Edgar Filing: EVEREST REINSURANCE HOLDINGS INC

holdings10k2014.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2014

Commission file number 1-14527

EVEREST REINSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction

of incorporation or organization)

22-3263609

(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)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
4.868% Senior Notes Due 2044		NYSE
6.60% Long Term Notes Due 2067		NYSE

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Yes

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

The aggregate market value on June 30, 2014, the last business day of the registrant’s most recently completed second quarter, of the voting stock held by non-affiliates of the registrant was zero.

At March 15, 2015, the number of shares outstanding of the registrant common shares was 1,000, all of which are owned by Everest Underwriting Group (Ireland) Limited, a wholly-owned direct subsidiary of Everest Re Group, Ltd.

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

EVEREST REINSURANCE HOLDINGS, INC.

Table of Contents

FORM 10-K

		Page

PART I

Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	12
Item 3.	Legal Proceedings	13
Item 4.	Mine Safety Disclosures	13


PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	30
Item 9A.	Controls and Procedures	30
Item 9B.	Other Information	30

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	31
Item 11.	Executive Compensation	31
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 13.	Certain Relationships and Related Transactions, and Director Independence	31
Item 14.	Principal Accountant Fees and Services	31


PART IV

Item 15.	Exhibits and Financial Statement Schedules	32

PART I

Unless otherwise indicated, all financial data in this document have been prepared using accounting principles generally accepted in the United States of America (“GAAP”). 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”, “we”, “us”, and “our” means Holdings and its subsidiaries (unless the context otherwise requires).

ITEM 1. BUSINESS

The Company.

Holdings, a Delaware corporation, is a wholly-owned subsidiary of Holdings Ireland. On December 30, 2008, Group contributed Holdings to its recently established Irish holding company, Holdings Ireland. Holdings Ireland is a direct subsidiary of Group and was established to serve as a holding company for the U.S. and Irish reinsurance and insurance subsidiaries. Group is a Bermuda holding company whose common shares are publicly traded in the U.S. on the New York Stock Exchange under the symbol “RE”. Group files an annual report on Form 10-K with the Securities and Exchange Commission (the “SEC”) with respect to its consolidated operations, including Holdings.

The Company’s principal business, conducted through its operating segments, is the underwriting of reinsurance and insurance in the U.S. and international markets. The Company had gross written premiums, in 2014, of $5.0 billion, with approximately 76% representing reinsurance and 24% representing insurance. Stockholder’s equity at December 31, 2014 was $4.6 billion. The Company underwrites reinsurance both through brokers and directly with ceding companies, giving it the flexibility to pursue business based on the ceding company’s preferred reinsurance purchasing method. The Company underwrites insurance directly and through general agent relationships, brokers and surplus lines brokers. Holdings’ active operating subsidiaries, excluding Mt. McKinley Insurance Company (“Mt. McKinley”), which is in runoff, are each rated A+ (“Superior”) by A.M. Best Company (“A.M. Best”), a leading provider of insurer ratings that assigns financial strength ratings to insurance companies based on their ability to meet their obligations to policyholders.

Following is a summary of the Company’s operating subsidiaries:

Everest Re, a Delaware insurance company and a direct subsidiary of Holdings, is a licensed property and casualty insurer and/or reinsurer in all states, the District of Columbia and Puerto Rico and is authorized to conduct reinsurance business in Canada, Singapore and Brazil. Everest Re underwrites property and casualty reinsurance for insurance and reinsurance companies in the U.S. and international markets. Everest Re has engaged in reinsurance transactions with Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”), Everest International Reinsurance, Ltd. (“Everest International”), Mt. Logan Re, Ltd. (“Mt. Logan Re”) and Everest Insurance Company of Canada (“Everest Canada”), which are affiliated companies, primarily driven by enterprise risk and capital management considerations under which business is transacted at market rates and terms. At December 31, 2014 Everest Re had statutory surplus of $2.9 billion.

Everest National Insurance Company (“Everest National”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed in 50 states and the District of Columbia and is authorized to write property and casualty insurance on an admitted basis in the jurisdictions in which it is licensed. The majority of Everest National’s business is reinsured by its parent, Everest Re.

Everest Indemnity Insurance Company (“Everest Indemnity”), a Delaware insurance company and a direct subsidiary of Everest Re, writes excess and surplus lines insurance business in the U.S. on a non-admitted basis. Excess and surplus lines insurance is specialty property and liability coverage that an insurer not licensed to write insurance in a particular jurisdiction is permitted to provide to insureds when the specific specialty coverage is unavailable from admitted insurers. Everest Indemnity is licensed in Delaware and is eligible to write business on a non-admitted basis in all other states, the District of Columbia and Puerto Rico. The majority of Everest Indemnity’s business is reinsured by its parent, Everest Re.

·	Everest Security Insurance Company (“Everest Security”), a Georgia insurance company and a direct subsidiary of Everest Re, writes property and casualty insurance on an admitted basis in Georgia and Alabama. The majority of Everest Security’s business is reinsured by its parent, Everest Re.

Mt. McKinley, a Delaware insurance company and a direct subsidiary of Holdings, was acquired by Holdings in September 2000 from The Prudential Insurance Company of America (“The Prudential”). In 1985, Mt. McKinley ceased writing new and renewal insurance and commenced a run-off operation to service claims arising from its previously written business. Effective September 19, 2000, Mt. McKinley and Bermuda Re entered into a loss portfolio transfer reinsurance agreement, whereby Mt. McKinley transferred, for arm’s length consideration, all of its net insurance exposures and reserves to Bermuda Re.

·	Heartland Crop Insurance, Inc. (“Heartland”), a Kansas based managing general agent and a direct subsidiary of Holdings, was acquired on January 2, 2011. Heartland specializes in crop insurance, which is written mainly through Everest National.

Reinsurance Industry Overview.

Reinsurance is an arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance or reinsurance company, the ceding company, against all or a portion of the insurance risks underwritten by the ceding company under one or more insurance contracts. Reinsurance can provide a ceding company with several benefits, including a reduction in its net liability on individual risks or classes of risks, catastrophe protection from large and/or multiple losses and/or a reduction in operating leverage as measured by the ratio of net premiums and reserves to capital. Reinsurance also provides a ceding company with additional underwriting capacity by permitting it to accept larger risks and write more business than would be acceptable relative to the ceding company’s financial resources. Reinsurance does not discharge the ceding company from its liability to policyholders; rather, it reimburses the ceding company for covered losses.

There are two basic types of reinsurance arrangements: treaty and facultative. Treaty reinsurance obligates the ceding company to cede and the reinsurer to assume a specified portion of a type or category of risks insured by the ceding company. Treaty reinsurers do not separately evaluate each of the individual risks assumed under their treaties, instead, the reinsurer relies upon the pricing and underwriting decisions made by the ceding company. In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk under a single insurance contract. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance, when purchased by ceding companies, usually is intended to cover individual risks not covered by their reinsurance treaties because of the dollar limits involved or because the risk is unusual.

Both treaty and facultative reinsurance can be written on either a pro rata basis or an excess of loss basis. Under pro rata reinsurance, the ceding company and the reinsurer share the premiums as well as the losses and expenses in an agreed proportion. Under excess of loss reinsurance, the reinsurer indemnifies the ceding company against all or a specified portion of losses and expenses in excess of a specified dollar amount, known as the ceding company's retention or reinsurer's attachment point, generally subject to a negotiated reinsurance contract limit.

In pro rata reinsurance, the reinsurer generally pays the ceding company a ceding commission. The ceding commission generally is based on the ceding company’s cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense and may contain profit sharing provisions, whereby the ceding commission is adjusted based on loss experience). Premiums paid by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a proportionate risk. There is usually no ceding commission on excess of loss reinsurance.

Reinsurers may purchase reinsurance to cover their own risk exposure. Reinsurance of a reinsurer's business is called a retrocession. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause insurers to purchase reinsurance: to reduce net liability on individual or classes of risks, protect against catastrophic losses, stabilize financial ratios and obtain additional underwriting capacity.

Reinsurance can be written through intermediaries, generally professional reinsurance brokers, or directly with ceding companies. From a ceding company's perspective, the broker and the direct distribution channels have advantages and disadvantages. A ceding company's decision to select one distribution channel over the other will be influenced by its perception of such advantages and disadvantages relative to the reinsurance coverage being placed.

Business Strategy.

The Company’s business strategy is to sustain its leadership position within targeted reinsurance and insurance markets, provide effective management throughout the property and casualty underwriting cycle and thereby achieve an attractive return for its shareholders. The Company’s underwriting strategies seek to capitalize on its i) financial strength and capacity, ii) global franchise, iii) stable and experienced management team, iv) diversified product and distribution offerings, v) underwriting expertise and disciplined approach, vi) efficient and low-cost operating structure and vii) effective enterprise risk management practices.

The Company offers treaty and facultative reinsurance and admitted and non-admitted insurance. The Company’s products include the full range of property and casualty reinsurance and insurance coverages, including marine, aviation, surety, errors and omissions liability (“E&O”), directors’ and officers’ liability (“D&O”), medical malpractice, other specialty lines, accident and health (“A&H”) and workers’ compensation.

The Company’s underwriting strategies emphasizes underwriting profitability over premium volume. Key elements of this strategy include careful risk selection, appropriate pricing through strict underwriting discipline and adjustment of the Company’s business mix in response to changing market conditions. The Company focuses on reinsuring companies that effectively manage the underwriting cycle through proper analysis and pricing of underlying risks and whose underwriting guidelines and performance are compatible with its objectives.

The Company’s underwriting strategies emphasize flexibility and responsiveness to changing market conditions. The Company believes that its existing strengths, including its broad underwriting expertise, global presence, strong financial ratings and substantial capital, facilitate adjustments to its mix of business geographically, by line of business and by type of coverage, allowing it to participate in those market opportunities that provide the greatest potential for underwriting profitability. The Company’s insurance operations complement these strategies by accessing business that is not available on a reinsurance basis. The Company carefully monitors its mix of business across all operations to avoid unacceptable geographic or other risk concentrations.

Capital Transactions.

The Company’s business operations are in part dependent on its financial strength and financial strength ratings, and the market’s perception of its financial strength. The Company’s stockholder’s equity was $4,572.7 million and $4,190.5 million at December 31, 2014 and 2013, respectively. The Company possesses significant financial flexibility with access to the debt markets and, through its ultimate parent, equity markets, as a result of its perceived financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies. The Company’s capital position remains strong, commensurate with its financial ratings and the Company has ample liquidity to meet its financial obligations for the foreseeable future.

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

On June 5, 2014, Holdings issued $400,000 thousand of 30 year senior notes at 4.868%, which will mature on June 1, 2044. The proceeds from the issuance were used in part to pay off the $250,000 thousand of 5.40% senior notes which matured on October 15, 2014.

On May 24, 2013, Holdings elected to redeem the $329.9 million of 6.2% junior subordinated debt securities. As a result of the early redemption, the Company incurred pre-tax expense of $7.3 million related to the immediate amortization of the remaining capitalized issuance costs on the trust preferred securities.

Financial Strength Ratings.

The following table shows the current financial strength ratings of the Company’s operating subsidiaries as reported by A.M. Best, Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) and Moody’s Investors Services, Inc. (“Moody’s”). These ratings are based upon factors of concern to policyholders and should not be considered an indication of the degree or lack of risk involved in a direct or indirect equity investment in an insurance or reinsurance company.

All of the below-mentioned ratings are continually monitored and revised, if necessary, by each of the rating agencies. The ratings presented in the following table were in effect as of February 27, 2015.

The Company believes that its ratings are important as they provide the Company’s customers and its investors with an independent assessment of the Company’s financial strength using a rating scale that provides for relative comparisons. Strong financial ratings are particularly important for reinsurance companies. Ceding companies must rely on their reinsurers to pay covered losses well into the future. As a result, a highly rated reinsurer is generally preferred.

Operating Subsidiary:	A.M. Best	Standard & Poor's	Moody's

Everest Re	A+ (Superior)	A+ (Strong)	A1 (upper-medium)
Everest National	A+ (Superior)	A+ (Strong)	Not Rated
Everest Indemnity	A+ (Superior)	Not Rated	Not Rated
Everest Security	A+ (Superior)	Not Rated	Not Rated
Mt. McKinley	Not Rated	Not Rated	Not Rated

A.M. Best states that the “A+” (“Superior”) rating is assigned to those companies which, in its opinion, have a superior ability to meet their ongoing insurance policy and contract obligations based on A.M. Best’s comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance and business profile. A.M. Best affirmed these ratings on July 25, 2014. Standard & Poor’s states that the “A+” rating is assigned to those insurance companies which, in its opinion, have strong financial security characteristics with respect to their ability to pay under its insurance policies and contracts in accordance with their terms. Standard & Poor’s affirmed these ratings on June 4, 2014. Moody’s states that an “A1” rating is assigned to companies that, in their opinion, offer upper-medium grade security and are subject to low credit risk. Moody’s affirmed these ratings on October 9, 2014.

Subsidiaries other than Everest Re may not be rated by some or any rating agencies because such ratings are not considered essential by the individual subsidiary’s customers or because of the limited nature of the subsidiary’s operations. In particular, Mt. McKinley is not rated because it is in run-off status.

Debt Ratings.

The following table shows the debt ratings by A.M. Best, Standard & Poor’s and Moody’s of the Holdings’ senior notes due June 1, 2044 and long term notes due May 1, 2067 both of which are considered investment grade. Debt ratings are the rating agencies’ current assessment of the credit worthiness of an obligor with respect to a specific obligation.

	A.M. Best			Standard & Poor's		Moody's
Senior Notes		a-	(Strong)	A-	(Strong)	Baa1	(Medium Grade)
Long Term Notes		bbb	(Adequate)	BBB	(Adequate)	Baa2	(Medium Grade)

A debt rating of “a-” is assigned by A.M. Best where the issuer, in A.M. Best’s opinion, has a strong ability to meet the terms of the obligation. A.M. Best assigns a debt rating in the “bbb” range where the issuer, in A.M. Best’s opinion, has adequate ability to meet the terms of the obligation but notes that the issue is more susceptible to changes in economic or other conditions. Standard & Poor’s assigns a debt rating in the “A” range to issuers that have strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories. A debt rating in the “BBB” range is assigned by Standard & Poor’s where the obligation exhibits adequate protection parameters although adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. According to Moody’s, a debt rating of “Baa” is assigned to issues that are considered medium-grade obligations and subject to moderate credit risk and as such may possess certain speculative characteristics.

Competition.

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.

The Company competes in the U.S. and international reinsurance and insurance markets with numerous global competitors. The Company’s 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 and certain government sponsored risk transfer vehicles. Some of these competitors have greater financial resources than the Company 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. During the second and third quarters of 2013, Canada experienced historic flooding in Alberta and Toronto, which resulted in higher catastrophe rates in these areas during 2014. Although there were flooding and wind storm events in Europe and Asia in the latter part of 2013, the overall 2013 catastrophe losses for the industry were lower than average. This lower level of losses, combined with increased competition resulted in downward pressure on rates in certain geographical areas during 2014. Catastrophe results during 2014 were also generally benign, which could have a negative impact on worldwide regional catastrophe markets during 2015.

Overall, the Company believes that given its size, strong ratings, distribution system, reputation, expertise and capital market vehicle activity the current marketplace conditions provide profit opportunities. The Company continues to employ its strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in its overall portfolio.

Employees.

As of February 1, 2015, the Company employed 695 persons. Management believes that employee relations are good. None of the Company’s employees are subject to collective bargaining agreements, and the Company is not aware of any current efforts to implement such agreements.

Available Information.

The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available free of charge through the Company’s internet website at http://www.everestregroup.com as soon as reasonably practicable after such reports are electronically filed with the SEC.

ITEM 1A. RISK FACTORS

In addition to the other information provided in this report, the following risk factors should be considered when evaluating us. If the circumstances contemplated by the individual risk factors materialize, our business, financial condition and results of operations could be materially and adversely affected and our ability to service our debt, our debt ratings and our ability to issue new debt could decline significantly.

RISKS RELATING TO OUR BUSINESS

Fluctuations in the financial markets could result in investment losses.

Prolonged and severe disruptions in the overall public debt and equity markets, such as occurred during 2008, could result in significant realized and unrealized losses in our investment portfolio. Although financial markets have significantly improved since 2008, they could deteriorate in the future. There could also be disruption in individual market sectors, such as occurred in the energy sector during the fourth quarter of 2014. Such declines in the financial markets could result in significant realized and unrealized losses on investments and could have a material adverse impact on our results of operations, equity, business and insurer financial strength and debt ratings.

Our results could be adversely affected by catastrophic events.

