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8-K - EVEREST RE GROUP 8-K - EVEREST RE GROUP LTDgroup8k3q2014.htm
 
 
 
 
NEWS RELEASE
 
 
                         
                                     

 
EVEREST RE GROUP, LTD.
Wessex House, 45 Reid Street, 2nd Floor, Hamilton HM DX, Bermuda
 


Contact:  Elizabeth B. Farrell
Vice President, Investor Relations
Everest Global Services, Inc.
908.604.3169

For Immediate Release

Everest Re Group Reports Third Quarter Results with 14% Growth in Premium,
85.7% Combined Ratio and 17% Net Income Return on Equity

HAMILTON, Bermuda – October 22, 2014 -- Everest Re Group, Ltd. (NYSE: RE) today reported third quarter 2014 net income available to common shareholders of $274.9 million, or $6.00 per diluted common share, compared to net income of $234.8 million, or $4.81 per diluted common share, for the third quarter of 2013. After-tax operating income1available to common shareholders, excluding realized capital gains and losses, was $280.5 million, or $6.12 per diluted common share, for the third quarter of 2014, compared to after-tax operating income1 of $205.0 million, or $4.20 per diluted common share, for the same period last year.

For the nine months ended September 30, 2014, net income available to common shareholders was $859.0 million, or $18.47 per diluted common share, compared to $894.7 million, or $17.94 per diluted common share, for the first nine months of 2013. After-tax operating income1available to common shareholders, excluding realized capital gains and losses, was $812.2 million, or $17.46 per diluted common share, compared to $759.2 million or $15.22 per diluted common share, for the same period in 2013.

Commenting on the Company’s results, President and Chief Executive Officer, Dominic J. Addesso said, “We enjoyed another strong quarter with double digit growth in premium and a 16% annualized operating return on equity. Adjusted for dividends, book value per share has grown by 13% since the end of the year. Everest has distinguished itself in this challenging marketplace as a global leader with the demonstrable ability to leverage our resources and create opportunities that add value for both our clients and our shareholders.”

 
1

 

Operating highlights for the third quarter of 2014 included the following:

·  
Gross written premiums were $1.7 billion, an increase of 14% compared to the third quarter of 2013. Worldwide reinsurance premiums, including the Mt. Logan Re segment, were up 19.5% to $1.3 billion driven by growth opportunities in U.S. property and specialty lines business as well as strategic opportunities in Latin America. Insurance premiums were down 3% for the quarter primarily due to lower premium on crop business.
·  
The combined ratio for the quarter was 85.7% compared to 88.0% in the third quarter of 2013. Excluding catastrophe losses, reinstatement premiums, and prior period loss development, the current quarter attritional combined ratio was 83.7% compared to 82.3% for the same period last year.
·  
Catastrophe losses were $30.0 million for the quarter arising from Hurricane Odile, which affected the Baja peninsula, and an increase in estimated losses for the second quarter Chile earthquake event. The net impact of these losses in the quarter, after reinstatement premiums, taxes and non-controlling interest, was $23.2 million, or $0.51 per diluted common share.
·  
Net investment income for the quarter was $142.1 million and includes $21.7 million of limited partnership income.
·  
Net after-tax realized and unrealized capital losses amounted to $5.6 million and $79.8 million, respectively, for the quarter.
·  
Cash flow from operations was $335.5 million compared to $386.0 million for the same period in 2013.
·  
The year-to-date effective tax rate on operating income decreased from 14.4% at June 30, 2014 to 12.3% at September 30, 2014 resulting in a $12.8 million, or $0.28 per diluted common share, benefit and an effective tax rate of 8.1% for the quarter. The decrease in the effective tax rate was primarily attributable to additional foreign tax credits.
·  
Through nine months, the annualized after-tax operating income1 return on average adjusted shareholders’ equity2 was 15.6% compared to 16.1% in 2013. For this same period, the annualized net income return on average adjusted shareholders’ equity2 was 16.5% compared to 19.0% in 2013.
·  
During the quarter, the Company repurchased 470,807 of its common shares at an average price of $159.26 and a total cost of $75.0 million. For the year, the Company repurchased 2.6 million of its common shares for a total cost of $400.0 million. The repurchases were made pursuant to a share repurchase authorization, provided by the Company’s Board of Directors, under which there remains 1.9 million shares available.
·  
Shareholders’ equity ended the quarter at $7.4 billion. Book value per share increased 11.3% from $146.57 at December 31, 2013 to $163.14 at September 30, 2014.

