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 Third Quarter 2007 Earnings
HAMILTON, Bermuda – October 22, 2007 -- Everest Re Group, Ltd. (NYSE: RE) reported third quarter after-tax operating income1, which excludes realized capital gains and losses, of $232.5 million, slightly below the $240.2 million reported for the third quarter of last year. After-tax operating income per fully diluted share was $3.68 for both periods. Net income, including net realized capital gains and losses, was $246.6 million for the third quarter of 2007, up slightly from $245.7 million for the third quarter of 2006. Net income per diluted share grew by 4% to $3.90 in this year’s third quarter from $3.76 in the third quarter of 2006.
For the nine months ended September 30, 2007, after-tax operating income1 was $713.7 million compared to $616.8 million for the nine months ended September 30, 2006. On a per diluted share basis, net operating income was $11.19, an increase of 19% from $9.44 for the nine months ended September 30, 2006. Net income, including realized capital gains and losses was $827.0 million in the first nine months of 2007, or $12.96 per diluted share compared to $634.5 million or $9.71 per diluted share, for the first nine months of 2006, a per share increase of 33%.
Operating highlights for the third quarter of 2007 included the following:
| • | Gross written premiums were $1.07 billion, a 3% increase compared to $1.05 billion in the third quarter of 2006. Growth in the reinsurance segments, with gross written premiums up almost 6% quarter over quarter, more than offset the decline in the insurance segment. Year-to-date, gross written premiums of $3.03 billion, in the aggregate, are little changed from last year. |
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| • | Net investment income increased 17% to $172.8 million compared to $147.5 million in the third quarter of 2006. |
| • | Cash flow from operations was $356.0 million for the quarter compared to $180.9 million in 2006. These results include catastrophe loss payouts of $86.0 million and $202.2 million, respectively, and tax payments of $107.4 million and $37.7 million, respectively, for the three months ended September 30, 2007 and 2006. |
| • | The year-to-date annualized after-tax operating income return on average shareholders’ equity was 16.9% and the annualized net income return was 17.9%. |
| • | The GAAP combined ratio in the third quarter was 86.6% compared to 83.1% in the same period last year. Overall, the Company’s net loss development was $0.4 million, reflecting unfavorable development on asbestos reserves of $38.3 million offset by favorable development on non-asbestos reserves of $37.9 million in the quarter. In view of the asbestos claim notifications we have received and recorded over the past several quarters and industry-wide trends in reported losses, we will analyze the implications of these developments in assessing our potential asbestos exposures as part of our year end reserve review. |
| • | Catastrophe losses were $23.9 million (net of reinstatement premiums) for the quarter, adding 3 points to the combined ratio. The July storm and flooding in England, the earthquake in Peru, and Hurricane Dean, which impacted parts of the Caribbean and Mexico, accounted for the largest portion of these losses. |
| • | Shareholders’ equity grew from $5.1 billion to $5.6 billion in the first nine months of 2007, after share repurchases of $240 million and a doubling of the common dividend. Book value per share was $89.33 as of September 30, up 14% from $78.53 as of year end 2006. |
| • | Since year end 2006, the Company has repurchased 2.5 million of its common shares at an average price of $95.55. The total cost of the repurchased shares is $240 million, $40 million of which was purchased in the third quarter. The repurchases were made pursuant to a 5 million share repurchase authorization provided by the Company’s Board of Directors, leaving 2.5 million shares available under the authorization. |
Commenting on the Company’s results, Chairman and Chief Executive Officer, Joseph V. Taranto said, “We continue to pursue underwriting and investment discipline. And we remain focused on building shareholder value. This is exemplified by growth in book value per share of 14% in just the first nine months of the year driven by our strong earnings and focused capital management strategies.”