We are exposed to unpredictable catastrophic events, including weather-related and other natural catastrophes, as well as acts of terrorism. Any material reduction in our operating results caused by the occurrence of one or more catastrophes could inhibit our ability to pay dividends or to meet our interest and principal payment obligations. Subsequent to April 1, 2010, we define a catastrophe as an event that causes a loss on property exposures before reinsurance of at least $10.0 million, before corporate level reinsurance and taxes. Prior to April 1, 2010, we used a threshold of $5.0 million. By way of illustration, during the past five calendar years, pre-tax catastrophe losses, net of contract specific reinsurance but before cessions under corporate reinsurance programs, were as follows:

Calendar year:	Pre-tax catastrophe losses
(Dollars in millions)
2014		$	18.2
2013			76.6
2012			235.8
2011			798.4
2010			267.1

Our losses from future catastrophic events could exceed our projections.

We use projections of possible losses from future catastrophic events of varying types and magnitudes as a strategic underwriting tool. We use these loss projections to estimate our potential catastrophe losses in certain geographic areas and decide on the placement of retrocessional coverage or other actions to limit the extent of potential losses in a given geographic area. These loss projections are approximations, reliant on a mix of quantitative and qualitative processes, and actual losses may exceed the projections by a material amount, resulting in a material adverse effect on our financial condition and results of operations.

If our loss reserves are inadequate to meet our actual losses, our net income would be reduced or we could incur a loss.

We are required to maintain reserves to cover our estimated ultimate liability of losses and loss adjustment expenses (“LAE”) for both reported and unreported claims incurred. These reserves are only estimates of what we believe the settlement and administration of claims will cost based on facts and circumstances known to us. In setting reserves for our reinsurance liabilities, we rely on claim data supplied by our ceding companies and brokers and we employ actuarial and statistical projections. The information received from our ceding companies is not always timely or accurate, which can contribute to inaccuracies in our loss projections. Because of the uncertainties that surround our estimates of loss and LAE reserves, we cannot be certain that ultimate losses and LAE payments will not exceed our estimates. If our reserves are deficient, we would be required to increase loss reserves in the period in which such deficiencies are identified which would cause a charge to our earnings and a reduction of capital. By way of illustration, during the past five calendar years, the reserve re-estimation process resulted in a decrease to our pre-tax net income in all of the years:

Calendar year:	Effect on pre-tax net income
(Dollars in millions)
2014		$	39.2	decrease
2013			44.6	decrease
2012			12.3	decrease
2011			14.8	decrease
2010			62.8	decrease

The difficulty in estimating our reserves is significantly more challenging as it relates to reserving for potential asbestos and environmental (“A&E”) liabilities. At year-end 2014, 6.1% of our gross reserves were comprised of A&E reserves. A&E liabilities are especially hard to estimate for many reasons, including the long delays between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly allocating liability for the asbestos or environmental damage. Legal tactics and judicial and legislative developments affecting the scope of insurers’ liability, which can be difficult to predict, also contribute to uncertainties in estimating reserves for A&E liabilities.

The failure to accurately assess underwriting risk and establish adequate premium rates could reduce our net income or result in a net loss.

Our success depends on our ability to accurately assess the risks associated with the businesses on which the risk is retained. If we fail to accurately assess the risks we retain, we may fail to establish adequate premium rates to cover our losses and LAE. This could reduce our net income and even result in a net loss.

In addition, losses may arise from events or exposures that are not anticipated when the coverage is priced. In addition to unanticipated events, we also face the unanticipated expansion of our exposures, particularly in long-tail liability lines. An example of this is the expansion over time of the scope of insurers’ legal liability within the mass tort arena, particularly for A&E exposures discussed above.

Decreases in pricing for property and casualty reinsurance and insurance could reduce our net income.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. These cycles, as well as other factors that influence aggregate supply and demand for property and casualty insurance and reinsurance products, are outside of our control. The supply of (re)insurance is driven by prevailing prices and levels of capacity that may fluctuate in response to a number of factors including large catastrophic losses and investment returns being realized in the insurance industry. Demand for (re)insurance is influenced by underwriting results of insurers and insureds, including catastrophe losses, and prevailing general economic conditions. If any of these factors were to result in a decline in the demand for (re)insurance or an overall increase in (re)insurance capacity, our net income could decrease.

If rating agencies downgrade the ratings of our insurance subsidiaries, future prospects for growth and profitability could be significantly and adversely affected.

Our active insurance company subsidiaries currently hold financial strength ratings assigned by third-party rating agencies which assess and rate the claims paying ability and financial strength of insurers and reinsurers. Our active subsidiaries carry an “A+” (“Superior”) rating from A.M. Best. Everest Re and Everest National hold an “A+” (“Strong”) rating from Standard & Poor’s. Everest Re holds an “A1” (“upper-medium”) rating from Moody’s. Financial strength ratings are used by client companies and agents and brokers that place the business as an important means of assessing the financial strength and quality of reinsurers. A downgrade or withdrawal of any of these ratings might adversely affect our ability to market our insurance products and could have a material and adverse effect on future prospects for growth and profitability.

Consistent with market practice, much of our treaty reinsurance business allows the ceding company to terminate the contract or seek collateralization of our obligations in the event of a rating downgrade below a certain threshold. The termination provision would generally be triggered if a rating fell below A.M. Best’s A- rating level, which is three levels below Everest Re’s current rating of A+. To a lesser extent, Everest Re also has modest exposure to reinsurance contracts that contain provisions for obligatory funding of outstanding liabilities in the event of a rating agency downgrade. Those provisions would also generally be triggered if Everest Re’s rating fell below A.M. Best’s A- rating level.

The failure of our insureds, intermediaries and reinsurers to satisfy their obligations to us could reduce our income.

In accordance with industry practice, we have uncollateralized receivables from insureds, agents and brokers and/or rely on agents and brokers to process our payments. We may not be able to collect amounts due from insureds, agents and brokers, resulting in a reduction to net income.

We are subject to credit risk of reinsurers in connection with retrocessional arrangements because the transfer of risk to a reinsurer does not relieve us of our liability to the insured. In addition, reinsurers may be unwilling to pay us even though they are able to do so. The failure of one or more of our reinsurers to honor their obligations to us in a timely fashion would impact our cash flow and reduce our net income and could cause us to incur a significant loss.

If we are unable or choose not to purchase reinsurance and transfer risk to reinsurers, our net income could be reduced or we could incur a net loss in the event of unusual loss experience.

We are generally less reliant on the purchase of reinsurance than many of our competitors, in part because of our strategic emphasis on underwriting discipline and management of the cycles inherent in our business. We try to separate our risk taking process from our risk mitigation process in order to avoid developing too great a reliance on reinsurance. Historically, we generally purchased reinsurance from other third parties only when we expect a net benefit. With the expansion of the capital markets into insurance linked financial instruments, we increased our use of capital market products for catastrophe reinsurance during 2014. In addition, some of our quota share contracts with larger retrocessions were increased during 2014. The percentage of business that we reinsure may vary considerably from year to year, depending on our view of the relationship between cost and expected benefit for the contract period.

We have entered into affiliated whole account quota share reinsurance agreements for 2002 through 2014 and which continue for 2015 with Bermuda Re. We believe that the terms, conditions and pricing of the quota share agreements reflect arm’s length market conditions. In addition, we entered into a loss portfolio transfer agreement with Bermuda Re on October 1, 2008. These affiliated reinsurance arrangements allow us to more effectively leverage our capital, expertise, distribution platform and market presence than our stand alone capital position would otherwise allow.

Percentage of ceded written premiums to gross written premiums	2014	2013	2012	2011	2010

Unaffiliated	9.3%	5.0%	6.3%	5.0%	7.4%
Affiliated	48.2%	47.3%	46.3%	45.8%	41.1%

Our affiliated quota share agreements reflect general reinsurance market terms and conditions and are negotiated on an arms’ length basis. As a result, there can be no assurance that these arrangements will continue beyond 2015. If the quota shares are not renewed, we may have to reduce our premium volume and we may be more exposed to reductions in net income from large losses.

Our industry is highly competitive and we may not be able to compete successfully in the future.

Our industry is highly competitive and subject to pricing cycles that can be pronounced. We compete globally in the United States, international reinsurance and insurance markets with numerous competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies and domestic and international underwriting operations, including underwriting syndicates at Lloyd’s.

According to Standard & Poor’s, we rank among the top ten global reinsurance groups, where more than two-thirds of the market share is concentrated. The worldwide net premium written by the Top 40 global reinsurance groups, for both life and non-life business, was estimated to be $202 billion in 2013 according to data compiled by Standard & Poor’s. The leaders in this market are Munich Re, Swiss Re, Hannover Rueckversicherung AG, Berkshire Hathaway Re, SCOR SE and syndicates at Lloyd’s. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships throughout the industry, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and the entry of alternative capital market products and vehicles provide additional sources of reinsurance and insurance capacity and increased competition.

We are dependent on our key personnel.

Our success has been, and will continue to be, dependent on our ability to retain the services of our existing key executive officers and to attract and retain additional qualified personnel in the future. The loss of the services of any key executive officer or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct business. Generally, we consider key executive officers to be those individuals who have the greatest influence in setting overall policy and controlling operations: Chairman, President and Chief Executive Officer, Dominic J. Addesso (age 61), Executive Vice President and Chief Financial Officer, Craig Howie (age 51), Executive Vice President and Chief Underwriting Officer of our operating subsidiaries, John P. Doucette (age 49) and Executive Vice President, General Counsel, Chief Compliance Officer and Secretary, Sanjoy Mukherjee (age 48). Through Group and its affiliates, we have employment contracts with Mr. Addesso, Mr. Doucette and Mr. Mukherjee, which have been filed with the SEC and provide for terms of employment ending on December 31, 2016 for Mr. Addesso and September 1, 2016 for Mr. Doucette and Mr. Mukherjee.

Our investment values and investment income could decline because they are exposed to interest rate, credit and market risks.

A significant portion of our investment portfolio consists of fixed income securities and smaller portions consist of equity securities and other investments. Both the fair market value of our invested assets and associated investment income fluctuate depending on general economic and market conditions. For example, the fair market value of our predominant fixed income portfolio generally increases or decreases inversely to fluctuations in interest rates. The market value of our fixed income securities could also decrease as a result of a downturn in the business cycle that causes the credit quality of such securities to deteriorate. The net investment income that we realize from future investments in fixed income securities will generally increase or decrease with interest rates.

Interest rate fluctuations also can cause net investment income from fixed income investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, to differ from the income anticipated from those securities at the time of purchase. In addition, if issuers of individual investments are unable to meet their obligations, investment income will be reduced and realized capital losses may arise.

The majority of our fixed income securities are classified as available for sale and temporary changes in the market value of these investments are reflected as changes to our stockholder’s equity. Our actively managed equity security portfolios are fair valued and any changes in fair value are reflected as net realized capital gains or losses. As a result, a decline in the value of our securities reduces our capital or could cause us to incur a loss.

We have invested a portion of our investment portfolio in equity securities. The value of these assets fluctuates with changes in the markets. In times of economic weakness, the fair value of these assets may decline, and may negatively impact net income. We also invest in non-traditional investments which have different risk characteristics than traditional fixed income and equity securities. These alternative investments are comprised primarily of private equity limited partnerships. The changes in value and investment income/(loss) for these partnerships may be more volatile than over-the-counter securities.

The following table quantifies the portion of our investment portfolio that consists of fixed income securities, equity securities and investments that carry prepayment risk.

	At
(Dollars in millions)	December 31, 2014		% of Total
Mortgage-backed securities
Commercial	$	59.3		0.6	%
Agency residential		598.1		6.2	%
Non-agency residential		0.3		0.0	%
Other asset-backed		94.8		1.0	%
Total asset-backed		752.5		7.8	%
Other fixed income		4,540.9		47.4	%
Total fixed income, at market value		5,293.4		55.2	%
Fixed maturities, at fair value		1.5		0.0	%
Equity securities, at fair value		1,299.0		13.7	%
Other invested assets, at market value		435.0		4.5	%
Other invested assets, at fair value		1,655.3		17.3	%
Cash and short-term investments		888.4		9.3	%
Total investments and cash	$	9,572.6		100.0	%

We may experience foreign currency exchange losses that reduce our net income and capital levels.

Through our international operations, we conduct business in a variety of foreign (non-U.S.) currencies, principally the Canadian dollar and the Singapore dollar. Assets, liabilities, revenues and expenses denominated in foreign currencies are exposed to changes in currency exchange rates. Our reporting currency is the U.S. dollar, and exchange rate fluctuations, especially relative to the U.S. dollar, may materially impact our results and financial position. In 2014, we wrote approximately 22.3% of our coverages in non-U.S. currencies; as of December 31, 2014, we maintained approximately 11.6% of our investment portfolio in investments denominated in non-U.S. currencies. During 2014, 2013 and 2012, the impact on our quarterly pre-tax net income from exchange rate fluctuations ranged from a loss of $11.5 million to a gain of $24.1 million.

We are subject to cybersecurity risks that could negatively impact our business operations.

We are dependent upon our information technology platform, including our processing systems, data and electronic transmissions in our business operations. Security breaches could expose us to the loss or misuse of our information, litigation and potential liability. In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning of these systems could have a significant negative impact on our operations and possibly our results. An incident could also result in a violation of applicable privacy and other laws, damage our reputation, cause a loss of customers or give rise to monetary fines and other penalties, which could be significant. Management is not aware of a cybersecurity incident that has had a material impact on our operations.

RISKS RELATING TO REGULATION

Insurance laws and regulations restrict our ability to operate and any failure to comply with those laws and regulations could have a material adverse effect on our business.

We are subject to extensive and increasing regulation under U.S., state and foreign insurance laws. These laws limit the amount of dividends that can be paid to us by our operating subsidiaries, impose restrictions on the amount and type of investments that we can hold, prescribe solvency, accounting and internal control standards that must be met and maintained and require us to maintain reserves. These laws also require disclosure of material inter-affiliate transactions and require prior approval of “extraordinary” transactions. Such “extraordinary” transactions include declaring dividends from operating subsidiaries that exceed statutory thresholds. These laws also generally require approval of changes of control of insurance companies. The application of these laws could affect our liquidity and ability to pay dividends, interest and

other payments on securities, as applicable, and could restrict our ability to expand our business operations through acquisitions of new insurance subsidiaries. We may not have or maintain all required licenses and approvals or fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us. These types of actions could have a material adverse effect on our business. To date, no material fine, penalty or restriction has been imposed on us for failure to comply with any insurance law or regulation.

As a result of the recent dislocation of the financial markets, Congress and the Presidential administration in the United States are implementing changes in the way the financial services industry is regulated. Some of these changes are also impacting the insurance industry. For example, the United States Department of Treasury has recently established the Federal Insurance Office with the authority to monitor all aspects of the insurance sector, monitor the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products, to represent the United States on prudential aspects of international insurance matters, to assist with administration of the Terrorism Risk Insurance Program and to advise on important national and international insurance matters. In addition, regulatory bodies in Europe are developing a new capital adequacy directive for insurers and reinsurers. The future impact of such initiatives, if any, on our operation, net income (loss) or financial condition cannot be determined at this time.

RISK RELATING TO OUR SECURITIES

Because of our holding company structure, our ability to pay dividends, interest and principal is dependent on our receipt of dividends, loan payments and other funds from our subsidiaries.

We are a holding company, whose most significant asset consists of the stock of our operating subsidiaries. As a result, our ability to pay dividends, interest or other payments on our securities in the future will depend on the earnings and cash flows of the operating subsidiaries and the ability of the subsidiaries to pay dividends or to advance or repay funds to us. This ability is subject to general economic, financial, competitive, regulatory and other factors beyond our control. Payment of dividends and advances and repayments from some of the operating subsidiaries are regulated by U.S., state and foreign insurance laws and regulatory restrictions, including minimum solvency and liquidity thresholds. Accordingly, the operating subsidiaries may not be able to pay dividends or advance or repay funds to us in the future, which could prevent us from paying dividends, interest or other payments on our securities.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Everest Re’s corporate offices are located in approximately 230,500 square feet of leased office space in Liberty Corner, New Jersey. The Company’s other sixteen locations occupy a total of approximately 130,400 square feet, all of which are leased. Management believes that the above described office space is adequate for its current and anticipated needs.

ITEM 3. 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 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Holder of Common Stock.

As of December 31, 2014, all of the Company’s common stock was owned by Holdings Ireland and was not publicly traded.

Dividend History and Restrictions.

