holdings10q3q14.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:
September 30, 2014
 
Commission file number:
1-14527

EVEREST REINSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
22-3263609
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. Employer
Identification No.)
477 Martinsville Road
Post Office Box 830
Liberty Corner, New Jersey 07938-0830
(908) 604-3000

(Address, including zip code, and telephone number, including area code,
of registrant’s principal executive office)

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

YES
X
 
NO
 

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

YES
X
 
NO
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

YES
   
NO
X

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

   
Number of Shares Outstanding
Class
 
At November 1, 2014
Common Shares, $0.01 par value
   1,000

The Registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H of Form 10-Q.

 
 

 
EVEREST REINSURANCE HOLDINGS, INC.
 
Table of Contents
Form 10-Q
 
 
Page
PART I
 
FINANCIAL INFORMATION
 
         
Item 1.
 
Financial Statements
 
         
   
Consolidated Balance Sheets at September 30, 2014 (unaudited) and
 
     
December 31, 2013
1
       
   
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
 
     
three and nine months ended September 30, 2014 and 2013 (unaudited)
2
         
   
Consolidated Statements of Changes in Stockholder’s Equity for the three and
 
     
nine months ended September 30, 2014 and 2013 (unaudited)
3
         
   
Consolidated Statements of Cash Flows for the three and nine months ended
 
     
September 30, 2014 and 2013 (unaudited)
4
         
   
Notes to Consolidated Interim Financial Statements (unaudited)
5
         
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and
 
     
Results of Operation
27
       
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
43
         
Item 4.
 
Controls and Procedures
43
         
 
PART II
 
OTHER INFORMATION
 
         
Item 1.
 
Legal Proceedings
43
         
Item 1A.
 
Risk Factors
44
       
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
44
       
Item 3.
 
Defaults Upon Senior Securities
44
       
Item 4.
 
Mine Safety Disclosures
44
       
Item 5.
 
Other Information
44
       
Item 6.
 
Exhibits
44

 
 

 
Part I
 
ITEM 1.  FINANCIAL STATEMENTS
 
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS

 
   
September 30,
 
December 31,
(Dollars in thousands, except par value per share)
 
2014
 
2013
   
(unaudited)
     
ASSETS:
           
Fixed maturities - available for sale, at market value
  $ 5,818,116     $ 5,201,921  
     (amortized cost: 2014, $5,709,509; 2013, $5,116,600)
               
Fixed maturities - available for sale, at fair value
    18,426       19,388  
Equity securities - available for sale, at market value (cost: 2014, $15; 2013, $15)
    16       13  
Equity securities - available for sale, at fair value
    1,195,257       1,298,940  
Short-term investments
    659,017       757,162  
Other invested assets (cost: 2014, $405,734; 2013, $385,776)
    405,734       385,776  
Other invested assets, at fair value
    1,574,733       1,515,052  
Cash
    275,418       316,807  
         Total investments and cash
    9,946,717       9,495,059  
Accrued investment income
    50,173       50,306  
Premiums receivable
    1,410,534       1,173,780  
Reinsurance receivables - unaffiliated
    764,252       530,158  
Reinsurance receivables - affiliated
    3,597,414       3,062,884  
Funds held by reinsureds
    181,326       175,526  
Deferred acquisition costs
    109,742       112,024  
Prepaid reinsurance premiums
    870,981       673,753  
Other assets
    295,679       247,505  
TOTAL ASSETS
  $ 17,226,818     $ 15,520,995  
                 
LIABILITIES:
               
Reserve for losses and loss adjustment expenses
  $ 7,784,078     $ 7,653,229  
Unearned premium reserve
    1,557,559       1,317,147  
Funds held under reinsurance treaties
    98,979       92,514  
Losses in the course of payment
    515,011       350,820  
Commission reserves
    53,257       47,226  
Other net payable to reinsurers
    1,379,033       1,026,292  
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  
Income taxes
    40,985       23,949  
Unsettled securities payable
    64,624       53,772  
Other liabilities
    273,505       272,468  
         Total liabilities
    12,673,704       11,330,517  
                 
Commitments and Contingencies (Note 6)
               
                 
STOCKHOLDER'S EQUITY:
               
Common stock, par value: $0.01; 3,000 shares authorized;
               
     1,000 shares issued and outstanding (2014 and 2013)
    -       -  
Additional paid-in capital
    359,990       351,051  
Accumulated other comprehensive income (loss), net of deferred income tax expense
               
     (benefit) of $51,996 at 2014 and $47,195 at 2013
    96,564       87,648  
Retained earnings
    4,096,560       3,751,779  
         Total stockholder's equity
    4,553,114       4,190,478  
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
  $ 17,226,818     $ 15,520,995  
                 
The accompanying notes are an integral part of the consolidated financial statements.
               

 
1

 
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)

 
   
Three Months Ended
 
Nine Months Ended
   
September 30,
 
September 30,
(Dollars in thousands)
 
2014
 
2013
 
2014
 
2013
   
(unaudited)
 
(unaudited)
REVENUES:
                       
Premiums earned
  $ 569,597     $ 523,521     $ 1,560,778     $ 1,461,549  
Net investment income
    83,446       68,828       215,869       227,433  
Net realized capital gains (losses):
                               
Other-than-temporary impairments on fixed maturity securities
    -       -       (199 )     -  
Other-than-temporary impairments on fixed maturity securities
                               
transferred to other comprehensive income (loss)
    -       -       -       -  
Other net realized capital gains (losses)
    (160 )     208,426       121,103       533,758  
Total net realized capital gains (losses)
    (160 )     208,426       120,904       533,758  
Other income (expense)
    (3,739 )     5,012       (15,576 )     5,095  
Total revenues
    649,144       805,787       1,881,975       2,227,835  
                                 
CLAIMS AND EXPENSES:
                               
Incurred losses and loss adjustment expenses
    380,580       307,121       980,143       909,661  
Commission, brokerage, taxes and fees
    79,168       71,560       240,584       215,047  
Other underwriting expenses
    50,623       48,945       137,032       136,751  
Corporate expenses
    4,620       1,516       5,398       5,353  
Interest, fee and bond issue cost amortization expense
    12,292       7,466       28,539       38,010  
Total claims and expenses
    527,283       436,608       1,391,696       1,304,822  
                                 
INCOME (LOSS) BEFORE TAXES
    121,861       369,179       490,279       923,013  
Income tax expense (benefit)
    21,720       125,426       145,498       308,347  
                                 
NET INCOME (LOSS)
  $ 100,141     $ 243,753     $ 344,781     $ 614,666  
                                 
Other comprehensive income (loss), net of tax :
                               
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
    (26,221 )     (7,102 )     13,678       (91,289 )
Less: reclassification adjustment for realized losses (gains) included in net income (loss)
    (696 )     (1,124 )     1,459       (2,640 )
Total URA(D) on securities arising during the period
    (26,917 )     (8,226 )     15,137       (93,929 )
                                 
Foreign currency translation adjustments
    (7,472 )     (5,839 )     (8,587 )     (13,064 )
                                 
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
    (33,564 )     (12,595 )     8,916       (102,832 )
                                 
COMPREHENSIVE INCOME (LOSS)
  $ 66,577     $ 231,158     $ 353,697     $ 511,834  
                                 
The accompanying notes are an integral part of the consolidated financial statements.
                               

 
2

 
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER’S EQUITY

 
   
Three Months Ended
 
Nine Months Ended
   
September 30,
 
September 30,
(Dollars in thousands, except share amounts)
 
2014
 
2013
 
2014
 
2013
   
(unaudited)
 
(unaudited)
COMMON STOCK (shares outstanding):
                       
Balance, beginning of period
    1,000       1,000       1,000       1,000  
Balance, end of period
    1,000       1,000       1,000       1,000  
                                 
ADDITIONAL PAID-IN CAPITAL:
                               
Balance, beginning of period
  $ 357,537     $ 346,279     $ 351,051     $ 340,223  
Share-based compensation plans
    2,453       2,620       8,939       8,676  
Balance, end of period
    359,990       348,899       359,990       348,899  
                                 
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
                               
NET OF DEFERRED INCOME TAXES:
                               
Balance, beginning of period
    130,128       94,630       87,648       184,867  
Net increase (decrease) during the period
    (33,564 )     (12,595 )     8,916       (102,832 )
Balance, end of period
    96,564       82,035       96,564       82,035  
                                 
RETAINED EARNINGS:
                               
Balance, beginning of period
    3,996,419       3,324,429       3,751,779       2,953,516  
Net income (loss)
    100,141       243,753       344,781       614,666  
Balance, end of period
    4,096,560       3,568,182       4,096,560       3,568,182  
                                 
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD
  $ 4,553,114     $ 3,999,116     $ 4,553,114     $ 3,999,116  
                                 
The accompanying notes are an integral part of the consolidated financial statements.
                               

 
3

 
EVEREST REINSURANCE HOLDINGS, INC.
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)
  $ 100,141     $ 243,753     $ 344,781     $ 614,666  
Adjustments to reconcile net income to net cash provided by operating activities:
                         
Decrease (increase) in premiums receivable
    (154,853 )     (185,115 )     (237,390 )     (382,658 )
Decrease (increase) in funds held by reinsureds, net
    361       285       762       (12,201 )
Decrease (increase) in reinsurance receivables
    (409,980 )     (91,047 )     (778,374 )     (177,199 )
Decrease (increase) in income taxes
    (24,615 )     129,344       12,264       252,746  
Decrease (increase) in prepaid reinsurance premiums
    (98,231 )     (78,068 )     (198,306 )     (132,217 )
Increase (decrease) in reserve for losses and loss adjustment expenses
    142,529       (136,110 )     150,411       (390,402 )
Increase (decrease) in unearned premiums
    140,386       140,204       241,650       263,018  
Increase (decrease) in other net payable to reinsurers
    270,262       147,164       353,468       264,061  
Increase (decrease) in losses in course of payment
    12,569       182,448       164,072       417,982  
Change in equity adjustments in limited partnerships
    (18,804 )     (6,337 )     (17,643 )     (31,159 )
Distribution of limited partnership income
    23,391       2,683       32,548       18,868  
Change in other assets and liabilities, net
    49,157       19,626       (2,744 )     7,875  
Non-cash compensation expense
    2,002       2,257       5,700       6,230  
Amortization of bond premium (accrual of bond discount)
    2,921       5,999       14,502       19,696  
Amortization of underwriting discount on senior notes
    15       14       43       41  
Net realized capital (gains) losses
    160       (208,426 )     (120,904 )     (533,758 )
Net cash provided by (used in) operating activities
    37,411       168,674       (35,160 )     205,589  
                                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                               
Proceeds from fixed maturities matured/called - available for sale, at market value
    309,630       258,451       829,363       885,835  
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
    219,823       124,460       547,682       465,084  
Proceeds from fixed maturities sold - available for sale, at fair value
    3,092       1,056       23,855       18,398  
Proceeds from equity securities sold - available for sale, at fair value
    111,684       95,174       404,627       450,020  
Distributions from other invested assets
    26,583       3,973       41,854       47,576  
Cost of fixed maturities acquired - available for sale, at market value
    (509,564 )     (313,538 )     (2,008,937 )     (1,314,440 )
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 fair value
    (74,297 )     (98,760 )     (237,749 )     (332,434 )
Cost of other invested assets acquired
    (43,953 )     (3,320 )     (76,717 )     (11,828 )
Net change in short-term investments
    13,327       (86,361 )     97,262       10,316  
Net change in unsettled securities transactions
    (16,427 )     16,401       (9,474 )     (15,982 )
Net cash provided by (used in) investing activities
    17,523       (4,556 )     (411,043 )     204,960  
                                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Tax benefit from share-based compensation
    451       363       3,239       2,446  
Revolving credit borrowings
    -       (40,000 )     -       -  
Net cost of junior subordinated debt securities redemption
    -       -       -       (329,897 )
Net proceeds from issuance of senior notes
    -       -       400,000       -  
Net cash provided by (used in) financing activities
    451       (39,637 )     403,239       (327,451 )
                                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    (7,000 )     (9,240 )     1,575       (23,945 )
                                 
Net increase (decrease) in cash
    48,385       115,241       (41,389 )     59,153  
Cash, beginning of period
    227,033       291,632       316,807       347,720  
Cash, end of period
  $ 275,418     $ 406,873     $ 275,418     $ 406,873  
                                 
SUPPLEMENTAL CASH FLOW INFORMATION:
                               
Income taxes paid (recovered)
  $ 45,202     $ (4,345 )   $ 129,608     $ 49,050  
Interest paid
    -       72       14,719       23,054  
                                 
The accompanying notes are an integral part of the consolidated financial statements.
                               

 
4

 
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Nine Months Ended September 30, 2014 and 2013

1.       GENERAL

As used in this document, “Holdings” means Everest Reinsurance Holdings, Inc., a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited (“Holdings Ireland”); “Group” means Everest Re Group, Ltd. (Holdings Ireland’s parent); “Bermuda Re” means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; “Everest Re” means Everest Reinsurance Company and its subsidiaries, a subsidiary of Holdings (unless the context otherwise requires); “Mt. Logan Re” means Mt. Logan Re Ltd., a subsidiary of Group; and the “Company” means Holdings and its subsidiaries.

2.       BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three and nine months ended September 30, 2014 and 2013 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis.  Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The December 31, 2013 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  The results for the three and nine months ended September 30, 2014 and 2013 are not necessarily indicative of the results for a full year.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2013, 2012 and 2011 included in the Company’s most recent Form 10-K filing.

All intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2014 presentation.  One reclassification relates to a correction in the manner in which the Company reports distributions received from limited partnership investments in the consolidated Statements of Cash Flows.  Prior to the fourth quarter of 2013, the Company incorrectly reflected all distributions as cash flows from investing activities in its Consolidated Statements of Cash Flows.  Starting with the fourth quarter of 2013, cash distributions from the limited partnerships that represent net investment income are reflected as cash flows from operating activities and distributions that represent the return of capital contributions are reflected as cash flows from investing activities.  For the three and nine months ended September 30, 2013, $2,683 thousand and $18,868 thousand, respectively, have been reclassified from “Distributions from other invested assets” included in cash flows  from investing activities to “Distribution of limited partnership income” included in cash flows from operations.  The Company has determined that this error is not material to the financial statements of any prior period.

Application of Recently Issued Accounting Standard Changes

Presentation of Comprehensive Income. In June 2011, FASB issued amendments to existing guidance to provide two alternatives for the presentation of comprehensive income. Components of net income and comprehensive income can either be presented within a single, continuous financial statement or be presented in two separate but consecutive financial statements.  The Company has chosen to present the components of net income and comprehensive income in a single, continuous financial statement.  The guidance is effective for reporting periods beginning after December 15, 2011.  The Company implemented this guidance as of January 1, 2012.  In February, 2013, the FASB issued an additional amendment for the presentation of amounts reclassified out of accumulated other comprehensive income by component.  The Company implemented the proposed guidance as of January 1, 2013.

