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 2008 Earnings and
Announces Increased Share Repurchase Authorization
HAMILTON, Bermuda – July 21, 2008 -- Everest Re Group, Ltd. (NYSE: RE) reported second quarter 2008 after-tax operating income1, which excludes realized capital gains and losses, of $180.0 million, or $2.90 per diluted share, compared to after-tax operating income1 of $213.3 million, or $3.36 per diluted share, in the second quarter of 2007. Net income, including net realized capital gains and losses, was $153.0 million, or $2.47 per diluted share, for the second quarter of 2008 compared to $282.9 million, or $4.45 per diluted share, for the same period last year.
For the six months ended June 30, 2008, after-tax operating income was $370.6 million, or $5.94 per diluted share, compared to $481.2 million, or $7.50 per diluted share, for the six months ended June 30, 2007. Net income, including realized capital gains and losses was $231.0 million in the first six months of 2008, or $3.70 per diluted share, compared to $580.5 million or $9.05 per diluted share, for the first six months of 2007.
Operating highlights for the second quarter of 2008 included the following:
| • | Gross written premiums of $905.3 million decreased 3% from the same period in 2007. Reinsurance premiums, across all segments, were down 8% while the Insurance segment’s premiums increased 18%. The ramp up of several new specialty programs has provided the strong growth in insurance, partially offsetting the impact of lower writings due to softening reinsurance markets, particularly in the U.S. |
1
| • | Net investment income was down 2% to $175.9 million compared to $179.7 million for the second quarter of 2007. The reduction primarily resulted from a slight reduction in the average yield on the fixed income portfolio. |
| • | Cash flow from operations was negative $18.4 million for the period compared to positive $100.4 million for the second quarter of 2007. Lower premium collections and several large claim settlements contributed to this negative swing. On a year-to-date basis, cash flow from operations was $232.3 million as compared to $262.7 million in the prior year. |
| • | The GAAP combined ratio in the second quarter was 94.4% compared to 89.2% in the same period last year. |
| • | Net adverse reserve development was $54.2 million pre-tax for the quarter compared to unfavorable development of $2.4 million in the second quarter of 2007. The Company increased its reserves for the runoff of its subprime auto loan credit insurance program, resulting in an after-tax charge of $45.5 million in the quarter. |
| • | For the quarter, the annualized after-tax operating income1 return on average adjusted shareholders’ equity2 was 12.8% compared to 16.2% in 2007. |
| • | Shareholders’ equity ended the quarter at $5.6 billion down from $5.7 billion at year-end, after year-to-date share repurchases of $125.7 million and dividend payouts of $59.7 million. Book value per share moved down from $90.43 to $90.32 over this same period. |
| • | Since year end 2007, the Company has repurchased 1.3 million of its common shares at an average price of $94.52. Since January 2007, the Company has repurchased 3.9 million of its common shares at an average price of $95.21. The total cost to date of the repurchased shares under this program is $367.3 million. The repurchases were made pursuant to a 5 million share repurchase authorization provided by the Company’s Board of Directors, leaving 1.1 million shares available under the authorization. Moreover, the Company's share repurchase authorization has been increased by an additional 5 million shares allowing for the repurchase of up to 6.1 million shares. |
During the quarter, the Company recorded an after-tax charge of $45.5 million ($0.73 per diluted share) due to deterioration in the runoff experience on the Centrix subprime auto loan credit insurance program. Weakening U.S. economic fundamentals are the primary driver behind this action as higher than expected default rates and higher than expected average claim amounts, due to declining used car values, have negatively impacted the loss trends on the runoff of this program.
This program has been in runoff since December 31, 2005, and the Company has not written any other similar business. Subsequent to June 30, 2008, the Company settled its potential claim liability with the largest policyholder under this program. As of June 30, 2008, after giving effect to this settlement, only 9% of the originally insured portfolio remains. The related reserve for future losses is $51 million, which provides for a default rate of 30% on the remaining active loans. The remaining active insured loans have persisted for 47 months, on average, and 93% were either current or less than 60 days past due at June 30. Management believes this action recognizes the ultimate runoff liability in light of current conditions. Moreover, future loss development, if any, on this program will
2
not be material given the magnitude of the reserve for future losses, the maturity of the loan portfolio and the reduced principal exposure.
