Everest (EG) 10-Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2010 Commission file number: 1-15731

EVEREST RE GROUP, LTD.

(Exact name of registrant as specified in its charter)

Bermuda	98-0365432
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Wessex House – 2nd Floor

45 Reid Street

PO Box HM 845

Hamilton HM DX, Bermuda

441-295-0006

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive office)

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES X NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	X	Accelerated filer
Non-accelerated filer		Smaller reporting company
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES NO X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Number of Shares Outstanding
Class	At May 1, 2010
Common Shares, $0.01 par value		58,922,474

EVEREST RE GROUP, LTD

Table of Contents

Form 10-Q

Page

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets March 31, 2010 (unaudited) and
	December 31, 2009	1
	Consolidated Statements of Operations and Comprehensive Income for the
	three months ended March 31, 2010 and 2009 (unaudited)	2
	Consolidated Statements of Changes in Shareholders’ Equity for the three
	months ended March 31, 2010 and 2009 (unaudited)	3
	Consolidated Statements of Cash Flows for the three months ended
	March 31, 2010 and 2009 (unaudited)	4
	Notes to Consolidated Interim Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operation	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	51

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Reserved	52
Item 5.	Other Information	52
Item 6.	Exhibits	53

PART I

ITEM 1.  FINANCIAL STATEMENTS

EVEREST RE GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
(Dollars in thousands, except par value per share)	2010			2009
	(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value	$	13,161,192		$	13,005,949
(amortized cost: 2010, $12,746,735; 2009, $12,614,742)
Fixed maturities - available for sale, at fair value		65,307			50,528
Equity securities - available for sale, at market value (cost: 2010, $13,445; 2009, $13,970)		16,076			16,301
Equity securities - available for sale, at fair value		417,633			380,025
Short-term investments		592,463			673,131
Other invested assets (cost: 2010, $577,919; 2009, $546,158)		577,558			545,284
Cash		214,159			247,598
Total investments and cash		15,044,388			14,918,816
Accrued investment income		143,332			158,886
Premiums receivable		981,523			978,847
Reinsurance receivables		650,044			636,375
Funds held by reinsureds		376,515			379,864
Deferred acquisition costs		372,183			362,346
Prepaid reinsurance premiums		106,419			108,029
Deferred tax asset		172,513			174,170
Federal income taxes recoverable		148,791			144,903
Other assets		164,377			139,076
TOTAL ASSETS	$	18,160,085		$	18,001,312
LIABILITIES:
Reserve for losses and loss adjustment expenses	$	9,299,417		$	8,937,858
Future policy benefit reserve		64,401			64,536
Unearned premium reserve		1,454,237			1,415,402
Funds held under reinsurance treaties		94,541			91,893
Losses in the course of payment		38,853			39,766
Commission reserves		48,614			55,579
Other net payable to reinsurers		42,687			53,014
8.75% Senior notes due 3/15/2010		-			199,970
5.4% Senior notes due 10/15/2014		249,780			249,769
6.6% Long term notes due 5/1/2067		238,349			238,348
Junior subordinated debt securities payable		329,897			329,897
Accrued interest on debt and borrowings		12,092			9,885
Equity index put option liability		54,295			57,349
Other liabilities		195,967			156,324
Total liabilities		12,123,130			11,899,590
Commitments and contingencies (Note 8)
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; (2010) 66.0 million and
(2009) 65.8 million issued		660			658
Additional paid-in capital		1,849,441			1,845,181
Accumulated other comprehensive income, net of deferred income tax benefit
of $94.5 million at 2010 and tax expense of $101.0 million at 2009		300,977			272,038
Treasury shares, at cost; 7.1 million shares (2010) and 6.5 million shares (2009)		(629,958	)		(582,926	)
Retained earnings		4,515,835			4,566,771
Total shareholders' equity		6,036,955			6,101,722
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	18,160,085		$	18,001,312
The accompanying notes are an integral part of the consolidated financial statements.

1

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

	Three Months Ended
	March 31,
(Dollars in thousands, except per share amounts)	2010			2009
	(unaudited)
REVENUES:
Premiums earned	$	927,302		$	932,290
Net investment income		161,499			68,754
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		-			(8,274	)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income		-			-
Other net realized capital gains (losses)		72,718			(56,863	)
Total net realized capital gains (losses)		72,718			(65,137	)
Realized gain on debt repurchase		-			78,271
Net derivative gain (loss)		3,054			(19,703	)
Other income (expense)		5,339			(5,180	)
Total revenues		1,169,912			989,295
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		906,856			569,905
Commission, brokerage, taxes and fees		212,662			226,038
Other underwriting expenses		38,944			36,355
Corporate expenses		4,575			3,780
Interest, fees and bond issue cost amortization expense		16,642			20,142
Total claims and expenses		1,179,679			856,220
(LOSS) INCOME BEFORE TAXES		(9,767	)		133,075
Income tax expense		12,885			24,519
NET (LOSS) INCOME	$	(22,652	)	$	108,556
Other comprehensive income (loss), net of tax		28,939			(2,785	)
COMPREHENSIVE INCOME	$	6,287		$	105,771
EARNINGS PER COMMON SHARE:
Basic	$	(0.38	)	$	1.77
Diluted	$	(0.38	)	$	1.76
Dividends declared	$	0.48		$	0.48
The accompanying notes are an integral part of the consolidated financial statements.

2

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	Three Months Ended
	March 31,
(Dollars in thousands, except per share amounts)	2010			2009
	(unaudited)
COMMON SHARES (shares outstanding):
Balance, beginning of period		59,317,741			61,414,027
Issued during the period, net		167,039			128,062
Treasury shares acquired		(562,306	)		-
Balance, end of period		58,922,474			61,542,089
COMMON SHARES (par value):
Balance, beginning of period	$	658		$	656
Issued during the period, net		2			1
Balance, end of period		660			657
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period		1,845,181			1,824,552
Share-based compensation plans		4,260			3,230
Other		-			37
Balance, end of period		1,849,441			1,827,819
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		272,038			(291,851	)
Net increase (decrease) during the period		28,939			(2,785	)
Balance, end of period		300,977			(294,636	)
RETAINED EARNINGS:
Balance, beginning of period		4,566,771			3,819,327
Net (loss) income		(22,652	)		108,556
Dividends declared ($0.48 per share in 2010 and 2009)		(28,284	)		(29,540	)
Balance, end of period		4,515,835			3,898,343
TREASURY SHARES AT COST:
Balance, beginning of period		(582,926	)		(392,329	)
Purchase of treasury shares		(47,032	)		-
Balance, end of period		(629,958	)		(392,329	)
TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD	$	6,036,955		$	5,039,854
The accompanying notes are an integral part of the consolidated financial statements.

3

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(22,652	)	$	108,556
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in premiums receivable		(7,759	)		(14,479	)
Increase in funds held by reinsureds, net		(2,429	)		(9,781	)
Increase in reinsurance receivables		(33,144	)		(32,137	)
Decrease in deferred tax asset		6,789			44,990
Increase in reserve for losses and loss adjustment expenses		418,945			2,434
(Decrease) increase in future policy benefit reserve		(135	)		3,161
Increase in unearned premiums		41,598			32,852
Change in equity adjustments in limited partnerships		(16,164	)		73,285
Change in other assets and liabilities, net		(55,467	)		(20,913	)
Non-cash compensation expense		3,541			3,136
Amortization of bond premium		10,885			2,490
Amortization of underwriting discount on senior notes		42			46
Realized gain on debt repurchase		-			(78,271	)
Net realized capital (gains) losses		(72,718	)		65,137
Net cash provided by operating activities		271,332			180,506
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		413,390			242,130
Proceeds from fixed maturities matured/called - available for sale, at fair value		-			5,570
Proceeds from fixed maturities sold - available for sale, at market value		484,522			80,957
Proceeds from fixed maturities sold - available for sale, at fair value		2,497			3,492
Proceeds from equity securities sold - available for sale, at market value		-			1,042
Proceeds from equity securities sold - available for sale, at fair value		21,342			1,648
Distributions from other invested assets		10,730			12,664
Cost of fixed maturities acquired - available for sale, at market value		(1,023,499	)		(812,380	)
Cost of fixed maturities acquired - available for sale, at fair value		(14,194	)		(13,309	)
Cost of equity securities acquired - available for sale, at fair value		(42,322	)		(8,979	)
Cost of other invested assets acquired		(27,044	)		(6,239	)
Net change in short-term investments		82,019			712,922
Net change in unsettled securities transactions		47,298			3,699
Net cash (used in) provided by investing activities		(45,261	)		223,217
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net		721			132
Purchase of treasury shares		(47,032	)		-
Net cost of debt repurchase		-			(83,026	)
Net cost of senior notes maturing		(200,000	)		-
Dividends paid to shareholders		(28,284	)		(29,540	)
Net cash used in financing activities		(274,595	)		(112,434	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		15,085			(29,735	)
Net (decrease) increase in cash		(33,439	)		261,554
Cash, beginning of period		247,598			205,694
Cash, end of period	$	214,159		$	467,248
SUPPLEMENTAL CASH FLOW INFORMATION
Cash transactions:
Income taxes paid	$	12,759		$	27,135
Interest paid		14,201			18,318
The accompanying notes are an integral part of the consolidated financial statements.

4

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended March 31, 2010 and 2009

1.  GENERAL

Everest Re Group, Ltd. (“Group”), a Bermuda company, through its subsidiaries, principally provides reinsurance and insurance in the U.S., Bermuda and international markets.  As used in this document, “Company” means Group and its subsidiaries.  On December 30, 2008, Group contributed Everest Reinsurance Holdings, Inc. and its subsidiaries (“Holdings”) to its recently established Irish holding company, Everest Underwriting Group (Ireland), Limited (“Holdings Ireland”).

2.  BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three months ended March 31, 2010 and 2009 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis.  Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The December 31, 2009 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  The results for the three months ended March 31, 2010 and 2009 are not necessarily indicat ive of the results for a full year.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2009, 2008 and 2007 included in the Company’s most recent Form 10-K filing.

All intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2010 presentation.

Financial Accounting Standards Board Accounting Codification

Financial Accounting Standards Board Launched Accounting Codification.  In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance establishing the FASB Accounting Standards CodificationTM (“Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SE C accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.

Following the Codification, the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.

GAAP is not intended to be changed as a result of the FASB’s Codification, but it will change the way the guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in the accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009. The Company’s adoption of this guidance impacts the way the Company references U.S. GAAP accounting standards in the financial statements and Notes to Consolidated Financial Statements.

5

Application of Recently Issued Accounting Standard Changes

Subsequent Events. In May 2009, the FASB issued authoritative guidance for subsequent events, which was later modified in February 2010, that addresses the accounting for and disclosure of subsequent events not addressed in other applicable U.S. GAAP.  The Company implemented the new disclosure requirement beginning with the second quarter of 2009 and included it in the Notes to Consolidated Interim Financial Statements.

Improving Disclosures About Fair Value Measurements.  In January 2010, the FASB amended the authoritative guidance for disclosures on fair value measurements.  Effective for interim and annual reporting periods beginning after December 15, 2009, the guidance requires a new separate disclosure for:  significant transfers in and out of Level 1 and 2 and the reasons for the transfers; and provided clarification on existing disclosures to include:  fair value measurement disclosures by class of assets and liabilities and disclosure on valuation techniques and inputs used to measure fair value that fall in either Level 2 or Level 3.  Effective for interim and annual reporting periods beginning after December 15, 2010, the guidance requires another new separate disclosure in regards to Level 3 fair value measurements in that, the period activity will present separately information about purchases, sales, issuances and settlements.  Comparative disclosures shall be required only for periods ending after initial adoption.  The Company has implemented the first part of this guidance effective January 1, 2010.

Interim Disclosures About Fair Value of Financial Instruments.  In April 2009, the FASB revised the authoritative guidance for disclosures about fair value of financial instruments. This new guidance requires quarterly disclosures on the qualitative and quantitative information about the fair value of all financial instruments including methods and significant assumptions used to estimate fair value during the period. These disclosures were previously only done annually. The Company adopted this disclosure beginning with the second quarter of 2009 and included it in the Notes to Consolidated Interim Financial Statements.

Other-Than-Temporary Impairments on Investment Securities.  In April 2009, the FASB revised the authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary impairments on debt and equity securities. For available for sale debt securities that the Company has no intent to sell and more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment would be recognized in earnings, while the rest of the fair value loss would be recognized in accumulated ot her comprehensive income.  The Company adopted this guidance effective April 1, 2009.  Upon adoption the Company recognized a cumulative-effect adjustment increase in retained earnings and decrease in accumulated other comprehensive income (loss) of $57.3 million, net of $8.3 million of tax.

Measurement of Fair Value in Inactive Markets. In April 2009, the FASB revised the authoritative guidance for fair value measurements and disclosures, which reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. It also reaffirms the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. There was no impact to the Company’s financial statements upon adoption.

6

3.  INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity and equity security investments, carried at market value, are as follows for the periods indicated:

	At March 31, 2010
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities  - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	355,189	$	8,835	$	(3,100	)	$	360,924
Obligations of U.S. states and political subdivisions		3,657,459		168,621		(22,244	)		3,803,836
Corporate securities		2,666,501		129,601		(17,770	)		2,778,332
Asset-backed securities		241,130		8,153		(2,782	)		246,501
Mortgage-backed securities
Commercial		486,835		13,644		(26,645	)		473,834
Agency residential		2,312,432		71,830		(470	)		2,383,792
Non-agency residential		169,893		386		(8,860	)		161,419
Foreign government securities		1,460,388		79,569		(23,133	)		1,516,824
Foreign corporate securities		1,396,908		61,992		(23,170	)		1,435,730
Total fixed maturity securities	$	12,746,735	$	542,631	$	(128,174	)	$	13,161,192
Equity securities	$	13,445	$	2,634	$	(3	)	$	16,076

	At December 31, 2009
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities  - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	339,839	$	17,879	$	(3,565	)	$	354,153
Obligations of U.S. states and political subdivisions		3,694,267		183,848		(24,256	)		3,853,859
Corporate securities		2,421,875		107,749		(32,963	)		2,496,661
Asset-backed securities		310,429		7,713		(4,413	)		313,729
Mortgage-backed securities
Commercial		475,204		5,172		(37,758	)		442,618
Agency residential		2,310,826		61,481		(3,863	)		2,368,444
Non-agency residential		177,500		238		(17,117	)		160,621
Foreign government securities		1,507,385		100,243		(16,875	)		1,590,753
Foreign corporate securities		1,377,417		72,442		(24,748	)		1,425,111
Total fixed maturity securities	$	12,614,742	$	556,765	$	(165,558	)	$	13,005,949
Equity securities	$	13,970	$	2,333	$	(2	)	$	16,301

7

In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings into accumulated other comprehensive income, in 2009.  At March 31, 2010, the pre-tax cumulative unrealized depreciation on these corporate securities had improved, with the remaining unrealized depreciation at $36.1 thousand compared to $6.1 million at December 31, 2009.

The amortized cost and market value of fixed maturity securities are shown in the following table by contractual maturity.  Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.

