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EVEREST RE GROUP, LTD.
Wessex House, 45 Reid Street, 2nd Floor, Hamilton HM DX, Bermuda
Contact:
Elizabeth B. Farrell |
Vice President, Investor Relations
Everest Global Services, Inc.
908.604.3169 | For Immediate Release |
Everest Re Group Reports Third Quarter Results
HAMILTON, Bermuda – October 24, 2005 -- Everest Re Group, Ltd. (NYSE: RE) reported a third quarter 2005 after-tax operating loss1, which excludes realized capital gains and losses, of $438.9 million, or ($7.79) per share, a significant decrease compared to after-tax operating income of $4.8 million, or $0.08 per diluted share, in the third quarter of 2004. The principal drivers of the Company's loss, as commented on previously in its press releases of September 13, 2005 and October 6, 2005, were catastrophe losses, the net pre-tax impact of which totaled $ 784.6 million, including $652.7 million related to Hurricane Katrina. The third quarter 2005 net loss was $417.7 million, or ($7.41) per share, as compared to net income of $11.5 million, or $0.20 per diluted share, for the third quarter of 2004. Operating income (loss) differs from net income (loss) only by the exclusion of realized gains and losses on investments.
For the nine months ended September 30, 2005, the Company’s after-tax operating loss was $100.3 million, or ($1.78) per share, as compared to after-tax operating income of $330.7 million, or $5.82 per diluted share, in 2004. The net loss in the first nine months of 2005 was $56.5 million, or ($1.00) per share, as compared to net income of $401.5 million, or $7.07 per diluted share, in 2004.
Gross written premiums for the third quarter of 2005 were $1.08 billion, an 11.2% decrease compared to $1.22 billion in 2004. Net written premiums were $1.05 billion, a decrease of 10.9% from $1.18 billion for the third quarter of 2004. The Company’s GAAP combined ratio in the third quarter was 162.2% compared to 108.5% in 2004. Net investment income for the third quarter was $117.5 million compared to $123.8 million for the third quarter of 2004. Cash flow from
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operations for the third quarter of 2005 was $376.0 million, a decrease of 24.5% from $498.1 million in the third quarter of 2004.
For the nine months ended September 30, 2005, gross written premiums were $3.24 billion, an 8.2% decrease from $3.53 billion in the first nine months of 2004. Net written premiums for the same period decreased 8.0% to $3.14 billion from $3.41 billion in 2004. The GAAP combined ratio for the first nine months of 2005 was 113.6% compared to 97.3% in 2004. Net investment income for the nine months ended September 30, 2005 was $387.9 million, an increase of 7.3% from $361.5 million in 2004. Cash flow from operations for the first nine months was $992.3 million compared to $1.29 billion for the first nine months of 2004.
At September 30, 2005, the Company's shareholders’ equity was $3.60 billion, or $63.57 per outstanding share. The change in book value represents a 3.0% decrease from shareholders’ equity of $3.71 billion, or $66.09 per outstanding share, at December 31, 2004.
Commenting on the Company’s results, Chairman and Chief Executive Officer, Joseph V. Taranto said, “Losses from Hurricane Katrina have made this a most disappointing quarter. Going forward, our newly raised capital will allow us to participate in positive market changes, while we continue to offer our clients the highest quality security.”
