EVEREST RE GROUP LTD - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001 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 (I.R.S. Employer
of incorporation or organization) Identification No.)

c/o ABG Financial & Management Services, Inc.
Parker House
Wildey Business Park, Wildey Road
St. Michael, Barbados
(246) 228-7398
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)

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Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
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Common Shares, $.01 par value per share New York Stock Exchange

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Securities registered pursuant to Section 12(g) of the Act: None
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the

best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value on March 14, 2002 of the voting stock held by
non-affiliates of the registrant was $3,609.9 million.

At March 14, 2002, the number of shares outstanding of the registrant's
common shares was 51,286,265.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Items 10, 11, 12, and 13 of Form 10-K is
incorporated by reference into Part III hereof from the registrant's proxy
statement for the 2002 Annual General Meeting of Shareholders, which will be
filed with the Securities and Exchange Commission within 120 days of the close
of the registrant's fiscal year ended December 31, 2001.

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TABLE OF CONTENTS

Item Page
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PART I

1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders

PART II

5. Market for Registrant's Common Equity and Related
Shareholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

PART III

10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions

PART IV

14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

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PART I

Unless otherwise indicated, all financial data in this document have been
prepared using generally accepted accounting principles ("GAAP") in the United
States of America. As used in this document, "Everest Re" means Everest
Reinsurance Company and its subsidiaries (unless the context otherwise
requires); "Holdings" means Everest Reinsurance Holdings, Inc.; "Group" means
Everest Re Group, Ltd. (formerly Everest Reinsurance Group, Ltd.); and the
"Company" means Group and its subsidiaries, except when referring to periods
prior to February 24, 2000, when it means Holdings and its subsidiaries.

ITEM 1. BUSINESS

THE COMPANY
Group, a Bermuda company, with its principal executive office in Barbados, was
established in 1999 as a wholly-owned subsidiary of Holdings. On February 24,
2000, a corporate restructuring was completed and Group became the new parent
holding company of Holdings, which remains the holding company for the Company's
non-Bermuda based operations. Holders of shares of common stock of Holdings
automatically became holders of the same number of common shares of Group. Prior
to the restructuring, Group had no significant assets or capitalization and had
not engaged in any business or prior activities other than in connection with
the restructuring. The Company had gross premiums written in 2001 of $1,874.6
million and shareholders' equity at December 31, 2001 of $1,720.5 million.

In connection with the restructuring, Group established a Bermuda-based
reinsurance subsidiary, Everest Reinsurance (Bermuda), Ltd. ("Bermuda Re"),
which commenced business in the second half of 2000. Group also formed Everest
Global Services, Inc., a Delaware subsidiary to perform administrative and
back-office functions for Group and its U.S.-based and non-U.S. based
subsidiaries.

On March 14, 2000, Holdings completed public offerings of $200 million principal
amount of 8.75% senior notes due March 15, 2010 and $250 million principal
amount of 8.50% senior notes due March 15, 2005. During 2000, the net proceeds
of these offerings and additional funds were distributed by Holdings to Group.

Holdings, a Delaware corporation, was established in 1993 to serve as the parent
holding company of Everest Re (formed in 1973), a Delaware property and casualty
reinsurer. Until October 6, 1995, Holdings was an indirect wholly-owned
subsidiary of The Prudential Insurance Company of America ("The Prudential"). On
October 6, 1995, The Prudential sold its entire interest in the shares of common
stock of Holdings in an initial public offering (the "IPO").

The Company's principal business, conducted through its operating subsidiaries,
is the underwriting of reinsurance and insurance in the United States, Bermuda
and international markets. The Company underwrites reinsurance both through
brokers and directly with ceding companies, giving it the flexibility to pursue
business regardless of the ceding company's preferred reinsurance purchasing
method. The Company underwrites insurance principally through general agency
relationships. Group's operating subsidiaries, excluding Mt. McKinley Insurance
Company, are each rated A+ ("Superior") by A.M. Best Company ("A.M. Best"), an

1

independent insurance industry rating organization that rates insurance
companies on factors of concern to policyholders.

Following is a summary of the Company's operating subsidiaries:

o Everest Re, a Delaware insurance company and a direct subsidiary of
Holdings, is a licensed property and casualty insurer and/or reinsurer
in all states (except Nevada and Wyoming), the District of Columbia,
Puerto Rico and Canada, and is authorized to conduct reinsurance
business in the United Kingdom and Singapore. Everest Re underwrites
property and casualty reinsurance for insurance and reinsurance
companies in the United States and international markets. Everest Re
had statutory surplus at December 31, 2001 of $1,293.8 million.

o Bermuda Re, a Bermuda insurance company and a direct subsidiary of
Group, is registered in Bermuda as a Class 4 insurer and long-term
insurer and is authorized to write property and casualty business and
life and annuity business. Bermuda Re commenced business in the second
half of 2000. In December 2000, Bermuda Re acquired all of the issued
and outstanding shares of AFC Re Ltd. ("AFC Re"), a Bermuda long-term
insurance company. AFC Re wrote annuity reinsurance business, which
business has been assumed by Bermuda Re. In September 2001, AFC Re was
sold to Group and renamed Everest International Reinsurance, Ltd.
("Everest International") and is currently inactive. Bermuda Re had
capital at December 31, 2001 of $451.9 million.

o Everest National Insurance Company ("Everest National"), an Arizona
insurance company and a direct subsidiary of Everest Re, is licensed in
42 states and the District of Columbia and is authorized to write
property and casualty insurance in the states in which it is licensed.
This is often called writing insurance on an admitted basis.

o Everest Insurance Company of Canada ("Everest Canada"), a Canadian
insurance company and a direct subsidiary of Everest Re, is licensed in
all Canadian provinces and territories and is federally licensed to
write property and casualty insurance under the Insurance Companies Act
of Canada.

o Everest Indemnity Insurance Company ("Everest Indemnity"), a Delaware
insurance company and a direct subsidiary of Everest Re, engages in the
excess and surplus lines insurance business in the United States.
Excess and surplus lines insurance is specialty property and liability
coverage that an insurer not licensed to write insurance in a
particular state is permitted to provide when the specific specialty
coverage is unavailable from admitted insurers. This is often called
writing insurance on a non-admitted basis. Everest Indemnity is
licensed in Delaware and is eligible to write business on a non-
admitted basis in 41 states, the District of Columbia and Puerto Rico.

o Everest Security Insurance Company ("Everest Security"), formerly
Southeastern Security Insurance Company, a Georgia insurance company
and a direct subsidiary of Everest Re, was acquired in January 2000 and
writes property and casualty insurance on an admitted basis in Georgia.

o Mt. McKinley Managers, L.L.C. ("Managers"), a New Jersey limited
liability company and a direct subsidiary of Holdings, is licensed in
New Jersey as an insurance producer. An insurance producer is any
intermediary, such as an agent or broker, which acts as the conduit

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between an insurance company and an insured. Managers, which is
licensed to act in New Jersey as an insurance producer in connection
with policies written on both an admitted and a surplus lines basis, is
the underwriting manager for Everest Indemnity. Managers is also the
parent company for WorkCare Southeast, Inc., an Alabama insurance
agency, and WorkCare Southeast of Georgia, Inc., a Georgia insurance
agency.

o Mt. McKinley Insurance Company (f/k/a Gibraltar Casualty Company,
"Gibraltar") ("Mt. McKinley"), a Delaware insurance company and a
direct subsidiary of Holdings, was acquired by Holdings in September
2000 from The Prudential. Mt. McKinley was formed by Everest Re in 1978
to engage in the excess and surplus lines insurance business in the
United States. In 1985, Mt. McKinley ceased writing new and renewal
insurance and now its ongoing operations relate to servicing claims
arising from its previously written business. Mt. McKinley was a
subsidiary of Everest Re until 1991 when Everest Re distributed the
stock of Mt. McKinley to a wholly-owned subsidiary of The Prudential.

o Everest Re Holdings, Ltd. ("Everest Ltd."), a Bermuda company and a
direct subsidiary of Everest Re, was formed in 1998 and owns Everest Re
Ltd., a United Kingdom company that is in the process of being
dissolved because its reinsurance operations have been converted into
branch operations of Everest Re. Everest Ltd. also holds $104.3 million
of investments, the management of which constitutes its principal
operations.

REINSURANCE INDUSTRY OVERVIEW
Reinsurance is an arrangement in which an insurance company, the reinsurer,
agrees to indemnify another insurance company, the ceding company, against all
or a portion of the insurance risks underwritten by the ceding company under one
or more insurance contracts. Reinsurance can provide a ceding company with
several benefits, including a reduction in net liability on individual or
classes of risks, catastrophe protection from large or multiple losses and
assistance in maintaining acceptable financial ratios. Reinsurance also provides
a ceding company with additional underwriting capacity by permitting it to
accept larger risks and write more business than would be possible without a
concomitant increase in capital and surplus. Reinsurance, however, does not
discharge the ceding company from its liability to policyholders.

There are two basic types of reinsurance arrangements: treaty and facultative
reinsurance. In treaty reinsurance, the ceding company is obligated to cede and
the reinsurer is obligated to assume a specified portion of a type or category
of risks insured by the ceding company. Treaty reinsurers do not separately
evaluate each of the individual risks assumed under their treaties and,
consequently, after a review of the ceding company's underwriting practices, are
largely dependent on the original risk underwriting decisions made by the ceding
company. In facultative reinsurance, the ceding company cedes and the reinsurer
assumes all or part of the risk under a single insurance contract. Facultative
reinsurance is negotiated separately for each insurance contract that is
reinsured. Facultative reinsurance normally is purchased by ceding companies for
individual risks not covered by their reinsurance treaties, for amounts in
excess of the dollar limits of their reinsurance treaties and for unusual risks.

Both treaty and facultative reinsurance can be written on either a pro rata
basis or an excess of loss basis. Under pro rata reinsurance, the ceding company
and the reinsurer share the premiums as well as the losses and expenses in an
agreed proportion. Under excess of loss reinsurance, the reinsurer indemnifies
the ceding company against all or a specified portion of losses and expenses in

3

excess of a specified dollar amount, known as the ceding company's retention or
reinsurer's attachment point, generally subject to a negotiated reinsurance
contract limit.

Premiums paid by the ceding company to a reinsurer for excess of loss
reinsurance are not directly proportional to the premiums that the ceding
company receives because the reinsurer does not assume a proportionate risk. In
pro rata reinsurance, the reinsurer generally pays the ceding company a ceding
commission. The ceding commission generally is based on the ceding company's
cost of acquiring the business being reinsured (commissions, premium taxes,
assessments and miscellaneous administrative expense). There is usually no
ceding commission on excess of loss reinsurance.

Reinsurers may purchase reinsurance to cover their own risk exposure.
Reinsurance of a reinsurer's business is called a retrocession. Reinsurance
companies cede risks under retrocessional agreements to other reinsurers, known
as retrocessionaires, for reasons similar to those that cause insurers to
purchase reinsurance: to reduce net liability on individual or classes of risks,
protect against catastrophic losses, stabilize financial ratios and obtain
additional underwriting capacity.

Reinsurance can be written through professional reinsurance brokers or directly
with ceding companies. From a ceding company's perspective, both the broker
market and the direct market have advantages and disadvantages. A ceding
company's decision to select one market over the other will be influenced by its
perception of such advantages and disadvantages relative to the reinsurance
coverage being placed.

BUSINESS STRATEGY
The Company's underwriting strategies seek to capitalize on its financial
capacity, its employee expertise and its flexibility to offer multiple products
through multiple distribution channels. The Company's strategies include
effective management of the property and casualty underwriting cycle, which
refers to the tendency of insurance premiums, profits and the demand for and
availability of coverage to rise and fall over time. The Company also seeks to
manage its catastrophe exposures and retrocessional costs. Efforts to control
expenses and to operate in a cost-efficient manner are also a continuing focus
for the Company.

The Company's products include: (1) the full range of property and casualty
reinsurance and insurance coverages, including marine, aviation, surety, errors
and omissions liability ("E&O"), directors' and officers' liability ("D&O"),
medical malpractice, other specialty lines, accident and health ("A&H"),
workers' compensation and other standard lines; and (2) reinsurance of life and
annuity business. The Company's distribution channels include both the direct
and broker reinsurance markets, U.S., Bermuda and international markets,
reinsurance, both treaty and facultative, and insurance, both admitted and
non-admitted.

The Company's underwriting strategy emphasizes underwriting profitability rather
than premium volume, writing specialized property and casualty risks and
integration of underwriting expertise across all underwriting units. Key
elements of this strategy are prudent risk selection, appropriate pricing
through strict underwriting discipline and continuous adjustment of the
Company's business mix to respond to changing market conditions. The Company
focuses on reinsuring companies that effectively manage the underwriting cycle
through proper analysis and pricing of underlying risks and whose underwriting
guidelines and performance are compatible with its objectives.

4

The Company's underwriting strategy also emphasizes flexibility and
responsiveness to changing market conditions, such as increased demand or
favorable pricing trends. The Company believes that its existing strengths,
including its broad underwriting expertise, U.S., Bermuda and international
presence and substantial capital, facilitate adjustments to its mix of business
geographically, by line of business and by type of coverage, allowing it to
capitalize on those market opportunities that provide the greatest potential for
underwriting profitability. The Company's insurance operations facilitate these
strategies by allowing the Company access to business, which would not likely be
available to it on a reinsurance basis. The Company carefully monitors its mix
of business across all operations to avoid inappropriate concentrations of
geographic or other risk.

SEGMENT INFORMATION
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 United States. The U.S. Insurance operation
writes property and casualty insurance primarily through general agent
relationships and surplus lines brokers within the United States. The Specialty
Underwriting operation writes A&H, marine, aviation and surety business within
the United States and worldwide through brokers and directly with ceding
companies. The International operation writes property and casualty reinsurance
through the Company's branches in Belgium, London, Canada and Singapore, in
addition to foreign "home-office" business. The Bermuda operation writes
property, casualty, life and annuity business through brokers and directly with
ceding companies.

These segments are managed in a carefully coordinated fashion with strong
elements of central control, including with respect to capital, investments and
support operations. As a result, management monitors and evaluates the financial
performance of these operating segments principally based upon their
underwriting results. The Company utilizes inter-affiliate reinsurance and such
reinsurance does not impact segment results, since business is reported within
the segment in which the business was first produced. For selected financial
information regarding these segments, see Note 15 of Notes to Consolidated
Financial Statements.

MARKETING
The Company writes business on a worldwide basis for many different customers
and for many lines of business, providing a broad array of coverages. The
Company is not materially dependent on any single customer, small group of
customers, line of business or geographical area. For the 2001 calendar year, no
single customer (ceding company or insured) generated more than 6.9% of the
Company's gross premiums written. The Company does not believe that a reduction
of business from any one customer would have a material adverse effect on its
future financial condition or results of operations due to the Company's
competitive position in the market place and the continuing availability of
other sources of business.

Approximately 49.0%, 24.2% and 26.8% of the Company's 2001 gross premiums
written were written in the broker reinsurance, direct reinsurance and insurance
markets, respectively. The Company's ability to write reinsurance both through
brokers and directly with ceding companies gives it the flexibility to pursue
business regardless of the ceding company's preferred reinsurance purchasing
method.

The reinsurance broker market consists of several substantial national and
international brokers and a number of smaller specialized brokers. Brokers do
not have the authority to bind the Company with respect to reinsurance
agreements, nor does the Company commit in advance to accept any portion of the

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business that brokers submit to it. Reinsurance business from any ceding
company, whether new or renewal, is subject to acceptance by the Company.
Brokerage fees are generally paid by reinsurers. The Company's ten largest
brokers accounted for an aggregate of approximately 39.1% of gross premiums
written in 2001, with each of the two largest brokers accounting for
approximately 13.4% and 11.8% of gross premiums written, respectively. The
Company does not believe that a reduction of business assumed from any one
broker would have a materially adverse effect on the Company due to its
competitive position in the market place, relationships with ceding companies
and the continuing availability of other sources of business.

The direct market remains an important distribution system for reinsurance
business written by the Company. Direct placement of reinsurance enables the
Company to access clients who prefer to place their reinsurance directly with
their reinsurers based upon the reinsurer's in-depth understanding of the ceding
company's needs. The Company's insurance business is written principally through
general agent relationships and surplus lines brokers.

The Company evaluates each business relationship, including the underwriting
expertise and experience of each distribution channel selected, performs
analyses to evaluate financial security and monitors performance.

UNDERWRITING OPERATIONS
The following table presents the distribution of the Company's gross premiums
written by its U.S. Reinsurance, U.S. Insurance, Specialty Underwriting,
International and Bermuda operations for the years ended December 31, 2001,
2000, 1999, 1998 and 1997, classified according to whether the premium is
derived from property or casualty business and, for reinsurance business,
whether it represents pro rata or excess of loss business:

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GROSS PREMIUMS WRITTEN BY OPERATION

Years Ended December 31,
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2001 2000 1999 1998 1997
---------------- ---------------- ---------------- ---------------- ----------------
$ % $ % $ % $ % $ %
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
(Dollars in millions)

U.S. REINSURANCE
Property
Pro Rata(1) $ 62.9 3.4% $ 60.2 4.3% $ 48.6 4.3% $ 30.1 2.9% $ 69.1 6.4%
Excess 104.0 5.5 75.6 5.5 67.0 5.9 65.1 6.2 86.7 8.1
Casualty
Pro Rata(1) 191.2 10.2 151.1 10.9 152.9 13.4 183.9 17.6 143.2 13.3
Excess 252.3 13.5 194.7 14.1 222.1 19.5 212.5 20.3 191.8 17.8
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total(2) 610.4 32.6 481.6 34.8 490.6 43.0 491.6 47.0 490.8 45.7
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
U.S. INSURANCE
Property
Pro Rata(1) 6.2 0.3 9.3 0.7 3.8 0.3 3.1 0.3 5.4 0.5
Excess - 0.0 - 0.0 - 0.0 - 0.0 - 0.0
Casualty
Pro Rata(1) 496.1 26.5 241.2 17.4 66.6 5.8 75.5 7.2 69.5 6.5
Excess - 0.0 - 0.0 - 0.0 - 0.0 - 0.0
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total(2) 502.4 26.8 250.5 18.1 70.4 6.2 78.6 7.5 74.9 7.0
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
SPECIALTY
UNDERWRITING
Property
Pro Rata(1) 356.3 19.0 274.0 19.8 213.6 18.7 92.9 8.9 92.9 8.6
Excess 35.0 1.9 19.3 1.4 19.7 1.7 15.8 1.5 16.9 1.6
Casualty
Pro Rata(1) 18.4 1.0 21.4 1.5 32.3 2.8 39.3 3.8 45.4 4.2
Excess 4.3 0.2 3.6 0.3 2.9 0.3 3.0 0.3 6.4 0.6
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total(2) 414.0 22.1 318.3 23.0 268.5 23.5 151.0 14.4 161.6 15.0
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
TOTAL U.S.
Property
Pro Rata(1) 425.5 22.7 343.4 24.8 266.0 23.3 126.1 12.1 167.4 15.6
Excess 139.0 7.4 94.9 6.9 86.7 7.6 80.9 7.7 103.6 9.6
Casualty
Pro Rata(1) 705.8 37.6 413.8 29.9 251.8 22.1 298.7 28.6 258.1 24.0
Excess 256.7 13.7 198.3 14.3 225.1 19.7 215.6 20.6 198.2 18.4
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total(2) 1,526.8 81.4 1,050.4 75.9 829.5 72.7 721.2 69.1 727.3 67.8
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
INTERNATIONAL
Property
Pro Rata(1) 171.0 9.1 143.4 10.3 124.6 10.9 141.9 13.6 144.2 13.4
Excess 60.0 3.2 55.6 4.0 54.8 4.8 45.8 4.4 62.9 5.9
Casualty
Pro Rata(1) 54.3 2.9 78.4 5.7 84.4 7.4 93.4 8.9 99.2 9.2
Excess 37.5 2.0 46.2 3.3 48.5 4.3 43.6 4.2 41.4 3.9
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total(2) 322.8 17.2 323.6 23.4 312.3 27.4 324.7 31.0 347.7 32.3
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
BERMUDA
OPERATIONS
Property
Pro Rata(1) 6.2 0.3 - 0.0 - 0.0 - 0.0 - 0.0
Excess 0.6 0.0 - 0.0 - 0.0 - 0.0 - 0.0
Casualty
Pro Rata(1) 18.1 1.0 11.6 0.8 - 0.0 - 0.0 - 0.0
Excess 0.1 0.0 - 0.0 - 0.0 - 0.0 - 0.0
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total(2) (3) 25.0 1.3 11.6 0.8 - 0.0 - 0.0 - 0.0
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
TOTAL COMPANY
Property
Pro Rata(1) 602.6 32.1 486.8 35.1 390.6 34.2 268.0 25.6 311.6 29.0
Excess 199.6 10.6 150.5 10.9 141.4 12.4 126.6 12.1 166.5 15.5
Casualty
Pro Rata(1) 778.1 41.5 503.8 36.4 336.2 29.4 392.1 37.5 357.3 33.2
Excess 294.3 15.7 244.5 17.6 273.6 24.0 259.2 24.8 239.6 22.3
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total(2) $1,874.6 100.0% $1,385.6 100.0% $1,141.8 100.0% $1,045.9 100.0% $1,075.0 100.0%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======

- ---------------------
(1) For purposes of the presentation above, pro rata includes reinsurance
attaching to the first dollar of loss incurred by the ceding company and
insurance.
(2) Certain totals and subtotals may not reconcile due to rounding.
(3) Includes immaterial amounts of life and annuity premium.

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U.S. REINSURANCE OPERATION. The Company's U.S. Reinsurance operation writes
property and casualty reinsurance, both treaty and facultative, through
reinsurance brokers as well as directly with ceding companies within the United
States. The Company targets certain brokers and, through the broker market,
specialty companies and small to medium sized standard lines companies. On a
direct basis, the Company targets companies which place their business
predominantly in the direct market, including small to medium sized regional
ceding companies, and seeks to develop long-term relationships with these
companies. In addition, the U.S. Reinsurance operation writes portions of
reinsurance programs for larger, national insurance companies.

In 2001, $125.4 million of gross premiums written were attributable to U.S.
treaty property business, of which 49.9% was written on an excess of loss basis
and 50.1% was written on a pro rata basis. The Company's property underwriters
utilize sophisticated underwriting methods which management believes are
necessary to analyze and price property business, particularly that segment of
the property market which has catastrophe exposure.

U.S. treaty casualty business accounted for $368.9 million of gross premiums
written in 2001, of which 48.5% was written on an excess of loss basis and 51.5%
was written on a pro rata basis. The treaty casualty portfolio consists
principally of professional liability, D&O liability, workers' compensation,
excess and surplus lines, and other liability coverages. As a result of the
complex technical nature of most of these risks, the Company's casualty
underwriters tend to specialize by line of business and work closely with the
Company's pricing actuaries.

The Company's facultative unit conducts business both through brokers and
directly with ceding companies, and consists of three underwriting units
representing property, casualty and specialty lines of business. Business is
written from a facultative headquarters office in New York and satellite offices
in Chicago and Oakland. In 2001, $41.0 million, $59.3 million and $12.4 million
of gross premiums written were attributable to the property, general casualty
and specialty lines of business, respectively.

In 2001, 85.7% and 14.3% of the U.S. Reinsurance operation's gross premiums
written were written in the broker and direct reinsurance markets, respectively.

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U.S. INSURANCE OPERATION. In 2001, the Company's U.S. Insurance operation wrote
$502.4 million of gross premiums written, of which 98.8% was casualty and 1.2%
was property. Of the casualty business, the predominant class was workers'
compensation insurance. Everest National wrote $382.0 million and Everest Re
wrote $84.3 million, with both principally targeting commercial property and
casualty business written through general agency relationships with program
administrators. Everest Indemnity wrote $18.7 million, principally targeting
excess and surplus lines insurance business written through surplus lines
brokers. Everest Security wrote $17.4 million, principally targeting
non-standard auto business written through retail agency relationships. With
respect to insurance written through general agents and surplus lines brokers,
the Company supplements the initial underwriting process with periodic claims
and underwriting reviews.

SPECIALTY UNDERWRITING OPERATION. The Company's Specialty Underwriting operation
writes A&H, marine, aviation and surety reinsurance. The A&H unit primarily
focuses on health reinsurance of traditional indemnity plans, self-insured
health plans and specialty medical plans. The marine and aviation unit focuses
on ceding companies with a particular expertise in marine and aviation business.
The marine and aviation business is written primarily through brokers and
contains a significant international component written primarily in the London
market. Surety business underwritten by the Company consists mainly of
reinsurance of contract surety bonds.

Gross premiums written by the A&H unit in 2001 totaled $297.0 million, of which
$60.7 million was written through the broker market and $236.3 million was
written through the direct market. Substantially all of the business was written
on a proportional basis.

Gross premiums written by the marine and aviation unit in 2001 totaled $59.3
million, substantially all of which was written on a treaty basis and 94.0% of
which was sourced through reinsurance brokers. Marine treaties represented 61.6%
of marine and aviation gross premiums written in 2001 and consisted mainly of
hull and liability coverage. Approximately 72.6% of the marine unit premiums in
2001 were written on a pro rata basis and 27.4% as excess of loss. Aviation
premiums accounted for 38.4% of marine and aviation gross premiums written in
2001 and included reinsurance for airlines, general aviation and satellites.
Approximately 81.0% of the aviation unit's premiums in 2001 were written on a
pro rata basis and 19.0% as excess of loss.

In 2001, gross premiums written by the surety unit totaled $57.8 million.
Approximately 56.9% of the surety unit premiums in 2001 were written on a pro
rata basis and 43.1% on an excess of loss basis. Most of the portfolio is
reinsurance of contract surety bonds written directly with ceding companies,
with the remainder being credit reinsurance, mostly in international markets.

INTERNATIONAL OPERATION. The Company's International operation is designed to
enable it to capitalize on the growth opportunities in the international
reinsurance market. The Company targets several international markets,
including: Europe and the London markets, which are serviced by branches in
Brussels and London; Canada, with a branch in Toronto; Asia and Australia, with
a branch in Singapore; and Latin America, Africa and the Middle East, which

9

business is serviced from Everest Re's New Jersey headquarters and Miami office.
The Company also writes "home-foreign" business, which provides reinsurance on
the international portfolios of U.S. insurers, from New Jersey. Approximately
71.6% of the gross premiums written by the Company's international underwriters
in 2001 represented property business, while the balance represented casualty
business. As with its U.S. operations, the Company's International operation
focuses on financially sound companies that have strong management and
underwriting discipline and expertise. Approximately 74.6% of the Company's
international business was written through brokers, with the remainder written
directly with ceding companies.

In 2001, the Company's gross premiums written by its Brussels and London
branches totaled $116.1 million and consisted of pro rata property (55.2%),
excess property (19.6%), pro rata casualty (9.8%) and excess casualty (15.4%).
Substantially all of the Brussels and London premiums consisted of treaty
reinsurance. The Brussels office focuses on the continental European reinsurance
markets, while the London office covers international business written through
the London market.

Gross premiums written by the Company's Canadian office totaled $39.7 million in
2001 and consisted of pro rata property (36.8%), excess property (15.8%), pro
rata multi-line (10.1%), excess casualty (33.5%) and insurance written by
Everest Canada (3.8%). Approximately 65.2% of the Canadian premiums consisted of
treaty reinsurance, while 31.0% was facultative reinsurance and 3.8% was primary
insurance.

The Company's Singapore branch covers the Asian and Australian markets and
accounted for $24.4 million of gross written premiums in 2001. This business
consisted of pro rata property (55.1%), excess property (12.0%), pro rata
casualty (24.2%) and excess casualty (8.7%).

International business written out of Everest Re's New Jersey and Miami offices
accounted for $142.6 million of gross premiums written in 2001 and consisted of
pro rata treaty property (55.3%), pro rata treaty casualty (22.1%), excess
treaty property (15.3%), excess treaty casualty (2.2%) and excess facultative
property and casualty (5.1%). Of this international business, 59.9% was sourced
from Latin America, 26.5% was sourced from the Middle East, 4.2% was sourced
from Europe, Africa and Asia, and 9.4% was "home-foreign" business.

BERMUDA OPERATION. The Company's Bermuda operation writes property, casualty,
life and annuity business through Bermuda Re. In 2001, the Bermuda operation
continued to scale up and had gross property and casualty premiums written of
$25.0 million. In addition, the Bermuda operation generated business revenue
from annuity writings and a small number of specialized equity options and
credit default swaps.

GEOGRAPHIC AREAS
The Company conducts its business in Bermuda, in the United States and in a
number of foreign countries. For select financial information about geographic
areas, see Note 15 of Notes to the Consolidated Financial Statements. Risks
attendant to the foreign operations of the Company parallel those attendant to
the United States operations of the Company, with the primary exception of
foreign exchange risks. See ITEM 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Safe Harbor Disclosure".

10

UNDERWRITING PROCESS
The Company offers ceding companies full service capability, including
actuarial, claims, accounting and systems support, either directly or through
the broker community. The Company's capacity for both property and casualty
risks allows it to underwrite entire contracts or major portions thereof that
might otherwise need to be syndicated among several reinsurers. The Company's
strategy is to act as "lead" reinsurer in many of the reinsurance treaties it
underwrites. The lead reinsurer on a treaty generally accepts one of the largest
percentage shares of the treaty and is in a stronger position to negotiate
price, terms and conditions than is a reinsurer that takes a smaller position.
Management believes this strategy enables it to more effectively influence the
terms and conditions of the treaties on which it participates. When the Company
does not lead the treaty, it may still suggest changes to any aspect of the
treaty. The Company may decline to participate in a treaty based upon its
assessment of all relevant factors.

The Company's treaty underwriting process emphasizes a team approach among the
Company's underwriters, actuaries and claims staff. Treaties are reviewed for
compliance with the Company's general underwriting standards and certain larger
treaties are evaluated in part based upon actuarial analyses by the Company. The
actuarial models used in such analyses are tailored in each case to the
exposures and experience underlying the specific treaty and the loss experience
for the risks covered by such treaties. The Company does not separately evaluate
each of the individual risks assumed under its treaties. The Company does,
however, generally evaluate the underwriting guidelines of its ceding companies
to determine their adequacy prior to entering into a treaty. The Company, when
appropriate, also conducts underwriting, operational and claim audits at the
offices of ceding companies to ensure that the ceding companies operate within
such guidelines. Underwriting audits focus on the quality of the underwriting
staff, the selection and pricing of risks and the capability of monitoring price
levels over time. Claim audits, when appropriate, are performed in order to
evaluate the client's claims handling abilities and practices.

The Company's U.S. facultative underwriters operate within guidelines specifying
acceptable types of risks, limits and maximum risk exposures. Specified classes
of risks and large premium risks are referred to the Everest Re's New York
facultative headquarters for specific review before premium quotations are given
to clients. In addition, the Company's guidelines require certain types of risks
to be submitted for review because of their aggregate limits, complexity or
volatility regardless of premium amount or size of the insured on the underlying
contract.

The Company's insurance operations principally write property and casualty
coverages for homogeneous risks through select program managers. These programs
are evaluated based upon actuarial analysis and the program manager's
capabilities. The Company's rates, forms and underwriting guidelines are
tailored to specific risk types. The Company's underwriting, actuarial, claim
and financial functions work closely with its program managers to establish
appropriate underwriting and processing guidelines as well as appropriate
monitoring mechanisms.

RISK MANAGEMENT AND RETROCESSION ARRANGEMENTS
The Company manages its risk of loss through a combination of aggregate exposure
limits, underwriting guidelines that take into account risks, prices and
coverage, and retrocessional arrangements.

The Company is exposed to multiple insured losses arising out of a single
occurrence, whether a natural event, such as a hurricane or an earthquake, or
other catastrophe, such as an explosion at a major factory or a terrorist event.
Any such catastrophic event could generate insured losses in one or many of the

11

Company's treaties or lines of business, including property and/or casualty
exposures. The Company employs various techniques, including licensed software
modeling, to assess it's accumulated exposure. Such techniques are inherently
more difficult to apply to non-property exposures. Accumulated exposures with
respect to property catastrophe losses are summarized in terms of the probable
maximum loss ("PML"). The Company defines PML as its anticipated maximum
property loss, taking into account contract limits, caused by a single
catastrophe affecting a broad contiguous geographic area, such as that caused by
a hurricane or earthquake of such a magnitude that it is expected to occur once
in every 100 years.

Management estimates that the Company's greatest catastrophe exposure worldwide
from any single event is to hurricanes and earthquakes in the coastal regions of
the United States, where the Company estimates it has a PML exposure, before
reinsurance, of approximately $140 million in each such region based on its
current book of business. Similarly, management estimates that the largest
current PML exposure, before reinsurance, outside the United States is
approximately $97 million. There can be no assurance that the Company will not
experience losses from one or more catastrophic events that exceed, perhaps by a
substantial amount, its estimated PML, particularly if such events also give
rise to non-property exposures. Nor can there be assurance that the Company's
reinsurance program will not change or that it will respond predictably to any
given event.

Underwriting guidelines have been established for each business unit. These
guidelines place dollar limits on the amount of business that can be written
based on a variety of factors, including ceding company, line of business,
geographical location and risk hazards. In each case, those guidelines permit
limited exceptions, which must be authorized by the Company's senior management.

