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:
September 30, 20132014
 
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.

YESX NO 

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).

YESX NO 

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  NOX

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 November 1, 20132014
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 September 30, 20132014 (unaudited) and 
   December 31, 201220131
    
  Consolidated Statements of Operations and Comprehensive Income (Loss) for the 
   three and nine months ended September 30, 20132014 and 20122013 (unaudited)2
     
  Consolidated Statements of Changes in Stockholder’s Equity for the three and 
   nine months ended September 30, 20132014 and 20122013 (unaudited)3
     
  Consolidated Statements of Cash Flows for the three and nine months ended 
   September 30, 20132014 and 20122013 (unaudited)4
     
  Notes to Consolidated Interim Financial Statements (unaudited)5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and 
   Results of Operation2927
    
Item 3. Quantitative and Qualitative Disclosures About Market Risk4543
     
Item 4. Controls and Procedures4543
     

PART II

OTHER INFORMATION

     
Item 1. Legal Proceedings4543
     
Item 1A. Risk Factors4644
    
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds4644
    
Item 3. Defaults Upon Senior Securities4644
    
Item 4. Mine Safety Disclosures4644
    
Item 5. Other Information4644
    
Item 6. Exhibits4644

 
 
 

Part I

ITEM 1.  FINANCIAL STATEMENTS

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS


  September 30, December 31,
(Dollars in thousands, except par value per share) 2014 2013
  (unaudited)   
ASSETS:      
Fixed maturities - available for sale, at market value $5,818,116  $5,201,921 
     (amortized cost: 2014, $5,709,509; 2013, $5,116,600)        
Fixed maturities - available for sale, at fair value  18,426   19,388 
Equity securities - available for sale, at market value (cost: 2014, $15; 2013, $15)  16   13 
Equity securities - available for sale, at fair value  1,195,257   1,298,940 
Short-term investments  659,017   757,162 
Other invested assets (cost: 2014, $405,734; 2013, $385,776)  405,734   385,776 
Other invested assets, at fair value  1,574,733   1,515,052 
Cash  275,418   316,807 
         Total investments and cash  9,946,717   9,495,059 
Accrued investment income  50,173   50,306 
Premiums receivable  1,410,534   1,173,780 
Reinsurance receivables - unaffiliated  764,252   530,158 
Reinsurance receivables - affiliated  3,597,414   3,062,884 
Funds held by reinsureds  181,326   175,526 
Deferred acquisition costs  109,742   112,024 
Prepaid reinsurance premiums  870,981   673,753 
Other assets  295,679   247,505 
TOTAL ASSETS $17,226,818  $15,520,995 
         
LIABILITIES:        
Reserve for losses and loss adjustment expenses $7,784,078  $7,653,229 
Unearned premium reserve  1,557,559   1,317,147 
Funds held under reinsurance treaties  98,979   92,514 
Losses in the course of payment  515,011   350,820 
Commission reserves  53,257   47,226 
Other net payable to reinsurers  1,379,033   1,026,292 
4.868% Senior notes due 6/1/2044  400,000   - 
5.4% Senior notes due 10/15/2014  249,998   249,958 
6.6% Long term notes due 5/1/2067  238,363   238,361 
Accrued interest on debt and borrowings  18,312   4,781 
Income taxes  40,985   23,949 
Unsettled securities payable  64,624   53,772 
Other liabilities  273,505   272,468 
         Total liabilities  12,673,704   11,330,517 
         
Commitments and Contingencies (Note 6)        
         
STOCKHOLDER'S EQUITY:        
Common stock, par value: $0.01; 3,000 shares authorized;        
     1,000 shares issued and outstanding (2014 and 2013)  -   - 
Additional paid-in capital  359,990   351,051 
Accumulated other comprehensive income (loss), net of deferred income tax expense        
     (benefit) of $51,996 at 2014 and $47,195 at 2013  96,564   87,648 
Retained earnings  4,096,560   3,751,779 
         Total stockholder's equity  4,553,114   4,190,478 
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $17,226,818  $15,520,995 
         
The accompanying notes are an integral part of the consolidated financial statements.        

  September 30,  December 31, 
(Dollars in thousands, except par value per share) 2013  2012 
  (unaudited)    
ASSETS:      
Fixed maturities - available for sale, at market value
 $5,289,978  $5,531,410 
     (amortized cost: 2013, $5,192,697; 2012, $5,289,619)        
Fixed maturities - available for sale, at fair value  19,780   41,470 
Equity securities - available for sale, at market value (cost: 2013, $15; 2012, $15)  16   13 
Equity securities - available for sale, at fair value  1,268,150   1,199,848 
Short-term investments  454,905   465,550 
Other invested assets (cost: 2013, $397,287; 2012, $420,744)  397,287   420,744 
Other invested assets, at fair value  1,413,381   1,068,711 
Cash  406,873   347,720 
         Total investments and cash  9,250,370   9,075,466 
Accrued investment income  53,783   54,914 
Premiums receivable  1,381,221   1,001,267 
Reinsurance receivables - unaffiliated  714,985   650,261 
Reinsurance receivables - affiliated  3,084,968   2,976,992 
Funds held by reinsureds  173,882   161,694 
Deferred acquisition costs  107,386   97,522 
Prepaid reinsurance premiums  688,716   557,460 
Deferred tax asset  47,922   214,175 
Income taxes recoverable  29,890   61,244 
Other assets  355,541   236,955 
TOTAL ASSETS $15,888,664  $15,087,950 
         
LIABILITIES:        
Reserve for losses and loss adjustment expenses $7,716,376  $8,143,055 
Unearned premium reserve  1,353,444   1,093,822 
Funds held under reinsurance treaties  90,804   90,079 
Losses in the course of payment  597,080   179,774 
Commission reserves  46,137   39,324 
Other net payable to reinsurers  1,163,574   900,794 
5.4% Senior notes due 10/15/2014  249,945   249,907 
6.6% Long term notes due 5/1/2067  238,360   238,357 
Junior subordinated debt securities payable  -   329,897 
Accrued interest on debt and borrowings  12,092   4,781 
Unsettled securities payable  40,398   48,830 
Other liabilities  381,338   290,724 
         Total liabilities  11,889,548   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 (2013 and 2012)  -   - 
Additional paid-in capital  348,899   340,223 
Accumulated other comprehensive income (loss), net of deferred income tax expense        
     (benefit) of $44,173 at 2013 and $99,544 at 2012  82,035   184,867 
Retained earnings  3,568,182   2,953,516 
         Total stockholder's equity  3,999,116   3,478,606 
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $15,888,664  $15,087,950 
         
The accompanying notes are an integral part of the consolidated financial statements.        


 
1
 

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)


  Three Months Ended Nine Months Ended
  September 30, September 30,
(Dollars in thousands) 2014 2013 2014 2013
  (unaudited) (unaudited)
REVENUES:            
Premiums earned $569,597  $523,521  $1,560,778  $1,461,549 
Net investment income  83,446   68,828   215,869   227,433 
Net realized capital gains (losses):                
Other-than-temporary impairments on fixed maturity securities  -   -   (199)  - 
Other-than-temporary impairments on fixed maturity securities                
transferred to other comprehensive income (loss)  -   -   -   - 
Other net realized capital gains (losses)  (160)  208,426   121,103   533,758 
Total net realized capital gains (losses)  (160)  208,426   120,904   533,758 
Other income (expense)  (3,739)  5,012   (15,576)  5,095 
Total revenues  649,144   805,787   1,881,975   2,227,835 
                 
CLAIMS AND EXPENSES:                
Incurred losses and loss adjustment expenses  380,580   307,121   980,143   909,661 
Commission, brokerage, taxes and fees  79,168   71,560   240,584   215,047 
Other underwriting expenses  50,623   48,945   137,032   136,751 
Corporate expenses  4,620   1,516   5,398   5,353 
Interest, fee and bond issue cost amortization expense  12,292   7,466   28,539   38,010 
Total claims and expenses  527,283   436,608   1,391,696   1,304,822 
                 
INCOME (LOSS) BEFORE TAXES  121,861   369,179   490,279   923,013 
Income tax expense (benefit)  21,720   125,426   145,498   308,347 
                 
NET INCOME (LOSS) $100,141  $243,753  $344,781  $614,666 
                 
Other comprehensive income (loss), net of tax :                
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period  (26,221)  (7,102)  13,678   (91,289)
Less: reclassification adjustment for realized losses (gains) included in net income (loss)  (696)  (1,124)  1,459   (2,640)
Total URA(D) on securities arising during the period  (26,917)  (8,226)  15,137   (93,929)
                 
Foreign currency translation adjustments  (7,472)  (5,839)  (8,587)  (13,064)
                 
Benefit plan actuarial net gain (loss) for the period  -   -   -   - 
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)  825   1,470   2,366   4,161 
Total benefit plan net gain (loss) for the period  825   1,470   2,366   4,161 
Total other comprehensive income (loss), net of tax  (33,564)  (12,595)  8,916   (102,832)
                 
COMPREHENSIVE INCOME (LOSS) $66,577  $231,158  $353,697  $511,834 
                 
The accompanying notes are an integral part of the consolidated financial statements.                


  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
  (unaudited)  (unaudited) 
REVENUES:            
Premiums earned $523,521  $427,112  $1,461,549  $1,299,293 
Net investment income  68,828   76,342   227,433   231,790 
Net realized capital gains (losses):                
Other-than-temporary impairments on fixed maturity securities  -   (486)  -   (6,627)
Other-than-temporary impairments on fixed maturity securities                
transferred to other comprehensive income (loss)  -   -   -   - 
Other net realized capital gains (losses)  208,426   96,429   533,758   361,300 
Total net realized capital gains (losses)  208,426   95,943   533,758   354,673 
Other income (expense)  5,012   425   5,095   19,599 
Total revenues  805,787   599,822   2,227,835   1,905,355 
                 
CLAIMS AND EXPENSES:                
Incurred losses and loss adjustment expenses  307,121   242,877   909,661   786,851 
Commission, brokerage, taxes and fees  71,560   70,464   215,047   251,320 
Other underwriting expenses  48,945   45,938   136,751   126,551 
Corporate expenses  1,516   2,019   5,353   5,317 
Interest, fee and bond issue cost amortization expense  7,466   12,682   38,010   38,061 
Total claims and expenses  436,608   373,980   1,304,822   1,208,100 
                 
INCOME (LOSS) BEFORE TAXES  369,179   225,842   923,013   697,255 
Income tax expense (benefit)  125,426   69,857   308,347   200,893 
                 
NET INCOME (LOSS) $243,753  $155,985  $614,666  $496,362 
                 
Other comprehensive income (loss), net of tax:                
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period  (7,102)  18,036   (91,289)  23,511 
Less: reclassification adjustment for realized losses (gains) included in net income (loss)  (1,124)  261   (2,640)  1,696 
Total URA(D) on securities arising during the period  (8,226)  18,297   (93,929)  25,207 
Foreign currency translation adjustments  (5,839)  15,301   (13,064)  12,737 
Pension adjustments  1,470   1,199   4,161   3,166 
Total other comprehensive income (loss), net of tax  (12,595)  34,797   (102,832)  41,110 
                 
COMPREHENSIVE INCOME (LOSS) $231,158  $190,782  $511,834  $537,472 
                 
The accompanying notes are an integral part of the consolidated financial statements.                



 
2
 

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER’S EQUITY



  Three Months Ended Nine Months Ended
  September 30, September 30,
(Dollars in thousands, except share amounts) 2014 2013 2014 2013
  (unaudited) (unaudited)
COMMON STOCK (shares outstanding):            
Balance, beginning of period  1,000   1,000   1,000   1,000 
Balance, end of period  1,000   1,000   1,000   1,000 
                 
ADDITIONAL PAID-IN CAPITAL:                
Balance, beginning of period $357,537  $346,279  $351,051  $340,223 
Share-based compensation plans  2,453   2,620   8,939   8,676 
Balance, end of period  359,990   348,899   359,990   348,899 
                 
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),                
NET OF DEFERRED INCOME TAXES:                
Balance, beginning of period  130,128   94,630   87,648   184,867 
Net increase (decrease) during the period  (33,564)  (12,595)  8,916   (102,832)
Balance, end of period  96,564   82,035   96,564   82,035 
                 
RETAINED EARNINGS:                
Balance, beginning of period  3,996,419   3,324,429   3,751,779   2,953,516 
Net income (loss)  100,141   243,753   344,781   614,666 
Balance, end of period  4,096,560   3,568,182   4,096,560   3,568,182 
                 
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $4,553,114  $3,999,116  $4,553,114  $3,999,116 
                 
The accompanying notes are an integral part of the consolidated financial statements.                

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands, except share amounts) 2013  2012  2013  2012 
  (unaudited)  (unaudited) 
COMMON STOCK (shares outstanding):            
Balance, beginning of period  1,000   1,000   1,000   1,000 
Balance, end of period  1,000   1,000   1,000   1,000 
                 
ADDITIONAL PAID-IN CAPITAL:                
Balance, beginning of period $346,279  $336,813  $340,223  $333,416 
Share-based compensation plans  2,620   1,665   8,676   5,062 
Balance, end of period  348,899   338,478   348,899   338,478 
                 
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),                
NET OF DEFERRED INCOME TAXES:                
Balance, beginning of period  94,630   181,103   184,867   174,790 
Net increase (decrease) during the period  (12,595)  34,797   (102,832)  41,110 
Balance, end of period  82,035   215,900   82,035   215,900 
                 
RETAINED EARNINGS:                
Balance, beginning of period  3,324,429   2,773,564   2,953,516   2,433,187 
Net income (loss)  243,753   155,985   614,666   496,362 
Balance, end of period  3,568,182   2,929,549   3,568,182   2,929,549 
                 
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $3,999,116  $3,483,927  $3,999,116  $3,483,927 
                 
The accompanying notes are an integral part of the consolidated financial statements.                



 
3
 

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS



  Three Months Ended Nine Months Ended
  September 30, September 30,
(Dollars in thousands) 2014 2013 2014 2013
  (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income (loss) $100,141  $243,753  $344,781  $614,666 
Adjustments to reconcile net income to net cash provided by operating activities:             
Decrease (increase) in premiums receivable  (154,853)  (185,115)  (237,390)  (382,658)
Decrease (increase) in funds held by reinsureds, net  361   285   762   (12,201)
Decrease (increase) in reinsurance receivables  (409,980)  (91,047)  (778,374)  (177,199)
Decrease (increase) in income taxes  (24,615)  129,344   12,264   252,746 
Decrease (increase) in prepaid reinsurance premiums  (98,231)  (78,068)  (198,306)  (132,217)
Increase (decrease) in reserve for losses and loss adjustment expenses  142,529   (136,110)  150,411   (390,402)
Increase (decrease) in unearned premiums  140,386   140,204   241,650   263,018 
Increase (decrease) in other net payable to reinsurers  270,262   147,164   353,468   264,061 
Increase (decrease) in losses in course of payment  12,569   182,448   164,072   417,982 
Change in equity adjustments in limited partnerships  (18,804)  (6,337)  (17,643)  (31,159)
Distribution of limited partnership income  23,391   2,683   32,548   18,868 
Change in other assets and liabilities, net  49,157   19,626   (2,744)  7,875 
Non-cash compensation expense  2,002   2,257   5,700   6,230 
Amortization of bond premium (accrual of bond discount)  2,921   5,999   14,502   19,696 
Amortization of underwriting discount on senior notes  15   14   43   41 
Net realized capital (gains) losses  160   (208,426)  (120,904)  (533,758)
Net cash provided by (used in) operating activities  37,411   168,674   (35,160)  205,589 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Proceeds from fixed maturities matured/called - available for sale, at market value  309,630   258,451   829,363   885,835 
Proceeds from fixed maturities matured/called - available for sale, at fair value  -   -   875   7,213 
Proceeds from fixed maturities sold - available for sale, at market value  219,823   124,460   547,682   465,084 
Proceeds from fixed maturities sold - available for sale, at fair value  3,092   1,056   23,855   18,398 
Proceeds from equity securities sold - available for sale, at fair value  111,684   95,174   404,627   450,020 
Distributions from other invested assets  26,583   3,973   41,854   47,576 
Cost of fixed maturities acquired - available for sale, at market value  (509,564)  (313,538)  (2,008,937)  (1,314,440)
Cost of fixed maturities acquired - available for sale, at fair value  (22,375)  (2,092)  (23,684)  (4,798)
Cost of equity securities acquired - available for sale, at fair value  (74,297)  (98,760)  (237,749)  (332,434)
Cost of other invested assets acquired  (43,953)  (3,320)  (76,717)  (11,828)
Net change in short-term investments  13,327   (86,361)  97,262   10,316 
Net change in unsettled securities transactions  (16,427)  16,401   (9,474)  (15,982)
Net cash provided by (used in) investing activities  17,523   (4,556)  (411,043)  204,960 
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Tax benefit from share-based compensation  451   363   3,239   2,446 
Revolving credit borrowings  -   (40,000)  -   - 
Net cost of junior subordinated debt securities redemption  -   -   -   (329,897)
Net proceeds from issuance of senior notes  -   -   400,000   - 
Net cash provided by (used in) financing activities  451   (39,637)  403,239   (327,451)
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH  (7,000)  (9,240)  1,575   (23,945)
                 
Net increase (decrease) in cash  48,385   115,241   (41,389)  59,153 
Cash, beginning of period  227,033   291,632   316,807   347,720 
Cash, end of period $275,418  $406,873  $275,418  $406,873 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:                
Income taxes paid (recovered) $45,202  $(4,345) $129,608  $49,050 
Interest paid  -   72   14,719   23,054 
                 
The accompanying notes are an integral part of the consolidated financial statements.                
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
  (unaudited)  (unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income (loss) $243,753  $155,985  $614,666  $496,362 
Adjustments to reconcile net income to net cash provided by operating activities:                
Decrease (increase) in premiums receivable  (185,115)  (233,296)  (382,658)  (129,749)
Decrease (increase) in funds held by reinsureds, net  285   2,646   (12,201)  (14,878)
Decrease (increase) in reinsurance receivables  (91,047)  (39,772)  (177,199)  (9,281)
Decrease (increase) in current income taxes  18,342   18,495   31,121   23,123 
Decrease (increase) in deferred tax asset  111,002   22,640   221,625   136,264 
Decrease (increase) in prepaid reinsurance premiums  (78,068)  (66,455)  (132,217)  28,866 
Increase (decrease) in reserve for losses and loss adjustment expenses  (136,110)  (109,811)  (390,402)  (406,946)
Increase (decrease) in unearned premiums  140,204   98,935   263,018   (102,067)
Increase (decrease) in other net payable to reinsurers  147,164   220,948   264,061   263,498 
Increase (decrease) in losses in course of payment  182,448   72,965   417,982   83,554 
Change in equity adjustments in limited partnerships  (6,337)  (8,800)  (31,159)  (28,850)
Change in other assets and liabilities, net  19,626   (13,445)  7,875   75,310 
Non-cash compensation expense  2,257   1,737   6,230   4,981 
Amortization of bond premium (accrual of bond discount)  5,999   3,330   19,696   12,939 
Amortization of underwriting discount on senior notes  14   13   41   38 
Net realized capital (gains) losses  (208,426)  (95,943)  (533,758)  (354,673)
Net cash provided by (used in) operating activities  165,991   30,172   186,721   78,491 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Proceeds from fixed maturities matured/called - available for sale, at market value  258,451   273,497   885,835   648,218 
Proceeds from fixed maturities matured/called - available for sale, at fair value  -   1,300   7,213   1,300 
Proceeds from fixed maturities sold - available for sale, at market value  124,460   114,610   465,084   290,911 
Proceeds from fixed maturities sold - available for sale, at fair value  1,056   11,783   18,398   72,926 
Proceeds from equity securities sold - available for sale, at fair value  95,174   85,277   450,020   377,157 
Distributions from other invested assets  6,656   16,130   66,444   31,513 
Cost of fixed maturities acquired - available for sale, at market value  (313,538)  (404,009)  (1,314,440)  (1,066,080)
Cost of fixed maturities acquired - available for sale, at fair value  (2,092)  (1,658)  (4,798)  (7,164)
Cost of equity securities acquired - available for sale, at fair value  (98,760)  (107,330)  (332,434)  (288,218)
Cost of other invested assets acquired  (3,320)  (20,065)  (11,828)  (43,831)
Net change in short-term investments  (86,361)  (58,681)  10,316   (216,270)
Net change in unsettled securities transactions  16,401   33,600   (15,982)  38,712 
Net cash provided by (used in) investing activities  (1,873)  (55,546)  223,828   (160,826)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Tax benefit from share-based compensation  363   (72)  2,446   81 
Revolving credit borrowings  (40,000)  -   -   - 
Net cost of junior subordinated debt securities maturing  -   -   (329,897)  - 
Net cash provided by (used in) financing activities  (39,637)  (72)  (327,451)  81 
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH  (9,240)  28,772   (23,945)  43,046 
                 
Net increase (decrease) in cash  115,241   3,326   59,153   (39,208)
Cash, beginning of period  291,632   305,733   347,720   348,267 
Cash, end of period $406,873  $309,059  $406,873  $309,059 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:                
Income taxes paid (recovered) $(4,345) $27,119  $49,050  $36,498 
Interest paid  72   5,202   23,054   30,244 
                 
The accompanying notes are an integral part of the consolidated financial statements.                