 
5

 
Treatment of Insurance Contract Acquisition Costs. In October 2010, the FASB issued authoritative guidance for the accounting for costs associated with acquiring or renewing insurance contracts.  The guidance identifies the incremental direct costs of contract acquisition and costs directly related to acquisition activities that should be capitalized.  This guidance is effective for reporting periods beginning after December 15, 2011.  The Company implemented this guidance as of January 1, 2012 and determined that $7,215 thousand of previously deferrable acquisition costs would be expensed, including $5,818 thousand and $1,397 thousand expensed in the years ended December 31, 2012 and 2013, respectively.  No additional expense will be incurred related to this guidance implementation in future periods.

 
3.       INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity and equity security investments, carried at market value, are as follows for the periods indicated:
 
   
At September 30, 2014
 
   
Amortized
   
Unrealized
   
Unrealized
   
Market
 
(Dollars in thousands)
 
Cost
   
Appreciation
   
Depreciation
   
Value
 
Fixed maturity securities
                       
U.S. Treasury securities and obligations of
                       
U.S. government agencies and corporations
  $ 519,888     $ 698     $ (815 )   $ 519,771  
Obligations of U.S. states and political subdivisions
    792,193       43,524       (994 )     834,723  
Corporate securities
    2,010,245       41,864       (21,510 )     2,030,599  
Asset-backed securities
    91,583       821       (87 )     92,317  
Mortgage-backed securities
                               
Commercial
    40,935       2,750       (1 )     43,684  
Agency residential
    626,511       6,873       (6,842 )     626,542  
Non-agency residential
    307       51       -       358  
Foreign government securities
    544,947       26,458       (4,274 )     567,131  
Foreign corporate securities
    1,082,900       27,586       (7,495 )     1,102,991  
Total fixed maturity securities
  $ 5,709,509     $ 150,625     $ (42,018 )   $ 5,818,116  
Equity securities
  $ 15     $ 1     $ -     $ 16  

 
   
At December 31, 2013
 
   
Amortized
   
Unrealized
   
Unrealized
   
Market
 
(Dollars in thousands)
 
Cost
   
Appreciation
   
Depreciation
   
Value
 
Fixed maturity securities
                       
U.S. Treasury securities and obligations of
                       
U.S. government agencies and corporations
  $ 72,211     $ 420     $ (946 )   $ 71,685  
Obligations of U.S. states and political subdivisions
    970,735       40,815       (9,022 )     1,002,528  
Corporate securities
    1,669,553       45,355       (12,493 )     1,702,415  
Asset-backed securities
    38,544       1,065       -       39,609  
Mortgage-backed securities
                               
Commercial
    34,855       3,811       -       38,666  
Agency residential
    709,589       6,331       (18,521 )     697,399  
Non-agency residential
    859       113       (33 )     939  
Foreign government securities
    654,029       28,739       (7,941 )     674,827  
Foreign corporate securities
    966,225       23,227       (15,599 )     973,853  
Total fixed maturity securities
  $ 5,116,600     $ 149,876     $ (64,555 )   $ 5,201,921  
Equity securities
  $ 15     $ -     $ (2 )   $ 13  

The $567,131 thousand of foreign government securities at September 30, 2014 included $73,825 thousand of European sovereign securities.  Approximately 52.9%, 16.8%, 8.4%, 8.1% and 5.4% of European Sovereign Securities represented securities held in the governments of France, the United Kingdom, the Netherlands, Belgium and Germany, respectively.  No other countries represented more than 5% of the European sovereign securities.  The Company held no sovereign securities of Portugal, Italy, Ireland, Greece or Spain at September 30, 2014.

 
6

 
In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings into accumulated other comprehensive income (loss), on April 1, 2009.  As of September 30, 2014, all of the previously reclassified securities have either matured or have been sold.

The amortized cost and market value of fixed maturity securities are shown in the following table by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.
 
   
At September 30, 2014
   
At December 31, 2013
 
   
Amortized
   
Market
   
Amortized
   
Market
 
(Dollars in thousands)
 
Cost
   
Value
   
Cost
   
Value
 
Fixed maturity securities – available for sale
                       
    Due in one year or less
  $ 452,064     $ 451,138     $ 462,133     $ 463,674  
    Due after one year through five years
    2,786,968       2,812,874       2,251,169       2,300,475  
    Due after five years through ten years
    1,066,319       1,077,855       988,896       1,000,053  
    Due after ten years
    644,822       713,348       630,555       661,106  
Asset-backed securities
    91,583       92,317       38,544       39,609  
Mortgage-backed securities
                               
Commercial
    40,935       43,684       34,855       38,666  
Agency residential
    626,511       626,542       709,589       697,399  
Non-agency residential
    307       358       859       939  
Total fixed maturity securities
  $ 5,709,509     $ 5,818,116     $ 5,116,600     $ 5,201,921  


The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods as indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Increase (decrease) during the period between the market value and cost
                       
of investments carried at market value, and deferred taxes thereon:
                       
Fixed maturity securities
  $ (41,410 )   $ (12,657 )   $ 23,285     $ (144,110 )
Fixed maturity securities, other-than-temporary impairment
    -       -       -       (399 )
Equity securities
    1       1       3       2  
Change in unrealized  appreciation (depreciation), pre-tax
    (41,409 )     (12,656 )     23,288       (144,507 )
Deferred tax benefit (expense)
    14,492       4,430       (8,151 )     50,438  
Deferred tax benefit (expense), other-than-temporary impairment
    -       -       -       140  
Change in unrealized appreciation (depreciation),
                               
net of deferred taxes, included in stockholder's equity
  $ (26,917 )   $ (8,226 )   $ 15,137     $ (93,929 )

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

 
7

 
timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

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

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:
 
   
Duration of Unrealized Loss at September 30, 2014 By Security Type
 
   
Less than 12 months
   
Greater than 12 months
   
Total
 
         
Gross
         
Gross
         
Gross
 
         
Unrealized
         
Unrealized
         
Unrealized
 
(Dollars in thousands)
 
Market Value
   
Depreciation
   
Market Value
   
Depreciation
   
Market Value
   
Depreciation
 
Fixed maturity securities - available for sale
                                   
U.S. Treasury securities and obligations of
                                   
U.S. government agencies and corporations
  $ 35,516     $ (190 )   $ 24,483     $ (625 )   $ 59,999     $ (815 )
Obligations of U.S. states and political subdivisions
    18,198       (426 )     36,680       (568 )     54,878       (994 )
Corporate securities
    925,037       (16,140 )     185,950       (5,370 )     1,110,987       (21,510 )
Asset-backed securities
    30,208       (87 )     -       -       30,208       (87 )
Mortgage-backed securities
                                               
Commercial
    10,365       (1 )     -       -       10,365       (1 )
Agency residential
    35,576       (108 )     299,229       (6,734 )     334,805       (6,842 )
Non-agency residential
    -       -       -       -       -       -  
Foreign government securities
    51,430       (349 )     76,092       (3,925 )     127,522       (4,274 )
Foreign corporate securities
    186,212       (1,863 )     149,756       (5,632 )     335,968       (7,495 )
Total fixed maturity securities
  $ 1,292,542     $ (19,164 )   $ 772,190     $ (22,854 )   $ 2,064,732     $ (42,018 )
Equity securities
    -       -       -       -       -       -  
Total
  $ 1,292,542     $ (19,164 )   $ 772,190     $ (22,854 )   $ 2,064,732     $ (42,018 )

 
   
Duration of Unrealized Loss at September 30, 2014 By Maturity
 
   
Less than 12 months
   
Greater than 12 months
   
Total
 
         
Gross
         
Gross
         
Gross
 
         
Unrealized
         
Unrealized
         
Unrealized
 
(Dollars in thousands)
 
Market Value
   
Depreciation
   
Market Value
   
Depreciation
   
Market Value
   
Depreciation
 
Fixed maturity securities
                                   
Due in one year or less
  $ 8,185     $ (37 )   $ 69,568     $ (5,163 )   $ 77,753     $ (5,200 )
Due in one year through five years
    714,621       (10,537 )     274,095       (7,104 )     988,716       (17,641 )
Due in five years through ten years
    464,811       (7,784 )     85,723       (2,579 )     550,534       (10,363 )
Due after ten years
    28,776       (610 )     43,575       (1,274 )     72,351       (1,884 )
Asset-backed securities
    30,208       (87 )     -       -       30,208       (87 )
Mortgage-backed securities
    45,941       (109 )     299,229       (6,734 )     345,170       (6,843 )
Total fixed maturity securities
  $ 1,292,542     $ (19,164 )   $ 772,190     $ (22,854 )   $ 2,064,732     $ (42,018 )

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at September 30, 2014 were $2,064,732 thousand and $42,018 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at September 30, 2014, did not exceed 0.7% of the overall market value of the Company’s fixed maturity securities.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $19,164 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were primarily comprised of domestic and foreign corporate securities.  Of these unrealized losses, $3,452 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating

 
8

 
organization.  The $22,854 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to agency residential mortgage-backed securities, foreign and domestic corporate securities and foreign government securities.  Of these unrealized losses, $21,240 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The Company did not have any sub-prime or alt-A loans with gross unrealized depreciation at September 30, 2014.  In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.  The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

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

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:
 
   
Duration of Unrealized Loss at December 31, 2013 By Security Type
 
   
Less than 12 months
   
Greater than 12 months
   
Total
 
         
Gross
         
Gross
         
Gross
 
         
Unrealized
         
Unrealized
         
Unrealized
 
(Dollars in thousands)
 
Market Value
   
Depreciation
   
Market Value
   
Depreciation
   
Market Value
   
Depreciation
 
Fixed maturity securities - available for sale
                                   
U.S. Treasury securities and obligations of
                                   
U.S. government agencies and corporations
  $ 39,274     $ (302 )   $ 8,751     $ (644 )   $ 48,025     $ (946 )
Obligations of U.S. states and political subdivisions
    92,760       (4,852 )     39,689       (4,170 )     132,449       (9,022 )
Corporate securities
    388,721       (8,981 )     56,156       (3,512 )     444,877       (12,493 )
Asset-backed securities
    -       -       -       -       -       -  
Mortgage-backed securities
                                               
Commercial
    -       -       -       -       -       -  
Agency residential
    381,149       (14,084 )     131,504       (4,437 )     512,653       (18,521 )
Non-agency residential
    -       -       202       (33 )     202       (33 )
Foreign government securities
    100,984       (5,255 )     29,174       (2,686 )     130,158       (7,941 )
Foreign corporate securities
    321,933       (11,394 )     66,715       (4,205 )     388,648       (15,599 )
Total fixed maturity securities
  $ 1,324,821     $ (44,868 )   $ 332,191     $ (19,687 )   $ 1,657,012     $ (64,555 )
Equity securities
    13       (2 )     -       -       13       (2 )
Total
  $ 1,324,834     $ (44,870 )   $ 332,191     $ (19,687 )   $ 1,657,025     $ (64,557 )

 
   
Duration of Unrealized Loss at December 31, 2013 By Maturity
 
   
Less than 12 months
   
Greater than 12 months
   
Total
 
         
Gross
         
Gross
         
Gross
 
         
Unrealized
         
Unrealized
         
Unrealized
 
(Dollars in thousands)
 
Market Value
   
Depreciation
   
Market Value
   
Depreciation
   
Market Value
   
Depreciation
 
Fixed maturity securities
                                   
Due in one year or less
  $ 17,315     $ (1,273 )   $ 31,679     $ (4,132 )   $ 48,994     $ (5,405 )
Due in one year through five years
    425,627       (8,982 )     111,150       (5,647 )     536,777       (14,629 )
Due in five years through ten years
    312,341       (10,408 )     14,865       (663 )     327,206       (11,071 )
Due after ten years
    188,389       (10,121 )     42,791       (4,775 )     231,180       (14,896 )
Asset-backed securities
    -       -       -       -       -       -  
Mortgage-backed securities
    381,149       (14,084 )     131,706       (4,470 )     512,855       (18,554 )
Total fixed maturity securities
  $ 1,324,821     $ (44,868 )   $ 332,191     $ (19,687 )   $ 1,657,012     $ (64,555 )

 
9

 
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2013 were $1,657,025 thousand and $64,557 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2013, did not exceed 0.9% of the overall market value of the Company’s fixed maturity securities.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $44,868 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were primarily comprised of domestic and foreign corporate securities, foreign government securities, agency residential mortgage-backed securities as well as state and municipal securities.  Of these unrealized losses, $38,527 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The $19,687 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, foreign government securities, agency residential mortgage-backed securities as well as state and municipal securities.  Of these unrealized losses, $18,867 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization.  The gross unrealized depreciation for mortgage-backed securities included $33 thousand related to sub-prime and alt-A loans.  In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations.  The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

Other invested assets, at fair value, is comprised of common shares of the Company’s ultimate parent, Group.  At September 30, 2014, the Company held 9,719,971 shares of Group representing 17.7% of the total outstanding shares.

The components of net investment income are presented in the table below for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Fixed maturities
  $ 52,515     $ 52,098     $ 157,515     $ 159,363  
Equity securities
    7,966       8,390       26,083       27,235  
Short-term investments and cash
    196       302       841       705  
Other invested assets
                               
Limited partnerships
    19,254       6,569       18,862       32,109  
Dividends from Parent's shares
    7,290       4,666       21,870       13,997  
Other
    869       1,056       3,220       5,311  
Gross investment income before adjustments
    88,090       73,081       228,391       238,720  
Funds held interest income (expense)
    970       746       4,262       4,182  
Gross investment income
    89,060       73,827       232,653       242,902  
Investment expenses
    (5,614 )     (4,999 )     (16,784 )     (15,469 )
Net investment income
  $ 83,446     $ 68,828     $ 215,869     $ 227,433  

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

The Company had contractual commitments to invest up to an additional $227,589 thousand in limited partnerships at September 30, 2014.  These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2019.