This news release contains forward-looking statements within the meaning of the U.S. federal securities laws.  We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the U.S. Federal securities laws. These statements involve risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements made on behalf of the Company.  These risks and uncertainties include the impact of general economic conditions and conditions affecting the insurance and reinsurance industry, the adequacy of our reserves, our ability to assess underwriting risk, trends in rates for property and casualty insurance and reinsurance, competition, investment market fluctuations, trends in insured and paid losses, catastrophes, regulatory and legal uncertainties and other factors described in our latest Annual Report on Form 10-K.  The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 
2

 
 
Everest Re Group, Ltd. is a Bermuda holding company that operates through the following subsidiaries: Everest Reinsurance Company provides reinsurance to property and casualty insurers in both the U.S. and international markets. Everest Reinsurance (Bermuda), Ltd., including through its branch in the United Kingdom, provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers. Everest Reinsurance Company (Ireland), Limited provides reinsurance to non-life insurers in Europe. Mt. Logan Re, a segregated cell company, capitalized by the Company and third party investors, is a specialty reinsurer of catastrophe risks. Everest National Insurance Company and Everest Security Insurance Company provide property and casualty insurance to policyholders in the U.S. Everest Indemnity Insurance Company offers excess and surplus lines insurance in the U.S. Everest Insurance Company of Canada provides property and casualty insurance to policyholders in Canada. Additional information on Everest Re Group companies can be found at the Group’s web site at www.everestregroup.com.

A conference call discussing the third quarter results will be held at 10:30 a.m. Eastern Time on October 23, 2014. The call will be available on the Internet through the Company’s web site or at www.streetevents.com.

Recipients are encouraged to visit the Company’s web site to view supplemental financial information on the Company’s results. The supplemental information is located at www.everestregroup.com in the “Financial Reports” section of the “Investor Center”. The supplemental financial information may also be obtained by contacting the Company directly.

___________________________

1The Company generally uses after-tax operating income (loss), a non-GAAP financial measure, to evaluate its performance.  After-tax operating income (loss) consists of net income (loss) excluding after-tax net realized capital gains (losses) as the following reconciliation displays:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands, except per share amounts)
 
2014
   
2013
   
2014
   
2013
 
         
(unaudited)
               
(unaudited)
       
                                                 
         
Per Diluted
         
Per Diluted
         
Per Diluted
         
Per Diluted
 
         
Common
         
Common
         
Common
         
Common
 
   
Amount
   
Share
   
Amount
   
Share
   
Amount
   
Share
   
Amount
   
Share
 
                                                 
Net income (loss)*
  $ 274,916     $ 6.00     $ 234,759     $ 4.81     $ 859,033     $ 18.47     $ 894,744     $ 17.94  
After-tax net realized capital gains (losses)
    (5,563 )     (0.12 )     29,781       0.61       46,814       1.01       135,544       2.72  
                                                                 
After-tax operating income (loss)*
  $ 280,479     $ 6.12     $ 204,978     $ 4.20     $ 812,219     $ 17.46     $ 759,200     $ 15.22  
                                                                 
* attributable to common shareholders
                                                               
(Some amounts may not reconcile due to rounding.)
                                                               

Although net realized capital gains (losses) are an integral part of the Company’s insurance operations, the determination of net realized capital gains (losses) is independent of the insurance underwriting process.  The Company believes that the level of net realized capital gains (losses) for any particular period is not indicative of the performance of the underlying business in that particular period.  Providing only a GAAP presentation of net income (loss) makes it more difficult for users of the financial information to evaluate the Company’s success or failure in its basic business, and may lead to incorrect or misleading assumptions and conclusions.  The Company understands that the equity analysts who follow the Company focus on after-tax operating income (loss) in their analyses for the reasons discussed above.  The Company provides after-tax operating income (loss) to investors so that they have what management believes to be a useful supplement to GAAP information concerning the Company’s performance.
 