	At March 31, 2010				At December 31, 2009
	Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value
Fixed maturity securities – available for sale
Due in one year or less	$	668,247	$	684,941	$	621,706	$	652,483
Due after one year through five years		3,326,444		3,459,021		3,017,731		3,151,819
Due after five years through ten years		2,486,805		2,593,875		2,530,830		2,634,709
Due after ten years		3,054,949		3,157,809		3,170,516		3,281,526
Asset-backed securities		241,130		246,501		310,429		313,729
Mortgage-backed securities
Commercial		486,835		473,834		475,204		442,618
Agency residential		2,312,432		2,383,792		2,310,826		2,368,444
Non-agency residential		169,893		161,419		177,500		160,621
Total fixed maturity securities	$	12,746,735	$	13,161,192	$	12,614,742	$	13,005,949

The changes in net unrealized appreciation for the Company’s investments are derived from the following sources for the periods indicated:

	Three Months Ended
	March 31,
(Dollars in thousands)	2010		2009
Increase during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	23,250	$	74,160
Equity securities		300		(244	)
Other invested assets		514		(1,641	)
Change in unrealized appreciation, pre-tax		24,064		72,275
Deferred tax benefit (expense)		10,508		(25,327	)
Change in unrealized appreciation,
net of deferred taxes, included in shareholders’ equity	$	34,572	$	46,948

The Company frequently reviews its fixed maturity securities investment portfolio for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized value at the time of review.  The Company then assesses whether the decline in value is temporary or other-than-temporary.  In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information.  Generally, a change in a security’s value caused by a change in the market or interest rate environment does not constitute an other-than-temporary impairment, but rather a temporary decline in market value.  Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income.   If the Company determines that the decline is other-than-temporary and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the carrying value of the investment is written down to fair value.  The fair value adjustment that is credit related is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income.  The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income, net of tax, and is included in accumulated other comprehensive income in the Company’s consolidated balance sheets.  The Company’s assessments are based on the issuers current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-

8

backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company’s asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected and prepayments for pass-through security types.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:

	Duration by security type of unrealized loss at March 31, 2010
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	50,421	$	(2,087	)	$	72,544	$	(1,013	)	$	122,965	$	(3,100	)
Obligations of U.S. states and political subdivisions		557		(6	)		406,437		(22,238	)		406,994		(22,244	)
Corporate securities		188,649		(2,681	)		212,825		(15,089	)		401,474		(17,770	)
Asset-backed securities		421		(217	)		23,315		(2,565	)		23,736		(2,782	)
Mortgage-backed securities
Commercial		-		-			87,209		(26,645	)		87,209		(26,645	)
Agency residential		53,915		(115	)		15,695		(355	)		69,610		(470	)
Non-agency residential		-		-			140,479		(8,860	)		140,479		(8,860	)
Foreign government securities		335,103		(6,247	)		137,835		(16,886	)		472,938		(23,133	)
Foreign corporate securities		432,440		(8,213	)		135,711		(14,957	)		568,151		(23,170	)
Total fixed maturity securities	$	1,061,506	$	(19,566	)	$	1,232,050	$	(108,608	)	$	2,293,556	$	(128,174	)
Equity securities		-		-			12,195		(3	)		12,195		(3	)
Total	$	1,061,506	$	(19,566	)	$	1,244,245	$	(108,611	)	$	2,305,751	$	(128,177	)

	Duration by maturity of unrealized loss at March 31, 2010
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	37,672	$	(2,408	)	$	51,709	$	(4,524	)	$	89,381	$	(6,932	)
Due in one year through five years		599,620		(6,195	)		231,370		(11,267	)		830,990		(17,462	)
Due in five years through ten years		303,073		(6,685	)		135,268		(15,520	)		438,341		(22,205	)
Due after ten years		66,805		(3,946	)		547,005		(38,872	)		613,810		(42,818	)
Asset-backed securities		421		(217	)		23,315		(2,565	)		23,736		(2,782	)
Mortgage-backed securities		53,915		(115	)		243,383		(35,860	)		297,298		(35,975	)
Total fixed maturity securities	$	1,061,506	$	(19,566	)	$	1,232,050	$	(108,608	)	$	2,293,556	$	(128,174	)
Equity securities	$	-	$	-		$	12,195	$	(3	)	$	12,195	$	(3	)

9

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at March 31, 2010 were $2,305.8 million and $128.2 million, respectively.  There were no unrealized losses on a single security that exceeded 0.06% of the market value of the fixed maturity securities at March 31, 2010.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $19.6 million of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of highly rated domestic and foreign government and corporate securities.  Of these unrealized losses, $18.1 million were related to securities that were rated investmen t grade by at least one nationally recognized statistical rating organization.  The $108.6 million of unrealized losses related to fixed maturity and equity securities in an unrealized loss position for more than one year related primarily to highly rated government, municipal, corporate and mortgage-backed securities.  Of these unrealized losses, $83.1 million related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The non-investment grade securities with unrealized losses are mainly comprised of corporate and commercial mortgage-backed securities.  The gross unrealized depreciation greater than 12 months for mortgage-backed securities included $2.9 million related to sub-prime and alt-A loans.  In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.  The mortgage-backed securities sti ll have excess credit coverage and are current on interest and principal payments.  Unrealized losses have decreased since December 31, 2009, as a result of improved conditions in the overall financial market resulting from increased liquidity and lower interest rates.

The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis.  In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the period indicated:

	Duration by security type of unrealized loss at December 31, 2009
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	155,007	$	(3,444	)	$	1,375	$	(121	)	$	156,382	$	(3,565	)
Obligations of U.S. states and political subdivisions		559		(4	)		452,018		(24,252	)		452,577		(24,256	)
Corporate securities		170,323		(2,539	)		357,442		(30,424	)		527,765		(32,963	)
Asset-backed securities		12,514		(87	)		47,273		(4,326	)		59,787		(4,413	)
Mortgage-backed securities
Commercial		8,411		(135	)		294,163		(37,623	)		302,574		(37,758	)
Agency residential		591,372		(3,541	)		6,216		(322	)		597,588		(3,863	)
Non-agency residential		-		(1	)		153,698		(17,116	)		153,698		(17,117	)
Foreign government securities		215,048		(3,737	)		154,225		(13,138	)		369,273		(16,875	)
Foreign corporate securities		299,769		(7,356	)		179,550		(17,392	)		479,319		(24,748	)
Total fixed maturity securities	$	1,453,003	$	(20,844	)	$	1,645,960	$	(144,714	)	$	3,098,963	$	(165,558	)
Equity securities		13		(2	)		-		-			13		(2	)
Total	$	1,453,016	$	(20,846	)	$	1,645,960	$	(144,714	)	$	3,098,976	$	(165,560	)

10

	Duration by maturity of unrealized loss at December 31, 2009
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	5,777	$	(1	)	$	74,211	$	(5,504	)	$	79,988	$	(5,505	)
Due in one year through five years		423,782		(6,120	)		268,321		(19,861	)		692,103		(25,981	)
Due in five years through ten years		315,853		(6,094	)		198,398		(14,972	)		514,251		(21,066	)
Due after ten years		95,294		(4,865	)		603,680		(44,990	)		698,974		(49,855	)
Asset-backed securities		12,514		(87	)		47,273		(4,326	)		59,787		(4,413	)
Mortgage-backed securities		599,783		(3,677	)		454,077		(55,061	)		1,053,860		(58,738	)
Total fixed maturity securities	$	1,453,003	$	(20,844	)	$	1,645,960	$	(144,714	)	$	3,098,963	$	(165,558	)
Equity securities	$	13	$	(2	)	$	-	$	-		$	13	$	(2	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2009 were $3,099.0 million and $165.6 million, respectively.  There were no unrealized losses on a single security that exceeded 0.07% of the market value of the fixed maturity securities at December 31, 2009.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $20.8 million of unrealized losses related to fixed maturity and equity securities that have been in an unrealized loss position for less than one year were generally comprised of highly rated government, corporate and mortgage-backed securities.  Of these unrealized losses, $20.7 million were related to securities that were ra ted investment grade by at least one nationally recognized statistical rating organization.  The $144.7 million of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year also related primarily to highly rated government, municipal, corporate and mortgage-backed securities.  Of these unrealized losses, $111.3 million related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The non-investment grade securities with unrealized losses are mainly comprised of corporate and commercial mortgage-backed securities.  The gross unrealized depreciation greater than 12 months for mortgage-backed securities included only $3.7 million related to sub-prime and alt-A loans.  In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.  The mortgage-backed s ecurities still have excess credit coverage and are current on interest and principal payments.  Unrealized losses decreased since December 31, 2008, as a result of improved conditions in the overall financial market resulting from increased liquidity and lower interest rates.

The components of net investment income are presented in the table below for the periods indicated:

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Fixed maturity securities	$	145,199		$	144,622
Equity securities		2,523			696
Short-term investments and cash		(308	)		3,561
Other invested assets
Limited partnerships		15,898			(72,946	)
Other		372			774
Total gross investment income		163,684			76,707
Interest credited and other expense		(2,185	)		(7,953	)
Total net investment income	$	161,499		$	68,754

11

The Company reports results from limited partnership investments on the equity basis of accounting with changes in value reported through net investment income.  Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag.  If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company indentifies the decline.

The Company had contractual commitments to invest up to an additional $199.2 million in limited partnerships at March 31, 2010.  These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2014.

The components of net realized capital gains (losses) are presented in the table below for the periods indicated:

	Three Months Ended
	March 31,
(Dollars in thousands)	2010		2009
Fixed maturity securities, market value:
Other-than-temporary impairments	$	-	$	(8,274	)
Gains (losses) from sales		53,006		(39,594	)
Fixed maturity securities, fair value:
Gains from sales		83		96
Gains (losses) from fair value adjustments		3,000		(42	)
Equity securities, market value:
Gains from sales		-		47
Equity securities, fair value:
Gains (losses) from sales		1,895		(449	)
Gains (losses) from fair value adjustments		14,733		(16,923	)
Short-term investments gains		1		2
Total net realized capital gains (losses)	$	72,718	$	(65,137	)

Proceeds from sales of fixed maturity securities for the three months ended March 31, 2010 and 2009 were $487.0 million and $84.4 million, respectively.  Gross gains of $58.7 million and $2.7 million and gross losses of $5.6 million and $42.3 million were realized on those fixed maturity securities sales for the three months ended March 31, 2010 and 2009, respectively.  Proceeds from sales of equity securities for the three months ended March 31, 2010 and 2009 were $21.3 million and $2.7 million, respectively.  Gross gains of $2.4 million and $0.2 million and gross losses of $0.5 million and $0.7 million were realized on those equity sales for the three months ended March 31, 2010 and 2009, respectively.

The Company records fair value re-measurements as net realized capital gains or losses in the consolidated statements of operations and comprehensive income.  The Company recorded $17.7 million in net realized capital gains and $17.0 million in net realized capital losses due to fair value re-measurements on fixed maturity and equity securities, at fair value, for the three months ended March 31, 2010 and 2009, respectively.

At March 31, 2010, the Company had no write-downs in the value of securities deemed to be impaired on an other-than-temporary basis included in net realized capital gains.  At March 31, 2009, the Company had $8.3 million of write-downs in the value of securities deemed to be impaired on an other-than-temporary basis included in net realized capital losses.  The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.

12

4.  DERIVATIVES

The Company sold seven equity index put option contracts, based on two indices, in 2001 and 2005, which are outstanding. The Company sold these equity index put options as insurance products with the intent of achieving a profit.  These equity index put option contracts meet the definition of a derivative under FASB guidance and the Company’s position in these equity index put option contracts is unhedged.  Accordingly, these equity index put option contracts are carried at fair value in the consolidated balance sheets with changes in fair value recorded in the consolidated statements of operations and comprehensive income.

The Company sold six equity index put option contracts, which are based on the Standard & Poor’s 500 (“S&P 500”) index, for total consideration, net of commissions, of $22.5 million.  At March 31, 2010, fair value for these equity index put option contracts was $48.8 million.  These equity index put option contracts each have a single exercise date, with maturities ranging from 12 to 30 years and strike prices ranging from $1,141.21 to $1,540.63.  No amounts will be payable under these equity index put option contracts if the S&P 500 index is at, or above, the strike prices on the exercise dates, which fall between June 2017 and March 2031.  If the S&P 500 index is lower than the strike price on the applicable exercise date, the amount due would vary proport ionately with the percentage by which the index is below the strike price.  Based on historical index volatilities and trends and the March 31, 2010 S&P 500 index value, the Company estimates the probability that each equity index put option contract of the S&P 500 index falling below the strike price on the exercise date to be less than 35%.  The theoretical maximum payouts under the equity index put option contracts would occur if on each of the exercise dates the S&P 500 index value were zero.  At March 31, 2010, the present value of these theoretical maximum payouts using a 6% discount factor was $257.7 million.

The Company sold one equity index put option contract, which is based on the FTSE 100 index, for total consideration, net of commissions, of $6.7 million.  At March 31, 2010, fair value for this equity index put option contract was $5.5 million.  This equity index put option contract has an exercise date of July 2020 and a strike price of ₤5,989.75.  No amount will be payable under this equity index put option contract if the FTSE 100 index is at, or above, the strike price on the exercise date.  If the FTSE 100 index is lower than the strike price on the exercise date, the amount due will vary proportionately with the percentage by which the index is below the strike price.  Based on historical index volatilities and trends and the March 31, 2010 FTSE 100 index value, the Co mpany estimates the probability that the equity index put option contract of the FTSE 100 index will fall below the strike price on the exercise date to be less than 29%.  The theoretical maximum payout under the equity index put option contract would occur if on the exercise date the FTSE 100 index value was zero.  At March 31, 2010, the present value of the theoretical maximum payout using a 6% discount factor and current exchange rate was $27.4 million.

The fair value of the equity index put options can be found in the Company’s consolidated balance sheets as follows:

(Dollars in thousands)		Fair Value
Derivatives not designated as	Location of fair value	At		At
hedging instruments	in balance sheet	March 31, 2010		December 31, 2009
Equity index put option contracts	Equity index put option liability	$	54,295	$	57,349
Total		$	54,295	$	57,349

13

The change in fair value of the equity index put option contracts can be found in the Company’s statement of operations and comprehensive income as follows:

		Amount of gain/(loss) recognized
		in income on derivatives
(Dollars in thousands)		For the Three Months Ended
Derivatives not designated as	Location of gain (loss) recognized	March 31,
hedging instruments	in income of derivative	2010		2009
Equity index put option contracts	Net derivative gain (loss)	$	3,054	$	(19,703	)
Total		$	3,054	$	(19,703	)

The Company’s equity index put option contracts (derivatives) contain provisions that require collateralization of the fair value, as calculated by the counterparty, above a specified threshold, which is based on the Company’s financial strength ratings (Moody’s Investors Service, Inc.) and/or debt ratings (Standard & Poor’s Ratings Services). The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on March 31, 2010, was $54.3 million for which the Company had posted collateral with a market value of $49.8 million.  If on March 31, 2010, the Company’s ratings were such that the collateral threshold was zero, the Company would be required to post an additional $55 million, which is an approximation of the counte rparties’ fair value calculation.

5.  FAIR VALUE

The Company’s fixed maturity and equity securities are managed by third party investment asset managers.  The investment asset managers obtain prices from nationally recognized pricing services.   These services seek to utilize market data and observations in their evaluation process.  They use pricing applications that vary by asset class and incorporate available market information and when fixed maturity securities do not trade on a daily basis the services will apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing.  In addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate scenarios for securities that have prepayment features.

In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers.  The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers.  In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices.  In addition, the Company tests the prices on a random basis to an independent pricing source.  In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rate s to determine fair value.  The Company made no such adjustments at March 31, 2010.

Fixed maturity securities are generally categorized as Level 2, Significant Other Observable Inputs, since a particular security may not have traded but the pricing services are able to use valuation models with observable market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority.  Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk) are categorized as Level 3, Significant Unobservable Inputs.  These securities include broker priced securities and valuation of less liquid securities such as commercial mortgage-backed securities and the Company’s equity index put option contracts.

Equity securities in U.S. denominated currency are categorized as Level 1, Quoted Prices in Active Markets for Identical Assets, since the securities are actively traded on an exchange and prices are based on quoted prices from the exchange.  Equity securities traded on foreign exchanges are categorized as Level 2 due to potential foreign exchange adjustments to fair or market value.

14

The Company sold seven equity index put option contracts which meet the definition of a derivative.  The Company’s position in these contracts is unhedged.  The Company recorded a change in fair value of $3.1 million gain and $19.7 million loss for the three months ended March 31, 2010 and 2009, respectively, in the consolidated statements of operations and comprehensive income.

