NEWS RELEASE |
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 Second Quarter 2007 Earnings
HAMILTON, Bermuda – July 23, 2007 -- Everest Re Group, Ltd. (NYSE: RE) reported second quarter after-tax operating income1, which excludes realized capital gains and losses, of $213.3 million, or $3.36 per diluted share, compared to $218.7 million, or $3.35 per diluted share, for the second quarter of last year. Net income, including net realized capital gains and losses, was $282.9 million for the second quarter of 2007, up from $220.4 million for the second quarter of 2006. Net income per diluted share grew by 31.7% to $4.45 in this year’s second quarter from $3.38 in the second quarter of 2006.
For the six months ended June 30, 2007, after-tax operating income was $481.2 million compared to $376.6 million for the six months ended June 30, 2006. On a per diluted share basis, net operating income was $7.50, an increase of 30% compared to $5.77 for the six months ended June 30, 2006. Net income, including realized capital gains and losses was $580.5 million in the first six months of 2007, or $9.05 per diluted share compared to $388.8 million or $5.96 per diluted share, for the first six months of 2006.
Operating highlights for the second quarter of 2007 included the following:
| • | Gross written premiums were $935.5 million, a 2.8% increase compared to $910.4 million in the second quarter of 2006. Growth in the reinsurance segments, with gross written premiums up by 8.2% quarter over quarter, more than offset the decline in the insurance book. Year-to-date, gross written premiums of $1.95 billion, in the aggregate, are little changed from last year. |
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| • | Net investment income increased 17.2% to $179.7 million compared to $153.3 million in the second quarter of 2006. |
| • | Cash flow from operations was $96.4 million for the quarter compared to $151.6 million in 2006. These results include catastrophe loss payouts of $127.9 million and $241.1 million, respectively, and tax payments of $135.0 million and $26.2 million, respectively, for the three months ended June 30, 2007 and 2006. |
| • | The year-to-date annualized operating income return on average shareholders’ equity was 18.5% and the annualized net income return was 21.5%. |
| • | The GAAP combined ratio in the second quarter was 89.2% compared to 87.7% in the same period last year. Overall, the Company experienced net unfavorable development of $2.3 million in the quarter which had a negligible impact on the combined ratio. Prior years’ loss reserves, excluding mass action, developed favorably by $35.7 million and asbestos reserves developed unfavorably by $38.0 million. |
| • | Catastrophe losses were $70.4 million (net of reinstatement premiums) for the quarter, adding 8.1 points to the combined ratio. The storms and flooding in Australia and England accounted for the largest portion of these losses. |
| • | Shareholders equity grew from $5.1 billion to $5.3 billion in the first six months of 2007, despite $200 million of share repurchases and a doubling of the common dividend. Book value per share stood at $84.46 as of June 30, up 7.6% from $78.53 as of year end 2006. |
| • | Since year end 2006, the Company has repurchased 2.1 million of its common shares at an average price of $95.32. The total cost of the repurchased shares is $200 million, $19 million of which was purchased in the second quarter. The repurchases were made pursuant to a 5 million share repurchase authorization provided by the Company’s Board of Directors, leaving 2.9 million shares available under the authorization. |
Commenting on the Company’s results, Chairman and Chief Executive Officer, Joseph V. Taranto said, “The earnings power evident in recent quarters highlights the strength of Everest’s franchise. In an increasingly challenging marketplace, we have maintained our discipline and focus always keeping our eyes on the bottom line.”
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
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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 at www.everestre.com.
A conference call discussing the second quarter results will be held at 8:30 a.m. Eastern Time on July 24, 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 June, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
(Dollars in thousands, except per share amounts) | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||||||||||
amount | per diluted share | amount | per diluted share | amount | per diluted share | amount | per diluted share | ||||||||||||||||||||||
Net income | $ | 282,868 | $ | 4.45 | $ | 220,403 | $ | 3.38 | $ | 580,450 | $ | 9.05 | $ | 388,799 | $ | 5.96 | |||||||||||||
After-tax realized gains | 69,581 | 1.09 | 1,700 | 0.03 | 99,240 | 1.55 | 12,224 | 0.19 | |||||||||||||||||||||
After-tax operating income | $ | 213,287 | $ | 3.36 | $ | 218,703 | $ | 3.35 | $ | 481,210 | $ | 7.50 | $ | 376,575 | $ | 5.77 | |||||||||||||
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
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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.
