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

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

FOR THE QUARTERLY PERIOD ENDED:
March 31,June 30, 2017
 
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, a smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "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 MayAugust 1, 2017
Common Shares, $0.01 par value 1,000

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

EVEREST REINSURANCE HOLDINGS, INC.

Table of Contents
Form 10-Q


Page
PART I

FINANCIAL INFORMATION

     
Item 1. Financial Statements 
     
  Consolidated Balance Sheets at March 31,June 30, 2017 (unaudited) and 
   December 31, 20161
    
  Consolidated Statements of Operations and Comprehensive Income (Loss) for the 
   three and six months ended March 31,June 30, 2017 and 2016 (unaudited)2
     
  Consolidated Statements of Changes in Stockholder's Equity for the three and 
   six months ended March 31,June 30, 2017 and 2016 (unaudited)3
     
  Consolidated Statements of Cash Flows for the threesix months ended 
   March 31,June 30, 2017 and 2016 (unaudited)4
     
  Notes to Consolidated Interim Financial Statements (unaudited)5
     
Item 2. Management's Discussion and Analysis of Financial Condition and 
   Results of Operation2832
    
Item 3. Quantitative and Qualitative Disclosures About Market Risk4048
     
Item 4. Controls and Procedures4048
     

PART II

OTHER INFORMATION

     
Item 1. Legal Proceedings4148
     
Item 1A. Risk Factors4149
    
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds4149
    
Item 3. Defaults Upon Senior Securities4149
    
Item 4. Mine Safety Disclosures4149
    
Item 5. Other Information4149
    
Item 6. Exhibits4250
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS



 March 31,  December 31,  June 30,  December 31, 
(Dollars in thousands, except par value per share) 2017  2016  2017  2016 
 (unaudited)     (unaudited) 
ASSETS:            
Fixed maturities - available for sale, at market value $6,206,415  $5,970,496  $6,140,028  $5,970,496 
(amortized cost: 2017, $6,137,668; 2016, $5,910,494)        
(amortized cost: 2017, $6,071,568; 2016, $5,910,494)        
Equity securities - available for sale, at fair value  852,993   887,800   934,110   887,800 
Short-term investments  336,611   306,286   176,405   306,286 
Other invested assets (cost: 2017, $658,686; 2016, $613,680)  659,189   613,740 
Other invested assets (cost: 2017, 773,322; 2016, $613,680)  774,646   613,740 
Other invested assets, at fair value  1,837,302   1,766,626   1,724,532   1,766,626 
Cash  235,586   297,794   242,565   297,794 
Total investments and cash  10,128,096   9,842,742   9,992,286   9,842,742 
Note receivable - affiliated  250,000   250,000   250,000   250,000 
Accrued investment income  44,915   45,323   43,799   45,323 
Premiums receivable  1,257,211   1,128,639   1,343,051   1,128,639 
Reinsurance receivables - unaffiliated  919,890   887,657   893,608   887,657 
Reinsurance receivables - affiliated  3,690,125   3,686,130   3,798,963   3,686,130 
Funds held by reinsureds  183,791   190,421   193,800   190,421 
Deferred acquisition costs  62,308   73,924   48,827   68,621 
Prepaid reinsurance premiums  842,956   781,384   965,909   781,384 
Other assets  208,548   202,519   231,416   202,519 
TOTAL ASSETS $17,587,840  $17,088,739  $17,761,659  $17,083,436 
                
LIABILITIES:                
Reserve for losses and loss adjustment expenses $8,369,162  $8,331,288  $8,286,599  $8,331,288 
Unearned premium reserve  1,353,230   1,312,386   1,424,957   1,312,386 
Funds held under reinsurance treaties  109,010   110,836   116,397   110,836 
Losses in the course of payment  182,667   82,915   333,262   82,915 
Commission reserves  44,137   52,037   39,236   52,037 
Other net payable to reinsurers  832,307   860,391   906,305   815,298 
4.868% Senior notes due 6/1/2044  396,744   396,714   396,774   396,714 
6.6% Long term notes due 5/1/2067  236,487   236,462   236,511   236,462 
Accrued interest on debt and borrowings  12,341   3,537   2,632   3,537 
Income taxes  223,629   142,143   173,693   148,940 
Unsettled securities payable  108,316   27,121   46,183   27,121 
Other liabilities  271,593   267,349   276,316   267,349 
Total liabilities  12,139,623   11,823,179   12,238,865   11,784,883 
                
Commitments and Contingencies (Note 6)        
Commitments and Contingencies (Note 7)        
                
STOCKHOLDER'S EQUITY:                
Common stock, par value: $0.01; 3,000 shares authorized;                
1,000 shares issued and outstanding (2017 and 2016)  -   -   -   - 
Additional paid-in capital  387,637   387,567   387,705   387,567 
Accumulated other comprehensive income (loss), net of deferred income tax expense                
(benefit) of ($13,335) at 2017 and ($19,549) at 2016  (24,772)  (36,315)
(benefit) of ($9,175) at 2017 and ($19,549) at 2016  (17,048)  (36,315)
Retained earnings  5,085,352   4,914,308   5,152,137   4,947,301 
Total stockholder's equity  5,448,217   5,265,560   5,522,794   5,298,553 
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $17,587,840  $17,088,739  $17,761,659  $17,083,436 
                
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  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
 (unaudited)  (unaudited)  (unaudited) 
REVENUES:                  
Premiums earned $471,055  $481,925  $468,197  $488,855  $939,252  $970,780 
Net investment income  60,849   58,445   71,900   73,872   132,749   132,317 
Net realized capital gains (losses):                        
Other-than-temporary impairments on fixed maturity securities  (1,132)  (23,015)  (1,574)  (1,391)  (2,706)  (24,406)
Other-than-temporary impairments on fixed maturity securities                        
transferred to other comprehensive income (loss)  -   -   -   -   -   - 
Other net realized capital gains (losses)  118,900   (43,362)  (90,717)  30,556   28,183   (12,806)
Total net realized capital gains (losses)  117,768   (66,377)  (92,291)  29,165   25,477   (37,212)
Other income (expense)  9,855   13,102   10,655   (10,700)  20,510   2,402 
Total revenues  659,527   487,095   458,461   581,192   1,117,988   1,068,287 
                        
CLAIMS AND EXPENSES:                        
Incurred losses and loss adjustment expenses  289,722   296,062   297,228   338,536   586,950   634,598 
Commission, brokerage, taxes and fees  49,470   68,822   60,513   70,409   113,020   136,774 
Other underwriting expenses  59,895   59,227   64,197   58,330   124,092   117,557 
Corporate expenses  3,597   2,336   1,512   2,010   5,109   4,346 
Interest, fee and bond issue cost amortization expense  8,859   8,859   7,954   8,858   16,813   17,717 
Total claims and expenses  411,543   435,306   431,404   478,143   845,984   910,992 
                        
INCOME (LOSS) BEFORE TAXES  247,984   51,789   27,057   103,049   272,004   157,295 
Income tax expense (benefit)  76,940   12,863   (8,601)  33,677   67,168   46,933 
                        
NET INCOME (LOSS) $171,044  $38,926  $35,658  $69,372  $204,836  $110,362 
                        
Other comprehensive income (loss), net of tax:                        
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period  9,439   19,600   3,825   39,264   13,264   58,864 
Less: reclassification adjustment for realized losses (gains) included in net income (loss)  (3,467)  25,915   (3,477)  (63)  (6,944)  25,852 
Total URA(D) on securities arising during the period  5,972   45,515   348   39,201   6,320   84,716 
                        
Foreign currency translation adjustments  3,567   14,932   5,372   15,489   8,939   30,421 
                        
Benefit plan actuarial net gain (loss) for the period  -   -   -   -   -   - 
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)  2,004   1,340   2,004   1,341   4,008   2,681 
Total benefit plan net gain (loss) for the period  2,004   1,340   2,004   1,341   4,008   2,681 
Total other comprehensive income (loss), net of tax  11,543   61,787   7,724   56,031   19,267   117,818 
                        
COMPREHENSIVE INCOME (LOSS) $182,587  $100,713  $43,382  $125,403  $224,103  $228,180 
                        
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  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands, except share amounts) 2017  2016  2017  2016  2017  2016 
 (unaudited)  (unaudited)  (unaudited) 
COMMON STOCK (shares outstanding):                  
Balance, beginning of period  1,000   1,000   1,000   1,000   1,000   1,000 
Balance, end of period  1,000   1,000   1,000   1,000   1,000   1,000 
                        
ADDITIONAL PAID-IN CAPITAL:                        
Balance, beginning of period $387,567  $374,789  $387,637  $379,582  $387,567  $374,789 
Share-based compensation plans  70   4,793   68   2,955   138   7,748 
Balance, end of period  387,637   379,582   387,705   382,537   387,705   382,537 
                        
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),                        
NET OF DEFERRED INCOME TAXES:                        
Balance, beginning of period  (36,315)  (62,136)  (24,772)  (349)  (36,315)  (62,136)
Net increase (decrease) during the period  11,543   61,787   7,724   56,031   19,267   117,818 
Balance, end of period  (24,772)  (349)  (17,048)  55,682   (17,048)  55,682 
                        
RETAINED EARNINGS:                        
Balance, beginning of period  4,914,308   4,618,558   5,116,479   4,686,647   4,947,301   4,645,657 
Net income (loss)  171,044   38,926   35,658   69,372   204,836   110,362 
Balance, end of period  5,085,352   4,657,484   5,152,137   4,756,019   5,152,137   4,756,019 
                        
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $5,448,217  $5,036,717  $5,522,794  $5,194,238  $5,522,794  $5,194,238 
                        
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  Six Months Ended 
 March 31,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016 
 (unaudited)  (unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income (loss) $171,044  $38,926  $204,836  $110,362 
Adjustments to reconcile net income to net cash provided by operating activities:                
Decrease (increase) in premiums receivable  (127,985)  38,549   (213,530)  13,635 
Decrease (increase) in funds held by reinsureds, net  5,307   3,817   2,353   (3,111)
Decrease (increase) in reinsurance receivables  (33,666)  (56,106)  (115,273)  (9,694)
Decrease (increase) in income taxes  75,304   6,546   14,411   9,279 
Decrease (increase) in prepaid reinsurance premiums  (61,392)  15,994   (184,385)  24,418 
Increase (decrease) in reserve for losses and loss adjustment expenses  34,016   29,962   (55,590)  257,415 
Increase (decrease) in unearned premiums  39,180   (33,573)  111,848   (89,903)
Increase (decrease) in other net payable to reinsurers  (30,525)  (106,588)  89,702   (373,353)
Increase (decrease) in losses in course of payment  99,506   17,456   250,153   1,813 
Change in equity adjustments in limited partnerships  225   2,514   (8,728)  (11,352)
Distribution of limited partnership income  3,727   9,859   12,483   22,822 
Change in other assets and liabilities, net  18,204   24,496   (10,031)  13,152 
Non-cash compensation expense  2,629   3,117   5,186   5,433 
Amortization of bond premium (accrual of bond discount)  4,494   4,541   9,107   8,972 
Amortization of underwriting discount on senior notes  1   1   2   2 
Net realized capital (gains) losses  (117,768)  66,377   (25,477)  37,212 
Net cash provided by (used in) operating activities  82,301   65,888   87,067   17,102 
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Proceeds from fixed maturities matured/called - available for sale, at market value  274,356   154,378   555,649   368,179 
Proceeds from fixed maturities sold - available for sale, at market value  292,994   188,046   652,490   296,888 
Proceeds from fixed maturities sold - available for sale, at fair value  -   1,587 
Proceeds from equity securities sold - available for sale, at fair value  134,051   86,149   249,653   421,980 
Distributions from other invested assets  448,121   255,889   1,018,997   696,889 
Cost of fixed maturities acquired - available for sale, at market value  (785,984)  (506,085)  (1,348,415)  (923,755)
Cost of equity securities acquired - available for sale, at fair value  (56,724)  (92,019)  (237,894)  (180,406)
Cost of other invested assets acquired  (497,077)  (413,223)  (1,182,157)  (862,717)
Net change in short-term investments  (29,794)  235,895   130,362   178,128 
Net change in unsettled securities transactions  72,275   5,870   6,648   36,119 
Net cash provided by (used in) investing activities  (147,782)  (85,100)  (154,667)  32,892 
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Tax benefit from share-based compensation  (2,560)  1,676   (5,048)  2,315 
Net cash provided by (used in) financing activities  (2,560)  1,676   (5,048)  2,315 
                
EFFECT OF EXCHANGE RATE CHANGES ON CASH  5,833   10,546   17,419   22,189 
                
Net increase (decrease) in cash  (62,208)  (6,990)  (55,229)  74,498 
Cash, beginning of period  297,794   155,429   297,794   155,429 
Cash, end of period $235,586  $148,439  $242,565  $229,927 
                
SUPPLEMENTAL CASH FLOW INFORMATION:                
Income taxes paid (recovered) $1,581  $4,558  $52,641  $35,375 
Interest paid  -   -   17,608   17,608 
                
The accompanying notes are an integral part of the consolidated financial statements.                

4
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended March 31,June 30, 2017 and 2016

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 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 and six months ended March 31,June 30, 2017 and 2016 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, 2016 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  The results for the three and six months ended March 31,June 30, 2017 and 2016 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 and 2014 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 2017 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. The Company implemented this guidance in the fourth quarter of 2016.
5

Disclosures for Investments 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 15, 2015.  The adoption did not have a material impact on the Company's financial statements.

5
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 implemented this guidance effective in the second quarter of 2016.  This adoption did not have any material impact on the Company's financial statements.

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 adoption did not have a material impact on the Company's financial statements.

3.  REVISIONS TO FINANCIAL STATEMENTS

In preparing its current period financial statements, the Company altered its processing of ceding certain commissions and deferred acquisition costs under an affiliated quota share agreement.  In previous reporting periods, these expenses were ceded based upon a quarter lag. In the current period, the quarter lag was eliminated and these expenses are now recorded on a current quarter basis.  Although management determined that the impact of the ceding lag was not material to prior period financial statements, the impact of eliminating the ceding lag would have significantly impacted results within the current period.  As a result, prior period balances have been revised in the applicable financial statements and corresponding footnotes to eliminate the impact of the previous recording lag.