The Company employs a retrocessional approach where reinsurance may be purchased
to cover specific business written or exposure accumulations or it may be
purchased as a corporate level retrocessional program covering the potential
accumulation or aggregation of exposures across some or all of the Company's
operations. All reinsurance purchasing decisions consider both the potential
coverage and market conditions with respect to the pricing, terms, conditions
and availability of such coverage, with the aim of securing cost-effective
protection. The level of reinsurance coverage varies over time, reflecting the
underwriter's and/or Company's view of the changing dynamics of both the
underlying exposure and the reinsurance markets.

The Company does not typically purchase reinsurance to cover specific
reinsurance business written, but does from time to time, purchase
retrocessional protections where underwriting management deems it to be prudent
and/or cost-effective to reinsure a portion of the specific risks being assumed.
In 2001 and 2000, the Company purchased an excess property facultative
retrocessional program and an excess workers' compensation retrocessional
program. In addition, the Company purchased an excess property catastrophe
retrocessional program for losses incurred outside of the U.S. for 2002, 2001
and 2000. The Company also participates in "common account" retrocessional
arrangements for certain reinsurance treaties. Common account reinsurance
arrangements are arrangements whereby the ceding company purchases reinsurance
for the benefit of itself and its reinsurers on one or more of its reinsurance
treaties. Common account retrocessional arrangements reduce the effect of
individual or aggregate losses to all participating companies with respect to
the involved treaties, including the ceding company.

12

The Company typically considers the purchase of reinsurance to cover insurance
programs written by the U.S. Insurance operation. Such consideration includes
balancing the underlying exposures against the availability of cost-effective
reinsurance protection. For policies incepting on or after November 1998, the
Company purchased a workers' compensation reinsurance program that provided for
statutory limits coverage in excess of $75,000 of losses per occurrence on the
Company's workers' compensation insurance business written prior to November 1,
2000. Since November 1, 2000, this primary workers' compensation reinsurance
program provides statutory limits coverage in excess of $250,000 of losses per
occurrence for business written prior to November 1, 2001. The Company has not
purchased such coverage for the period subsequent to December 31, 2001. In
addition, for the twelve-month period commencing July 31, 2000, the Company
purchased reinsurance for a specific program of business. The reinsurance,
subject to certain aggregate limits, covered U.S. Longshore and Harbor Workers'
Compensation Act and state act workers' compensation business for 100% of loss
occurrences up to $100 million. Consistent with the $1 million limits of the
underlying policies in the program, reinsurance for 100% of Maritime Employers
Liability and Employers Liability was also provided. Neither the program nor the
reinsurance were renewed in 2001.

The Company also considers purchasing corporate level retrocessional protection
covering the potential accumulation of exposures. Such consideration includes
balancing the underlying exposures against the availability of cost-effective
retrocessional protection. For 2001, the Company purchased an accident year
aggregate excess of loss retrocession agreement which provides up to $175.0
million of coverage if Everest Re's consolidated statutory basis accident year
loss ratio exceeds a loss ratio attachment point provided in the contract for
the 2001 accident year. The attachment point is net of inuring reinsurance and
retrocessions and includes adjustable premium provisions that effectively cause
the Company to offset, on a pre-tax income basis, up to 52.9% of such ceded
losses, depending upon the character of the underlying losses, through
additional premiums. The maximum recovery is $175.0 million before giving effect
to a maximum adjustable premium of $82.5 million. Cessions under this cover have
reduced the limit available to $11.0 million at December 31, 2001. Similar
coverage was purchased and remains in effect for the 2000 accident year. No
cessions have been made to this cover as of December 31, 2001. Similar coverage
was purchased for the 1999 accident year with a $175.0 million limit, and
cessions under this contract have reduced the limit available to $0.0 million.
The Company has not purchased similar coverage for the period subsequent to
December 31, 2001.

Although the catastrophe and aggregate excess of loss retrocessions have terms
which provide for additional premiums to be paid to the retrocessionaire in the
event that losses are ceded, all aspects of the Company's retrocessional program
have been structured to permit these agreements to be accounted for as
reinsurance under Statement of Financial Accounting Standards ("SFAS") No. 113.
If a single catastrophe were to occur in the United States that resulted in $140
million of gross losses and allocated loss adjustment expenses ("ALAE") in 2002
(an amount equivalent to the Company's property catastrophe PML), management
estimates that the effect the Company's income would be approximately $140
million and $101 million before and after taxes, respectively.

In addition, the Company has coverage under an aggregate excess of loss
reinsurance agreement provided by Prudential Property and Casualty Insurance
Company of Indiana ("Prupac"), a wholly-owned subsidiary of The Prudential, in
connection with the Company's acquisition of Mt. McKinley in September 2000.
This agreement covers 80% or $160 million of the first $200 million of any
adverse loss reserve development on the carried reserves of Mt. McKinley at the
date of acquisition and reimburses the Company as such losses are paid by the

13

Company. There were $22.2 million of cessions under this reinsurance at December
31, 2001, reducing the limit available under the contract to $137.8 million.

In connection with the Mt. McKinley acquisition, Prupac also provided excess of
loss reinsurance for 100% of the first $8.5 million of loss with respect to
certain of Mt. McKinley's retrocessions and potentially uncollectible
reinsurance coverage. There were $2.5 million and $3.6 million of cessions under
this reinsurance during the periods ending December 31, 2000 and 2001,
respectively, reducing the limit available under the contract to $2.4 million.

As of December 31, 2001, the Company carried as an asset $895.1 million in
reinsurance receivables with respect to losses ceded. Of this amount, $339.0
million, or 37.9%, was receivable from subsidiaries of London Reinsurance Group
("London Life") and $145.0 million, or 16.2%, was receivable from Continental
Insurance Company ("Continental"). No other retrocessionaire accounted for more
than 5% of the Company's receivables. See ITEM 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition".

The Company's arrangements with London Life and Continental are managed on a
funds held basis, which means that the Company has not released premium payments
to the retrocessionaire but rather retains such payments to secure obligations
of the retrocessionaire, records them as a liability, credits interest on the
balances and reduces the liability account as payments become due. As of
December 31, 2001, such funds had reduced the Company's net exposure to London
Life to $158.9 million, 100% of which has been secured by letters of credit, and
its exposure to Continental to $67.9 million.

No assurance can be given that the Company will seek or be able to obtain
retrocessional coverage in the future similar to that currently in place. The
Company continuously evaluates its exposures and risk capacities in the context
of reinsurance market conditions, at both the specific and corporate level.
Although management carefully selects its reinsurers, the Company is subject to
credit risk with respect to its reinsurance because the ceding of risk to
reinsurers does not relieve the Company of its liability to insureds or ceding
companies.

MT. MCKINLEY INSURANCE COMPANY-ACQUISITION
The Company completed its acquisition of Gibraltar, subsequently renamed Mt.
McKinley, in September 2000. In connection with the acquisition, the seller
provided the reinsurance described above and the Company terminated certain
relationships between Mt. McKinley and its former parent, The Prudential, and
its affiliates. Mt. McKinley's ongoing operations relate to servicing claims
arising from (1) insurance written by Mt. McKinley or Everest Re prior to 1985,
(2) reinsurance of insurance business and certain Everest Re reinsurance
business written prior to 1991 which had previously been reinsured with third
parties and commuted with these third parties into Mt. McKinley and (3) exposure
to adverse loss reserve development on Everest Re's reserves as of June 30,
1995, which exposure was assumed by Mt. McKinley at the time of the Company's
initial public offering.

CLAIMS
Claims are managed by the Company's professional claims staff whose
responsibilities include reviewing initial loss reports and coverage issues,
monitoring claims handling activities of ceding companies, establishing and
adjusting proper case reserves and approving payment of claims. In addition to
claims assessment, processing and payment, the claims staff selectively conducts
comprehensive claims audits of both specific claims and overall claims
procedures at the offices of selected ceding companies. In most instances,

14

insurance claims are handled by third party claims services providers who have
limited authority and are subject to oversight by the Company's professional
claims staff.

RESERVES FOR UNPAID PROPERTY AND CASUALTY LOSSES AND LOSS ADJUSTMENT EXPENSES
Significant periods of time may elapse between the occurrence of an insured
loss, the reporting of the loss to the insurer and the reinsurer and payment of
that loss by the insurer and subsequent payments to the insurer by the
reinsurer. To recognize liabilities for unpaid losses and loss adjustment
expenses ("LAE"), insurers and reinsurers establish reserves, which are balance
sheet liabilities representing estimates of future amounts needed to pay
reported and unreported claims and related expenses on losses that have already
occurred. Actual losses and LAE paid may deviate, perhaps substantially, from
such reserves. To the extent reserves prove to be insufficient to cover actual
losses and LAE after taking into account available reinsurance coverage, the
Company would have to augment such reserves and incur a charge to earnings,
which could be material in the period such augmentation takes place. See ITEM 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Loss and LAE Reserves".

While the reserving process is difficult and subjective for insurance companies,
the inherent uncertainties of estimating such reserves are even greater for the
reinsurer, due primarily to the longer time between the date of an occurrence
and the reporting of any attendant claims to the reinsurer, the diversity of
development patterns among different types of reinsurance treaties or
facultative contracts, the necessary reliance on the ceding companies for
information regarding reported claims and differing reserving practices among
ceding companies. In addition, trends that have affected development of
liabilities in the past may not necessarily occur or affect liability
development to the same degree in the future. As a result, actual losses and LAE
may deviate, perhaps substantially, from estimates of reserves reflected in the
Company's consolidated financial statements.

Like many other property and casualty insurance and reinsurance companies, the
Company has experienced adverse loss development for prior accident years, which
has led to adjustments in losses and LAE reserves. The increase in net reserves
for prior accident years reduced net income for the periods in which the
adjustments were made. There can be no assurance that adverse development from
prior years will not continue in the future or that such adverse development
will not have a material adverse effect on net income.

CHANGES IN HISTORICAL RESERVES
The following table shows changes in historical loss reserves for the Company
for 1991 and subsequent years. The table is presented on a GAAP basis except
that the Company's loss reserves for its Canadian branch operations are
presented in Canadian dollars, the impact of which is not material. The top line
of each table shows the estimated reserves for unpaid losses and LAE recorded at
each year-end date. Each amount in the top line represents the estimated amount
of future payments for losses and LAE on claims occurring in that year and in
all prior years. The upper (paid) portion of the table presents the cumulative
amounts paid through each subsequent year on those claims for which reserves
were carried as of each specific year end. The lower (liability re-estimated)
portion shows the re-estimated amount of the previously recorded reserves based
on experience as of the end of each succeeding year. The estimate changes as
more information becomes known about the actual claims for which the initial
reserves were carried. The cumulative redundancy/deficiency line represents the
cumulative change in estimates since the initial reserve was established. It is
equal to the latest liability re-estimated amount less the initial reserve.

15

Each amount other than the original reserves in the top half of the table below
includes the effects of all changes in amounts for prior periods. For example,
if a loss settled in 1994 for $100,000 was first reserved in 1991 at $60,000 and
remained unchanged until settlement, the $40,000 deficiency (actual loss minus
original estimate) would be included in the cumulative redundancy (deficiency)
in each of the years in the period 1991 through 1993 shown below. Conditions and
trends that have affected development of liability in the past may not
necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.

TEN YEAR GAAP LOSS DEVELOPMENT TABLE PRESENTED NET OF REINSURANCE
WITH SUPPLEMENTAL GROSS DATA (1) (2)

Years Ended December 31,
------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in millions)

Reserves for unpaid
loss and LAE $1,752.9 $1,854.7 $1,934.2 $2,104.2 $2,316.1 $2,551.6 $2,810.0 $2,953.5 $2,977.4 $3,364.9 $3,472.5
Paid (cumulative)
as of:
One year later 333.3 461.5 403.5 359.5 270.4 331.2 450.8 484.3 673.4 718.1
Two years later 550.4 740.1 627.7 638.0 502.8 619.2 747.9 955.3 1,159.1
Three years later 758.3 897.0 820.5 828.0 682.0 813.7 1,101.5 1,295.5
Four years later 868.1 1,036.0 953.0 983.6 806.3 1,055.9 1,363.1
Five years later 970.0 1,141.0 1,071.5 1,143.4 990.9 1,253.0
Six years later 1,052.9 1,232.7 1,202.2 1,294.8 1,131.5
Seven years later 1,130.3 1,334.8 1,324.0 1,412.2
Eight years later 1,210.0 1,433.3 1,421.1
Nine years later 1,285.1 1,512.3
Ten years later 1,348.9
Liability
re-estimated
as of:
One year later 1,737.8 1,929.2 2,008.5 2,120.8 2,286.5 2,548.4 2,836.2 2,918.1 2,985.2 3,364.9
Two years later 1,775.7 1,988.9 2,015.4 2,233.7 2,264.5 2,575.9 2,802.2 2,921.6 2,977.2
Three years later 1,843.3 2,010.0 2,119.0 2,271.2 2,285.1 2,546.0 2,794.7 2,910.3
Four years later 1,855.7 2,111.9 2,164.5 2,452.3 2,260.7 2,528.0 2,773.5
Five years later 1,955.1 2,155.3 2,344.9 2,381.7 2,254.5 2,515.7
Six years later 1,995.8 2,332.3 2,278.3 2,382.0 2,247.3
Seven years later 2,178.0 2,269.9 2,279.1 2,380.8
Eight years later 2,115.5 2,273.0 2,277.3
Nine years later 2,122.5 2,268.3
Ten years later 2,117.2

Cumulative
redundancy/
(deficiency) $ (364.3) $ (413.6) $ (343.1) $ (276.6) $ 68.8 $ 35.9 $ 36.5 $ 43.2 $ 0.2 $ -
======== ======== ======== ======== ======== ======== ======== ======== ======== ========

Gross liability-end
of year $3,498.7 $3,869.2 $3,705.2 $3,853.7 $4,356.0
Reinsurance receivable 688.7 915.7 727.8 488.8 883.5
-------- -------- -------- -------- --------
Net liability-end of year 2,810.0 2,953.5 2,977.4 3,364.9 $3,472.5
-------- -------- -------- -------- ========

Gross re-estimated
liability at December 31,
2001 3,690.8 3,805.9 3,918.3 4,010.3
Re-estimated receivable
at December 31, 2001 917.3 895.6 941.1 645.4
-------- -------- -------- --------
Net re-estimated liability
at December 31, 2001 2,773.5 2,910.3 2,977.2 3,364.9
-------- -------- -------- --------
Gross cumulative
redundancy/(deficiency) $ (192.1) $ 63.3 $ (213.1) $ (156.6)
======== ======== ======== ========

- ----------
(1) Includes $480.9 million relating to Mt. McKinley at December 31, 2000,
principally reflecting $491.1 million of Mt. McKinley reserves at the
acquisition date.
(2) The Canadian Branch reserves are reflected in Canadian dollars.

16

For years prior to 1991, management believes that two factors had the most
significant impact on loss development. First, through the mid-1980's, a number
of industry and external factors, such as the propensity of courts to award
large damage awards in liability cases, combined to increase loss frequency and
severity to unexpectedly high levels. Second, contracts written prior to 1986
contained coverage terms which, for the Company and the industry in general,
have been interpreted by courts to provide coverage for asbestos and
environmental exposures not contemplated by either the pricing or the initial
reserving of the contracts. Legal developments during the mid-1980's
necessitated additional reserving for such exposures on both a case and incurred
but not reported ("IBNR") basis. Net incurred losses with respect to asbestos
and environmental claims, net of reinsurance, were $5.2 million, ($5.8) million,
$0 million, $15.4 million, and $3.5 million in 2001, 2000, 1999, 1998 and 1997,
respectively. Substantially all of these losses related to pre-1986 exposures.
The favorable loss development in 2000 relates to a commutation completed in
2000. The absence of net incurred losses in 1996 is attributable to 100%
coverage under a reinsurance agreement with Mt. McKinley, which was then a
subsidiary of The Prudential. This stop loss agreement commenced in 1995 when
The Prudential sold the Company in an initial public offering. The net incurred
losses in 1998 and 1997 reflected coinsurance under the same stop loss
agreement. There were no cessions to this cover in 2001 and 2000 when this
coverage became an inter-affiliate reinsurance transaction. See Footnote 1L to
Notes to Consolidated Financial Statements.

Management believes that adequate provision has been made for the Company's loss
and LAE reserves. While there can be no assurance that reserves for and losses
from these claims will not increase in the future, management believes that the
Company's existing reserves and retrocessional arrangements lessen the
probability that such increases would have a material adverse effect on the
Company's financial condition, results of operations or cash flows.

The following table is derived from the Ten Year GAAP Loss Development Table
above and summarizes the effect of reserve re-estimates, net of reinsurance, on
calendar year operations for the same ten-year period ended December 31, 2001.
Each column represents the amount of reserve re-estimates made in the indicated
calendar year and shows the accident years to which the re-estimates are
applicable. The amounts in the total accident year column on the far right
represent the cumulative reserve re-estimates for the indicated accident years.

17

EFFECT OF RESERVE REESTIMATES ON CALENDAR YEAR OPERATIONS
Cumulative Re-
estimates for
Calendar Year Ended December 31, each Accident
------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------------
(Dollars in millions)

Accident
Years
1991 & prior $ 15.1 $ (37.9) $ (67.6) $ (12.4) $ (99.4) $ (40.7) $ (182.2) $ 62.5 $ (7.0) $ 5.3 $ (364.3)
1992 (36.6) 7.9 (8.7) (2.5) (2.7) 5.2 (0.1) 3.9 (0.6) (34.3)
1993 (14.5) 14.2 (1.7) (2.1) (3.5) 4.2 2.3 (2.8) (3.9)
1994 (9.8) (9.3) 8.0 (0.7) 4.1 0.4 (0.6) (7.9)
1995 142.4 59.6 160.4 (46.2) 6.5 6.1 328.8
1996 (18.9) (6.8) 5.5 11.8 5.0 (3.4)
1997 1.3 4.1 (10.4) 8.9 3.8
1998 1.4 (11.0) (9.8) (19.5)
1999 (4.3) (3.3) (7.7)
2000 (7.9) (7.9)
Total calendar
year effect $ 15.1 $ (74.5) $ (74.3) $ (16.7) $ 29.6 $ 3.2 $ (26.2) $ 35.4 $ (7.8) $ 0.0 $ (116.2)

As illustrated by this table, the factors that caused the deficiencies shown in
the Ten Year GAAP Loss Development Table relate mainly to accident years prior
to 1991 principally reflecting the impact of asbestos and environmental
exposures discussed above. The significant favorable development experienced for
the 1995 accident year is due to aggregate excess of loss reinsurance provided
to the Company at the time of its initial public offering. This contract,
because of its 1995 inception date, is attributed to the 1995 accident year.
Aggregate historical development excluding the impact of these two unusual items
is not material.

The following table presents a reconciliation of beginning and ending reserve
balances for the years indicated on a GAAP basis:

RECONCILIATION OF RESERVES FOR LOSSES AND LAE

Years Ended December 31,
-------------------------------------
2001 2000 1999
--------- --------- ---------
(Dollars in millions)

Reserves at beginning of period $ 3,786.2 $ 3,647.0 $ 3,800.0
--------- --------- ---------
Incurred related to:
Current year 1,209.5 876.8 807.0
Prior years - 7.8 (35.4)
--------- --------- ---------
Total incurred losses 1,209.5 884.6 771.6
--------- --------- ---------
Paid related to:
Current year (1) 393.9 (166.9) 252.4
Prior years 718.1 673.4 484.3
--------- --------- ---------
Total paid losses 1,112.0 506.5 736.7
--------- --------- ---------
Change in reinsurance receivables
on unpaid losses and LAE 394.6 (238.9) (187.9)
--------- --------- ---------
Reserves at end of period $ 4,278.3 $ 3,786.2 $ 3,647.0
========= ========= =========

(1) Current year paid losses for 2000 are net of ($483.8) million resulting from
the acquisition of Mt. McKinley.

18

Prior year incurred losses increased by $7.8 million in 2000 and decreased by
$35.4 million in 1999. These changes were the result of normal reserve
development inherent in the uncertainty in establishing loss and LAE reserves,
as well as the impact of foreign exchange rate fluctuations on loss reserves
and, for 1999, changes in the Company's coinsurance in connection with stop loss
reinsurance protection provided by Mt. McKinley at the time of the Company's IPO
of ($6.0) million. Although coverage remains under this reinsurance, the
acquisition of Mt. McKinley causes the financial impact of any cessions under
this reinsurance to eliminate in consolidation. See also Note 1L of Notes to
Consolidated Financial Statements.

RESERVES FOR ASBESTOS AND ENVIRONMENTAL LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company's reserves include an estimate of the Company's ultimate liability
for asbestos and environmental claims for which ultimate value cannot be
estimated using traditional reserving techniques. There are significant
uncertainties in estimating the amount of the Company's potential losses from
asbestos and environmental claims. See ITEM 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Asbestos and
Environmental Exposures" and Note 12 of Notes to Consolidated Financial
Statements.

The following table summarizes the composition of the Company's total reserves
for asbestos and environmental losses, gross and net of reinsurance for the
years ended December 31, 2001, 2000 and 1999.

Years Ended December 31,
----------------------------------
2001 2000 (1) 1999
-------- -------- --------
(Dollars in millions)

Case reserves reported by
ceding companies $ 107.1 $ 106.8 $ 146.9
Additional reserves established
by the Company (assumed
reinsurance) 59.5 74.0 70.8
Case reserves established by
the Company 154.1 118.3 47.3
IBNR reserves 323.7 394.6 349.2
-------- -------- --------
Gross reserves 644.4 693.7 614.2
Reinsurance receivable (75.8) (65.2) (249.1)
-------- -------- --------
Net reserves $ 568.6 $ 628.5 $ 365.1
======== ======== ========

- ------------------
(1) In 2000, Holdings acquired Mt. McKinley, resulting in an increase to the
Company's gross and net asbestos and environmental exposure.

Additional losses, the type or magnitude of which cannot be foreseen by the
Company, or the reinsurance and insurance industry generally, may emerge in the
future. Such future emergence, to the extent not covered by existing
retrocessional contracts, could have material adverse effects on the Company's
future financial condition, results of operations and cash flows.

19

FUTURE POLICY BENEFIT RESERVES
Future policy benefit liabilities for annuities are reported at the accumulated
fund balance of these contracts. These reserves include both mortality and
morbidity provisions with respect to life and annuity claims, both reported and
unreported. Actual experience in a particular period may be worse than assumed
experience and, consequently, may adversely affect the Company's operating
results for the period. See Note 1F of Notes to Consolidated Financial
Statements.

INVESTMENTS
The Company's overall financial strength and results of operations are, in part,
dependent on the quality and performance of its investment portfolio. Net
investment income and net realized capital gains (losses) on the Company's
invested assets constituted 17.7%, 20.4% and 18.1% of the Company's revenues for
the years ending December 31, 2001, 2000 and 1999, respectively. The Company's
cash and invested assets totaled $5,783.5 million at December 31, 2001 of which
92.0% were cash or investment grade fixed maturities.

The Company's current investment strategy seeks to maximize after-tax income,
through a high quality, diversified, taxable bond and tax-preferenced fixed
maturity portfolio, while maintaining an adequate level of liquidity. The
Company's mix of taxable and tax-preferenced investments is adjusted
continuously, consistent with the Company's current and projected operating
results, market conditions and tax position. Additionally, the Company invests
in equity securities, which it believes will enhance the risk-adjusted total
return of the investment portfolio.

The board of directors of each company is responsible for establishing
investment policy and guidelines and, together with senior management, for
overseeing their execution. The Company's investment portfolio is in compliance
with the insurance laws of the jurisdictions in which its subsidiaries are
regulated. An independent investment advisor is utilized to manage the Company's
investment portfolio within the established guidelines and is required to report
activities on a current basis and to meet with the Company periodically to
review and discuss the portfolio structure, securities selection and performance
results.

The Company's investment guidelines include a current duration guideline of five
to six years. The duration of an investment is based on the maturity of the
security but also reflects the payment of interest and the possibility of early
prepayment of such security. This investment duration guideline is established
and periodically revised by management, which considers economic and business
factors. An important factor is the Company's average duration of potential
liabilities, which, at December 31, 2001, is estimated at approximately five
years based on the estimated payouts of underwriting liabilities using standard
duration calculations.

Approximately 7.3% of the Company's consolidated reserves for losses and LAE and
unearned premiums represents estimated amounts payable in foreign currencies.
For each currency in which the Company has established substantial reserves, the
Company seeks to maintain invested assets denominated in such currency in an
amount approximately comparable to the estimated liabilities which are
denominated in such currency.

As of December 31, 2001, 98.3% of the Company's total investments and cash were
comprised of fixed maturity investments or cash and 93.4% of the Company's fixed
maturities consisted of investment grade securities. The average maturity of
fixed maturities was 8.1 years at December 31, 2001, and their overall duration
was 5.3 years. As of December 31, 2001, the Company did not have any investments
in commercial real estate or direct commercial mortgages or any material
holdings of derivative investments or securities of issuers that are
experiencing cash flow difficulty to an extent that the Company's management
believes could threaten the issuer's ability to meet debt service payments.

As of December 31, 2001, the Company's common stock portfolio had a market value
of $67.3 million, comprising 1.2% of total investments and cash and is managed
with a growth orientation consisting primarily of investments in index oriented
mutual funds.

20

The following table reflects investment results for the Company for each of the
five years in the period ended December 31, 2001:

Pre-Tax
Pre-Tax Realized Net
Average Investment Effective Capital Gains
Years Ended December 31, Investments(1) Income(2) Yield (Losses)
- ------------------------ -------------- ---------- --------- -------------
(Dollars in millions)

2001 $ 5,374.9 $ 340.4 6.33% $ (22.3)
2000 4,824.0 301.5 6.25 0.8
1999 4,219.4 253.0 6.00 (16.8)
1998 4,243.3 244.9 5.77 (0.8)
1997 3,888.9 228.5 5.88 15.9

- ------------------
(1) Average of the beginning and ending carrying values of investments and cash,
less net funds held and non-interest bearing cash. Bonds, common stock and
redeemable and non-redeemable preferred stocks are carried at market value.
(2) After investment expenses, excluding realized net capital gains (losses).

The following table summarizes fixed maturities as of December 31, 2001 and
2000:

Amortized Unrealized Unrealized Market
Cost Appreciation Depreciation Value
---------- ------------ ------------ ------------
(Dollars in millions)

December 31, 2001:
U.S. Treasury securities
and obligations of U.S.
government agencies and
corporations $ 114.8 $ 5.2 $ 0.1 $ 119.9
Obligations of states and
political subdivisions 1,762.9 78.4 2.8 1,838.5
Corporate securities 2,254.7 77.6 39.5 2,292.8
Mortgage-backed securities 701.2 28.3 0.8 728.7
Foreign government securities 194.9 18.1 0.1 212.9
Foreign corporate securities 260.4 10.2 1.8 268.8
---------- ------------ ------------ ------------
Total $ 5,288.9 $ 217.8 $ 45.1 $ 5,461.6
========== ============ ============ ============

December 31, 2000:
U.S. Treasury securities
and obligations of U.S.
government agencies and
corporations $ 133.1 $ 4.8 $ - $ 137.9
Obligations of states and
political subdivisions 1,514.1 85.2 0.4 1,598.9
Corporate securities 1,900.4 41.8 73.8 1,868.4
Mortgage-backed securities 799.7 22.0 0.5 821.2
Foreign government securities 212.7 17.1 0.2 229.6
Foreign corporate securities 289.7 7.7 1.5 295.9
---------- ------------ ------------ ------------
Total $ 4,849.7 $ 178.6 $ 76.4 $ 4,951.9
========== ============ ============ ============

21

The following table presents the credit quality distribution of the Company's
fixed maturities as of December 31, 2001:

Percent of
Rating Agency Credit Quality Distribution Amount Total
- ----------------------------------------- ---------- ----------
(Dollars in millions)

AAA/AA/A $ 4,057.6 74.3%
BBB 1,043.1 19.1
BB 327.6 6.0
B 30.8 0.6
CCC/CC/C 2.4 0.0
CI/D 0.1 0.0
---------- ----------
Total $ 5,461.6 100.0%
========== ==========

The following table summarizes fixed maturities by contractual maturity as of
December 31, 2001:

Percent of
Amount Total
---------- ----------
(Dollars in millions)

Maturity category:
Less than one year $ 83.9 1.5%
1-5 years 1,096.4 20.1
5-10 years 1,594.7 29.2
After 10 years 1,958.0 35.9
---------- ----------
Subtotal (2) 4,733.0 86.7
Mortgage-backed securities (1) 728.6 13.3
---------- ----------
Total (2) $ 5,461.6 100.0%
========== ==========

- -------------
(1) Mortgage-backed securities generally are more likely to be prepaid than
other fixed maturities. Therefore, contractual maturities are excluded
from this table since they may not be indicative of actual maturities.

(2) Certain totals may not reconcile due to rounding.

RATINGS
The following table shows the financial strength ratings of the Company's
operating subsidiaries as reported by A.M. Best, Standard & Poor's Rating
Services ("Standard & Poor's") and Moody's Investor Service ("Moody's"). These
ratings are based upon factors of concern to policyholders and should not be
considered an indication of the degree or lack of risk involved in an equity
investment in an insurance company.

22

Operating Subsidiary A.M. Best Standard & Poor's Moody's
- --------------------------------------------------------------------------------

Everest Re A+ (Superior) AA- (Very Strong) Aa3 (Excellent)
Bermuda Re A+ (Superior) AA- (Very Strong) Not Rated
Everest National A+ (Superior) AA- (Very Strong) Not Rated
Everest Indemnity A+ (Superior) Not Rated Not Rated
Everest Security A+ (Superior) BB pi Not Rated
Everest Canada A+ (Superior) Not Rated Not Rated
Mt. McKinley Not Rated B pi Not Rated

A.M. Best states that the "A+" ("Superior") rating is assigned to those
companies which, in its opinion, have, on balance, achieved superior financial
strength, operating performance and market profile when compared to the
standards established by A.M. Best and have demonstrated a very strong ability
to meet their ongoing obligations to policyholders. The "A+" ("Superior") rating
is the second highest of fifteen ratings assigned by A.M. Best, which range from
"A++" ("Superior") to "F" ("In Liquidation"). Additionally, A.M. Best has eleven
classifications within the "Not Assigned" category. Standard & Poor's states
that the "AA-" rating is assigned to those insurance companies which, in its
opinion, offer excellent financial security and whose capacity to meet
policyholder obligations is strong under a variety of economic and underwriting
conditions. The "AA-" rating is the fourth highest of nineteen ratings assigned
by Standard & Poor's, which range from "AAA" (Superior) to "R" (Regulatory
Action). Ratings from AA to B may be modified by the use of a plus or minus sign
to show relative standing of the insurer within those rating categories.
Ratings, denoted with a "pi" subscript, are ratings based on Standard & Poor's
analysis of published financial information and do not reflect in-depth meetings
with the Company's management. The "BB pi" and "B pi" ratings are the twelfth
and fifteenth highest of the nineteen Standard & Poor's ratings, respectively.
Moody's states that insurance companies rated "Aa" offer excellent financial
security. Together with the Aaa rated companies, Aa rated companies constitute
what are generally known as high grade companies, with Aa rated companies
generally having somewhat larger long-term risks. Moody's rating gradations are
shown through the use of nine distinct symbols, each symbol representing a group
of ratings in which the financial security is broadly the same. The "Aa3"
(Excellent) rating is the fourth highest of ratings assigned by Moody's, which
range from "Aaa" (Exceptional) to "C" (Lowest). Moody's further distinguishes
the ranking of an insurer within its generic rating classification from Aa to B
with 1, 2 and 3 ("1" being the highest).

23

The following table shows the investment grade ratings of the Holdings' senior
notes due March 15, 2005 and March 15, 2010 by A.M. Best, Standard & Poor's and
Moody's. Debt ratings are a current assessment of the credit-worthiness of an
obligor with respect to a specific obligation.

A.M. Best Standard & Poor's Moody's
- ------------------------------------------------------------------------------

Senior Notes a A- A3

A company with a debt rating of "a" is considered by A.M. Best to have a strong
capacity and willingness to meet the terms of the obligation and possesses a low
level of credit risk. The "a" rating is the sixth highest of 19 ratings assigned
by A.M. Best, which range from "aaa" to "ccc". A company with a debt rating of
"A-" is considered by Standard & Poor's to have a strong capacity to pay
interest and repay principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. The "A-" rating from Standard & Poor's is the seventh
highest of 24 ratings assigned by Standard & Poor's, which range from "AAA" to
"D". A company with a debt rating of "A3" is considered to be an
upper-medium-grade obligation by Moody's. This rating represents adequate
capacity with respect to repayment of principal and interest, but elements may
be present which suggest a susceptibility to impairment sometime in the future.
The "A3" rating is the seventh highest of 21 ratings assigned by Moody's, which
range from "AAA" to "C".

All of the above-mentioned ratings are continually monitored and revised, if
necessary, by each of the rating agencies.

COMPETITION
The worldwide reinsurance and insurance businesses are highly competitive. The
September 11 terrorist attacks resulted in losses which reduced industry
capacity and were of sufficient magnitude to cause most individual companies to
reassess their capital position, tolerance for risk, exposure control mechanisms
and the pricing terms and conditions at which they are willing to take on risk.
The gradual and variable improving trend that had been apparent through 2000 and
earlier in 2001 firmed significantly. This firming generally took the form of
immediate and significant upward pressure on prices, restrictive terms and
conditions and a reduction of coverage limits and capacity availability. Such
pressures were widespread with some variability depending on the product and
markets involved, but mainly depending on the characteristics of the underlying
risk exposures. The magnitude of the changes was sufficient to create temporary
disequilibrium in some markets as individual buyers and sellers adapted to
changes in both their internal and market dynamics.

