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, ~~2012~~2013

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 1, ~~2012~~2013
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, ~~2012~~2013 (unaudited) and
		December 31, ~~2011~~2012	1

	Consolidated Statements of Operations and Comprehensive Income (Loss) for the
		~~the~~ three months ended March 31, ~~2012~~2013 and ~~2011~~2012 (unaudited)	2

	Consolidated Statements of Changes in Stockholder’s Equity for the three
		months ended March 31, ~~2012~~2013 and ~~2011~~2012 (unaudited)	3

	Consolidated Statements of Cash Flows for the three months ended
		March 31, ~~2012~~2013 and ~~2011~~2012 (unaudited)	4

	Notes to Consolidated Interim Financial Statements (unaudited)		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and
		Results of Operation	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4039

Item 4.	Controls and Procedures		4039

PART II

OTHER INFORMATION


Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	4140

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4140

Item 3.	Defaults Upon Senior Securities	4140

Item 4.	Mine Safety Disclosures	4140

Item 5.	Other Information	4140

Item 6.	Exhibits	41

~~Table of Contents~~

Part I

ITEM 1. FINANCIAL STATEMENTS

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,		March 31,		December 31,
(Dollars in thousands, except par value per share)	2012		2011		2013		2012
	(unaudited)				(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value	$	5,158,140	$	5,107,028	$	5,611,463	$	5,531,410
(amortized cost: 2012, $4,917,731; 2011, $4,880,654)
(amortized cost: 2013, $5,380,387; 2012, $5,289,619)
Fixed maturities - available for sale, at fair value		64,936		113,606		36,127		41,470
Equity securities - available for sale, at market value (cost: 2012, $15; 2011, $15)		12		10
Equity securities - available for sale, at market value (cost: 2013, $15; 2012, $15)						15		13
Equity securities - available for sale, at fair value		1,163,616		1,207,053		1,330,699		1,199,848
Short-term investments		646,196		423,663		381,790		465,550
Other invested assets (cost: 2012, $396,403; 2011, $379,342)		396,403		379,342
Other invested assets (cost: 2013, $404,149; 2012, $420,744)						404,149		420,744
Other invested assets, at fair value		899,292		817,352		1,262,235		1,068,711
Cash		344,747		348,267		343,955		347,720
Total investments and cash		8,673,342		8,396,321		9,370,433		9,075,466
Accrued investment income		57,788		55,849		56,641		54,914
Premiums receivable		821,610		856,375		1,051,518		1,001,267
Reinsurance receivables - unaffiliated		566,125		570,128		711,288		650,261
Reinsurance receivables - affiliated		2,900,866		2,901,174		2,935,096		2,976,992
Funds held by reinsureds		179,861		176,156		161,880		161,694
Deferred acquisition costs		148,857		166,806		97,517		97,522
Prepaid reinsurance premiums		621,257		625,391		573,287		557,460
Deferred tax asset		283,520		366,490		119,104		214,175
Federal income taxes recoverable		40,015		39,014
Income taxes recoverable						31,187		61,244
Other assets		233,129		195,476		238,115		236,955
TOTAL ASSETS	$	14,526,370	$	14,349,180	$	15,346,066	$	15,087,950
��

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	8,169,153	$	8,290,619	$	7,945,043	$	8,143,055
Unearned premium reserve		1,233,032		1,239,705		1,135,992		1,093,822
Funds held under reinsurance treaties		86,335		123,479		84,558		90,079
Losses in the course of payment		47,986		11,002		341,923		179,774
Commission reserves		34,721		40,353		33,198		39,324
Other net payable to reinsurers		625,016		620,659		895,719		900,794
5.4% Senior notes due 10/15/2014		249,870		249,858		249,919		249,907
6.6% Long term notes due 5/1/2067		238,355		238,354		238,358		238,357
Junior subordinated debt securities payable		329,897		329,897		329,897		329,897
Accrued interest on debt and borrowings		12,092		4,781		12,092		4,781
Unsettled securities payable						35,004		48,830
Other liabilities		326,765		259,080		290,162		290,724
Total liabilities		11,353,222		11,407,787		11,591,865		11,609,344

Commitments and Contingencies (Note 6)

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 3,000 shares authorized;
1,000 shares issued and outstanding (2012 and 2011)		-		-
1,000 shares issued and outstanding (2013 and 2012)						-		-
Additional paid-in capital		335,042		333,416		343,381		340,223
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $102,412 at 2012 and $94,118 at 2011		190,195		174,790
(benefit) of $92,429 at 2013 and $99,544 at 2012						171,653		184,867
Retained earnings		2,647,911		2,433,187		3,239,167		2,953,516
Total stockholder's equity		3,173,148		2,941,393		3,754,201		3,478,606
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	14,526,370	$	14,349,180	$	15,346,066	$	15,087,950

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

~~Table of Contents~~

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

Three Months Ended
March 31,
(Dollars in thousands) 2012 2011
(unaudited)
REVENUES:
Premiums earned $ 433,711 $ 459,393
Net investment income 81,242 87,132
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities (5,674 ) (13,611 )
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss) - -
Other net realized capital gains (losses) 181,815 54,087
Total net realized capital gains (losses) 176,141 40,476
Other income (expense) (6,254 ) 32
Total revenues 684,840 587,033

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 250,397 553,028
Commission, brokerage, taxes and fees 87,491 88,512
Other underwriting expenses 39,514 38,217
Corporate expenses 1,566 1,190
Interest, fee and bond issue cost amortization expense 12,696 12,682
Total claims and expenses 391,664 693,629

INCOME (LOSS) BEFORE TAXES 293,176 (106,596 )
Income tax expense (benefit) 78,452 (9,063 )

NET INCOME (LOSS) $ 214,724 $ (97,533 )

Other comprehensive income (loss), net of tax :
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period 6,411 (26,889 )
Less: reclassification adjustment for realized losses (gains) included in net income (loss) 2,713 16,825
Total URA(D) on securities arising during the period 9,124 (10,064 )
Foreign currency translation adjustments 5,297 10,335
Pension adjustments 984 746
Total other comprehensive income (loss), net of tax 15,405 1,017

COMPREHENSIVE INCOME (LOSS) $ 230,129 $ (96,516 )

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

	Three Months Ended
	March 31,
(Dollars in thousands)	2013			2012
	(unaudited)
REVENUES:
Premiums earned	$	448,006		$	433,711
Net investment income		76,869			81,242
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		-			(5,674	)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss)		-			-
Other net realized capital gains (losses)		309,806			181,815
Total net realized capital gains (losses)		309,806			176,141
Other income (expense)		(9,661	)		(6,254	)
Total revenues		825,020			684,840

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		268,641			250,397
Commission, brokerage, taxes and fees		68,122			87,491
Other underwriting expenses		43,522			39,514
Corporate expenses		1,772			1,566
Interest, fee and bond issue cost amortization expense		12,616			12,696
Total claims and expenses		394,673			391,664

INCOME (LOSS) BEFORE TAXES		430,347			293,176
Income tax expense (benefit)		144,696			78,452

NET INCOME (LOSS)	$	285,651		$	214,724

Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period		(5,606	)		6,411
Less: reclassification adjustment for realized losses (gains) included in net income (loss)		(1,358	)		2,713
Total URA(D) on securities arising during the period		(6,964	)		9,124
Foreign currency translation adjustments		(7,596	)		5,297
Pension adjustments		1,346			984
Total other comprehensive income (loss), net of tax		(13,214	)		15,405

COMPREHENSIVE INCOME (LOSS)	$	272,437		$	230,129

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

~~Table of Contents~~

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDER’S EQUITY

Three Months Ended
March 31,
(Dollars in thousands, except share amounts) 2012 2011
(unaudited)
COMMON STOCK (shares outstanding):
Balance, beginning of period 1,000 1,000
Balance, end of period 1,000 1,000

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period $ 333,416 $ 327,767
Share-based compensation plans 1,626 1,589
Balance, end of period 335,042 329,356

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period 174,790 163,966
Net increase (decrease) during the period 15,405 1,017
Balance, end of period 190,195 164,983

RETAINED EARNINGS:
Balance, beginning of period 2,433,187 2,636,008
Net income (loss) 214,724 (97,533 )
Balance, end of period 2,647,911 2,538,475

TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $ 3,173,148 $ 3,032,814

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

	Three Months Ended
	March 31,
(Dollars in thousands, except share amounts)	2013			2012
	(unaudited)
COMMON STOCK (shares outstanding):
Balance, beginning of period		1,000			1,000
Balance, end of period		1,000			1,000

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	340,223		$	333,416
Share-based compensation plans		3,158			1,626
Balance, end of period		343,381			335,042

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		184,867			174,790
Net increase (decrease) during the period		(13,214	)		15,405
Balance, end of period		171,653			190,195

RETAINED EARNINGS:
Balance, beginning of period		2,953,516			2,433,187
Net income (loss)		285,651			214,724
Balance, end of period		3,239,167			2,647,911

TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD	$	3,754,201		$	3,173,148

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

~~Table of Contents~~

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Dollars in thousands)	2012			2011			2013			2012
	(unaudited)						(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	214,724		$	(97,533	)	$	285,651		$	214,724
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable		37,206			(111,328	)		(51,555	)		37,206
Decrease (increase) in funds held by reinsureds, net		(40,354	)		196			(6,122	)		(40,354	)
Decrease (increase) in reinsurance receivables		7,668			(306,071	)		(22,142	)		7,668
Decrease (increase) in federal income taxes receivable		(898	)		(54,380	)
Decrease (increase) in current income taxes								29,912			(898	)
Decrease (increase) in deferred tax asset		74,674			34,314			102,187			74,674
Decrease (increase) in prepaid reinsurance premiums		4,536			23,936			(16,378	)		4,536
Increase (decrease) in reserve for losses and loss adjustment expenses		(165,989	)		465,159			(176,428	)		(165,989	)
Increase (decrease) in unearned premiums		(10,324	)		(23,149	)		43,947			(10,324	)
Increase (decrease) in other net payable to reinsurers		4,105			52,782			(4,619	)		4,105
Increase (decrease) in losses in course of payment								162,432			37,901
Change in equity adjustments in limited partnerships		(11,285	)		(18,415	)		(11,220	)		(11,285	)
Change in other assets and liabilities, net		44,382			72,345			12,988			6,481
Non-cash compensation expense		1,616			1,380			2,173			1,616
Amortization of bond premium (accrual of bond discount)		4,274			3,492			6,563			4,274
Amortization of underwriting discount on senior notes		13			12			13			13
Net realized capital (gains) losses		(176,141	)		(40,476	)		(309,806	)		(176,141	)
Net cash provided by (used in) operating activities		(11,793	)		2,264			47,596			(11,793	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		202,187			107,455			298,241			202,187
Proceeds from fixed maturities matured/called - available for sale, at fair value		-			6,900			3,000			-
Proceeds from fixed maturities sold - available for sale, at market value		84,136			516,721			166,934			84,136
Proceeds from fixed maturities sold - available for sale, at fair value		59,281			32,952			3,664			59,281
Proceeds from equity securities sold - available for sale, at market value		-			27,096
Proceeds from equity securities sold - available for sale, at fair value		239,540			52,696			103,828			239,540
Distributions from other invested assets		5,861			61,359			32,477			5,861
Cost of fixed maturities acquired - available for sale, at market value		(292,848	)		(472,805	)		(586,523	)		(292,848	)
Cost of fixed maturities acquired - available for sale, at fair value		(3,124	)		(8,076	)		(1,295	)		(3,124	)
Cost of equity securities acquired - available for sale, at market value		-			(27,059	)
Cost of equity securities acquired - available for sale, at fair value		(105,214	)		(126,665	)		(120,527	)		(105,214	)
Cost of other invested assets acquired		(11,636	)		(23,014	)		(4,661	)		(11,636	)
Cost of other invested assets acquired, at fair value		-			(37,611	)
Cost of businesses acquired		-			(63,100	)
Net change in short-term investments		(222,137	)		149,303			83,622			(222,137	)
Net change in unsettled securities transactions		29,769			(143,998	)		(17,558	)		29,769
Net cash provided by (used in) investing activities		(14,185	)		52,154			(38,798	)		(14,185	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation		10			209			985			10
Revolving credit borrowings		-			(10,000	)		-			-
Net cash provided by (used in) financing activities		10			(9,791	)		985			10

EFFECT OF EXCHANGE RATE CHANGES ON CASH		22,448			6,646			(13,548	)		22,448

Net increase (decrease) in cash		(3,520	)		51,273			(3,765	)		(3,520	)
Cash, beginning of period		348,267			118,092			347,720			348,267
Cash, end of period	$	344,747		$	169,365		$	343,955		$	344,747

SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)	$	4,625		$	10,792		$	862		$	4,625
Interest paid		5,217			5,203			5,136			5,217

Non-cash transaction:
Net assets acquired and liabilities assumed from business acquisitions		-			19,130

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

~~Table of Contents~~

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended March 31, ~~2012~~2013 and ~~2011~~2012

1. 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

The unaudited consolidated financial statements of the Company for the three months ended March 31, ~~2012~~2013 and ~~2011~~2012 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, ~~2011~~2012 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results for the three months ended March 31, ~~2012~~2013 and ~~2011~~2012 are not necessarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2012, 2011 ~~2010~~ and ~~2009~~2010 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 period amounts to conform to the current period presentation.

Application of Recently Issued Accounting Standard Changes

Intangibles-Goodwill or Other. In September 2011, the Financial Accounting Standards Board (“FASB”) amended the authoritative guidance for disclosures on Goodwill Impairment. The amendment allows an entity first to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis in determining whether it is necessary to perform the two-step goodwill impairment test. This guidance is effective for periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012.

Presentation of Comprehensive Income. In June 2011, FASB issued amendments to existing guidance to provide two alternatives for the presentation of comprehensive income. Components of net income and comprehensive income can either be presented within a single, continuous financial statement or be presented in two separate but consecutive financial statements. The Company has chosen to present the components of net income and comprehensive income in a single, continuous financial statement. The guidance is effective for reporting periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012. In February, 2013, the FASB issued an additional amendment for the presentation of amounts reclassified out of accumulated other comprehensive income by component. The Company implemented the proposed guidance as of January 1, 2013.

Common Fair Value Measurement. In May 2011, FASB issued amendments to existing guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. The amendments change wording used to describe many GAAP fair value measurement requirements and disclosures. FASB does not intend for the amendments to cause a change in application of fair value accounting guidance. The guidance is effective for reporting periods beginning after December 15, 2011. The Company implemented this guidance prospectively as of January 1, 2012.