Management assessed the materiality of this change within prior period financial statements based upon SEC Staff Accounting Bulletin Number 99, Materiality, which is since codified in Accounting Standards Codification ("ASC") 250, Accounting Changes and Error Corrections.  In accordance with ASC 250, the prior period comparative financial statements that are presented herein have been revised.

The following tables present line items for prior period financial statements that have been affected by the revision. For these line items, the tables detail the amounts as previously reported, the impact upon those line items due to the revision, and the amounts as currently revised within the financial statements.

CONSOLIDATED BALANCE SHEETS March 31, 2017 
  As Previously  Impact of    
  Reported  Revisions  As Revised 
(Dollars in thousands, except par value per share)         
ASSETS:         
Deferred acquisition costs $62,308  $(4,994) $57,314 
TOTAL ASSETS $17,587,840  $(4,994) $17,582,846 
             
LIABILITIES:            
Other net payable to reinsurers $832,307  $(41,746) $790,561 
Income taxes  223,629   5,625   229,254 
         Total liabilities  12,139,623   (36,121)  12,103,502 
             
STOCKHOLDERS EQUITY:            
 Retained earnings  5,085,352   31,127   5,116,479 
         Total stockholder's equity  5,448,217   31,127   5,479,344 
 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $17,587,840  $(4,994) $17,582,846 
6
CONSOLIDATED BALANCE SHEETS December 31, 2016  December 31, 2015 
  As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
(Dollars in thousands, except par value per share)                  
ASSETS:                  
Deferred acquisition costs $73,924  $(5,303) $68,621  $92,651  $(6,249) $86,402 
TOTAL ASSETS $17,088,739  $(5,303) $17,083,436  $16,695,203  $(6,249) $16,688,954 
                         
LIABILITIES:                        
Other net payable to reinsurers $860,391  $(45,093) $815,298  $1,225,260  $(37,480) $1,187,780 
Income taxes  142,143   6,797   148,940   68,024   4,132   72,156 
         Total liabilities  11,823,179   (38,296)  11,784,883   11,763,992   (33,348)  11,730,644 
                         
STOCKHOLDERS EQUITY:                        
 Retained earnings  4,914,308   32,993   4,947,301   4,618,558   27,099   4,645,657 
         Total stockholder's equity  5,265,560   32,993   5,298,553   4,931,211   27,099   4,958,310 
 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $17,088,739  $(5,303) $17,083,436  $16,695,203  $(6,249) $16,688,954 


CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2016  Year Ended December 31, 2015 
AND COMPREHENSIVE INCOME (LOSS): As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
(Dollars in thousands)                  
CLAIMS AND EXPENSES:                  
Commission, brokerage, taxes and fees $289,982  $(8,558) $281,424  $315,069  $(2,744) $312,325 
Total claims and expenses  1,928,940   (8,558)  1,920,382   1,892,062   (2,744)  1,889,318 
                         
INCOME (LOSS) BEFORE TAXES  390,433   8,558   398,991   604,542   2,744   607,286 
Income tax expense (benefit)  94,683   2,664   97,347   191,889   3,007   194,896 
                         
NET INCOME (LOSS) $295,750  $5,894  $301,644  $412,653  $(263) $412,390 
                         
COMPREHENSIVE INCOME (LOSS) $321,571  $5,894  $327,465  $345,998  $(263) $345,735 


CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2014  Three Months Ended March 31, 2017 
AND COMPREHENSIVE INCOME (LOSS): As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
(Dollars in thousands)                  
CLAIMS AND EXPENSES:                  
Commission, brokerage, taxes and fees $339,402  $(427) $338,975  $49,470  $3,037  $52,507 
Total claims and expenses  1,930,749   (427)  1,930,322   411,543   3,037   414,580 
                         
INCOME (LOSS) BEFORE TAXES  657,688   427   658,115   247,984   (3,037)  244,947 
Income tax expense (benefit)  203,562   1,125   204,687   76,940   (1,171)  75,769 
                         
NET INCOME (LOSS) $454,126  $(698) $453,428  $171,044  $(1,866) $169,178 
                         
COMPREHENSIVE INCOME (LOSS) $370,997  $(698) $370,299  $182,587  $(1,866) $180,721 

7
CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended September 30, 2016  Nine Months Ended September 30, 2016 
AND COMPREHENSIVE INCOME (LOSS): As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
(Dollars in thousands)                  
CLAIMS AND EXPENSES:                  
Commission, brokerage, taxes and fees $85,563  $(2,785) $82,778  $226,511  $(6,959) $219,552 
Total claims and expenses  462,009   (2,785)  459,224   1,377,175   (6,959)  1,370,216 
                         
INCOME (LOSS) BEFORE TAXES  95,943   2,785   98,728   249,064   6,959   256,023 
Income tax expense (benefit)  21,145   1,280   22,425   66,990   2,368   69,358 
                         
NET INCOME (LOSS) $74,798  $1,505  $76,303  $182,074  $4,591  $186,665 
                         
COMPREHENSIVE INCOME (LOSS) $74,465  $1,505  $75,970  $299,559  $4,591  $304,150 


CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, 2016  Six Months Ended June 30, 2016 
AND COMPREHENSIVE INCOME (LOSS): As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
(Dollars in thousands)                  
CLAIMS AND EXPENSES:                  
Commission, brokerage, taxes and fees $72,126  $(1,717) $70,409  $140,948  $(4,174) $136,774 
Total claims and expenses  479,860   (1,717)  478,143   915,166   (4,174)  910,992 
                         
INCOME (LOSS) BEFORE TAXES  101,332   1,717   103,049   153,121   4,174   157,295 
Income tax expense (benefit)  32,982   695   33,677   45,845   1,088   46,933 
                         
NET INCOME (LOSS) $68,350  $1,022  $69,372  $107,276  $3,086  $110,362 
                         
COMPREHENSIVE INCOME (LOSS) $124,381  $1,022  $125,403  $225,094  $3,086  $228,180 


CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2016 
AND COMPREHENSIVE INCOME (LOSS): As Previously  Impact of    
  Reported  Revisions  As Revised 
(Dollars in thousands)         
CLAIMS AND EXPENSES:         
Commission, brokerage, taxes and fees $68,822  $(2,457) $66,365 
Total claims and expenses  435,306   (2,457)  432,849 
             
INCOME (LOSS) BEFORE TAXES  51,789   2,457   54,246 
Income tax expense (benefit)  12,863   393   13,256 
             
NET INCOME (LOSS) $38,926  $2,064  $40,990 
             
COMPREHENSIVE INCOME (LOSS) $100,713  $2,064  $102,777 


CONSOLIDATED STATEMENTS OF Year Ended December 31, 2016  Year Ended December 31, 2015 
CHANGES IN STOCKHOLDER'S EQUITY As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
                   
(Dollars in thousands, except share amounts)                  
RETAINED EARNINGS:                  
Balance, beginning of period $4,618,558  $27,099  $4,645,657  $4,205,905  $27,362  $4,233,267 
Net income (loss)  295,750   5,894   301,644   412,653   (263)  412,390 
Balance, end of period  4,914,308   32,993   4,947,301   4,618,558   27,099   4,645,657 
 TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $5,265,560  $32,993  $5,298,553  $4,931,211  $27,099  $4,958,310 

8
CONSOLIDATED STATEMENTS OF Year Ended December 31, 2014  Three Months Ended March 31, 2017 
CHANGES IN STOCKHOLDER'S EQUITY As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
                   
(Dollars in thousands, except share amounts)                  
RETAINED EARNINGS:                  
Balance, beginning of period $3,751,779  $28,060  $3,779,839  $4,914,308  $32,993  $4,947,301 
Net income (loss)  454,126   (698)  453,428   171,044   (1,866)  169,178 
Balance, end of period  4,205,905   27,362   4,233,267   5,085,352   31,127   5,116,479 
 TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $4,572,717  $27,362  $4,600,079  $5,448,217  $31,127  $5,479,344 


CONSOLIDATED STATEMENTS OF Three Months Ended September 30, 2016  Nine Months Ended September 30, 2016 
CHANGES IN STOCKHOLDER'S EQUITY As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
                   
(Dollars in thousands, except share amounts)                  
RETAINED EARNINGS:                  
Balance, beginning of period $4,725,834  $30,185  $4,756,019  $4,618,558  $27,099  $4,645,657 
Net income (loss)  74,798   1,505   76,303   182,074   4,591   186,665 
Balance, end of period  4,800,632   31,690   4,832,322   4,800,632   31,690   4,832,322 
 TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $5,240,955  $31,690  $5,272,645  $5,240,955  $31,690  $5,272,645 


CONSOLIDATED STATEMENTS OF Three Months Ended June 30, 2016  Six Months Ended June 30, 2016 
CHANGES IN STOCKHOLDER'S EQUITY As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
                   
(Dollars in thousands, except share amounts)                  
RETAINED EARNINGS:                  
Balance, beginning of period $4,657,484  $29,163  $4,686,647  $4,618,558  $27,099  $4,645,657 
Net income (loss)  68,350   1,022   69,372   107,276   3,086   110,362 
Balance, end of period  4,725,834   30,185   4,756,019   4,725,834   30,185   4,756,019 
 TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $5,164,053  $30,185  $5,194,238  $5,164,053  $30,185  $5,194,238 


CONSOLIDATED STATEMENTS OF Three Months Ended March 31, 2016 
CHANGES IN STOCKHOLDER'S EQUITY As Previously  Impact of    
  Reported  Revisions  As Revised 
          
(Dollars in thousands, except share amounts)         
RETAINED EARNINGS:         
Balance, beginning of period $4,618,558  $27,099  $4,645,657 
Net income (loss)  38,926   2,064   40,990 
Balance, end of period  4,657,484   29,163   4,686,647 
 TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD $5,036,717  $29,163  $5,065,880 


CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2016  Year Ended December 31, 2015 
  As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
(Dollars in thousands)                  
CASH FLOWS FROM OPERATING ACTIVITIES:                  
Net income (loss) $295,750  $5,894  $301,644  $412,653  $(263) $412,390 
Decrease (increase) in income taxes  60,325   2,666   62,991   57,487   3,007   60,494 
Increase (decrease) in other net payable to reinsurers  (364,242)  (7,614)  (371,856)  204,526   (8,590)  195,936 
Change in other assets and liabilities, net  16,090   (946)  15,144   7,499   5,846   13,345 
9
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2014  Three Months Ended March 31, 2017 
  As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
(Dollars in thousands)                  
CASH FLOWS FROM OPERATING ACTIVITIES:                  
Net income (loss) $454,126  $(698) $453,428  $171,044  $(1,866) $169,178 
Decrease (increase) in income taxes  68,206   1,125   69,331   75,304   (1,172)  74,132 
Increase (decrease) in other net payable to reinsurers  5,130   (3,216)  1,914   (30,525)  3,347   (27,178)
Change in other assets and liabilities, net  81,388   2,789   84,177   18,204   (309)  17,895 


CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2016  Six Months Ended June 30, 2016 
  As Previously  Impact of     As Previously  Impact of    
  Reported  Revisions  As Revised  Reported  Revisions  As Revised 
(Dollars in thousands)                  
CASH FLOWS FROM OPERATING ACTIVITIES:                  
Net income (loss) $182,074  $4,591  $186,665  $107,276  $3,086  $110,362 
Decrease (increase) in income taxes  33,279   2,368   35,647   8,190   1,089   9,279 
Increase (decrease) in other net payable to reinsurers  (209,260)  (6,764)  (216,024)  (370,242)  (3,111)  (373,353)
Change in other assets and liabilities, net  (124,955)  (195)  (125,150)  14,216   (1,064)  13,152 


CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2016 
  As Previously  Impact of    
  Reported  Revisions  As Revised 
(Dollars in thousands)         
CASH FLOWS FROM OPERATING ACTIVITIES:         
Net income (loss) $38,926  $2,064  $40,990 
Decrease (increase) in income taxes  6,546   393   6,939 
Increase (decrease) in other net payable to reinsurers  (106,588)  (1,122)  (107,710)
Change in other assets and liabilities, net  24,496   (1,335)  23,161 

4.  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  At June 30, 2017 
 Amortized  Unrealized  Unrealized  Market  OTTI in AOCI  Amortized  Unrealized  Unrealized  Market  OTTI in AOCI 
(Dollars in thousands) Cost  Appreciation  Depreciation  Value  (a)  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  $-  $667,000  $2,961  $(3,184) $666,777  $- 
Obligations of U.S. states and political subdivisions  705,145   18,818   (11,526)  712,437   -   679,940   22,970   (6,127)  696,783   - 
Corporate securities  2,238,328   45,144   (11,854)  2,271,618   1,332   2,274,212   40,765   (13,976)  2,301,001   908 
Asset-backed securities  175,864   381   (75)  176,170   -   189,598   433   (42)  189,989   - 
Mortgage-backed securities                                        
Commercial  75,108   838   (324)  75,622   -   73,127   507   (389)  73,245   - 
Agency residential  704,451   2,380   (8,365)  698,466   -   688,735   2,163   (7,217)  683,681   - 
Non-agency residential  68   11   -   79   -   61   9   -   70   - 
Foreign government securities  474,211   21,809   (6,925)  489,095   -   489,750   20,205   (8,568)  501,387   - 
Foreign corporate securities  992,050   31,699   (12,041)  1,011,708   213   1,009,145   28,358   (10,408)  1,027,095   319 
Total fixed maturity securities $6,137,668  $123,758  $(55,011) $6,206,415  $1,545  $6,071,568  $118,371  $(49,911) $6,140,028  $1,227 
610
  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 

(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.