The fair value was calculated using an industry accepted option pricing model, Black-Scholes, which used the following assumptions:

	At March 31, 2010
		Contract
	Contracts	based on
	based on	FTSE 100
	S & P 500 Index	Index
Equity index	1,169.4	5,679.6
Interest rate	4.13% to 5.42%	4.95%
Time to maturity	7.2 to 21.0 yrs	10.3 yrs
Volatility	22.3% to 24.8%	25.8%

The following table presents the fair value measurement levels for all assets and liabilities, which the Company has recorded at fair value (fair and market value) as of the period indicated:

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	March 31, 2010		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	360,924	$	-	$	360,924	$	-
Obligations of U.S. States and political subdivisions		3,803,836		-		3,803,836		-
Corporate securities		2,778,332		-		2,768,432		9,900
Asset-backed securities		246,501		-		240,113		6,388
Mortgage-backed securities
Commercial		473,834		-		473,834		-
Agency residential		2,383,792		-		2,383,792		-
Non-agency residential		161,419		-		159,960		1,459
Foreign government securities		1,516,824		-		1,516,824		-
Foreign corporate securities		1,435,730		-		1,435,730		-
Total fixed maturities, market value		13,161,192		-		13,143,445		17,747
Fixed maturities, fair value		65,307		-		65,307		-
Equity securities, market value		16,076		16,076		-		-
Equity securities, fair value		417,633		416,620		1,013		-
Liabilities:
Equity index put option contracts	$	54,295	$	-	$	-	$	54,295

There were no significant transfers between Level 1 and Level 2 for the three months ended March 31, 2010.

15

The following table presents the fair value measurement levels for all assets and liabilities, which the Company has recorded at fair value (fair and market value) as of the period indicated:

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2009		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	354,153	$	-	$	354,153	$	-
Obligations of U.S. States and political subdivisions		3,853,859		-		3,853,859		-
Corporate securities		2,496,661		-		2,486,761		9,900
Asset-backed securities		313,729		-		307,460		6,269
Mortgage-backed securities
Commercial		442,618		-		442,618		-
Agency residential		2,368,444		-		2,368,444		-
Non-agency residential		160,621		-		159,227		1,394
Foreign government securities		1,590,753		-		1,590,753		-
Foreign corporate securities		1,425,111		-		1,425,111		-
Total fixed maturities, market value		13,005,949		-		12,988,386		17,563
Fixed maturities, fair value		50,528		-		50,528		-
Equity securities, market value		16,301		16,301		-		-
Equity securities, fair value		380,025		379,058		967		-
Liabilities:
Equity index put option contracts	$	57,349	$	-	$	-	$	57,349

The following tables present the activity under Level 3, fair value measurements using significant unobservable inputs for fixed maturity investments, for the periods indicated:

	By Asset
	Corporate		Asset-backed			Non-agency
(Dollars in thousands)	Securities		Securities			RMBS			Total
Beginning balance January 1, 2010	$	9,900	$	6,268		$	1,394		$	17,563
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		-		-			92			92
Included in other comprehensive income		-		(68	)		105			37
Purchases, issuances and settlements		-		188			(133	)		55
Transfers in and/or (out) of Level 3		-		-			-			-
Ending Balance March 31, 2010	$	9,900	$	6,388		$	1,459		$	17,747
The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized
gains or losses relating to assets still held at the reporting date	$	-	$	-		$	-		$	-
(Some amounts may not reconcile due to rounding.)

16

	Summary
	Three Months Ended
	March 31,
(Dollars in thousands)	2010		2009
Assets:
Balance, beginning of period	$	17,563	$	293,607
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		92		28
Included in other comprehensive income		37		4,115
Purchases, issuances and settlements		55		(97	)
Transfers in and/or (out) of Level 3		-		(208,116	)
Balance, end of period	$	17,747	$	89,537
The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized
gains or losses relating to assets still held at the reporting date	$	-	$	(816	)

The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs for equity index put option contracts, for the periods indicated:

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Liabilities:
Balance, beginning of period	$	57,349		$	60,552
Total (gains) or losses (realized/unrealized)
Included in earnings (or changes in net assets)		(3,054	)		19,703
Included in other comprehensive income		-			-
Purchases, issuances and settlements		-			-
Transfers in and/or (out) of Level 3		-			-
Balance, end of period	$	54,295		$	80,255
The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized
gains or losses relating to liabilities still held at the reporting date	$	-		$	-
(Some amounts may not reconcile due to rounding.)

6.  CAPITAL TRANSACTIONS

On December 17, 2008, the Company renewed its shelf registration statement on Form S-3ASR with the SEC, as a Well Known Seasoned Issuer.  This shelf registration statement can be used by Group to register common shares, preferred shares, debt securities, warrants, share purchase contracts and share purchase units; by Holdings to register debt securities and by Everest Re Capital Trust III (“Capital Trust III”) to register trust preferred securities.

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7.  EARNINGS PER COMMON SHARE

Net (loss) income per common share has been computed as per below, based upon weighted average common basic and dilutive shares outstanding.

	Three Months Ended
	March 31,
(Dollars in thousands, except per share amounts)	2010			2009
Net (loss) income per share:
Numerator
Net (loss) income	$	(22,652	)	$	108,556
Less:  dividends declared-common shares and nonvested common shares		(28,284	)		(29,540	)
Undistributed earnings		(50,935	)		79,017
Percentage allocated to common shareholders (1)		99.6	%		99.7	%
		(50,730	)		78,788
Add:  dividends declared-common shareholders		28,138			29,433
Numerator for basic and diluted earnings per common share	$	(22,592	)	$	108,221
Denominator
Denominator for basic earnings per weighted-average common shares		58,927			61,294
Effect of dilutive securities:
Options		185			137
Denominator for diluted earnings per adjusted weighted-average common shares		59,112			61,432
Per common share net (loss) income
Basic	$	(0.38	)	$	1.77
Diluted	$	(0.38	)	$	1.76
(1)   Basic weighted-average common shares outstanding		58,927			61,294
Basic weighted-average common shares outstanding and nonvested common shares expected to vest		59,165			61,472
Percentage allocated to common shareholders		99.6	%		99.7	%
(Some amounts may not reconcile due to rounding.)

Options to purchase 1,942,490 and 1,919,976 common shares for the three months ended March 31, 2010 and 2009, respectively, were outstanding but were not included in the computation of earnings per diluted share as they were anti-dilutive.  All outstanding options expire on or between April 20, 2011 and February 24, 2020.

8.  CONTINGENCIES

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance, reinsurance and other contractual agreements.  In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it.  In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights.  These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation.  In all such matters, the Company believes that its positions are legally and commercially reasonable. While the final outcom e of these matters cannot be predicted with certainty, the Company does not believe that any of these matters, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity.  However, an adverse resolution of one or more of these items in any one quarter or fiscal year could have a material adverse effect on the Company’s results of operations in that period.

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In 1993 and prior, the Company had a business arrangement with The Prudential Insurance Company of America (“The Prudential”) wherein, for a fee, the Company accepted settled claim payment obligations of certain property and casualty insurers, and, concurrently, became the owner of the annuity or assignee of the annuity proceeds funded by the property and casualty insurers specifically to fulfill these fully settled obligations.  In these circumstances, the Company would be liable if The Prudential, which has an A+ (Superior) financial strength rating from A.M. Best Company (“A.M. Best”), was unable to make the annuity payments.  The estimated cost to replace all such annuities for which the Company was contingently liable at March 31, 2010 and December 31, 2009 was $152.8 million and $1 52.3 million, respectively.

Prior to its 1995 initial public offering, the Company purchased annuities from an unaffiliated life insurance company with an A+ (Superior) financial strength rating from A.M. Best to settle certain claim liabilities of the company.  Should the life insurance company become unable to make the annuity payments, the Company would be liable for those claim liabilities.  The estimated cost to replace such annuities at March 31, 2010 and December 31, 2009 was $24.6 million.

9.  OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the components of other comprehensive income (loss) in the consolidated statements of operations and comprehensive income for the periods indicated:

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
URA(D) of investments - temporary	$	18,012		$	72,275
URA(D) of investments - non-credit OTTI		6,052			-
Tax benefit (expense) from URA(D) arising during the period		10,508			(25,327	)
Total URA(D) on securities arising during the period, net of tax		34,572			46,948
Foreign currency translation adjustments		(2,287	)		(59,793	)
Tax (expense) benefit from foreign currency translation		(3,754	)		10,060
Net foreign currency translation adjustments		(6,041	)		(49,733	)
Pension adjustments		628			-
Tax expense on pension		(220	)		-
Net pension adjustments		408			-
Other comprehensive income (loss), net of tax	$	28,939		$	(2,785	)

The following table presents the components of accumulated other comprehensive income, net of tax, in the consolidated balance sheets for the periods indicated:

	March 31,			December 31,
(Dollars in thousands)	2010			2009
URA(D) on securities, net of deferred taxes
Temporary	$	344,236		$	314,648
Non-credit, OTTI		(390	)		(5,374	)
Total unrealized appreciation (depreciation) on investments, net of deferred taxes		343,846			309,274
Foreign currency translation adjustments, net of deferred taxes		(19,009	)		(12,968	)
Pension adjustments, net of deferred taxes		(23,860	)		(24,268	)
Accumulated other comprehensive income	$	300,977		$	272,038

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10.  CREDIT LINE

Effective July 27, 2007, Group, Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”) and Everest International Reinsurance, Ltd. (‘Everest International”) entered into a five year, $850.0 million senior credit facility with a syndicate of lenders referred to as the “Group Credit Facility”.  Wachovia Bank, a subsidiary of Wells Fargo Corporation (“Wachovia Bank”) is the administrative agent for the Group Credit Facility, which consists of two tranches.  Tranche one provides up to $350.0 million of unsecured revolving credit for liquidity and general corporate purposes, and for the issuance of unsecured standby letters of credit.  The interest on the revolving loans shall, at the Company’s option, be either (1) the Base Rate (as defined below) or (2) a n adjusted London Interbank Offered Rate (“LIBOR”) plus a margin.  The Base Rate is the higher of (a) the prime commercial lending rate established by Wachovia Bank or (b) the Federal Funds Rate plus 0.5% per annum. The amount of margin and the fees payable for the Group Credit Facility depends on Group’s senior unsecured debt rating.  Tranche two exclusively provides up to $500.0 million for the issuance of standby letters of credit on a collateralized basis.

The Group Credit Facility requires Group to maintain a debt to capital ratio of not greater than 0.35 to 1 and to maintain a minimum net worth.  Minimum net worth is an amount equal to the sum of $3,575.4 million plus 25% of consolidated net income for each of Group’s fiscal quarters, for which statements are available ending on or after January 1, 2007 and for which consolidated net income is positive, plus 25% of any increase in consolidated net worth during such period attributable to the issuance of ordinary and preferred shares, which at March 31, 2010, was $4,064.4 million.  As of March 31, 2010, the Company was in compliance with all Group Credit Facility covenants.

At March 31, 2010, the Group Credit facility had no outstanding letters of credit under tranche one and $360.0 million outstanding letters of credit under tranche two.  At December 31, 2009, the Group Credit Facility had no outstanding letters of credit under tranche one and $386.5 million outstanding letters of credit under tranche two.

Effective August 23, 2006, Holdings entered into a five year, $150.0 million senior revolving credit facility with a syndicate of lenders referred to as the “Holdings Credit Facility”.  Citibank N.A. is the administrative agent for the Holdings Credit Facility.  The Holdings Credit Facility may be used for liquidity and general corporate purposes.  The Holdings Credit Facility provides for the borrowing of up to $150.0 million with interest at a rate selected by Holdings equal to either, (1) the Base Rate (as defined below) or (2) a periodic fixed rate equal to the Eurodollar Rate plus an applicable margin.  The Base Rate means a fluctuating interest rate per annum in effect from time to time to be equal to the higher of (a) the rate of interest publicly announced by Citibank as its prime rate or (b) 0.5% per annum above the Federal Funds Rate, in each case plus the applicable margin.  The amount of margin and the fees payable for the Holdings Credit Facility depends upon Holdings’ senior unsecured debt rating.

The Holdings Credit Facility requires Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and Everest Reinsurance Company (“Everest Re”) to maintain its statutory surplus at $1.5 billion plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, 2005, which at March 31, 2010, was $1,933.8 million.  As of March 31, 2010, Holdings was in compliance with all Holdings Credit Facility covenants.

At March 31, 2010 and December 31, 2009, the Holdings Credit Facility had outstanding letters of credit of $17.0 million and $28.0 million, respectively.

Costs incurred in connection with the Group Credit Facility and the Holdings Credit Facility were $0.3 million for the three months ended March 31, 2010 and 2009.

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11.  LETTERS OF CREDIT

The Company has arrangements available for the issuance of letters of credit, which letters are generally collateralized by the Company’s cash and investments.  The Company’s agreement with Citibank is a bilateral letter of credit agreement only.  The Company’s other facility, the Wachovia Group Credit Facility, involves a syndicate of lenders (see Note 10 of the Group Credit Facility), with Wachovia acting as administrative agent.  The Citibank Holdings Credit Facility involves a syndicate of lenders (see Note 10 of the Holdings Credit Facility), with Citibank acting as administrative agent.  At March 31, 2010 and December 31, 2009, letters of credit for $577.3 million and $633.7 million, respectively, were issued and outstanding.  The letters of credit collatera lize reinsurance obligations of the Company’s non-U.S. operations.  The following table summarizes the Company’s letters of credit as of March 31, 2010.

(Dollars in thousands)
Bank		Commitment		In Use		Date of Expiry
Citibank Bilateral Letter of Credit Agreement		$	300,000	$	2,291	11/24/2010
					63,255	12/31/2010
					35,785	1/31/2011
					24,118	6/30/2013
					35,173	12/31/2013
					11,365	9/30/2014
					28,351	12/31/2014
Total Citibank Bilateral Agreement		$	300,000	$	200,338
Citibank Holdings Credit Facility		$	150,000	$	16,951	12/31/2010
Total Citibank Holdings Credit Facility		$	150,000	$	16,951
Wachovia Group Credit Facility	Tranche One	$	350,000	$	-
	Tranche Two		500,000		360,033	12/31/2010
Total Wachovia Group Credit Facility		$	850,000	$	360,033
Total Letters of Credit		$	1,300,000	$	577,322

12.  TRUST AGREEMENTS

Certain subsidiaries of Group, principally Bermuda Re, a Bermuda insurance company and direct subsidiary of Group, have established trust agreements, which effectively use the Company’s investments as collateral, as security for assumed losses payable to certain non-affiliated ceding companies.  At March 31, 2010, the total amount on deposit in trust accounts was $95.6 million.

13.  SENIOR NOTES

On October 12, 2004, Holdings completed a public offering of $250.0 million principal amount of 5.40% senior notes due October 15, 2014.  On March 14, 2000, Holdings completed a public offering of $200.0 million principal amount of 8.75% senior notes due on March 15, 2010.  On March 15, 2010, the $200.0 million principal amount of 8.75% senior notes matured and was paid in cash.

Interest expense incurred in connection with these senior notes was $7.1 million and $7.8 million for the three months ended March 31, 2010 and 2009, respectively.  Market value, which is based on quoted market price at March 31, 2010 and December 31, 2009, was $261.0 million and $256.1 million, respectively, for the 5.40% senior notes and $200.0 million for the 8.75% senior notes at December 31, 2009.

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14.  LONG TERM SUBORDINATED NOTES

On April 26, 2007, Holdings completed a public offering of $400.0 million principal amount of 6.6% fixed to floating rate long term subordinated notes with a scheduled maturity date of May 15, 2037 and a final maturity date of May 1, 2067. During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest will be at the annual rate of 6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years.  During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year , subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years.  Deferred interest will accumulate interest at the applicable rate compounded semi-annually for periods prior to May 15, 2017, and compounded quarterly for periods from and including May 15, 2017.

Holdings can redeem the long term subordinated notes prior to May 15, 2017, in whole but not in part at the applicable redemption price, which will equal the greater of (a) 100% of the principal amount being redeemed and (b) the present value of the principal payment on May 15, 2017 and scheduled payments of interest that would have accrued from the redemption date to May 15, 2017 on the long term subordinated notes being redeemed, discounted to the redemption date on a semi-annual basis at a discount rate equal to the treasury rate plus an applicable spread of either 0.25% or 0.50%, in each case plus accrued and unpaid interest.  Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at 100% of the principal amount plus accrued and unpaid interest; however, redemption on or af ter the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant.  This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes.