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— Financial Details Follow —
EVEREST RE GROUP, LTD. | ||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
AND COMPREHENSIVE INCOME | ||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||
June 30, | June 30, | |||||||||||||
(Dollars in thousands, except per share amounts) | 2007 | 2006 | 2007 | 2006 | ||||||||||
(unaudited) | (unaudited) | |||||||||||||
REVENUES: | ||||||||||||||
Premiums earned | $ | 999,320 | $ | 893,332 | $ | 2,004,049 | $ | 1,915,122 | ||||||
Net investment income | 179,693 | 153,333 | 335,489 | 298,359 | ||||||||||
Net realized capital gains | 91,774 | 2,472 | 132,666 | 16,073 | ||||||||||
Net derivative income | 5,995 | 1,316 | 3,227 | 5,195 | ||||||||||
Other (expense) income | (8,044 | ) | 2,275 | (4,379 | ) | (4,332 | ) | |||||||
Total revenues | 1,268,738 | 1,052,728 | 2,471,052 | 2,230,417 | ||||||||||
CLAIMS AND EXPENSES: | ||||||||||||||
Incurred losses and loss adjustment expenses | 619,114 | 543,637 | 1,184,882 | 1,242,580 | ||||||||||
Commission, brokerage, taxes and fees | 234,423 | 206,403 | 460,078 | 443,905 | ||||||||||
Other underwriting expenses | 37,541 | 33,645 | 73,601 | 62,659 | ||||||||||
Interest expense on senior notes | 7,790 | 7,787 | 15,579 | 15,573 | ||||||||||
Interest expense on long term notes | 4,327 | - | 4,327 | - | ||||||||||
Interest expense on junior subordinated debt | 9,362 | 9,362 | 18,724 | 18,724 | ||||||||||
Amortization of bond issue costs | 2,687 | 234 | 2,922 | 469 | ||||||||||
Interest and fee expense on credit facilities | 77 | 98 | 154 | 195 | ||||||||||
Total claims and expenses | 915,321 | 801,166 | 1,760,267 | 1,784,105 | ||||||||||
INCOME BEFORE TAXES | 353,417 | 251,562 | 710,785 | 446,312 | ||||||||||
Income tax expense | 70,549 | 31,159 | 130,335 | 57,513 | ||||||||||
NET INCOME | $ | 282,868 | $ | 220,403 | $ | 580,450 | $ | 388,799 | ||||||
Other comprehensive loss, net of tax | (106,716 | ) | (105,324 | ) | (109,898 | ) | (158,617 | ) | ||||||
COMPREHENSIVE INCOME | $ | 176,152 | $ | 115,079 | $ | 470,552 | $ | 230,182 | ||||||
PER SHARE DATA: | ||||||||||||||
Average shares outstanding (000's) | 62,901 | 64,708 | 63,533 | 64,665 | ||||||||||
Net income per common share - basic | $ | 4.50 | $ | 3.41 | $ | 9.14 | $ | 6.01 | ||||||
Average diluted shares outstanding (000's) | 63,518 | 65,258 | 64,137 | 65,264 | ||||||||||
Net income per common share - diluted | $ | 4.45 | $ | 3.38 | $ | 9.05 | $ | 5.96 |
EVEREST RE GROUP, LTD. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
June 30, | December 31, | |||||||
(Dollars in thousands, except par value per share) | 2007 | 2006 | ||||||
(unaudited) | ||||||||
ASSETS: | ||||||||
Fixed maturities - available for sale, at market value | ||||||||
(amortized cost: 2007, $9,676,029; 2006, $10,210,165) | $ | 9,624,885 | $ | 10,319,850 | ||||
Equity securities - available for sale, at market value (cost: 2007, $16,393; 2006, $1,252,595) | 16,393 | 1,613,678 | ||||||
Equity securities, at fair value | 1,551,240 | - | ||||||
Short-term investments | 2,436,747 | 1,306,498 | ||||||
Other invested assets (cost: 2007, $587,990; 2006, $466,232) | 590,657 | 467,193 | ||||||
Cash | 187,790 | 249,868 | ||||||
