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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 Record Twelve Month Earnings
and GAAP Equity in Excess of $5 Billion
HAMILTON, Bermuda – January 29, 2007 -- Everest Re Group, Ltd. (NYSE: RE) reported fourth quarter 2006 after-tax operating income1, which excludes realized capital gains and losses, of $201.2 million, or $3.07 per diluted share, compared to an after-tax operating loss of $185.8 million, or ($3.01) per share, in the fourth quarter of 2005. Net income for the fourth quarter 2006 of $206.4 million, or $3.15 per diluted share, also compares favorably to the fourth quarter of 2005 for which the Company reported a net loss of $162.2 million, or ($2.63) per share. Operating income differs from net income only by the exclusion of realized gains and losses on investments.
For the year ended December 31, 2006, after-tax operating income was $817.9 million, or $12.52 per diluted share, compared to an after-tax operating loss of $286.1 million, or ($4.96) per share, in 2005. Net income for the full year 2006 was $840.8 million, or $12.87 per diluted share in contrast to the net loss of $218.7 million, or ($3.79) per share, in 2005.
| Operating highlights for the fourth quarter of 2006 included the following: |
| • | The GAAP combined ratio in the fourth quarter was 92.9% compared to 142.8% in the same period last year. Significant catastrophic loss activity due to Hurricanes Katrina, Rita, and Wilma impacted 2005 while 2006 was a relatively benign period for such losses. The lack of catastrophe losses coupled with a firmer rate environment contributed to strong accident year results in 2006. |
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| • | The Company incurred $44 million of net adverse loss reserve development in the quarter largely arising from the 2005 hurricane losses and pre-1995 asbestos liabilities, partially offset by favorable development on attritional loss reserves. The Company also incurred a pre-tax charge in the quarter of $23 million from 2006 accident year loss ratio reassessments. This charge included $80 million of losses related to a credit program in runoff, offset by $57 million of favorable experience in other lines of business, primarily in the U.S. Insurance segment. |
| • | Gross premiums written were $987.3 million, a 13.4% increase compared to $871.0 million in the fourth quarter of 2005. The ramp up of new programs in the U.S. Insurance segment, which grew by 15% compared to the fourth quarter of 2005, was an important factor in the overall growth. |
| • | Net investment income increased by 36% to $183.5 million as compared to $135.0 million for the fourth quarter of 2005. Income generated by several limited partnership investments and strong overall growth in the investment portfolio contributed to these favorable results. |
| • | Cash flow from operations was $142.1 million for the period compared to $74.9 million for the fourth quarter of 2005. Catastrophe loss payouts were $188.4 million and $240.2 million, respectively, for the three months ended December 31, 2006 and 2005. |
| • | The annualized return on average shareholders’ equity was 17.1% for the quarter and 18.7% for the full year 2006; and |
| • | Shareholders’ equity reached $5.11 billion, or $78.53 per outstanding share, representing a 23.4% increase from shareholders’ equity of $4.14 billion, or $64.04 per outstanding share, at December 31, 2005. |
Commenting on the Company’s results, Chairman and Chief Executive Officer, Joseph V. Taranto said, “With more than $5 billion in shareholders’ equity, we have reached yet another milestone in Everest’s history. This accomplishment is a testament to the strength of our operating platform and focused market strategy, which emphasizes profitability over growth. Year over year premium was down modestly but our financial results, and underlying accident year trends remain strong.”
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
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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 at www.everestre.com.
A conference call discussing the third quarter results will be held at 8:30 a.m. Eastern Time on January 30, 2007. The call will be available on the Internet through the Company’s web site or atwww.streetevents.com.
Recipients are encouraged to visit the Company’s web site to view supplemental financial information on the Company’s results. The supplemental information is located atwww.everestre.comin the “Financial Reports” section of the “Investor Center”. The supplemental financial information may also be obtained by contacting the Company directly.