These changes reflect a reversal of the general trend from 1987 through 1999
toward increasingly competitive global market conditions across most lines of
business as reflected by decreasing prices and broadening contract terms. The
earlier trend resulted from a number of factors, including the emergence of
significant reinsurance capacity in Bermuda, changes in the Lloyds market,
consolidation and increased capital levels in the insurance and reinsurance
industries, as well as the emergence of new reinsurance and financial products
addressing traditional exposures in alternative fashions. Many of these factors
continue to exist. As a result, although the Company is encouraged by the recent
improvements, and more generally, current market conditions, the Company cannot
predict with any reasonable certainty whether and to what extent these
improvements will persist.

24

Competition with respect to the types of reinsurance and insurance business in
which the Company is engaged is based on many factors, including the perceived
overall financial strength of the reinsurer or insurer, A.M. Best's and/or
Standard & Poor's rating of the reinsurer or insurer, 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. The
Company competes in the United States, Bermuda and international reinsurance and
insurance markets with numerous international and domestic reinsurance and
insurance companies. The Company's 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 of London. Some of these competitors have greater
financial resources than the Company and have established long-term and
continuing business relationships throughout the industry, which can be a
significant competitive advantage. In addition, the potential for securitization
of reinsurance and insurance risks through capital markets provides an
additional source of potential reinsurance and insurance capacity and
competition.

EMPLOYEES
As of March 1, 2002, the Company employed 477 persons. Management believes that
its employee relations are good. None of the Company's employees are subject to
collective bargaining agreements, and the Company is not aware of any current
efforts to implement such agreements.

REGULATORY MATTERS
The Company and its insurance subsidiaries are subject to regulation under the
insurance statutes of the various jurisdictions in which they conduct business,
including essentially all states of the United States, Canada, Hong Kong,
Singapore, the United Kingdom and Bermuda. These regulations vary from
jurisdiction to jurisdiction and are generally designed to protect ceding
insurance companies and policyholders by regulating the Company's conduct of
business, financial integrity and ability to meet its obligations relating to
its business transactions and operations. Many of these regulations require
reporting of information designed to allow insurance regulators to closely
monitor the Company's performance.

INSURANCE HOLDING COMPANY REGULATION. Under applicable United States laws and
regulations, no person, corporation or other entity may acquire a controlling
interest in the Company, unless such person, corporation or entity has obtained
the prior approval for such acquisition from the Insurance Commissioners of
Delaware and the other states in which the Company's insurance subsidiaries are
domiciled, currently Arizona and Georgia. Under these laws, "control" is
presumed when any person acquires, directly or indirectly, 10% or more of the
voting securities of an insurance company. To obtain the approval of any change
in control, the proposed acquirer must file an application with the relevant
insurance commissioner disclosing, among other things, the acquirer's background
and that of its directors and officers, the acquirer's financial condition and
its proposed changes in the management and operations of the insurance company.
U.S. state regulators also require prior notice or regulatory approval of
material inter-affiliate transactions within the holding company structure. See
"Dividends".

The Insurance Companies Act of Canada also requires prior approval by the
Minister of Finance of anyone acquiring a significant interest in an authorized
Canadian insurance company. In addition, the Company is subject to regulation by
the insurance regulators of other states and foreign jurisdictions in which it
does business. Certain of these states and foreign jurisdictions impose
regulations regulating the ability of any person to acquire control of an

25

insurance company authorized to do business in that jurisdiction without
appropriate regulatory approval similar to those described above.

DIVIDENDS. Under Bermuda law, Group is prohibited from declaring or paying a
dividend if such payment would reduce the realizable value of its assets to an
amount less than the aggregate value of its liabilities and its issued share
capital and share premium (additional paid-in capital) accounts. Group's ability
to pay dividends and its operating expenses is partially dependent upon
dividends from its subsidiaries. The payment of dividends by insurance
subsidiaries is limited under Bermuda law as well as the laws of the various
U.S. states in which Group's insurance and reinsurance subsidiaries are licensed
to transact business. The limitations are generally based upon net income and
compliance with applicable policyholders' surplus or minimum solvency margin and
liquidity ratio requirements as determined in accordance with the relevant
statutory accounting practices. As Holdings has outstanding debt obligations, it
is dependent upon dividends and other permissible payments from Everest Re to
enable it to meet its debt and operating expense obligations and to pay
dividends to Group.

The payment of dividends to Holdings by Everest Re is subject to limitations
imposed by Delaware law. Generally, Everest Re may only pay dividends out of its
statutory earned surplus, which was $915.2 million at December 31, 2001, and
only after it has given 10 days prior notice to the Delaware Insurance
Commissioner. During this 10-day period, the Commissioner may, by order, limit
or disallow the payment of ordinary dividends if the Commissioner finds the
insurer to be presently or potentially in financial distress. Further, the
maximum amount of dividends that may be paid without the prior approval of the
Delaware Insurance Commissioner in any twelve month period is the greater of (1)
10% of an insurer's statutory surplus as of the end of the prior calendar year
or (2) the insurer's statutory net income, not including realized capital gains,
for the prior calendar year. Under this definition, the maximum amount that will
be available for the payment of dividends by Everest Re in 2002 without
triggering the requirement for prior approval of regulatory authorities in
connection with a dividend is $129.4 million.

Under Bermuda law, Bermuda Re is unable to declare or pay a dividend if it fails
to meet its minimum solvency margin or minimum liquidity ratio, or if after
payment of the dividend, it fails to meet its minimum solvency margin or minimum
liquidity ratio. As a long-term insurer, Bermuda Re is also unable to declare or
pay a dividend to anyone who is not a policyholder unless, after payment of the
dividend, the value of the assets in its long-term business fund, as certified
by its approved actuary, exceeds its liabilities for long-term business by at
least the $250,000 minimum solvency margin. Prior approval of the Bermuda
Minister of Finance is required if Bermuda Re's dividend payments would reduce
its prior year-end total statutory capital by 15.0% or more.

INSURANCE REGULATION. U.S. domestic property and casualty insurers, including
reinsurers, are subject to regulation by their state of domicile and by those
states in which they are licensed. The regulation of reinsurers is typically
related to the reinsurer's financial condition, investments, management and
operation. The rates and policy terms of reinsurance agreements generally are
not subject to direct regulation by any governmental authority.

The operations of Everest Re's current and former foreign branch offices in
Canada, Singapore, Hong Kong and the United Kingdom are subject to regulation by
the insurance regulatory officials of those jurisdictions. Management believes
that the Company is in material compliance with applicable laws and regulations
pertaining to its business and operations.

26

Bermuda Re is not admitted to do business as an insurer in any jurisdiction in
the U.S. Bermuda Re conducts its insurance business from its offices in Bermuda.
In Bermuda, Bermuda Re is regulated by the Insurance Act 1978 (as amended) and
related regulations (the "Act"). The Act establishes solvency and liquidity
standards, auditing and reporting requirements and subjects Bermuda Re to the
supervision, investigation and intervention powers of the Minister of Finance.
Under the Act, Bermuda Re, as a Class 4 insurer, is required to maintain $100
million in statutory capital and surplus, to have an independent auditor
approved by the Minister of Finance conduct an annual audit and report on its
statutory financial statements and filings and to have an appointed loss reserve
specialist (also approved by the Minister of Finance) review and report on its
loss reserves annually.

Bermuda Re is also registered under the Act as a long-term insurer and is
thereby authorized to write life and annuity business. As a long-term insurer,
Bermuda Re is required to maintain a long-term business fund, to separately
account for this business and to have an approved actuary prepare a certificate
concerning its long-term business assets and liabilities to be filed annually.

Everest Canada, Everest Indemnity, Everest National, Everest Security and Mt.
McKinley are subject to regulations similar to the U.S. regulations applicable
to Everest Re. In addition, Everest National and Everest Security must comply
with substantial regulatory requirements in each state where they conduct
business. These additional requirements include, but are not limited to, rate
and policy form requirements, requirements with regard to licensing, agent
appointments, participation in residual markets and claims handling procedures.
These regulations are primarily designed for the protection of policyholders.

LICENSES. Everest Re is a licensed property and casualty insurer and/or
reinsurer in all states (except Nevada and Wyoming), the District of Columbia
and Puerto Rico. In New Hampshire and Puerto Rico, Everest Re is licensed for
reinsurance only. Such licensing enables U.S. domestic ceding company clients to
take credit for reinsurance ceded to Everest Re.

Everest Re is licensed as a property and casualty reinsurer in Canada. It is
also authorized to conduct reinsurance business in the United Kingdom and
Singapore. Everest Re can also write reinsurance in other foreign countries.
Because some jurisdictions require a reinsurer to register in order to be an
acceptable market for local insurers, Everest Re is registered as a foreign
insurer and/or reinsurer in the following countries: Argentina, Bolivia, Chile,
Colombia, Ecuador, Guatemala, Mexico, Peru, Venezuela and the Philippines.
Everest National is licensed in 42 states and the District of Columbia. Everest
Indemnity is licensed in Delaware and is eligible to write insurance on a
surplus lines basis in 41 states, the District of Columbia and Puerto Rico.
Everest Security is licensed in Georgia. Everest Canada is federally licensed
under the Insurance Companies Act of Canada and licensed in all Canadian
provinces and territories. Mt. McKinley is licensed in Delaware and California.
Bermuda Re is registered as a Class 4 insurer and a long-term insurer in
Bermuda.

PERIODIC EXAMINATIONS. Everest Re, Everest National, Everest Indemnity, Everest
Security and Mt. McKinley are subject to periodic financial examination (usually
every 3 years) of their affairs by the insurance departments of the states in
which they are licensed, authorized or accredited. Everest Re's, Everest
National's, Everest Indemnity's and Mt. McKinley's last examination reports were
as of December 31, 1997. None of these reports contained any material
recommendations. Everest Security's last examination report was as of December
31, 1997. The Company has complied with, or is implementing procedures to comply
with, the recommendations noted therein. In addition, U.S. insurance companies

27

are subject to examinations by the various state insurance departments where
they are licensed concerning compliance with applicable conduct of business
regulations.

NAIC RISK-BASED CAPITAL REQUIREMENTS. The U.S. National Association of Insurance
Commissioners ("NAIC") has instituted a formula to measure the amount of capital
appropriate for a property and casualty insurance company to support its overall
business operations in light of its size and risk profile. The major categories
of a company's risk profile are its asset risk, credit risk, and underwriting
risk. The standards are an effort by the NAIC to prevent insolvencies, to ward
off other financial difficulties of insurance companies and to establish uniform
regulatory standards among state insurance departments.

Under the approved formula, a company's statutory surplus is compared to its
risk based capital ("RBC"). If this ratio is above a minimum threshold, no
action is necessary. Below this threshold are four distinct action levels at
which a regulator can intervene with increasing degrees of authority over a
domestic insurer as the ratio of surplus to RBC decreases. The mildest
intervention requires the company to submit a plan of appropriate corrective
actions. The most severe action requires the company to be rehabilitated or
liquidated.

Based upon Everest Re's, Everest National's, Everest Indemnity's and Everest
Security's financial positions at December 31, 2001, Everest Re, Everest
National, Everest Indemnity and Everest Security exceed the minimum thresholds.
Since Mt. McKinley ceased writing new and renewal insurance in 1985, its
domiciliary regulator, Delaware, has exempted Mt. McKinley from complying with
RBC requirements. Various proposals to change the RBC formula arise from time to
time. The Company is unable to predict whether any such proposal will be
adopted, the form in which any such proposals would be adopted or the effect, if
any, the adoption of any such proposal or change in the RBC calculations would
have on the Company.

CODIFICATION OF STATUTORY ACCOUNTING PRINCIPLES. The NAIC has published a
codification of statutory accounting principles, which has been adopted by the
states of domicile of the Company's U.S. operating subsidiaries with an
effective date of January 1, 2001. On January 1, 2001, significant changes to
the statutory-basis of accounting became effective. The cumulative effect of
these changes was a $57.1 million increase to Everest Re's statutory surplus.

LEGISLATIVE AND REGULATORY PROPOSALS. Various regulatory and legislative changes
have from time to time been proposed that could affect reinsurers and insurers.
The Company is unable to predict whether any of these proposals will be adopted,
the form in which any such proposals would be adopted, or the impact, if any,
such adoption would have on the Company.

TAX MATTERS. The following summary of the taxation of the Company is based on
current law. There can be no assurances that legislative, judicial, or
administrative changes will not be enacted that materially affect this summary.

BERMUDA. Under current Bermuda law, no income, withholding or capital gains
taxes are imposed upon Group and its Bermuda subsidiaries. Group and its Bermuda
subsidiaries have received an undertaking from the Minister of Finance in
Bermuda that, in the event of any taxes being imposed, Group and its Bermuda
subsidiaries will be exempt from taxation in Bermuda until March 2016.
Non-Bermuda branches of Bermuda subsidiaries are subject to local taxes in the
jurisdictions in which they operate.

BARBADOS. Group, a Bermuda company with its principal office in Barbados, is
registered as an external company under the Companies Act, Cap. 308 of Barbados

28

and is licensed as an international business company under the Barbados
International Business Companies Act, 1991-24. As a result, Group is subject to
a preferred rate of corporation tax on profits and gains in Barbados and is
exempt from withholding tax on dividends, interest, royalties, management fees,
fees or other income paid or deemed paid to a person who is not resident in
Barbados or who, if so resident, carries on an international business. No tax is
imposed on capital gains.

UNITED STATES. Group's U.S. subsidiaries conduct business in and are subject to
taxation in the United States. Non-U.S. branches of U.S. subsidiaries are
subject to local taxation in the jurisdictions in which they operate. Should the
U.S. subsidiaries distribute current or accumulated earnings and profits in the
form of dividends or otherwise to Group, the Company would be subject to
withholding taxes. Group and its Bermuda subsidiaries believe that they have
operated and will continue to operate their business in a manner that will not
cause them to generate income treated as effectively connected with the conduct
of a trade or business within the United States. On this basis, Group does not
expect that it and its Bermuda subsidiaries will be required to pay U.S.
corporate income taxes other than withholding taxes on certain investment income
and premium excise taxes. If Group or Bermuda Re were subject to U.S. income
tax, there could be a material adverse effect on the Company's financial
condition, results of operations or cash flows.

ITEM 2. PROPERTIES

Everest Re's corporate offices are located in approximately 112,000 square feet
of leased office space in Liberty Corner, New Jersey. Bermuda Re's corporate
offices are located in approximately 3,600 total square feet of leased office
space in Hamilton, Bermuda. The Company's other thirteen locations occupy a
total of approximately 67,000 square feet, all of which are leased. Management
believes that the above-described office space is adequate for its current and
anticipated needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved from time to time in ordinary routine litigation and
arbitration proceedings incidental to its business. The Company does not believe
that there are any other material pending legal proceedings to which it or any
of its subsidiaries or their properties are subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

29

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET INFORMATION
From October 3, 1995 through February 23, 2000, the common stock of Holdings was
traded on the New York Stock Exchange under the symbol "RE". As a result of the
restructuring, the common shares of Group commenced trading on the New York
Stock Exchange on February 24, 2000 under the same symbol, "RE". Quarterly high
and low market prices of the Company's common shares in 2001 and 2000 were as
follows:

High Low
---- ---

First Quarter 2001: 68.8750 55.3750
Second Quarter 2001: 74.8000 62.0000
Third Quarter 2001: 72.9700 48.7500
Fourth Quarter 2001: 78.5000 63.8000

First Quarter 2000: 32.6250 21.2500
Second Quarter 2000: 36.5000 27.3125
Third Quarter 2000: 50.2500 32.5000
Fourth Quarter 2000: 74.7500 44.8750

NUMBER OF HOLDERS OF COMMON SHARES
The number of record holders of common shares as of March 1, 2002 was 67. That
number excludes the beneficial owners of shares held in "street" name or held
through participants in depositories, such as The Depository Trust Company.

DIVIDEND HISTORY AND RESTRICTIONS
In 1995, the Board of Directors of Holdings established a policy of declaring
regular quarterly cash dividends. The first dividend was $0.03 per share,
declared and paid in the fourth quarter of 1995. The Company declared and paid
its regular quarterly cash dividend of $0.03 per share for each quarter of 1996,
$0.04 per share for each quarter of 1997, $0.05 per share for each quarter of
1998, and $0.06 per share for each quarter of 1999 and 2000 and $0.07 per share
for each quarter of 2001. A committee of the Company's Board of Directors
declared a dividend of $0.08 per share, payable on or before March 22, 2002 to
shareholders of record on March 4, 2002.

The declaration and payment of future dividends, if any, by the Company will be
at the discretion of the Board of Directors and will depend upon many factors,
including the Company's earnings, financial condition, business needs and growth
objectives, capital and surplus requirements of its operating subsidiaries,
regulatory restrictions, rating agency considerations and other factors. As an
insurance holding company, the Company is partially dependent on dividends and
other permitted payments from its subsidiaries to pay cash dividends to its
stockholders. The payment of dividends to Group by Holdings and to Holdings by
Everest Re will be subject to Delaware regulatory restrictions and the payment
of dividends to Group by Bermuda Re will be subject to Bermuda insurance
regulatory restrictions. See "Regulatory Matters -- Dividends" and Note 11A of
Notes to Consolidated Financial Statements.

RECENT SALES OF UNREGISTERED SECURITIES
Information required by Item 701 of Regulation S-K:

30

(a) On October 17, 2001, 696 common shares of the Company and on January 2, 2002
632 common shares of the Company were distributed.

(b) The securities were distributed to the Company's four non-employee
Directors.

(c) The securities were issued as compensation to the non-employee Directors for
services rendered to the Company in their capacities as Directors.

(d) Exemption from registration was claimed pursuant to Section 4(2) of the
Securities Act of 1933. There was no public offering and the participants in
the transactions were the Company and its non-employee Directors.

(e) Not applicable.

(f) Not applicable.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated GAAP financial data of the Company as of and
for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 were derived
from the consolidated financial statements of the Company, which were audited by
PricewaterhouseCoopers LLP. The following financial data should be read in
conjunction with the Consolidated Financial Statements and accompanying notes.

31

Years Ended December 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(Dollars in millions, except per share amounts)

Operating data:
Gross premiums written $ 1,874.6 $ 1,385.6 $ 1,141.8 $ 1,045.9 $ 1,075.0

Net premiums written 1,560.1 1,218.9 1,095.6 1,016.6 1,031.1

Net premiums earned 1,467.5 1,174.2 1,071.5 1,068.0 1,049.8

Net investment income 340.4 301.5 253.0 244.9 228.5
Net realized capital
(losses) gains (1) (22.3) 0.8 (16.8) (0.8) 15.9
Total revenue 1,801.5 1,479.8 1,306.7 1,315.2 1,299.2
Losses and LAE incurred
(including catastrophes) 1,209.5 884.6 771.6 778.4 765.4
Total catastrophe losses(2) 222.6 13.9 45.9 30.6 8.6
Commission, brokerage,
taxes and fees 396.8 272.4 286.0 274.6 274.8
Other underwriting expenses 58.9 51.6 48.3 49.6 51.7
Interest expense 46.0 39.4 1.5 - -
Non-recurring restructure
expenses - - 2.8 - -
Total expenses(3) 1,711.2 1,248.1 1,110.1 1,102.5 1,091.9
Income before taxes(3) 90.3 231.7 196.6 212.7 207.3
Income tax (benefit) expense (8.7) 45.4 38.5 47.5 52.3
Net income(3) $ 99.0 $ 186.4 $ 158.1 $ 165.2 $ 155.0
========= ========= ========= ========= =========

Net income per basic share(4) $ 2.14 $ 4.06 $ 3.26 $ 3.28 $ 3.07
========= ========= ========= ========= =========
Net income per diluted share(5) $ 2.10 $ 4.02 $ 3.25 $ 3.26 $ 3.05
========= ========= ========= ========= =========

Dividends paid per share $ 0.28 $ 0.24 $ 0.24 $ 0.20 $ 0.16
========= ========= ========= ========= =========

Certain GAAP financial ratios:(6)
Loss and LAE ratio 82.4% 75.3% 72.0% 72.9% 72.9%
Underwriting expense ratio 31.1 27.6 31.5 30.3 31.1
--------- --------- --------- --------- ---------
Combined ratio 113.5% 102.9% 103.5% 103.2% 104.0%
========= ========= ========= ========= =========

Balance sheet data (at end
of period):
Total investments and cash $ 5,783.5 $ 5,493.0 $ 4,139.2 $ 4,325.8 $ 4,163.3
Total assets 7,796.2 7,013.1 5,704.3 5,996.7 5,538.0
Loss and LAE reserves 4,278.3 3,786.2 3,647.0 3,800.0 3,437.8
Total liabilities 6,075.6 5,429.7 4,376.8 4,517.5 4,230.5
Shareholders' equity(7) 1,720.5 1,583.4 1,327.5 1,479.2 1,307.5
Book value per share(8) 37.19 34.40 28.57 29.59 25.90

- ------------
(1) After-tax operating income, before after-tax net realized capital gains
or losses, was $115.8 million (or $2.51 per basic share and $2.46 per
diluted share), $185.9 million (or $4.05 per basic and $4.01 per diluted
share), $169.0 million (or $3.48 per basic and $3.47 per diluted share),
$165.7 million (or $3.29 per basic and $3.27 per diluted share) and
$144.6 million (or $2.86 per basic and $2.85 per diluted share) for the
years ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
(2) Catastrophe losses are net of reinsurance. A catastrophe is defined, for
purposes of the Selected Consolidated Financial Data, as an event that
causes a pre-tax loss on property exposures before reinsurance of at
least $5.0 million and has an event date of January 1, 1988 or later.
(3) Some amounts may not reconcile due to rounding.
(4) Based on weighted average basic shares outstanding of 46.2 million, 45.9
million, 48.5 million, 50.4 million and 50.5 million for 2001, 2000,
1999, 1998 and 1997, respectively.
(5) Based on weighted average diluted shares outstanding of 47.1 million,
46.4 million, 48.7 million, 50.7 million and 50.8 million for 2001,
2000, 1999, 1998 and 1997, respectively.
(6) Loss ratio is the GAAP losses and LAE incurred as a percentage of GAAP
net premiums earned. Underwriting expense ratio is the GAAP commissions,
brokerage, taxes, fees and general expenses as a percentage of GAAP net
premiums earned. Combined ratio is the sum of the loss ratio and
underwriting expense ratio.
(7) Excluding net unrealized appreciation (depreciation) of investments,
shareholders' equity was $1,594.5 million, $1,502.1 million, $1,337.2
million, $1,281.6 million and $1,147.1 million as of December 31, 2001,
2000, 1999, 1998 and 1997, respectively.
(8) Based on 46.3 million shares outstanding for December 31, 2001, 46.0
million shares outstanding for December 31, 2000, 46.5 million shares
outstanding for December 31, 1999, 50.0 million shares outstanding for
December 31, 1998 and 50.5 million shares outstanding for December 31,
1997.

32

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following is a discussion of Everest Re Group, Ltd. and its subsidiaries'
(the "Company") results of operations and financial condition. This discussion
and analysis should be read in conjunction with the consolidated financial
statements and the notes thereto presented under ITEM 8.

RESTRUCTURING
On February 24, 2000, a corporate restructuring was completed and Everest Re
Group, Ltd. ("Group") became the new parent holding company of Everest
Reinsurance Holdings, Inc. ("Holdings"), which remains the holding company for
Group's U.S. based operations. The "Company" means Group and its subsidiaries,
except when referring to periods prior to February 24, 2000, when it means
Holdings and its subsidiaries.

ACQUISITIONS
On September 19, 2000, Holdings completed the acquisition of all of the issued
and outstanding capital stock of Gibraltar Casualty Company ("Gibraltar") from
The Prudential Insurance Company of America ("The Prudential") for $51.8
million, which approximated book value. As a result of the acquisition,
Gibraltar became a wholly owned subsidiary of Holdings and, immediately
following the acquisition, its name was changed to Mt. McKinley Insurance
Company ("Mt. McKinley"). In connection with the acquisition of Mt. McKinley,
which has significant exposure to asbestos and environmental claims, Prudential
Property and Casualty Insurance Company ("Prupac"), a subsidiary of The
Prudential, provided reinsurance to Mt. McKinley covering 80% ($160.0 million)
of the first $200.0 million of any adverse development of Mt. McKinley's
reserves as of September 19, 2000 and The Prudential guaranteed Prupac's
obligation to Mt. McKinley. There were $22.2 million of cessions under this
reinsurance at December 31, 2001, reducing the limit available under this
contract to $137.8 million.

In connection with the Mt. McKinley acquisition, Prupac also provided excess of
loss reinsurance for 100% of the first $8.5 million of loss with respect to
certain of Mt. McKinley's retrocessions and potentially uncollectible
reinsurance coverage. There were $2.5 million and $3.6 million of cessions under
this reinsurance during the periods ending December 31, 2000 and 2001,
respectively, reducing the limit available under the contract to $2.4 million.

Mt. McKinley, a run-off property and casualty insurer in the United States, has
had a long relationship with Holdings and its principal operating company,
Everest Reinsurance Company ("Everest Re"). Mt. McKinley was formed in 1978 by
Everest Re and wrote insurance until 1985, when it was placed in run-off. In
1991, Mt. McKinley became a subsidiary of The Prudential. Mt. McKinley is also a
reinsurer of Everest Re. Under a series of transactions dating to 1986, Mt.
McKinley reinsured several components of Everest Re's business. In particular,
Mt. McKinley provided stop-loss reinsurance protection, in connection with the
Company's October 5, 1995 Initial Public Offering, for any adverse loss
development on Everest Re's June 30, 1995 (December 31, 1994 for catastrophe
losses) reserves, with $375.0 million in limits, of which $89.4 million remains
available (the "Stop Loss Agreement"). The Stop Loss Agreement and other
reinsurance contracts between Mt. McKinley and Everest Re remain in effect
following the acquisition. However, these contracts have become transactions
with affiliates, with the financial impact eliminated in consolidation.

During 2000, the Company completed two additional acquisitions, Everest Security
Insurance Company ("Everest Security"), formerly known as Southeastern Security
Insurance Company, a United States property and casualty company whose primary

33

business is non-standard automobile insurance, and Everest International
Reinsurance, Ltd. ("Everest International"), formerly known as AFC Re, Ltd., a
Bermuda based life and annuity reinsurer.

RESULTS OF OPERATIONS
UNUSUAL LOSS EVENTS. As a result of the terrorist attacks at the World Trade
Center, the Pentagon and on various airlines on September 11, 2001 (collectively
the "September 11 attacks"), the Company incurred pre-tax losses, based on an
estimate of ultimate exposure developed through a review of its coverages, which
totaled $213.2 million gross of reinsurance and $55.0 million net of
reinsurance. Associated with this reinsurance were $60.0 million of pre-tax
charges, predominantly from adjustment premiums, resulting in a total pre-tax
loss from the September 11 attacks of $115.0 million. After tax recoveries
relating specifically to this unusual loss event, the net loss from the
September 11 attacks totaled $75.0 million. Over 90% of the losses ceded were to
treaties, where the reinsurers' obligations are secured, which the Company
believes eliminates material reinsurance collection risk.

As a result of the Enron bankruptcy in 2001, the Company has incurred losses,
after-tax and net of reinsurance, amounting to $25.0 million. This unusual loss
reflects all of the Company's exposures to this event, including underwriting,
credit and investment.

INDUSTRY CONDITIONS. The worldwide reinsurance and insurance businesses are
highly competitive. The September 11 attacks resulted in losses which reduced
industry capacity and were of sufficient magnitude to cause most individual
companies to reassess their capital position, tolerance for risk, exposure
control mechanisms and the pricing terms and conditions at which they are
willing to take on risk. The gradual and variable improving trend that had been
apparent through 2000 and earlier in 2001 firmed significantly. This firming
generally took the form of immediate and significant upward pressure on prices,
more restrictive terms and conditions and a reduction of coverage limits and
capacity availability. Such pressures were widespread with variability depending
on the product and markets involved, but mainly depending on the characteristics
of the underlying risk exposures. The magnitude of the changes was sufficient to
create temporary disequilibrium in some markets as individual buyers and sellers
adapted to changes in both their internal and market dynamics.

These changes reflect a reversal of the general trend from 1987 through 1999
toward increasingly competitive global market conditions across most lines of
business as reflected by decreasing prices and broadening contract terms. The
earlier trend resulted from a number of factors, including the emergence of
significant reinsurance capacity in Bermuda, changes in the Lloyds market,
consolidation and increased capital levels in the insurance and reinsurance
industries, as well as the emergence of new reinsurance and financial products
addressing traditional exposures in alternative fashions. Many of these factors
continue to exist. As a result, although the Company is encouraged by the recent
improvements, and more generally, current market conditions, the Company cannot
predict with any reasonable certainty whether and to what extent these
improvements will persist.

SEGMENT INFORMATION
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 United States. The U.S. Insurance operation
writes property and casualty insurance primarily through general agent
relationships and surplus lines brokers within the United States. The Specialty
Underwriting operation writes accident and health ("A&H"), marine, aviation and

34

surety business within the United States and worldwide through brokers and
directly with ceding companies. The International operation writes property and
casualty reinsurance through the Company's branches in Belgium, London, Canada,
and Singapore, in addition to foreign "home-office" business. The Bermuda
operation writes property, casualty, life and annuity business through brokers
and directly with ceding companies.

These segments are managed in a carefully coordinated fashion with strong
elements of central control, including with respect to capital, investments and
support operations. As a result, management monitors and evaluates the financial
performance of these operating segments principally based upon their
underwriting results. The Company utilizes inter-affiliate reinsurance and such
reinsurance does not impact segment results, since business is reported within
the segment in which the business was first produced.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
PREMIUMS. Gross premiums written increased 35.3% to $1,874.6 million in 2001
from $1,385.6 million in 2000, as the Company took advantage of selected growth
opportunities, while continuing to maintain a disciplined underwriting approach.
Premium growth areas included a 115.9% ($13.4 million) increase in the Bermuda
operation, a 100.6% ($251.9 million) increase in the U.S. Insurance operation,
principally attributable to growth in worker's compensation insurance, a 30.1%
($95.7 million) increase in the Specialty Underwriting operation, mainly
attributable to growth in A&H medical stop loss writings, and a 26.7% ($128.8
million) increase in the U.S. Reinsurance operation, primarily reflecting
improved market conditions. These increases were partially offset by a 0.2%
($0.8 million) decrease in the International operation. The Company continued to
decline business that did not meet its objectives regarding underwriting
profitability.

Ceded premiums increased to $314.5 million in 2001 from $166.7 million in 2000.
This increase was principally attributable to $81.3 million of adjustment
premiums incurred under the 2001 accident year aggregate excess of loss element
of the Company's corporate retrocessional program relating to losses incurred as
a result of the September 11 attacks and the Enron bankruptcy. In addition,
ceded premiums for 2001 and 2000 also include adjustment premiums of $58.1
million and $35.2 million, respectively, relating to claims made under the 1999
accident year aggregate excess of loss element of the Company's corporate
retrocessional program. The increase in ceded premiums in 2001 also reflects the
impact on the U.S. Insurance operation's specific reinsurance protections
resulting from this segment's volume increase.

Net premiums written increased by 28.0% to $1,560.1 million in 2001 from
$1,218.9 million in 2000. This increase was consistent with the increase in
gross premiums written and the increase in ceded premiums.

PREMIUM REVENUES. Net premiums earned increased by 25.0% to $1,467.5 million in
2001 from $1,174.2 million in 2000. Contributing to this increase were a 189.7%
($192.6 million) increase in the U.S. Insurance operation, a 41.6% ($4.8
million) increase in the Bermuda operation, a 22.9% ($69.2 million) increase in
the Specialty Underwriting operation, a 5.5% ($26.0 million) increase in the
U.S. Reinsurance operation and a 0.2% ($0.7 million) increase in the
International operation. All of these changes reflect period to period
variability in gross written and ceded premiums, and business mix, together with
normal variability in earnings patterns. Business mix changes occur not only as
the Company shifts emphasis between products, lines of business, distribution
channels and markets but also as individual contracts renew or non-renew, almost
always with changes in coverage, structure, prices and/or terms, and as new
contracts are accepted with coverages, structures, prices and/or terms different

35

from those of expiring contracts. As premium reporting and earnings and loss and
commission characteristics derive from the provisions of individual contracts,
the continuous turnover of individual contracts, arising from both strategic
shifts and day to day underwriting, can and does introduce appreciable
background variability in various underwriting line items.