~~Table of Contents~~

Treatment of Insurance Contract Acquisition Costs. In October 2010, the FASB issued authoritative guidance for the accounting for costs associated with acquiring or renewing insurance contracts. The guidance identifies the incremental direct costs of contract acquisition and costs directly related to acquisition activities that should be capitalized. This guidance is effective for reporting periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012 and determined that $7,215 thousand of previously deferrable acquisition costs ~~will~~would be expensed during 2012 and ~~the first quarter of~~ 2013, including ~~$1,413~~$5,818 thousand ~~of previously deferrable acquisition costs~~and $942 thousand expensed during 2012 and in the three months ended March 31, ~~2012. If the guidance had been applicable for the prior period, the Company would have expensed~~ ~~$1,619~~ ~~thousand of deferrable acquisition costs during the three months ended March 31, 2011.~~

~~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. The Company implemented this guidance effective January 1, 2010. 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 implemented this guidance beginning with the third quarter of 2010.2013, respectively.

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, 2012
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Appreciation Depreciation Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $ 77,872 $ 1,360 $ (646 ) $ 78,586
Obligations of U.S. states and political subdivisions 1,445,314 96,989 (304 ) 1,541,999
Corporate securities 1,250,862 53,499 (8,038 ) 1,296,323
Asset-backed securities 57,881 1,210 (11 ) 59,080
Mortgage-backed securities
Commercial 46,524 7,690 (521 ) 53,693
Agency residential 503,749 15,457 (1,601 ) 517,605
Non-agency residential 2,951 431 (50 ) 3,332
Foreign government securities 751,818 53,103 (2,193 ) 802,728
Foreign corporate securities 780,760 34,553 (10,519 ) 804,794
Total fixed maturity securities $ 4,917,731 $ 264,292 $ (23,883 ) $ 5,158,140
Equity securities $ 15 $ - $ (3 ) $ 12

~~Table of Contents~~

	At March 31, 2013
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	75,235	$	1,398	$	(696	)	$	75,937
Obligations of U.S. states and political subdivisions		1,100,226		71,375		(2,062	)		1,169,539
Corporate securities		1,593,973		62,251		(4,353	)		1,651,871
Asset-backed securities		46,837		2,290		-			49,127
Mortgage-backed securities
Commercial		45,094		7,165		-			52,259
Agency residential		757,378		11,916		(4,678	)		764,616
Non-agency residential		1,324		172		(23	)		1,473
Foreign government securities		720,011		50,070		(3,580	)		766,501
Foreign corporate securities		1,040,309		45,837		(6,006	)		1,080,140
Total fixed maturity securities	$	5,380,387	$	252,474	$	(21,398	)	$	5,611,463
Equity securities	$	15	$	-	$	-		$	15

	At December 31, 2011									At December 31, 2012
	Amortized		Unrealized		Unrealized			Market		Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value		Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	77,351	$	2,475	$	(287	)	$	79,539	$	77,611	$	1,448	$	(869	)	$	78,190
Obligations of U.S. states and political subdivisions		1,558,615		102,815		(525	)		1,660,905		1,214,990		78,096		(1,123	)		1,291,963
Corporate securities		1,200,941		45,070		(17,776	)		1,228,235		1,510,186		61,137		(6,471	)		1,564,852
Asset-backed securities		44,351		758		(6	)		45,103		44,070		2,417		-			46,487
Mortgage-backed securities
Commercial		41,953		7,187		(1,266	)		47,874		45,157		7,534		(67	)		52,624
Agency residential		528,946		16,209		(1,762	)		543,393		672,724		12,722		(1,724	)		683,722
Non-agency residential		24,139		470		(320	)		24,289		1,933		429		(33	)		2,329
Foreign government securities		733,814		57,437		(2,602	)		788,649		732,277		51,461		(3,735	)		780,003
Foreign corporate securities		670,544		29,421		(10,924	)		689,041		990,671		46,850		(6,281	)		1,031,240
Total fixed maturity securities	$	4,880,654	$	261,842	$	(35,468	)	$	5,107,028	$	5,289,619	$	262,094	$	(20,303	)	$	5,531,410
Equity securities	$	15	$	-	$	(5	)	$	10	$	15	$	-	$	(2	)	$	13

The ~~$802,728~~$766,501 thousand of foreign government securities at March 31, ~~2012~~2013 included ~~$75,211~~$90,168 thousand of European sovereign securities. Approximately ~~59.7%~~51.5%, ~~17.3%~~13.7%, ~~8.5%~~11.6%, ~~6.5%~~7.1% and ~~5.8%~~5.3% of European Sovereign Securities represented securities held in the governments of France, the United Kingdom, Sweden, the Netherlands ~~Austria~~ and ~~Germany,~~Austria, respectively. No other countries represented more than 5% of the European

sovereign securities. The Company held no sovereign securities of Portugal, Italy, Ireland, Greece or Spain at March 31, ~~2012.~~2013.

In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings into accumulated other comprehensive income (loss), on April 1, 2009. The table below presents the pre-tax cumulative unrealized appreciation (depreciation) on those corporate securities, for the periods indicated:

(Dollars in thousands)		At March 31, 2012				At December 31, 2011				At March 31, 2013			At December 31, 2012
Pre-tax cumulative unrealized appreciation (depreciation)		$	615			$	635			$	302		$	399

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, 2012				At December 31, 2011				At March 31, 2013				At December 31, 2012
	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	$	294,575	$	293,824	$	224,406	$	223,507	$	303,216	$	303,754	$	329,474	$	330,149
Due after one year through five years		2,138,150		2,215,318		2,055,299		2,129,437		2,537,939		2,631,420		2,380,093		2,462,430
Due after five years through ten years		948,014		1,005,851		955,253		1,009,893		959,270		1,006,214		1,008,653		1,064,579
Due after ten years		925,887		1,009,437		1,006,307		1,083,532		729,329		802,600		807,515		889,090
Asset-backed securities		57,881		59,080		44,351		45,103		46,837		49,127		44,070		46,487
Mortgage-backed securities
Commercial		46,524		53,693		41,953		47,874		45,094		52,259		45,157		52,624
Agency residential		503,749		517,605		528,946		543,393		757,378		764,616		672,724		683,722
Non-agency residential		2,951		3,332		24,139		24,289		1,324		1,473		1,933		2,329
Total fixed maturity securities	$	4,917,731	$	5,158,140	$	4,880,654	$	5,107,028	$	5,380,387	$	5,611,463	$	5,289,619	$	5,531,410

~~Table of Contents~~

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
	March 31,						March 31,
(Dollars in thousands)	2012			2011			2013			2012
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	14,055		$	(16,938	)	$	(10,618	)	$	14,055
Fixed maturity securities, other-than-temporary impairment		(20	)		20			(97	)		(20	)
Equity securities		2			-			1			2
Other invested assets		-			1,435
Change in unrealized appreciation (depreciation), pre-tax		14,037			(15,483	)		(10,714	)		14,037
Deferred tax benefit (expense)		(4,920	)		5,426			3,716			(4,920	)
Deferred tax benefit (expense), other-than-temporary impairment		7			(7	)
Deferred tax benefit (expense), other-than-temporary impairment								34			7
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in stockholder's equity	$	9,124		$	(10,064	)	$	(6,964	)	$	9,124

The Company frequently reviews all of its fixed maturity, available for sale securities for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized cost 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, interest rate or foreign exchange 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 (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 or foreign exchange related is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive 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 constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

The majority of the Company’s equity securities available for sale at market value are primarily comprised of mutual fund investments whose underlying securities consist of fixed maturity securities. When a fund’s value reflects an unrealized loss, the Company assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company considers the composition of its portfolios and their related markets, reports received from the portfolio managers and discussions with portfolio managers. If the Company determines that the declines are temporary and it has the ability and intent to continue to hold the investments, then the declines are recorded as unrealized losses in accumulated other comprehensive income (loss). If declines are deemed to be other-than-temporary, then the carrying value of the investment is written down to fair value and recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).

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 prepayments for pass-through security types.

~~Table of Contents~~

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 of Unrealized Loss at March 31, 2012 By Security Type															Duration of Unrealized Loss at March 31, 2013 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	$	17,409	$	(129	)	$	6,169	$	(517	)	$	23,578	$	(646	)	$	5,333	$	(19	)	$	6,030	$	(677	)	$	11,363	$	(696	)
Obligations of U.S. states and political subdivisions		-		-			5,726		(304	)		5,726		(304	)		67,022		(2,007	)		4,930		(55	)		71,952		(2,062	)
Corporate securities		153,863		(1,918	)		91,635		(6,120	)		245,498		(8,038	)		112,551		(946	)		53,848		(3,407	)		166,399		(4,353	)
Asset-backed securities		2,762		(11	)		-		-			2,762		(11	)		-		-			-		-			-		-
Mortgage-backed securities
Commercial		10,096		(521	)		-		-			10,096		(521	)		-		-			-		-			-		-
Agency residential		183,417		(1,548	)		6,644		(53	)		190,061		(1,601	)		322,361		(3,902	)		70,171		(776	)		392,532		(4,678	)
Non-agency residential		-		-			582		(50	)		582		(50	)		-		-			411		(23	)		411		(23	)
Foreign government securities		8,336		(72	)		30,185		(2,121	)		38,521		(2,193	)		7,849		(111	)		34,454		(3,469	)		42,303		(3,580	)
Foreign corporate securities		76,032		(656	)		108,967		(9,863	)		184,999		(10,519	)		80,003		(755	)		74,027		(5,251	)		154,030		(6,006	)
Total fixed maturity securities	$	451,915	$	(4,855	)	$	249,908	$	(19,028	)	$	701,823	$	(23,883	)	$	595,119	$	(7,740	)	$	243,871	$	(13,658	)	$	838,990	$	(21,398	)
Equity securities		-		-			12		(3	)		12		(3	)		-		-			15		-			15		-
Total	$	451,915	$	(4,855	)	$	249,920	$	(19,031	)	$	701,835	$	(23,886	)	$	595,119	$	(7,740	)	$	243,886	$	(13,658	)	$	839,005	$	(21,398	)

Duration of Unrealized Loss at March 31, 2012 By Maturity
Less than 12 months Greater than 12 months Total
Gross Gross Gross
Unrealized Unrealized Unrealized
(Dollars in thousands) Market Value Depreciation Market Value Depreciation Market Value Depreciation
Fixed maturity securities
Due in one year or less $ 1,750 $ (7 ) $ 30,299 $ (5,375 ) $ 32,049 $ (5,382 )
Due in one year through five years 136,652 (1,522 ) 141,659 (10,591 ) 278,311 (12,113 )
Due in five years through ten years 107,716 (1,181 ) 57,781 (2,056 ) 165,497 (3,237 )
Due after ten years 9,522 (65 ) 12,943 (903 ) 22,465 (968 )
Asset-backed securities 2,762 (11 ) - - 2,762 (11 )
Mortgage-backed securities 193,513 (2,069 ) 7,226 (103 ) 200,739 (2,172 )
Total fixed maturity securities $ 451,915 $ (4,855 ) $ 249,908 $ (19,028 ) $ 701,823 $ (23,883 )

	Duration of Unrealized Loss at March 31, 2013 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	845	$	(4	)	$	20,952	$	(3,170	)	$	21,797	$	(3,174	)
Due in one year through five years		148,957		(1,065	)		103,911		(8,230	)		252,868		(9,295	)
Due in five years through ten years		48,859		(661	)		30,786		(961	)		79,645		(1,622	)
Due after ten years		74,097		(2,108	)		17,640		(498	)		91,737		(2,606	)
Asset-backed securities		-		-			-		-			-		-
Mortgage-backed securities		322,361		(3,902	)		70,582		(799	)		392,943		(4,701	)
Total fixed maturity securities	$	595,119	$	(7,740	)	$	243,871	$	(13,658	)	$	838,990	$	(21,398	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at March 31, ~~2012~~2013 were ~~$701,835~~$839,005 thousand and ~~$23,886~~$21,398 thousand, respectively. There were no unrealized losses on a single issuer that exceeded ~~0.04%~~0.03% of the market value of the fixed maturity securities at March 31, ~~2012.~~2013. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The ~~$4,855~~$7,740 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were ~~generally~~primarily comprised of ~~domestic and foreign corporate securities as well as commercial and~~ agency residential mortgage-backed securities and state and municipal securities. Of these unrealized losses, ~~$2,952~~$6,819 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The ~~$19,028~~$13,658 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities as well as foreign government securities. Of these unrealized losses, ~~$16,676~~$12,805 thousand were 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 were mainly comprised of corporate securities, with the majority representing ~~a large number of short duration,~~ floating interest rate bank loan securities. The gross unrealized depreciation for mortgage-backed securities included ~~$50~~$23 thousand related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

~~Table of Contents~~

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 of Unrealized Loss at December 31, 2011 By Security Type															Duration of Unrealized Loss at December 31, 2012 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	$	-	$	-		$	3,452	$	(287	)	$	3,452	$	(287	)	$	8,058	$	(292	)	$	3,386	$	(577	)	$	11,444	$	(869	)
Obligations of U.S. states and political subdivisions		-		-			7,518		(525	)		7,518		(525	)		38,754		(1,072	)		5,781		(51	)		44,535		(1,123	)
Corporate securities		342,959		(8,449	)		75,998		(9,327	)		418,957		(17,776	)		122,138		(1,566	)		62,492		(4,905	)		184,630		(6,471	)
Asset-backed securities		819		(6	)		-		-			819		(6	)		-		-			-		-			-		-
Mortgage-backed securities
Commercial		9,292		(1,266	)		-		-			9,292		(1,266	)		-		-			10,729		(67	)		10,729		(67	)
Agency residential		151,951		(1,695	)		7,199		(67	)		159,150		(1,762	)		177,336		(1,042	)		54,595		(682	)		231,931		(1,724	)
Non-agency residential		41		-			20,693		(320	)		20,734		(320	)		-		-			446		(33	)		446		(33	)
Foreign government securities		12,777		(269	)		40,743		(2,333	)		53,520		(2,602	)		13,958		(105	)		34,355		(3,630	)		48,313		(3,735	)
Foreign corporate securities		77,458		(2,025	)		94,182		(8,899	)		171,640		(10,924	)		44,945		(565	)		53,672		(5,716	)		98,617		(6,281	)
Total fixed maturity securities	$	595,297	$	(13,710	)	$	249,785	$	(21,758	)	$	845,082	$	(35,468	)	$	405,189	$	(4,642	)	$	225,456	$	(15,661	)	$	630,645	$	(20,303	)
Equity securities		-		-			10		(5	)		10		(5	)		-		-			13		(2	)		13		(2	)
Total	$	595,297	$	(13,710	)	$	249,795	$	(21,763	)	$	845,092	$	(35,473	)	$	405,189	$	(4,642	)	$	225,469	$	(15,663	)	$	630,658	$	(20,305	)

