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:
March 31, 2016
 
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 May 1, 2016
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 March 31, 2016 (unaudited) and
 
     
December 31, 2015
1
       
   
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
 
     
three months ended March 31, 2016 and 2015 (unaudited)
2
         
   
Consolidated Statements of Changes in Stockholder's Equity for the three
 
     
months ended March 31, 2016 and 2015 (unaudited)
3
         
   
Consolidated Statements of Cash Flows for the three months ended
 
     
March 31, 2016 and 2015 (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
39
         
Item 4.
 
Controls and Procedures
39
         

PART II

OTHER INFORMATION

         
Item 1.
 
Legal Proceedings
40
         
Item 1A.
 
Risk Factors
40
       
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
40
       
Item 3.
 
Defaults Upon Senior Securities
40
       
Item 4.
 
Mine Safety Disclosures
40
       
Item 5.
 
Other Information
40
       
Item 6.
 
Exhibits
41

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS



   
March 31,
   
December 31,
 
(Dollars in thousands, except par value per share)
 
2016
   
2015
 
   
(unaudited)
     
ASSETS:
       
Fixed maturities - available for sale, at market value
 
$
5,579,911
   
$
5,356,477
 
     (amortized cost: 2016, $5,488,882; 2015, $5,335,472)
               
Fixed maturities - available for sale, at fair value
   
1,870
     
2,102
 
Equity securities - available for sale, at fair value
   
1,194,972
     
1,215,377
 
Short-term investments
   
329,190
     
563,536
 
Other invested assets (cost: 2016, $595,114; 2015, $450,154)
   
595,114
     
450,154
 
Other invested assets, at fair value
   
1,773,214
     
1,773,214
 
Cash
   
148,439
     
155,429
 
         Total investments and cash
   
9,622,710
     
9,516,289
 
Note receivable - affiliated
   
250,000
     
250,000
 
Accrued investment income
   
46,810
     
41,727
 
Premiums receivable
   
1,092,277
     
1,129,656
 
Reinsurance receivables - unaffiliated
   
848,919
     
716,982
 
Reinsurance receivables - affiliated
   
3,675,168
     
3,742,105
 
Funds held by reinsureds
   
172,271
     
176,712
 
Deferred acquisition costs
   
80,270
     
92,651
 
Prepaid reinsurance premiums
   
757,777
     
772,686
 
Other assets
   
247,742
     
261,805
 
TOTAL ASSETS
 
$
16,793,944
   
$
16,700,613
 
                 
LIABILITIES:
               
Reserve for losses and loss adjustment expenses
 
$
7,992,273
   
$
7,940,720
 
Unearned premium reserve
   
1,318,229
     
1,349,799
 
Funds held under reinsurance treaties
   
100,755
     
101,531
 
Losses in the course of payment
   
143,296
     
125,592
 
Commission reserves
   
45,880
     
51,873
 
Other net payable to reinsurers
   
1,120,917
     
1,225,260
 
4.868% Senior notes due 6/1/2044
   
400,000
     
400,000
 
6.6% Long term notes due 5/1/2067
   
238,369
     
238,368
 
Accrued interest on debt and borrowings
   
12,341
     
3,537
 
Income taxes
   
107,488
     
68,024
 
Unsettled securities payable
   
29,525
     
15,040
 
Other liabilities
   
248,154
     
249,658
 
         Total liabilities
   
11,757,227
     
11,769,402
 
                 
Commitments and Contingencies (Note 5)
               
                 
STOCKHOLDER'S EQUITY:
               
Common stock, par value: $0.01; 3,000 shares authorized;
               
     1,000 shares issued and outstanding (2016 and 2015)
   
-
     
-
 
Additional paid-in capital
   
379,582
     
374,789
 
Accumulated other comprehensive income (loss), net of deferred income tax expense
               
     (benefit) of $(182) at 2016 and ($33,458) at 2015
   
(349
)
   
(62,136
)
Retained earnings
   
4,657,484
     
4,618,558
 
         Total stockholder's equity
   
5,036,717
     
4,931,211
 
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
 
$
16,793,944
   
$
16,700,613
 
                 
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
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
   
(unaudited)
 
REVENUES:
       
Premiums earned
 
$
481,925
   
$
521,062
 
Net investment income
   
58,445
     
72,581
 
Net realized capital gains (losses):
               
Other-than-temporary impairments on fixed maturity securities
   
(23,015
)
   
(24,121
)
Other-than-temporary impairments on fixed maturity securities
               
transferred to other comprehensive income (loss)
   
-
     
-
 
Other net realized capital gains (losses)
   
(43,362
)
   
45,417
 
Total net realized capital gains (losses)
   
(66,377
)
   
21,296
 
Other income (expense)
   
13,102
     
15,833
 
Total revenues
   
487,095
     
630,772
 
                 
CLAIMS AND EXPENSES:
               
Incurred losses and loss adjustment expenses
   
296,062
     
308,880
 
Commission, brokerage, taxes and fees
   
68,822
     
96,531
 
Other underwriting expenses
   
59,227
     
48,543
 
Corporate expenses
   
2,336
     
1,609
 
Interest, fee and bond issue cost amortization expense
   
8,859
     
8,859
 
Total claims and expenses
   
435,306
     
464,422
 
                 
INCOME (LOSS) BEFORE TAXES
   
51,789
     
166,350
 
Income tax expense (benefit)
   
12,863
     
50,406
 
                 
NET INCOME (LOSS)
 
$
38,926
   
$
115,944
 
                 
Other comprehensive income (loss), net of tax:
               
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
   
19,600
     
15,950
 
Less: reclassification adjustment for realized losses (gains) included in net income (loss)
   
25,915
     
23,665
 
Total URA(D) on securities arising during the period
   
45,515
     
39,615
 
                 
Foreign currency translation adjustments
   
14,932
     
(33,308
)
                 
Benefit plan actuarial net gain (loss) for the period
   
-
     
-
 
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
   
1,340
     
1,604
 
Total benefit plan net gain (loss) for the period
   
1,340
     
1,604
 
Total other comprehensive income (loss), net of tax
   
61,787
     
7,911
 
                 
COMPREHENSIVE INCOME (LOSS)
 
$
100,713
   
$
123,855
 
                 
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
 
   
March 31,
 
(Dollars in thousands, except share amounts)
 
2016
   
2015
 
   
(unaudited)
 
COMMON STOCK (shares outstanding):
       
Balance, beginning of period
   
1,000
     
1,000
 
Balance, end of period
   
1,000
     
1,000
 
                 
ADDITIONAL PAID-IN CAPITAL:
               
Balance, beginning of period
 
$
374,789
   
$
362,293
 
Share-based compensation plans
   
4,793
     
3,965
 
Balance, end of period
   
379,582
     
366,258
 
                 
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
               
NET OF DEFERRED INCOME TAXES:
               
Balance, beginning of period
   
(62,136
)
   
4,519
 
Net increase (decrease) during the period
   
61,787
     
7,911
 
Balance, end of period
   
(349
)
   
12,430
 
                 
RETAINED EARNINGS:
               
Balance, beginning of period
   
4,618,558
     
4,205,905
 
Net income (loss)
   
38,926
     
115,944
 
Balance, end of period
   
4,657,484
     
4,321,849
 
                 
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD
 
$
5,036,717
   
$
4,700,537
 
                 
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
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
   
(unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
       
Net income (loss)
 
$
38,926
   
$
115,944
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Decrease (increase) in premiums receivable
   
38,549
     
(78,969
)
Decrease (increase) in funds held by reinsureds, net
   
3,817
     
(4,707
)
Decrease (increase) in reinsurance receivables
   
(56,106
)
   
(68,311
)
Decrease (increase) in income taxes
   
6,546
     
31,408
 
Decrease (increase) in prepaid reinsurance premiums
   
15,994
     
15,016
 
Increase (decrease) in reserve for losses and loss adjustment expenses
   
29,962
     
20,927
 
Increase (decrease) in unearned premiums
   
(33,573
)
   
(28,224
)
Increase (decrease) in other net payable to reinsurers
   
(106,588
)
   
(52,400
)
Increase (decrease) in losses in course of payment
   
17,456
     
60,419
 
Change in equity adjustments in limited partnerships
   
2,514
     
(7,173
)
Distribution of limited partnership income
   
9,859
     
7,369
 
Change in other assets and liabilities, net
   
24,496
     
35,494
 
Non-cash compensation expense
   
3,117
     
1,946
 
Amortization of bond premium (accrual of bond discount)
   
4,541
     
4,955
 
Amortization of underwriting discount on senior notes
   
1
     
1
 
Net realized capital (gains) losses
   
66,377
     
(21,296
)
Net cash provided by (used in) operating activities
   
65,888
     
32,399
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from fixed maturities matured/called - available for sale, at market value
   
154,378
     
188,815
 
Proceeds from fixed maturities sold - available for sale, at market value
   
188,046
     
112,846
 
Proceeds from fixed maturities sold - available for sale, at fair value
   
-
     
1,236
 
Proceeds from equity securities sold - available for sale, at fair value
   
86,149
     
133,960
 
Distributions from other invested assets
   
255,889
     
10,797
 
Cost of fixed maturities acquired - available for sale, at market value
   
(506,085
)
   
(293,848
)
Cost of equity securities acquired - available for sale, at fair value
   
(92,019
)
   
(164,112
)
Cost of other invested assets acquired
   
(413,223
)
   
(16,600
)
Net change in short-term investments
   
235,895
     
(860
)
Net change in unsettled securities transactions
   
5,870
     
(31,296
)
Net cash provided by (used in) investing activities
   
(85,100
)
   
(59,062
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Tax benefit from share-based compensation
   
1,676
     
2,020
 
Net cash provided by (used in) financing activities
   
1,676
     
2,020
 
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
   
10,546
     
(31,845
)
                 
Net increase (decrease) in cash
   
(6,990
)
   
(56,488
)
Cash, beginning of period
   
155,429
     
323,975
 
Cash, end of period
 
$
148,439
   
$
267,487
 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Income taxes paid (recovered)
 
$
4,558
   
$
18,077
 
Interest paid
   
-
     
-
 
                 
The accompanying notes are an integral part of the consolidated financial statements.
               

