NEWS RELEASE
EVEREST RE GROUP, LTD.
c/o ABG Financial &Management Services, Inc.
Parker House, Wildey Business Park, Wildey Road, St. Michael, Barbados
Contact:
Elizabeth B. Farrell
Vice President, Investor Relations
Everest Global Services, Inc.
908.604.3169
For Immediate Release
Everest Re Group Announces Third Quarter Earnings
ST. MICHAEL, Barbados – October 18, 2004 — Everest Re Group, Ltd. (NYSE: RE) reported third quarter 2004 after-tax operating income1, which excludes realized capital gains and losses, of $4.8 million, or $0.08 per diluted share, a 96.2% decrease compared to $126.2 million, or $2.23 per diluted share, in the third quarter of 2003. Third quarter 2004 net income decreased 88.6% to $11.5 million, or $0.20 per diluted share, compared to $100.3 million, or $1.77 per diluted share, in the third quarter of 2003. Operating income differs from net income only by the exclusion of realized gains and losses on investments.
For the nine months ended September 30, 2004, after-tax operating income was $330.7 million, or $5.82 per diluted share, a decrease of 2.0% compared to $337.4 million, or $6.20 per diluted share, in 2003. Net income in the first nine months of 2004 was $401.5 million, or $7.07 per diluted share, an increase of 32.0% compared to $304.2 million, or $5.59 per diluted share, in 2003.
Gross premiums written for the third quarter of 2004 were $1.22 billion, a 1.8% decrease compared to $1.24 billion in 2003. Net premiums written were $1.18 billion, a decrease of 0.3% from $1.18 billion for the third quarter of 2003. The Company’s GAAP combined ratio in the third quarter was 108.5% compared to 95.0% in 2003. Net investment income for the third quarter was $123.8 million compared to $100.4 million in the third quarter of 2003. Cash flow from operations for the third quarter of 2004 was $498.1 million, an increase of 1.2% from $492.3 million in the third quarter of 2003.
For the nine months ended September 30, 2004, gross premiums written were $3.53 billion, a 6.6% increase from $3.31 billion in the first nine months of 2003. Net written premiums grew 9.1% to $3.41 billion from $3.12 billion in 2003. The GAAP combined ratio for the first nine months of 2004 was 97.3% compared to 94.7% in 2003. Net investment income for the nine months ended September 30, 2004 was $361.5 million, an increase of 22.1% from $296.1 million in 2003. Cash flow from operations in the first nine months was $1.29 billion, compared to $1.17 billion in the first nine months of 2003.
At September 30, 2004, the Company’s shareholders’ equity was $3.53 billion, or $62.98 per outstanding share. The change in book value represents a 11.7% increase from shareholders’ equity of $3.16 billion, or $56.84 per outstanding share, at December 31, 2003.
Commenting on the Company’s results, Chairman and Chief Executive Officer, Joseph V. Taranto said, “Despite four hurricanes and two typhoons, our equity increased 5% in the quarter to over $3.5 billion, demonstrating the underlying strength of our company”.
This news release 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 U.S. Federal securities laws. These statements involve risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements made on behalf of the Company. These risks and uncertainties include the impact of general economic conditions and conditions affecting the insurance and reinsurance industry, the adequacy of our reserves, our ability to assess underwriting risk, trends in rates for property and casualty insurance and reinsurance, competition, investment market fluctuations, trends in insured and paid losses, catastrophes, regulatory and legal uncertainties and other factors described in our latest Annual Report on Form 10-K. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Everest Re Group, Ltd. is a Bermuda holding company that operates through the following subsidiaries: Everest Reinsurance Company provides reinsurance to property and casualty insurers in both the U.S. and international markets. Everest Reinsurance (Bermuda), Ltd., including through its branch in the United Kingdom, provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers. Everest National Insurance Company and Everest Security Insurance Company provide property and casualty insurance to policyholders in the U.S. Everest Indemnity Insurance Company offers excess and surplus lines insurance in the U.S. Additional information on Everest Re Group companies can be found at the Group’s web site atwww.everestre.com.
A conference call discussing the second quarter results will be held at 8:30 a.m. Eastern Time on October 19, 2004. The call will be available on the Internet through the Company’s web site or atwww.streetevents.com.
Anyone receiving this release by wire or through the Internet may visit the Company’s web site to view supplemental financial information on the Company’s results. The supplemental information is located atwww.everestre.com in the “Financial Reports” section of the “Investor Center”. The supplemental financial information may also be obtained by contacting the Company directly.