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
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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 October 23, 2007. The call will be available on the Internet through the Company’s web site or at www.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 at www.everestre.com in 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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1The 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) | 2007 |
| 2006 |
| 2007 |
| 2006 | ||||
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| Per Diluted |
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| Per Diluted |
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| Per Diluted |
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| Per Diluted |
| Amount | Share |
| Amount | Share |
| Amount | Share |
| Amount | Share |
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Net income | $ 246,587 | $ 3.90 |
| $ 245,678 | $ 3.76 |
| $ 827,037 | $ 12.96 |
| $ 634,477 | $ 9.71 |
After-tax realized gains | 14,072 | 0.22 |
| 5,493 | 0.08 |
| 113,312 | 1.77 |
| 17,717 | 0.27 |
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After-tax operating income | $ 232,515 | $ 3.68 |
| $ 240,185 | $ 3.68 |
| $ 713,725 | $ 11.19 |
| $ 616,760 | $ 9.44 |
Although realized 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
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or failure in its 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--
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EVEREST RE GROUP, LTD. |
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CONSOLIDATED STATEMENTS OF OPERATIONS |
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AND COMPREHENSIVE INCOME |
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| Three Months Ended |
| Nine Months Ended | ||||
| September 30, |
| September 30, | ||||
(Dollars in thousands, except per share amounts) | 2007 |
| 2006 |
| 2007 |
| 2006 |
| (unaudited) |
| (unaudited) | ||||
REVENUES: |
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Premiums earned | $ 997,055 |
| $ 958,343 |
| $ 3,001,104 |
| $ 2,873,465 |
Net investment income | 172,802 |
| 147,470 |
| 508,291 |
| 445,829 |
Net realized capital gains | 18,579 |
| 8,651 |
| 151,245 |
| 24,724 |
Net derivative (expense) income | (1,564) |
| (6,201) |
| 1,663 |
| (1,006) |
Other income | 15,138 |
| 5,626 |
| 10,759 |
| 1,294 |
Total revenues | 1,202,010 |
| 1,113,889 |
| 3,673,062 |
| 3,344,306 |
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CLAIMS AND EXPENSES: |
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Incurred losses and loss adjustment expenses | 583,240 |
| 546,670 |
| 1,768,122 |
| 1,789,250 |
Commission, brokerage, taxes and fees | 240,135 |
| 215,971 |
| 700,213 |
| 659,876 |
Other underwriting expenses | 40,316 |
| 34,118 |
| 113,917 |
| 96,777 |
Interest expense on senior notes | 7,791 |
| 7,788 |
| 23,370 |
| 23,361 |
Interest expense on long term notes | 6,601 |
| - |
| 10,928 |
| - |
Interest expense on junior subordinated debt | 9,362 |
| 9,362 |
| 28,086 |
| 28,086 |
Amortization of bond issue costs | 2,703 |
| 235 |
| 5,625 |
| 704 |
Interest and fee expense on credit facilities | 376 |
| 90 |
| 530 |
| 285 |
Total claims and expenses | 890,524 |
| 814,234 |
| 2,650,791 |
| 2,598,339 |
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INCOME BEFORE TAXES | 311,486 |
| 299,655 |
| 1,022,271 |
| 745,967 |
Income tax expense | 64,899 |
| 53,977 |
| 195,234 |
| 111,490 |
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NET INCOME | $ 246,587 |
| $ 245,678 |
| $ 827,037 |
| $ 634,477 |
Other comprehensive income (loss), net of tax | 90,660 |
| 204,250 |
| (19,238) |
| 45,633 |
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COMPREHENSIVE INCOME | $ 337,247 |
| $ 449,928 |
| $ 807,799 |
| $ 680,110 |
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PER SHARE DATA: |
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Average shares outstanding (000's) | 62,751 |