 
10

 
The components of net realized capital gains (losses) are presented in the table below for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Fixed maturity securities, market value:
                       
Other-than-temporary impairments
  $ -     $ -     $ (199 )   $ -  
Gains (losses) from sales
    1,070       1,730       (1,855 )     4,062  
Fixed maturity securities, fair value:
                               
Gain (losses) from sales
    82       37       1,022       127  
Gains (losses) from fair value adjustments
    (938 )     578       (938 )     (1,004 )
Equity securities, fair value:
                               
Gains (losses) from sales
    (2,589 )     1,594       (2,204 )     25,565  
Gains (losses) from fair value adjustments
    (12,559 )     37,789       65,399       160,323  
Other invested assets, fair value:
                               
Gains (losses) from fair value adjustments
    14,775       166,697       59,681       344,670  
Short-term investment gains (losses)
    (1 )     1       (2 )     15  
Total net realized capital gains (losses)
  $ (160 )   $ 208,426     $ 120,904     $ 533,758  

The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) both fair value re-measurements and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis as displayed in the table above.  The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Proceeds from sales of fixed maturity securities
  $ 222,915     $ 125,516     $ 571,537     $ 483,482  
Gross gains from sales
    4,408       3,446       10,698       12,123  
Gross losses from sales
    (3,256 )     (1,679 )     (11,531 )     (7,934 )
                                 
Proceeds from sales of equity securities
  $ 111,684     $ 95,174     $ 404,627     $ 450,020  
Gross gains from sales
    1,697       3,746       12,019       33,151  
Gross losses from sales
    (4,286 )     (2,152 )     (14,223 )     (7,586 )

 
4.       FAIR VALUE

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

 
11

 
In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers.  The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers.  In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices.  In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source.   No material variances were noted during these price validation procedures.  In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value.  The Company made no such adjustments at September 30, 2014 and December 31, 2013.

The Company internally manages a small public equity portfolio which had a fair value at September 30, 2014 and December 31, 2013, of $90,124 thousand and $88,338 thousand, respectively, and all prices were obtained from publically published sources.

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

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

As of September 30, 2014 and December 31, 2013, all Level 3 fixed maturity securities, were priced using single non-binding broker quotes since prices for these securities were not provided by normal pricing service companies.  The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes.  The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company.

Other invested assets, at fair value, are categorized as Level 1, Quoted Prices in Active Markets for Identical Assets, since the securities are shares of the Company’s parent, which are actively traded on an exchange and the price is based on a quoted price.

 
12

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


         
Fair Value Measurement Using:
 
         
Quoted Prices
             
         
in Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Assets
   
Inputs
   
Inputs
 
(Dollars in thousands)
 
September 30, 2014
 
(Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
                       
Fixed maturities, market value
                       
U.S. Treasury securities and obligations of
                       
U.S. government agencies and corporations
  $ 519,771     $ -     $ 519,771     $ -  
Obligations of U.S. States and political subdivisions
    834,723       -       834,723       -  
Corporate securities
    2,030,599       -       2,029,283       1,316  
Asset-backed securities
    92,317       -       72,041       20,276  
Mortgage-backed securities
                               
Commercial
    43,684       -       43,684       -  
Agency residential
    626,542       -       626,542       -  
Non-agency residential
    358       -       358       -  
Foreign government securities
    567,131       -       567,131       -  
Foreign corporate securities
    1,102,991       -       1,099,427       3,564  
Total fixed maturities, market value
    5,818,116       -       5,792,960       25,156  
                                 
Fixed maturities, fair value
    18,426       -       18,426       -  
Equity securities, market value
    16       16       -       -  
Equity securities, fair value
    1,195,257       1,086,016       109,241       -  
Other invested assets, fair value
    1,574,733       1,574,733       -       -  

There were no transfers between Level 1 and Level 2 for the nine months ended September 30, 2014.

The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated:
 
         
Fair Value Measurement Using:
 
         
Quoted Prices
             
         
in Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Assets
   
Inputs
   
Inputs
 
(Dollars in thousands)
 
December 31, 2013
 
(Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
                       
Fixed maturities, market value
                       
U.S. Treasury securities and obligations of
                       
U.S. government agencies and corporations
  $ 71,685     $ -     $ 71,685     $ -  
Obligations of U.S. States and political subdivisions
    1,002,528       -       1,002,528       -  
Corporate securities
    1,702,415       -       1,702,415       -  
Asset-backed securities
    39,609       -       36,076       3,533  
Mortgage-backed securities
                               
Commercial
    38,666       -       38,666       -  
Agency residential
    697,399       -       697,399       -  
Non-agency residential
    939       -       935       4  
Foreign government securities
    674,827       -       674,827       -  
Foreign corporate securities
    973,853       -       973,372       481  
Total fixed maturities, market value
    5,201,921       -       5,197,903       4,018  
                                 
Fixed maturities, fair value
    19,388       -       19,388       -  
Equity securities, market value
    13       13       -       -  
Equity securities, fair value
    1,298,940       1,179,139       119,801       -  
Other invested assets, fair value
    1,515,052       1,515,052       -       -  

 
13

 
The following tables present the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated:
 
   
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
   
Corporate
 
Asset-backed
 
Foreign
 
Non-agency
     
Corporate
 
Asset-backed
 
Foreign
 
Non-agency
   
(Dollars in thousands)
 
Securities
 
Securities
 
Corporate
 
RMBS
 
Total
 
Securities
 
Securities
 
Corporate
 
RMBS
 
Total
Beginning balance
  $ -     $ 2,528     $ -     $ 4     $ 2,532     $ -     $ 3,533     $ 481     $ 4     $ 4,018  
Total gains or (losses) (realized/unrealized)
                                                                               
Included in earnings
    -       1,235       -       2       1,237       -       1,291       18       3       1,312  
Included in other comprehensive income (loss)
    42       (284 )     (50 )     (3 )     (295 )     42       (191 )     (70 )     (3 )     (222 )
Purchases, issuances and settlements
    1,274       17,898       3,614       (3 )     22,783       1,274       16,744       3,135       (4 )     21,149  
Transfers in and/or (out) of Level 3
    -       (1,101 )     -       -       (1,101 )     -       (1,101 )     -       -       (1,101 )
Ending balance
  $ 1,316     $ 20,276     $ 3,564     $ -     $ 25,156     $ 1,316     $ 20,276     $ 3,564     $ -     $ 25,156  
                                                                                 
The amount of total gains or losses for the period included
                                                                               
in earnings (or changes in net assets) attributable to the
                                                                               
change in unrealized gains or losses relating to assets
                                                                               
still held at the reporting date
  $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                                 
(Some amounts may not reconcile due to rounding.)
                                                                               

 
   
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2013
   
Asset-backed
 
Foreign
 
Non-agency
 
Agency
     
Asset-backed
 
Foreign
 
Non-agency
 
Agency
   
(Dollars in thousands)
 
Securities
 
Corporate
 
RMBS
 
RMBS
 
Total
 
Securities
 
Corporate
 
RMBS
 
RMBS
 
Total
Beginning balance
  $ 4,832     $ 7,225     $ 323     $ -     $ 12,380     $ 4,849     $ 11,421     $ 5     $ 29,398     $ 45,673  
Total gains or (losses) (realized/unrealized)
                                                                               
Included in earnings
    58       (4 )     1       -       55       74       (655 )     3       -       (578 )
Included in other comprehensive income (loss)
    (186 )     51       -       -       (135 )     (515 )     (371 )     (25 )     -       (911 )
Purchases, issuances and settlements
    (377 )     (1,751 )     (1 )     -       (2,129 )     (397 )     1,086       (72 )     -       617  
Transfers in and/or (out) of Level 3
    -       (5,039 )     (319 )     -       (5,358 )     316       (10,999 )     93       (29,398 )     (39,988 )
Ending balance
  $ 4,327     $ 482     $ 4     $ -     $ 4,813     $ 4,327     $ 482     $ 4     $ -     $ 4,813  
                                                                                 
The amount of total gains or losses for the period included
                                                                               
in earnings (or changes in net assets) attributable to the
                                                                               
change in unrealized gains or losses relating to assets
                                                                               
still held at the reporting date
  $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                                 
(Some amounts may not reconcile due to rounding.)
                                                                               

The transfers from level 3, fair value measurements using significant unobservable inputs, of $1,101 thousand and $39,988 thousand of investments for the nine months ended September 30, 2014 and September 30, 2013, respectively, primarily relate to securities that were priced using single non-binding broker quotes as of December 31, 2013 and December 31, 2012, respectively.  The securities were subsequently priced using a recognized pricing service as of September 30, 2014 and 2013 and were classified as level 2 as of that date.

 
14

 
5.       CAPITAL TRANSACTIONS

On July 9, 2014, the Company renewed its shelf registration statement on Form S-3ASR with the Securities and Exchange Commission (the “SEC”), as a Well Known Seasoned Issuer.  This shelf registration statement can be used by Group to register common shares, preferred shares, debt securities, warrants, share purchase contracts and share purchase units; by Holdings to register debt securities and by Everest Re Capital Trust III (“Capital Trust III”) to register trust preferred securities.

6.       CONTINGENCIES

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements.  In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it.  In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights.  These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation.  In all such matters, the Company believes that its positions are legally and commercially reasonable.  The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.

Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.

In 1993 and prior, the Company had a business arrangement with The Prudential Insurance Company of America (“The Prudential”) wherein, for a fee, the Company accepted settled claim payment obligations of certain property and casualty insurers, and, concurrently, became the owner of the annuity or assignee of the annuity proceeds funded by the property and casualty insurers specifically to fulfill these fully settled obligations.  In these circumstances, the Company would be liable if The Prudential, which has an A+ (Superior) financial strength rating from A.M. Best Company (“A.M. Best”), was unable to make the annuity payments.  The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:
 
(Dollars in thousands)
 
At September 30, 2014
 
At December 31, 2013
    $ 144,415     $ 144,734  

Prior to its 1995 initial public offering, the Company purchased annuities from an unaffiliated life insurance company with an A+ (Superior) financial strength rating from A.M. Best to settle certain claim liabilities of the company.  Should the life insurance company become unable to make the annuity payments, the Company would be liable for those claim liabilities.  The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:
 
(Dollars in thousands)
 
At September 30, 2014
 
At December 31, 2013
    $ 31,338     $ 30,664  

 
15

 
7.       OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present the components of comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:
 
   
Three Months Ended September 30, 2014
   
Nine Months Ended September 30, 2014
 
(Dollars in thousands)
 
Before Tax
   
Tax Effect
   
Net of Tax
   
Before Tax
   
Tax Effect
   
Net of Tax
 
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary
  $ (40,339 )   $ 14,118     $ (26,221 )   $ 21,234     $ (7,556 )   $ 13,678  
URA(D) on securities - OTTI
    -       -       -       -       -       -  
Reclassification of net realized losses (gains) included in net income (loss)
    (1,070 )     374       (696 )     2,054       (595 )     1,459  
Foreign currency translation adjustments
    (11,496 )     4,024       (7,472 )     (13,211 )     4,624       (8,587 )
Benefit plan actuarial net gain (loss)
    -       -       -       -       -       -  
Reclassification of amortization of net gain (loss) included in net income (loss)
    1,269       (444 )     825       3,640       (1,274 )     2,366  
Total other comprehensive income (loss)
  $ (51,636 )   $ 18,072     $ (33,564 )   $ 13,717     $ (4,801 )   $ 8,916  

 
   
Three Months Ended September 30, 2013
   
Nine Months Ended September 30, 2013
 
(Dollars in thousands)
 
Before Tax
   
Tax Effect
   
Net of Tax
   
Before Tax
   
Tax Effect
   
Net of Tax
 
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary
  $ (10,927 )   $ 3,824     $ (7,102 )   $ (140,046 )   $ 49,016     $ (91,030 )
URA(D) on securities - OTTI
    -       -       -       (399 )     140       (259 )
Reclassification of net realized losses (gains) included in net income (loss)
    (1,729 )     606       (1,124 )     (4,062 )     1,422       (2,640 )
Foreign currency translation adjustments
    (8,982 )     3,143       (5,839 )     (20,098 )     7,034       (13,064 )
Benefit plan actuarial net gain (loss)
    -       -       -       -       -       -  
Reclassification of amortization of net gain (loss) included in net income (loss)
    2,262       (792 )     1,470       6,402       (2,241 )     4,161  
Total other comprehensive income (loss)
  $ (19,376 )   $ 6,781     $ (12,595 )   $ (158,203 )   $ 55,371     $ (102,832 )
                                                 
(Some amounts may not reconcile due to rounding)
                                               


The following table presents details of the amounts reclassified from accumulated other comprehensive income (“AOCI”) for the periods indicated:
 
   
Three months ended
   
Nine months ended
     
   
September 30,
   
September 30,
   
Affected line item within the statements of
AOCI component
 
2014
   
2013
   
2014
   
2013
   
operations and comprehensive income (loss)
(Dollars in thousands)
                           
URA(D) on securities
  $ (1,070 )   $ (1,729 )   $ 2,054     $ (4,062 )  
Other net realized capital gains (losses)
      374       606       (595 )     1,422    
Income tax expense (benefit)
    $ (696 )     (1,124 )   $ 1,459     $ (2,640 )  
Net income (loss)
                                     
Benefit plan net gain (loss)
  $ 1,269     $ 2,262     $ 3,640     $ 6,402    
Other underwriting expenses
      (444 )     (792 )     (1,274 )     (2,241 )  
Income tax expense (benefit)
    $ 825     $ 1,470     $ 2,366     $ 4,161    
Net income (loss)


The following table presents the components of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets for the periods indicated:
 
   
At September 30,
 
At December 31,
(Dollars in thousands)
 
2014
 
2013
             
Beginning balance of URA (D) on securities
  $ 55,457     $ 157,163  
Current period change in URA (D) of investments - temporary
    15,137       (101,447 )
Current period change in URA (D) of investments - non-credit OTTI
    -       (259 )
Ending balance of URA (D) on securities
    70,594       55,457  
                 
Beginning balance of foreign currency translation adjustments
    71,087       90,215  
Current period change in foreign currency translation adjustments
    (8,587 )     (19,128 )
Ending balance of foreign currency translation adjustments
    62,500       71,087  
                 
Beginning balance of benefit plan net gain (loss)
    (38,896 )     (62,511 )
Current period change in benefit plan net gain (loss)
    2,366       23,615  
Ending balance of benefit plan net gain (loss)
    (36,530 )     (38,896 )
                 
Ending balance of accumulated other comprehensive income (loss)
  $ 96,564     $ 87,648  

 
16

 
8.       CREDIT FACILITY - EXPIRED

Effective August 15, 2011, the Company entered into a three year, $150,000 thousand unsecured revolving credit facility, referred to as the “Holdings Credit Facility”, which expired on August 15, 2014.  The Company decided not to renew the Holdings Credit Facility at expiration.  Citibank N.A. was the administrative agent for the Holdings Credit Facility.  The Holdings Credit Facility was used for liquidity and general corporate purposes.  The Holdings Credit Facility provided for the borrowing of up to $150,000 thousand with interest at a rate selected by Holdings equal to either, (1) the Base Rate (as defined below) or (2) a periodic fixed rate equal to the Eurodollar Rate plus an applicable margin.  The Base Rate meant a fluctuating interest rate per annum in effect from time to time to be equal to the higher of (a) the rate of interest publicly announced by Citibank as its base rate, (b) 0.5% per annum above the Federal Funds Rate or (c) 1% above the one month London Interbank Offered Rate (“LIBOR”), in each case plus the applicable margin.  The amount of margin and the fees paid for the Holdings Credit Facility depended upon Holdings’ senior unsecured debt rating.

