UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:
March 31, 20162017
 
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 or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer" andfiler," "smaller reporting company" and "emerging growth 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)
Emerging  growth company
Indicate by check mark if the registrant is an emerging growth company and has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.

YES  NOX

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 May 1, 20162017
Common Shares, $0.01 par value 1,000

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

EVEREST REINSURANCE HOLDINGS, INC.

Table of Contents
Form 10-Q


Page
PART I

FINANCIAL INFORMATION

     
Item 1. Financial Statements 
     
  Consolidated Balance Sheets at March 31, 20162017 (unaudited) and 
   December 31, 201520161
    
  Consolidated Statements of Operations and Comprehensive Income (Loss) for the 
   three months ended March 31, 20162017 and 20152016 (unaudited)2
     
  Consolidated Statements of Changes in Stockholder's Equity for the three 
   months ended March 31, 20162017 and 20152016 (unaudited)3
     
  Consolidated Statements of Cash Flows for the three months ended 
   March 31, 20162017 and 20152016 (unaudited)4
     
  Notes to Consolidated Interim Financial Statements (unaudited)5
     
Item 2. Management's Discussion and Analysis of Financial Condition and 
   Results of Operation2728
    
Item 3. Quantitative and Qualitative Disclosures About Market Risk3940
     
Item 4. Controls and Procedures3940
     

PART II

OTHER INFORMATION

     
Item 1. Legal Proceedings4041
     
Item 1A. Risk Factors4041
    
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds4041
    
Item 3. Defaults Upon Senior Securities4041
    
Item 4. Mine Safety Disclosures4041
    
Item 5. Other Information4041
    
Item 6. Exhibits4142
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS



 March 31,  December 31,  March 31,  December 31, 
(Dollars in thousands, except par value per share) 2016  2015  2017  2016 
 (unaudited)    (unaudited)    
ASSETS:          
Fixed maturities - available for sale, at market value $5,579,911  $5,356,477  $6,206,415  $5,970,496 
(amortized cost: 2016, $5,488,882; 2015, $5,335,472)        
Fixed maturities - available for sale, at fair value  1,870   2,102 
(amortized cost: 2017, $6,137,668; 2016, $5,910,494)        
Equity securities - available for sale, at fair value  1,194,972   1,215,377   852,993   887,800 
Short-term investments  329,190   563,536   336,611   306,286 
Other invested assets (cost: 2016, $595,114; 2015, $450,154)  595,114   450,154 
Other invested assets (cost: 2017, $658,686; 2016, $613,680)  659,189   613,740 
Other invested assets, at fair value  1,773,214   1,773,214   1,837,302   1,766,626 
Cash  148,439   155,429   235,586   297,794 
Total investments and cash  9,622,710   9,516,289   10,128,096   9,842,742 
Note receivable - affiliated  250,000   250,000   250,000   250,000 
Accrued investment income  46,810   41,727   44,915   45,323 
Premiums receivable  1,092,277   1,129,656   1,257,211   1,128,639 
Reinsurance receivables - unaffiliated  848,919   716,982   919,890   887,657 
Reinsurance receivables - affiliated  3,675,168   3,742,105   3,690,125   3,686,130 
Funds held by reinsureds  172,271   176,712   183,791   190,421 
Deferred acquisition costs  80,270   92,651   62,308   73,924 
Prepaid reinsurance premiums  757,777   772,686   842,956   781,384 
Other assets  247,742   261,805   208,548   202,519 
TOTAL ASSETS $16,793,944  $16,700,613  $17,587,840  $17,088,739 
                
LIABILITIES:                
Reserve for losses and loss adjustment expenses $7,992,273  $7,940,720  $8,369,162  $8,331,288 
Unearned premium reserve  1,318,229   1,349,799   1,353,230   1,312,386 
Funds held under reinsurance treaties  100,755   101,531   109,010   110,836 
Losses in the course of payment  143,296   125,592   182,667   82,915 
Commission reserves  45,880   51,873   44,137   52,037 
Other net payable to reinsurers  1,120,917   1,225,260   832,307   860,391 
4.868% Senior notes due 6/1/2044  400,000   400,000   396,744   396,714 
6.6% Long term notes due 5/1/2067  238,369   238,368   236,487   236,462 
Accrued interest on debt and borrowings  12,341   3,537   12,341   3,537 
Income taxes  107,488   68,024   223,629   142,143 
Unsettled securities payable  29,525   15,040   108,316   27,121 
Other liabilities  248,154   249,658   271,593   267,349 
Total liabilities  11,757,227   11,769,402   12,139,623   11,823,179 
                
Commitments and Contingencies (Note 5)        
Commitments and Contingencies (Note 6)        
                
STOCKHOLDER'S EQUITY:                
Common stock, par value: $0.01; 3,000 shares authorized;                
1,000 shares issued and outstanding (2016 and 2015)  -   - 
1,000 shares issued and outstanding (2017 and 2016)  -   - 
Additional paid-in capital  379,582   374,789   387,637   387,567 
Accumulated other comprehensive income (loss), net of deferred income tax expense                
(benefit) of $(182) at 2016 and ($33,458) at 2015  (349)  (62,136)
(benefit) of ($13,335) at 2017 and ($19,549) at 2016  (24,772)  (36,315)
Retained earnings  4,657,484   4,618,558   5,085,352   4,914,308 
Total stockholder's equity  5,036,717   4,931,211   5,448,217   5,265,560 
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $16,793,944  $16,700,613  $17,587,840  $17,088,739 
                
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  Three Months Ended 
 March 31,  March 31, 
(Dollars in thousands) 2016  2015  2017  2016 
 (unaudited)  (unaudited) 
REVENUES:          
Premiums earned $481,925  $521,062  $471,055  $481,925 
Net investment income  58,445   72,581   60,849   58,445 
Net realized capital gains (losses):                
Other-than-temporary impairments on fixed maturity securities  (23,015)  (24,121)  (1,132)  (23,015)
Other-than-temporary impairments on fixed maturity securities                
transferred to other comprehensive income (loss)  -   -   -   - 
Other net realized capital gains (losses)  (43,362)  45,417   118,900   (43,362)
Total net realized capital gains (losses)  (66,377)  21,296   117,768   (66,377)
Other income (expense)  13,102   15,833   9,855   13,102 
Total revenues  487,095   630,772   659,527   487,095 
                
CLAIMS AND EXPENSES:                
Incurred losses and loss adjustment expenses  296,062   308,880   289,722   296,062 
Commission, brokerage, taxes and fees  68,822   96,531   49,470   68,822 
Other underwriting expenses  59,227   48,543   59,895   59,227 
Corporate expenses  2,336   1,609   3,597   2,336 
Interest, fee and bond issue cost amortization expense  8,859   8,859   8,859   8,859 
Total claims and expenses  435,306   464,422   411,543   435,306 
                
INCOME (LOSS) BEFORE TAXES  51,789   166,350   247,984   51,789 
Income tax expense (benefit)  12,863   50,406   76,940   12,863 
                
NET INCOME (LOSS) $38,926  $115,944  $171,044  $38,926 
                
Other comprehensive income (loss), net of tax:                
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period  19,600   15,950   9,439   19,600 
Less: reclassification adjustment for realized losses (gains) included in net income (loss)  25,915   23,665   (3,467)  25,915 
Total URA(D) on securities arising during the period  45,515   39,615   5,972   45,515 
                
Foreign currency translation adjustments  14,932   (33,308)  3,567   14,932 
                
Benefit plan actuarial net gain (loss) for the period  -   -   -   - 
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)  1,340   1,604   2,004   1,340 
Total benefit plan net gain (loss) for the period  1,340   1,604   2,004   1,340 
Total other comprehensive income (loss), net of tax  61,787   7,911   11,543   61,787 
                
COMPREHENSIVE INCOME (LOSS) $100,713  $123,855  $182,587  $100,713 
                
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  Three Months Ended 
 March 31,  March 31, 
(Dollars in thousands, except share amounts) 2016  2015  2017  2016 
 (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 $374,789  $362,293  $387,567  $374,789 
Share-based compensation plans  4,793   3,965   70   4,793 
Balance, end of period  379,582   366,258   387,637   379,582 
                
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),                
NET OF DEFERRED INCOME TAXES:                
Balance, beginning of period  (62,136)  4,519   (36,315)  (62,136)
Net increase (decrease) during the period  61,787   7,911   11,543   61,787 
Balance, end of period  (349)  12,430   (24,772)  (349)
                
RETAINED EARNINGS:                
Balance, beginning of period  4,618,558   4,205,905   4,914,308   4,618,558 
Net income (loss)  38,926   115,944   171,044   38,926 
Balance, end of period  4,657,484   4,321,849   5,085,352   4,657,484 
                
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $5,036,717  $4,700,537  $5,448,217  $5,036,717 
                
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  Three Months Ended 
 March 31,  March 31, 
(Dollars in thousands) 2016  2015  2017  2016 
 (unaudited)  (unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income (loss) $38,926  $115,944  $171,044  $38,926 
Adjustments to reconcile net income to net cash provided by operating activities:                
Decrease (increase) in premiums receivable  38,549   (78,969)  (127,985)  38,549 
Decrease (increase) in funds held by reinsureds, net  3,817   (4,707)  5,307   3,817 
Decrease (increase) in reinsurance receivables  (56,106)  (68,311)  (33,666)  (56,106)
Decrease (increase) in income taxes  6,546   31,408   75,304   6,546 
Decrease (increase) in prepaid reinsurance premiums  15,994   15,016   (61,392)  15,994 
Increase (decrease) in reserve for losses and loss adjustment expenses  29,962   20,927   34,016   29,962 
Increase (decrease) in unearned premiums  (33,573)  (28,224)  39,180   (33,573)
Increase (decrease) in other net payable to reinsurers  (106,588)  (52,400)  (30,525)  (106,588)
Increase (decrease) in losses in course of payment  17,456   60,419   99,506   17,456 
Change in equity adjustments in limited partnerships  2,514   (7,173)  225   2,514 
Distribution of limited partnership income  9,859   7,369   3,727   9,859 
Change in other assets and liabilities, net  24,496   35,494   18,204   24,496 
Non-cash compensation expense  3,117   1,946   2,629   3,117 
Amortization of bond premium (accrual of bond discount)  4,541   4,955   4,494   4,541 
Amortization of underwriting discount on senior notes  1   1   1   1 
Net realized capital (gains) losses  66,377   (21,296)  (117,768)  66,377 
Net cash provided by (used in) operating activities  65,888   32,399   82,301   65,888 
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Proceeds from fixed maturities matured/called - available for sale, at market value  154,378   188,815   274,356   154,378 
Proceeds from fixed maturities sold - available for sale, at market value  188,046   112,846   292,994   188,046 
Proceeds from fixed maturities sold - available for sale, at fair value  -   1,236 
Proceeds from equity securities sold - available for sale, at fair value  86,149   133,960   134,051   86,149 
Distributions from other invested assets  255,889   10,797   448,121   255,889 
Cost of fixed maturities acquired - available for sale, at market value  (506,085)  (293,848)  (785,984)  (506,085)
Cost of equity securities acquired - available for sale, at fair value  (92,019)  (164,112)  (56,724)  (92,019)
Cost of other invested assets acquired  (413,223)  (16,600)  (497,077)  (413,223)
Net change in short-term investments  235,895   (860)  (29,794)  235,895 
Net change in unsettled securities transactions  5,870   (31,296)  72,275   5,870 
Net cash provided by (used in) investing activities  (85,100)  (59,062)  (147,782)  (85,100)
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Tax benefit from share-based compensation  1,676   2,020   (2,560)  1,676 
Net cash provided by (used in) financing activities  1,676   2,020   (2,560)  1,676 
                
EFFECT OF EXCHANGE RATE CHANGES ON CASH  10,546   (31,845)  5,833   10,546 
                
Net increase (decrease) in cash  (6,990)  (56,488)  (62,208)  (6,990)
Cash, beginning of period  155,429   323,975   297,794   155,429 
Cash, end of period $148,439  $267,487  $235,586  $148,439 
                
SUPPLEMENTAL CASH FLOW INFORMATION:                
Income taxes paid (recovered) $4,558  $18,077  $1,581  $4,558 
Interest paid  -   -   -   - 
                
The accompanying notes are an integral part of the consolidated financial statements.                

4
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended March 31, 20162017 and 20152016

1.      GENERAL

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

During the third quarter of 2016, the Company established domestic subsidiaries, Everest Premier Insurance Company ("Everest Premier") and Everest Denali Insurance Company ("Everest Denali"), which will be used in the continued expansion of the Insurance operations.

Effective August 24, 2016, the Company sold its wholly-owned subsidiary, Heartland Crop Insurance Company ("Heartland"), a managing agent for crop insurance, to CGB Diversified Services, Inc. ("CGB"). The operating results of Heartland for the period owned are included within the Company's financial statements.

Effective July 13, 2015, the Company sold all of the outstanding shares of capital stock of a wholly-owned subsidiary entity, Mt. McKinley Insurance Company ("Mt. McKinley"), to Clearwater Insurance Company. The operating results of Mt. McKinley for the three and nine months ended March 31,September 30, 2015 are included within the Company's financial statements.

2.      BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three months ended March 31, 20162017 and 20152016 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, 20152016 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  The results for the three months ended March 31, 20162017 and 20152016 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, 2016, 2015 2014 and 20132014 included in the Company's most recent Form 10-K filing.

All intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years' amounts to conform to the 20162017 presentation.

Application of Recently Issued Accounting Standard Changes.

Disclosures about Short-Duration Contracts. In May 2015, the FASB issued ASU 2015-09, authoritative guidance regarding required disclosures associated with short duration insurance contracts.  The new disclosure requirements focus on information about initial claim estimates and subsequent claim estimate adjustment, methodologies in estimating claims and the timing, frequency and severity of claims related to short duration insurance contracts. This guidance is effective for annual reporting periods beginning after December 15, 2015 and interim reporting periods beginning after December 15, 2016. Therefore, the initial presentation ofThe Company implemented this guidance in the Company's financial statements and footnotes will befourth quarter of 2016.
5
Disclosures for its 10-K filing as ofInvestments in Certain Entities that Calculate Net Asset Value Per Share.  In May 2015, the FASB issued ASU 2015-07, which removes the requirement to categorize, within the fair value hierarchy, investments for which fair values are estimated using the net asset value practical expedient provided by Accounting Standards Codification 820, Fair Value Measurement.  The updated guidance is effective for annual reporting periods beginning after December 31, 2016.15, 2015.  The Company doesadoption did not anticipate that it will have a significantmaterial impact on itsthe Company's financial statements.