The Company did not pay any dividends in 2014, 2013 and 2012. The declaration and payment of future dividends, if any, by the Company will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, financial condition, business needs and growth objectives, capital and surplus requirements of its operating subsidiaries, regulatory restrictions, rating agency considerations and other factors. As an insurance holding company, the Company is dependent on dividends and other permitted payments from its subsidiaries to pay cash dividends to its stockholder. The payment of dividends to Holdings by Everest Re is subject to limitations imposed by Delaware law. Generally, Everest Re may only pay dividends out of its statutory earned surplus, which was $2.9 billion at December 31, 2014, and only after it has given 10 days prior notice to the Delaware Insurance Commissioner. During this 10-day period, the Commissioner may, by order, limit or disallow the payment of ordinary dividends if the Commissioner finds the insurer to be presently or potentially in financial distress. Further, the maximum amount of dividends that may be paid without the prior approval of the Delaware Insurance Commissioner in any twelve month period is the greater of (1) 10% of an insurer’s statutory surplus as of the end of the prior calendar year or (2) the insurer’s statutory net income, not including realized capital gains, for the prior calendar year. The maximum amount that is available for the payment of dividends by Everest Re in 2015 without prior regulatory approval is $357.3 million.

Recent Sales of Unregistered Securities.

None.

ITEM 6. SELECTED FINANCIAL DATA

Information for Item 6 is not required pursuant to General Instruction I(2) of Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following is a discussion and analysis of our results of operations and financial condition. It should be read in conjunction with the Consolidated Financial Statements and accompanying notes thereto presented under ITEM 8, “Financial Statements and Supplementary Data”.

Industry Conditions.

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 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.

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.

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:

	Years Ended December 31,									Percentage Increase/(Decrease)
(Dollars in millions)	2014			2013			2012			2014/2013			2013/2012
Gross written premiums	$	4,965.3		$	4,437.5		$	3,569.4			11.9	%		24.3	%
Net written premiums		2,107.0			2,117.4			1,691.6			-0.5	%		25.2	%

REVENUES:
Premiums earned	$	2,113.7		$	2,006.4		$	1,773.9			5.4	%		13.1	%
Net investment income		290.3			297.0			306.1			-2.3	%		-3.0	%
Net realized capital gains (losses)		206.7			723.1			391.7			-71.4	%		84.6	%
Other income (expense)		(22.3	)		(7.7	)		12.1			188.8	%		-163.6	%
Total revenues		2,588.4			3,018.8			2,483.9			-14.3	%		21.5	%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		1,354.1			1,272.2			1,249.7			6.4	%		1.8	%
Commission, brokerage, taxes and fees		339.4			293.9			310.7			15.5	%		-5.4	%
Other underwriting expenses		192.0			193.5			170.6			-0.8	%		13.4	%
Corporate expense		7.3			8.3			8.8			-12.2	%		-5.7	%
Interest, fee and bond issue cost amortization expense		38.0			45.5			50.7			-16.5	%		-10.4	%
Total claims and expenses		1,930.7			1,813.3			1,790.6			6.5	%		1.3	%

INCOME (LOSS) BEFORE TAXES		657.7			1,205.5			693.3			-45.4	%		73.9	%
Income tax expense (benefit)		203.6			407.2			173.0			-50.0	%		135.4	%
NET INCOME (LOSS)	$	454.1		$	798.3		$	520.3			-43.1	%		53.4	%

RATIOS:										Point Change
Loss ratio		64.1	%		63.4	%		70.5	%		0.7			(7.1	)
Commission and brokerage ratio		16.1	%		14.6	%		17.5	%		1.5			(2.9	)
Other underwriting expense ratio		9.0	%		9.7	%		9.6	%		(0.7	)		0.1
Combined ratio		89.2	%		87.7	%		97.6	%		1.5			(9.9	)


	At December 31,									Percentage Increase/ (Decrease)
(Dollars in millions)	2014			2013			2012			2014/2013			2013/2012
Balance sheet data:
Total investments and cash	$	9,572.6		$	9,495.1		$	9,075.5			0.8	%		4.6	%
Total assets		16,322.3			15,521.0			15,088.0			5.2	%		2.9	%
Loss and loss adjustment expense reserves		7,843.9			7,653.2			8,143.1			2.5	%		-6.0	%
Total debt		638.4			488.3			818.2			30.7	%		-40.3	%
Total liabilities		11,749.6			11,330.5			11,609.3			3.7	%		-2.4	%
Stockholder's equity		4,572.7			4,190.5			3,478.6			9.1	%		20.5	%

(NM, not meaningful)
(Some amounts may not reconcile due to rounding)

Revenues.

Premiums. Gross written premiums increased by 11.9% to $4,965.3 million in 2014, compared to $4,437.5 million in 2013, reflecting a $588.3 million, or 18.4%, increase in our reinsurance business, partially offset by a $60.4 million, or 4.9%, decrease in our insurance business. The increase in reinsurance premiums was mainly due to new business: quota share contracts and contracts with catastrophe exposed risks, partially offset by a negative impact of approximately $50.0 million from the movement in foreign exchange rates. The decrease in insurance premiums was primarily due to lower crop premiums, partially offset by an increase in non-standard auto business. Net written premiums decreased by 0.5% to $2,107.0 million in 2014 compared to $2,117.4 million in 2013. The variances of the changes in gross written premiums compared to the changes in net written premiums is primarily due to a higher utilization of reinsurance related to the new quota share contracts. Premiums earned increased by 5.4% to $2,113.7 million in 2014, compared to $2,006.4 million in 2013. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 24.3% to $4,437.5 million in 2013 compared to $3,569.4 million in 2012, reflecting a $676.5 million, or 26.8%, increase in our reinsurance business and a $191.6 million, or 18.3%, increase in our insurance business. The increase in reinsurance premiums was mainly due to the impact of a Florida quota share reinsurance contract as well as new business, increased participations on existing business, and higher original rates on subject business. Excluding the year over year impact of the large Florida quota share reinsurance contract, gross written premiums increased 16.9% and reinsurance premiums increased 16.4%, compared to the prior year. The increase in insurance premiums was primarily due to the growth in California workers’ compensation, crop and non-standard auto business. Net written premiums increased by 25.2% to $2,117.4 million in 2013 compared to $1,691.6 million in 2012, which is consistent with the increase in gross written premiums. Premiums earned increased by 13.1% to $2,006.4 million in 2013, compared to $1,773.9 million in 2012. Unlike written premiums, premiums earned were minimally impacted by the Florida quota share reinsurance contract. The change in premiums earned was comparable to net written premiums, excluding the impact of the Florida quota share reinsurance contract.

Net Investment Income. Net investment income decreased by 2.3% to $290.3 million in 2014, compared with net investment income of $297.0 million in 2013. Net pre-tax investment income, as a percentage of average invested assets, was 3.5% in 2014 compared to 3.6% in 2013. The decline in income and yield in 2014 compared to 2013 was primarily the result of a decrease in our limited partnership income and lower reinvestment rates for the fixed income portfolios, partially offset by an increase in dividends from shares held of the parent.

Net investment income decreased by 3.0% to $297.0 million in 2013 compared with net investment income of $306.1 million in 2012. Net pre-tax investment income as a percentage of average invested assets was 3.6% in 2013 compared to 3.7% in 2012. The declines were primarily due to lower reinvestment rates for the fixed maturities portfolio.

Net Realized Capital Gains (Losses). Net realized capital gains were $206.7 million, $723.1 million and $391.7 million in 2014, 2013 and 2012, respectively. Comprising the $206.7 million, there were $251.8 million of gains from fair value re-measurements on fixed maturity, equity securities and other invested assets, partially offset by $38.9 million of other-than-temporary impairments and $6.2 million of losses from sales on our fixed maturity and equity securities. The net realized capital gains of $723.1 million in 2013 were the result of $687.6 million of gains from fair value re-measurements and $35.6 million of net realized capital gains from sales on our fixed maturity and equity securities. The net realized capital gains of $391.7 million in 2012 were the result of $364.5 million of gains from fair value re-measurements and $33.9 million of net realized capital gains from sales on our fixed maturity and equity securities, partially offset by $6.6 million of other-than-temporary impairments on our available for sale fixed maturity securities.

Other Income (Expense). We recorded other expense of $22.3 million and $7.7 million in 2014 and 2013, respectively, and other income of $12.1 million in 2012. 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.

	Years Ended December 31,
	Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2014
Attritional (a)	$	1,273.1			60.3	%		$	62.8			2.9	%		$	1,335.9			63.2	%
Catastrophes		41.8			2.0	%			(23.6	)		-1.1	%			18.2			0.9	%
Total	$	1,314.9			62.3	%		$	39.2			1.8	%		$	1,354.1			64.1	%

2013
Attritional (a)	$	1,167.6			58.2	%		$	27.9			1.4	%		$	1,195.5			59.6	%
Catastrophes		59.9			3.0	%			16.7			0.8	%			76.6			3.8	%
Total	$	1,227.5			61.2	%		$	44.6			2.2	%		$	1,272.2			63.4	%

2012
Attritional (a)	$	991.6			55.9	%		$	22.3			1.3	%		$	1,013.9			57.2	%
Catastrophes		245.9			13.9	%			(10.1	)		-0.6	%			235.8			13.3	%
Total	$	1,237.5			69.8	%		$	12.2			0.7	%		$	1,249.7			70.5	%

Variance 2014/2013
Attritional (a)	$	105.5			2.1		pts	$	34.9			1.5		pts	$	140.4			3.6		pts
Catastrophes		(18.1	)		(1.0	)	pts		(40.3	)		(1.9	)	pts		(58.4	)		(2.9	)	pts
Total	$	87.4			1.1		pts	$	(5.4	)		(0.4	)	pts	$	81.9			0.7		pts

Variance 2013/2012
Attritional (a)	$	176.0			2.3		pts	$	5.6			0.1		pts	$	181.6			2.4		pts
Catastrophes		(186.0	)		(10.9	)	pts		26.8			1.4		pts		(159.2	)		(9.5	)	pts
Total	$	(10.0	)		(8.6	)	pts	$	32.4			1.5		pts	$	22.4			(7.1	)	pts

(a) Attritional losses exclude catastrophe losses.
(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by 6.4% to $1,354.1 million for the year ended December 31, 2014 compared to $1,272.2 million for the year ended December 31, 2013, primarily due to increases in current year and prior years attritional losses, partially offset by a reduction in current year and prior years catastrophe losses. The increase in current year attritional losses of $105.5 million is primarily due to the impact of the increase in premiums earned. The $62.8 million of unfavorable prior years development for 2014 is a combination of $87.4 million of development on A&E reserves and $11.3 million of development on insurance reserves, primarily related to construction liability and umbrella business, partially offset by $35.9 million of favorable development in the reinsurance segments, related primarily to treaty casualty and treaty property reserves. The $41.8 million of current year catastrophe losses for the year ended December 31, 2014 represented 2.0 points and related to the Japan snowstorm ($13.9 million), the Chilean earthquake ($10.4 million), Hurricane Odile ($10.1 million) and the Brisbane hailstorm ($7.5 million). The $59.9 million of current year catastrophe losses for the year ended December 31, 2013 related to U.S. storms ($22.4 million), Canadian floods ($20.4 million), Typhoon Fitow ($14.6 million) and European floods ($2.5 million).

Incurred losses and LAE increased by 1.8% to $1,272.2 million for the year ended December 31, 2013 compared to $1,249.7 million for the year ended December 31, 2012, primarily due to increases in current year attritional losses and unfavorable development on prior year catastrophe losses in 2013 compared to 2012, partially offset by the decline in current year catastrophe losses. The increase in current year attritional losses of $176.0 million is primarily due to the impact of the increase in premiums earned. Unfavorable development on prior years’ catastrophe losses of $16.7 million related mainly to Superstorm Sandy ($13.4 million). Current year 2013 catastrophe losses (discussed above) were lower by $186.0 million, or 10.9 points, period over period. The $245.9 million of current year catastrophe losses for 2012 represented 13.9 points and related to Superstorm Sandy ($203.4 million), U.S. storms ($30.0 million) and Hurricane Isaac ($12.6 million).

Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased by 15.5% to $339.4 million in 2014 compared to $293.9 million in 2013. These changes were primarily due to the impact of the increase in premiums earned, higher contingent commissions and changes in the mix of business.

Commission, brokerage, taxes and fees decreased by 5.4% to $293.9 million in 2013 compared to $310.7 million in 2012. The 2013 decline was primarily due to the impact from the Florida quota share reinsurance contract and an increase in excess of loss business in 2013 which carries a lower commission rate than pro rata business, partially offset by the impact of the increase in premiums earned.

Other Underwriting Expenses. Other underwriting expenses were $192.0 million, $193.5 million and $170.6 million in 2014, 2013 and 2012, respectively. Other underwriting expense was essentially flat for 2014 compared to 2013. The increase in other underwriting expenses for 2013 compared to 2012 was mainly due to the impact of higher premiums earned and higher compensation expenses.

Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were $7.3 million, $8.3 million and $8.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. The movement in corporate expenses was mainly due to changes in employee benefit plan expenses.

Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense was $38.0 million, $45.5 million and $50.7 million in 2014, 2013 and 2012, respectively. The decreases were primarily due to the redemption of $329.9 million of trust preferred securities in May, 2013 and the maturity of $250.0 million of senior notes on October 15, 2014, partially offset by the impact of the issuance of $400.0 million of senior notes in June, 2014.

Income Tax Expense (Benefit). Income tax expenses was $203.6 million, $407.2 million and $173.0 million in 2014, 2013 and 2012, 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. 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 in 2014 compared 2013 is primarily due to lower net realized capital gains and the realization of additional foreign tax credits. The increase in tax expense between 2013 and 2012 is primarily due to higher taxable income from improved underwriting margins and capital gains.

Net Income (Loss).

Our net income was $454.1 million, $798.3 million and $520.3 million in 2014, 2013 and 2012, respectively. The changes were primarily driven by the financial component fluctuations explained above.

Ratios.

Our combined ratio increased by 1.5 points to 89.2% in 2014 compared to 87.7% in 2013. The loss ratio component increased 0.7 points in 2014 over the same period last year, primarily due to increased current year attritional losses. The commission and brokerage ratio components increased 1.5 points in 2014 over the same period last year primarily due to higher contingent commissions and changes in the mix of business. The other underwriting expense ratio components decreased 0.7 points in 2014 over the same period last year.

Our combined ratio decreased by 9.9 points to 87.7% in 2013 compared to 97.6% in 2012. The loss ratio component decreased 7.1 points in 2013, over the same period last year primarily due to the $186.0 million decrease in current year catastrophe losses, which lowered the loss ratio by 10.9 points. The commission and brokerage ratio components decreased 2.9 points in 2013, due to an increase in excess of loss business which carries a lower commission than pro rata business and the impact from the Florida quota share reinsurance contract. The other underwriting expense ratio component remained relatively flat in 2013 over the same period last year.

Stockholder's Equity.

Stockholders’ equity increased by $382.2 million to $4,572.7 million at December 31, 2014 from $4,190.5 million at December 31, 2013, principally as a result of $454.1 million of net income and $11.2 million of share-based compensation transactions, partially offset by $36.1 million of net benefit plan obligation adjustments, $29.2 million of net foreign currency translation adjustments and $17.8 million of net unrealized depreciation on investments, net of tax.

Stockholder's equity increased by $711.9 million to $4,190.5 million at December 31, 2013 from $3,478.6 million at December 31, 2012, principally as a result of $798.3 million of net income, $23.6 million of net benefit plan obligation adjustments and $10.8 million of share-based compensation transactions, partially offset by $101.7 million of net unrealized depreciation on investments, net of tax, and $19.1 million of net foreign currency translation adjustments.

Consolidated Investment Results

Net Investment Income.

Net investment income decreased 2.3% to $290.3 million in 2014 compared to $297.0 million in 2013 primarily due to a decline in income from our limited partnership investments and a decline in income from our fixed maturities, reflective of lower reinvestment rates, partially offset by an increase in dividends from parent’s shares.

Net investment income decreased 3.0% to $297.0 million in 2013 compared to $306.1 million in 2012. The decreases were primarily due to declines in income from our fixed maturities, reflective of declining reinvestment rates and from our limited partnership investments, partially offset by an increase in dividends from parent’s shares.

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

	Years Ended December 31,
(Dollars in millions)	2014			2013			2012
Fixed maturities	$	207.9		$	210.4		$	216.8
Equity securities		34.1			36.3			39.3
Short-term investments and cash		1.2			1.1			1.1
Other invested assets
Limited partnerships		29.7			36.7			39.7
Dividends from Parent's shares		31.1			21.3			18.7
Other		3.6			7.3			3.8
Gross investment income before adjustments		307.5			313.1			319.4
Funds held interest income (expense)		5.4			6.9			4.4
Gross investment income		313.0			320.1			323.7
Investment expenses		(22.7	)		(23.1	)		(17.6	)
Net investment income	$	290.3		$	297.0		$	306.1

(Some amounts may not reconcile due to rounding.)