4

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended March 31, 2016 and 2015

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) and the "Company" means Holdings and its subsidiaries.

Effective July 13, 2015, the Company sold all of the outstanding shares of capital stock of a wholly-owned subsidiary entity, Mt. McKinley Insurance Company ("Mt. McKinley"), to Clearwater Insurance Company. The operating results of Mt. McKinley for the three months ended March 31, 2015 are included within the Company's financial statements.

2.      BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three months ended March 31, 2016 and 2015 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, 2015 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  The results for the three months ended March 31, 2016 and 2015 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, 2015, 2014 and 2013 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 2016 presentation.

Application of Recently Issued Accounting Standard Changes.

Disclosures about Short-Duration Contracts. In May 2015, the FASB issued ASU 2015-09, authoritative guidance regarding required disclosures associated with short duration insurance contracts.  The new disclosure requirements focus on information about initial claim estimates and subsequent claim estimate adjustment, methodologies in estimating claims and the timing, frequency and severity of claims related to short duration insurance contracts. This guidance is effective for annual reporting periods beginning after December 15, 2015 and interim reporting periods beginning after December 15, 2016.  Therefore, the initial presentation of this guidance in the Company's financial statements and footnotes will be for its 10-K filing as of December 31, 2016. The Company does not anticipate that it will have a significant impact on its financial statements.

Debt Issuance Costs. In April 2015, The FASB issued ASU 2015–03, authoritative guidance on the presentation of debt issuance costs.  This guidance requires that debt issuance costs be presented within the balance sheet as a reduction of the carrying value of the debt liability, rather than as a separate asset.  This guidance is effective for annual reporting periods beginning after December 15, 2015 and related interim reporting periods. The Company does not anticipate that the adoption of this guidance will have a material impact on its financial statements.
5

Consolidation. In February 2015, the FASB issued ASU 2015-02, authoritative guidance regarding consolidation of reporting entities.  The new guidance focuses on the required evaluation of whether certain legal entities should be consolidated.  This guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company has determined that the guidance will not have a significant impact on its financial statements.

3.  INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity, equity security investments, carried at market value and other-than-temporary impairments ("OTTI") in accumulated other comprehensive income ("AOCI") are as follows for the periods indicated:


   
At March 31, 2016
 
   
Amortized
   
Unrealized
   
Unrealized
   
Market
   
OTTI in AOCI
 
(Dollars in thousands)
 
Cost
   
Appreciation
   
Depreciation
   
Value
   
(a)
 
Fixed maturity securities
                   
U.S. Treasury securities and obligations of
                   
U.S. government agencies and corporations
 
$
363,705
   
$
6,407
   
$
(66
)
 
$
370,046
   
$
-
 
Obligations of U.S. states and political subdivisions
   
664,481
     
38,438
     
(843
)
   
702,076
     
-
 
Corporate securities
   
2,003,827
     
38,795
     
(39,602
)
   
2,003,020
     
128
 
Asset-backed securities
   
167,757
     
765
     
(287
)
   
168,235
     
-
 
Mortgage-backed securities
                                       
Commercial
   
62,415
     
1,201
     
(188
)
   
63,428
     
-
 
Agency residential
   
777,460
     
9,178
     
(1,925
)
   
784,713
     
-
 
Non-agency residential
   
113
     
19
     
-
     
132
     
-
 
Foreign government securities
   
472,081
     
27,162
     
(7,782
)
   
491,461
     
-
 
Foreign corporate securities
   
977,043
     
29,693
     
(9,936
)
   
996,800
     
-
 
Total fixed maturity securities
 
$
5,488,882
   
$
151,658
   
$
(60,629
)
 
$
5,579,911
   
$
128
 



   
At December 31, 2015
 
   
Amortized
   
Unrealized
   
Unrealized
   
Market
   
OTTI in AOCI
 
(Dollars in thousands)
 
Cost
   
Appreciation
   
Depreciation
   
Value
   
(a)
 
Fixed maturity securities
                   
U.S. Treasury securities and obligations of
                   
U.S. government agencies and corporations
 
$
329,281
   
$
2,422
   
$
(718
)
 
$
330,985
   
$
-
 
Obligations of U.S. states and political subdivisions
   
669,945
     
34,020
     
(890
)
   
703,075
     
-
 
Corporate securities
   
2,011,997
     
27,286
     
(70,725
)
   
1,968,558
     
(86
)
Asset-backed securities
   
145,755
     
290
     
(1,063
)
   
144,982
     
-
 
Mortgage-backed securities
                                       
Commercial
   
61,527
     
1,430
     
(511
)
   
62,446
     
-
 
Agency residential
   
714,907
     
3,994
     
(6,603
)
   
712,298
     
-
 
Non-agency residential
   
126
     
24
     
-
     
150
     
-
 
Foreign government securities
   
447,244
     
24,255
     
(8,425
)
   
463,074
     
-
 
Foreign corporate securities
   
954,690
     
27,616
     
(11,397
)
   
970,909
     
17
 
Total fixed maturity securities
 
$
5,335,472
   
$
121,337
   
$
(100,332
)
 
$
5,356,477
   
$
(69
)


(a)  Represents the amount of OTTI recognized in AOCI.  Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.
6


The amortized cost and market value of fixed maturity securities are shown in the following tables 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 March 31, 2016
   
At December 31, 2015
 
   
Amortized
   
Market
   
Amortized
   
Market
 
(Dollars in thousands)
 
Cost
   
Value
   
Cost
   
Value
 
Fixed maturity securities – available for sale
               
    Due in one year or less
 
$
371,332
   
$
370,026
   
$
330,029
   
$
330,509
 
    Due after one year through five years
   
2,702,980
     
2,739,917
     
2,617,079
     
2,618,056
 
    Due after five years through ten years
   
779,848
     
783,570
     
870,266
     
856,230
 
    Due after ten years
   
626,977
     
669,890
     
595,783
     
631,806
 
Asset-backed securities
   
167,757
     
168,235
     
145,755
     
144,982
 
Mortgage-backed securities
                               
Commercial
   
62,415
     
63,428
     
61,527
     
62,446
 
Agency residential
   
777,460
     
784,713
     
714,907
     
712,298
 
Non-agency residential
   
113
     
132
     
126
     
150
 
Total fixed maturity securities
 
$
5,488,882
   
$
5,579,911
   
$
5,335,472
   
$
5,356,477
 


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 Eded
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Increase (decrease) during the period between the market value and cost
       
of investments carried at market value, and deferred taxes thereon:
       
Fixed maturity securities
 
$
69,826
   
$
51,211
 
Fixed maturity securities, other-than-temporary impairment
   
197
     
9,735
 
Change in unrealized  appreciation (depreciation), pre-tax
   
70,023
     
60,946
 
Deferred tax benefit (expense)
   
(24,439
)
   
(17,924
)
Deferred tax benefit (expense), other-than-temporary impairment
   
(69
)
   
(3,407
)
Change in unrealized appreciation (depreciation),
               
net of deferred taxes, included in stockholder's equity
 
$
45,515
   
$
39,615
 


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, 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.

7


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 March 31, 2016 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
 
$
54,980
   
$
(66
)
 
$
698
   
$
-
   
$
55,678
   
$
(66
)
Obligations of U.S. states and political subdivisions
   
4,469
     
(16
)
   
7,014
     
(827
)
   
11,483
     
(843
)
Corporate securities
   
471,961
     
(20,832
)
   
242,718
     
(18,770
)
   
714,679
     
(39,602
)
Asset-backed securities
   
20,482
     
(77
)
   
31,533
     
(210
)
   
52,015
     
(287
)
Mortgage-backed securities
                                               
Commercial
   
17,323
     
(188
)
   
-
     
-
     
17,323
     
(188
)
Agency residential
   
100,416
     
(901
)
   
114,503
     
(1,024
)
   
214,919
     
(1,925
)
Non-agency residential
   
-
     
-
     
-
     
-
     
-
     
-
 
Foreign government securities
   
22,510
     
(638
)
   
57,790
     
(7,144
)
   
80,300
     
(7,782
)
Foreign corporate securities
   
202,263
     
(4,129
)
   
66,205
     
(5,807
)
   
268,468
     
(9,936
)
Total fixed maturity securities
 
$
894,404
   
$
(26,847
)
 
$
520,461
   
$
(33,782
)
 
$
1,414,865
   
$
(60,629
)



   
Duration of Unrealized Loss at March 31, 2016 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
 
$
39,889
   
$
(183
)
 
$
32,078
   
$
(3,841
)
 
$
71,967
   
$
(4,024
)
Due in one year through five years
   
422,494
     
(9,573
)
   
276,367
     
(17,598
)
   
698,861
     
(27,171
)
Due in five years through ten years
   
265,716
     
(14,274
)
   
60,641
     
(10,681
)
   
326,357
     
(24,955
)
Due after ten years
   
28,084
     
(1,651
)
   
5,339
     
(428
)
   
33,423
     
(2,079
)
Asset-backed securities
   
20,482
     
(77
)
   
31,533
     
(210
)
   
52,015
     
(287
)
Mortgage-backed securities
   
117,739
     
(1,089
)
   
114,503
     
(1,024
)
   