2Adjusted shareholders’ equity excludes net after-tax unrealized (appreciation) depreciation of investments.

--Financial Details Follow--
 
 
3

 
 
EVEREST RE GROUP, LTD.
                       
CONSOLIDATED STATEMENTS OF OPERATIONS
                       
AND COMPREHENSIVE INCOME (LOSS)
                       
                         
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands, except per share amounts)
 
2014
   
2013
   
2014
   
2013
 
   
(unaudited)
   
(unaudited)
 
REVENUES:
                       
Premiums earned
  $ 1,389,998     $ 1,225,755     $ 3,806,805     $ 3,466,047  
Net investment income
    142,143       127,872       396,524       422,382  
Net realized capital gains (losses):
                               
Other-than-temporary impairments on fixed maturity securities
    (106 )     -       (495 )     (191 )
Other-than-temporary impairments on fixed maturity securities
                               
transferred to other comprehensive income (loss)
    -       -       -       -  
Other net realized capital gains (losses)
    (9,342 )     44,958       71,189       205,789  
Total net realized capital gains (losses)
    (9,448 )     44,958       70,694       205,598  
Net derivative gain (loss)
    1,855       5,639       3,968       33,005  
Other income (expense)
    11,332       (2,726 )     (5,835 )     (3,318 )
Total revenues
    1,535,880       1,401,498       4,272,156       4,123,714  
                                 
CLAIMS AND EXPENSES:
                               
Incurred losses and loss adjustment expenses
    837,757       770,102       2,192,863       2,074,336  
Commission, brokerage, taxes and fees
    290,519       248,587       820,208       723,700  
Other underwriting expenses
    63,113       59,860       172,165       167,707  
Corporate expenses
    9,958       4,758       18,802       16,643  
Interest, fees and bond issue cost amortization expense
    12,424       7,637       28,970       38,480  
Total claims and expenses
    1,213,771       1,090,944       3,233,008       3,020,866  
                                 
INCOME (LOSS) BEFORE TAXES
    322,109       310,554       1,039,148       1,102,848  
Income tax expense (benefit)
    20,856       72,027       137,948       204,336  
                                 
NET INCOME (LOSS)
  $ 301,253     $ 238,527     $ 901,200     $ 898,512  
Net (income) loss attributable to noncontrolling interests
    (26,337 )     (3,768 )     (42,167 )     (3,768 )
NET INCOME (LOSS) ATTRIBUTABLE TO EVEREST RE GROUP
  $ 274,916     $ 234,759     $ 859,033     $ 894,744  
                                 
Other comprehensive income (loss), net of tax:
                               
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
    (74,074 )     (20,925 )     65,318       (340,267 )
Reclassification adjustment for realized losses (gains) included in net income (loss)
    (5,684 )     (1,592 )     (1,641 )     (7,511 )
Total URA(D) on securities arising during the period
    (79,758 )     (22,517 )     63,677       (347,778 )
                                 
Foreign currency translation adjustments
    (34,974 )     (5,913 )     (38,374 )     (13,228 )
                                 
Benefit plan actuarial net gain (loss) for the period
    -       -       -       -  
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
    825       1,470       2,366       4,161  
Total benefit plan net gain (loss) for the period
    825       1,470       2,366       4,161  
Total other comprehensive income (loss), net of tax
    (113,907 )     (26,960 )     27,669       (356,845 )
Other comprehensive (income) loss attributable to noncontrolling interests
    -       -       -       -  
Total other comprehensive income (loss), net of tax attributable to Everest Re Group
    (113,907 )     (26,960 )     27,669       (356,845 )
                                 
COMPREHENSIVE INCOME (LOSS)
  $ 161,009     $ 207,799     $ 886,702     $ 537,899  
                                 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO EVEREST RE GROUP:
                               
Basic
  $ 6.05     $ 4.85     $ 18.64     $ 18.09  
Diluted
    6.00       4.81       18.47       17.94  
Dividends declared
    0.75       0.48       2.25       1.44  

 
 

 

EVEREST RE GROUP, LTD.
           