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  At June 30, 2017  At December 31, 2016 
 Amortized  Market  Amortized  Market  Amortized  Market  Amortized  Market 
(Dollars in thousands) Cost  Value  Cost  Value  Cost  Value  Cost  Value 
Fixed maturity securities – available for sale                        
Due in one year or less $466,605  $466,630  $394,401  $392,824  $438,873  $439,218  $394,401  $392,824 
Due after one year through five years  2,988,903   3,016,699   2,925,786   2,955,325   2,912,173   2,932,487   2,925,786   2,955,325 
Due after five years through ten years  919,998   938,822   879,762   894,166   1,043,485   1,063,492   879,762   894,166 
Due after ten years  806,671   833,927   776,436   800,429   725,516   757,846   776,436   800,429 
Asset-backed securities  175,864   176,170   136,826   137,027   189,598   189,989   136,826   137,027 
Mortgage-backed securities                                
Commercial  75,108   75,622   75,435   75,493   73,127   73,245   75,435   75,493 
Agency residential  704,451   698,466   721,772   715,144   688,735   683,681   721,772   715,144 
Non-agency residential  68   79   76   88   61   70   76   88 
Total fixed maturity securities $6,137,668  $6,206,415  $5,910,494  $5,970,496  $6,071,568  $6,140,028  $5,910,494  $5,970,496 
 
The changes in net unrealized appreciation (depreciation) for the Company's investments are derived from the following sources for the periods as indicated:
 Three Months Ended  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  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  $32  $53,863  $12,274  $123,689 
Fixed maturity securities, other-than-temporary impairment  (3,499)  197   (317)  6,446   (3,816)  6,643 
Other invested assets  444   -   821   -   1,265   - 
Change in unrealized appreciation (depreciation), pre-tax  9,187   70,023   536   60,309   9,723   130,332 
Deferred tax benefit (expense)  (4,440)  (24,439)  (299)  (18,852)  (4,739)  (43,291)
Deferred tax benefit (expense), other-than-temporary impairment  1,225   (69)  111   (2,256)  1,336   (2,325)
Change in unrealized appreciation (depreciation),                        
net of deferred taxes, included in stockholder's equity $5,972  $45,515  $348  $39,201  $6,320  $84,716 
711
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.

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  Duration of Unrealized Loss at June 30, 2017 By Security Type 
 Less than 12 months  Greater than 12 months  Total  Less than 12 months  Greater than 12 months  Total 
    Gross     Gross     Gross     Gross     Gross     Gross 
    Unrealized     Unrealized     Unrealized     Unrealized     Unrealized     Unrealized 
(Dollars in thousands) Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation 
Fixed maturity securities - available for sale                                    
U.S. Treasury securities and obligations of                                    
U.S. government agencies and corporations $331,049  $(3,901) $-  $-  $331,049  $(3,901) $261,624  $(3,184) $-  $-  $261,624  $(3,184)
Obligations of U.S. states and political subdivisions  206,241   (10,966)  492   (560)  206,733   (11,526)  157,890   (6,127)  -   -   157,890   (6,127)
Corporate securities  441,626   (7,815)  88,102   (4,039)  529,728   (11,854)  528,750   (10,097)  68,699   (3,879)  597,449   (13,976)
Asset-backed securities  40,290   (73)  4,026   (2)  44,316   (75)  56,504   (39)  2,525   (3)  59,029   (42)
Mortgage-backed securities                                                
Commercial  8,255   (297)  3,072   (27)  11,327   (324)  13,797   (317)  2,991   (72)  16,788   (389)
Agency residential  465,110   (6,116)  86,304   (2,249)  551,414   (8,365)  445,347   (5,091)  82,351   (2,126)  527,698   (7,217)
Non-agency residential  20   -   -   -   20   -   -   -   -   -   -   - 
Foreign government securities  140,028   (1,524)  56,147   (5,401)  196,175   (6,925)  177,440   (2,308)  56,133   (6,260)  233,573   (8,568)
Foreign corporate securities  205,862   (3,054)  71,426   (8,987)  277,288   (12,041)  201,847   (2,108)  73,620   (8,300)  275,467   (10,408)
Total fixed maturity securities $1,838,481  $(33,746) $309,569  $(21,265) $2,148,050  $(55,011) $1,843,199  $(29,271) $286,319  $(20,640) $2,129,518  $(49,911)
812
                  
 Duration of Unrealized Loss at March 31, 2017 By Maturity  Duration of Unrealized Loss at June 30, 2017 By Maturity 
 Less than 12 months  Greater than 12 months  Total  Less than 12 months  Greater than 12 months  Total 
    Gross     Gross     Gross     Gross     Gross     Gross 
    Unrealized     Unrealized     Unrealized     Unrealized     Unrealized     Unrealized 
(Dollars in thousands) Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation  Market Value  Depreciation 
Fixed maturity securities                                    
Due in one year or less $196,751  $(436) $18,642  $(3,152) $215,393  $(3,588) $157,063  $(277) $18,588  $(3,005) $175,651  $(3,282)
Due in one year through five years  703,649   (8,563)  155,494   (13,136)  859,143   (21,699)  709,510   (9,577)  147,334   (13,549)  856,844   (23,126)
Due in five years through ten years  199,849   (6,607)  40,361   (2,676)  240,210   (9,283)  297,303   (7,601)  32,309   (1,879)  329,612   (9,480)
Due after ten years  224,557   (11,654)  1,670   (23)  226,227   (11,677)  163,675   (6,369)  221   (6)  163,896   (6,375)
Asset-backed securities  40,290   (73)  4,026   (2)  44,316   (75)  56,504   (39)  2,525   (3)  59,029   (42)
Mortgage-backed securities  473,385   (6,413)  89,376   (2,276)  562,761   (8,689)  459,144   (5,408)  85,342   (2,198)  544,486   (7,606)
Total fixed maturity securities $1,838,481  $(33,746) $309,569  $(21,265) $2,148,050  $(55,011) $1,843,199  $(29,271) $286,319  $(20,640) $2,129,518  $(49,911)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at March 31,June 30, 2017 were $2,148,050$2,129,518 thousand and $55,011$49,911 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at March 31,June 30, 2017, (the U.S. Government) did not exceed 6.0%5% 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 $33,746$29,271 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of obligations of domestic corporate securities, agency residential mortgage-backed securities and U.S. states and political subdivisions, domestic corporate securities and agency residential mortgage-backed securities.subdivisions. Of these unrealized losses, $31,496$23,626 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency.  The $21,265$20,640 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, as well as foreign government securities.  Of these unrealized losses, $17,263$17,428 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency.  There was no gross unrealized depreciation 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.

913
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, 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)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2016 were $2,510,133 thousand and $66,508 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2016, did not exceed 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 $40,537 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of obligations of U.S. states and political subdivisions, domestic and foreign corporate securities, agency residential mortgage-backed securities and foreign government securities.  Of these unrealized losses, $36,646 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency.  The $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.  Of these unrealized losses $22,882 thousand is attributable to net unrealized foreign exchange losses, as the U.S. dollar has strengthened against other currencies.  There was no gross unrealized depreciation 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.

1014
The components of net investment income are presented in the tables below for the periods indicated:

 Three Months Ended  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Fixed maturities $46,980  $45,326  $49,601  $44,795  $96,581  $90,121 
Equity securities  6,748   9,148   6,370   8,734   13,118   17,882 
Short-term investments and cash  390   304   590   251   980   555 
Other invested assets                        
Limited partnerships  (224)  (2,514)  8,978   14,192   8,754   11,678 
Dividends from preferred shares of affiliate  7,758   7,758   7,758   7,758   15,516   15,516 
Other  1,252   (912)  1,496   729   2,748   (183)
Gross investment income before adjustments  62,904   59,110   74,793   76,459   137,697   135,569 
Funds held interest income (expense)  1,939   2,654   978   974   2,917   3,628 
Interest income from Parent  1,075   1,075   1,075   1,075   2,150   2,150 
Gross investment income  65,918   62,839   76,846   78,508   142,764   141,347 
Investment expenses  (5,069)  (4,394)  (4,946)  (4,636)  (10,015)  (9,030)
Net investment income $60,849  $58,445  $71,900  $73,872  $132,749  $132,317 
                        
(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 $320,344$364,196 thousand in limited partnerships at March 31,June 30, 2017.  These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2021.2023.

The Company's other invested assets at March 31,June 30, 2017 and December 31, 2016 included $101,545$142,964 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.

Other invested assets, at fair value, as of March 31,June 30, 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 table below for the periods indicated:

 Three Months Ended  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Fixed maturity securities, market value:                  
Other-than-temporary impairments $(1,132) $(23,015) $(1,574) $(1,391) $(2,706) $(24,406)
Gains (losses) from sales  6,465   (16,855)  6,507   2,244   12,972   (14,611)
Fixed maturity securities, fair value:                        
Gain (losses) from sales  -   (1,854)  -   (1,854)
Gains (losses) from fair value adjustments  -   (232)  -   1,571   -   1,339 
Equity securities, fair value:                        
Gains (losses) from sales  4,340   (7,950)  604   (7,636)  4,944   (15,586)
Gains (losses) from fair value adjustments  37,418   (18,325)  14,943   36,987   52,361   18,662 
Other invested assets  1   -   (2)  -   (1)  - 
Other invested assets, fair value:                        
Gains (losses) from fair value adjustments  70,675   -   (112,769)  (756)  (42,094)  (756)
Short-term investment gains (losses)  1   -   -   -   1   - 
Total net realized capital gains (losses) $117,768  $(66,377) $(92,291) $29,165  $25,477  $(37,212)
15
The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) both fair value re-measurements and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis as displayed in the table above.  The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.

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

 Three Months Ended  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Proceeds from sales of fixed maturity securities $292,994  $188,046  $359,496  $110,429  $652,490  $298,475 
Gross gains from sales  7,995   1,464   7,748   6,154   15,743   7,618 
Gross losses from sales  (1,530)  (18,319)  (1,241)  (5,764)  (2,771)  (24,083)
                        
Proceeds from sales of equity securities $134,051  $86,149  $115,602  $335,831  $249,653  $421,980 
Gross gains from sales  8,013   1,782   3,562   4,853   11,575   6,635 
Gross losses from sales  (3,673)  (9,732)  (2,958)  (12,489)  (6,631)  (22,221)
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4.5.  RESERVES FOR LOSSES AND LAE

Activity in the reserve for losses and LAE is summarized for the periods indicated:

 Three Months Ended  Twelve Months Ended  Six Months Ended  Twelve Months Ended 
 March 31,  At December 31,  June 30,  At December 31, 
(Dollars in thousands) 2017  2016  2017  2016 
Gross reserves at January 1 $8,331,288  $7,940,720 
Gross reserves at beginning of period $8,331,288  $7,940,720 
Less reinsurance recoverables  (4,199,791)  (3,875,073)  (4,199,791)  (3,875,073)
Net reserves at January 1  4,131,497   4,065,647 
Net reserves at beginning of period  4,131,497   4,065,647 
                
Incurred related to:                
Current year  286,204   1,441,962   584,656   1,441,962 
Prior years  3,518   (91,682)  2,294   (91,682)
Total incurred losses and LAE  289,722   1,350,280   586,950   1,350,280 
                
Paid related to:                
Current year  46,284   400,489   165,100   400,489 
Prior years  269,625   892,207   493,405   892,207 
Total paid losses and LAE  315,909   1,292,696   658,505   1,292,696 
                
Foreign exchange/translation adjustment  1,159   8,266   (6,122)  8,266 
                
Net reserves at December 31  4,106,469   4,131,497 
Net reserves at end of period  4,053,820   4,131,497 
Plus reinsurance recoverables  4,262,693   4,199,791   4,232,779   4,199,791 
Gross reserves at December 31 $8,369,162  $8,331,288 
Gross reserves at end of period $8,286,599  $8,331,288 

Incurred prior years' reserves increased by $3,518$2,294 thousand and decreased by $91,682 thousand for the threesix months ended March 31,June 30, 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
16
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.

5.6.  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.
13

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 forty-two46 private placement securities, the investment manager's valuation committee valued the forty-two46 securities at $87,124$89,291 thousand at March 31,June 30, 2017.��  Due to the unavailability of prices for forty-two private placement securities, the investment manager's valuation committee valued the forty-two securities at $86,536 thousand at December 31, 2016.

The Company internally manages a public equity portfolio which had a fair value at March 31,June 30, 2017 and December 31, 2016 of $154,123$169,165 thousand and $133,755 thousand, respectively, and all prices were obtained from publically published sources.

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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.