1 The company generally uses after-tax operating income, a non-GAAP financial measure, to evaluate its performance. After-tax operating income consists of net income excluding after-tax realized gains (losses) as the following reconciliation displays:
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||
(Dollars in thousands, | |||||||||||||||||||||
except per share amounts) | 2004 | 2003 | 2004 | 2003 | |||||||||||||||||
amt | pds | amt | pds | amt | pds | amt | pds | ||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||
Net income/per diluted | |||||||||||||||||||||
share | $11,463 | $0.20 | $100,326 | $1.77 | $401,531 | $7.07 | $304,248 | $5.59 | |||||||||||||
After-tax realized gains | |||||||||||||||||||||
(losses)/per diluted share | 6,697 | 0.12 | (25,913 | ) | (0.46 | ) | 70,839 | 1.25 | (33,174 | ) | (0.61 | ) | |||||||||
After-tax operating | |||||||||||||||||||||
income/per diluted share | $4,766 | $0.08 | $126,239 | $2.23 | $330,692 | $5.82 | $337,422 | $6.20 | |||||||||||||
Although realized capital gains (losses) are an integral part of the Company’s insurance operations, the determination of realized capital gains (losses) is independent of the insurance underwriting process. The Company believes that the level of realized gains (losses) for any particular period is not indicative of the performance of the underlying business in that particular period. Providing only a GAAP presentation of net income makes it more difficult for users of the financial information to evaluate the Company’s success or failure in its basic business, and may lead to incorrect or misleading assumptions and conclusions. The Company understands that the equity analysts who follow the Company focus on after-tax operating income in their analyses for the reasons discussed above. The Company provides after-tax operating income to investors so that they have what management believes to be a useful supplement to GAAP information concerning the Company’s performance.
— Financial Details Follow —
EVEREST RE GROUP, LTD. | |||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
AND COMPREHENSIVE INCOME | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(Dollars in thousands, except per share amounts) | 2004 | 2003 | 2004 | 2003 | |||||||||||
(unaudited) | (unaudited) | ||||||||||||||
REVENUES: | |||||||||||||||
Premiums earned | $ | 1,139,862 | $ | 1,046,353 | $ | 3,199,185 | $ | 2,643,211 | |||||||
Net investment income | 123,784 | 100,411 | 361,526 | 296,103 | |||||||||||
Net realized capital gains (losses) | 10,125 | (30,055 | ) | 91,898 | (41,543 | ) | |||||||||
Net derivative (expense) income | (6,595 | ) | 3,784 | (5,965 | ) | 2,389 | |||||||||
Other expense | (3,582 | ) | (424 | ) | (171 | ) | (6,024 | ) | |||||||
Total revenues | 1,263,594 | 1,120,069 | 3,646,473 | 2,894,136 | |||||||||||
CLAIMS AND EXPENSES: | |||||||||||||||
Incurred losses and loss adjustment expenses | 962,590 | 738,254 | 2,349,631 | 1,836,767 | |||||||||||
Commission, brokerage, taxes and fees | 248,068 | 232,548 | 685,733 | 599,762 | |||||||||||
Other underwriting expenses | 25,729 | 22,933 | 77,696 | 66,717 | |||||||||||
Interest expense on senior notes | 9,737 | 9,733 | 29,209 | 29,197 | |||||||||||
Interest expense on junior subordinated debt | 9,363 | 4,249 | 23,030 | 12,747 | |||||||||||
Interest expense on credit facility | 339 | 327 | 997 | 1,035 | |||||||||||
Total claims and expenses | 1,255,826 | 1,008,044 | 3,166,296 | 2,546,225 | |||||||||||
INCOME BEFORE TAXES | 7,768 | 112,025 | 480,177 | 347,911 | |||||||||||
Income tax (benefit) expense | (3,695 | ) | 11,699 | 78,646 | 43,663 | ||||||||||
NET INCOME | $ | 11,463 | $ | 100,326 | $ | 401,531 | $ | 304,248 | |||||||
Other comprehensive income (loss), net of tax | 162,138 | (126,705 | ) | (37,466 | ) | 45,544 | |||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 173,601 | $ | (26,379 | ) | $ | 364,065 | $ | 349,792 | ||||||
PER SHARE DATA: | |||||||||||||||
Average shares outstanding (000's) | 55,991 | 55,499 | 55,898 | 53,514 | |||||||||||
Net income per common share - basic | $ | 0.20 | $ | 1.81 | $ | 7.18 | $ | 5.69 | |||||||
Average diluted shares outstanding (000's) | 56,712 | 56,562 | 56,798 | 54,408 | |||||||||||
Net income per common share - diluted | $ | 0.20 | $ | 1.77 | $ | 7.07 | $ | 5.59 | |||||||
EVEREST RE GROUP, LTD. | |||||||||||
CONSOLIDATED BALANCE SHEETS | |||||||||||
September 30, | December 31, | ||||||||||
(Dollars in thousands, except par value per share) | 2004 | 2003 | |||||||||
(unaudited) | |||||||||||