Commenting on the Company’s results, Chairman and Chief Executive Officer, Joseph V. Taranto said, “Our core business continues to perform very well as we maintain disciplined underwriting in an increasingly competitive marketplace.”
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 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 first quarter results will be held at 8:30 a.m. Eastern Time on July 22, 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.
___________________________
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:
3
| Three Months Ended |
| Six Months Ended | ||||||||
| June 30, |
| June 30, | ||||||||
(Dollars in thousands, except per share amounts) | 2008 |
| 2007 |
| 2008 |
| 2007 | ||||
|
| (unaudited) |
|
|
| (unaudited) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Per Diluted |
|
| Per Diluted |
|
| Per Diluted |
|
| Per Diluted |
| Amount | Share |
| Amount | Share |
| Amount | Share |
| Amount | Share |
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ 153,027 | $ 2.47 |
| $ 282,868 | $ 4.45 |
| $ 230,960 | $ 3.70 |
| $ 580,450 | $ 9.05 |
After-tax net realized |
|
|
|
|
|
|
|
|
|
|
|
capital (losses) gains | (27,020) | (0.43) |
| 69,581 | 1.09 |
| (139,672) | (2.24) |
| 99,240 | 1.55 |
|
|
|
|
|
|
|
|
|
|
|
|
After-tax operating income | $ 180,047 | $ 2.90 |
| $ 213,287 | $ 3.36 |
| $ 370,632 | $ 5.94 |
| $ 481,210 | $ 7.50 |
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--
4
EVEREST RE GROUP, LTD. |
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
|
|
|
|
|
|
|
AND COMPREHENSIVE (LOSS) INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||
| June 30, |
| June 30, | ||||
(Dollars in thousands, except per share amounts) | 2008 |
| 2007 |
| 2008 |
| 2007 |
| (unaudited) |
| (unaudited) | ||||
REVENUES: |
|
|
|
|
|
|
|
Premiums earned | $ 942,095 |
| $ 999,320 |
| $ 1,854,068 |
| $ 2,004,049 |
Net investment income | 175,917 |
| 179,693 |
| 326,049 |
| 335,489 |
Net realized capital (losses) gains | (31,566) |
| 91,774 |
| (167,949) |
| 132,666 |
Net derivative income (expense) | 2,080 |
| 5,995 |
| (1,715) |
| 3,227 |
Other expense | (10,166) |
| (8,044) |
| (15,327) |
| (4,379) |
Total revenues | 1,078,360 |
| 1,268,738 |
| 1,995,126 |
| 2,471,052 |
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES: |
|
|
|
|
|
|
|
Incurred losses and loss adjustment expenses | 604,742 |
| 619,114 |
| 1,150,092 |
| 1,184,882 |
Commission, brokerage, taxes and fees | 244,713 |
| 234,423 |
| 471,860 |
| 460,078 |
Other underwriting expenses | 39,728 |
| 37,541 |
| 79,972 |
| 73,601 |
Interest, fees and bond issue cost amortization expense | 19,794 |
| 24,243 |
| 39,581 |
| 41,706 |
Total claims and expenses | 908,977 |
| 915,321 |
| 1,741,505 |
| 1,760,267 |
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES | 169,383 |
| 353,417 |
| 253,621 |
| 710,785 |
Income tax expense | 16,356 |
| 70,549 |
| 22,661 |
| 130,335 |
|
|
|
|
|
|
|
|
NET INCOME | $ 153,027 |
| $ 282,868 |
| $ 230,960 |
| $ 580,450 |
Other comprehensive loss, net of tax | (169,059) |
| (106,716) |
| (173,050) |
| (109,898) |
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME | $ (16,032) |
| $ 176,152 |
| $ 57,910 |
| $ 470,552 |
|
|
|
|
|
|
|
|
PER SHARE DATA: |
|
|
|
|
|
|
|
Average shares outstanding (000's) | 61,658 |
| 62,901 |
| 62,018 |
| 63,533 |
Net income per common share - basic | $ 2.48 |
| $ 4.50 |
| $ 3.72 |
| $ 9.14 |