Duration of Unrealized Loss at December 31, 2011 By Maturity
Less than 12 months Greater than 12 months Total
Gross Gross Gross
Unrealized Unrealized Unrealized
(Dollars in thousands) Market Value Depreciation Market Value Depreciation Market Value Depreciation
Fixed maturity securities
Due in one year or less $ 9,583 $ (59 ) $ 26,204 $ (4,486 ) $ 35,787 $ (4,545 )
Due in one year through five years 213,809 (4,754 ) 137,972 (9,576 ) 351,781 (14,330 )
Due in five years through ten years 186,061 (5,484 ) 37,964 (2,391 ) 224,025 (7,875 )
Due after ten years 23,741 (446 ) 19,753 (4,918 ) 43,494 (5,364 )
Asset-backed securities 819 (6 ) - - 819 (6 )
Mortgage-backed securities 161,284 (2,961 ) 27,892 (387 ) 189,176 (3,348 )
Total fixed maturity securities $ 595,297 $ (13,710 ) $ 249,785 $ (21,758 ) $ 845,082 $ (35,468 )

	Duration of Unrealized Loss at December 31, 2012 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	5,875	$	(24	)	$	19,291	$	(2,833	)	$	25,166	$	(2,857	)
Due in one year through five years		103,313		(1,671	)		110,161		(10,564	)		213,474		(12,235	)
Due in five years through ten years		57,225		(678	)		16,385		(1,008	)		73,610		(1,686	)
Due after ten years		61,440		(1,227	)		13,849		(474	)		75,289		(1,701	)
Asset-backed securities		-		-			-		-			-		-
Mortgage-backed securities		177,336		(1,042	)		65,770		(782	)		243,106		(1,824	)
Total fixed maturity securities	$	405,189	$	(4,642	)	$	225,456	$	(15,661	)	$	630,645	$	(20,303	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, ~~2011~~2012 were ~~$845,092~~$630,658 thousand and ~~$35,473~~$20,305 thousand, respectively. There were no unrealized losses on a single issuer that exceeded ~~0.09%~~0.02% of the market value of the fixed maturity securities at December 31, ~~2011.~~2012. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The ~~$13,710~~$4,642 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were ~~generally~~primarily comprised of domestic corporate securities, state and ~~foreign corporate~~municipal securities as well as ~~commercial and~~ agency residential mortgage-backed securities. Of these unrealized losses, ~~$5,635~~$3,281 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The ~~$21,758~~$15,661 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate ~~and~~securities as well as foreign government securities. Of these unrealized losses, ~~$15,880~~$14,401 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The ~~non-~~

~~Table of Contents~~

~~investment~~non-investment grade securities with unrealized losses were mainly comprised of corporate securities, with the majority representing ~~a large number of short duration,~~ floating interest rate bank loan securities. The gross unrealized depreciation for mortgage-backed securities included ~~$56~~$33 thousand related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the

investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

Other invested assets, at fair value, is comprised of common shares of the Company’s ultimate parent, Group. At March 31, ~~2012,~~2013, the Company held 9,719,971 shares of Group representing ~~15.6%~~16.3% of the total outstanding shares.

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

	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Dollars in thousands)	2012			2011			2013			2012
Fixed maturity securities	$	54,821		$	60,619
Fixed maturities							$	53,899		$	54,821
Equity securities		10,305			5,172			7,731			10,305
Short-term investments and cash		128			207			266			128
Other invested assets
Limited partnerships		11,612			18,415			11,348			11,612
Dividends from Parent's shares		4,666			4,648			4,666			4,666
Other		1,518			597			2,320			1,518
Total gross investment income		83,050			89,658
Interest debited (credited) and other investment expense		(1,808	)		(2,526	)
Total net investment income	$	81,242		$	87,132
Gross investment income before adjustments								80,230			83,050
Funds held interest income (expense)								2,418			1,948
Gross investment income								82,648			84,998
Investment expenses								(5,779	)		(3,756	)
Net investment income							$	76,869		$	81,242

The Company records results from limited partnership investments on the equity 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~~identifies the decline.

The Company had contractual commitments to invest up to an additional ~~$107,566~~$66,345 thousand in limited partnerships at March 31, ~~2012.~~2013. These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2016.

~~Table of Contents~~

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

	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Dollars in thousands)	2012			2011			2013			2012
Fixed maturity securities, market value:
Other-than-temporary impairments	$	(5,674	)	$	(13,611	)	$	-		$	(5,674	)
Gains (losses) from sales		1,501			(12,310	)		2,089			1,501
Fixed maturity securities, fair value:
Gain (losses) from sales		5,207			(1,515	)		(58	)		5,207
Gains (losses) from fair value adjustments		3,031			(3,483	)		84			3,031
Equity securities, market value:
Gains (losses) from sales		-			37			-			-
Equity securities, fair value:
Gains (losses) from sales		22,317			1,872			8,083			22,317
Gains (losses) from fair value adjustments		67,820			38,130			106,069			67,820
Other invested assets, fair value:
Gains (losses) from fair value adjustments		81,939			31,355			193,525			81,939
Short-term investment gains (losses)		-			1			14			-
Total net realized capital gains (losses)	$	176,141		$	40,476		$	309,806		$	176,141

The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) both fair value re-measurements and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis as displayed in the table above. The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:

	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Dollars in thousands)	2012			2011			2013			2012
Proceeds from sales of fixed maturity securities	$	143,417		$	549,673		$	170,598		$	143,417
Gross gains from sales		8,988			14,266			3,811			8,988
Gross losses from sales		(2,280	)		(28,091	)		(1,780	)		(2,280	)

Proceeds from sales of equity secuities	$	239,540		$	79,792
Proceeds from sales of equity securities							$	103,828		$	239,540
Gross gains from sales		26,826			2,380			8,869			26,826
Gross losses from sales		(4,509	)		(471	)		(786	)		(4,509	)

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4. FAIR VALUE

The Company’s fixed maturity and equity securities are primarily 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 continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. The Company made no such adjustments at March 31, ~~2012~~2013 and ~~2011.~~December 31, 2012.

The Company internally manages a small public equity portfolio which had a fair value at March 31, ~~2012~~2013 of ~~$43,756~~$75,956 thousand and all prices were obtained from publically published sources.

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.

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.

As of March 31, ~~2012~~2013 and December 31, ~~2011,~~2012, all Level 3 fixed maturity securities, were priced using single non-binding broker quotes since prices for these securities were not provided by normal pricing service companies. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. The prices received from brokers are reviewed for reasonableness by ~~our~~the third party asset managers and ~~management.~~the Company.

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.

~~Table of Contents~~

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, 2012		(Level 1)		(Level 2)		(Level 3)		March 31, 2013		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	78,586	$	-	$	78,586	$	-	$	75,937	$	-	$	75,937	$	-
Obligations of U.S. States and political subdivisions		1,541,999		-		1,541,999		-		1,169,539		-		1,169,539		-
Corporate securities		1,296,323		-		1,296,323		-		1,651,871		-		1,651,871		-
Asset-backed securities		59,080		-		46,324		12,756		49,127		-		44,441		4,686
Mortgage-backed securities
Commercial		53,693		-		53,693		-		52,259		-		52,259		-
Agency residential		517,605		-		517,605		-		764,616		-		764,616		-
Non-agency residential		3,332		-		3,326		6		1,473		-		1,468		5
Foreign government securities		802,728		-		802,728		-		766,501		-		766,501		-
Foreign corporate securities		804,794		-		799,675		5,119		1,080,140		-		1,078,348		1,792
Total fixed maturities, market value		5,158,140		-		5,140,259		17,881		5,611,463		-		5,604,980		6,483

Fixed maturities, fair value		64,936		-		64,936		-		36,127		-		36,127		-
Equity securities, market value		12		12		-		-		15		15		-		-
Equity securities, fair value		1,163,616		1,040,663		122,953		-		1,330,699		1,192,549		138,150		-
Other invested assets, fair value		899,292		899,292		-		-
Other invested assets, fair value										1,262,235		1,262,235		-		-

There were no transfers between Level 1 and Level 2 for the three months ended March 31, ~~2012.~~2013.

~~Table of Contents~~

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)	December 31, 2011		(Level 1)		(Level 2)		(Level 3)		December 31, 2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	79,539	$	-	$	79,539	$	-	$	78,190	$	-	$	78,190	$	-
Obligations of U.S. States and political subdivisions		1,660,905		-		1,660,905		-		1,291,963		-		1,291,963		-
Corporate securities		1,228,235		-		1,228,235		-		1,564,852		-		1,564,852		-
Asset-backed securities		45,103		-		29,057		16,046		46,487		-		41,638		4,849
Mortgage-backed securities
Commercial		47,874		-		47,874		-		52,624		-		52,624		-
Agency residential		543,393		-		543,393		-		683,722		-		654,324		29,398
Non-agency residential		24,289		-		24,282		7		2,329		-		2,324		5
Foreign government securities		788,649		-		788,649		-		780,003		-		780,003		-
Foreign corporate securities		689,041		-		686,505		2,536		1,031,240		-		1,019,819		11,421
Total fixed maturities, market value		5,107,028		-		5,088,439		18,589		5,531,410		-		5,485,737		45,673

Fixed maturities, fair value		113,606		-		113,606		-		41,470		-		41,470		-
Equity securities, market value		10		10		-		-		13		13		-		-
Equity securities, fair value		1,207,053		1,090,959		116,094		-		1,199,848		1,059,288		140,560		-
Other invested assets, fair value		817,352		817,352		-		-
Other invested assets, fair value										1,068,711		1,068,711		-		-

The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated:

	Three Months Ended March 31, 2012												Three Months Ended March 31, 2011													Three Months Ended March 31, 2013														Three Months Ended March 31, 2012
	Asset-backed			Foreign			Non-agency						Asset-backed			Foreign			Non-agency							Asset-backed			Foreign			Non-agency		Agency						Asset-backed			Foreign			Non-agency
(Dollars in thousands)	Securities			Corporate			RMBS			Total			Securities			Corporate			RMBS			Total				Securities			Corporate			RMBS		RMBS			Total			Securities			Corporate			RMBS			Total
Beginning balance	$	16,046		$	2,536		$	7		$	18,589		$	961		$	3,635		$	458		$	5,054			$	4,849		$	11,421		$	5	$	29,398		$	45,673		$	16,046		$	2,536		$	7		$	18,589
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		55			(3	)		1			53			-			-			21			21
Included in earnings																											(99	)		(2	)		-		-			(101	)		55			(3	)		1			53
Included in other comprehensive income (loss)		332			125			(1	)		456			(63	)		-			-			(63	)			(190	)		(124	)		-		-			(314	)		332			125			(1	)		456
Purchases, issuances and settlements		2,675			2,461			(1	)		5,135			138			-			(31	)		107				126			750			-		-			876			2,675			2,461			(1	)		5,135
Transfers in and/or (out) of Level 3		(6,352	)		-			-			(6,352	)		5,237			(3,116	)		-			2,121				-			(10,253	)		-		(29,398	)		(39,651	)		(6,352	)		-			-			(6,352	)
Ending balance	$	12,756		$	5,119		$	6		$	17,881		$	6,273		$	519		$	448		$	7,240			$	4,686		$	1,792		$	5	$	-		$	6,483		$	12,756		$	5,119		$	6		$	17,881

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

(Some amounts may not reconcile due to rounding.)

~~Table of Contents~~

5. CAPITAL TRANSACTIONS

On October 14, 2011, the Company renewed its 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

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements. 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. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.

Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.

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. The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:

(Dollars in thousands) At March 31, 2012 At December 31, 2011
$ 143,220 $ 143,447

(Dollars in thousands)		At March 31, 2013				At December 31, 2012
		$	144,524			$	144,628

Prior to its 1995 initial public offering, the Company purchased annuities from an unaffiliated life insurance company with an A+ (Superior) financial strength rating from A.M. Best to settle certain claim liabilities of the company. Should the life insurance company become unable to make the annuity payments, the Company would be liable for those claim liabilities. The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:

(Dollars in thousands) At March 31, 2012 At December 31, 2011
$ 27,454 $ 27,634

(Dollars in thousands)		At March 31, 2013				At December 31, 2012
		$	28,897			$	29,132

~~Table of Contents~~

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
March 31,
(Dollars in thousands) 2012 2011
Unrealized appreciation (depreciation) ("URA(D)") on
securities arising during the period
URA(D) of investments - temporary $ 14,057 $ (15,503 )
URA(D) of investments - non-credit OTTI (20 ) 20
Tax benefit (expense) from URA(D) arising during the period (4,913 ) 5,419
Total URA(D) on securities arising during the period, net of tax 9,124 (10,064 )

Foreign currency translation adjustments 8,149 15,900
Tax benefit (expense) from foreign currency translation (2,852 ) (5,565 )
Net foreign currency translation adjustments 5,297 10,335

Pension adjustments 1,513 1,148
Tax benefit (expense) on pension (529 ) (402 )
Net pension adjustments 984 746

Other comprehensive income (loss), net of tax
$ 15,405 $ 1,017

	Three Months Ended
	March 31,
(Dollars in thousands)	2013			2012

Net income (loss)	$	285,651		$	214,724
Other comprehensive income (loss), before tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
URA(D) of investments - temporary		(8,528	)		9,884
URA(D) of investments - non-credit OTTI		(97	)		(20	)
URA(D) on securities arising during the period		(8,625	)		9,864
Reclassification adjustment for realized losses (gains) included in net income (loss)		(2,089	)		4,173
Total URA(D) on securities arising during the period		(10,714	)		14,037
Foreign currency translation adjustments		(11,686	)		8,149
Reclassification adjustment for benefit plan amortization included in net income (loss)		2,070			1,513
Total other comprehensive income (loss), before tax		(20,330	)		23,699

Income tax benefit (expense) related to items of other comprehensive income (loss):
Tax benefit (expense) on URA(D) arising during the period
Tax benefit (expense) on URA(D) of investments - temporary		2,985			(3,460	)
Tax benefit (expense) on URA(D) of investments - non-credit OTTI		34			7
Tax benefit (expense) on URA(D) on securities arising during the period		3,019			(3,453	)
Reclassification of tax expense (benefit) on realized losses (gains) included in net income (loss)		731			(1,460	)
Total tax benefit (expense) from URA(D) arising during the period		3,750			(4,913	)
Tax benefit (expense) from foreign currency translation		4,090			(2,852	)
Reclassification of tax expense (benefit) on benefit plan amortization included in net income (loss)		(724	)		(529	)
Total income tax benefit (expense) related to items of other comprehensive income (loss):		7,116			(8,294	)
Other comprehensive income (loss), net of tax		(13,214	)		15,405
Comprehensive income (loss)	$	272,437		$	230,129