The Holdings Credit Facility required Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and Everest Re to maintain its statutory surplus at $1,875,000 thousand plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, 2010.

There are certain regulatory and contractual restrictions on the ability of Holdings’ operating subsidiaries to transfer funds to Holdings in the form of cash dividends, loans or advances.  The insurance laws of the State of Delaware, where Holdings’ direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or advances to Holdings that exceed certain statutory thresholds.  At December 31, 2013, $2,294,461 thousand of the $3,136,782 thousand in net assets of Holdings’ consolidated subsidiaries were subject to the foregoing regulatory restrictions.

The following table summarizes outstanding letters of credit and/or borrowings for the periods indicated:
 
(Dollars in thousands)
 
At September 30, 2014
 
At December 31, 2013
Bank
 
Commitment
   
In Use
 
Date of Loan
Maturity/Expiry Date
 
Commitment
   
In Use
 
Date of Loan
Maturity/Expiry Date
Citibank Holdings Credit Facility
  $ -     $ -         $ 150,000     $ -      
Total revolving credit borrowings
            -                   -      
Total letters of credit
            -                   851    
12/31/2014
                                         
Total Citibank Holdings Credit Facility
  $ -     $ -         $ 150,000     $ 851      


The following table presents the costs incurred in connection with the Holdings Credit Facility for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Credit facility fees incurred
  $ -     $ 72     $ 97     $ 250  

 
17

 
9.       REINSURANCE AND TRUST AGREEMENTS

A subsidiary of the Company, Everest Re, has established a trust agreement, which effectively uses Everest Re’s investments as collateral, as security for assumed losses payable to a non-affiliated ceding company.  At September 30, 2014, the total amount on deposit in the trust account was $234,348 thousand.

On April 24, 2014, the Company entered into two collateralized reinsurance agreements with Kilimanjaro Re Limited (“Kilimanjaro”), a Bermuda based special purpose reinsurer, to provide the Company with catastrophe reinsurance coverage.  These agreements are multi-year reinsurance contracts which cover specified named storm and earthquake events.  The first agreement provides up to $250,000 thousand of reinsurance coverage from named storms in specified states of the Southeastern United States.  The second agreement provides up to $200,000 thousand of reinsurance coverage from named storms in specified states of the Southeast, Mid-Atlantic and Northeast regions of the United States and Puerto Rico as well as reinsurance coverage from earthquakes in specified states of the Southeast, Mid-Atlantic, Northeast and West regions of the United States, Puerto Rico and British Columbia.

Kilimanjaro has financed the property catastrophe reinsurance coverage by issuing $450,000 thousand of catastrophe bonds to unrelated, external investors. The proceeds from the catastrophe bond issuance will be held in a reinsurance trust throughout the duration of the reinsurance agreements and invested solely in US government money market funds with a rating of at least “AAAm” by Standard & Poor’s at the time of the bond issuance.

10.       SENIOR NOTES

The table below displays Holdings’ outstanding senior notes.  Market value is based on quoted market prices, but due to limited trading activity, these senior notes are considered Level 2 in the fair value hierarchy.
 
               
September 30, 2014
   
December 31, 2013
 
               
Consolidated Balance
         
Consolidated Balance
       
(Dollars in thousands)
Date Issued
 
Date Due
 
Principal Amounts
   
Sheet Amount
   
Market Value
   
Sheet Amount
   
Market Value
 
5.40% Senior notes
10/12/2004
 
10/15/2014
  $ 250,000     $ 249,998     $ 250,485     $ 249,958     $ 259,130  
4.868% Senior notes
06/05/2014
 
06/01/2044
    400,000       400,000       395,824       -       -  
 
On June 5, 2014, Holdings issued $400,000 thousand of 30 year senior notes at 4.868%, which will mature on June 1, 2044.  Capitalized costs of approximately $4,300 thousand related to the issuance of the senior notes will be expensed over the 30 year life of the notes.  Interest will be paid semi-annually on June 1 and December 1 of each year.  The proceeds from the issuance have been used in part to pay off the $250,000 thousand of 5.40% senior notes which matured on October 15, 2014.
 
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Interest expense incurred
  $ 8,256     $ 3,388     $ 16,385     $ 10,163  

 
18

 
11.       LONG TERM SUBORDINATED NOTES

The table below displays Holdings’ outstanding fixed to floating rate long term subordinated notes.  Market value is based on quoted market prices, but due to limited trading activity, these subordinated notes are considered Level 2 in the fair value hierarchy.
 
         
Maturity Date
 
September 30, 2014
   
December 31, 2013
 
     
Original
         
Consolidated Balance
         
Consolidated Balance
       
(Dollars in thousands)
Date Issued
 
Principal Amount
 
Scheduled
 
Final
 
Sheet Amount
   
Market Value
   
Sheet Amount
   
Market Value
 
6.6% Long term subordinated notes
04/26/2007
  $ 400,000    
05/15/2037
 
05/01/2067
  $ 238,363     $ 257,763     $ 238,361     $ 233,292  

During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest will be at the annual rate of 6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years.  During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years.  Deferred interest will accumulate interest at the applicable rate compounded semi-annually for periods prior to May 15, 2017, and compounded quarterly for periods from and including May 15, 2017.

Holdings can redeem the long term subordinated notes prior to May 15, 2017, in whole but not in part at the applicable redemption price, which will equal the greater of (a) 100% of the principal amount being redeemed and (b) the present value of the principal payment on May 15, 2017 and scheduled payments of interest that would have accrued from the redemption date to May 15, 2017 on the long term subordinated notes being redeemed, discounted to the redemption date on a semi-annual basis at a discount rate equal to the treasury rate plus an applicable spread of either 0.25% or 0.50%, in each case plus accrued and unpaid interest.  Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at 100% of the principal amount plus accrued and unpaid interest; however, redemption on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant.  This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes.  Effective upon the maturity of the Company’s 5.40% senior notes due October 15, 2014, the Company’s 4.868% senior notes, due on June 1, 2044, will become the Company’s long term indebtedness that ranks senior to the long term subordinated notes.
 
On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes.  Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161,441 thousand.

Interest expense incurred in connection with these long term subordinated notes is as follows for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Interest expense incurred
  $ 3,937     $ 3,937     $ 11,811     $ 11,811  

 
19

 
12.       JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE

In accordance with the provisions of the junior subordinated debt securities which were issued on March 29, 2004, Holdings elected to redeem the $329,897 thousand of 6.2% junior subordinated debt securities outstanding on May 24, 2013.  As a result of the early redemption, the Company incurred pre-tax expense of $7,282 thousand related to the immediate amortization of the remaining capitalized issuance costs on the trust preferred securities.

Interest expense incurred in connection with these junior subordinated debt securities is as follows for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Interest expense incurred
  $ -     $ -     $ -     $ 8,181  

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

13.       SEGMENT REPORTING

The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and Accident and Health (“A&H”) business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S.  The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada, Singapore and through offices in Brazil, Miami and New Jersey.  The Insurance operation writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S. and Canada.

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

Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred, commission and brokerage expenses and other underwriting expenses.  Underwriting results are measured using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.

The Company 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.

 
20

 
The following tables present the underwriting results for the operating segments for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
U.S. Reinsurance
 
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Gross written premiums
  $ 679,904     $ 532,324     $ 1,663,320     $ 1,385,482  
Net written premiums
    304,442       257,085       771,054       690,547  
                                 
Premiums earned
  $ 275,521     $ 225,231     $ 739,977     $ 621,430  
Incurred losses and LAE
    125,475       102,506       371,135       340,799  
Commission and brokerage
    51,231       38,275       144,747       114,945  
Other underwriting expenses
    12,119       12,013       33,054       32,541  
Underwriting gain (loss)
  $ 86,696     $ 72,437     $ 191,041     $ 133,145  

 
   
Three Months Ended
   
Nine Months Ended
 
International
 
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Gross written premiums
  $ 419,457     $ 339,739     $ 1,214,343     $ 994,526  
Net written premiums
    157,932       149,812       446,599       446,158  
                                 
Premiums earned
  $ 145,662     $ 140,854     $ 438,394     $ 433,872  
Incurred losses and LAE
    113,703       90,743       286,166       262,709  
Commission and brokerage
    23,767       27,932       80,348       87,195  
Other underwriting expenses
    8,759       8,722       24,689       24,319  
Underwriting gain (loss)
  $ (567 )   $ 13,457     $ 47,191     $ 59,649  
 

   
Three Months Ended
   
Nine Months Ended
 
Insurance
 
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Gross written premiums
  $ 354,033     $ 367,465     $ 885,006     $ 923,571  
Net written premiums
    149,542       178,365       386,694       456,334  
                                 
Premiums earned
  $ 148,414     $ 157,436     $ 382,407     $ 406,247  
Incurred losses and LAE
    141,402       113,872       322,842       306,153  
Commission and brokerage
    4,170       5,353       15,489       12,907  
Other underwriting expenses
    29,745       28,210       79,289       79,891  
Underwriting gain (loss)
  $ (26,903 )   $ 10,001     $ (35,213 )   $ 7,296  

The following table reconciles the underwriting results for the operating segments to income (loss) before taxes as reported in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Underwriting gain (loss)
  $ 59,226     $ 95,895     $ 203,019     $ 200,090  
Net investment income
    83,446       68,828       215,869       227,433  
Net realized capital gains (losses)
    (160 )     208,426       120,904       533,758  
Corporate expense
    (4,620 )     (1,516 )     (5,398 )     (5,353 )
Interest, fee and bond issue cost amortization expense
    (12,292 )     (7,466 )     (28,539 )     (38,010 )
Other income (expense)
    (3,739 )     5,012       (15,576 )     5,095  
Income (loss) before taxes
  $ 121,861     $ 369,179     $ 490,279     $ 923,013  

 
21

 
The Company produces business in the U.S. and internationally.  The net income deriving from assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company’s financial records.  Based on gross written premium, the table below presents the largest country, other than the U.S., in which the Company writes business, for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Canada
  $ 41,644     $ 48,048     $ 116,133     $ 123,630  

No other country represented more than 5% of the Company’s revenues.

14.       RELATED-PARTY TRANSACTIONS

Parent

Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its subsidiary Holdings to purchase Group’s common shares through open market transactions, privately negotiated transactions or both.  The table below represents the amendments to the share repurchase program for the common shares approved for repurchase.
 
   
 Common Shares
   
 Authorized for
Amendment Date
 
 Repurchase
(Dollars in thousands)
   
09/21/2004
 
 5,000,000
07/21/2008
 
 5,000,000
02/24/2010
 
 5,000,000
02/22/2012
 
 5,000,000
05/15/2013
 
 5,000,000
   
 25,000,000

As of September 30, 2014, Holdings held 9,719,971 common shares of Group, which it had purchased in the open market between February 1, 2007 and March 8, 2011.  The table below represents the total purchase price for these common shares purchased.
 
(Dollars in thousands)
     
Total purchase price
  $ 835,371  

Holdings reports these purchases as other invested assets, fair value, in the consolidated balance sheets with changes in fair value re-measurement recorded in net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss).  The following table presents the dividends received on these common shares that are reported as net investment income in the consolidated statements of operations and comprehensive income (loss) for the period indicated.
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Dividends received
  $ 7,290     $ 4,666     $ 21,870     $ 13,997  

Outside Directors

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

 
22

 
Affiliated Companies

Everest Global Services, Inc. (“Global Services”), an affiliate of Holdings, provides centralized management and home office services, through a management agreement, to Holdings and other affiliated companies within Holdings’ consolidated structure.  Services provided by Everest Global include executive managerial services, legal services, actuarial services, accounting services, information technology services and others.

The following table presents the expenses incurred by Holdings from services provided by Everest Global for the periods indicated.
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Expenses incurred
  $ 22,149     $ 19,066     $ 55,668     $ 55,835  

Affiliates

 
The table below represents affiliated quota share reinsurance agreements ("whole account quota share") for all new and renewal business for the indicated coverage period:
 
(Dollars in thousands)
                                 
       
Percent
   
Assuming
     
Single
     
Aggregate
   
Coverage Period
 
Ceding Company
 
Ceded
   
Company
 
Type of Business
 
Occurrence Limit
     
Limit
   
                                   
01/01/2002-12/31/2002
 
Everest Re
    20.0 %  
Bermuda Re
 
property / casualty business
  $ -       $ -    
                                         
01/01/2003-12/31/2003
 
Everest Re
    25.0 %  
Bermuda Re
 
property / casualty business
    -         -    
                                         
01/01/2004-12/31/2005
 
Everest Re
    22.5 %  
Bermuda Re
 
property / casualty business
    -         -    
    Everest Re     2.5 %   Everest International   property / casualty business     -         -    
                                         
01/01/2006-12/31/2006
 
Everest Re
    18.0 %  
Bermuda Re
 
property business
    125,000   (1)     -    
    Everest Re     2.0 %   Everest International   property business     -         -    
                                         
01/01/2006-12/31/2007
 
Everest Re
    31.5 %  
Bermuda Re
 
casualty business
    -         -    
    Everest Re     3.5 %   Everest International   casualty business     -         -    
                                         
01/01/2007-12/31/2007
 
Everest Re
    22.5 %  
Bermuda Re
 
property business
    130,000   (1)     -    
    Everest Re     2.5 %   Everest International   property business     -         -    
                                         
01/01/2008-12/31/2008
 
Everest Re
    36.0 %  
Bermuda Re
 
property / casualty business
    130,000   (1)     275,000   (2)
    Everest Re     4.0 %   Everest International   property / casualty business     -         -    
                                         
01/01/2009-12/31/2009
 
Everest Re
    36.0 %  
Bermuda Re
 
property / casualty business
    150,000   (1)     325,000   (2)
    Everest Re     8.0 %   Everest International   property / casualty business     -         -    
                                         
01/01/2010-12/31/2010
 
Everest Re
    44.0 %  
Bermuda Re
 
property / casualty business
    150,000         325,000    
                                         
01/01/2011-12/31/2011
 
Everest Re
    50.0 %  
Bermuda Re
 
property / casualty business
    150,000         300,000    
                                         
01/01/2012
 
Everest Re
    50.0 %  
Bermuda Re
 
property / casualty business
    100,000         200,000    
                                         
01/01/2003-12/31/2006
 
Everest Re- Canadian Branch
    50.0 %  
Bermuda Re
 
property business
    -         -    
01/01/2007-12/31/2009
 
Everest Re- Canadian Branch
    60.0 %  
Bermuda Re
 
property business
    -         -    
01/01/2010-12/31/2010
 
Everest Re- Canadian Branch
    60.0 %  
Bermuda Re
 
property business
    350,000   (3)     -    
01/01/2011-12/31/2011
 
Everest Re- Canadian Branch
    60.0 %  
Bermuda Re
 
property business
    350,000   (3)     -    
01/01/2012-12/31/2012
 
Everest Re- Canadian Branch
    75.0 %  
Bermuda Re
 
property / casualty business
    206,250   (3)     412,500   (3)
01/01/2013-12/31/2013
 
Everest Re- Canadian Branch
    75.0 %  
Bermuda Re
 
property / casualty business
    150,000   (3)     412,500   (3)
01/01/2014    Everest Re- Canadian Branch     75.0 %   Bermuda Re   property / casualty business      262,500   (3)     412,500   (3)
 
01/01/2012
 
Everest Canada
    80.0 %  
Everest Re- Canadian Branch
 
property business
    -         -    
 
(1)
  The single occurance limit is applied before the loss cessions to either Bermuda Re or Everest International.                          
(2)
  The aggregate limit is applied before the loss cessions to either Bermuda Re or Everest International.                          
(3)
  Amounts shown are Canadian dollars.                          

