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Everest Re Group Reports Second Quarter 2016 Results; 8% Growth in Premium; 95% Combined Ratio

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July 25, 2016 4:15 PM EDT

HAMILTON, Bermuda--(BUSINESS WIRE)-- Everest Re Group, Ltd. (NYSE: RE) today reported second quarter 2016 net income of $155.7 million, or $3.67 per diluted common share, compared to net income of $209.1 million, or $4.68 per diluted common share, for the second quarter of 2015. After-tax operating income1, excluding realized capital gains and losses, was $134.2 million, or $3.17 per diluted common share, for the second quarter of 2016, compared to after-tax operating income1 of $224.5 million, or $5.03 per diluted common share, for the same period last year.

For the six months ended June 30, 2016, net income was $327.4 million, or $7.68 per diluted common share, compared to $532.0 million, or $11.88 per diluted common share, for the first six months of 2015. After-tax operating income1, excluding realized capital gains and losses, was $356.9 million, or $8.37 per diluted common share, compared to $554.4 million or $12.38 per diluted common share, for the same period in 2015.

Commenting on the Company’s results, President and Chief Executive Officer, Dominic J. Addesso said, “Everest’s six month annualized operating return on equity of 9.4% is an excellent result given the number of catastrophe loss events, the impact of foreign currency movements around the world, and the continued low interest rate environment. It remains a challenging environment but the strategic actions we have taken to position Everest for continued success are borne out by these results.”

Operating highlights for the second quarter of 2016 included the following:

  • Gross written premiums for the quarter were $1.4 billion, an increase of 8% compared to the second quarter of 2015. Eliminating the unfavorable effects of foreign currency fluctuations, premiums were actually up 10% for the quarter. Worldwide, reinsurance premiums were up 1%, on a constant dollar basis, and insurance premiums were up 32%, quarter over quarter.
  • The combined ratio for the quarter was 95.1% compared to 88.0% in the second quarter of 2015. Excluding catastrophe losses, reinstatement premiums, and prior period loss development, the current quarter attritional combined ratio was 86.1% compared to 85.9% in the same period last year.
  • Catastrophe losses, net of reinsurance, amounted to $123.8 million in the quarter, with current quarter catastrophe losses for the Fort McMurray, Canada wildfires, Ecuador earthquake, and Texas hailstorms totaling $149.1 million, offset by reserve releases on several 2011 events. The net impact of these losses, after reinstatement premiums and taxes was $105.4 million.
  • Net investment income for the quarter was $132.7 million, including income of $23.0 million on limited partnership investments.
  • Net after-tax realized and unrealized capital gains amounted to $21.5 million and $122.9 million, respectively, for the quarter.
  • Cash flow from operations was $307.3 million compared to $181.1 million for the same period in 2015.
  • Through the first six months, the annualized after-tax operating income¹ return on average adjusted shareholders’ equity² was 9.4%.
  • During the quarter, the Company repurchased 544,728 of its common shares at an average price of $184.37 and a total cost of $100.4 million. The repurchases were made pursuant to a share repurchase authorization, provided by the Company’s Board of Directors, under which there remains 3.1 million shares available.
  • Shareholders’ equity ended the quarter at $8.0 billion, up 5% compared to year end 2015. Book value per share increased 7% from $178.21 at December 31, 2015 to $190.66 at June 30, 2016.

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

Everest Re Group, Ltd. is a Bermuda holding company that operates through the following subsidiaries: Everest Reinsurance Company provides reinsurance to property and casualty insurers in both the U.S. and international markets. Everest Reinsurance (Bermuda), Ltd., including through its branch in the United Kingdom, provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers. Everest Reinsurance Company (Ireland), Limited provides reinsurance to non-life insurers in Europe. 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. The Company also operates within the Lloyd's insurance market through Syndicate 2786. In addition, through Mt. Logan Re, Ltd., the Company manages segregated accounts, capitalized by the Company and third party investors, that provide reinsurance for property catastrophe risks. 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 second quarter results will be held at 10:30 a.m. Eastern Time on July 26, 2016. 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     Six Months Ended
June 30, June 30,
(Dollars in thousands, except per share amounts) 2016

 