EXPENSES. Incurred loss and loss adjustment expenses ("LAE") increased by 36.7%
to $1,209.5 million in 2001 from $884.6 million in 2000. The increase in
incurred losses and LAE was principally attributable to an increase in business
volume as reflected by the increase in net premiums earned, the impact of
incurred losses relating to the September 11 attacks and the Enron bankruptcy
and modest reserve strengthening in select areas, together with the impact of
changes in the Company's mix of business. The Enron bankruptcy contributed $34.0
million of unusual losses in 2001 before cessions under the corporate
retrocessional program. Incurred losses and LAE include catastrophe losses,
which reflect the impact of both current period events and favorable and
unfavorable development on prior period events and are net of reinsurance. A
catastrophe is an event that causes a pre-tax loss on property exposures of at
least $5.0 million and has an event date of January 1, 1988 or later.
Catastrophe losses, net of contract specific cessions but before cessions under
the corporate retrocessional program in 2001, were $222.6 million, relating
principally to the September 11 attacks, tropical storm Alison, the Petrobras
Oil Rig loss and the El Salvador earthquake loss, compared to $13.9 million in
2000. Incurred losses and LAE in 2001 reflected ceded losses and LAE of $486.3
million compared to ceded losses and LAE in 2000 of $161.6 million, with the
increase principally attributable to cessions relating to the September 11
attack losses and the Enron bankruptcy, together with the increased cessions
under specific reinsurance arrangements in the U.S. Insurance operation. The
ceded losses and LAE for 2001 reflect $164.0 million of losses ceded under the
2001 accident year aggregate excess of loss component of the Company's corporate
retrocessional program. The ceded losses and LAE for 2001 and 2000 reflect
$105.0 million and $70.0 million, respectively, of losses ceded under the 1999
accident year aggregate excess of loss component of the Company's corporate
retrocessional program with the amounts in both periods reflecting reserve
strengthening in select lines, including with respect to 1999 accident year
catastrophes.

Contributing to the increase in incurred losses and LAE in 2001 from 2000 were a
200.7% ($141.0 million) increase in the U.S. Insurance operation principally
reflecting increased premium volume, a 137.5% ($8.8 million) increase in the
Bermuda operation principally reflecting increased premium volume, a 41.5%
($131.9 million) increase in the U.S. Reinsurance operation, principally
reflecting losses in connection with the September 11 attacks and tropical storm
Alison and a 30.1% ($76.5 million) increase in the Specialty Underwriting
operation principally attributable to increased premium volume in A&H medical
stop loss business together with marine, aviation and surety losses relating to
the September 11 attacks, the Enron bankruptcy and the Petrobras Oil Rig loss
event. These increases were partially offset by a 14.1% ($33.3 million) decrease
in the International operation principally due to more favorable loss
experience. Incurred losses and LAE for each operation were also impacted by
variability relating to changes in the level of premium volume and mix of
business by class and type.

The Company's loss and LAE ratio ("loss ratio"), which is calculated by dividing
incurred losses and LAE by premiums earned, increased by 7.1 percentage points
to 82.4% in 2001 from 75.3% in 2000 reflecting the incurred losses and LAE
discussed above. The following table shows the loss ratios for each of the
Company's operating segments for 2001 and 2000. The loss ratios for all
operations were impacted by the expense factors noted above as well as by the
impact on ceded premiums of the adjustment premiums under the Company's
corporate retrocessional program.

36

OPERATING SEGMENT LOSS RATIOS
- --------------------------------------------------------------------------------
Segment 2001 2000
- --------------------------------------------------------------------------------

U.S. Reinsurance 90.4% 67.4%
U.S. Insurance 71.8% 69.2%
Specialty Underwriting 89.0% 84.0%
International 70.5% 82.3%
Bermuda 92.3% 55.0%

Underwriting expenses increased by 40.6% to $455.7 million in 2001 from $324.1
million in 2000. Commission, brokerage, taxes and fees increased by $124.4
million, principally reflecting increases in premium volume and changes in the
mix of business. In addition, in 2000, the Company's reassessment of the
expected losses on a multi-year reinsurance treaty led to a $33.8 million
decrease in contingent commissions with a corresponding increase to losses.
Other underwriting expenses increased by $7.3 million as the Company has
expanded its business volume and operations. Contributing to the underwriting
expense increase were a 122.7% ($45.6 million) increase in the U.S. Insurance
operation, mainly relating to the increased premium volume, a 70.8% ($68.0
million) increase in the U.S. Reinsurance operation, which included the impact
of the contingent commission adjustment noted above and a 22.5% ($19.8 million)
increase in the Specialty operation. These increases were partially offset by a
29.0% ($1.7 million) decrease in the Bermuda operation and a 1.5% ($1.4 million)
decrease in the International operation. Except as noted, the changes for each
operation's expenses principally resulted from changes in commission expenses
related to changes in premium volume and business mix by class and type and, in
some cases, the underwriting performance of the underlying business. The
Company's expense ratio, which is calculated by dividing underwriting expenses
by premiums earned, increased by 3.4 percentage points to 31.0% in 2001 compared
to 27.6% in 2000.

The Company's combined ratio, which is the sum of the loss and expense ratios,
increased by 10.6 percentage points to 113.5% in 2001 compared to 102.9% in
2000. The following table shows the combined ratios for each of the Company's
operating segments for 2001 and 2000. The combined ratios for all operations
were impacted by the loss and expense ratio variability noted above as well as
by the impact on ceded premiums of the adjustment premiums under the Company's
corporate retrocessional program.

OPERATING SEGMENT COMBINED RATIOS
- --------------------------------------------------------------------------------
Segment 2001 2000
- --------------------------------------------------------------------------------

U.S. Reinsurance 123.3% 87.8%
U.S. Insurance 99.9% 105.8%
Specialty Underwriting 118.0% 113.1%
International 103.0% 115.4%
Bermuda 117.9% 106.0%

INVESTMENTS. Net investment income increased by 12.9% to $340.4 million in 2001
from $301.5 million in 2000, principally reflecting the effect of investing the
$406.0 million of cash flow from operations in 2001, partially offset by the
lower interest rate environment and increased interest expense on funds held
relating to the utilization of the 1999 and 2001 accident year aggregate excess
of loss elements of the corporate retrocessional program. The following table
shows a comparison of various investment yields as of December 31, 2001 and
2000, respectively, and for the periods then ended.

37

2001 2000
------------------------

Imbedded pre-tax yield of cash and invested
assets at end of period 6.0% 6.7%
Imbedded after-tax yield of cash and invested
assets at end of period 5.0% 5.4%
Annualized pre-tax yield on average cash and
invested assets 6.2% 6.3%
Annualized after-tax yield on average cash and
invested assets 5.0% 5.0%

Net realized capital losses were $22.3 million in 2001, reflecting realized
capital losses on the Company's investments of $55.1 million, which includes
$9.0 million relating to write-downs in the value of securities deemed to be
other than temporary, partially offset by $32.8 million of realized capital
gains, compared to realized capital gains of $0.8 million in 2000. The net
realized capital gains in 2000 reflected realized capital gains of $30.9
million, which were partially offset by $30.1 million of realized capital
losses. The net realized capital losses for 2001 allowed the Company to
recapture taxes paid on net realized capital gains in prior periods. The
realized capital gains in 2001 and 2000 arose mainly from activity in the
Company's equity portfolio. The realized capital losses in 2001 and 2000 arose
mainly from activity in the Company's fixed maturity portfolios.

Interest expense was $46.0 million for 2001 compared to $39.4 million in 2000.
Interest expense for 2001 reflects $38.9 million relating to Holdings' senior
notes issued on March 14, 2000 and $7.1 million relating to Holdings' borrowing
under its revolving credit facility. Interest expense for 2000 reflects $30.9
million relating to Holdings' issuance of senior notes and $8.5 million relating
to Holdings' borrowing under its revolving credit facility.

Other income was $28.2 million in 2001 compared to $3.3 million in 2000. Other
income for 2001 includes $25.9 million arising from a non-recurring receipt of
shares in connection with the demutualization of a former insurance company
client, which issued annuities, owned by the Company, in connection with certain
claim settlement transactions. In addition, other income for 2001 includes
foreign exchange gains as well as financing fees from Everest Security, offset
by the amortization of deferred expenses relating to Holdings' issuance of
senior notes. Significant contributors to other income for 2000 were foreign
exchange gains as well as financing fees from Everest Security, partially offset
by net derivative expense and the amortization of deferred expenses relating to
Holdings' issuance of senior notes. The foreign exchange gains and losses are
attributable to fluctuations in foreign currency exchange rates.

During 2000 and 2001, the Company added to its product portfolio a small number
of credit default swaps, which it no longer offers, and specialized equity put
options. These products meet the definition of a derivative under Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). Net derivative expense from these transactions in 2001
was $12.2 million.

INCOME TAXES. The Company generated income tax benefits of $8.7 million in 2001
compared to income tax expense of $45.4 million in 2000. This tax benefit
primarily resulted from the impact of losses relating to the September 11
attacks, the Enron bankruptcy and realized capital losses recognized in 2001,
which reduced taxable income, partially offset by taxable income relating to the
non-recurring receipt of shares in connection with a former client's
demutualization.

38

NET INCOME. Net income was $99.0 million in 2001 compared to $186.4 million in
2000. This decrease generally reflects the losses attributable to the September
11 attacks and the Enron bankruptcy, partially offset by improved investment
results and the non-recurring receipt of shares in connection with a former
client's demutualization.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
PREMIUMS. Gross premiums written increased 21.4% to $1,385.6 million in 2000
from $1,141.8 million in 1999 as the Company took advantage of selected growth
opportunities while continuing to maintain a disciplined underwriting approach.
Premium growth areas included a 255.9% ($180.1 million) increase in the U.S.
Insurance operation, principally attributable to growth in worker's compensation
insurance, an 18.5% ($49.7 million) increase in the Specialty Underwriting
operation, attributable to growth in A&H medical stop loss writings, a 3.6%
($11.2 million) increase in the International operation, mainly attributable to
growth in Latin America and the markets served from the Company's London branch,
and $11.6 million of writings through the Bermuda operation, which produced its
first business during the quarter ended December 31, 2000. These increases were
partially offset by a 1.8% ($8.9 million) decrease in the U.S. Reinsurance
operation where growth across property and casualty lines was offset by
reductions in non-standard auto writings. The Company continued to decline
business that did not meet its objectives regarding underwriting profitability.

Ceded premiums increased to $166.7 million in 2000 from $46.3 million in 1999.
This increase was principally attributable to the higher utilization of contract
specific cessions in the U.S. Insurance and U.S. Reinsurance operations,
including a new 100% ceded U.S. Longshore and Harbor Workers' Compensation Act
and state act workers' compensation program in the U.S. Insurance operation,
which contributed $37.0 million to the increase. In addition, adjustment
premiums of $35.2 million were ceded in 2000 relating to losses ceded under the
1999 accident year aggregate excess of loss element of the Company's corporate
retrocessional program.

Net premiums written increased by 11.3% to $1,218.9 million in 2000 from
$1,095.6 million in 1999. This increase was consistent with the increase in
gross premiums written and the increase in ceded premiums.

PREMIUM REVENUES. Net premiums earned increased by 9.6% to $1,174.2 million in
2000 from $1,071.5 million in 1999. Contributing to this increase was a 75.8%
($43.8 million) increase in the U.S. Insurance operation, a 14.1% ($37.3
million) increase in the Specialty Underwriting operation, a 3.3% ($15.1
million) increase in the U.S. Reinsurance operation and $11.6 million of net
premiums earned from the Bermuda operation as the operation began writing
business during the quarter ended December 31, 2000. These increases were
partially offset by a 1.7% ($5.0 million) decrease in the International
operation. All of these changes reflect period to period variability in gross
written and ceded premiums, and business mix, together with normal variability
in earnings patterns. Business mix changes occur not only as the Company shifts
emphasis between products, lines of business, distribution channels and markets
but also as individual contracts renew or non-renew, almost always with changes
in coverage, structure, prices and/or terms, and as new contracts are accepted
with coverages, structures, prices and/or terms different from those of expiring
contracts. As premium reporting and earnings and loss and commission
characteristics derive from the provisions of individual contracts, the
continuous turnover of individual contracts, arising from both strategic shifts
and day to day underwriting, can and does introduce appreciable background
variability in various underwriting line items.

EXPENSES. Incurred loss and LAE increased by 14.7% to $884.6 million in 2000
from $771.6 million in 1999. The increase in incurred losses and LAE was
principally attributable to the increase in net premiums written together with

39

modest strengthening of prior period reserves in select areas, including on a
multi-year reinsurance treaty where such losses within the current experience
band were accompanied by correspondingly lower commissions. The increase was
partially offset by losses ceded under the Company's corporate retrocessional
program and also reflects changes in the Company's mix of business. Incurred
losses and LAE include catastrophe losses, which reflect the impact of both
current period events and favorable and unfavorable development on prior period
events and are net of reinsurance. Catastrophe losses, net of contract specific
cessions but before cessions under the corporate retrocessional program in 2000,
were $13.9 million, mainly reflecting modest net adverse development on 1999
catastrophe events, compared to $45.9 million in 1999. Net incurred losses and
LAE in 2000 reflected ceded losses and LAE of $161.6 million, including $70.0
million ceded under the 1999 accident year aggregate excess of loss component of
the Company's corporate retrocessional program. Ceded losses and LAE in 1999
were $7.4 million with no cessions under the accident year aggregate excess of
loss component of the Company's corporate retrocessional program.

Contributing to the increase in incurred losses and LAE in 2000 from 1999 were a
71.1% ($29.2 million) increase in the U.S. Insurance operation, principally
reflecting increased premium volume, a 37.0% ($68.7 million) increase in the
Specialty Underwriting operation principally attributable to increased premium
volume in A&H business together with modest reserve strengthening for prior
period marine, aviation and surety exposures, a 3.3% ($7.5 million) increase in
the International operation, which included modest reserve strengthening for
exposures produced through its London and Canadian branches, a 0.4% ($1.2
million) increase in the U.S. Reinsurance operation and $6.4 million of losses
from the Bermuda operation as the Company began writing business in this
operation during the quarter ended December 31, 2000. Incurred losses and LAE
for each operation were also impacted by variability relating to changes in the
level of premium volume and mix of business by class and type.

The Company's loss ratio, which is calculated by dividing incurred losses and
LAE by premiums earned, increased by 3.3 percentage points to 75.3% in 2000 from
72.0% in 1999 reflecting the incurred losses and LAE discussed above. The
following table shows the loss ratios for each of the Company's operating
segments for 2000 and 1999. The loss ratios for all operations were impacted by
the factors noted above.

OPERATING SEGMENT LOSS RATIOS
- --------------------------------------------------------------------------------
Segment 2000 1999
- --------------------------------------------------------------------------------

U.S. Reinsurance 67.4% 69.3%
U.S. Insurance 69.2% 71.1%
Specialty Underwriting 84.0% 70.0%
International 82.3% 78.3%
Bermuda 55.0% N/A

Underwriting expenses decreased by 3.8% to $324.1 million in 2000 from $337.0
million in 1999. Commission, brokerage, taxes and fees decreased by $13.5
million, principally reflecting the Company's reassessment of the expected
losses on the multi-year reinsurance treaty noted above that led to a $33.8
million decrease in contingent commissions with a corresponding increase to
losses, partially offset by increases in premiums written and also reflecting
changes in the mix of business. Other underwriting expenses increased by $0.6
million. Contributing to the underwriting expense decrease were a 26.5% ($34.5
million) decrease in the U.S. Reinsurance operation, which included the impact
of the contingent commission adjustment noted above, and a 2.0% ($1.9 million)
decrease in the International operation. These decreases were partially offset

40

by $5.9 million of expenses from the Bermuda operation, principally reflecting
Federal excise tax paid on a loss portfolio transfer with an affiliate, and
52.8% ($12.8 million) and 9.1% ($7.3 million) increases in the U.S. Insurance
operation and the Specialty Underwriting operation, respectively, principally
related to production volume increases. Except as noted, the changes for each
operation's expenses principally resulted from changes in commission expenses
related to changes in premium volume and business mix by class and type and, in
some cases, the underwriting performance of the underlying business. The
Company's expense ratio, which is calculated by dividing underwriting expenses
by premiums earned, decreased by 3.9 percentage points to 27.6% in 2000 compared
to 31.5% in 1999.

The Company's combined ratio, which is the sum of the loss and expense ratios,
decreased by 0.6 percentage points to 102.9% in 2000 compared to 103.5% in 1999.
The following table shows the combined ratios for each of the Company's
operating segments for 2000 and 1999. The combined ratios for all operations
were impacted by the loss and expense ratio variability noted above.

OPERATING SEGMENT COMBINED RATIOS
- --------------------------------------------------------------------------------
Segment 2000 1999
- --------------------------------------------------------------------------------

U.S. Reinsurance 87.8% 97.9%
U.S. Insurance 105.8% 113.1%
Specialty Underwriting 113.1% 100.4%
International 115.4% 111.5%
Bermuda 106.0% N/A

INVESTMENTS. Net investment income increased by 19.2% to $301.5 million in 2000
from $253.0 million in 1999, principally reflecting the effect of investing the
$90.0 million of cash flow from operations in 2000, the investment of the $450.0
million in proceeds from Holdings' issuance of senior notes and the investment
of the approximately $554.5 million of additional net invested assets resulting
from the acquisitions of Mt. McKinley and AFC Re. The following table shows a
comparison of various investment yields as of December 31, 2000 and 1999,
respectively, and for the periods then ended.

2000 1999
------------------------

Imbedded pre-tax yield of cash and invested
assets at end of period 6.7% 6.2%
Imbedded after-tax yield of cash and invested
assets at end of period 5.4% 4.9%
Annualized pre-tax yield on average cash and
invested assets 6.3% 6.2%
Annualized after-tax yield on average cash and
invested assets 5.0% 4.9%

Net realized capital gains were $0.8 million in 2000, reflecting realized
capital gains on the Company's investments of $30.9 million, partially offset by
$30.1 million of realized capital losses, compared to realized capital losses of
$16.8 million in 1999. The net realized capital losses in 1999 reflected
realized capital losses of $33.9 million, which were partially offset by $17.1
million of realized capital gains. The realized capital gains in 2000 and 1999
arose mainly from activity in the Company's equity portfolio. The realized
capital losses in 2000 and 1999 arose mainly from activity in the Company's
fixed maturity portfolios.

41

Interest expense was $39.4 million for 2000 compared to $1.5 million in 1999.
Interest expense for 2000 reflects $30.9 million relating to Holdings' issuance
of senior notes and $8.5 million relating to Holdings' borrowing under its
revolving credit facility. Interest expense for 1999 reflects $1.5 million
relating to Holdings' borrowing under its credit facility.

Other income was $3.3 million in 2000 compared to other expense of $1.0 million
in 1999. Significant contributors to other income for 2000 were foreign exchange
gains as well as financing fees from Everest Security, offset by net derivative
income and fair value adjustments and expenses relating to Holdings' issuance of
senior notes. Other expense for 1999 principally included foreign exchange
losses. The foreign exchange gains and losses are attributable to fluctuations
in foreign currency exchange rates.

INCOME TAXES. The Company recognized income tax expense of $45.4 million in 2000
compared to $38.5 million in 1999, with the increase mainly attributable to
decreased realized capital losses.

NET INCOME. Net income was $186.4 million in 2000 compared to $158.1 million in
1999. This increase generally reflects the decreases in net realized capital
losses, together with the improved underwriting and investment results,
partially offset by increased interest and income tax expense.

CRITICAL ACCOUNTING POLICY
The Company's most critical accounting policy is the determination of its loss
and LAE reserves. The Company maintains reserves to cover its estimated ultimate
liability for losses and LAE with respect to reported and unreported claims.
Because reserves are estimates of ultimate losses and LAE, management monitors
reserve adequacy over time, evaluating new information as it becomes known and
adjusting reserves, as necessary. Management considers many factors when setting
reserves, including: (1) current legal interpretations of coverage and
liability; (2) economic conditions; (3) internal actuarial methodologies which
analyze the Company's experience with similar cases, information from ceding
companies and historical trends, such as reserving patterns, loss payments,
pending levels of unpaid claims and product mix; and (4) the uncertainties
discussed below regarding reserve requirements for asbestos and environmental
claims. Based on these considerations, management believes that adequate
provision has been made for the Company's loss and LAE reserves. Actual losses
and LAE ultimately paid may deviate, perhaps substantially, from such reserves,
impacting income in the period in which the change is made. See also Footnote 1
to Notes to the Consolidated Financial Statements.

ASBESTOS AND ENVIRONMENTAL EXPOSURES. The Company's asbestos claims typically
involve liability or potential liability for bodily injury from exposure to
asbestos or liability for property damage resulting from asbestos or asbestos
containing materials. The Company's environmental claims typically involve
potential liability for the mitigation or remediation of environmental
contamination or bodily injury or property damages caused by the release of
hazardous substances into the land, air or water. In addition to the previously
described general uncertainties inherent in estimating reserves, there are
significant additional uncertainties in estimating the amount of the Company's
potential losses from asbestos and environmental claims. Among the complications
impacting the estimation of such losses are: (1) potentially long waiting
periods between exposure and manifestation of any bodily injury or property
damage; (2) difficulty in identifying sources of asbestos or environmental
contamination; (3) difficulty in properly allocating responsibility and/or
liability for asbestos or environmental damage; (4) changes in underlying laws
and judicial interpretation of those laws; (5) potential for an asbestos or

42

environmental claim to involve many insurance providers over many policy
periods; (6) long reporting delays, both from insureds to insurance companies
and ceding companies to reinsurers; (7) historical data concerning asbestos and
environmental losses, which is more limited than historical information on other
types of casualty claims; (8) questions concerning interpretation and
application of insurance and reinsurance coverage; and (9) uncertainty regarding
the number and identity of insureds with potential asbestos or environmental
exposure. Management believes that these factors continue to render reserves for
asbestos and environmental losses significantly less subject to traditional
actuarial methods than are reserves on other types of losses. Given these
uncertainties, management believes that no meaningful range for such ultimate
losses can be established. The Company establishes reserves to the extent that,
in the judgment of management, the facts and prevailing law reflect an exposure
for the Company or its ceding company. Due to the uncertainties discussed above,
the ultimate losses may vary materially from current loss reserves and could
have a material adverse effect on the Company's future financial condition,
results of operations and cash flows.

FINANCIAL CONDITION
CASH AND INVESTED ASSETS. Aggregate invested assets, including cash and
short-term investments, were $5,783.5 million at December 31, 2001, $5,493.0
million at December 31, 2000 and $4,139.2 million at December 31, 1999. The
increase in cash and invested assets from 2000 to 2001 resulted primarily from
$406.0 million in cash flows from operations generated in 2001 and $70.5 million
in net unrealized appreciation of the Company's fixed maturity investments.
These increases were partially offset by $130.0 million in net payments on
Holdings' credit facility and $13.2 million in net unrealized depreciation of
the Company's equity investments. The increase in cash and invested assets from
1999 to 2000 resulted primarily from Holdings' issuance of senior notes totaling
$450.0 million, the proceeds of which have been invested, $349.7 million of new
cash from the acquisition of Mt. McKinley, $204.8 million of new invested assets
from the acquisition of AFC Re, $176.0 million in credit facility borrowings,
$158.0 million in net unrealized appreciation of the Company's fixed maturity
investments and $90.0 million in cash flows from operations generated in 2000.
These increases were partially offset by $26.6 million in net unrealized
depreciation of the Company's equity investments and $16.4 million in share
repurchases.

LOSS AND LAE RESERVES. Gross loss and LAE reserves totaled $4,278.3 million at
December 31, 2001, $3,786.2 million at December 31, 2000 and $3,647.0 million at
December 31, 1999. The increase in 2001 was primarily attributable to increased
catastrophe losses resulting from the September 11 attacks, together with
increased earned premiums and normal variability in claim settlements. The
increase in 2000 was primarily attributable to the acquisition of Mt. McKinley
together with increased earned premiums and normal variability in claim
settlements. Reinsurance receivables totaled $895.1 million at December 31,
2001, $509.0 million at December 31, 2000 and $742.5 million at December 31,
1999, with the changes in 2001 principally reflecting the increase in losses
ceded under the accident year aggregate excess of loss element of the Company's
corporate retrocessional program. At December 31, 2001, $339.0 million, or
37.9%, was receivable from subsidiaries of London Reinsurance Group ("London
Life"), which is fully secured by a combination of letters of credit and funds
held arrangements whereby the Company has retained the premium payments due the
retrocessionaires, recognized liabilities for such amounts and reduced such
liabilities as payments are due from the retrocessionaire and $145.0 million, or
16.2%, was receivable from Continental Insurance Company ("Continental), which
are partially secured by funds held arrangements. No other retrocessionaire
accounted for more than 5% of the Company's receivables.

43

The table below summarizes reserves and claim activity for asbestos and
environmental claims, on both a gross and net of ceded reinsurance basis, for
the periods indicated:

Asbestos and Environmental Reserves
Years Ended December 31,
------------------------------------
2001 2000 1999
------------------------------------
(Dollars in millions)

Gross Basis:
Beginning of period reserves $ 693.7 $ 614.2 $ 660.8
-------- -------- --------

Incurred losses and LAE:
Reported losses 100.5 (51.1) 68.9
Change in IBNR (70.8) 45.3 (65.2)
-------- -------- --------
Total incurred losses and LAE 29.7 (5.8) 3.7
Paid losses (79.0) 85.3 (50.3)
-------- -------- --------
End of period reserves $ 644.4 $ 693.7 $ 614.2
======== ======== ========

Net Basis:
Beginning of period reserves $ 628.5 $ 365.1 $ 263.5
-------- -------- --------

Incurred losses and LAE:
Reported losses (1) 67.7 (173.0) 30.8
Change in IBNR (62.5) 167.2 (30.8)
-------- -------- --------
Total incurred losses and LAE 5.2 (5.8) -
Paid losses (1) (2) (65.1) 269.2 101.6
-------- -------- --------
End of period reserves $ 568.6 $ 628.5 $ 365.1
======== ======== ========

- ----------
(1) Reported losses and paid losses for 2000 are net of ($311.3) million
and $311.3 million, respectively, reflecting the establishment of Mt.
McKinley's reserves at the acquisition date. Net paid losses, excluding
the impact of the Mt. McKinley acquisition transaction, were ($42.3)
million.
(2) Net of $0.0 million in 2001, $0.0 million in 2000 and $118.8 million in
1999 ceded as paid losses under the Stop Loss Agreement.

The gross and net IBNR reserves for asbestos and environmental exposures
increased in 2000. The increase was mainly attributable to Holdings' acquisition
of Mt. McKinley in September of 2000. The gross and net IBNR reserves for
asbestos and environmental exposures decreased in 2001 and 1999. The decrease
resulted primarily from management's belief that there had been not been a
material change in the ultimate asbestos and environmental loss exposures. As a
result, the reported incurred losses in 2001 were partly offset with
corresponding reductions in IBNR reserves and in 1999 were fully offset with
corresponding reductions in IBNR reserves.

SHAREHOLDERS' EQUITY. The Company's shareholders' equity increased to $1,720.5
million as of December 31, 2001 from $1,583.4 million as of December 31, 2000
principally reflecting an increase of $86.1 million in retained earnings, an
increase of $44.8 million in net unrealized appreciation of investments and
$10.0 million in common shares issued during the year in connection with the
exercise of stock options. Shareholders' equity increased to $1,583.4 as of

44

December 31, 2000 from $1,327.5 million as of December 31, 1999 principally
reflecting an increase of $175.4 million in retained earnings and an increase of
$91.0 million in net unrealized appreciation of investments, partially offset by
$16.4 million in treasury shares acquired during the year. Dividends of $12.9
million, $11.0 million and $11.6 million were declared and paid by the Company
in 2001, 2000 and 1999, respectively. During the year ended December 31, 2000,
the Company repurchased 0.650 million of its common shares at an average price
of $25.24 per share with all such repurchases occurring in the three months
ended March 31, 2000, raising the total repurchases under the Company's
authorized repurchase program to 4.720 million shares at an average price of
$27.60 per share with a total repurchase expenditure to date of $130.4 million.
At December 31, 2001, 2.180 million shares remained under the existing
repurchase authorization. As part of the Company's restructuring, the treasury
shares held by the Company prior to February 24, 2000 were retired, resulting in
a reduction to treasury shares with a corresponding reduction of paid-in capital
and common shares.

LIQUIDITY AND CAPITAL RESOURCES
CAPITAL. The Company's business operations are in part dependent on the
Company's financial strength, and the market's perception thereof, as measured
by shareholders' equity, which was $1,720.5 million and $1,583.4 million at
December 31, 2001 and 2000, respectively. The Company has flexibility with
respect to capitalization as the result of its access to the debt and equity
markets. The Company continuously monitors its capital and financial position,
as well as investment and security market conditions, in general and with
respect to the Company's securities, and responds accordingly. On November 7,
2001, the Company filed a shelf registration statement on Form S-3 with the
Securities and Exchange Commission, which provided for the issuance of up to
$575 million of common equity. On February 27, 2002, pursuant to this
registration statement, the Company completed an offering of 5,000,000 of its
common shares at a price of $69.25 per share, which resulted in $346.3 million
of proceeds before expenses of approximately $0.5 million related to the
offering. The Company will use the net proceeds for working capital and general
corporate purposes.

LIQUIDITY. The Company's current investment strategy seeks to maximize after-tax
income through a high quality, diversified, taxable bond and tax-preferenced
fixed maturity portfolio, while maintaining an adequate level of liquidity. The
Company's mix of taxable and tax-preferenced investments is adjusted
continuously, consistent with the Company's current and projected operating
results, market conditions and tax position. Additionally, the Company invests
in equity securities, which it believes will enhance the risk-adjusted total
return of the investment portfolio.

The Company's liquidity requirements are met on a short-term and long-term basis
by funds provided by premiums collected, investment income and collected
reinsurance receivables balances, and from the sale and maturity of investments
together with the availability of funds under the Company's revolving credit
facility. The following table shows cash flows from operating activities, as
well as the impacts of select transactions on those cash flows, for the years
ended December 31, 2001, 2000 and 1999.

45

- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------

Cash flow from operations $ 406.0 $ 90.0 $ 203.4
Catastrophe loss payments 32.5 44.1 28.3
Stop Loss Agreement Recoveries (1) - (9.5) (79.0)
Net tax payments (2) 24.9 63.7 59.6
Non-recurring receipt of shares (3) (25.9) - -
----------------------------------
Cash flow from operations, net of
adjustments $ 437.5 $ 188.3 $ 212.3
----------------------------------

(1) Recoveries under the Company's Stop Loss Agreement with Mt. McKinley
prior to the acquisition of Mt. McKinley.
(2) The reduction in net tax payments for 2001 generally reflects the tax
impact of losses arising from the September 11 attacks, partially
offset by a $35.0 million payment in connection with the Company's 1997
tax year liabilities. The $35.0 million payment had no impact on the
Company's current year results of operations.
(3) Non-recurring receipt of shares in a demutualized insurer.

Management believes that net cash flows from operating activities are generally
consistent with expectations given the Company's investment strategies, mix of
business and the normal variability of premium collections and the payout of
loss reserves.

Proceeds from sales, calls and maturities and investment asset acquisitions were
$1,492.2 million and $1,767.4 million, respectively, in 2001 compared to
$1,006.5 million and $2,024.6 million, respectively, in 2000 and $941.1 million
and $1,068.4 million, respectively, in 1999. Additionally, the cash flow
activity in 2000 included $340.1 million of new cash resulting from the
acquisitions of Mt. McKinley and Everest International and $450.0 million in
proceeds from Holdings' offering of senior notes.

EXPOSURE TO CATASTROPHES. As with other reinsurers, the Company's operating
results and financial condition can be adversely affected by volatile and
unpredictable natural and other disasters, such as hurricanes, windstorms,
earthquakes, floods, fires, explosions and terrorist events. Any such
catastrophic event could generate insured losses in one or many of the Company's
treaties or lines of business, including property and/or casualty exposures.
Although the Company attempts to limit its exposure to acceptable levels,
including through the purchase of reinsurance when considered to be cost
effective, it is possible that an actual catastrophic event or multiple
catastrophic events could have a material adverse effect on the financial
condition, results of operations and cash flows of the Company.

The Company employs various techniques, including licensed software modeling, to
assess its accumulated exposure. Such techniques are inherently more difficult
to apply to non-property exposures. Accumulated exposures with respect to
property catastrophe losses are summarized in terms of the probable maximum loss
("PML"). The Company defines PML as its anticipated maximum property loss,
taking into account contract limits, caused by a single catastrophe affecting a
broad contiguous geographic area, such as that caused by a hurricane or
earthquake of such a magnitude that it is expected to occur once in every 100
years.

Management estimates that the Company's greatest catastrophe exposure worldwide
from any single event is to hurricanes and earthquakes in the coastal regions of
the United States, where the Company estimates it has a PML exposure, before
reinsurance, of approximately $140 million in each such region based on its
current book of business. Similarly, management estimates that the largest
current PML exposure, before reinsurance, outside the United States is
approximately $97 million. There can be no assurance that the Company will not

46

experience losses from one or more catastrophic events that exceed, perhaps by a
substantial amount, its estimated PML, particularly if such events also give
rise to casualty exposures. Nor can there be assurance that the Company's
reinsurance program will not change or that it will respond predictably to any
given event.

The Company employs a retrocessional approach where reinsurance may be purchased
to cover specific business written or exposure accumulations or it may be
purchased as a corporate level retrocessional program covering the potential
accumulation or aggregation of exposures across some or all of the Company's
operations. All reinsurance purchasing decisions consider both the potential
coverage and market conditions with respect to the pricing, terms, conditions
and availability of such coverage, with the aim of securing cost-effective
protection. The level of reinsurance coverage varies over time, reflecting the
underwriter's and/or Company's view of the changing dynamics of both the
underlying exposure and the reinsurance markets.

