the lower commission business, ~~aviation, has~~A&H, had increased while the higher commission ~~marine~~business of ma rine and surety ~~business have~~had declined.

Table of Contents

Segment other underwriting expenses increased ~~slightly~~to $2.4 million for the three months ended June 30, 2010 compared to $2.0 million for the three months ended ~~March 31,~~June 30, 2009. Segment other underwriting expenses increased to $4.4 million for the six months ended June 30, 2010 compared to ~~$1.8~~$3.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2009. These increases were due to normal growth in overall operating expenses.

International.

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

	Three Months Ended March 31,													Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in millions)	2010			2009			Variance			% Change				2010			2009			Variance			% Change			2010			2009			Variance			% Change
Gross written premiums	$	275.4		$	250.8		$	24.6			9.8	%		$	307.0		$	274.3		$	32.7			11.9	%	$	582.3		$	525.0		$	57.3			10.9	%
Net written premiums		145.2			135.4			9.9			7.3	%			166.0			154.0			12.1			7.8	%		311.3			289.3			21.9			7.6	%

Premiums earned	$	147.1		$	143.3		$	3.8			2.6	%		$	154.7		$	141.9		$	12.8			9.0	%	$	301.8		$	285.2		$	16.5			5.8	%
Incurred losses and LAE		236.5			92.5			144.0			155.6	%			124.1			79.2			44.9			56.6	%		360.6			171.8			188.8			109.9	%
Commission and brokerage		30.4			34.2			(3.8	)		-11.0	%			37.3			31.0			6.3			20.2	%		67.7			65.2			2.5			3.8	%
Other underwriting expenses		6.4			4.6			1.8			38.1	%			7.3			5.7			1.6			28.6	%		13.7			10.3			3.4			32.8	%
Underwriting (loss) gain	$	(126.2	)	$	11.9		$	(138.2	)	NM
Underwriting gain (loss)														$	(14.0	)	$	26.0		$	(40.0	)		-153.7	%	$	(140.2	)	$	38.0		$	(178.2	)	NM

										Point Chg													Point Chg												Point Chg
Loss ratio		160.8	%		64.6	%					96.2				80.2	%		55.8	%					24.4			119.5	%		60.2	%					59.3
Commission and brokerage ratio		20.7	%		23.9	%					(3.2	)			24.1	%		21.8	%					2.3			22.4	%		22.9	%					(0.5	)
Other underwriting expense ratio		4.3	%		3.2	%					1.1				4.7	%		4.1	%					0.6			4.6	%		3.6	%					1.0
Combined ratio		185.8	%		91.7	%					94.1				109.0	%		81.7	%					27.3			146.5	%		86.7	%					59.8

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

~~Table of Contents~~

Premiums. Gross written premiums increased by ~~9.8%~~11.9% to ~~$275.4~~$307.0 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$250.8~~$274.3 million for the three months ended ~~March 31, 2009. Continued~~June 30, 2009, due to continued strong growth in Asia, a $23.5 million increase; Canada, a $19.4 million increase; and Brazil, ~~$9.9~~a $5.2 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 and increased participation on contracts in Japan and Taiwan. Also included, were $7.0 million in reinstatement premiums from the Chilean earthquake.increase. Net written premiums increased by ~~7.3%~~7.8% to ~~$145.2~~$166.0 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$135.4 millio n~~$154.0 million for the three months ended ~~March 31,~~June 30, 2009, ~~primarily due to~~principally as a result of the increase in gross written premiums, ~~coupled with the~~partially offset by an increase in cessions under the affiliated quota share. Premiums earned increased by ~~2.6%~~9.0% to ~~$147.1~~$154.7 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$143.3~~$141.9 million for the three months ended ~~March 31,~~June 30, 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.

Gross written premiums increased by 10.9% to $582.3 million for the six months ended June 30, 2010 compared to $525.0 million for the six months ended June 30, 2009, due to continued strong growth in Asia, a $33.8 million increase; Canada, a $17.1 million increase; and Brazil, a $15.1 million increase. Also contributing to the increase was $13.4 million in gross reinstatement premiums from the Chilean earthquake. Net written premiums increased by 7.6% to $311.3 million for the six months ended June 30, 2010 compared to $289.3 million for the six months ended June 30, 2009. Premiums earned increased by 5.8% to $301.8 million for the six months ended June 30, 2010 compared to $285.2 million for the six months ended June 30, 2009, as a result of the increase in net written premiums. Varianc e explanations for net written premiums and premiums earned for the six months were similar to those discussed above for the three months.