Debt Issuance Costs. In April 2015, The FASB issued ASU 2015–03, authoritative guidance on the presentation of debt issuance costs.  This guidance requires that debt issuance costs be presented within the balance sheet as a reduction of the carrying value of the debt liability, rather than as a separate asset.  This guidance is effective for annual reporting periods beginning after December 15, 2015 and related interim reporting periods.  The Company does not anticipate that the adoption ofimplemented this guidance willeffective in the second quarter of 2016.  This adoption did not have aany material impact on itsthe Company's financial statements.
5

Consolidation. In February 2015, the FASB issued ASU 2015-02, authoritative guidance regarding consolidation of reporting entities.  The new guidance focuses on the required evaluation of whether certain legal entities should be consolidated.  This guidance is effective for annual and interim reporting periods beginning after December 15, 2015.  The Company has determined that the guidance willadoption did not have a significantmaterial impact on itsthe Company's financial statements.

3.  INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity, equity security investments, carried at market value and other-than-temporary impairments ("OTTI") in accumulated other comprehensive income ("AOCI") are as follows for the periods indicated:

  At March 31, 2017 
  Amortized  Unrealized  Unrealized  Market  OTTI in AOCI 
(Dollars in thousands) Cost  Appreciation  Depreciation  Value  (a) 
Fixed maturity securities               
U.S. Treasury securities and obligations of               
U.S. government agencies and corporations $772,443  $2,678  $(3,901) $771,220  $- 
Obligations of U.S. states and political subdivisions  705,145   18,818   (11,526)  712,437   - 
Corporate securities  2,238,328   45,144   (11,854)  2,271,618   1,332 
Asset-backed securities  175,864   381   (75)  176,170   - 
Mortgage-backed securities                    
Commercial  75,108   838   (324)  75,622   - 
Agency residential  704,451   2,380   (8,365)  698,466   - 
Non-agency residential  68   11   -   79   - 
Foreign government securities  474,211   21,809   (6,925)  489,095   - 
Foreign corporate securities  992,050   31,699   (12,041)  1,011,708   213 
Total fixed maturity securities $6,137,668  $123,758  $(55,011) $6,206,415  $1,545 

  At March 31, 2016 
  Amortized  Unrealized  Unrealized  Market  OTTI in AOCI 
(Dollars in thousands) Cost  Appreciation  Depreciation  Value  (a) 
Fixed maturity securities          
U.S. Treasury securities and obligations of          
U.S. government agencies and corporations $363,705  $6,407  $(66) $370,046  $- 
Obligations of U.S. states and political subdivisions  664,481   38,438   (843)  702,076   - 
Corporate securities  2,003,827   38,795   (39,602)  2,003,020   128 
Asset-backed securities  167,757   765   (287)  168,235   - 
Mortgage-backed securities                    
Commercial  62,415   1,201   (188)  63,428   - 
Agency residential  777,460   9,178   (1,925)  784,713   - 
Non-agency residential  113   19   -   132   - 
Foreign government securities  472,081   27,162   (7,782)  491,461   - 
Foreign corporate securities  977,043   29,693   (9,936)  996,800   - 
Total fixed maturity securities $5,488,882  $151,658  $(60,629) $5,579,911  $128 

6

  At December 31, 2016 
  Amortized  Unrealized  Unrealized  Market  OTTI in AOCI 
(Dollars in thousands) Cost  Appreciation  Depreciation  Value  (a) 
Fixed maturity securities               
U.S. Treasury securities and obligations of               
U.S. government agencies and corporations $693,005  $2,509  $(4,434) $691,080  $- 
Obligations of U.S. states and political subdivisions  723,938   18,016   (11,970)  729,984   - 
Corporate securities  2,119,324   50,665   (15,786)  2,154,203   4,868 
Asset-backed securities  136,826   330   (129)  137,027   - 
Mortgage-backed securities                    
Commercial  75,435   510   (452)  75,493   - 
Agency residential  721,772   2,365   (8,993)  715,144   - 
Non-agency residential  76   12   -   88   - 
Foreign government securities  495,572   22,088   (10,383)  507,277   - 
Foreign corporate securities  944,546   30,015   (14,361)  960,200   175 
Total fixed maturity securities $5,910,494  $126,510  $(66,508) $5,970,496  $5,043 

  At December 31, 2015 
  Amortized  Unrealized  Unrealized  Market  OTTI in AOCI 
(Dollars in thousands) Cost  Appreciation  Depreciation  Value  (a) 
Fixed maturity securities          
U.S. Treasury securities and obligations of          
U.S. government agencies and corporations $329,281  $2,422  $(718) $330,985  $- 
Obligations of U.S. states and political subdivisions  669,945   34,020   (890)  703,075   - 
Corporate securities  2,011,997   27,286   (70,725)  1,968,558   (86)
Asset-backed securities  145,755   290   (1,063)  144,982   - 
Mortgage-backed securities                    
Commercial  61,527   1,430   (511)  62,446   - 
Agency residential  714,907   3,994   (6,603)  712,298   - 
Non-agency residential  126   24   -   150   - 
Foreign government securities  447,244   24,255   (8,425)  463,074   - 
Foreign corporate securities  954,690   27,616   (11,397)  970,909   17 
Total fixed maturity securities $5,335,472  $121,337  $(100,332) $5,356,477  $(69)


(a)  Represents the amount of OTTI recognized in AOCI.  Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.
6

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

  At March 31, 2017  At December 31, 2016 
  Amortized  Market  Amortized  Market 
(Dollars in thousands) Cost  Value  Cost  Value 
Fixed maturity securities – available for sale            
    Due in one year or less $466,605  $466,630  $394,401  $392,824 
    Due after one year through five years  2,988,903   3,016,699   2,925,786   2,955,325 
    Due after five years through ten years  919,998   938,822   879,762   894,166 
    Due after ten years  806,671   833,927   776,436   800,429 
Asset-backed securities  175,864   176,170   136,826   137,027 
Mortgage-backed securities                
Commercial  75,108   75,622   75,435   75,493 
Agency residential  704,451   698,466   721,772   715,144 
Non-agency residential  68   79   76   88 
Total fixed maturity securities $6,137,668  $6,206,415  $5,910,494  $5,970,496 

  At March 31, 2016  At December 31, 2015 
  Amortized  Market  Amortized  Market 
(Dollars in thousands) Cost  Value  Cost  Value 
Fixed maturity securities – available for sale        
    Due in one year or less $371,332  $370,026  $330,029  $330,509 
    Due after one year through five years  2,702,980   2,739,917   2,617,079   2,618,056 
    Due after five years through ten years  779,848   783,570   870,266   856,230 
    Due after ten years  626,977   669,890   595,783   631,806 
Asset-backed securities  167,757   168,235   145,755   144,982 
Mortgage-backed securities                
Commercial  62,415   63,428   61,527   62,446 
Agency residential  777,460   784,713   714,907   712,298 
Non-agency residential  113   132   126   150 
Total fixed maturity securities $5,488,882  $5,579,911  $5,335,472  $5,356,477 


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 
  March 31, 
(Dollars in thousands) 2017  2016 
Increase (decrease) during the period between the market value and cost      
of investments carried at market value, and deferred taxes thereon:      
Fixed maturity securities $12,242  $69,826 
Fixed maturity securities, other-than-temporary impairment  (3,499)  197 
Other invested assets  444   - 
Change in unrealized  appreciation (depreciation), pre-tax  9,187   70,023 
Deferred tax benefit (expense)  (4,440)  (24,439)
Deferred tax benefit (expense), other-than-temporary impairment  1,225   (69)
Change in unrealized appreciation (depreciation),        
net of deferred taxes, included in stockholder's equity $5,972  $45,515 


  Three Months Eded 
  March 31, 
(Dollars in thousands) 2016  2015 
Increase (decrease) during the period between the market value and cost    
of investments carried at market value, and deferred taxes thereon:    
Fixed maturity securities $69,826  $51,211 
Fixed maturity securities, other-than-temporary impairment  197   9,735 
Change in unrealized  appreciation (depreciation), pre-tax  70,023   60,946 
Deferred tax benefit (expense)  (24,439)  (17,924)
Deferred tax benefit (expense), other-than-temporary impairment  (69)  (3,407)
Change in unrealized appreciation (depreciation),        
net of deferred taxes, included in stockholder's equity $45,515  $39,615 


7
The Company frequently reviews all of its fixed maturity, available for sale securities for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized cost at the time of review.  The Company then assesses whether the decline in value is temporary or other-than-temporary.  In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information.  Generally, a change in a security's value caused by a change in the market, interest rate or foreign exchange environment does not constitute an other-than-temporary impairment, but rather a temporary decline in market value.  Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss).  If the Company determines that the decline is other-than-temporary and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the carrying value of the investment is written down to fair value.  The fair value adjustment that is credit or foreign exchange related is recorded in net realized capital gains (losses) in the Company's consolidated statements of operations and comprehensive income (loss). The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company's consolidated balance sheets.  The Company's assessments are based on the issuers current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

7

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 March 31, 2017 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 $331,049  $(3,901) $-  $-  $331,049  $(3,901)
Obligations of U.S. states and political subdivisions  206,241   (10,966)  492   (560)  206,733   (11,526)
Corporate securities  441,626   (7,815)  88,102   (4,039)  529,728   (11,854)
Asset-backed securities  40,290   (73)  4,026   (2)  44,316   (75)
Mortgage-backed securities                        
Commercial  8,255   (297)  3,072   (27)  11,327   (324)
Agency residential  465,110   (6,116)  86,304   (2,249)  551,414   (8,365)
Non-agency residential  20   -   -   -   20   - 
Foreign government securities  140,028   (1,524)  56,147   (5,401)  196,175   (6,925)
Foreign corporate securities  205,862   (3,054)  71,426   (8,987)  277,288   (12,041)
Total fixed maturity securities $1,838,481  $(33,746) $309,569  $(21,265) $2,148,050  $(55,011)

  Duration of Unrealized Loss at March 31, 2016 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 $54,980  $(66) $698  $-  $55,678  $(66)
Obligations of U.S. states and political subdivisions  4,469   (16)  7,014   (827)  11,483   (843)
Corporate securities  471,961   (20,832)  242,718   (18,770)  714,679   (39,602)
Asset-backed securities  20,482   (77)  31,533   (210)  52,015   (287)
Mortgage-backed securities                        
Commercial  17,323   (188)  -   -   17,323   (188)
Agency residential  100,416   (901)  114,503   (1,024)  214,919   (1,925)
Non-agency residential  -   -   -   -   -   - 
Foreign government securities  22,510   (638)  57,790   (7,144)  80,300   (7,782)
Foreign corporate securities  202,263   (4,129)  66,205   (5,807)  268,468   (9,936)
Total fixed maturity securities $894,404  $(26,847) $520,461  $(33,782) $1,414,865  $(60,629)

8

  Duration of Unrealized Loss at March 31, 2017 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 $196,751  $(436) $18,642  $(3,152) $215,393  $(3,588)
Due in one year through five years  703,649   (8,563)  155,494   (13,136)  859,143   (21,699)
Due in five years through ten years  199,849   (6,607)  40,361   (2,676)  240,210   (9,283)
Due after ten years  224,557   (11,654)  1,670   (23)  226,227   (11,677)
Asset-backed securities  40,290   (73)  4,026   (2)  44,316   (75)
Mortgage-backed securities  473,385   (6,413)  89,376   (2,276)  562,761   (8,689)
Total fixed maturity securities $1,838,481  $(33,746) $309,569  $(21,265) $2,148,050  $(55,011)

  Duration of Unrealized Loss at March 31, 2016 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 $39,889  $(183) $32,078  $(3,841) $71,967  $(4,024)
Due in one year through five years  422,494   (9,573)  276,367   (17,598)  698,861   (27,171)
Due in five years through ten years  265,716   (14,274)  60,641   (10,681)  326,357   (24,955)
Due after ten years  28,084   (1,651)  5,339   (428)  33,423   (2,079)
Asset-backed securities  20,482   (77)  31,533   (210)  52,015   (287)
Mortgage-backed securities  117,739   (1,089)  114,503   (1,024)  232,242   (2,113)
Total fixed maturity securities $894,404  $(26,847) $520,461  $(33,782) $1,414,865  $(60,629)


The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at March 31, 20162017 were $1,414,865$2,148,050 thousand and $60,629$55,011 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at March 31, 2016,2017, (the U.S. Government) did not exceed 0.2%6.0% 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 $26,847$33,746 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were primarilygenerally comprised of obligations of U.S. states and political subdivisions, domestic corporate securities and foreign corporateagency residential mortgage-backed securities.  The majority ofOf these unrealized losses, are attributable$31,496 thousand were related to unrealized losses in the energy sector, $13,158 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies and unrealized foreign exchange losses, $5,798 thousand, as the U.S. dollar has strengthened against other currencies.securities that were rated investment grade by at least one nationally recognized statistical rating agency.  The $33,782$21,265 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, as well as foreign government securities and agency
8

residential mortgage-backed securities.  The majority ofOf these unrealized losses, are attributable$17,263 thousand were related to unrealized foreign exchange losses, $17,964 thousand, as the U.S. dollar has strengthened against other currencies and unrealized losses in the energy sector, $5,572 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies. The Company did not have any sub-prime or alt-A loans withsecurities that were rated investment grade by at least one nationally recognized statistical rating agency.  There was no gross unrealized depreciation at March 31, 2016.for mortgage-backed securities related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.  The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

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, 2016 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 $469,571  $(4,434) $-  $-  $469,571  $(4,434)
Obligations of U.S. states and political subdivisions  221,088   (11,486)  564   (484)  221,652   (11,970)
Corporate securities  431,757   (10,121)  118,172   (5,665)  549,929   (15,786)
Asset-backed securities  35,065   (122)  5,745   (7)  40,810   (129)
Mortgage-backed securities                        
Commercial  27,230   (391)  3,060   (61)  30,290   (452)
Agency residential  487,000   (6,320)  90,740   (2,673)  577,740   (8,993)
Non-agency residential  -   -   -   -   -   - 
Foreign government securities  218,171   (2,713)  61,542   (7,670)  279,713   (10,383)
Foreign corporate securities  264,939   (4,950)  75,489   (9,411)  340,428   (14,361)
Total fixed maturity securities $2,154,821  $(40,537) $355,312  $(25,971) $2,510,133  $(66,508)