 
23

 
For premiums earned and losses incurred for the period January 1, 2002 through December 31, 2002, Everest Re, Everest National Insurance Company and Everest Security Insurance Company entered into an Excess of Loss Reinsurance Agreement with Bermuda Re, covering workers’ compensation losses occurring on and after January 1, 2002, as respect to new, renewal and in force policies effective on that date through December 31, 2002.  This agreement was commuted as of September 30, 2013.  The table below represents Bermuda Re's liability limits for any losses per one occurrence.
 
   
Liability Limits
 
(Dollars in thousands)
 
Exceeding
   
Not to Exceed
 
Losses per one occurrence
  $ 100,000     $ 150,000  


The table below represents loss portfolio transfer reinsurance agreements whereby net insurance exposures and reserves were transferred to an affiliate.
 
(Dollars in thousands)
           
                 
Effective
 
Transferring
 
Assuming
 
% of Business or
 
Covered Period
Date
 
Company
 
Company
 
Amount of Transfer
 
of Transfer
                   
09/19/2000
 
Mt. McKinley
 
Bermuda Re
    100%    
All years
10/01/2001
 
Everest Re  (Belgium Branch)
 
Bermuda Re
    100%    
All years
10/01/2008
 
Everest Re
 
Bermuda Re
  $ 747,022    
01/01/2002-12/31/2007


The following tables summarize the premiums and losses ceded by the Company to Bermuda Re and Everest International, respectively, and premiums and losses assumed by the Company from Everest Canada for the periods indicated:
 
   
Three Months Ended
   
Nine Months Ended
 
Bermuda Re
 
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Ceded written premiums
  $ 664,316     $ 567,033     $ 1,706,390     $ 1,553,615  
Ceded earned premiums
    598,641       507,308       1,613,741       1,437,109  
Ceded losses and LAE (a)
    344,513       337,036       879,336       835,022  

 
   
Three Months Ended
   
Nine Months Ended
 
Everest International
 
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Ceded written premiums
  $ 131     $ 295     $ 219     $ 429  
Ceded earned premiums
    176       336       450       750  
Ceded losses and LAE
    (321 )     (630 )     1,823       (1,233 )

 
   
Three Months Ended
   
Nine Months Ended
 
Everest Canada
 
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Assumed written premiums
  $ 10,425     $ 5,650     $ 25,650     $ 14,775  
Assumed earned premiums
    7,106       4,807       17,062       12,196  
Assumed losses and LAE
    4,104       4,536       10,487       8,810  

(a) Ceded losses and LAE include the Mt. McKinley loss portfolio transfer that constitutes losses ceded under retroactive reinsurance and therefore, in accordance with FASB guidance, a deferred gain on retroactive reinsurance is reflected in other expenses on the consolidated statements of operations and comprehensive income (loss).

Everest Re sold net assets of its UK branch to Bermuda Re and provided Bermuda Re with a reserve indemnity agreement allowing for indemnity payments of up to 90% of ₤25.0 million of the excess of 2002 and prior reserves, provided that any recognition of profit from the reserves for 2002 and prior underwriting years is taken into account.  The limit available under this agreement was fully exhausted at December 31, 2004.

 
24

 
Effective February 27, 2013, Group established a new subsidiary, Mt. Logan Re, which is a Class 3 insurer based in Bermuda.  Effective July 1, 2013, Mt. Logan Re established separate segregated accounts for its business activity, which will invest in a diversified set of catastrophe exposures.

The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re and assumed by the Company from Mt. Logan Re.
 
   
Three Months Ended
   
Nine Months Ended
 
Mt. Logan Re
 
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Ceded written premiums
  $ 44,728     $ 12,408     $ 93,322     $ 12,408  
Ceded earned premiums
    38,458       10,471       78,975       10,471  
Ceded losses and LAE
    3,113       1,805       17,904       1,805  
                                 
Assumed written premiums
    578       1,735       10,497       1,735  
Assumed earned premiums
    5,786       1,735       10,497       1,735  
Assumed losses and LAE
    -       -       -       -  


15.       RETIREMENT BENEFITS

The Company maintains both qualified and non-qualified defined benefit pension plans and a retiree health plan for its U.S. employees employed prior to April 1, 2010.

Net periodic benefit cost for U.S. employees included the following components for the periods indicated:
 
Pension Benefits
 
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Service cost
  $ 2,460     $ 2,794     $ 7,381     $ 8,251  
Interest cost
    2,542       2,144       7,625       6,292  
Expected return on plan assets
    (2,822 )     (2,124 )     (8,468 )     (6,367 )
Amortization of prior service cost
    13       12       38       37  
Amortization of net (income) loss
    1,173       2,064       3,356       5,872  
FAS 88 settlement charge
    5,269       -       5,269       -  
Net periodic benefit cost
  $ 8,635     $ 4,890     $ 15,201     $ 14,085  

 
Other Benefits
 
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in thousands)
 
2014
   
2013
   
2014
   
2013
 
Service cost
  $ 407     $ 462     $ 1,221     $ 1,460  
Interest cost
    342       291       1,026       845  
Amortization of net (income) loss
    82       185       246       493  
Net periodic benefit cost
  $ 831     $ 938     $ 2,493     $ 2,798  


The Company did not make any contributions to the qualified pension benefit plan for the three and nine months ended September 30, 2014 and 2013.

16.       INCOME TAXES

The Company is domiciled in the United States and has subsidiaries domiciled within the United States with significant branches in Canada and Singapore.  The Company’s non-U.S. branches are subject to income taxation at varying rates in their respective domiciles.

 
25

 
For interim reporting periods, the company is generally required to use the annualized effective tax rate (“AETR”) method, as prescribed by ASC 740-270, Interim Reporting, to calculate its income tax provision.  Under this method, the AETR is applied to the interim year-to-date pre-tax income to determine the income tax expense or benefit for the year-to-date period.  The income tax expense or benefit for a quarter represents the difference between the year-to-date income tax expense or benefit for the current year-to-date period less such amount for the immediately preceding year-to-date period.  Management considers the impact of all known events in its estimation of the Company’s annual pre-tax income and AETR.

17.       SUBSEQUENT EVENTS

The Company will be entering into a reinsurance agreement with Kilimanjaro Re Limited (“Kilimanjaro”) to provide the Company with earthquake-only catastrophe reinsurance coverage.  Kilimanjaro will fund the reinsurance coverage through the issuance of a catastrophe reinsurance bond, with estimated proceeds of $500,000 thousand.
 
 
26

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

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

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

Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the casualty lines of business.  Generally, there was ample insurance and reinsurance capacity relative to demand.  Competition and its effect on rates, terms and conditions vary widely by market and coverage yet continued to be most prevalent in the U.S. casualty insurance and reinsurance markets and additional capacity from the capital markets is impacting worldwide catastrophe rates.

Catastrophe rates tend to fluctuate by global region, particularly areas recently impacted by large catastrophic events.  During the second and third quarters of 2013, Canada experienced historic flooding in Alberta and Toronto, which has resulted in higher catastrophe rates in these areas.  Although there were flooding and wind storm events in Europe and Asia in the latter part of 2013, the overall 2013 catastrophe losses for the industry were lower than average.  This lower level of losses, combined with increased competition is putting downward pressure on rates in certain geographical areas resulting in lower rates for most catastrophe coverages in 2014.

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

 
27

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

   
Three Months Ended
   
Percentage
 
Nine Months Ended
   
Percentage
   
September 30,
   
Increase/
 
September 30,
   
Increase/
(Dollars in millions)
 
2014
   
2013
   
(Decrease)
 
2014
   
2013
   
(Decrease)
Gross written premiums
  $ 1,453.4     $ 1,239.5       17.3 %   $ 3,762.7     $ 3,303.6       13.9 %
Net written premiums
    611.9       585.3       4.6 %     1,604.3       1,593.0       0.7 %
                                                 
REVENUES:
                                               
Premiums earned
  $ 569.6     $ 523.5       8.8 %   $ 1,560.8     $ 1,461.5       6.8 %
Net investment income
    83.4       68.8       21.2 %     215.9       227.4       -5.1 %
Net realized capital gains (losses)
    (0.2 )     208.4       -100.1 %     120.9       533.8       -77.3 %
Other income (expense)
    (3.7 )     5.0       -174.6 %     (15.6 )     5.1    
NM 
Total revenues
    649.1       805.8       -19.4 %     1,882.0       2,227.8       -15.5 %
                                                 
CLAIMS AND EXPENSES:
                                               
Incurred losses and loss adjustment expenses
    380.6       307.1       23.9 %     980.1       909.7       7.7 %
Commission, brokerage, taxes and fees
    79.2       71.6       10.6 %     240.6       215.0       11.9 %
Other underwriting expenses
    50.6       48.9       3.4 %     137.0       136.8       0.2 %
Corporate expense
    4.6       1.5       204.9 %     5.4       5.4       0.9 %
Interest, fee and bond issue cost amortization expense
    12.3       7.5       64.7 %     28.5       38.0       -24.9 %
Total claims and expenses
    527.3       436.6       20.8 %     1,391.7       1,304.8       6.7 %
                                                 
INCOME (LOSS) BEFORE TAXES
    121.9       369.2       -67.0 %     490.3       923.0       -46.9 %
Income tax expense (benefit)
    21.7       125.4       -82.7 %     145.5       308.3       -52.8 %
NET INCOME (LOSS)
  $ 100.1     $ 243.8       -58.9 %   $ 344.8     $ 614.7       -43.9 %
                                                 
RATIOS:
                 
Point Change
                 
Point Change
Loss ratio
    66.8 %     58.7 %     8.1       62.8 %     62.2 %     0.6  
Commission and brokerage ratio
    13.9 %     13.7 %     0.2       15.4 %     14.7 %     0.7  
Other underwriting expense ratio
    8.9 %     9.3 %     (0.4 )     8.8 %     9.4 %     (0.6 )
Combined ratio
    89.6 %     81.7 %     7.9       87.0 %     86.3 %     0.7  
                                                 
                                                 
                           
At
 
At
 
Percentage
                           
September 30,
 
December 31,
 
Increase/
(Dollars in millions)
                            2014     2013  
(Decrease)
Balance sheet data:
                                               
Total investments and cash
                          $ 9,946.7     $ 9,495.1       4.8 %
Total assets
                            17,226.8       15,521.0       11.0 %
Loss and loss adjustment expense reserves
                            7,784.1       7,653.2       1.7 %
Total debt
                            888.4       488.3       81.9 %
Total liabilities
                            12,673.7       11,330.5       11.9 %
Stockholder's equity
                            4,553.1       4,190.5       8.7 %
                                                 
(NM, not meaningful)
                                               
(Some amounts may not reconcile due to rounding)
                                               

Revenues.
Premiums.  Gross written premiums increased by 17.3% to $1,453.4 million for the three months ended September 30, 2014, compared to $1,239.5 million for the three months ended September 30, 2013, reflecting a $227.3 million, or 26.1%, increase in our reinsurance business, partially offset by a $13.4 million, or 3.7%, decrease in out insurance business.  The increase in reinsurance premiums was mainly due to new business: quota share contracts, contracts with catastrophe exposed risks and mortgage guaranty business.  The decrease in insurance premiums was primarily due to lower crop premiums, partially offset by an increase in non-standard auto business.  Gross written premiums increased by 13.9% to $3,762.7 million for the nine months ended September 30, 2014, compared to $3,303.6 million for the nine months ended September 30, 2013, reflecting a $497.7 million, or 20.9%, increase in our reinsurance business, partially offset by a $38.6 million, or 4.2%, decrease in our insurance business.  The increase in reinsurance

 
28

 
premiums was mainly due to new business: quota share contracts, contracts with catastrophe exposed risks and mortgage guaranty business.  The decrease in insurance premiums was primarily due to lower crop premiums, partially offset by an increase in non-standard auto business.

Net written premiums increased by 4.6% to $611.9 million for the three months ended September 30, 2014 compared to $585.3 million for the three months ended September 30, 2013, and increased by 0.7% to $1,604.3 million for the nine months ended September 30, 2014 compared to $1,593.0 million for the nine months ended September 30, 2013.  The variances of the changes in gross written premiums compared to the changes in net written premiums is primarily due to a higher utilization of reinsurance related to the new quota share contracts.  Premiums earned increased by 8.8% to $569.6 million for the three months ended September 30, 2014, compared to $523.5 million for the three months ended September 30, 2013 and increased by 6.8% to $1,560.8 million for the nine months ended September 30, 2014, compared to $1,461.5 million for the nine months ended September 30, 2013.  The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Net Investment Income.  Net investment income increased by 21.2% to $83.4 million for the three months ended September 30, 2014, compared with net investment income of $68.8 million for the three months ended September 30, 2013.  Net investment income decreased by 5.1% to $215.9 million for the nine months ended September 30, 2014, compared with net investment income of $227.4 million for the nine months ended September 30, 2013.  Net pre-tax investment income, as a percentage of average invested assets, was 3.8% for the three months ended September 30, 2014 compared to 3.4% for the three months ended September 30, 2013 and was 3.4% for the nine months ended September 30, 2014 compared to 3.7% for the nine months ended September 30, 2013. The increase in income and yield for the three months ended September 30, 2014 compared to 2013 was primarily due to an increase in our limited partnership income and an increase in dividend income from the shares held of the parent company, Everest Re Group, Ltd. (“Group”).  The decline in income and yield for the nine months ended September 30, 2014 compared to 2013 was primarily the result of a decrease in our limited partnership income, partially offset by an increase in dividend income from shares held of Group.