 
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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Nine Months Ended September 30, 20132014 and 20122013

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); "Mt.“Mt. Logan Re"Re” means Mt. Logan Re Ltd., a subsidiary of Group; and the “Company” means Holdings and its subsidiaries.

2.       BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three and nine months ended September 30, 20132014 and 20122013 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, 20122013 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  The results for the three and nine months ended September 30, 20132014 and 20122013 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, 2013, 2012 2011 and 20102011 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 periodyears’ amounts to conform to the current period2014 presentation.  One reclassification relates to a correction in the manner in which the Company reports distributions received from limited partnership investments in the consolidated Statements of Cash Flows.  Prior to the fourth quarter of 2013, the Company incorrectly reflected all distributions as cash flows from investing activities in its Consolidated Statements of Cash Flows.  Starting with the fourth quarter of 2013, cash distributions from the limited partnerships that represent net investment income are reflected as cash flows from operating activities and distributions that represent the return of capital contributions are reflected as cash flows from investing activities.  For the three and nine months ended September 30, 2013, $2,683 thousand and $18,868 thousand, respectively, have been reclassified from “Distributions from other invested assets” included in cash flows  from investing activities to “Distribution of limited partnership income” included in cash flows from operations.  The Company has determined that this error is not material to the financial statements of any prior period.

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.
 
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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 would be expensed, during 2012 and 2013, including $5,818 thousand and $1,397 thousand expensed duringin the years ended December 31, 2012 and in the six months ended June 30, 2013, respectively.  No additional expense will be incurred related to this guidance implementation in future periods.

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 September 30, 2014 
  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 $519,888  $698  $(815) $519,771 
Obligations of U.S. states and political subdivisions  792,193   43,524   (994)  834,723 
Corporate securities  2,010,245   41,864   (21,510)  2,030,599 
Asset-backed securities  91,583   821   (87)  92,317 
Mortgage-backed securities                
Commercial  40,935   2,750   (1)  43,684 
Agency residential  626,511   6,873   (6,842)  626,542 
Non-agency residential  307   51   -   358 
Foreign government securities  544,947   26,458   (4,274)  567,131 
Foreign corporate securities  1,082,900   27,586   (7,495)  1,102,991 
Total fixed maturity securities $5,709,509  $150,625  $(42,018) $5,818,116 
Equity securities $15  $1  $-  $16 

  At September 30, 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 $72,363  $661  $(756) $72,268 
Obligations of U.S. states and political subdivisions  992,891   46,388   (8,334)  1,030,945 
Corporate securities  1,635,998   42,503   (17,706)  1,660,795 
Asset-backed securities  42,470   1,232   -   43,702 
Mortgage-backed securities                
Commercial  41,205   4,673   -   45,878 
Agency residential  710,550   7,706   (12,897)  705,359 
Non-agency residential  1,002   114   (32)  1,084 
Foreign government securities  704,528   31,473   (5,114)  730,887 
Foreign corporate securities  991,690   23,870   (16,500)  999,060 
Total fixed maturity securities $5,192,697  $158,620  $(61,339) $5,289,978 
Equity securities $15  $1  $-  $16 



 At December 31, 2012  At December 31, 2013 
 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 $77,611  $1,448  $(869) $78,190  $72,211  $420  $(946) $71,685 
Obligations of U.S. states and political subdivisions  1,214,990   78,096   (1,123)  1,291,963   970,735   40,815   (9,022)  1,002,528 
Corporate securities  1,510,186   61,137   (6,471)  1,564,852   1,669,553   45,355   (12,493)  1,702,415 
Asset-backed securities  44,070   2,417   -   46,487   38,544   1,065   -   39,609 
Mortgage-backed securities                                
Commercial  45,157   7,534   (67)  52,624   34,855   3,811   -   38,666 
Agency residential  672,724   12,722   (1,724)  683,722   709,589   6,331   (18,521)  697,399 
Non-agency residential  1,933   429   (33)  2,329   859   113   (33)  939 
Foreign government securities  732,277   51,461   (3,735)  780,003   654,029   28,739   (7,941)  674,827 
Foreign corporate securities  990,671   46,850   (6,281)  1,031,240   966,225   23,227   (15,599)  973,853 
Total fixed maturity securities $5,289,619  $262,094  $(20,303) $5,531,410  $5,116,600  $149,876  $(64,555) $5,201,921 
Equity securities $15  $-  $(2) $13  $15  $-  $(2) $13 

The $730,887$567,131 thousand of foreign government securities at September 30, 20132014 included $88,003$73,825 thousand of European sovereign securities.  Approximately 55.4%52.9%, 14.1%16.8%, 11.6%8.4%, 8.1% and 7.3%5.4% of European Sovereign Securities represented securities held in the governments of France, the United Kingdom, Sweden
6
and the Netherlands, Belgium and Germany, 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 September 30, 2013.2014.


6
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.  As of September 30, 2013,2014, all of the previously reclassified securities have either matured or have been sold.  The table below presents the pre-tax cumulative unrealized appreciation (depreciation) on those corporate securities, for the period indicated:


(Dollars in thousands) At December 31, 2012 
Pre-tax cumulative unrealized appreciation (depreciation) $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 September 30, 2013  At December 31, 2012  At September 30, 2014  At December 31, 2013 
 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 $419,286  $420,887  $329,474  $330,149  $452,064  $451,138  $462,133  $463,674 
Due after one year through five years  2,322,907   2,377,714   2,380,093   2,462,430   2,786,968   2,812,874   2,251,169   2,300,475 
Due after five years through ten years  997,420   1,005,613   1,008,653   1,064,579   1,066,319   1,077,855   988,896   1,000,053 
Due after ten years  657,857   689,741   807,515   889,090   644,822   713,348   630,555   661,106 
Asset-backed securities  42,470   43,702   44,070   46,487   91,583   92,317   38,544   39,609 
Mortgage-backed securities                                
Commercial  41,205   45,878   45,157   52,624   40,935   43,684   34,855   38,666 
Agency residential  710,550   705,359   672,724   683,722   626,511   626,542   709,589   697,399 
Non-agency residential  1,002   1,084   1,933   2,329   307   358   859   939 
Total fixed maturity securities $5,192,697  $5,289,978  $5,289,619  $5,531,410  $5,709,509  $5,818,116  $5,116,600  $5,201,921 


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  Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012  2014  2013  2014  2013 
Increase (decrease) during the period between the market value and cost                        
of investments carried at market value, and deferred taxes thereon:                        
Fixed maturity securities $(12,657) $28,226  $(144,110) $38,923  $(41,410) $(12,657) $23,285  $(144,110)
Fixed maturity securities, other-than-temporary impairment  -   (77)  (399)  (146)  -   -   -   (399)
Equity securities  1   -   2   3   1   1   3   2 
Change in unrealized appreciation (depreciation), pre-tax  (12,656)  28,149   (144,507)  38,780   (41,409)  (12,656)  23,288   (144,507)
Deferred tax benefit (expense)  4,430   (9,879)  50,438   (13,624)  14,492   4,430   (8,151)  50,438 
Deferred tax benefit (expense), other-than-temporary impairment  -   27   140   51   -   -   -   140 
Change in unrealized appreciation (depreciation),                                
net of deferred taxes, included in stockholder's equity $(8,226) $18,297  $(93,929) $25,207  $(26,917) $(8,226) $15,137  $(93,929)

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-
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temporaryother-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,

7
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.

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 September 30, 2014 By Security Type 
  Less than 12 months  Greater than 12 months  Total 
     Gross     Gross     Gross 
     Unrealized     Unrealized     Unrealized 
(Dollars in thousands) Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation 
Fixed maturity securities - available for sale                  
U.S. Treasury securities and obligations of                  
U.S. government agencies and corporations $35,516  $(190) $24,483  $(625) $59,999  $(815)
Obligations of U.S. states and political subdivisions  18,198   (426)  36,680   (568)  54,878   (994)
Corporate securities  925,037   (16,140)  185,950   (5,370)  1,110,987   (21,510)
Asset-backed securities  30,208   (87)  -   -   30,208   (87)
Mortgage-backed securities                        
Commercial  10,365   (1)  -   -   10,365   (1)
Agency residential  35,576   (108)  299,229   (6,734)  334,805   (6,842)
Non-agency residential  -   -   -   -   -   - 
Foreign government securities  51,430   (349)  76,092   (3,925)  127,522   (4,274)
Foreign corporate securities  186,212   (1,863)  149,756   (5,632)  335,968   (7,495)
Total fixed maturity securities $1,292,542  $(19,164) $772,190  $(22,854) $2,064,732  $(42,018)
Equity securities  -   -   -   -   -   - 
Total $1,292,542  $(19,164) $772,190  $(22,854) $2,064,732  $(42,018)

  Duration of Unrealized Loss at September 30, 2013 By Security Type 
  Less than 12 months  Greater than 12 months  Total 
     Gross     Gross     Gross 
     Unrealized     Unrealized     Unrealized 
(Dollars in thousands) Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation 
Fixed maturity securities - available for sale                  
U.S. Treasury securities and obligations of                  
U.S. government agencies and corporations $17,873  $(194) $8,828  $(562) $26,701  $(756)
Obligations of U.S. states and political subdivisions  96,868   (8,117)  4,448   (217)  101,316   (8,334)
Corporate securities  613,499   (14,473)  43,444   (3,233)  656,943   (17,706)
Asset-backed securities  -   -   -   -   -   - 
Mortgage-backed securities                        
Commercial  -   -   -   -   -   - 
Agency residential  432,853   (12,252)  45,524   (645)  478,377   (12,897)
Non-agency residential  -   -   281   (32)  281   (32)
Foreign government securities  119,094   (2,446)  29,174   (2,668)  148,268   (5,114)
Foreign corporate securities  374,560   (12,669)  48,816   (3,831)  423,376   (16,500)
Total fixed maturity securities $1,654,747  $(50,151) $180,515  $(11,188) $1,835,262  $(61,339)
Equity securities  -   -   -   -   -   - 
Total $1,654,747  $(50,151) $180,515  $(11,188) $1,835,262  $(61,339)
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 Duration of Unrealized Loss at September 30, 2013 By Maturity  Duration of Unrealized Loss at September 30, 2014 By Maturity 
 Less than 12 months  Greater than 12 months  Total  Less than 12 months  Greater than 12 months  Total 
    Gross     Gross     Gross     Gross     Gross     Gross 
    Unrealized     Unrealized     Unrealized     Unrealized     Unrealized     Unrealized 
(Dollars in thousands) Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation 
Fixed maturity securities                                    
Due in one year or less $18,925  $(873) $28,339  $(3,871) $47,264  $(4,744) $8,185  $(37) $69,568  $(5,163) $77,753  $(5,200)
Due in one year through five years  566,673   (7,859)  85,588   (5,112)  652,261   (12,971)  714,621   (10,537)  274,095   (7,104)  988,716   (17,641)
Due in five years through ten years  448,603   (12,477)  13,106   (831)  461,709   (13,308)  464,811   (7,784)  85,723   (2,579)  550,534   (10,363)
Due after ten years  187,693   (16,690)  7,677   (697)  195,370   (17,387)  28,776   (610)  43,575   (1,274)  72,351   (1,884)
Asset-backed securities  -   -   -   -   -   -   30,208   (87)  -   -   30,208   (87)
Mortgage-backed securities  432,853   (12,252)  45,805   (677)  478,658   (12,929)  45,941   (109)  299,229   (6,734)  345,170   (6,843)
Total fixed maturity securities $1,654,747  $(50,151) $180,515  $(11,188) $1,835,262  $(61,339) $1,292,542  $(19,164) $772,190  $(22,854) $2,064,732  $(42,018)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at September 30, 20132014 were $1,835,262$2,064,732 thousand and $61,339$42,018 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at September 30, 2013,2014, did not exceed 0.7% of the overall market value of the Company’s fixed maturity securities.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $50,151$19,164 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were primarily comprised of domestic and foreign corporate securities, agency residential mortgage-backed securities as well as state and municipal securities.  Of these unrealized losses, $37,846$3,452 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating

8
organization.  The $11,188$22,854 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domesticagency residential mortgage-backed securities, foreign and foreigndomestic corporate securities as well asand foreign government securities.  Of these unrealized losses, $10,532$21,240 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The Company did not have any sub-prime or alt-A loans with gross unrealized depreciation for mortgage-backed securities included $32 thousand related to sub-prime and alt-A loans.at September 30, 2014.  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.

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.


9


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 December 31, 2013 By Security Type 
  Less than 12 months  Greater than 12 months  Total 
     Gross     Gross     Gross 
     Unrealized     Unrealized     Unrealized 
(Dollars in thousands) Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation 
Fixed maturity securities - available for sale                  
U.S. Treasury securities and obligations of                  
U.S. government agencies and corporations $39,274  $(302) $8,751  $(644) $48,025  $(946)
Obligations of U.S. states and political subdivisions  92,760   (4,852)  39,689   (4,170)  132,449   (9,022)
Corporate securities  388,721   (8,981)  56,156   (3,512)  444,877   (12,493)
Asset-backed securities  -   -   -   -   -   - 
Mortgage-backed securities                        
Commercial  -   -   -   -   -   - 
Agency residential  381,149   (14,084)  131,504   (4,437)  512,653   (18,521)
Non-agency residential  -   -   202   (33)  202   (33)
Foreign government securities  100,984   (5,255)  29,174   (2,686)  130,158   (7,941)
Foreign corporate securities  321,933   (11,394)  66,715   (4,205)  388,648   (15,599)
Total fixed maturity securities $1,324,821  $(44,868) $332,191  $(19,687) $1,657,012  $(64,555)
Equity securities  13   (2)  -   -   13   (2)
Total $1,324,834  $(44,870) $332,191  $(19,687) $1,657,025  $(64,557)

  Duration of Unrealized Loss at December 31, 2012 By Security Type 
  Less than 12 months  Greater than 12 months  Total 
     Gross     Gross     Gross 
     Unrealized     Unrealized     Unrealized 
(Dollars in thousands) Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation 
Fixed maturity securities - available for sale                  
U.S. Treasury securities and obligations of                  
U.S. government agencies and corporations $8,058  $(292) $3,386  $(577) $11,444  $(869)
Obligations of U.S. states and political subdivisions  38,754   (1,072)  5,781   (51)  44,535   (1,123)
Corporate securities  122,138   (1,566)  62,492   (4,905)  184,630   (6,471)
Asset-backed securities  -   -   -   -   -   - 
Mortgage-backed securities                        
Commercial  -   -   10,729   (67)  10,729   (67)
Agency residential  177,336   (1,042)  54,595   (682)  231,931   (1,724)
Non-agency residential  -   -   446   (33)  446   (33)
Foreign government securities  13,958   (105)  34,355   (3,630)  48,313   (3,735)
Foreign corporate securities  44,945   (565)  53,672   (5,716)  98,617   (6,281)
Total fixed maturity securities $405,189  $(4,642) $225,456  $(15,661) $630,645  $(20,303)
Equity securities  -   -   13   (2)  13   (2)
Total $405,189  $(4,642) $225,469  $(15,663) $630,658  $(20,305)
  Duration of Unrealized Loss at December 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 $17,315  $(1,273) $31,679  $(4,132) $48,994  $(5,405)
Due in one year through five years  425,627   (8,982)  111,150   (5,647)  536,777   (14,629)
Due in five years through ten years  312,341   (10,408)  14,865   (663)  327,206   (11,071)
Due after ten years  188,389   (10,121)  42,791   (4,775)  231,180   (14,896)
Asset-backed securities  -   -   -   -   -   - 
Mortgage-backed securities  381,149   (14,084)  131,706   (4,470)  512,855   (18,554)
Total fixed maturity securities $1,324,821  $(44,868) $332,191  $(19,687) $1,657,012  $(64,555)

 
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  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, 20122013 were $630,658$1,657,025 thousand and $20,305$64,557 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2012,2013, did not exceed 0.2%0.9% of the overall market value of the Company’s fixed maturity securities.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $4,642$44,868 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were primarily comprised of domestic and foreign corporate securities, state and municipalforeign government securities, agency residential mortgage-backed securities as well as agency residential mortgage-backedstate and municipal securities.  Of these unrealized losses, $3,281$38,527 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The $15,661$19,687 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, foreign government securities, agency residential mortgage-backed securities as well as foreign governmentstate and municipal securities.  Of these unrealized losses, $14,401$18,867 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 floating interest rate bank loan securities.  The gross unrealized depreciation for mortgage-backed securities included $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
10
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 September 30, 2013,2014, the Company held 9,719,971 shares of Group representing 16.9%17.7% of the total outstanding shares.

