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 Fourth Quarter and Full Year 2007 Earnings
HAMILTON, Bermuda – January 30, 2008 -- Everest Re Group, Ltd. (NYSE: RE) reported fourth quarter 2007 after-tax operating income1, which excludes realized capital gains and losses, of $63.2 million, or $1.00 per diluted share, compared to after-tax operating income1 of $201.2 million, or $3.07 per diluted share, in the fourth quarter of 2006. Net income, including net realized capital gains and losses, was $12.2 million, or $.19 per diluted share, for the fourth quarter of 2007 compared to $206.4 million or $3.15 per diluted share for the same period last year.
For the year ended December 31, 2007, after-tax operating income1 was $776.9 million, or $12.21 per diluted share, compared to $817.9 million, or $12.52 per diluted share for 2006. Net income, including net realized capital gains and losses, was $839.3 million for the full year 2007, just below the $840.8 million reported for 2006. On a per diluted share basis, net income was $13.19, an increase of 2.5% from $12.87 per diluted share reported for 2006.
Operating highlights for the fourth quarter and full year 2007 included the following:
| • | Gross written premiums were $1.1 billion, a 6.4% increase compared to $987.3 million in the fourth quarter of 2006. The Company assumed, effective December 31, 2007, the unearned premium on a newly incepted program which resulted in a 37% increase in the U.S. Insurance segment’s gross written premiums and drove the overall increase in writings for the quarter. Otherwise, the quarter’s gross written premiums were approximately equal to last year’s fourth quarter. |
| • | Net investment income was down 5% to $174.1 million compared to $183.5 million for the fourth quarter of 2006. The reduction was largely driven by lower income from limited partnership investments. |
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| • | Cash flow from operations was $235.7 million for the period compared to $142.1 million for the fourth quarter of 2006. Lower catastrophe loss payouts in the current quarter of $87.9 million compared to $188.4 million in the fourth quarter of 2006 contributed to this positive swing. |
| • | The GAAP combined ratio in the fourth quarter was 108.4% compared to 92.9% in the same period last year. The Company experienced net adverse development on its prior accident year loss reserves of $211.6 million in the quarter, which increased the combined ratio by 21 points and included the previously announced net asbestos reserve strengthening of $311.2 million, following the completion of its study. In addition, the Company experienced $99.6 million of favorable development on its core reserves, excluding mass action. |
| • | For the year, the after-tax operating income1 return on average adjusted shareholders’ equity2 was 14.6% compared to 18.7% in 2006. |
| • | Shareholders’ equity grew from $5.1 billion to $5.7 billion during 2007, after share repurchases of $241.6 million and dividend payouts of $121.4 million. Book value per share grew 15.2% from $78.53 at year end 2006 to $90.43 at December 31, 2007. |
| • | Since year end 2006, the Company has repurchased 2.5 million of its common shares at an average price of $95.57. The total cost of the repurchased shares is $241.6 million. 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, “It was yet another exceptional year for Everest with net income in excess of $800 million, which provided a return on shareholders’ equity of 16% and book value growth per share of 15%. This was accomplished while strengthening our balance sheet and returning capital to shareholders. As we look at 2008, we feel extremely well positioned to deal with any challenges that the market may bring.”
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.,
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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 31, 2008. 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 net realized capital gains (losses) as the following reconciliation displays:
| Three Months Ended |
| Twelve Months Ended | ||||||||
| December 31, |
| December 31, | ||||||||
(Dollars in thousands, except per share amounts) | 2007 |
| 2006 |
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| 2006 | ||||
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| Per Diluted |
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| Amount | Share |
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| Amount | Share |
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Net income | $ 12,238 | $ 0.19 |
| $ 206,351 | $ 3.15 |
| $ 839,275 | $ 13.19 |
| $ 840,828 | $ 12.87 |
After-tax net realized |
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capital (losses) gains | (50,981) | (0.81) |
| 5,195 | 0.08 |
| 62,330 | 0.98 |
| 22,912 | 0.35 |
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After-tax operating income | $ 63,219 | $ 1.00 |
| $ 201,156 | $ 3.07 |
| $ 776,945 | $ 12.21 |
| $ 817,916 | $ 12.52 |
Although net realized capital gains (losses) are an integral part of the Company’s insurance operations, the determination of net realized capital gains (losses) is independent of the insurance underwriting process. The Company believes that the level of net 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.
2Adjusted shareholders’ equity excludes net after-tax unrealized (appreciation) depreciation of investments.