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

	2014	2013	2012
Imbedded pre-tax yield of cash and invested assets at December 31	3.1%	3.3%	3.4%
Imbedded after-tax yield of cash and invested assets at December 31	2.2%	2.4%	2.4%

Annualized pre-tax yield on average cash and invested assets	3.5%	3.6%	3.7%
Annualized after-tax yield on average cash and invested assets	2.5%	2.6%	2.7%

Net Realized Capital Gains (Losses).

The following table presents the composition of our net realized capital gains (losses) for the periods indicated:

	Years Ended December 31,									2014/2013			2013/2012
(Dollars in millions)	2014			2013			2012			Variance			Variance
Gains (losses) from sales:
Fixed maturity securities, market value
Gains	$	13.5		$	14.4		$	14.8		$	(0.9	)	$	(0.4	)
Losses		(16.2	)		(10.7	)		(9.1	)		(5.5	)		(1.6	)
Total		(2.7	)		3.8			5.7			(6.5	)		(1.9	)

Fixed maturity securities, fair value
Gains		1.3			0.5			6.3			0.8			(5.8	)
Losses		(4.4	)		(0.3	)		(0.6	)		(4.1	)		0.3
Total		(3.1	)		0.2			5.7			(3.3	)		(5.5	)

Equity securities, fair value
Gains		17.9			40.5			40.8			(22.6	)		(0.3	)
Losses		(18.3	)		(8.9	)		(18.2	)		(9.4	)		9.3
Total		(0.4	)		31.6			22.6			(32.0	)		9.0

Total net realized gains (losses) from sales
Gains		32.7			55.4			61.9			(22.7	)		(6.5	)
Losses		(38.9	)		(19.8	)		(28.0	)		(19.1	)		8.2
Total		(6.2	)		35.6			33.9			(41.8	)		1.7

Other than temporary impairments:		(38.9	)		-			(6.6	)		(38.9	)		6.6

Gains (losses) from fair value adjustments:
Fixed maturities, fair value		(1.5	)		0.3			1.9			(1.8	)		(1.6	)
Equity securities, fair value		113.1			240.9			111.2			(127.8	)		129.7
Other invested assets, fair value		140.3			446.3			251.4			(306.0	)		194.9
Total		251.8			687.6			364.5			(435.8	)		323.1

Total net realized gains (losses)	$	206.7		$	723.1		$	391.7		$	(516.5	)	$	331.4

(Some amounts may not reconcile due to rounding)

Net realized capital gains were $206.7 million, $723.1 million and $391.7 million in 2014, 2013 and 2012, respectively. In 2014, we recorded $251.8 million of net realized capital gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets, partially offset by $38.9 million of other-than-temporary impairments and $6.2 million of net realized capital losses from sales of fixed maturity and equity securities. The fixed maturity and equity sales in 2014 related primarily to adjusting the portfolios for overall market changes and individual credit shifts along with maintaining a balanced foreign currency exposure. In 2013, we recorded $687.6 million of gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $35.6 million of net realized capital gains from sales of fixed maturity and equity securities. The fixed maturity and equity sales in 2013 related primarily to adjusting the portfolios for overall market changes and individual credit shifts. In 2012, we recorded $364.5 million of gains due to fair value re-measurements on fixed maturity, equity securities and other invested assets and $33.9 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $6.6 million of other-than-temporary impairments on fixed maturity securities. The fixed maturity sales in 2012 related primarily to maintaining a balanced foreign currency exposure and the equity sales related primarily to reducing our equity exposure.

Segment Results.

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

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

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

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

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.

	Years Ended December 31,									2014/2013						2013/2012
(Dollars in millions)		2014			2013			2012			Variance			% Change			Variance			% Change
Gross written premiums	$	2,154.5		$	1,826.0		$	1,310.7		$	328.5			18.0	%	$	515.4			39.3	%
Net written premiums		977.9			909.6			659.7			68.3			7.5	%		249.9			37.9	%

Premiums earned	$	988.3		$	842.3		$	722.4		$	146.0			17.3	%	$	120.0			16.6	%
Incurred losses and LAE		545.9			424.2			582.4			121.7			28.7	%		(158.3	)		-27.2	%
Commission and brokerage		201.9			159.7			168.6			42.2			26.4	%		(8.9	)		-5.3	%
Other underwriting expenses		45.6			47.2			44.8			(1.6	)		-3.4	%		2.4			5.4	%
Underwriting gain (loss)	$	195.0		$	211.2		$	(73.4	)	$	(16.3	)		-7.7	%	$	284.7		NM

													Point Chg						Point Chg
Loss ratio		55.2	%		50.4	%		80.6	%					4.8						(30.2	)
Commission and brokerage ratio		20.4	%		19.0	%		23.3	%					1.4						(4.3	)
Other underwriting expense ratio		4.7	%		5.5	%		6.3	%					(0.8	)					(0.8	)
Combined ratio		80.3	%		74.9	%		110.2	%					5.4						(35.3	)

(NM, not meaningful)
(Some amounts may not reconcile due to rounding)

Premiums. Gross written premiums increased by 18.0% to $2,154.5 million in 2014 from $1,826.0 million in 2013, primarily due to new business opportunities, particularly for contracts with catastrophe exposed risks. Net written premiums increased by 7.5% to $977.9 million in 2014 compared to $909.6 million in 2013, which is in line with the increase in gross written premiums combined with a higher use of reinsurance for catastrophe exposures. Premiums earned increased 17.3% to $988.3 million in 2014 compared to $842.3 million in 2013. The change in premiums earned relative to net written premiums is primarily the

result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 39.3% to $1,826.0 million in 2013 from $1,310.7 million in 2012, primarily due to the impact of a large Florida quota share reinsurance contract, new business opportunities, particularly for contracts with catastrophe exposed risks and higher subject premium on casualty quota share business as rates began to rise in these markets. Excluding the impact of the Florida quota share reinsurance contract, gross written premiums increased 18.9%. Net written premiums increased by 37.9% to $909.6 million in 2013 compared to $659.7 million in 2012, which is in line with the increase in gross written premiums. Premiums earned increased 16.6% to $842.3 million in 2013 compared to $722.4 million in 2012. Premiums earned were only minimally impacted by the Florida quota share reinsurance contract that affected written premiums. The change in premiums earned was relatively comparable to net written premiums, excluding the impact from the Florida quota share reinsurance contract.

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

	Years Ended December 31,
	Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2014
Attritional	$	495.8			50.3	%		$	59.2			5.9	%		$	555.0			56.2	%
Catastrophes		6.3			0.6	%			(15.4	)		-1.6	%			(9.1	)		-1.0	%
Total segment	$	502.1			50.9	%		$	43.8			4.3	%		$	545.9			55.2	%

2013
Attritional	$	400.5			47.6	%		$	(21.0	)		-2.5	%		$	379.5			45.1	%
Catastrophes		25.9			3.1	%			18.8			2.2	%			44.7			5.3	%
Total segment	$	426.4			50.6	%		$	(2.2	)		-0.3	%		$	424.2			50.4	%

2012
Attritional	$	349.6			48.4	%		$	1.1			0.1	%		$	350.6			48.5	%
Catastrophes		235.3			32.6	%			(3.6	)		-0.5	%			231.7			32.1	%
Total segment	$	584.9			81.0	%		$	(2.5	)		-0.4	%		$	582.4			80.6	%

Variance 2014/2013
Attritional	$	95.3			2.7		pts	$	80.2			8.4		pts	$	175.5			11.1		pts
Catastrophes		(19.6	)		(2.5	)	pts		(34.2	)		(3.8	)	pts		(53.8	)		(6.3	)	pts
Total segment	$	75.7			0.3		pts	$	46.0			4.6		pts	$	121.7			4.8		pts

Variance 2013/2012
Attritional	$	50.9			(0.8	)	pts	$	(22.1	)		(2.6	)	pts	$	28.9			(3.4	)	pts
Catastrophes		(209.4	)		(29.5	)	pts		22.4			2.7		pts		(187.0	)		(26.8	)	pts
Total segment	$	(158.5	)		(30.5	)	pts	$	0.3			0.1		pts	$	(158.3	)		(30.2	)	pts

(Some amounts may not reconcile due to rounding.)

Incurred losses increased by 28.7% to $545.9 million in 2014 compared to $424.2 million in 2013, primarily due to the increase in current year attritional losses of $95.3 million resulting primarily from the impact of the increase in premiums earned and less favorable development of $80.2 million on prior years’ attritional losses in 2014 compared to 2013, mainly related to an increase in A&E reserves. This increase was partially offset by a favorable development of $34.2 million on prior year catastrophe losses in 2014 compared to 2013, mainly related to Superstorm Sandy, and a decrease of $19.6 million in current year catastrophe losses. The $6.3 million of current year catastrophe losses in 2014 related to the Japan snowstorm ($3.9 million) and Hurricane Odile ($2.4 million). The $25.9 million of current year catastrophe losses in 2013 were mainly due to U.S. Storms ($22.4 million), the European floods ($2.5 million) and the Canadian Floods ($1.0 million).

Incurred losses decreased by 27.2% to $424.2 million in 2013 compared to $582.4 million in 2012, primarily due to the decrease in current year catastrophe losses, partially offset by an increase of $50.9 million in current year attritional losses due to the impact of the increase in premiums earned. Current year 2013 catastrophe losses (discussed above) were lower by $209.4 million, or 29.5 points, period over period. The $235.3 million of current year catastrophe losses for 2012 related to Superstorm Sandy ($193.5 million), U.S. storms ($29.9 million) and Hurricane Isaac ($11.9 million). Despite the increase in current year attritional losses, the current year attritional loss ratio decreased 0.8 points due to the continued shift in business to excess of loss contracts which generally have lower attritional losses than pro rata contracts.

Segment Expenses. Commission and brokerage increased by 26.4% to $201.9 million in 2014 compared to $159.7 million in 2013. These variances were due to the impact of the increases in premiums earned, higher contingent commissions and changes in the mix of business. Segment other underwriting expenses decreased slightly to $45.6 million in 2014 from $47.2 million in 2013.

Commission and brokerage decreased 5.3% to $159.7 million in 2013 compared to $168.6 million in 2012. The year over year change was primarily due to the impact from the large Florida quota share reinsurance contract as well as the adoption of new accounting standards concerning the accounting for acquisition costs, which increased expenses in 2012, partially offset by the impact of the increase in premiums earned. Segment other underwriting expenses increased to $47.2 million in 2013 from $44.8 million in 2012, primarily due to increased compensation expenses and higher premiums earned.

International.

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

	Years Ended December 31,									2014/2013						2013/2012
(Dollars in millions)	2014			2013			2012			Variance			% Change			Variance			% Change
Gross written premiums	$	1,630.4		$	1,370.6		$	1,209.5		$	259.8			19.0	%	$	161.1			13.3	%
Net written premiums		612.2			610.1			550.7			2.2			0.4	%		59.4			10.8	%

Premiums earned	$	601.0		$	591.7		$	572.5		$	9.3			1.6	%	$	19.2			3.4	%
Incurred losses and LAE		358.0			315.9			261.5			42.1			13.3	%		54.5			20.8	%
Commission and brokerage		119.7			114.3			124.6			5.3			4.7	%		(10.2	)		-8.2	%
Other underwriting expenses		34.6			33.9			29.3			0.7			2.0	%		4.6			15.8	%
Underwriting gain (loss)	$	88.7		$	127.5		$	157.1		$	(38.9	)		-30.5	%	$	(29.6	)		-18.8	%

													Point Chg						Point Chg
Loss ratio		59.6	%		53.4	%		45.7	%					6.2						7.7
Commission and brokerage ratio		19.9	%		19.3	%		21.8	%					0.6						(2.5	)
Other underwriting expense ratio		5.7	%		5.7	%		5.0	%					-						0.7
Combined ratio		85.2	%		78.4	%		72.5	%					6.8						5.9

(Some amounts may not reconcile due to rounding)

Premiums. Gross written premiums increased by 19.0% to $1,630.4 million in 2014 compared to $1,370.6 million in 2013, primarily due to new quota share contracts, partially offset by the negative impact of approximately $47.9 million from the movement of foreign exchange rates. Net written premiums increased by 0.4% to $612.2 million in 2014 compared to $610.1 million in 2013. The variance of the change in gross written premiums compared to the change in net written premiums is due to a higher utilization of reinsurance related to the new quota share contracts. Premiums earned increased 1.6% to $601.0 million in 2014 compared to $591.7 million in 2013. The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 13.3% to $1,370.6 million in 2013 compared to $1,209.5 million in 2012, primarily due to growth in Latin and South America business. Net written premiums increased by 10.8% to $610.1 million in 2013 compared to $550.7 million in 2012, which is consistent with the increase in gross written premiums. Premiums earned increased 3.4% to $591.7 million in 2013 compared to $572.5 million in 2012. 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.

	Years Ended December 31,
	Current		Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year		Pt Change				Years			Pt Change				Incurred			Pt Change
2014
Attritional	$	338.4		56.4	%		$	(7.7	)		-1.3	%		$	330.7			55.1	%
Catastrophes		35.5		5.9	%			(8.2	)		-1.4	%			27.3			4.5	%
Total segment	$	373.9		62.3	%		$	(15.9	)		-2.7	%		$	358.0			59.6	%

2013
Attritional	$	307.3		51.9	%		$	(23.9	)		-4.0	%		$	283.4			47.9	%
Catastrophes		33.6		5.7	%			(1.1	)		-0.2	%			32.5			5.5	%
Total segment	$	340.9		57.6	%		$	(25.0	)		-4.2	%		$	315.9			53.4	%

2012
Attritional	$	270.4		47.3	%		$	(8.4	)		-1.5	%		$	262.0			45.9	%
Catastrophes		6.0		1.0	%			(6.5	)		-1.1	%			(0.5	)		-0.1	%
Total segment	$	276.4		48.4	%		$	(14.9	)		-2.6	%		$	261.5			45.7	%

Variance 2014/2013
Attritional	$	31.1		4.5		pts	$	16.2			2.7		pts	$	47.3			7.2		pts
Catastrophes		1.9		0.2		pts		(7.1	)		(1.2	)	pts		(5.2	)		(1.0	)	pts
Total segment	$	33.0		4.7		pts	$	9.1			1.5		pts	$	42.1			6.2		pts

Variance 2013/2012
Attritional	$	36.9		4.6		pts	$	(15.5	)		(2.5	)	pts	$	21.4			2.0		pts
Catastrophes		27.6		4.7		pts		5.4			0.9		pts		33.0			5.6		pts
Total segment	$	64.5		9.2		pts	$	(10.1	)		(1.6	)	pts	$	54.5			7.7		pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by 13.3% to $358.0 million in 2014 compared to $315.9 million in 2013, primarily due to an increase of $31.1 million in current year attritional losses, related to additional losses in the Middle East, Africa and Latin America. The $35.5 million of current year catastrophe losses for 2014 were due to the Chilean earthquake ($10.4 million), Japan snowstorm ($10.0 million), Hurricane Odile ($7.7 million) and Brisbane hailstorm ($7.5 million). The $33.6 million of current year catastrophe losses for 2013 were due to Canadian floods ($19.0 million) and Typhoon Fitow ($14.6 million).

Incurred losses and LAE increased by 20.8% to $315.9 million in 2013 compared to $261.5 million in 2012, representing 7.7 loss ratio points, due to increases in current year attritional losses and current year catastrophe losses in 2013 (discussed above). The current year catastrophe losses of $6.0 million in 2012 related primarily to Superstorm Sandy ($5.9 million). The current year attritional losses increased by $36.9 million primarily due to the impact of the increase in premiums earned.

Segment Expenses. Commission and brokerage increased 4.7% to $119.7 million in 2014 compared to $114.3 million in 2013. This increase was primarily due to the impact of the increase in premiums earned. Segment other underwriting expenses slightly increased to $34.6 million in 2014 compared to $33.9 million in 2013.

Commission and brokerage decreased 8.2% to $114.3 million in 2013 compared to $124.6 million in 2012. This decrease was primarily due to the shift in the mix of business towards property catastrophe and excess of loss business, which have lower commission rates, partially offset by the impact of the increase in premiums earned. Segment other underwriting expenses increased to $33.9 million in 2013 compared to $29.3 million in 2012. These increases related primarily to the impact of higher premiums earned and higher compensation costs

Insurance.