|
|
|
|
|
|
|
|
Average diluted shares outstanding (000's) | 62,002 |
| 63,518 |
| 62,431 |
| 64,137 |
Net income per common share - diluted | $ 2.47 |
| $ 4.45 |
| $ 3.70 |
| $ 9.05 |
EVEREST RE GROUP, LTD. |
|
|
|
CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| December 31, |
(Dollars in thousands, except par value per share) | 2008 |
| 2007 |
| (unaudited) |
|
|
ASSETS: |
|
|
|
Fixed maturities - available for sale, at market value | $ 11,168,508 |
| $ 10,245,585 |
(amortized cost: 2008, $11,253,928; 2007, $10,116,353) |
|
|
|
Equity securities - available for sale, at market value (cost: 2008, $25,482; 2007, $24,378) | 25,678 |
| 24,694 |
Equity securities - available for sale, at fair value | 1,194,459 |
| 1,535,263 |
Short-term investments | 1,260,980 |
| 2,225,708 |
Other invested assets (cost: 2008, $703,865; 2007, $651,898) | 705,432 |
| 654,355 |
Cash | 225,878 |
| 250,567 |
Total investments and cash | 14,580,935 |
| 14,936,172 |
Accrued investment income | 154,158 |
| 145,056 |
Premiums receivable | 972,874 |
| 989,921 |
Reinsurance receivables | 649,789 |
| 666,164 |
Funds held by reinsureds | 370,125 |
| 342,615 |
Deferred acquisition costs | 365,779 |
| 399,563 |
Prepaid reinsurance premiums | 84,253 |
| 88,239 |
Deferred tax asset | 369,222 |
| 227,825 |
Federal income taxes recoverable | 25,769 |
| 47,368 |
Other assets | 220,024 |
| 156,559 |
TOTAL ASSETS | $ 17,792,928 |
| $ 17,999,482 |
|
|
|
|
LIABILITIES: |
|
|
|
Reserve for losses and loss adjustment expenses | $ 9,078,381 |
| $ 9,040,606 |
Future policy benefit reserve | 70,865 | 78,417 | |
Unearned premium reserve | 1,409,803 |
| 1,567,098 |
Funds held under reinsurance treaties | 78,945 |
| 75,601 |
Losses in the course of payment | 79,724 |
| 63,366 |
Commission reserves | 45,551 |
| 48,753 |
Other net payable to reinsurers | 48,617 |
| 68,494 |
8.75% Senior notes due 3/15/2010 | 199,751 |
| 199,685 |
5.4% Senior notes due 10/15/2014 | 249,708 |
| 249,689 |
6.6% Long term notes due 5/1/2067 | 399,641 |
| 399,639 |
Junior subordinated debt securities payable | 329,897 |
| 329,897 |
Accrued interest on debt and borrowings | 11,217 |
| 11,217 |
Other liabilities | 223,225 |
| 182,250 |
Total liabilities | 12,225,325 |
| 12,314,712 |
|
|
|
|
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; (2008) 65.5 million and |
|
|
|
(2007) 65.4 million issued and outstanding | 655 |
| 654 |
Additional paid-in capital | 1,816,174 |
| 1,805,844 |
Accumulated other comprehensive income, net of deferred income taxes of |
|
|
|
$36.6 million at 2008 and $87.2 million at 2007 | (9,895) |
| 163,155 |
Treasury shares, at cost; (2008) 3.9 million shares and (2007) 2.5 million shares | (367,322) |
| (241,584) |
Retained earnings | 4,127,991 |
| 3,956,701 |
Total shareholders' equity | 5,567,603 |
| 5,684,770 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 17,792,928 |
| $ 17,999,482 |
EVEREST RE GROUP, LTD. |
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||
| June 30, |
| June 30, | ||||
(Dollars in thousands) | 2008 |
| 2007 |
| 2008 |
| 2007 |
| (unaudited) |
| (unaudited) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net income | $ 153,027 |
| $ 282,868 |
| $ 230,960 |
| $ 580,450 |
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
|
|
operating activities: |
|
|
|
|
|
|
|
(Increase) decrease in premiums receivable | (18,227) |
| 45,724 |
| 13,510 |
| 48,290 |