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


 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012  2014  2013  2014  2013 
Fixed maturities $52,098  $55,495  $159,363  $164,248  $52,515  $52,098  $157,515  $159,363 
Equity securities  8,390   8,849   27,235   29,281   7,966   8,390   26,083   27,235 
Short-term investments and cash  302   330   705   758   196   302   841   705 
Other invested assets                                
Limited partnerships  6,569   9,096   32,109   29,940   19,254   6,569   18,862   32,109 
Dividends from Parent's shares  4,666   4,666   13,997   13,997   7,290   4,666   21,870   13,997 
Other  1,056   1,427   5,311   2,453   869   1,056   3,220   5,311 
Gross investment income before adjustments  73,081   79,863   238,720   240,677   88,090   73,081   228,391   238,720 
Funds held interest income (expense)  746   979   4,182   3,873   970   746   4,262   4,182 
Gross investment income  73,827   80,842   242,902   244,550   89,060   73,827   232,653   242,902 
Investment expenses  (4,999)  (4,500)  (15,469)  (12,760)  (5,614)  (4,999)  (16,784)  (15,469)
Net investment income $68,828  $76,342  $227,433  $231,790  $83,446  $68,828  $215,869  $227,433 

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 identifies the decline.

The Company had contractual commitments to invest up to an additional $64,342$227,589 thousand in limited partnerships at September 30, 2013.2014.  These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2016.2019.


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


 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012  2014  2013  2014  2013 
Fixed maturity securities, market value:                        
Other-than-temporary impairments $-  $(486) $-  $(6,627) $-  $-  $(199) $- 
Gains (losses) from sales  1,730   85   4,062   4,018   1,070   1,730   (1,855)  4,062 
Fixed maturity securities, fair value:                                
Gains (losses) from sales  37   512   127   5,539 
Gain (losses) from sales  82   37   1,022   127 
Gains (losses) from fair value adjustments  578   298   (1,004)  1,623   (938)  578   (938)  (1,004)
Equity securities, fair value:                                
Gains (losses) from sales  1,594   3,154   25,565   23,101   (2,589)  1,594   (2,204)  25,565 
Gains (losses) from fair value adjustments  37,789   58,667   160,323   104,739   (12,559)  37,789   65,399   160,323 
Other invested assets, fair value:                                
Gains (losses) from fair value adjustments  166,697   33,729   344,670   222,296   14,775   166,697   59,681   344,670 
Short-term investment gains (losses)  1   (16)  15   (16)  (1)  1   (2)  15 
Total net realized capital gains (losses) $208,426  $95,943  $533,758  $354,673  $(160) $208,426  $120,904  $533,758 

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  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Proceeds from sales of fixed maturity securities $222,915  $125,516  $571,537  $483,482 
Gross gains from sales  4,408   3,446   10,698   12,123 
Gross losses from sales  (3,256)  (1,679)  (11,531)  (7,934)
                 
Proceeds from sales of equity securities $111,684  $95,174  $404,627  $450,020 
Gross gains from sales  1,697   3,746   12,019   33,151 
Gross losses from sales  (4,286)  (2,152)  (14,223)  (7,586)

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Proceeds from sales of fixed maturity securities $125,516  $126,393  $483,482  $363,837 
Gross gains from sales  3,446   2,704   12,123   15,371 
Gross losses from sales  (1,679)  (2,107)  (7,934)  (5,814)
                 
Proceeds from sales of equity securities $95,174  $85,277  $450,020  $377,157 
Gross gains from sales  3,746   5,204   33,151   33,005 
Gross losses from sales  (2,152)  (2,050)  (7,586)  (9,904)


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.


 
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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 September 30, 20132014 and December 31, 2012.2013.

The Company internally manages a small public equity portfolio which had a fair value at September 30, 2014 and December 31, 2013, of $76,901$90,124 thousand and $88,338 thousand, respectively, 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 September 30, 20132014 and December 31, 2012,2013, 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 the third party asset managers and 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.


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


     Fair Value Measurement Using: 
     Quoted Prices       
     in Active  Significant    
     Markets for  Other  Significant 
     Identical  Observable  Unobservable 
     Assets  Inputs  Inputs 
(Dollars in thousands) September 30, 2014 (Level 1)  (Level 2)  (Level 3) 
Assets:            
Fixed maturities, market value            
U.S. Treasury securities and obligations of            
U.S. government agencies and corporations $519,771  $-  $519,771  $- 
Obligations of U.S. States and political subdivisions  834,723   -   834,723   - 
Corporate securities  2,030,599   -   2,029,283   1,316 
Asset-backed securities  92,317   -   72,041   20,276 
Mortgage-backed securities                
Commercial  43,684   -   43,684   - 
Agency residential  626,542   -   626,542   - 
Non-agency residential  358   -   358   - 
Foreign government securities  567,131   -   567,131   - 
Foreign corporate securities  1,102,991   -   1,099,427   3,564 
Total fixed maturities, market value  5,818,116   -   5,792,960   25,156 
                 
Fixed maturities, fair value  18,426   -   18,426   - 
Equity securities, market value  16   16   -   - 
Equity securities, fair value  1,195,257   1,086,016   109,241   - 
Other invested assets, fair value  1,574,733   1,574,733   -   - 

There were no transfers between Level 1 and Level 2 for the nine months ended September 30, 2014.

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


     Fair Value Measurement Using: 
     Quoted Prices       
     in Active  Significant    
     Markets for  Other  Significant 
     Identical  Observable  Unobservable 
     Assets  Inputs  Inputs 
(Dollars in thousands) December 31, 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 $71,685  $-  $71,685  $- 
Obligations of U.S. States and political subdivisions  1,002,528   -   1,002,528   - 
Corporate securities  1,702,415   -   1,702,415   - 
Asset-backed securities  39,609   -   36,076   3,533 
Mortgage-backed securities                
Commercial  38,666   -   38,666   - 
Agency residential  697,399   -   697,399   - 
Non-agency residential  939   -   935   4 
Foreign government securities  674,827   -   674,827   - 
Foreign corporate securities  973,853   -   973,372   481 
Total fixed maturities, market value  5,201,921   -   5,197,903   4,018 
                 
Fixed maturities, fair value  19,388   -   19,388   - 
Equity securities, market value  13   13   -   - 
Equity securities, fair value  1,298,940   1,179,139   119,801   - 
Other invested assets, fair value  1,515,052   1,515,052   -   - 
     Fair Value Measurement Using: 
     Quoted Prices       
     in Active  Significant    
     Markets for  Other  Significant 
     Identical  Observable  Unobservable 
     Assets  Inputs  Inputs 
(Dollars in thousands) September 30, 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 $72,268  $-  $72,268  $- 
Obligations of U.S. States and political subdivisions  1,030,945   -   1,030,945   - 
Corporate securities  1,660,795   -   1,660,795   - 
Asset-backed securities  43,702   -   39,375   4,327 
Mortgage-backed securities                
Commercial  45,878   -   45,878   - 
Agency residential  705,359   -   705,359   - 
Non-agency residential  1,084   -   1,080   4 
Foreign government securities
  730,887   -   730,887   - 
Foreign corporate securities  999,060   -   998,578   482 
Total fixed maturities, market value  5,289,978   -   5,285,165   4,813 
                 
Fixed maturities, fair value  19,780   -   19,780   - 
Equity securities, market value  16   16   -   - 
Equity securities, fair value  1,268,150   1,146,586   121,564   - 
Other invested assets, fair value  1,413,381   1,413,381   -   - 


There were no transfers between Level 1 and Level 2 for the nine months ended September 30, 2013.


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


     Fair Value Measurement Using: 
     Quoted Prices       
     in Active  Significant    
     Markets for  Other  Significant 
     Identical  Observable  Unobservable 
     Assets  Inputs  Inputs 
(Dollars in thousands) December 31, 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 $78,190  $-  $78,190  $- 
Obligations of U.S. States and political subdivisions  1,291,963   -   1,291,963   - 
Corporate securities  1,564,852   -   1,564,852   - 
Asset-backed securities  46,487   -   41,638   4,849 
Mortgage-backed securities                
Commercial  52,624   -   52,624   - 
Agency residential  683,722   -   654,324   29,398 
Non-agency residential  2,329   -   2,324   5 
Foreign government securities  780,003   -   780,003   - 
Foreign corporate securities  1,031,240   -   1,019,819   11,421 
Total fixed maturities, market value  5,531,410   -   5,485,737   45,673 
                 
Fixed maturities, fair value  41,470   -   41,470   - 
Equity securities, market value  13   13   -   - 
Equity securities, fair value  1,199,848   1,059,288   140,560   - 
Other invested assets, fair value  1,068,711   1,068,711   -   - 


The following tables present the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated:
  Three Months Ended September 30, 2014 Nine Months Ended September 30, 2014
  Corporate Asset-backed Foreign Non-agency   Corporate Asset-backed Foreign Non-agency  
(Dollars in thousands) Securities Securities Corporate RMBS Total Securities Securities Corporate RMBS Total
Beginning balance $-  $2,528  $-  $4  $2,532  $-  $3,533  $481  $4  $4,018 
Total gains or (losses) (realized/unrealized)                                        
Included in earnings  -   1,235   -   2   1,237   -   1,291   18   3   1,312 
Included in other comprehensive income (loss)  42   (284)  (50)  (3)  (295)  42   (191)  (70)  (3)  (222)
Purchases, issuances and settlements  1,274   17,898   3,614   (3)  22,783   1,274   16,744   3,135   (4)  21,149 
Transfers in and/or (out) of Level 3  -   (1,101)  -   -   (1,101)  -   (1,101)  -   -   (1,101)
Ending balance $1,316  $20,276  $3,564  $-  $25,156  $1,316  $20,276  $3,564  $-  $25,156 
                                         
The amount of total gains or losses for the period included                                        
in earnings (or changes in net assets) attributable to the                                        
change in unrealized gains or losses relating to assets                                        
still held at the reporting date $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
                                         
(Some amounts may not reconcile due to rounding.)                                        


  Three Months Ended September 30, 2013 Nine Months Ended September 30, 2013
  Asset-backed Foreign Non-agency Agency   Asset-backed Foreign Non-agency Agency  
(Dollars in thousands) Securities Corporate RMBS RMBS Total Securities Corporate RMBS RMBS Total
Beginning balance $4,832  $7,225  $323  $-  $12,380  $4,849  $11,421  $5  $29,398  $45,673 
Total gains or (losses) (realized/unrealized)                                        
Included in earnings  58   (4)  1   -   55   74   (655)  3   -   (578)
Included in other comprehensive income (loss)  (186)  51   -   -   (135)  (515)  (371)  (25)  -   (911)
Purchases, issuances and settlements  (377)  (1,751)  (1)  -   (2,129)  (397)  1,086   (72)  -   617 
Transfers in and/or (out) of Level 3  -   (5,039)  (319)  -   (5,358)  316   (10,999)  93   (29,398)  (39,988)
Ending balance $4,327  $482  $4  $-  $4,813  $4,327  $482  $4  $-  $4,813 
                                         
The amount of total gains or losses for the period included                                        
in earnings (or changes in net assets) attributable to the                                        
change in unrealized gains or losses relating to assets                                        
still held at the reporting date $-  $-  $-  $-  $-  $-  $-  $-  $-  $- 
                                         
(Some amounts may not reconcile due to rounding.)                                        

The transfers from level 3, fair value measurements using significant unobservable inputs, of $1,101 thousand and $39,988 thousand of investments for the nine months ended September 30, 2014 and September 30, 2013, respectively, primarily relate to securities that were priced using single non-binding broker quotes as of December 31, 2013 and December 31, 2012, respectively.  The securities were subsequently priced using a recognized pricing service as of September 30, 2014 and 2013 and were classified as level 2 as of that date.

 
1514
 
  Three Months Ended September 30, 2012  Nine Months Ended September 30, 2012 
  Asset-backed  Foreign  Non-agency     Asset-backed  Foreign  Non-agency    
(Dollars in thousands) Securities  Corporate  RMBS  Total  Securities  Corporate  RMBS  Total 
Beginning balance $8,996  $7,383  $5  $16,384  $16,046  $2,536  $7  $18,589 
Total gains or (losses) (realized/unrealized)                                
Included in earnings  56   (14)  1   43   111   (33)  3   81 
Included in other comprehensive income (loss)  390   275   -   665   728   387   (2)  1,113 
Purchases, issuances and settlements  (61)  (576)  (1)  (638)  4,407   6,640   (3)  11,044 
Transfers in and/or (out) of Level 3  (1,789)  (2,122)  -   (3,911)  (13,700)  (4,584)  -   (18,284)
Ending balance $7,592  $4,946  $5  $12,543  $7,592  $4,946  $5  $12,543 
                                 
The amount of total gains or losses for the period included                                
in earnings (or changes in net assets) attributable to the                                
change in unrealized gains or losses relating to assets                                
still held at the reporting date $-  $-  $-  $-  $-  $-  $-  $- 
                                 
(Some amounts may not reconcile due to rounding.)                                


5.       CAPITAL TRANSACTIONS

On October 14, 2011,July 9, 2014, the Company renewed its shelf registration statement on Form S-3ASR with the SEC,Securities and Exchange Commission (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.


16


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 September 30, 2013  At December 31, 2012 
  $145,113  $144,628 

(Dollars in thousands) At September 30, 2014 At December 31, 2013
  $144,415  $144,734 

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 September 30, 2014 At December 31, 2013
  $31,338  $30,664 


15
(Dollars in thousands) At September 30, 2013  At December 31, 2012 
  $30,063  $29,132 

7.       OTHER COMPREHENSIVE INCOME (LOSS)

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

  Three Months Ended September 30, 2014  Nine Months Ended September 30, 2014 
(Dollars in thousands) Before Tax  Tax Effect  Net of Tax  Before Tax  Tax Effect  Net of Tax 
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary $(40,339) $14,118  $(26,221) $21,234  $(7,556) $13,678 
URA(D) on securities - OTTI  -   -   -   -   -   - 
Reclassification of net realized losses (gains) included in net income (loss)  (1,070)  374   (696)  2,054   (595)  1,459 
Foreign currency translation adjustments  (11,496)  4,024   (7,472)  (13,211)  4,624   (8,587)
Benefit plan actuarial net gain (loss)  -   -   -   -   -   - 
Reclassification of amortization of net gain (loss) included in net income (loss)  1,269   (444)  825   3,640   (1,274)  2,366 
Total other comprehensive income (loss) $(51,636) $18,072  $(33,564) $13,717  $(4,801) $8,916 

 Three Months Ended September 30, 2013  Nine Months Ended September 30, 2013  Three Months Ended September 30, 2013  Nine Months Ended September 30, 2013 
(Dollars in thousands) Before Tax  Tax Effect  Net of Tax  Before Tax  Tax Effect  Net of Tax  Before Tax  Tax Effect  Net of Tax  Before Tax  Tax Effect  Net of Tax 
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary $(10,927) $3,824  $(7,102) $(140,046) $49,016  $(91,030) $(10,927) $3,824  $(7,102) $(140,046) $49,016  $(91,030)
URA(D) on securities - OTTI  -   -   -   (399)  140   (259)  -   -   -   (399)  140   (259)
Reclassification of net realized losses (gains) included in net income (loss)  (1,729)  606   (1,124)  (4,062)  1,422   (2,640)  (1,729)  606   (1,124)  (4,062)  1,422   (2,640)
Foreign currency translation adjustments  (8,982)  3,143   (5,839)  (20,098)  7,034   (13,064)  (8,982)  3,143   (5,839)  (20,098)  7,034   (13,064)
Benefit plan liability adjustments  -   -   -   -   -   - 
Reclassification of benefit plan liability amortization included in net income (loss)  2,262   (792)  1,470   6,402   (2,241)  4,161 
Total other comprehensive income (loss) $(19,376) $6,781  $(12,595) $(158,203) $55,371  $(102,832)
                        
 Three Months Ended September 30, 2012  Nine Months Ended September 30, 2012 
(Dollars in thousands) Before Tax  Tax Effect  Net of Tax  Before Tax  Tax Effect  Net of Tax 
URA(D) on securities - temporary $27,825  $(9,739) $18,086  $36,317  $(12,711) $23,606 
URA(D) on securities - OTTI  (77)  27   (50)  (146)  51   (95)
Reclassification of net realized losses (gains) included in net income (loss)  401   (140)  261   2,609   (913)  1,696 
Foreign currency translation adjustments  23,540   (8,239)  15,301   19,596   (6,859)  12,737 
Benefit plan liability adjustments  -   -   -   -   -   - 
Reclassification of benefit plan liability amortization included in net income (loss)  1,844   (645)  1,199   4,871   (1,705)  3,166 
Benefit plan actuarial net gain (loss)  -   -   -   -   -   - 
Reclassification of amortization of net gain (loss) included in net income (loss)  2,262   (792)  1,470   6,402   (2,241)  4,161 
Total other comprehensive income (loss) $53,533  $(18,736) $34,797  $63,247  $(22,137) $41,110  $(19,376) $6,781  $(12,595) $(158,203) $55,371  $(102,832)
                                                
(Some amounts may not reconcile due to rounding)                                                



17


The following table presents details of the amounts reclassified from accumulated other comprehensive income (“AOCI”) for the periods indicated:


 Three months ended  Nine months ended   
 Three months ended  Nine months ended  Affected line item within the statements of September 30,  September 30,  Affected line item within the statements of
AOCI component September 30, 2013  September 30, 2013  operations and comprehensive income (loss) 2014  2013  2014  2013  operations and comprehensive income (loss)
(Dollars in thousands)                      
URA(D) on securities $(1,729) $(4,062) Other net realized capital gains (losses) $(1,070) $(1,729) $2,054  $(4,062) Other net realized capital gains (losses)
  606   1,422  Income tax expense (benefit)  374   606   (595)  1,422  Income tax expense (benefit)
 $(1,124) $(2,640) Net income (loss) $(696)  (1,124) $1,459  $(2,640) Net income (loss)
                            
Benefit plan liability $2,262  $6,402  Other underwriting expenses
Benefit plan net gain (loss) $1,269  $2,262  $3,640  $6,402  Other underwriting expenses
  (792)  (2,241) Income tax expense (benefit)  (444)  (792)  (1,274)  (2,241) Income tax expense (benefit)
 $1,470  $4,161  Net income (loss) $825  $1,470  $2,366  $4,161  Net income (loss)
          
(Some amounts may not reconcile due to rounding)       


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 September 30, At December 31,
(Dollars in thousands) 2014 2013
       
Beginning balance of URA (D) on securities $55,457  $157,163 
Current period change in URA (D) of investments - temporary  15,137   (101,447)
Current period change in URA (D) of investments - non-credit OTTI  -   (259)
Ending balance of URA (D) on securities  70,594   55,457 
         
Beginning balance of foreign currency translation adjustments  71,087   90,215 
Current period change in foreign currency translation adjustments  (8,587)  (19,128)
Ending balance of foreign currency translation adjustments  62,500   71,087 
         
Beginning balance of benefit plan net gain (loss)  (38,896)  (62,511)
Current period change in benefit plan net gain (loss)  2,366   23,615 
Ending balance of benefit plan net gain (loss)  (36,530)  (38,896)
         
Ending balance of accumulated other comprehensive income (loss) $96,564  $87,648 

  At September 30,  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  (93,670)  10,177 
Current period change in URA (D) of investments - non-credit OTTI  (259)  (154)
Ending balance of URA (D) on securities  63,234   157,163 
         
Beginning balance of foreign currency translation adjustments  90,215   83,185 
Current period change in foreign currency translation adjustments  (13,064)  7,030 
Ending balance of foreign currency translation adjustments  77,151   90,215 
         
Beginning balance of benefit plans  (62,511)  (55,535)
Current period change in benefit plans  4,161   (6,976)
Ending balance of benefit plans  (58,350)  (62,511)
         
Ending balance of accumulated other comprehensive income (loss) $82,035  $184,867 
16


8.       CREDIT FACILITY - EXPIRED

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”., which expired on August 15, 2014.  The Company decided not to renew the Holdings Credit Facility at expiration.  Citibank N.A. iswas the administrative agent for the Holdings Credit Facility.  The Holdings Credit Facility may bewas used for liquidity and general corporate purposes.  The Holdings Credit Facility providesprovided 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 meansmeant 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 payablepaid for the Holdings Credit Facility dependsdepended upon Holdings’ senior unsecured debt rating.