232,242
     
(2,113
)
Total fixed maturity securities
 
$
894,404
   
$
(26,847
)
 
$
520,461
   
$
(33,782
)
 
$
1,414,865
   
$
(60,629
)


The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at March 31, 2016 were $1,414,865 thousand and $60,629 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at March 31, 2016, did not exceed 0.2% 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 $26,847 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.  The majority of these unrealized losses are attributable to unrealized losses in the energy sector, $13,158 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies and unrealized foreign exchange losses, $5,798 thousand, as the U.S. dollar has strengthened against other currencies. The $33,782 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 and agency
8


residential mortgage-backed securities. The majority of these unrealized losses are attributable to unrealized foreign exchange losses, $17,964 thousand, as the U.S. dollar has strengthened against other currencies and unrealized losses in the energy sector, $5,572 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies. The Company did not have any sub-prime or alt-A loans with gross unrealized depreciation at March 31, 2016.  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, 2015 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
 
$
216,352
   
$
(712
)
 
$
692
   
$
(6
)
 
$
217,044
   
$
(718
)
Obligations of U.S. states and political subdivisions
   
6,434
     
(84
)
   
4,917
     
(806
)
   
11,351
     
(890
)
Corporate securities
   
866,715
     
(49,034
)
   
307,215
     
(21,691
)
   
1,173,930
     
(70,725
)
Asset-backed securities
   
102,506
     
(791
)
   
28,048
     
(272
)
   
130,554
     
(1,063
)
Mortgage-backed securities
                                               
Commercial
   
26,483
     
(511
)
   
-
     
-
     
26,483
     
(511
)
Agency residential
   
320,285
     
(3,094
)
   
150,095
     
(3,509
)
   
470,380
     
(6,603
)
Non-agency residential
   
-
     
-
     
-
     
-
     
-
     
-
 
Foreign government securities
   
61,498
     
(2,182
)
   
77,911
     
(6,243
)
   
139,409
     
(8,425
)
Foreign corporate securities
   
324,904
     
(6,289
)
   
76,951
     
(5,108
)
   
401,855
     
(11,397
)
Total fixed maturity securities
 
$
1,925,177
   
$
(62,697
)
 
$
645,829
   
$
(37,635
)
 
$
2,571,006
   
$
(100,332
)



   
Duration of Unrealized Loss at December 31, 2015 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
 
$
21,780
   
$
(1,577
)
 
$
12,212
   
$
(1,171
)
 
$
33,992
   
$
(2,748
)
Due in one year through five years
   
1,023,437
     
(23,255
)
   
347,203
     
(21,582
)
   
1,370,640
     
(44,837
)
Due in five years through ten years
   
394,978
     
(31,423
)
   
99,335
     
(10,131
)
   
494,313
     
(41,554
)
Due after ten years
   
35,708
     
(2,046
)
   
8,936
     
(970
)
   
44,644
     
(3,016
)
Asset-backed securities
   
102,506
     
(791
)
   
28,048
     
(272
)
   
130,554
     
(1,063
)
Mortgage-backed securities
   
346,768
     
(3,605
)
   
150,095
     
(3,509
)
   
496,863
     
(7,114
)
Total fixed maturity securities
 
$
1,925,177
   
$
(62,697
)
 
$
645,829
   
$
(37,635
)
 
$
2,571,006
   
$
(100,332
)


The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2015 were $2,571,006 thousand and $100,332 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2015, did not exceed 0.07% 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 $62,697 thousand of unrealized losses related to fixed
9


maturity securities that have been in an unrealized loss position for less than one year were primarily comprised of domestic and foreign corporate securities, agency residential mortgage-backed securities and foreign government securities.  The majority of these unrealized losses are attributable to unrealized losses in the energy sector, $35,978 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies and unrealized foreign exchange losses, $6,090 thousand, as the U.S. dollar has strengthened against other currencies. The $37,635 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 and agency residential mortgage-backed securities. The majority of these unrealized losses are attributable to unrealized foreign exchange losses, $14,807 thousand, as the U.S. dollar has strengthened against other currencies and unrealized losses in the energy sector, $6,959 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies. The Company did not have any sub-prime or alt-A loans with gross unrealized depreciation at December 31, 2015.  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, as of March 31, 2016, and December 31, 2015, were comprised of preferred shares held in Everest Preferred International Holdings ("Preferred Holdings"), an affiliated company.

The components of net investment income are presented in the tables below for the periods indicated:


   
Three Months Ended
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Fixed maturities
 
$
45,326
   
$
47,972
 
Equity securities
   
9,148
     
8,742
 
Short-term investments and cash
   
304
     
164
 
Other invested assets
               
Limited partnerships
   
(2,514
)
   
7,379
 
Dividends from Parent's shares
   
-
     
9,234
 
Dividends from preferred shares of affiliate
   
7,758
     
-
 
Other
   
(912
)
   
625
 
Gross investment income before adjustments
   
59,110
     
74,116
 
Funds held interest income (expense)
   
2,654
     
2,521
 
Interest income from Parent
   
1,075
     
1,075
 
Gross investment income
   
62,839
     
77,712
 
Investment expenses
   
(4,394
)
   
(5,131
)
Net investment income
 
$
58,445
   
$
72,581
 
                 
(Some amounts may not reconcile due to rounding.)
               


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 $288,022 thousand in limited partnerships at March 31, 2016.  These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2020.

10


The components of net realized capital gains (losses) are presented in the tables below for the periods indicated:

   
Three Months Ended
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Fixed maturity securities, market value:
       
Other-than-temporary impairments
 
$
(23,015
)
 
$
(24,121
)
Gains (losses) from sales
   
(16,855
)
   
(11,518
)
Fixed maturity securities, fair value:
               
Gain (losses) from sales
   
-
     
28
 
Gains (losses) from fair value adjustments
   
(232
)
   
62
 
Equity securities, fair value:
               
Gains (losses) from sales
   
(7,950
)
   
(65
)
Gains (losses) from fair value adjustments
   
(18,325
)
   
20,946
 
Other invested assets, fair value:
               
Gains (losses) from fair value adjustments
   
-
     
35,964
 
Total net realized capital gains (losses)
 
$
(66,377
)
 
$
21,296
 


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 tables below for the periods indicated:


   
Three Months Ended
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Proceeds from sales of fixed maturity securities
 
$
188,046
   
$
114,082
 
Gross gains from sales
   
1,464
     
2,542
 
Gross losses from sales
   
(18,319
)
   
(14,032
)
                 
Proceeds from sales of equity securities
 
$
86,149
   
$
133,960
 
Gross gains from sales
   
1,782
     
5,142
 
Gross losses from sales
   
(9,732
)
   
(5,207
)


4.  FAIR VALUE

GAAP guidance regarding fair value measurements address how companies should measure fair value when they are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP.  It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date.  In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements.  The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability.  The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3 being the lowest priority.

11


The levels in the hierarchy are defined as follows:

Level 1: Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market;

Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument;

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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.

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.  Due to the unavailability of prices for six private placement securities, the Company valued the six securities at $16,302 thousand at March 31, 2016. Due to the unavailability of prices for two private placement securities, the Company valued the two securities at $3,593 thousand at December 31, 2015.

The Company internally manages a small public equity portfolio which had a fair value at March 31, 2016 and December 31, 2015 of $123,172 thousand and $131,219 thousand, respectively, and all prices were obtained from publically published sources.

Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are categorized as level 1 since the quoted prices are directly observable.  Equity securities traded on foreign exchanges are categorized as level 2 due to the added input of a foreign exchange conversion rate to determine fair or market value.  The Company uses foreign currency exchange rates published by nationally recognized sources.

All categories of fixed maturity securities listed in the tables below are generally categorized as level 2, 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.  For foreign government securities and foreign corporate securities, the fair values provided by the third party pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange rates from nationally recognized sources.

12


The fixed maturities with fair values categorized as level 3 result when prices are not available from the nationally recognized pricing services.  The asset managers will then obtain non-binding price quotes for the securities from brokers. 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.  If the broker quotes are for foreign denominated securities, the quotes are converted to U.S. dollars using currency exchange rates from nationally recognized sources. In limited circumstances when broker prices are not available for private placements, the Company will value the securities using comparable market information.

The composition and valuation inputs for the presented fixed maturities categories are as follows:

·
U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily comprised of U.S. Treasury bonds and the fair value is based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields;

·
Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;

·
Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;

·
Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads;

·
Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;

·
Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source.

Other invested assets, at fair value, was categorized as Level 3 at March 31, 2016 and December 31, 2015, since it represented a privately placed convertible preferred stock issued by an affiliate.  The stock was received in exchange for shares of the Company's parent, which were valued on a public securities exchange on December 21, 2015.  The fair value of the stock at March 31, 2016 and December 31, 2015 represents this exchange value.

13


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)
 
March 31, 2016
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
               
Fixed maturities, market value
               
U.S. Treasury securities and obligations of
               
U.S. government agencies and corporations
 
$
370,046
   
$
-
   
$
370,046
   
$
-
 
Obligations of U.S. States and political subdivisions
   
702,076
     
-
     
702,076
     
-
 
Corporate securities
   
2,003,020
     
-
     
1,987,314
     
15,706
 
Asset-backed securities
   
168,235
     
-
     
168,235
     
-
 
Mortgage-backed securities
                               
Commercial
   
63,428
     
-
     
63,428
     
-
 
Agency residential
   
784,713
     
-
     
784,713
     
-
 
Non-agency residential
   
132
     
-
     
132
     
-
 
Foreign government securities
   
491,461
     
-
     
491,461
     
-
 
Foreign corporate securities
   
996,800
     
-
     
996,204
     
596
 
Total fixed maturities, market value
   
5,579,911
     
-
     
5,563,609
     
16,302
 
                                 
Fixed maturities, fair value
   
1,870
     
-
     
1,870
     
-
 
Equity securities, market value
   
-
     
-
     
-
     
-
 
Equity securities, fair value
   
1,194,972
     
1,134,914
     
60,058
     
-
 
Other invested assets, fair value
   
1,773,214
     
-
     
-
     
1,773,214
 


There were no transfers between Level 1 and Level 2 for the three months ended March 31, 2016.