ASSETS: | |||||||||||
Fixed maturities - available for sale, at market value | |||||||||||
(amortized cost: 2004, $9,427,646; 2003, $8,357,723) | $ 9,733,298 | $ 8,726,886 | |||||||||
Equity securities, at market value (cost: 2004, $437,372; 2003, $146,407) | 455,306 | 154,381 | |||||||||
Short-term investments | 526,173 | 151,853 | |||||||||
Other invested assets (cost: 2004, $132,956; 2003, $102,742) | 133,659 | 103,359 | |||||||||
Cash | 178,966 | 184,859 | |||||||||
Total investments and cash | 11,027,402 | 9,321,338 | |||||||||
Accrued investment income | 129,743 | 113,989 | |||||||||
Premiums receivable | 1,250,007 | 1,047,856 | |||||||||
Reinsurance receivables | 1,246,842 | 1,284,139 | |||||||||
Funds held by reinsureds | 191,741 | 157,364 | |||||||||
Deferred acquisition costs | 354,018 | 333,214 | |||||||||
Prepaid reinsurance premiums | 75,806 | 98,384 | |||||||||
Deferred tax asset | 213,689 | 145,271 | |||||||||
Other assets | 215,126 | 187,981 | |||||||||
TOTAL ASSETS | $ 14,704,374 | $ 12,689,536 | |||||||||
LIABILITIES: | |||||||||||
Reserve for losses and adjustment expenses | $ 7,517,472 | $ 6,361,245 | |||||||||
Future policy benefit reserve | 155,119 | 205,275 | |||||||||
Unearned premium reserve | 1,680,912 | 1,499,640 | |||||||||
Funds held under reinsurance treaties | 321,755 | 385,768 | |||||||||
Losses in the course of payment | 37,541 | 11,133 | |||||||||
Contingent commissions | 3,452 | 2,135 | |||||||||
Other net payable to reinsurers | 36,139 | 46,037 | |||||||||
Current federal income taxes | 65,030 | 41,308 | |||||||||
8.5% Senior notes due 3/15/2005 | 249,949 | 249,874 | |||||||||
8.75% Senior notes due 3/15/2010 | 199,317 | 199,245 | |||||||||
Junior subordinated debt securities payable | 546,393 | 216,496 | |||||||||
Revolving credit agreement borrowings | 70,000 | 70,000 | |||||||||
Accrued interest on debt and borrowings | 4,028 | 13,695 | |||||||||
Other liabilities | 283,501 | 222,785 | |||||||||
Total liabilities | 11,170,608 | 9,524,636 | |||||||||
SHAREHOLDERS' EQUITY: | |||||||||||
Preferred shares, par value: $0.01; 50 million shares authorized; | |||||||||||
no shares issued and outstanding | -- | -- | |||||||||
Common shares, par value: $0.01; 200 million shares authorized; | |||||||||||
(2004) 56.1 million and (2003) 55.7 million issued and outstanding | 566 | 561 | |||||||||
Additional paid-in capital | 978,612 | 954,658 | |||||||||
Unearned compensation | (7,610 | ) | (5,257 | ) | |||||||
Accumulated other comprehensive income, net of deferred income taxes of | |||||||||||
$99.6 million at 2004 and $117.5 million at 2003 | 242,611 | 280,077 | |||||||||
Retained earnings | 2,342,537 | 1,957,811 | |||||||||
Treasury shares, at cost; 0.5 million shares (2004 and 2003) | |||||||||||
(22,950 | ) | (22,950 | ) | ||||||||
Total shareholders' equity | 3,533,766 | 3,164,900 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 14,704,374 | $ 12,689,536 | |||||||||
EVEREST RE GROUP, LTD. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2004 | 2003 | 2004 | 2003 | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | $ 498,065 | $ 492,282 | $ 1,290,580 | $ 1,173,147 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES : | ||||||||||||||||
Proceeds from investments sold | 146,308 | 354,750 | 1,278,400 | 973,973 | ||||||||||||
Proceeds from investments maturing or called | 151,995 | 266,219 | 511,876 | 668,164 | ||||||||||||
Cost of investments acquired | (1,003,089 | ) | (914,343 | ) | (3,022,004 | ) | (2,969,313 | ) | ||||||||
Net sales (purchases) of short-term investments | 306,441 | (182,587 | ) | (373,806 | ) | (224,051 | ) | |||||||||
Net cash used in investing activities | (398,345 | ) | (475,961 | ) | (1,605,534 | ) | (1,551,227 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Common shares issued during the period | 703 | 3,028 | 20,733 | 323,104 | ||||||||||||
Dividends paid to shareholders | (5,608 | ) | (4,996 | ) | (16,805 | ) | (14,567 | ) | ||||||||
Net proceeds from issuance of junior subordinated notes | -- | -- | 319,997 | -- | ||||||||||||
Net cash (used in) provided by financing activities | (4,905 | ) | (1,968 | ) | 323,925 | 308,537 | ||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (20,436 | ) | (7,625 | ) | (14,864 | ) | 2,350 | |||||||||
Net increase (decrease) in cash | 74,379 | 6,728 | (5,893 | ) | (67,193 | ) | ||||||||||
Cash, beginning of period | 104,587 | 134,909 | 184,859 | 208,830 | ||||||||||||
Cash, end of period | $ 178,966 | $ 141,637 | $ 178,966 | $ 141,637 | ||||||||||||