The Holdings Credit Facility requiresrequired 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 September 30, 2013, was $2,104,074 thousand.  As of September 30, 2013, the Company was in compliance with all Holdings Credit Facility covenants.
18
2010.

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.  At December 31, 2012, $2,272,3462013, $2,294,461 thousand of the $3,068,916$3,136,782 thousand in net assets of Holdings’ consolidated subsidiaries were subject to the foregoing regulatory restrictions.

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


(Dollars in thousands) At September 30, 2013 At December 31, 2012
(Dollars in thousands)
 At September 30, 2014 At December 31, 2013
Bank Commitment  In Use Date of LoanMaturity/Expiry Date Commitment  In Use Date of LoanMaturity/Expiry Date Commitment  In Use Date of LoanMaturity/Expiry Date Commitment  In Use Date of LoanMaturity/Expiry Date
Citibank Holdings Credit Facility $150,000  $-    $150,000  $-    $-  $-    $150,000  $-   
Total revolving credit borrowings      -         -         -         -   
Total letters of credit      1,551  12/31/2013      1,551  12/31/2013      -         851  12/31/2014
                                        
Total Citibank Holdings Credit Facility $150,000  $1,551    $150,000  $1,551    $-  $-    $150,000  $851   


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

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Credit facility fees incurred $-  $72  $97  $250 

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Credit facility fees incurred $72  $137  $250  $442 
17


9.       REINSURANCE AND 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 September 30, 2013,2014, the total amount on deposit in the trust account was $189,799$234,348 thousand.

On April 24, 2014, the Company entered into two collateralized reinsurance agreements with Kilimanjaro Re Limited (“Kilimanjaro”), a Bermuda based special purpose reinsurer, to provide the Company with catastrophe reinsurance coverage.  These agreements are multi-year reinsurance contracts which cover specified named storm and earthquake events.  The first agreement provides up to $250,000 thousand of reinsurance coverage from named storms in specified states of the Southeastern United States.  The second agreement provides up to $200,000 thousand of reinsurance coverage from named storms in specified states of the Southeast, Mid-Atlantic and Northeast regions of the United States and Puerto Rico as well as reinsurance coverage from earthquakes in specified states of the Southeast, Mid-Atlantic, Northeast and West regions of the United States, Puerto Rico and British Columbia.

Kilimanjaro has financed the property catastrophe reinsurance coverage by issuing $450,000 thousand of catastrophe bonds to unrelated, external investors. The proceeds from the catastrophe bond issuance will be held in a reinsurance trust throughout the duration of the reinsurance agreements and invested solely in US government money market funds with a rating of at least “AAAm” by Standard & Poor’s at the time of the bond issuance.

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.


        September 30, 2014  December 31, 2013 
        Consolidated Balance     Consolidated Balance    
(Dollars in thousands)Date Issued Date Due Principal Amounts  Sheet Amount  Market Value  Sheet Amount  Market Value 
5.40% Senior notes10/12/2004 10/15/2014 $250,000  $249,998  $250,485  $249,958  $259,130 
4.868% Senior notes06/05/2014 06/01/2044  400,000   400,000   395,824   -   - 
        September 30, 2013  December 31, 2012 
        Consolidated Balance     Consolidated Balance    
(Dollars in thousands)Date Issued Date Due Principal Amounts  Sheet Amount  Market Value  Sheet Amount  Market Value 
5.40% Senior notes10/12/2004 10/15/2014 $250,000  $249,945  $259,498  $249,907  $266,390 

On June 5, 2014, Holdings issued $400,000 thousand of 30 year senior notes at 4.868%, which will mature on June 1, 2044.  Capitalized costs of approximately $4,300 thousand related to the issuance of the senior notes will be expensed over the 30 year life of the notes.  Interest will be paid semi-annually on June 1 and December 1 of each year.  The proceeds from the issuance have been used in part to pay off the $250,000 thousand of 5.40% senior notes which matured on October 15, 2014.

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


  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Interest expense incurred $8,256  $3,388  $16,385  $10,163 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Interest expense incurred $3,388  $3,387  $10,163  $10,161 



 
1918
 


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 September 30, 2013  December 31, 2012     Maturity Date September 30, 2014  December 31, 2013 
  Original     Consolidated Balance     Consolidated Balance      Original     Consolidated Balance     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 notes04/26/2007 $400,000 05/15/2037 05/01/2067 $238,360  $236,173  $238,357  $242,138 04/26/2007 $400,000  05/15/2037 05/01/2067 $238,363  $257,763  $238,361  $233,292 

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.Effective upon the maturity of the Company’s 5.40% senior notes due October 15, 2014, the Company’s 4.868% senior notes, due on June 1, 2044, will become the Company’s long term indebtedness that ranks senior to the long term 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  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Interest expense incurred $3,937  $3,937  $11,811  $11,811 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Interest expense incurred $3,937  $3,937  $11,811  $11,811 



 
2019
 


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.


        September 30, 2013  December 31, 2012 
        Consolidated Balance     Consolidated Balance    
(Dollars in thousands)Date Issued Date Due Amount Issued  Sheet Amount  Fair Value  Sheet Amount  Fair Value 
6.20% Junior subordinated debt securities03/29/2004 03/29/2034 $329,897  $-  $-  $329,897  $333,225 


In accordance with the provisions of the junior subordinated debt securities which were issued on March 29, 2004, Holdings elected to redeem the $329,897 thousand of 6.2% junior subordinated debt securities outstanding on May 24, 2013.  As a result of the early redemption, the Company incurred pre-tax expense of $7,282 thousand related to the immediate amortization of the remaining capitalized issuance costs on the trust preferred securities.

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


 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012  2014  2013  2014  2013 
Interest expense incurred $-  $5,113  $8,181  $15,340  $-  $-  $-  $8,181 

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

13.       SEGMENT REPORTING

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”) 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.

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

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


21


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  Nine Months Ended 
U.S. Reinsurance September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Gross written premiums $532,324  $433,494  $1,385,482  $938,444 
Net written premiums  257,085   219,884   690,547   475,271 
                 
Premiums earned $225,231  $181,396  $621,430  $529,409 
Incurred losses and LAE  102,506   108,153   340,799   321,397 
Commission and brokerage  38,275   40,092   114,945   139,920 
Other underwriting expenses  12,013   12,766   32,541   33,541 
Underwriting gain (loss) $72,437  $20,385  $133,145  $34,551 
  Three Months Ended  Nine Months Ended 
International September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Gross written premiums $339,739  $248,459  $994,526  $878,637 
Net written premiums  149,812   105,550   446,158   402,078 
                 
Premiums earned $140,854  $121,611  $433,872  $426,419 
Incurred losses and LAE  90,743   29,309   262,709   191,837 
Commission and brokerage  27,932   19,692   87,195   88,432 
Other underwriting expenses  8,722   8,246   24,319   21,532 
Underwriting gain (loss) $13,457  $64,364  $59,649  $124,618 
  Three Months Ended  Nine Months Ended 
Insurance September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Gross written premiums $367,465  $328,930  $923,571  $783,872 
Net written premiums  178,365   133,432   456,334   348,328 
                 
Premiums earned $157,436  $124,105  $406,247  $343,465 
Incurred losses and LAE  113,872   105,415   306,153   273,617 
Commission and brokerage  5,353   10,680   12,907   22,968 
Other underwriting expenses  28,210   24,926   79,891   71,478 
Underwriting gain (loss) $10,001  $(16,916) $7,296  $(24,598)

 
2220
 
The following tables present the underwriting results for the operating segments for the periods indicated:
  Three Months Ended  Nine Months Ended 
U.S. Reinsurance September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Gross written premiums $679,904  $532,324  $1,663,320  $1,385,482 
Net written premiums  304,442   257,085   771,054   690,547 
                 
Premiums earned $275,521  $225,231  $739,977  $621,430 
Incurred losses and LAE  125,475   102,506   371,135   340,799 
Commission and brokerage  51,231   38,275   144,747   114,945 
Other underwriting expenses  12,119   12,013   33,054   32,541 
Underwriting gain (loss) $86,696  $72,437  $191,041  $133,145 

  Three Months Ended  Nine Months Ended 
International September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Gross written premiums $419,457  $339,739  $1,214,343  $994,526 
Net written premiums  157,932   149,812   446,599   446,158 
                 
Premiums earned $145,662  $140,854  $438,394  $433,872 
Incurred losses and LAE  113,703   90,743   286,166   262,709 
Commission and brokerage  23,767   27,932   80,348   87,195 
Other underwriting expenses  8,759   8,722   24,689   24,319 
Underwriting gain (loss) $(567) $13,457  $47,191  $59,649 

  Three Months Ended  Nine Months Ended 
Insurance September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Gross written premiums $354,033  $367,465  $885,006  $923,571 
Net written premiums  149,542   178,365   386,694   456,334 
                 
Premiums earned $148,414  $157,436  $382,407  $406,247 
Incurred losses and LAE  141,402   113,872   322,842   306,153 
Commission and brokerage  4,170   5,353   15,489   12,907 
Other underwriting expenses  29,745   28,210   79,289   79,891 
Underwriting gain (loss) $(26,903) $10,001  $(35,213) $7,296 

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  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Underwriting gain (loss) $59,226  $95,895  $203,019  $200,090 
Net investment income  83,446   68,828   215,869   227,433 
Net realized capital gains (losses)  (160)  208,426   120,904   533,758 
Corporate expense  (4,620)  (1,516)  (5,398)  (5,353)
Interest, fee and bond issue cost amortization expense  (12,292)  (7,466)  (28,539)  (38,010)
Other income (expense)  (3,739)  5,012   (15,576)  5,095 
Income (loss) before taxes $121,861  $369,179  $490,279  $923,013 

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Underwriting gain (loss) $95,895  $67,833  $200,090  $134,571 
Net investment income  68,828   76,342   227,433   231,790 
Net realized capital gains (losses)  208,426   95,943   533,758   354,673 
Corporate expense  (1,516)  (2,019)  (5,353)  (5,317)
Interest, fee and bond issue cost amortization expense  (7,466)  (12,682)  (38,010)  (38,061)
Other income (expense)  5,012   425   5,095   19,599 
Income (loss) before taxes $369,179  $225,842  $923,013  $697,255 
21


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  Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012  2014  2013  2014  2013 
Canada $48,048  $33,891  $123,630  $109,166  $41,644  $48,048  $116,133  $123,630 

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

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
05/15/2013  5,000,000
   25,000,000


As of September 30, 2013,2014, 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 



23


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  Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012  2014  2013  2014  2013 
Dividends received $4,666  $4,666  $13,997  $13,997  $7,290  $4,666  $21,870  $13,997 

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 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.

22
Affiliated Companies

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.

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


  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Expenses incurred $22,149  $19,066  $55,668  $55,835 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Expenses incurred $19,066  $20,700  $55,835  $57,073 



24


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 
Coverage Period  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 $-  $- 
                   
01/01/2003-12/31/2003 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  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  2.0% Everest International property business  -   - 
                   
01/01/2006-12/31/2007 Everest Re  31.5% Bermuda Re 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  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  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  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 
                   
01/01/2011-12/31/2011 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 
                   
01/01/2003-12/31/2006 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  -   - 
01/01/2010-12/31/2010 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(3)  - 
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  -   - 
                   
(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.
          
(3) Amounts shown are Canadian dollars.
                
(Dollars in thousands)                 
    Percent  Assuming   Single   Aggregate  
Coverage Period 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 $-   $-  
                     
01/01/2003-12/31/2003 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  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  2.0% Everest International property business  -    -  
                     
01/01/2006-12/31/2007 Everest Re  31.5% Bermuda Re 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  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  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  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  
                     
01/01/2011-12/31/2011 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  
                     
01/01/2003-12/31/2006 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  -    -  
01/01/2010-12/31/2010 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 (3)  -  
01/01/2012-12/31/2012 Everest Re- Canadian Branch  75.0% Bermuda Re property / casualty business  206,250 (3)  412,500 (3)
01/01/2013-12/31/2013 Everest Re- Canadian Branch  75.0% Bermuda Re property / casualty business  150,000 (3)  412,500 (3)
01/01/2014  Everest Re- Canadian Branch  75.0% Bermuda Re property / casualty business   262,500 (3)  412,500 (3)
 
01/01/2012Everest Canada80.0%Everest Re- Canadian Branchproperty business--
(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.
(3) Amounts shown are Canadian dollars.

 
2523
 


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.  This agreement was commuted as of JuneSeptember 30, 2013.  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)         (Dollars in thousands)      
                 
Effective Transferring Assuming % of Business or  Covered Period Transferring Assuming % of Business or Covered Period
Date Company Company Amount of Transfer  of Transfer Company Company Amount of Transfer of Transfer
                  
09/19/2000 Mt. McKinley Bermuda Re  100% All years Mt. McKinley Bermuda Re  100%  All years
10/01/2001 Everest Re  (Belgium Branch) Bermuda Re  100% All years Everest Re  (Belgium Branch) Bermuda Re  100%  All years
10/01/2008 Everest Re Bermuda Re $747,022  01/01/2002-12/31/2007 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  Nine Months Ended 
Bermuda Re September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Ceded written premiums $664,316  $567,033  $1,706,390  $1,553,615 
Ceded earned premiums  598,641   507,308   1,613,741   1,437,109 
Ceded losses and LAE (a)  344,513   337,036   879,336   835,022 

 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
Bermuda Re September 30,  September 30, 
Everest International September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012  2014  2013  2014  2013 
Ceded written premiums $567,033  $448,656  $1,553,615  $1,188,944  $131  $295  $219  $429 
Ceded earned premiums  507,308   412,390   1,437,109   1,237,883   176   336   450   750 
Ceded losses and LAE (a)  337,036   263,990   835,022   732,170   (321)  (630)  1,823   (1,233)

 
  Three Months Ended  Nine Months Ended 
Everest International September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012 
Ceded written premiums $295  $361  $429  $1,055 
Ceded earned premiums  336   583   750   2,550 
Ceded losses and LAE  (630)  832   (1,233)  (744)
 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
Everest Canada September 30,  September 30,  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012  2014  2013  2014  2013 
Assumed written premiums $5,650  $4,170  $14,775  $12,813  $10,425  $5,650  $25,650  $14,775 
Assumed earned premiums  4,807   3,963   12,196   11,329   7,106   4,807   17,062   12,196 
Assumed losses and LAE  4,536   2,378   8,810   6,798   4,104   4,536   10,487   8,810 

(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
26
years is taken into account.  The limit available under this agreement was fully exhausted at December 31, 2004.


24
Effective February 27, 2013, Group established a new subsidiary, Mt. Logan Re, which is a Class 3 insurer based in Bermuda.  Effective July 1, 2013, Mt. Logan Re established separate segregated accounts for its business activity, which will invest in a diversified set of catastrophe exposures.

The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re and assumed by the Company from Mt. Logan Re.


 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
Mt. Logan Re September 30,  September 30,  September 30,  September 30, 
(Dollars in thousands) 2013  2012  2013  2012  2014  2013  2014  2013 
Ceded written premiums $12,408  $-  $12,408  $-  $44,728  $12,408  $93,322  $12,408 
Ceded earned premiums  10,471   -   10,471   -   38,458   10,471   78,975   10,471 
Ceded losses and LAE  1,805   -   1,805   -   3,113   1,805   17,904   1,805 
                                
Assumed written premiums  1,735   -   1,735   -   578   1,735   10,497   1,735 
Assumed earned premiums  1,735   -   1,735   -   5,786   1,735   10,497   1,735 
Assumed losses and LAE  -   -   -   -   -   -   -   - 


15.       RETIREMENT BENEFITS

The Company maintains both qualified and non-qualified defined benefit pension plans and a retiree health plan for its U.S. employees employed prior to April 1, 2010.

Net periodic benefit cost for U.S. employees included the following components for the periods indicated:
Pension Benefits Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Service cost $2,460  $2,794  $7,381  $8,251 
Interest cost  2,542   2,144   7,625   6,292 
Expected return on plan assets  (2,822)  (2,124)  (8,468)  (6,367)
Amortization of prior service cost  13   12   38   37 
Amortization of net (income) loss  1,173   2,064   3,356   5,872 
FAS 88 settlement charge  5,269   -   5,269   - 
Net periodic benefit cost $8,635  $4,890  $15,201  $14,085 

Other Benefits Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
(Dollars in thousands) 2014  2013  2014  2013 
Service cost $407  $462  $1,221  $1,460 
Interest cost  342   291   1,026   845 
Amortization of net (income) loss  82   185   246   493 
Net periodic benefit cost $831  $938  $2,493  $2,798 


The Company did not make any contributions to the qualified pension benefit plan for the three and nine months ended September 30, 2014 and 2013.

16.       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
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For interim reporting periods, the company is generally willrequired to use the estimated annualannualized effective tax rate approach for calculating its tax provision for interim periods(“AETR”) method, as prescribed by ASC 740-270, Interim Reporting.Reporting, to calculate its income tax provision.  Under this method, the estimated annual effective tax rate approach, the estimated annual effective tax rateAETR 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 income tax expense or benefit for a quarter represents the difference between the year-to-date income 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.AETR.