14


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, 2015
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
               
Fixed maturities, market value
               
U.S. Treasury securities and obligations of
               
U.S. government agencies and corporations
 
$
330,985
   
$
-
   
$
330,985
   
$
-
 
Obligations of U.S. States and political subdivisions
   
703,075
     
-
     
703,075
     
-
 
Corporate securities
   
1,968,558
     
-
     
1,964,625
     
3,933
 
Asset-backed securities
   
144,982
     
-
     
144,982
     
-
 
Mortgage-backed securities
                               
Commercial
   
62,446
     
-
     
62,446
     
-
 
Agency residential
   
712,298
     
-
     
712,298
     
-
 
Non-agency residential
   
150
     
-
     
150
     
-
 
Foreign government securities
   
463,074
     
-
     
463,074
     
-
 
Foreign corporate securities
   
970,909
     
-
     
969,316
     
1,593
 
Total fixed maturities, market value
   
5,356,477
     
-
     
5,350,951
     
5,526
 
                                 
Fixed maturities, fair value
   
2,102
     
-
     
2,102
     
-
 
Equity securities, market value
   
-
     
-
     
-
     
-
 
Equity securities, fair value
   
1,215,377
     
1,153,310
     
62,067
     
-
 
Other invested assets, fair value
   
1,773,214
     
-
     
-
     
1,773,214
 


The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated:


   
Three Months Ended March 31, 2016
   
Three Months Ended March 31, 2015
 
   
Corporate
   
Foreign
   
   
Corporate
       
Foreign
   
 
(Dollars in thousands)
 
Securities
   
Corporate
   
Total
   
Securities
   
CMBS
   
Corporate
   
Total
 
Beginning balance
 
$
3,933
   
$
1,593
   
$
5,526
   
$
-
   
$
8,597
   
$
7,166
   
$
15,763
 
Total gains or (losses) (realized/unrealized)
                                                       
Included in earnings
   
8
     
(997
)
   
(989
)
   
2
     
-
     
57
     
59
 
Included in other comprehensive income (loss)
   
(6
)
   
-
     
(6
)
   
1
     
-
     
(1,098
)
   
(1,097
)
Purchases, issuances and settlements
   
11,771
     
-
     
11,771
     
1,940
     
-
     
-
     
1,940
 
Transfers in and/or (out) of Level 3
   
-
     
-
     
-
     
710
     
(8,597
)
   
-
     
(7,887
)
Ending balance
 
$
15,706
   
$
596
   
$
16,302
   
$
2,653
   
$
-
   
$
6,125
   
$
8,778
 
                                                         
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
 
$
-
   
$
(997
)
 
$
(997
)
 
$
-
   
$
-
   
$
-
   
$
-
 
                                                         
(Some amounts may not reconcile due to rounding.)
                                                       


The net transfers from level 3, fair value measurements using significant unobservable inputs, of $7,887 thousand of investments for the three months ended March 31, 2015, primarily relate to securities that were priced using single non-binding broker quotes as of December 31, 2014.  The securities were subsequently priced using a recognized pricing service as of March 31, 2015, and were classified as level 2 as of that date.
15


The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by other invested assets, for the periods indicated:


   
Three months ended
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Other invested assets, fair value:
       
Beginning balance
 
$
1,773,214
   
$
-
 
Total gains or (losses) (realized/unrealized)
               
Included in earnings
   
-
     
-
 
Included in other comprehensive income (loss)
   
-
     
-
 
Purchases, issuances and settlements
   
-
     
-
 
Transfers in and/or (out) of Level 3
   
-
     
-
 
Ending balance
 
$
1,773,214
   
$
-
 
                 
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.)
               


5.  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.

The Company has entered into separate annuity agreements with The Prudential Insurance of America ("The Prudential") and an additional unaffiliated life insurance company in which the Company has either purchased annuity contracts or become the assignee of annuity proceeds that are meant to settle claim payment obligations in the future. In both instances, the Company would become contingently liable if either The Prudential or the unaffiliated life insurance company were unable to make payments related to the respective annuity contact.

The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:


   
At March 31,
   
At December 31,
 
(Dollars in thousands)
 
2016
   
2015
 
The Prudential
 
$
141,945
   
$
142,427
 
Unaffiliated life insurance company
   
31,907
     
33,062
 


16


6.  OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the components of comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:


   
Three Months Ended March 31, 2016
   
Three Months Ended March 31, 2015
 
(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
 
$
29,956
   
$
(10,484
)
 
$
19,472
   
$
15,572
   
$
(5,950
)
 
$
9,622
 
URA(D) on securities - OTTI
   
197
     
(69
)
   
128
     
9,735
     
(3,407
)
   
6,328
 
Reclassification of net realized losses (gains) included in net income (loss)
   
39,870
     
(13,955
)
   
25,915
     
35,639
     
(11,974
)
   
23,665
 
Foreign currency translation adjustments
   
22,977
     
(8,045
)
   
14,932
     
(51,243
)
   
17,935
     
(33,308
)
Benefit plan actuarial net gain (loss)
   
-
     
-
     
-
     
-
     
-
     
-
 
Reclassification of amortization of net gain (loss) included in net income (loss)
   
2,062
     
(722
)
   
1,340
     
2,467
     
(863
)
   
1,604
 
Total other comprehensive income (loss)
 
$
95,062
   
$
(33,275
)
 
$
61,787
   
$
12,170
   
$
(4,259
)
 
$
7,911
 
                                                 
(Some amounts may not reconcile due to rounding)
                                               


The following table presents details of the amounts reclassified from AOCI for the periods indicated:


   
Three Months Ended
     
   
March 31,
   
Affected line item within the statements of
AOCI component
 
2016
   
2015
   
operations and comprehensive income (loss)
(Dollars in thousands)
             
URA(D) on securities
 
$
39,870
   
$
35,639
   
Other net realized capital gains (losses)
     
(13,955
)
   
(11,974
)
 
Income tax expense (benefit)
   
$
25,915
   
$
23,665
   
Net income (loss)
                        
Benefit plan net gain (loss)
 
$
2,062
   
$
2,467
   
Other underwriting expenses
     
(722
)
   
(863
)
 
Income tax expense (benefit)
   
$
1,340
   
$
1,604
   
Net income (loss)
                        
(Some amounts may not reconcile due to rounding)
                     


The following table presents the components of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets for the periods indicated:


   
Three Months Ended
   
Twelve Months Ended
 
   
March 31,
   
December 31,
 
(Dollars in thousands)
 
2016
   
2015
 
         
Beginning balance of URA (D) on securities
 
$
13,654
   
$
37,628
 
Current period change in URA (D) of investments - temporary
   
45,387
     
(30,257
)
Current period change in URA (D) of investments - non-credit OTTI
   
128
     
6,283
 
Ending balance of URA (D) on securities
   
59,169
     
13,654
 
                 
Beginning balance of foreign currency translation adjustments
   
(12,701
)
   
41,877
 
Current period change in foreign currency translation adjustments
   
14,932
     
(54,578
)
Ending balance of foreign currency translation adjustments
   
2,231
     
(12,701
)
                 
Beginning balance of benefit plan net gain (loss)
   
(63,089
)
   
(74,986
)
Current period change in benefit plan net gain (loss)
   
1,340
     
11,897
 
Ending balance of benefit plan net gain (loss)
   
(61,749
)
   
(63,089
)
                 
Ending balance of accumulated other comprehensive income (loss)
 
$
(349
)
 
$
(62,136
)

17


7.  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 March 31, 2016, the total amount on deposit in the trust account was $288,380 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.

On November 18, 2014, the Company entered into a collateralized reinsurance agreement with Kilimanjaro Re to provide the Company with catastrophe reinsurance coverage.  This agreement is a multi-year reinsurance contract which covers specified earthquake events.  The agreement provides up to $500,000 thousand of reinsurance coverage from earthquakes in the United States, Puerto Rico and Canada.

On December 1, 2015 the Company entered into two collateralized reinsurance agreements with Kilimanjaro Re to provide the Company with catastrophe reinsurance coverage.  These agreements are multi-year reinsurance contracts which cover named storm and earthquake events.  The first agreement provides up to $300,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.  The second agreement provides up to $325,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.

Kilimanjaro has financed the various property catastrophe reinsurance coverage by issuing catastrophe bonds to unrelated, external investors. On April 24, 2014, Kilimanjaro issued $450,000 thousand of notes ("Series 2014-1 Notes").  On November 18, 2014, Kilimanjaro issued $500,000 thousand of notes ("Series 2014-2 Notes"). On December 1, 2015, Kilimanjaro issued $625,000 thousand of notes ("Series 2015-1 Notes).  The proceeds from the issuance of the Series 2014-1 Notes, the Series 2014-2 Notes and the Series 2015-1 Notes are held in reinsurance trust throughout the duration of the applicable reinsurance agreements and invested solely in US government money market funds with a rating of at least "AAAm" by Standard & Poor's.

8.  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.