The principal components of the Company's existing corporate retrocessional
protection program as it relates to catastrophes are an accident year aggregate
excess of loss treaty and the retrocesssional excess of loss coverage of
international exposures. For both 2000 and 2001, the Company purchased accident
year aggregate excess of loss retrocession coverage, which provides up to $175.0
million of recoveries if Everest Re's consolidated statutory basis accident year
loss ratio exceeds a loss ratio attachment point provided in the contract for
the respective accident years. Each arrangement provides for an adjustment
premium, which reduces the net benefit by approximately 50%, in the event that
the coverage is used. The remaining limits available under these coverages is
$175.0 million and $11.0 million, respectively. The Company's corporate
retrocessional protection program includes a two-layer property catastrophe
excess of loss program for losses incurred outside of the United States, which
provide coverage of 58.25% of $17.5 million of losses in excess of $15 million
of losses per occurrence and 70% of $20 million of losses in excess of $32.5
million of losses per occurrence. This coverage relates to a twelve-month period
beginning June 7, 2001 and the continuation or replacement of such coverage in
June 2002 cannot be assured. All aspects of the retrocession program have been
structured to permit the program to be accounted for as reinsurance under SFAS
No. 113. See ITEM 1 - "Risk Management and Retrocession Arrangements" for
further details.

If a single catastrophe were to occur in the United States that resulted in $140
million of gross losses and allocated loss adjustment expenses ("ALAE") in 2002
(an amount equivalent to the Company's PML), management estimates that the
effect (including additional premiums and retained losses and ALAE) on the
Company's income before and after taxes would be approximately $140 million and
$101 million, respectively.

DIVIDENDS
During 2001, 2000 and 1999, the Company declared and paid shareholder dividends
of $12.9 million, $11.0 million and $11.6 million, respectively.

GROUP. Under Bermuda law, Group is prohibited from declaring or paying a
dividend if such payment would reduce the realizable value of its assets to an
amount less than the aggregate value of its liabilities and its issued share
capital and share premium (additional paid-in capital) accounts. Group's ability
to pay dividends and its operating expenses is partially dependent upon
dividends from its subsidiaries. The payment of dividends by insurer
subsidiaries is limited under Bermuda law and the laws of the various U.S.
states in which Group's insurance and reinsurance subsidiaries are licensed to
transact business. The limitations are generally based upon net income and
compliance with applicable policyholders' surplus or minimum solvency margin and

47

liquidity ratio requirements as determined in accordance with the relevant
statutory accounting practices.

BERMUDA RE. Under Bermuda law, Bermuda Re is prohibited from declaring or paying
a dividend if it fails to meet its minimum solvency margin or minimum liquidity
ratio or, if after payment of the dividend, it fails to meet its minimum
solvency margin or minimum liquidity ratio. As a long-term insurer, Bermuda Re
is also unable to declare or pay a dividend to anyone who is not a policyholder
unless, after payment of the dividend, the value of the assets in its long-term
business fund, as certified by its approved actuary, will exceed its liabilities
for long-term business by at least the $250,000 minimum solvency margin. Prior
approval of the Bermuda Minister of Finance is required if Bermuda Re's dividend
payments would reduce its prior year-end total statutory capital by 15.0% or
more. At December 31, 2001, Bermuda Re has met all requirements by a significant
amount.

HOLDINGS. Holdings is a holding company whose only material assets are the
capital stock of Everest Re and Mt. McKinley. Holdings' cash flow consists
primarily of dividends and other permissible payments from Everest Re and Mt.
McKinley and borrowings under credit facilities. Holdings depends upon such
payments for funds for general corporate purposes, including its debt and
operating expense obligations.

On March 14, 2000, Holdings completed public offerings of $200.0 million
principal amount of 8.75% senior notes due March 15, 2010 and $250.0 million
principal amount of 8.5% senior notes due March 15, 2005. During 2000, the net
proceeds of these offerings and additional funds were distributed by Holdings to
Group. Interest expense incurred in connection with these senior notes was $38.9
million and $30.9 million at December 31, 2001 and 2000, respectively.

On December 21, 1999, Holdings entered into a three-year senior revolving credit
facility with a syndicate of lenders (the "Credit Facility"), which replaced its
prior credit facility which had been extended in June 1999 and increased from
$50.0 million to $75.0 million on November 9, 1999. First Union National Bank is
the administrative agent for the Credit Facility. The Credit Facility is used
for liquidity and general corporate purposes. The 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) an adjusted
London InterBank Offered Rate ("LIBOR") plus a margin. The Base Rate is the
higher of the rate of interest established by First Union National Bank from
time to time as its prime rate or the Federal Funds rate plus 0.5% per annum. On
December 18, 2000, the Credit Facility was amended to extend the borrowing limit
to $235.0 million for a period of 120 days. This 120-day period expired during
the three months ended March 31, 2001 and the limit reverted to $150.0 million.
The amount of margin and the fees payable for the Credit Facility depend upon
Holding's senior unsecured debt rating. Group has guaranteed Holdings'
obligations under the Credit Facility.

The Credit Facility requires the Company to maintain a debt to capital ratio of
not greater than 0.35 to 1, Holdings to maintain a minimum interest coverage
ratio of 2.5 to 1 and Everest Re to maintain its statutory surplus at $850.0
million plus 25% of future aggregate net income and 25% of future aggregate
capital contributions. The Company was in compliance with these requirements at
December 31, 2001.

At December 31, 2001 and 2000, Holdings had outstanding borrowings under the
Credit Facility of $105.0 million and $235.0 million, respectively. Interest
expense incurred in connection with these borrowings was $7.1 million and $8.5
million at December 31, 2001 and 2000, respectively.

48

EVEREST RE. The payment of dividends to Holdings by Everest Re is subject to
limitations imposed by the Delaware Insurance Code. Based upon these
restrictions, the maximum amount that will be available for payment of dividends
to Holdings by Everest Re in 2002 without the prior approval of regulatory
authorities is $129.4 million. Everest Re's future cash flow available to
Holdings may be influenced by a variety of factors, including changes in the
property and casualty reinsurance market, Everest Re's financial results,
insurance regulatory changes and changes in general economic conditions. The
availability of such cash flow to Holdings could also be influenced by, among
other things, changes in the limitations imposed by the Delaware Insurance Code
on the payment of dividends by Everest Re. Holdings expects that, absent
significant catastrophe losses, such restrictions should not affect Everest Re's
ability to declare and pay dividends sufficient to support Holdings' general
corporate needs.

MARKET SENSITIVE INSTRUMENTS
The Securities and Exchange Commission 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").

The Company's 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. The Company's mix
of taxable and tax-preferenced investments is adjusted continuously, consistent
with its current and projected operating results, market conditions, and tax
position. The fixed maturities in the investment portfolio are comprised of
non-trading available for sale securities. Additionally, the Company invests in
equity securities, which it believes will enhance the risk-adjusted total return
of the investment portfolio. The Company has also engaged in a small number of
credit default swaps and specialized equity options, the market sensitivity of
which is believed to be immaterial.

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 the
Company's capital structure and other factors, are used to develop a net
liability analysis. This analysis includes estimated payout characteristics for
which the investments of the Company 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
year with no material change in the underlying risk characteristics.

The Company's $5.8 billion investment portfolio is comprised of fixed maturity
securities that are subject to interest rate risk and foreign currency rate
risk, and equity securities that are subject to equity price risk. The impact of
these risks in the investment portfolio is generally mitigated by changes in the
value of operating assets and liabilities and their associated income statement
impact.

Interest rate risk is the potential change in value of the fixed maturity
portfolio due to change in market interest rates. Further, it includes
prepayment risk in a declining interest rate environment on the $728.6 million
of the $5.6 billion fixed maturity portfolio, which consists of mortgage-backed
securities. Prepayment risk results from potential accelerated principal
payments that shorten the average life and thus, the expected yield of the
security.

The tables below display the potential impact of market value fluctuations and
after-tax unrealized appreciation on the fixed maturity portfolio as of December
31, 2001 and 2000 based on parallel 200 basis point shifts in interest rates up

49

and down in 100 basis point increments. 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 are 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 the various interest rate change scenarios.
All amounts are in U.S. dollars and are presented in millions.

2001
INTEREST RATE SHIFT IN BASIS POINTS
- ------------------------------------------------------------------------------------
-200 -100 0 100 200
- ------------------------------------------------------------------------------------

Total Market Value $ 6,332.1 $ 5,957.7 $ 5,610.4 $ 5,283.2 $ 4,982.7

Market Value Change
from Base (%) 12.9% 6.2% 0.0% (5.8%) (11.2%)

Change in Unrealized
Appreciation After-tax
from Base ($) $ 521.1 $ 250.8 $ - $(236.6) $ (454.2)

2000
INTEREST RATE SHIFT IN BASIS POINTS
- ------------------------------------------------------------------------------------
-200 -100 0 100 200
- ------------------------------------------------------------------------------------

Total Market Value $ 5,938.8 $ 5,633.5 $ 5,350.4 $ 5,073.1 $ 4,809.8

Market Value Change from
Base (%) 11.0% 5.3% 0.0% (5.2%) (10.1%)

Change in Unrealized
Appreciation After-tax
from Base ($) $ 417.9 $ 201.3 $ - $ (197.9) $ (386.5)

Foreign currency rate risk is the potential change in value, income and cash
flow arising from adverse changes in foreign currency exchange rates. The
Company's foreign operations each maintain capital in the currency of the
country of its geographic location consistent with local regulatory guidelines.
Generally, the Company prefers to maintain the capital of its foreign operations
in U.S. dollar assets although this varies by regulatory jurisdiction in
accordance with market needs. 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 are the Canadian Dollar, the British
Pound Sterling and the Euro for these foreign operations. The Company mitigates
foreign exchange exposure by a general matching of the currency and duration of
its assets to its corresponding operating liabilities. In accordance with
Financial Accounting Standards Board Statement No. 52, the Company translates
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. The primary functional foreign currency exposures
are the Canadian Dollar, the Belgian Franc and the British Pound Sterling for
these foreign operations.

50

The tables below display the potential impact of a parallel 20% increase and
decrease in foreign exchange rates on the valuation of invested assets subject
to foreign currency exposure in 10% increments as of December 31, 2001 and 2000.
This analysis includes the after-tax impact of translation from transactional
currency to functional currency as well as the after-tax impact of translation
from functional currency to the U.S. dollar reporting currency. All amounts are
in U.S. dollars and are presented in millions.

2001
CHANGE IN FOREIGN EXCHANGE RATES IN PERCENT
- ---------------------------------------------------------------------------------
-20% -10% 0% 10% 20%
- ---------------------------------------------------------------------------------

Total After-tax Foreign
Exchange Exposure ($ 40.7) ($ 21.6) $ - $ 23.3 $ 47.9

2000
CHANGE IN FOREIGN EXCHANGE RATES IN PERCENT
- ---------------------------------------------------------------------------------
-20% -10% 0% 10% 20%
- ---------------------------------------------------------------------------------

Total After-tax Foreign
Exchange Exposure ($ 42.9) ($ 22.5) $ - $ 24.2 $ 49.5

Equity risk is the potential change in market value of the common stock and
preferred stock portfolios arising from changing equity prices. The Company
invests in index mutual funds and high quality common and preferred stocks that
are traded on the major exchanges in the United States. The primary objective in
managing the $67.3 million equity portfolio is to provide long-term capital
growth through market appreciation and income.

The tables below display the impact on market value and after-tax unrealized
appreciation of a 20% change in equity prices up and down in 10% increments as
of December 31, 2001 and 2000. All amounts are in U.S. dollars and are presented
in millions.

2001
CHANGE IN EQUITY VALUES IN PERCENT
- ---------------------------------------------------------------------------------
-20% -10% 0% 10% 20%
- ---------------------------------------------------------------------------------

Market Value of the
Equity Portfolio $ 53.8 $ 60.6 $ 67.3 $ 74.0 $ 80.8

After-tax Change in
Unrealized Appreciation (8.8) (4.4) - 4.4 8.8

2000
CHANGE IN EQUITY VALUES IN PERCENT
- ---------------------------------------------------------------------------------
-20% -10% 0% 10% 20%
- ---------------------------------------------------------------------------------

Market Value of the
Equity Portfolio $ 29.2 $ 32.8 $ 36.5 $ 40.1 $ 43.8

After-tax Change in
Unrealized Appreciation (4.7) (2.4) - 2.4 4.7

51

SAFE HARBOR DISCLOSURE
This report contains forward-looking statements within the meaning of the U.S.
federal securities laws. The Company intends 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 the Company's reserves for losses and LAE and estimates of
the Company's catastrophe exposure. Forward-looking statements only reflect the
Company's expectations and are not guarantees of performance. These statements
involve risks, uncertainties and assumptions. Actual events or results may
differ materially from the Company's expectations. Important factors that could
cause actual events or results to be materially different from the Company's
expectations include those discussed below under the caption "Risk Factors". The
Company undertakes no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.

RISK FACTORS
The following risk factors, in addition to the other information provided in
this report, should be considered when evaluating the Company. The risks and
uncertainties described below are not the only ones the Company faces. There may
be additional risks and uncertainties. If any of the following risks actually
occur, the Company's business, financial condition or results of operations
could be materially and adversely affected and the trading price of the
Company's common shares could decline significantly.

THE COMPANY'S RESULTS MAY FLUCTUATE AS A RESULT OF FACTORS GENERALLY AFFECTING
THE INSURANCE AND REINSURANCE INDUSTRY.

The results of companies in the insurance and reinsurance industry historically
have been subject to significant fluctuations and uncertainties. Factors that
affect the industry in general could also cause the Company's results to
fluctuate. The industry's profitability can be affected significantly by:

o fluctuations in interest rates, inflationary pressures and other changes
in the investment environment, which affect returns on invested capital
and may impact the ultimate payout of loss amounts;

o rising levels of actual costs that are not known by companies at the
time they price their products;

o volatile and unpredictable developments, including weather-related and
other natural catastrophes;

o events like the September 11, 2001 attacks, which affect the insurance
and reinsurance markets generally;

o changes in reserves resulting from different types of claims that may
arise and the development of judicial interpretations relating to the
scope of insurers' liability; and

o the overall level of economic activity and the competitive environment
in the industry.

52

IF THE COMPANY'S LOSS RESERVES ARE INADEQUATE TO MEET ITS ACTUAL LOSSES, THE
COMPANY'S NET INCOME WOULD BE REDUCED OR IT COULD INCUR A LOSS.

The Company is required to maintain reserves to cover its estimated ultimate
liability of losses and loss adjustment expenses for both reported and
unreported claims incurred. These reserves are only estimates of what the
Company thinks the settlement and administration of claims will cost based on
facts and circumstances known to the Company. Because of the uncertainties that
surround estimating loss reserves and loss adjustment expenses, the Company
cannot be certain that ultimate losses will not exceed these estimates of losses
and loss adjustment reserves. If the Company's reserves are insufficient to
cover its actual losses and loss adjustment expenses, the Company would have to
augment its reserves and incur a charge to its earnings. These charges could be
material. The difficulty in estimating the Company's reserves is increased
because the Company's loss reserves include reserves for potential asbestos and
environmental liabilities. Asbestos and environmental liabilities are especially
hard to estimate for many reasons, including the long waiting periods between
exposure and manifestation of any bodily injury or property damage, difficulty
in identifying the source of the asbestos or environmental contamination, long
reporting delays and difficulty in properly allocating liability for the
asbestos or environmental damage.

THE COMPANY'S INABILITY TO ASSESS UNDERWRITING RISK ACCURATELY COULD REDUCE ITS
NET INCOME.

The Company's success is dependent on its ability to assess accurately the risks
associated with the businesses on which the risk is retained. If the Company
fails to assess accurately the risks it retains, the Company may fail to
establish appropriate premium rates and the Company's reserves may be inadequate
to cover its losses, requiring augmentation of the Company's reserves, which in
turn, could reduce the Company's net income.

DECREASES IN RATES FOR PROPERTY AND CASUALTY REINSURANCE AND INSURANCE COULD
REDUCE THE COMPANY'S NET INCOME.

The Company primarily writes property and casualty reinsurance and insurance.
The property and casualty industry historically has been highly cyclical. Rates
for property and casualty reinsurance and insurance are influenced primarily by
factors that are outside of the Company's control. Any significant decrease in
the rates for property and casualty insurance or reinsurance could reduce the
Company's net income.

IF RATING AGENCIES DOWNGRADE THEIR RATINGS OF THE COMPANY'S INSURANCE COMPANY
SUBSIDIARIES, THE COMPANY'S FUTURE PROSPECTS FOR GROWTH AND PROFITABILITY COULD
BE SIGNIFICANTLY AND ADVERSELY AFFECTED.

The Company's insurance company subsidiaries, other than Mt. McKinley, currently
hold an A+ ("Superior") financial strength rating from A.M. Best Company, an AA-
("Very Strong") financial strength rating from Standard & Poor's Ratings
Services and an Aa3 ("Excellent") financial strength rating from Moody's
Investors Service, Inc. Financial strength ratings are used by insurers and
reinsurance and insurance intermediaries as an important means of assessing the
financial strength and quality of reinsurers. In addition, the rating of a
company purchasing reinsurance may be adversely affected by an unfavorable
rating or the lack of a rating of its reinsurer. A downgrade or withdrawal of
any of these ratings might adversely affect the Company's ability to market its
insurance products and would have a significant and adverse effect on its future
prospects for growth and profitability.

53

THE COMPANY'S REINSURERS MAY NOT SATISFY THEIR OBLIGATIONS.

The Company is subject to credit risk with respect to its reinsurers because the
transfer of risk to a reinsurer does not relieve the Company of its liability to
the insured. In addition, reinsurers may be unwilling to pay the Company even
though they are able to do so. The failure of one or more of the Company's
reinsurers to honor their obligations in a timely fashion would impact the
Company's cash flow and reduce its net income and could cause the Company to
incur a significant loss.

IF THE COMPANY IS UNABLE TO PURCHASE REINSURANCE AND TRANSFER RISK TO
REINSURERS, ITS NET INCOME COULD BE REDUCED OR THE COMPANY COULD INCUR A LOSS.

The Company attempts to limit its risk of loss by purchasing reinsurance to
transfer a portion of the risks it assumes. The availability and cost of
reinsurance is subject to market conditions, which are outside of the Company's
control. As a result, the Company may not be able to successfully purchase
reinsurance and transfer risk through reinsurance arrangements. A lack of
available reinsurance might adversely affect the marketing of the Company's
programs and/or force the Company to retain all or a part of the risk that
cannot be reinsured. If the Company were required to retain these risks and
ultimately pay claims with respect to these risks, the Company's net income
could be reduced or the Company could incur a loss.

THE COMPANY'S INDUSTRY IS HIGHLY COMPETITIVE AND THE COMPANY MAY NOT BE ABLE TO
COMPETE SUCCESSFULLY IN THE FUTURE.

The Company's industry is highly competitive and has experienced severe price
competition over the last several years. The Company competes in the United
States and international markets with domestic and international insurance
companies. Some of these competitors have greater financial resources than the
Company, have been operating for longer than the Company and have established
long-term and continuing business relationships throughout the industry, which
can be a significant competitive advantage. In addition, the Company expects to
face further competition in the future. The Company may not be able to compete
successfully in the future.

THE COMPANY IS DEPENDENT ON ITS KEY PERSONNEL.

The Company's success has been, and will continue to be, dependent on its
ability to retain the services of its existing key executive officers and to
attract and retain additional qualified personnel in the future. The loss of the
services of any of its key executive officers or the inability to hire and
retain other highly qualified personnel in the future could adversely affect the
Company's ability to conduct its business. This dependency is particularly
important for the Company's Bermuda operations where, under Bermuda law,
non-Bermudians, other than spouses of Bermudians, are not permitted to engage in
any gainful occupation in Bermuda without a work permit issued by the Bermuda
government. A work permit is only granted or extended if the employer can show
that, after proper public advertisement, no Bermudian or spouse of a Bermudian,
is available who meets the minimum standards for the position. The Bermuda
government recently announced a new policy that places a six-year term limit on
individuals with work permits, subject to specified exemptions for persons
deemed to be key employees.

THE VALUE OF THE COMPANY'S INVESTMENT PORTFOLIO AND THE INVESTMENT INCOME IT
RECEIVES FROM THAT PORTFOLIO COULD DECLINE AS A RESULT OF MARKET FLUCTUATIONS
AND ECONOMIC CONDITIONS.

54

A significant portion of the Company's investment portfolio consists of fixed
income securities and a smaller portion consists of equity securities. Both the
fair market value of these assets and the investment income from these assets
fluctuate depending on general economic and market conditions. For example, the
fair market value of the Company's fixed income securities generally increases
or decreases in an inverse relationship with fluctuations in interest rates. The
fair market value of the Company's fixed income securities can also decrease as
a result of any downturn in the business cycle that causes the credit quality of
those securities to deteriorate. The net investment income that the Company
realizes from future investments in fixed income securities will generally
increase or decrease with interest rates. Interest rate fluctuations can also
cause net investment income from investments that carry prepayment risk, such as
mortgage-backed and other asset-backed securities, to differ from the income
anticipated from those securities at the time the Company bought them. Because
all of the Company's securities are classified as available for sale, changes in
the market value of the Company's securities are reflected in its financial
statements. Similar treatment is not available for liabilities. As a result, a
decline in the value of the securities in the Company's portfolio could reduce
its net income or cause the Company to incur a loss.

INSURANCE LAWS AND REGULATIONS RESTRICT THE COMPANY'S ABILITY TO OPERATE.

The Company is subject to extensive regulation under U.S., state and foreign
insurance laws. These laws limit the amount of dividends that can be paid to the
Company by its operating subsidiaries, impose restrictions on the amount and
type of investments that they can hold, prescribe solvency standards that must
be met and maintained by them and require them to maintain reserves. These laws
also require disclosure of material intercompany transactions and require prior
approval of certain "extraordinary" transactions. These "extraordinary"
transactions include declaring dividends from operating subsidiaries that exceed
statutory thresholds. These laws also generally require approval of changes of
control. The Company's failure to comply with these laws could subject it to
fines and penalties and restrict it from conducting business. The application of
these laws could affect the Company's liquidity and ability to pay dividends on
its common shares and could restrict the Company's ability to expand its
business operations through acquisitions involving the Company's insurance
subsidiaries.

FAILURE TO COMPLY WITH INSURANCE LAWS AND REGULATIONS COULD HAVE A MATERIAL
ADVERSE EFFECT ON THE COMPANY'S BUSINESS.

The Company cannot assure that it has or can maintain all required licenses and
approvals or that its business fully complies with the wide variety of
applicable laws and regulations or the relevant authority's interpretation of
the laws and regulations. In addition, some regulatory authorities have
relatively broad discretion to grant, renew or revoke licenses and approvals. If
the Company does not have the requisite licenses and approvals or do not comply
with applicable regulatory requirements, the insurance regulatory authorities
could preclude or temporarily suspend the Company from carrying on some or all
of its activities or monetarily penalize the Company. These types of actions
could have a material adverse effect on the Company's business.

THE COMPANY'S HOLDING COMPANY STRUCTURE COULD PREVENT IT FROM PAYING DIVIDENDS
ON ITS COMMON SHARES.

Group is a holding company whose most significant assets consist of the stock of
its operating subsidiaries. Thus, the Company's ability to pay dividends on its
common shares in the future may be dependent on the earnings and cash flows of
the Company's subsidiaries and the ability of the subsidiaries to pay dividends
or to advance or repay funds to Group. This ability is subject to general

55

economic, financial, competitive, regulatory and other factors beyond the
Company's control. Payment of dividends and advances and repayments from some of
the Company's operating subsidiaries are regulated by U.S., state and foreign
insurance laws and regulatory restrictions, including minimum solvency and
liquidity thresholds. Accordingly, the Company's operating subsidiaries may not
be able to pay dividends or advance or repay funds to Group in the future, which
could prevent the Company from paying dividends or making other payments or
distributions on its securities.

THE COMPANY MAY EXPERIENCE EXCHANGE LOSSES IF IT DOES NOT MANAGE ITS FOREIGN
CURRENCY EXPOSURE PROPERLY.

The Company's functional currency is the United States dollar. However, the
Company writes a portion of its business and receives a portion of its premiums
in currencies other than United States dollars. The Company also maintains a
portion of its investment portfolio in investments denominated in currencies
other than United States dollars. Consequently, the Company may experience
exchange losses if its foreign currency exposure is not properly managed or
otherwise hedged. If the Company seeks to hedge its foreign currency exposure by
using forward foreign currency exchange contracts or currency swaps, the Company
will be subject to the risk that the counter parties to those arrangements will
fail to perform, or that those arrangements will not precisely offset the
Company's exposure.

IF U.S. TAX LAW CHANGES, THE COMPANY'S NET INCOME MAY BE REDUCED.

In the last few years, some members of Congress have expressed concern over a
competitive advantage that foreign-controlled insurers and reinsurers may have
over U.S.-controlled insurers and reinsurers due to the purchase of reinsurance
by U.S. insurers from affiliates operating in some foreign jurisdictions,
including Bermuda. Legislation has been proposed in Congress that might increase
the U.S. tax burden on some of these transactions. The Company does not know
whether this legislation or any similar legislation will ever be enacted into
law. If it were enacted, the U.S. tax burden on some business ceded from the
Company's licensed U.S. insurance subsidiaries to some offshore reinsurers could
be increased. This could reduce the Company's net income.

Recently, some members of Congress have introduced legislation designed to curb
the expatriation of U.S. corporations to low-tax jurisdictions, such as Bermuda,
in transactions which leave a substantial percentage of the former U.S.
corporation's activities in the U.S. and in which the former U.S. corporation
has very little activity in its new home jurisdiction. At least one of these
proposals would apply to corporations, such as the Company, which expatriated
several years ago. The legislation, if adopted, would treat the Company as
subject to tax in the United States as if it were a U.S. corporation. The
Company does not know whether this legislation or any similar legislation will
ever be enacted into law. If it were enacted and applied retroactively to the
Company, the Company could become subject to U.S. taxes, which could reduce the
Company's net income.

GROUP AND/OR BERMUDA RE MAY BE SUBJECT TO U.S. CORPORATE INCOME TAX, WHICH WOULD
REDUCE THE COMPANY'S NET INCOME.

The income of Bermuda Re is a significant portion of the Company's worldwide
income from operations. The Company has established guidelines for the conduct
of its Bermuda operations that are designed to ensure that Bermuda Re is not
engaged in the conduct of a trade or business in the United States. Based on its
compliance with those guidelines, the Company believes that Bermuda Re should
not be required to pay U.S. corporate income tax, other than withholding tax on
U.S. source dividend income. However, if the IRS successfully contended that

56

Bermuda Re was engaged in a trade or business in the United States, Bermuda Re
would be required to pay U.S. corporate income tax on any income that is subject
to the taxing jurisdiction of the United States, and possibly the U.S. branch
profits tax. Even if the IRS successfully contended that Bermuda Re was engaged
in a U.S. trade or business, the U.S.-Bermuda tax treaty would preclude the IRS
from taxing Bermuda Re's income except to the extent that its income were
attributable to a permanent establishment maintained by that subsidiary. The
Company does not believe that Bermuda Re has a permanent establishment in the
United States or any material income attributable to a permanent establishment
in the United States. If the IRS successfully contended that Bermuda Re did have
income attributable to a permanent establishment in the United States, it would
be subject to U.S. tax on that income.

The Company conducts its Barbados operations in a manner designed to minimize
the Company's U.S. tax exposure. Based on the Company's compliance with
guidelines designed to ensure that it generates only immaterial amounts, if any,
of income that is subject to the taxing jurisdiction of the United States, the
Company believes that it should be required to pay only immaterial amounts, if
any, of U.S. corporate income tax, other than withholding tax on U.S. source
dividend income. However, if the IRS successfully contended that the Company had
material amounts of income that is subject to the taxing jurisdiction of the
United States, the Company would be required to pay U.S. corporate income tax on
that income, and possibly the U.S. branch profits tax. Even if the IRS
successfully contended that the Company had material amounts of income that is
subject to the taxing jurisdiction of the United States, the U.S.-Barbados tax
treaty would preclude the IRS from taxing the Company's income, except to the
extent that its income were attributable to a permanent establishment maintained
in the United States. The Company does not believe that it has material amounts
of income attributable to a permanent establishment in the United States. If the
IRS successfully contended, however, that the Company did have income
attributable to a permanent establishment in the United States, the Company
would be subject to U.S. tax on that income. If Bermuda Re became subject to
U.S. income tax on its income or if the Company became subject to U.S. income
tax on more than immaterial amounts of income, the Company's income could also
be subject to the U.S. branch profits tax. In that event, Group and Bermuda Re
would be subject to taxation at a higher combined effective rate than if they
were organized as U.S. corporations. The combined effect of the 35% U.S.
corporate income tax rate and the 30% branch profits tax rate is a net tax rate
of 54.5%. The imposition of these taxes would reduce the Company's net income.

HOLDERS OF THE COMPANY'S COMMON SHARES COULD BE SUBJECT TO U.S. TAXES ON
UNDISTRIBUTED INCOME OF GROUP AND/OR BERMUDA RE.

U.S. holders of the Company's common shares generally will not be subject to any
U.S. tax until they receive a distribution from Group or dispose of their common
shares. However, special provisions of the U.S. Internal Revenue Code of 1986,
which the Company refers to in this document as the Code, may apply to U.S.
taxpayers who directly, indirectly or by attribution own 10% or more of the
total combined voting power of all classes of share capital of Group and/or
Bermuda Re. Under these provisions, those taxpayers generally will be required
to include in their income their pro rata share of the income of Group and/or
Bermuda Re as earned, even if not distributed. The Company has attempted to
avoid having its shareholders become subject to these provisions by including in
the Company's bye-laws provisions that limit the ownership of the common shares
to levels that will not subject U.S. shareholders to U.S. tax on undistributed
income under these provisions. Based on these bye-laws, the Company believes
that its shareholders should not be subject to U.S. tax on undistributed income.
In addition, special provisions of the Code apply to U.S. persons who are

57

shareholders of a foreign insurance company and have related person insurance
income allocated to them. Related person insurance income, often called RPII, is
investment income and premium income derived from the direct or indirect
insurance or reinsurance of the risk of:

o any U.S. tax payer who directly or indirectly through foreign entities
owns shares of a foreign insurance company; or

o any person related to a U.S. taxpayer meeting the above definition.

The RPII provisions of the Code could apply to U.S. taxpayers who directly,
indirectly or by attribution own any shares of Bermuda Re if:

o 25% or more of the value or voting power of the share capital of Bermuda
Re is owned directly, indirectly or by attribution by U.S. taxpayers;

o 20% or more of the value or voting power of the share capital of
Bermuda Re is owned directly, indirectly or by attribution by U.S.
taxpayers, or persons related to U.S. taxpayers, who are insured or
reinsured by Bermuda Re; and

o Bermuda Re has gross RPII equal to 20% or more of its gross insurance
income.

The Company currently believes that less than 20% of the value or voting power
of the share capital of Bermuda Re is owned directly, indirectly or by
attribution by U.S. taxpayers insured or reinsured by it or persons related to
those taxpayers, and/or that less than 20% of the gross insurance income of
Bermuda Re for any taxable year will constitute RPII. However, if neither of
these conditions is satisfied, since the Company's U.S. shareholders are treated
by the Code as indirectly owning shares of Bermuda Re, they will be required to
include in their income their pro rata share of Bermuda Re's RPII as earned,
even if not distributed.

GAINS RESULTING FROM THE SALE OF THE COMPANY'S COMMON SHARES BY U.S.
SHAREHOLDERS COULD BE TAXED IN THE U.S. AS DIVIDENDS.

Generally, a U.S. shareholder will realize capital gain or loss on the sale or
exchange of the common shares. However, the IRS could contend that special
provisions of the Code apply and that the amount of any gain equal to the
Company's allocable untaxed earnings and profits should be taxed as a dividend.
If the IRS successfully contended that those provisions apply to the Company,
shareholders would be taxed on that amount of gain at the rates applicable to
ordinary income rather than the lower rates applicable to long-term capital
gains. Assuming that none of the Company's non- U.S. subsidiaries have any RPII,
the Company believes that these provisions of the Code should not apply to the
disposition of any common shares by a U.S. shareholder who holds less than 10%
of the outstanding common shares.

THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT AND THE EUROPEAN UNION
ARE CONSIDERING MEASURES THAT MIGHT INCREASE THE COMPANY'S TAXES AND REDUCE ITS
NET INCOME.

The Organization for Economic Cooperation and Development and the European Union
are considering measures to limit harmful tax competition. These measures are
largely directed at counteracting the effects of tax havens and preferential tax
regimes in countries around the world. If these measures are adopted by a
substantial number of member countries and if either Bermuda or Barbados is
considered to be engaged in harmful tax competition, the Company might be
subject to additional taxes, which would reduce its net income. In May 2000, the
government of Bermuda made commitments to the OECD that reduce the likelihood of

58

its being considered a tax haven. In January 2002, the government of Barbados
announced a similar agreement with the OECD.

GROUP AND/OR BERMUDA RE MAY BECOME SUBJECT TO BERMUDA TAX, WHICH WOULD REDUCE
THE COMPANY'S NET INCOME.