On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes.  Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161.4 million, which resulted in a pre-tax gain on debt repurchase of $78.3 million.

Interest expense incurred in connection with these long term notes was $3.9 million and $6.5 million for the three months ended March 31, 2010 and 2009, respectively.  Market value, which is based on quoted market prices at March 31, 2010 and December 31, 2009, was $204.1 million and $176.5 million on the outstanding 6.6% long term subordinated notes, respectively.

15.  JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE

On March 29, 2004, Holdings issued $329.9 million of 6.20% junior subordinated debt securities, due March 29, 2034, to Everest Re Capital Trust II (“Capital Trust II”).  Holdings may redeem the junior subordinated debt securities before their maturity at 100% of their principal amount plus accrued interest as of the date of redemption.  The securities may be redeemed, in whole or in part, on one or more occasions at any time on or after March 30, 2009; or at any time, in whole, but not in part, within 90 days of the occurrence and continuation of a determination that the Trust may become subject to tax or the Investment Company Act.

Fair value, which is primarily based on the quoted market price of the related trust preferred securities, was $289.6 million and $272.6 million, at March 31, 2010 and December 31, 2009, respectively, for the 6.20% junior subordinated debt securities.

Interest expense incurred in connection with these junior subordinated notes was $5.1 million for the three months ended March 31, 2010 and 2009.

Capital Trust II is a wholly owned finance subsidiary of Holdings.

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Holdings considers that the mechanisms and obligations relating to the trust preferred securities, taken together, constitute a full and unconditional guarantee by Holdings of Capital Trust II’s payment obligations with respect to their trust preferred securities.

Capital Trust II will redeem all of the outstanding trust preferred securities when the junior subordinated debt securities are paid at maturity on March 29, 2034.  The Company may elect to redeem the junior subordinated debt securities, in whole or in part, at any time on or after March 30, 2009.  If such an early redemption occurs, the outstanding trust preferred securities would also be proportionately redeemed.

There are certain regulatory and contractual restrictions on the ability of Holdings’ operating subsidiaries to transfer funds to Holdings in the form of cash dividends, loans or advances.  The insurance laws of the State of Delaware, where Holdings’ direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or advances to Holdings that exceed certain statutory thresholds.  In addition, the terms of Holdings Credit Facility (discussed in Note 10) require Everest Re, Holdings’ principal insurance subsidiary, to maintain a certain statutory surplus level as measured at the end of each fiscal year.  At December 31, 2009, $2,352.0 million of the $3,271.1 million in net assets of Holdings’ consolidated subsidiar ies were subject to the foregoing regulatory restrictions.

16.  SEGMENT REPORTING

The Company, through its subsidiaries, operates in five segments:  U.S. Reinsurance, U.S. Insurance, Specialty Underwriting, International and Bermuda.  The U.S. Reinsurance operation writes property and casualty reinsurance, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S.  The U.S. Insurance operation writes property and casualty insurance primarily through general agents, brokers and surplus lines brokers within the U.S.  The Specialty Underwriting operation writes accident and health (“A&H”), marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies.  The International operation writes non-U.S. property and casualty reinsuranc e through Everest Re’s branches in Canada and Singapore and offices in Miami and New Jersey. The Bermuda operation provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers through brokers and directly with ceding companies from its Bermuda office and reinsurance to the United Kingdom and European markets through its UK branch and the Company’s Ireland location.

These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations.  Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.

Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred, commission and brokerage expenses and other underwriting expenses.  Underwriting results are measured using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.  The Company utilizes inter-affiliate reinsurance, although such reinsurance does not materially impact segment results, as business is generally reported within the segment in which the business was first produced.

The Company does not maintain separate balance sheet data for its operating segments.  Accordingly, the Company does not review and evaluate the financial results of its operating segments based upon balance sheet data.

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The following tables present the underwriting results for the operating segments for the periods indicated:

	Three Months Ended
U.S. Reinsurance	March 31,
(Dollars in thousands)	2010		2009
Gross written premiums	$	244,008	$	264,331
Net written premiums		244,266		260,500
Premiums earned	$	236,740	$	263,157
Incurred losses and LAE		153,804		137,785
Commission and brokerage		57,198		65,339
Other underwriting expenses		7,806		7,562
Underwriting gain	$	17,932	$	52,471

	Three Months Ended
U.S. Insurance	March 31,
(Dollars in thousands)	2010		2009
Gross written premiums	$	228,237	$	204,717
Net written premiums		176,983		182,441
Premiums earned	$	161,823	$	166,020
Incurred losses and LAE		112,063		116,023
Commission and brokerage		31,806		31,520
Other underwriting expenses		16,577		17,281
Underwriting gain	$	1,377	$	1,196

	Three Months Ended
Specialty Underwriting	March 31,
(Dollars in thousands)	2010		2009
Gross written premiums	$	65,887	$	58,923
Net written premiums		65,120		57,967
Premiums earned	$	67,424	$	63,134
Incurred losses and LAE		45,737		40,041
Commission and brokerage		16,796		18,582
Other underwriting expenses		1,951		1,845
Underwriting gain	$	2,940	$	2,666

	Three Months Ended
International	March 31,
(Dollars in thousands)	2010			2009
Gross written premiums	$	275,350		$	250,750
Net written premiums		275,312			250,727
Premiums earned	$	276,600		$	254,514
Incurred losses and LAE		427,590			155,341
Commission and brokerage		64,935			66,337
Other underwriting expenses		6,380			4,620
Underwriting (loss) gain	$	(222,305	)	$	28,216

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	Three Months Ended
Bermuda	March 31,
(Dollars in thousands)	2010			2009
Gross written premiums	$	207,537		$	219,064
Net written premiums		207,572			219,111
Premiums earned	$	184,715		$	185,465
Incurred losses and LAE		167,662			120,715
Commission and brokerage		41,927			44,260
Other underwriting expenses		6,230			5,047
Underwriting (loss) gain	$	(31,104	)	$	15,443

The following table reconciles the underwriting results for the operating segments to income before taxes as reported in the consolidated statements of operations and comprehensive income for the periods indicated:

	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Underwriting (loss) gain	$	(231,160	)	$	99,992
Net investment income		161,499			68,754
Net realized capital gains (losses)		72,718			(65,137	)
Realized gain on debt repurchase		-			78,271
Net derivative gain (loss)		3,054			(19,703	)
Corporate expenses		(4,575	)		(3,780	)
Interest, fee and bond issue cost amortization expense		(16,642	)		(20,142	)
Other income (expense)		5,339			(5,180	)
(Loss) income before taxes	$	(9,767	)	$	133,075

The Company produces business in the U.S., Bermuda and internationally.  The net income deriving from and assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company’s financial records.  Based on gross written premium, the largest country, other than the U.S., in which the Company writes business, is the United Kingdom, with $132.3 million of gross written premium for the three months ended March 31, 2010.  No other country represented more than 5% of the Company’s revenues.

17.  SHARE-BASED COMPENSATION PLANS

For the three months ended March 31, 2010, share-based compensation awards granted were 144,198 restricted shares and 384,890 options, granted on February 24, 2010, with a grant exercise price of $84.63 per share and a per option fair value of $22.06.  The fair value per option was calculated on the date of the grant using the Black-Scholes option valuation model.  The following assumptions were used in calculating the fair value of the options granted:

	Three Months Ended
	March 31,
	2009
Weighted-average volatility	26.82%
Weighted-average dividend yield	2.00%
Weighted-average expected term	6.74 years
Weighted-average risk-free rate	3.04%

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18.  RETIREMENT BENEFITS

The Company maintains both qualified and non-qualified defined benefit pension plans for its U.S. employees.  In addition, the Company has a retiree health plan for eligible retired employees.

Net periodic benefit cost for U.S. employees included the following components for the periods indicated:

Pension Benefits	Three Months Ended
	March 31,
(Dollars in thousands)	2010			2009
Service cost	$	1,768		$	1,328
Interest cost		1,722			1,635
Expected return on plan assets		(1,940	)		(1,098	)
Amortization of prior service cost		13			12
Amortization of net loss		577			728
FAS 88 settlement charge		1,395			800
Net periodic benefit cost	$	3,535		$	3,405
Other Benefits	Three Months Ended
	March 31,
(Dollars in thousands)		2010			2009
Service cost	$	280		$	203
Interest cost		228			203
Amortization of net loss		37			-
Net periodic benefit cost	$	545		$	406

The Company did not make any contributions to the pension benefit plan for the three months ended March 31, 2010 and 2009.

19.  RELATED-PARTY TRANSACTIONS

During the normal course of business, the Company, through its affiliates, engages in reinsurance and brokerage and commission business transactions with companies controlled by or affiliated with one or more of its outside directors.  Such transactions, individually and in the aggregate, are not material to the Company’s financial condition, results of operations and cash flows.

20.  INCOME TAXES

The Company uses a projected annual effective tax rate to calculate its quarterly tax expense in accordance with FASB guidance.  Under this methodology, when an interim quarter’s pre-tax income (loss) varies significantly from a full year’s income (loss) projection, the tax impact resulting from the income (loss) variance is effectively spread between the impacted quarter and the remaining quarters of the year, except for discreet items impacting an individual quarter.

The Company recognizes accrued interest related to unrecognized tax benefits and penalties in income taxes.  For the three months ended March 31, 2010, the Company expensed approximately $1.1 million in interest and penalties.

21.  SUBSEQUENT EVENTS

The Company has evaluated known recognized and non-recognized subsequent events.  The Company does not have any subsequent events to report.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Industry Conditions.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market.  As such, financial results tend to fluctuate with periods of constrained availability, high rates and strong profits followed by periods of abundant capacity, low rates and constrained profitability.  Competition in the types of reinsurance and insurance business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written.  Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels.

We compete in the U.S., Bermuda and international reinsurance and insurance markets with numerous global competitors.  Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies and domestic and international underwriting operations, including underwriting syndicates at Lloyd’s.  Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage.  In addition, the lack of strong barriers to entry into the reinsurance business and the potential for securitization of reinsurance and insurance risks through capital markets provide addition al sources of potential reinsurance and insurance capacity and competition.

Starting in the latter part of 2007 and continuing into 2010, there has been a significant slowdown in the global economy, which has negatively impacted the financial resources of the industry.  Excessive availability and use of credit, particularly by individuals, led to increased defaults on sub-prime mortgages in the U.S. and elsewhere, falling values for houses and many commodities and contracting consumer spending.  The significant increase in default rates negatively impacted the value of asset-backed securities held by both foreign and domestic institutions.  The defaults have led to a corresponding increase in foreclosures, which have driven down housing values, resulting in additional losses on asset-backed securities.  During the third and fourth quarters of 2008, credit markets de teriorated dramatically, evidenced by widening credit spreads and dramatically reduced availability of credit.  Many financial institutions, including some insurance entities, experienced liquidity crises due to immediate demands for funds for withdrawals or collateral, combined with falling asset values and their inability to sell assets to meet the increased demands.  As a result, several financial institutions have failed or been acquired at distressed prices, while others have received loans from the U.S. government to continue operations.  The liquidity crisis significantly increased the spreads on fixed maturity securities and, at the same time, had a dramatic and negative impact on the stock markets around the world.  The combination of losses on securities from failed or impaired companies combined with the decline in values of fixed maturity and equity securities resulted in significant declines in the capital bases of most insurance and reinsurance companies.   While there was significant improvement in the financial markets during 2009 and into 2010, recent concerns about the ability of some European countries to repay their bonds has hindered financial market recoveries.  It is too early to predict the timing and extent of the impact these financial market fluctuations will have on insurance and reinsurance market conditions.

Worldwide insurance and reinsurance market conditions continued to be very competitive.  Generally, there was ample insurance and reinsurance capacity relative to demand.  We noted, however, that in many markets and lines during 2009 and into 2010, the rates of decline have slowed, pricing in some segments was relatively flat and there was upward movement in some others, particularly property catastrophe coverage.  Competition and its effect on rates, terms and conditions vary widely by market and coverage yet continues to be most prevalent in the U.S. casualty insurance and reinsurance markets.  The U.S. insurance markets in which we participate were extremely competitive as well.

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The reinsurance industry has experienced a period of falling rates and volume, particularly in the casualty lines of business.  Profit opportunities have become generally less available over time; however the unfavorable trends seem to be softening.  We are now seeing smaller rate declines, pockets of stability and some increases in some markets and for some coverages.  During the first quarter of 2010, the devastating Chilean earthquake coupled with severe storms in Europe and Australia resulted in significant catastrophe losses to the industry.  It is too early to gauge the market impacts from these losses, but we feel that market conditions should improve for catastrophe coverages in the geographical regions of these losses.

Rates in the international markets have generally been stable and we have seen some increases, particularly for catastrophe exposed business.  We have grown our business in the Middle East, Latin America and Asia.  We are expanding our international reach with our new office in Brazil to capitalize on the recently expanded opportunity for professional reinsurers in that market and on the economic growth expected for Brazil in the future.

Overall, we believe that current marketplace conditions offer profit opportunities for us given our strong ratings, distribution system, reputation and expertise.  We continue to employ our strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in our overall portfolio.

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Financial Summary.

We monitor and evaluate our overall performance based upon financial results.  The following table displays a summary of the consolidated net (loss) income, ratios and shareholders’ equity for the periods indicated.

	Three Months Ended						Percentage
	March 31,						Increase/
(Dollars in millions)	2010			2009			(Decrease)
Gross written premiums	$	1,021.0		$	997.8			2.3	%
Net written premiums		969.3			970.7			-0.2	%
REVENUES:
Premiums earned	$	927.3		$	932.3			-0.5	%
Net investment income		161.5			68.8			134.9	%
Net realized capital gains (losses)		72.7			(65.1	)		-211.6	%
Realized gain on debt repurchase		-			78.3		NA
Net derivative gain (loss)		3.1			(19.7	)		-115.5	%
Other income (expense)		5.3			(5.2	)		-203.1	%
Total revenues		1,169.9			989.3			18.3	%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		906.9			569.9			59.1	%
Commission, brokerage, taxes and fees		212.7			226.0			-5.9	%
Other underwriting expenses		38.9			36.3			7.1	%
Corporate expenses		4.6			3.8			21.0	%
Interest, fees and bond issue cost amortization expense		16.6			20.1			-17.4	%
Total claims and expenses		1,179.7			856.2			37.8	%
(LOSS) INCOME BEFORE TAXES		(9.8	)		133.1			-107.3	%
Income tax expense		12.9			24.5			-47.4	%
NET (LOSS) INCOME	$	(22.7	)	$	108.6			-120.9	%
							Point
RATIOS:							Change
Loss ratio		97.8	%		61.1	%		36.7
Commission and brokerage ratio		22.9	%		24.2	%		(1.3	)
Other underwriting expense ratio		4.2	%		4.0	%		0.2
Combined ratio		124.9	%		89.3	%		35.6
	At			At			Percentage
	March 31,			December 31,			Increase/
(Dollars in millions, except per share amounts)		2010			2009		(Decrease)
Balance sheet data:
Total investments and cash	$	15,044.4		$	14,918.8			0.8	%
Total assets		18,160.1			18,001.3			0.9	%
Loss and loss adjustment expense reserves		9,299.4			8,937.9			4.0	%
Total debt		818.0			1,018.0			-19.6	%
Total liabilities		12,123.1			11,899.6			1.9	%
Shareholders' equity		6,037.0			6,101.7			-1.1	%
Book value per share		102.46			102.87
(NA, not applicable)
(Some amounts may not reconcile due to rounding.)

Revenues.