             
March 31, 2016
   
December 31, 2015
 
             
Consolidated Balance
       
Consolidated Balance
     
(Dollars in thousands)
Date Issued
 
Date Due
 
Principal Amounts
   
Sheet Amount
   
Market Value
   
Sheet Amount
   
Market Value
 
4.868% Senior notes
06/05/2014
 
06/01/2044
   
400,000
   
$
400,000
   
$
393,520
   
$
400,000
   
$
381,204
 


On June 5, 2014, Holdings issued $400,000 thousand of 30 year senior notes at 4.868%, which will mature on June 1, 2044. Interest will be paid semi-annually on June 1 and December 1 of each year.

18


Interest expense incurred in connection with these senior notes is as follows for the periods indicated:


   
Three Months Ended
   
March 31,
(Dollars in thousands)
 
2016
 
2015
Interest expense incurred
 
$
4,868
   
$
4,868
 


9.  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
 
March 31, 2016
   
December 31, 2015
 
      
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
 
$
238,369
   
$
203,789
   
$
238,368
   
$
208,978
 


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 on October 15, 2014, the Company's 4.868% senior notes, due on June 1, 2044, have 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
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Interest expense incurred
 
$
3,937
   
$
3,937
 


19


10.  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 directly and through general agents, brokers and surplus lines brokers mainly within the U.S.

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.  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.

The following tables present the underwriting results for the operating segments for the periods indicated:


   
Three Months Ended
 
U.S. Reinsurance
 
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Gross written premiums
 
$
536,706
   
$
562,647
 
Net written premiums
   
223,428
     
240,694
 
                 
Premiums earned
 
$
235,243
   
$
255,412
 
Incurred losses and LAE
   
116,170
     
111,455
 
Commission and brokerage
   
49,731
     
58,364
 
Other underwriting expenses
   
13,458
     
11,529
 
Underwriting gain (loss)
 
$
55,884
   
$
74,064
 



   
Three Months Ended
 
International
 
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Gross written premiums
 
$
238,478
   
$
333,615
 
Net written premiums
   
87,716
     
121,681
 
                 
Premiums earned
 
$
113,173
   
$
140,699
 
Incurred losses and LAE
   
73,415
     
101,445
 
Commission and brokerage
   
26,110
     
33,999
 
Other underwriting expenses
   
7,823
     
8,115
 
Underwriting gain (loss)
 
$
5,825
   
$
(2,860
)


20



   
Three Months Ended
 
Insurance
 
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Gross written premiums
 
$
354,720
   
$
330,501
 
Net written premiums
   
152,926
     
146,052
 
                 
Premiums earned
 
$
133,509
   
$
124,951
 
Incurred losses and LAE
   
106,477
     
95,980
 
Commission and brokerage
   
(7,019
)
   
4,168
 
Other underwriting expenses
   
37,946
     
28,899
 
Underwriting gain (loss)
 
$
(3,895
)
 
$
(4,096
)


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
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Underwriting gain (loss)
 
$
57,814
   
$
67,108
 
Net investment income
   
58,445
     
72,581
 
Net realized capital gains (losses)
   
(66,377
)
   
21,296
 
Corporate expense
   
(2,336
)
   
(1,609
)
Interest, fee and bond issue cost amortization expense
   
(8,859
)
   
(8,859
)
Other income (expense)
   
13,102
     
15,833
 
Income (loss) before taxes
 
$
51,789
   
$
166,350
 


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
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Canada gross written premiums
 
$
23,586
   
$
23,512
 


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

11.  RELATED-PARTY TRANSACTIONS

Parent

Group entered into a $250,000 thousand long term promissory note agreement with Holdings as of December 31, 2014.  The note will mature on December 31, 2023 and has an interest rate of 1.72% that will be paid annually, on December 15th of each year. This transaction is presented as a Note Receivable – Affiliated in the Consolidated Balance Sheets of Holdings.  Interest income in the amount of $1,075 thousand was recorded by Holdings for the three months ended March 31, 2016, and March 31, 2015, respectively.
21


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
11/19/2014
   
 5,000,000
     
 30,000,000


Through December, 2015, Holdings had purchased and held 9,719,971 Common Shares of Group, which were purchased in the open market between February 2007 and March 2011.

In December, 2015, Holdings transferred the 9,719,971 Common Shares of Group, which it held as other invested assets, at fair value, valued at $1,773,214 thousand, to Preferred Holdings, an affiliated entity and subsidiary of Group, in exchange for 1,773.214 preferred shares of Preferred Holdings with a $1,000 thousand par value and 1.75% annual dividend rate.  After the exchange, Holdings no longer holds any shares or has any ownership interest in Group.

Holdings reported both its Parent Shares and preferred shares in Preferred Holdings, 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 the preferred shares of preferred Holdings and on the Parent 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
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Dividends received on Parent shares
 
$
-
   
$
9,234
 
Dividends received on preferred stock of affiliate
   
7,758
     
-
 


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
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Expenses incurred
 
$
21,170
   
$
18,363
 


22


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    
                                         
01/01/2012-12/31/2014
 
Everest Re
    50.0 %  
Bermuda Re
 
property / casualty business
    100,000         200,000    
                                         
01/01/2015   Everest Re     50.0 %   Bermuda Re   property / casualty business     162,500         325,000    
                                       
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


The table below represents loss portfolio transfer reinsurance agreements whereby net insurance exposures and reserves were transferred to an affiliate.


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


On July 13, 2015, the Company sold Mt. McKinley to Clearwater Insurance Company, a Delaware domiciled insurance company. As of that date, Mt. McKinley is no longer deemed an affiliated company or related party.

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 and Lloyd's syndicate 2786 for the periods indicated:


   
Three Months Ended
Bermuda Re
 
March 31,
(Dollars in thousands)
 
2016
   
2015
 
Ceded written premiums
 
$
516,683
   
$
539,033
 
Ceded earned premiums
   
538,953
     
554,051
 
Ceded losses and LAE (a)
   
290,476
     
295,131
 



   
Three Months Ended
Everest International
 
March 31,
(Dollars in thousands)
 
2016
   
2015
 
Ceded written premiums
 
$
(31
)
 
$
(2
)
Ceded earned premiums
   
(24
)
   
41
 
Ceded losses and LAE
   
142
     
(822
)



   
Three Months Ended
Everest Canada
 
March 31,
(Dollars in thousands)
 
2016
   
2015
 
Assumed written premiums
 
$
10,199
   
$
6,664
 
Assumed earned premiums
   
10,454
     
8,699
 
Assumed losses and LAE
   
6,987
     
4,729
 



   
Three Months Ended
Lloyd's Syndicate 2786
 
March 31,
(Dollars in thousands)
 
2016
   
2015
 
Assumed written premiums
 
$
696
   
$
-
 
Assumed earned premiums
   
88
     
-
 
Assumed losses and LAE
   
-
     
-
 
 
(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, amortization of deferred gain on retroactive reinsurance is reflected in other income on the consolidated statements of operations and comprehensive income (loss). Upon the sale of Mt. McKinley, the value of the remaining deferred gain on retroactive reinsurance was included in the calculation of the realized gain on sale of subsidiary.

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.
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 segregated accounts and assumed by the Company from Mt. Logan Re segregated accounts.


   
Three Months Ended
Mt. Logan Re Segregated Accounts
 
March 31,
(Dollars in thousands)
 
2016
   
2015
 
Ceded written premiums
 
$
40,931
   
$
61,670
 
Ceded earned premiums
   
34,872
     
38,683
 
Ceded losses and LAE
   
9,098
     
8,314
 
                 
Assumed written premiums
   
3,560
     
3,984
 
Assumed earned premiums
   
3,560
     
3,984
 
Assumed losses and LAE
   
-
     
-
 


12.      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
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Service cost
 
$
2,897
   
$
2,940
 
Interest cost
   
2,361
     
2,457
 
Expected return on plan assets
   
(2,484
)
   
(2,903
)
Amortization of prior service cost
   
-
     
5
 
Amortization of net (income) loss
   
2,014
     
2,251
 
Net periodic benefit cost
 
$
4,788
   
$
4,750
 



Other Benefits
 
Three Months Ended
 
   
March 31,
 
(Dollars in thousands)
 
2016
   
2015
 
Service cost
 
$
438
   
$
401
 
Interest cost
   
296
     
263
 
Amortization of net (income) loss
   
48
     
211
 
Net periodic benefit cost
 
$
782
   
$
875
 


The Company did not make any contributions to the qualified pension benefit plan for the three months ended March 31, 2016 and 2015.

25


13.      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.

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.

14.  SUBSEQUENT EVENTS

The Company has evaluated known recognized and non-recognized subsequent events.  The Company does not have any subsequent events to report.

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, domestic and international underwriting operations, including underwriting syndicates at Lloyd's of London and certain government sponsored risk transfer vehicles.  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 recently, the 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 property catastrophe and casualty reinsurance lines of business.  Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments.  These financial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provide capital markets with access to insurance and reinsurance risk exposure. The capital markets demand for these products is being primarily driven by the current low interest environment and the desire to achieve greater risk diversification and potentially higher returns on their investments.  This increased competition is generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage.

Rates tend to fluctuate by specific region and products, particularly areas recently impacted by large catastrophic events. Although there have been flooding and wind storm events and earthquakes in parts of the world, the overall 2013, 2014 and 2015 catastrophe losses for the industry were considerably lower than average.  This lower level of losses, combined with increased competition has resulted in downward pressure on insurance and reinsurance rates in certain geographical areas.

During 2015, we initiated a strategic build out of our insurance platform through the investment in key leadership hires which in turn has brought significant underwriting talent and stronger direction in achieving our insurance program strategic goals of increased volume and improved underwriting results.  Recent growth is coming from highly diversified areas including newly launched lines of business, as well as, product and geographic expansion in existing lines of business.  We are building a world-class insurance platform capable of offering products across lines and geographies, complementing our leading global reinsurance franchise.