During the third quarter of 2012, the Internal Revenue Service completed its audit of17.       SUBSEQUENT EVENTS

The Company will be entering into a reinsurance agreement with Kilimanjaro Re Limited (“Kilimanjaro”) to provide the Company forwith earthquake-only catastrophe reinsurance coverage.  Kilimanjaro will fund the 2007 and 2008 tax years.  Atreinsurance coverage through the conclusionissuance of the audit, the Company paid additional federal income taxesa catastrophe reinsurance bond, with estimated proceeds of $12,747 thousand plus interest of $1,702$500,000 thousand.  The additional tax liability resulted primarily from adjustments to the timing of the Company’s utilization of foreign tax credits and therefore, including interest but net of other permanent benefit adjustments, resulted in only $752 thousand of additional income tax expense.  Conversely, also as a result of closing the IRS audit, the Company was able to take down its reserve for uncertain tax positions by $9,657 thousand and related interest by $1,567 thousand, resulting in an income tax benefit of $11,223 thousand.

During the first and second quarters of 2012, the Company had identified understatements in its Deferred tax asset account of $21,674 thousand.  The understatements resulted from differences between filed and recorded amounts that had accumulated over several prior periods. The Company corrected these understatements in its first and second quarter financial statements, resulting in an additional $21,674 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.  The Company also increased its Deferred tax asset in its Consolidated Balance Sheets by $21,674 thousand.  The Company believes that the out of period adjustments are immaterial to its 2012 quarterly financial statements and to all prior periods.  As such, the Company has not restated any prior period amounts.
 
 
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16. SUBSEQUENT EVENTS

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

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ITEM 2.         
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 and additional capacity from the capital markets is impacting worldwide catastrophe rates.

Catastrophe rates tend to fluctuate by global region, particularly areas recently impacted by large catastrophic events.  During the second and third quarters of 2013, Canada experienced historic flooding in Alberta and Toronto, which will likely resulthas resulted in higher future catastrophe rates.  Other recentrates in these areas.  Although there were flooding and wind storm events in Europe and Asia in the latter part of 2013, the overall 2013 catastrophe events that have led to higher regionallosses for the industry were lower than average.  This lower level of losses, combined with increased competition is putting downward pressure on rates were Superstorm Sandy in 2012 and the Australian and Thailand floods, the New Zealand earthquake and the earthquake and Tsunamicertain geographical areas resulting in Japan during 2011.lower rates for most catastrophe coverages in 2014.

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.


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


 Three Months Ended  Percentage  Nine Months Ended  Percentage  Three Months Ended  Percentage Nine Months Ended  Percentage
 September 30,  Increase/  September 30,  Increase/  September 30,  Increase/ September 30,  Increase/
(Dollars in millions) 2013  2012  (Decrease)  2013  2012  (Decrease)  2014  2013  (Decrease) 2014  2013  (Decrease)
Gross written premiums $1,239.5  $1,010.9   22.6% $3,303.6  $2,601.0   27.0% $1,453.4  $1,239.5   17.3% $3,762.7  $3,303.6   13.9%
Net written premiums  585.3   458.9   27.5%  1,593.0   1,225.7   30.0%  611.9   585.3   4.6%  1,604.3   1,593.0   0.7%
                                                
REVENUES:                                                
Premiums earned $523.5  $427.1   22.6% $1,461.5  $1,299.3   12.5% $569.6  $523.5   8.8% $1,560.8  $1,461.5   6.8%
Net investment income  68.8   76.3   -9.8%  227.4   231.8   -1.9%  83.4   68.8   21.2%  215.9   227.4   -5.1%
Net realized capital gains (losses)  208.4   95.9   117.2%  533.8   354.7   50.5%  (0.2)  208.4   -100.1%  120.9   533.8   -77.3%
Other income (expense)  5.0   0.4  NM  5.1   19.6   -74.0%  (3.7)  5.0   -174.6%  (15.6)  5.1  NM 
Total revenues  805.8   599.8   34.3%  2,227.8   1,905.4   16.9%  649.1   805.8   -19.4%  1,882.0   2,227.8   -15.5%
                                                
CLAIMS AND EXPENSES:                                                
Incurred losses and loss adjustment expenses  307.1   242.9   26.5%  909.7   786.9   15.6%  380.6   307.1   23.9%  980.1   909.7   7.7%
Commission, brokerage, taxes and fees  71.6   70.5   1.6%  215.0   251.3   -14.4%  79.2   71.6   10.6%  240.6   215.0   11.9%
Other underwriting expenses  48.9   45.9   6.5%  136.8   126.6   8.1%  50.6   48.9   3.4%  137.0   136.8   0.2%
Corporate expense  1.5   2.0   -25.0%  5.4   5.3   0.7%  4.6   1.5   204.9%  5.4   5.4   0.9%
Interest, fee and bond issue cost amortization expense  7.5   12.7   -41.1%  38.0   38.1   -0.1%  12.3   7.5   64.7%  28.5   38.0   -24.9%
Total claims and expenses  436.6   374.0   16.7%  1,304.8   1,208.1   8.0%  527.3   436.6   20.8%  1,391.7   1,304.8   6.7%
                                                
INCOME (LOSS) BEFORE TAXES  369.2   225.8   63.5%  923.0   697.3   32.4%  121.9   369.2   -67.0%  490.3   923.0   -46.9%
Income tax expense (benefit)  125.4   69.9   79.5%  308.3   200.9   53.5%  21.7   125.4   -82.7%  145.5   308.3   -52.8%
NET INCOME (LOSS) $243.8  $156.0   56.3% $614.7  $496.4   23.8% $100.1  $243.8   -58.9% $344.8  $614.7   -43.9%
                                                
RATIOS:         Point Change          Point Change          Point Change         Point Change
Loss ratio  58.7%  56.9%  1.8   62.2%  60.6%  1.6   66.8%  58.7%  8.1   62.8%  62.2%  0.6 
Commission and brokerage ratio  13.7%  16.5%  (2.8)  14.7%  19.3%  (4.6)  13.9%  13.7%  0.2   15.4%  14.7%  0.7 
Other underwriting expense ratio  9.3%  10.7%  (1.4)  9.4%  9.7%  (0.3)  8.9%  9.3%  (0.4)  8.8%  9.4%  (0.6)
Combined ratio  81.7%  84.1%  (2.4)  86.3%  89.6%  (3.3)  89.6%  81.7%  7.9   87.0%  86.3%  0.7 
                                                
                                                
             At  At  Percentage              At At Percentage
             September 30,  December 31,  Increase/              September 30, December 31, Increase/
(Dollars in millions)              2013   2012  (Decrease)               2014  2013 (Decrease)
Balance sheet data:                                                
Total investments and cash             $9,250.4  $9,075.5   1.9%             $9,946.7  $9,495.1   4.8%
Total assets              15,888.7   15,088.0   5.3%              17,226.8   15,521.0   11.0%
Loss and loss adjustment expense reserves              7,716.4   8,143.1   -5.2%              7,784.1   7,653.2   1.7%
Total debt              488.3   818.2   -40.3%              888.4   488.3   81.9%
Total liabilities              11,889.5   11,609.3   2.4%              12,673.7   11,330.5   11.9%
Stockholder's equity              3,999.1   3,478.6   15.0%              4,553.1   4,190.5   8.7%
                                                
(NM, not meaningful)                                                
(Some amounts may not reconcile due to rounding.)                        
(Some amounts may not reconcile due to rounding)                        

Revenues.
Premiums.  Gross written premiums increased by 22.6%17.3% to $1,453.4 million for the three months ended September 30, 2014, compared to $1,239.5 million for the three months ended September 30, 2013, compared to $1,010.9 million for the three months ended September 30, 2012, reflecting a $190.1$227.3 million, or 27.9%26.1%, increase in our reinsurance business, andpartially offset by a $38.5$13.4 million, or 11.7% increase3.7%, decrease in ourout insurance business.  The increase in reinsurance premiums was mainly due to new business, increased participations on existing businessbusiness: quota share contracts, contracts with catastrophe exposed risks and higher original rates on subjectmortgage guaranty business.  The increasedecrease in insurance premiums was primarily due to the growthlower crop premiums, partially offset by an increase in California workers compensation, crop and non-
30
standardnon-standard auto business.  Gross written premiums increased by 27.0%13.9% to $3,762.7 million for the nine months ended September 30, 2014, compared to $3,303.6 million for the nine months ended September 30, 2013, compared to $2,601.0 million for the nine months ended September 30, 2012, reflecting a $562.9$497.7 million, or 31.0%20.9%, increase in our reinsurance business, andpartially offset by a $139.7$38.6 million, or 17.8% increase4.2%, decrease in our insurance business.  The increase in reinsurance

28
premiums was mainly due to the impact of a Floridanew business: quota share reinsurance contract as well as new business, increased participations on existing businesscontracts, contracts with catastrophe exposed risks and higher original rates on subjectmortgage guaranty business.  Excluding the large Florida quota share reinsurance contract, gross written premiums increased 16.9% and reinsurance premiums increased 16.5%, compared to the prior year nine-month period.  The increasedecrease in insurance premiums was primarily due to the growthlower crop premiums, partially offset by an increase in California workers compensation, crop and non-standard auto business.

Net written premiums increased 27.5%by 4.6% to $611.9 million for the three months ended September 30, 2014 compared to $585.3 million for the three months ended September 30, 2013, comparedand increased by 0.7% to $458.9$1,604.3 million for the threenine months ended September 30, 2012 and increased 30.0%2014 compared to $1,593.0 million for the nine months ended September 30, 20132013.  The variances of the changes in gross written premiums compared to $1,225.7the changes in net written premiums is primarily due to a higher utilization of reinsurance related to the new quota share contracts.  Premiums earned increased by 8.8% to $569.6 million for the ninethree months ended September 30, 2012, which is consistent with the increase in gross written premiums.  Premiums earned increased by 22.6%2014, compared to $523.5 million for the three months ended September 30, 2013 comparedand increased by 6.8% to $427.1$1,560.8 million for the threenine months ended September 30, 2012, and increased by 12.5%2014, compared to $1,461.5 million for the nine months ended September 30, 2013 compared to $1,299.3 million for the nine months ended September 30, 2012.  Unlike written premiums, premiums earned were not impacted by the Florida quota share reinsurance contract.2013.  The change in premiums earned as comparedrelative to the change in net written premiums was primarily due tois the impactresult of the Florida quota share reinsurance contract, which affected net written premiums but not premiums earned and due to 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 decreasedincreased by 9.8%21.2% to $83.4 million for the three months ended September 30, 2014, compared with net investment income of $68.8 million for the three months ended September 30, 20132013.  Net investment income decreased by 5.1% to $215.9 million for the nine months ended September 30, 2014, compared with net investment income of $76.3 million for the three months ended September 30, 2012 and decreased by 1.9% to $227.4 million for the nine months ended September 30, 2013 compared with net investment income of $231.8 million for the nine months ended September 30, 2012.2013.  Net pre-tax investment income, as a percentage of average invested assets, was 3.8% for the three months ended September 30, 2014 compared to 3.4% for the three months ended September 30, 2013 compared to 3.7%and was 3.4% for the threenine months ended September 30, 2012 and was2014 compared to 3.7% for the nine months ended September 30, 20132013. The increase in income and yield for the three months ended September 30, 2014 compared to 3.8%2013 was primarily due to an increase in our limited partnership income and an increase in dividend income from the shares held of the parent company, Everest Re Group, Ltd. (“Group”).  The decline in income and yield for the nine months ended September 30, 2012.  The declines were2014 compared to 2013 was primarily due to lower reinvestment rates and fluctuationsthe result of a decrease in our limited partnership income.income, partially offset by an increase in dividend income from shares held of Group.

Net Realized Capital Gains (Losses). Net realized capital losses were $0.2 million and net realized capital gains were $208.4 million for the three months ended September 30, 2014 and $95.92013, respectively.  The $0.2 million was comprised of $1.4 million of losses from sales on our fixed maturity and equity securities, partially offset by $1.2 million of gains from fair value re-measurements on fixed maturity, equity securities and other invested assets. The net realized capital gains of $208.4 million for the three months ended September 30, 2013, and 2012, respectively.  The $208.4 million was comprisedwere the result of $205.1 million of gains from fair value re-measurements on fixed maturity, equity securities and other invested assets and $3.4 million of net realized capital gains from sales on our fixed maturity and equity securities.  The net

Net realized capital gains of $95.9were $120.9 million and $533.8 million for the threenine months ended September 30, 2012 were the result2014 and 2013, respectively.  The $120.9 million was comprised of $92.7$124.1 million of gains from fair value re-measurements on fixed maturity, equity securities and $3.8other invested assets, partially offset by $3.0 million of net realized capital gainslosses from sales on our fixed maturity and equity securities partially offset by $0.5and $0.2 million of other-than-temporary impairments on our available for sale fixed maturity securities.

Netimpairments. The net realized capital gains wereof $533.8 million and $354.7 million for the nine months ended September 30, 2013, and 2012, respectively.  Ofwere the $533.8 million, there wereresult of $504.0 million of gains from fair value re-measurements on fixed maturity, equity securities and other invested assets and $29.8 million of net realized capital gains from sales on our fixed maturity and equity securities.  The net realized capital gains of $354.7 million for the nine months ended September 30, 2012 were the result of $328.7 million of gains from fair value re-measurements and $32.7 million of net realized capital gains from sales on our fixed maturity and equity securities, partially offset by $6.6 million of other-than-temporary impairments on our available for sale fixed maturity securities.

Other Income (Expense).  We recorded other expense of $3.7 million and $15.6 million for the three and nine months ended September 30, 2014, respectively.  We recorded other income of $5.0 million and $5.1 million for the three and nine months ended September 30, 2013, respectively.  We recorded other income of $0.4 million and $19.6 million for the three and nine months ended September 30, 2012, respectively.  The changes werechange was primarily due to fluctuations in currency exchange rates for the corresponding periods and fluctuations in the amortization of deferred gains on retroactive reinsurance agreements with affiliates.


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


 Three Months Ended September 30, Three Months Ended September 30,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2013                     
Attritional (a) $311.5   59.6%  $(12.5)  -2.4%  $299.0   57.2% 
2014                     
Attritional $372.4   65.3%  $(3.1)  -0.5%  $369.3   64.8% 
Catastrophes  6.9   1.3%   1.2   0.2%   8.1   1.5%   14.7   2.6%   (3.4)  -0.6%   11.3   2.0% 
A&E  -   0.0%   -   0.0%   -   0.0% 
Total segment $318.4   60.9%  $(11.3)  -2.2%  $307.1   58.7%  $387.1   67.9%  $(6.5)  -1.1%  $380.6   66.8% 
                                                      
2012                           
Attritional (a) $236.8   55.5%  $(4.0)  -0.9%  $232.8   54.6% 
2013                           
Attritional $311.5   59.6%  $(12.5)  -2.4%  $299.0   57.2% 
Catastrophes  12.5   2.9%   (2.4)  -0.6%   10.1   2.3%   6.9   1.3%   1.2   0.2%   8.1   1.5% 
A&E  -   0.0%   -   0.0%   -   0.0% 
Total segment $249.3   58.4%  $(6.4)  -1.5%  $242.9   56.9%  $318.4   60.9%  $(11.3)  -2.2%  $307.1   58.7% 
                                                      
Variance 2013/2012                           
Attritional (a) $74.7   4.1 pts $(8.5)  (1.5)pts $66.2   2.6 pts
Variance 2014/2013                           
Attritional $60.9   5.7 pts $9.4   1.9 pts $70.3   7.6 pts
Catastrophes  (5.6)  (1.6)pts  3.6   0.8 pts  (2.0)  (0.8)pts  7.8   1.3 pts  (4.6)  (0.8)pts  3.2   0.5 pts
A&E  -   - pts  -   - pts  -   - pts
Total segment $69.1   2.5 pts $(4.9)  (0.7)pts $64.2   1.8 pts $68.7   7.0 pts $4.8   1.1 pts $73.5   8.1 pts



 Nine Months Ended September 30, Nine Months Ended September 30,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2013                     
Attritional (a) $857.9   58.7%  $(2.5)  -0.2%  $855.4   58.5% 
2014                     
Attritional $956.3   61.3%  $(5.5)  -0.4%  $950.8   60.9% 
Catastrophes  36.9   2.5%   17.3   1.2%   54.2   3.7%   35.1   2.3%   (5.8)  -0.4%   29.3   1.9% 
A&E  -   0.0%   -   0.0%   -   0.0% 
Total segment $894.8   61.2%  $14.8   1.0%  $909.7   62.2%  $991.4   63.6%  $(11.3)  -0.8%  $980.1   62.8% 
                                                      
2012                           
Attritional (a) $738.3   56.9%  $11.9   0.9%  $750.2   57.8% 
2013                           
Attritional $857.9   58.7%  $(2.5)  -0.2%  $855.4   58.5% 
Catastrophes  42.5   3.3%   (5.9)  -0.5%   36.6   2.8%   36.9   2.5%   17.3   1.2%   54.2   3.7% 
A&E  -   0.0%   0.1   0.0%   0.1   0.0% 
Total segment $780.8   60.2%  $6.1   0.4%  $786.9   60.6%  $894.8   61.2%  $14.8   1.0%  $909.7   62.2% 
                                                      
Variance 2013/2012                           
Attritional (a) $119.6   1.8 pts $(14.4)  (1.1)pts $105.2   0.7 pts
Variance 2014/2013                           
Attritional $98.4   2.6 pts $(3.0)  (0.2)pts $95.4   2.4 pts
Catastrophes  (5.6)  (0.8)pts  23.2   1.7 pts  17.6   0.9 pts  (1.8)  (0.2)pts  (23.1)  (1.6)pts  (24.9)  (1.8)pts
A&E  -   - pts  (0.1)  - pts  (0.1)  - pts
Total segment $114.0   1.0 pts $8.7   0.6 pts $122.8   1.6 pts $96.6   2.4 pts $(26.1)  (1.8)pts $70.4   0.6 pts
                                                      
(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 increased by 26.5%23.9% to $380.6 million for the three months ended September 30, 2014 compared to $307.1 million for the three months ended September 30, 2013, compared to $242.9 million for the three months ended September 30, 2012, primarily due to an increase in current year attritional losses, related to the impact of the increase in premiums earned, increased losses in the Middle East, Africa and Latin America and crop insurance losses, and an increase in current year catastrophe losses.  The current year attritional losses increased by $74.7 million primarily due to the increases in premiums earned.  Current year catastrophe losses for the three months ended September 30, 2013 were $6.9 million, or 1.3 points, related to Canadian floods ($6.9 million).  The $12.5$14.7 million of current year catastrophe losses for the three months ended September 30, 20122014 represented 2.92.6 points and related to Hurricane Isaac.Odile ($9.9 million) and the Chilean earthquake ($4.8 million).  The current year catastrophe losses of $6.9 million for the three months ended September 30, 2013 were due to the Canadian floods.