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
14
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,June 30, 2017 and December 31, 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.  The fair value of the preferred stock at March 31,June 30, 2017 and December 31, 2016 was determined using a pricing model.
1518
The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated:

    Fair Value Measurement Using:     Fair Value Measurement Using: 
    Quoted Prices           Quoted Prices       
    in Active  Significant        in Active  Significant    
    Markets for  Other  Significant     Markets for  Other  Significant 
    Identical  Observable  Unobservable     Identical  Observable  Unobservable 
    Assets  Inputs  Inputs     Assets  Inputs  Inputs 
(Dollars in thousands) March 31, 2017  (Level 1)  (Level 2)  (Level 3)  June 30, 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  $-  $666,777  $-  $666,777  $- 
Obligations of U.S. States and political subdivisions  712,437   -   712,437   -   696,783   -   696,783   - 
Corporate securities  2,271,618   -   2,187,296   84,322   2,301,001   -   2,214,861   86,140 
Asset-backed securities  176,170   -   176,170   -   189,989   -   189,989   - 
Mortgage-backed securities                                
Commercial  75,622   -   75,622   -   73,245   -   73,245   - 
Agency residential  698,466   -   698,466   -   683,681   -   683,681   - 
Non-agency residential  79   -   79   -   70   -   70   - 
Foreign government securities  489,095   -   489,095   -   501,387   -   501,387   - 
Foreign corporate securities  1,011,708   -   1,008,906   2,802   1,027,095   -   1,023,944   3,151 
Total fixed maturities, market value  6,206,415   -   6,119,291   87,124   6,140,028   -   6,050,737   89,291 
                                
Equity securities, fair value  852,993   835,536   17,457   -   934,110   893,660   40,450   - 
Other invested assets, fair value  1,837,302   -   -   1,837,302   1,724,532   -   -   1,724,532 

There were no transfers between Level 1 and Level 2 for the threesix months ended March 31,June 30, 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) 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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16
In addition $22,118$52,139 thousand and $18,801 thousand of investments within other invested assets on the consolidated balance sheets as of March 31,June 30, 2017 and December 31, 2016, respectively, are not included within the fair value hierarchy tables as the assets are valued using the 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  Three Months Ended June 30, 2017  Six Months Ended June 30, 2017 
 Corporate  Foreign     Corporate  Foreign     Corporate  Foreign     Corporate  Foreign    
(Dollars in thousands) Securities  Corporate  Total  Securities  Corporate  Total  Securities  Corporate  Total  Securities  Corporate  Total 
Beginning balance $65,197  $2,538  $67,735  $3,933  $1,593  $5,526  $84,322  $2,802  $87,124  $65,197  $2,538  $67,735 
Total gains or (losses) (realized/unrealized)                                                
Included in earnings  214   (24)  190   8   (997)  (989)  711   128   839   925   104   1,029 
Included in other comprehensive income (loss)  (29)  -   (29)  (6)  -   (6)  172   -   172   143   -   143 
Purchases, issuances and settlements  18,940   288   19,228   11,771   -   11,771   935   221   1,156   19,875   509   20,384 
Transfers in and/or (out) of Level 3  -   -   -   -   -   -   -   -   -   -   -   - 
Ending balance $84,322  $2,802  $87,124  $15,706  $596  $16,302  $86,140  $3,151  $89,291  $86,140  $3,151  $89,291 
                                                
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 June 30, 2016  Six Months Ended June 30, 2016 
  Corporate  Foreign     Corporate  Foreign    
(Dollars in thousands) Securities  Corporate  Total  Securities  Corporate  Total 
Beginning balance $15,706  $596  $16,302  $3,933  $1,593  $5,526 
Total gains or (losses) (realized/unrealized)                        
Included in earnings  (18)  -   (18)  (10)  (997)  (1,007)
Included in other comprehensive income (loss)  (27)  1,425   1,398   (33)  1,425   1,392 
Purchases, issuances and settlements  16,749   -   16,749   28,520   -   28,520 
Transfers in and/or (out) of Level 3  -   -   -   -   -   - 
Ending balance $32,410  $2,021  $34,431  $32,410  $2,021  $34,431 
                         
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)


20
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  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Other invested assets, fair value:                  
Beginning balance $1,766,626  $1,773,214  $1,837,302  $1,773,214  $1,766,626  $1,773,214 
Total gains or (losses) (realized/unrealized)                        
Included in earnings  70,675   -   (112,769)  (756)  (42,094)  (756)
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   1,724,532  $1,772,458  $1,724,532  $1,772,458 
                        
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.)                        

6.7.  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.

17
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,  At June 30,  At December 31, 
(Dollars in thousands) 2017  2016  2017  2016 
The Prudential $146,620  $146,507  $146,923  $146,507 
Unaffiliated life insurance company  32,458   33,860   33,107   33,860 
21
7.
8.  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  Three Months Ended June 30, 2017  Six Months Ended June 30, 2017 
(Dollars in thousands) Before Tax  Tax Effect  Net of Tax  Before Tax  Tax Effect  Net of Tax  Before Tax  Tax Effect  Net of Tax  Before Tax  Tax Effect  Net of Tax 
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary $18,020  $(6,307) $11,713  $29,956  $(10,484) $19,472  $5,784  $(1,753) $4,031  $23,804  $(8,060) $15,744 
URA(D) on securities - OTTI  (3,499)  1,225   (2,274)  197   (69)  128   (317)  111   (206)  (3,816)  1,336   (2,480)
Reclassification of net realized losses (gains) included in net income (loss)  (5,334)  1,867   (3,467)  39,870   (13,955)  25,915   (4,931)  1,454   (3,477)  (10,265)  3,321   (6,944)
Foreign currency translation adjustments  5,487   (1,920)  3,567   22,977   (8,045)  14,932   8,265   (2,893)  5,372   13,752   (4,813)  8,939 
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   3,083   (1,079)  2,004   6,166   (2,158)  4,008 
Total other comprehensive income (loss) $17,757  $(6,214) $11,543  $95,062  $(33,275) $61,787  $11,884  $(4,160) $7,724  $29,641  $(10,374) $19,267 
                                                
(Some amounts may not reconcile due to rounding)                                                

  Three Months Ended June 30, 2016  Six Months Ended June 30, 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 $53,960  $(18,886) $35,074  $83,916  $(29,370) $54,546 
URA(D) on securities - OTTI  6,446   (2,256)  4,190   6,643   (2,325)  4,318 
Reclassification of net realized losses (gains) included in net income (loss)  (97)  34   (63)  39,773   (13,921)  25,852 
Foreign currency translation adjustments  23,830   (8,341)  15,489   46,807   (16,386)  30,421 
Benefit plan actuarial net gain (loss)  -   -   -   -   -   - 
Reclassification of amortization of net gain (loss) included in net income (loss)  2,063   (722)  1,341   4,125   (1,444)  2,681 
Total other comprehensive income (loss) $86,202  $(30,171) $56,031  $181,264  $(63,446) $117,818 
                         
(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  Six Months Ended   
  June 30,  June 30,  Affected line item within the statements of
AOCI component 2017  2016  2017  2016  operations and comprehensive income (loss)
(Dollars in thousands)                  
URA(D) on securities $(4,931) $(97) $(10,265) $39,773  Other net realized capital gains (losses)
   1,454   34   3,321   (13,921) Income tax expense (benefit)
  $(3,477) $(63) $(6,944) $25,852  Net income (loss)
                        
Benefit plan net gain (loss) $3,083  $2,063  $6,166  $4,125  Other underwriting expenses
   (1,079)  (722)  (2,158)  (1,444) Income tax expense (benefit)
  $2,004  $1,341  $4,008  $2,681  Net income (loss)
                        
(Some amounts may not reconcile due to rounding)                      
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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  Six Months Ended  Twelve Months Ended 
 March 31,  December 31,  June 30,  December 31, 
(Dollars in thousands) 2017  2016  2017  2016 
            
Beginning balance of URA (D) on securities $39,041  $13,654  $39,041  $13,654 
Current period change in URA (D) of investments - temporary  8,246   22,063   8,800   22,063 
Current period change in URA (D) of investments - non-credit OTTI  (2,274)  3,324   (2,480)  3,324 
Ending balance of URA (D) on securities  45,013   39,041   45,361   39,041 
                
Beginning balance of foreign currency translation adjustments  (9,852)  (12,701)  (9,852)  (12,701)
Current period change in foreign currency translation adjustments  3,567   2,849   8,939   2,849 
Ending balance of foreign currency translation adjustments  (6,285)  (9,852)  (913)  (9,852)
                
Beginning balance of benefit plan net gain (loss)  (65,504)  (63,089)  (65,504)  (63,089)
Current period change in benefit plan net gain (loss)  2,004   (2,415)  4,008   (2,415)
Ending balance of benefit plan net gain (loss)  (63,500)  (65,504)  (61,496)  (65,504)
                
Ending balance of accumulated other comprehensive income (loss) $(24,772) $(36,315) $(17,048) $(36,315)

8.9.  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,June 30, 2017, the total amount on deposit in the trust account was $617,060$649,841 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
23
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 coverages 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 Notes listed 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.

9.10.  SENIOR NOTES

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

       March 31, 2017  December 31, 2016        June 30, 2017  December 31, 2016 
       Consolidated Balance     Consolidated Balance           Consolidated Balance     Consolidated Balance    
(Dollars in thousands)Date Issued Date Due Principal Amounts  Sheet Amount  Market Value  Sheet Amount  Market Value Date Issued Date Due Principal Amounts  Sheet Amount  Market Value  Sheet Amount  Market Value 
4.868% Senior notes06/05/2014 06/01/2044  400,000  $396,744  $403,468  $396,714  $383,612 06/05/2014 06/01/2044  400,000  $396,774  $421,764  $396,714  $383,612 

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.

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

 Three Months Ended  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Interest expense incurred $4,868  $4,868  $4,868  $4,868  $9,736  $9,736 

10.11.  LONG TERM SUBORDINATED NOTES

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

     Maturity Date March 31, 2017  December 31, 2016      Maturity Date June 30, 2017  December 31, 2016 
   Original       Consolidated Balance     Consolidated Balance       Original       Consolidated Balance     Consolidated Balance    
(Dollars in thousands)Date Issued Principal Amount  Scheduled Final Sheet Amount  Market Value  Sheet Amount  Market Value Date Issued Principal Amount  Scheduled Final Sheet Amount  Market Value  Sheet Amount  Market Value 
6.6% Long term subordinated notes04/26/2007 $400,000  05/15/2037 05/01/2067 $236,487  $222,456  $236,462  $204,636 04/26/2007 $400,000  05/15/2037 05/01/2067 $236,511  $223,053  $236,462  $204,636 

During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest will bewas 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.2007.  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.  The reset quarterly interest rate for May 15, 2017 to August 14, 2017 is 3.56678%.

2024
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  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Interest expense incurred $3,937  $3,937  $3,033  $3,937  $6,970  $7,874 

11.12.  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 brokers, surplus lines brokers and general 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 loss adjustment expenses ("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.

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  Three Months Ended  Six Months Ended 
U.S. Reinsurance
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Gross written premiums $578,958  $536,706  $474,992  $405,530  $1,053,951  $942,236 
Net written premiums  219,062   223,428   135,177   161,031   354,239   384,458 
                        
Premiums earned $208,314  $235,243  $202,289  $224,618  $410,603  $459,861 
Incurred losses and LAE  120,434   116,170   119,747   110,152   240,181   226,322 
Commission and brokerage  40,373   49,731   43,173   50,130   83,545   99,861 
Other underwriting expenses  14,251   13,458   14,278   12,133   28,529   25,591 
Underwriting gain (loss) $33,256  $55,884  $25,091  $52,203  $58,348  $108,087 

 Three Months Ended  Three Months Ended  Six Months Ended 
International
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Gross written premiums $278,575  $238,478  $333,535  $348,178  $612,110  $586,656 
Net written premiums  103,246   87,716   111,961   124,438   215,207   212,154 
                        
Premiums earned $118,151  $113,173  $113,300  $131,285  $231,451  $244,458 
Incurred losses and LAE  68,414   73,415   78,459   91,427   146,873   164,842 
Commission and brokerage  23,535   26,110   23,790   26,140   47,325   52,250 
Other underwriting expenses  8,889   7,823   9,163   7,969   18,052   15,792 
Underwriting gain (loss) $17,313  $5,825  $1,888  $5,749  $19,201  $11,574 

 Three Months Ended  Three Months Ended  Six Months Ended 
Insurance
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Gross written premiums $394,851  $354,720  $527,047  $424,083  $921,898  $778,803 
Net written premiums  126,528   152,926   170,774   155,786   297,302   308,712 
                        
Premiums earned $144,590  $133,509  $152,608  $132,952  $297,198  $266,461 
Incurred losses and LAE  100,874   106,477   99,022   136,957   199,896   243,434 
Commission and brokerage  (14,438)  (7,019)  (6,450)  (5,861)  (17,850)  (15,337)
Other underwriting expenses  36,755   37,946   40,756   38,228   77,511   76,174 
Underwriting gain (loss) $21,399  $(3,895) $19,280  $(36,372) $37,641  $(37,810)

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  Six Months Ended 
  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016 
Underwriting gain (loss) $46,259  $21,580  $115,190  $81,851 
Net investment income  71,900   73,872   132,749   132,317 
Net realized capital gains (losses)  (92,291)  29,165   25,477   (37,212)
Corporate expense  (1,512)  (2,010)  (5,109)  (4,346)
Interest, fee and bond issue cost amortization expense  (7,954)  (8,858)  (16,813)  (17,717)
Other income (expense)  10,655   (10,700)  20,510   2,402 
Income (loss) before taxes $27,057  $103,049  $272,004  $157,295 
2226
The Company produces business in the U.S. and internationally.  The net income deriving from assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company's financial records.  Based on gross written premium, the table below presents the largest country, other than the U.S., in which the Company writes business, for the periods indicated:

 Three Months Ended  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Canada gross written premiums $27,957  $23,586  $36,195  $34,630  $64,152  $58,216 

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

12.13.  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 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$2,150 thousand and $2,150 thousand was recorded by Holdings for the threesix months ended March 31,June 30, 2017, and March 31, 2016.June 30, 2016, respectively.

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

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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23
Holdings reported both its Parent shares 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 Preferred 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  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Dividends received on preferred stock of affiliate $7,758  $7,758   7,758   7,758  $15,516   15,516 

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  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Expenses incurred $23,183  $21,170  $23,046  $20,289  $46,229  $41,459 

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.
             

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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  Three Months Ended  Six Months Ended 
Bermuda Re
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Ceded written premiums $634,896  $516,683  $681,776  $544,495  $1,316,672  $1,061,178 
Ceded earned premiums  588,874   538,953   620,897   593,349   1,209,771   1,132,302 
Ceded losses and LAE (a)  340,131   290,476   388,573   404,667   728,704   695,143 

 Three Months Ended  Three Months Ended  Six Months Ended 
Everest International
 March 31, June 30, June 30,
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Ceded written premiums $(70) $(31) $45  $62  $(25) $31 
Ceded earned premiums  (71)  (24)  46   63   (25)  39 
Ceded losses and LAE  (443)  142   (175)  756   (618)  898 

 Three Months Ended  Three Months Ended  Six Months Ended 
Everest Canada
 March 31, June 30, June 30,
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Assumed written premiums $12,848  $10,199  $13,132  $16,228  $25,980  $26,427 
Assumed earned premiums  12,853   10,454   11,884   12,675   24,737   23,129 
Assumed losses and LAE  6,651   6,987   7,319   14,440   13,970   21,427 

  Three Months Ended 
Lloyd's Syndicate 2786
 March 31,
(Dollars in thousands) 2017  2016 
Assumed written premiums $7,849  $696 
Assumed earned premiums  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.
  Three Months Ended  Six Months Ended 
Lloyd's Syndicate 2786
 June 30, June 30,
(Dollars in thousands) 2017  2016  2017  2016 
Assumed written premiums $10,236  $(157) $18,085  $539 
Assumed earned premiums  9,797   28   16,724   116 
Assumed losses and LAE  4,831   -   8,264   - 

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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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.