Overall, we believe that given our size, strong ratings, distribution system, reputation, expertise and capital market vehicle activity the current marketplace conditions provide profit opportunities.  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
 
   
March 31,
   
Increase/
 
(Dollars in millions)
 
2016
   
2015
   
(Decrease)
 
Gross written premiums
 
$
1,129.9
   
$
1,226.8
     
-7.9
%
Net written premiums
   
464.1
     
508.4
     
-8.7
%
                         
REVENUES:
                       
Premiums earned
 
$
481.9
   
$
521.1
     
-7.5
%
Net investment income
   
58.4
     
72.6
     
-19.5
%
Net realized capital gains (losses)
   
(66.4
)
   
21.3
   
NM 
Other income (expense)
   
13.1
     
15.8
     
-17.2
%
Total revenues
   
487.1
     
630.8
     
-22.8
%
                         
CLAIMS AND EXPENSES:
                       
Incurred losses and loss adjustment expenses
   
296.1
     
308.9
     
-4.1
%
Commission, brokerage, taxes and fees
   
68.8
     
96.5
     
-28.7
%
Other underwriting expenses
   
59.2
     
48.5
     
22.0
%
Corporate expense
   
2.3
     
1.6
     
45.2
%
Interest, fee and bond issue cost amortization expense
   
8.9
     
8.9
     
0.0
%
Total claims and expenses
   
435.3
     
464.4
     
-6.3
%
                         
INCOME (LOSS) BEFORE TAXES
   
51.8
     
166.4
     
-68.9
%
Income tax expense (benefit)
   
12.9
     
50.4
     
-74.5
%
NET INCOME (LOSS)
 
$
38.9
   
$
115.9
     
-66.4
%
                         
RATIOS:
                 
Point Change
 
Loss ratio
   
61.4
%
   
59.3
%
   
2.1
 
Commission and brokerage ratio
   
14.3
%
   
18.5
%
   
(4.2
)
Other underwriting expense ratio
   
12.3
%
   
9.3
%
   
3.0
 
Combined ratio
   
88.0
%
   
87.1
%
   
0.9
 
                         
   
At
   
At
   
Percentage
 
   
March 31,
   
December 31,
   
Increase/
 
(Dollars in millions)
   
2016
     
2015
   
(Decrease)
 
Balance sheet data:
                       
Total investments and cash
 
$
9,622.7
   
$
9,516.3
     
1.1
%
Total assets
   
16,793.9
     
16,700.6
     
0.6
%
Loss and loss adjustment expense reserves
   
7,992.3
     
7,940.7
     
0.6
%
Total debt
   
638.4
     
638.4
     
0.0
%
Total liabilities
   
11,757.2
     
11,769.4
     
-0.1
%
Stockholder's equity
   
5,036.7
     
4,931.2
     
2.1
%
                         
(Some amounts may not reconcile due to rounding)
                       
(NM - Not meaningful)
                       

Revenues.
Premiums.  Gross written premiums decreased by 7.9% to $1,129.9 million for the three months ended March 31, 2016, compared to $1,226.8 million for the three months ended March 31, 2015, reflecting a $121.1 million, or 13.5%, decrease in our reinsurance business, partially offset by a $24.2 million, or 7.3%, increase in our insurance business.  The decline in reinsurance premiums was due mainly to decreases in treaty casualty business, reductions in quota share agreements and a negative impact of approximately $15.2 million from the year over year movement in foreign exchange rates.  The rise in insurance premiums was primarily due to increases in accident and health business and other lines of business, as we have focused on expanding the insurance operations.
28


Net written premiums decreased by 8.7% to $464.1 million for the three months ended March 31, 2016 compared to $508.4 million for the three months ended March 31, 2015, which is consistent with the change in gross written premiums. Premiums earned decreased by 7.5% to $481.9 million for the three months ended March 31, 2016, compared to $521.1 million for the three months ended March 31, 2015.  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 decreased by 19.5% to $58.4 million for the three months ended March 31, 2016, compared with net investment income of $72.6 million for the three months ended March 31, 2015. Net pre-tax investment income, as a percentage of average invested assets, was 2.5% for the three months ended March 31, 2016 compared to 3.5% for the three months ended March 31, 2015. The decline in income and yield was primarily the result of a decrease in our limited partnership income and lower reinvestment rates for the fixed income portfolios.

Net Realized Capital Gains (Losses). Net realized capital losses were $66.4 million and net realized capital gains were $21.3 million for the three months ended March 31, 2016 and 2015, respectively. The $66.4 million was comprised of $24.8 million of net losses from sales on our fixed maturity and equity securities, $23.0 million of other-than-temporary impairments and $18.6 million of losses from fair value re-measurements on fixed maturity and equity securities.  The net realized capital gains of $21.3 million for the three months ended March 31, 2015 were comprised of $57.0 million of gains from fair value re-measurements on fixed maturity securities, equity securities and other invested assets, partially offset by $24.1 million of other-than-temporary impairments and $11.6 million of losses from sales on our fixed maturities and equity securities.

Other Income (Expense).  We recorded other income of $13.1 and $15.8 million for the three months ended March 31, 2016 and 2015, respectively. The changes were primarily the result of fluctuations in foreign currency exchange rates for the corresponding periods.

Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses.  The following table presents our incurred losses and loss adjustment expenses ("LAE") for the periods indicated.


   
Three Months Ended March 31,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2016
                                     
Attritional
 
$
293.4
     
60.8
%
   
$
(2.0
)
   
-0.4
%
   
$
291.4
     
60.4
%
 
Catastrophes
   
5.2
     
1.1
%
 
   
(0.5
)
   
-0.1
%
 
   
4.7
     
1.0
%
 
Total segment
 
$
298.6
     
61.9
%
 
 
$
(2.5
)
   
-0.5
%
 
 
$
296.1
     
61.4
%
 
                                                                
2015
                                                             
Attritional
 
$
312.8
     
60.1
%
   
$
(1.7
)
   
-0.4
%
   
$
311.1
     
59.7
%
 
Catastrophes
   
-
     
0.0
%
 
   
(2.2
)
   
-0.4
%
 
   
(2.2
)
   
-0.4
%
 
Total segment
 
$
312.8
     
60.1
%
 
 
$
(3.9
)
   
-0.8
%
 
 
$
308.9
     
59.3
%
 
                                                                
Variance 2016/2015
                                                             
Attritional
 
$
(19.4
)
   
0.7
 
pts
 
$
(0.3
)
   
-
 
pts
 
$
(19.7
)
   
0.7
 
pts
Catastrophes
   
5.2
     
1.1
 
pts
   
1.7
     
0.3
 
pts
   
6.9
     
1.4
 
pts
Total segment
 
$
(14.2
)
   
1.8
 
pts
 
$
1.4
     
0.3
 
pts
 
$
(12.8
)
   
2.1
 
pts
(Some amounts may not reconcile due to rounding.)
                                                             

29


Incurred losses and LAE decreased by 4.1% to $296.1 million for the three months ended March 31, 2016 compared to $308.9 million for the three months ended March 31, 2015, primarily due to a decrease in current years attritional losses of $19.4 million, resulting primarily from the impact of the decline in premiums earned, partially offset by $5.2 million in current year catastrophe losses. The current year catastrophe losses of $5.2 million for the three months ended March 31, 2016 primarily related to the 2016 Taiwan earthquake ($5.2 million). There were no current year catastrophe losses for the three months ended March 31, 2015.

Commission, Brokerage, Taxes and Fees.  Commission, brokerage, taxes and fees decreased by 28.7% to $68.8 million for the three months ended March 31, 2016 compared to $96.5 million for the three months ended March 31, 2015.  The decline was primarily due to the impact of the decline in premiums earned, changes in the mix of business and the impact of affiliated quota share agreements.

Other Underwriting Expenses.  Other underwriting expenses increased 22.0% to $59.2 million for the three months ended March 31, 2016, compared to $48.5 million for the three months ended March 31, 2015. The increase was due to the costs incurred related to the expansion of the insurance business.

Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were $2.3 million and $1.6 million for the three months ended March 31, 2016 and 2015, respectively. The increase in corporate expense was mainly due to increased compensation and benefit expense.

Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense was $8.9 million for the three months ended March 31, 2016 and 2015.

Income Tax Expense (Benefit).  Income tax expenses were $12.9 million and $50.4 million for the three months ended March 31, 2016 and 2015, 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 income tax expense 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 months ended March 31, 2016 compared to the three months ended March 31, 2015 was primarily due to the realized capital losses and lower net investment income.

Net Income (Loss).
Our net income was $38.9 million and $115.9 million for the three months ended March 31, 2016 and 2015, respectively.  The changes were primarily driven by the financial component fluctuations explained above.

Ratios.
Our combined ratio increased by 0.9 points to 88.0% for the three months ended March 31, 2016 compared to 87.1% for the three months ended March 31, 2015.  The loss ratio component increased 2.1 points for the three months ended March 31, 2016 over the same period last year, primarily due to the increase in current years catastrophe losses.  The commission and brokerage ratio components decreased 4.2 points for the three months ended March 31, 2016 over the same period last year primarily due to changes in the mix of business and the impact of the affiliated quota share agreements.  The other underwriting expense ratio components increased 3.0 points for the three months ended March 31, 2016 over the same period last year due to the additional expenses related to the increased focus on the expansion of the insurance business.

30


Stockholder's Equity.
Stockholders' equity increased by $105.5 million to $5,036.7 million at March 31, 2016 from $4,931.2 million at December 31, 2015, principally as a result of $45.5 million of net unrealized appreciation on investments, net of tax, $38.9 million of net income, $14.9 million of net foreign currency translation adjustments, $4.8 million of share-based compensation transactions and $1.3 million of net benefit plan obligation adjustments.