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

At March 31, At December 31,
(Dollars in thousands) 2012 2011
URA(D) on securities, net of deferred taxes
Temporary $ 155,864 $ 146,727
Non-credit, OTTI 400 413
Total unrealized appreciation (depreciation) on investments, net of deferred taxes 156,264 147,140
Foreign currency translation adjustments, net of deferred taxes 88,482 83,185
Pension adjustments, net of deferred taxes (54,551 ) (55,535 )
Accumulated other comprehensive income (loss) $ 190,195 $ 174,790

	At March 31,			At December 31,
(Dollars in thousands)	2013			2012

Beginning balance of URA (D) on securities	$	157,163		$	147,140
Current period change in URA (D) of investments - temporary		(6,901	)		10,177
Current period change in URA (D) of investments - non-credit OTTI		(63	)		(154	)
Ending balance of URA (D) on securities		150,199			157,163

Beginning balance of foreign currency translation adjustments		90,215			83,185
Current period change in foreign currency translation adjustments		(7,596	)		7,030
Ending balance of foreign currency translation adjustments		82,619			90,215

Beginning balance of benefit plans		(62,511	)		(55,535	)
Current period change in benefit plans		1,346			(6,976	)
Ending balance of benefit plans		(61,165	)		(62,511	)

Ending balance of accumulated other comprehensive income (loss)	$	171,653		$	184,867

8. CREDIT FACILITY

Effective August 15, 2011, the Company entered into a new three year, $150,000 thousand unsecured revolving credit facility with a syndicate of lenders, replacing the August 23, 2006 five year senior revolving credit facility. Both the August 15, 2011 and August 23, 2006 revolving credit agreements, which have similar terms, are 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 $150,000 thousand 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 base rate, (b) 0.5% per annum above the Federal Funds Rate or (c) 1% above the one month London Interbank Offered Rate (“LIBOR”), 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 $1,875,000 thousand plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, 2010, which at March 31, ~~2012,~~2013, was ~~$1,932,995~~$2,016,650 thousand. As of March 31, ~~2012,~~2013, the Company was in compliance with all Holdings Credit Facility covenants.

~~Table of Contents~~

The following table summarizes outstanding letters of credit and/or borrowings for the periods indicated:

(Dollars in thousands)	At March 31, 2012						At December 31, 2011
(Dollars in thousands)													At March 31, 2013						At December 31, 2012
Bank	Commitment		In Use		Date of Loan	Maturity/Expiry Date	Commitment		In Use		Date of Loan	Maturity/Expiry Date	Commitment		In Use		Date of Loan	Maturity/Expiry Date	Commitment		In Use		Date of Loan	Maturity/Expiry Date
Citibank Holdings Credit Facility	$	150,000	$	-			$	150,000	$	-			$	150,000	$	-			$	150,000	$	-
Total revolving credit borrowings				-						-						-						-
Total letters of credit				5,020		12/31/2012				5,020		12/31/2012				1,551		12/31/2013				1,551		12/31/2013

Total Citibank Holdings Credit Facility	$	150,000	$	5,020			$	150,000	$	5,020			$	150,000	$	1,551			$	150,000	$	1,551

The following table presents the costs incurred in connection with the Holdings Credit Facility for the periods indicated:

	Three Months Ended				Three Months Ended
	March 31,				March 31,
(Dollars in thousands)	2012		2011		2013		2012
Credit facility fees incurred	$	167	$	90	$	65	$	167

9. 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, ~~2012,~~2013, the total amount on deposit in the trust account was ~~$136,375~~$140,525 thousand.

10. SENIOR NOTES

The table below displays Holdings’ outstanding senior notes. Market value is based on quoted market prices, but due to limited trading activity, these senior notes are considered Level 2 in the fair value hierarchy.

					March 31, 2012				December 31, 2011								March 31, 2013				December 31, 2012
					Consolidated Balance				Consolidated Balance								Consolidated Balance				Consolidated Balance
(Dollars in thousands)	Date Issued	Date Due	Principal Amounts		Sheet Amount		Market Value		Sheet Amount		Market Value		Date Issued	Date Due	Principal Amounts		Sheet Amount		Market Value		Sheet Amount		Market Value
5.40% Senior notes	10/12/2004	10/15/2014	$	250,000	$	249,870	$	267,423	$	249,858	$	251,370	10/12/2004	10/15/2014	$	250,000	$	249,919	$	265,768	$	249,907	$	266,390

Interest expense incurred in connection with these senior notes is as follows for the periods indicated:

	Three Months Ended				Three Months Ended
	March 31,				March 31,
(Dollars in thousands)	2012		2011		2013		2012
Interest expense incurred	$	3,387	$	3,386	$	3,387	$	3,387

~~Table of Contents~~

11. LONG TERM SUBORDINATED NOTES

The table below displays Holdings’ outstanding fixed to floating rate long term subordinated notes. Market value is based on quoted market prices, but due to limited trading activity, these subordinated notes are considered Level 2 in the fair value hierarchy.

Maturity Date

March 31, 2012

December 31, 2011

Maturity Date

March 31, 2013

December 31, 2012

Original

Consolidated Balance

Original

Consolidated Balance

(Dollars in thousands)

Date Issued

Principal Amount

Scheduled

Final

Sheet Amount

Market Value

Sheet Amount

Market Value

Date Issued

Principal Amount

Scheduled

Final

Sheet Amount

Market Value

Sheet Amount

Market Value

6.6% Long term subordinated notes

04/26/2007

400,000

05/15/2037

05/01/2067

238,355

229,018

238,354

210,195

04/26/2007

400,000

05/15/2037

05/01/2067

238,358

243,304

238,357

242,138

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 LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded semi-annually for periods prior to May 15, 2017, and compounded quarterly for periods from and including May 15, 2017.

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

On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161,441 thousand.

Interest expense incurred in connection with these long term subordinated notes is as follows for the periods indicated:

	Three Months Ended				Three Months Ended
	March 31,				March 31,
(Dollars in thousands)	2012		2011		2013		2012
Interest expense incurred	$	3,937	$	3,937	$	3,937	$	3,937

~~Table of Contents~~

12. JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE

The following table displays Holdings’ outstanding junior subordinated debt securities due to Everest Re Capital Trust II (“Capital Trust II”), a wholly owned finance subsidiary of Holdings. Fair value is primarily based on the quoted market price of the related trust preferred securities, and as such, these securities are considered Level 2 under the fair value hierarchy.

					March 31, 2012				December 31, 2011								March 31, 2013				December 31, 2012
					Consolidated Balance				Consolidated Balance								Consolidated Balance				Consolidated Balance
(Dollars in thousands)	Date Issued	Date Due	Amount Issued		Sheet Amount		Fair Value		Sheet Amount		Fair Value		Date Issued	Date Due	Amount Issued		Sheet Amount		Fair Value		Sheet Amount		Fair Value
6.20% Junior subordinated debt securities	03/29/2004	03/29/2034	$	329,897	$	329,897	$	326,697	$	329,897	$	326,313	03/29/2004	03/29/2034	$	329,897	$	329,897	$	330,793	$	329,897	$	333,225

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.

Interest expense incurred in connection with these junior subordinated debt securities is as follows for the periods indicated:

	Three Months Ended				Three Months Ended
	March 31,				March 31,
(Dollars in thousands)	2012		2011		2013		2012
Interest expense incurred	$	5,113	$	5,113	$	5,113	$	5,113

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 their 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 Holdings’ operating subsidiaries to transfer funds to Holdings in the form of cash dividends, loans or advances. The insurance laws of the State of Delaware, where Holdings’ direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or advances to Holdings that exceed certain statutory thresholds. In addition, the terms of Holdings Credit Facility (discussed in Note 8) require Everest Re, Holdings’ principal insurance subsidiary, to maintain a certain statutory surplus level as measured at the end of each fiscal year. At December 31, ~~2011, $2,108,692~~2012, $2,272,346 thousand of the ~~$2,763,171~~$3,068,916 thousand in net assets of Holdings’ consolidated subsidiaries were subject to the foregoing regulatory restrictions.

~~Table of Contents~~

13. SEGMENT REPORTING

During the quarter ended September 30, 2011, the Company realigned its reporting segments to reflect recent changes in the type and volume of business written. The Company previously reported the results of Marine & Aviation, Surety, Accident and Health (“A&H”) Reinsurance and A&H Primary operations as a separate segment—Specialty Underwriting. The A&H primary business, which is a relatively new line of business for the Company, has increased significantly, representing approximately 2% of premiums earned and is projected to continue to grow. The A&H primary business is better aligned with the Insurance reporting segment based on the similarities of this business with those businesses already reflected in the Insurance segment. The other operating units included in the Specialty Underwriting segment would have encompassed less than 5% of the Company’s premiums earned and their volume is projected to remain approximately 6%. As a result of the size of these remaining operating units and their similarity to the business reported within U.S. Reinsurance, they have been reclassified to the U.S. Reinsurance segment. There has been no change to the International reporting segment. The Company has restated all segment information for prior years to conform to the new reporting segment structure.

The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and Accident and Health (“A&H&H”) business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S. The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada, Singapore and through offices in Brazil, Miami and New Jersey. The Insurance operation writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S. and Canada. ~~The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada, Singapore and through offices in Brazil, Miami and New Jersey.~~

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 ~~LAE~~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.

	Three Months Ended					Three Months Ended
U.S. Reinsurance	March 31,					March 31,
(Dollars in thousands)	2012		2011			2013		2012
Gross written premiums	$	369,481	$	306,091		$	434,791	$	369,481
Net written premiums		187,225		165,069			217,623		187,225

Premiums earned	$	183,867	$	175,685		$	196,945	$	183,867
Incurred losses and LAE		109,749		142,579			101,194		109,749
Commission and brokerage		45,177		43,753			38,130		45,177
Other underwriting expenses		10,754		9,906			10,534		10,754
Underwriting gain (loss)	$	18,187	$	(20,553	)	$	47,087	$	18,187

	Three Months Ended
International	March 31,
(Dollars in thousands)	2013		2012
Gross written premiums	$	300,399	$	280,461
Net written premiums		133,789		136,329

Premiums earned	$	141,893	$	147,793
Incurred losses and LAE		82,083		64,640
Commission and brokerage		28,107		31,762
Other underwriting expenses		7,930		6,740
Underwriting gain (loss)	$	23,773	$	44,651

~~Table of Contents~~

Three Months Ended
Insurance March 31,
(Dollars in thousands) 2012 2011
Gross written premiums $ 207,249 $ 271,461
Net written premiums 103,825 136,890

Premiums earned $ 102,051 $ 117,192
Incurred losses and LAE 76,008 91,623
Commission and brokerage 10,552 7,638
Other underwriting expenses 22,020 21,872
Underwriting gain (loss) $ (6,529 ) $ (3,941 )

	Three Months Ended					Three Months Ended
International	March 31,
Insurance						March 31,
(Dollars in thousands)	2012		2011			2013			2012
Gross written premiums	$	280,461	$	308,847		$	248,556		$	207,249
Net written premiums		136,329		158,124			124,755			103,825

Premiums earned	$	147,793	$	166,516		$	109,168		$	102,051
Incurred losses and LAE		64,640		318,826			85,364			76,008
Commission and brokerage		31,762		37,121			1,885			10,552
Other underwriting expenses		6,740		6,439			25,058			22,020
Underwriting gain (loss)	$	44,651	$	(195,870	)	$	(3,139	)	$	(6,529	)

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

	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Dollars in thousands)	2012			2011			2013			2012
Underwriting gain (loss)	$	56,309		$	(220,364	)	$	67,721		$	56,309
Net investment income		81,242			87,132			76,869			81,242
Net realized capital gains (losses)		176,141			40,476			309,806			176,141
Corporate expense		(1,566	)		(1,190	)		(1,772	)		(1,566	)
Interest, fee and bond issue cost amortization expense		(12,696	)		(12,682	)		(12,616	)		(12,696	)
Other income (expense)		(6,254	)		32			(9,661	)		(6,254	)
Income (loss) before taxes	$	293,176		$	(106,596	)	$	430,347		$	293,176

The Company produces business in the U.S. and internationally. The net income deriving from 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, the table below presents the largest country, other than the U.S., in which the Company writes business, for the periods indicated:

	Three Months Ended				Three Months Ended
	March 31,				March 31,
(Dollars in thousands)	2012		2011		2013		2012
Canada	$	47,440	$	43,952	$	40,146	$	47,440

No other country represented more than 5% of the Company’s revenues.

~~Table of Contents~~

14. RELATED-PARTY TRANSACTIONS

Parent

Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its subsidiary Holdings to purchase Group’s common shares through open market transactions, privately negotiated transactions or both. The table below represents the amendments to the share repurchase program for the common shares approved for repurchase.

Common Shares
Authorized for
Amendment Date Repurchase
(Dollars in thousands)
09/21/2004 $ 5,000,000
07/21/2008 5,000,000
02/24/2010 5,000,000
02/22/2012 5,000,000
$ 20,000,000

		Common Shares
		Authorized for
Amendment Date		Repurchase
(Dollars in thousands)

09/21/2004		5,000,000
07/21/2008		5,000,000
02/24/2010		5,000,000
02/22/2012		5,000,000
		20,000,000

As of March 31, ~~2012,~~2013, Holdings held 9,719,971 common shares of Group, which it had purchased in the open market between February 1, 2007 and March 8, 2011. The table below represents the total purchase price for these common shares purchased.

(Dollars in thousands)
Total purchase price		$	835,371

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). The following table presents the dividends received on these common shares that are reported as net investment income in the consolidated statements of operations and comprehensive income (loss) for the period indicated.

	Three Months Ended				Three Months Ended
	March 31,				March 31,
(Dollars in thousands)	2012		2011		2013		2012
Dividends received	$	4,666	$	4,648	$	4,666	$	4,666

Outside Directors

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

Affiliated Companies

During the fourth quarter of 2011, the Company sold its subsidiaries, Everest Insurance Company of Canada (“Everest Canada”) and Premiere Insurance Underwriting Services (“Premiere”), to an affiliated company, Holdings Ireland. Holdings Ireland is a direct subsidiary of Group, the Company’s ultimate parent. The Company sold the subsidiaries to Holdings Ireland for $61,005 thousand, which was the book value of the subsidiaries as of September 30, 2011.