Premiums.  Gross written premiums increased by $23.2 million, or 2.3%, for the three months ended March 31, 2010, compared to the three months ended March 31, 2009, reflecting a $23.5 million increase in our insurance business, partially offset by a decrease of $0.3 million in our reinsurance business.  The increase in insurance premiums were primarily in the workers’ compensation, Florida property and financial institution D&O and E&O lines of business.  Net written premiums decreased $1.5 million, or 0.2%, for the three months ended March 31, 2010 compared to the three months ended March 31, 2009.  This change was

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due to ceded premiums that generally relate to specific reinsurance purchased by the U.S. Insurance operation and fluctuate based upon the level of premiums written in the individual reinsured programs.  Premiums earned decreased $5.0 million, or 0.5%, for the three months ended March 31, 2010, compared to the three months ended March 31, 2009, reflective of the lower net written premiums.  The change in net premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period, whereas written premiums are recorded at the initiation of the coverage period.

Net Investment Income.  Net investment income increased by 134.9% for the three months ended March 31, 2010, compared to the three months ended March 31, 2009, due primarily to net investment gains from our limited partnerships that invest in public and non-public securities, both equity and debt.  Gains related to these limited partnerships were $15.9 million for the three months ended March 31, 2010 compared with losses of $72.9 million for the comparable period in 2009.  As a result, net pre-tax investment income, as a percentage of average invested assets, was up at 4.4% for the three months ended March 31, 2010 compar ed to 2.0% for the three months ended March 31, 2009.

Net Realized Capital Gains (Losses).  Net realized capital gains were $72.7 million for the three months ended March 31, 2010, compared to net realized capital losses of $65.1 million for the three months ended March 31, 2009.  For the three months ended March 31, 2010, we recorded $55.0 million of net realized capital gains from sales on our available for sale fixed maturity and equity securities, and by a $17.7 million gain in fair value re-measurements.  For the three months ended March 31, 2009, we recorded $39.9 million of net realized capital losses, from the sale of fixed maturity and equity securities, $16.9 millio n loss in fair value re-measurements and $8.3 million due to other-than-temporary impairments.

Realized Gain on Debt Repurchase.  On March 19, 2009, we commenced a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes due 2067.  Upon expiration of the tender offer, we had reduced our outstanding debt by $161.4 million, which resulted in a pre-tax gain on debt repurchase of $78.3 million.

Net Derivative Gain (Loss).  In 2005 and prior, we sold seven equity index put option contracts, which are outstanding.  These contracts meet the definition of a derivative in accordance with FASB guidance and as such, are fair valued each quarter with the change recorded as net derivative gain or loss in the consolidated statements of operations and comprehensive income.  As a result of these adjustments in value, we recognized net derivative gain of $3.1 million for the three months ended March 31, 2010 and net derivative loss of $19.7 million for the three months ended March 31, 2009.  The change in the fair v alue of these equity index put option contracts is indicative of the change in the financial markets over the same periods.

Other Income (Expense).  We recorded other income of $5.3 million and other expense of $5.2 million for the three months ended March 31, 2010 and 2009, respectively.  The changes were primarily the result of fluctuations in foreign currency exchange rates for the corresponding periods.

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Claims and Expenses.

Incurred Losses and LAE.  The following table presents our incurred losses and LAE for the periods indicated.

	Three Months Ended March 31,
	Current		Ratio %/				Prior			Ratio %/				Total		Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred		Pt Change
2010
Attritional (a)	$	551.6		59.5	%		$	0.8			0.1	%		$	552.4		59.6	%
Catastrophes		355.0		38.3	%			(0.6	)		-0.1	%			354.4		38.2	%
A&E		-		0.0	%			-			0.0	%			-		0.0	%
Total	$	906.6		97.8	%		$	0.2			0.0	%		$	906.9		97.8	%
2009
Attritional (a)	$	518.8		55.7	%		$	17.9			1.9	%		$	536.7		57.6	%
Catastrophes		28.9		3.1	%			4.2			0.5	%			33.2		3.6	%
A&E		-		0.0	%			-			0.0	%			-		0.0	%
Total	$	547.7		58.8	%		$	22.2			2.4	%		$	569.9		61.1	%
Variance 2010/2009
Attritional (a)	$	32.8		3.8		pts	$	(17.1	)		(1.8	)	pts	$	15.7		2.0		pts
Catastrophes		326.1		35.2		pts		(4.8	)		(0.6	)	pts		321.2		34.6		pts
A&E		-		-		pts		-			-		pts		-		-		pts
Total	$	358.9		39.0		pts	$	(22.0	)		(2.4	)	pts	$	337.0		36.7		pts
(a) Attritional losses exclude catastrophe and A&E losses.
(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by $337.0 million, or 59.1%, for the three months ended March 31, 2010 compared to the same period in 2009.  Of the $337.0 million increase, current year catastrophe losses increased $326.1 million corresponding to a loss ratio increase of 35.2 points, period over period, primarily due to the Chile earthquake, winterstorm Xynthia and Australian hailstorms.

Commission, Brokerage, Taxes and Fees.  Commission, brokerage, taxes and fees decreased by $13.3 million, or 5.9%, for the three months ended March 31, 2010 compared to the same period in 2009.  The decrease was primarily the result of lower commission rates on property contracts in conjunction with the increase in reinstatement premiums, which have no brokerage commissions, and mix of business.

Other Underwriting Expenses.  Other underwriting expenses were $38.9 million and $36.3 million for the three months ended March 31, 2010 and 2009, respectively.  The increase was primarily due to the increase in staff and staff related expenses.

Corporate Expenses.  Corporate expenses, which are expenses that are not allocated to segments, were $4.6 million and $3.8 million for the three months ended March 31, 2010 and 2009, respectively.  These expenses were previously included as underwriting expenses and therefore included in the other underwriting expense ratio.  Effective January 1, 2010, these expenses were removed from the calculation of the other underwriting expense ratio and prior periods were recalculated to conform.

Interest, Fees and Bond Issue Cost Amortization Expense.  Interest and other expense was $16.6 million and $20.1 million for the three months ended March 31, 2010 and 2009, respectively.  The decrease was primarily due to the combination of the repurchase of debt in March 2009 and the maturing of debt in 2010.

Income Tax Expense.  We had income tax expense of $12.9 million and $24.5 million for the three months ended March 31, 2010 and 2009, respectively.  Our income tax is primarily a function of the statutory tax rates and corresponding pre-tax income in the jurisdictions where we operate, coupled with the impact from tax-preferenced investment income.  Variations in our effective tax rate generally result from changes in the relative levels of pre-tax income among jurisdictions with different tax rates.

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Net (Loss) Income.

Our net loss was $22.7 million and our net income was $108.6 million for the three months ended March 31, 2010 and 2009, respectively.  This decrease was primarily driven by the increase in catastrophe losses in 2010 as compared to 2009 and the other components as discussed above.

Ratios.

Our combined ratio increased by 35.6 points to 124.9% for the three months ended March 31, 2010 compared to 89.3% for the three months ended March 31, 2009.  The loss ratio component increased 36.7 points for the three months ended March 31, 2010 compared to the same period last year, principally due to the 35.2 point increase in current year catastrophe losses as a result of the Chile earthquake, winterstorm Xynthia and Australian hailstorms.  The other underwriting expense ratio component increased by 0.2 points for the three months ended March 31, 2010 compared to the same period last year, while the commission and brokerage ratio component decreased by 1.3 points for the three months ended March 31, 2010 compared to the same period last year, due to lower rates on property contracts and blend and mix of bus iness.

Shareholders’ Equity.

Shareholders’ equity decreased by $64.8 million to $6,037.0 million at March 31, 2010 from $6,101.7 million at December 31, 2009, principally as a result of 562,306 common share repurchases for $47.0 million, $28.3 million of shareholder dividends, $22.7 million of net losses and $6.0 million of foreign currency translation adjustments, partially offset by $34.6 million of unrealized appreciation, net of tax, on investments and share-based compensation transactions of $4.3 million.

Consolidated Investment Results

Net Investment Income.

Net investment income increased 134.9% to $161.5 million for the three months ended March 31, 2010 from $68.8 million for the three months ended March 31, 2009, primarily due to an increase in recorded gains in 2010 as opposed to recorded losses in 2009 from our limited partnership investments.  The losses in 2009 were the result of 2008 fourth quarter losses from those limited partnerships that invested in non-public securities and are on a quarter reporting lag.

The following table shows the components of net investment income for the periods indicated.

	Three Months Ended
	March 31,
(Dollars in millions)	2010			2009
Fixed maturities	$	145.2		$	144.6
Equity securities		2.5			0.7
Short-term investments and cash		(0.3	)		3.6
Other invested assets
Limited partnerships		15.9			(72.9	)
Other		0.4			0.8
Total gross investment income		163.7			76.7
Interest credited and other expense		(2.2	)		(8.0	)
Total net investment income	$	161.5		$	68.8
(Some amounts may not reconcile due to rounding.)

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The following tables show a comparison of various investment yields for the periods indicated.

	At	At
	March 31,	December 31,
	2010	2009
Imbedded pre-tax yield of cash and invested assets	4.1%	4.1%
Imbedded after-tax yield of cash and invested assets	3.7%	3.6%

	Three Months Ended
	March 31,
	2010	2009
Annualized pre-tax yield on average cash and invested assets	4.4%	2.0%
Annualized after-tax yield on average cash and invested assets	3.9%	1.9%

Net Realized Capital Gains (Losses).

The following table presents the composition of our net realized capital gains (losses) for the periods indicated.

	Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance
Gains (losses) from sales:
Fixed maturity securities, market value
Gains	$	58.6		$	2.7		$	55.9
Losses		(5.6	)		(42.3	)		36.7
Total		53.0			(39.6	)		92.6
Fixed maturity securities, fair value
Gains		0.1			0.2			(0.1	)
Losses		-			(0.1	)		0.1
Total		0.1			0.1			-
Equity securities, market value
Gains		2.4			-			2.4
Losses		(0.5	)		-			(0.5	)
Total		1.9			-			1.9
Equity securities, fair value
Gains		-			0.2			(0.2	)
Losses		-			(0.7	)		0.7
Total		-			(0.4	)		0.4
Total net realized capital gains (losses) from sales
Gains		61.1			3.1			58.0
Losses		(6.1	)		(43.0	)		36.9
Total		55.0			(39.9	)		94.9
Other-than-temporary impairments:		-			(8.3	)		8.3
Gains (losses) from fair value adjustments:
Fixed maturities, fair value		3.0			-			3.0
Equity securities, fair value		14.7			(16.9	)		31.6
Total		17.7			(16.9	)		34.6
Total net realized capital gains (losses)	$	72.7		$	(65.1	)	$	137.8
(Some amounts may not reconcile due to rounding.)

Net realized capital gains were $72.7 million and net realized capital losses were $65.1 million for the three months ended March 31, 2010 and 2009, respectively.  For the three months ended March 31, 2010, we recorded $55.0 million of net realized capital gains from sales of fixed maturity and equity securities and a $17.7 million gain in fair value re-measurements due to fixed maturity and equity securities.  The gains on the sales of fixed maturity securities were primarily the result of selling securities in foreign currencies, which

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will reduce our exposure to currency fluctuations in the future.  In contrast, for the three months ended March 31, 2009, we recorded $39.9 million of losses from sales on fixed maturity and equity securities, $16.9 million in losses due to fair value re-measurements on equity securities as a result of the global financial markets credit crisis and $8.3 million of other-than-temporary impairments on our available for sale fixed maturity securities.

Segment Results.

Through our subsidiaries, we operate in five segments:  U.S. Reinsurance, U.S. Insurance, Specialty Underwriting, International and Bermuda.  The U.S. Reinsurance operation writes property and casualty reinsurance, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S.  The U.S. Insurance operation writes property and casualty insurance primarily through general agents, brokers and surplus lines brokers within the U.S.  The Specialty Underwriting operation writes accident and health (“A&H”), marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies.  The International operation writes non-U.S. property and casualty reinsurance through E verest Re’s branches in Canada and Singapore and offices in Miami and New Jersey.  The Bermuda operation provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers through brokers and directly with ceding companies from its Bermuda office and reinsurance to the United Kingdom and European markets through its UK branch and the Company’s Ireland location.

These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations.  Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.

Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses.  We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.  We utilize inter-affiliate reinsurance, although such reinsurance does not materially impact segment results, as business is generally reported within the segment in which the business was first produced.

Our loss and LAE reserves are our best estimate of our ultimate liability for unpaid claims.  We re-evaluate our estimates on an ongoing basis, including all prior period reserves, taking into consideration all available information and, in particular, recently reported loss claim experience and trends related to prior periods.  Such re-evaluations are recorded in incurred losses in the period in which re-evaluation is made.

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The following discusses the underwriting results for each of our segments for the periods indicated.

U.S. Reinsurance.

The following table presents the underwriting results and ratios for the U.S. Reinsurance segment for the periods indicated.

	Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance			% Change
Gross written premiums	$	244.0		$	264.3		$	(20.3	)		-7.7	%
Net written premiums		244.3			260.5			(16.2	)		-6.2	%
Premiums earned	$	236.7		$	263.2		$	(26.4	)		-10.0	%
Incurred losses and LAE		153.8			137.8			16.0			11.6	%
Commission and brokerage		57.2			65.3			(8.1	)		-12.5	%
Other underwriting expenses		7.8			7.6			0.2			3.2	%
Underwriting gain	$	17.9		$	52.5		$	(34.5	)		-65.8	%
										Point Chg
Loss ratio		65.0	%		52.4	%					12.6
Commission and brokerage ratio		24.2	%		24.8	%					(0.6	)
Other underwriting expense ratio		3.2	%		2.9	%					0.3
Combined ratio		92.4	%		80.1	%					12.3
(Some amounts may not reconcile due to rounding.)

Premiums.Gross written premiums decreased by 7.7% to $244.0 million for the three months ended March 31, 2010 from $264.3 million for the three months ended March 31, 2009, primarily due to $20.3 million (23.2%) decrease in U.S. treaty casualty volume, a $13.4 million (63.6%) decrease in facultative volume and a $5.3 million (30.5%) decrease in the crop hail quota share treaties, partially offset by an $18.6 million (13.5%) increase in treaty property volume.  Net written premiums decreased 6.2% to $244.3 million for the three mon ths ended March 31, 2010 compared to $260.5 million for the three months ended March 31, 2009, relatively in line with the decrease in gross written premiums.  Premiums earned decreased 10.0% to $236.7 million for the three months ended March 31, 2010 compared to $263.2 million for the three months ended March 31, 2009.  The change in premiums earned relative to net written premiums is the result of timing; premiums, for proportionate contracts, are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

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Incurred Losses and LAE.The following table presents the incurred losses and LAE for the U.S. Reinsurance segment for the periods indicated.

	Three Months Ended March 31,
	Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2010
Attritional	$	122.8			51.9	%		$	0.2			0.1	%		$	122.9			51.9	%
Catastrophes		28.0			11.8	%			2.9			1.2	%			30.9			13.0	%
A&E		-			0.0	%			-			0.0	%			-			0.0	%
Total segment	$	150.8			63.7	%		$	3.0			1.3	%		$	153.8			65.0	%
2009
Attritional	$	125.5			47.7	%		$	12.0			4.6	%		$	137.6			52.3	%
Catastrophes		-			0.0	%			0.2			0.1	%			0.2			0.1	%
A&E		-			0.0	%			-			0.0	%			-			0.0	%
Total segment	$	125.5			47.7	%		$	12.2			4.7	%		$	137.8			52.4	%
Variance 2010/2009
Attritional	$	(2.7	)		4.2		pts	$	(11.8	)		(4.5	)	pts	$	(14.7	)		(0.4	)	pts
Catastrophes		28.0			11.8		pts		2.7			1.1		pts		30.7			12.9		pts
A&E		-			-		pts		-			-		pts		-			-		pts
Total segment	$	25.3			16.0		pts	$	(9.2	)		(3.4	)	pts	$	16.0			12.6		pts
(Some amounts may not reconcile due to rounding.)

Incurred losses were $16.0 million (12.6 points) higher at $153.8 million for the three months ended March 31, 2010 compared to $137.8 million for the three months ended March 31, 2009, primarily as a result of the $28.0 million (11.8 points) increase in current year catastrophe losses due to the Chile earthquake and windstorm Xynthia.