Net Realized Capital Gains (Losses). Net realized capital losses were $0.2 million and net realized capital gains were $208.4 million for the three months ended September 30, 2014 and 2013, respectively.  The $0.2 million was comprised of $1.4 million of losses from sales on our fixed maturity and equity securities, partially offset by $1.2 million of gains from fair value re-measurements on fixed maturity, equity securities and other invested assets. The net realized capital gains of $208.4 million for the three months ended September 30, 2013, were the result of $205.1 million of gains from fair value re-measurements on fixed maturity, equity securities and other invested assets and $3.4 million of net realized capital gains from sales on our fixed maturity and equity securities.

Net realized capital gains were $120.9 million and $533.8 million for the nine months ended September 30, 2014 and 2013, respectively.  The $120.9 million was comprised of $124.1 million of gains from fair value re-measurements on fixed maturity, equity securities and other invested assets, partially offset by $3.0 million of losses from sales on our fixed maturity and equity securities and $0.2 million of other-than-temporary impairments. The net realized capital gains of $533.8 million for the nine months ended September 30, 2013, were the result of $504.0 million of gains from fair value re-measurements on fixed maturity, equity securities and other invested assets and $29.8 million of net realized capital gains from sales on our fixed maturity and equity securities.

Other Income (Expense).  We recorded other expense of $3.7 million and $15.6 million for the three and nine months ended September 30, 2014, respectively.  We recorded other income of $5.0 million and $5.1 million for the three and nine months ended September 30, 2013, respectively.  The change was primarily due to fluctuations in currency exchange rates for the corresponding periods and fluctuations in the amortization of deferred gains on retroactive reinsurance agreements with affiliates.

 
29

 
Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses.  The following tables present our incurred losses and loss adjustment expenses (“LAE”) for the periods indicated.

   
Three Months Ended September 30,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2014
                                         
Attritional
  $ 372.4       65.3 %     $ (3.1 )     -0.5 %     $ 369.3       64.8 %  
Catastrophes
    14.7       2.6 %       (3.4 )     -0.6 %       11.3       2.0 %  
Total segment
  $ 387.1       67.9 %     $ (6.5 )     -1.1 %     $ 380.6       66.8 %  
                                                       
2013
                                                     
Attritional
  $ 311.5       59.6 %     $ (12.5 )     -2.4 %     $ 299.0       57.2 %  
Catastrophes
    6.9       1.3 %       1.2       0.2 %       8.1       1.5 %  
Total segment
  $ 318.4       60.9 %     $ (11.3 )     -2.2 %     $ 307.1       58.7 %  
                                                       
Variance 2014/2013
                                                     
Attritional
  $ 60.9       5.7  
pts
  $ 9.4       1.9  
pts
  $ 70.3       7.6  
pts
Catastrophes
    7.8       1.3  
pts
    (4.6 )     (0.8 )
pts
    3.2       0.5  
pts
Total segment
  $ 68.7       7.0  
pts
  $ 4.8       1.1  
pts
  $ 73.5       8.1  
pts


   
Nine Months Ended September 30,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2014
                                         
Attritional
  $ 956.3       61.3 %     $ (5.5 )     -0.4 %     $ 950.8       60.9 %  
Catastrophes
    35.1       2.3 %       (5.8 )     -0.4 %       29.3       1.9 %  
Total segment
  $ 991.4       63.6 %     $ (11.3 )     -0.8 %     $ 980.1       62.8 %  
                                                       
2013
                                                     
Attritional
  $ 857.9       58.7 %     $ (2.5 )     -0.2 %     $ 855.4       58.5 %  
Catastrophes
    36.9       2.5 %       17.3       1.2 %       54.2       3.7 %  
Total segment
  $ 894.8       61.2 %     $ 14.8       1.0 %     $ 909.7       62.2 %  
                                                       
Variance 2014/2013
                                                     
Attritional
  $ 98.4       2.6  
pts
  $ (3.0 )     (0.2 )
pts
  $ 95.4       2.4  
pts
Catastrophes
    (1.8 )     (0.2 )
pts
    (23.1 )     (1.6 )
pts
    (24.9 )     (1.8 )
pts
Total segment
  $ 96.6       2.4  
pts
  $ (26.1 )     (1.8 )
pts
  $ 70.4       0.6  
pts
                                                       
(Some amounts may not reconcile due to rounding.)
                                               

Incurred losses and LAE increased by 23.9% to $380.6 million for the three months ended September 30, 2014 compared to $307.1 million for the three months ended September 30, 2013, primarily due to an increase in current year attritional losses, related to the impact of the increase in premiums earned, increased losses in the Middle East, Africa and Latin America and crop insurance losses, and an increase in current year catastrophe losses.  The $14.7 million of current year catastrophe losses for the three months ended September 30, 2014 represented 2.6 points and related to Hurricane Odile ($9.9 million) and the Chilean earthquake ($4.8 million).  The current year catastrophe losses of $6.9 million for the three months ended September 30, 2013 were due to the Canadian floods.

Incurred losses and LAE increased by 7.7% to $980.1 million for the nine months ended September 30, 2014 compared to $909.7 million for the nine months ended September 30, 2013, primarily due to an increase in current year attritional losses, partially offset by favorable development on prior years’ catastrophe losses in 2014 compared to additional losses in 2013.  The $17.3 million of prior years’ catastrophe losses for the nine months ended September 30, 2013 mainly related to Superstorm Sandy.  The increase in current year attritional losses is primarily attributable to the increase in premiums earned and increased losses in the Middle East, Africa and Latin America and crop insurance losses.  The $35.1 million of current year catastrophe losses for the nine months ended September 30, 2014 represented 2.3 points and related primarily to the Japan snowstorm ($13.2 million), the Chilean earthquake ($12.1 million) and Hurricane Odile ($9.9 million).  The current year catastrophe losses of $36.9 million for the nine months ended September 30, 2013 were due to U.S. storms ($25.0 million), Canadian floods ($9.4 million) and European floods ($2.5 million).

 
30

 
Commission, Brokerage, Taxes and Fees.  Commission, brokerage, taxes and fees increased by 10.6% to $79.2 million for the three months ended September 30, 2014 compared to $71.6 million for the three months ended September 30, 2013.  Commission, brokerage, taxes and fees increased by 11.9% to $240.6 million for the nine months ended September 30, 2014 compared to $215.0 million for the nine months ended September 30, 2013.  These changes were primarily due to the impact of the increase in premiums earned, higher contingent commissions and changes in the mix of business.
 
Other Underwriting Expenses.  Other underwriting expenses were $50.6 million and $48.9 million for the three months ended September 30, 2014 and 2013, respectively, and $137.0 million and $136.8 million for the nine months ended September 30, 2014 and 2013, respectively.  The increases were mainly due to the impact of the increase in earned premiums.

Corporate Expenses.  Corporate expenses, which are general operating expenses that are not allocated to segments, were $4.6 million and $1.5 million for the three months ended September 30, 2014 and 2013, respectively, and $5.4 million for the nine months ended September 30, 2014 and 2013.  The increase, quarter over quarter, in corporate expense was mainly due to the timing of allocations and higher compensation expenses.

Interest, Fees and Bond Issue Cost Amortization Expense.  Interest, fees and other bond amortization expense was $12.3 million and $7.5 million for the three months ended September 30, 2014 and 2013, respectively. The increase was primarily due to the impact of the issuance of $400.0 million of senior notes in June, 2014. Interest, fees and other bond amortization expense was $28.5 million and $38.0 million for the nine months ended September 30, 2014 and 2013, respectively.  The decrease was primarily due to the redemption of $329.9 million of trust preferred securities in May 2013, partially offset by the impact of the issuance of $400.0 million of senior notes in June, 2014.

Income Tax Expense (Benefit).  We had income tax expenses of $21.7 million and $125.4 million for the three months ended September 30, 2014 and 2013, respectively, and $145.5 million and $308.3 million for the nine months ended September 30, 2014 and 2013, respectively.  Income tax expense is primarily a function of the geographic location of the Company’s pre-tax income and the statutory tax rates in those jurisdictions, as affected by tax-exempt investment income and as calculated under the annualized effective tax rate (“AETR”) method.  Variations in the AETR generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses), among jurisdictions with different tax rates.  The decrease in income tax expense for the three and nine months ended September 30, 2014 compared to the three and nine months ended September 30, 2013 is primarily due to lower net realized capital gains and the realization of additional foreign tax credits.
 
Net Income (Loss).
Our net income was $100.1 million and $243.8 million for the three months ended September 30, 2014 and 2013, respectively, and $344.8 million and $614.7 million for the nine months ended September 30, 2014 and 2013, respectively.  The changes were primarily driven by the financial component fluctuations explained above.

Ratios.
Our combined ratio increased by 7.9 points to 89.6% for the three months ended September 30, 2014 compared to 81.7% for the three months ended September 30, 2013 and increased by 0.7 points to 87.0% for the nine months ended September 30, 2014 compared to 86.3% for the nine months ended September 30, 2013.  The loss ratio component increased 8.1 points and 0.6 points for the three and nine months ended September 30, 2014, respectively, over the same periods last year, primarily due to increased losses in the Middle East, Africa and Latin America, crop insurance losses and changes in the mix of business.  The commission and brokerage ratio components increased 0.2 points and 0.7 points for the three and nine months ended September 30, 2014, respectively, over the same period last year primarily due to changes in the mix of business.  The other underwriting expense ratio components decreased 0.4 points and 0.6 points for the three and nine months ended September 30, 2014, respectively, over the same periods last year.

 
31

 
Stockholder's Equity.
Stockholders’ equity increased by $362.6 million to $4,553.1 million at September 30, 2014 from $4,190.5 million at December 31, 2013, principally as a result of $344.8 million of net income, $15.1 million of net unrealized appreciation on investments, net of tax, $8.9 million of share-based compensation transactions and $2.4 million of net benefit plan obligation adjustments, partially offset by $8.6 million of net foreign currency translation adjustments.

Consolidated Investment Results

Net Investment Income.
Net investment income increased 21.2% to $83.4 million for the three months ended September 30, 2014 compared to $68.8 million for the three months ended September 30, 2013 primarily due to an increase in income from our limited partnership investments and an increase in dividend income from shares held of Group.  Net investment income decreased by 5.1% to $215.9 million for the nine months ended September 30, 2014 compared to $227.4 million for the nine months ended September 30, 2013.  The decrease, year over year, was primarily due to a decline in income from our limited partnership investments, partially offset by an increase in dividends from shares held of Group.

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

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Dollars in millions)
 
2014
   
2013
   
2014
   
2013
 
Fixed maturities
  $ 52.5     $ 52.1     $ 157.5     $ 159.4  
Equity securities
    8.0       8.4       26.1       27.2  
Short-term investments and cash
    0.2       0.3       0.8       0.7  
Other invested assets
                               
Limited partnerships
    19.3       6.6       18.9       32.1  
Dividends from Parent's shares
    7.3       4.7       21.9       14.0  
Other
    0.9       1.1       3.2       5.3  
Gross investment income before adjustments
    88.1       73.1       228.4       238.7  
Funds held interest income (expense)
    1.0       0.7       4.3       4.2  
Gross investment income
    89.1       73.8       232.7       242.9  
Investment expenses
    (5.6 )     (5.0 )     (16.8 )     (15.5 )
Net investment income
  $ 83.4     $ 68.8     $ 215.9     $ 227.4  
                                 
(Some amounts may not reconcile due to rounding)
                               


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

 
At
 
At
 
September 30,
 
December 31,
 
2014
 
2013
Imbedded pre-tax yield of cash and invested assets
3.0%
 
3.3%
Imbedded after-tax yield of cash and invested assets
2.1%
 
2.4%


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Annualized pre-tax yield on average cash and invested assets
3.8%
 
3.4%
 
3.4%
 
3.7%
Annualized after-tax yield on average cash and invested assets
2.6%
 
2.4%
 
2.4%
 
2.6%

 
32

 
Net Realized Capital Gains (Losses).
The following table presents the composition of our net realized capital gains (losses) for the periods indicated:

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
(Dollars in millions)
 
2014
   
2013
   
Variance
   
2014
   
2013
   
Variance
 
Gains (losses) from sales:
                                   
Fixed maturity securities, market value
                                   
Gains
  $ 4.3     $ 3.4     $ 0.9     $ 9.4     $ 11.7     $ (2.3 )
Losses
    (3.3 )     (1.7 )     (1.6 )     (11.3 )     (7.7 )     (3.6 )
Total
    1.0       1.8       (0.8 )     (1.9 )     4.1       (6.0 )
                                                 
Fixed maturity securities, fair value
                                               
Gains
    0.1       -       0.1       1.3       0.4       0.9  
Losses
    -       -       -       (0.3 )     (0.3 )     -  
Total
    0.1       -       0.1       1.0       0.1       0.9  
                                                 
Equity securities, fair value
                                               
Gains
    1.7       3.8       (2.1 )     12.0       33.2       (21.2 )
Losses
    (4.3 )     (2.2 )     (2.1 )     (14.2 )     (7.6 )     (6.6 )
Total
    (2.6 )     1.6       (4.2 )     (2.2 )     25.6       (27.8 )
                                                 
Total net realized gains (losses) from sales
                                               
Gains
    6.1       7.2       (1.1 )     22.7       45.3       (22.6 )
Losses
    (7.6 )     (3.8 )     (3.8 )     (25.8 )     (15.5 )     (10.3 )
Total
    (1.4 )     3.4       (4.8 )     (3.0 )     29.8       (32.8 )
                                                 
Other than temporary impairments:
    -       -       -       (0.2 )     -       (0.2 )
                                                 
Gains (losses) from fair value adjustments:
                                               
Fixed maturities, fair value
    (0.9 )     0.6       (1.5 )     (0.9 )     (1.0 )     0.1  
Equity securities, fair value
    (12.6 )     37.8       (50.4 )     65.4       160.3       (94.9 )
Other invested assets, fair value
    14.8       166.7       (151.9 )     59.7       344.7       (285.0 )
Total
    1.2       205.1       (203.9 )     124.1       504.0       (379.9 )
                                                 
Total net realized gains (losses)
  $ (0.2 )   $ 208.4     $ (208.6 )   $ 120.9     $ 533.8     $ (412.9 )
                                                 
(Some amounts may not reconcile due to rounding)
                                               

Net realized capital losses were $0.2 million and net realized capital gains were $208.4 million for the three months ended September 30, 2014 and 2013, respectively.  For the three months ended September 30, 2014, we recorded $1.4 million of net realized capital losses from sales of fixed maturity and equity securities, partially offset by $1.2 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets.  For the three months ended September 30, 2013, we recorded $205.1 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $3.4 million of net realized capital gains from sales of fixed maturity and equity securities.  The fixed maturity and equity sales for the three months ended September 30, 2014 and 2013 related primarily to adjusting the portfolios for overall market changes and individual credit shifts along with maintaining a balanced foreign currency exposure.