Group and Bermuda Re currently are not subject to income or capital gains taxes
in Bermuda. Both companies have received an assurance from the Bermuda Minister
of Finance under The Exempted Undertakings Tax Protection Act 1966 of Bermuda to
the effect that if any legislation is enacted in Bermuda that imposes any tax
computed on profits or income, or computed on any capital asset, gain or
appreciation, or any tax in the nature of estate duty or inheritance tax, then
that tax will not apply to them or to any of their operations or their shares,
debentures or other obligations until March 28, 2016. This assurance does not
prevent the application of any of those taxes to persons ordinarily resident in
Bermuda and does not prevent the imposition of any tax payable in accordance
with the provisions of The Land Tax Act of 1967 of Bermuda or otherwise payable
in relation to any property leased to the Company. There are currently no
procedures for extending these assurances. As a result, Group and Bermuda Re
could be subject to taxes in Bermuda after March 28, 2016, which could reduce
the Company's net income.

GROUP MAY BECOME SUBJECT TO BARBADOS TAX, WHICH WOULD REDUCE THE COMPANY'S NET
INCOME.

Group has obtained an international business company license under the Barbados
International Business Companies Act, 1991-24. Based on this license, Group is
entitled to special tax benefits, including a preferred rate of tax on profits
and gains and an exemption from withholding tax in respect of any dividends,
interest, royalties, fees or management fees deemed to be paid to another
international business company or to a person not resident in Barbados. Group
has also obtained from the Ministry of Economic Development a fifteen year
guarantee in accordance with Section 27 of the International Business Companies
Act with respect to its continued eligibility for this preferred status. This
guarantee is applicable until 2014 and is subject to negative resolution, which
means that this guarantee can be revoked at any time. In addition, there are
currently no procedures for extending this guarantee. As a result, Group could
be ineligible for these benefits after that period, which could reduce the
Company's net income.

THE COMPANY'S NET INCOME WILL BE REDUCED IF U.S. EXCISE AND WITHHOLDING TAXES
ARE INCREASED.

Bermuda Re is subject to an excise tax on reinsurance and insurance premiums it
collects with respect to risks located in the United States. In addition,
Bermuda Re may be subject to withholding tax on dividend income from United
States sources. These taxes could increase and other taxes could be imposed in
the future on Bermuda re's business, which could reduce the Company's net
income.

REGULATORY CHALLENGES IN THE UNITED STATES COULD ADVERSELY AFFECT THE ABILITY OF
BERMUDA RE TO CONDUCT BUSINESS.

Bermuda Re does not intend to be licensed or admitted as an insurer or reinsurer
in any U.S. jurisdiction. Under current law, Bermuda Re generally will be
permitted to reinsure U.S. risks from its office in Bermuda without obtaining
those licenses. However, the insurance and reinsurance regulatory framework has
become subject to increased scrutiny. In the past, there have been congressional
and other initiatives in the United States regarding increased supervision and
regulation of the insurance industry, including proposals to supervise and

59

regulate reinsurers domiciled outside the United States. If Bermuda Re were to
become subject to any insurance laws of the United States or any U.S. state at
any time in the future, it might be required to post deposits or maintain
minimum surplus levels and might be prohibited from engaging in lines of
business or from writing types of policies. Complying with those laws could have
a material adverse effect on the Company's ability to conduct business in the
Bermuda market.

BERMUDA RE MAY NEED TO BE LICENSED OR ADMITTED IN ADDITIONAL JURISDICTIONS TO
DEVELOP ITS BUSINESS.

As Bermuda Re's business develops, it will monitor the need to obtain licenses
in jurisdictions other than Bermuda in order to comply with applicable law or to
be able to engage in additional insurance-related activities. In addition,
Bermuda Re may be at a competitive disadvantage in jurisdictions where it is not
licensed or does not enjoy an exemption from licensing relative to competitors
that are so licensed or exempt from licensing. Bermuda Re may not be able to
obtain any additional licenses that it determines are necessary or desirable.
Furthermore, the process of obtaining those licenses is often costly and may
take a long time.

BERMUDA RE'S ABILITY TO WRITE REINSURANCE MAY BE SEVERELY LIMITED IF IT IS
UNABLE TO ARRANGE FOR SECURITY TO BACK ITS REINSURANCE.

Many jurisdictions do not permit insurance companies to take credit for
reinsurance obtained from unlicensed or non-admitted insurers on their statutory
financial statements without appropriate security. Bermuda Re's reinsurance
clients typically require it to post a letter of credit or enter into other
security arrangements. If Bermuda Re is unable to obtain or maintain a letter of
credit facility on commercially acceptable terms or unable to arrange for other
types of security, its ability to operate its business may be severely limited.
If Bermuda Re defaults on any letter of credit that it obtains, it may be
required to prematurely liquidate a substantial portion of its investment
portfolio and other assets pledged as collateral.

SECURITY HOLDERS MAY NOT BE ABLE TO RECOVER DAMAGES FROM THE COMPANY AND SOME OF
ITS DIRECTORS, OFFICERS AND EXPERTS NAMED IN THIS REPORT.

The Company is organized under the laws of Bermuda. Some of its directors and
officers, as well as some of the experts named in this report, may reside
outside the United States. A substantial portion of the Company's and their
assets are or may be located in jurisdictions outside the United States.
Security holders may not be able to effect service of process within the United
States on directors and officers of the Company and those experts who reside
outside the United States. Security holders also may not be able to recover
against them or the Company on judgments of U.S. courts or to obtain original
judgments against them or the Company in Bermuda courts, including judgments
predicated upon civil liability provisions of the U.S. federal securities laws.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See "Market Sensitive Instruments" in ITEM 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and schedules listed in the accompanying Index to
Financial Statements and Schedules on page F-1 are filed as part of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

60

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Reference is made to the sections captioned "Election of Directors",
"Information Concerning Nominees", "Information Concerning Continuing Directors
and Executive Officers" and "Compliance with Section 16(a) of the Exchange Act"
in the Company's proxy statement for the 2002 Annual General Meeting of
Shareholders, which will be filed with the Commission within 120 days of the
close of the Company's fiscal year ended December 31, 2001 (the "Proxy
Statement"), which sections are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Reference is made to the sections captioned "Directors' Compensation" and
"Compensation of Executive Officers" in the Proxy Statement, which are
incorporated herein by reference, except that the Compensation Committee Report
and the Performance Graph are not so incorporated.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Reference is made to the sections captioned "Common Share Ownership by Directors
and Executive Officers" and "Principal Holders of Common Shares" in the Proxy
Statement, which are incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is made to the section captioned "Certain Transactions with Directors"
in the Proxy Statement, which is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedules listed in the accompanying Index to
Financial Statements and Schedules on page F-1 are filed as part of this report.

EXHIBITS
The exhibits listed on the accompanying Index to Exhibits on page E-1 are filed
as part of this report.

REPORTS ON FORM 8-K

A report on Form 8-K dated December 7, 2001 was filed on December 7, 2001
reporting the Company's estimated loss associated with the bankruptcy of the
Enron Corporation.

A report on Form 8-K dated February 19, 2002 was filed on February 19, 2002
reporting the Company's fourth quarter results and an increase in the dividend.

A report on Form 8-K dated February 27, 2002 was filed on February 27, 2002
reporting the completion of an offering of common shares pursuant to it
Registration Statement on Form S-3 (File No. 333-72664), including the
Prospectus, as supplemented, filed with the Securities and Exchange Commission
on February 25, 2002.

61

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on March 14, 2002.

EVEREST RE GROUP, LTD.

By: /S/ JOSEPH V. TARANTO
--------------------------------------
Joseph V. Taranto
(Chairman and Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

/S/ JOSEPH V. TARANTO Chairman and Chief Executive March 14, 2002
- --------------------------- Officer and Director
Joseph V. Taranto (Principal Executive Officer)

/S/ STEPHEN L. LIMAURO Executive Vice President and March 14, 2002
- --------------------------- Chief Financial Officer
Stephen L. Limauro (Principal Financial and
Accounting Officer)

/S/ MARTIN ABRAHAMS Director March 14, 2002
- ---------------------------
Martin Abrahams

/S/ KENNETH J. DUFFY Director March 14, 2002
- ---------------------------
Kenneth J. Duffy

/S/ JOHN R. DUNNE Director March 14, 2002
- ---------------------------
John R. Dunne

/S/ THOMAS J. GALLAGHER Director March 14, 2002
- ---------------------------
Thomas J. Gallagher

/S/ WILLIAM F. GALTNEY, JR. Director March 14, 2002
- ---------------------------
William F. Galtney, Jr.

62

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Pages
-----

EVEREST RE GROUP, LTD.

Reports of Independent Accountants on Financial Statements
and Schedules F-2
---

Consolidated Balance Sheets at December 31, 2001 and 2000 F-3
---

Consolidated Statements of Operations and Comprehensive Income
for the years ended December 31, 2001, 2000 and 1999 F-4
---

Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 2001, 2000 and 1999 F-5
---

Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 F-6
---

Notes to Consolidated Financial Statements F-7
---

Schedules

I Summary of Investments Other Than Investments in Related
Parties at December 31, 2001 S-1
---

II Condensed Financial Information of Registrant:
Balance Sheets as of December 31, 2001 and 2000 S-2
---
Statements of Operations for the Years Ended December 31,
2001, 2000 and 1999 S-3
---
Statements of Cash Flows for the Years Ended December 31,
2001, 2000 and 1999 S-4
---

III Supplementary Insurance Information as of December 31, 2001 and
2000 and for the years ended December 31, 2001, 2000 and 1999 S-5
---

IV Reinsurance for the years ended December 31, 2001, 2000 and 1999 S-6
---

Schedules other than those listed above are omitted for the reason that they are
not applicable or the information is otherwise contained in the Financial
Statements.

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Everest Re Group, Ltd.

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Everest Re Group, Ltd. and its subsidiaries at December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedules listed in the accompanying index present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
New York, New York
February 14, 2002, except for note 16
as to which the date is February 21, 2002

F-2

Part I - Item 1

EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value per share)

December 31, December 31,
------------ ------------
2001 2000
------------ ------------

ASSETS:
Fixed maturities - available
for sale, at market value
(amortized cost: 2001,
$5,288,860; 2000, $4,849,679) $ 5,461,584 $ 4,951,893
Equity securities, at market
value (cost: 2001, $66,357;
2000, $22,340) 67,311 36,491
Short-term investments 148,851 398,542
Other invested assets 33,899 29,211
Cash 71,878 76,823
------------ ------------
Total investments and cash 5,783,523 5,492,960

Accrued investment income 83,088 77,312
Premiums receivable 468,897 394,137
Reinsurance receivables 895,061 508,998
Funds held by reinsureds 149,969 161,350
Deferred acquisition costs 130,709 106,638
Prepaid reinsurance premiums 47,185 58,196
Deferred tax asset 178,507 174,482
Other assets 59,221 39,022
------------ ------------
TOTAL ASSETS $ 7,796,160 $ 7,013,095
============ ============

LIABILITIES:
Reserve for losses and loss
adjustment expenses $ 4,278,267 $ 3,786,178
Future policy benefit reserve 238,753 206,589
Unearned premium reserve 489,171 401,148
Funds held under reinsurance
treaties 267,105 110,464
Losses in the course of payment 89,492 102,167
Contingent commissions 2,119 9,380
Other net payable to reinsurers 66,462 60,564
Current federal income taxes (30,459) (8,209)
8.5% Senior notes due 3/15/2005 249,694 249,615
8.75% Senior notes due 3/15/2010 199,077 199,004
Revolving credit agreement
borrowings 105,000 235,000
Accrued interest on debt and
borrowings 11,944 12,212
Other liabilities 109,013 65,631
------------ ------------
Total liabilities 6,075,638 5,429,743
------------ ------------

Commitments and contingencies (Note 12)

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;
46.3 million shares issued in 2001
and 46.0 million shares issued
in 2000 463 460
Additional paid-in capital 269,945 259,958
Unearned compensation (115) (170)
Accumulated other comprehensive
income, net of deferred income
taxes of $40.8 million in 2001
and $30.4 million in 2000 113,880 72,846
Retained earnings 1,336,404 1,250,313
Treasury shares, at cost; 0.0
million shares in 2001 and 2000 (55) (55)
------------ ------------
Total shareholders' equity 1,720,522 1,583,352
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 7,796,160 $ 7,013,095
============ ============

The accompanying notes are an integral part of the consolidated financial
statements.

F-3

EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)

Years Ended December 31,
-------------------------------------------
2001 2000 1999
----------- ----------- -----------

REVENUES:
Premiums earned $ 1,467,477 $ 1,174,183 $ 1,071,451
Net investment income 340,441 301,493 252,999
Net realized capital
(loss) gain (22,313) 807 (16,760)
Net derivative (expense) (12,218) - -
Other income (expense) 28,158 3,341 (1,030)
----------- ----------- -----------
1,801,545 1,479,824 1,306,660
----------- ----------- -----------

CLAIMS AND EXPENSES:
Incurred losses and
loss adjustment expenses 1,209,517 884,616 771,570
Commission, brokerage,
taxes and fees 396,797 272,447 285,957
Other underwriting expenses 58,884 51,633 48,263
Non-recurring restructure
expenses - - 2,798
Interest expense on
senior notes 38,903 30,896 -
Interest expense on
credit facility 7,101 8,490 1,490
----------- ----------- -----------
1,711,202 1,248,082 1,110,078
----------- ----------- -----------

INCOME BEFORE TAXES 90,343 231,742 196,582

Income tax (benefit) expense (8,675) 45,362 38,521
----------- ----------- -----------

NET INCOME $ 99,018 $ 186,380 $ 158,061
=========== =========== ===========

Other comprehensive income
(loss), net of tax 41,034 89,547 (202,219)
----------- ----------- -----------

COMPREHENSIVE INCOME (LOSS) $ 140,052 $ 275,927 $ (44,158)
=========== =========== ===========

PER SHARE DATA:
Average shares
outstanding (000's) 46,174 45,873 48,509
Net income per common
share - basic $ 2.14 $ 4.06 $ 3.26
=========== =========== ===========

Average diluted shares
outstanding (000's) 47,114 46,358 48,686
Net income per common
share - diluted $ 2.10 $ 4.02 $ 3.25
=========== =========== ===========

The accompanying notes are an integral part of the consolidated financial
statements.

F-4

EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)

Years Ended December 31,
-------------------------------------------
2001 2000 1999
----------- ----------- -----------

COMMON SHARES (shares
outstanding):
Balance, beginning of period 46,029,354 46,457,817 49,989,204
Issued during the period 239,661 220,157 17,400
Treasury shares acquired
during the period - (650,400) (3,554,047)
Treasury shares reissued
during the period - 1,780 5,260
----------- ----------- -----------
Balance, end of period 46,269,015 46,029,354 46,457,817
=========== =========== ===========

COMMON SHARES (par value):
Balance, beginning of period $ 460 $ 509 $ 509
Retirement of common shares
during the period - (51) -
Issued during the period 3 2 -
----------- ----------- -----------
Balance, end of period 463 460 509
----------- ----------- -----------

ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period 259,958 390,912 390,559
Retirement of treasury shares
during the period - (138,546) -
Common shares issued during
the period 9,987 7,594 317
Treasury shares reissued
during period - (2) 36
----------- ----------- -----------
Balance, end of period 269,945 259,958 390,912
----------- ----------- -----------

UNEARNED COMPENSATION:
Balance, beginning of period (170) (109) (240)
Net increase (decrease)
during the period 55 (61) 131
----------- ----------- -----------
Balance, end of period (115) (170) (109)
----------- ----------- -----------

ACCUMULATED OTHER COMPREHENSIVE
INCOME, NET OF DEFERRED INCOME
TAXES:
Balance, beginning of period 72,846 (16,701) 185,518
Net increase (decrease)
during the period 41,034 89,547 (202,219)
----------- ----------- -----------
Balance, end of period 113,880 72,846 (16,701)
----------- ----------- -----------

RETAINED EARNINGS:
Balance, beginning of period 1,250,313 1,074,941 928,500
Net income 99,018 186,380 158,061
Dividends declared ( $0.28 per
share in 2001, $0.24 per
share in 2000 and $0.24 per
share in 1999) (12,927) (11,008) (11,620)
----------- ----------- -----------
Balance, end of period 1,336,404 1,250,313 1,074,941
----------- ----------- -----------

TREASURY SHARES AT COST:
Balance, beginning of period (55) (122,070) (25,642)
Retirement of treasury
shares during the period - 138,399 -
Treasury shares acquired
during period - (16,426) (96,551)
Treasury shares reissued
during period - 42 123
----------- ----------- -----------
Balance, end of period (55) (55) (122,070)
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY,
END OF PERIOD $ 1,720,522 $ 1,583,352 $ 1,327,482
=========== =========== ===========

The accompanying notes are an integral part of the consolidated financial
statements.

F-5

EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Years Ended December 31,
-------------------------------------------
2001 2000 1999
----------- ----------- -----------

CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 99,018 $ 186,380 $ 158,061
Adjustments to reconcile
net income to net cash
provided by operating
activities net of effects
from the purchase of
subsidiaries:
(Increase) in premiums
receivable (76,342) (102,802) (36,179)
Decrease in funds held by
reinsureds, net 167,593 29,135 23,007
(Increase) decrease in
reinsurance receivables (388,131) (69,160) 239,763
(Increase) in deferred tax
asset (27,226) (16,248) (17,169)
Increase (decrease) in
reserve for losses and
loss adjustment expenses 509,629 1,257 (133,706)
Increase in future policy
benefit reserve 32,164 - -
Increase in unearned premiums 89,064 95,076 25,077
(Increase) in other
assets and liabilities (13,760) (22,780) (67,106)
Non cash compensation expense 55 (61) 131
Accrual of bond discount/
amortization of bond premium (8,494) (10,138) (5,203)
Amortization of underwriting
discount on senior notes 152 112 -
Realized capital losses (gains) 22,312 (807) 16,760
----------- ----------- -----------
Net cash provided by operating
activities 406,034 89,964 203,436
----------- ----------- -----------

CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from fixed maturities
matured/called - available
for sale 454,389 191,850 205,669
Proceeds from fixed maturities
sold - available for sale 757,825 764,432 665,873
Proceeds from equity securities
sold 33,373 50,259 69,397
Proceeds from other invested
assets sold 305 - 181
Cost of fixed maturities
acquired - available for sale (1,699,010) (1,762,183) (990,369)
Cost of equity securities
acquired (64,267) (3,380) (16,643)
Cost of other invested assets
acquired (4,121) (1,698) (23,109)
Net sales (purchases) of
short-term securities 244,509 (256,421) (38,200)
Net increase (decrease) in
unsettled securities
transactions 1,832 (955) (47)
Payment for purchase of
subsidiaries, net of cash
acquired - 340,130 -
----------- ----------- -----------
Net cash (used in) investing
activities (275,165) (677,966) (127,248)
----------- ----------- -----------

CASH FLOWS FROM FINANCING
ACTIVITIES:
Acquisition of treasury
shares net of reissuances - (16,533) (96,392)
Common shares issued during
the period 9,990 7,545 317
Dividends paid to shareholders (12,927) (11,008) (11,620)
Proceeds from issuance of
senior notes - 448,507 -
Borrowings on revolving
credit agreement 22,000 176,000 59,000
Repayments on revolving credit
agreement (152,000) - -
----------- ----------- -----------
Net cash (used in) provided
by financing activities (132,937) 604,511 (48,695)
----------- ----------- -----------

EFFECT OF EXCHANGE RATE
CHANGES ON CASH (2,877) (1,913) (4,592)
----------- ----------- -----------

Net (decrease) increase
in cash (4,945) 14,596 22,901
Cash, beginning of period 76,823 62,227 39,326
----------- ----------- -----------
Cash, end of period $ 71,878 $ 76,823 $ 62,227
=========== =========== ===========

Supplemental cash flow
information
Cash transactions:
Income taxes paid, net $ 24,923 $ 63,682 $ 59,586
Interest paid $ 46,120 $ 27,169 $ 1,384
Non-cash operating/
investing transaction:
Shares received from
demutualization $ 25,921 $ - $ -
Non-cash financing
transaction:
Issuance of common shares $ 55 $ (61) $ 131

In the quarter ended September 30, 2000, the Company purchased all of the
capital stock of Mt. McKinley Insurance Company for $51,800. In conjunction with
the acquisition, the fair value of assets acquired was $679,672 and liabilities
assumed was $627,872.

In the quarter ended December 31, 2000, the Company purchased all of the capital
stock of AFC Re Ltd. for $16,573. In conjunction with the acquisition, the fair
value of assets acquired was $231,874 and liabilities assumed was $215,301.

The accompanying notes are an integral part of the consolidated financial
statements.

F-6

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BUSINESS AND BASIS OF PRESENTATION

Everest Re Group, Ltd. ("Group"), a Bermuda company with its principal executive
office in Barbados, was established in 1999 as a wholly-owned subsidiary of
Everest Reinsurance Holdings, Inc. ("Holdings"). On February 24, 2000, a
corporate restructuring was completed and Group became the new parent holding
company of Holdings. Holders of shares of common stock of Holdings automatically
became holders of the same number of common shares of Group. Prior to the
restructuring, Group had no significant assets or capitalization and had not
engaged in any business or prior activities other than in connection with the
restructuring. Group, through its subsidiaries, principally provides reinsurance
and insurance in the United States, Bermuda and international markets. As used
in this document, the "Company" means Group and its subsidiaries, except when
referring to periods prior to February 24, 2000, when it means Holdings and its
subsidiaries.

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States of
America. The statements include the following domestic and foreign direct and
indirect subsidiaries of Group: Holdings, Everest Reinsurance (Bermuda), Ltd.
("Bermuda Re"), Everest International Reinsurance, Ltd. ("Everest
International"), formerly AFC Re Ltd., Mt. McKinley Insurance Company ("Mt.
McKinley"), formerly Gibraltar Casualty Company, Everest Global Services, Inc.
("Global Services"), Everest Advisors (Ireland) Limited, Everest Re Advisors,
Ltd., Everest Reinsurance Company ("Everest Re"), Everest National Insurance
Company ("Everest National"), Everest Indemnity Insurance Company ("Everest
Indemnity"), Everest Re Holdings, Ltd. ("Everest Ltd."), Everest Security
Insurance Company ("Everest Security"), formerly Southeastern Security Insurance
Company, Everest Insurance Company of Canada ("Everest Canada"), Mt. McKinley
Managers, L.L.C. ("Managers"), Workcare Southeast, Inc. ("Workcare Southeast"),
Workcare Southeast of Georgia, Inc. ("Workcare Georgia") and Workcare, Inc. All
amounts are reported in U.S. dollars.

The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities (and disclosure of contingent assets and liabilities) at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

B. INVESTMENTS

Fixed maturity investments are all classified as available for sale. Unrealized
appreciation and depreciation, as a result of temporary changes in market value
during the period, are reflected in shareholders' equity, net of income taxes in
"accumulated other comprehensive income". Equity securities are carried at
market value with unrealized appreciation or depreciation, as a result of
temporary changes in market value during the period, are reflected in
shareholders' equity, net of income taxes in "accumulated other comprehensive
income". Unrealized losses on fixed maturities and equity securities, which are
deemed other than temporary, are charged to net income as realized capital
losses. Short-term investments are stated at cost, which approximates market
value. Realized gains or losses on sale of investments are determined on the
basis of identified cost. For non-publicly traded securities, market prices are
determined through the use of pricing models that evaluate securities relative
to the U.S. Treasury yield curve, taking into account the issue type, credit
quality and cash flow characteristics of each security. For publicly traded
securities, market value is based on quoted market prices. Retrospective
adjustments are employed to recalculate the values of loan-backed and

F-7

asset-backed securities. 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 to affect the calculation of projected and
prepayments for pass through security types. Other invested assets include
limited partnerships and rabbi trusts. Limited partnerships are valued pursuant
to the equity method of accounting, which management believes approximates
market value. The Supplemental Retirement Plan rabbi trust is carried at market
value, while the Deferred Compensation Plan rabbi trust and Supplemental Savings
Plan rabbi trust are carried at cost, which approximates market value. Cash
includes cash and bank time deposits with original maturities of ninety days or
less.

C. UNCOLLECTIBLE REINSURANCE BALANCES

The Company provides reserves for uncollectible reinsurance balances based on
management's assessment of the collectibility of the outstanding balances. Such
reserves were $34.4 million at December 31, 2001 and $27.9 million at December
31, 2000. See also Note 8.

D. DEFERRED ACQUISITION COSTS

Acquisition costs, consisting principally of commissions and brokerage expenses
and certain premium taxes and fees associated with the Company's reinsurance and
insurance business incurred at the time a contract or policy is issued, are
deferred and amortized over the period in which the related premiums are earned,
generally one year. Deferred acquisition costs are limited to their estimated
realizable value based on the related unearned premiums, anticipated claims and
claim expenses and anticipated investment income. Deferred acquisition costs
amortized to income were $23.2 million, $10.1 million and $12.4 million in 2001,
2000 and 1999, respectively.

The present value of in force annuity business is included in deferred
acquisition costs. This value is amortized over the expected life of the
business at the time of acquisition. The amortization each year will be a
function of the gross profits each year in relation to the total gross profits
expected over the life of the business, discounted at an assumed net credit
rate.

E. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

The reserve for losses and loss adjustment expenses ("LAE") is based on
individual case estimates and reports received from ceding companies. A
provision is included for losses and LAE incurred but not reported ("IBNR")
based on past experience. A provision is also included for certain potential
liabilities relating to asbestos and environmental exposures, which liabilities
cannot be estimated with traditional reserving techniques. See also Note 12. The
reserves are reviewed continually and any changes in estimates are reflected in
earnings in the period the adjustment is made. Management believes that adequate
provision has been made for the Company's losses and LAE. Loss and LAE reserves
are presented gross of reinsurance receivables and incurred losses and LAE are
presented net of ceded reinsurance.

Accruals for contingent commission liabilities are established for reinsurance
contracts that provide for the stated commission percentage to increase or
decrease based on the loss experience of the contract. Changes in the estimated
liability for such arrangements are recorded as contingent commissions. Accruals

F-8

for contingent commission liabilities are determined through the review of the
contracts that have these adjustable features and are estimated based on
expected loss and loss adjustment expenses.

F. FUTURE POLICY BENEFIT RESERVE

Liabilities for future policy benefits on annuity policies are carried at their
accumulated values. Reserves for policy benefits include both mortality and
morbidity claims in the process of settlement and claims that have been incurred
but not yet reported. Interest rate assumptions used to estimate liabilities for
policy benefits range from 4.5% to 6.4%. Actual experience in a particular
period may vary.

G. PREMIUM REVENUES

Premiums written are earned ratably over the periods of the related insurance
and reinsurance contracts or policies. Unearned premium reserves are established
to cover the remainder of the unexpired contract period. Such reserves are
established based upon reports received from ceding companies or computed using
pro rata methods based on statistical data. Written and earned premiums, and the
related costs, which have not yet been reported to the Company are estimated and
accrued. Premiums are net of ceded reinsurance.

Annuity premiums are recognized as revenue over the premium-paying period of the
policies.

H. INCOME TAXES

Holdings and its wholly-owned subsidiaries file a consolidated U.S. federal
income tax return. Group and its other subsidiaries, not included in Holdings'
consolidated tax return, file separate company U.S. federal income tax returns,
where required. Deferred income taxes have been recorded to recognize the tax
effect of temporary differences between the financial reporting and income tax
bases of assets and liabilities.

I. FOREIGN CURRENCY TRANSLATION

Assets and liabilities relating to foreign operations are translated into U.S.
dollars at the exchange rates in effect at the balance sheet date; revenues and
expenses are translated into U.S. dollars using average exchange rates. Gains
and losses resulting from translating foreign currency financial statements, net
of deferred income taxes, are excluded from net income and accumulated in
shareholders' equity.

J. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share reflects
the potential dilution that could occur if options granted under various
stock-based compensation plans were exercised resulting in the issuance of
common shares that then shared in the earnings of the entity. See also Note 13.

F-9

Net income per common share has been computed below, based upon weighted average
common and dilutive shares outstanding.

(dollar values in thousands,
except per share amounts) 2001 2000 1999
-------------------------------------

Net income (numerator) $ 99,018 $ 186,380 $ 158,061
=====================================
Weighted average common and
effect of dilutive shares
used in the computation of
net income per share:
Weighted average shares
outstanding - basic
(denominator) 46,174 45,873 48,509
Effect of dilutive shares 940 485 177
-------------------------------------
Weighted average shares
outstanding - diluted
(denominator) 47,114 46,358 48,686
=====================================
Net income per common share:
Basic $ 2.14 $ 4.06 $ 3.26
Diluted $ 2.10 $ 4.02 $ 3.25

Options to purchase 15,000 common shares at prices ranging from $46.09 to $64.97
per share and 1,339,451 common shares at prices ranging from $23.94 to $39.16
per share were outstanding at the end of 2000 and 1999, respectively, but were
not included in the computation of earnings per diluted share for the respective
years because the options' exercise price was greater than the average market
price of the common shares at the end of such years. All options to purchase
common shares at the end of 2001 were included in the computation of earnings
per diluted share because the average market price of the common shares was
greater than the options' exercise price at the end of 2001. The options, which
expire on or between October 6, 2005 and September 21, 2011, were still
outstanding at the end of 2001.

K. UNUSUAL LOSS EVENTS

As a result of the terrorist attacks at the World Trade Center, the Pentagon and
on various airlines on September 11, 2001 (collectively the "September 11
attacks"), the Company incurred pre-tax losses, based on an estimate of ultimate
exposure developed through a review of its coverages, which totaled $213.2
million gross of reinsurance and $55.0 million net of reinsurance. Associated
with this reinsurance were $60.0 million of pre-tax charges, predominantly from
adjustment premiums, resulting in a total pre-tax loss from the September 11
attacks of $115.0 million. After tax recoveries relating specifically to this
unusual loss event, the net loss from the September 11 attacks totaled $75.0
million. Over 90% of the losses ceded were to treaties, where the reinsurers'
obligations are secured, which the Company believes eliminates material
reinsurance collection risk.

As a result of the Enron bankruptcy in 2001, the Company has incurred losses,
after-tax and net of reinsurance, amounting to $25.0 million. This unusual loss
reflects all of the Company's exposures to this event, including underwriting,
credit and investment.

F-10

L. ACQUISITIONS

On September 19, 2000, Holdings acquired Mt. McKinley, f/k/a Gibraltar Casualty
Company, for $51.8 million. Mt. McKinley is a run-off property and casualty
insurer in the United States. No goodwill was generated in the transaction. The
acquisition was recorded using the purchase method of accounting. Accordingly,
the December 31, 2000 consolidated financial statements of the Company include
the results of Mt. McKinley from September 19, 2000.

In connection with the acquisition of Mt. McKinley, Prudential Property and
Casualty Insurance Company ("Prupac"), a subsidiary of The Prudential Insurance
Company of America ("The Prudential"), provided reinsurance to Mt. McKinley
covering 80% ($160.0 million) of the first $200.0 million of any adverse
development of Mt. McKinley's reserves as of September 19, 2000 and The
Prudential guaranteed Prupac's obligation to Mt. McKinley. The stop loss
reinsurance protection that was provided by Mt. McKinley at the time of the
Company's Initial Public Offering ("IPO") and other reinsurance contracts
between Mt. McKinley and Everest Re remain in effect following the acquisition.
However, these contracts have become transactions with affiliates, with the
financial impact eliminated in consolidation.

The following unaudited pro forma information assumes the acquisition of Mt.
McKinley occurred at the beginning of each year presented. The unaudited pro
forma financial information is presented for informational purposes only and is
not necessarily indicative of the operating results that would have occurred had
the acquisition been consummated at the beginning of each year presented, nor is
it necessarily indicative of future operating results.

Years ended December 31,
-------------------------------------
2000 1999
(dollars in thousands,
except per share amounts) (Unaudited)
-------------------------------------

Revenues $ 1,499,490 $ 1,336,672
Net income $ 188,964 $ 82,919
Basic earnings per share $ 4.12 $ 1.71
Diluted earnings per share $ 4.08 $ 1.70

The Company also completed two additional acquisitions during 2000, Everest
Security, a United States property and casualty company, whose primary business
is non-standard auto and Everest International, a Bermuda based life and annuity
company. The combined purchase price of the acquisitions was approximately $27.0
million. Goodwill of $3.0 million and $0.0 million for Everest Security and
Everest International, respectively, was generated as a result of these
acquisitions and both were recorded using the purchase method of accounting.

M. SEGMENTATION

The Company, through its subsidiaries, operates in five segments: U.S.
Reinsurance, U.S. Insurance, Specialty Underwriting, International and Bermuda.
See also Note 15.

N. CODIFICATION

The NAIC has published a codification of statutory accounting principles, which
has been adopted by the states of domicile of the Company's U.S. operating
subsidiaries with an effective date of January 1, 2001. On January 1, 2001,
significant changes to the statutory-basis of accounting became effective. The

F-11

cumulative effect of these changes has been recorded as a direct adjustment to
statutory surplus. See also Note 11C.

O. DERIVATIVES

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires that all derivative instruments be recognized
as either assets or liabilities on the balance sheet and measured at their fair
value. Gains or losses from changes in the derivative values are accounted for
based on how the derivative is used and whether it qualifies for hedge
accounting.

P. FUTURE APPLICATION OF ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 142,
"Goodwill and Other Intangible Assets". SFAS 142 establishes new accounting and
reporting standards for acquired goodwill and other intangible assets. It
requires that an entity determine if the goodwill or other intangible asset has
an indefinite useful life or a finite useful life. Those with indefinite useful
lives will not be subject to amortization and must be tested annually for
impairment. Those with finite useful lives will be subject to amortization and
must be tested annually for impairment. This statement is effective for all
fiscal quarters of all fiscal years beginning after December 15, 2001. The
implementation of this statement will not have a material impact on the
financial position, results of operations or cash flows of the Company.