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Incurred losses and LAE increased by 15.6%7.7% to $980.1 million for the nine months ended September 30, 2014 compared to $909.7 million for the nine months ended September 30, 2013, primarily due to an increase in current year attritional losses, partially offset by favorable development on prior years’ catastrophe losses in 2014 compared to $786.9additional losses in 2013.  The $17.3 million of prior years’ catastrophe losses for the nine months ended September 30, 2012, representing an2013 mainly related to Superstorm Sandy.  The increase of 1.6 loss ratio points, primarily due to higherin current year attritional losses is primarily attributable to the increase in premiums earned and unfavorable development on prior year catastropheincreased losses in 2013 compared to 2012.the Middle East, Africa and Latin America and crop insurance losses.  The current year attritional losses increased by $119.6$35.1 million primarily due to the increases in premiums earned.  Priorof current year catastrophe losses for the nine months ended September 30, 2013, were $17.3 million, or 1.22014 represented 2.3 points and related primarily to Superstorm Sandy.  Currentthe Japan snowstorm ($13.2 million), the Chilean earthquake ($12.1 million) and Hurricane Odile ($9.9 million).  The current year catastrophe losses of $36.9 million for the nine monthmonths ended September 30, 2013 were $36.9 million, or 2.5 points, due to U.S. Stormsstorms ($25.0 million), Canadian floods ($9.4 million) and European floods ($2.5 million).  The $42.5 million of current year catastrophe losses for the nine months ended September 30, 2012 represented 3.3 points and related to U.S. storm losses ($30.0 million) and Hurricane Isaac ($12.5 million).


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Commission, Brokerage, Taxes and Fees.  Commission, brokerage, taxes and fees increased by 1.6%10.6% to $79.2 million for the three months ended September 30, 2014 compared to $71.6 million for the three months ended September 30, 2013 compared to $70.5 million for the three months ended September 30, 2012.  The quarter over quarter change was primarily due to the increase in premiums earned, partially offset by an increase in excess of loss business in 2013 which carries a lower commission rate than pro rata business.2013.  Commission, brokerage, taxes and fees decreasedincreased by 14.4%11.9% to $240.6 million for the nine months ended September 30, 2014 compared to $215.0 million for the nine months ended September 30, 2013 compared to $251.3 million for the nine months ended September 30, 2012.  The nine month decline was2013.  These changes were primarily due to the terminationimpact of the Florida quota share reinsurance contract in the second quarter of 2012 and an increase in excess of loss business in 2013 which carries a lower commission rate than pro rata business, partially offset by the increase in premiums earned.earned, higher contingent commissions and changes in the mix of business.

Other Underwriting Expenses.  Other underwriting expenses were $48.9$50.6 million and $45.9$48.9 million for the three months ended September 30, 20132014 and 2012,2013, respectively, and $136.8$137.0 million and $126.6$136.8 million for the nine months ended September 30, 20132014 and 2012,2013, respectively.  The increases in other underwriting expense were mainly due to higher compensation expenses.the impact of the increase in earned premiums.

Corporate Expenses.  Corporate expenses, which are general operating expenses that are not allocated to segments, were $1.5$4.6 million and $2.0$1.5 million for the three months ended September 30, 20132014 and 2012,2013, respectively, and $5.4 million and $5.3 million for the nine months ended September 30, 20132014 and 2012, respectively.2013.  The increase, quarter over quarter, in corporate expense was mainly due to the timing of allocations and higher compensation expenses.

Interest, Fees and Bond Issue Cost Amortization Expense.  Interest, fees and other bond amortization expense was $7.5$12.3 million and $12.7$7.5 million for the three months ended September 30, 2014 and 2013, respectively. The increase was primarily due to the impact of the issuance of $400.0 million of senior notes in June, 2014. Interest, fees and 2012, respectively,other bond amortization expense was $28.5 million and $38.0 million and $38.1 million for the nine months ended September 30, 20132014 and 2012,2013, respectively.  The decreases weredecrease was primarily due to the redemption of the $329.9 million of trust preferred securities in May 2013.  The year over year decrease was2013, partially offset by $7.3the impact of the issuance of $400.0 million of amortization expense on remaining capitalized issuance costs for the trust preferred securities.senior notes in June, 2014.

Income Tax Expense (Benefit).  IncomeWe had income tax expense was $125.4expenses of $21.7 million and $69.9$125.4 million for the three months ended September 30, 20132014 and 2012,2013, respectively, and $308.3$145.5 million and $200.9$308.3 million for the nine months ended September 30, 2014 and 2013, and 2012, respectively.  Our incomeIncome tax expense is primarily a function of the geographic location of the Company’s pre-tax income and the statutory tax rates coupled within those jurisdictions, as affected by tax-exempt investment income and as calculated under the impact from tax-preferenced investment income.annualized effective tax rate (“AETR”) method.  Variations in our effective tax ratethe AETR generally result from changes in the relative levels of pre-tax income.  In addition,income, including the nine monthimpact of catastrophe losses and net capital gains (losses), among jurisdictions with different tax rates.  The decrease in income tax expense for the three and nine months ended September 30, 2012 reflect tax benefits of $21.7 million realized2014 compared to the three and nine months ended September 30, 2013 is primarily due to correctionslower net realized capital gains and the realization of understatement in the deferredadditional foreign tax asset account and $11.2 million realized due to the closing of the IRS audit for 2007 and 2008 tax years.credits.

Net Income (Loss).
Our net income was $243.8$100.1 million and $156.0$243.8 million for the three months ended September 30, 20132014 and 2012,2013, respectively, and $614.7$344.8 million and $496.4$614.7 million for the nine months ended September 30, 20132014 and 2012,2013, respectively.  The variance waschanges were primarily driven by the financial component fluctuations explained above.


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Ratios.
Our combined ratio decreasedincreased by 2.47.9 points to 89.6% for the three months ended September 30, 2014 compared to 81.7% for the three months ended September 30, 2013 comparedand increased by 0.7 points to 84.1%87.0% for the threenine months ended September 30, 2012 and decreased by 3.3 points2014 compared to 86.3% for the nine months ended September 30, 2013 compared to 89.6% for the nine months ended September 30, 2012.2013.  The loss ratio component increased 1.8 points for the three months ended September 30, 2013, over the same period last year primarily due to the $74.7 million increase in current year attritional losses, which added 4.1 points to the loss ratio.  The loss ratio increased 1.6 points for the nine months ended September 30, 2013 over the same period last year primarily due to higher current year attritional losses, which added 1.8 points to the loss ratio.  The commission and brokerage ratio components decreased 2.88.1 points and 4.60.6 points for the three and nine months ended September 30, 2013,2014, respectively, over the same periods last year, primarily due to an increaseincreased losses in excessthe Middle East, Africa and Latin America, crop insurance losses and changes in the mix of loss business which carries a lowerbusiness.  The commission than pro rata business and the termination of the Florida quota share reinsurance contract, which impacted the year over year variance.  The other underwriting expensebrokerage ratio component decreased by 1.4components increased 0.2 points and 0.30.7 points for the three and nine months ended September 30, 2013,2014, respectively, over the same period last year primarily due to changes in the increase in premiums earned.mix of business.  The other underwriting expense ratio components decreased 0.4 points and 0.6 points for the three and nine months ended September 30, 2014, respectively, over the same periods last year.

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Stockholder's Equity.
Stockholder'sStockholders’ equity increased by $520.5$362.6 million to $3,999.1$4,553.1 million at September 30, 20132014 from $3,478.6$4,190.5 million at December 31, 2012,2013, principally as a result of $614.7$344.8 million of net income, $8.7$15.1 million of net unrealized appreciation on investments, net of tax, $8.9 million of share-based compensation transactions and $4.2$2.4 million of net benefit plan obligation adjustments, partially offset by $93.9 million of net unrealized depreciation on investments and $13.1$8.6 million of net foreign currency translation adjustments.

Consolidated Investment Results

Net Investment Income.
Net investment income decreased 9.8%increased 21.2% to $83.4 million for the three months ended September 30, 2014 compared to $68.8 million for the three months ended September 30, 2013 comparedprimarily due to $76.3an increase in income from our limited partnership investments and an increase in dividend income from shares held of Group.  Net investment income decreased by 5.1% to $215.9 million for the threenine months ended September 30, 2012 and decreased 1.9%2014 compared to $227.4 million for the nine months ended September 30, 2013 compared to $231.8 million for the nine months ended September 30, 2012.2013.  The decreases weredecrease, year over year, was primarily due to declines in income from our fixed maturities, reflective of declining reinvestment rates, and equities, due to the partial liquidation of some mutual funds and fluctuationsa decline in income from our limited partnerships.partnership investments, partially offset by an increase in dividends from shares held of Group.

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


 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30,  September 30,  September 30,  September 30, 
(Dollars in millions) 2013  2012  2013  2012  2014  2013  2014  2013 
Fixed maturities $52.1  $55.5  $159.4  $164.2  $52.5  $52.1  $157.5  $159.4 
Equity securities  8.4   8.8   27.2   29.3   8.0   8.4   26.1   27.2 
Short-term investments and cash  0.3   0.3   0.7   0.8   0.2   0.3   0.8   0.7 
Other invested assets                                
Limited partnerships  6.6   9.1   32.1   29.9   19.3   6.6   18.9   32.1 
Dividends from Parent's shares  4.7   4.7   14.0   14.0   7.3   4.7   21.9   14.0 
Other  1.1   1.4   5.3   2.5   0.9   1.1   3.2   5.3 
Gross investment income before adjustments
  73.1   79.9   238.7   240.7 
Gross investment income before adjustments  88.1   73.1   228.4   238.7 
Funds held interest income (expense)  0.7   1.0   4.2   3.9   1.0   0.7   4.3   4.2 
Gross investment income  73.8   80.8   242.9   244.6   89.1   73.8   232.7   242.9 
Investment expenses  (5.0)  (4.5)  (15.5)  (12.8)  (5.6)  (5.0)  (16.8)  (15.5)
Net investment income $68.8  $76.3  $227.4  $231.8  $83.4  $68.8  $215.9  $227.4 
                                
(Some amounts may not reconcile due to rounding)                                



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


At AtAt At
September 30, December 31,September 30, December 31,
2013 20122014 2013
Imbedded pre-tax yield of cash and invested assets3.3% 3.4%3.0% 3.3%
Imbedded after-tax yield of cash and invested assets2.4% 2.4%2.1% 2.4%



Three Months Ended Nine Months EndedThree Months Ended Nine Months Ended
September 30, September 30,September 30, September 30,
2013 2012 2013 20122014 2013 2014 2013
Annualized pre-tax yield on average cash and invested assets3.4% 3.7% 3.7% 3.8%3.8% 3.4% 3.4% 3.7%
Annualized after-tax yield on average cash and invested assets2.4% 2.7% 2.6% 2.8%2.6% 2.4% 2.4% 2.6%


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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 September 30,  Nine Months Ended September 30,  Three Months Ended September 30,  Nine Months Ended September 30, 
(Dollars in millions) 2013  2012  Variance  2013  2012  Variance  2014  2013  Variance  2014  2013  Variance 
Gains (losses) from sales:                                    
Fixed maturity securities, market value                                    
Gains $3.4  $2.0  $1.4  $11.7  $9.2  $2.5  $4.3  $3.4  $0.9  $9.4  $11.7  $(2.3)
Losses  (1.7)  (1.9)  0.2   (7.7)  (5.2)  (2.5)  (3.3)  (1.7)  (1.6)  (11.3)  (7.7)  (3.6)
Total  1.8   0.1   1.7   4.1   4.0   0.1   1.0   1.8   (0.8)  (1.9)  4.1   (6.0)
                                                
Fixed maturity securities, fair value                                                
Gains  -   0.6   (0.6)  0.4   6.1   (5.7)  0.1   -   0.1   1.3   0.4   0.9 
Losses  -   (0.2)  0.2   (0.3)  (0.6)  0.3   -   -   -   (0.3)  (0.3)  - 
Total  -   0.5   (0.5)  0.1   5.5   (5.4)  0.1   -   0.1   1.0   0.1   0.9 
                                                
Equity securities, fair value                                                
Gains  3.8   5.2   (1.4)  33.2   33.0   0.2   1.7   3.8   (2.1)  12.0   33.2   (21.2)
Losses  (2.2)  (2.0)  (0.2)  (7.6)  (9.9)  2.3   (4.3)  (2.2)  (2.1)  (14.2)  (7.6)  (6.6)
Total  1.6   3.2   (1.6)  25.6   23.1   2.5   (2.6)  1.6   (4.2)  (2.2)  25.6   (27.8)
                                                
Total net realized gains (losses) from sales                                                
Gains  7.2   7.9   (0.7)  45.3   48.4   (3.1)  6.1   7.2   (1.1)  22.7   45.3   (22.6)
Losses  (3.8)  (4.1)  0.3   (15.5)  (15.7)  0.2   (7.6)  (3.8)  (3.8)  (25.8)  (15.5)  (10.3)
Total  3.4   3.8   (0.4)  29.8   32.7   (2.9)  (1.4)  3.4   (4.8)  (3.0)  29.8   (32.8)
                                                
Other than temporary impairments:  -   (0.5)  0.5   -   (6.6)  6.6   -   -   -   (0.2)  -   (0.2)
                                                
Gains (losses) from fair value adjustments:                                                
Fixed maturities, fair value  0.6   0.3   0.3   (1.0)  1.6   (2.6)  (0.9)  0.6   (1.5)  (0.9)  (1.0)  0.1 
Equity securities, fair value  37.8   58.6   (20.8)  160.3   104.7   55.6   (12.6)  37.8   (50.4)  65.4   160.3   (94.9)
Other invested assets, fair value  166.7   33.7   133.0   344.7   222.3   122.4   14.8   166.7   (151.9)  59.7   344.7   (285.0)
Total  205.1   92.7   112.4   504.0   328.7   175.3   1.2   205.1   (203.9)  124.1   504.0   (379.9)
                                                
Total net realized gains (losses) $208.4  $95.9  $112.5  $533.8  $354.7  $179.1  $(0.2) $208.4  $(208.6) $120.9  $533.8  $(412.9)
                                                
(Some amounts may not reconcile due to rounding)                                                

Net realized capital losses were $0.2 million and net realized capital gains were $208.4 million and $95.9 million for the three months ended September 30, 2014 and 2013, respectively.  For the three months ended September 30, 2014, we recorded $1.4 million of net realized capital losses from sales of fixed maturity and 2012, respectively.equity securities, partially offset by $1.2 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets.  For the three months ended September 30, 2013, we recorded $205.1 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $3.4 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 September 30, 2014 and 2013 related primarily to
35
adjusting the portfolios for overall market changes and individual credit shifts.  Forshifts along with maintaining a balanced foreign currency exposure.

33
Net realized capital gains were $120.9 million and $533.8 million for the threenine months ended September 30, 2012,2014 and 2013, respectively.  For the nine months ended September 30, 2014, we recorded $92.7$124.1 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets, and $3.8partially offset by $3.0 million of net realized capital gainslosses from sales of fixed maturity and equity securities partially offset by $0.5and $0.2 million of other-than-temporary impairments on fixed maturity securities.

Net realized capital gains were $533.8 million and $354.7 million for the nine months ended September 30, 2013 and 2012, respectively.impairments.  For the nine months ended September 30, 2013, we recorded $504.0 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $29.8 million of net realized capital gains from sales of fixed maturity and equity securities.  The fixed maturity and equity sales for the nine months ended September 30, 2014 and 2013 related primarily to adjusting the portfolios for overall market changes and individual credit shifts.  For the nine months ended September 30, 2012, we recorded $328.7 million of gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $32.7 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $6.6 million of other-than-temporary impairments on fixed maturity securities.shifts along with maintaining a balanced foreign currency exposure.

Segment Results.
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.

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

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


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

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


 Three Months Ended September 30,  Nine Months Ended September 30,  Three Months Ended September 30,  Nine Months Ended September 30, 
(Dollars in millions) 2013  2012  Variance  % Change  2013  2012  Variance  % Change  2014  2013  Variance  % Change  2014  2013  Variance  % Change 
Gross written premiums $532.3  $433.5  $98.8   22.8% $1,385.5  $938.4  $447.0   47.6% $679.9  $532.3  $147.6   27.7% $1,663.3  $1,385.5  $277.8   20.1%
Net written premiums  257.1   219.9   37.2   16.9%  690.5   475.3   215.3   45.3%  304.4   257.1   47.4   18.4%  771.1   690.5   80.5   11.7%
            ��                                                   
Premiums earned $225.2  $181.4  $43.8   24.2% $621.4  $529.4  $92.0   17.4% $275.5  $225.2  $50.3   22.3% $740.0  $621.4  $118.5   19.1%
Incurred losses and LAE  102.5   108.2   (5.6)  -5.2%  340.8   321.4   19.4   6.0%  125.5   102.5   23.0   22.4%  371.1   340.8   30.3   8.9%
Commission and brokerage  38.3   40.1   (1.8)  -4.5%  114.9   139.9   (25.0)  -17.8%  51.2   38.3   13.0   33.8%  144.7   114.9   29.8   25.9%
Other underwriting expenses  12.0   12.8   (0.8)  -5.9%  32.5   33.5   (1.0)  -3.0%  12.1   12.0   0.1   0.9%  33.1   32.5   0.5   1.6%
Underwriting gain (loss) $72.4  $20.4  $52.1  NM $133.1  $34.6  $98.6  NM $86.7  $72.4  $14.3   19.7% $191.0  $133.1  $57.9   43.5%
                                                                
             Point Chg              Point Chg              Point Chg             Point Chg 
Loss ratio  45.5%  59.6%      (14.1)  54.8%  60.7%      (5.9)  45.5%  45.5%      -   50.2%  54.8%      (4.6)
Commission and brokerage ratio  17.0%  22.1%      (5.1)  18.5%  26.4%      (7.9)  18.6%  17.0%      1.6   19.6%  18.5%      1.1 
Other underwriting expense ratio  5.3%  7.1%      (1.8)  5.3%  6.4%      (1.1)  4.4%  5.3%      (0.9)  4.4%  5.3%      (0.9)
Combined ratio  67.8%  88.8%      (21.0)  78.6%  93.5%      (14.9)  68.5%  67.8%      0.7   74.2%  78.6%      (4.4)
                                                                
(NM, not meaningful.)                                
(NM, not meaningful)                                
(Some amounts may not reconcile due to rounding.)                                                                

Premiums. Gross written premiums increased by 22.8%27.7% to $679.9 million for the three months ended September 30, 2014 from $532.3 million for the three months ended September 30, 2013, from $433.5 million for the three months ended September 30, 2012, 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.mortgage guaranty business.  Net written premiums increased 16.9%by 18.4% to $304.4 million for the three months ended September 30, 2014 compared to $257.1 million for the three months ended September 30, 20132013.  The variance of the change in gross written premiums compared to $219.9the change in net written premiums is primarily due to a higher utilization of reinsurance related to the new quota share contracts and the impact of changes in affiliated reinsurance agreements, including Mt. Logan.  Premiums earned increased 22.3% to $275.5 million for the three months ended September 30, 2012, which is in line with the increase in gross written premiums.  Premiums earned increased 24.2%2014 compared to $225.2 million for the three months ended September 30, 2013 compared2013.  The change in premiums earned relative to $181.4 million for the three months ended September 30, 2012, which is in line with the increase in net written premiums.premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 47.6%20.1% to $1,663.3 million for the nine months ended September 30, 2014 from $1,385.5 million for the nine months ended September 30, 2013, from $938.4 million for the nine months ended September 30, 2012, primarily due to the impact of a large Florida quota share reinsurance contract, 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.  Excluding the impact of the Florida quota share reinsurance contract, gross written premiums increased 19.1%.mortgage guaranty business.  Net written premiums increased 45.3%by 11.7% to $771.1 million for the nine months ended September 30, 2014 compared to $690.5 million for the nine months ended September 30, 20132013.  The variance of the change in gross written premiums compared to $475.3the change in net written premiums is primarily due to a higher utilization of reinsurance related to the new quota share contracts and the impact of changes in affiliated reinsurance agreements, including Mt. Logan.  Premiums earned increased 19.1% to $740.0 million for the nine months ended September 30, 2012, which is in line with the increase in gross written premiums.  Premiums earned increased 17.4%2014 compared to $621.4 million for the nine months ended September 30, 2013 compared to $529.4 million for the nine months ended September 30, 2012.  Premiums earned were not impacted by the Florida quota share reinsurance contract that affected the written premiums.2013.  The change in premiums earned was relatively comparablerelative to the increase in net written premiums excludingis primarily the Florida quota share reinsurance contract.result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.