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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 December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||||||||||
(Dollars in thousands, except per share amounts) | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||
amount | per diluted share | amount | per share | amount | per diluted share | amount | per share | ||||||||||||||||||||||
Net income (loss) | $ | 206,351 | $ | 3.15 | ($ | 162,197) | ($ | 2.63) | $ | 840,828 | $ | 12.87 | ($ | 218,667) | ($ | 3.79) | |||||||||||||
After-tax realized gains | 5,195 | 0.08 | 23,613 | 0.38 | 22,912 | 0.35 | 67,481 | 1.17 | |||||||||||||||||||||
After-tax operating income (loss) | $ | 201,156 | $ | 3.07 | ($ | 185,810) | ($ | 3.01) | $ | 817,916 | $ | 12.52 | ($ | 286,148) | ($ | 4.96) | |||||||||||||
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
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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--
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EVEREST RE GROUP, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||
(Dollars in thousands, except per share amounts) | 2006 | 2005 | 2006 | 2005 | |||||||||||||
(unaudited) | |||||||||||||||||
REVENUES: | |||||||||||||||||
Premiums earned | $ | 979,688 | $ | 905,269 | $ | 3,853,153 | $ | 3,963,093 | |||||||||
Net investment income | 183,549 | 134,967 | 629,378 | 522,833 | |||||||||||||
Net realized capital gains | 10,343 | 32,799 | 35,067 | 90,284 | |||||||||||||
Net derivative income (expense) | 596 | 380 | (410 | ) | (2,638 | ) | |||||||||||
Other (expense) income | (1,182 | ) | (2,228 | ) | 112 | (11,116 | ) | ||||||||||
Total revenues | 1,172,994 | 1,071,187 | 4,517,300 | 4,562,456 | |||||||||||||
CLAIMS AND EXPENSES: | |||||||||||||||||
Incurred losses and loss adjustment expenses | 645,170 | 1,045,742 | 2,434,420 | 3,724,317 | |||||||||||||
Commission, brokerage, taxes and fees | 223,378 | 211,276 | 883,254 | 914,847 | |||||||||||||
Other underwriting expenses | 41,200 | 35,536 | 137,977 | 129,800 | |||||||||||||
Interest expense on senior notes | 7,788 | 7,785 | 31,149 | 35,514 | |||||||||||||
Interest expense on junior subordinated debt | 9,363 | 9,363 | 37,449 | 37,449 | |||||||||||||
Amortization of bond issue costs | 234 | 235 | 938 | 1,019 | |||||||||||||
Interest and fee expense on credit facilities | 78 | 99 | 363 | 431 | |||||||||||||
Total claims and expenses | 927,211 | 1,310,036 | 3,525,550 | 4,843,377 | |||||||||||||
INCOME (LOSS) BEFORE TAXES | 245,783 | (238,849 | ) | 991,750 | (280,921 | ) | |||||||||||
Income tax expense (benefit) | 39,432 | (76,652 | ) | 150,922 | (62,254 | ) | |||||||||||
NET INCOME (LOSS) | $ | 206,351 | $ | (162,197 | ) | $ | 840,828 | $ | (218,667 | ) | |||||||
Other comprehensive income (loss), net of tax | 81,764 | (48,540 | ) | 127,397 | (107,591 | ) | |||||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 288,115 | $ | (210,737 | ) | $ | 968,225 | $ | (326,258 | ) | |||||||
PER SHARE DATA: | |||||||||||||||||
Average shares outstanding (000's) | 64,831 | 61,779 | 64,724 | 57,649 | |||||||||||||
Net income (loss) per common share - basic | $ | 3.18 | $ | (2.63 | ) | $ | 12.99 | $ | (3.79 | ) | |||||||
Average diluted shares outstanding (000's) | 65,457 | 61,779 | 65,324 | 57,649 | |||||||||||||
Net income (loss) per common share - diluted | $ | 3.15 | $ | (2.63 | ) | $ | 12.87 | $ | (3.79 | ) | |||||||