  Duration of Unrealized Loss at December 31, 2015 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 $216,352  $(712) $692  $(6) $217,044  $(718)
Obligations of U.S. states and political subdivisions  6,434   (84)  4,917   (806)  11,351   (890)
Corporate securities  866,715   (49,034)  307,215   (21,691)  1,173,930   (70,725)
Asset-backed securities  102,506   (791)  28,048   (272)  130,554   (1,063)
Mortgage-backed securities                        
Commercial  26,483   (511)  -   -   26,483   (511)
Agency residential  320,285   (3,094)  150,095   (3,509)  470,380   (6,603)
Non-agency residential  -   -   -   -   -   - 
Foreign government securities  61,498   (2,182)  77,911   (6,243)  139,409   (8,425)
Foreign corporate securities  324,904   (6,289)  76,951   (5,108)  401,855   (11,397)
Total fixed maturity securities $1,925,177  $(62,697) $645,829  $(37,635) $2,571,006  $(100,332)
  Duration of Unrealized Loss at December 31, 2016 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 $111,926  $(322) $21,691  $(3,625) $133,617  $(3,947)
Due in one year through five years  1,015,066   (10,567)  190,960   (16,511)  1,206,026   (27,078)
Due in five years through ten years  243,082   (10,369)  41,371   (2,961)  284,453   (13,330)
Due after ten years  235,452   (12,446)  1,745   (133)  237,197   (12,579)
Asset-backed securities  35,065   (122)  5,745   (7)  40,810   (129)
Mortgage-backed securities  514,230   (6,711)  93,800   (2,734)  608,030   (9,445)
Total fixed maturity securities $2,154,821  $(40,537) $355,312  $(25,971) $2,510,133  $(66,508)



  Duration of Unrealized Loss at December 31, 2015 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 $21,780  $(1,577) $12,212  $(1,171) $33,992  $(2,748)
Due in one year through five years  1,023,437   (23,255)  347,203   (21,582)  1,370,640   (44,837)
Due in five years through ten years  394,978   (31,423)  99,335   (10,131)  494,313   (41,554)
Due after ten years  35,708   (2,046)  8,936   (970)  44,644   (3,016)
Asset-backed securities  102,506   (791)  28,048   (272)  130,554   (1,063)
Mortgage-backed securities  346,768   (3,605)  150,095   (3,509)  496,863   (7,114)
Total fixed maturity securities $1,925,177  $(62,697) $645,829  $(37,635) $2,571,006  $(100,332)


The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 20152016 were $2,571,006$2,510,133 thousand and $100,332$66,508 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2015,2016, did not exceed 0.07%1.0% 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 $62,697$40,537 thousand of unrealized losses related to fixed
9

maturity securities that have been in an unrealized loss position for less than one year were primarilygenerally comprised of obligations of U.S. states and political subdivisions, domestic and foreign corporate securities, agency residential mortgage-backed securities and foreign government securities.  The majority ofOf these unrealized losses, are attributable$36,646 thousand were related to unrealized losses in the energy sector, $35,978 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies and unrealized foreign exchange losses, $6,090 thousand, as the U.S. dollar has strengthened against other currencies.securities that were rated investment grade by at least one nationally recognized statistical rating agency.  The $37,635$25,971 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 and agency residential mortgage-backed securities.  The majority ofOf these unrealized losses are$22,882 thousand is attributable to net unrealized foreign exchange losses, $14,807 thousand, as the U.S. dollar has strengthened against other currencies and unrealized losses in the energy sector, $6,959 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies. The Company did not have any sub-prime or alt-A loans withcurrencies.  There was no gross unrealized depreciation at December 31, 2015.for mortgage-backed securities related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.  The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

Other invested assets, at fair value, as of March 31, 2016, and December 31, 2015, were comprised of preferred shares held in Everest Preferred International Holdings ("Preferred Holdings"), an affiliated company.10

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

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2017  2016 
Fixed maturities $46,980  $45,326 
Equity securities  6,748   9,148 
Short-term investments and cash  390   304 
Other invested assets        
Limited partnerships  (224)  (2,514)
Dividends from preferred shares of affiliate  7,758   7,758 
Other  1,252   (912)
Gross investment income before adjustments  62,904   59,110 
Funds held interest income (expense)  1,939   2,654 
Interest income from Parent  1,075   1,075 
Gross investment income  65,918   62,839 
Investment expenses  (5,069)  (4,394)
Net investment income $60,849  $58,445 
         
(Some amounts may not reconcile due to rounding.)       

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2016  2015 
Fixed maturities $45,326  $47,972 
Equity securities  9,148   8,742 
Short-term investments and cash  304   164 
Other invested assets        
Limited partnerships  (2,514)  7,379 
Dividends from Parent's shares  -   9,234 
Dividends from preferred shares of affiliate  7,758   - 
Other  (912)  625 
Gross investment income before adjustments  59,110   74,116 
Funds held interest income (expense)  2,654   2,521 
Interest income from Parent  1,075   1,075 
Gross investment income  62,839   77,712 
Investment expenses  (4,394)  (5,131)
Net investment income $58,445  $72,581 
         
(Some amounts may not reconcile due to rounding.)        


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 $288,022$320,344 thousand in limited partnerships at March 31, 2016.2017.  These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2020.2021.

The Company's other invested assets at March 31, 2017 and December 31, 2016 included $101,545 thousand and $57,126 thousand, respectively, related to a private placement liquidity sweep facility. The primary purpose of the facility is to enhance the Company's return on its short-term investments and cash positions. The facility invests in high quality, short-duration securities and permits daily liquidity.
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Other invested assets, at fair value, as of March 31, 2017 and December 31, 2016, were comprised of preferred shares held in Preferred Holdings, an affiliated company.
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The components of net realized capital gains (losses) are presented in the tablestable below for the periods indicated:

 Three Months Ended  Three Months Ended 
 March 31,  March 31, 
(Dollars in thousands) 2016  2015  2017  2016 
Fixed maturity securities, market value:          
Other-than-temporary impairments $(23,015) $(24,121) $(1,132) $(23,015)
Gains (losses) from sales  (16,855)  (11,518)  6,465   (16,855)
Fixed maturity securities, fair value:                
Gain (losses) from sales  -   28 
Gains (losses) from fair value adjustments  (232)  62   -   (232)
Equity securities, fair value:                
Gains (losses) from sales  (7,950)  (65)  4,340   (7,950)
Gains (losses) from fair value adjustments  (18,325)  20,946   37,418   (18,325)
Other invested assets  1   - 
Other invested assets, fair value:                
Gains (losses) from fair value adjustments  -   35,964   70,675   - 
Short-term investment gains (losses)  1   - 
Total net realized capital gains (losses) $(66,377) $21,296  $117,768  $(66,377)


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 tablestable below for the periods indicated:

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2017  2016 
Proceeds from sales of fixed maturity securities $292,994  $188,046 
Gross gains from sales  7,995   1,464 
Gross losses from sales  (1,530)  (18,319)
         
Proceeds from sales of equity securities $134,051  $86,149 
Gross gains from sales  8,013   1,782 
Gross losses from sales  (3,673)  (9,732)
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  Three Months Ended 
  March 31, 
(Dollars in thousands) 2016  2015 
Proceeds from sales of fixed maturity securities $188,046  $114,082 
Gross gains from sales  1,464   2,542 
Gross losses from sales  (18,319)  (14,032)
         
Proceeds from sales of equity securities $86,149  $133,960 
Gross gains from sales  1,782   5,142 
Gross losses from sales  (9,732)  (5,207)

4.  RESERVES FOR LOSSES AND LAE

4.Activity in the reserve for losses and LAE is summarized for the periods indicated:
  Three Months Ended  Twelve Months Ended 
  March 31,  At December 31, 
(Dollars in thousands) 2017  2016 
Gross reserves at January 1 $8,331,288  $7,940,720 
Less reinsurance recoverables  (4,199,791)  (3,875,073)
Net reserves at January 1  4,131,497   4,065,647 
         
Incurred related to:        
Current year  286,204   1,441,962 
Prior years  3,518   (91,682)
Total incurred losses and LAE  289,722   1,350,280 
         
Paid related to:        
Current year  46,284   400,489 
Prior years  269,625   892,207 
Total paid losses and LAE  315,909   1,292,696 
         
Foreign exchange/translation adjustment  1,159   8,266 
         
Net reserves at December 31  4,106,469   4,131,497 
Plus reinsurance recoverables  4,262,693   4,199,791 
Gross reserves at December 31 $8,369,162  $8,331,288 
Incurred prior years' reserves increased by $3,518 thousand and decreased by $91,682 thousand for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively.  The increase for the three months ended March 31, 2017, was mainly due to unfavorable development in the insurance segment related to casualty business.

The decrease for the year ended December 31, 2016 was attributable to favorable development in the reinsurance segments of $187,909 thousand related primarily to property and short-tail business in the U.S., property business in Canada, Latin America, Middle East and Africa, as well as favorable development on prior year catastrophe losses, partially offset by $45,668 thousand of adverse development on A&E reserves. Part of the favorable development in the reinsurance segment related to the 2015 loss from the explosion at the Chinese port of Tianjin. In 2015, this loss was originally estimated to be $21,566 thousands. At December 31, 2016, this loss was projected to be $6,261 thousands resulting in $15,305 thousands of favorable development in 2016. The net favorable development in the reinsurance segments was partially offset by $96,227 thousand of unfavorable development in the insurance segment primarily related to run-off construction liability and umbrella program business.

5.  FAIR VALUE

GAAP guidance regarding fair value measurements address how companies should measure fair value when they are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP.  It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date.  In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements.  The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability.  The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3 being the lowest priority.

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The levels in the hierarchy are defined as follows:

Level 1:Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market;

Level 2:Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument;

Level 3:Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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

In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers.  The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers.  In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices.  In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source.   No material variances were noted during these price validation procedures.  In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value.  Due to the unavailability of prices for sixforty-two private placement securities, the Companyinvestment manager's valuation committee valued the sixforty-two securities at $16,302$87,124 thousand at March 31, 2016.2017.�� Due to the unavailability of prices for twoforty-two private placement securities, the Companyinvestment manager's valuation committee valued the twoforty-two securities at $3,593$86,536 thousand at December 31, 2015.2016.

The Company internally manages a small public equity portfolio which had a fair value at March 31, 20162017 and December 31, 20152016 of $123,172$154,123 thousand and $131,219$133,755 thousand, respectively, and all prices were obtained from publically published sources.

Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are categorized as level 1 since the quoted prices are directly observable.  Equity securities traded on foreign exchanges are categorized as level 2 due to the added input of a foreign exchange conversion rate to determine fair or market value.  The Company uses foreign currency exchange rates published by nationally recognized sources.

All categories of fixed maturity securities listed in the tables below are generally categorized as level 2, 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.  For foreign government securities and foreign corporate securities, the fair values provided by the third party pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange rates from nationally recognized sources.

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The fixed maturities with fair values categorized as level 3 result when prices are not available from the nationally recognized pricing services.  The asset managers will then obtain non-binding price quotes for the securities from brokers. 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.  If the
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broker quotes are for foreign denominated securities, the quotes are converted to U.S. dollars using currency exchange rates from nationally recognized sources. In limited circumstances when broker prices are not available for private placements, the Company will value the securities using comparable market information.

The composition and valuation inputs for the presented fixed maturities categories are as follows:

·U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily comprised of U.S. Treasury bonds and the fair value is based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields;

·Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;

·Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;

·Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads;

·Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;

·Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source.

Other invested assets, at fair value, was categorized as Level 3 at March 31, 20162017 and December 31, 2015,2016, since it represented a privately placed convertible preferred stock issued by an affiliate.  The stock was received in exchange for shares of the Company's parent, which were valued on a public securities exchange on December 21, 2015.parent.  The fair value of the preferred stock at March 31, 20162017 and December 31, 2015 represents this exchange value.

2016 was determined using a pricing model.
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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) March 31, 2017  (Level 1)  (Level 2)  (Level 3) 
Assets:            
Fixed maturities, market value            
U.S. Treasury securities and obligations of            
U.S. government agencies and corporations $771,220  $-  $771,220  $- 
Obligations of U.S. States and political subdivisions  712,437   -   712,437   - 
Corporate securities  2,271,618   -   2,187,296   84,322 
Asset-backed securities  176,170   -   176,170   - 
Mortgage-backed securities                
Commercial  75,622   -   75,622   - 
Agency residential  698,466   -   698,466   - 
Non-agency residential  79   -   79   - 
Foreign government securities  489,095   -   489,095   - 
Foreign corporate securities  1,011,708   -   1,008,906   2,802 
Total fixed maturities, market value  6,206,415   -   6,119,291   87,124 
                 
Equity securities, fair value  852,993   835,536   17,457   - 
Other invested assets, fair value  1,837,302   -   -   1,837,302 
There were no transfers between Level 1 and Level 2 for the three months ended March 31, 2017.