Segment Expenses.  Commission and brokerage expenses decreased by 12.5% to $57.2 million for the three months ended March 31, 2010 compared to $65.3 million for the three months ended March 31, 2009, primarily due to the decline in premiums earned.  Segment other underwriting expenses for the three months ended March 31, 2010 increased slightly to $7.8 million from $7.6 million for the three months ended March 31, 2009, due to growth in the overall infrastructure.

U.S. Insurance.

The following table presents the underwriting results and ratios for the U.S. Insurance segment for the periods indicated.

	Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance			% Change
Gross written premiums	$	228.2		$	204.7		$	23.5			11.5	%
Net written premiums		177.0			182.4			(5.5	)		-3.0	%
Premiums earned	$	161.8		$	166.0		$	(4.2	)		-2.5	%
Incurred losses and LAE		112.1			116.0			(4.0	)		-3.4	%
Commission and brokerage		31.8			31.5			0.3			0.9	%
Other underwriting expenses		16.6			17.3			(0.7	)		-4.1	%
Underwriting gain	$	1.4		$	1.2		$	0.2			15.1	%
										Point Chg
Loss ratio		69.3	%		69.9	%					(0.6	)
Commission and brokerage ratio		19.7	%		19.0	%					0.7
Other underwriting expense ratio		10.1	%		10.4	%					(0.3	)
Combined ratio		99.1	%		99.3	%					(0.2	)
(Some amounts may not reconcile due to rounding.)

36

Premiums.Gross written premiums increased by 11.5% to $228.2 million for the three months ended March 31, 2010 compared to $204.7 million for the three months ended March 31, 2009.  Growth was derived from our direct specialty operation in New York, additional property insurance written in Florida and the workers’ compensation business.  Net written premiums decreased by 3.0% to $177.0 million for the three months ended March 31, 2010 compared to $182 .4 million for the three months ended March 31, 2009 reflective of the change in business mix and cessions to third parties.  Ceded premiums generally relate to specific reinsurance purchased and fluctuate based upon the level of premiums written in the individual reinsured programs.  Premiums earned decreased 2.5% to $161.8 million for the three months ended March 31, 2010 compared to $166.0 million for the three months ended March 31, 2009 comparable to the change in net written premiums.

Incurred Losses and LAE.The following table presents the incurred losses and LAE for the U.S. Insurance segment for the periods indicated.

	Three Months Ended March 31,
	Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2010
Attritional	$	115.4			71.3	%		$	(3.3	)		-2.1	%		$	112.1			69.3	%
Catastrophes		-			0.0	%			-			0.0	%			-			0.0	%
Total segment	$	115.4			71.3	%		$	(3.3	)		-2.1	%		$	112.1			69.3	%
2009
Attritional	$	116.0			69.9	%		$	-			0.0	%		$	116.0			69.9	%
Catastrophes		-			0.0	%			-			0.0	%			-			0.0	%
Total segment	$	116.0			69.9	%		$	-			0.0	%		$	116.0			69.9	%
Variance 2010/2009
Attritional	$	(0.6	)		1.4		pts	$	(3.3	)		(2.1	)	pts	$	(3.9	)		(0.6	)	pts
Catastrophes		-			-		pts		-			-		pts		-			-		pts
Total segment	$	(0.6	)		1.4		pts	$	(3.3	)		(2.1	)	pts	$	(3.9	)		(0.6	)	pts
(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE decreased by 3.4% to $112.1 million for the three months ended March 31, 2010 compared to $116.0 million for the three months ended March 31, 2009.  The decrease was due to the favorable prior years’ reserve development in 2010 with no development in 2009, partially offset by an increase in the current year’s attritional loss ratio due to the mix of business written.

Segment Expenses.Commission and brokerage increased slightly by 0.9% to $31.8 million for the three months ended March 31, 2010 compared to $31.5 million for the three months ended March 31, 2009 as a result of higher taxes, licenses and fees on the business written.  Segment other underwriting expenses for the three months ended March 31, 2010 decreased to $16.6 million compared to $17.3 million for the three months ended March 31, 2009 as a result of management’s actions to improve the expense ratio.

37

Specialty Underwriting.

The following table presents the underwriting results and ratios for the Specialty Underwriting segment for the periods indicated.

	Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance			% Change
Gross written premiums	$	65.9		$	58.9		$	7.0			11.8	%
Net written premiums		65.1			58.0			7.2			12.3	%
Premiums earned	$	67.4		$	63.1		$	4.3			6.8	%
Incurred losses and LAE		45.7			40.0			5.7			14.2	%
Commission and brokerage		16.8			18.6			(1.8	)		-9.6	%
Other underwriting expenses		2.0			1.8			0.1			5.7	%
Underwriting gain	$	2.9		$	2.7		$	0.3			10.3	%
										Point Chg
Loss ratio		67.8	%		63.4	%					4.4
Commission and brokerage ratio		24.9	%		29.4	%					(4.5	)
Other underwriting expense ratio		2.9	%		3.0	%					(0.1	)
Combined ratio		95.6	%		95.8	%					(0.2	)
(Some amounts may not reconcile due to rounding.)

Premiums.Gross written premiums increased by 11.8% to $65.9 million for the three months ended March 31, 2010 compared to $58.9 million for the three months ended March 31, 2009.  This was driven by a strong demand in our A&H business, $7.0 million, as more and more employers are self insuring their medical programs leading to more opportunities for us in the medical stop loss business.  Net written premiums increased 12.3% to $65.1 million for the three months ended March 31, 2010 compared to $58.0 million for the t hree months ended March 31, 2009, in line with the increase in gross writings.  Premiums earned increased 6.8% to $67.4 million for the three months ended March 31, 2010 compared to $63.1 million for the three months ended March 31, 2009.  The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Incurred Losses and LAE.  The following table presents the incurred losses and LAE for the Specialty Underwriting segment for the periods indicated.

	Three Months Ended March 31,
	Current		Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred			Pt Change
2010
Attritional	$	44.2		65.5	%		$	-			0.0	%		$	44.2			65.5	%
Catastrophes		-		0.0	%			1.6			2.3	%			1.6			2.3	%
Total segment	$	44.2		65.5	%		$	1.6			2.3	%		$	45.7			67.8	%
2009
Attritional	$	37.7		59.7	%		$	-			0.0	%		$	37.7			59.7	%
Catastrophes		-		0.0	%			2.3			3.7	%			2.3			3.7	%
Total segment	$	37.7		59.7	%		$	2.3			3.7	%		$	40.0			63.4	%
Variance 2010/2009
Attritional	$	6.5		5.8		pts	$	-			-		pts	$	6.5			5.8		pts
Catastrophes		-		-		pts		(0.7	)		(1.4	)	pts		(0.7	)		(1.4	)	pts
Total segment	$	6.5		5.8		pts	$	(0.7	)		(1.4	)	pts	$	5.7			4.4		pts
(Some amounts may not reconcile due to rounding.)

38

Incurred losses and LAE increased by 14.2% to $45.7 million for the three months ended March 31, 2010 compared to $40.0 million for the three months ended March 31, 2009, primarily as a result of an increase in expected loss ratios, which increased current year attritional losses in 2010.

Segment Expenses.Commission and brokerage decreased 9.6% to $16.8 million for the three months ended March 31, 2010 compared to $18.6 million for the three months ended March 31, 2009, primarily driven by the mix of business as the lower commission business, aviation, has increased while higher commission, marine and surety, have declined.  Segment other underwriting expenses for the three months ended March 31, 2010 increased slightly to $2.0 million compared to $1.8 million for the three months ended March 31, 2009.

International.

The following table presents the underwriting results and ratios for the International segment for the periods indicated.

	Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance			% Change
Gross written premiums	$	275.4		$	250.8		$	24.6			9.8	%
Net written premiums		275.3			250.7			24.6			9.8	%
Premiums earned	$	276.6		$	254.5		$	22.1			8.7	%
Incurred losses and LAE		427.6			155.3			272.2			175.3	%
Commission and brokerage		64.9			66.3			(1.4	)		-2.1	%
Other underwriting expenses		6.4			4.6			1.8			38.1	%
Underwriting (loss) gain	$	(222.3	)	$	28.2		$	(250.5	)	NM
										Point Chg
Loss ratio		154.6	%		61.0	%					93.6
Commission and brokerage ratio		23.5	%		26.1	%					(2.6	)
Other underwriting expense ratio		2.3	%		1.8	%					0.5
Combined ratio		180.4	%		88.9	%					91.5
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)

Premiums.Gross written premiums increased by 9.8% to $275.4 million for the three months ended March 31, 2010 compared to $250.8 million for the three months ended March 31, 2009.  Continued strong growth in Brazil, $9.9 million increase, and Asia, $10.3 million increase, were partially offset by lower writings in Canada, $2.3 million decrease.  Asia has the largest growth from both new business and increased participation on contracts in Japan and Taiwan.  Also included, were $12.5 million in reinstatement pre miums from the Chile earthquake.  Net written premiums increased by 9.8% to $275.3 million for the three months ended March 31, 2010 compared to $250.7 million for the three months ended March 31, 2009, principally as a result of the increase in gross written premiums.  Premiums earned increased 8.7% to $276.6 million for the three months ended March 31, 2010 compared to $254.5 million for the three months ended March 31, 2009, consistent with the increase in net written premiums.

39

Incurred Losses and LAE.The following table presents the incurred losses and LAE for the International segment for the periods indicated.

	Three Months Ended March 31,
	Current		Ratio %/				Prior			Ratio %/				Total		Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred		Pt Change
2010
Attritional	$	162.0		58.6	%		$	(0.2	)		-0.1	%		$	161.8		58.5	%
Catastrophes		267.0		96.5	%			(1.2	)		-0.4	%			265.8		96.1	%
Total segment	$	429.0		155.1	%		$	(1.4	)		-0.5	%		$	427.6		154.6	%
2009
Attritional	$	137.5		54.0	%		$	0.9			0.4	%		$	138.4		54.4	%
Catastrophes		16.2		6.4	%			0.8			0.3	%			17.0		6.7	%
Total segment	$	153.7		60.4	%		$	1.7			0.7	%		$	155.3		61.0	%
Variance 2010/2009
Attritional	$	24.5		4.6		pts	$	(1.1	)		(0.5	)	pts	$	23.4		4.1		pts
Catastrophes		250.8		90.1		pts		(2.0	)		(0.7	)	pts		248.8		89.4		pts
Total segment	$	275.3		94.7		pts	$	(3.1	)		(1.2	)	pts	$	272.3		93.6		pts
(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased 175.3% to $427.6 million for the three months ended March 31, 2010 compared to $155.3 million for the three months ended March 31, 2009.  The increase was principally due to the $250.8 million increase in current year catastrophes due to the Chile earthquake ($232.0 million) and the Australian hailstorms ($35.0 million).  Current year attritional losses also increased due to increased expected loss ratios.

Segment Expenses.Commission and brokerage decreased 2.1% to $64.9 million for the three months ended March 31, 2010 compared to $66.3 million for the three months ended March 31, 2009, primarily as a result of lower contingent commissions.  Segment other underwriting expenses for the three months ended March 31, 2010 increased to $6.4 million compared to $4.6 million for the three months ended March 31, 2009, consistent with expectations.

Bermuda.

The following table presents the underwriting results and ratios for the Bermuda segment for the periods indicated.

	Three Months Ended March 31,
(Dollars in millions)	2010			2009			Variance			% Change
Gross written premiums	$	207.5		$	219.1		$	(11.5	)		-5.3	%
Net written premiums		207.6			219.1			(11.5	)		-5.3	%
Premiums earned	$	184.7		$	185.5		$	(0.8	)		-0.4	%
Incurred losses and LAE		167.7			120.7			46.9			38.9	%
Commission and brokerage		41.9			44.3			(2.3	)		-5.3	%
Other underwriting expenses		6.2			5.0			1.2			23.4	%
Underwriting (loss) gain	$	(31.1	)	$	15.4		$	(46.5	)	NM
										Point Chg
Loss ratio		90.8	%		65.1	%					25.7
Commission and brokerage ratio		22.7	%		23.9	%					(1.2	)
Other underwriting expense ratio		3.3	%		2.7	%					0.6
Combined ratio		116.8	%		91.7	%					25.1
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)

40

Premiums.Gross written premiums decreased 5.3% to $207.5 million for the three months ended March 31, 2010 compared to $219.1 million for the three months ended March 31, 2009.  Bermuda home office business was down 10.5%, or $9.5 million, due to lower property catastrophe excess of loss business.  Premiums written out of the U.K. branch and Ireland decreased $2.0 million, or 1.6%, as certain large contracts were non-renewed for pricing reasons.  Net written premiums also decreased 5.3% to $207.6 million f or the three months ended March 31, 2010 compared to $219.1 million for the three months ended March 31, 2009.  Premiums earned decreased 0.4% to $184.7 million for the three months ended March 31, 2010 compared to $185.5 million for the three months ended March 31, 2009.  The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Incurred Losses and LAE.  The following table presents the incurred losses and LAE for the Bermuda segment for the periods indicated.

	Three Months Ended March 31,
	Current		Ratio %/				Prior			Ratio %/				Total		Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred		Pt Change
2010
Attritional	$	107.3		58.1	%		$	4.2			2.3	%		$	111.5		60.4	%
Catastrophes		60.0		32.5	%			(3.8	)		-2.1	%			56.2		30.4	%
A&E		-		0.0	%			-			0.0	%			-		0.0	%
Total segment	$	167.3		90.6	%		$	0.4			0.2	%		$	167.7		90.8	%
2009
Attritional	$	102.1		55.0	%		$	5.0			2.7	%		$	107.1		57.7	%
Catastrophes		12.7		6.9	%			0.9			0.5	%			13.7		7.4	%
A&E		-		0.0	%			-			0.0	%			-		0.0	%
Total segment	$	114.8		61.9	%		$	5.9			3.2	%		$	120.7		65.1	%
Variance 2010/2009
Attritional	$	5.2		3.1		pts	$	(0.8	)		(0.4	)	pts	$	4.4		2.7		pts
Catastrophes		47.3		25.6		pts		(4.7	)		(2.6	)	pts		42.5		23.0		pts
A&E		-		-		pts		-			-		pts		-		-		pts
Total segment	$	52.5		28.7		pts	$	(5.5	)		(3.0	)	pts	$	47.0		25.7		pts
(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased 38.9% to $167.7 million for the three months ended March 31, 2010 compared to $120.7 million for the three months ended March 31, 2009.  The increase was primarily due to the current year catastrophe losses, the Chilean earthquake and windstorm Xynthia.  In addition, higher expected loss ratios for current year attritional losses also contributed to the increase.

Segment Expenses.Commission and brokerage decreased 5.3% to $41.9 million for the three months ended March 31, 2010 compared to $44.3 million for the three months ended March 31, 2009.  The variance was principally the result of changes in the mix of business.  Segment other underwriting expenses for the three months ended March 31, 2010 increased to $6.2 million from $5.0 million for the three months ended March 31, 2009, in line with expectations.

FINANCIAL CONDITION

Cash and Invested Assets.  Aggregate invested assets, including cash and short-term investments, were $15,044.4 million at March 31, 2010, an increase of $125.6 million compared to $14,918.8 million at December 31, 2009.  This increase was the result of $271.3 million of cash flows from operations, $72.7 million of realized capital gains, $24.1 million of unrealized appreciation, $17.0 million in equity adjustments of our limited partnership investments and $15.8 million of various smaller items, partially offset by $200.0 million payoff of debt that matured, $47.0 million of share repurchases and $28.3 million paid out in dividends to shareholders.

41

Our principal investment objectives are to ensure funds are available to meet our insurance and reinsurance obligations and to maximize after-tax investment income while maintaining a high quality diversified investment portfolio.  Considering these objectives, we view our investment portfolio as having two components: 1) the investments needed to satisfy outstanding liabilities and 2) investments funded by our shareholders’ equity.

For the portion needed to satisfy outstanding liabilities, we invest in taxable and tax-preferenced fixed income securities with an average credit quality of Aa2, as rated by Moody’s Investors Service, Inc.  Our mix of taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating results, market conditions and our tax position.  This fixed maturity portfolio is externally managed by an independent, professional investment manager using portfolio guidelines approved by us.