EVEREST RE GROUP, LTD. CONSOLIDATED BALANCE SHEETS | ||||||||
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December 31, | ||||||||
(Dollars in thousands, except par value per share) | 2006 | 2005 | ||||||
ASSETS: | ||||||||
Fixed maturities - available for sale, at market value | ||||||||
(amortized cost: 2006, $10,210,165; 2005, $9,872,239) | $ | 10,319,850 | $ | 10,042,134 | ||||
Equity securities, at market value (cost: 2006, $1,252,595; 2005, $922,090) | 1,613,678 | 1,090,825 | ||||||
Short-term investments | 1,306,498 | 1,443,751 | ||||||
Other invested assets (cost: 2006, $466,232; 2005, $285,385) | 467,193 | 286,812 | ||||||
Cash | 249,868 | 107,275 | ||||||
Total investments and cash | 13,957,087 | 12,970,797 | ||||||
Accrued investment income | 141,951 | 133,213 | ||||||
Premiums receivable | 1,136,787 | 1,188,866 | ||||||
Reinsurance receivables | 772,813 | 1,048,749 | ||||||
Funds held by reinsureds | 284,809 | 286,856 | ||||||
Deferred acquisition costs | 388,117 | 352,745 | ||||||
Prepaid reinsurance premiums | 67,757 | 84,798 | ||||||
Deferred tax asset | 220,047 | 234,562 | ||||||
Current federal income taxes receivable | - | 75,022 | ||||||
Other assets | 138,202 | 98,932 | ||||||
TOTAL ASSETS | $ | 17,107,570 | $ | 16,474,539 | ||||
LIABILITIES: | ||||||||
Reserve for losses and loss adjustment expenses | $ | 8,840,140 | $ | 9,126,702 | ||||
Future policy benefit reserve | 100,962 | 133,155 | ||||||
Unearned premium reserve | 1,612,250 | 1,596,309 | ||||||
Funds held under reinsurance treaties | 70,982 | 190,641 | ||||||
Losses in the course of payment | 55,290 | 19,434 | ||||||
Commission reserves | 23,665 | 19,378 | ||||||
Other net payable to reinsurers | 47,483 | 50,354 | ||||||
Current federal income taxes payable | 43,002 | - | ||||||
8.75% Senior notes due 3/15/2010 | 199,560 | 199,446 | ||||||
5.4% Senior notes due 10/15/2014 | 249,652 | 249,617 | ||||||
Junior subordinated debt securities payable | 546,393 | 546,393 | ||||||
Accrued interest on debt and borrowings | 10,041 | 10,041 | ||||||
Other liabilities | 200,463 | 193,375 | ||||||
Total liabilities | 11,999,883 | 12,334,845 | ||||||
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; | ||||||||
(2006) 65.0 million and (2005) 64.6 million issued | 650 | 646 | ||||||
Additional paid-in capital | 1,770,496 | 1,731,746 | ||||||
Accumulated other comprehensive income, net of deferred income taxes of | ||||||||
$175.0 million at 2006 and $134.9 million at 2005 | 348,543 | 221,146 | ||||||
Retained earnings | 2,987,998 | 2,186,156 | ||||||
Total shareholders' equity | 5,107,687 | 4,139,694 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 17,107,570 | $ | 16,474,539 | ||||
EVEREST RE GROUP, LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||
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Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||
(Dollars in thousands) | 2006 | 2005 | 2006 | 2005 | |||||||||||||
(unaudited) | |||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||
Net income (loss) | $ | 206,351 | $ | (162,197 | ) | $ | 840,828 | $ | (218,667 | ) | |||||||
Adjustments to reconcile net income to net cash provided by | |||||||||||||||||
operating activities: | |||||||||||||||||
(Increase) decrease in premiums receivable | (4,471 | ) | 97,157 | 70,596 | 113,548 | ||||||||||||