  2015 2016     2015
(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) $ 155,692 $ 3.67 $ 209,057 $ 4.68 $ 327,378 $ 7.68 $ 532,035 $ 11.88
After-tax net realized capital gains (losses)   21,462       0.51   (15,448 )       (0.35 )   (29,517 )       (0.69 )   (22,344 )       (0.50 )
 
After-tax operating income (loss) $ 134,230     $ 3.17 $ 224,505       $ 5.03   $ 356,895       $ 8.37   $ 554,379       $ 12.38  
 
(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

               
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
 
 
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands, except per share amounts)   2016     2015     2016     2015  
(unaudited) (unaudited)
REVENUES:
Premiums earned $ 1,288,860 $ 1,285,255 $ 2,507,727 $ 2,557,743
Net investment income 132,737 124,990 235,261 247,556
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities (1,470 ) (16,238 ) (30,263 ) (42,256 )
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss) - - - -
Other net realized capital gains (losses)   34,128     (7,940 )   (11,338 )   7,573  
Total net realized capital gains (losses) 32,658 (24,178 ) (41,601 ) (34,683 )
Net derivative gain (loss) 1,996 6,445 (1,024 ) 6,203
Other income (expense)   (28,367 )   (2,064 )   (30,433 )   49,217  
Total revenues   1,427,884     1,390,448     2,669,930     2,826,036  
 
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses 857,816 778,184 1,558,565 1,493,339
Commission, brokerage, taxes and fees 295,502 290,520 570,508 573,614
Other underwriting expenses 72,077 61,902 144,187 120,643
Corporate expenses 7,117 5,925 15,003 11,388
Interest, fees and bond issue cost amortization expense   9,073     9,026     18,301     18,016  
Total claims and expenses   1,241,585     1,145,557     2,306,564     2,217,000  
 
INCOME (LOSS) BEFORE TAXES 186,299 244,891 363,366 609,036
Income tax expense (benefit)   30,607     35,834     35,988     77,001  
 
NET INCOME (LOSS) $ 155,692 $ 209,057 $ 327,378 $ 532,035
 
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period 124,356 (136,481 ) 267,318 (53,276 )
Reclassification adjustment for realized losses (gains) included in net income (loss)   (1,448 )   12,747     30,933     34,930  
Total URA(D) on securities arising during the period 122,908 (123,734 ) 298,251 (18,346 )
 
Foreign currency translation adjustments 5,050 54,337 14,823 (48,003 )
 
Benefit plan actuarial net gain (loss) for the period - - - -
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)   1,341     1,609     2,681     3,213  
Total benefit plan net gain (loss) for the period   1,341     1,609     2,681     3,213  
Total other comprehensive income (loss), net of tax   129,299     (67,788 )   315,755     (63,136 )
 
COMPREHENSIVE INCOME (LOSS) $ 284,991   $ 141,269   $ 643,133   $ 468,899  
 
EARNINGS PER COMMON SHARE
Basic $ 3.70 $ 4.72 $ 7.73 $ 11.99
Diluted 3.67 4.68 7.68 11.88
Dividends declared 1.15 0.95 2.30 1.90
 
       
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
 
 
June 30, December 31,
(Dollars and share amounts in thousands, except par value per share)   2016     2015  
(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value $ 14,058,965 $ 13,357,294
(amortized cost: 2016, $13,631,263; 2015, $13,276,206)
Fixed maturities - available for sale, at fair value - 2,102
Equity securities - available for sale, at market value (cost: 2016, $124,699; 2015, $122,271) 118,740 108,940
Equity securities - available for sale, at fair value 1,104,430 1,337,733
Short-term investments 531,511 799,684
Other invested assets (cost: 2016, $1,216,171; 2015, $786,994) 1,216,171 786,994
Cash   429,287     283,658  
Total investments and cash 17,459,104 16,676,405
Accrued investment income 96,772 100,942
Premiums receivable 1,461,563 1,483,090
Reinsurance receivables 950,323 894,037
Funds held by reinsureds 242,033 278,673
Deferred acquisition costs 319,781 372,351
Prepaid reinsurance premiums 219,050 164,971
Income taxes 195,094 258,541
Other assets   338,455     316,408  
TOTAL ASSETS $ 21,282,175   $ 20,545,418  
 
