Everest Re Posts $16.6 Million Q4 Net Loss; $18.7 Million FY Loss

February 12, 2009

The Bermuda-based Everest Re Group reported an overall net loss of $16.591 million, or $0.27 per share, for the fourth quarter of 2008 compared to net income of $12.2 million, or $0.19 per diluted share, for the same period in 2007. However, the Group’s after-tax operating income, which excludes realized capital gains and losses, was $179.5 million, or $2.93 per share, compared to after-tax operating income1 of $63.2 million, or $1.00 per diluted share, in the fourth quarter of 2007.

For the year ended December 31, after-tax operating income was $562.7 million, or $9.12 per share, for 2008, compared to $776.9 million, or $12.21 per diluted share, for 2007. Including net realized capital gains and losses, Everest Re posted a net loss of $18.758 million for the full year 2008, or $0.30 per share, compared to net income of $839.3 million, or $13.19 per diluted share, for 2007.

Chairman and CEO Joseph V. Taranto commented: “While this year has been challenging on the investment front, we are pleased with the performance of our core operations. Our capital and underwriting fundamentals remain strong, and we are well positioned to capitalize on future market opportunities.”

Everest Re listed the following “operating highlights” for the fourth quarter and full year:
— Gross written premiums were $896.1 million for the quarter, 15 percent lower than in the same period in 2007. A one-time assumption of a premium portfolio for a newly incepted insurance program in 2007, which did not recur in 2008, contributed approximately half of the decrease. Adjusting for this, the current quarter gross written premium is 8 percent lower than last year’s fourth quarter; consistent with the trend seen throughout the year. Reinsurance premiums, in the aggregate, were down 7 percent and insurance premiums, adjusted for the large premium accrual in 2007, were down 13 percent. Insurance premiums were impacted by softer workers’ compensation, public entity and contractors markets as well as the timing of new business.
— The GAAP combined ratio for the fourth quarter was 83.5 percent compared to 108.4 percent for the same period last year. Favorable reserve development, excluding catastrophes, was $41.5 million, which reduced the combined ratio by 5 points in the current quarter. In 2007, the Company experienced significant adverse reserve development due primarily to strengthening of its asbestos reserves. Pre-tax catastrophe losses, net of reinstatement premiums, had a minimal impact in both the current year quarter and the prior year quarter. The combined ratio for the full year 2008 was 95.6 percent compared to 91.6 percent for the full year 2007.
— Net investment income was $75.4 million for the fourth quarter 2008, down more than 50 percent compared to fourth quarter 2007. Losses emanating from limited partnership investments, primarily partnerships with significant public equity exposures, were the principal driver of the decline. Investment income totaled $565.9 million for the full year 2008; a 17 percent decline compared to the same period in 2007.
— Net after-tax realized capital losses totaled $196.1 million for the quarter compared to $51.0 million in the same period last year. During the quarter, the managed public equity portfolio lost $184.7 million and was largely liquidated and write-downs for other-than-temporary impairments were $14.2 million. As of 12/31/08, cash and invested assets totaled $13.7 billion with 94 percent represented by cash and fixed income securities.
— With AAA corporate rates down and the S&P 500 Index significantly lower, the valuation model produced net derivative expense of $34.1 million for the quarter and $20.9 million for the year. In 2007, the quarterly and yearly expenses were $3.8 million and $2.1 million, respectively.
— Cash flow from operations was $55.3 million compared to $235.7 million for the same quarter in 2007. For the year, cash flow from operations was $663.0 million for 2008 compared to $854.4 million for 2007.
— For the year, the after-tax operating income1 return on average adjusted shareholders’ equity2 was 10.5 percent compared to 14.6 percent in 2007.
— Shareholders’ equity at December 31, 2008 was $5.0 billion down from $5.7 billion at December 31, 2007, reflective of year-to-date after-tax operating income1 of $562.7 million offset by net after-tax realized and unrealized losses on investments of $818.1 million, foreign currency translation adjustments of $193.3 million, share repurchases of $150.7 million, and dividend payouts of $118.6 million. Book value per share at the end of the year was $80.77 compared to $90.43 at December 31, 2007.
— Since year end 2007, the Company has repurchased 1.6 million of its common shares at an average price of $92.35. Since January 2007, the Company has repurchased 4.2 million of its common shares at an average price of $94.31. The total cost to date of the repurchased shares under this program is $392.3 million. The Company’s cumulative share repurchase authorizations allow for additional repurchases of up to 5.8 million shares.

The complete report, additional information and access to today’s earnings conference call may be obtained on the Group’s web site at: www.everestre.com.

Source: Everest Re

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