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


 Three Months Ended September 30, Three Months Ended September 30,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2014                     
Attritional $125.2   45.4%  $-   0.0%  $125.2   45.4% 
Catastrophes  -   0.0%   0.3   0.1%   0.3   0.1% 
Total segment $125.2   45.4%  $0.3   0.1%  $125.5   45.5% 
                           
2013                                                
Attritional $113.6   50.5%  $(12.0)  -5.3%  $101.6   45.2%  $113.6   50.5%  $(12.0)  -5.3%  $101.6   45.2% 
Catastrophes  0.1   0.0%   0.8   0.3%   0.9   0.3%   0.1   0.0%   0.8   0.3%   0.9   0.3% 
A&E  -   0.0%   -   0.0%   -   0.0% 
Total segment $113.7   50.5%  $(11.2)  -5.0%  $102.5   45.5%  $113.7   50.5%  $(11.2)  -5.0%  $102.5   45.5% 
                                                      
2012                           
Variance 2014/2013                           
Attritional $95.9   52.8%  $(4.3)  -2.4%  $91.6   50.4%  $11.6   (5.1)pts $12.0   5.3 pts $23.6   0.2 pts
Catastrophes  12.5   6.9%   4.1   2.3%   16.6   9.2%   (0.1)  - pts  (0.5)  (0.2)pts  (0.6)  (0.2)pts
A&E  -   0.0%   -   0.0%   -   0.0% 
Total segment $108.4   59.7%  $(0.2)  -0.1%  $108.2   59.6%  $11.5   (5.1)pts $11.5   5.1 pts $23.0   - pts
                           
Variance 2013/2012                           
Attritional $17.7   (2.3)pts $(7.7)  (2.9)pts $10.0   (5.2)pts
Catastrophes  (12.4)  (6.9)pts  (3.3)  (2.0)pts  (15.7)  (8.9)pts
A&E  -   - pts  -   - pts  -   - pts
Total segment $5.3   (9.2)pts $(11.0)  (4.9)pts $(5.6)  (14.1)pts



 Nine Months Ended September 30, Nine Months Ended September 30,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2014                     
Attritional $373.2   50.6%  $(4.9)  -0.7%  $368.3   49.9% 
Catastrophes  3.2   0.4%   (0.4)  -0.1%   2.8   0.3% 
Total segment $376.4   51.0%  $(5.3)  -0.8%  $371.1   50.2% 
                           
2013                                                
Attritional $305.9   49.2%  $(8.6)  -1.4%  $297.3   47.8%  $305.9   49.2%  $(8.6)  -1.4%  $297.3   47.8% 
Catastrophes  27.6   4.4%   15.9   2.6%   43.5   7.0%   27.6   4.4%   15.9   2.6%   43.5   7.0% 
A&E  -   0.0%   -   0.0%   -   0.0% 
Total segment $333.5   53.6%  $7.3   1.2%  $340.8   54.8%  $333.5   53.6%  $7.3   1.2%  $340.8   54.8% 
                                                      
2012                           
Variance 2014/2013                           
Attritional $273.6   51.7%  $8.2   1.6%  $281.8   53.3%  $67.3   1.4 pts $3.7   0.7 pts $71.0   2.1 pts
Catastrophes  42.5   8.0%   (3.0)  -0.6%   39.5   7.4%   (24.4)  (4.0)pts  (16.3)  (2.7)pts  (40.7)  (6.7)pts
A&E  -   0.0%   0.1   0.0%   0.1   0.0% 
Total segment $316.1   59.7%  $5.3   1.0%  $321.4   60.7% 
                           
Variance 2013/2012                           
Attritional $32.3   (2.5)pts $(16.8)  (3.0)pts $15.5   (5.5)pts
Catastrophes  (14.9)  (3.6)pts  18.9   3.2 pts  4.0   (0.4)pts
A&E  -   - pts  (0.1)  - pts  (0.1)  - pts
Total segment $17.4   (6.1)pts $2.0   0.2 pts $19.4   (5.9)pts $42.9   (2.6)pts $(12.6)  (2.0)pts $30.3   (4.6)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 decreased 5.2%increased by 22.4% to $125.5 million for the three months ended September 30, 2014 compared to $102.5 million for the three months ended September 30, 2013, primarily due to the increase in current year attritional losses of $11.6 million, due to the impact of the increase in premiums earned, and $12.0 million of less favorable development on prior years’ attritional losses in 2014 compared to $108.22013.  The $12.0 million of prior years’ attritional losses for the three months ended September 30, 2012,2013 related primarily due to the decline in catastrophe losses and favorable development on prior year attritional losses, partially offset by an increase intreaty casualty line of business.  There were no current year attritional losses.  Current year catastrophe losses for the three months ended September 30, 2013 were2014.  The $0.1 million due to Canadian floods ($0.1 million), compared to $12.5 million of current year catastrophe losses for the three months ended September 30, 2012, which related to Hurricane Isaac.  Favorable development on prior year attritional losses related primarily to the treaty casualty line of business.  Current year attritional losses increased by $17.7 million primarily2013 were due to the increase in premiums earned.  Despite the increase in current year attritional losses, the current year attritional loss ratio decreased 2.3 points due to the continued shift in business to excess of loss contracts which generally have lower attritional losses than pro rata contracts.Canadian floods.

Incurred losses increased 6.0%by 8.9% to $371.1 million for the nine months ended September 30, 2014 compared to $340.8 million for the nine months ended September 30, 2013, compared to $321.4 million for the nine months ended September 30, 2012, primarily due to anthe increase in current
38
year attritional losses and unfavorable development on prior year catastrophe losses,of $67.3 million resulting primarily from the impact of the increase in premiums earned, partially offset by a declinedecrease of $24.4 million in current year catastrophe losses and favorable development on prior year attritional losses when comparing 2013 to 2012.  Current year attritional losses increased by $32.3 million primarily due to the increase in premiums earned.  Despite the increase in current year attritional losses, the current year attritional loss ratio decreased 2.5 points due to the continued shift in business to excess of loss contracts which generally have lower attritional losses than pro rata contracts.  Unfavorable development on prior yearyears’ catastrophe losses was $15.9 million, primarily related to Superstorm Sandy ($11.0 million).  Current year catastrophe losses for the nine months ended September 30, 2013, were $27.6 million due to U.S. Storms ($25.0 million), European floods ($2.5 million) and Canadian floods ($0.1 million),in 2014 compared to $42.5unfavorable development in 2013.  The $3.2 million of current year catastrophe losses for the nine months ended September 30, 2012, which2014 related to the Japan snowstorm ($3.2 million).  The $27.6 million of current year catastrophe losses for the nine months ended September 30, 2013 were due to the U.S. Stormsstorms ($30.025.0 million), European floods ($2.5 million) and Hurricane IsaacCanadian floods ($12.50.1 million).  The favorable$15.9 million of unfavorable development on prior year attritionalyears’ catastrophe losses when comparingfor the nine months ended September 30, 2013 related primarily to 2012 was primarily due to the treaty casualty line of business.Superstorm Sandy.

36
Segment Expenses.  Commission and brokerage decreased 4.5%expenses increased by 33.8% to $51.2 million for the three months ended September 30, 2014 compared to $38.3 million for the three months ended September 30, 2013 compared2013.  Commission and brokerage expenses increased by 25.9% to $40.1$144.7 million for the threenine months ended September 30, 2012.  The quarter over quarter variance was due to the shift in the mix of business to contracts with lower commission rates, partially offset by the impact from the increase in premiums earned.  Commission and brokerage decreased 17.8%2014 compared to $114.9 million for the nine months ended September 30, 2013 compared to $139.9 million for the nine months ended September 30, 2012.  The year over year change was primarily2013.  These variances were mainly due to the impact of the termination of the large Florida quota share reinsurance contractincreases in premiums earned, higher contingent commissions and changes in the second quarter 2012 as well as the adoptionmix of new accounting standards concerning the accounting for acquisition costs, which increased expenses in 2012, partially offset by the impact from the increase in premiums earned.business. 

Segment other underwriting expenses decreasedincreased slightly to $12.1 million for the three months ended September 30, 2014 from $12.0 million for the three months ended September 30, 2013 comparedand increased slightly to $12.8$33.1 million for the threenine months ended September 30, 2012.  Segment other underwriting expenses decreased slightly to2014 from $32.5 million for the nine months ended September 30, 2013 from $33.5 million for the nine months ended September 30, 2012.2013.

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


 Three Months Ended September 30,  Nine Months Ended September 30,  Three Months Ended September 30,  Nine Months Ended September 30, 
(Dollars in millions) 2013  2012  Variance  % Change  2013  2012  Variance  % Change  2014  2013  Variance  % Change  2014  2013  Variance  % Change 
Gross written premiums $339.7  $248.5  $91.3   36.7% $994.5  $878.6  $115.9   13.2% $419.5  $339.7  $79.7   23.5% $1,214.3  $994.5  $219.8   22.1%
Net written premiums  149.8   105.6   44.3   41.9%  446.2   402.1   44.1   11.0%  157.9   149.8   8.1   5.4%  446.6   446.2   0.4   0.1%
                                                                
Premiums earned $140.9  $121.6  $19.2   15.8% $433.9  $426.4  $7.5   1.7% $145.7  $140.9  $4.8   3.4% $438.4  $433.9  $4.5   1.0%
Incurred losses and LAE  90.7   29.3   61.4   209.6%  262.7   191.8   70.9   36.9%  113.7   90.7   23.0   25.3%  286.2   262.7   23.5   8.9%
Commission and brokerage  27.9   19.7   8.2   41.8%  87.2   88.4   (1.2)  -1.4%  23.8   27.9   (4.2)  -14.9%  80.3   87.2   (6.8)  -7.9%
Other underwriting expenses  8.7   8.2   0.5   5.8%  24.3   21.5   2.8   12.9%  8.8   8.7   -   0.4%  24.7   24.3   0.4   1.5%
Underwriting gain (loss) $13.5  $64.4  $(50.9)  -79.1% $59.6  $124.6  $(65.0)  -52.1% $(0.6) $13.5  $(14.0)  -104.2% $47.2  $59.6  $(12.5)  -20.9%
                                                                
             Point Chg              Point Chg              Point Chg             Point Chg
Loss ratio  64.4%  24.1%      40.3   60.6%  45.0%      15.6   78.1%  64.4%      13.7   65.3%  60.6%      4.7 
Commission and brokerage ratio  19.8%  16.2%      3.6   20.1%  20.7%      (0.6)  16.3%  19.8%      (3.5)  18.3%  20.1%      (1.8)
Other underwriting expense ratio  6.2%  6.8%      (0.6)  5.6%  5.1%      0.5   6.0%  6.2%      (0.2)  5.6%  5.6%      - 
Combined ratio  90.4%  47.1%      43.3   86.3%  70.8%      15.5   100.4%  90.4%      10.0   89.2%  86.3%      2.9 
                                                                
(Some amounts may not reconcile due to rounding.)                                                                

Premiums. Gross written premiums increased by 36.7%23.5% to $419.5 million for the three months ended September 30, 2014 compared to $339.7 million for the three months ended September 30, 2013, comparedprimarily due to $248.5new quota share contracts.  Net written premiums increased by 5.4% to $157.9 million for the three months ended September 30, 2012, primarily due to growth in Latin America business.  Net written premiums increased by 41.9%2014 compared to $149.8 million for the three months ended September 30, 20132013.  The variance of the change in gross written premiums compared to $105.6the change in net written premiums is due to a higher utilization of reinsurance related to the new quota share contracts and the impact of changes in affiliated reinsurance agreements, including Mt. Logan.  Premiums earned increased 3.4% to $145.7 million for the three months ended September 30, 2012, which is consistent with the change in gross written premiums.  Premiums earned increased by 15.8%2014 compared to $140.9 million for the three months ended September 30, 20132013.  The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 22.1% to $1,214.3 million for the nine months ended September 30, 2014 compared to $994.5 million for the nine months ended September 30, 2013, primarily due to new quota share contracts, partially offset by approximately $30 million of negative impacts from foreign exchange movements year over year.  Net written premiums increased by 0.1% to $446.6 million for the nine months ended September 30, 2014 compared to $446.2 million for the nine months ended September 30, 2013.  The variance of the change in gross written premiums compared to the change in net written premiums is due to a higher utilization of reinsurance related to the new quota share contracts and the impact of changes in affiliated reinsurance agreements, including Mt. Logan.  Premiums earned increased 1.0% to $438.4 million for the nine months ended September 30, 2014 compared to $433.9 million for the nine months ended September 30, 2013.  The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

 
3937
 
Incurred Losses and LAE. The following tables present the incurred losses and LAE for the International segment for the periods indicated.
$121.6
  Three Months Ended September 30,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2014                     
Attritional $106.6   73.2%  $(3.8)  -2.6%  $102.8   70.6% 
Catastrophes  14.7   10.1%   (3.7)  -2.6%   10.9   7.5% 
Total segment $121.3   83.3%  $(7.6)  -5.2%  $113.7   78.1% 
                            
2013                           
Attritional $85.1   60.4%  $(1.6)  -1.1%  $83.5   59.3% 
Catastrophes  6.6   4.7%   0.6   0.4%   7.2   5.1% 
Total segment $91.7   65.1%  $(1.0)  -0.7%  $90.7   64.4% 
                            
Variance 2014/2013                           
Attritional $21.5   12.8 pts $(2.2)  (1.5)pts $19.3   11.3 pts
Catastrophes  8.1   5.4 pts  (4.3)  (3.0)pts  3.7   2.4 pts
Total segment $29.6   18.2 pts $(6.6)  (4.5)pts $23.0   13.7 pts


  Nine Months Ended September 30,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2014                     
Attritional $263.7   60.1%  $(4.1)  -0.9%  $259.7   59.2% 
Catastrophes  32.0   7.3%   (5.5)  -1.2%   26.5   6.1% 
Total segment $295.7   67.4%  $(9.5)  -2.1%  $286.2   65.3% 
                            
2013                           
Attritional $255.5   59.0%  $(3.4)  -0.8%  $252.1   58.2% 
Catastrophes  9.1   2.1%   1.5   0.3%   10.6   2.4% 
Total segment $264.6   61.1%  $(1.9)  -0.5%  $262.7   60.6% 
                            
Variance 2014/2013                           
Attritional $8.2   1.1 pts $(0.7)  (0.1)pts $7.6   1.0 pts
Catastrophes  22.9   5.2 pts  (7.0)  (1.5)pts  15.9   3.7 pts
Total segment $31.1   6.3 pts $(7.6)  (1.6)pts $23.5   4.7 pts
                            
(Some amounts may not reconcile due to rounding.)                        

Incurred losses and LAE increased by 25.3% to $113.7 million for the three months ended September 30, 2012.2014 compared to $90.7 million for the three months ended September 30, 2013, primarily due to an increase of $21.5 million in current year attritional losses, related to additional losses in the Middle East, Africa and Latin America, and an increase of $8.1 million in current year catastrophe losses. The $14.7 million of current year catastrophe losses for the three months ended September 30, 2014 were due to Hurricane Odile ($9.9 million) and the Chilean earthquake ($4.8 million).  The $6.6 million of current year catastrophe losses for the three months ended September 30, 2013, were due to the Canadian floods.

Incurred losses and LAE increased by 8.9% to $286.2 million for the nine months ended September 30, 2014 compared to $262.7 million for the nine months ended September 30, 2013, primarily due to an increase of $22.9 million in current year catastrophe losses and an increase of $8.2 million in current year attritional losses, related to additional losses in the Middle East, Africa and Latin America. The $32.0 million of current year catastrophe losses for the nine months ended September 30, 2014 were due to the Chilean earthquake ($12.1 million), Japan snowstorm ($10.0 million) and Hurricane Odile ($9.9 million).  The $9.1 million of current year catastrophe losses for the nine months ended September 30, 2013 were due to the Canadian floods.

Segment Expenses. Commission and brokerage decreased 14.9% to $23.8 million for the three months ended September 30, 2014 compared to $27.9 million for the three months ended September 30, 2013.  Commission and brokerage decreased 7.9% to $80.3 million for the nine months ended September 30, 2014 compared to $87.2 million for the nine months ended September 30, 2013. This decrease was primarily due to the new contracts, which have lower net commission rates, partially offset by the impact of the increase in premiums earned.

38
Segment other underwriting expenses slightly increased to $8.8 million for the three months ended September 30, 2014 compared to $8.7 million for the three months ended September 30, 2013 and slightly increased to $24.7 million for the nine months ended September 30, 2014 compared to $24.3 million for the nine months ended September 30, 2013.