--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 |
| Twelve Months Ended | ||||
| December 31, |
| December 31, | ||||
(Dollars in thousands, except per share amounts) | 2007 |
| 2006 |
| 2007 |
| 2006 |
| (unaudited) |
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REVENUES: |
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Premiums earned | $ 996,394 |
| $ 979,688 |
| $ 3,997,498 |
| $ 3,853,153 |
Net investment income | 174,101 |
| 183,549 |
| 682,392 |
| 629,378 |
Net realized capital (losses) gains | (64,962) |
| 10,343 |
| 86,283 |
| 35,067 |
Net derivative (expense) income | (3,787) |
| 596 |
| (2,124) |
| (410) |
Other income (expense) | 7,239 |
| (1,182) |
| 17,998 |
| 112 |
Total revenues | 1,108,985 |
| 1,172,994 |
| 4,782,047 |
| 4,517,300 |
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CLAIMS AND EXPENSES: |
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Incurred losses and loss adjustment expenses | 780,016 |
| 645,170 |
| 2,548,138 |
| 2,434,420 |
Commission, brokerage, taxes and fees | 261,575 |
| 223,378 |
| 961,788 |
| 883,254 |
Other underwriting expenses | 38,687 |
| 41,200 |
| 152,604 |
| 137,977 |
Interest expense on senior notes | 7,792 |
| 7,788 |
| 31,162 |
| 31,149 |
Interest expense on long term notes | 6,455 |
| - |
| 17,383 |
| - |
Interest expense on junior subordinated debt | 7,238 |
| 9,363 |
| 35,324 |
| 37,449 |
Amortization of bond issue costs | 1,458 |
| 234 |
| 7,083 |
| 938 |
Interest and fee expense on credit facilities | 79 |
| 78 |
| 609 |
| 363 |
Total claims and expenses | 1,103,300 |
| 927,211 |
| 3,754,091 |
| 3,525,550 |
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INCOME BEFORE TAXES | 5,685 |
| 245,783 |
| 1,027,956 |
| 991,750 |
Income tax (benefit) expense | (6,553) |
| 39,432 |
| 188,681 |
| 150,922 |
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NET INCOME | $ 12,238 |
| $ 206,351 |
| $ 839,275 |
| $ 840,828 |
Other comprehensive income, net of tax | 84,665 |
| 96,784 |
| 65,427 |
| 142,417 |
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COMPREHENSIVE INCOME | $ 96,903 |
| $ 303,135 |
| $ 904,702 |
| $ 983,245 |
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PER SHARE DATA: |
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Average shares outstanding (000's) | 62,670 |
| 64,831 |
| 63,118 |
| 64,724 |
Net income per common share - basic | $ 0.20 |
| $ 3.18 |
| $ 13.30 |
| $ 12.99 |
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Average diluted shares outstanding (000's) | 63,143 |
| 65,457 |
| 63,629 |
| 65,324 |
Net income per common share - diluted | $ 0.19 |
| $ 3.15 |
| $ 13.19 |
| $ 12.87 |
EVEREST RE GROUP, LTD. |
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CONSOLIDATED BALANCE SHEETS |
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| December 31, | ||
(Dollars in thousands, except par value per share) | 2007 |
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ASSETS: |
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Fixed maturities - available for sale, at market value |
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(amortized cost: 2007, $10,116,353; 2006, $10,210,165) | $ 10,245,585 |
| $ 10,319,850 |
Equity securities - available for sale, at market value |
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(cost: 2007, $24,378; 2006, $1,252,595) | 24,694 |
| 1,613,678 |
Equity securities - available for sale, at fair value | 1,535,263 |
| - |
Short-term investments | 2,225,708 |
| 1,306,498 |
Other invested assets (cost: 2007, $651,898; 2006, $466,232) | 654,355 |
| 467,193 |
Cash | 250,567 |
| 249,868 |
Total investments and cash | 14,936,172 |
| 13,957,087 |
Accrued investment income | 145,056 |
| 141,951 |
Premiums receivable | 989,921 |
| 1,136,787 |
Reinsurance receivables | 666,164 |
| 772,813 |
Funds held by reinsureds | 342,615 |
| 284,809 |
Deferred acquisition costs | 399,563 |
| 388,117 |
Prepaid reinsurance premiums | 88,239 |
| 67,757 |
Deferred tax asset | 264,423 |
| 220,047 |
Federal income taxes recoverable | 10,770 |
| - |
Other assets | 156,559 |
| 138,202 |
TOTAL ASSETS | $ 17,999,482 |
| $ 17,107,570 |
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LIABILITIES: |
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Reserve for losses and loss adjustment expenses | $ 9,040,606 |
| $ 8,840,140 |
Future policy benefit reserve | 78,417 |
| 100,962 |
Unearned premium reserve | 1,567,098 |
| 1,612,250 |
Funds held under reinsurance treaties | 75,601 |
| 70,982 |
Losses in the course of payment | 63,366 |
| 55,290 |
Commission reserves | 48,753 |
| 23,665 |
Other net payable to reinsurers | 68,494 |
| 47,483 |
Current federal income taxes payable | - |
| 43,002 |
8.75% Senior notes due 3/15/2010 | 199,685 |
| 199,560 |
5.4% Senior notes due 10/15/2014 | 249,689 |
| 249,652 |
6.6% Long term notes due 5/1/2067 | 399,639 |
| - |
Junior subordinated debt securities payable | 329,897 |
| 546,393 |
Accrued interest on debt and borrowings | 11,217 |
| 10,041 |
Other liabilities | 182,250 |
| 200,463 |
Total liabilities | 12,314,712 |