F-12

2. INVESTMENTS

The amortized cost, market value, and gross unrealized appreciation and
depreciation of fixed maturity investments and equity securities are presented
in the tables below:

(dollar values in thousands) Amortized Unrealized Unrealized Market
Cost Appreciation Depreciation Value
----------------------------------------------------------

As of December 31, 2001
Fixed maturities - available
for sale
U.S. Treasury securities
and obligations of U.S.
government agencies
and corporations $ 114,814 $ 5,243 $ 127 $ 119,930
Obligations of U.S. states
and political subdivisions 1,762,867 78,427 2,768 1,838,526
Corporate securities 2,254,674 77,643 39,516 2,292,801
Mortgage-backed securities 701,175 28,260 790 728,645
Foreign government securities 194,920 18,145 123 212,942
Foreign corporate securities 260,410 10,191 1,861 268,740
----------------------------------------------------------
Total fixed maturities $ 5,288,860 $ 217,909 $ 45,185 $ 5,461,584
==========================================================
Equity securities $ 66,357 $ 1,393 $ 439 $ 67,311
==========================================================

As of December 31, 2000
Fixed maturities - available
for sale
U.S. Treasury securities
and obligations of U.S.
government agencies and
corporations $ 133,053 $ 4,777 $ - $ 137,830
Obligations of U.S. states
and political subdivisions 1,514,099 85,261 423 1,598,937
Corporate securities 1,900,375 41,805 73,849 1,868,331
Mortgage-backed securities 799,651 22,003 507 821,147
Foreign government securities 212,668 17,137 187 229,618
Foreign corporate securities 289,833 7,735 1,538 296,030
----------------------------------------------------------
Total fixed maturities $ 4,849,679 $ 178,718 $ 76,504 $ 4,951,893
==========================================================
Equity securities $ 22,340 $ 14,178 $ 27 $ 36,491
==========================================================

F-13

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

December 31, 2001,
----------------------------
Amortized Market
(dollar values in thousands) Cost Value
----------------------------

Fixed maturities - available for sale
Due in one year or less $ 82,645 $ 83,908
Due after one year through five years 1,047,584 1,096,414
Due after five years through ten years 1,545,389 1,594,665
Due after ten years 1,912,067 1,957,952
Mortgage-backed securities 701,175 728,645
----------------------------
Total $ 5,288,860 $ 5,461,584
============================

Proceeds from sales of fixed maturity investments during 2001, 2000 and 1999
were $757.8 million, $764.4 million and $665.9 million, respectively. Gross
gains of $19.3 million, $9.3 million and $0.9 million and gross losses of $46.0
million, $27.8 million and $28.5 million were realized on those fixed maturity
sales during 2001, 2000 and 1999, respectively. Proceeds from sales of equity
security investments during 2001, 2000 and 1999 were $33.3 million, $50.3
million and $69.4 million, respectively. Gross gains of $13.4 million, $21.0
million and $16.3 million and gross losses of $0.1 million, $1.7 million and
$5.4 million were realized on those equity sales during 2001, 2000 and 1999,
respectively.

The changes in net unrealized gains (losses) of investments of the Company are
derived from the following sources:

Years Ended December 31,
----------------------------------------
(dollar values in thousands) 2001 2000 1999
----------------------------------------

Increase (decrease) during
the period between the
market value and cost of
investments carried at
market value, and deferred
tax thereon:
Equity securities $ (13,197) $ (26,318) $ (14,018)
Fixed maturities 70,511 157,560 (304,872)
Other invested assets 20 24 (42)
Deferred taxes (12,550) (40,288) 111,626
----------------------------------------
Increase (decrease) in
unrealized appreciation,
net of deferred taxes,
included in shareholders'
equity $ 44,784 $ 90,978 $ (207,306)
========================================

F-14

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

Years Ended December 31,
----------------------------------------
(dollar values in thousands) 2001 2000 1999
----------------------------------------

Fixed maturities $ 358,980 $ 302,094 $ 256,067
Equity securities 895 1,198 3,796
Short-term investments 7,562 9,968 3,702
Other interest income 4,132 3,145 1,652
----------------------------------------
Total gross investment income 371,569 316,405 265,217
----------------------------------------
Interest on funds held 11,463 11,316 9,133
Interest credited to future
policy benefit reserves 14,557 - -
Other investment expenses 5,108 3,596 3,085
----------------------------------------
Total investment expenses 31,128 14,912 12,128
----------------------------------------
Total net investment income $ 340,441 $ 301,493 $ 252,999
========================================

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

Years Ended December 31,
----------------------------------------
(dollar values in thousands) 2001 2000 1999
----------------------------------------

Fixed maturities $ (35,645) $ (18,402) $ (27,615)
Equity securities 13,326 19,261 10,836
Short-term investments 6 (52) 19
----------------------------------------
Total $ (22,313) $ 807 $ (16,760)
========================================

The net realized capital losses for 2001 include $9.0 million relating to
write-downs in the value of securities deemed to be other than temporary.

Securities with a carrying value amount of $260.9 million at December 31, 2001
were on deposit with various state or governmental insurance departments in
compliance with insurance laws.

During 2001, the Company sold five European put options based on the Standard &
Poor's 500 ("S & P 500") index for total consideration, net of commission, of
$16.9 million. These contracts each have a single exercise date with maturities
ranging from 18 to 30 years and strike prices ranging from $1,141.21 to
$1,540.63. No amounts would be payable under these contracts if the S & P 500
index is at or above the strike price on the exercise dates. If the S & P 500
index is lower than the strike price on the applicable exercise date, the amount
due would vary proportionately with the percentage the index was below the
strike price. Based on historical index values and trends, the Company estimates
the probability for each contract of the S & P index being below the strike
price on the exercise date ranges from .03% to 1.4%. The theoretical maximum
payouts under the contracts would occur if on each of the exercise dates the S &
P 500 index value were zero. The present value of these theoretical maximum
payouts using a 6% discount factor is $133.8 million.

During 2000, the Company entered into three credit swap derivative contracts
which provide credit default protection on a portfolio of referenced securities.
Due to changing credit market conditions and defaults, the Company recorded net
losses from these contracts of $13.7 million in 2001 to reflect them at fair

F-15

value, with the 2001 losses principally attributable to the Company's exposure
to the Enron bankruptcy. As of December 31, 2001, the remaining maximum net loss
exposure under these contracts is $6.6 million.

The Company's position in these contracts is unhedged and is accounted for as
derivatives in accordance with SFAS 133. Accordingly, these contracts are
carried at fair value with changes in fair value recorded in the statement of
operations.

3. RESERVE FOR LOSSES AND LAE

Activity in the reserve for losses and LAE is summarized as follows:

Years Ended December 31,
-------------------------------------------
(dollar values in thousands) 2001 2000 1999
-------------------------------------------

Reserves at January 1 $ 3,786,178 $ 3,646,992 $ 3,800,041
Less reinsurance recoverables 488,824 727,780 915,741
-------------------------------------------
Net balance at January 1 3,297,354 2,919,212 2,884,300
-------------------------------------------
Incurred related to:
Current year 1,209,470 876,829 806,930
Prior years 47 7,787 (35,360)
-------------------------------------------
Total incurred losses
and LAE 1,209,517 884,616 771,570
-------------------------------------------
Paid related to:
Current year (1) 393,958 (166,955) 252,407
Prior years 718,106 673,429 484,251
-------------------------------------------
Total paid losses and LAE 1,112,064 506,474 736,658
-------------------------------------------
Net balance at December 31 3,394,807 3,297,354 2,919,212
Plus reinsurance recoverables 883,460 488,824 727,780
-------------------------------------------
Balance at December 31 $ 4,278,267 $ 3,786,178 $ 3,646,992
===========================================

- -----------
(1) Current year paid losses for 2000 are net of ($483,789) resulting from the
acquisition of Mt. McKinley.

Prior year incurred losses increased by $7.8 million in 2000 and decreased by
$35.4 million in 1999. These changes were the result of normal reserve
development inherent in the uncertainty in establishing loss and LAE reserves,
as well as the impact of foreign exchange rate fluctuations on loss reserves
and, for 1999, changes in the Company's coinsurance in connection with stop loss
reinsurance protection provided by Mt. McKinley at the time of the Company's IPO
of ($6.0) million. Although coverage remains under this reinsurance, the
acquisition of Mt. McKinley causes the financial impact of any cessions under
this reinsurance to eliminate in consolidation. See also Note 1L.

Activity in the reserve for future policy benefits is summarized as follows:

Years Ended December 31,
----------------------------------------
(dollar values in thousands) 2001 2000 1999
----------------------------------------

Balance at beginning of year $ 206,589 $ - $ -
Liabilities assumed 42,439 206,589 -
Adjustments to reserves 10,802 - -
Benefits paid in the current year (21,077) - -
----------------------------------------
Balance at end of year $ 238,753 $ 206,589 $ -
========================================

F-16

4. CREDIT LINE

On December 21, 1999, Holdings entered into a three-year senior revolving credit
facility with a syndicate of lenders (the "Credit Facility"). First Union
National Bank is the administrative agent for the Credit Facility. The Credit
Facility is used for liquidity and general corporate purposes. The Credit
Facility provides for the borrowing of up to $150.0 million with interest at a
rate selected by the Company equal to either (1) the Base Rate (as defined
below) or (2) an adjusted London InterBank Offered Rate ("LIBOR") plus a margin.
The Base Rate is the higher of the rate of interest established by First Union
National Bank from time to time as its prime rate or the Federal Funds rate plus
0.5% per annum. On December 18, 2000, the Credit Facility was amended to extend
the borrowing limit to $235.0 million for a period of 120 days, after which time
the limit reverted to $150.0 million. The amount of margin and the fees payable
for the Credit Facility depend upon Holdings' senior unsecured debt rating.
Group has guaranteed all of Holdings' obligations under the Credit Facility.

The Credit Facility agreement requires the Company to maintain a debt to capital
ratio of not greater than 0.35 to 1, Holdings to maintain a minimum interest
coverage ratio of 2.5 to 1 and Everest Re to maintain statutory surplus at
$850.0 million plus 25% of future aggregate net income and 25% of future
aggregate capital contributions.

As of December 31, 2001 and 2000, Holdings had outstanding borrowings under the
Credit Facility of $105.0 million and $235.0 million, respectively. Interest
expense incurred in connection with these borrowings was $7.1 million, $8.5
million and $1.5 million for the periods ending December 31, 2001, December 31,
2000 and December 31, 1999, respectively.

5. SENIOR NOTES

On March 14, 2000, Holdings completed public offerings of $200.0 million
principal amount of 8.75% senior notes due March 15, 2010 and $250.0 million
principal amount of 8.5% senior notes due March 15, 2005. During 2000, the net
proceeds of these offerings and additional funds were distributed by Holdings to
Group. Approximately $250.0 million of the distributions were used by Group to
capitalize Bermuda Re. Interest expense incurred in connection with these senior
notes was $38.9 million and $30.9 million for the periods ending December 31,
2001 and December 31, 2000, respectively.

F-17

6. OPERATING LEASE AGREEMENTS

The future minimum rental commitments, exclusive of cost escalation clauses, at
December 31, 2001 for all of the Company's operating leases with remaining
non-cancelable terms in excess of one year are as follows:

-------------------------------------
(dollar values in thousands)
-------------------------------------

2002 $ 4,509
2003 4,558
2004 4,498
2005 4,078
2006 4,021
Thereafter 15,560
-------------------------------------
Net commitments $ 37,224
======================================

All of these leases, the expiration terms of which range from 2002 to 2010, are
for the rental of office space. Rental expense, net of sublease rental income,
was $5.8 million, $4.5 million and $4.2 million for 2001, 2000 and 1999,
respectively.

7. INCOME TAXES

Under current Bermuda law, no income or capital gains taxes are imposed on Group
and its Bermuda subsidiaries. The Minister of Finance of Bermuda has also
assured Group and its Bermuda subsidiaries that, pursuant to The Exempted
Undertakings Tax Protection Act of 1966, they will be exempt until 2016 from any
such taxes imposed in the future. In Barbados, Group is registered as an
external company and licensed as an international business company. This
provides Group with certain tax benefits, including a preferred rate of
corporation tax on profits and gains in Barbados and exemption from withholding
tax on dividend payments. No tax is imposed on capital gains.

With the exception of Group and its Bermuda subsidiaries, all the income of the
U.S. subsidiaries is subject to the applicable federal, state and local taxes on
corporations. The provision for federal income taxes in the consolidated
statement of income has been calculated based on the individual income of each
subsidiary. It reflects the permanent differences between financial and taxable
income relevant to each subsidiary. The significant components of the provision
are as follows:

Years Ended December 31,
----------------------------------------
(dollar values in thousands) 2001 2000 1999
----------------------------------------

Current tax:
U.S. $ (46) $ 62,941 $ 53,076
Foreign 5,938 (289) 2,615
----------------------------------------
Total current tax 5,892 62,652 55,691
Total deferred U.S. tax (benefit) (14,567) (17,290) (17,170)
----------------------------------------
Total income tax (benefit) provision $ (8,675) $ 45,362 $ 38,521
========================================

Because Group and certain subsidiaries are not expected to be subject to U.S.
tax, and some other subsidiaries derive tax-preferenced income, the effective
tax rate for the Company's U.S. operations is less than the statutory U.S.

F-18

federal tax rate. A reconciliation of this rate to the Company's effective tax
rate is as follows:

Years Ended December 31,
-----------------------------------
2001 2000 1999
-----------------------------------

Federal income tax rate 35.0% 35.0% 35.0%
Increase (reduction) in taxes
resulting from:
Tax preferenced income (30.8) (12.9) (17.5)
Income not subject to U.S. tax (26.2) (4.4) -
Other, net 12.4 1.8 2.1
-----------------------------------
Effective tax rate (9.6)% 19.5% 19.6%
===================================

Deferred income taxes reflect the tax effect of the temporary differences
between the value of assets and liabilities for financial statement purposes and
such values as measured by the U.S. tax laws and regulations. The principal
items making up the net deferred income tax asset are as follows:

December 31,
--------------------------
(dollar values in thousands) 2001 2000
--------------------------

Deferred tax assets:
Reserve for losses and LAE $ 226,532 $ 188,364
Unearned premium reserve 29,765 24,007
Foreign currency translation 6,848 4,670
Net operating loss and foreign
tax credit carryforwards 21,159 22,514
Other assets - 2,360
--------------------------
Total deferred tax assets 284,304 241,915
--------------------------
Deferred tax liabilities:
Deferred acquisition costs 40,232 32,367
Net unrealized appreciation
of investments 64,568 35,066
Other liabilities 997 -
--------------------------
Total deferred tax liabilities 105,797 67,433
--------------------------
Net deferred tax assets $ 178,507 $ 174,482
==========================

The Company's U.S. subsidiaries have total net operating loss carryforwards of
$43.6 million that expire during years 2002 - 2021. Management believes that it
is more likely than not that the Company will realize the benefits of its net
deferred tax assets and, accordingly, no valuation allowance has been recorded
for the periods presented.

Tax benefits of $3.4 million related to compensation expense deductions for
stock options exercised in 2001 are reflected in the change in shareholders'
equity in "additional paid in capital".

F-19

8. REINSURANCE

The Company utilizes reinsurance agreements to reduce its exposure to large
claims and catastrophic loss occurrences. These agreements provide for recovery
from reinsurers of a portion of losses and loss expenses under certain
circumstances without relieving the insurer of its obligation to the
policyholder. Losses and LAE incurred and earned premiums are after deduction
for reinsurance. In the event reinsurers were unable to meet their obligations
under reinsurance agreements, the Company would not be able to realize the full
value of the reinsurance recoverable balances. The Company may hold partial
collateral, including letters of credit, under these agreements. See also Note
1(C).

The Company purchases corporate level retrocessions covering the potential
accumulation of all exposures. For 1999, the Company purchased an accident year
aggregate excess of loss retrocession agreement which provided up to $175.0
million of coverage if Everest Re's consolidated statutory basis accident year
loss ratio exceeded a loss ratio attachment point provided in the contract for
the 1999 accident year. During 2000 and 2001, the Company ceded $70.0 million
and $105.0 million of losses, respectively, to this cover, reducing the limit
available under the contract to $0.0 million. For 2001, the Company purchased an
accident year aggregate excess of loss retrocession agreement which provided up
to $175.0 million of coverage if Everest Re's consolidated statutory basis
accident year loss ratio exceeded a loss ratio attachment point provided in the
contract for the 2001 accident year. During 2001, the Company ceded $164.0
million of losses to this cover, reducing the limit available under the contract
to $11.0 million.

In addition, the Company has coverage under an aggregate excess of loss
reinsurance agreement provided by Prudential Property and Casualty Insurance
Company of Indiana ("Prupac"), a wholly-owned subsidiary of The Prudential, in
connection with the Company's acquisition of Mt. McKinley in September 2000.
This agreement covers 80% or $160 million of the first $200 million of any
adverse loss reserve development on the carried reserves of Mt. McKinley at the
date of acquisition and reimburses the Company as such losses are paid by the
Company. There were $22.2 million of cessions under this reinsurance at December
31, 2001, reducing the limit available under the contract to $137.8 million.

In connection with the Mt. McKinley acquisition, Prupac also provided excess of
loss reinsurance for 100% of the first $8.5 million of loss with respect to
certain of Mt. McKinley's retrocessions and potentially uncollectible
reinsurance coverage. There were $2.5 million and $3.6 million of cessions under
this reinsurance during the periods ending December 31, 2000 and 2001,
respectively, reducing the limit available under the contract to $2.4 million.

F-20

Written and earned premiums are comprised of the following:

Years Ended December 31,
-------------------------------------------
(dollar values in thousands) 2001 2000 1999
-------------------------------------------

Written premium:
Direct $ 438,837 $ 224,606 $ 70,473
Assumed 1,435,804 1,161,004 1,071,344
Ceded (314,499) (166,704) (46,248)
-------------------------------------------
Net written premium $ 1,560,142 $ 1,218,906 $ 1,095,569
===========================================
Earned premium:
Direct $ 380,178 $ 139,413 $ 73,822
Assumed 1,412,734 1,156,297 1,042,921
Ceded (325,435) (121,527) (45,292)
-------------------------------------------
Net earned premium $ 1,467,477 $ 1,174,183 $ 1,071,451
===========================================

The amounts deducted from losses and LAE incurred for net reinsurance recoveries
were $486.3 million, $161.6 million and $7.4 million for the years ended
December 31, 2001, 2000 and 1999, respectively. The net reinsurance recoveries
for 1999 were impacted by cessions to stop loss reinsurance provided by Mt.
McKinley at the time of the Company's IPO.

As of December 31, 2001, the Company carried as an asset $895.1 million in
reinsurance receivables with respect to losses ceded. Of this amount, $339.0
million, or 37.9%, was receivable from subsidiaries of London Reinsurance Group
("London Life") and $145.0 million, or 16.2%, was receivable from Continental
Insurance Company ("Continental"). As of December 31, 2000, the Company carried
as an asset $509.0 million in reinsurance receivables with respect to losses
ceded. Of this amount, $145.0 million, or 28.5%, was receivable from Continental
Insurance Company ("Continental") and $70.0 million, or 13.8%, was receivable
from subsidiaries of London Reinsurance Group ("London Life"). No other
retrocessionaire accounted for more than 5% of the Company's receivables.

The Company's arrangements with London Life and Continental are managed on a
funds held basis, which means that the Company has not released premium payments
to the retrocessionaire but rather retains such payments to secure obligations
of the retrocessionaire, records them as a liability, credits interest on the
balances and reduces the liability account as payments become due. As of
December 31, 2001, such funds had reduced the Company's net exposure to London
Life to $158.9 million, 100% of which has been secured by letters of credit, and
its exposure to Continental to $67.9 million. As of December 31, 2000, such
funds had reduced the Company's net exposure to Continental to $74.4 million,
and its exposure to London Life to $33.5 million, 100% of which has been secured
by letters of credit.

F-21

9. COMPREHENSIVE INCOME

The components of comprehensive income for the periods ending December 31, 2001,
2000 and 1999 are shown in the following table:

(dollar values in thousands) 2001 2000 1999
----------------------------------------

Net income $ 99,018 $ 186,380 $ 158,061
----------------------------------------
Other comprehensive income,
before tax:
Foreign currency translation
adjustments (5,931) (2,202) 7,824
Unrealized gains (losses) on
securities arising during
the period 35,021 131,822 (302,172)
Less: reclassification adjustment
for realized losses (gains)
included in net income 22,313 (807) 16,760
----------------------------------------
Other comprehensive income
(loss), before tax 51,403 128,813 (311,108)
----------------------------------------
Income tax expense (benefit)
related to items of other
comprehensive income:
Tax (benefit) expense from
foreign currency translation (2,181) (771) 2,737
Tax expense (benefit) from
unrealized gains (losses)
arising during the period 7,039 40,319 (105,760)
Tax (benefit) expense from
realized (losses) gains
included in net income (5,511) 282 (5,866)
----------------------------------------
Income tax expense (benefit)
related to items of other
comprehensive income: 10,369 39,266 (108,889)

Other comprehensive income
(loss), net of tax 41,034 89,547 (202,219)
----------------------------------------
Comprehensive income (loss) $ 140,052 $ 275,927 $ (44,158)
========================================

F-22

The following table shows the components of the change in accumulated other
comprehensive income for the years ending December 31, 2001 and 2000.

(dollar values in thousands) 2001 2000
------------------------------------------------

Beginning balance of accumulated
other comprehensive income $ 72,846 $ (16,701)
--------- ---------

Beginning balance of foreign
currency translation adjustments $ (8,434) $ (7,003)
Current period change in foreign
currency translation adjustments (3,750) (3,750) (1,431) (1,431)
------------------------------------------------
Ending balance of foreign currency
translation adjustments (12,184) (8,434)
--------- ---------

Beginning balance of unrealized
gains on securities 81,280 (9,698)
Current period change in
unrealized gains on securities 44,784 44,784 90,978 90,978
------------------------------------------------
Ending balance of unrealized
gains on securities 126,064 81,280
--------- ---------

Current period change in
accumulated other
comprehensive income 41,034 89,547
--------- ---------

Ending balance of accumulated
other comprehensive income $ 113,880 $ 72,846
========= =========

10. EMPLOYEE BENEFIT PLANS

The Company maintains both a qualified and a non-qualified defined benefit
pension plan for its U.S. employees. Generally, the Company computes the
benefits based on average earnings over a period prescribed by the plans and
credited length of service. The Company has not been required to fund
contributions to its qualified defined benefit pension plan for the years ended
December 31, 2001 and 2000 because the Company's qualified plan was subject to
the full funding limitation under the Internal Revenue Service guidelines. The
Company's non-qualified defined benefit pension plan, effected in October 1995,
provides compensating pension benefits for participants whose benefits have been
curtailed under the qualified plan due to Internal Revenue Code limitations.
Although not required under Internal Revenue Service guidelines, the Company
contributed $0.3 million and $0.9 million to the qualified and non-qualified
plans respectively in 2001. The change in the accumulated pension benefit
obligation for 2001 reflects the net effect of amendments made to the plans as a
result of the Economic Growth and Tax Relief Reconciliation Act of 2001. Pension
expense for the Company's plans for the years ended December 31, 2001, 2000 and
1999 were $1.6 million, $1.0 million and $1.5 million, respectively.

F-23

The following table summarizes the status of these plans:

Years Ended December 31,
------------------------
(dollar values in thousands) 2001 2000
------------------------

Change in projected benefit obligation:
Benefit obligation at beginning of year $ 24,572 $ 22,060
Service cost 1,398 1,351
Interest cost 1,921 1,628
Change in accumulated benefit obligation 36 -
Actuarial gain (loss) 3,786 (252)
Benefits paid (311) (215)
------------------------
Benefit obligation at end of year 31,402 24,572
------------------------

Change in plan assets:
Fair value of plan assets at beginning of year 20,200 21,375
Actual return on plan assets (250) (960)
Actual contributions during the year 1,229 -
Benefits paid (311) (215)
------------------------
Fair value of plan assets at end of year 20,868 20,200
------------------------
Funded status (10,534) (4,372)
Unrecognized prior service cost 924 1,034
Unrecognized net loss (gain) 4,099 (1,820)
------------------------
(Accrued) pension cost $ (5,511) $ (5,158)
========================

Plan assets are comprised of shares in investment trusts with approximately 64%
and 36% of the underlying assets consisting of equity securities and fixed
maturities, respectively.

Net periodic pension cost included the following components:

Years Ended December 31,
-------------------------------------
(dollar values in thousands) 2001 2000 1999
-------------------------------------

Service cost $ 1,397 $ 1,351 $ 1,476
Interest cost 1,921 1,628 1,532
Expected return on assets (1,905) (1,915) (1,625)
Amortization of net loss
(gain) from earlier periods 21 (225) 6
Amortization of unrecognized
prior service cost 147 147 147
-------------------------------------
Net periodic pension cost $ 1,582 $ 986 $ 1,536
=====================================

The weighted average discount rates used to determine the actuarial present
value of the projected benefit obligation for 2001, 2000 and 1999 are 7.0%, 7.5%
and 7.5%, respectively. The rate of compensation increase used to determine the

F-24

actuarial present value of the projected benefit obligation for 2001, 2000 and
1999 is 4.50%. The expected long-term rate of return on plan assets for 2001,
2000 and 1999 is 9.0%.

The Company also maintains both qualified and non-qualified defined contribution
plans ("Savings Plan" and "Non-Qualified Savings Plan", respectively) covering
U.S. employees. Under the plans, the Company contributes up to a maximum 3% of
the participants' compensation based on the contribution percentage of the
employee. The Non-Qualified Savings Plan provides compensating savings plan
benefits for participants whose benefits have been curtailed under the Savings
Plan due to Internal Revenue Code limitations. The Company's incurred expenses
related to these plans were $0.6 million, $0.6 million and $0.6 million for
2001, 2000 and 1999, respectively.

In addition, the Company maintains several defined contribution pension plans
covering non-U.S. employees. Each non-U.S. office (Canada, London, Belgium, Hong
Kong, Singapore and Bermuda) maintains a separate plan for the non-U.S.
employees working in that location. The Company contributes various amounts
based on salary, age, and/or years of service. The contributions as a percentage
of salary for the branch offices range from 2% to 12%. The contributions are
generally used to purchase pension benefits from local insurance providers. The
Company's incurred expenses related to these plans were $0.4 million, $0.3
million and $0.3 million for 2001, 2000 and 1999, respectively.

11. DIVIDEND RESTRICTIONS AND STATUTORY FINANCIAL INFORMATION

A. DIVIDEND RESTRICTIONS

Under Bermuda law, Group is prohibited from declaring or paying a dividend if
such payment would reduce the realizable value of its assets to an amount less
than the aggregate value of its liabilities and its issued share capital and
share premium (additional paid-in capital) accounts. Group's ability to pay
dividends and its operating expenses is dependent upon dividends from its
subsidiaries. The payment of such dividends by insurer subsidiaries is limited
under Bermuda law and the laws of the various U.S. states in which Group's
insurance and reinsurance subsidiaries are licensed to transact business. The
limitations are generally based upon net income and compliance with applicable
policyholders' surplus or minimum solvency margin and liquidity ratio
requirements as determined in accordance with the relevant statutory accounting
practices.

Under Bermuda law, Bermuda Re is prohibited from declaring or paying a dividend
if it fails to meet its minimum solvency margin or minimum liquidity ratio, or
if after payment of the dividend, it fails to meet its minimum solvency margin
or minimum liquidity ratio. As a long-term insurer, Bermuda Re is also unable to
declare or pay a dividend to anyone who is not a policyholder unless, after
payment of the dividend, the value of the assets in its long-term business fund,
as certified by its approved actuary, exceeds its liabilities for long-term
business by at least the $250,000 minimum solvency margin. Prior approval of the
Bermuda Minister of Finance is required if Bermuda Re's dividend payments would
reduce its prior year-end total statutory capital by 15.0% or more.

Delaware law provides that an insurance company which is either an insurance
holding company or a member of an insurance holding system and is domiciled in
the state shall not pay dividends without giving prior notice to the Insurance
Commissioner of Delaware and may not pay dividends without the approval of the
Insurance Commissioner if the value of the proposed dividend, together with all
other dividends and distributions made in the preceding twelve months, exceeds
the greater of (1) 10% of statutory surplus or (2) net income, not including

F-25

realized capital gains, each as reported in the prior year's statutory annual
statement. In addition, no dividend may be paid in excess of unassigned earned
surplus. At December 31, 2001, Everest Re had $129.4 million available for
payment of dividends in 2002 without prior regulatory approval.

B. STATUTORY FINANCIAL INFORMATION

Everest Re prepares its statutory financial statements in accordance with
accounting practices prescribed or permitted by the National Association of
Insurance Commissioners ("NAIC") and the Delaware Insurance Department.
Prescribed statutory accounting practices are set forth in the NAIC Accounting
Practices and Procedures Manual. The capital and statutory surplus of Everest Re
was $1,293.8 million (unaudited) and $1,272.7 million at December 31, 2001 and
2000, respectively. The statutory net income of Everest Re was $78.9 million
(unaudited), $165.3 million and $149.9 million for the years ended December 31,
2001, 2000 and 1999, respectively.

Bermuda Re prepares its statutory financial statements in conformity with the
accounting principles set forth in Bermuda in The Insurance Act 1978, amendments
thereto and Related Regulations. The statutory capital and surplus of Bermuda Re
was $451.9 million (unaudited) and $272.7 million at December 31, 2001 and 2000,
respectively. The statutory net income of Bermuda Re was $46.2 million
(unaudited) and $21.2 million for the years ended December 31, 2001 and 2000,
respectively.

C. CODIFICATION

The Company's U.S. insurance subsidiaries file statutory-basis financial
statements with the state departments of insurance in the states in which the
subsidiary is licensed. On January 1, 2001, significant changes to the
statutory-basis of accounting became effective. The cumulative effect of these
changes has been recorded as a direct adjustment to statutory surplus. The
cumulative effect of these changes increased Everest Re's statutory surplus by
$57.1 million (unaudited).

F-26

12. CONTINGENCIES

The Company continues to receive claims under expired contracts that assert
alleged injuries and/or damages relating to or resulting from toxic torts, toxic
waste and other hazardous substances, such as asbestos. The Company's asbestos
claims typically involve liability or potential liability for bodily injury from
exposure to asbestos or for property damage resulting from asbestos or products
containing asbestos. The Company's environmental claims typically involve
potential liability for (1) the mitigation or remediation of environmental
contamination or (2) bodily injury or property damages caused by the release of
hazardous substances into the land, air or water.

The Company's reserves include an estimate of the Company's ultimate liability
for asbestos and environmental claims for which ultimate value cannot be
estimated using traditional reserving techniques. There are significant
uncertainties in estimating the amount of the Company's potential losses from
asbestos and environmental claims. Among the complications are: (1) potentially
long waiting periods between exposure and manifestation of any bodily injury or
property damage; (2) difficulty in identifying sources of asbestos or
environmental contamination; (3) difficulty in properly allocating
responsibility and/or liability for asbestos or environmental damage; (4)
changes in underlying laws and judicial interpretation of those laws; (5)
potential for an asbestos or environmental claim to involve many insurance
providers over many policy periods; (6) long reporting delays, both from
insureds to insurance companies and ceding companies to reinsurers; (7)
historical data concerning asbestos and environmental losses, which is more
limited than historical information on other types of casualty claims; (8)
questions concerning interpretation and application of insurance and reinsurance
coverage; and (9) uncertainty regarding the number and identity of insureds with
potential asbestos or environmental exposure.

Management believes that these factors continue to render reserves for asbestos
and environmental losses significantly less subject to traditional actuarial
methods than are reserves on other types of losses. Given these uncertainties,
management believes that no meaningful range for such ultimate losses can be
established. The Company establishes reserves to the extent that, in the
judgment of management, the facts and prevailing law reflect an exposure for the
Company or its ceding company. Due to the uncertainties discussed above, the
ultimate losses may vary materially from current loss reserves and could have a
material adverse effect on the Company's future financial condition, results of
operations and cash flows. See also Note 8.

F-27

The following table shows the development of prior year asbestos and
environmental reserves on both a gross and net of retrocessional basis for the
years ended:

(dollar values in thousands) 2001 2000 1999
----------------------------------------

Gross basis
Beginning of reserves $ 693,704 $ 614,236 $ 660,793
Incurred losses 29,673 (5,852) 3,690
Paid losses (78,987) 85,320 (50,247)
----------------------------------------
End of period reserves $ 644,390 $ 693,704 $ 614,236
========================================

Net basis
Beginning of reserves $ 628,535 $ 365,069 $ 263,542
Incurred losses 5,155 (5,800) -
Paid losses (1) (2) (65,098) 269,266 101,527
----------------------------------------
End of period reserves $ 568,592 $ 628,535 $ 365,069
========================================

(1) Net of $0.0 million, $0.0 million and $118.8 million ceded paid losses in
2001, 2000 and 1999, respectively, under the stop loss reinsurance
protection provided by Mt. McKinley at the time of the Company's IPO.