 
33

 
Net realized capital gains were $120.9 million and $533.8 million for the nine months ended September 30, 2014 and 2013, respectively.  For the nine months ended September 30, 2014, we recorded $124.1 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets, partially offset by $3.0 million of net realized capital losses from sales of fixed maturity and equity securities and $0.2 million of other-than-temporary impairments.  For the nine months ended September 30, 2013, we recorded $504.0 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $29.8 million of net realized capital gains from sales of fixed maturity and equity securities.  The fixed maturity and equity sales for the nine months ended September 30, 2014 and 2013 related primarily to adjusting the portfolios for overall market changes and individual credit shifts along with maintaining a balanced foreign currency exposure.

Segment Results.
The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S.  The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada, Singapore and through offices in Brazil, Miami and New Jersey.  The Insurance operation writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S and Canada.

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

Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses.  We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.

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

 
34

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

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

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
(Dollars in millions)
 
2014
   
2013
   
Variance
   
% Change
   
2014
   
2013
   
Variance
   
% Change
 
Gross written premiums
  $ 679.9     $ 532.3     $ 147.6       27.7 %   $ 1,663.3     $ 1,385.5     $ 277.8       20.1 %
Net written premiums
    304.4       257.1       47.4       18.4 %     771.1       690.5       80.5       11.7 %
                                                                 
Premiums earned
  $ 275.5     $ 225.2     $ 50.3       22.3 %   $ 740.0     $ 621.4     $ 118.5       19.1 %
Incurred losses and LAE
    125.5       102.5       23.0       22.4 %     371.1       340.8       30.3       8.9 %
Commission and brokerage
    51.2       38.3       13.0       33.8 %     144.7       114.9       29.8       25.9 %
Other underwriting expenses
    12.1       12.0       0.1       0.9 %     33.1       32.5       0.5       1.6 %
Underwriting gain (loss)
  $ 86.7     $ 72.4     $ 14.3       19.7 %   $ 191.0     $ 133.1     $ 57.9       43.5 %
                                                                 
                           
Point Chg
                         
Point Chg
 
Loss ratio
    45.5 %     45.5 %             -       50.2 %     54.8 %             (4.6 )
Commission and brokerage ratio
    18.6 %     17.0 %             1.6       19.6 %     18.5 %             1.1  
Other underwriting expense ratio
    4.4 %     5.3 %             (0.9 )     4.4 %     5.3 %             (0.9 )
Combined ratio
    68.5 %     67.8 %             0.7       74.2 %     78.6 %             (4.4 )
                                                                 
(NM, not meaningful)
                                                               
(Some amounts may not reconcile due to rounding.)
                                                               

Premiums. Gross written premiums increased by 27.7% to $679.9 million for the three months ended September 30, 2014 from $532.3 million for the three months ended September 30, 2013, primarily due to new business opportunities, particularly for contracts with catastrophe exposed risks and mortgage guaranty business.  Net written premiums increased by 18.4% to $304.4 million for the three months ended September 30, 2014 compared to $257.1 million for the three months ended September 30, 2013.  The variance of the change in gross written premiums compared to the change in net written premiums is primarily due to a higher utilization of reinsurance related to the new quota share contracts and the impact of changes in affiliated reinsurance agreements, including Mt. Logan.  Premiums earned increased 22.3% to $275.5 million for the three months ended September 30, 2014 compared to $225.2 million for the three months ended September 30, 2013.  The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 20.1% to $1,663.3 million for the nine months ended September 30, 2014 from $1,385.5 million for the nine months ended September 30, 2013, primarily due to new business opportunities, particularly for contracts with catastrophe exposed risks and mortgage guaranty business.  Net written premiums increased by 11.7% to $771.1 million for the nine months ended September 30, 2014 compared to $690.5 million for the nine months ended September 30, 2013.  The variance of the change in gross written premiums compared to the change in net written premiums is primarily due to a higher utilization of reinsurance related to the new quota share contracts and the impact of changes in affiliated reinsurance agreements, including Mt. Logan.  Premiums earned increased 19.1% to $740.0 million for the nine months ended September 30, 2014 compared to $621.4 million for the nine months ended September 30, 2013.  The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

 
35

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

   
Three Months Ended September 30,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2014
                                         
Attritional
  $ 125.2       45.4 %     $ -       0.0 %     $ 125.2       45.4 %  
Catastrophes
    -       0.0 %       0.3       0.1 %       0.3       0.1 %  
Total segment
  $ 125.2       45.4 %     $ 0.3       0.1 %     $ 125.5       45.5 %  
                                                       
2013
                                                     
Attritional
  $ 113.6       50.5 %     $ (12.0 )     -5.3 %     $ 101.6       45.2 %  
Catastrophes
    0.1       0.0 %       0.8       0.3 %       0.9       0.3 %  
Total segment
  $ 113.7       50.5 %     $ (11.2 )     -5.0 %     $ 102.5       45.5 %  
                                                       
Variance 2014/2013
                                                     
Attritional
  $ 11.6       (5.1 )
pts
  $ 12.0       5.3  
pts
  $ 23.6       0.2  
pts
Catastrophes
    (0.1 )     -  
pts
    (0.5 )     (0.2 )
pts
    (0.6 )     (0.2 )
pts
Total segment
  $ 11.5       (5.1 )
pts
  $ 11.5       5.1  
pts
  $ 23.0       -  
pts


   
Nine Months Ended September 30,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2014
                                         
Attritional
  $ 373.2       50.6 %     $ (4.9 )     -0.7 %     $ 368.3       49.9 %  
Catastrophes
    3.2       0.4 %       (0.4 )     -0.1 %       2.8       0.3 %  
Total segment
  $ 376.4       51.0 %     $ (5.3 )     -0.8 %     $ 371.1       50.2 %  
                                                       
2013
                                                     
Attritional
  $ 305.9       49.2 %     $ (8.6 )     -1.4 %     $ 297.3       47.8 %  
Catastrophes
    27.6       4.4 %       15.9       2.6 %       43.5       7.0 %  
Total segment
  $ 333.5       53.6 %     $ 7.3       1.2 %     $ 340.8       54.8 %  
                                                       
Variance 2014/2013
                                                     
Attritional
  $ 67.3       1.4  
pts
  $ 3.7       0.7  
pts
  $ 71.0       2.1  
pts
Catastrophes
    (24.4 )     (4.0 )
pts
    (16.3 )     (2.7 )
pts
    (40.7 )     (6.7 )
pts
Total segment
  $ 42.9       (2.6 )
pts
  $ (12.6 )     (2.0 )
pts
  $ 30.3       (4.6 )
pts
                                                       
(Some amounts may not reconcile due to rounding.)
                                               

Incurred losses increased by 22.4% to $125.5 million for the three months ended September 30, 2014 compared to $102.5 million for the three months ended September 30, 2013, primarily due to the increase in current year attritional losses of $11.6 million, due to the impact of the increase in premiums earned, and $12.0 million of less favorable development on prior years’ attritional losses in 2014 compared to 2013.  The $12.0 million of prior years’ attritional losses for the three months ended September 30, 2013 related primarily to the treaty casualty line of business.  There were no current year catastrophe losses for the three months ended September 30, 2014.  The $0.1 million of current year catastrophe losses for the three months ended September 30, 2013 were due to the Canadian floods.

Incurred losses increased by 8.9% to $371.1 million for the nine months ended September 30, 2014 compared to $340.8 million for the nine months ended September 30, 2013, primarily due to the increase in current year attritional losses of $67.3 million resulting primarily from the impact of the increase in premiums earned, partially offset by a decrease of $24.4 million in current year catastrophe losses and favorable development on prior years’ catastrophe losses in 2014 compared to unfavorable development in 2013.  The $3.2 million of current year catastrophe losses for the nine months ended September 30, 2014 related to the Japan snowstorm ($3.2 million).  The $27.6 million of current year catastrophe losses for the nine months ended September 30, 2013 were due to the U.S. storms ($25.0 million), European floods ($2.5 million) and Canadian floods ($0.1 million).  The $15.9 million of unfavorable development on prior years’ catastrophe losses for the nine months ended September 30, 2013 related primarily to Superstorm Sandy.

 
36

 
Segment Expenses.  Commission and brokerage expenses increased by 33.8% to $51.2 million for the three months ended September 30, 2014 compared to $38.3 million for the three months ended September 30, 2013.  Commission and brokerage expenses increased by 25.9% to $144.7 million for the nine months ended September 30, 2014 compared to $114.9 million for the nine months ended September 30, 2013.  These variances were mainly due to the impact of the increases in premiums earned, higher contingent commissions and changes in the mix of business. 
 
Segment other underwriting expenses increased slightly to $12.1 million for the three months ended September 30, 2014 from $12.0 million for the three months ended September 30, 2013 and increased slightly to $33.1 million for the nine months ended September 30, 2014 from $32.5 million for the nine months ended September 30, 2013.

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

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
(Dollars in millions)
 
2014
   
2013
   
Variance
   
% Change
   
2014
   
2013
   
Variance
   
% Change
 
Gross written premiums
  $ 419.5     $ 339.7     $ 79.7       23.5 %   $ 1,214.3     $ 994.5     $ 219.8       22.1 %
Net written premiums
    157.9       149.8       8.1       5.4 %     446.6       446.2       0.4       0.1 %
                                                                 
Premiums earned
  $ 145.7     $ 140.9     $ 4.8       3.4 %   $ 438.4     $ 433.9     $ 4.5       1.0 %
Incurred losses and LAE
    113.7       90.7       23.0       25.3 %     286.2       262.7       23.5       8.9 %
Commission and brokerage
    23.8       27.9       (4.2 )     -14.9 %     80.3       87.2       (6.8 )     -7.9 %
Other underwriting expenses
    8.8       8.7       -       0.4 %     24.7       24.3       0.4       1.5 %
Underwriting gain (loss)
  $ (0.6 )   $ 13.5     $ (14.0 )     -104.2 %   $ 47.2     $ 59.6     $ (12.5 )     -20.9 %
                                                                 
                           
Point Chg
                         
Point Chg
Loss ratio
    78.1 %     64.4 %             13.7       65.3 %     60.6 %             4.7  
Commission and brokerage ratio
    16.3 %     19.8 %             (3.5 )     18.3 %     20.1 %             (1.8 )
Other underwriting expense ratio
    6.0 %     6.2 %             (0.2 )     5.6 %     5.6 %             -  
Combined ratio
    100.4 %     90.4 %             10.0       89.2 %     86.3 %             2.9  
                                                                 
(Some amounts may not reconcile due to rounding.)
                                                               

Premiums. Gross written premiums increased by 23.5% to $419.5 million for the three months ended September 30, 2014 compared to $339.7 million for the three months ended September 30, 2013, primarily due to new quota share contracts.  Net written premiums increased by 5.4% to $157.9 million for the three months ended September 30, 2014 compared to $149.8 million for the three months ended September 30, 2013.  The variance of the change in gross written premiums compared to the change in net written premiums is due to a higher utilization of reinsurance related to the new quota share contracts and the impact of changes in affiliated reinsurance agreements, including Mt. Logan.  Premiums earned increased 3.4% to $145.7 million for the three months ended September 30, 2014 compared to $140.9 million for the three months ended September 30, 2013.  The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 22.1% to $1,214.3 million for the nine months ended September 30, 2014 compared to $994.5 million for the nine months ended September 30, 2013, primarily due to new quota share contracts, partially offset by approximately $30 million of negative impacts from foreign exchange movements year over year.  Net written premiums increased by 0.1% to $446.6 million for the nine months ended September 30, 2014 compared to $446.2 million for the nine months ended September 30, 2013.  The variance of the change in gross written premiums compared to the change in net written premiums is due to a higher utilization of reinsurance related to the new quota share contracts and the impact of changes in affiliated reinsurance agreements, including Mt. Logan.  Premiums earned increased 1.0% to $438.4 million for the nine months ended September 30, 2014 compared to $433.9 million for the nine months ended September 30, 2013.  The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

 
37

 
Incurred Losses and LAE.  The following tables present the incurred losses and LAE for the International segment for the periods indicated.

   
Three Months Ended September 30,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2014
                                         
Attritional
  $ 106.6       73.2 %     $ (3.8 )     -2.6 %     $ 102.8       70.6 %  
Catastrophes
    14.7       10.1 %       (3.7 )     -2.6 %       10.9       7.5 %  
Total segment
  $ 121.3       83.3 %     $ (7.6 )     -5.2 %     $ 113.7       78.1 %  
                                                       
2013
                                                     
Attritional
  $ 85.1       60.4 %     $ (1.6 )     -1.1 %     $ 83.5       59.3 %  
Catastrophes
    6.6       4.7 %       0.6       0.4 %       7.2       5.1 %  
Total segment
  $ 91.7       65.1 %     $ (1.0 )     -0.7 %     $ 90.7       64.4 %  
                                                       
Variance 2014/2013
                                                     
Attritional
  $ 21.5       12.8  
pts
  $ (2.2 )     (1.5 )
pts
  $ 19.3       11.3  
pts
Catastrophes
    8.1       5.4  
pts
    (4.3 )     (3.0 )
pts
    3.7       2.4  
pts
Total segment
  $ 29.6       18.2  
pts
  $ (6.6 )     (4.5 )
pts
  $ 23.0       13.7  
pts


   
Nine Months Ended September 30,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2014
                                         
Attritional
  $ 263.7       60.1 %     $ (4.1 )     -0.9 %     $ 259.7       59.2 %  
Catastrophes
    32.0       7.3 %       (5.5 )     -1.2 %       26.5       6.1 %  
Total segment
  $ 295.7       67.4 %     $ (9.5 )     -2.1 %     $ 286.2       65.3 %  
                                                       
2013
                                                     
Attritional
  $ 255.5       59.0 %     $ (3.4 )     -0.8 %     $ 252.1       58.2 %  
Catastrophes
    9.1       2.1 %       1.5       0.3 %       10.6       2.4 %  
Total segment
  $ 264.6       61.1 %     $ (1.9 )     -0.5 %     $ 262.7       60.6 %  
                                                       
Variance 2014/2013
                                                     
Attritional
  $ 8.2       1.1  
pts
  $ (0.7 )     (0.1 )
pts
  $ 7.6       1.0  
pts
Catastrophes
    22.9       5.2  
pts
    (7.0 )     (1.5 )
pts
    15.9       3.7  
pts
Total segment
  $ 31.1       6.3  
pts
  $ (7.6 )     (1.6 )
pts
  $ 23.5       4.7  
pts
                                                       
(Some amounts may not reconcile due to rounding.)
                                               

Incurred losses and LAE increased by 25.3% to $113.7 million for the three months ended September 30, 2014 compared to $90.7 million for the three months ended September 30, 2013, primarily due to an increase of $21.5 million in current year attritional losses, related to additional losses in the Middle East, Africa and Latin America, and an increase of $8.1 million in current year catastrophe losses. The $14.7 million of current year catastrophe losses for the three months ended September 30, 2014 were due to Hurricane Odile ($9.9 million) and the Chilean earthquake ($4.8 million).  The $6.6 million of current year catastrophe losses for the three months ended September 30, 2013, were due to the Canadian floods.