Total investments and cash | 14,407,712 | 13,957,087 | ||||||
Accrued investment income | 146,150 | 141,951 | ||||||
Premiums receivable | 1,091,841 | 1,136,787 | ||||||
Reinsurance receivables | 724,219 | 772,813 | ||||||
Funds held by reinsureds | 287,735 | 284,809 | ||||||
Deferred acquisition costs | 368,420 | 388,117 | ||||||
Prepaid reinsurance premiums | 51,856 | 67,757 | ||||||
Deferred tax asset | 227,957 | 220,047 | ||||||
Federal income taxes recoverable | 15,998 | - | ||||||
Other assets | 162,565 | 138,202 | ||||||
TOTAL ASSETS | $ | 17,484,453 | $ | 17,107,570 | ||||
LIABILITIES: | ||||||||
Reserve for losses and loss adjustment expenses | $ | 8,743,833 | $ | 8,840,140 | ||||
Future policy benefit reserve | 93,537 | 100,962 | ||||||
Unearned premium reserve | 1,505,558 | 1,612,250 | ||||||
Funds held under reinsurance treaties | 73,695 | 70,982 | ||||||
Losses in the course of payment | 75,733 | 55,290 | ||||||
Commission reserves | 36,908 | 23,665 | ||||||
Other net payable to reinsurers | 30,618 | 47,483 | ||||||
Current federal income taxes payable | - | 43,002 | ||||||
8.75% Senior notes due 3/15/2010 | 199,621 | 199,560 | ||||||
5.4% Senior notes due 10/15/2014 | 249,670 | 249,652 | ||||||
6.6% Long term notes due 5/1/2067 | 399,637 | - | ||||||
Junior subordinated debt securities payable | 546,393 | 546,393 | ||||||
Accrued interest on debt and borrowings | 14,368 | 10,041 | ||||||
Other liabilities | 176,957 | 200,463 | ||||||
Total liabilities | 12,146,528 | 11,999,883 | ||||||
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; | ||||||||
(2007) 63.2 million and (2006) 65.0 million issued and outstanding | 653 | 650 | ||||||
Additional paid-in capital | 1,791,220 | 1,770,496 | ||||||
Accumulated other comprehensive income, net of deferred income taxes of | ||||||||
$30.4 million at 2007 and $175.0 million at 2006 | (12,170) | 348,543 | ||||||
Treasury shares, at cost; (2007) 2.1 million shares and (2006) 0.0 million shares | (200,080) | - | ||||||
Retained earnings | 3,758,302 | 2,987,998 | ||||||
Total shareholders' equity | 5,337,925 | 5,107,687 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 17,484,453 | $ | 17,107,570 |
EVEREST RE GROUP, LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(Dollars in thousands) | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||||||||
Net income | $ | 282,868 | $ | 220,403 | $ | 580,450 | $ | 388,799 | |||||||||||||||
Adjustments to reconcile net income to net cash provided by | |||||||||||||||||||||||
operating activities: | |||||||||||||||||||||||
Decrease in premiums receivable | 45,724 | 83,688 | 48,290 | 69,062 | |||||||||||||||||||
(Increase) decrease in funds held by reinsureds, net | (94 | ) | (4,325 | ) | 981 | (42,609 | ) | ||||||||||||||||
Decrease in reinsurance receivables | 67,870 | 55,661 | 54,498 | 103,201 | |||||||||||||||||||
Decrease (increase) in deferred tax asset | 7,337 | (292 | ) | 26,405 | (4,985 | ) | |||||||||||||||||
Decrease in reserve for losses and loss adjustment expenses | (33,499 | ) | (167,385 | ) | (134,010 | ) | (177,511 | ) | |||||||||||||||
Decrease in future policy benefit reserve | (4,065 | ) | (11,254 | ) | (7,425 | ) | (16,352 | ) | |||||||||||||||