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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  Three Months Ended  Six Months Ended 
Mt. Logan Re Segregated Accounts
 March 31, June 30, June 30,
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Ceded written premiums $39,179  $40,931  $38,703  $29,450  $77,882  $70,381 
Ceded earned premiums  33,957   34,872   50,708   39,356   84,665   74,228 
Ceded losses and LAE  19,759   9,098   23,674   16,232   43,433   25,330 
                        
Assumed written premiums  2,732   3,560  $3,763   3,074   6,495   6,634 
Assumed earned premiums  2,732   3,560   3,763   3,074   6,495   6,634 
Assumed losses and LAE  -   -   -   -   -   - 

13.14.      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  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Service cost $3,299  $2,897  $3,299  $2,896  $6,598  $5,793 
Interest cost  2,276   2,361   2,276   2,361   4,552   4,722 
Expected return on plan assets  (3,155)  (2,484)  (3,154)  (2,484)  (6,309)  (4,968)
Amortization of net (income) loss  3,040   2,014   3,041   2,014   6,081   4,028 
Net periodic benefit cost $5,460  $4,788  $5,461  $4,787  $10,921  $9,575 

Other Benefits
 Three Months Ended  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in thousands) 2017  2016  2017  2016  2017  2016 
Service cost $440  $438  $441  $438  $881  $876 
Interest cost  249   296   249   296   498   592 
Amortization of prior service costs  (33)  - 
Amortization of prior service cost  (33)  -   (66)  - 
Amortization of net (income) loss  76   48   75   48   151   96 
Net periodic benefit cost $732  $782  $732  $782  $1,464  $1,564 
                
(Some amounts may not reconcile due to rounding.)                

The Company did not make any contributions to the qualified pension benefit plan for the three and six months ended March 31,June 30, 2017 and 2016.

14.15.      INCOME TAXES

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

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.

30
15.
16.  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.

16.17.  SUBSEQUENT EVENTS

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

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

Industry Conditions.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market.  As such, financial results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower 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 were 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.  During 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 in four years and the United States experienced the most loss events since 1980 and the highest total losses since 2012.  While the future impact on market 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.

Commencing 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.
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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.

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  Six Months Ended  Percentage 
 March 31,  Increase/  June 30,  Increase/  June 30,  Increase/ 
(Dollars in millions) 2017  2016  (Decrease)  2017  2016  (Decrease)  2017  2016  (Decrease) 
Gross written premiums $1,252.4  $1,129.9   10.8% $1,335.6  $1,177.8   13.4% $2,588.0  $2,307.7   12.1%
Net written premiums  448.8   464.1   -3.3%  417.9   441.3   -5.3%  866.7   905.3   -4.3%
                                    
REVENUES:                                    
Premiums earned $471.1  $481.9   -2.3% $468.2  $488.9   -4.2% $939.3  $970.8   -3.2%
Net investment income  60.8   58.4   4.1%  71.9   73.9   -2.7%  132.7   132.3   0.3%
Net realized capital gains (losses)  117.8   (66.4) 
NM 
  (92.3)  29.2  NM   25.5   (37.2)  -168.5%
Other income (expense)  9.9   13.1   -24.8%  10.7   (10.7)  -199.6%  20.5   2.4  NM 
Total revenues  659.5   487.1   35.4%  458.5   581.2   -21.1%  1,118.0   1,068.3   4.7%
                                    
CLAIMS AND EXPENSES:                                    
Incurred losses and loss adjustment expenses  289.7   296.1   -2.1%  297.2   338.5   -12.2%  587.0   634.6   -7.5%
Commission, brokerage, taxes and fees  49.5   68.8   -28.1%  60.5   70.4   -14.1%  113.0   136.8   -17.4%
Other underwriting expenses  59.9   59.2   1.1%  64.2   58.3   10.1%  124.1   117.6   5.6%
Corporate expense  3.6   2.3   54.0%  1.5   2.0   -24.8%  5.1   4.3   17.6%
Interest, fee and bond issue cost amortization expense  8.9   8.9   0.0%  8.0   8.9   -10.2%  16.8   17.7   -5.1%
Total claims and expenses  411.5   435.3   -5.5%  431.4   478.1   -9.8%  846.0   911.0   -7.1%
                                    
INCOME (LOSS) BEFORE TAXES  248.0   51.8  NM   27.1   103.0   -73.7%  272.0   157.3   72.9%
Income tax expense (benefit)  76.9   12.9  NM   (8.6)  33.7   -125.5%  67.2   46.9   43.1%
NET INCOME (LOSS) $171.0  $38.9  NM  $35.7  $69.4   -48.6% $204.8  $110.4   85.6%
                                    
RATIOS:         Point Change          Point Change          Point Change 
Loss ratio  61.5%  61.4%  0.1   63.5%  69.3%  (5.8)  62.5%  65.4%  (2.9)
Commission and brokerage ratio  10.5%  14.3%  (3.8)  12.9%  14.4%  (1.5)  12.0%  14.1%  (2.1)
Other underwriting expense ratio  12.7%  12.3%  0.4   13.7%  11.9%  1.8   13.2%  12.1%  1.1 
Combined ratio  84.7%  88.0%  (3.3)  90.1%  95.6%  (5.5)  87.7%  91.6%  (3.9)
                                    
 At  At  Percentage              At  At  Percentage 
 March 31,  December 31,  Increase/              June 30,  December 31,  Increase/ 
(Dollars in millions)  2017   2016  (Decrease)               2017   2016  (Decrease) 
Balance sheet data:                                    
Total investments and cash $10,128.1  $9,842.7   2.9%             $9,992.3  $9,842.7   1.5%
Total assets  17,587.8   17,088.7   2.9%              17,761.7   17,083.4   4.0%
Loss and loss adjustment expense reserves  8,369.2   8,331.3   0.5%              8,286.6   8,331.3   -0.5%
Total debt  633.2   633.2   0.0%              633.3   633.2   0.0%
Total liabilities  12,139.6   11,823.2   2.7%              12,238.9   11,784.9   3.9%
Stockholder's equity  5,448.2   5,265.6   3.5%              5,522.8   5,298.6   4.2%
                                    
(Some amounts may not reconcile due to rounding)                                    
                        
(NM, not meaningful)                                    
29

Revenues.

Premiums.  Gross written premiums increased by 10.8%13.4% to $1,252.4$1,335.6 million for the three months ended March 31,June 30, 2017, compared to $1,129.9$1,177.8 million for the three months ended March 31,June 30, 2016, reflecting a $82.3$54.8 million, or 10.6%7.3%, increase in our reinsurance business and a $40.1$103.0 million, or 11.3%24.3%, increase in our insurance business.  The increase in reinsurance premiums was mainly due to the new crop reinsurance transactions and increasesan increase in treaty casualty and financialbusiness. The rise in insurance premiums was primarily due
33

to increases in many lines of business, including retail property, retail causality, surety and accident and health. Gross written premiums increased by 12.1% to $2,588.0 million for the six months ended June 30, 2017, compared to $2,307.7 million for the six months ended June 30, 2016, reflecting a $137.2 million, or 9.0%, increase in our reinsurance business and a $143.1 million, or 18.4%, increase in our insurance business.  The increase in reinsurance premiums was mainly due to the new crop reinsurance transactions and an increase in treaty casualty business.  The rise in insurance premiums was primarily due to increases in mostmany lines of business, as we have focused on expanding the insurance operations.  including retail property, retail casualty, surety and accident and health.

Net written premiums decreased by 3.3%5.3% to $448.8$417.9 million for the three months ended March 31,June 30, 2017, compared to $464.1$441.3 million for the three months ended March 31,June 30, 2016, and decreased by 4.3% to $866.7 million for the six months ended June 30, 2017, compared to $905.3 million for the six months ended June 30, 2016.  The difference between the change in gross written premiums compared to the 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%4.2% to $471.1$468.2 million for the three months ended March 31,June 30, 2017, compared to $481.9$488.9 million for the three months ended March 31,June 30, 2016 and decreased by 3.2% to $939.3 million for the six months ended June 30, 2017, compared to $970.8 million for the six months ended June 30, 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 increased 4.1%decreased 2.7% to $60.8$71.9 million for the three months ended March 31,June 30, 2017 compared with net investment income of $58.4$73.9 million for the three months ended March 31,June 30, 2016 and increased slightly by 0.3% to $132.7 million for the six months ended June 30, 2017 compared with net investment income of $132.3 million for the six months ended June 30, 2016.  Net pre-tax investment income as a percentage of average invested assets was 2.5%3.0% for the three months ended March 31,June 30, 2017, compared to 3.2% for the three months ended June 30, 2016 and remained flat at 2.8% for the six months ended June 30, 2017 and 2016.for the six months ended June 30, 2016, respectively.  The decrease in income and yield for the three month period was mainly the result of lower income from our limited partnerships and lower dividends from equity securities, partially offset by higher income from our growing fixed income portfolio. The increase in income and yieldfor the six month period was primarily the result of higher income from other invested assets, including lower year over year losses from our limited partnerships, and higher income from ourgrowing fixed income portfolio, partially offset by lower dividends from equity securities.securities and lower income from limited partnerships.

Net Realized Capital Gains (Losses).  Net realized capital losses were $92.3 million and net realized capital gains were $117.8$29.2 million for the three months ended June 30, 2017 and 2016, respectively.  The net realized capital losses of $92.3 million were comprised of $97.8 million of losses from fair value re-measurements on equity securities and other invested assets and $1.6 million of other-than-temporary impairments, partially offset by $7.1 million of gains from sales on our fixed maturity and equity securities.  The net realized capital gains of $29.2 million for the three months ended June 30, 2016 were comprised of $37.7 million of gains from fair value re-measurements on fixed maturity securities, equity securities and other invested assets, partially offset by $7.3 million of losses from sales on our fixed maturity and equity securities and $1.4 million of other-than-temporary impairments.

Net realized capital gains were $25.5 million and net realized capital losses were $66.4$37.2 million for the threesix months ended March 31,June 30, 2017 and 2016, respectively.  The net realized capital gains of $117.8$25.5 million were comprised of $108.117.9 million of gains from sales on our fixed maturity and equity securities and $10.3 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$2.7 million of other-than-temporary impairments.  The net realized capital losses of $66.4$37.2 million for the threesix months ended March 31,June 30, 2016 million were comprised of $24.8$32.1 million of net losses from sales on our fixed maturity and equity securities $23.0and $24.4 million of other-than-temporary impairments, and $18.6partially offset by $19.2 million of lossesgains from fair value re-measurements on fixed maturity securities, equity securities and equity securities.other invested assets.

34

Other Income (Expense).  We recorded other income of $9.9$10.7 million and $13.1$20.5 million for the three and six months ended March 31,June 30, 2017, respectively. We recorded other expense of $10.7 million and other income of $2.4 million for the three and six months ended June 30, 2016, respectively.  The changes were primarily the result of fluctuations in foreign currency exchange rates for the corresponding periods.
30

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 June 30,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                             
Attritional $274.2   58.5%  $1.2   0.3%  $275.4   58.8% 
Catastrophes  24.2   5.2%   (2.5)  -0.5%   21.8   4.7% 
Total $298.4   63.7%  $(1.3)  -0.2%  $297.2   63.5% 
                                     
2016
                                   
Attritional $300.9   61.6%  $2.8   0.6%  $303.7   62.2% 
Catastrophes  51.5   10.5%   (16.7)  -3.4%   34.8   7.1% 
Total $352.4   72.1%  $(13.9)  -2.8%  $338.5   69.3% 
                                     
Variance 2017/2016
                                   
Attritional $(26.7)  (3.1)pts $(1.6)  (0.3)pts $(28.3)  (3.4)pts
Catastrophes  (27.3)  (5.3)pts  14.2   2.9 pts  (13.0)  (2.4)pts
Total $(54.0)  (8.4)pts $12.6   2.6 pts $(41.3)  (5.8)pts


  Six Months Ended June 30,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                             
Attritional $553.2   58.8%  $5.3   0.6%  $558.5   59.4% 
Catastrophes  31.5   3.4%   (3.0)  -0.3%   28.5   3.0% 
Total $584.7   62.2%  $2.3   0.3%  $587.0   62.5% 
                                     
2016
                                   
Attritional $594.2   61.3%  $0.8   0.1%  $595.0   61.4% 
Catastrophes  56.7   5.8%   (17.2)  -1.8%   39.6   4.0% 
Total $651.0   67.1%  $(16.4)  -1.7%  $634.6   65.4% 
                                     
Variance 2017/2016
                                   
Attritional $(41.0)  (2.5)pts $4.5   0.5 pts $(36.5)  (2.0)pts
Catastrophes  (25.2)  (2.4)pts  14.2   1.5 pts  (11.1)  (1.0)pts
Total $(66.3)  (4.9)pts $18.7   2.0 pts $(47.6)  (2.9)pts
                                     
(Some amounts may not reconcile due to rounding.)                                   