LIABILITIES:
Reserve for losses and loss adjustment expenses $ 10,263,267 $ 9,951,798
Future policy benefit reserve 57,827 58,910
Unearned premium reserve 1,495,838 1,613,390
Funds held under reinsurance treaties 23,373 13,544
Commission reserves 85,670 60,098
Other net payable to reinsurers 224,380 173,087
Losses in course of payment 124,703 112,170
4.868% Senior notes due 6/1/2044 396,654 396,594
6.6% Long term notes due 5/1/2067 236,413 236,364
Accrued interest on debt and borrowings 3,537 3,537
Equity index put option liability 41,729 40,705
Unsettled securities payable 86,003 15,314
Other liabilities   257,313     261,322  
Total liabilities   13,296,707     12,936,833  
 
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; (2016) 68,805
and (2015) 68,606 outstanding before treasury shares 688 686
Additional paid-in capital 2,120,581 2,103,638
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $57,700 at 2016 and ($15,863) at 2015 84,000 (231,755 )
Treasury shares, at cost; 26,921 shares (2016) and 25,912 shares (2015) (3,072,313 ) (2,885,956 )
Retained earnings   8,852,512     8,621,972  
Total shareholders' equity   7,985,468     7,608,585  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 21,282,175   $ 20,545,418  
 
       
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Six Months Ended
June 30,
(Dollars in thousands)   2016     2015  
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 327,378 $ 532,035
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable 20,168 (56,849 )
Decrease (increase) in funds held by reinsureds, net 45,656 (6,755 )
Decrease (increase) in reinsurance receivables (68,284 ) (49,185 )
Decrease (increase) in income taxes (10,424 ) (20,898 )
Decrease (increase) in prepaid reinsurance premiums (51,243 ) (39,563 )
Increase (decrease) in reserve for losses and loss adjustment expenses 352,147 113,567
Increase (decrease) in future policy benefit reserve (1,083 ) (364 )
Increase (decrease) in unearned premiums (119,315 ) (160,849 )
Increase (decrease) in other net payable to reinsurers 46,508 16,712
Increase (decrease) in losses in course of payment 11,188 95,003
Change in equity adjustments in limited partnerships (16,518 ) (12,840 )
Distribution of limited partnership income 41,296 18,332
Change in other assets and liabilities, net 17,012 32,728
Non-cash compensation expense 14,262 10,364
Amortization of bond premium (accrual of bond discount) 24,125 25,514
Amortization of underwriting discount on senior notes 2 2
Net realized capital (gains) losses   41,601     34,683  
Net cash provided by (used in) operating activities   674,476     531,637  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value 923,832 1,172,211
Proceeds from fixed maturities matured/called - available for sale, at fair value - -
Proceeds from fixed maturities sold - available for sale, at market value 594,764 731,673
Proceeds from fixed maturities sold - available for sale, at fair value 1,587 1,613
Proceeds from equity securities sold - available for sale, at market value 226 4,599
Proceeds from equity securities sold - available for sale, at fair value 430,038 300,620
Distributions from other invested assets 2,261,682 27,705
Cost of fixed maturities acquired - available for sale, at market value (1,932,527 ) (2,448,121 )
Cost of fixed maturities acquired - available for sale, at fair value - (234 )
Cost of equity securities acquired - available for sale, at market value (2,393 ) (5,541 )
Cost of equity securities acquired - available for sale, at fair value (194,043 ) (317,650 )
Cost of other invested assets acquired (2,711,306 ) (98,890 )
Net change in short-term investments 271,913 207,879
Net change in unsettled securities transactions   59,619     4,475  
Net cash provided by (used in) investing activities   (296,608 )   (419,661 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net 2,683 5,468
Purchase of treasury shares (186,357 ) (124,981 )
Dividends paid to shareholders   (96,838 )   (84,207 )
Net cash provided by (used in) financing activities   (280,512 )   (203,720 )
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   48,273     (6,829 )
 
Net increase (decrease) in cash 145,629 (98,573 )
Cash, beginning of period   283,658     437,474  
Cash, end of period $ 429,287   $ 338,901  
 
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered) $ 41,905 $ 93,352
Interest paid 18,192 17,907

Everest Global Services, Inc.
Elizabeth B. Farrell, 908-604-3169
Vice President, Investor Relations

Source: Everest Re Group, Ltd.


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