(Increase) decrease in funds held by reinsureds, net | (17,630) |
| (94) |
| (26,367) |
| 981 |
(Increase) decrease in reinsurance receivables | (24,715) |
| 67,870 |
| 13,061 |
| 54,498 |
(Increase) decrease in deferred tax asset | (34,672) |
| 7,337 |
| (90,802) |
| 26,405 |
Increase (decrease) in reserve for losses and loss adjustment expenses | 16,026 |
| (33,499) |
| 66,076 |
| (134,010) |
Decrease in future policy benefit reserve | (4,540) |
| (4,065) |
| (7,552) |
| (7,425) |
Decrease in unearned premiums | (81,454) |
| (91,315) |
| (154,415) |
| (111,347) |
Change in other assets and liabilities, net | (44,704) |
| (84,979) |
| 4,734 |
| (70,989) |
Non-cash compensation expense | 2,891 |
| 4,437 |
| 10,570 |
| 9,287 |
Amortization of bond premium/(accrual of bond discount) | 4,023 |
| (2,124) |
| 4,476 |
| (826) |
Amortization of underwriting discount on senior notes | 45 |
| 41 |
| 88 |
| 80 |
Net realized capital losses (gains) | 31,566 |
| (91,774) |
| 167,949 |
| (132,666) |
Net cash (used in) provided by operating activities | (18,364) |
| 100,427 |
| 232,288 |
| 262,728 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Proceeds from fixed maturities matured/called - available for sale, at market value | 257,634 |
| 305,278 |
| 546,561 |
| 617,195 |
Proceeds from fixed maturities sold - available for sale, at market value | 82,737 |
| 169,549 |
| 129,947 |
| 204,035 |
Proceeds from equity securities sold - available for sale, at fair value | 66,936 |
| 1,027,955 |
| 329,234 |
| 1,318,561 |
Distributions from other invested assets | 2,696 |
| 5,572 |
| 13,881 |
| 27,383 |
Cost of fixed maturities acquired - available for sale, at market value | (1,166,727) |
| (155,618) |
| (1,853,304) |
| (255,487) |
Cost of equity securities acquired - available for sale, at market value | - |
| - |
| (440) |
| - |
Cost of equity securities acquired - available for sale, at fair value | (70,856) |
| (816,891) |
| (149,381) |
| (1,138,408) |
Cost of other invested assets acquired | (24,048) |
| (78,004) |
| (48,099) |
| (119,765) |
Net change in short-term securities | 1,006,187 |
| (873,100) |
| 964,051 |
| (1,103,090) |
Net change in unsettled securities transactions | (74,233) |
| (3,992) |
| (5,742) |
| (4,412) |
Net cash provided by (used in) investing activities | 80,326 |
| (419,251) |
| (73,292) |
| (453,988) |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Common shares issued during the period, net | 2,337 |
| 9,715 |
| (239) |
| 11,440 |
Purchase of treasury shares | (24,901) |
| (19,039) |
| (125,738) |
| (200,080) |
Net proceeds from issuance of long term notes | - |
| 395,637 |
| - |
| 395,637 |
Dividends paid to shareholders | (29,676) |
| (30,223) |
| (59,670) |
| (60,961) |
Net cash (used in) provided by financing activities | (52,240) |
| 356,090 |
| (185,647) |
| 146,036 |
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (1,815) |
| (9,685) |
| 1,962 |
| (16,854) |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash | 7,907 |
| 27,581 |
| (24,689) |
| (62,078) |
Cash, beginning of period | 217,971 |
| 160,209 |
| 250,567 |
| 249,868 |
Cash, end of period | $ 225,878 |
| $ 187,790 |
| $ 225,878 |
| $ 187,790 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Cash transactions: |
|
|
|
|
|
|
|
Income taxes paid | $ 67,486 |
| $ 135,022 |
| $ 100,704 |
| $ 160,306 |
Interest paid | $ 25,136 |
| $ 16,189 |
| $ 39,067 |
| $ 34,378 |