Incurred losses and LAE decreased by 2.1%12.2% to $289.7$297.2 million for the three months ended March 31,June 30, 2017 compared to $296.1$338.5 million for the three months ended March 31,June 30, 2016, primarily due to a decrease of $14.4$27.3 million in current year catastrophe losses and a decrease of $26.7 million in current years' attritional losses, mainly due to the reduction in earned premiums and changes in the mix of business, partially offset by an increaseless favorable development of $6.1$14.2 million ofon prior year attritional loss development.  The $4.1 million of unfavorable prior years' attritional loss development for the three months ended March 31, 2017 was mainly related to casualty business in the insurance segment. catastrophe losses. The current year catastrophe losses of $7.2$24.2 million for the three months ended March 31,June 30, 2017 related to the South Africa Knysna Fires ($9.8 million), the Peru Storms ($6.8 million), the 2017 US Midwest Storms ($6.0 million) and Cyclone Debbie in Australia ($7.21.6 million).  The current year catastrophe losses of $5.2$51.5 million for the three months ended March 31,June 30, 2016 were related to the Fort McMurray Canada Wildfire ($21.9 million), U.S. Storms ($18.2 million) and the Ecuador earthquake ($11.4 million).

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Incurred losses and LAE decreased by 7.5% to $587.0 million for the six months ended June 30, 2017 compared to $634.6 million for the six months ended June 30, 2016, primarily due to a decline of $41.0 million in current years' attritional losses, mainly due to the reduction in earned premiums and changes in the mix of business, and a decrease of $25.2 million in current year catastrophe losses, partially offset by less favorable development of $14.2 million on prior year catastrophe losses. The current year catastrophe losses of $31.5 million for the six months ended June 30, 2017 related to the South Africa Knysna Fires ($9.8 million), Cyclone Debbie in Australia ($8.9 million), the Peru Storms ($6.8 million), and the 2017 US Midwest Storms ($6.0 million). The current year catastrophe losses of $56.7 million for the six months ended June 30, 2016 were related to the Fort McMurray Canada Wildfire ($21.9 million), U.S. Storms ($18.2 million), the Ecuador earthquake ($11.4 million) and the Taiwan earthquake ($5.2 million).

Commission, Brokerage, Taxes and Fees.  Commission, brokerage, taxes and fees decreased by 28.1%14.1% to $49.5$60.5 million for the three months ended March 31,June 30, 2017 compared to $68.870.4 million for the three months ended March 31,June 30, 2016. Commission, brokerage, taxes and fees decreased by 17.4% to $113.0 million for the six months ended June 30, 2017 compared to $136.8 million for the six months ended June 30, 2016. This change was primarily due to the impact of the decrease in premiums earned, the impact of affiliated quota share agreements and the changes in the mix of business.

Other Underwriting Expenses.  Other underwriting expenses were relatively flat at $59.9$64.2 million and $59.2$58.3 million for the three months ended March 31,June 30, 2017 and March 31,June 30, 2016, respectively. Other underwriting expenses were $124.1 million and $117.6 million for the six months ended June 30, 2017 and June 30, 2016, respectively. The increases in other underwriting expenses were mainly due to costs incurred related to the expansion of the insurance operations and growth in other business areas.

Corporate Expenses.  Corporate expenses, which are general operating expenses that are not allocated to segments, were $3.6relatively flat at $1.5 million and $2.3$2.0 million for the three months ended March 31,June 30, 2017 and 2016, respectively, and $5.1 million and $4.3 million for the six months ended June 30, 2017 and 2016, respectively. The increase in corporate expenses were primarily due to higher compensation costs.

Interest, Fees and Bond Issue Cost Amortization Expense.  Interest, fees and other bond amortization expense remained the samewere at $8.0 million and $8.9 million for the three months ended March 31,June 30, 2017 and 2016.2016, respectively.  Interest, fees and other bond amortization were $16.8 million and $17.7 million for the six months ended June 30, 2017 and 2016, respectively. The decreases in expense for both the three and six months periods were primarily due to the conversion of the long term subordinated notes from a fixed rate of 6.6% to a floating rate, which is reset quarterly per the note agreement. The floating rate was 3.56678% as of June 30, 2017.

Income Tax Expense (Benefit).  Income tax expensebenefit was $76.9$8.6 million and $12.9income tax expense was $33.7 million for the three months ended March 31,June 30, 2017 and 2016, respectively. Income tax expense was $67.2 million and $46.9 million for the six months ended June 30, 2017 and 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.  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 increasedecrease in income tax expenses  for the three months ended March 31,June 30, 2017 compared to the three months ended March 31,June 30, 2016 was primarily due to net realized capital losses in 2017 compared to net realized capital gains in 2016. The increase in income tax expenses for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was mainly due to net realized capital gains for 2017 compared to net realized capital losses in 2016.
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Net Income (Loss).
Our net income was $171.0$35.7 million and $38.9$69.4 million for the three months ended March 31,June 30, 2017 and 2016, respectively. Our net income was $204.8 million and $110.4 million for the six months ended June 30, 2017 and 2016, respectively. The changes were primarily driven by the financial component fluctuations explained above.
36

Ratios.
Our combined ratio decreased by 3.35.5 points to 84.7%90.1% for the three months ended March 31,June 30, 2017 compared to 88.0%95.6% for the three months ended March 31,June 30, 2016, and decreased by 3.9 points to 87.7% for the six months ended June 30, 2017 compared to 91.6% for the six months ended June 30, 2016.  The loss ratio component remained relatively flat at 61.5%decreased by 5.8 points to 63.5% for the three months ended March 31,June 30, 2017 compared to 61.4%69.3% for the same period last year and decreased by 2.9 points to 62.5% for the six months ended June 30, 2017 compared to 65.4% for the same period last year. The decreases in the loss ratio for both the three and six month periods were mainly due to lower catastrophe losses in 2017 compared to 2016. The commission and brokerage ratio component was 10.5%12.9% for the three months ended March 31,June 30, 2017 and 14.3%14.4% for the three months ended March 31,June 30, 2016, and was 12.0% for the six months ended June 30, 2017 and 14.1% for the six months ended June 30, 2016, reflecting change in the mix of business and the impact of affiliated quota share agreements.  The other underwriting expense ratio was comparable at 12.7%13.7% for the three months ended March 31,June 30, 2017 and 12.3%11.9% for the same period last year and was 13.2% for the six months ended June 30, 2017 and 12.1% for the same period last year. The increases in the other underwriting expense ratio for both the three and six month periods were mainly due to costs incurred related to the expansion of the insurance operations and growth in other business areas.

Stockholder's Equity.
Stockholders' equity increased by $182.7$224.2 million to $5,448.2$5,522.8 million at March 31,June 30, 2017 from $5,265.6$5,298.6 million at December 31, 2016, principally as a result of $171.0$204.8 million of net income, $6.0$8.9 million of net foreign currency translation adjustments, $6.3 million of net unrealized appreciation on investments, net of tax, $3.6 million of net foreign currency translation adjustments, $2.0$4.0 million of net benefit plan obligation adjustments and $0.1 million of share-based compensation transactions.

Consolidated Investment Results

Net Investment Income.
Net investment income increaseddecreased by 4.1%2.7% to $60.8$71.9 million for the three months ended March 31,June 30, 2017 compared to $58.4$73.9 million for the three months ended March 31,June 30, 2016, primarily due to lower income from our limited partnerships and lower dividends on equity securities, partially offset by higher income from our growing fixed income portfolios. Net investment income increased by 0.3% to $132.7 million for the six months ended June 30, 2017 compared to $132.3 million for the six months ended June 30, 2016, primarily due to higher income from other invested assets, including lower year over year losses from our limited partnerships, and higher income from ourgrowing fixed income portfolios, partially offset by lower dividends on equity securities.securities and lower income from limited partnerships.

The following table shows the components of net investment income for the periods indicated:
 
 Three Months Ended  Three Months Ended  Six Months Ended 
 March 31,  June 30,  June 30, 
(Dollars in millions) 2017  2016  2017  2016  2017  2016 
Fixed maturities $47.0  $45.3  $49.6  $44.8  $96.6  $90.1 
Equity securities  6.7   9.1   6.4   8.8   13.1   17.9 
Short-term investments and cash  0.4   0.3   0.6   0.3   1.0   0.6 
Other invested assets                        
Limited partnerships  (0.2)  (2.5)  9.0   14.2   8.8   11.7 
Dividends from preferred shares of affiliate  7.8   7.8   7.8   7.7   15.5   15.5 
Other  1.3   (0.9)  1.5   0.7   2.7   (0.2)
Gross investment income before adjustments  62.9   59.1   74.7   76.5   137.7   135.6 
Funds held interest income (expense)  1.9   2.7   1.0   0.9   2.9   3.6 
Interest income from Parent  1.1   1.1   1.1   1.1   2.2   2.2 
Gross investment income  65.9   62.8   76.8   78.5   142.8   141.3 
Investment expenses  (5.1)  (4.4)  (4.9)  (4.6)  (10.0)  (9.0)
Net investment income $60.8  $58.4  $71.9  $73.9  $132.7  $132.3 
                        
(Some amounts may not reconcile due to rounding.)                        
 

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


At At    At At
March 31, December 31,    June 30, December 31,
2017 2016    2017 2016
Imbedded pre-tax yield of cash and invested assets at December 312.8% 2.9%    2.9% 2.9%
Imbedded after-tax yield of cash and invested assets at December 311.9% 2.0%    2.0% 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 Six Months Ended
 June 30, June 30,
 2017 2016 2017 2016
Annualized pre-tax yield on average cash and invested assets3.0% 3.2% 2.8% 2.8%
Annualized after-tax yield on average cash and invested assets2.0% 2.2% 1.9% 2.0%





Net Realized Capital Gains (Losses).
The following table presents the composition of our net realized capital gains (losses) for the periods indicated:

 Three Months Ended March 31,  Three Months Ended June 30,  Six Months Ended June 30, 
(Dollars in millions) 2017  2016  Variance  2017  2016  Variance  2017  2016  Variance 
Gains (losses) from sales:
                           
Fixed maturity securities, market value                           
Gains $7.7  $6.1  $1.6  $15.7  $7.6  $8.1 
Losses  (1.3)  (3.9)  2.6   (2.8)  (22.2)  19.4 
Total  6.4   2.2   4.2   12.9   (14.6)  27.5 
                        
Fixed maturity securities, fair value                        
Gains $8.0  $1.5  $6.5   -   -   -   -   -   - 
Losses  (1.5)  (18.3)  16.8   -   (1.9)  1.9   -   (1.9)  1.9 
Total  6.5   (16.9)  23.3   -   (1.9)  1.9   -   (1.9)  1.9 
                                    
Equity securities, fair value                                    
Gains  8.0   1.8   6.2   3.6   4.8   (1.2)  11.6   6.6   5.0 
Losses  (3.7)  (9.7)  6.0   (2.9)  (12.5)  9.6   (6.6)  (22.2)  15.6 
Total  4.3   (8.0)  12.2   0.7   (7.7)  8.4   5.0   (15.6)  20.6 
                                    
Total net realized gains (losses) from sales                                    
Gains  16.0   3.3   12.7   11.3   10.9   0.4   27.3   14.2   13.1 
Losses  (5.2)  (28.1)  22.9   (4.2)  (18.2)  14.1   (9.4)  (46.3)  36.9 
Total  10.8   (24.8)  35.6   7.1   (7.3)  14.5   17.9   (32.1)  50.0 
                                    
Other than temporary impairments:
  (1.1)  (23.0)  21.9   (1.6)  (1.4)  (0.2)  (2.7)  (24.4)  21.7 
                                    
Gains (losses) from fair value adjustments:
                                    
Fixed maturities, fair value  -   (0.2)  0.2   -   1.5   (1.5)  -   1.3   (1.3)
Equity securities, fair value  37.4   (18.3)  55.7   15.0   37.0   (22.0)  52.4   18.7   33.7 
Other invested assets, fair value  70.7   -   70.7   (112.8)  (0.8)  (112.0)  (42.1)  (0.8)  (41.3)
Total  108.1   (18.6)  126.6   (97.8)  37.7   (135.5)  10.3   19.2   (8.9)
                                    
Total net realized gains (losses) $117.8  $(66.4) $184.2  $(92.3) $29.2  $(121.5) $25.5  $(37.2) $62.7 
                                    
(Some amounts may not reconcile due to rounding.)                                    


Net realized capital gainslosses were $117.8$92.3 million and net realized capital lossesgains were $66.4$29.2 million for the three months ended March 31,June 30, 2017 and 2016, respectively. For the three months ended March 31,June 30, 2017 we recorded $108.1$97.8 million of net realized capital losses due to fair value re-measurements on equity securities and other invested assets and $1.6 million of other-than-temporary impairments, partially offset by $7.1
38

million of net realized capital gains from sales of fixed maturity and equity securities. For the three months ended June 30, 2016, we recorded $37.7 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 $7.3 million of net realized capital losses from sales of fixed maturity and equity securities and $1.4 million of other-than-temporary impairments.  The fixed maturity and equity sales for the three months ended June 30, 2017 and 2016 related primarily to adjusting the portfolios for overall market changes and individual credit shifts.

Net realized capital gains were $25.5 million and net realized capital losses were $37.2 million for the six months ended June 30, 2017 and 2016, respectively. For the six months ended June 30, 2017 we recorded $17.9 million of net realized capital gains from sales of fixed maturity and equity securities and $10.3 million of net realized capital gains due to fair value re-measurements on equity securities and other invested assets, and $10.8 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $1.1$2.7 million of other-than-temporary impairments. For the threesix months ended March 31,June 30, 2016, we recorded $24.8$32.1 million of net realized capital losses from sales of fixed maturity and equity securities $23.0and $24.4 million of other-than-temporary impairments, and $18.6partially offset by $19.2 million of net realized capital lossesgains due to fair value re-measurements on fixed maturitiesmaturity securities, equity securities and equity securities.other invested assets.  The fixed maturity and equity sales for the threesix months ended March 31,June 30, 2017 and 2016 related primarily to adjusting the portfolios for overall market changes and individual credit shifts.
33

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, through brokers, surplus lines brokers and general 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 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.