Consolidated Investment Results

Net Investment Income.
Net investment income decreased by 19.5% to $58.4 million for the three months ended March 31, 2016 compared to $72.6 million for the three months ended March 31, 2015.  These decreases were primarily due to a decrease from our limited partnership investments and a decrease in income on the fixed income portfolio, reflective of lower reinvestment rates.

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


   
Three Months Ended
 
   
March 31,
 
(Dollars in millions)
 
2016
   
2015
 
Fixed maturities
 
$
45.3
   
$
48.0
 
Equity securities
   
9.1
     
8.7
 
Short-term investments and cash
   
0.3
     
0.2
 
Other invested assets
               
Limited partnerships
   
(2.5
)
   
7.4
 
Dividends from Parent's shares
   
-
     
9.2
 
Dividends from preferred shares of affiliate
   
7.8
     
-
 
Other
   
(0.9
)
   
0.6
 
Gross investment income before adjustments
   
59.1
     
74.1
 
Funds held interest income (expense)
   
2.7
     
2.5
 
Interest income from Parent
   
1.1
     
1.1
 
Gross investment income
   
62.8
     
77.7
 
Investment expenses
   
(4.4
)
   
(5.1
)
Net investment income
 
$
58.4
   
$
72.6
 
                 
(Some amounts may not reconcile due to rounding.)
               


The following table shows a comparison of various investment yields for the periods indicated:


 
At
 
At
 
March 31,
 
December 31,
 
2016
 
2015
Imbedded pre-tax yield of cash and invested assets at December 31
2.8%
 
2.9%
Imbedded after-tax yield of cash and invested assets at December 31
2.0%
 
2.1%



 
Three Months Ended
 
March 31,
 
2016
 
2015
Annualized pre-tax yield on average cash and invested assets
2.5%
 
3.5%
Annualized after-tax yield on average cash and invested assets
1.8%
 
2.5%

31


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 March 31,
 
(Dollars in millions)
 
2016
   
2015
   
Variance
 
Gains (losses) from sales:
           
Fixed maturity securities, market value
           
Gains
 
$
1.5
   
$
2.5
   
$
(1.0
)
Losses
   
(18.3
)
   
(14.0
)
   
(4.3
)
Total
   
(16.9
)
   
(11.5
)
   
(5.3
)
                         
Equity securities, fair value
                       
Gains
   
1.8
     
5.1
     
(3.3
)
Losses
   
(9.7
)
   
(5.2
)
   
(4.5
)
Total
   
(8.0
)
   
(0.1
)
   
(7.8
)
                         
Total net realized gains (losses) from sales
                       
Gains
   
3.3
     
7.7
     
(4.4
)
Losses
   
(28.1
)
   
(19.2
)
   
(8.9
)
Total
   
(24.8
)
   
(11.6
)
   
(13.3
)
                         
Other than temporary impairments:
   
(23.0
)
   
(24.1
)
   
1.1
 
                         
Gains (losses) from fair value adjustments:
                       
Fixed maturities, fair value
   
(0.2
)
   
0.1
     
(0.3
)
Equity securities, fair value
   
(18.3
)
   
20.9
     
(39.2
)
Other invested assets, fair value
   
-
     
36.0
     
(36.0
)
Total
   
(18.6
)
   
57.0
     
(75.6
)
                         
Total net realized gains (losses)
 
$
(66.4
)
 
$
21.3
   
$
(87.7
)
                         
(Some amounts may not reconcile due to rounding)
                       


Net realized capital losses were $66.4 million and net realized capital gains were $21.3 million for the three months ended March 31, 2016, and 2015, respectively. For the three months ended March 31, 2016, we recorded $24.8 million of net realized capital losses from sales of fixed maturity and equity securities,  $23.0 million of other-than-temporary impairments and $18.6 million of net realized capital losses due to fair value re-measurements on fixed maturities and equity securities.  The fixed maturity and equity sales for the three months ended March 31, 2016 related primarily to adjusting the portfolios for overall market changes and individual credit shifts.  For the three months ended March 31, 2015, we recorded $57.0 million of net realized capital gains due to fair value re-measurements on fixed maturity securities, equity securities and other invested assets, partially offset by $24.1 million of other-than-temporary impairments and $11.6 million of net realized capital losses from sales of fixed maturity and equity securities. The fixed maturity and equity sales for the three months ended March 31, 2015 related primarily to adjusting the portfolios for overall market changes and individual credit shifts.

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 directly and through general agents, brokers and surplus lines brokers mainly within the U.S.
32


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 management's 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.

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 March 31,
 
(Dollars in millions)
 
2016
   
2015
   
Variance
   
% Change
 
Gross written premiums
 
$
536.7
   
$
562.6
   
$
(25.9
)
   
-4.6
%
Net written premiums
   
223.4
     
240.7
     
(17.3
)
   
-7.2
%
                                 
Premiums earned
 
$
235.2
   
$
255.4
   
$
(20.2
)
   
-7.9
%
Incurred losses and LAE
   
116.2
     
111.5
     
4.7
     
4.2
%
Commission and brokerage
   
49.7
     
58.4
     
(8.7
)
   
-14.8
%
Other underwriting expenses
   
13.5
     
11.5
     
2.0
     
16.7
%
Underwriting gain (loss)
 
$
55.9
   
$
74.1
   
$
(18.1
)
   
-24.5
%
                                 
                           
Point Chg
 
Loss ratio
   
49.4
%
   
43.6
%
           
5.8
 
Commission and brokerage ratio
   
21.1
%
   
22.9
%
           
(1.8
)
Other underwriting ratio
   
5.7
%
   
4.5
%
           
1.2
 
Combined ratio
   
76.2
%
   
71.0
%
           
5.2
 


Premiums.  Gross written premiums decreased by 4.6% to $536.7 million for the three months ended March 31, 2016 from $562.6 million for the three months ended March 31, 2015, primarily due to a decline in treaty casualty business. Net written premiums decreased by 7.2% to $223.4 million for the three months ended March 31, 2016 compared to $240.7 million for the three months ended March 31, 2015.  The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to a varying utilization of reinsurance primarily related to affiliated quota share contracts.  Premiums earned decreased 7.9% to $235.2 million for the three months ended March 31, 2016 compared to $255.4 million for the three months ended March 31, 2015.  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.

33


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


   
Three Months Ended March 31,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2016
                                     
Attritional
 
$
118.4
     
50.4
%
   
$
(2.3
)
   
-1.0
%
   
$
116.1
     
49.4
%
 
Catastrophes
   
-
     
0.0
%
 
   
-
     
0.0
%
 
   
-
     
0.0
%
 
Total segment
 
$
118.4
     
50.4
%
 
 
$
(2.3
)
   
-1.0
%
 
 
$
116.2
     
49.4
%
 
                                                                
2015
                                                             
Attritional
 
$
117.5
     
46.0
%
   
$
(3.6
)
   
-1.5
%
   
$
113.9
     
44.5
%
 
Catastrophes
   
-
     
0.0
%
 
   
(2.4
)
   
-0.9
%
 
   
(2.4
)
   
-0.9
%
 
Total segment
 
$
117.5
     
46.0
%
 
 
$
(6.0
)
   
-2.5
%
 
 
$
111.5
     
43.6
%
 
                                                                
Variance 2016/2015
                                                             
Attritional
 
$
0.9
     
4.4
 
pts
 
$
1.3
     
0.5
 
pts
 
$
2.2
     
4.9
 
pts
Catastrophes
   
-
     
-
 
pts
   
2.4
     
0.9
 
pts
   
2.4
     
0.9
 
pts
Total segment
 
$
0.9
     
4.4
 
pts
 
$
3.7
     
1.5
 
pts
 
$
4.7
     
5.8
 
pts
                                                                
(Some amounts may not reconcile due to rounding.)
                                                             


Incurred losses increased by 4.2% to $116.2 million for the three months ended March 31, 2016 compared to $111.5 million for the three months ended March 31, 2015, primarily due to $6.0 million of favorable development on prior year losses in 2015 which did not recur to the same level in 2016. There were no current year catastrophe losses for the three months ended March 31, 2016 and 2015.

Segment Expenses.  Commission and brokerage decreased by 14.8% to $49.7 million for the three months ended March 31, 2016 compared to $58.4 million for the three months ended March 31, 2015. This decline was primarily due to the impact of the decrease in premiums earned and the impact of affiliated quota share contracts. Segment other underwriting expenses increased to $13.5 million for the three months ended March 31, 2016 from $11.5 million for the three months ended March 31, 2015.  The increase was primarily due to the impact of changes in the mix of business and higher compensation and benefit plan costs.

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


   
Three Months Ended March 31,
 
(Dollars in millions)
 
2016
   
2015
   
Variance
   
% Change
 
Gross written premiums
 
$
238.5
   
$
333.6
   
$
(95.1
)
   
-28.5
%
Net written premiums
   
87.7
     
121.7
     
(34.0
)
   
-27.9
%
                                 
Premiums earned
 
$
113.2
   
$
140.7
   
$
(27.5
)
   
-19.6
%
Incurred losses and LAE
   
73.4
     
101.4
     
(28.0
)
   
-27.6
%
Commission and brokerage
   
26.1
     
34.0
     
(7.9
)
   
-23.2
%
Other underwriting expenses
   
7.8
     
8.1
     
(0.3
)
   
-3.6
%
Underwriting gain (loss)
 
$
5.8
   
$
(2.9
)
 
$
8.7
   
NM 
                                 
                           
Point Chg
 
Loss ratio
   
64.9
%
   
72.1
%
           
(7.2
)
Commission and brokerage ratio
   
23.1
%
   
24.2
%
           
(1.1
)
Other underwriting ratio
   
6.9
%
   
5.7
%
           
1.2
 
Combined ratio
   
94.9
%
   
102.0
%
           
(7.1
)
                                 
(NM, not meaningful)
                               

34


Premiums.  Gross written premiums decreased by 28.5% to $238.5 million for the three months ended March 31, 2016 compared to $333.6 million for the three months ended March 31, 2015, primarily due to the decline in Latin American and Asian business, reductions in premiums related to quota share agreements and the negative impact of approximately $14.8 million from the movement of foreign exchange rates.  Net written premiums decreased by 27.9% to $87.7 million for the three months ended March 31, 2016 compared to $121.7 million for the three months ended March 31, 2015, which is consistent with the change in gross written premiums. Premiums earned decreased 19.6% to $113.2 million for the three months ended March 31, 2016 compared to $140.7 million for the three months ended March 31, 2015.  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.