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

	Three Months Ended March 31,																			Three Months Ended June 30,
	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	%		$	83.8		54.1	%		$	(2.0	)		-1.3	%		$	81.7			52.8	%
Catastrophes		149.5		101.7	%			(0.9	)		-0.6	%			148.7		101.1	%			48.7		31.5	%			(6.3	)		-4.1	%			42.3			27.4	%
Total segment	$	240.8		163.7	%		$	(4.3	)		-2.9	%		$	236.5		160.8	%		$	132.4		85.6	%		$	(8.3	)		-5.4	%		$	124.1			80.2	%

2009
Attritional	$	81.3		56.7	%		$	1.7			1.2	%		$	83.0		57.9	%		$	77.3		54.4	%		$	3.4			2.4	%		$	80.7			56.9	%
Catastrophes		9.1		6.3	%			0.5			0.3	%			9.5		6.7	%			-		0.0	%			(1.5	)		-1.1	%			(1.5	)		-1.1	%
Total segment	$	90.4		63.1	%		$	2.2			1.5	%		$	92.5		64.6	%		$	77.3		54.4	%		$	2.0			1.4	%		$	79.2			55.8	%

Variance 2010/2009
Attritional	$	10.0		5.4		pts	$	(5.2	)		(3.6	)	pts	$	4.8		1.8		pts	$	6.5		(0.3	)	pts	$	(5.4	)		(3.7	)	pts	$	1.0			(4.1	)	pts
Catastrophes		140.4		95.4		pts		(1.4	)		(0.9	)	pts		139.2		94.4		pts		48.7		31.5		pts		(4.8	)		(3.0	)	pts		43.8			28.5		pts
Total segment	$	150.4		100.6		pts	$	(6.5	)		(4.4	)	pts	$	144.0		96.2		pts	$	55.1		31.2		pts	$	(10.3	)		(6.8	)	pts	$	44.9			24.4		pts

(Some amounts may not reconcile due to rounding.)

	Six Months Ended June 30,
	Current		Ratio %/				Prior			Ratio %/				Total		Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred		Pt Change
2010
Attritional	$	175.1		58.0	%		$	(5.5	)		-1.8	%		$	169.6		56.2	%
Catastrophes		198.2		65.7	%			(7.2	)		-2.4	%			191.0		63.3	%
Total segment	$	373.2		123.7	%		$	(12.7	)		-4.2	%		$	360.6		119.5	%

2009
Attritional	$	158.6		55.6	%		$	5.1			1.8	%		$	163.7		57.4	%
Catastrophes		9.1		3.2	%			(1.0	)		-0.4	%			8.1		2.8	%
Total segment	$	167.6		58.8	%		$	4.1			1.4	%		$	171.8		60.2	%

Variance 2010/2009
Attritional	$	16.5		2.4		pts	$	(10.6	)		(3.6	)	pts	$	5.9		(1.2	)	pts
Catastrophes		189.1		62.5		pts		(6.2	)		(2.0	)	pts		182.9		60.5		pts
Total segment	$	205.6		64.9		pts	$	(16.8	)		(5.6	)	pts	$	188.8		59.3		pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased ~~by 155.6%~~56.6% to ~~$236.5~~$124.1 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$92.5~~$79.2 million for the three months ended ~~March 31,~~June 30, 2009. The increase was principally due to a $48.7 million increase in current year catastrophes for the Chilean earthquake. Attritional losses also increased primarily due to the increased premiums earned.

Incurred losses and LAE increased 109.9% to $360.6 million for the six months ended June 30, 2010 compared to $171.8 million for the six months ended June 30, 2009. The increase was principally due to the ~~$140.4 million increase in~~large current year catastrophe ~~losses due to~~of $178.6 million for the Chilean earthquake ~~($129.9 million)~~ and $19.5 million for the Australian hailstorms ~~($19.6 million). Current year attritional losses also increased due~~in 2010 compared to ~~an increase~~the absence in ~~expected loss ratios.~~2009 of similar large events.

Segment Expenses. Commission and brokerage expenses ~~decreased 11.0%~~increased 20.2% to ~~$30.4~~$37.3 million for the three months ended ~~March 31,~~June 30, 2010 compared to ~~$34.2~~$31.0 million for the three months ended ~~March 31, 2009,~~June 30, 2009. Commission and brokerage expenses increased 3.8% to $67.7 million for the six months ended June 30, 2010 compared to $65.2 million for the six months ended June 30, 2009. The increases were primarily ~~as a result~~due to an increase in premiums earned, an increase in contingent commission on the International U.S. business and an increase in commission ratio on the Brazil book.

Table of ~~lower contingent commissions.~~ Contents

Segment other underwriting expenses for the three months ended ~~March 31,~~June 30, 2010 were ~~$6.4~~$7.3 million compared to ~~$4.6~~$5.7 million for the three months ended ~~March 31, 2009, consistent with expectations.~~June 30, 2009. Segment other underwriting expenses for the six months ended June 30, 2010 were $13.7 million compared to $10.3 million for the six months ended June 30, 2009. These increases were due to normal growth in overall operating expenses.

Market Sensitive Instruments.

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

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

~~Table of Contents~~

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

Interest Rate Risk. Our ~~$8.0~~$8.1 billion investment portfolio, at ~~March 31,~~June 30, 2010, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price fluctuations. The impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar value of foreign currency denominated liabilities and their associated income statement impact.