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) March 31, 2016  (Level 1)  (Level 2)  (Level 3) 
Assets:        
Fixed maturities, market value        
U.S. Treasury securities and obligations of        
U.S. government agencies and corporations $370,046  $-  $370,046  $- 
Obligations of U.S. States and political subdivisions  702,076   -   702,076   - 
Corporate securities  2,003,020   -   1,987,314   15,706 
Asset-backed securities  168,235   -   168,235   - 
Mortgage-backed securities                
Commercial  63,428   -   63,428   - 
Agency residential  784,713   -   784,713   - 
Non-agency residential  132   -   132   - 
Foreign government securities  491,461   -   491,461   - 
Foreign corporate securities  996,800   -   996,204   596 
Total fixed maturities, market value  5,579,911   -   5,563,609   16,302 
                 
Fixed maturities, fair value  1,870   -   1,870   - 
Equity securities, market value  -   -   -   - 
Equity securities, fair value  1,194,972   1,134,914   60,058   - 
Other invested assets, fair value  1,773,214   -   -   1,773,214 


There were no transfers between Level 1 and Level 2 for the three months ended March 31, 2016.
     Fair Value Measurement Using: 
     Quoted Prices       
     in Active  Significant    
     Markets for  Other  Significant 
     Identical  Observable  Unobservable 
     Assets  Inputs  Inputs 
(Dollars in thousands) December 31, 2016  (Level 1)  (Level 2)  (Level 3) 
Assets:            
Fixed maturities, market value            
U.S. Treasury securities and obligations of            
U.S. government agencies and corporations $691,080  $-  $691,080  $- 
Obligations of U.S. States and political subdivisions  729,984   -   729,984   - 
Corporate securities  2,154,203   -   2,089,006   65,197 
Asset-backed securities  137,027   -   137,027   - 
Mortgage-backed securities                
Commercial  75,493   -   75,493   - 
Agency residential  715,144   -   715,144   - 
Non-agency residential  88   -   88   - 
Foreign government securities  507,277   -   507,277   - 
Foreign corporate securities  960,200   -   957,662   2,538 
Total fixed maturities, market value  5,970,496   -   5,902,761   67,735 
                 
Equity securities, fair value  887,800   827,237   60,563   - 
Other invested assets, fair value  1,766,626   -   -   1,766,626 

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The following table presentsIn addition $22,118 thousand and $18,801 thousand of investments within other invested assets on the consolidated balance sheets as of March 31, 2017 and December 31, 2016, respectively, are not included within the fair value measurement levels for allhierarchy tables as the assets whichare valued using 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, 2015  (Level 1)  (Level 2)  (Level 3) 
Assets:        
Fixed maturities, market value        
U.S. Treasury securities and obligations of        
U.S. government agencies and corporations $330,985  $-  $330,985  $- 
Obligations of U.S. States and political subdivisions  703,075   -   703,075   - 
Corporate securities  1,968,558   -   1,964,625   3,933 
Asset-backed securities  144,982   -   144,982   - 
Mortgage-backed securities                
Commercial  62,446   -   62,446   - 
Agency residential  712,298   -   712,298   - 
Non-agency residential  150   -   150   - 
Foreign government securities  463,074   -   463,074   - 
Foreign corporate securities  970,909   -   969,316   1,593 
Total fixed maturities, market value  5,356,477   -   5,350,951   5,526 
                 
Fixed maturities, fair value  2,102   -   2,102   - 
Equity securities, market value  -   -   -   - 
Equity securities, fair value  1,215,377   1,153,310   62,067   - 
Other invested assets, fair value  1,773,214   -   -   1,773,214 

NAV practical expedient guidance within ASU 2015-07.

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

  Three Months Ended March 31, 2017  Three Months Ended March 31, 2016 
  Corporate  Foreign     Corporate  Foreign    
(Dollars in thousands) Securities  Corporate  Total  Securities  Corporate  Total 
Beginning balance $65,197  $2,538  $67,735  $3,933  $1,593  $5,526 
Total gains or (losses) (realized/unrealized)                        
Included in earnings  214   (24)  190   8   (997)  (989)
Included in other comprehensive income (loss)  (29)  -   (29)  (6)  -   (6)
Purchases, issuances and settlements  18,940   288   19,228   11,771   -   11,771 
Transfers in and/or (out) of Level 3  -   -   -   -   -   - 
Ending balance $84,322  $2,802  $87,124  $15,706  $596  $16,302 
                         
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 $-  $-  $-  $-  $(997) $(997)
                         
(Some amounts may not reconcile due to rounding.)                        

  Three Months Ended March 31, 2016  Three Months Ended March 31, 2015 
  Corporate  Foreign    Corporate    Foreign   
(Dollars in thousands) Securities  Corporate  Total  Securities  CMBS  Corporate  Total 
Beginning balance $3,933  $1,593  $5,526  $-  $8,597  $7,166  $15,763 
Total gains or (losses) (realized/unrealized)                            
Included in earnings  8   (997)  (989)  2   -   57   59 
Included in other comprehensive income (loss)  (6)  -   (6)  1   -   (1,098)  (1,097)
Purchases, issuances and settlements  11,771   -   11,771   1,940   -   -   1,940 
Transfers in and/or (out) of Level 3  -   -   -   710   (8,597)  -   (7,887)
Ending balance $15,706  $596  $16,302  $2,653  $-  $6,125  $8,778 
                             
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 $-  $(997) $(997) $-  $-  $-  $- 
                             
(Some amounts may not reconcile due to rounding.)                            


The net transfers from level 3, fair value measurements using significant unobservable inputs, of $7,887 thousand of investments for the three months ended March 31, 2015, primarily relate to securities that were priced using single non-binding broker quotes as of December 31, 2014.  The securities were subsequently priced using a recognized pricing service as of March 31, 2015, and were classified as level 2 as of that date.
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The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by other invested assets, for the periods indicated:

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2017  2016 
Other invested assets, fair value:      
Beginning balance $1,766,626  $1,773,214 
Total gains or (losses) (realized/unrealized)        
Included in earnings  70,675   - 
Included in other comprehensive income (loss)  -   - 
Purchases, issuances and settlements  -   - 
Transfers in and/or (out) of Level 3  -   - 
Ending balance $1,837,302  $1,773,214 
         
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 
  March 31, 
(Dollars in thousands) 2016  2015 
Other invested assets, fair value:    
Beginning balance $1,773,214  $- 
Total gains or (losses) (realized/unrealized)        
Included in earnings  -   - 
Included in other comprehensive income (loss)  -   - 
Purchases, issuances and settlements  -   - 
Transfers in and/or (out) of Level 3  -   - 
Ending balance $1,773,214  $- 
         
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.)        


5.6.  COMMITMENTS AND 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.

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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.

The Company has entered into separate annuity agreements with The Prudential Insurance of America ("The Prudential") and an additional unaffiliated life insurance company in which the Company has either purchased annuity contracts or become the assignee of annuity proceeds that are meant to settle claim payment obligations in the future. In both instances, the Company would become contingently liable if either
The Prudential or the unaffiliated life insurance company were unable to make payments related to the respective annuity contact.

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

  At March 31,  At December 31, 
(Dollars in thousands) 2017  2016 
The Prudential $146,620  $146,507 
Unaffiliated life insurance company  32,458   33,860 

  At March 31,  At December 31, 
(Dollars in thousands) 2016  2015 
The Prudential $141,945  $142,427 
Unaffiliated life insurance company  31,907   33,062 


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6.  OTHER7.  COMPREHENSIVE INCOME (LOSS)

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

  Three Months Ended March 31, 2017  Three Months Ended March 31, 2016 
(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 $18,020  $(6,307) $11,713  $29,956  $(10,484) $19,472 
URA(D) on securities - OTTI  (3,499)  1,225   (2,274)  197   (69)  128 
Reclassification of net realized losses (gains) included in net income (loss)  (5,334)  1,867   (3,467)  39,870   (13,955)  25,915 
Foreign currency translation adjustments  5,487   (1,920)  3,567   22,977   (8,045)  14,932 
Benefit plan actuarial net gain (loss)  -   -   -   -   -   - 
Reclassification of amortization of net gain (loss) included in net income (loss)  3,083   (1,079)  2,004   2,062   (722)  1,340 
Total other comprehensive income (loss) $17,757  $(6,214) $11,543  $95,062  $(33,275) $61,787 
                         
(Some amounts may not reconcile due to rounding)                        

  Three Months Ended March 31, 2016  Three Months Ended March 31, 2015 
(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 $29,956  $(10,484) $19,472  $15,572  $(5,950) $9,622 
URA(D) on securities - OTTI  197   (69)  128   9,735   (3,407)  6,328 
Reclassification of net realized losses (gains) included in net income (loss)  39,870   (13,955)  25,915   35,639   (11,974)  23,665 
Foreign currency translation adjustments  22,977   (8,045)  14,932   (51,243)  17,935   (33,308)
Benefit plan actuarial net gain (loss)  -   -   -   -   -   - 
Reclassification of amortization of net gain (loss) included in net income (loss)  2,062   (722)  1,340   2,467   (863)  1,604 
Total other comprehensive income (loss) $95,062  $(33,275) $61,787  $12,170  $(4,259) $7,911 
                         
(Some amounts may not reconcile due to rounding)                        


The following table presents details of the amounts reclassified from AOCI for the periods indicated:

  Three Months Ended   
  March 31,  Affected line item within the statements of
AOCI component 2017  2016  operations and comprehensive income (loss)
(Dollars in thousands)          
URA(D) on securities $(5,334) $39,870  Other net realized capital gains (losses)
   1,867   (13,955) Income tax expense (benefit)
  $(3,467) $25,915  Net income (loss)
              
Benefit plan net gain (loss) $3,083  $2,062  Other underwriting expenses
   (1,079)  (722) Income tax expense (benefit)
  $2,004  $1,340  Net income (loss)
              
(Some amounts may not reconcile due to rounding)            

  Three Months Ended   
  March 31,  Affected line item within the statements of
AOCI component 2016  2015  operations and comprehensive income (loss)
(Dollars in thousands)        
URA(D) on securities $39,870  $35,639  Other net realized capital gains (losses)
   (13,955)  (11,974) Income tax expense (benefit)
  $25,915  $23,665  Net income (loss)
              
Benefit plan net gain (loss) $2,062  $2,467  Other underwriting expenses
   (722)  (863) Income tax expense (benefit)
  $1,340  $1,604  Net income (loss)
              
(Some amounts may not reconcile due to rounding)            


18
The following table presents the components of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets for the periods indicated:

  Three Months Ended  Twelve Months Ended 
  March 31,  December 31, 
(Dollars in thousands) 2017  2016 
       
Beginning balance of URA (D) on securities $39,041  $13,654 
Current period change in URA (D) of investments - temporary  8,246   22,063 
Current period change in URA (D) of investments - non-credit OTTI  (2,274)  3,324 
Ending balance of URA (D) on securities  45,013   39,041 
         
Beginning balance of foreign currency translation adjustments  (9,852)  (12,701)
Current period change in foreign currency translation adjustments  3,567   2,849 
Ending balance of foreign currency translation adjustments  (6,285)  (9,852)
         
Beginning balance of benefit plan net gain (loss)  (65,504)  (63,089)
Current period change in benefit plan net gain (loss)  2,004   (2,415)
Ending balance of benefit plan net gain (loss)  (63,500)  (65,504)
         
Ending balance of accumulated other comprehensive income (loss) $(24,772) $(36,315)

  Three Months Ended  Twelve Months Ended 
  March 31,  December 31, 
(Dollars in thousands) 2016  2015 
     
Beginning balance of URA (D) on securities $13,654  $37,628 
Current period change in URA (D) of investments - temporary  45,387   (30,257)
Current period change in URA (D) of investments - non-credit OTTI  128   6,283 
Ending balance of URA (D) on securities  59,169   13,654 
         
Beginning balance of foreign currency translation adjustments  (12,701)  41,877 
Current period change in foreign currency translation adjustments  14,932   (54,578)
Ending balance of foreign currency translation adjustments  2,231   (12,701)
         
Beginning balance of benefit plan net gain (loss)  (63,089)  (74,986)
Current period change in benefit plan net gain (loss)  1,340   11,897 
Ending balance of benefit plan net gain (loss)  (61,749)  (63,089)
         
Ending balance of accumulated other comprehensive income (loss) $(349) $(62,136)

17

7.8.  COLLATERALIZED 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 March 31, 2016,2017, the total amount on deposit in the trust account was $288,380$617,060 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.

On November 18, 2014, the Company entered into a collateralized reinsurance agreement with Kilimanjaro Re to provide the Company with catastrophe reinsurance coverage.  This agreement is a multi-year reinsurance contract which covers specified earthquake events.  The agreement provides up to $500,000 thousand of reinsurance coverage from earthquakes in the United States, Puerto Rico and Canada.

On December 1, 2015 the Company entered into two collateralized reinsurance agreements with Kilimanjaro Re to provide the Company with catastrophe reinsurance coverage.  These agreements are multi-year reinsurance contracts which cover named storm and earthquake events.  The first agreement provides up to $300,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.  The second agreement provides up to $325,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.

On April 13, 2017 the Company entered into six collateralized reinsurance agreements with Kilimanjaro Re to provide the Company with annual aggregate catastrophe reinsurance coverage.  The initial three agreements are four year reinsurance contracts which cover named storm and earthquake events.  These agreements provide up to $225,000 thousand, $400,000 thousand and $325,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The subsequent three agreements are five year reinsurance contracts which cover named
19
storm and earthquake events.  These agreements provide up to $50,000 thousand, $75,000 thousand and $175,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.

Kilimanjaro has financed the various property catastrophe reinsurance coveragecoverages by issuing catastrophe bonds to unrelated, external investors.  On April 24, 2014, Kilimanjaro issued $450,000 thousand of notes ("Series 2014-1 Notes").  On November 18, 2014, Kilimanjaro issued $500,000 thousand of notes ("Series 2014-2 Notes").  On December 1, 2015, Kilimanjaro issued $625,000 thousand of notes ("Series 2015-1 Notes).  On April 13, 2017, Kilimanjaro issued $950,000 thousand of notes ("Series 2017-1 Notes) and $300,000 thousand of notes ("Series 2017-2 Notes). The proceeds from the issuance of the Series 2014-1 Notes the Series 2014-2 Notes and the Series 2015-1 Noteslisted above are held in reinsurance trust throughout the duration of the applicable reinsurance agreements and invested solely in US government money market funds with a rating of at least "AAAm" by Standard & Poor's.

8.9.  SENIOR NOTES

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

        March 31, 2017  December 31, 2016 
        Consolidated Balance     Consolidated Balance    
(Dollars in thousands)Date Issued Date Due Principal Amounts  Sheet Amount  Market Value  Sheet Amount  Market Value 
4.868% Senior notes06/05/2014 06/01/2044  400,000  $396,744  $403,468  $396,714  $383,612 

       March 31, 2016  December 31, 2015 
       Consolidated Balance    Consolidated Balance   
(Dollars in thousands)Date Issued Date Due Principal Amounts  Sheet Amount  Market Value  Sheet Amount  Market Value 
4.868% Senior notes06/05/2014 06/01/2044  400,000  $400,000  $393,520  $400,000  $381,204 


On June 5, 2014, Holdings issued $400,000 thousand of 30 year senior notes at 4.868%, which will mature on June 1, 2044. Interest will be paid semi-annually on June 1 and December 1 of each year.