Incurred Losses and LAE.  The following table presents the incurred losses and LAE for the International segment for the periods indicated.


   
Three Months Ended March 31,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2016
                                     
Attritional
 
$
71.4
     
63.1
%
   
$
(2.8
)
   
-2.5
%
   
$
68.6
     
60.6
%
 
Catastrophes
   
5.2
     
4.6
%
 
   
(0.4
)
   
-0.3
%
 
   
4.8
     
4.3
%
 
Total segment
 
$
76.6
     
67.7
%
 
 
$
(3.2
)
   
-2.8
%
 
 
$
73.4
     
64.9
%
 
                                                                
2015
                                                             
Attritional
 
$
99.7
     
70.9
%
   
$
1.6
     
1.1
%
   
$
101.3
     
72.0
%
 
Catastrophes
   
-
     
0.0
%
 
   
0.2
     
0.1
%
 
   
0.2
     
0.1
%
 
Total segment
 
$
99.7
     
70.9
%
 
 
$
1.7
     
1.2
%
 
 
$
101.4
     
72.1
%
 
                                                                
Variance 2016/2015
                                                             
Attritional
 
$
(28.3
)
   
(7.8
)
pts
 
$
(4.4
)
   
(3.6
)
pts
 
$
(32.7
)
   
(11.4
)
pts
Catastrophes
   
5.2
     
4.6
 
pts
   
(0.6
)
   
(0.4
)
pts
   
4.6
     
4.2
 
pts
Total segment
 
$
(23.1
)
   
(3.2
)
pts
 
$
(4.9
)
   
(4.0
)
pts
 
$
(28.0
)
   
(7.2
)
pts
                                                                
(Some amounts may not reconcile due to rounding.)
                                                             


Incurred losses and LAE decreased by 27.6% to $73.4 million for the three months ended March 31, 2016 compared to $101.4 million for the three months ended March 31, 2015, primarily due to the decrease in current year attritional losses of $28.3 million reflecting a decline in premiums earned, partially offset by an increase in current year catastrophe losses of $5.2 million. The $5.2 million of current year catastrophe losses for the three months ended March 31, 2016 were primarily due to the 2016 Taiwan earthquake ($5.2 million). There were no current year catastrophe losses for the three months ended March 31, 2015.

Segment Expenses.  Commission and brokerage decreased 23.2% to $26.1 million for the three months ended March 31, 2016 compared to $34.0 million for the three months ended March 31, 2015.  The decrease was primarily due to the impact of the decrease in premiums earned and the impact of affiliated quota share agreements.  Segment other underwriting expenses decreased slightly to $7.8 million for the three months ended March 31, 2016 compared to $8.1 million for the three months ended March 31, 2015.

35


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


   
Three Months Ended March 31,
 
(Dollars in millions)
 
2016
   
2015
   
Variance
   
% Change
 
Gross written premiums
 
$
354.7
   
$
330.5
   
$
24.2
     
7.3
%
Net written premiums
   
152.9
     
146.1
     
6.9
     
4.7
%
                                 
Premiums earned
 
$
133.5
   
$
125.0
   
$
8.6
     
6.9
%
Incurred losses and LAE
   
106.5
     
96.0
     
10.5
     
10.9
%
Commission and brokerage
   
(7.0
)
   
4.2
     
(11.2
)
 
NM 
Other underwriting expenses
   
37.9
     
28.9
     
9.0
     
31.1
%
Underwriting gain (loss)
 
$
(3.9
)
 
$
(4.1
)
 
$
0.2
     
-4.9
%
                                 
                           
Point Chg
 
Loss ratio
   
79.8
%
   
76.8
%
           
3.0
 
Commission and brokerage ratio
   
-5.3
%
   
3.3
%
           
(8.6
)
Other underwriting ratio
   
28.4
%
   
23.2
%
           
5.2
 
Combined ratio
   
102.9
%
   
103.3
%
           
(0.4
)
                                 
(NM, not meaningful)
                               


Premiums.  Gross written premiums increased by 7.3% to $354.7 million for the three months ended March 31, 2016 compared to $330.5 million for the three months ended March 31, 2015.  This increase was primarily driven by an increase in accident and health business, premium from the startup of the Lloyd's syndicate and additional expansion of other insurance lines of business. Net written premiums increased by 4.7% to $152.9 million for the three months ended March 31, 2016 compared to $146.1 million for the three months ended March 31, 2015. The difference between the change in gross written premiums and the change in new written premiums is primarily due to a varying utilization of reinsurance. Premiums earned increased 6.9% to $133.5 million for the three months ended March 31, 2016 compared to $125.0 million for the three months ended March 31, 2015. 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.

Incurred Losses and LAE.  The following table presents the incurred losses and LAE for the Insurance segment for the periods indicated.


   
Three Months Ended March 31,
   
Current
   
Ratio %/
 
Prior
   
Ratio %/
 
Total
   
Ratio %/
(Dollars in millions)
 
Year
   
Pt Change
 
Years
   
Pt Change
 
Incurred
   
Pt Change
2016
                                     
Attritional
 
$
103.6
     
77.6
%
   
$
3.0
     
2.3
%
   
$
106.7
     
79.9
%
 
Catastrophes
   
-
     
0.0
%
 
   
(0.2
)
   
-0.1
%
 
   
(0.2
)
   
-0.1
%
 
Total segment
 
$
103.6
     
77.6
%
 
 
$
2.8
     
2.2
%
 
 
$
106.5
     
79.8
%
 
                                                                
2015
                                                             
Attritional
 
$
95.6
     
76.5
%
   
$
0.4
     
0.3
%
   
$
96.0
     
76.8
%
 
Catastrophes
   
-
     
0.0
%
 
   
-
     
0.0
%
 
   
-
     
0.0
%
 
Total segment
 
$
95.6
     
76.5
%
 
 
$
0.4
     
0.3
%
 
 
$
96.0
     
76.8
%
 
                                                                
Variance 2016/2015
                                                             
Attritional
 
$
8.0
     
1.1
 
pts
 
$
2.6
     
2.0
 
pts
 
$
10.7
     
3.1
 
pts
Catastrophes
   
-
     
-
 
pts
   
(0.2
)
   
(0.1
)
pts
   
(0.2
)
   
(0.1
)
pts
Total segment
 
$
8.0
     
1.1
 
pts
 
$
2.4
     
1.9
 
pts
 
$
10.5
     
3.0
 
pts
(Some amounts may not reconcile due to rounding.)
                                                             

36


Incurred losses and LAE increased by 10.9% to $106.5 million for the three months ended March 31, 2016 compared to $96.0 million for the three months ended March 31, 2015, primarily due to an increase of $8.0 million in current year attritional losses related to the impact of the increase in premiums earned and an increase of $2.6 million of favorable development on prior years attritional losses related primarily to crop hail business. There were no current year catastrophe losses for the three months ended March 31, 2016 and 2015.

Segment Expenses.  Commission and brokerage decreased to $(7.0) million for the three months ended March 31, 2016 compared to $4.2 million for the three months ended March 31, 2015. The decrease was primarily driven by changes in the mix of business and impacts from affiliated quota share agreements.  Segment other underwriting expenses increased to $37.9 million for the three months ended March 31, 2016 compared to $28.9 million for the three months ended March 31, 2015.  The increase resulted from the impact of the increase in premiums earned and increased expenses due to the build out of the insurance platform.

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 $9.6 billion investment portfolio, at March 31, 2016, 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 $848.3 million of mortgage-backed securities in the $5,581.8 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.

37


The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $329.2 million of short-term investments) for the period 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 March 31, 2016
(Dollars in millions)
   -200    -100    0     100    200
Total Market/Fair Value
 
$
6,210.8
   
$
6,062.0
   
$
5,911.0
   
$
5,747.7
   
$
5,578.5
 
Market/Fair Value Change from Base (%)
   
5.1
%
   
2.6
%
   
0.0
%
   
-2.8
%
   
-5.6
%
Change in Unrealized Appreciation
                                       
After-tax from Base ($)
 
$
194.9
   
$
98.2
   
$
-
   
$
(106.1
)
 
$
(216.1
)
 
We had $7,992.3 million and $7,940.7 million of gross reserves for losses and LAE as of March 31, 2016 and December 31, 2015, 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 tables 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 March 31, 2016
(Dollars in millions)
   -20%    -10%    0%    10%    20%
Fair/Market Value of the Equity Portfolio
 
$
956.0
   
$
1,075.5
   
$
1,195.0
   
$
1,314.5
   
$
1,434.0
 
After-tax Change in Fair/Market Value
   
(155.3
)
   
(77.7
)
   
-
     
77.7
     
155.3
 
 
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 March 31, 2016, there has been no material change in exposure to foreign exchange rates as compared to December 31, 2015.

38


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 ITEM 1A, "Risk Factors" in the Company's most recent 10-K filing. 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.


39


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.


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.



40


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
 
     


41

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:  May 16, 2016