Everest Global Services, Inc. (“Global Services”), an affiliate of Holdings, provides centralized management and home office services, through a management agreement, to Holdings and other affiliated companies within Holdings’ consolidated structure. Services provided by Everest Global include executive managerial services, legal services, actuarial services, accounting services, information technology services and others.

~~Table of Contents~~

The following table presents the expenses incurred by Holdings from services provided by Everest Global for the periods indicated.

	Three Months Ended				Three Months Ended
	March 31,				March 31,
(Dollars in thousands)	2012		2011		2013		2012
Expenses incurred	$	18,134	$	15,077	$	18,555	$	18,134

Affiliates

The table below represents affiliated quota share reinsurance agreements ("whole account quota share") for all new and renewal business for the indicated coverage period:

(Dollars in thousands)
			Percent			Assuming		Single			Aggregate					Percent			Assuming		Single			Aggregate
Coverage Period		Ceding Company	Ceded			Company	Type of Business	Occurrence Limit			Limit				Ceding Company	Ceded			Company	Type of Business	Occurrence Limit			Limit

01/01/2002-12/31/2002		Everest Re		20.0	%	Bermuda Re	property / casualty business	$	-		$	-			Everest Re		20.0	%	Bermuda Re	property / casualty business	$	-		$	-

01/01/2003-12/31/2003		Everest Re		25.0	%	Bermuda Re	property / casualty business		-			-			Everest Re		25.0	%	Bermuda Re	property / casualty business		-			-

01/01/2004-12/31/2005		Everest Re		22.5	%	Bermuda Re	property / casualty business		-			-			Everest Re		22.5	%	Bermuda Re	property / casualty business		-			-
		Everest Re		2.5	%	Everest International	property / casualty business		-			-			Everest Re		2.5	%	Everest International	property / casualty business		-			-

01/01/2006-12/31/2006		Everest Re		18.0	%	Bermuda Re	property business		125,000	(1)		-			Everest Re		18.0	%	Bermuda Re	property business		125,000	(1)		-
		Everest Re		2.0	%	Everest International	property business		-			-			Everest Re		2.0	%	Everest International	property business		-			-

01/01/2006-12/31/2007		Everest Re		31.5	%	Bermuda Re	casualty business		-			-			Everest Re		31.5	%	Bermuda Re	casualty business		-			-
		Everest Re		3.5	%	Everest International	casualty business		-			-			Everest Re		3.5	%	Everest International	casualty business		-			-

01/01/2007-12/31/2007		Everest Re		22.5	%	Bermuda Re	property business		130,000	(1)		-			Everest Re		22.5	%	Bermuda Re	property business		130,000	(1)		-
		Everest Re		2.5	%	Everest International	property business		-			-			Everest Re		2.5	%	Everest International	property business		-			-

01/01/2008-12/31/2008		Everest Re		36.0	%	Bermuda Re	property / casualty business		130,000	(1)		275,000	(2)		Everest Re		36.0	%	Bermuda Re	property / casualty business		130,000	(1)		275,000	(2)
		Everest Re		4.0	%	Everest International	property / casualty business		-			-			Everest Re		4.0	%	Everest International	property / casualty business		-			-

01/01/2009-12/31/2009		Everest Re		36.0	%	Bermuda Re	property / casualty business		150,000	(1)		325,000	(2)		Everest Re		36.0	%	Bermuda Re	property / casualty business		150,000	(1)		325,000	(2)
		Everest Re		8.0	%	Everest International	property / casualty business		-			-			Everest Re		8.0	%	Everest International	property / casualty business		-			-

01/01/2010-12/31/2010		Everest Re		44.0	%	Bermuda Re	property / casualty business		150,000			325,000			Everest Re		44.0	%	Bermuda Re	property / casualty business		150,000			325,000

01/01/2011-12/31/2011		Everest Re		50.0	%	Bermuda Re	property / casualty business		150,000			300,000			Everest Re		50.0	%	Bermuda Re	property / casualty business		150,000			300,000

01/01/2012		Everest Re		50.0	%	Bermuda Re	property / casualty business		100,000			200,000			Everest Re		50.0	%	Bermuda Re	property / casualty business		100,000			200,000

01/01/2003-12/31/2006		Everest Re- Canadian Branch		50.0	%	Bermuda Re	property business		-			-			Everest Re- Canadian Branch		50.0	%	Bermuda Re	property business		-			-
01/01/2007-12/31/2009		Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		-			-			Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		-			-
01/01/2010-12/31/2010		Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		350,000			-			Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		350,000	(3)		-
01/01/2011-12/31/2011		Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		350,000			-			Everest Re- Canadian Branch		60.0	%	Bermuda Re	property business		350,000	(3)		-
01/01/2012		Everest Re- Canadian Branch		75.0	%	Bermuda Re	property / casualty business		220,000			440,000
01/01/2012-12/31/2012															Everest Re- Canadian Branch		75.0	%	Bermuda Re	property / casualty business		206,250	(3)		412,500	(3)
01/01/2013															Everest Re- Canadian Branch		75.0	%	Bermuda Re	property / casualty business		150,000	(3)		412,500	(3)

01/01/2012		Everest Canada		80.0	%	Everest Re- Canadian Branch	property business		-			-			Everest Canada		80.0	%	Everest Re- Canadian Branch	property business		-			-

(1) The single occurance limit is applied before the loss cessions to either Bermuda Re or Everest International.	(1) The single occurance limit is applied before the loss cessions to either Bermuda Re or Everest International.													(1) The single occurance limit is applied before the loss cessions to either Bermuda Re or Everest International.
(2) The aggregate limit is applied before the loss cessions to either Bermuda Re or Everest International.	(2) The aggregate limit is applied before the loss cessions to either Bermuda Re or Everest International.													(2) The aggregate limit is applied before the loss cessions to either Bermuda Re or Everest International.
(3) Amounts shown are Canadian dollars.														(3) Amounts shown are Canadian dollars.

~~Table of Contents~~

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 respect to new, renewal and in force policies effective on that date through December 31, 2002. The table below represents Bermuda Re's liability limits for any losses per one occurrence.

	Liability Limits
(Dollars in thousands)	Exceeding		Not to Exceed
Losses per one occurrence	$	100,000	$	150,000

The table below represents loss portfolio transfer reinsurance agreements whereby net insurance exposures and reserves were transferred to an affiliate.

(Dollars in thousands)

Effective	Transferring	Assuming	% of Business or			Covered Period
Date	Company	Company	Amount of Transfer			of Transfer

09/19/2000	Mt. McKinley	Bermuda Re		100	%	All years
10/01/2001	Everest Re (Belgium Branch)	Bermuda Re		100	%	All years
10/01/2008	Everest Re	Bermuda Re	$	747,022		01/01/2002-12/31/2007

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

	Three Months Ended
Bermuda Re	March 31,
(Dollars in thousands)	2013		2012
Ceded written premiums	$	477,131	$	399,068
Ceded earned premiums		454,382		398,032
Ceded losses and LAE (a)		231,531		256,375

Three Months Ended
Bermuda Re March 31,
(Dollars in thousands) 2012 2011
Ceded written premiums $ 399,068 $ 380,808
Ceded earned premiums 398,032 380,047
Ceded losses and LAE (a) 256,375 490,713

	Three Months Ended
Everest International	March 31,
(Dollars in thousands)	2013			2012
Ceded written premiums	$	(135	)	$	255
Ceded earned premiums		61			1,092
Ceded losses and LAE		40			(2,099	)

Three Months Ended
Everest International March 31,
(Dollars in thousands) 2012 2011
Ceded written premiums $ 255 $ 464
Ceded earned premiums 1,092 9,605
Ceded losses and LAE (2,099 ) 2,918

	Three Months Ended				Three Months Ended
Everest Canada	March 31,				March 31,
(Dollars in thousands)	2012		2011		2013		2012
Assumed written premiums	$	3,167	$	-	$	2,838	$	3,167
Assumed earned premiums		3,852		-		3,770		3,852
Assumed losses and LAE		2,311		-		2,226		2,311

(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 (loss).

Everest Re sold net assets of its UK 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.

~~Table of Contents~~

15. INCOME TAXES

The Company is domiciled in the United States and has subsidiaries domiciled within the United States with significant branches in Canada and Singapore. The Company’s non-U.S. branches are subject to income taxation at varying rates in their respective domiciles.

The Company generally will use the estimated annual effective tax rate approach for calculating its tax provision for interim periods as prescribed by ASC 740-270, Interim Reporting. Under the estimated annual effective tax rate approach, the estimated annual effective tax rate is applied to the interim year-to-date pre-tax income to determine the income tax expense or benefit for the year-to-date period. The tax expense or benefit for a quarter represents the difference between the year-to-date tax expense or benefit for the current year-to-date period less such amount for the immediately preceding year-to-date period. Management considers the impact of all known events in its estimation of the Company’s annual pre-tax income and effective tax rate.

During the first quarter of 2012, the Company identified an understatement in its Deferred tax asset account of $12,417 thousand. The understatement resulted from differences between filed and recorded amounts that had accumulated over several prior periods. The Company corrected this understatement in its March 31, 2012 financial statements, resulting in an additional $12,417 thousand income tax benefit included in the income tax expense (benefit) caption in the Consolidated Statements of Operations and Comprehensive Income (Loss) and increased net income for the same amount for the quarter ended March 31, 2012. The Company also increased its Deferred tax asset in its Consolidated Balance Sheets by the same amount. The Company believes that this out of period adjustment is immaterial to its March 31, 2012 financial statements and to all prior periods. As such, the Company has not restated any prior period amounts.

16. ~~ACQUISITIONS~~

~~During the first quarter of 2011, the Company made several acquisitions to expand its domestic and Canadian insurance operations. Below are descriptions of the transactions.~~

On January 2, 2011, the Company acquired the entire business and operations of Heartland Crop Insurance, Inc. (“Heartland”) of Topeka, Kansas for $55,000 thousand in cash, plus contingent payments in future periods based upon achievement of performance targets. Heartland is a managing general agent specializing in crop insurance.

On January 28, 2011, the Company acquired the entire business and operations of Premiere of Toronto, Canada. Premiere is a managing general agent specializing in entertainment and sports and leisure risks. On January 31, 2011, the Company acquired the renewal rights and operations of the financial lines business of Executive Risk Insurance Services, Ltd. (“Executive Risk”) of Toronto, Canada. The financial lines business of Executive Risk mainly underwrites Directors and Officers Liability, Fidelity, and Errors and Omissions Liability.

Overall, the Company recorded $35,068 thousand of goodwill and $26,903 thousand of intangible assets related to these acquisitions, which are reported as part of other assets within the consolidated balance sheets. All intangible assets recorded as part of these acquisitions will be amortized on a straight line basis over seven years.

~~17.~~ SUBSEQUENT EVENTS

The Company has ~~evaluated known recognized and non-recognized subsequent events. The Company does not have any subsequent events~~announced that on May 24, 2013, it will redeem at par value the $329,897 thousand of 6.2% junior subordinated debt securities that were due to ~~report.~~mature on May 29, 2034. Available funds primarily will be used for the redemption.

~~Table of Contents~~

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 sources of potential reinsurance and insurance capacity and competition.

Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the casualty lines of business. Generally, there was ample insurance and reinsurance capacity relative to demand. Competition and its effect on rates, terms and conditions vary widely by market and coverage yet continued to be most prevalent in the U.S. casualty insurance and reinsurance markets.

However, during ~~2011,~~the fourth quarter of 2012, the industry ~~experienced~~sustained significant losses from Superstorm Sandy and also sustained significant losses during 2011 from Australian floods, the New Zealand earthquake, the earthquake and tsunami in Japan, storms in the ~~U.S,~~U.S., and the Thailand floods. It is too early to determine the longer term impact on market conditions as a result of these events. While ~~there~~the 2011 events have ~~been~~resulted in meaningful rate increases for catastrophe coverages in some global catastrophe prone regions, particularly areas impacted by these losses, whether the magnitude of these 2012 and 2011 losses is sufficient to increase rates and improve market conditions for other lines of business remains to be seen.

Overall, we believe that current marketplace conditions, particularly for catastrophe coverages, provide 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.

~~Table of Contents~~

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), ratios and stockholder’s equity for the periods indicated:

	Three Months Ended						Percentage			Three Months Ended						Percentage
	March 31,						Increase/			March 31,						Increase/
(Dollars in millions)	2012			2011			(Decrease)			2013			2012			(Decrease)
Gross written premiums	$	857.2		$	886.4			-3.3	%	$	983.7		$	857.2			14.8	%
Net written premiums		427.4			460.1			-7.1	%		476.2			427.4			11.4	%

REVENUES:
Premiums earned	$	433.7		$	459.4			-5.6	%	$	448.0		$	433.7			3.3	%
Net investment income		81.2			87.1			-6.8	%		76.9			81.2			-5.4	%
Net realized capital gains (losses)		176.1			40.5		NM				309.8			176.1			75.9	%
Other income (expense)		(6.3	)		-		NM				(9.7	)		(6.3	)		54.5	%
Total revenues		684.8			587.0			16.7	%		825.0			684.8			20.5	%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		250.4			553.0			-54.7	%		268.6			250.4			7.3	%
Commission, brokerage, taxes and fees		87.5			88.5			-1.2	%		68.1			87.5			-22.1	%
Other underwriting expenses		39.5			38.2			3.4	%		43.5			39.5			10.1	%
Corporate expense		1.6			1.2			31.6	%		1.8			1.6			13.2	%
Interest, fee and bond issue cost amortization expense		12.7			12.7			0.1	%		12.6			12.7			-0.6	%
Total claims and expenses		391.7			693.6			-43.5	%		394.7			391.7			0.8	%

INCOME (LOSS) BEFORE TAXES		293.2			(106.6	)	NM				430.3			293.2			46.8	%
Income tax expense (benefit)		78.5			(9.1	)	NM				144.7			78.5			84.4	%
NET INCOME (LOSS)	$	214.7		$	(97.5	)	NM			$	285.7		$	214.7			33.0	%

RATIOS:							Point Change									Point Change
Loss ratio		57.7	%		120.4	%		(62.7	)		60.0	%		57.7	%		2.3
Commission and brokerage ratio		20.2	%		19.3	%		0.9			15.2	%		20.2	%		(5.0	)
Other underwriting expense ratio		9.1	%		8.3	%		0.8			9.7	%		9.1	%		0.6
Combined ratio		87.0	%		148.0	%		(61.0	)		84.9	%		87.0	%		(2.1	)


	At			At			Percentage			At			At			Percentage
	March 31,			December 31,			Increase/			March 31,			December 31,			Increase/
(Dollars in millions)		2012			2011		(Decrease)				2013			2012		(Decrease)
Balance sheet data:
Total investments and cash	$	8,673.3		$	8,396.3			3.3	%	$	9,370.4		$	9,075.5			3.3	%
Total assets		14,526.4			14,349.2			1.2	%		15,346.1			15,088.0			1.7	%
Loss and loss adjustment expense reserves		8,169.2			8,290.6			-1.5	%		7,945.0			8,143.1			-2.4	%
Total debt		818.1			818.1			0.0	%		818.2			818.2			0.0	%
Total liabilities		11,353.2			11,407.8			-0.5	%		11,591.9			11,609.3			-0.2	%
Stockholder's equity		3,173.1			2,941.4			7.9	%		3,754.2			3,478.6			7.9	%

(NM, not meaningful)

(Some amounts may not reconcile due to rounding.)