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

	Years Ended December 31,									2014/2013						2013/2012
(Dollars in millions)	2014			2013			2012			Variance			% Change			Variance			% Change
Gross written premiums	$	1,180.4		$	1,240.8		$	1,049.2		$	(60.4	)		-4.9	%	$	191.6			18.3	%
Net written premiums		516.9			597.7			481.2			(80.9	)		-13.5	%		116.6			24.2	%

Premiums earned	$	524.4		$	572.3		$	479.0		$	(47.9	)		-8.4	%	$	93.3			19.5	%
Incurred losses and LAE		450.2			532.0			405.8			(81.9	)		-15.4	%		126.2			31.1	%
Commission and brokerage		17.8			19.8			17.5			(2.0	)		-10.1	%		2.3			13.1	%
Other underwriting expenses		111.8			112.4			96.5			(0.6	)		-0.5	%		15.9			16.4	%
Underwriting gain (loss)	$	(55.4	)	$	(92.0	)	$	(40.9	)	$	36.6			-39.7	%	$	(51.1	)		125.1	%

													Point Chg						Point Chg
Loss ratio		85.8	%		93.0	%		84.7	%					(7.2	)					8.3
Commission and brokerage ratio		3.4	%		3.5	%		3.7	%					(0.1	)					(0.2	)
Other underwriting expense ratio		21.4	%		19.6	%		20.1	%					1.8						(0.5	)
Combined ratio		110.6	%		116.1	%		108.5	%					(5.5	)					7.6

(Some amounts may not reconcile due to rounding)

Premiums. Gross written premiums decreased by 4.9% to $1,180.4 million in 2014 compared to $1,240.8 million in 2013. This decrease was primarily driven by a decline in crop business, partially offset by an increase in the non-standard auto business. Net written premiums decreased by 13.5% to $516.9 million in 2014 compared to $597.7 million in 2013. The variance of the change in gross written premiums compared to the change in net written premiums is due to changes in the utilization of reinsurance, particularly on the crop business. Premiums earned decreased 8.4% to $524.4 million in 2014 compared to $572.3 million in 2013. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

Gross written premiums increased by 18.3% to $1,240.8 million in 2013 compared to $1,049.2 million in 2012. This increase was primarily driven by California workers’ compensation, crop and non-standard auto business. Net written premiums increased by 24.2% to $597.7 million in 2013 compared to $481.2 million in 2012. The larger increase in net written premiums compared to gross written premiums is mainly due to less use of reinsurance, particularly on the crop business. Premiums earned increased 19.5% to $572.3 million in 2013 compared to $479.0 million in 2012. 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.

	Years Ended December 31,
	Current			Ratio %/				Prior			Ratio %/				Total			Ratio %/
(Dollars in millions)	Year			Pt Change				Years			Pt Change				Incurred			Pt Change
2014
Attritional	$	438.8			83.6	%		$	11.3			2.2	%		$	450.2			85.8	%
Catastrophes		-			0.0	%			-			0.0	%			-			0.0	%
Total segment	$	438.8			83.6	%		$	11.3			2.2	%		$	450.2			85.8	%

2013
Attritional	$	459.8			80.4	%		$	72.9			12.7	%		$	532.6			93.2	%
Catastrophes		0.5			0.1	%			(1.0	)		-0.2	%			(0.6	)		-0.1	%
Total segment	$	460.2			80.5	%		$	71.8			12.5	%		$	532.0			93.0	%

2012
Attritional	$	371.6			77.5	%		$	29.6			6.2	%		$	401.2			83.7	%
Catastrophes		4.6			1.0	%			-			0.0	%			4.6			1.0	%
Total segment	$	376.2			78.4	%		$	29.6			6.2	%		$	405.8			84.7	%

Variance 2014/2013
Attritional	$	(21.0	)		3.2		pts	$	(61.6	)		(10.5	)	pts	$	(82.4	)		(7.4	)	pts
Catastrophes		(0.5	)		(0.1	)	pts		1.0			0.2		pts		0.6			0.1		pts
Total segment	$	(21.4	)		3.1		pts	$	(60.5	)		(10.3	)	pts	$	(81.9	)		(7.2	)	pts

Variance 2013/2012
Attritional	$	88.2			2.9		pts	$	43.3			6.5		pts	$	131.4			9.5		pts
Catastrophes		(4.1	)		(0.9	)	pts		(1.0	)		(0.2	)	pts		(5.2	)		(1.1	)	pts
Total segment	$	84.0			2.1		pts	$	42.2			6.3		pts	$	126.2			8.3		pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE decreased by 15.4% to $450.2 million in 2014 compared to $532.0 million in 2013, mainly due to a decrease of $61.6 million of prior years’ attritional losses which mainly related to development on workers’ compensation, constructions liability and umbrella business in 2013, which did not recur to the same extent in 2014 and by a decrease of $21.0 million in current year attritional losses, which were mainly related to the decline in the crop book of business. There were no current year catastrophe losses in 2014. The $0.5 million of current year catastrophe losses for 2013 were due to the Canadian floods.

Incurred losses and LAE increased by 31.1% to $532.0 million in 2013 compared to $405.8 million in 2012 mainly due to increases in current year attritional losses and higher unfavorable prior year development on attritional losses in 2013 compared to 2012. The current year attritional losses increased by $88.2 million primarily due to the impact of higher premiums earned and a higher current year attritional loss ratio on the crop book, which was impacted by a decline in corn commodity prices and lower yields in several of our key states. The prior year development on attritional losses was primarily related to workers’ compensation, construction liability and umbrella business. The construction liability and umbrella development related to programs that were discontinued several years ago. Current year catastrophe losses were $0.5 million in 2013, due to Canadian floods. The $4.6 million of current year catastrophe losses for 2012 were primarily due to Superstorm Sandy ($4.0 million).

Segment Expenses. Commission and brokerage decreased 10.1% to $17.8 million in 2014 compared to $19.8 million in 2013. The decrease for the year was primarily driven by the decline in premiums earned. Segment other underwriting expenses decreased slightly to $111.8 million in 2014 compared to $112.4 million in 2013 due primarily to the impact of the decline in premiums earned.

Commission and brokerage increased 13.1% to $19.8 million in 2013 compared to $17.5 million in 2012. The increase was primarily due to the impact of higher premiums earned, partially offset by the impact of the adoption of new accounting standards concerning the accounting for acquisition costs, which had the impact of increasing expenses in 2012. Segment other underwriting expenses increased to $112.4 million in 2013 compared to $96.5 million in 2012. These increases were primarily the result of increased premiums earned and higher compensation costs.

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”. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 December 31, 2014, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price fluctuations and some foreign exchange rate risk. The overall economic impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar value of foreign currency denominated liabilities and their associated income statement impact.

Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the $657.7 million of mortgage-backed securities in the $5,294.9 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.

The tables below display the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $564.4 million of short-term investments) for the periods indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimates for mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For legal entities with non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under the various interest rate change scenarios.

	Impact of Interest Rate Shift in Basis Points
	At December 31, 2014
(Dollars in millions)	-200			-100			0			100			200
Total Market/Fair Value	$	6,151.8		$	6,006.9		$	5,859.3		$	5,706.4		$	5,549.2
Market/Fair Value Change from Base (%)		5.0	%		2.5	%		0.0	%		-2.6	%		-5.3	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	190.2		$	96.0		$	-		$	(99.4	)	$	(201.6	)

	Impact of Interest Rate Shift in Basis Points
	At December 31, 2013
(Dollars in millions)	-200			-100			0			100			200
Total Market/Fair Value	$	6,264.3		$	6,127.1		$	5,978.5		$	5,821.9		$	5,664.0
Market/Fair Value Change from Base (%)		4.8	%		2.5	%		0.0	%		-2.6	%		-5.3	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	185.8		$	96.6		$	-		$	(101.8	)	$	(204.4	)

We had $7,843.9 million and $7,653.2 million of gross reserves for losses and LAE as of December 31, 2014 and December 31, 2013, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration that is reasonably consistent with our fixed income portfolio.

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

The 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 December 31, 2014
(Dollars in millions)	-20%			-10%			0%		10%		20%
Fair/Market Value of the Equity Portfolio	$	1,039.2		$	1,169.1		$	1,299.1	$	1,429.0	$	1,558.9
After-tax Change in Fair/Market Value		(168.9	)		(84.4	)		-		84.4		168.9

	Impact of Percentage Change in Equity Fair/Market Values
	At December 31, 2013
(Dollars in millions)	-20%			-10%			0%		10%		20%
Fair/Market Value of the Equity Portfolio	$	1,039.2		$	1,169.1		$	1,299.0	$	1,428.8	$	1,558.7
After-tax Change in Fair/Market Value		(168.9	)		(84.4	)		-		84.4		168.9

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 December 31, 2014, there has been no material change in exposure to foreign exchange rates as compared to December 31, 2013.

The tables below display the potential impact of a parallel and immediate 10% and 20% increase and decrease in foreign exchange rates on the valuation of invested assets subject to foreign currency exposure for the periods indicated. This analysis includes the after-tax impact of translation from transactional currency to functional currency as well as the after-tax impact of translation from functional currency to the U.S. dollar reporting currency.

	Change in Foreign Exchange Rates in Percent
	At December 31, 2014
(Dollars in millions)	-20%			-10%			0%		10%		20%
Total After-tax Foreign Exchange Exposure	$	(140.3	)	$	(70.2	)	$	-	$	70.2	$	140.3

	Change in Foreign Exchange Rates in Percent
	At December 31, 2013
(Dollars in millions)	-20%			-10%			0%		10%		20%
Total After-tax Foreign Exchange Exposure	$	(152.3	)	$	(76.1	)	$	-	$	76.1	$	152.3

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page F-1 are filed as part of this report.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013) Based on our assessment we concluded that, as of December 31, 2014, our internal control over financial reporting is effective based on those criteria.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report due to the Company’s status as a non-accelerated filer.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this annual 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 fourth quarter.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information for Item 10 is not required pursuant to General Instruction I(2) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Information for Item 11 is not required pursuant to General Instruction I(2) of Form 10-K.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information for Item 12 is not required pursuant to General Instruction I(2) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information for Item 13 is not required pursuant to General Instruction I(2) of Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The PricewaterhouseCoopers LLP (and its worldwide affiliates) fees incurred are as follows for the periods indicated:

(Dollars in thousands)		2014		2013
(1)	Audit Fees	$	1,945.7	$	1,909.1
(2)	Audit-Related Fees		61.4		61.4
(3)	Tax Fees		89.0		138.7
(4)	All Other Fees		6.5		6.5

Audit fees include the annual audit and quarterly financial statement reviews, subsidiary audits, and procedures required to be performed by the independent auditor to be able to form an opinion on our consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review. Audit fees may also include statutory audits or financial audits for our subsidiaries or affiliates and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.

Audit-related fees include assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, including due diligence services pertaining to potential business acquisitions/dispositions, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rule making authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements.

Tax fees include tax compliance, tax planning and tax advice and is granted general pre-approval by Group’s Audit Committee.

All other fees represent an accounting research subscription and software.

Under its Charter and the “Audit and Non-Audit Services Pre-Approval Policy” (the “Policy”), the Audit Committee is required to pre-approve the audit and non-audit services to be performed by the independent auditors. The Policy mandates specific approval by the Audit Committee for any service that has not received a general pre-approval or that exceeds pre-approved cost levels or budgeted amounts. For both specific and general pre-approval, the Audit Committee considers whether such services are consistent with the SEC’s rules on auditor independence. The Audit Committee also considers whether the independent auditors are best positioned to provide the most effective and efficient service and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services. It may determine, for each fiscal year, the appropriate ratio between the total amount of audit, audit-related and tax fees and a total amount of fees for certain permissible non-audit services classified below as “All Other Fees”. All such factors are considered as a whole, and no one factor is determinative. The Audit Committee further considered whether the performance by PricewaterhouseCoopers LLP of the non-audit related services disclosed below is compatible with maintaining their independence. The Audit Committee approved all of the audit-related fees, tax fees and all other fees for 2014 and 2013.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibits

The exhibits listed on the accompanying Index to Exhibits on page E-1 are filed as part of this report except that the certifications in Exhibit 32 are being furnished to the SEC, rather than filed with the SEC, as permitted under applicable SEC rules.

Financial Statements and Schedules.

The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page F-1 are filed as part of this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on March 26, 2015.

	EVEREST REINSURANCE HOLDINGS, INC.


	By:	/S/DOMINIC J. ADDESSO
		Dominic J. Addesso (Chairman, President and Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/S/ DOMINIC J. ADDESSO	Chairman, President and Chief Executive Officer (Principal Executive Officer)	March 26, 2015
Dominic J. Addesso		March 26, 2015

/S/ CRAIG HOWIE	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	March 26, 2015
Craig Howie		March 26, 2015

/S/ KEITH T. SHOEMAKER	Comptroller (Principal Accounting Officer)	March 26, 2015
Keith T. Shoemaker	Comptroller (Principal Accounting Officer)	March 26, 2015

INDEX TO EXHIBITS

Exhibit No.

	2.1	Agreement and Plan of Merger among Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd. and Everest Re Merger Corporation, incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4 (No. 333-87361)

	3.1	Certificate of Incorporation of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (No. 333-05771)

	3.2	By-Laws of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 3.2 to the Everest Reinsurance Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000

	4.1	Indenture, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000

	4.2	Junior Subordinated Indenture, dated November 14, 2002, between Everest Reinsurance Holdings, Inc. and JPMorgan Chase Bank as Trustee, incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-3 (No. 333-106595)

	4.3	Second Supplemental Indenture relating to Holdings 6.20% Junior Subordinated Debt Securities due March 29, 2034, dated as of March 29, 2004, among Holdings, Group and JPMorgan Chase Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 30, 2004 (the “March 30, 2004 8-K”)

	4.4	Amended and Restated Trust Agreement of Everest Re Capital Trust II, dated as of March 29, 2004, incorporated herein by reference to Exhibit 4.2 to the March 30, 2004 8-K

	4.5	Guarantee Agreement, dated as of March 29, 2004, between Holdings and JPMorgan Chase Bank, incorporated herein by reference to Exhibit 4.3 to the March 30, 2004 8-K

	4.6	Expense Agreement, dated as of March 29, 2004, between Holdings and Everest Re Capital Trust II, incorporated herein by reference to Exhibit 4.4 to the March 30, 2004 8-K

	4.7	Third Supplemental Indenture relating to Holdings 5.40% Senior Notes due October 15, 2014, dated as of October 12, 2004, among Holdings and JPMorgan Chase Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on October 12, 2004

	4.8	Fourth Supplemental Indenture relating to Holdings $400.0 million 4.868% Senior Notes due June 1, 2044, dated June 5 2014, between Holdings and the Bank of New York Mellon, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on June 5, 2014

	10.1	Completion of Tender Offer relating to Everest Reinsurance Holdings, Inc. 6.60% Fixed to Floating Rate Long Term Subordinated Notes (LoTSSM) dated March 19, 2009, incorporated herein by reference to Exhibit 99.1 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2009

E-1

	*10.2		Employment Agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Dominic J. Addesso, dated June 16, 2011, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on June 20, 2011

	*10.3		Employment Agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Joseph V. Taranto, dated January 1, 2011, This employment supersedes the prior agreement between registrant and Joseph V. Taranto dated March 25, 2011. This new agreement dated January 1, 2011, incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on June 20, 2011

	10.4		Credit Agreement, dated August 15, 2011, between Everest Reinsurance Holdings, Inc., the lenders named therein and Citibank, National Association, as administrative agent, providing for a $150.0 million three year revolving credit facility, incorporated herein by reference to Exhibit 10.30 to Everest Re Group, Ltd. Form 10K filed on February 29, 2012. This new agreement replaces the August 23, 2006 five year senior revolving credit facility

	*10.5		Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Dominic J. Addesso, dated July 1, 2012, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012

	*10.6		Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Joseph V. Taranto, dated July 1, 2012, incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012

	*10.7		Change of Control Agreement between and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated January 1, 2012, incorporated herein by reference to Exhibit 10.3 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012

	23.1		Consent of PricewaterhouseCoopers LLP, filed herewith

	31.1		Section 302 Certification of Dominic J. Addesso, filed herewith

	31.2		Section 302 Certification of Craig Howie, filed herewith

	32.1		Section 906 Certification of Dominic J. Addesso and Craig Howie, filed herewith

	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 Label Linkbase

	101.PRE		XBRL Taxonomy Extension Presentation Linkbase

* Management contract or compensatory plan or arrangement.

E-2

EVEREST REINSURANCE HOLDINGS, INC.