Decrease in unearned premiums | (91,315 | ) | (22,797 | ) | (111,347 | ) | (24,381 | ) | |||||||||||||||
Change in other assets and liabilities, net | (88,979 | ) | (8,559 | ) | (74,989 | ) | 14,476 | ||||||||||||||||
Non-cash compensation expense | 4,437 | 3,007 | 9,287 | 6,350 | |||||||||||||||||||
Amortization of bond premium | (2,124 | ) | 5,911 | (826 | ) | 13,215 | |||||||||||||||||
Amortization of underwriting discount on senior notes | 41 | 37 | 80 | 73 | |||||||||||||||||||
Realized capital gains | (91,774 | ) | (2,472 | ) | (132,666 | ) | (16,073 | ) | |||||||||||||||
Net cash provided by operating activities | 96,427 | 151,623 | 258,728 | 313,265 | |||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||||
Proceeds from fixed maturities matured/called - available for sale | 305,278 | 192,648 | 617,195 | 359,089 | |||||||||||||||||||
Proceeds from fixed maturities sold - available for sale | 169,549 | 48,298 | 204,035 | 152,375 | |||||||||||||||||||
Proceeds from equity securities - available for sale | - | 92,573 | - | 120,222 | |||||||||||||||||||
Proceeds from equity securities - fair value | 1,027,955 | - | 1,318,561 | - | |||||||||||||||||||
Proceeds from other invested assets sold | 5,572 | 21,141 | 27,383 | 26,703 | |||||||||||||||||||
Cost of fixed maturities acquired - available for sale | (155,618 | ) | (79,224 | ) | (255,487 | ) | (842,907 | ) | |||||||||||||||
Cost of equity securities acquired - available for sale | - | (261,659 | ) | - | (377,770 | ) | |||||||||||||||||
Cost of equity securities acquired - fair value | (816,891 | ) | - | (1,138,408 | ) | - | |||||||||||||||||
Cost of other invested assets acquired | (78,004 | ) | (30,254 | ) | (119,765 | ) | (58,952 | ) | |||||||||||||||
Net (purchases) sales of short-term securities | (873,100 | ) | (108,943 | ) | (1,103,090 | ) | 353,864 | ||||||||||||||||
Net increase in unsettled securities transactions | (3,992 | ) | (24,378 | ) | (4,412 | ) | (1,200 | ) | |||||||||||||||
Net cash used in investing activities | (419,251 | ) | (149,798 | ) | (453,988 | ) | (268,576 | ) | |||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||||
Common shares issued during the period | 9,715 | 2,659 | 11,440 | 18,418 | |||||||||||||||||||
Purchase of treasury stock | (19,039 | ) | - | (200,080 | ) | - | |||||||||||||||||
Proceeds from issuance of long term notes | 399,637 | - | 399,637 | - | |||||||||||||||||||
Dividends paid to shareholders | (30,223 | ) | (7,792 | ) | (60,961 | ) | (15,579 | ) | |||||||||||||||
Net cash provided by (used in) financing activities | 360,090 | (5,133 | ) | 150,036 | 2,839 | ||||||||||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (9,685 | ) | 12,367 | (16,854 | ) | 20,620 | |||||||||||||||||
Net increase (decrease) in cash | 27,581 | 9,059 | (62,078 | ) | 68,148 | ||||||||||||||||||
Cash, beginning of period | 160,209 | 166,364 | 249,868 | 107,275 | |||||||||||||||||||
Cash, end of period | $ | 187,790 | $ | 175,423 | $ | 187,790 | $ | 175,423 | |||||||||||||||
SUPPLEMENTAL CASH FLOW INFORMATION | |||||||||||||||||||||||
Cash transactions: | |||||||||||||||||||||||
Income taxes paid (recovered) | $ | 135,022 | $ | 26,232 | $ | 160,306 | $ | (25,086 | ) | ||||||||||||||
Interest paid | $ | 16,189 | $ | 16,210 | $ | 34,378 | $ | 34,518 |