Revenues.

Premiums. Gross written premiums ~~decreased~~increased by ~~$29.2~~14.8% to $983.7 million ~~or 3.3%,~~for the three months ended March 31, 2013 compared to $857.2 million for the three months ended March 31, 2012, ~~compared to the three months ended March 31, 2011,~~ reflecting ~~a $64.2 million decrease in our insurance business, partially offset by a $35.0~~an $85.2 million increase in our reinsurance business and a $41.3 million increase in our insurance business. The ~~decrease~~increase in reinsurance premiums was primarily due to new business, increased participations on existing business and higher original rates on subject business. The increase in insurance premiums was primarily due to the ~~termination and runoff of several large casualty programs and a shift in the seasonality of reporting crop business that will be reflected in subsequent quarters, partially offset by~~ growth in ~~primary medical stop loss insurance. The increase in reinsurance premiums was due to new property business~~California workers compensation, crop and ~~higher renewal rates, particularly for catastrophe exposed risks, partially offset by lower reinstatement premiums in the current quarter.~~non-standard auto business. Net written premiums decreased by $32.7 million, or 7.1%, for the three months ended March 31, 2012 compared to the three months ended March 31, 2011. The decrease in net written premiums is primarily attributable to the decline in gross written premiums.

~~Table of Contents~~

~~Premiums earned decreased $25.7~~written premiums increased by 11.4% to $476.2 million ~~or 5.6%,~~for the three months ended March 31, 2013 compared to $427.4 million for the three months ended March 31, 2012, ~~compared~~which is consistent with the increase in gross written premiums. Premiums earned increased by 3.3% to $448.0 million for the three ~~month~~months ended March 31, ~~2011.~~2013 compared to $433.7 million for the three months ended March 31, 2012. The change in ~~net~~ premiums earned ~~is comparable with the decrease in~~relative to net written ~~premiums.~~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 decreased ~~$5.9~~by 5.4% to $76.9 million ~~or 6.8%, to~~for the three months ended March 31, 2013 compared with net investment income of $81.2 million for the three months ended March 31, 2012 compared with net investment income of $87.1 million for the three months ended March 31, 2011, primarily as a result of a $6.8 million decrease in investment income from our limited partnership investments.2012. Net pre-tax investment income, as a percentage of average invested assets was 3.7% for the three months ended March 31, 2013 compared to 4.0% for the three months ended March 31, ~~2012 compared to 4.4% for the three months ended March 31, 2011.~~2012. The ~~variance~~decline in ~~this~~income and yield was primarily the result of ~~fluctuations in our limited partnership income and to a lesser extent,~~ lower reinvestment rates for the fixed income ~~portfolio.~~portfolios, and decreased dividend income from equity investments, due to the partial liquidation of some mutual funds.

Net Realized Capital Gains (Losses). Net realized capital gains were $309.8 million and $176.1 million for the three months ended March 31, 2013 and ~~$40.5~~2012, respectively. Of the $309.8 million, there were $299.7 million of gains from fair value re-measurements and $10.1 million of net realized capital gains from sales on our fixed maturity and equity securities. The net realized capital gains of $176.1 million for the three months ended March 31, 2012 ~~and 2011, respectively. Of~~were the ~~$176.1 million, there were~~result of $152.8 million of gains from fair value re-measurements and $29.0 million of net realized capital gains from sales on our fixed maturity and equity securities, partially offset by $5.7 million of other-than-temporary impairments on our available for sale fixed maturity securities. The net realized capital gains of $40.5 million for the three months ended March 31, 2011 were the result of $66.0 million of gains of fair value re-measurements, partially offset by $13.6 million of other-than-temporary impairments and $11.9 million of net realized capital losses from sales on our fixed maturity and equity securities.

Other Income (Expense). We recorded other expense of ~~$6.3~~$9.7 million and ~~other income of $0.0~~$6.3 million for the three months ended March 31, ~~2012~~2013 and ~~2011,~~2012, respectively. The changes were primarily due to ~~fluctuations in the amortization of deferred gains on retroactive reinsurance agreements with affiliates and~~ fluctuations in currency exchange rates for the corresponding periods.

Claims and Expenses.

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

		Three Months Ended March 31,																						Three Months Ended March 31,
		Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/					Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)		Year			Pt Change				Years			Pt Change				Incurred			Pt Change					Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2012
Attritional (a)		$	235.4			54.2	%		$	1.8			0.4	%		$	237.2			54.6	%
2013
Attritional																								$	255.9			57.2	%		$	(1.6	)		-0.4	%		$	254.3			56.8	%
Catastrophes			15.0			3.5	%			(1.9	)		-0.4	%			13.1			3.1	%				-			0.0	%			14.3			3.2	%			14.3			3.2	%
A&E			-			0.0	%			0.1			0.0	%			0.1			0.0	%				-			0.0	%			-			0.0	%			-			0.0	%
Total		$	250.4			57.7	%		$	0.0			0.0	%		$	250.4			57.7	%
Total segment																								$	255.9			57.2	%		$	12.7			2.8	%		$	268.6			60.0	%

2011
Attritional (a)		$	256.5			55.9	%		$	(10.5	)		-2.3	%		$	246.0			53.6	%
2012
Attritional																								$	235.4			54.2	%		$	1.8			0.4	%		$	237.2			54.6	%
Catastrophes			304.3			66.2	%			2.7			0.6	%			307.0			66.8	%				15.0			3.5	%			(1.9	)		-0.4	%			13.1			3.1	%
A&E			-			0.0	%			-			0.0	%			-			0.0	%				-			0.0	%			0.1			0.0	%			0.1			0.0	%
Total		$	560.8			122.1	%		$	(7.8	)		-1.7	%		$	553.0			120.4	%
Total segment																								$	250.4			57.7	%		$	-			0.0	%		$	250.4			57.7	%

Variance 2012/2011
Attritional (a)		$	(21.1	)		(1.7	)	pts	$	12.3			2.7		pts	$	(8.8	)		1.0		pts
Variance 2013/2012
Attritional																								$	20.5			3.0		pts	$	(3.4	)		(0.8	)	pts	$	17.1			2.2		pts
Catastrophes			(289.3	)		(62.7	)	pts		(4.6	)		(1.0	)	pts		(293.9	)		(63.7	)	pts			(15.0	)		(3.5	)	pts		16.2			3.6		pts		1.2			0.1		pts
A&E			-			-		pts		0.1			-		pts		0.1			-		pts			-			-		pts		(0.1	)		-		pts		(0.1	)		-		pts
Total		$	(310.4	)		(64.4	)	pts	$	7.8			1.7		pts	$	(302.6	)		(62.7	)	pts
Total segment																								$	5.5			(0.5	)	pts	$	12.7			2.8		pts	$	18.2			2.3		pts

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

Incurred losses and LAE ~~decreased~~increased by ~~$302.6~~7.3% to $268.6 million ~~or 54.7%,~~for the three months ended March 31, 2013 compared to $250.4 million for the three months ended March 31, 2012, ~~compared~~representing 2.3 loss ratio points. The increase was mainly due to ~~the three months ended March 31, 2011. Of the $302.6 million decrease, current~~increased premiums in 2013 and prior year catastrophe losses represented $289.3 million, or 62.7 points, period over period, and attritional losses decreased $8.8 million due, in part, to lower earned premium in the current quarter and by improved margins, particularlydevelopment on ~~catastrophe exposed business, which generated lower attritional losses for the current quarter.~~Superstorm

~~Table~~

Sandy. Current year catastrophe losses were lower by $15.0 million, or 3.5 points, period over period. There were no current year catastrophe losses for the three months ended March 31, 2013. The $15.0 million of ~~Contents~~current year catastrophe losses for the three months ended March 31, 2012 related to U.S. storms. Current year attritional losses increased $20.5 million, representing 3.0 loss ratio points, due to increased premiums, the impact of changes in our affiliated quota share agreements and the effect of fluctuations in foreign currency.

Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees decreased by ~~$1.0~~22.1% to $68.1 million ~~or 1.2%,~~ for the three months ended March 31, ~~2012~~2013 compared to $87.5 million for the ~~same period~~three months ended March 31, 2012. The three months ended March 31, 2013 decrease is due primarily to an increase in ~~2011. The variance was primarily the result~~excess of loss business which carries a lower ~~premiums earned, fewer deferred expenses~~commission than pro rata business, and ~~fluctuations~~growth in ~~the mix of business.~~crop insurance on a direct distribution basis, which has lower acquisition costs.

Other Underwriting Expenses. Other underwriting expenses ~~increased slightly to~~were $43.5 million and $39.5 ~~million from $38.2~~ million for the three months ended March 31, 2013 and 2012, ~~and 2011, respectively,~~respectively. The increase in other underwriting expense was mainly due to higher ~~employee benefit plan~~compensation expenses.

Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were ~~$1.6~~$1.8 million and ~~$1.2~~$1.6 million for the three months ended March 31, ~~2012~~2013 and ~~2011,~~2012, respectively.

Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense was $12.6 million and $12.7 million for the three months ended March 31, 2013 and 2012, ~~and 2011.~~respectively.

Income Tax Expense (Benefit). ~~We had an income~~Income tax expense ~~of $78.5~~was $144.7 million and ~~an income tax benefit of $9.1~~$78.5 million for the three months ended March 31, ~~2012~~2013 and ~~2011,~~2012, respectively. Our income tax is primarily a function of the statutory tax rates coupled with the impact from tax-preferenced investment income. Variations in our effective tax rate generally result from changes in the relative levels of pre-tax income. The increases in tax expense were mainly due to the increase in ~~tax year over year was primarily attributable to the impact on 2011~~ taxable income resulting from ~~the previously mentioned catastrophe losses partially mitigated by a~~higher underwriting income and net capital gains in 2013. The 2012 income tax ~~reduction in the first quarter of 2012~~expense also reflects tax benefit of $12.4 million realized due to ~~correction~~corrections of understatement in the deferred tax asset account.

Net Income (Loss).

Our net income was ~~$214.7~~$285.7 million and ~~our net loss was $97.5~~$214.7 million for the three months ended March 31, ~~2012~~2013 and ~~2011,~~2012, respectively. The increase was primarily driven by the ~~decline in catastrophe losses in 2012 compared to the prior period.~~financial component fluctuations explained above.

Ratios.

Our combined ratio decreased by ~~61.0~~2.1 points to 84.9% for the three months ended March 31, 2013 compared to 87.0% for the three months ended March 31, ~~2012 compared to 148.0% for the three months ended March 31, 2011.~~2012. The loss ratio component ~~decreased 62.7~~increased 2.3 points for the three months ended March 31, ~~2012~~2013 over the same period last year due mainly to the impact of changes in our affiliated quota share agreements and the effect of fluctuations in foreign currency. The commission and brokerage ratio component decreased 5.0 points over the same period last year due to an increase in excess of loss business which carries a lower ~~catastrophe losses.~~commission than pro rata business, and growth in crop insurance on a direct distribution basis, which has lower acquisition costs. The other underwriting expense ratio component ~~and the commission and brokerage ratio component both~~ increased slightly ~~over~~from the same period last year due to ~~the increase in expenses explained above.~~higher compensation costs.

Stockholder's Equity.

Stockholder's equity increased by ~~$231.8~~$275.6 million to ~~$3,173.1~~$3,754.2 million at March 31, ~~2012~~2013 from ~~$2,941.4~~$3,478.6 million at December 31, ~~2011,~~2012, principally as a result of ~~$214.7~~$285.7 million of net income, ~~$9.1 million of unrealized appreciation on investments, net of tax, $5.3 million of foreign currency translation adjustments, $1.6~~$3.2 million of share-based compensation transactions and ~~$1.0~~$1.3 million of net benefit plan obligation ~~adjustments.~~adjustments, partially offset by $7.6 million of net foreign currency translation adjustments and $7.0 million of net unrealized depreciation on investments.

Consolidated Investment Results

Net Investment Income.

Net investment income decreased ~~6.8%~~5.4% to $76.9 million for the three months ended March 31, 2013 compared to $81.2 million for the three months ended March 31, ~~2012 compared to $87.1 million for the three months ended March 31, 2011,~~2012. The decrease was primarily due to ~~a decrease in income from our limited partnership investments and~~ a decline in income from our fixed maturities, reflective of ~~reducing our municipal bond exposures and~~ declining reinvestment ~~rates. These decreases were partially offset by increased dividend income from~~rates, and equities, due to ~~our expanded public equity portfolio and emerging market debt~~the partial liquidation of some mutual funds.

~~Table of Contents~~

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

	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Dollars in millions)	2012			2011			2013			2012
Fixed maturities	$	54.8		$	60.6		$	54.0		$	54.8
Equity securities		10.3			5.2			7.7			10.3
Short-term investments and cash		0.1			0.2			0.3			0.1
Other invested assets
Limited partnerships		11.6			18.4			11.3			11.6
Dividends from Parent's shares		4.7			4.6
Dividend from Parent								4.7			4.7
Other		1.5			0.6			2.3			1.5
Total gross investment income		83.1			89.7
Interest debited (credited) and other expense		(1.8	)		(2.5	)
Total net investment income	$	81.2		$	87.1
(Some amounts may not reconcile due to rounding.)
Gross investment income before adjustments								80.2			83.1
Funds held interest income (expense)								2.4			1.9
Future policy benefit reserve income (expense)								-			-
Gross investment income								82.6			85.0
Investment expenses								(5.8	)		(3.8	)
Net investment income							$	76.9		$	81.2

(Some amounts may not reconcile due to rounding)

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

	At	At	At	At
	March 31,	December 31,	March 31,	December 31,
	2012	2011	2013	2012
Imbedded pre-tax yield of cash and invested assets	3.5%	3.6%	3.3%	3.4%
Imbedded after-tax yield of cash and invested assets	2.6%	2.7%	2.4%	2.4%

Three Months Ended
March 31,
2012 2011
Annualized pre-tax yield on average cash and invested assets 4.0% 4.4%
Annualized after-tax yield on average cash and invested assets 2.9% 3.4%

	Three Months Ended
	March 31,
	2013	2012
Annualized pre-tax yield on average cash and invested assets	3.7%	4.0%
Annualized after-tax yield on average cash and invested assets	2.6%	2.9%

~~Table of Contents~~

Net Realized Capital Gains (Losses).