CONSOLIDATED BALANCE SHEETS
           
             
             
   
September 30,
 
December 31,
(Dollars and share amounts in thousands, except par value per share)
 
2014
 
2013
    (unaudited)      
 
ASSETS:
           
Fixed maturities - available for sale, at market value
  $ 13,643,326     $ 12,636,907  
    (amortized cost: 2014, $13,327,754; 2013, $12,391,164)
               
Fixed maturities - available for sale, at fair value
    18,426       19,388  
Equity securities - available for sale, at market value (cost: 2014, $147,068; 2013, $148,342)
    146,135       144,081  
Equity securities - available for sale, at fair value
    1,341,111       1,462,079  
Short-term investments
    1,496,739       1,214,199  
Other invested assets (cost: 2014, $551,179; 2013, $508,447)
    551,179       508,447  
Cash
    401,803       611,382  
       Total investments and cash
    17,598,719       16,596,483  
Accrued investment income
    115,326       119,058  
Premiums receivable
    1,705,394       1,453,114  
Reinsurance receivables
    776,465       540,883  
Funds held by reinsureds
    234,825       228,000  
Deferred acquisition costs
    393,191       363,721  
Prepaid reinsurance premiums
    180,737       81,779  
Income taxes
    186,924       178,334  
Other assets
    295,632       246,664  
TOTAL ASSETS
  $ 21,487,213     $ 19,808,036  
                 
LIABILITIES:
               
Reserve for losses and loss adjustment expenses
  $ 9,795,429     $ 9,673,240  
Future policy benefit reserve
    57,633       59,512  
Unearned premium reserve
    1,831,831       1,579,945  
Funds held under reinsurance treaties
    3,506       2,692  
Commission reserves
    70,168       66,160  
Other net payable to reinsurers
    216,031       116,387  
Losses in course of payment
    497,727       332,631  
4.868% Senior notes due 6/1/2044
    400,000       -  
5.4% Senior notes due 10/15/2014
    249,998       249,958  
6.6% Long term notes due 5/1/2067
    238,363       238,361  
Accrued interest on debt and borrowings
    18,312       4,781  
Equity index put option liability
    31,455       35,423  
Unsettled securities payable
    97,059       53,867  
Other liabilities
    193,103       333,425  
       Total liabilities
    13,700,615       12,746,382  
                 
NONCONTROLLING INTERESTS:
               
Redeemable noncontrolling interests - Mt. Logan Re
    404,411       93,378  
                 
SHAREHOLDERS' EQUITY:
               
Preferred shares, par value: $0.01; 50,000 shares authorized;
               
    no shares issued and outstanding
    -       -  
Common shares, par value: $0.01; 200,000 shares authorized; (2014) 68,309
               
    and (2013) 67,965 outstanding before treasury shares
    683       680  
Additional paid-in capital
    2,059,956       2,029,774  
Accumulated other comprehensive income (loss), net of deferred income tax expense
               
    (benefit) of $63,790 at 2014 and $57,661 at 2013
    185,397       157,728  
Treasury shares, at cost; 23,060 shares (2014) and 20,422 shares (2013)
    (2,385,815 )     (1,985,873 )
Retained earnings
    7,521,966       6,765,967  
       Total shareholders' equity attributable to Everest Re Group
    7,382,187       6,968,276  
TOTAL LIABILITIES, NONCONTROLLING INTERESTS  AND SHAREHOLDERS' EQUITY
  $ 21,487,213     $ 19,808,036  

 
 

 
 
EVEREST RE GROUP, LTD.
                       
CONSOLIDATED STATEMENTS OF CASH FLOWS
                       
                         
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
   
(unaudited)
   
(unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net income (loss)
  $ 301,253     $ 238,527     $ 901,200     $ 898,512  
Adjustments to reconcile net income to net cash provided by operating activities:
                               