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

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

 Three Months Ended March 31,  Three Months Ended June 30,  Six Months Ended June 30, 
(Dollars in millions) 2017  2016  Variance  % Change  2017  2016  Variance  % Change  2017  2016  Variance  % Change 
Gross written premiums $579.0  $536.7  $42.3   7.9% $475.0  $405.5  $69.5   17.1% $1,054.0  $942.2  $111.7   11.9%
Net written premiums  219.1   223.4   (4.3)  -2.0%  135.2   161.0   (25.9)  -16.1%  354.2   384.5   (30.2)  -7.9%
                                                
Premiums earned $208.3  $235.2  $(26.9)  -11.4% $202.3  $224.6  $(22.3)  -9.9% $410.6  $459.9  $(49.3)  -10.7%
Incurred losses and LAE  120.4   116.2   4.2   3.7%  119.7   110.2   9.6   8.7%  240.2   226.3   13.9   6.1%
Commission and brokerage  40.4   49.7   (9.3)  -18.8%  43.2   50.1   (7.0)  -13.9%  83.5   99.9   (16.3)  -16.3%
Other underwriting expenses  14.3   13.5   0.8   5.9%  14.3   12.1   2.1   17.7%  28.5   25.6   2.9   11.5%
Underwriting gain (loss) $33.3  $55.9  $(22.6)  -40.5% $25.1  $52.2  $(27.1)  -51.9% $58.3  $108.1  $(49.7)  -46.0%
                                                
             Point Chg              Point Chg              Point Chg 
Loss ratio  57.8%  49.4%      8.4   59.1%  49.0%      10.1   58.5%  49.2%      9.3 
Commission and brokerage ratio  19.4%  21.1%      (1.7)  21.3%  22.3%      (1.0)  20.3%  21.7%      (1.4)
Other underwriting ratio  6.8%  5.7%      1.1   7.2%  5.5%      1.7   7.0%  5.6%      1.4 
Combined ratio  84.0%  76.2%      7.8   87.6%  76.8%      10.8   85.8%  76.5%      9.3 
                                                
(Some amounts may not reconcile due to rounding.)                                                
 
Premiums.  Gross written premiums increased by 7.9%17.1% to $579.0$475.0 million for the three months ended March 31,June 30, 2017 from $536.7$405.5 million for the three months ended March 31,June 30, 2016, primarily due to increase in the new crop reinsurance business and thean increase in treaty casualty and surety business.  Net written premiums decreased by 2.0%16.1% to $219.1$135.2 million for the three months ended March 31,June 30, 2017 compared to $223.4$161.0 million for the three months ended March 31,June 30, 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 11.4%9.9% to $208.3$202.3 million for the three months ended March 31,June 30, 2017 compared to $235.2$224.6 million for the three
34
months ended March 31,June 30, 2016.  The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 11.9% to $1,054.0 million for the six months ended June 30, 2017 from $942.2 million for the six months ended June 30, 2016, primarily due to the new crop reinsurance business and an increase in treaty casualty business.  Net written premiums decreased by 7.9% to $354.2 million for the six months ended June 30, 2017 compared to $384.5 million for the six months ended June 30, 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 10.7% to $410.6 million for the six months ended June 30, 2017 compared to $459.9 million for the six months ended June 30, 2016.  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.

40

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

 Three Months Ended March 31, Three Months Ended June 30,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                                                        
Attritional $120.6   57.8% $(0.5)  -0.2% $120.1   57.6%  $126.2   62.3%  $(3.8)  -1.9%  $122.4   60.5% 
Catastrophes  0.4   0.2%   (0.1)  0.0%   0.3   0.2%   1.2   0.6%   (3.8)  -1.9%   (2.6)  -1.3% 
Total segment $121.0   58.0%  $(0.6)  -0.2%  $120.4   57.8%  $127.4   62.9%  $(7.6)  -3.8%  $119.7   59.1% 
                                                                      
2016
                                                                    
Attritional $118.4   50.4% $(2.3)  -1.0% $116.1   49.4%  $117.1   52.2%  $1.9   0.8%  $119.0   53.1% 
Catastrophes  -   0.0%   -   0.0%   -   0.0%   1.4   0.6%   (10.2)  -4.6%   (8.8)  -3.9% 
Total segment $118.4   50.4%  $(2.3)  -1.0%  $116.2   49.4%  $118.5   52.9%  $(8.4)  -3.8%  $110.2   49.0% 
                                                                      
Variance 2017/2016
                                                                    
Attritional $2.2   7.4 pts $1.8   0.8 pts $4.0   8.2 pts $9.1   10.1 pts $(5.7)  (2.7)pts $3.4   7.4 pts
Catastrophes  0.4   0.2 pts  (0.1)  - pts  0.3   0.2 pts  (0.2)  - pts  6.4   2.7 pts  6.2   2.6 pts
Total segment $2.6   7.6 pts $1.7   0.8 pts $4.2   8.4 pts $8.9   10.0 pts $0.8   - pts $9.6   10.1 pts
                                  
(Some amounts may not reconcile due to rounding.)                                 



  Six Months Ended June 30,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                             
Attritional $246.8   60.1%  $(4.3)  -1.0%  $242.5   59.1% 
Catastrophes  1.6   0.4%   (3.9)  -1.0%   (2.3)  -0.6% 
Total segment $248.4   60.5%  $(8.2)  -2.0%  $240.2   58.5% 
                                     
2016
                                   
Attritional $235.4   51.2%  $(0.4)  -0.1%  $235.1   51.1% 
Catastrophes  1.4   0.3%   (10.2)  -2.2%   (8.8)  -1.9% 
Total segment $236.9   51.5%  $(10.6)  -2.3%  $226.3   49.2% 
                                     
Variance 2017/2016
                                   
Attritional $11.4   8.9 pts $(3.9)  (0.9)pts $7.4   8.0 pts
Catastrophes  0.2   0.1 pts  6.3   1.2 pts  6.5   1.3 pts
Total segment $11.5   9.0 pts $2.4   0.3 pts $13.9   9.3 pts
                                     
(Some amounts may not reconcile due to rounding.)                                   
 
Incurred losses increased by 3.7%8.7% to $120.4$119.7 million for the three months ended March 31,June 30, 2017 compared to $116.2$110.2 million for the three months ended March 31,June 30, 2016, primarily due to an increase of $2.2$9.1 million in current year attritional losses, resulting mainly from the change in the mix of business and including the impact of the new crop reinsurance contract.contract, which generally has a higher loss ratio. The current year catastrophe losses of $0.4$1.2 million for the three months ended March 31,June 30, 2017 primarily related to Cyclone Debbie in Australiathe 2017 US Midwest Storms ($0.41.2 million). There were noThe $1.4 million of current year catastrophescatastrophe losses for the three months ended March 31, 2016.June 30, 2016 were mainly due to the 2016 U.S. storms.

Incurred losses increased by 6.1% to $240.2 million for the six months ended June 30, 2017 compared to $226.3 million for the six months ended June 30, 2016, primarily due to an increase of $11.4 million in current year attritional losses, resulting mainly from the change in the mix of business and including the impact of the new crop reinsurance contract, which generally has a higher loss ratio. The current year catastrophe losses of $1.6 million for the six months ended June 30, 2017 primarily related to the 2017 US Midwest Storms ($1.2 million) and Cyclone Debbie in Australia ($0.5 million). The $1.4 million of current year catastrophe losses for the six months ended June 30, 2016 were mainly due to the 2016 U.S. storms.
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Segment Expenses.  Commission and brokerage decreased by 18.8%13.9% to $40.4$43.2 million for the three months ended March 31,June 30, 2017 compared to $49.7$50.1 million for the three months ended March 31,June 30, 2016.  The decrease was mainly due to the impact of the new crop reinsurance contract,decrease in premiums earned and the impact of affiliated quota share contracts and changes in the mix of business.contracts. Segment other underwriting expenses increased slightly to $14.3 million for the three months ended March 31,June 30, 2017 from $13.5$12.1 million for the three months ended March 31,June 30, 2016. The increase was primarily due to the impact of changes in the mix of business.business and affiliated quota share contracts.

Commission and brokerage decreased by 16.3% to $83.5 million for the six months ended June 30, 2017 compared to $99.9 million for the six months ended June 30, 2016.  The decrease was mainly due to the impact of the decrease in premiums earned and the impact of affiliated quota share contracts. Segment other underwriting expenses increased to $28.5 million for the six months ended June 30, 2017 from $25.6 million for the six months ended June 30, 2016. The increase was primarily due to the impact of changes in the mix of business and affiliated quota share contracts.
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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,  Three Months Ended June 30,  Six Months Ended June 30, 
(Dollars in millions) 2017  2016  Variance  % Change  2017  2016  Variance  % Change  2017  2016  Variance  % Change 
Gross written premiums $278.6  $238.5  $40.1   16.8% $333.5  $348.2  $(14.6)  -4.2% $612.1  $586.7  $25.5   4.3%
Net written premiums  103.2   87.7   15.5   17.7%  112.0   124.4   (12.5)  -10.0%  215.2   212.2   3.1   1.4%
                                                
Premiums earned $118.2  $113.2  $5.0   4.4% $113.3  $131.3  $(18.0)  -13.7% $231.5  $244.5  $(13.0)  -5.3%
Incurred losses and LAE  68.4   73.4   (5.0)  -6.8%  78.5   91.4   (13.0)  -14.2%  146.9   164.8   (18.0)  -10.9%
Commission and brokerage  23.5   26.1   (2.6)  -9.9%  23.8   26.1   (2.4)  -8.9%  47.3   52.3   (4.9)  -9.4%
Other underwriting expenses  8.9   7.8   1.1   13.6%  9.2   8.0   1.2   15.0%  18.1   15.8   2.3   14.3%
Underwriting gain (loss) $17.3  $5.8  $11.5  NM  $1.9  $5.7  $(3.9)  -67.2% $19.2  $11.6  $7.6   65.9%
                                                
             Point Chg              Point Chg              Point Chg 
Loss ratio  57.9%  64.9%      (7.0)  69.2%  69.6%      (0.4)  63.5%  67.4%      (3.9)
Commission and brokerage ratio  19.9%  23.1%      (3.2)  21.0%  19.9%      1.1   20.4%  21.4%      (1.0)
Other underwriting ratio  7.5%  6.9%      0.6   8.1%  6.1%      2.0   7.8%  6.5%      1.3 
Combined ratio  85.3%  94.9%      (9.6)  98.3%  95.6%      2.7   91.7%  95.3%      (3.6)
                                                
(NM, not meaningful)                
(Some amounts may not reconcile due to rounding.)                                


Premiums.  Gross written premiums increaseddecreased by 16.8%4.2% to $278.6$333.5 million for the three months ended March 31,June 30, 2017 compared to $238.5$348.2 million for the three months ended March 31,June 30, 2016, primarily due to increasesthe decline in Middle East, Latin America, Singapore and CanadaAmerican business, andpartially offset by the positive impact of $11.6$11.7 million from the movement of foreign exchange rates. Net written premiums increaseddecreased by 17.7%10.0% to $103.2$112.0 million for the three months ended March 31,June 30, 2017 compared to $87.7$124.4 million for the three months ended March 31,June 30, 2016.  The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to varying utilization of reinsurance related to the quota share contracts, including affiliated quota share contracts. Premiums earned increased 4.4%decreased 13.7% to $118.2$113.3 million for the three months ended March 31,June 30, 2017 compared to $113.2$131.3 million for the three months ended March 31,June 30, 2016.  The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 4.3% to $612.1 million for the six months ended June 30, 2017 compared to $586.7 million for the six months ended June 30, 2016, primarily due to increases in Middle East, African and Asian business and the positive impact of $23.4 million from the movement of foreign exchange rates.   Net written premiums increased by 1.4% to $215.2 million for the six months ended June 30, 2017 compared to $212.2 million for the six months ended June 30, 2016.  The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to
42

varying utilization of reinsurance related to the quota share contracts, including affiliated quota share contracts. Premiums earned decreased 5.3% to $231.5 million for the six months ended June 30, 2017 compared to $244.5 million for the six months ended June 30, 2016.  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 June 30,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                                                        
Attritional $61.1   51.7% $0.8   0.7% $61.9   52.4%  $57.8   51.0%  $1.1   0.9%  $58.9   51.9% 
Catastrophes  6.8   5.8%   (0.3)  -0.3%   6.5   5.5%   18.3   16.1%   1.4   1.2%   19.6   17.3% 
Total segment $67.9   57.5%  $0.5   0.4%  $68.4   57.9%  $76.1   67.1%  $2.5   2.1%  $78.5   69.2% 
                                                                      
2016
                                                                    
Attritional $71.4   63.1% $(2.8)  -2.5% $68.6   60.6%  $65.0   49.5%  $(0.6)  -0.4%  $64.4   49.1% 
Catastrophes  5.2   4.6%   (0.4)  -0.3%   4.8   4.3%   33.4   25.4%   (6.4)  -4.9%   27.0   20.5% 
Total segment $76.6   67.7%  $(3.2)  -2.8%  $73.4   64.9%  $98.4   74.9%  $(7.0)  -5.3%  $91.4   69.6% 
                                                                      
Variance 2017/2016
                                                                    
Attritional $(10.3)  (11.4)pts $3.6   3.2 pts $(6.7)  (8.2)pts $(7.2)  1.5 pts $1.7   1.3 pts $(5.5)  2.8 pts
Catastrophes  1.6   1.2 pts  0.1   - pts  1.7   1.2 pts  (15.1)  (9.3)pts  7.8   6.1 pts  (7.4)  (3.2)pts
Total segment $(8.7)  (10.2)pts $3.7   3.2 pts $(5.0)  (7.0)pts $(22.3)  (7.8)pts $9.5   7.4 pts $(13.0)  (0.4)pts
                                  
(Some amounts may not reconcile due to rounding.)                                 