| 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 | - |
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Common shares, par value: $0.01; 200 million shares authorized; |
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(2007) 62.9 million and (2006) 65.0 million issued and outstanding | 654 |
| 650 |
Additional paid-in capital | 1,805,844 |
| 1,770,496 |
Accumulated other comprehensive income, net of deferred income taxes of |
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$87.2 million at 2007 and $175.0 million at 2006 | 163,155 |
| 348,543 |
Treasury shares, at cost; (2007) 2.5 million shares and (2006) 0.0 million shares | (241,584) |
| - |
Retained earnings | 3,956,701 |
| 2,987,998 |
Total shareholders' equity | 5,684,770 |
| 5,107,687 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 17,999,482 |
| $ 17,107,570 |
EVEREST RE GROUP, LTD. | |||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
Three Months Ended | Twelve Months Ended | ||||||
December 31, | December 31, | ||||||
(Dollars in thousands) | 2007 |
| 2006 | 2007 |
| 2006 | |
(unaudited) | (unaudited) |
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CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ 12,238 | $ 206,351 | $ 839,275 | $ 840,828 | |||
Adjustments to reconcile net income to net cash provided by |
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operating activities: |
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Decrease (increase) in premiums receivable | 6,530 | (4,471) | 155,552 | 70,596 | |||
Increase in funds held by reinsureds, net | (37,700) | (16,446) | (48,944) | (96,777) | |||
Decrease in reinsurance receivables | 38,667 | 88,459 | 126,328 | 304,769 | |||
Increase in deferred tax asset | (150,870) | (19,688) | (66,877) | (25,524) | |||
Increase (decrease) in reserve for losses and loss adjustment expenses | 202,168 | (59,188) | 96,627 | (432,494) | |||
Decrease in future policy benefit reserve | (10,489) | (10,334) | (22,545) | (32,193) | |||
Increase (decrease) in unearned premiums | 4,942 | (27,395) | (57,617) | 1,627 | |||
Change in other assets and liabilities, net | 103,517 | (13,016) | (89,774) | 3,477 | |||
Non-cash compensation expense | 3,614 | 5,572 | 17,119 | 15,127 | |||
Amortization of bond premium | (1,881) | 2,567 | (8,594) | 21,797 | |||
Amortization of underwriting discount on senior notes | 42 | 38 | 164 | 149 | |||
Net realized capital losses (gains) | 64,962 | (10,343) | (86,283) | (35,067) | |||
Net cash provided by operating activities | 235,740 | 142,106 | 854,431 | 636,315 | |||
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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 | 247,262 | 254,631 | 1,248,811 | 872,428 | |||
Proceeds from fixed maturities sold - available for sale, at market value | 19,435 | 28,279 | 275,557 | 182,869 | |||
Proceeds from equity securities - available for sale, at market value | - | 94,598 | - | 281,093 | |||
Proceeds from equity securities - available for sale, at fair value | 84,968 | - | 1,547,135 | - | |||
Proceeds from other invested assets sold | 6,219 | 33,986 | 58,682 | 76,307 | |||
Cost of fixed maturities acquired - available for sale, at market value | (610,567) | (341,412) | (1,338,865) | (1,291,871) | |||
Cost of equity securities acquired - available for sale, at market value | - | (128,616) | - | (568,966) | |||
Cost of equity securities acquired - available for sale, at fair value | (83,962) | - | (1,391,450) | - | |||
Cost of other invested assets acquired | (46,376) | (86,039) | (195,448) | (219,067) | |||
Net sales (purchases) of short-term securities | 459,787 | 33,769 | (852,659) | 150,379 | |||
Net increase in unsettled securities transactions | (7,860) | (1,396) | (4,779) | (11,322) | |||
Net cash provided by (used in) investing activities | 68,906 | (112,200) | (653,016) | (528,150) | |||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Common shares issued during the period | 3,461 | 5,753 | 18,233 | 23,627 | |||
Purchase of treasury stock | (1,164) | - | (241,584) | - | |||
Net proceeds from redemption of junior subordinated debt securities | (216,496) | - | (216,496) | - | |||
Net proceeds from issuance of long term notes | - | - | 395,637 | - | |||
Dividends paid to shareholders | (30,388) | (15,609) | (121,387) | (38,986) | |||
Net cash used in financing activities | (244,587) | (9,856) | (165,597) | (15,359) | |||
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EFFECT OF EXCHANGE RATE CHANGES ON CASH | (15,554) | 20,056 | (35,119) | 49,787 | |||
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Net increase in cash | 44,505 | 40,106 | 699 | 142,593 | |||
Cash, beginning of period | 206,062 | 209,762 | 249,868 | 107,275 | |||
Cash, end of period | $ 250,567 | $ 249,868 | $ 250,567 | $ 249,868 | |||
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SUPPLEMENTAL CASH FLOW INFORMATION | |||||||
Cash transactions: |
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Income taxes paid | $ 14,824 | $ 33,984 | $ 282,568 | $ 46,616 | |||
Interest paid | $ 30,271 | $ 16,289 | $ 83,138 | $ 68,910 |