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
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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 10:00 a.m. Eastern Time on October 25, 2005. 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 (loss), a non-GAAP financial measure, to evaluate its performance. After-tax operating (loss) income consists of net income (loss) excluding after-tax realized gains (losses) as the following reconciliation displays:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
| amount | per share | amount | per diluted share | amount | per share | amount | per diluted share | ||||||||||||||||||||||
| Net (loss) income | ($ | 417,745) | ($ | 7.41) | $ | 11,463 | $ | 0.20 | ($ | 56,470) | ($ | 1.00) | $ | 401,531 | $ | 7.07 | |||||||||||||
| After-tax realized gains | 21,147 | 0.38 | 6,697 | 0.12 | 43,868 | 0.78 | 70,839 | 1.25 | |||||||||||||||||||||
| After-tax operating (loss) income | ($ | 438,892) | ($ | 7.79) | $ | 4,766 | $ | 0.08 | ($ | 100,338) | ($ | 1.78) | $ | 330,692 | $ | 5.82 | |||||||||||||
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 (LOSS) INCOME | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (Dollars in thousands, except per share amounts) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| REVENUES: | ||||||||||||||||
| Premiums earned | $ | 959,409 | $ | 1,139,862 | $ | 3,057,824 | $ | 3,199,185 | ||||||||
| Net investment income | 117,532 | 123,784 | 387,866 | 361,526 | ||||||||||||
| Net realized capital gains | 27,699 | 10,125 | 57,485 | 91,898 | ||||||||||||
| Net derivative income (expense) | 5,019 | (6,595 | ) | (3,018 | ) | (5,965 | ) | |||||||||
| Other expense | (7,411 | ) | (3,582 | ) | (13,686 | ) | (171 | ) | ||||||||
| Total revenues | 1,102,248 | 1,263,594 | 3,486,471 | 3,646,473 | ||||||||||||
| CLAIMS AND EXPENSES: | ||||||||||||||||
| Incurred losses and loss adjustment expenses | 1,319,706 | 962,590 | 2,678,575 | 2,349,631 | ||||||||||||
| Commission, brokerage, taxes and fees | 204,664 | 248,068 | 703,571 | 685,733 | ||||||||||||
| Other underwriting expenses | 31,343 | 25,729 | 90,250 | 77,696 | ||||||||||||
| Interest expense on senior notes | 7,785 | 9,737 | 27,729 | 29,209 | ||||||||||||
| Interest expense on junior subordinated debt | 9,362 | 9,363 | 28,086 | 23,030 | ||||||||||||
| Interest and fee expense on credit facility | 124 | 339 | 332 | 997 | ||||||||||||
| Total claims and expenses | 1,572,984 | 1,255,826 | 3,528,543 | 3,166,296 | ||||||||||||
| (LOSS) INCOME BEFORE TAXES | (470,736 | ) | 7,768 | (42,072 | ) | 480,177 | ||||||||||
| Income tax (benefit) expense | (52,991 | ) | (3,695 | ) | 14,398 | 78,646 | ||||||||||
| NET (LOSS) INCOME | $ | (417,745 | ) | $ | 11,463 | $ | (56,470 | ) | $ | 401,531 | ||||||
| Other comprehensive (loss) income, net of tax | (64,584 | ) | 162,138 | (59,051 | ) | (37,466 | ) | |||||||||
| COMPREHENSIVE (LOSS) INCOME | $ | (482,329 | ) | $ | 173,601 | $ | (115,521 | ) | $ | 364,065 | ||||||
| PER SHARE DATA: | ||||||||||||||||
| Average shares outstanding (000's) | 56,361 | 55,991 | 56,257 | 55,898 | ||||||||||||
| Net (loss) income per common share - basic | $ | (7.41 | ) | $ | 0.20 | $ | (1.00 | ) | $ | 7.18 | ||||||
| Average diluted shares outstanding (000's) | 57,275 | 56,712 | 57,150 | 56,798 | ||||||||||||
| Net (loss) income per common share - diluted | $ | (7.41 | ) | $ | 0.20 | $ | (1.00 | ) | $ | 7.07 | ||||||
EVEREST RE GROUP, LTD. CONSOLIDATED BALANCE SHEETS | ||||||||