Interest rate risk is the potential change in value of the fixed maturity portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the ~~$542.8~~$539.4 million of mortgage-backed securities in the ~~$6,489.2~~$6,459.4 million fixed maturity portfolio. Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.

The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity securities portfolio (including ~~$250.1~~$251.8 million of short-term investments) for the ~~periods~~period indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimates for mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For legal entities with non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under ~~the~~th e various interest rate change scenarios.

	Impact of Interest Rate Shift in Basis Points															Impact of Interest Rate Shift in Basis Points
	At March 31, 2010															At June 30, 2010
(Dollars in millions)		-200			-100			0			100			200			-200			-100			0			100			200
Total Market/Fair Value	$	7,335.1		$	7,061.8		$	6,739.3		$	6,382.6		$	6,045.8		$	7,273.5		$	7,013.4		$	6,711.2		$	6,373.1		$	6,047.5
Market/Fair Value Change from Base (%)		8.8	%		4.8	%		0.0	%		-5.3	%		-10.3	%		8.4	%		4.5	%		0.0	%		-5.0	%		-9.9	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	387.2		$	209.6		$	-		$	(231.9	)	$	(450.8	)	$	365.5		$	196.4		$	-		$	(219.8	)	$	(431.4	)

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We had ~~$7,613.8~~$7,583.5 million and $7,300.1 million of gross reserves for losses and LAE as of ~~March 31,~~June 30, 2010 and December 31, 2009, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will ~~inc lude~~incl ude investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration that is reasonably consistent with our fixed income portfolio.

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

~~Table of Contents~~

The table below displays the impact on fair/market value and after-tax ~~appreciation/(depreciation)~~change in fair/market value of a 10% and 20% change in equity prices up and down for the ~~periods~~period indicated.

	Impact of Percentage Change in Equity Fair/Market Values												Impact of Percentage Change in Equity Fair/Market Values
	At March 31, 2010												At June 30, 2010
(Dollars in millions)		-20%			-10%			0%		10%		20%		-20%			-10%			0%		10%		20%
Fair/Market Value of the Equity Portfolio	$	315.6		$	355.1		$	394.6	$	434.0	$	473.5	$	272.3		$	306.4		$	340.4	$	374.4	$	408.5
After-tax Change in Fair/Market Value		(51.3	)		(25.6	)		-		25.6		51.3		(44.3	)		(22.1	)		-		22.1		44.3

Foreign Exchange Risk. Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for these foreign operations are the 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 corresp onding operating liabilities. In accordance with FASB guidance, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar. This translation amount is reported as a component of other comprehensive income. As of ~~March 31,~~June 30, 2010, there has been no material change in exposure to foreign exchange rates as compared to December 31, 2009.

SAFE HARBOR DISCLOSURE

This report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of our provision for uncollectible balances, estimates of our c 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 risks described under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, Part 1, ITEM 1A. We undertake no obligation to update o r revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Instruments. See “Market Sensitive Instruments” in PART I – ITEM 2.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our management, with the participation of the Chief Executive Of 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 to

~~Table of Contents~~

materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

PART II

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of business, we are involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine our rights and obligations under insurance, reinsurance and other contractual agreements. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, we believe that our positions are legally and commercially reasonable, and we vigorously seek to preserve, enforce and defend our legal rights under various agreements. While the final outcome of these matters cannot be predicted with certainty, we do not believe that any of these matters, when finally resolved, will have a material adverse effect on o 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 1A. RISK FACTORS

No material changes.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. RESERVED

~~ITEM 5. OTHER INFORMATION~~

~~None.~~

~~ITEM 6. EXHIBITS~~

~~Exhibit Index:~~

~~Exhibit No. Description~~

~~31.1 Section 302 Certification of Joseph V. Taranto~~

~~31.2 Section 302 Certification of Dominic J. Addesso~~

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

4245

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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Index:

~~Everest Reinsurance Holdings, Inc.~~

Exhibit No.	Description

31.1	Section 302 Certification of Joseph V. Taranto

31.2	Section 302 Certification of Dominic J. Addesso

32.1	Section 906 Certification of Joseph V. Taranto and Dominic J. Addesso

~~Signatures~~

~~Pursuant to the requirements~~Table of ~~the Securities Exchange Act of 1934, the registrant has duly caused this~~ ~~report to be signed on its behalf by the undersigned thereunto duly authorized.~~Contents

Everest Reinsurance Holdings, Inc.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Everest Reinsurance Holdings, Inc.
	(Registrant)


	/S/DOMINIC J. ADDESSO
	Dominic J. Addesso
	Executive Vice President and
		Chief Financial Officer

	(Duly Authorized Officer and Principal Financial Officer)



Dated: August 16, 2010

~~Dated: May 17, 2010~~