Over the past few years, we have allocated our equity investment portfolio to include:  1) publicly traded equity securities and 2) private equity limited partnership investments.  The objective of this portfolio diversification is to enhance the risk-adjusted total return of the investment portfolio by allocating a prudent portion of the portfolio to higher return asset classes.  We limit our allocation to these asset classes because of 1) the potential for volatility in their values and 2) the impact of these investments on regulatory and rating agency capital adequacy models.  We adjust our allocation to these investments based upon market conditions.  As a result of the dramatic slowdown in the global economy and the liquidity crisis affecting the financial markets, we signific antly reduced our exposure to public equities during the fourth quarter of 2008 and have increased our exposure to equities in the latter part of 2009 and now into 2010, as financial markets improved.  At March 31, 2010, the market value of investments in equity and limited partnership securities, carried at both market and fair value, approximated 16% of shareholders’ equity, an increase of 1 point from 15% of shareholders’ equity at December 31, 2009.

The Company’s limited partnership investments are comprised of limited partnerships that invest in public equities and limited partnerships that invest in private equities.  Generally, the public equity limited partnerships are reported on a one month lag while the private equity partnerships are included in the financials on a quarter lag.  All of the limited partnerships are required to report using fair value accounting in accordance with FASB guidance.  We receive annual audited financial statements for all of the limited partnerships.  For the quarterly reports, the Company’s staff performs reviews of the financial reports for any unusual changes in carrying value.  If the Company becomes aware of a significant decline in value during the lag reporting period, the loss will be recorded in the period in which the Company identifies the decline.

The tables below summarize the composition and characteristics of our investment portfolio as of the dates indicated:

	At March 31, 2010				At December 31, 2009
Fixed maturities, market value	$	13,161.2	87.5	%	$	13,005.9	87.2	%
Fixed maturities, fair value		65.3	0.4	%		50.5	0.3	%
Equity securities, market value		16.1	0.1	%		16.3	0.1	%
Equity securities, fair value		417.6	2.8	%		380.0	2.5	%
Short-term investments		592.5	3.9	%		673.1	4.5	%
Other invested assets		577.6	3.9	%		545.3	3.7	%
Cash		214.2	1.4	%		247.6	1.7	%
Total investments and cash	$	15,044.4	100.0	%	$	14,918.8	100.0	%
(Some amounts may not reconcile due to rounding.)

	At	At
	March 31, 2010	December 31, 2009
Fixed income portfolio duration (years)	3.9	3.8
Fixed income composite credit quality	Aa2	Aa2
Imbedded end of period yield, pre-tax	4.1%	4.1%
Imbedded end of period yield, after-tax	3.7%	3.6%

42

The following table provides a comparison of our total return by asset class relative to broadly accepted industry benchmarks for the periods indicated:

	Three Months Ended	Twelve Months Ended
	March 31, 2010	December 31, 2009
Fixed income portfolio total return	1.7%	9.4%
Barclay's Capital - U.S. aggregate index	1.8%	5.9%
Common equity portfolio total return	5.0%	28.9%
S&P 500 index	5.4%	26.5%
Other invested asset portfolio total return	3.2%	-1.8%

Reinsurance Receivables.  Reinsurance receivables for both paid and unpaid losses totaled $650.0 million at March 31, 2010 and $636.4 million at December 31, 2009.  At March 31, 2010, $124.5 million, or 19.2%, was receivable from Transatlantic Reinsurance Company; $106.1 million, or 16.3% was receivable from C.V. Starr (Bermuda); $100.0 million, or 15.4%, was receivable from Continental Insurance Company; $54.3 million, or 8.4%, was receivable from Munich Reinsurance Company and $47.9 million, or 7.4%, was receivable from Berkley Insurance Company.  The receivable from Continental Insurance Company is collateralized by a f unds held arrangement under which we have retained the premiums earned by the retrocessionaire to secure obligations of the retrocessionaire, recorded them as a liability, credited interest on the balances at a stated contractual rate and reduced the liability account as payments become due.  No other retrocessionaire accounted for more than 5% of our receivables.

Loss and LAE Reserves.  Gross loss and LAE reserves totaled $9,299.4 million at March 31, 2010 and $8,937.9 million at December 31, 2009.

The following tables summarize gross outstanding loss and LAE reserves by segment, classified by case reserves and IBNR reserves, for the periods indicated:

	At March 31, 2010
	Case		IBNR		Total		% of
(Dollars in millions)	Reserves		Reserves		Reserves		Total
U.S. Reinsurance	$	1,356.6	$	1,663.8	$	3,020.4		32.5	%
U.S. Insurance		744.1		1,173.9		1,918.0		20.6	%
Specialty Underwriting		231.5		179.9		411.4		4.4	%
International		728.0		869.1		1,597.1		17.2	%
Bermuda		701.7		1,025.6		1,727.3		18.6	%
Total excluding A&E		3,761.9		4,912.3		8,674.2		93.3	%
A&E		343.5		281.7		625.2		6.7	%
Total including A&E	$	4,105.5	$	5,193.9	$	9,299.4		100.0	%
(Some amounts may not reconcile due to rounding.)

	At December 31, 2009
	Case		IBNR		Total		% of
(Dollars in millions)	Reserves		Reserves		Reserves		Total
U.S. Reinsurance	$	1,382.0	$	1,652.3	$	3,034.3		34.0	%
U.S. Insurance		716.2		1,157.1		1,873.4		21.0	%
Specialty Underwriting		238.5		175.8		414.4		4.6	%
International		752.1		545.7		1,297.7		14.5	%
Bermuda		718.8		960.5		1,679.4		18.8	%
Total excluding A&E		3,807.7		4,491.5		8,299.2		92.9	%
A&E		354.7		283.9		638.7		7.1	%
Total including A&E	$	4,162.4	$	4,775.4	$	8,937.9		100.0	%
(Some amounts may not reconcile due to rounding.)

43

Changes in premiums earned and business mix, reserve re-estimations, catastrophe losses and changes in catastrophe loss reserves and claim settlement activity all impact loss and LAE reserves by segment and in total.

Our loss and LAE reserves represent our best estimate of our ultimate liability for unpaid claims.  We continuously re-evaluate our reserves, including re-estimates of prior period reserves, taking into consideration all available information and, in particular, newly reported loss and claim experience.  Changes in reserves resulting from such re-evaluations are reflected in incurred losses in the period when the re-evaluation is made.  Our analytical methods and processes operate at multiple levels including individual contracts, groupings of like contracts, classes and lines of business, internal business units, segments, legal entities, and in the aggregate.  In order to set appropriate reserves, we make qualitative and quantitative analyses and judgments at these various levels. 
60;Additionally, the attribution of reserves, changes in reserves and incurred losses among accident years requires qualitative and quantitative adjustments and allocations at these various levels.  We utilize actuarial science, business expertise and management judgment in a manner intended to assure the accuracy and consistency of our reserving practices.  Nevertheless, our reserves are estimates, which are subject to variation, which may be significant.

There can be no assurance that reserves for, and losses from, claim obligations will not increase in the future, possibly by a material amount.  However, we believe that our existing reserves and reserving methodologies lessen the probability that any such increase would have a material adverse effect on our financial condition, results of operations or cash flows.  In this context, we note that over the past 10 years, our calendar year operations have been affected by effects from prior period reserve re-estimates, ranging from a favorable $26.4 million in 2005, representing 0.5% of the net prior period reserves for the year in which the adjustment was made, to an unfavorable $249.4 million in 2004, representing 3.7% of the net prior period reserves for the year in which the adjustment was made.

Asbestos and Environmental Exposures.  Asbestos and Environmental (“A&E”) exposures represent a separate exposure group for monitoring and evaluating reserve adequacy.  The following table summarizes incurred losses and outstanding loss reserves with respect to A&E reserves on both a gross and net of retrocessions basis for the periods indicated:

	Three Months Ended
	March 31,
(Dollars in millions)	2010			2009
Gross Basis:
Beginning of period reserves	$	638.7		$	786.8
Incurred losses		-			-
Paid losses		(13.5	)		(18.0	)
End of period reserves	$	625.2		$	768.8
Net Basis:
Beginning of period reserves	$	613.1		$	749.1
Incurred losses		-			-
Paid losses		(12.9	)		(17.2	)
End of period reserves	$	600.2		$	731.9
(Some amounts may not reconcile due to rounding.)

At March 31, 2010, the gross reserves for A&E losses were comprised of $139.0 million representing case reserves reported by ceding companies, $142.6 million representing additional case reserves established by us on assumed reinsurance claims, $61.9 million representing case reserves established by us on direct excess insurance claims, including Mt. McKinley, and $281.7 million representing IBNR reserves.

With respect to asbestos only, at March 31, 2010, we had gross asbestos loss reserves of $595.8 million, or 95.3%, of total A&E reserves, of which $465.9 million was for assumed business and $129.9 million was for direct business.

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Industry analysts use the “survival ratio” to compare the A&E reserves among companies with such liabilities.  The survival ratio is typically calculated by dividing a company’s current net reserves by the three year average of annual paid losses.  Hence, the survival ratio equals the number of years that it would take to exhaust the current reserves if future loss payments were to continue at historical levels.  Using this measurement, our net three year asbestos survival ratio was 6.3 years at March 31, 2010.  These metrics can be skewed by individual large settlements occurring in the prior three years and therefore, may not be indicative of the timing of future payments.

Shareholders’ Equity.  Our shareholders’ equity decreased to $6,037.0 million as of March 31, 2010 from $6,101.7 million as of December 31, 2009.  This decrease was the result of repurchases of 562,306 common shares for $47.0 million, $28.3 million of shareholder dividends, $22.7 million in net loss and $6.0 million of foreign currency translation adjustments, partially offset by the unrealized appreciation on investments, net of tax, of $34.6 million and share-based compensation transactions of $4.3 million.

LIQUIDITY AND CAPITAL RESOURCES

Capital.  Our business operations are in part dependent on our financial strength and financial strength ratings, and the market’s perception of our financial strength, as measured by shareholders’ equity, which was $6,037.0 million at March 31, 2010 and $6,101.7 million at December 31, 2009.  On March 13, 2009, Everest Re and Everest National, wholly owned indirect subsidiaries of the Company, received notification of a one level ratings downgrade by Standard & Poor’s.  On April 7, 2010, Standard & Poor’s upgraded the Company’s debt ratings one level.  We continue to possess significant financial flexibility and access to the debt and equity markets as a result of our perceived financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies.  During the last six months of 2008 and into 2009, the capital markets were illiquid in reaction to the deepening credit crisis which led to bank and other financial institution failures and effective failures.  Credit spreads widened and the equity markets declined significantly during this period making access to the capital markets, for even highly rated companies, difficult and costly.  Our capital position remains strong, commensurate with our financial ratings.  We have ample liquidity to meet our financial obligations for the foreseeable future.  Therefore, we have no foreseeable need to enter the capital markets in the near term.

From time to time, we have used open market share repurchases to adjust our capital position and enhance long term expected returns to our shareholders.  On July 21, 2008, our existing authorization to purchase up to 5 million of our shares was amended to authorize the purchase of up to 10 million shares.  On February 24, 2010, our existing authorization to purchase up to 10 million of our shares was amended to authorize the purchase of up to 15 million shares.  As of March 31, 2010, we had repurchased 7.1 million shares under this authorization.

On December 17, 2008, we renewed our shelf registration statement on Form S-3ASR with the Securities and Exchange Commission (“SEC”), as a Well Known Seasoned Issuer.  This shelf registration statement can be used by Group to register common shares, preferred shares, debt securities, warrants, share purchase contracts and share purchase units; by Holdings to register debt securities and by Everest Re Capital Trust III (“Capital Trust III”) to register trust preferred securities.

Liquidity.  Our principal investment objectives are to ensure funds are available to meet our insurance and reinsurance obligations and to maximize after-tax investment income while maintaining a high quality diversified investment portfolio.  Considering these objectives, we view our investment portfolio as having two components: 1) the investments needed to satisfy outstanding liabilities and 2) investments funded by our shareholders’ equity.

For the portion needed to satisfy outstanding liabilities, we invest in taxable and tax-preferenced fixed income securities with an average credit quality of Aa2, as rated by Moody’s.  Our mix of taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating results, market conditions and our tax position.  This fixed maturity securities portfolio is externally managed by an independent, professional investment manager using portfolio guidelines approved by us.

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Over the past few years, we have allocated our equity portfolio to include: 1) publicly traded equity securities and 2) private equity limited partnership investments.  The objective of this portfolio diversification is to enhance the risk-adjusted total return of the investment portfolio by allocating a prudent portion of the portfolio to higher return asset classes.  We limit our allocation to these asset classes because of 1) the potential for volatility in their values and 2) the impact of these investments on regulatory and rating agency capital adequacy models.  We adjust our allocation to these investments based upon market conditions.  As a result of the dramatic slowdown in the global economy and the liquidity crisis affecting the financial markets, we significantly reduced our expo sure to public equities during the fourth quarter of 2008 and have increased our exposure to equities in the latter part of 2009 and now into 2010, as financial markets improved.  At March 31, 2010, the market value of investments in equity and limited partnership securities, carried at both market and fair value, approximated 16% of shareholders’ equity.

Our liquidity requirements are generally met from positive cash flow from operations.  Positive cash flow results from reinsurance and insurance premiums being collected prior to disbursements for claims, which disbursements generally take place over an extended period after the collection of premiums, sometimes a period of many years.  Collected premiums are generally invested, prior to their use in such disbursements, and investment income provides additional funding for loss payments.  Our net cash flows from operating activities were $271.3 million and $180.5 million for the three months ended March 31, 2010 and 2009, respectively.  Additionally, these cash flows reflected net tax payments of $12.8 million and $27.1 million for the three months ended March 31, 2010 and 2009, respectively ; net catastrophe loss payments of $50.9 million and $74.1 million for the three months ended March 31, 2010 and 2009, respectively; and net A&E payments of $12.9 million and $17.1 million for the three months ended March 31, 2010 and 2009, respectively.

If disbursements for claims and benefits, policy acquisition costs and other operating expenses were to exceed premium inflows, cash flow from insurance operations would be negative.  The effect on cash flow from insurance operations would be partially offset by cash flow from investment income.  Additionally, cash inflows from investment maturities and dispositions, both short-term investments and longer term maturities are available to supplement other operating cash flows.

As the timing of payments for claims and benefits cannot be predicted with certainty, we maintain portfolios of long term invested assets with varying maturities, along with short-term investments that provide additional liquidity for payment of claims.  At March 31, 2010 and December 31, 2009, we held cash and short-term investments of $806.6 million and $920.7 million, respectively.  All of our short-term investments are readily marketable and can be converted to cash.  In addition to these cash and short-term investments, at March 31, 2010, we had $684.9 million of available for sale fixed maturity securities maturing within one year or less, $3,459.0 million maturing within one to five years and $5,751.7 million maturing after five years.  Our $433.7 million of equity securities are comp rised primarily of publicly traded securities that can be easily liquidated.  We believe that these fixed maturity and equity securities, in conjunction with the short-term investments and positive cash flow from operations, provide ample sources of liquidity for the expected payment of losses in the near future.  We do not anticipate selling securities or using available credit facilities to pay losses and LAE but have the ability to do so.  Sales of securities might result in realized capital gains or losses.  At March 31, 2010 we had $416.7 million of net pre-tax unrealized appreciation, comprised of $545.3 million of pre-tax unrealized appreciation and $128.6 million of pre-tax unrealized depreciation.

Management expects annual positive cash flow from operations, which in general reflects the strength of overall pricing, to persist over the near term, absent any unusual catastrophe activity.  In the intermediate and long term, our cash flow from operations will be impacted to the extent by which competitive pressures affect overall pricing in our markets and by which our premium receipts are impacted from our strategy of emphasizing underwriting profitability over premium volume.