(Dollars in thousands, except par value per share) | September 30, 2005 | December 31, 2004 | ||||||
| (unaudited) | ||||||||
| ASSETS: | ||||||||
| Fixed maturities - available for sale, at market value | ||||||||
| (amortized cost: 2005, $9,771,909; 2004, $9,609,617) | $ | 10,000,358 | $ | 9,947,172 | ||||
| Equity securities, at market value (cost: 2005, $1,005,723; 2004, $571,717) | 1,158,089 | 650,871 | ||||||
| Short-term investments | 642,928 | 585,875 | ||||||
| Other invested assets (cost: 2005, $243,402; 2004, $160,188) | 244,896 | 161,324 | ||||||
| Cash | 135,579 | 184,930 | ||||||
| Total investments and cash | 12,181,850 | 11,530,172 | ||||||
| Accrued investment income | 126,273 | 130,216 | ||||||
| Premiums receivable | 1,291,022 | 1,314,160 | ||||||
| Reinsurance receivables | 1,085,411 | 1,210,795 | ||||||
| Funds held by reinsureds | 269,429 | 195,944 | ||||||
| Deferred acquisition costs | 361,399 | 331,909 | ||||||
| Prepaid reinsurance premiums | 77,475 | 84,646 | ||||||
| Deferred tax asset | 195,112 | 159,874 | ||||||
| Taxes recoverable | 26,437 | - | ||||||
| Other assets | 168,345 | 115,050 | ||||||
| TOTAL ASSETS | $ | 15,782,753 | $ | 15,072,766 | ||||
| LIABILITIES: | ||||||||
| Reserve for losses and adjustment expenses | $ | 8,898,752 | $ | 7,836,306 | ||||
| Future policy benefit reserve | 137,900 | 152,179 | ||||||
| Unearned premium reserve | 1,663,437 | 1,595,630 | ||||||
| Funds held under reinsurance treaties | 211,341 | 282,472 | ||||||
| Losses in the course of payment | 14,308 | 19,069 | ||||||
| Other net payable to reinsurers | 72,582 | 47,462 | ||||||
| Current federal income taxes | - | 31,854 | ||||||
| 8.5% Senior notes due 3/15/2005 | - | 249,976 | ||||||
| 8.75% Senior notes due 3/15/2010 | 199,419 | 199,341 | ||||||
| 5.4% Senior notes due 10/15/2014 | 249,609 | 249,584 | ||||||
| Junior subordinated debt securities payable | 546,393 | 546,393 | ||||||
| Accrued interest on debt and borrowings | 9,041 | 16,426 | ||||||
| Other liabilities | 179,244 | 133,556 | ||||||
| Total liabilities | 12,182,026 | 11,360,248 | ||||||
| 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; | ||||||||
| (2005) 56.6 million and (2004) 56.2 million issued | 571 | 566 | ||||||
| Additional paid-in capital | 1,016,788 | 983,025 | ||||||
| Unearned compensation | (18,530 | ) | (7,108 | ) | ||||
| Accumulated other comprehensive income, net of deferred income taxes of | ||||||||
| $140.9 million at 2005 and $135.6 million at 2004 | 269,686 | 328,737 | ||||||
| Retained earnings | 2,355,162 | 2,430,248 | ||||||
| Treasury shares, at cost; 0.5 million shares (2005 and 2004) | (22,950 | ) | (22,950 | ) | ||||
| Total shareholders' equity | 3,600,727 | 3,712,518 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 15,782,753 | $ | 15,072,766 | ||||
EVEREST RE GROUP, LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (Dollars in thousands) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net (loss) income | $ | (417,745 | ) | $ | 11,463 | $ | (56,470 | ) | $ | 401,531 | ||||||
| Adjustments to reconcile net income to net cash provided by | ||||||||||||||||
| operating activities: | ||||||||||||||||
| Decrease (increase) in premiums receivable | 9,848 | (42,010 | ) | 16,391 | (201,355 | ) | ||||||||||
| Increase in funds held by reinsureds, net | (58,709 | ) | (45,519 | ) | (151,832 | ) | (99,107 | ) | ||||||||