(2) Net paid losses for 2000 are net of $311.3 million, reflecting the
establishment of Mt. McKinley's reserves at the acquisition date. Net paid
losses, excluding the impact of the Mt. McKinley acquisition transaction,
were ($42.3) million.

At December 31, 2001, the gross reserves for asbestos and environmental losses
were comprised of $107.1 million representing case reserves reported by ceding
companies, $59.5 million representing additional case reserves established by
Everest Re on assumed reinsurance claims, $65.5 million representing case
reserves established by Everest Re on direct excess insurance claims, $88.6
million representing case reserves resulting from the acquisition of Mt.
McKinley and $323.7 million representing IBNR reserves.

The Company is also named in various legal proceedings incidental to its normal
business activities. In the opinion of the Company, none of these proceedings
would have a material adverse effect upon the financial condition, results of
operations or cash flows of the Company.

The Prudential sells annuities, which are purchased by property and casualty
insurance companies to settle certain types of claim liabilities. In 1993 and
prior, Everest Re, for a fee, accepted the claim payment obligation of the
property and casualty insurer, and, concurrently, became the owner of the
annuity or assignee of the annuity proceeds. In these circumstances, Everest Re
would be liable if The Prudential were unable to make the annuity payments. The
estimated cost to replace all such annuities for which Everest Re was
contingently liable at December 31, 2001 and 2000 was $147.1 million and $148.7
million, respectively. In 2001, the Company received shares in The Prudential
valued at $25.9 million, as a result of The Prudential's demutualization
process, representing The Prudential common equity interest attributed to these
annuities. The value of these shares was recorded in "other income" in the
consolidated statement of operations and comprehensive income. These shares in
no way affect the underlying contingent liability of the Company.

Everest Re has purchased annuities from an unaffiliated life insurance company
to settle certain claim liabilities of Everest Re. Should the life insurance
company become unable to make the annuity payments, Everest Re would be liable.
The estimated cost to replace such annuities at December 31, 2001 and 2000 was
$13.7 million and $12.6 million, respectively.

F-28

13. STOCK BASED COMPENSATION PLANS

The Company has in place its 1995 Stock Incentive Plan for key employees (the
"1995 Employee Plan"), its 1995 Stock Option Plan for Non-Employee Directors
(the "1995 Director Plan") and Board actions in 2001 and 2000 which award
options to non-employee directors. The Company applies APB Opinion 25 and
related interpretations in accounting for these plans and Board actions.
Accordingly, no compensation expense has been recognized in the accompanying
consolidated financial statements in respect of stock options granted under
these plans and Board actions.

Under the 1995 Employee Plan, a total of 3,949,000 common shares have been
authorized to be granted as stock options, stock awards or restricted stock
awards to officers and key employees of the Company. At December 31, 2001, there
were 642,461 remaining shares available to be granted. Under the 1995 Director
Plan, a total of 50,000 common shares have been authorized to be granted as
stock options to non-employee directors of the Company. At December 31, 2001,
there were 38,145 remaining shares available to be granted. Under Board actions
in 2001 and 2000, a total of 40,000 and 30,000 common shares have been granted
as stock options to non-employee directors of the Company in 2001 and 2000,
respectively. Options granted under the 1995 Employee Plan vest at 20% per year
over five years, options granted under the 1995 Director Plan vest at 50% per
year over two years and options granted under the 2001 and 2000 Board actions
vest at 33% per year over three years. All options are exercisable at fair
market value of the stock at the date of grant and expire ten years after the
date of grant. Restricted stock granted under the 1995 Employee Plan vests,
beginning one year after the date of grant, in equal annual installments over
five years.

A summary of the status of the Company's stock options as of December 31, 2001,
2000 and 1999 and changes during the years then ended is presented below:

2001 2000 1999
-------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------------------------------------------------------------------

Outstanding,
beginning of year 1,861,749 $ 30.31 1,654,099 $ 30.50 1,307,099 $ 30.35
Granted 612,800 54.33 469,300 26.59 390,500 30.63
Exercised 236,425 26.08 218,250 23.32 17,400 18.24
Forfeited 109,500 34.63 43,400 32.61 26,100 32.54
--------- --------- ---------
Outstanding, end
of year 2,134,474 $ 37.45 1,861,749 $ 30.31 1,654,099 $ 30.50
--------- --------- ---------
Options exercisable
at year-end 812,344 705,783 603,299
========= ========= =========
Weighted-average fair
value of options
granted during the
year $ 26.14 $ 13.78 $ 13.66
========== ========== ==========

F-29

The following table summarizes information about stock options outstanding at
December 31, 2001:

Options
Options Outstanding Exercisable
----------------------------------------------------------------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/01 Contractual Life Exercise Price at 12/31/01 Exercise Price
- ---------------------------------------------------------------------------------------------------------

$13.25 - $19.87 84,200 3.6 $ 16.75 84,200 $ 16.75
$19.87 - $26.49 533,974 6.9 $ 24.88 230,154 $ 24.26
$26.49 - $33.12 320,750 7.0 $ 30.59 129,090 $ 30.52
$33.12 - $39.74 581,000 6.2 $ 38.09 367,400 $ 38.31
$39.74 - $46.36 8,500 8.7 $ 46.09 500 $ 46.09
$46.36 - $52.98 396,050 9.5 $ 48.01 - -
$59.61 - $66.23 210,000 9.3 $ 66.13 1,000 $ 64.97
----------- -----------------------------------------------
2,134,474 7.3 $ 37.45 812,344 $ 30.89
=========== ===============================================

Since its 1995 initial public offering, the Company has issued to certain key
employees of the Company 61,100 restricted shares of stock. Upon issuance of
restricted shares, unearned compensation is charged to shareholders' equity for
the cost of the restricted stock and is amortized over the vesting period. The
amount of earned compensation recognized as expense with respect to restricted
stock awards was $114,708, $69,684 and $131,667 for 2001, 2000 and 1999,
respectively. The Company acquired 1,825 shares and 1,047 common shares at a
cost of $86,042 and $28,989 in 2000 and 1999, respectively, from employees who
chose to pay required withholding taxes with shares exercised under the stock
option grants. There were no such transactions in 2001. Also in 2001 and 2000,
the Company recorded contributions of paid in capital in the amount of $3.4
million and $2.2 million, respectively, representing the tax benefits
attributable to the difference between the amount of compensation expense
deductible for tax purposes with respect to the stock awards and the amount of
such compensation expense reflected in the Company's financial statements.

Had the compensation cost for the Company's stock based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

(dollar values in thousands,
except per share amounts) 2001 2000 1999
----------------------------------

Net income As reported $ 99,018 $ 186,380 $ 158,061
Pro forma $ 95,011 $ 181,558 $ 153,768
Earnings per share - basic As reported $ 2.14 $ 4.06 $ 3.26
Pro forma $ 2.06 $ 3.96 $ 3.17
Earnings per share - diluted As reported $ 2.10 $ 4.02 $ 3.25
Pro forma $ 2.02 $ 3.92 $ 3.16

F-30

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: (i) dividend
yields ranging from 0.5% to 0.9%, (ii) expected volatility ranging from 32.9% to
45.8%, (iii) risk-free interest rates ranging from a low of 4.7% to a high of
7.0% and (iv) expected life of 7.3-7.5 years.

In addition to the 1995 Employee Plan and 1995 Director Plan, Group issued 2,604
common shares in 2001, Holdings issued 1,780 shares of treasury stock and Group
issued 3,732 common shares in 2000 and Holdings issued 5,260 shares of treasury
stock in 1999. These issuances had aggregate values of $179,500, $179,500 and
$160,000 to the Company's non-employee directors as compensation for their
service as directors in 2001, 2000 and 1999, respectively.

14. RELATED-PARTY TRANSACTIONS

During the normal course of business, the Company, through its affiliates,
engages in reinsurance and brokerage and commission business transactions, which
management believes to be at arm's-length, with companies controlled by or
affiliated with its outside directors. These transactions are immaterial to the
Company's financial condition, results of operations and cash flows.

15. 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 United States. The U.S. Insurance operation
writes property and casualty insurance primarily through general agent
relationships and surplus lines brokers within the United States. The Specialty
Underwriting operation writes accident and health ("A&H"), marine, aviation and
surety business within the United States and worldwide through brokers and
directly with ceding companies. The International operation writes property and
casualty reinsurance through the Company's branches in Belgium, London, Canada,
and Singapore, in addition to foreign "home-office" business. The Bermuda
operation writes property, casualty, life and annuity business through brokers
and directly with ceding companies.

These segments are managed in a carefully coordinated fashion with strong
elements of central control, including with respect to capital, investments and
support operations. As a result, management monitors and evaluates the financial
performance of these operating segments based upon their underwriting gain or
loss ("underwriting results"). The Company utilizes inter-affiliate reinsurance
and such reinsurance does not impact segment results, since business is reported
within the segment in which the business was first produced. Underwriting
results include earned premium less losses and LAE incurred, commission and
brokerage expenses and other underwriting expenses. The accounting policies of
the operating segments are generally the same as those described in Note 1M,
Summary of Significant Accounting Policies.

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.

F-31

The following tables present the relevant underwriting results for the operating
segments for the three years ended December 31, 2001, 2000 and 1999.

U.S. REINSURANCE
- --------------------------------------------------------------------------------
(dollar values in thousands) 2001 2000 1999
--------------------------------------------

Earned premiums $ 497,600 $ 471,631 $ 456,572
Incurred losses and loss
adjustment expenses 449,635 317,735 316,507
Commission and brokerage 148,807 78,978 112,285
Other underwriting expenses 15,211 17,039 18,270
--------------------------------------------
Underwriting (loss) gain $ (116,053) $ 57,879 $ 9,510
============================================

U.S. INSURANCE
- --------------------------------------------------------------------------------
(dollar values in thousands) 2001 2000 1999
--------------------------------------------

Earned premiums $ 294,225 $ 101,576 $ 57,791
Incurred losses and loss
adjustment expenses 211,311 70,277 41,077
Commission and brokerage 63,512 25,487 15,702
Other underwriting expenses 19,185 11,646 8,593
--------------------------------------------
Underwriting gain (loss) $ 217 $ (5,834) $ (7,581)
============================================

SPECIALTY UNDERWRITING
- --------------------------------------------------------------------------------
(dollar values in thousands) 2001 2000 1999
--------------------------------------------

Earned premiums $ 371,805 $ 302,637 $ 265,343
Incurred losses and loss
adjustment expenses 330,841 254,302 185,608
Commission and brokerage 102,144 81,794 76,024
Other underwriting expenses 5,688 6,253 4,702
--------------------------------------------
Underwriting (loss) $ (66,868) $ (39,712) $ (991)
============================================

INTERNATIONAL
- --------------------------------------------------------------------------------
(dollar values in thousands) 2001 2000 1999
--------------------------------------------

Earned premiums $ 287,446 $ 286,753 $ 291,745
Incurred losses and loss
adjustment expenses 202,591 235,927 228,378
Commission and brokerage 79,678 81,151 81,946
Other underwriting expenses 13,829 13,798 14,892
--------------------------------------------
Underwriting (loss) $ (8,652) $ (44,123) $ (33,471)
============================================

F-32

BERMUDA OPERATIONS
- --------------------------------------------------------------------------------
(dollar values in thousands) 2001 2000 1999
--------------------------------------------

Earned premiums $ 16,401 $ 11,586 $ -
Incurred losses and loss
adjustment expenses 15,139 6,375 -
Commission and brokerage 2,656 5,037 -
Other underwriting expenses 1,539 868 -
--------------------------------------------
Underwriting (loss) $ (2,933) $ (694) $ -
============================================

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

(dollar values in thousands) 2001 2000 1999
--------------------------------------------

Underwriting (loss) $ (194,289) $ (32,484) $ (32,533)
Net investment income 340,441 301,493 252,999
Realized gain (loss) (22,313) 807 (16,760)
Net derivative (expense) (12,218) - -
Corporate expenses (3,432) (2,029) (4,604)
Interest expense (46,004) (39,386) (1,490)
Other income (expense) 28,158 3,341 (1,030)
--------------------------------------------
Income before taxes $ 90,343 $ 231,742 $ 196,582
============================================

The Company writes premium in the United States, Bermuda and international
markets. The revenues, net income and identifiable assets of the individual
foreign countries in which the Company writes business are not material.

Approximately 13.4%, 12.8% and 17.9% of the Company's gross premiums written in
2001, 2000 and 1999, respectively, were sourced through the Company's largest
intermediary.

F-33

16. SUBSEQUENT EVENT

On November 7, 2001, the Company filed a shelf registration statement on Form
S-3 with the Securities and Exchange Commission, which provided for the issuance
of up to $575 million of common equity. On February 27, 2002, pursuant to this
registration statement, the Company completed an offering of 5,000,000 of its
common shares at a price of $69.25 per share, which resulted in $346.3 million
of proceeds before expenses of approximately $0.5 million related to the
offering. The Company will use the net proceeds for working capital and general
corporate purposes.

17. UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data were as follows:

(dollar values in thousands,
except per share amounts)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------------------------------------------------

2001 Operating data:
Gross written premium $ 425,222 $ 486,490 $ 503,250 $ 459,678
Net written premium 393,119 420,644 380,145 366,233
Earned premium 328,586 395,046 348,502 395,343
Net investment income 86,155 87,095 83,993 83,198
Net realized capital
(loss) gain (5,057) 3,936 (6,525) (14,667)
Total claims and
underwriting expenses 338,529 405,221 491,508 429,940
Net income (loss) $ 50,130 $ 57,291 ($ 43,765) $ 35,362
================================================

Net income (loss) per
common share - basic $ 1.09 $ 1.24 ($ 0.95) $ 0.76
Net income (loss) per
common share - diluted $ 1.07 $ 1.22 ($ 0.95) $ 0.75

2000 Operating data:
Gross written premium $ 304,252 $ 326,225 $ 355,550 $ 399,583
Net written premium 287,535 295,130 302,041 334,200
Earned premium 266,184 285,780 291,191 331,028
Net investment income 65,030 74,426 78,897 83,140
Net realized capital
gain (loss) 7,819 (8,188) (90) 1,266
Total claims and
underwriting expenses 273,723 292,969 298,654 343,350
Net income $ 48,558 $ 38,729 $ 47,687 $ 51,406
================================================

Net income per common
share - basic $ 1.06 $ 0.85 $ 1.04 $ 1.12
Net income per common
share - diluted $ 1.06 $ 0.84 $ 1.03 $ 1.10

F-34

EVEREST RE GROUP, LTD.

SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2001
(Dollars in thousands)

Column A Column B Column C Column D
----------- ----------- ----------- -----------
Amount
Shown in
Market Balance
Cost Value Sheet
----------- ----------- -----------

Fixed maturities-available for sale
Bonds:
U.S. government and government
agencies $ 114,814 $ 119,930 $ 119,930
State, municipalities and
political subdivisions 1,762,867 1,838,526 1,838,526
Foreign government securities 194,920 212,942 212,942
Foreign corporate securities 260,410 268,740 268,740
Public utilities 194,619 197,503 197,503
All other corporate bonds 1,987,584 2,021,741 2,021,741
Mortgage pass-through securities 701,175 728,645 728,645
Redeemable preferred stock 72,471 73,557 73,557
----------- ----------- -----------
Total fixed maturities-available
for sale 5,288,860 5,461,584 5,461,584
Equity securities 66,357 67,311 67,311
Short-term investments 148,851 148,851 148,851
Other invested assets 33,898 33,899 33,899
Cash 71,878 71,878 71,878
----------- ----------- -----------
Total investments and cash $ 5,609,844 $ 5,783,523 $ 5,783,523
=========== =========== ===========

S-1

EVEREST RE GROUP, LTD.

SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (1)
CONDENSED BALANCE SHEET
(Dollars in thousands, except par value per share)

December 31, December 31,
------------ ------------
2001 2000
------------ ------------

ASSETS
Fixed maturities - available
for sale, at market value
(amortized cost: 2001,
$133,198; 2000, $203,932) $ 136,438 $ 204,348
Short-term investments 3,071 37,947
Cash 541 1,124
Investment in subsidiaries,
at equity in the underlying
net assets 1,578,675 1,337,336
Accrued investment income 1,873 2,846
Receivable from affliate 104 29
Other assets 462 383
------------ ------------
Total assets $ 1,721,164 $ 1,584,013
============ ============

LIABILITIES
Due to affiliates $ 256 $ 587
Other liabilities 386 74
------------ ------------
Total liabilities 642 661
------------ ------------

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; 46.3 million
shares issued in 2001 and
46.0 million shares issued
in 2000 463 460
Paid-in capital 269,945 259,958
Unearned compensation (115) (170)
Accumulated other
comprehensive income, net
of deferred taxes of $40.5
million in 2001 and $30.4
million in 2000 113,880 72,846
Treasury shares, at cost;
0.0 million shares in 2001
and 2000 (55) (55)
Retained earnings 1,336,404 1,250,313
------------ ------------
Total shareholders' equity 1,720,522 1,583,352
------------ ------------
Total liabilities and
shareholders' equity $ 1,721,164 $ 1,584,013
============ ============

(1) On February 24, 2000, Everest Re Group, Ltd. became the successor registrant
to Everest Reinsurance Holdings, Inc.

See notes to consolidated financial statements.

S-2

EVEREST RE GROUP, LTD.

SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (1)
CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands)

For Years Ended December 31,
----------------------------------------
2001 2000 1999
---------- ---------- ----------

REVENUES
Dividends received from
subsidiaries $ - $ 495,000 $ -
Net investment income 17,305 8,680 612
Net realized capital
gain/(loss) 2,453 (17) -
Other (expense) (20) - -
Equity in undistributed
change in retained
earnings of subsidiaries 80,343 (315,283) 161,388
---------- ---------- ----------
Total revenues 100,081 188,380 162,000
---------- ---------- ----------

EXPENSES
Interest expense - - 1,490
Other expenses 1,077 500 2,489
---------- ---------- ----------

Income before taxes 99,004 187,880 158,021
Income tax (benefit)
expense (14) 1,500 (40)
---------- ---------- ----------
Net income $ 99,018 $ 186,380 $ 158,061
========== ========== ==========

(1) On February 24, 2000, Everest Re Group, Ltd. became the successor registrant
to Everest Reinsurance Holdings, Inc., therefore the 1999 column represents
the financial information for Everest Reinsurance Holdings, Inc. and the
2000 and 2001 columns represent the financial information for Everest Re
Group, Ltd.

See notes to consolidated financial statements.

S-3

EVEREST RE GROUP, LTD.

SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (1)
CONDENSED STATEMENT OF CASHFLOWS
(Dollars in thousands)

For Years Ended December 31,
------------------------------------------
2001 2000 1999
------------------------------------------

CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 99,018 $ 186,380 $ 158,061
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
change in retained
earnings of subsidiaries (80,343) 315,283 (161,388)
(Decrease) increase in
other liabilities (19) 603 1,594
(Increase) in deferred
tax asset - - (40)
Decrease (increase) in
other assets 894 (3,229) (435)
(Increase) decrease in
receivable from affliates (75) (29) 20,754
Accrual of bond discount/
amortization of bond
premium (665) (1,088) -
Realized capital (gains)
losses (2,453) 17 -
Non-cash compensation 55 (61) 131
---------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 16,412 497,876 18,677

CASH FLOWS FROM INVESTING
ACTIVITIES
Additional investment in
subsidiaries (119,369) (250,001) 50
Proceeds from fixed
maturities matured/called
- available for sale 189,532 2,701 -
Cost of fixed maturities
acquired - available for
sale (115,985) (206,229) -
Net sales (purchases) of
short-term securities 35,180 (37,280) -
---------- ---------- ----------
NET CASH (USED IN)
INVESTING ACTIVITIES (10,642) (490,809) 50

CASH FLOWS FROM FINANCING
ACTIVITIES
Net borrowing on revolving
credit line - - 59,000
Effect of restructuring - 14,003 -
Acquisition of treasury
stock net of reissuances - (16,533) (62,106)
Common stock issued during
the period 6,574 7,545 317
Dividends paid to stockholders (12,927) (11,008) (11,707)
---------- ---------- ----------
NET CASH (USED IN) FINANCING
ACTIVITIES (6,353) (5,993) (14,496)

Net (decrease) increase in cash (583) 1,074 4,231
Cash, beginning of period 1,124 50 -
---------- ---------- ----------
Cash, end of period $ 541 $ 1,124 $ 4,231
========== ========== ==========

Supplemental cash flow
information
Non-cash operating transaction:
Dividends received from
subsidiary in the form of
forgiveness of liabilities $ - $ - $ 836

(1) On February 24, 2000, Everest Re Group, Ltd. became the successor registrant
to Everest Reinsurance Holdings, Inc., therefore the 1999 column represents
the financial information for Everest Reinsurance Holdings, Inc. and the
2000 and 2001 columns represent the financial information for Everest Re
Group, Ltd.

See notes to consolidated financial statements.

S-4

EVEREST RE GROUP, LTD.

SCHEDULE lll - SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in thousands)

Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J
- ----------------------------------------------------------------------------------------------------------------------
Reserve Incurred
for Losses Loss Amortization
Deferred and Loss Unearned Net and Loss of Deferred Other Net
Acquisition Adjustment Premium Earned Investment Adjustment Acquisition Operating Written
Geographic Area Costs Expenses Reserves Premium Income Expenses Costs Expenses Premium
- ----------------------------------------------------------------------------------------------------------------------

December 31, 2001
Domestic $ 98,491 $3,072,439 $411,224 $1,163,630 $231,863 $ 991,787 $314,463 $ 42,369 $1,224,117
International 16,457 632,962 61,169 287,446 34,357 202,591 79,678 13,829 311,239
Bermuda 15,761 572,866 16,778 16,401 74,221 15,139 2,656 2,686 24,786
-------- ---------- -------- ---------- -------- ---------- -------- --------- ----------
Total $130,709 $4,278,267 $489,171 $1,467,477 $340,441 $1,209,517 $396,797 $ 58,884 $1,560,142
======== ========== ======== ========== ======== ========== ======== ========= ==========

December 31, 2000
Domestic $ 75,437 $2,684,432 $340,509 $ 875,844 $236,079 $ 642,314 $186,259 $ 36,467 $ 902,945
International 17,042 609,743 60,639 286,753 35,310 235,927 81,151 13,798 304,375
Bermuda 14,159 492,003 - 11,586 30,104 6,375 5,037 1,368 11,586
-------- ---------- -------- ---------- -------- ---------- -------- --------- ----------
Total $106,638 $3,786,178 $401,148 $1,174,183 $301,493 $ 884,616 $272,447 $ 51,633 $1,218,906
======== ========== ======== ========== ======== ========== ======== ========= ==========

December 31,
1999 (1)
Domestic $ 779,706 $209,617 $ 543,192 $198,323 $ 41,857 $ 799,265
International 291,745 43,382 228,378 81,946 14,892 296,304
---------- -------- ---------- -------- --------- ----------
Total $1,071,451 $252,999 $ 771,570 $280,269 $ 56,749 $1,095,569
========== ======== ========== ======== ========= ==========

(1) The 1999 amounts have been restated to conform to the 2000 and 2001 segment
presentation.

S-5

EVEREST RE GROUP, LTD.

SCHEDULE IV - REINSURANCE
(Dollars in thousands)

Column A Column B Column C Column D Column E Column F
- ---------------------------- ---------- --------------- --------------- ----------- ----------
Gross Ceded To Assumed From Net Assumed to
Amount Other Companies Other Companies Amount Net
---------- --------------- --------------- ----------- ----------

December 31, 2001
Total property and liability
insurance earned premium $ 380,178 $ 325,435 $ 1,412,734 $ 1,467,477 96.3%
December 31, 2000
Total property and liability
insurance earned premium $ 139,413 $ 121,527 $ 1,156,297 $ 1,174,183 98.5%
December 31, 1999
Total property and liability
insurance earned premium $ 73,822 $ 45,292 $ 1,042,921 $ 1,071,451 97.3%

S-6

INDEX TO EXHIBITS

Exhibit No. Page
- ----------- ----

2.1 Agreement and Plan of Merger among Everest Reinsurance
Holdings, Inc., Everest Re Group, Ltd. and Everest Re
Merger Corporation, incorporated herein by reference
to Exhibit 2.1 to the Registration Statement on Form
S-4 (No. 333-87361)

3.1 Memorandum of Association of Everest Re Group, Ltd.,
incorporated herein by reference to Exhibit 3.1 to the
Registration Statement on Form S-4 (No. 333-87361)

3.2 Bye-Laws of Everest Re Group, Ltd., incorporated
herein by reference to Exhibit 3.2 to the Everest Re
Group, Ltd. Annual Report on Form 10-K for the year
ended December 31, 1999 (the "1999 10-K")

4.1 Specimen Everest Re Group, Ltd. Common share
certificate, incorporated herein by reference to
Exhibit 4.1 of the Registration Statement on Form
S-4 (No. 333-87361)

4.2 Indenture, dated March 14, 2000, between Everest
Reinsurance Holdings, Inc. and The Chase Manhattan
Bank, as Trustee, incorporated herein by reference to
Exhibit 4.1 to Everest Reinsurance Holdings, Inc.
Form 8-K filed on March 15, 2000

4.3 First Supplemental Indenture relating to the 8.5%
Senior Notes due March 15, 2005, dated March 14, 2000,
between Everest Reinsurance Holdings, Inc. and The
Chase Manhattan Bank, as Trustee, incorporated herein
by reference to Exhibit 4.2 to Everest Reinsurance
Holdings, Inc. Form 8-K filed on March 15, 2000

4.4 Second Supplemental Indenture relating to the 8.75%
Senior Notes due March 15, 2010, dated March 14, 2000,
between Everest Reinsurance Holdings, Inc. and The
Chase Manhattan Bank, as Trustee, incorporated herein
by reference to Exhibit 4.3 to the Everest Reinsurance
Holdings, Inc. Form 8-K filed on March 15, 2000

*10.1 Everest Re Group, Ltd. Annual Incentive Plan effective
January 1, 1999, incorporated herein by reference to
Exhibit 10.1 to Everest Reinsurance Holdings, Inc.
Annual Report on Form 10-K for the year ended December
31, 1998 (the "1998 10-K")

E-1

*10.2 Everest Re Group, Ltd. Amended 1995 Stock Incentive
Plan, incorporated herein by reference to Exhibit 10.3
to Everest Reinsurance Holdings, Inc. Annual Report on
Form 10-K for the year ended December 31, 1995 (the
"1995 10-K")

*10.3 Everest Re Group, Ltd. 1995 Stock Option Plan for Non-
Employee Directors, incorporated herein by reference
to Exhibit 4.3 to the Registration Statement on Form
S-8 (No. 333-05771)

*10.4 Resolution adopted by Board of Directors of Everest
Reinsurance Holdings, Inc. on April 1, 1999 awarding
stock options to outside Directors, incorporated
herein by reference to Exhibit 10.25 to Everest
Reinsurance Holdings, Inc. Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 (the "second
quarter 1999 10-Q")

*10.5 Resolution adopted by the Board of Directors of
Everest Reinsurance Holdings, Inc. on February 23,
2000 awarding stock options to outside Directors,
incorporated herein by reference to Exhibit 10.8 to
the 1999 10-K

*10.6 Form of Non-Qualified Stock Option Award Agreement
to be entered into between Everest Re Group, Ltd. and
participants in the 1995 Stock Incentive Plan,
incorporated herein by reference to Exhibit 10.15 to
the 1995 10-K

*10.7 Form of Restricted Stock Agreement to be entered into
between Everest Re Group, Ltd. and participants in
the 1995 Stock Incentive Plan, incorporated herein by
reference to Exhibit 10.16 to the 1995 10-K

*10.8 Form of Stock Option Agreement (Version 1) to be
entered into between Everest Re Group, Ltd. and
participants in the 1995 Stock Option Plan for Non-
Employee Directors, incorporated herein by reference
to Exhibit 10.17 to the 1995 10-K

*10.9 Form of Stock Option Agreement (Version 2) to be
entered into between Everest Re Group, Ltd . and
participants in the 1995 Stock Option Plan for Non-
Employee Directors, incorporated herein by reference
to Exhibit 10.18 to the 1995 10-K

*10.10 Form of Stock Option Agreement for Non-Employee
Directors, incorporated herein by reference to Exhibit
10.34 to the 1999 10-K

*10.11 Deferred Compensation Plan, as amended, for certain
United States employees of Everest Re Group, Ltd. and
its participating subsidiaries incorporated herein by
reference to Exhibit 10.20 to the 1998 10-K

E-2

*10.12 Senior Executive Change of Control Plan, incorporated
herein by reference to Exhibit 10.24 to Everest
Reinsurance Holdings, Inc. Quarterly Report on Form
10-Q for the quarter ended September 30, 1998

*10.13 Executive Performance Annual Incentive Plan adopted by
stockholders on May 20, 1999, incorporated herein by
reference to Exhibit 10.26 to the second quarter 1999
10-Q

*10.14 Employment Agreement with Joseph V. Taranto executed
on July 15, 1998, incorporated herein by reference
to Exhibit 10.21 to Everest Reinsurance Holdings,
Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 (the "second quarter 1998 10-Q")

*10.15 Amendment of Employment Agreement by and among Everest
Reinsurance Company, Everest Reinsurance Holdings,
Inc., Everest Re Group, Ltd. and Joseph V. Taranto
dated February 15, 2000, incorporated herein by
reference to Exhibit 10.29 to the 1999 10-K

*10.16 Change of Control Agreement with Joseph V. Taranto
effective July 15, 1998, incorporated herein by
reference to Exhibit 10.22 to the second quarter
1998 10-Q

*10.17 Amendment of Change of Control Agreement by and among
Everest Reinsurance Company, Everest Reinsurance
Holdings, Inc., Everest Re Group, Ltd. and Joseph V.
Taranto dated February 15, 2000, incorporated herein
by reference to Exhibit 10.30 to the 1999 10-K

10.18 Credit Agreement Between Everest Reinsurance Holdings,
Inc., the Lenders Named Therein and First Union
National Bank dated December 21, 1999 providing for a
$150 million Senior Revolving Credit Facility,
incorporated herein by reference to Exhibit 10.30 to
Everest Reinsurance Holdings, Inc. Form 8-K, filed on
December 28, 1999

10.19 First Amendment to Credit Agreement dated as of
December 21, 1999 between Everest Reinsurance
Holdings, Inc., the Lenders named therein and First
Union National Bank, incorporated herein by reference
to Exhibit 10.19 to the Everest Re Group, Ltd. Annual
Report on Form 10-K for the year ended December 31,
2000 (the "2000 10-K")

10.20 Parent Guaranty dated February 24, 2000 made by
Everest Re Group, Ltd. in favor of the Lenders under
Everest Reinsurance Holdings, Inc.'s Credit Facility,
incorporated herein by reference to Exhibit 10.33 to
the 1999 10-K

E-3

10.21 Guarantor Consent dated December 18, 2000 made by
Everest Re Group, Ltd. in favor of the Lenders under
Everest Reinsurance Holdings, Inc.'s Credit Facility,
incorporated herein by reference to Exhibit 10.21 to
the 2000 10-K

10.22 Stock Purchase Agreement between The Prudential
Insurance Company of America and Everest Reinsurance
Holdings, Inc. for the sale of common stock of
Gibraltar Casualty Company dated February 24, 2000,
incorporated herein by reference to Exhibit 10.32 to
the 1999 10-K

10.23 Amendment No. 1 to Stock Purchase Agreement between
The Prudential Insurance Company of America and
Everest Reinsurance Holdings, Inc. for the sale of
common stock of Gibraltar Casualty Company dated
August 8, 2000, incorporated herein by reference to
Exhibit 10.1 to the Everest Re Group, Ltd. Quarterly
Report on Form 10-Q for the quarter ended June 30,
2000

10.24 Proportional Excess of Loss Reinsurance Agreement
entered into between Gibraltar Casualty Company and
Prudential Property and Casualty Insurance Company,
incorporated herein by reference to Exhibit 10.24 to
the 2000 10-K

10.25 Guarantee Agreement made by The Prudential Insurance
Company of America in favor of Gibraltar Casualty
Company, incorporated herein by reference to Exhibit
10.25 to the 2000 10-K

10.26 Lease, effective December 26, 2000 between OTR, an
Ohio general partnership, and Everest Reinsurance
Company, incorporated herein by reference to Exhibit
10.26 to the 2000 10-K

*10.27 Amendment of Employment 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 30, 2001,
incorporated herein by reference to Exhibit 10.1 to
Everest Re Group, Ltd. Report on Form 10-Q for the
quarter ended March 31, 2001 (the "first quarter
2001 10-Q")

*10.28 Amendment of Employment Agreement by and among Everest
Reinsurance Company, Everest Reinsurance Holdings,
Inc., Everest Re Group, Ltd., Everest Global Services,
Inc. and Joseph V. Taranto, dated April 20, 2001,
incorporated herein by reference to Exhibit 10.2 to
the first quarter 2001 10-Q.

E-4

*10.29 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 30,
2001, incorporated herein by reference to Exhibit 10.3
to the first quarter 2001 10-Q

*10.30 Resolution adopted by the Board of Directors of
Everest Re Group, Ltd. on September 20, 2001 awarding
stock options to outside Directors, filed herewith

11.1 Statement regarding computation of per share earnings,
filed herewith

21.1 Subsidiaries of the registrant, filed herewith

23.1 Consent of PricewaterhouseCoopers LLP, filed herewith

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* Management contract or compensatory plan or arrangement.

E-5