| 64,733 |
| 63,269 |
| 64,688 |
Net income per common share - basic | $ 3.93 |
| $ 3.80 |
| $ 13.07 |
| $ 9.81 |
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Average diluted shares outstanding (000's) | 63,268 |
| 65,375 |
| 63,798 |
| 65,325 |
Net income per common share - diluted | $ 3.90 |
| $ 3.76 |
| $ 12.96 |
| $ 9.71 |
EVEREST RE GROUP, LTD. |
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CONSOLIDATED BALANCE SHEETS |
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| September 30, |
| December 31, |
(Dollars in thousands, except par value per share) | 2007 |
| 2006 |
| (unaudited) |
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ASSETS: |
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Fixed maturities - available for sale, at market value |
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(amortized cost: 2007, $9,740,585; 2006, $10,210,165) | $ 9,788,628 |
| $ 10,319,850 |
Equity securities - available for sale, at market value (cost: 2007, $28,961; 2006, $1,252,595) | 29,118 |
| 1,613,678 |
Equity securities - available for sale, at fair value | 1,590,446 |
| - |
Short-term investments | 2,666,351 |
| 1,306,498 |
Other invested assets (cost: 2007, $606,467; 2006, $466,232) | 608,193 |
| 467,193 |
Cash | 206,062 |
| 249,868 |
Total investments and cash | 14,888,798 |
| 13,957,087 |
Accrued investment income | 134,692 |
| 141,951 |
Premiums receivable | 994,309 |
| 1,136,787 |
Reinsurance receivables | 699,107 |
| 772,813 |
Funds held by reinsureds | 302,051 |
| 284,809 |
Deferred acquisition costs | 388,422 |
| 388,117 |
Prepaid reinsurance premiums | 42,331 |
| 67,757 |
Deferred tax asset | 144,524 |
| 220,047 |
Federal income taxes recoverable | 125,435 |
| - |
Other assets | 141,259 |
| 138,202 |
TOTAL ASSETS | $ 17,860,928 |
| $ 17,107,570 |
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LIABILITIES: |
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Reserve for losses and loss adjustment expenses | $ 8,811,411 |
| $ 8,840,140 |
Future policy benefit reserve | 88,906 |
| 100,962 |
Unearned premium reserve | 1,558,278 |
| 1,612,250 |
Funds held under reinsurance treaties | 73,213 |
| 70,982 |
Losses in the course of payment | 52,473 |
| 55,290 |
Commission reserves | 35,214 |
| 23,665 |
Other net payable to reinsurers | 29,651 |
| 47,483 |
Current federal income taxes payable | - |
| 43,002 |
8.75% Senior notes due 3/15/2010 | 199,653 |
| 199,560 |
5.4% Senior notes due 10/15/2014 | 249,680 |
| 249,652 |
6.6% Long term notes due 5/1/2067 | 399,638 |
| - |
Junior subordinated debt securities payable | 546,393 |
| 546,393 |
Accrued interest on debt and borrowings | 19,968 |
| 10,041 |
Other liabilities | 184,106 |
| 200,463 |
Total liabilities | 12,248,584 |
| 11,999,883 |
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SHAREHOLDERS' EQUITY: |
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Preferred shares, par value: $0.01; 50 million shares authorized; |
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no shares issued and outstanding | - |
| - |
Common shares, par value: $0.01; 200 million shares authorized; |
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(2007) 62.8 million and (2006) 65.0 million issued and outstanding | 653 |
| 650 |
Additional paid-in capital | 1,798,770 |
| 1,770,496 |
Accumulated other comprehensive income, net of deferred income taxes of |
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$56.3 million at 2007 and $175.0 million at 2006 | 78,490 |
| 348,543 |
Treasury shares, at cost; (2007) 2.5 million shares and (2006) 0.0 million shares | (240,420) |
| - |
Retained earnings | 3,974,851 |
| 2,987,998 |
Total shareholders' equity | 5,612,344 |
| 5,107,687 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 17,860,928 |
| $ 17,107,570 |
EVEREST RE GROUP, LTD. |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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| Three Months Ended |
| Nine Months Ended | ||||
| September 30, |
| September 30, | ||||
(Dollars in thousands) | 2007 |