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

  Three Months Ended September 30,  Nine Months Ended September 30, 
(Dollars in millions) 2014  2013  Variance  % Change  2014  2013  Variance  % Change 
Gross written premiums $354.0  $367.5  $(13.4)  -3.7% $885.0  $923.6  $(38.6)  -4.2%
Net written premiums  149.5   178.4   (28.8)  -16.2%  386.7   456.3   (69.6)  -15.3%
                                 
Premiums earned $148.4  $157.4  $(9.0)  -5.7% $382.4  $406.2  $(23.8)  -5.9%
Incurred losses and LAE  141.4   113.9   27.5   24.2%  322.8   306.2   16.7   5.5%
Commission and brokerage  4.2   5.4   (1.2)  -22.1%  15.5   12.9   2.6   20.0%
Other underwriting expenses  29.7   28.2   1.5   5.4%  79.3   79.9   (0.6)  -0.8%
Underwriting gain (loss) $(26.9) $10.0  $(36.9) NM  $(35.2) $7.3  $(42.5) NM 
                                 
              Point Chg             Point Chg
Loss ratio  95.3%  72.3%      23.0   84.4%  75.4%      9.0 
Commission and brokerage ratio  2.8%  3.4%      (0.6)  4.1%  3.2%      0.9 
Other underwriting expense ratio  20.0%  17.9%      2.1   20.7%  19.6%      1.1 
Combined ratio  118.1%  93.6%      24.5   109.2%  98.2%      11.0 
                                 
(NM, not meaningful)                                
(Some amounts may not reconcile due to rounding.)                                

Premiums. Gross written premiums decreased by 3.7% to $354.0 million for the three months ended September 30, 2014 compared to $367.5 million for the three months ended September 30, 2013.  This decrease was primarily driven by a decline in crop business.  Net written premiums decreased by 16.2% to $149.5 million for the three months ended September 30, 2014 compared to $178.4 million for the three months ended September 30, 2013.  The variance in the change of gross written premiums compared to the change in net written premiums is due to varied utilization of reinsurance, particularly on the crop business.  Premiums earned decreased 5.7% to $148.4 million for the three months ended September 30, 2014 compared to $157.4 million for the three months ended September 30, 2013.  The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums decreased by 4.2% to $885.0 million for the nine months ended September 30, 2014 compared to $923.6 million for the nine months ended September 30, 2013.  This decrease was primarily driven by a decline in crop business.  Net written premiums decreased by 15.3% to $386.7 million for the nine months ended September 30, 2014 compared to $456.3 million for the nine months ended September 30, 2013.  The variance in the change of gross written premiums compared to the change in net written premiums is due to varied utilization of reinsurance, particularly on the crop business.  Premiums earned decreased 5.9% to $382.4 million for the nine months ended September 30, 2014 compared to $406.2 million for the nine months ended September 30, 2013.  The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 13.2% to $994.5 million for the nine months ended September 30, 2013 compared to $878.6 million for the nine months ended September 30, 2012, primarily due to growth in Latin America business.  Net written premiums increased by 11.0% to $446.2 million for the nine months ended September 30, 2013 compared to $402.1 million for the nine months ended September 30, 2012, which is consistent with the change in gross written premiums.  Premiums earned increased by 1.7% to $433.9 million for the nine months ended September 30, 2013 compared to $426.4 million for the nine months ended September 30, 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 tables present the incurred losses and LAE for the International segment for the periods indicated.


  Three Months Ended September 30,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2013                     
Attritional $85.1   60.4%  $(1.6)  -1.1%  $83.5   59.3% 
Catastrophes  6.6   4.7%   0.6   0.4%   7.2   5.1% 
Total segment $91.7   65.1%  $(1.0)  -0.7%  $90.7   64.4% 
                            
2012                           
Attritional $39.8   32.8%  $(4.0)  -3.3%  $35.8   29.5% 
Catastrophes  -   0.0%   (6.5)  -5.4%   (6.5)  -5.4% 
Total segment $39.8   32.8%  $(10.5)  -8.7%  $29.3   24.1% 
                            
Variance 2013/2012                           
Attritional $45.3   27.6 pts $2.4   2.2 pts $47.7   29.8 pts
Catastrophes  6.6   4.7 pts  7.1   5.8 pts  13.7   10.5 pts
Total segment $51.9   32.3 pts $9.5   8.0 pts $61.4   40.3 pts
  Nine Months Ended September 30,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2013                     
Attritional $255.5   59.0%  $(3.4)  -0.8%  $252.1   58.2% 
Catastrophes  9.1   2.1%   1.5   0.3%   10.6   2.4% 
Total segment $264.6   61.1%  $(1.9)  -0.5%  $262.7   60.6% 
                            
2012                           
Attritional $198.7   46.6%  $(4.0)  -0.9%  $194.7   45.7% 
Catastrophes  -   0.0%   (2.9)  -0.7%   (2.9)  -0.7% 
Total segment $198.7   46.6%  $(6.9)  -1.6%  $191.8   45.0% 
                            
Variance 2013/2012                           
Attritional $56.8   12.4 pts $0.6   0.1 pts $57.4   12.5 pts
Catastrophes  9.1   2.1 pts  4.4   1.0 pts  13.5   3.1 pts
Total segment $65.9   14.5 pts $5.0   1.1 pts $70.9   15.6 pts
                            
(Some amounts may not reconcile due to rounding.)                        


Incurred losses and LAE increased 209.6% to $90.7 million for the three months ended September 30, 2013 compared to $29.3 million for the three months ended September 30, 2012, representing 40.3 loss ratio points.  Current year attritional losses increased by $45.3 million, or 27.6 points, due primarily to the increase in premiums earned, the impact of changes in our affiliated quota share agreements and the effect of fluctuations in foreign currency.  Current year catastrophe losses were $6.6 million for the three months
 
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ended September 30, 2013, due to the Canadian floods ($6.6 million).  There were no current catastrophe losses for the three months ended September 30, 2012.

Incurred losses and LAE increased 36.9% to $262.7 million for the nine months ended September 30, 2013 compared to $191.8 million for the nine months ended September 30, 2012, representing 15.6 loss ratio points.  Current year attritional losses increased by $56.8 million, or 12.4 points, due primarily to the increase in premiums earned, the impact of changes in our affiliated quota share agreements and the effect of fluctuations in foreign currency.  Current year catastrophe losses were $9.1 million for the nine months ended September 30, 2013, due to the Canadian floods ($9.1 million).  There were no current catastrophe losses for the nine months ended September 30, 2012.

Segment Expenses. Commission and brokerage increased 41.8% to $27.9 million for the three months ended September 30, 2013 compared to $19.7 million for the three months ended September 30, 2012.  This increase was mainly due to the increase in premiums earned and the impact of changes in our affiliated quota share agreements.  Commission and brokerage decreased 1.4% to $87.2 million for the nine months ended September 30, 2013 compared to $88.4 million for the nine months ended September 30, 2012.  This decrease was mainly due to the shift in the mix of business towards property catastrophe and excess of loss business which have lower commission rates, partially offset by the increase in premiums earned.

Segment other underwriting expenses increased slightly to $8.7 million for the three months ended September 30, 2013 compared to $8.2 million for the three months ended September 30, 2012.   Segment other underwriting expenses increased to $24.3 million for the nine months ended September 30, 2013 compared to $21.5 million for the nine months ended September 30, 2012.  These increases related primarily 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 September 30,  Nine Months Ended September 30, 
(Dollars in millions) 2013  2012  Variance  % Change  2013  2012  Variance  % Change 
Gross written premiums $367.5  $328.9  $38.5   11.7% $923.6  $783.9  $139.7   17.8%
Net written premiums  178.4   133.4   44.9   33.7%  456.3   348.3   108.0   31.0%
                                 
Premiums earned $157.4  $124.1  $33.3   26.9% $406.2  $343.5  $62.8   18.3%
Incurred losses and LAE  113.9   105.4   8.5   8.0%  306.2   273.6   32.5   11.9%
Commission and brokerage  5.4   10.7   (5.3)  -49.9%  12.9   23.0   (10.1)  -43.8%
Other underwriting expenses  28.2   24.9   3.3   13.2%  79.9   71.5   8.4   11.8%
Underwriting gain (loss) $10.0  $(16.9) $26.9   -159.1% $7.3  $(24.6) $31.9   -129.7%
                                 
              Point Chg              Point Chg 
Loss ratio  72.3%  84.9%      (12.6)  75.4%  79.7%      (4.3)
Commission and brokerage ratio  3.4%  8.6%      (5.2)  3.2%  6.7%      (3.5)
Other underwriting expense ratio  17.9%  20.1%      (2.2)  19.6%  20.8%      (1.2)
Combined ratio  93.6%  113.6%      (20.0)  98.2%  107.2%      (9.0)
                                 
(Some amounts may not reconcile due to rounding.)                                


Premiums. Gross written premiums increased by 11.7% to $367.5 million for the three months ended September 30, 2013 compared to $328.9 million for the three months ended September 30, 2012.  This increase was primarily driven by California workers compensation, crop and non-standard auto business.  Net written premiums increased 33.7% to $178.4 million for the three months ended September 30, 2013 compared to $133.4 million for the three months ended September 30, 2012.  The larger increase in net written premiums compared to gross written premiums is mainly due to less use of reinsurance in 2013, particularly on the crop business.  Premiums earned increased 26.9% to $157.4 million for the three months ended September 30, 2013 compared to $124.1 million for the three months ended September 30, 2012.  The change in premiums earned relative to net written premiums is the result of timing; premiums are
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earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 17.8% to $923.6 million for the nine months ended September 30, 2013 compared to $783.9 million for the nine months ended September 30, 2012.  This increase was primarily driven by California workers compensation, crop and non-standard auto business.  Net written premiums increased 31.0% to $456.3 million for the nine months ended September 30, 2013 compared to $348.3 million for the nine months ended September 30, 2012.  The larger increase in net written premiums compared to gross written premiums is mainly due to less use of reinsurance in 2013, particularly on the crop business.  Premiums earned increased 18.3% to $406.2 million for the nine months ended September 30, 2013 compared to $343.5 million for the nine months ended September 30, 2012.  As with the quarter, the change in premiums earned in relation to net premiums written is due to timing.

Incurred Losses and LAE. The following tables present the incurred losses and LAE for the Insurance segment for the periods indicated.


 Three Months Ended September 30, Three Months Ended September 30,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2014                     
Attritional $140.6   94.8%  $0.8   0.5%  $141.4   95.3% 
Catastrophes  -   0.0%   -   0.0%   -   0.0% 
Total segment $140.6   94.8%  $0.8   0.5%  $141.4   95.3% 
                           
2013                                                
Attritional $112.8   71.6%  $1.0   0.7%  $113.8   72.3%  $112.8   71.6%  $1.0   0.7%  $113.8   72.3% 
Catastrophes  0.2   0.1%   (0.1)  -0.1%   0.1   0.0%   0.2   0.1%   (0.1)  -0.1%   0.1   0.0% 
Total segment $113.0   71.7%  $0.9   0.6%  $113.9   72.3%  $113.0   71.7%  $0.9   0.6%  $113.9   72.3% 
                                                      
2012                           
Variance 2014/2013                           
Attritional $101.1   81.4%  $4.3   3.5%  $105.4   84.9%  $27.8   23.2 pts $(0.2)  (0.2)pts $27.6   23.0 pts
Catastrophes  -   0.0%   -   0.0%   -   0.0%   (0.2)  (0.1)pts  0.1   0.1 pts  (0.1)  - pts
Total segment $101.1   81.4%  $4.3   3.5%  $105.4   84.9%  $27.6   23.1 pts $(0.1)  (0.1)pts $27.5   23.0 pts
                           
Variance 2013/2012                           
Attritional $11.7   (9.8)pts $(3.3)  (2.8)pts $8.4   (12.6)pts
Catastrophes  0.2   0.1 pts  (0.1)  (0.1)pts  0.1   - pts
Total segment $11.9   (9.7)pts $(3.4)  (2.9)pts $8.5   (12.6)pts



 Nine Months Ended September 30, Nine Months Ended September 30,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2014                     
Attritional $319.4   83.5%  $3.4   0.9%  $322.8   84.4% 
Catastrophes  -   0.0%   0.1   0.0%   0.1   0.0% 
Total segment $319.4   83.5%  $3.4   0.9%  $322.8   84.4% 
                           
2013                                                
Attritional $296.6   73.0%  $9.5   2.3%  $306.1   75.3%  $296.6   73.0%  $9.5   2.3%  $306.1   75.3% 
Catastrophes  0.2   0.1%   (0.1)  0.0%   0.1   0.1%   0.2   0.1%   (0.1)  0.0%   0.1   0.1% 
Total segment $296.8   73.1%  $9.4   2.3%  $306.2   75.4%  $296.8   73.1%  $9.4   2.3%  $306.2   75.4% 
                                                      
2012                           
Attritional $266.0   77.5%  $7.6   2.2%  $273.6   79.7% 
Catastrophes  -   0.0%   -   0.0%   -   0.0% 
Total segment $266.0   77.5%  $7.6   2.2%  $273.6   79.7% 
                           
Variance 2013/2012                           
Variance 2014/2013                           
Attritional $30.6   (4.5)pts $1.9   0.1 pts $32.5   (4.4)pts $22.8   10.5 pts $(6.1)  (1.4)pts $16.7   9.1 pts
Catastrophes  0.2   0.1 pts  (0.1)  - pts  0.1   0.1 pts  (0.2)  (0.1)pts  0.2   - pts  -   (0.1)pts
Total segment $30.8   (4.4)pts $1.8   0.1 pts $32.5   (4.3)pts $22.6   10.4 pts $(6.0)  (1.4)pts $16.7   9.0 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 increased by 8.0%24.2% to $141.4 million for the three months ended September 30, 2014 compared to $113.9 million for the three months ended September 30, 2013, comparedmainly due to $105.4an increase of $27.8 million for the three months ended September 30, 2012.  The variance resulted from a $11.7 million increase in current year attritional losses, due primarily to higher premiums earned, while the current year attritional loss ratio declined 9.8 points, primarily reflecting lower losses on crop business.  Current year catastrophe losseswhich were $0.2 million for the three months ended September 30, 2013, duemainly related to the Canadian floods ($0.2 million).crop book of business. There were no current year catastrophe losses for the three months ended September 30, 2012.2014.  The $0.2 million of current year catastrophe losses for the three months ended September 30, 2013 were due to the Canadian floods.
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Incurred losses and LAE increased by 11.9%5.5% to $322.8 million for the nine months ended September 30, 2014 compared to $306.2 million for the nine months ended September 30, 2013, comparedmainly due to $273.6an increase of $22.8 million for the nine months ended September 30, 2012.  The variance resulted from an $30.6 million increase in current year attritional losses, due to higher premiums earned, while the current year attritional loss ratio declined 4.5 points.  Current year catastrophe losseswhich were $0.2 million for the nine months ended September 30, 2013, duemainly related to the Canadian floods ($0.2 million).crop book of business, partially offset by $6.1 million of lower development on prior years’ attritional losses in 2014 compared to 2013.  There were no current year catastrophe losses for the nine months ended September 30, 2012.2014.  The $0.2 million of current year catastrophe losses for the nine months ended September 30, 2013 were due to the Canadian floods.

Segment Expenses.  Commission and brokerage decreased slightly to $4.2 million for the three months ended September 30, 2014 compared to $5.4 million for the three months ended September 30, 2013 compared2013.  Commission and brokerage increased 20.0% to $10.7$15.5 million for the threenine months ended September 30, 2012. Commission and brokerage decreased 43.8%2014 compared to $12.9 million for the nine months ended September 30, 2013 compared to $23.0 million2013.  The increase for the nine months ended September 30, 2012.  These decreases wereyear was primarily due todriven by the impactshift in the mix of the adoption of new accounting standards concerning the accounting for acquisition costs,premium away from crop business, which increased in 2012 and changes in our affiliated quota share agreements.carries a lower commission rate than other insurance lines.


40
Segment other underwriting expenses increased slightly to $29.7 million for the three months ended September 30, 2014 compared to $28.2 million for the three months ended September 30, 2013 compared to $24.9 million for the same period in 2012.2013.  Segment other underwriting expenses increaseddecreased slightly to $79.3 million for the nine months ended September 30, 2014 compared to $79.9 million for the nine months ended September 30, 2013 compareddue primarily to $71.5 million for the same periodimpact of the decline in 2012.  These increases were primarily due to increased premiums earned and higher compensation costs.earned.

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 $9.3$9.9 billion investment portfolio, at September 30, 2013,2014, 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 $752.3$670.6 million of mortgage-backed securities in the $5,309.8$5,836.5 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 display the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $454.9$659.0 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 September 30, 2013  At September 30, 2014
(Dollars in millions)  -200   -100   0   100   200   -200  -100  0  100  200
Total Market/Fair Value $6,061.6  $5,918.4  $5,764.7  $5,600.5  $5,433.8  $6,803.2  $6,652.1  $6,495.6  $6,331.4  $6,162.3 
Market/Fair Value Change from Base (%)
  5.2%  2.7%  0.0%  -2.8%  -5.7%  4.7%  2.4%  0.0%  -2.5%  -5.1%
Change in Unrealized Appreciation                                        
After-tax from Base ($) $193.0  $99.9  $-  $(106.7) $(215.1) $200.0  $101.8  $-  $(106.7) $(216.6)

We had $7,716.4$7,784.1 million and $8,143.1$7,653.2 million of gross reserves for losses and LAE as of September 30, 20132014 and December 31, 2012,2013, 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.  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 September 30, 2013  At September 30, 2014
(Dollars in millions)  -20%  -10%  0%  10%  20%  -20%  -10%  0%  10%  20%
Fair/Market Value of the Equity Portfolio $1,014.5  $1,141.3  $1,268.2  $1,395.0  $1,521.8  $956.2  $1,075.7  $1,195.3  $1,314.8  $1,434.3 
After-tax Change in Fair/Market Value  (164.9)  (82.4)  -   82.4   164.9   (155.4)  (77.7)  -   77.7   155.4 

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.  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 September 30, 2013,2014, there has been no material change in exposure to foreign exchange rates as compared to December 31, 2012.2013.


 
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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
ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


ITEM 4.CONTROLS AND PROCEDURES
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
ITEM 1.         LEGAL PROCEEDINGS

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance 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.


 
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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 
   
   31.1Section 302 Certification of Joseph V. TarantoDominic J. Addesso 
   
   31.2Section 302 Certification of Craig Howie 
   
   32.1Section 906 Certification of Joseph V. TarantoDominic J. Addesso and Craig Howie 
   
   101.INSXBRL Instance Document 
   
   101.SCHXBRL Taxonomy Extension Schema 
   
   101.CALXBRL Taxonomy Extension Calculation Linkbase 
   
   101.DEFXBRL Taxonomy Extension Definition Linkbase 
   
   101.LABXBRL Taxonomy Extension Labels Linkbase 
   
   101.PREXBRL 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/ CRAIG HOWIE 
  Craig Howie 
  Executive Vice President and
       Chief Financial Officer
     
  (Duly Authorized Officer and Principal Financial Officer)
     
     
     
Dated: November 14, 20132014