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

	Three Months Ended March 31,									Three Months Ended March 31,
(Dollars in millions)	2012			2011			Variance			2013			2012			Variance
Gains (losses) from sales:
Fixed maturity securities, market value
Gains	$	3.6		$	14.1		$	(10.5	)	$	3.7		$	3.6		$	0.1
Losses		(2.1	)		(26.4	)		24.3			(1.6	)		(2.1	)		0.5
Total		1.5			(12.3	)		13.8			2.1			1.5			0.6

Fixed maturity securities, fair value
Gains		5.4			0.2			5.2
Losses		(0.2	)		(1.7	)		1.5
Total		5.2			(1.5	)		6.7

Equity securities, market value
Gains		-			0.2			(0.2	)		0.1			5.4			(5.3	)
Losses		-			(0.2	)		0.2			(0.2	)		(0.2	)		-
Total		-			-			-			(0.1	)		5.2			(5.3	)

Equity securities, fair value
Gains		26.8			2.2			24.6			8.9			26.8			(17.9	)
Losses		(4.5	)		(0.3	)		(4.2	)		(0.8	)		(4.5	)		3.7
Total		22.3			1.9			20.4			8.1			22.3			(14.2	)

Total net realized gains (losses) from sales
Gains		35.8			16.7			19.1			12.7			35.8			(23.1	)
Losses		(6.8	)		(28.6	)		21.8			(2.6	)		(6.8	)		4.2
Total		29.0			(11.9	)		40.9			10.1			29.0			(18.9	)

Other-than-temporary impairments:		(5.7	)		(13.6	)		7.9
Other than temporary impairments:											-			(5.7	)		5.7

Gains (losses) from fair value adjustments:
Fixed maturities, fair value		3.0			(3.5	)		6.5			0.1			3.0			(2.9	)
Equity securities, fair value		67.8			38.1			29.7			106.1			67.8			38.3
Other invested assets, fair value		81.9			31.4			50.5			193.5			81.9			111.6
Total		152.8			66.0			86.8			299.7			152.8			146.9

Total net realized capital gains (losses)	$	176.1		$	40.5		$	135.6
Total net realized gains (losses)										$	309.8		$	176.1		$	133.7

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

Net realized capital gains were ~~$176.1~~$309.8 million and ~~$40.5~~$176.1 million for the three months ended March 31, 2013 and 2012, respectively. For the three months ended March 31, 2013, we recorded $299.7 million of gains due to fair value re-measurements on fixed maturity, equity securities and ~~2011, respectively.~~other invested assets and $10.1 million of net realized capital gains from sales of fixed maturity and equity securities. The fixed maturity and equity sales for the three months ended March 31, 2013 related primarily to adjusting the portfolios for overall market changes and individual credit shifts. For the three months ended March 31, 2012, we recorded $152.8 million of gains due to fair value re-measurements on fixed maturity and equity securities and other invested assets and $29.0 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $5.7 million of other-than-temporary impairments on fixed maturity securities. For the three months ended March 31, 2011, we recorded $66.0 million in gains due to fair value re-measurements on fixed maturity and equity securities and other invested assets, partially offset by $13.6 million of other-than-temporary impairments on fixed maturity securities and $11.9 million of net realized capital losses from sales of fixed maturity and equity securities. The gains and losses on the sales of fixed maturity securities during the first quarter of 2011 included the impact of selling part of our municipal bond portfolio as credit concerns arose in this market sector.

~~Table of Contents~~

Segment Results.

During the quarter ended September 30, 2011, we realigned our reporting segments to reflect recent changes in the type and volume of business written. We previously reported the results of Marine & Aviation, Surety, A&H Reinsurance and A&H Primary operations as a separate segment—Specialty Underwriting. The A&H primary business, which is a relatively new line of business for us, has increased significantly, representing approximately 2% of premiums earned and is projected to continue to grow. The A&H primary business is better aligned with the Insurance reporting segment based on the similarities of this business with those businesses already reflected in the Insurance segment. The other operating units included in the Specialty Underwriting segment would have encompassed less than 5% of our premiums earned and their volume is projected to remain approximately 6%. As a result of the size of these remaining operating units and their similarity to the business reported within U.S. Reinsurance, they have been reclassified to the U.S. Reinsurance segment. There has been no change to the International reporting segment. We have restated all segment information for prior years to conform to the new reporting segment structure.

The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S. The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada, Singapore and through offices in Brazil, Miami and New Jersey. The Insurance operation writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S and Canada. ~~The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada, Singapore and through offices in Brazil, Miami and New Jersey.~~

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

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

~~Table of Contents~~

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

U.S. Reinsurance.

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

	Three Months Ended March 31,												Three Months Ended March 31,
(Dollars in millions)	2012			2011			Variance			% Change			2013			2012			Variance			% Change
Gross written premiums	$	369.5		$	306.1		$	63.4			20.7	%	$	434.8		$	369.5		$	65.3			17.7	%
Net written premiums		187.2			165.1			22.2			13.4	%		217.6			187.2			30.4			16.2	%

Premiums earned	$	183.9		$	175.7		$	8.2			4.7	%	$	196.9		$	183.9		$	13.1			7.1	%
Incurred losses and LAE		109.7			142.6			(32.8	)		-23.0	%		101.2			109.7			(8.6	)		-7.8	%
Commission and brokerage		45.2			43.8			1.4			3.3	%		38.1			45.2			(7.0	)		-15.6	%
Other underwriting expenses		10.8			9.9			0.8			8.6	%		10.5			10.8			(0.2	)		-2.0	%
Underwriting gain (loss)	$	18.2		$	(20.6	)	$	38.7			-188.5	%	$	47.1		$	18.2		$	28.9			158.9	%

										Point Chg												Point Chg
Loss ratio		59.7	%		81.2	%					(21.5	)		51.4	%		59.7	%					(8.3	)
Commission and brokerage ratio		24.6	%		24.9	%					(0.3	)		19.4	%		24.6	%					(5.2	)
Other underwriting expense ratio		5.8	%		5.6	%					0.2			5.3	%		5.8	%					(0.5	)
Combined ratio		90.1	%		111.7	%					(21.6	)		76.1	%		90.1	%					(14.0	)

(Some amounts may not reconcile due to rounding.)

Premiums. Gross written premiums increased by ~~20.7%~~17.7% to $434.8 million for the three months ended March 31, 2013 from $369.5 million for the three months ended March 31, 2012, ~~from $306.1~~primarily due to new business opportunities, particularly for contracts with catastrophe exposed risks, and higher subject premium on casualty quota share business as rates began to rise in these markets. Net written premiums increased 16.2% to $217.6 million for the three months ended March 31, 2011, primarily due to increased reinsurance premiums for treaty property business arising from new business and rate increases on renewals, particularly for catastrophe exposed risks, partially offset by the portfolio shift from pro rata to excess of loss contracts and lower reinstatement premiums. Net written premiums increased 13.4%2013 compared to $187.2 million for the three months ended March 31, 2012, ~~compared~~which is in line with the increase in gross written premiums. Premiums earned increased 7.1% to ~~$165.1~~$196.9 million for the three months ended March 31, ~~2011, which reflects the increase in gross written premiums for the quarter, partially offset by increased cessions under the affiliated quota share agreement. Premiums earned increased 4.7%~~2013 compared to $183.9 million for the three months ended March 31, ~~2012 compared to $175.7 million for the three months ended March 31, 2011.~~2012. 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.

~~Table of Contents~~

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

		Three Months Ended March 31,																						Three Months Ended March 31,
		Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/					Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)		Year			Pt Change				Years			Pt Change				Incurred			Pt Change					Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2013
Attritional																								$	88.3			44.9	%		$	(2.3	)		-1.2	%		$	86.1			43.7	%
Catastrophes																									-			0.0	%			15.1			7.7	%			15.1			7.7	%
A&E																									-			0.0	%			-			0.0	%			-			0.0	%
Total segment																								$	88.3			44.9	%		$	12.9			6.5	%		$	101.2			51.4	%

2012
Attritional		$	94.7			51.5	%		$	4.3			2.4	%		$	99.0			53.8	%			$	94.7			51.5	%		$	4.3			2.4	%		$	99.0			53.8	%
Catastrophes			15.0			8.2	%			(4.4	)		-2.4	%			10.6			5.8	%				15.0			8.2	%			(4.4	)		-2.4	%			10.6			5.8	%
A&E			-			0.0	%			0.1			0.1	%			0.1			0.1	%				-			0.0	%			0.1			0.1	%			0.1			0.1	%
Total segment		$	109.7			59.7	%		$	-			0.1	%		$	109.7			59.7	%			$	109.7			59.7	%		$	-			0.1	%		$	109.7			59.7	%

2011
Attritional		$	86.4			49.3	%		$	(2.4	)		-1.4	%		$	84.0			47.9	%
Catastrophes			57.8			32.9	%			0.8			0.4	%			58.6			33.3	%
A&E			-			0.0	%			-			0.0	%			-			0.0	%
Total segment		$	144.2			82.2	%		$	(1.6	)		-1.0	%		$	142.6			81.2	%

Variance 2012/2011
Variance 2013/2012
Attritional		$	8.3			2.2		pts	$	6.7			3.8		pts	$	15.0			6.0		pts		$	(6.4	)		(6.6	)	pts	$	(6.6	)		(3.6	)	pts	$	(12.9	)		(10.1	)	pts
Catastrophes			(42.8	)		(24.7	)	pts		(5.2	)		(2.8	)	pts		(48.0	)		(27.5	)	pts			(15.0	)		(8.2	)	pts		19.5			10.1		pts		4.5			1.9		pts
A&E			-			-		pts		0.1			0.1		pts		0.1			0.1		pts			-			-		pts		(0.1	)		(0.1	)	pts		(0.1	)		(0.1	)	pts
Total segment		$	(34.5	)		(22.5	)	pts	$	1.6			1.1		pts	$	(32.8	)		(21.5	)	pts		$	(21.4	)		(14.8	)	pts	$	12.9			6.4		pts	$	(8.6	)		(8.3	)	pts

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

Incurred losses ~~were $32.8~~decreased 7.8% to $101.2 million ~~(21.5 points) lower at~~for the three months ended March 31, 2013 compared to $109.7 million for the three months ended March 31, 2012, ~~compared~~primarily due to ~~$142.6~~a $15.0 million (8.2 points) decrease in current year catastrophes and a decrease in current year attritional losses of $6.4 million (6.6 points), partially offset by the $19.5 million (10.1 points) increase in prior year catastrophe losses. The current year attritional losses decreased due primarily to a shift in business to excess of loss contracts which generally have lower attritional losses than pro rata contracts. The $15.0 million of current year catastrophe losses for the three months ended March 31, ~~2011, primarily as a result of the $42.8 million (24.7 points) decrease~~2012 related to U.S. storm losses ($15.0 million). The increase in ~~current~~prior year catastrophe ~~losses. Conversely, the current year attritional~~ losses ~~increased $8.3 million (2.2 points), primarily due~~mainly related to ~~the increase in earned premiums and a large marine loss.~~development on Superstorm Sandy.

Segment Expenses. Commission and brokerage expenses ~~increased 3.3%~~decreased 15.6% to $38.1 million for the three months ended March 31, 2013 compared to $45.2 million for the three months ended March 31, ~~2012 compared to $43.8 million for the three months ended March 31, 2011,~~2012. This variance was primarily due to the ~~increase in premiums earned and a lower expense deferral percentage, partially offset by a~~ shift in the mix of business towards excess of loss contracts which ~~carries a~~generally carry lower commission ~~ratio.~~expense than pro rata contracts. Segment other underwriting expenses ~~increased~~decreased slightly to $10.5 million for the three months ended March 31, 2013 compared to $10.8 million for the same period in 2012.

International.

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

	Three Months Ended March 31,
(Dollars in millions)	2013			2012			Variance			% Change
Gross written premiums	$	300.4		$	280.5		$	19.9			7.1	%
Net written premiums		133.8			136.3			(2.5	)		-1.9	%

Premiums earned	$	141.9		$	147.8		$	(5.9	)		-4.0	%
Incurred losses and LAE		82.1			64.6			17.4			27.0	%
Commission and brokerage		28.1			31.8			(3.7	)		-11.5	%
Other underwriting expenses		7.9			6.7			1.2			17.7	%
Underwriting gain (loss)	$	23.8		$	44.7		$	(20.9	)		-46.8	%

										Point Chg
Loss ratio		57.8	%		43.7	%					14.1
Commission and brokerage ratio		19.8	%		21.5	%					(1.7	)
Other underwriting expense ratio		5.6	%		4.6	%					1.0
Combined ratio		83.2	%		69.8	%					13.4

(Some amounts may not reconcile due to rounding.)

Premiums. Gross written premiums increased by 7.1% to $300.4 million for the three months ended March 31, 2013 compared to $280.5 million for the three months ended March 31, 2012, ~~compared~~primarily due to ~~$9.9~~an increase in new business and higher premium rates on renewals, particularly for contracts with catastrophe exposed risks. Net written premiums decreased by 1.9% to $133.8 million for the ~~same period~~three months ended March 31, 2013 compared to $136.3 million for the three months ended March 31, 2012, primarily due to the impact of changes in ~~2011.~~our affiliated quota share agreements. Premiums earned decreased by 4.0% to $141.9 million for the three months ended March 31, 2013 compared to $147.8 million for the three months ended March 31, 2012. The change in premiums earned is comparable to the change in net written premiums.

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

	Three Months Ended March 31,
	Current		Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred			Pt Change
2013
Attritional	$	87.1		61.4	%		$	(4.2	)		-3.0	%		$	82.9			58.4	%
Catastrophes		-		0.0	%			(0.8	)		-0.6	%			(0.8	)		-0.6	%
Total segment	$	87.1		61.4	%		$	(5.0	)		-3.6	%		$	82.1			57.8	%

2012
Attritional	$	65.1		44.0	%		$	(3.0	)		-2.0	%		$	62.1			42.0	%
Catastrophes		-		0.0	%			2.5			1.7	%			2.5			1.7	%
Total segment	$	65.1		44.0	%		$	(0.5	)		-0.3	%		$	64.6			43.7	%

Variance 2013/2012
Attritional	$	22.0		17.4		pts	$	(1.2	)		(1.0	)	pts	$	20.8			16.4		pts
Catastrophes		-		-		pts		(3.3	)		(2.3	)	pts		(3.3	)		(2.3	)	pts
Total segment	$	22.0		17.4		pts	$	(4.5	)		(3.3	)	pts	$	17.4			14.1		pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased 27.0% to $82.1 million for the three months ended March 31, 2013 compared to $64.6 million for the three months ended March 31, 2012, representing 14.1 loss ratio points. Current years’ attritional losses increased by $22.0 million due primarily to the impact of changes in our affiliated quota share agreements and the effect of fluctuations in foreign currency.