18

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

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2017  2016 
Interest expense incurred $4,868  $4,868 

  Three Months Ended
  March 31,
(Dollars in thousands) 2016 2015
Interest expense incurred $4,868  $4,868 


9.10.  LONG TERM SUBORDINATED NOTES

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

      Maturity Date March 31, 2017  December 31, 2016 
    Original       Consolidated Balance     Consolidated Balance    
(Dollars in thousands)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 $236,487  $222,456  $236,462  $204,636 

     Maturity Date March 31, 2016  December 31, 2015 
    Original       Consolidated Balance    Consolidated Balance   
(Dollars in thousands)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 $238,369  $203,789  $238,368  $208,978 


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.

20
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 on October 15, 2014, the Company's 4.868% senior notes, due on June 1, 2044, have 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 
  March 31, 
(Dollars in thousands) 2017  2016 
Interest expense incurred $3,937  $3,937 

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2016  2015 
Interest expense incurred $3,937  $3,937 


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10.11.  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 directly and through general agents,brokers, surplus lines brokers and surplus lines brokersgeneral agents mainly within the U.S.

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 LAEloss adjustment expenses ("LAE") incurred, commission and brokerage expenses and other underwriting expenses.  UnderwritingWe measure our underwriting results are measured using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.

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

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

  Three Months Ended 
U.S. Reinsurance
 March 31, 
(Dollars in thousands) 2017  2016 
Gross written premiums $578,958  $536,706 
Net written premiums  219,062   223,428 
         
Premiums earned $208,314  $235,243 
Incurred losses and LAE  120,434   116,170 
Commission and brokerage  40,373   49,731 
Other underwriting expenses  14,251   13,458 
Underwriting gain (loss) $33,256  $55,884 

 Three Months Ended  Three Months Ended 
U.S. Reinsurance
 March 31, 
International
 March 31, 
(Dollars in thousands) 2016  2015  2017  2016 
Gross written premiums $536,706  $562,647  $278,575  $238,478 
Net written premiums  223,428   240,694   103,246   87,716 
                
Premiums earned $235,243  $255,412  $118,151  $113,173 
Incurred losses and LAE  116,170   111,455   68,414   73,415 
Commission and brokerage  49,731   58,364   23,535   26,110 
Other underwriting expenses  13,458   11,529   8,889   7,823 
Underwriting gain (loss) $55,884  $74,064  $17,313  $5,825 

  Three Months Ended 
Insurance
 March 31, 
(Dollars in thousands) 2017  2016 
Gross written premiums $394,851  $354,720 
Net written premiums  126,528   152,926 
         
Premiums earned $144,590  $133,509 
Incurred losses and LAE  100,874   106,477 
Commission and brokerage  (14,438)  (7,019)
Other underwriting expenses  36,755   37,946 
Underwriting gain (loss) $21,399  $(3,895)


  Three Months Ended 
International
 March 31, 
(Dollars in thousands) 2016  2015 
Gross written premiums $238,478  $333,615 
Net written premiums  87,716   121,681 
         
Premiums earned $113,173  $140,699 
Incurred losses and LAE  73,415   101,445 
Commission and brokerage  26,110   33,999 
Other underwriting expenses  7,823   8,115 
Underwriting gain (loss) $5,825  $(2,860)


20


  Three Months Ended 
Insurance
 March 31, 
(Dollars in thousands) 2016  2015 
Gross written premiums $354,720  $330,501 
Net written premiums  152,926   146,052 
         
Premiums earned $133,509  $124,951 
Incurred losses and LAE  106,477   95,980 
Commission and brokerage  (7,019)  4,168 
Other underwriting expenses  37,946   28,899 
Underwriting gain (loss) $(3,895) $(4,096)


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 
  March 31, 
(Dollars in thousands) 2017  2016 
Underwriting gain (loss) $71,968  $57,814 
Net investment income  60,849   58,445 
Net realized capital gains (losses)  117,768   (66,377)
Corporate expense  (3,597)  (2,336)
Interest, fee and bond issue cost amortization expense  (8,859)  (8,859)
Other income (expense)  9,855   13,102 
Income (loss) before taxes $247,984  $51,789 

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2016  2015 
Underwriting gain (loss) $57,814  $67,108 
Net investment income  58,445   72,581 
Net realized capital gains (losses)  (66,377)  21,296 
Corporate expense  (2,336)  (1,609)
Interest, fee and bond issue cost amortization expense  (8,859)  (8,859)
Other income (expense)  13,102   15,833 
Income (loss) before taxes $51,789  $166,350 


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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 
  March 31, 
(Dollars in thousands) 2017  2016 
Canada gross written premiums $27,957  $23,586 

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2016  2015 
Canada gross written premiums $23,586  $23,512 


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

11.12.  RELATED-PARTY TRANSACTIONS

Parent

Group entered into a $250,000 thousand long term promissory note agreement with Holdings as of December 31, 2014.  The note will mature on December 31, 2023 and has an interest rate of 1.72% that will be paid annually, on December 15th of each year.is payable annually.  This transaction is presented as a Note Receivable – Affiliated in the Consolidated Balance Sheets of Holdings.  Interest income in the amount of $1,075 thousand was recorded by Holdings for the three months ended March 31, 2016,2017, and March 31, 2015, respectively.
21
2016.

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
11/19/2014  5,000,000
   30,000,000


Through December, 2015, Holdings had purchased and held 9,719,971 Common Shares of Group, which were purchased in the open market between February 2007 and March 2011.

In December, 2015, Holdings transferred the 9,719,971 Common Shares of Group, which it held as other invested assets, at fair value, valued at $1,773,214 thousand, to Preferred Holdings, an affiliated entity and subsidiary of Group, in exchange for 1,773.214 preferred shares of Preferred Holdings with a $1,000 thousand par value and 1.75% annual dividend rate.  After the exchange, Holdings no longer holds any shares or has any ownership interest in Group.

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Holdings reported both its Parent Sharesshares and preferred shares in Preferred Holdings, 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 the preferred shares of preferredPreferred Holdings and on the Parent 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 
  March 31, 
(Dollars in thousands) 2017  2016 
Dividends received on preferred stock of affiliate $7,758  $7,758 

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2016  2015 
Dividends received on Parent shares $-  $9,234 
Dividends received on preferred stock of affiliate  7,758   - 


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 
  March 31, 
(Dollars in thousands) 2017  2016 
Expenses incurred $23,183  $21,170 

  Three Months Ended 
  March 31, 
(Dollars in thousands) 2016  2015 
Expenses incurred $21,170  $18,363 


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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 
                
01/01/2010-12/31/2010 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 
                
01/01/2012-12/31/2014 Everest Re 50.0% Bermuda Re property / casualty business  100,000   200,000 
                
01/01/2015-12/31/2016 Everest Re 50.0% Bermuda Re property / casualty business  162,500   325,000 
                
01/01/2017 Everest Re 60.0% Bermuda Re property / casualty business  219,000   438,000 
                
01/01/2010-12/31/2010 Everest Re- Canadian Branch60.0% Bermuda Re property business  350,000
(1)
 - 
01/01/2011-12/31/2011 Everest Re- Canadian Branch60.0% Bermuda Re property business  350,000
(1)
 - 
01/01/2012-12/31/2012 Everest Re- Canadian Branch75.0% Bermuda Re property / casualty business  206,250
(1)
  412,500
(1)
01/01/2013-12/31/2013 Everest Re- Canadian Branch75.0% Bermuda Re property / casualty business  150,000
(1)
  412,500
(1)
01/01/2014 Everest Re- Canadian Branch75.0% Bermuda Re property / casualty business  262,500
(1)
  412,500
(1)
                
01/01/2012 Everest Canada 80.0% Everest Re- Canadian Branchproperty business -  - 
                
(1)   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  
                     
01/01/2012-12/31/2014 Everest Re  50.0% Bermuda Re property / casualty business  100,000    200,000  
                     
01/01/2015 Everest Re  50.0% Bermuda Re property / casualty business  162,500    325,000  
                    
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.
2324

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


Effective Transferring Assuming % of Business or  Covered Period
Date Company Company Amount of Transfer  of Transfer
              
09/19/2000 Mt. McKinley Bermuda Re  100% All years
10/01/2001 Everest Re  (Belgium Branch) Bermuda Re  100% All years
10/01/2008 Everest Re Bermuda Re $747,022  01/01/2002-12/31/2007


On July 13, 2015, the Company sold Mt. McKinley to Clearwater Insurance Company, a Delaware domiciled insurance company. As of that date, Mt. McKinley is no longer deemed an affiliated company or related party.

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 and Lloyd's syndicate 2786 for the periods indicated:

  Three Months Ended 
Bermuda Re
 March 31, 
(Dollars in thousands) 2017  2016 
Ceded written premiums $634,896  $516,683 
Ceded earned premiums  588,874   538,953 
Ceded losses and LAE (a)  340,131   290,476 

 Three Months Ended Three Months Ended 
Bermuda Re
 March 31,
Everest International
 March 31,
(Dollars in thousands) 2016  2015  2017  2016 
Ceded written premiums $516,683  $539,033  $(70) $(31)
Ceded earned premiums  538,953   554,051   (71)  (24)
Ceded losses and LAE (a)  290,476   295,131   (443)  142 

  Three Months Ended 
Everest Canada
 March 31,
(Dollars in thousands) 2017  2016 
Assumed written premiums $12,848  $10,199 
Assumed earned premiums  12,853   10,454 
Assumed losses and LAE  6,651   6,987 


  Three Months Ended
Everest International
 March 31,
(Dollars in thousands) 2016  2015 
Ceded written premiums $(31) $(2)
Ceded earned premiums  (24)  41 
Ceded losses and LAE  142   (822)



  Three Months Ended
Everest Canada
 March 31,
(Dollars in thousands) 2016  2015 
Assumed written premiums $10,199  $6,664 
Assumed earned premiums  10,454   8,699 
Assumed losses and LAE  6,987   4,729 



 Three Months Ended Three Months Ended 
Lloyd's Syndicate 2786
 March 31, March 31,
(Dollars in thousands) 2016  2015  2017  2016 
Assumed written premiums $696  $-  $7,849  $696 
Assumed earned premiums  88   -   6,927   88 
Assumed losses and LAE  -   -   3,433   - 
 
(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, amortization of deferred gain on retroactive reinsurance is reflected in other income on the consolidated statements of operations and comprehensive income (loss). Upon the sale of Mt. McKinley, the value of the remaining deferred gain on retroactive reinsurance was included in the calculation of the realized gain on sale of subsidiary.

Everest Re sold net assets of its UK branch to Bermuda Re and provided Bermuda Re with a reserve indemnity agreement allowing for indemnity payments of up to 90% of ₤25.0 million of the excess of 2002 and prior reserves, provided that any recognition of profit from the reserves for 2002 and prior underwriting years is taken into account.
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25

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 segregated accounts and assumed by the Company from Mt. Logan Re segregated accounts.

  Three Months Ended 
Mt. Logan Re Segregated Accounts
 March 31,
(Dollars in thousands) 2017  2016 
Ceded written premiums $39,179  $40,931 
Ceded earned premiums  33,957   34,872 
Ceded losses and LAE  19,759   9,098 
         
Assumed written premiums  2,732   3,560 
Assumed earned premiums  2,732   3,560 
Assumed losses and LAE  -   - 

  Three Months Ended
Mt. Logan Re Segregated Accounts
 March 31,
(Dollars in thousands) 2016  2015 
Ceded written premiums $40,931  $61,670 
Ceded earned premiums  34,872   38,683 
Ceded losses and LAE  9,098   8,314 
         
Assumed written premiums  3,560   3,984 
Assumed earned premiums  3,560   3,984 
Assumed losses and LAE  -   - 


12.13.      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 
  March 31, 
(Dollars in thousands) 2017  2016 
Service cost $3,299  $2,897 
Interest cost  2,276   2,361 
Expected return on plan assets  (3,155)  (2,484)
Amortization of net (income) loss  3,040   2,014 
Net periodic benefit cost $5,460  $4,788 

Pension Benefits
 Three Months Ended 
Other Benefits
 Three Months Ended 
 March 31,  March 31, 
(Dollars in thousands) 2016  2015  2017  2016 
Service cost $2,897  $2,940  $440  $438 
Interest cost  2,361   2,457   249   296 
Expected return on plan assets  (2,484)  (2,903)
Amortization of prior service cost  -   5 
Amortization of prior service costs  (33)  - 
Amortization of net (income) loss  2,014   2,251   76   48 
Net periodic benefit cost $4,788  $4,750  $732  $782 



Other Benefits
 Three Months Ended 
  March 31, 
(Dollars in thousands) 2016  2015 
Service cost $438  $401 
Interest cost  296   263 
Amortization of net (income) loss  48   211 
Net periodic benefit cost $782  $875 


The Company did not make any contributions to the qualified pension benefit plan for the three months ended March 31, 20162017 and 2015.

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2016.

13.14.      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.

For interim reporting periods, the company is generally required to use the annualized effective tax rate ("AETR") method, as prescribed by ASC 740-270, Interim Reporting, to calculate its income tax provision.  Under this method, the AETR 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
26
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 AETR.

14.15.  DISPOSITION

On August 24, 2016 the Company sold Heartland, its crop Managing General Agent to CGB for $49,000 thousand.  The sale agreement includes a provision for a long term strategic reinsurance relationship with CGB.  The Company has recognized an after-tax loss on the sale of Heartland of $12,942 thousand.  Under the terms of the reinsurance arrangement, there will not be a material fluctuation in the level of crop business, although it will be reflected as reinsurance rather than insurance.

16.  SUBSEQUENT EVENTS

TheOn April 13, 2017, the Company entered into six collateralized reinsurance agreements with Kilimanjaro Re to provide the Company with annual aggregate catastrophe reinsurance coverage. Kilimanjaro has evaluated known recognizedfinanced these coverages by issuing $950,000 thousand and non-recognized subsequent events.  The Company does not have any subsequent events$300,000 thousand of catastrophe bonds to report.unrelated, external investors. See also Footnote 8, Collateralized Reinsurance and Trust Agreements.