Incurred losses and LAE increased by 8.9% to $286.2 million for the nine months ended September 30, 2014 compared to $262.7 million for the nine months ended September 30, 2013, primarily due to an increase of $22.9 million in current year catastrophe losses and an increase of $8.2 million in current year attritional losses, related to additional losses in the Middle East, Africa and Latin America. The $32.0 million of current year catastrophe losses for the nine months ended September 30, 2014 were due to the Chilean earthquake ($12.1 million), Japan snowstorm ($10.0 million) and Hurricane Odile ($9.9 million).  The $9.1 million of current year catastrophe losses for the nine months ended September 30, 2013 were due to the Canadian floods.

Segment Expenses. Commission and brokerage decreased 14.9% to $23.8 million for the three months ended September 30, 2014 compared to $27.9 million for the three months ended September 30, 2013.  Commission and brokerage decreased 7.9% to $80.3 million for the nine months ended September 30, 2014 compared to $87.2 million for the nine months ended September 30, 2013. This decrease was primarily due to the new contracts, which have lower net commission rates, partially offset by the impact of the increase in premiums earned.

 
38

 
Segment other underwriting expenses slightly increased to $8.8 million for the three months ended September 30, 2014 compared to $8.7 million for the three months ended September 30, 2013 and slightly increased to $24.7 million for the nine months ended September 30, 2014 compared to $24.3 million for the nine months ended September 30, 2013.

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

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
(Dollars in millions)
 
2014
   
2013
   
Variance
   
% Change
   
2014
   
2013
   
Variance
   
% Change
 
Gross written premiums
  $ 354.0     $ 367.5     $ (13.4 )     -3.7 %   $ 885.0     $ 923.6     $ (38.6 )     -4.2 %
Net written premiums
    149.5       178.4       (28.8 )     -16.2 %     386.7       456.3       (69.6 )     -15.3 %
                                                                 
Premiums earned
  $ 148.4     $ 157.4     $ (9.0 )     -5.7 %   $ 382.4     $ 406.2     $ (23.8 )     -5.9 %
Incurred losses and LAE
    141.4       113.9       27.5       24.2 %     322.8       306.2       16.7       5.5 %
Commission and brokerage
    4.2       5.4       (1.2 )     -22.1 %     15.5       12.9       2.6       20.0 %
Other underwriting expenses
    29.7       28.2       1.5       5.4 %     79.3       79.9       (0.6 )     -0.8 %
Underwriting gain (loss)
  $ (26.9 )   $ 10.0     $ (36.9 )  
NM 
  $ (35.2 )   $ 7.3     $ (42.5 )  
NM 
                                                                 
                           
Point Chg
                         
Point Chg
Loss ratio
    95.3 %     72.3 %             23.0       84.4 %     75.4 %             9.0  
Commission and brokerage ratio
    2.8 %     3.4 %             (0.6 )     4.1 %     3.2 %             0.9  
Other underwriting expense ratio
    20.0 %     17.9 %             2.1       20.7 %     19.6 %             1.1  
Combined ratio
    118.1 %     93.6 %             24.5       109.2 %     98.2 %             11.0  
                                                                 
(NM, not meaningful)
                                                               
(Some amounts may not reconcile due to rounding.)
                                                               

Premiums.  Gross written premiums decreased by 3.7% to $354.0 million for the three months ended September 30, 2014 compared to $367.5 million for the three months ended September 30, 2013.  This decrease was primarily driven by a decline in crop business.  Net written premiums decreased by 16.2% to $149.5 million for the three months ended September 30, 2014 compared to $178.4 million for the three months ended September 30, 2013.  The variance in the change of gross written premiums compared to the change in net written premiums is due to varied utilization of reinsurance, particularly on the crop business.  Premiums earned decreased 5.7% to $148.4 million for the three months ended September 30, 2014 compared to $157.4 million for the three months ended September 30, 2013.  The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums decreased by 4.2% to $885.0 million for the nine months ended September 30, 2014 compared to $923.6 million for the nine months ended September 30, 2013.  This decrease was primarily driven by a decline in crop business.  Net written premiums decreased by 15.3% to $386.7 million for the nine months ended September 30, 2014 compared to $456.3 million for the nine months ended September 30, 2013.  The variance in the change of gross written premiums compared to the change in net written premiums is due to varied utilization of reinsurance, particularly on the crop business.  Premiums earned decreased 5.9% to $382.4 million for the nine months ended September 30, 2014 compared to $406.2 million for the nine months ended September 30, 2013.  The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

 
39

 
Incurred Losses and LAE. The following tables present the incurred losses and LAE for the Insurance segment for the periods indicated.

   
Three Months Ended September 30,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2014
                                         
Attritional
  $ 140.6       94.8 %     $ 0.8       0.5 %     $ 141.4       95.3 %  
Catastrophes
    -       0.0 %       -       0.0 %       -       0.0 %  
Total segment
  $ 140.6       94.8 %     $ 0.8       0.5 %     $ 141.4       95.3 %  
                                                       
2013
                                                     
Attritional
  $ 112.8       71.6 %     $ 1.0       0.7 %     $ 113.8       72.3 %  
Catastrophes
    0.2       0.1 %       (0.1 )     -0.1 %       0.1       0.0 %  
Total segment
  $ 113.0       71.7 %     $ 0.9       0.6 %     $ 113.9       72.3 %  
                                                       
Variance 2014/2013
                                                     
Attritional
  $ 27.8       23.2  
pts
  $ (0.2 )     (0.2 )
pts
  $ 27.6       23.0  
pts
Catastrophes
    (0.2 )     (0.1 )
pts
    0.1       0.1  
pts
    (0.1 )     -  
pts
Total segment
  $ 27.6       23.1  
pts
  $ (0.1 )     (0.1 )
pts
  $ 27.5       23.0  
pts


   
Nine Months Ended September 30,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2014
                                         
Attritional
  $ 319.4       83.5 %     $ 3.4       0.9 %     $ 322.8       84.4 %  
Catastrophes
    -       0.0 %       0.1       0.0 %       0.1       0.0 %  
Total segment
  $ 319.4       83.5 %     $ 3.4       0.9 %     $ 322.8       84.4 %  
                                                       
2013
                                                     
Attritional
  $ 296.6       73.0 %     $ 9.5       2.3 %     $ 306.1       75.3 %  
Catastrophes
    0.2       0.1 %       (0.1 )     0.0 %       0.1       0.1 %  
Total segment
  $ 296.8       73.1 %     $ 9.4       2.3 %     $ 306.2       75.4 %  
                                                       
Variance 2014/2013
                                                     
Attritional
  $ 22.8       10.5  
pts
  $ (6.1 )     (1.4 )
pts
  $ 16.7       9.1  
pts
Catastrophes
    (0.2 )     (0.1 )
pts
    0.2       -  
pts
    -       (0.1 )
pts
Total segment
  $ 22.6       10.4  
pts
  $ (6.0 )     (1.4 )
pts
  $ 16.7       9.0  
pts
                                                       
(Some amounts may not reconcile due to rounding.)
                                               

Incurred losses and LAE increased by 24.2% to $141.4 million for the three months ended September 30, 2014 compared to $113.9 million for the three months ended September 30, 2013, mainly due to an increase of $27.8 million in current year attritional losses, which were mainly related to the crop book of business. There were no current year catastrophe losses for the three months ended September 30, 2014.  The $0.2 million of current year catastrophe losses for the three months ended September 30, 2013 were due to the Canadian floods.

Incurred losses and LAE increased by 5.5% to $322.8 million for the nine months ended September 30, 2014 compared to $306.2 million for the nine months ended September 30, 2013, mainly due to an increase of $22.8 million in current year attritional losses, which were mainly related to the crop book of business, partially offset by $6.1 million of lower development on prior years’ attritional losses in 2014 compared to 2013.  There were no current year catastrophe losses for the nine months ended September 30, 2014.  The $0.2 million of current year catastrophe losses for the nine months ended September 30, 2013 were due to the Canadian floods.

Segment Expenses.  Commission and brokerage decreased slightly to $4.2 million for the three months ended September 30, 2014 compared to $5.4 million for the three months ended September 30, 2013.  Commission and brokerage increased 20.0% to $15.5 million for the nine months ended September 30, 2014 compared to $12.9 million for the nine months ended September 30, 2013.  The increase for the year was primarily driven by the shift in the mix of premium away from crop business, which carries a lower commission rate than other insurance lines.

 
40

 
Segment other underwriting expenses increased slightly to $29.7 million for the three months ended September 30, 2014 compared to $28.2 million for the three months ended September 30, 2013.  Segment other underwriting expenses decreased slightly to $79.3 million for the nine months ended September 30, 2014 compared to $79.9 million for the nine months ended September 30, 2013 due primarily to the impact of the decline in premiums earned.

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

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

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

Interest Rate Risk.  Our $9.9 billion investment portfolio, at September 30, 2014, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price fluctuations and some foreign exchange rate risk.  The overall economic impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar value of foreign currency denominated liabilities and their associated income statement impact.

Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates.  In a declining interest rate environment, it includes prepayment risk on the $670.6 million of mortgage-backed securities in the $5,836.5 million fixed maturity portfolio.  Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.

 
41

 
The table below display the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $659.0 million of short-term investments) for the periods indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates.  For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually.  To generate appropriate price estimates for mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account.  For legal entities with 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.

   
Impact of Interest Rate Shift in Basis Points
   
At September 30, 2014
(Dollars in millions)
   -200    -100    0    100    200
Total Market/Fair Value
  $ 6,803.2     $ 6,652.1     $ 6,495.6     $ 6,331.4     $ 6,162.3  
Market/Fair Value Change from Base (%)
    4.7 %     2.4 %     0.0 %     -2.5 %     -5.1 %
Change in Unrealized Appreciation
                                       
After-tax from Base ($)
  $ 200.0     $ 101.8     $ -     $ (106.7 )   $ (216.6 )

We had $7,784.1 million and $7,653.2 million of gross reserves for losses and LAE as of September 30, 2014 and December 31, 2013, respectively.  These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money.  Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value.  As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases.  These movements are the opposite of the interest rate impacts on the fair value of investments.  While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid.  Our loss and loss reserve obligations have an expected duration that is reasonably consistent with our fixed income portfolio.

Equity Risk.  Equity risk is the potential change in fair and/or market value of the common stock and preferred stock portfolios arising from changing prices.  Our equity investments consist of a diversified portfolio of individual securities.  The primary objective of the equity portfolio is to obtain greater total return relative to bonds over time through market appreciation and income.

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

   
Impact of Percentage Change in Equity Fair/Market Values
   
At September 30, 2014
(Dollars in millions)
   -20%    -10%    0%    10%    20%
Fair/Market Value of the Equity Portfolio
  $ 956.2     $ 1,075.7     $ 1,195.3     $ 1,314.8     $ 1,434.3  
After-tax Change in Fair/Market Value
    (155.4 )     (77.7 )     -       77.7       155.4  

Foreign Exchange Risk.  Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates.  Each of our non-U.S. (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines.  Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates.  The primary foreign currency exposures for these foreign operations are the Singapore and Canadian Dollars.  We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our corresponding operating liabilities.  In accordance with FASB guidance, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar.  This translation amount is reported as a component of other comprehensive income.  As of September 30, 2014, there has been no material change in exposure to foreign exchange rates as compared to December 31, 2013.

 
42

 
SAFE HARBOR DISCLOSURE
This report contains forward-looking statements within the meaning of the U.S. federal securities laws.  We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws.  In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”.  Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic events on our financial statements and the ability of our subsidiaries to pay dividends.  Forward-looking statements only reflect our expectations and are not guarantees of performance.  These statements involve risks, uncertainties and assumptions.  Actual events or results may differ materially from our expectations.  Important factors that could cause our actual events or results to be materially different from our expectations include those discussed under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, Part 1, Item 1A.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.


ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Instruments.  See “Market Sensitive Instruments” in PART I – ITEM 2.


ITEM 4.         CONTROLS AND PROCEDURES

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


PART II

ITEM 1.         LEGAL PROCEEDINGS

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements.  In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it.  In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights.  These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation.  In all such matters, the Company believes that its positions are legally and commercially reasonable.  The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.

Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.

 
43

 

ITEM 1A.  RISK FACTORS

No material changes.


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

None.


ITEM 3.         DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.         MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.         OTHER INFORMATION

None.


ITEM 6.         EXHIBITS

Exhibit Index:
   
     
Exhibit No.
Description
 
     
   31.1
Section 302 Certification of Dominic J. Addesso
 
     
   31.2
Section 302 Certification of Craig Howie
 
     
   32.1
Section 906 Certification of Dominic J. Addesso and Craig Howie
 
     
   101.INS
XBRL Instance Document
 
     
   101.SCH
XBRL Taxonomy Extension Schema
 
     
   101.CAL
XBRL Taxonomy Extension Calculation Linkbase
 
     
   101.DEF
XBRL Taxonomy Extension Definition Linkbase
 
     
   101.LAB
XBRL Taxonomy Extension Labels Linkbase
 
     
   101.PRE
XBRL Taxonomy Extension Presentation Linkbase
 
     

 
44

 
Everest Reinsurance Holdings, Inc.

Signatures



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


 

         
   
Everest Reinsurance Holdings, Inc.
   
(Registrant)
 
         
         
   
/S/ CRAIG HOWIE
 
   
Craig Howie
 
   
Executive Vice President and
         Chief Financial Officer
         
   
(Duly Authorized Officer and Principal Financial Officer)
         
         
         
Dated: November 14, 2014