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

		Pages

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets at December 31, 2014 and 2013		F-3

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended
	December 31, 2014, 2013 and 2012	F-4

Consolidated Statements of Changes in Stockholder’s Equity for the Years Ended
	December 31, 2014, 2013 and 2012	F-5

Consolidated Statements of Cash Flows for the Years Ended
	December 31, 2014, 2013 and 2012	F-6

Notes to Consolidated Financial Statements		F-7

Schedules

I	Summary of Investments Other Than Investments in Related Parties at December 31, 2014	S-1

II	Condensed Financial Information of Registrant:

	Balance Sheets as of December 31, 2014 and 2013	S-2

	Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012	S-3

	Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012	S-4

	Noted to Condensed Financial Information	S-5

III	Supplementary Insurance Information for the Years Ended
	December 31, 2014, 2013 and 2012	S-6

IV	Reinsurance for the Years Ended December 31, 2014, 2013 and 2012	S-7

Schedules other than those listed above are omitted for the reason that they are not applicable or the information is

otherwise contained in the Financial Statements.

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder

of Everest Reinsurance Holdings, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Everest Reinsurance Holdings, Inc. and its subsidiaries (the “Company”) at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

March 26, 2015

F-2

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
(Dollars in thousands, except par value per share)	2014		2013

ASSETS:
Fixed maturities - available for sale, at market value	$	5,293,411	$	5,201,921
(amortized cost: 2014, $5,235,523; 2013, $5,116,600)
Fixed maturities - available for sale, at fair value		1,509		19,388
Equity securities - available for sale, at market value (cost: 2014, $15; 2013, $15)		16		13
Equity securities - available for sale, at fair value		1,299,037		1,298,940
Short-term investments		564,364		757,162
Other invested assets (cost: 2014, $435,010; 2013, $385,776)		435,010		385,776
Other invested assets, at fair value		1,655,311		1,515,052
Cash		323,975		316,807
Total investments and cash		9,572,633		9,495,059
Note receivable - affiliated		250,000		-
Accrued investment income		45,386		50,306
Premiums receivable		1,086,203		1,173,780
Reinsurance receivables - unaffiliated		659,303		530,158
Reinsurance receivables - affiliated		3,372,715		3,062,884
Funds held by reinsureds		182,159		175,526
Deferred acquisition costs		109,262		112,024
Prepaid reinsurance premiums		809,083		673,753
Other assets		235,576		247,505
TOTAL ASSETS	$	16,322,320	$	15,520,995

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	7,843,856	$	7,653,229
Unearned premium reserve		1,442,122		1,317,147
Funds held under reinsurance treaties		101,743		92,514
Losses in the course of payment		178,521		350,820
Commission reserves		63,110		47,226
Other net payable to reinsurers		1,028,549		1,026,292
4.868% Senior notes due 6/1/2044		400,000		-
5.4% Senior notes due 10/15/2014		-		249,958
6.6% Long term notes due 5/1/2067		238,364		238,361
Accrued interest on debt and borrowings		3,537		4,781
Income taxes		46,835		23,949
Unsettled securities payable		41,092		53,772
Other liabilities		361,874		272,468
Total liabilities		11,749,603		11,330,517

Commitments and Contingencies (Note 16)

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 3,000 shares authorized;
1,000 shares issued and outstanding (2014 and 2013)		-		-
Additional paid-in capital		362,293		351,051
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $2,434 at 2014 and $47,195 at 2013		4,519		87,648
Retained earnings		4,205,905		3,751,779
Total stockholder's equity		4,572,717		4,190,478
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	16,322,320	$	15,520,995

The accompanying notes are an integral part of the consolidated financial statements.

F-3

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012

REVENUES:
Premiums earned	$	2,113,726		$	2,006,361		$	1,773,898
Net investment income		290,310			296,996			306,145
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		(38,912	)		-			(6,634	)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss)		-			-			-
Other net realized capital gains (losses)		245,591			723,149			398,336
Total net realized capital gains (losses)		206,679			723,149			391,702
Other income (expense)		(22,278	)		(7,714	)		12,136
Total revenues		2,588,437			3,018,792			2,483,881

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		1,354,093			1,272,156			1,249,744
Commission, brokerage, taxes and fees		339,402			293,922			310,699
Other underwriting expenses		192,032			193,499			170,604
Corporate expenses		7,252			8,262			8,764
Interest, fee and bond issue cost amortization expense		37,970			45,452			50,746
Total claims and expenses		1,930,749			1,813,291			1,790,557

INCOME (LOSS) BEFORE TAXES		657,688			1,205,501			693,324
Income tax expense (benefit)		203,562			407,238			172,995

NET INCOME (LOSS)	$	454,126		$	798,263		$	520,329

Other comprehensive income (loss), net of tax :
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period		(44,902	)		(99,241	)		9,390
Less: reclassification adjustment for realized losses (gains) included in net income (loss)		27,073			(2,465	)		633
Total URA(D) on securities arising during the period		(17,829	)		(101,706	)		10,023

Foreign currency translation adjustments		(29,210	)		(19,128	)		7,030

Benefit plan actuarial net gain (loss) for the period		(39,110	)		17,837			(11,771	)
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)		3,020			5,778			4,795
Total benefit plan net gain (loss) for the period		(36,090	)		23,615			(6,976	)
Total other comprehensive income (loss), net of tax		(83,129	)		(97,219	)		10,077

COMPREHENSIVE INCOME (LOSS)	$	370,997		$	701,044		$	530,406

The accompanying notes are an integral part of the consolidated financial statements.

F-4

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDER’S EQUITY

	Years Ended December 31,
(Dollars in thousands, except share amounts)	2014			2013			2012

COMMON STOCK (shares outstanding):
Balance, beginning of period		1,000			1,000			1,000
Balance, end of period		1,000			1,000			1,000

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	351,051		$	340,223		$	333,416
Share-based compensation plans		11,242			10,828			6,807
Balance, end of period		362,293			351,051			340,223

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		87,648			184,867			174,790
Net increase (decrease) during the period		(83,129	)		(97,219	)		10,077
Balance, end of period		4,519			87,648			184,867

RETAINED EARNINGS:
Balance, beginning of period		3,751,779			2,953,516			2,433,187
Net income (loss)		454,126			798,263			520,329
Balance, end of period		4,205,905			3,751,779			2,953,516

TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD	$	4,572,717		$	4,190,478		$	3,478,606

The accompanying notes are an integral part of the consolidated financial statements.

F-5

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	454,126		$	798,263		$	520,329
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable		83,362			(175,854	)		(141,501	)
Decrease (increase) in funds held by reinsureds, net		2,236			(12,075	)		(17,897	)
Decrease (increase) in reinsurance receivables		(460,635	)		25,665			(152,887	)
Decrease (increase) in income taxes		68,206			351,573			124,739
Decrease (increase) in prepaid reinsurance premiums		(138,010	)		(118,173	)		68,312
Increase (decrease) in reserve for losses and loss adjustment expenses		248,053			(439,560	)		(206,435	)
Increase (decrease) in unearned premiums		130,519			228,097			(150,747	)
Increase (decrease) in other net payable to reinsurers		5,130			127,252			270,776
Increase (decrease) in losses in course of payment		(171,071	)		171,829			169,698
Change in equity adjustments in limited partnerships		(28,249	)		(35,721	)		(38,579	)
Distribution of limited partnership income		41,064			24,133			19,490
Change in other assets and liabilities, net		81,388			25,049			44,032
Non-cash compensation expense		7,911			7,983			6,803
Amortization of bond premium (accrual of bond discount)		19,086			25,599			19,124
Amortization of underwriting discount on senior notes		46			54			52
Net realized capital (gains) losses		(206,679	)		(723,149	)		(391,702	)
Net cash provided by (used in) operating activities		136,483			280,965			143,607

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		1,071,296			1,099,850			927,867
Proceeds from fixed maturities matured/called - available for sale, at fair value		875			7,213			1,300
Proceeds from fixed maturities sold - available for sale, at market value		1,080,276			598,342			476,491
Proceeds from fixed maturities sold - available for sale, at fair value		36,467			21,572			84,917
Proceeds from equity securities sold - available for sale, at fair value		528,958			612,516			546,463
Distributions from other invested assets		72,323			64,483			29,198
Cost of fixed maturities acquired - available for sale, at market value		(2,406,162	)		(1,611,791	)		(1,784,344	)
Cost of fixed maturities acquired - available for sale, at fair value		(24,097	)		(6,196	)		(7,955	)
Cost of equity securities acquired - available for sale, at fair value		(416,375	)		(439,115	)		(404,051	)
Cost of other invested assets acquired		(134,373	)		(17,926	)		(51,512	)
Net change in short-term investments		189,139			(292,751	)		(42,027	)
Net cost of lending for long term note - affiliated		(250,000	)		-			-
Net change in unsettled securities transactions		(4,157	)		(3,057	)		35,075
Net cash provided by (used in) investing activities		(255,830	)		33,140			(188,578	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation		3,331			2,845			4
Net cost of junior subordinated debt securities redemption		-			(329,897	)		-
Proceeds from issuance of senior notes		400,000			-			-
Net cost of senior notes maturing		(250,000	)		-			-
Net cash provided by (used in) financing activities		153,331			(327,052	)		4

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(26,816	)		(17,966	)		44,420

Net increase (decrease) in cash		7,168			(30,913	)		(547	)
Cash, beginning of period		316,807			347,720			348,267
Cash, end of period	$	323,975		$	316,807		$	347,720

SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)	$	133,057		$	51,045		$	38,548
Interest paid		38,861			37,725			50,072

The accompanying notes are an integral part of the consolidated financial statements.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2014, 2013 and 2012

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Business and Basis of Presentation.

Everest Reinsurance Holdings, Inc. (“Holdings”), a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited (“Holdings Ireland”), which is a direct subsidiary of Everest Re Group, Ltd. (“Group”), through its subsidiaries, principally provides property and casualty reinsurance and insurance in the United States of America and internationally. As used in this document, “Company” means Holdings and its subsidiaries.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The statements include all of the following domestic and foreign direct and indirect subsidiaries of the Company: Everest Reinsurance Company (“Everest Re”), Everest National Insurance Company (“Everest National”), Everest Indemnity Insurance Company (“Everest Indemnity”), Everest Security Insurance Company (“Everest Security”), Heartland Crop Insurance, Inc. (“Heartland”), Specialty Insurance Group, Inc. (“Specialty”), Specialty Insurance Group - Leisure and Entertainment Risk Purchasing Group LLC (“Specialty RPG”), Mt. Whitney Securities, Inc., Everest Reinsurance Company – Escritório de Representação No Brasil Ltda. (“Everest Brazil”), Mt. McKinley Managers, L.L.C., Workcare Southeast, Inc., Workcare Southeast of Georgia, Inc., and Mt. McKinley Insurance Company (“Mt. McKinley”). All amounts are reported in U.S. dollars.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate actual results could differ, possibly materially, from those estimates.

All intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2014 presentation. One reclassification relates to a correction in the manner in which the Company reports distributions received from limited partnership investments in the consolidated Statements of Cash Flows. Prior to the fourth quarter of 2013, the Company incorrectly reflected all distributions as cash flows from investing activities in its Consolidated Statements of Cash Flows. Starting with the fourth quarter of 2013, cash distributions from the limited partnerships that represent net investment income are reflected as cash flows from operating activities and distributions that represent the return of capital contributions are reflected as cash flows from investing activities. For the year ended December 31, 2012, $19,490 thousand was reclassified from “Distributions from other invested assets” included in cash flows from investing activities to “Distribution of limited partnership income” included in cash flows from operations. The Company determined that this error was not material to the financial statements of any prior period.

B. Investments.

Fixed maturity and equity security investments available for sale, at market value, reflect unrealized appreciation and depreciation, as a result of temporary changes in market value during the period, in stockholder’s equity, net of income taxes in “accumulated other comprehensive income (loss)” in the consolidated balance sheets. Fixed maturity, equity securities and other invested assets carried at fair value reflect fair value re-measurements as net realized capital gains and losses in the consolidated statements of operations and comprehensive income (loss). The Company records changes in fair value for its fixed maturities-available for sale, at market value through shareholders’ equity, net of taxes in accumulated other comprehensive income (loss) since cash flows from these investments will be primarily used to settle its reserve for losses and loss adjustment expense liabilities. The Company anticipates holding these investments for an extended period as the cash flow from interest and maturities will fund the projected payout of these liabilities. Fixed maturities carried at fair value represent a portfolio of convertible bond securities, which have characteristics similar to equity securities and at times, designated foreign

F-7

denominated fixed maturity securities, which will be used to settle loss and loss adjustment reserves in the same currency. The Company carries all of its equity securities at fair value except for mutual fund investments whose underlying investments are comprised of fixed maturity securities. For equity securities, available for sale, at fair value, the Company reflects changes in value as net realized capital gains and losses since these securities may be sold in the near term depending on financial market conditions. Other invested assets, at fair value, are comprised of common shares of the Company’s ultimate parent, Everest Re Group, Ltd. Interest income on all fixed maturities and dividend income on all equity securities are included as part of net investment income in the consolidated statements of operations and comprehensive income (loss). Unrealized losses on fixed maturities, which are deemed other-than-temporary and related to the credit quality of a security, are charged to net income (loss) as net realized capital losses. Short-term investments are stated at cost, which approximates market value. Realized gains or losses on sales of investments are determined on the basis of identified cost. For non-publicly traded securities, market prices are determined through the use of pricing models that evaluate securities relative to the U.S. Treasury yield curve, taking into account the issue type, credit quality, and cash flow characteristics of each security. For publicly traded securities, market value is based on quoted market prices or valuation models that use observable market inputs. When a sector of the financial markets is inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. Retrospective adjustments are employed to recalculate the values of asset-backed securities. 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 to effect the calculation of projected and prepayments for pass-through security types. Other invested assets include limited partnerships and rabbi trusts. Limited partnerships are accounted for under the equity method of accounting, which can be recorded on a monthly or quarterly lag.

C. Uncollectible Receivable Balances.

The Company provides reserves for uncollectible reinsurance recoverable and premium receivable balances based on management’s assessment of the collectability of the outstanding balances. Such reserves are presented in the table below for the periods indicated.

	Years Ended December 31,
(Dollars in thousands)	2014		2013
Reinsurance recoverable and premium receivables	$	29,153	$	29,516

D. Deferred Acquisition Costs.

Acquisition costs, consisting principally of commissions and brokerage expenses and certain premium taxes and fees incurred at the time a contract or policy is issued and that vary with and are directly related to the Company’s reinsurance and insurance business, are deferred and amortized over the period in which the related premiums are earned. Deferred acquisition costs are limited to their estimated realizable value by line of business based on the related unearned premiums, anticipated claims and claim expenses and anticipated investment income. Deferred acquisition costs amortized to income are presented in the table below for the periods indicated.

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Deferred acquisition costs	$	339,402	$	293,922	$	310,699

F-8

E. Reserve for Losses and Loss Adjustment Expenses.

The reserve for losses and loss adjustment expenses (“LAE”) is based on individual case estimates and reports received from ceding companies. A provision is included for losses and LAE incurred but not reported (“IBNR”) based on past experience. A provision is also included for certain potential liabilities relating to asbestos and environmental (“A&E”) exposures, which liabilities cannot be estimated using traditional reserving techniques. See also Note 3. The reserves are reviewed periodically and any changes in estimates are reflected in earnings in the period the adjustment is made. The Company’s loss and LAE reserves represent management’s best estimate of the ultimate liability. Loss and LAE reserves are presented gross of reinsurance receivables and incurred losses and LAE are presented net of reinsurance.

Accruals for commissions are established for reinsurance contracts that provide for the stated commission percentage to increase or decrease based on the loss experience of the contract. Changes in estimates for such arrangements are recorded as commission expense. Commission accruals for contracts with adjustable features are estimated based on expected loss and LAE.

F. Premium Revenues.

Written premiums are earned ratably over the periods of the related insurance and reinsurance contracts. Written premiums related to crop insurance are earned on a seasonal pattern, which is based upon the planting and harvesting periods of each crop season. Unearned premium reserves are established relative to the unexpired contract period. Such reserves are established based upon reports received from ceding companies or estimated using pro rata methods based on statistical data. Reinstatement premiums represent additional premium received on reinsurance coverages, most prevalently catastrophe related, when limits have been depleted under the original reinsurance contract and additional coverage is granted. Written and earned premiums and the related costs, which have not yet been reported to the Company, are estimated and accrued. Premiums are net of ceded reinsurance.

G. Prepaid Reinsurance Premiums.

Prepaid reinsurance premiums represent unearned premium reserves ceded to other reinsurers. Prepaid reinsurance premiums for any foreign reinsurers comprising more than 10% of the outstanding balance at December 31, 2014 were collateralized either through collateralized trust arrangements, rights of offset or letters of credit, thereby limiting the credit risk to the Company.