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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, highhigher rates and strongstronger profits followed by periods of abundant capacity, lowlower 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, domestic and international underwriting operations, including underwriting syndicates at Lloyd's of London and certain government sponsored risk transfer vehicles.  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 recently, the 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 property catastrophe and casualty reinsurance lines of business.  Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments.  These financial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provide capital markets with access to insurance and reinsurance risk exposure.  The capital markets demand for these products is being primarily driven by the current low interest rate environment and the desire to achieve greater risk diversification and potentially higher returns on their investments.  This increased competition is generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage.

Rates tend to fluctuate by specific region and products, particularly areas recently impacted by large catastrophic events.  Although there have beenwere flooding and wind storm events and earthquakes in parts of the world, the overall 2013, 2014 and 2015 catastrophe losses for the industry were considerably lower than average.  This lowerDuring 2016, there was an increase in catastrophes:  the Fort McMurray Canadian wildfire, Hurricane Matthew which affected a large area of the Caribbean and southeastern United States, storms and an earthquake in Ecuador.  There are industry reports that the catastrophe losses for 2016 reached their highest level ofin four years and the United States experienced the most loss events since 1980 and the highest total losses combined with increased competition has resulted in downward pressuresince 2012.  While the future impact on insurance and reinsurance rates in certain geographicalmarket conditions from these catastrophes cannot be determined at this time, it is unlikely to have a significant impact on the overall markets, but may impact loss affected areas.

DuringCommencing in 2015, we initiated a strategic build out of our insurance platform through the investment in key leadership hires which in turn has brought significant underwriting talent and stronger direction in achieving our insurance program strategic goals of increased premium volume and improved underwriting results.  Recent growth is coming from highly diversified areas including newly launched lines of business, as well as, product and geographic expansion in existing lines of business.  We are building a world-class insurance platform capable of offering products across lines and geographies, complementing our leading global reinsurance franchise.

28
Overall, we believe that given our size, strong ratings, distribution system, reputation, expertise and capital market vehicle activity the current marketplace conditions provide profit opportunities.  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  Three Months Ended  Percentage 
 March 31,  Increase/  March 31,  Increase/ 
(Dollars in millions) 2016  2015  (Decrease)  2017  2016  (Decrease) 
Gross written premiums $1,129.9  $1,226.8   -7.9% $1,252.4  $1,129.9   10.8%
Net written premiums  464.1   508.4   -8.7%  448.8   464.1   -3.3%
                        
REVENUES:                        
Premiums earned $481.9  $521.1   -7.5% $471.1  $481.9   -2.3%
Net investment income  58.4   72.6   -19.5%  60.8   58.4   4.1%
Net realized capital gains (losses)  (66.4)  21.3  NM   117.8   (66.4) 
NM 
Other income (expense)  13.1   15.8   -17.2%  9.9   13.1   -24.8%
Total revenues  487.1   630.8   -22.8%  659.5   487.1   35.4%
                        
CLAIMS AND EXPENSES:                        
Incurred losses and loss adjustment expenses  296.1   308.9   -4.1%  289.7   296.1   -2.1%
Commission, brokerage, taxes and fees  68.8   96.5   -28.7%  49.5   68.8   -28.1%
Other underwriting expenses  59.2   48.5   22.0%  59.9   59.2   1.1%
Corporate expense  2.3   1.6   45.2%  3.6   2.3   54.0%
Interest, fee and bond issue cost amortization expense  8.9   8.9   0.0%  8.9   8.9   0.0%
Total claims and expenses  435.3   464.4   -6.3%  411.5   435.3   -5.5%
                        
INCOME (LOSS) BEFORE TAXES  51.8   166.4   -68.9%  248.0   51.8  NM 
Income tax expense (benefit)  12.9   50.4   -74.5%  76.9   12.9  NM 
NET INCOME (LOSS) $38.9  $115.9   -66.4% $171.0  $38.9  NM 
                        
RATIOS:         Point Change          Point Change 
Loss ratio  61.4%  59.3%  2.1   61.5%  61.4%  0.1 
Commission and brokerage ratio  14.3%  18.5%  (4.2)  10.5%  14.3%  (3.8)
Other underwriting expense ratio  12.3%  9.3%  3.0   12.7%  12.3%  0.4 
Combined ratio  88.0%  87.1%  0.9   84.7%  88.0%  (3.3)
                        
 At  At  Percentage  At  At  Percentage 
 March 31,  December 31,  Increase/  March 31,  December 31,  Increase/ 
(Dollars in millions)  2016   2015  (Decrease)   2017   2016  (Decrease) 
Balance sheet data:                        
Total investments and cash $9,622.7  $9,516.3   1.1% $10,128.1  $9,842.7   2.9%
Total assets  16,793.9   16,700.6   0.6%  17,587.8   17,088.7   2.9%
Loss and loss adjustment expense reserves  7,992.3   7,940.7   0.6%  8,369.2   8,331.3   0.5%
Total debt  638.4   638.4   0.0%  633.2   633.2   0.0%
Total liabilities  11,757.2   11,769.4   -0.1%  12,139.6   11,823.2   2.7%
Stockholder's equity  5,036.7   4,931.2   2.1%  5,448.2   5,265.6   3.5%
                        
(Some amounts may not reconcile due to rounding)                        
(NM - Not meaningful)            
(NM, not meaningful)            
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Revenues.

Premiums.  Gross written premiums decreasedincreased by 7.9%10.8% to $1,252.4 million for the three months ended March 31, 2017, compared to $1,129.9 million for the three months ended March 31, 2016, compared to $1,226.8 million for the three months ended March 31, 2015, reflecting, a $121.1$82.3 million, or 13.5%10.6%, decreaseincrease in our reinsurance business partially offset byand a $24.2$40.1 million, or 7.3%11.3%, increase in our insurance business.  The declineincrease in reinsurance premiums was mainly due mainly to decreasesthe new crop reinsurance transactions and increases in treaty casualty business, reductions in quota share agreements and a negative impactfinancial lines of approximately $15.2 million from the year over year movement in foreign exchange rates.business.  The rise in insurance premiums was primarily due to increases in accident and health business and othermost lines of business, as we have focused on expanding the insurance operations.
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Net written premiums decreased by 8.7%3.3% to $448.8 million for the three months ended March 31, 2017, compared to $464.1 million for the three months ended March 31, 20162016.  The difference between the change in gross written premiums compared to $508.4the change in net written premiums is primarily due to varying utilization of reinsurance mainly related to affiliated quota share contracts. Premiums earned decreased by 2.3% to $471.1 million for the three months ended March 31, 2015, which is consistent with the change in gross written premiums. Premiums earned decreased by 7.5%2017, compared to $481.9 million for the three months ended March 31, 2016, compared to $521.1 million for the three months ended March 31, 2015.2016. 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.

Net Investment Income.  Net investment income decreased by 19.5%increased 4.1% to $60.8 million for the three months ended March 31, 2017 compared with net investment income of $58.4 million for the three months ended March 31, 2016, compared with net investment income of $72.6 million for the three months ended March 31, 2015.2016.  Net pre-tax investment income as a percentage of average invested assets was 2.5% for the three months ended March 31, 2016 compared to 3.5% for the three months ended March 31, 2015.2017 and 2016. The declineincrease in income and yield was primarily the result of a decrease inhigher income from other invested assets, including lower year over year losses from our limited partnershippartnerships, and higher income and lower reinvestment rates for thefrom our fixed income portfolios.portfolio, partially offset by lower dividends from equity securities.

Net Realized Capital Gains (Losses).  Net realized capital lossesgains were $66.4$117.8 million and net realized capital gainslosses were $21.3$66.4 million for the three months ended March 31, 2017 and 2016, and 2015, respectively. The $66.4net realized capital gains of $117.8 million waswere comprised of $24.8108.1 million of gains from fair value re-measurements on equity securities and other invested assets and $10.8 million of gains from sales on our fixed maturity and equity securities, partially offset by $1.1 million of other-than-temporary impairments. The net realized capital losses of $66.4 for the three months ended March 31, 2016 million were comprised of $24.8 million of net losses from sales on our fixed maturity and equity securities, $23.0 million of other-than-temporary impairments and $18.6 million of losses from fair value re-measurements on fixed maturity and equity securities.The net realized capital gains of $21.3 million for the three months ended March 31, 2015 were comprised of $57.0 million of gains from fair value re-measurements on fixed maturity securities, equity securities and other invested assets, partially offset by $24.1 million of other-than-temporary impairments and $11.6 million of losses from sales on our fixed maturities and equity securities.

Other Income (Expense).  We recorded other income of $13.1$9.9 million and $15.8$13.1 million for the three months ended March 31, 20162017 and 2015,2016, respectively. The changes were primarily the result of fluctuations in foreign currency exchange rates for the corresponding periods.

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Claims and Expenses.

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

  Three Months Ended March 31,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                             
Attritional $279.0   59.2%  $4.1   0.9%  $283.1   60.1% 
Catastrophes  7.2   1.5%   (0.6)  -0.1%   6.6   1.4% 
Total segment $286.2   60.7%  $3.5   0.8%  $289.7   61.5% 
                                     
2016
                                   
Attritional $293.4   60.8%  $(2.0)  -0.4%  $291.4   60.4% 
Catastrophes  5.2   1.1%   (0.5)  -0.1%   4.7   1.0% 
Total segment $298.6   61.9%  $(2.5)  -0.5%  $296.1   61.4% 
                                     
Variance 2017/2016
                                   
Attritional $(14.4)  (1.6)pts $6.1   1.3 pts $(8.3)  (0.3)pts
Catastrophes  2.0   0.4 pts  (0.1)  - pts  1.9   0.4 pts
Total segment $(12.4)  (1.2)pts $6.0   1.3 pts $(6.4)  0.1 pts
                                     
(Some amounts may not reconcile due to rounding.)                                   

  Three Months Ended March 31,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2016
                       
Attritional $293.4   60.8%  $(2.0)  -0.4%  $291.4   60.4% 
Catastrophes  5.2   1.1%   (0.5)  -0.1%   4.7   1.0% 
Total segment $298.6   61.9%  $(2.5)  -0.5%  $296.1   61.4% 
                                     
2015
                                   
Attritional $312.8   60.1%  $(1.7)  -0.4%  $311.1   59.7% 
Catastrophes  -   0.0%   (2.2)  -0.4%   (2.2)  -0.4% 
Total segment $312.8   60.1%  $(3.9)  -0.8%  $308.9   59.3% 
                                     
Variance 2016/2015
                                  ��
Attritional $(19.4)  0.7 pts $(0.3)  - pts $(19.7)  0.7 pts
Catastrophes  5.2   1.1 pts  1.7   0.3 pts  6.9   1.4 pts
Total segment $(14.2)  1.8 pts $1.4   0.3 pts $(12.8)  2.1 pts
(Some amounts may not reconcile due to rounding.)                                   

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Incurred losses and LAE decreased by 4.1%2.1% to $289.7 million for the three months ended March 31, 2017 compared to $296.1 million for the three months ended March 31, 2016, comparedprimarily due to $308.9a decrease of $14.4 million in current years' attritional losses, mainly due to the reduction in earned premiums, partially offset by an increase of $6.1 million of prior year attritional loss development.  The $4.1 million of unfavorable prior years' attritional loss development for the three months ended March 31, 2015, primarily due2017 was mainly related to a decreasecasualty business in current years attritional losses of $19.4 million, resulting primarily from the impact of the decline in premiums earned, partially offset by $5.2 million ininsurance segment. The current year catastrophe losses. losses of $7.2 million for the three months ended March 31, 2017 related to Cyclone Debbie in Australia ($7.2 million). The current year catastrophe losses of $5.2 million for the three months ended March 31, 2016 primarily related to the 2016 Taiwan earthquake ($5.2 million). There were no current year catastrophe losses for the three months ended March 31, 2015.

Commission, Brokerage, Taxes and Fees.  Commission, brokerage, taxes and fees dedecreasedcreased by 28.7%28.1% to $68.8$49.5 million for the three months ended March 31, 2017 compared to $68.8 million for the three months ended March 31, 2016 compared to $96.5 million for the three months ended March 31, 2015.  The decline2016. This change was primarily due to the impact of the declinedecrease in premiums earned, changes in the mix of business and the impact of affiliated quota share agreements.agreements and the changes in the mix of business.

Other Underwriting Expenses.  Other underwriting expenses increased 22.0% towere relatively flat at $59.9 million and $59.2 million for the three months ended March 31, 2016, compared to $48.5 million for the three months ended2017 and March 31, 2015. The increase was due to the costs incurred related to the expansion of the insurance business.2016, respectively.

Corporate Expenses.  Corporate expenses, which are general operating expenses that are not allocated to segments, were $2.3$3.6 million and $1.6 million $2.3 for the three months ended March 31, 20162017 and 2015,2016, respectively. The increase in corporate expense was mainlyexpenses were primarily due to increasedhigher compensation and benefit expense.costs.

Interest, Fees and Bond Issue Cost Amortization Expense.  Interest, fees and other bond amortization expense wasremained the same at $8.9 million for the three months ended March 31, 2016 2017 and 2015.2016.

Income Tax Expense (Benefit).  Income tax expenses were $12.9expense was $76.9 million and $50.4$12.9 million for the three months ended March 31, 20162017 and 2015,2016, respectively.  Income tax expense is primarily a function of the geographic location of the Company's pre-tax income and the statutory tax rates in those jurisdictions, as affected by tax-exempt investment income and as calculated under the annualized effective tax rate ("AETR") method.income.  Variations in the income tax expense generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses), among jurisdictions with different tax rates.  The decreaseincrease in income tax expense expenses for the three months ended March 31, 2016 2017 compared to the three months ended March 31, 2015 2016 was primarilymainly due to therealized capital gains for 2017 compared to realized capital losses and lower net investment income.in 2016.

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Net Income (Loss).
Our net income was $171.0 million and $38.9 million and $115.9 million for the three months ended March 31, 20162017 and 2015,2016, respectively.  The changes were primarily driven by the financial component fluctuations explained above.

Ratios.
Our combined ratio increaseddecreased by 0.93.3 points to 84.7% for the three months ended March 31, 2017 compared to 88.0%for the three months ended March 31, 2016.  The loss ratio component remained relatively flat at 61.5% for the three months ended March 31, 2017 compared to 61.4% for the same period last year. The commission and brokerage ratio component was 10.5% for the three months ended March 31, 2017 and 14.3% for the three months ended March 31, 2016 compared to 87.1% for the three months ended March 31, 2015.  The loss ratio component increased 2.1 points for the three months ended March 31, 2016 over the same period last year, primarily due to the increase in current years catastrophe losses.  The commission and brokerage ratio components decreased 4.2 points for the three months ended March 31, 2016 over the same period last year primarily due to changesreflecting change in the mix of business and the impact of the affiliated quota share agreements.  The other underwriting expense ratio components increased 3.0 points was comparable at 12.7% for the three months ended March 31, 2016 over2017 and 12.3% for the same period last year due to the additional expenses related to the increased focus on the expansion of the insurance business.