Segment Expenses. Commission and brokerage expenses decreased 11.5% to $28.1 million for the three months ended March 31, 2013 compared to $31.8 million for the three months ended March 31, 2012. This decrease is mainly due to the shift in the mix of business towards property catastrophe and excess of loss business which have lower commission rates. Segment other underwriting expenses increased to $7.9 million for the three months ended March 31, 2013 compared to $6.7 million for the three months ended March 31, 2012. The increases relate to higher compensation costs.

Insurance.

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

	Three Months Ended March 31,												Three Months Ended March 31,
(Dollars in millions)	2012			2011			Variance			% Change			2013			2012			Variance			% Change
Gross written premiums	$	207.2		$	271.5		$	(64.2	)		-23.7	%	$	248.6		$	207.2		$	41.3			19.9	%
Net written premiums		103.8			136.9			(33.1	)		-24.2	%		124.8			103.8			20.9			20.2	%

Premiums earned	$	102.1		$	117.2		$	(15.1	)		-12.9	%	$	109.2		$	102.1		$	7.1			7.0	%
Incurred losses and LAE		76.0			91.6			(15.6	)		-17.0	%		85.4			76.0			9.4			12.3	%
Commission and brokerage		10.6			7.6			2.9			38.2	%		1.9			10.6			(8.7	)		-82.1	%
Other underwriting expenses		22.0			21.9			0.1			0.7	%		25.1			22.0			3.0			13.8	%
Underwriting gain (loss)	$	(6.5	)	$	(3.9	)	$	(2.6	)		65.7	%	$	(3.1	)	$	(6.5	)	$	3.4			-51.9	%

										Point Chg												Point Chg
Loss ratio		74.5	%		78.2	%					(3.7	)		78.2	%		74.5	%					3.7
Commission and brokerage ratio		10.3	%		6.5	%					3.8			1.7	%		10.3	%					(8.6	)
Other underwriting expense ratio		21.6	%		18.7	%					2.9			23.0	%		21.6	%					1.4
Combined ratio		106.4	%		103.4	%					3.0			102.9	%		106.4	%					(3.5	)

(Some amounts may not reconcile due to rounding.)

~~Table of Contents~~

Premiums. Gross written premiums ~~decreased~~increased by ~~23.7%~~19.9% to $248.6 million for the three months ended March 31, 2013 compared to $207.2 million for the three months ended March 31, ~~2012 compared~~2012. This increase was primarily driven by California workers compensation, crop and non-standard auto business. Net written premiums increased 20.2% to ~~$271.5~~$124.8 million for the three months ended March 31, 2011. This decrease was primarily driven by the termination and runoff of several large casualty programs and lower crop premium due to a shift in the seasonality of reporting this business, partially offset by an increase in A&H primary business. Net written premiums decreased 24.2%2013 compared to $103.8 million for the three months ended March 31, 2012, ~~compared to $136.9 million for~~which is consistent with the ~~same period~~change in ~~2011 due to the lower~~ gross written premiums. Premiums earned ~~decreased 12.9%~~increased 7.0% to $109.2 million for the three months ended March 31, 2013 compared to $102.1 million for the three months ended March 31, ~~2012 compared to $117.2 million for the three months ended March 31, 2011.~~2012. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Incurred Losses and LAE. The following table presents the incurred losses and LAE for the Insurance segment for the periods indicated.

		Three Months Ended March 31,																						Three Months Ended March 31,
		Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/					Current		Ratio %/				Prior		Ratio %/				Total		Ratio %/
(Dollars in millions)		Year			Pt Change				Years			Pt Change				Incurred			Pt Change					Year		Pt Change				Years		Pt Change				Incurred		Pt Change
2013
Attritional																								$	80.5		73.7	%		$	4.9		4.5	%		$	85.4		78.2	%
Catastrophes																									-		0.0	%			-		0.0	%			-		0.0	%
Total segment																								$	80.5		73.7	%		$	4.9		4.5	%		$	85.4		78.2	%

2012
Attritional		$	75.5			74.0	%		$	0.5			0.5	%		$	76.0			74.5	%			$	75.5		74.0	%		$	0.5		0.5	%		$	76.0		74.5	%
Catastrophes			-			0.0	%			-			0.0	%			-			0.0	%				-		0.0	%			-		0.0	%			-		0.0	%
Total segment		$	75.5			74.0	%		$	0.5			0.5	%		$	76.0			74.5	%			$	75.5		74.0	%		$	0.5		0.5	%		$	76.0		74.5	%

2011
Attritional		$	95.8			81.8	%		$	(4.2	)		-3.6	%		$	91.6			78.2	%
Catastrophes			-			0.0	%			-			0.0	%			-			0.0	%
Total segment		$	95.8			81.8	%		$	(4.2	)		-3.6	%		$	91.6			78.2	%

Variance 2012/2011
Variance 2013/2012
Attritional		$	(20.3	)		(7.8	)	pts	$	4.7			4.1		pts	$	(15.6	)		(3.7	)	pts		$	5.0		(0.3	)	pts	$	4.4		4.0		pts	$	9.4		3.7		pts
Catastrophes			-			-		pts		-			-		pts		-			-		pts			-		-		pts		-		-		pts		-		-		pts
Total segment		$	(20.3	)		(7.8	)	pts	$	4.7			4.1		pts	$	(15.6	)		(3.7	)	pts		$	5.0		(0.3	)	pts	$	4.4		4.0		pts	$	9.4		3.7		pts

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

Incurred losses and LAE ~~decreased~~increased by ~~$15.6~~12.3% to $85.4 million ~~or 17.0%,~~for the three months ended March 31, 2013 compared to $76.0 million for the three months ended March 31, ~~2012 compared to $91.6 million for the three months ended March 31, 2011.~~2012. This variance was mainly due to ~~a decrease~~an increase of ~~$20.3~~$9.4 million in attritional losses resulting primarily from higher premium and the impact of changes in our affiliated quota share agreements. Despite higher current year attritional losses, ~~driven~~the current year attritional loss ratio declined by ~~the decline in premiums earned and a shift~~0.3 points due to improvement in the ~~mix~~attritional loss ratio on workers compensation business and the benefit of ~~business towards short-tail business with lower loss ratios.~~compounding rate increases.

Segment Expenses. Commission and brokerage expenses ~~increased~~decreased 82.1% to $1.9 million for the three months ended March 31, 2013 compared to $10.6 million for the three months ended March 31, 2012, ~~compared to $7.6 million for the three months ended March 31, 2011 reflecting the adoption of new accounting standards concerning the accounting for commission~~driven by growth in direct distribution business, which has lower acquisition costs and ~~variation~~changes in ~~cessions under the~~our affiliated quota share ~~agreement.~~agreements. Segment other underwriting expenses for the three months ended March 31, ~~2012~~2013 increased to ~~$22.0~~$25.1 million from ~~$21.9 million for the three months ended March 31, 2011.~~

~~Table of Contents~~

~~International.~~

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

Three Months Ended March 31,
(Dollars in millions) 2012 2011 Variance % Change
Gross written premiums $ 280.5 $ 308.8 $ (28.4 ) -9.2 %
Net written premiums 136.3 158.1 (21.8 ) -13.8 %

Premiums earned $ 147.8 $ 166.5 $ (18.7 ) -11.2 %
Incurred losses and LAE 64.6 318.8 (254.2 ) -79.7 %
Commission and brokerage 31.8 37.1 (5.4 ) -14.4 %
Other underwriting expenses 6.7 6.4 0.3 4.7 %
Underwriting gain (loss) $ 44.7 $ (195.9 ) $ 240.5 -122.8 %

Point Chg
Loss ratio 43.7 % 191.5 % (147.8 )
Commission and brokerage ratio 21.5 % 22.3 % (0.8 )
Other underwriting expense ratio 4.6 % 3.8 % 0.8
Combined ratio 69.8 % 217.6 % (147.8 )

(Some amounts may not reconcile due to rounding.)

~~Premiums.~~ ~~Gross written premiums decreased by 9.2% to $280.5~~$22.0 million for the three months ended March 31, 2012 ~~compared~~due primarily to $308.8 million for the three months ended March 31, 2011, primarily due to a reduction in proportional property business starting in 2011 and continuing into 2012, particularly in regions recently affected by catastrophe losses. Net written premiums decreased by 13.8% to $136.3 million for the three months ended March 31, 2012 compared to $158.1 million for the three months ended March 31, 2011, primarily due to a decrease in gross writtenincreased premiums and a change in our affiliated quota share agreement. Premiums earned decreased by 11.2% to $147.8 million for the three months ended March 31, 2012 compared to $166.5 million for the three months ended March 31, 2011. The change in premiums is relatively comparable with the decrease in net written premiums.

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

Three Months Ended March 31,
Current Ratio %/ Prior Ratio %/ Total Ratio %/
(Dollars in millions) Year Pt Change Years Pt Change Incurred Pt Change
2012
Attritional $ 65.1 44.0 % $ (3.0 ) -2.0 % $ 62.1 42.0 %
Catastrophes - 0.0 % 2.5 1.7 % 2.5 1.7 %
Total segment $ 65.1 44.0 % $ (0.5 ) -0.3 % $ 64.6 43.7 %

2011
Attritional $ 74.2 44.6 % $ (3.9 ) -2.3 % $ 70.3 42.3 %
Catastrophes 246.5 148.0 % 2.0 1.2 % 248.5 149.2 %
Total segment $ 320.7 192.6 % $ (1.9 ) -1.1 % $ 318.8 191.5 %

Variance 2012/2011
Attritional $ (9.1 ) (0.6 ) pts $ 0.9 0.3 pts $ (8.2 ) (0.3 ) pts
Catastrophes (246.5 ) (148.0 ) pts 0.5 0.5 pts (246.0 ) (147.5 ) pts
Total segment $ (255.6 ) (148.6 ) pts $ 1.4 0.8 pts $ (254.2 ) (147.8 ) pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE decreased 79.7% to $64.6 million for the three months ended March 31, 2012 compared to $318.8 million for the three months ended March 31, 2011. The decrease was principally due to a $246.5 million (148.0 points) decrease in current year catastrophes. Current years’ attritional losses decreased by $9.1 million due to a decrease in premiums earned and a shift in mix of business towards property catastrophe and excess of loss business, which generally carries a lower loss ratio.

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~~Segment Expenses.~~ Commission and brokerage expenses decreased 14.4% to $31.8 million for the three months ended March 31, 2012 compared to $37.1 million for the three months ended March 31, 2011. These variances were principally due to a decrease in premiums earned, a lower expense deferral percentage and a shift in the mix of business. Segment other underwriting expenses increased slightly to $6.7 million for the three months ended March 31, 2012 compared to $6.4 million for the three months ended March 31, 2011.higher compensation costs.

Market Sensitive Instruments.

The SEC’s 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.

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 ~~$8.7~~$9.4 billion investment portfolio, at March 31, ~~2012,~~2013, 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 and some foreign exchange rate risk. The overall economic 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 securities portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the ~~$574.6~~$818.3 million of mortgage-backed securities in the ~~$5,223.1~~$5,647.6 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.

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The table below ~~displays~~display the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including ~~$646.2~~$381.8 million of short-term investments) for the periods 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 various interest rate change scenarios.

	Impact of Interest Rate Shift in Basis Points															Impact of Interest Rate Shift in Basis Points
	At March 31, 2012															At March 31, 2013
(Dollars in millions)		-200			-100			0			100			200			-200			-100			0			100			200
Total Market/Fair Value	$	6,134.8		$	6,005.5		$	5,869.3		$	5,719.3		$	5,561.8		$	6,314.8		$	6,175.2		$	6,029.4		$	5,871.1		$	5,703.9
Market/Fair Value Change from Base (%)		4.5	%		2.3	%		0.0	%		-2.6	%		-5.2	%		4.7	%		2.4	%		0.0	%		-2.6	%		-5.4	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	172.6		$	88.5		$	-		$	(97.5	)	$	(199.9	)	$	185.5		$	94.8		$	-		$	(102.9	)	$	(211.6	)

We had ~~$8,169.2~~$7,945.0 million and ~~$8,290.6~~$8,143.1 million of gross reserves for losses and LAE as of March 31, ~~2012~~2013 and December 31, ~~2011,~~2012, 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 include 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 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.~~securities. The primary objective of the equity portfolio is to obtain greater total return relative to bonds over time through market appreciation and income.

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

	Impact of Percentage Change in Equity Fair/Market Values												Impact of Percentage Change in Equity Fair/Market Values
	At March 31, 2012												At March 31, 2013
(Dollars in millions)		-20%			-10%			0%		10%		20%		-20%			-10%			0%		10%		20%
Fair/Market Value of the Equity Portfolio	$	930.9		$	1,047.3		$	1,163.6	$	1,280.0	$	1,396.4	$	1,064.6		$	1,197.6		$	1,330.7	$	1,463.8	$	1,596.9
After-tax Change in Fair/Market Value		(151.3	)		(75.6	)		-		75.6		151.3		(173.0	)		(86.5	)		-		86.5		173.0

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 Singapore and Canadian ~~Dollars, the British Pound Sterling and the Euro.~~Dollars. We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our corresponding 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, ~~2012,~~2013, there has been no material change in exposure to foreign exchange rates as compared to December 31, ~~2011.~~2012.

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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 catastrophe 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 those discussed 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 or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.

~~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 Officer 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 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

Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.

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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. MINE SAFETY DISCLOSURES

Not applicable.

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~~Craig Howie

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

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema

101.CAL	XBRL Taxonomy Extension Calculation Linkbase

101.DEF	XBRL Taxonomy Extension Definition Linkbase

101.LAB	XBRL Taxonomy Extension Labels Linkbase

101.PRE	XBRL Taxonomy Extension Presentation Linkbase

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Everest Reinsurance Holdings, Inc.

Signatures

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


	Everest Reinsurance Holdings, Inc.
	(Registrant)


	/S/ ~~DOMINIC J. ADDESSO~~CRAIG HOWIE
	~~Dominic J. Addesso~~Craig Howie
	Executive Vice President and
		Chief Financial Officer

	(Duly Authorized Officer and Principal Financial Officer)



Dated: May 15, ~~2012~~ 2013