| (Increase) decrease in reinsurance receivables | (6,195 | ) | 35,307 | 110,999 | 34,779 | |||||||||||
| (Increase) decrease in deferred tax asset | (30,082 | ) | 12,140 | (39,264 | ) | (3,214 | ) | |||||||||
| Increase in reserve for losses and loss adjustment expenses | 848,575 | 534,296 | 1,125,918 | 1,155,540 | ||||||||||||
| Decrease in future policy benefit reserve | (4,505 | ) | (2,863 | ) | (14,279 | ) | (50,156 | ) | ||||||||
| Increase in unearned premiums | 89,995 | 36,669 | 71,492 | 179,408 | ||||||||||||
| Decrease in other assets and liabilities | (36,524 | ) | (35,948 | ) | (34,484 | ) | (53,773 | ) | ||||||||
| Non-cash compensation expense | 720 | 301 | 1,613 | 873 | ||||||||||||
| Amortization of bond premium | 8,261 | 4,304 | 19,538 | 17,805 | ||||||||||||
| Amortization of underwriting discount on senior notes | 36 | 50 | 127 | 147 | ||||||||||||
| Realized capital gains | (27,699 | ) | (10,125 | ) | (57,485 | ) | (91,898 | ) | ||||||||
| Net cash provided by operating activities | 375,976 | 498,065 | 992,264 | 1,290,580 | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Proceeds from fixed maturities matured/called - available for sale | 163,592 | 151,995 | 492,281 | 511,876 | ||||||||||||
| Proceeds from fixed maturities sold - available for sale | 144,353 | 66,805 | 1,316,352 | 1,205,480 | ||||||||||||
| Proceeds from equity securities sold | 106,602 | 10,000 | 116,933 | 17,995 | ||||||||||||
| Proceeds from other invested assets sold | 8,475 | 1,390 | 39,197 | 5,702 | ||||||||||||
| Cost of fixed maturities acquired - available for sale | (432,147 | ) | (907,752 | ) | (1,987,081 | ) | (2,708,523 | ) | ||||||||
| Cost of equity securities acquired | (146,066 | ) | (93,094 | ) | (546,783 | ) | (302,786 | ) | ||||||||
| Cost of other invested assets acquired | (28,938 | ) | (2,243 | ) | (118,116 | ) | (10,695 | ) | ||||||||
| Net (purchases) sales of short-term securities | (60,210 | ) | 306,441 | (54,016 | ) | (373,806 | ) | |||||||||
| Net (decrease) increase in unsettled securities transactions | (100,843 | ) | 68,113 | (29,911 | ) | 49,223 | ||||||||||
| Net cash used in investing activities | (345,182 | ) | (398,345 | ) | (771,144 | ) | (1,605,534 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Common shares issued during the period | 7,017 | 703 | 20,733 | 20,733 | ||||||||||||
| Dividends paid to shareholders | (6,216 | ) | (5,608 | ) | (18,616 | ) | (16,805 | ) | ||||||||
| Repayment of senior notes | - | - | (250,000 | ) | - | |||||||||||
| Net proceeds from issuance of junior subordinated notes | - | - | - | 319,997 | ||||||||||||
| Net cash provided by (used in) financing activities | 801 | (4,905 | ) | (247,883 | ) | 323,925 | ||||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (8,965 | ) | (20,436 | ) | (22,588 | ) | (14,864 | ) | ||||||||
| Net increase (decrease) in cash | 22,630 | 74,379 | (49,351 | ) | (5,893 | ) | ||||||||||
| Cash, beginning of period | 112,949 | 104,587 | 184,930 | 184,859 | ||||||||||||
| Cash, end of period | $ | 135,579 | $ | 178,966 | $ | 135,579 | $ | 178,966 | ||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||||||
| Cash transactions: | ||||||||||||||||
| Income taxes paid, net | $ | 2,452 | $ | 41,727 | $ | 109,903 | $ | 97,906 | ||||||||
| Interest paid | $ | 18,237 | $ | 29,072 | $ | 63,406 | $ | 62,756 | ||||||||
| Non-cash financing transactions: | ||||||||||||||||
| Issuance of common shares | $ | 12,147 | $ | 3,226 | $ | 13,035 | $ | 3,226 | ||||||||