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year.

Stockholder's Equity.
Stockholders' equity increased by $105.5$182.7 million to $5,036.7$5,448.2 million at March 31, 20162017 from $4,931.2$5,265.6 million at December 31, 2015,2016, principally as a result of $45.5$171.0 million of net income, $6.0 million of net unrealized appreciation on investments, net of tax, $38.9 million of net income, $14.9$3.6 million of net foreign currency translation adjustments, $4.8 million of share-based compensation transactions and $1.3$2.0 million of net benefit plan obligation adjustments.adjustments and $0.1 million of share-based compensation transactions.

Consolidated Investment Results

Net Investment Income.
Net investment income decreasedincreased by 19.5%4.1% to $58.4$60.8 million for the three months ended March 31, 20162017 compared to $72.6$58.4 million for the three months ended March 31, 2015.  These decreases were2016, primarily due to a decreasehigher income from other invested assets, including lower year over year losses from our limited partnership investmentspartnerships, and a decrease inhigher income on thefrom our fixed income portfolio, reflective ofportfolios, partially offset by lower reinvestment rates.dividends on equity securities.

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

  Three Months Ended 
  March 31, 
(Dollars in millions) 2017  2016 
Fixed maturities $47.0  $45.3 
Equity securities  6.7   9.1 
Short-term investments and cash  0.4   0.3 
Other invested assets        
Limited partnerships  (0.2)  (2.5)
Dividends from preferred shares of affiliate  7.8   7.8 
Other  1.3   (0.9)
Gross investment income before adjustments  62.9   59.1 
Funds held interest income (expense)  1.9   2.7 
Interest income from Parent  1.1   1.1 
Gross investment income  65.9   62.8 
Investment expenses  (5.1)  (4.4)
Net investment income $60.8  $58.4 
         
(Some amounts may not reconcile due to rounding.)        

  Three Months Ended 
  March 31, 
(Dollars in millions) 2016  2015 
Fixed maturities $45.3  $48.0 
Equity securities  9.1   8.7 
Short-term investments and cash  0.3   0.2 
Other invested assets        
Limited partnerships  (2.5)  7.4 
Dividends from Parent's shares  -   9.2 
Dividends from preferred shares of affiliate  7.8   - 
Other  (0.9)  0.6 
Gross investment income before adjustments  59.1   74.1 
Funds held interest income (expense)  2.7   2.5 
Interest income from Parent  1.1   1.1 
Gross investment income  62.8   77.7 
Investment expenses  (4.4)  (5.1)
Net investment income $58.4  $72.6 
         
(Some amounts may not reconcile due to rounding.)        


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


At AtAt At
March 31, December 31,March 31, December 31,
2016 20152017 2016
Imbedded pre-tax yield of cash and invested assets at December 312.8% 2.9%2.8% 2.9%
Imbedded after-tax yield of cash and invested assets at December 312.0% 2.1%1.9% 2.0%

 Three Months Ended
 March 31,
 2017 2016
Annualized pre-tax yield on average cash and invested assets2.5% 2.5%
Annualized after-tax yield on average cash and invested assets1.8% 1.8%


 Three Months Ended
 March 31,
 2016 2015
Annualized pre-tax yield on average cash and invested assets2.5% 3.5%
Annualized after-tax yield on average cash and invested assets1.8% 2.5%

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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 March 31, 
(Dollars in millions) 2017  2016  Variance 
Gains (losses) from sales:
         
Fixed maturity securities, market value         
Gains $8.0  $1.5  $6.5 
Losses  (1.5)  (18.3)  16.8 
Total  6.5   (16.9)  23.3 
             
Equity securities, fair value            
Gains  8.0   1.8   6.2 
Losses  (3.7)  (9.7)  6.0 
Total  4.3   (8.0)  12.2 
             
Total net realized gains (losses) from sales            
Gains  16.0   3.3   12.7 
Losses  (5.2)  (28.1)  22.9 
Total  10.8   (24.8)  35.6 
             
Other than temporary impairments:
  (1.1)  (23.0)  21.9 
             
Gains (losses) from fair value adjustments:
            
Fixed maturities, fair value  -   (0.2)  0.2 
Equity securities, fair value  37.4   (18.3)  55.7 
Other invested assets, fair value  70.7   -   70.7 
Total  108.1   (18.6)  126.6 
             
Total net realized gains (losses) $117.8  $(66.4) $184.2 
             
(Some amounts may not reconcile due to rounding.)            

  Three Months Ended March 31, 
(Dollars in millions) 2016  2015  Variance 
Gains (losses) from sales:
      
Fixed maturity securities, market value      
Gains $1.5  $2.5  $(1.0)
Losses  (18.3)  (14.0)  (4.3)
Total  (16.9)  (11.5)  (5.3)
             
Equity securities, fair value            
Gains  1.8   5.1   (3.3)
Losses  (9.7)  (5.2)  (4.5)
Total  (8.0)  (0.1)  (7.8)
             
Total net realized gains (losses) from sales            
Gains  3.3   7.7   (4.4)
Losses  (28.1)  (19.2)  (8.9)
Total  (24.8)  (11.6)  (13.3)
             
Other than temporary impairments:
  (23.0)  (24.1)  1.1 
             
Gains (losses) from fair value adjustments:
            
Fixed maturities, fair value  (0.2)  0.1   (0.3)
Equity securities, fair value  (18.3)  20.9   (39.2)
Other invested assets, fair value  -   36.0   (36.0)
Total  (18.6)  57.0   (75.6)
             
Total net realized gains (losses) $(66.4) $21.3  $(87.7)
             
(Some amounts may not reconcile due to rounding)            


Net realized capital gains were $117.8 million and net realized capital losses were $66.4 million for the three months ended March 31, 2017 and 2016, respectively. For the three months ended March 31, 2017, we recorded $108.1 million of net realized capital gains were $21.3due to fair value re-measurements on equity securities and other invested assets and $10.8 million for of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $1.1 million of other-than-temporary impairments. For the three months ended March 31, 2016,, and 2015, respectively. For the three months ended March 31, 2016, we recorded $24.8 million of net realized capital losses from sales of fixed maturity and equity securities, $23.0 million of other-than-temporary impairments and $18.6 million of net realized capital losses due to fair value re-measurements on fixed maturities and equity securities. The fixed maturity and equity sales for the three months ended March 31, 2016 related primarily to adjusting the portfolios for overall market changes2017 and individual credit shifts.  For the three months ended March 31, 2015, we recorded $57.0 million of net realized capital gains due to fair value re-measurements on fixed maturity securities, equity securities and other invested assets, partially offset by $24.1 million of other-than-temporary impairments and $11.6 million of net realized capital losses from sales of fixed maturity and equity securities. The fixed maturity and equity sales for the three months ended March 31, 20152016 related primarily to adjusting the portfolios for overall market changes and individual credit shifts.

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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 directly, and through general agents, brokers, and surplus lines brokers and general agents mainly within the U.S.
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These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations.  Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.

Underwriting results include earned premium less losses and 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 management's 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.

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

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

  Three Months Ended March 31, 
(Dollars in millions) 2017  2016  Variance  % Change 
Gross written premiums $579.0  $536.7  $42.3   7.9%
Net written premiums  219.1   223.4   (4.3)  -2.0%
                 
Premiums earned $208.3  $235.2  $(26.9)  -11.4%
Incurred losses and LAE  120.4   116.2   4.2   3.7%
Commission and brokerage  40.4   49.7   (9.3)  -18.8%
Other underwriting expenses  14.3   13.5   0.8   5.9%
Underwriting gain (loss) $33.3  $55.9  $(22.6)  -40.5%
                 
              Point Chg 
Loss ratio  57.8%  49.4%      8.4 
Commission and brokerage ratio  19.4%  21.1%      (1.7)
Other underwriting ratio  6.8%  5.7%      1.1 
Combined ratio  84.0%  76.2%      7.8 
                 
(Some amounts may not reconcile due to rounding.)                

  Three Months Ended March 31, 
(Dollars in millions) 2016  2015  Variance  % Change 
Gross written premiums $536.7  $562.6  $(25.9)  -4.6%
Net written premiums  223.4   240.7   (17.3)  -7.2%
                 
Premiums earned $235.2  $255.4  $(20.2)  -7.9%
Incurred losses and LAE  116.2   111.5   4.7   4.2%
Commission and brokerage  49.7   58.4   (8.7)  -14.8%
Other underwriting expenses  13.5   11.5   2.0   16.7%
Underwriting gain (loss) $55.9  $74.1  $(18.1)  -24.5%
                 
              Point Chg 
Loss ratio  49.4%  43.6%      5.8 
Commission and brokerage ratio  21.1%  22.9%      (1.8)
Other underwriting ratio  5.7%  4.5%      1.2 
Combined ratio  76.2%  71.0%      5.2 


Premiums.  Gross written premiums decreasedincreased by 4.6%7.9% to $536.7$579.0 million for the three months ended March 31, 2016 from $562.6 million for the three months ended March 31, 2015, primarily due to a decline in treaty casualty business. Net written premiums decreased by 7.2% to $223.4 million for the three months ended March 31, 2016 2017compared to $240.7 from $536.7 million for the three months ended March 31, 20152016.  , primarily due to increase in the new crop reinsurance business and the increase in treaty casualty and surety business.  Net written premiums decreased by 2.0% to $219.1 million for the three months ended March 31, 2017 compared to $223.4 million for the three months ended March 31, 2016. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to a varying utilization of reinsurance primarily related to the affiliated quota share contracts. Premiums earned decreased 7.9%11.4% to $235.2$208.3 million for the three months ended March 31, 2016 2017compared to $255.4$235.2 million for the three
34
months ended March 31, 20152016.  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.

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

  Three Months Ended March 31,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                             
Attritional $120.6   57.8%  $(0.5)  -0.2%  $120.1   57.6% 
Catastrophes  0.4   0.2%   (0.1)  0.0%   0.3   0.2% 
Total segment $121.0   58.0%  $(0.6)  -0.2%  $120.4   57.8% 
                                     
2016
                                   
Attritional $118.4   50.4%  $(2.3)  -1.0%  $116.1   49.4% 
Catastrophes  -   0.0%   -   0.0%   -   0.0% 
Total segment $118.4   50.4%  $(2.3)  -1.0%  $116.2   49.4% 
                                     
Variance 2017/2016
                                   
Attritional $2.2   7.4 pts $1.8   0.8 pts $4.0   8.2 pts
Catastrophes  0.4   0.2 pts  (0.1)  - pts  0.3   0.2 pts
Total segment $2.6   7.6 pts $1.7   0.8 pts $4.2   8.4 pts
                                     
(Some amounts may not reconcile due to rounding.)                                   

  Three Months Ended March 31,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2016
                       
Attritional $118.4   50.4%  $(2.3)  -1.0%  $116.1   49.4% 
Catastrophes  -   0.0%   -   0.0%   -   0.0% 
Total segment $118.4   50.4%  $(2.3)  -1.0%  $116.2   49.4% 
                                     
2015
                                   
Attritional $117.5   46.0%  $(3.6)  -1.5%  $113.9   44.5% 
Catastrophes  -   0.0%   (2.4)  -0.9%   (2.4)  -0.9% 
Total segment $117.5   46.0%  $(6.0)  -2.5%  $111.5   43.6% 
                                     
Variance 2016/2015
                                   
Attritional $0.9   4.4 pts $1.3   0.5 pts $2.2   4.9 pts
Catastrophes  -   - pts  2.4   0.9 pts  2.4   0.9 pts
Total segment $0.9   4.4 pts $3.7   1.5 pts $4.7   5.8 pts
                                     
(Some amounts may not reconcile due to rounding.)                                   


Incurred losses increased by 4.2%3.7% to $116.2$120.4 million for the three months ended March 31, 2016 2017compared to $111.5$116.2 million for the three months ended March 31, 20152016, primarily due to $6.0an increase of $2.2 million in current year attritional losses, resulting mainly from the change in the mix of favorable development on prior year losses in 2015 which did not recur tobusiness and impact of the same level in 2016. There were nonew crop reinsurance contract. The current year catastrophe losses of $0.4 million for the three months ended March 31, 2016 and 2015.2017 primarily related to Cyclone Debbie in Australia ($0.4 million). There were no current year catastrophes for the three months ended March 31, 2016.

Segment Expenses.  Commission and brokerage decreased by 14.8%18.8% to $49.7$40.4 million for the three months ended March 31, 20162017 compared to $58.4$49.7 million for the three months ended March 31, 20152016.  This declineThe decrease was primarilymainly due to the impact of the decrease in premiums earned andnew crop reinsurance contract, the impact of affiliated quota share contracts.contracts and changes in the mix of business. Segment other underwriting expenses increased slightly to $13.5$14.3 million for the three months ended March 31, 2016 2017from $11.5$13.5 million for the three months ended March 31, 2015.2016. The increase was primarily due to the impact of changes in the mix of business and higher compensation and benefit plan costs.business.