Decrease (increase) in premiums receivable
    (157,818 )     (181,317 )     (255,645 )     (401,623 )
Decrease (increase) in funds held by reinsureds, net
    (9,077 )     12,729       (6,929 )     485  
Decrease (increase) in reinsurance receivables
    (119,381 )     (11,187 )     (256,458 )     (77,165 )
Decrease (increase) in income taxes
    (29,953 )     73,279       (14,696 )     130,008  
Decrease (increase) in prepaid reinsurance premiums
    (33,132 )     (14,605 )     (101,478 )     (21,513 )
Increase (decrease) in reserve for losses and loss adjustment expenses
    164,456       (100,751 )     172,511       (275,893 )
Increase (decrease) in future policy benefit reserve
    (735 )     (285 )     (1,879 )     (852 )
Increase (decrease) in unearned premiums
    158,734       178,193       255,537       304,728  
Increase (decrease) in other net payable to reinsurers
    1,438       33,937       101,984       63,702  
Increase (decrease) in losses in course of payment
    3,115       174,701       165,105       404,836  
Change in equity adjustments in limited partnerships
    (21,238 )     (4,343 )     (24,438 )     (40,693 )
Distribution of limited partnership income
    27,735       5,638       41,165       48,733  
Change in other assets and liabilities, net
    24,758       6,754       (32,114 )     (68,112 )
Non-cash compensation expense
    4,952       4,923       14,720       15,088  
Amortization of bond premium (accrual of bond discount)
    10,942       14,773       38,010       50,280  
Amortization of underwriting discount on senior notes
    15       14       43       41  
Net realized capital (gains) losses
    9,448       (44,958 )     (70,694 )     (205,598 )
Net cash provided by (used in) operating activities
    335,512       386,022       925,944       824,964  
                                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                               
Proceeds from fixed maturities matured/called - available for sale, at market value
    590,769       594,260       1,638,278       1,912,978  
Proceeds from fixed maturities matured/called - available for sale, at fair value
    -       -       875       7,213  
Proceeds from fixed maturities sold - available for sale, at market value
    443,606       214,173       1,050,082       845,357  
Proceeds from fixed maturities sold - available for sale, at fair value
    3,093       1,056       23,856       18,398  
Proceeds from equity securities sold - available for sale, at market value
    2,502       326       11,174       45,749  
Proceeds from equity securities sold - available for sale, at fair value
    147,622       101,176       452,514       459,945  
Distributions from other invested assets
    36,744       5,236       59,264       79,689  
Cost of fixed maturities acquired - available for sale, at market value
    (1,270,700 )     (671,876 )     (3,729,423 )     (2,794,035 )
Cost of fixed maturities acquired - available for sale, at fair value
    (22,375 )     (2,092 )     (23,684 )     (4,798 )
Cost of equity securities acquired - available for sale, at market value
    (1,254 )     (1,097 )     (11,873 )     (54,584 )
Cost of equity securities acquired - available for sale, at fair value
    (79,557 )     (180,308 )     (262,871 )     (424,252 )
Cost of other invested assets acquired
    (86,523 )     (3,762 )     (120,911 )     (15,063 )
Net change in short-term investments
    138,855       (139,544 )     (284,822 )     (7,408 )
Net change in unsettled securities transactions
    (7,137 )     (70,186 )     13,496       (14,518 )
Net cash provided by (used in) investing activities
    (104,355 )     (152,638 )     (1,184,045 )     54,671  
                                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Common shares issued during the period, net
    2,322       5,103       15,465       51,672  
Purchase of treasury shares
    (74,991 )     (100,001 )     (399,942 )     (549,956 )
Revolving credit borrowings
    -       (40,000 )     -       -  
Net cost of junior subordinated debt securities redemption
    -       -       -       (329,897 )
Net proceeds from issuance of senior notes
    -       -       400,000       -  
Third party investment in redeemable noncontrolling interest
    (65,000 )     87,500       136,200       87,500  
Dividends paid to shareholders
    (33,973 )     (23,174 )     (103,034 )     (70,720 )
Dividends paid on third party investment in redeemable noncontrolling interest
    (10,334 )     -       (10,334 )     -  
Net cash provided by (used in) financing activities
    (181,976 )     (70,572 )     38,355       (811,401 )
                                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    11,052       (12,414 )     10,167       (15,750 )
                                 
Net increase (decrease) in cash
    60,233       150,398       (209,579 )     52,484  
Cash, beginning of period
    341,570       439,136       611,382       537,050  
Cash, end of period
  $ 401,803     $ 589,534     $ 401,803     $ 589,534  
                                 
SUPPLEMENTAL CASH FLOW INFORMATION:
                               
Income taxes paid (recovered)
  $ 49,319     $ (1,820 )   $ 146,560     $ 64,918  
Interest paid
    132       243       15,150       23,524