H. Income Taxes.

The Company and its wholly-owned subsidiaries file a consolidated U.S. federal income tax return. Foreign branches of subsidiaries file local tax returns as required. Deferred income taxes have been recorded to recognize the tax effect of temporary differences between the financial reporting and income tax bases of assets and liabilities, which arise because of differences between GAAP and income tax accounting rules.

I. Foreign Currency.

Assets and liabilities relating to foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date; revenues and expenses are translated into U.S. dollars using average exchange rates in effect during the reporting period. Gains and losses resulting from translating foreign currency financial statements, net of deferred income taxes, are excluded from net income (loss) and accumulated in stockholder’s equity. Gains and losses resulting from foreign currency transactions, other than debt securities available for sale, are recorded through the consolidated statements of operations and comprehensive income (loss) in other income (expense). Gains and losses resulting from changes in the foreign currency exchange rates on debt securities, available for sale at market value, are recorded in the consolidated balance sheets in accumulated other comprehensive income (loss) as unrealized appreciation (depreciation) and any losses which are deemed other-than-temporary are charged to net income (loss) as net realized capital loss.

J. Segmentation.

The Company, through its subsidiaries, operates in three segments: U.S. Reinsurance, International and Insurance. See also Note 18.

F-9

K. Retroactive Reinsurance.

Premiums on ceded retroactive contracts are earned when written with a corresponding reinsurance recoverable established for the amount of reserves ceded. The initial gain, if applicable, is deferred and amortized into income over an actuarially determined expected payout period. Any future loss is recognized immediately and charged against earnings.

L. Application of Recently Issued Accounting Standard Changes.

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

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

2. 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 December 31, 2014
	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	$	135,724	$	1,416	$	(304	)	$	136,836	$	-
Obligations of U.S. states and political subdivisions		783,129		41,969		(626	)		824,472		-
Corporate securities		1,992,200		39,954		(53,219	)		1,978,935		(9,735	)
Asset-backed securities		94,470		727		(374	)		94,823		-
Mortgage-backed securities
Commercial		57,027		2,292		(51	)		59,268		-
Agency residential		596,140		6,697		(4,720	)		598,117		-
Non-agency residential		271		44		-			315		-
Foreign government securities		515,016		27,415		(5,344	)		537,087		-
Foreign corporate securities		1,061,546		27,832		(25,820	)		1,063,558		-
Total fixed maturity securities	$	5,235,523	$	148,346	$	(90,458	)	$	5,293,411	$	(9,735	)
Equity securities	$	15	$	1	$	-		$	16	$	-

F-10

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

(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.

The amortized cost and market value of fixed maturity securities are shown in the following table by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.

	At December 31, 2014				At December 31, 2013
	Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value
Fixed maturity securities – available for sale
Due in one year or less	$	385,721	$	384,022	$	462,133	$	463,674
Due after one year through five years		2,387,533		2,369,917		2,251,169		2,300,475
Due after five years through ten years		1,025,221		1,029,077		988,896		1,000,053
Due after ten years		689,140		757,872		630,555		661,106
Asset-backed securities		94,470		94,823		38,544		39,609
Mortgage-backed securities
Commercial		57,027		59,268		34,855		38,666
Agency residential		596,140		598,117		709,589		697,399
Non-agency residential		271		315		859		939
Total fixed maturity securities	$	5,235,523	$	5,293,411	$	5,116,600	$	5,201,921

F-11

The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods as indicated:

	Years Ended December 31,
(Dollars in thousands)	2014			2013
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	(17,697	)	$	(156,072	)
Fixed maturity securities, other-than-temporary impairment		(9,735	)		(399	)
Equity securities		3			-
Change in unrealized appreciation (depreciation), pre-tax		(27,429	)		(156,471	)
Deferred tax benefit (expense)		6,193			54,625
Deferred tax benefit (expense), other-than-temporary impairment		3,407			140
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in stockholder's equity	$	(17,829	)	$	(101,706	)

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.

The majority of the Company’s equity securities available for sale at market value are primarily comprised of mutual fund investments whose underlying securities consist of fixed maturity securities. When a fund’s value reflects an unrealized loss, the Company assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company considers the composition of its portfolios and their related markets, reports received from the portfolio managers and discussions with portfolio managers. If the Company determines that the declines are temporary and it has the ability and intent to continue to hold the investments, then the declines are recorded as unrealized losses in accumulated other comprehensive income (loss). If declines are deemed to be other-than-temporary, then the carrying value of the investment is written down to fair value and recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).

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.

F-12

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, 2014 By Security Type
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	13,187	$	(20	)	$	26,897	$	(284	)	$	40,084	$	(304	)
Obligations of U.S. states and political subdivisions		20,428		(242	)		18,199		(384	)		38,627		(626	)
Corporate securities		830,928		(48,891	)		171,207		(4,328	)		1,002,135		(53,219	)
Asset-backed securities		62,451		(374	)		-		-			62,451		(374	)
Mortgage-backed securities
Commercial		11,742		(51	)		-		-			11,742		(51	)
Agency residential		24,230		(59	)		267,824		(4,661	)		292,054		(4,720	)
Non-agency residential		-		-			-		-			-		-
Foreign government securities		45,521		(913	)		53,086		(4,431	)		98,607		(5,344	)
Foreign corporate securities		228,733		(21,704	)		117,713		(4,116	)		346,446		(25,820	)
Total fixed maturity securities	$	1,237,220	$	(72,254	)	$	654,926	$	(18,204	)	$	1,892,146	$	(90,458	)
Equity securities		-		-			-		-			-		-
Total	$	1,237,220	$	(72,254	)	$	654,926	$	(18,204	)	$	1,892,146	$	(90,458	)

	Duration of Unrealized Loss at December 31, 2014 By Maturity
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	12,858	$	(550	)	$	53,528	$	(4,224	)	$	66,386	$	(4,774	)
Due in one year through five years		622,137		(51,262	)		243,192		(6,306	)		865,329		(57,568	)
Due in five years through ten years		467,187		(18,958	)		66,630		(2,018	)		533,817		(20,976	)
Due after ten years		36,615		(1,000	)		23,752		(995	)		60,367		(1,995	)
Asset-backed securities		62,451		(374	)		-		-			62,451		(374	)
Mortgage-backed securities		35,972		(110	)		267,824		(4,661	)		303,796		(4,771	)
Total fixed maturity securities	$	1,237,220	$	(72,254	)	$	654,926	$	(18,204	)	$	1,892,146	$	(90,458	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2014 were $1,892,146 thousand and $90,458 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2014, did not exceed 0.3% 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 $72,254 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, $53,772 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies during the fourth quarter of 2014 and unrealized foreign exchange losses, $7,298 thousand, as the U.S. dollar has strengthened against other currencies. The $18,204 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to agency residential mortgage-backed securities, foreign and domestic corporate securities and foreign government securities. Of these unrealized losses, $16,680 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The Company did not have any sub-prime or alt-A loans with gross unrealized depreciation at December 31, 2014. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

F-13

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.

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

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

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

F-14

and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

Other invested assets, at fair value, are comprised of common shares of the Company’s ultimate parent, Group. At December 31, 2014, the Company held 9,719,971 shares of Group representing 17.9% of the total outstanding shares.

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

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
Fixed maturities	$	207,861		$	210,416		$	216,796
Equity securities		34,112			36,274			39,284
Short-term investments and cash		1,190			1,090			1,051
Other invested assets
Limited partnerships		29,653			36,737			39,696
Dividends from Parent's shares		31,104			21,287			18,663
Other		3,620			7,328			3,851
Gross investment income before adjustments		307,540			313,132			319,341
Funds held interest income (expense)		5,429			6,925			4,408
Gross investment income		312,969			320,057			323,749
Investment expenses		(22,658	)		(23,061	)		(17,604	)
Net investment income	$	290,310		$	296,996		$	306,145

(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 $261,709 thousand in limited partnerships at December 31, 2014. These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2020.

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

	Years Ended December 31,
(Dollars in thousands)	2014			2013		2012
Fixed maturity securities, market value:
Other-than-temporary impairments	$	(38,912	)	$	-	$	(6,634	)
Gains (losses) from sales		(2,711	)		3,792		5,660
Fixed maturity securities, fair value:
Gain (losses) from sales		(3,137	)		201		5,675
Gains (losses) from fair value adjustments		(1,498	)		307		1,941
Equity securities, fair value:
Gains (losses) from sales		(385	)		31,566		22,562
Gains (losses) from fair value adjustments		113,065			240,927		111,155
Other invested assets, fair value:
Gains (losses) from fair value adjustments		140,259			446,341		251,359
Short-term investment gains (losses)		(2	)		15		(16	)
Total net realized capital gains (losses)	$	206,679		$	723,149	$	391,702

F-15

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

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
Proceeds from sales of fixed maturity securities	$	1,116,743		$	619,914		$	561,408
Gross gains from sales		14,782			14,914			21,051
Gross losses from sales		(20,630	)		(10,921	)		(9,716	)

Proceeds from sales of equity securities	$	528,958		$	612,516		$	546,463
Gross gains from sales		17,921			40,191			40,808
Gross losses from sales		(18,306	)		(8,925	)		(18,246	)

Securities with a carrying value amount of $1,434,105 thousand at December 31, 2014, were on deposit with various state or governmental insurance departments in compliance with insurance laws.

3. RESERVES FOR LOSSES AND LAE

Reserves for losses and LAE.

Activity in the reserve for losses and LAE is summarized for the periods indicated:

	At December 31,
(Dollars in thousands)	2014			2013			2012
Gross reserves at January 1	$	7,653,229		$	8,143,055		$	8,290,619
Less reinsurance recoverables		(3,427,385	)		(3,444,970	)		(3,374,427	)
Net reserves at January 1		4,225,844			4,698,085			4,916,192

Incurred related to:
Current year		1,314,887			1,227,525			1,237,486
Prior years		39,206			44,631			12,258
Total incurred losses and LAE		1,354,093			1,272,156			1,249,744

Paid related to:
Current year		452,662			464,914			365,805
Prior years		926,819			1,209,941			1,097,353
Total paid losses and LAE		1,379,481			1,674,855			1,463,158

Foreign exchange/translation adjustment		(59,382	)		(69,542	)		(4,693	)

Net reserves at December 31		4,141,074			4,225,844			4,698,085
Plus reinsurance recoverables		3,702,782			3,427,385			3,444,970
Gross reserves at December 31	$	7,843,856		$	7,653,229		$	8,143,055

Prior years’ reserves increased by $39,206 thousand, $44,631 thousand and $12,258 thousand for the years ended December 31, 2014, 2013 and 2012, respectively. The increase for 2014 was attributable to an increase of $87,362 thousand in A&E reserves along with unfavorable development of $11,352 thousand in the insurance segment, partially offset by $59,509 thousand of favorable development in the reinsurance segments related to treaty casualty, treaty property and catastrophe reserves.

F-16

The increase for 2013 was attributable to a $71,838 thousand increase in insurance business, primarily related to development on contractors’ liability, workers compensation, and umbrella reserves, partially offset by a $27,207 thousand decrease in reinsurance business, primarily related to favorable development on treaty property reserves.

The increase for 2012 was attributable to a $29,612 thousand increase in insurance business, primarily related to development on contractors’ liability and workers compensation reserves, partially offset by the $17,354 thousand decrease in reinsurance business, primarily related to favorable development on treaty casualty reserves.

The Company continues to receive claims under expired insurance and reinsurance contracts asserting injuries and/or damages relating to or resulting from environmental pollution and hazardous substances, including asbestos. Environmental claims typically assert liability for (a) the mitigation or remediation of environmental contamination or (b) bodily injury or property damage caused by the release of hazardous substances into the land, air or water. Asbestos claims typically assert liability for bodily injury from exposure to asbestos or for property damage resulting from asbestos or products containing asbestos.

The Company’s reserves include an estimate of the Company’s ultimate liability for A&E claims. The Company’s A&E liabilities emanate from Mt. McKinley, a direct subsidiary of the Company, direct insurance business and Everest Re’s assumed reinsurance business. All of the contracts of insurance and reinsurance under which the Company has received claims during the past three years, expired more than 20 years ago. There are significant uncertainties surrounding the Company’s reserves for its A&E losses.

A&E exposures represent a separate exposure group for monitoring and evaluating reserve adequacy. The following table summarizes incurred losses with respect to A&E reserves on both a gross and net of reinsurance basis for the periods indicated:

	At December 31,
(Dollars in thousands)	2014			2013			2012
Gross basis:
Beginning of period reserves	$	402,461		$	442,821		$	499,911
Incurred losses		142,233			5,598			132
Paid losses		(68,490	)		(45,958	)		(57,222	)
End of period reserves	$	476,205		$	402,461		$	442,821

Net basis:
Beginning of period reserves	$	269,370		$	305,469		$	341,251
Incurred losses		87,362			3,965			17
Paid losses		(52,446	)		(40,064	)		(35,799	)
End of period reserves	$	304,286		$	269,370		$	305,469

Reinsurance Receivables. Reinsurance receivables for both paid and unpaid losses totaled $4,032,018 thousand and $3,593,042 thousand at December 31, 2014 and 2013, respectively. At December 31, 2014, $3,293,436 thousand, or 81.7%, was receivable from Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”) and is fully collateralized by a trust agreement. No other retrocessionaire accounted for more than 5% of reinsurance receivables.

F-17

4. FAIR VALUE

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

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

The Company internally manages a small public equity portfolio which had a fair value at December 31, 2014 and 2013, of $96,890 thousand and $88,338 thousand, respectively, and all prices were obtained from publically published sources.

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

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

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

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

F-18

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, 2014		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	136,836	$	-	$	136,836	$	-
Obligations of U.S. States and political subdivisions		824,472		-		824,472		-
Corporate securities		1,978,935		-		1,978,935		-
Asset-backed securities		94,823		-		94,823		-
Mortgage-backed securities
Commercial		59,268		-		50,671		8,597
Agency residential		598,117		-		598,117		-
Non-agency residential		315		-		315		-
Foreign government securities		537,087		-		537,087		-
Foreign corporate securities		1,063,558		-		1,056,392		7,166
Total fixed maturities, market value		5,293,411		-		5,277,648		15,763

Fixed maturities, fair value		1,509		-		1,509		-
Equity securities, market value		16		16		-		-
Equity securities, fair value		1,299,037		1,188,613		110,424		-
Other invested assets, fair value		1,655,311		1,655,311		-		-

There were no transfers between Level 1 and Level 2 for the twelve months ended December 31, 2014.

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

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	71,685	$	-	$	71,685	$	-
Obligations of U.S. States and political subdivisions		1,002,528		-		1,002,528		-
Corporate securities		1,702,415		-		1,702,415		-
Asset-backed securities		39,609		-		36,076		3,533
Mortgage-backed securities
Commercial		38,666		-		38,666		-
Agency residential		697,399		-		697,399		-
Non-agency residential		939		-		935		4
Foreign government securities		674,827		-		674,827		-
Foreign corporate securities		973,853		-		973,372		481
Total fixed maturities, market value		5,201,921		-		5,197,903		4,018

Fixed maturities, fair value		19,388		-		19,388		-
Equity securities, market value		13		13		-		-
Equity securities, fair value		1,298,940		1,179,139		119,801		-
Other invested assets, fair value		1,515,052		1,515,052		-		-

F-19

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

	December 31, 2014																		December 31, 2013
	Corporate			Asset-backed						Foreign			Non-agency						Asset-backed			Foreign			Non-agency			Agency
(Dollars in thousands)	Securities			Securities			CMBS			Corporate			RMBS			Total			Securities			Corporate			RMBS			RMBS			Total
Beginning balance	$	-		$	3,533		$	-		$	481		$	4		$	4,018		$	4,849		$	11,421		$	5		$	29,398		$	45,673
Total gains or (losses) (realized/unrealized)
Included in earnings		-			1,291			-			73			2			1,366			258			(654	)		3			-			(393	)
Included in other comprehensive income (loss)		42			(192	)		(426	)		(5,208	)		(3	)		(5,787	)		(594	)		(367	)		(25	)		-			(986	)
Purchases, issuances and settlements		1,274			16,744			9,023			3,135			(3	)		30,173			(1,296	)		1,080			(73	)		-			(289	)
Transfers in and/or (out) of Level 3		(1,316	)		(21,376	)		-			8,685			-			(14,007	)		316			(10,999	)		94			(29,398	)		(39,987	)
Ending balance	$	-		$	-		$	8,597		$	7,166		$	-		$	15,763		$	3,533		$	481		$	4		$	-		$	4,018

The amount of total gains or losses for the period included
in earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets
still held at the reporting date	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-

(Some amounts may not reconcile due to rounding.)