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

  Three Months Ended March 31, 
(Dollars in millions) 2017  2016  Variance  % Change 
Gross written premiums $278.6  $238.5  $40.1   16.8%
Net written premiums  103.2   87.7   15.5   17.7%
                 
Premiums earned $118.2  $113.2  $5.0   4.4%
Incurred losses and LAE  68.4   73.4   (5.0)  -6.8%
Commission and brokerage  23.5   26.1   (2.6)  -9.9%
Other underwriting expenses  8.9   7.8   1.1   13.6%
Underwriting gain (loss) $17.3  $5.8  $11.5  NM 
                 
              Point Chg 
Loss ratio  57.9%  64.9%      (7.0)
Commission and brokerage ratio  19.9%  23.1%      (3.2)
Other underwriting ratio  7.5%  6.9%      0.6 
Combined ratio  85.3%  94.9%      (9.6)
                 
(NM, not meaningful)                

  Three Months Ended March 31, 
(Dollars in millions) 2016  2015  Variance  % Change 
Gross written premiums $238.5  $333.6  $(95.1)  -28.5%
Net written premiums  87.7   121.7   (34.0)  -27.9%
                 
Premiums earned $113.2  $140.7  $(27.5)  -19.6%
Incurred losses and LAE  73.4   101.4   (28.0)  -27.6%
Commission and brokerage  26.1   34.0   (7.9)  -23.2%
Other underwriting expenses  7.8   8.1   (0.3)  -3.6%
Underwriting gain (loss) $5.8  $(2.9) $8.7  NM 
                 
              Point Chg 
Loss ratio  64.9%  72.1%      (7.2)
Commission and brokerage ratio  23.1%  24.2%      (1.1)
Other underwriting ratio  6.9%  5.7%      1.2 
Combined ratio  94.9%  102.0%      (7.1)
                 
(NM, not meaningful)                

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Premiums.  Gross written premiums decreasedincreased by 28.5%16.8% to $238.5$278.6 million for the three months ended March 31, 2016 2017compared to $333.6$238.5 million for the three months ended March 31, 20152016, primarily due to the declineincreases in Middle East, Latin AmericanAmerica, Singapore and AsianCanada business reductions in premiums related to quota share agreements and the negativepositive impact of approximately $14.8$11.6 million from the movement of foreign exchange rates.   Net written premiums decreasedincreased by 27.9%17.7% to $87.7$103.2 million for the three months ended March 31, 2016 2017compared to $121.7$87.7 million for the three months ended March 31, 20152016, which is consistent with.  The difference between the change in gross written premiums.premiums compared to the change in net written premiums is primarily due to varying utilization of reinsurance related to the quota share contracts.  Premiums earned decreased 19.6%increased 4.4% to $113.2$118.2 million for the three months ended March 31, 2016 2017compared to $140.7$113.2 million for the three months ended March 31, 20152016.  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.

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


 Three Months Ended March 31, Three Months Ended March 31,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                           
Attritional $61.1   51.7% $0.8   0.7% $61.9   52.4% 
Catastrophes  6.8   5.8%   (0.3)  -0.3%   6.5   5.5% 
Total segment $67.9   57.5%  $0.5   0.4%  $68.4   57.9% 
                                  
2016
                                                        
Attritional $71.4   63.1%  $(2.8)  -2.5%  $68.6   60.6%  $71.4   63.1% $(2.8)  -2.5% $68.6   60.6% 
Catastrophes  5.2   4.6%   (0.4)  -0.3%   4.8   4.3%   5.2   4.6%   (0.4)  -0.3%   4.8   4.3% 
Total segment $76.6   67.7%  $(3.2)  -2.8%  $73.4   64.9%  $76.6   67.7%  $(3.2)  -2.8%  $73.4   64.9% 
       ��                                                              
2015
                                   
Attritional $99.7   70.9%  $1.6   1.1%  $101.3   72.0% 
Catastrophes  -   0.0%   0.2   0.1%   0.2   0.1% 
Total segment $99.7   70.9%  $1.7   1.2%  $101.4   72.1% 
                                    
Variance 2016/2015
                                   
Variance 2017/2016
                                 
Attritional $(28.3)  (7.8)pts $(4.4)  (3.6)pts $(32.7)  (11.4)pts $(10.3)  (11.4)pts $3.6   3.2 pts $(6.7)  (8.2)pts
Catastrophes  5.2   4.6 pts  (0.6)  (0.4)pts  4.6   4.2 pts  1.6   1.2 pts  0.1   - pts  1.7   1.2 pts
Total segment $(23.1)  (3.2)pts $(4.9)  (4.0)pts $(28.0)  (7.2)pts $(8.7)  (10.2)pts $3.7   3.2 pts $(5.0)  (7.0)pts
                                                                      
(Some amounts may not reconcile due to rounding.)                                                                    


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Incurred losses and LAE decreased by 27.6%6.8% to $73.4$68.4 million for the three months ended March 31, 2016 2017compared to $101.4$73.4 million for the three months ended March 31, 20152016, primarily due to thea decrease in current year attritional losses of $28.3$10.3 million, reflecting a decline in premiums earned, partially offset by more year over year development on prior year attritional losses of $3.6 million and an increase of $1.6 million in current year catastrophe losses.  The decrease in attritional losses related to the impact of affiliated quota share agreements and changes in the mix of business.  The current year catastrophe losses of $5.2 million. $6.8 million for the three months ended March 31, 2017 primarily related to Cyclone Debbie in Australia ($6.8 million). The $5.2 million of current year catastrophe losses for the three months ended March 31, 2016 were primarily due to the 2016 Taiwan earthquake ($5.2 million). There were no current year catastrophe losses for the three months ended March 31, 2015.

Segment Expenses.  Commission and brokerage decreased 23.2%9.9% to $26.1$23.5 million for the three months ended March 31, 2016 2017compared to $34.0$26.1 million for the three months ended March 31, 2015.  2016. The decrease was primarilydue to the impact of affiliated quota share agreements and changes in the mix of business. Segment other underwriting expenses increased slightly to $8.9 million for the three months ended March 31, 2017 from $7.8 million for the three months ended March 31, 2016, mainly due to the impact of the decreaseincrease in premiums earned and the impact of affiliated quota share agreements.  Segment other underwriting expenses decreased slightly to $7.8 million for the three months ended March 31, 2016 earned.compared to $8.1 million for the three months ended March 31, 2015.

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

  Three Months Ended March 31, 
(Dollars in millions) 2017  2016  Variance  % Change 
Gross written premiums $394.9  $354.7  $40.1   11.3%
Net written premiums  126.5   152.9   (26.4)  -17.3%
                 
Premiums earned $144.6  $133.5  $11.1   8.3%
Incurred losses and LAE  100.9   106.5   (5.6)  -5.3%
Commission and brokerage  (14.4)  (7.0)  (7.4)  105.7%
Other underwriting expenses  36.8   37.9   (1.2)  -3.1%
Underwriting gain (loss) $21.4  $(3.9) $25.3  NM 
                 
              Point Chg 
Loss ratio  69.8%  79.8%      (10.0)
Commission and brokerage ratio  -10.0%  -5.3%      (4.7)
Other underwriting ratio  25.4%  28.4%      (3.0)
Combined ratio  85.2%  102.9%      (17.7)
                 
(NM, not meaningful)                

  Three Months Ended March 31, 
(Dollars in millions) 2016  2015  Variance  % Change 
Gross written premiums $354.7  $330.5  $24.2   7.3%
Net written premiums  152.9   146.1   6.9   4.7%
                 
Premiums earned $133.5  $125.0  $8.6   6.9%
Incurred losses and LAE  106.5   96.0   10.5   10.9%
Commission and brokerage  (7.0)  4.2   (11.2) NM 
Other underwriting expenses  37.9   28.9   9.0   31.1%
Underwriting gain (loss) $(3.9) $(4.1) $0.2   -4.9%
                 
              Point Chg 
Loss ratio  79.8%  76.8%      3.0 
Commission and brokerage ratio  -5.3%  3.3%      (8.6)
Other underwriting ratio  28.4%  23.2%      5.2 
Combined ratio  102.9%  103.3%      (0.4)
                 
(NM, not meaningful)                


Premiums. Gross written premiums increased by 7.3%11.3% to $354.7$394.9 million for the three months ended March 31, 2016 2017compared to $330.5$354.7 million for the three months ended March 31, 20152016.  This increase was primarily driven by expansion of various insurance lines of business and an increase in accident and health business, premium from the startup of the Lloyd's syndicate and additional expansion of other insurance lines of business.  Net written premiums increaseddecreased by 4.7%17.3% to $152.9$126.5 million for the three months ended March 31, 2016 2017compared to $146.1$152.9 million for the three months ended March 31, 2015. 2016.  The difference between the change in gross written premiums andcompared to the change in newnet written premiums is primarily due to a varying utilizationthe marginally more conservative reinsurance position we have taken to support our new business and the impact of reinsurance.affiliated quota share agreements.  Premiums earned increased 6.9%8.3% to $133.5$144.6 million for the three months ended March 31, 2016 2017compared to $125.0$133.5 million for the three months ended March 31, 20152016.  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.

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

  Three Months Ended March 31,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                             
Attritional $97.3   67.3%  $3.7   2.6%  $101.0   69.9% 
Catastrophes  -   0.0%   (0.1)  -0.1%   (0.1)  -0.1% 
Total segment $97.3   67.3%  $3.6   2.5%  $100.9   69.8% 
                                     
2016
                                   
Attritional $103.6   77.6%  $3.0   2.3%  $106.7   79.9% 
Catastrophes  -   0.0%   (0.2)  -0.1%   (0.2)  -0.1% 
Total segment $103.6   77.6%  $2.8   2.2%  $106.5   79.8% 
                                     
Variance 2017/2016
                                   
Attritional $(6.3)  (10.3)pts $0.7   0.3 pts $(5.7)  (10.0)pts
Catastrophes  -   - pts  0.1   - pts  0.1   - pts
Total segment $(6.3)  (10.3)pts $0.8   0.3 pts $(5.6)  (10.0)pts
                                     
(Some amounts may not reconcile due to rounding.)                                   

  Three Months Ended March 31,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2016
                       
Attritional $103.6   77.6%  $3.0   2.3%  $106.7   79.9% 
Catastrophes  -   0.0%   (0.2)  -0.1%   (0.2)  -0.1% 
Total segment $103.6   77.6%  $2.8   2.2%  $106.5   79.8% 
                                     
2015
                                   
Attritional $95.6   76.5%  $0.4   0.3%  $96.0   76.8% 
Catastrophes  -   0.0%   -   0.0%   -   0.0% 
Total segment $95.6   76.5%  $0.4   0.3%  $96.0   76.8% 
                                     
Variance 2016/2015
                                   
Attritional $8.0   1.1 pts $2.6   2.0 pts $10.7   3.1 pts
Catastrophes  -   - pts  (0.2)  (0.1)pts  (0.2)  (0.1)pts
Total segment $8.0   1.1 pts $2.4   1.9 pts $10.5   3.0 pts
(Some amounts may not reconcile due to rounding.)                                   

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Incurred losses and LAE increaseddecreased by 10.9%5.3% to $106.5$100.9 million for the three months ended March 31, 2016 2017compared to $96.0$106.5 million for the three months ended March 31, 20152016, primarilymainly due to an increasedecrease of $8.0$6.3 million in current year attritional losses. The decrease in current year attritional losses primarily related to changes in  the mix of business and the impact of the increase in premiums earned and an increase of $2.6 million of favorable development on prior years attritional losses related primarily to crop hail business.affiliated quota share agreements. There were no current year catastrophe losses for the three months ended March 31, 20162017 and 20152016..

Segment Expenses.  Commission and brokerage decreased to $(7.0)($14.4) million for the three months ended March 31, 2016 2017compared to $4.2($7.0) million for the three months ended March 31, 2015.2016.  The decrease was primarily driven bymainly due to the impact of changes in the mix of business and the impacts from affiliated quota share agreements.  Segment other underwriting expenses increaseddecreased slightly to $37.9$36.8 million for the three months ended March 31, 20162017 compared to $28.9$37.9 million for the three months ended March 31, 2015.  The increase resulted from the impact of the increase in premiums earned and increased expenses due to the build out of the insurance platform.2016.

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.

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Interest Rate Risk.  Our $9.6$10.1 billion investment portfolio, at March 31, 2016,2017, 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 $848.3$774.2 million of mortgage-backed securities in the $5,581.8$6,206.4 million fixed maturity portfolio.  Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.

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The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $329.2$336.6 million of short-term investments) for the period indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates.  For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimates forestimate on mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account.  For legal entities with non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under the various interest rate change scenarios.


 Impact of Interest Rate Shift in Basis Points Impact of Interest Rate Shift in Basis Points 
 At March 31, 2016 At March 31, 2017 
(Dollars in millions)  -200  -100  0   100  200  -200   -100   0   100   200 
Total Market/Fair Value $6,210.8  $6,062.0  $5,911.0  $5,747.7  $5,578.5  $6,910.7  $6,730.4  $6,543.0  $6,348.9  $6,154.7 
Market/Fair Value Change from Base (%)  5.1%  2.6%  0.0%  -2.8%  -5.6%  5.6%  2.9%  0.0%  -3.0%  -5.9%
Change in Unrealized Appreciation                                        
After-tax from Base ($) $194.9  $98.2  $-  $(106.1) $(216.1) $239.0  $121.8  $-  $(126.2) $(252.4)
 
We had $7,992.3$8,369.2 million and $7,940.7$8,331.3 million of gross reserves for losses and LAE as of March 31, 20162017 and December 31, 2015,2016, 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 and mutual fund 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 our core bonds over time through market appreciation and income.

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


 Impact of Percentage Change in Equity Fair/Market Values Impact of Percentage Change in Equity Fair/Market Values 
 At March 31, 2016 At March 31, 2017 
(Dollars in millions)  -20%  -10%  0%  10%  20%  -20%  -10%  0%  10%  20%
Fair/Market Value of the Equity Portfolio $956.0  $1,075.5  $1,195.0  $1,314.5  $1,434.0  $682.4  $767.7  $853.0  $938.3  $1,023.6 
After-tax Change in Fair/Market Value  (155.3)  (77.7)  -   77.7   155.3   (110.9)  (55.4)  -   55.4   110.9 
 
Foreign ExchangeCurrency 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, the impact on the market value of available for sale fixed maturities due to changes in foreign currency exchange rates, in relation to functional currency, is reflected as part of other comprehensive income.  Conversely, the impact of changes in foreign currency exchange rates, in relation to functional currency, on other assets and liabilities is reflected through net income as a component of other income (expense).  In addition, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar.  This translation amount is reported as a component of other comprehensive income.  As of March 31, 2016, there has been no material change in exposure to foreign exchange rates as compared to December 31, 2015.

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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 ITEM 1A, "Risk Factors" in the Company's most recent 10-K filing. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 3.                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


ITEM 4.                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
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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.


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PART II

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.


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.



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ITEM 6.    EXHIBITS

Exhibit Index:  
   
Exhibit No.
Description
 
   
   31.1Section 302 Certification of Dominic J. Addesso 
   
   31.2Section 302 Certification of Craig Howie 
   
   32.1Section 906 Certification of Dominic 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:  May 16, 201615, 2017