  Six Months Ended June 30,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                             
Attritional $118.9   51.5%  $1.9   0.8%  $120.7   52.3% 
Catastrophes  25.1   10.8%   1.0   0.4%   26.1   11.3% 
Total segment $144.0   62.3%  $2.9   1.3%  $146.9   63.5% 
                                     
2016
                                   
Attritional $136.4   55.8%  $(3.4)  -1.4%  $133.0   54.4% 
Catastrophes  38.6   15.8%   (6.8)  -2.8%   31.8   13.0% 
Total segment $175.0   71.6%  $(10.2)  -4.2%  $164.8   67.4% 
                                     
Variance 2017/2016
                                   
Attritional $(17.5)  (4.3)pts $5.3   2.2 pts $(12.3)  (2.1)pts
Catastrophes  (13.5)  (5.0)pts  7.8   3.2 pts  (5.7)  (1.7)pts
Total segment $(31.0)  (9.3)pts $13.1   5.5 pts $(18.0)  (3.9)pts
                                     
(Some amounts may not reconcile due to rounding.)                                   

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Incurred losses and LAE decreased by 6.8%14.2% to $68.4$78.5 million for the three months ended March 31,June 30, 2017 compared to $73.4$91.4 million for the three months ended March 31,June 30, 2016, primarily due to a decrease of $15.1 million in current year catastrophe losses and a decrease in current year attritional losses of $7.2 million, partially offset by $7.8 million of less favorable development on prior year catastrophe losses. The current year catastrophe losses of $18.3 million for the three months ended June 30, 2017 related to the South Africa Knysna Fires ($9.8 million), the Peru Storms ($6.8 million) and Cyclone Debbie in Australia ($1.6 million). The $33.4 million of current year catastrophe losses for the three months ended June 30, 2016 were due to the Fort McMurray Canada wildfire ($21.7 million) and the Ecuador earthquake ($11.6 million).

43

Incurred losses and LAE decreased by 10.9% to $146.9 million for the six months ended June 30, 2017 compared to $164.8 million for the six months ended June 30, 2016, primarily due to a decrease in current year attritional losses of $10.3$17.5 million, primarily due to the impact of the decrease in premiums earned and changes in the affiliated quota share contracts, and a decrease of $13.5 million in current catastrophe losses, partially offset by more year over yearthe impact of favorable development on prior year attritional losses of $3.6 million and an increase of $1.6 millionprior year catastrophe losses in 2016 which did not recur in 2017. The current year catastrophe losses.  The decrease in attritional losses of $25.1 million for the six months ended June 30, 2017 related to the South Africa Knysna Fires ($9.8 million), Cyclone Debbie in Australia ($8.4 million) and the Peru Storms ($6.8 million).  The $38.6 million of current year catastrophe losses for the six months ended June 30, 2016 were due to the Fort McMurray Canada wildfire ($21.7 million), the Ecuador earthquake ($11.6 million) and the Taiwan earthquake ($5.3 million).

Segment Expenses.  Commission and brokerage decreased 8.9% to $23.8 million for the three months ended June 30, 2017 compared to $26.1 million for the three months ended June 30, 2016. Commission and brokerage decreased 9.4% to $47.3 million for the six months ended June 30, 2017 compared to $52.3 million for the six months ended June 30, 2016.  The decreases were due to the impact of the decreases in premiums earned, the impact of affiliated quota share agreements and changes in the mix of business.The current year catastrophe losses of $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 Taiwan earthquake ($5.2 million).

Segment Expenses.  Commission and brokerage decreased 9.9%other underwriting expenses increased to $23.5$9.2 million for the three months ended March 31,June 30, 2017 compared to $26.1from $8.0 million for the three months ended March 31,June 30, 2016, and increased to .$18.1 million for the six months ended June 30, 2017 from $15.8 million for the six months ended June 30, 2016. The decrease wasincreases were mainly due 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 increase in premiums earned.

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 June 30,  Six Months Ended June 30, 
(Dollars in millions) 2017  2016  Variance  % Change  2017  2016  Variance  % Change 
Gross written premiums $527.0  $424.1  $102.9   24.3% $921.9  $778.8  $143.1   18.4%
Net written premiums  170.8   155.8   15.0   9.6%  297.3   308.7   (11.4)  -3.7%
                                 
Premiums earned $152.6  $133.0  $19.7   14.8% $297.2  $266.5  $30.7   11.5%
Incurred losses and LAE  99.0   137.0   (37.9)  -27.7%  199.9   243.4   (43.5)  -17.9%
Commission and brokerage  (6.5)  (5.9)  (0.6)  10.0%  (17.9)  (15.3)  (2.5)  16.4%
Other underwriting expenses  40.8   38.2   2.5   6.6%  77.5   76.2   1.3   1.8%
Underwriting gain (loss) $19.3  $(36.4) $55.7  NM  $37.6  $(37.8) $75.5  NM 
                                 
              Point Chg              Point Chg 
Loss ratio  64.9%  103.0%      (38.1)  67.3%  91.4%      (24.1)
Commission and brokerage ratio  -4.2%  -4.3%      0.1   -6.0%  -5.8%      (0.3)
Other underwriting ratio  26.7%  28.7%      (2.0)  26.0%  28.6%      (2.6)
Combined ratio  87.4%  127.4%      (39.9)  87.3%  114.2%      (26.9)
                                 
(NM, not meaningful)                                
(Some amounts may not reconcile due to rounding.)                                

Premiums. Gross written premiums increased by 11.3%24.3% to $394.9$527.0 million for the three months ended March 31,June 30, 2017 compared to $354.7$424.1 million for the three months ended March 31,June 30, 2016.  This increase was primarily driven by expansion of various insurancemany lines of business, including retail property, retail casualty, surety and an increase in accident and health business.health. Net written premiums decreasedincreased by 17.3%9.6% to $126.5$170.8 million for the three months ended March 31,June 30, 2017 compared to $152.9$155.8 million for the three months ended March 31,June 30, 2016.  The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the marginally more conservative reinsurance position we have taken to support our new business and the impact of affiliated quota share agreements.  Premiums earned increased 8.3%14.8% to $144.6$152.6 million
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for the three months ended June 30, 2017 compared to $133.0 million for the three months ended March 31, 2017 compared to $133.5 million for the three months ended March 31,June 30, 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.

Gross written premiums increased by 18.4% to $921.9 million for the six months ended June 30, 2017 compared to $778.8 million for the six months ended June 30, 2016.  This increase was primarily driven by expansion of many lines of business, including retail property, retail casualty, surety and accident and health. Net written premiums decreased by 3.7% to $297.3 million for the six months ended June 30, 2017 compared to $308.7 million for the six months ended June 30, 2016.  The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the more conservative reinsurance position we have taken to support our new business and the impact of affiliated quota share agreements.  Premiums earned increased 11.5% to $297.2 million for the six months ended June 30, 2017 compared to $266.5 million for the six months ended June 30, 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.
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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, Three Months Ended June 30,
 Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/ Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                                                        
Attritional $97.3   67.3% $3.7   2.6% $101.0   69.9%  $90.3   59.2%  $4.0   2.6%  $94.2   61.8% 
Catastrophes  -   0.0%   (0.1)  -0.1%   (0.1)  -0.1%   4.8   3.1%   -   0.0%   4.8   3.1% 
Total segment $97.3   67.3%  $3.6   2.5%  $100.9   69.8%  $95.1   62.4%  $4.0   2.6%  $99.0   64.9% 
                                                                      
2016
                                                                    
Attritional $103.6   77.6% $3.0   2.3% $106.7   79.9%  $118.8   89.3%  $1.5   1.2%  $120.3   90.5% 
Catastrophes  -   0.0%   (0.2)  -0.1%   (0.2)  -0.1%   16.7   12.5%   -   0.0%   16.7   12.5% 
Total segment $103.6   77.6%  $2.8   2.2%  $106.5   79.8%  $135.5   101.8%  $1.5   1.2%  $137.0   103.0% 
                                                                      
Variance 2017/2016
                                                                    
Attritional $(6.3)  (10.3)pts $0.7   0.3 pts $(5.7)  (10.0)pts $(28.5)  (30.1)pts $2.5   1.4 pts $(26.1)  (28.7)pts
Catastrophes  -   - pts  0.1   - pts  0.1   - pts  (11.9)  (9.4)pts  0.0   - pts  (11.9)  (9.4)pts
Total segment $(6.3)  (10.3)pts $0.8   0.3 pts $(5.6)  (10.0)pts $(40.4)  (39.4)pts $2.5   1.4 pts $(37.9)  (38.1)pts
                                  
(Some amounts may not reconcile due to rounding.)                                 



  Six Months Ended June 30,
  Current  Ratio %/ Prior  Ratio %/ Total  Ratio %/
(Dollars in millions) Year  Pt Change Years  Pt Change Incurred  Pt Change
2017
                             
Attritional $187.6   63.1%  $7.7   2.6%  $195.2   65.7% 
Catastrophes  4.8   1.6%   (0.1)  0.0%   4.7   1.6% 
Total segment $192.4   64.7%  $7.6   2.6%  $199.9   67.3% 
                                     
2016
                                   
Attritional $222.4   83.5%  $4.5   1.7%  $226.9   85.2% 
Catastrophes  16.7   6.3%   (0.2)  -0.1%   16.5   6.2% 
Total segment $239.1   89.8%  $4.3   1.6%  $243.4   91.4% 
                                     
Variance 2017/2016
                                   
Attritional $(34.8)  (20.4)pts $3.2   0.9 pts $(31.7)  (19.5)pts
Catastrophes  (11.9)  (4.7)pts  0.1   0.1 pts  (11.8)  (4.6)pts
Total segment $(46.7)  (25.1)pts $3.3   1.0 pts $(43.5)  (24.1)pts
                                     
(Some amounts may not reconcile due to rounding.)                                   

 
Incurred losses and LAE decreased by 5.3%27.7% to $100.9$99.0 million for the three months ended March 31,June 30, 2017 compared to $106.5$137.0 million for the three months ended March 31,June 30, 2016, mainly due to ana decrease of $6.3
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$28.5 million in current year attritional losses and a decrease of $11.9 million in current year catastrophe losses. The decrease in current year attritional losses primarily related to changes in the mix of business and the impact of affiliated quota share agreements. There were noThe current year catastrophe losses of $4.8 million for the three months ended June 30, 2017 primarily related to 2017 US Midwest Storms (4.8 million).The $16.7 million of current year catastrophe losses for the three months ended March 31, June 30, 2016 were due to the 2016 U.S. storms ($15.0 million) and the Fort McMurray Canada wildfire ($1.7 million).

Incurred losses and LAE decreased by 17.9% to $199.9 million for the six months ended June 30, 2017 compared to $243.4 million for the six months ended June 30, 2016, mainly due to a decrease of $34.8 million in current year attritional losses and a decrease of $11.9 million in current catastrophe losses. The decrease in current year attritional losses primarily related to changes in the mix of business and the impact of affiliated quota share agreements. The current year catastrophe losses of $4.8 million for the six months ended June 30, 2017 primarily related to 2017 US Midwest Storms (4.8 million). The $16.7 million of current year catastrophe losses for the six months ended June 30, 2016 were due to the 2016 U.S. storms ($15.0 million) and 2016the Fort McMurray Canada wildfire ($1.7 million).

Segment Expenses.  Commission and brokerage decreased to ($14.4)6.5) million for the three months ended March 31,June 30, 2017 compared to ($7.0)5.9) million for the three months ended March 31,June 30, 2016.  Commission and brokerage decreased to ($17.9) million for the six months ended June 30, 2017 compared to ($15.3) million for the six months ended June 30, 2016. The decrease was mainly due to the impact of changes in the mix of business and the impacts from affiliated quota share agreements.

Segment other underwriting expenses decreased slightlyincreased to $36.8$40.8 million for the three months ended March 31,June 30, 2017 compared to $37.9$38.2 million for the three months ended March 31,June 30, 2016.Segment other underwriting expenses increased to $77.5 million for the six months ended June 30, 2017 compared to $76.2 million for the six months ended June 30, 2016. These increases were mainly due to the costs incurred related to the expansion of the insurance operations.

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 $10.1$10.0 billion investment portfolio, at March 31,June 30, 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.

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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 $774.2$757.0 million of mortgage-backed securities in the $6,206.4$6,140.0 million fixed maturity portfolio.  Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.

The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $336.6$176.4 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 estimate 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, 2017  At June 30, 2017
(Dollars in millions)  -200   -100   0   100   200   -200  -100   0   100   200 
Total Market/Fair Value $6,910.7  $6,730.4  $6,543.0  $6,348.9  $6,154.7  $6,685.0  $6,503.3  $6,316.4  $6,122.5  $5,928.0 
Market/Fair Value Change from Base (%)  5.6%  2.9%  0.0%  -3.0%  -5.9%  5.8%  3.0%  0.0%  -3.1%  -6.1%
Change in Unrealized Appreciation                                        
After-tax from Base ($) $239.0  $121.8  $-  $(126.2) $(252.4) $239.6  $121.4  $-  $(126.1) $(252.5)


We had $8,369.2$8,286.6 million and $8,331.3 million of gross reserves for losses and LAE as of March 31,June 30, 2017 and December 31, 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, 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 table below displays the impact on fair/market value and after-tax change in fair/market value of a 10% and 20% change in equity prices up and down for the periods indicated.

  Impact of Percentage Change in Equity Fair/Market Values
  At June 30, 2017
(Dollars in millions)  -20%  -10%  0%  10%  20%
Fair/Market Value of the Equity Portfolio $747.3  $840.7  $934.1  $1,027.5  $1,120.9 
After-tax Change in Fair/Market Value  (121.4)  (60.7)  -   60.7   121.4 

  Impact of Percentage Change in Equity Fair/Market Values 
  At March 31, 2017 
(Dollars in millions)  -20%  -10%  0%  10%  20%
Fair/Market Value of the Equity Portfolio $682.4  $767.7  $853.0  $938.3  $1,023.6 
After-tax Change in Fair/Market Value  (110.9)  (55.4)  -   55.4   110.9 

Foreign Currency 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
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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.

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
40
any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  Based on that evaluation, there has been no such change during the quarter covered by this report.


PART II

ITEM 1.        LEGAL PROCEEDINGS

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
48

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.


4149

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)
 (Registrant)
 
/S/ CRAIG HOWIE
Craig Howie
Executive Vice President and
Chief Financial Officer
      Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
Dated:  August 14, 2017 


Dated:  May 15, 2017