| 2006 |
| 2007 |
| 2006 |
| (unaudited) |
| (unaudited) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income | $ 246,587 |
| $ 245,678 |
| $ 827,037 |
| $ 634,477 |
Adjustments to reconcile net income to net cash provided by |
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operating activities: |
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Decrease in premiums receivable | 100,732 |
| 6,005 |
| 149,022 |
| 75,067 |
Increase in funds held by reinsureds, net | (12,225) |
| (37,722) |
| (11,244) |
| (80,331) |
Decrease in reinsurance receivables | 33,163 |
| 113,109 |
| 87,661 |
| 216,310 |
Decrease (increase) in deferred tax asset | 57,588 |
| (851) |
| 83,993 |
| (5,836) |
Increase (decrease) in reserve for losses and loss adjustment expenses | 28,469 |
| (195,795) |
| (105,541) |
| (373,306) |
Decrease in future policy benefit reserve | (4,631) |
| (5,507) |
| (12,056) |
| (21,859) |
Increase (decrease) in unearned premiums | 48,788 |
| 53,403 |
| (62,559) |
| 29,022 |
Change in other assets and liabilities, net | (122,302) |
| 2,017 |
| (193,291) |
| 16,493 |
Non-cash compensation expense | 4,218 |
| 3,205 |
| 13,505 |
| 9,555 |
Amortization of bond premium | (5,887) |
| 6,015 |
| (6,713) |
| 19,230 |
Amortization of underwriting discount on senior notes | 42 |
| 38 |
| 122 |
| 111 |
Realized capital gains | (18,579) |
| (8,651) |
| (151,245) |
| (24,724) |
Net cash provided by operating activities | 355,963 |
| 180,944 |
| 618,691 |
| 494,209 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from fixed maturities matured/called - available for sale, at market value | 384,354 |
| 258,708 |
| 1,001,549 |
| 617,797 |
Proceeds from fixed maturities sold - available for sale, at market value | 52,087 |
| 2,215 |
| 256,122 |
| 154,590 |
Proceeds from equity securities - available for sale, at market value | - |
| 66,273 |
| - |
| 186,495 |
Proceeds from equity securities - available for sale, at fair value | 143,606 |
| - |
| 1,462,167 |
| - |
Proceeds from other invested assets sold | 25,080 |
| 15,618 |
| 52,463 |
| 42,321 |
Cost of fixed maturities acquired - available for sale, at market value | (472,811) |
| (107,552) |
| (728,298) |
| (950,459) |
Cost of equity securities acquired - available for sale, at market value | - |
| (62,580) |
| - |
| (440,350) |
Cost of equity securities acquired - available for sale, at fair value | (169,080) |
| - |
| (1,307,488) |
| - |
Cost of other invested assets acquired | (29,307) |
| (74,076) |
| (149,072) |
| (133,028) |
Net (purchases) sales of short-term securities | (209,356) |
| (237,254) |
| (1,312,446) |
| 116,610 |
Net decrease (increase) in unsettled securities transactions | 7,493 |
| (8,726) |
| 3,081 |
| (9,926) |
Net cash used in investing activities | (267,934) |
| (147,374) |
| (721,922) |
| (415,950) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Common shares issued during the period | 3,332 |
| (545) |
| 14,772 |
| 17,873 |
Purchase of treasury stock | (40,340) |
| - |
| (240,420) |
| - |
Net proceeds from issuance of long term notes | - |
| - |
| 395,637 |
| - |
Dividends paid to shareholders | (30,038) |
| (7,799) |
| (90,999) |
| (23,378) |
Net cash (used in) provided by financing activities | (67,046) |
| (8,344) |
| 78,990 |
| (5,505) |
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EFFECT OF EXCHANGE RATE CHANGES ON CASH | (2,711) |
| 9,113 |
| (19,565) |
| 29,733 |
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Net increase (decrease) in cash | 18,272 |
| 34,339 |
| (43,806) |
| 102,487 |
Cash, beginning of period | 187,790 |
| 175,423 |
| 249,868 |
| 107,275 |
Cash, end of period | $ 206,062 |
| $ 209,762 |
| $ 206,062 |
| $ 209,762 |
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SUPPLEMENTAL CASH FLOW INFORMATION |
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Cash transactions: |
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Income taxes paid | $ 107,438 |
| $ 37,718 |
| $ 267,744 |
| $ 12,632 |
Interest paid | $ 18,489 |
| $ 18,103 |
| $ 52,867 |
| $ 52,621 |