Increase in funds held by reinsureds, net | (16,446 | ) | (46,411 | ) | (96,777 | ) | (198,243 | ) | |||||||||
Decrease in reinsurance receivables | 88,459 | 28,424 | 304,769 | 139,423 | |||||||||||||
Increase in deferred tax asset | (19,688 | ) | (28,160 | ) | (25,524 | ) | (71,048 | ) | |||||||||
(Decrease) increase in reserve for losses and loss adjustment expenses | (59,188 | ) | 273,017 | (432,494 | ) | 1,398,935 | |||||||||||
Decrease in future policy benefit reserve | (10,334 | ) | (4,745 | ) | (32,193 | ) | (19,024 | ) | |||||||||
(Decrease) increase in unearned premiums | (27,395 | ) | (63,314 | ) | 1,627 | 8,178 | |||||||||||
(Decrease) increase in other assets and liabilities, net | (13,016 | ) | 3,146 | 3,477 | (27,714 | ) | |||||||||||
Non-cash compensation expense | 5,572 | 2,990 | 15,127 | 8,003 | |||||||||||||
Amortization of bond premium | 2,567 | 7,760 | 21,797 | 27,298 | |||||||||||||
Amortization of underwriting discount on senior notes | 38 | 35 | 149 | 162 | |||||||||||||
Realized capital gains | (10,343 | ) | (32,799 | ) | (35,067 | ) | (90,284 | ) | |||||||||
Net cash provided by operating activities | 142,106 | 74,903 | 636,315 | 1,070,567 | |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||
Proceeds from fixed maturities matured/called - available for sale | 254,631 | 212,406 | 872,428 | 704,687 | |||||||||||||
Proceeds from fixed maturities sold - available for sale | 28,279 | 103,935 | 182,869 | 1,420,287 | |||||||||||||
Proceeds from equity securities sold | 94,598 | 100,976 | 281,093 | 217,909 | |||||||||||||
Proceeds from other invested assets sold | 33,986 | 14,368 | 76,307 | 53,565 | |||||||||||||
Cost of fixed maturities acquired - available for sale | (341,412 | ) | (435,979 | ) | (1,291,871 | ) | (2,423,060 | ) | |||||||||
Cost of equity securities acquired | (128,616 | ) | (8,995 | ) | (568,966 | ) | (555,778 | ) | |||||||||
Cost of other invested assets acquired | (86,039 | ) | (57,666 | ) | (219,067 | ) | (175,782 | ) | |||||||||
Net sales (purchases) of short-term securities | 33,769 | (799,483 | ) | 150,379 | (853,499 | ) | |||||||||||
Net (increase) decrease in unsettled securities transactions | (1,396 | ) | 30,070 | (11,322 | ) | 159 | |||||||||||
Net cash used in investing activities | (112,200 | ) | (840,368 | ) | (528,150 | ) | (1,611,512 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||
Common shares issued during the period | 5,753 | 715,262 | 23,627 | 732,595 | |||||||||||||
Dividends paid to shareholders | (15,609 | ) | (6,809 | ) | (38,986 | ) | (25,425 | ) | |||||||||
Sale of treasury shares | - | 38,261 | - | 38,261 | |||||||||||||
Repayment of senior notes | - | - | - | (250,000 | ) | ||||||||||||
Net cash (used in) provided by financing activities | (9,856 | ) | 746,714 | (15,359 | ) | 495,431 | |||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 20,056 | (9,553 | ) | 49,787 | (32,141 | ) | |||||||||||
Net increase (decrease) in cash | 40,106 | (28,304 | ) | 142,593 | (77,655 | ) | |||||||||||
Cash, beginning of period | 209,762 | 135,579 | 107,275 | 184,930 | |||||||||||||
Cash, end of period | $ | 249,868 | $ | 107,275 | $ | 249,868 | $ | 107,275 | |||||||||
SUPPLEMENTAL CASH FLOW INFORMATION | |||||||||||||||||
Cash transactions: | |||||||||||||||||
Income taxes paid, net | $ | 33,984 | $ | 1,042 | $ | 46,616 | $ | 110,945 | |||||||||
Interest paid | $ | 16,289 | $ | 16,211 | $ | 68,910 | $ | 79,617 |