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Effective July 27, 2007, Group, Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”) and Everest International Reinsurance, Ltd. (“Everest International”) entered into a five year, $850.0 million senior credit facility with a syndicate of lenders referred to as the “Group Credit Facility”.  Wachovia Bank, a subsidiary of Wells Fargo Corporation (“Wachovia Bank”) is the administrative agent for the Group Credit Facility, which consists of two tranches.  Tranche one provides up to $350.0 million of unsecured revolving credit for liquidity and general corporate purposes, and for the issuance of unsecured standby letters of credit.  The interest on the revolving loans shall, at the Company’s option, be either (1) the Base Rate (as defined below) or (2) a n adjusted London Interbank Offered Rate (“LIBOR”) plus a margin.  The Base Rate is the higher of (a) the prime commercial lending rate established by Wachovia Bank or (b) the Federal Funds Rate plus 0.5% per annum.  The amount of margin and the fees payable for the Group Credit Facility depends on Group’s senior unsecured debt rating.  Tranche two exclusively provides up to $500.0 million for the issuance of standby letters of credit on a collateralized basis.

The Group Credit Facility requires Group to maintain a debt to capital ratio of not greater than 0.35 to 1 and to maintain a minimum net worth.  Minimum net worth is an amount equal to the sum of $3,575.4 million plus 25% of consolidated net income for each of Group’s fiscal quarters, for which statements are available ending on or after January 1, 2007 and for which consolidated net income is positive, plus 25% of any increase in consolidated net worth during such period attributable to the issuance of ordinary and preferred shares, which at March 31, 2010, was $4,064.4 million.  As of March 31, 2010, the Company was in compliance with all Group Credit Facility covenants.

At March 31, 2010, the Group Credit Facility had no outstanding letters of credit under tranche one and $360.0 million outstanding letters of credit under tranche two.  At December 31, 2009, the Group Credit Facility had no outstanding letters of credit under tranche one and $386.5 million outstanding letters of credit under tranche two.

Effective August 23, 2006, Holdings entered into a five year, $150.0 million senior revolving credit facility with a syndicate of lenders referred to as the “Holdings Credit Facility”.  Citibank N.A. is the administrative agent for the Holdings Credit Facility.  The Holdings Credit Facility may be used for liquidity and general corporate purposes.  The Holdings Credit Facility provides for the borrowing of up to $150.0 million with interest at a rate selected by Holdings equal to either, (1) the Base Rate (as defined below) or (2) a periodic fixed rate equal to the Eurodollar Rate plus an applicable margin.  The Base Rate means a fluctuating interest rate per annum in effect from time to time to be equal to the higher of (a) the rate of interest publicly announced by Citibank as its prime rate or (b) 0.5% per annum above the Federal Funds Rate, in each case plus the applicable margin.  The amount of margin and the fees payable for the Holdings Credit Facility depends upon Holdings’ senior unsecured debt rating.

The Holdings Credit Facility requires Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and Everest Reinsurance Company (“Everest Re”) to maintain its statutory surplus at $1.5 billion plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, 2005, which at March 31, 2010, was $1,933.8 million.  As of March 31, 2010, Holdings was in compliance with all Holdings Credit Facility covenants.

At March 31, 2010 and December 31, 2009, the Holdings Credit Facility had outstanding letters of credit of $17.0 million and $28.0 million, respectively.

Costs incurred in connection with the Group Credit Facility and the Holdings Credit Facility were $0.3 million for the three months ended March 31, 2010 and 2009.

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Market Sensitive Instruments.

The SEC’s Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial statement disclosure requirements for derivative financial instruments, derivative commodity instruments and other financial instruments (collectively, “market sensitive instruments”).  We do not generally enter into market sensitive instruments for trading purposes.

Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, taxable and tax-preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity.  Our mix of taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating results, market conditions and our tax position.  The fixed maturity securities in the investment portfolio are comprised of non-trading available for sale securities.  Additionally, we have invested in equity securities.  We have also written a small number of equity index put option contracts.

The overall investment strategy considers the scope of present and anticipated Company operations.  In particular, estimates of the financial impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are used to develop a net liability analysis.  This analysis includes estimated payout characteristics for which our investments provide liquidity.  This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit quality.  The change in overall market sensitive risk exposure principally reflects the asset changes that took place during the period.

Interest Rate Risk.  Our $15.0 billion investment portfolio, at March 31, 2010, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price fluctuations and some foreign exchange rate risk.  The impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar value of foreign currency denominated liabilities and their associated income statement impact.

Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates.  In a declining interest rate environment, it includes prepayment risk on the $3,019.0 million of mortgage-backed securities in the $13,226.5 million fixed maturity portfolio.  Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.

The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity securities portfolio (including $592.5 million of short-term investments) for the period indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates.  For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually.  To generate appropriate price estimates on mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account.  For legal entities with a non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under t he various interest rate change scenarios.

	Impact of Interest Rate Shift in Basis Points
	At March 31, 2010
		-200			-100			0			100			200
(Dollars in millions)
Total Market/Fair Value	$	14,864.6		$	14,376.0		$	13,819.0		$	13,216.7		$	12,620.3
Market/Fair Value Change from Base (%)		7.6	%		4.0	%		0.0	%		-4.4	%		-8.7	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	819.2		$	435.2		$	-		$	(468.5	)	$	(938.0	)

We had $9,299.4 million and $8,937.9 million of gross reserves for losses and LAE as of March 31, 2010 and December 31, 2009, respectively.  These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money.  Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value.  As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the

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present value increases.  These movements are the opposite of the interest rate impacts on the fair value of investments.  While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid.  Our loss and loss reserve obligations have an expected duration of approximately 4.1 years, which is reasonably consistent with our fixed income portfolio.  If we were to discount our loss and LAE reserves, net of $0.7 billion of reinsurance receivables on unpaid losses, the discount would be approximately $1.5 billion resulting in a discounted reserve balance of approximately $7.1 billion, representing approximately 51.4% of the market value of t he fixed maturity investment portfolio funds.

Equity Risk.  Equity risk is the potential change in fair and/or market value of the common stock and preferred stock portfolios arising from changing equity prices.  Our equity investments consist of a diversified portfolio of individual securities and mutual funds, which invest principally in high quality common and preferred stocks that are traded on the major exchanges.  The primary objective of the equity portfolio is to obtain greater total return relative to bonds over time through market appreciation and income.

The table below displays the impact on fair/market value and after-tax change in fair/market value of a 10% and 20% change in equity prices up and down for the period indicated.

	Impact of Percentage Change in Equity Fair/Market Values
	At March 31, 2010
(Dollars in millions)		-20%			-10%			0%		10%		20%
Fair/Market Value of the Equity Portfolio	$	347.0		$	390.3		$	433.7	$	477.1	$	520.5
After-tax Change in Fair/Market Value		(56.6	)		(28.3	)		-		28.3		56.6

Foreign Currency Risk.  Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates.  Each of our non-U.S./Bermuda (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines.  Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates.  The primary foreign currency exposures for these foreign operations are the Canadian Dollar, the British Pound Sterling and the Euro.& #160; We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our corresponding operating liabilities.  In accordance with FASB guidance, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar.  This translation amount is reported as a component of other comprehensive income.  As of March 31, 2010 there has been no material change in exposure to foreign exchange rates as compared to December, 31, 2009.

Equity Index Put Option Contracts.  Although not considered material in the context of our aggregate exposure to market sensitive instruments, we have issued six equity index put option contracts based on the Standard & Poor’s 500 (“S&P 500”) index and one equity index put option contract based on the FTSE 100 index, that are market sensitive and sufficiently unique to warrant supplemental disclosure.

The Company sold six equity index put option contracts, based on the Standard & Poor’s 500 (“S&P 500”) index, for total consideration, net of commissions, of $22.5 million.  At March 31, 2010, fair value for these equity index put option contracts was $48.8 million.  These equity index put option contracts each have a single exercise date, with maturities ranging from 12 to 30 years and strike prices ranging from $1,141.21 to $1,540.63.  No amounts will be payable under these equity index put option contracts if the S&P 500 index is at, or above, the strike prices on the exercise dates, which fall between June 2017 and March 2031.  If the S&P 500 index is lower than the strike price on the applicable exercise date, the amount due would vary proportionately w ith the percentage by which the index is below the strike price.  Based on historical index volatilities and trends and the March 31, 2010 S&P 500 index value, the Company estimates the probability that each equity index put option contract of the S&P 500 index falling below the strike price on the exercise date to be less than 35%.  The theoretical maximum payouts under the equity index put option contracts would occur if on each of the exercise dates the S&P 500 index value were zero.  At March 31, 2010, the present value of these theoretical maximum payouts using a 6% discount factor was $257.7 million.

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The Company sold one equity index put option contract based on the FTSE 100 index, for total consideration, net of commissions, of $6.7 million.  At March 31, 2010, fair value for this equity index put option contract was $5.5 million.  This equity index put option contract has an exercise date of July 2020 and a strike price of ₤5,989.75.  No amount will be payable under this equity index put option contract if the FTSE 100 index is at, or above, the strike price on the exercise date.  If the FTSE 100 index is lower than the strike price on the exercise date, the amount due will vary proportionately with the percentage by which the index is below the strike price.  Based on historical index volatilities and trends and the March 31, 2010 FTSE 100 index value, the Company esti mates the probability that the equity index put option contract of the FTSE 100 index will fall below the strike price on the exercise date to be less than 29%.  The theoretical maximum payout under the equity index put contract would occur if on the exercise date the FTSE 100 index value was zero.  At March 31, 2010, the present value of the theoretical maximum payout using a 6% discount factor and current exchange rate was $27.4 million.

Because the equity index put option contracts meet the definition of a derivative, we report the fair value of these instruments in our consolidated balance sheets as a liability and record any changes to fair value in our consolidated statements of operations and comprehensive income as net derivative gain or loss.  Our financial statements reflect fair values for our obligations on these equity index put option contracts at March 31, 2010 and 2009, of $54.3 million and $80.3 million, respectively; however, we do not believe that the ultimate settlement of these transactions is likely to require a payment that would exceed the initial consideration received, or any payment at all.

As there is no active market for these instruments, the determination of their fair value is based on an industry accepted option pricing model, which requires estimates and assumptions, including those regarding volatility and expected rates of return.

The table below displays the impact of potential movements in interest rates and the equity indices, which are the principal factors affecting fair value of these instruments, looking forward from the fair value for the period indicated.  As these are estimates, there can be no assurance regarding future market performance.  The asymmetrical results of the interest rate and S&P 500 and FTSE 100 indices shift reflect that the liability cannot fall below zero whereas it can increase to its theoretical maximum.

	Equity Indices Put Options Obligation – Sensitivity Analysis
(Dollars in millions)	At March 31, 2010
Interest Rate Shift in Basis Points:		-200			-100			0			100			200
Total Fair Value	$	94.0		$	71.6		$	54.3		$	41.0		$	30.8
Fair Value Change from Base (%)		-73.1	%		-31.9	%		0.0	%		24.5	%		43.3	%
Equity Indices Shift in Points (S&P 500/FTSE 100):		-500/-2000			-250/-1000			0			250/1000			500/2000
Total Fair Value	$	110.0		$	76.4		$	54.3		$	39.1		$	29.2
Fair Value Change from Base (%)		-102.5	%		-40.8	%		0.0	%		28.0	%		46.3	%
Combined Interest Rate /		-200/			-100/						100/			200/
Equity Indices Shift (S&P 500/FTSE 100):		-500/-2000			-250/-1000			0/0			250/1000			500/2000
Total Fair Value	$	169.5		$	98.1		$	54.3		$	29.0		$	15.0
Fair Value Change from Base (%)		-212.2	%		-80.6	%		0.0	%		46.6	%		72.4	%

Safe Harbor Disclosure.

This report 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 federal securities laws.  In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”.  Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of our provision for uncollectible balances, estimates of our c atastrophe exposure, the effects of catastrophic events on our financial statements, the ability of Everest Re, Holdings, Everest Underwriting Group (Ireland) Limited and Bermuda Re to pay dividends and the settlement costs of our specialized equity index put option contracts.  Forward-looking statements only reflect our expectations and are not guarantees of performance.  These statements

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involve risks, uncertainties and assumptions.  Actual events or results may differ materially from our expectations.  Important factors that could cause our actual events or results to be materially different from our expectations include the uncertainties that surround the impact on our financial statements and liquidity resulting from changes in the global economy and credit markets, the estimating of reserves for losses and LAE, those discussed in Note 8 of the Notes to Consolidated Financial Statements (unaudited) included in this report and the risks described under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, PART 1, ITEM 1A.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new informa tion, future events or otherwise.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Instruments.  See “Liquidity and Capital Resources - Market Sensitive Instruments” in PART I – ITEM 2.

ITEM 4.  CONTROLS AND PROCEDURES

As of the end of the period covered by this report, our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)).  Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms.  Our management, with the participation of the Chief Exec utive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  Based on that evaluation, there has been no such change during the quarter covered by this report.

PART II

ITEM 1.  LEGAL PROCEEDINGS

In the ordinary course of business, we are involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine our rights and obligations under insurance, reinsurance and other contractual agreements.  These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation.  In all such matters, we believe that our positions are legally and commercially reasonable, and we vigorously seek to preserve, enforce and defend our legal rights under various agreements.  While the final outcome of these matters cannot be predicted with certainty, we do not believe that any of these matters, when finally resolved, will have a material adverse effect on o ur financial position or liquidity.  However, an adverse resolution of one or more of these items in any one quarter or fiscal year could have a material adverse effect on our results of operations in that period.

ITEM 1A.  RISK FACTORS

No material changes.

��

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ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities.

Issuer Purchases of Equity Securities
	(a)		(b)		(c)		(d)
							Maximum Number (or
					Total Number of		Approximate Dollar
					Shares (or Units)		Value) of Shares (or
					Purchased as Part		Units) that May Yet
	Total Number of				of Publicly		Be Purchased Under
	Shares (or Units)		Average Price Paid		Announced Plans or		the Plans or
Period	Purchased(1)		per Share (or Unit)		Programs		Programs (2)
January 1 - 31, 2010		0	$	-		0		3,470,563
February 1 - 28, 2010		414,112	$	82.9986		401,718		8,068,845
March 1 - 31, 2010		160,588	$	85.2870		160,588		7,908,257
Total		574,700	$	83.6380		562,306		7,908,257

(1)       Included were 12,394 shares withheld as payment for taxes on restricted shares that became unrestricted in the year.

(2)       On September 21, 2004, the Company’s board of directors approved an amended share repurchase program authorizing the Company and/or its subsidiary Holdings to purchase up to an aggregate of 5,000,000 of the Company’s common shares through open market transactions, privately negotiated transactions or both.  On July 21, 2008, the Company’s executive committee of the board of directors approved an amendment to the September 21, 2004 share repurchase program authorizing the Company and/or its subsidiary Holdings to purchase up to an aggregate of 10,000,000 of the Company’s common shares (recognizing that the number of shares authorized for repurchase has been reduced by those shares that have already been purchased) in open market transactions, privately ne gotiated transactions or both.  On February 24, 2010, the Company’s executive committee of the board of directors approved an amendment to the September 21, 2004, share repurchase program and the July 21, 2008, amendment authorizing the Company and/or its subsidiary Holdings, to purchase up to 15,000,000 of the Company’s common shares (recognizing that the number of shares authorized for repurchase has been reduced by those shares that have already been purchased) in open market transactions, privately negotiated transactions or both.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  RESERVED

ITEM 5.  OTHER INFORMATION

None.

52

ITEM 6.  EXHIBITS

Exhibit Index:

Exhibit No.   Description

*10.1 Amendment of Change of Control Agreement by and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated March 9, 2010, filed herewith

   31.1 Section 302 Certification of Joseph V. Taranto

   31.2 Section 302 Certification of Dominic J. Addesso

   32.1  Section 906 Certification of Joseph V. Taranto and Dominic J. Addesso

_____________

 * Management contract or compensatory plan or arrangement.

53

Everest Re Group, Ltd.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Everest Re Group, Ltd.

(Registrant)

/S/ DOMINIC J. ADDESSO

Dominic J. Addesso

Executive Vice President and

Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)

Dated:  May 10, 2010