The net transfers from level 3, fair value measurements using significant unobservable inputs, of $14,007 thousand and $39,987 thousand of investments during 2014 and 2013, respectively, primarily relate to securities that were priced using single non-binding broker quotes and were subsequently priced using a recognized pricing service and were then classified as level 2.

5. CREDIT FACILITY - EXPIRED

Effective August 15, 2011, the Company entered into a three year, $150,000 thousand unsecured revolving credit facility, referred to as the “Holdings Credit Facility”, which expired on August 15, 2014. The Company decided not to renew the Holdings Credit Facility at expiration.

The following table summarizes outstanding letters of credit and/or borrowings for the periods indicated:

(Dollars in thousands)	At December 31, 2014						At December 31, 2013
Bank	Commitment		In Use		Date of Loan	Maturity/Expiry Date	Commitment		In Use		Date of Loan	Maturity/Expiry Date
Citibank Holdings Credit Facility	$	-	$	-			$	150,000	$	-
Total revolving credit borrowings				-						-
Total letters of credit				-						851		12/31/2014

Total Citibank Holdings Credit Facility	$	-	$	-			$	150,000	$	851

The following table presents the costs incurred in connection with the Holdings Credit Facility for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Credit facility fees incurred	$	97	$	299	$	582

F-20

6. 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.

					December 31, 2014				December 31, 2013
					Consolidated Balance				Consolidated Balance
(Dollars in thousands)	Date Issued	Date Due	Principal Amounts		Sheet Amount		Market Value		Sheet Amount		Market Value
5.40% Senior notes	10/12/2004	10/15/2014	$	250,000	$	-	$	-	$	249,958	$	259,130
4.868% Senior notes	06/05/2014	06/01/2044		400,000		400,000		404,892		-		-

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. The proceeds from the issuance have been used in part to pay off the $250,000 thousand of 5.40% senior notes which matured on October 15, 2014.

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

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Interest expense incurred	$	21,818	$	13,551	$	13,548

7. 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

December 31, 2014

December 31, 2013

Original

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

238,364

246,312

238,361

233,292

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

Holdings can redeem the long term subordinated notes prior to May 15, 2017, in whole but not in part at the applicable redemption price, which will equal the greater of (a) 100% of the principal amount being redeemed and (b) the present value of the principal payment on May 15, 2017 and scheduled payments of interest that would have accrued from the redemption date to May 15, 2017 on the long term subordinated notes being redeemed, discounted to the redemption date on a semi-annual basis at a discount rate equal to the treasury rate plus an applicable spread of either 0.25% or 0.50%, in each case plus accrued and unpaid interest. Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at 100% of the principal amount plus accrued and unpaid interest; however, redemption on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant. This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes. Effective upon the maturity of the Company’s 5.40% senior notes on October 15, 2014,

F-21

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:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Interest expense incurred	$	15,749	$	15,748	$	15,748

8. JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE

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

Interest expense incurred in connection with these junior subordinated debt securities is as follows for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Interest expense incurred	$	-	$	8,181	$	20,454

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

9. REINSURANCE AND TRUST AGREEMENTS

A subsidiary of the Company, Everest Re, has established a trust agreement, which effectively uses Everest Re’s investments as collateral, as security for assumed losses payable to a non-affiliated ceding company. At December 31, 2014, the total amount on deposit in the trust account was $252,084 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.

F-22

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 variable rate notes (“Series 2014-1 Notes”). On November 18, 2014, Kilimanjaro issued $500,000 thousand of variable rate notes (“Series 2014-2 Notes”). The proceeds from the issuance of the Series 2014-1 Notes and the Series 2014-2 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.

10. OPERATING LEASE AGREEMENTS

The future minimum rental commitments, exclusive of cost escalation clauses, at December 31, 2014, for all of the Company’s operating leases with remaining non-cancelable terms in excess of one year are as follows:

(Dollars in thousands)
2015	$	12,144
2016		12,760
2017		12,109
2018		12,209
2019		12,027
Thereafter		20,646
Net commitments	$	81,895

All of these leases, the expiration terms of which range from 2016 to 2024, are for the rental of office space. Rental expense was $13,028 thousand, $12,405 thousand and $12,232 thousand for the years ended December 31, 2014, 2013 and 2012, respectively.

11. INCOME TAXES

All of the income of Holdings U.S. subsidiaries is subject to the applicable federal, foreign, state and local taxes on corporations. Additionally, the income of foreign branches of the Company's insurance operating companies is subject to various income taxes. The provision for income taxes in the Consolidated Statement of Operations and Comprehensive Income (Loss) has been determined in accordance with the individual income of each entity and the respective applicable tax laws. The provision reflects the permanent differences between financial and taxable income relevant to each entity. The significant components of the provision are as follows for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Current tax expense (benefit):
U.S.	$	104,327	$	86,345	$	18,498
Foreign		33,171		7,909		10,545
Total current tax expense (benefit)		137,498		94,254		29,043
Total deferred U.S. tax expense (benefit)		66,064		312,984		143,952
Total income tax expense (benefit)	$	203,562	$	407,238	$	172,995

F-23

A reconciliation of the expected income tax provision at the U.S. Federal income tax rate to the Company's total income tax provision is as follows for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
Expected income tax provision at the U.S. statutory tax rate	$	230,190		$	421,924		$	242,664
Increase (reduction) in taxes resulting from:
Tax exempt income		(12,231	)		(15,038	)		(20,623	)
Dividend received deduction		(5,428	)		(7,328	)		(7,924	)
Proration		1,835			2,274			3,138
Tax audit settlement		-			-			(2,508	)
Uncertain tax positions		-			-			(31,912	)
Other, net		(10,804	)		5,406			(9,840	)
Total income tax provision	$	203,562		$	407,238		$	172,995

(Some amounts may not reconcile due to rounding)

During 2012, the Internal Revenue Service ("IRS") completed its audit of the Company for the 2007 and 2008 tax years. At the conclusion of the audit, the Company paid additional federal income taxes of $12,747 thousand plus interest of $1,702 thousand. The additional tax liability resulted primarily from adjustments to the timing of the Company's utilization of foreign tax credits and, therefore, including interest but net of a permanent benefit from previously unrecorded tax exempt income, this resulted in a $354 thousand income tax benefit. Also as a result of closing the IRS audit, the Company was able to re-measure its exposure and take down its reserve for uncertain tax positions by $31,912 thousand and related interest of $2,154 thousand, resulting in an income tax benefit of $34,067 thousand.

The Company identified net understatements in its Deferred tax asset account of $17,520 thousand during 2012. The understatements resulted from differences between filed and recorded amounts that had accumulated over several prior periods. The Company corrected these understatements, resulting in a $17,520 thousand income tax benefit included in the Income tax expense(benefit) caption in the Consolidated Statements of Operations and Comprehensive Income (Loss) and increased net income for the same amount. The Company also increased its Deferred tax asset in its Consolidated Balance Sheets by $17,520 thousand. The Company believes that the out of period adjustments are immaterial to these financial statements and to all prior periods. As such, the Company has not restated any prior period amounts.

F-24

Deferred income taxes reflect the tax effect of the temporary differences between the value of assets and liabilities for financial statement purposes and such values as measured by the U.S. tax laws and regulations. The principal items making up the net deferred income tax assets are as follows for the periods indicated:

	At December 31,
(Dollars in thousands)	2014			2013
Deferred tax assets:
Loss reserve	$	153,978		$	146,781
Foreign tax credits		64,902			74,255
Alternative minimum tax credits		44,954			93,336
Unearned premium reserve		44,582			45,368
Net unrecognized losses on benefit plans		40,377			20,944
Deferred gain on reinsurance		35,231			29,965
Investment impairments		13,841			2,344
Benefit plan liabilities		9,873			7,968
Uncollectible reinsurance reserve		5,237			5,534
Deferred expenses		3,076			2,695
Other assets		17,357			12,579
Total deferred tax assets		433,408			441,769

Deferred tax liabilities:
Net fair value income		403,731			350,747
Deferred acquisition costs		38,636			39,344
Net unrealized investment gains		25,516			38,750
Net unrealized foreign currency gains		-			27,735
Gain on tender of debt		21,916			27,395
Bond market discount		3,043			1,629
Other liabilities		13,158			7,458
Total deferred tax liabilities		506,000			493,058

Net deferred tax assets/(liabilities)	$	(72,592	)	$	(51,289	)

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the periods indicated is as follows:

(Dollars in thousands)	2014		2013		2012
Balance at January 1	$	-	$	-	$	31,912
Additions based on tax positions related to the current year		-		-		-
Additions for tax positions of prior years		-		-		-
Reductions for tax positions of prior years		-		-		(31,912	)
Settlements with taxing authorities		-		-		-
Lapses of applicable statutes of limitations		-		-		-
Balance at December 31	$	-	$	-	$	-

As a result of closing the 2007 and 2008 IRS audit during 2012, the Company was able to re-measure its exposure and take down its reserve for uncertain tax positions by $31,912 thousand and accrued interest of $2,154 thousand. Thus, the entire amount of unrecognized tax benefits at January 1, 2012 was recognized and beneficially affected the effective tax rate in 2012. The Company is no longer subject to IRS audit for years before 2009.

The Company recognized accrued interest related to the net unrecognized tax benefits and penalties in income taxes. During the year ended December 31, 2012, the Company accrued and recognized a net expense/(benefit) of approximately $(2,154) thousand, in interest and penalties.

F-25

For U.S. income tax purposes at December 31, 2014, the Company has foreign tax credit carry forwards of $64,902 thousand that begin to expire in 2017. In addition, the Company has $44,954 thousand of Alternative Minimum Tax Credits that do not expire. Management believes that it is more likely than not that the Company will realize the benefits of the majority of its net deferred tax assets, and accordingly, no valuation allowance has been recorded for the periods presented.

The Company has recorded tax benefits related to share-based compensation deductions for dividends on restricted stock, vestings of restricted stock and exercised stock options in 2014 and 2013, respectively, of $3,333 thousand and $2,839 thousand to additional paid-in capital in the shareholders' equity section of the Consolidated Balance Sheets.

12. REINSURANCE

The Company utilizes reinsurance agreements to reduce its exposure to large claims and catastrophic loss occurrences. These agreements provide for recovery from reinsurers of a portion of losses and LAE under certain circumstances without relieving the ceding company of its obligations to the policyholders. Losses and LAE incurred and premiums earned are reported after deduction for reinsurance. In the event that one or more of the reinsurers were unable to meet their obligations under these reinsurance agreements, the Company would not realize the full value of the reinsurance recoverable balances. The Company may hold partial collateral, including letters of credit, trust accounts and funds held, under these agreements. See also Note 1C, Note 3 and Note 9.

Premiums written and earned and incurred losses and LAE are comprised of the following for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
Written premiums:
Direct	$	1,179,034		$	1,240,761		$	1,050,248
Assumed		3,786,260			3,196,707			2,519,142
Ceded		(2,858,320	)		(2,320,091	)		(1,877,789	)
Net written premiums	$	2,106,974		$	2,117,377		$	1,691,601

Premiums earned:
Direct	$	1,148,297		$	1,183,542		$	1,032,576
Assumed		3,685,784			3,024,825			2,687,521
Ceded		(2,720,355	)		(2,202,006	)		(1,946,199	)
Net premiums earned	$	2,113,726		$	2,006,361		$	1,773,898

Incurred losses and LAE:
Direct	$	1,073,485		$	1,153,004		$	910,136
Assumed		1,855,057			1,473,297			1,630,386
Ceded		(1,574,449	)		(1,354,145	)		(1,290,778	)
Net incurred losses and LAE	$	1,354,093		$	1,272,156		$	1,249,744

The Company engages in reinsurance transactions with Bermuda Re, Everest International Reinsurance, Ltd. (“Everest International”), Mt. Logan Re, Ltd. (“Mt. Logan Re”) and Everest Insurance Company of Canada (“Everest Canada”), which are affiliated companies primarily driven by enterprise risk and capital management considerations under which business is ceded at market rates and terms.

F-26

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.

For premiums earned and losses incurred for the period January 1, 2002 through December 31, 2002, Everest Re, Everest National Insurance Company and Everest Security Insurance Company entered into an Excess of Loss Reinsurance Agreement with Bermuda Re, covering workers’ compensation losses occurring on and after January 1, 2002, as respect to new, renewal and in force policies effective on that date through December 31, 2002. This agreement was commuted as of September 30, 2013. The table below represents Bermuda Re's liability limits for any losses per one occurrence.

	Liability Limits
(Dollars in thousands)	Exceeding		Not to Exceed
Losses per one occurrence	$	100,000	$	150,000

F-27

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

(Dollars in thousands)

Effective	Transferring	Assuming	% of Business or			Covered Period
Date	Company	Company	Amount of Transfer			of Transfer

09/19/2000	Mt. McKinley	Bermuda Re		100	%	All years
10/01/2001	Everest Re (Belgium Branch)	Bermuda Re		100	%	All years
10/01/2008	Everest Re	Bermuda Re	$	747,022		01/01/2002-12/31/2007

The following tables summarize the premiums and losses ceded by the Company to Bermuda Re and Everest International, respectively, and premiums and losses assumed by the Company from Everest Canada for the periods indicated:

Bermuda Re	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Ceded written premiums	$	2,273,222	$	2,097,812	$	1,649,473
Ceded earned premiums		2,208,084		1,986,421		1,701,811
Ceded losses and LAE (a)		1,196,118		1,148,841		1,095,331

Everest International	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
Ceded written premiums	$	286		$	691		$	1,828
Ceded earned premiums		563			1,105			3,535
Ceded losses and LAE		(2,356	)		(3,180	)		(2,815	)

Everest Canada	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Assumed written premiums	$	37,436	$	20,419	$	17,216
Assumed earned premiums		25,925		17,447		15,455
Assumed losses and LAE		15,401		12,014		9,489

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

Everest Re sold net assets of its UK branch to Bermuda Re and provided Bermuda Re with a reserve indemnity agreement allowing for indemnity payments of up to 90% of ₤25.0 million of the excess of 2002 and prior reserves, provided that any recognition of profit from the reserves for 2002 and prior underwriting years is taken into account.

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

The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re and assumed by the Company from Mt. Logan Re.

Mt. Logan Re	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Ceded written premiums	$	122,203	$	19,066	$	-
Ceded earned premiums		122,979		18,001		-
Ceded losses and LAE		28,844		4,171		-

Assumed written premiums		13,889		1,735		-
Assumed earned premiums		13,889		1,735		-
Assumed losses and LAE		-		-		-

F-28

13. 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:

	Years Ended December 31,
	2014									2013									2012
(Dollars in thousands)	Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary	$	(59,318	)	$	20,744		$	(38,574	)	$	(152,280	)	$	53,298		$	(98,982	)	$	14,682		$	(5,139	)	$	9,544
URA(D) on securities - OTTI		(9,735	)		3,407			(6,328	)		(399	)		140			(259	)		(236	)		83			(154	)
Reclassification of net realized losses (gains) included in net income (loss)		41,624			(14,551	)		27,073			(3,792	)		1,327			(2,465	)		974			(341	)		633
Foreign currency translation adjustments		(44,938	)		15,728			(29,210	)		(29,428	)		10,300			(19,128	)		10,815			(3,786	)		7,030
Benefit plan actuarial net gain (loss)		(60,169	)		21,059			(39,110	)		27,442			(9,605	)		17,837			(18,109	)		6,338			(11,771	)
Reclassification of amortization of net gain (loss) included in net income (loss)		4,647			(1,627	)		3,020			8,889			(3,111	)		5,778			7,377			(2,582	)		4,795
Total other comprehensive income (loss)	$	(127,890	)	$	44,761		$	(83,129	)	$	(149,568	)	$	52,349		$	(97,219	)	$	15,504		$	(5,427	)	$	10,077

(Some amounts may not reconcile due to rounding)

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

	Years Ended December 31,						Affected line item within the statements of
AOCI component	2014			2013			operations and comprehensive income (loss)
(Dollars in thousands)
URA(D) on securities	$	41,624		$	(3,792	)	Other net realized capital gains (losses)
		(14,551	)		1,327		Income tax expense (benefit)
	$	27,073		$	(2,465	)	Net income (loss)

Benefit plan net gain (loss)	$	4,647		$	8,889		Other underwriting expenses
		(1,627	)		(3,111	)	Income tax expense (benefit)
	$	3,020		$	5,778		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:

	Years Ended December 31,
(Dollars in thousands)	2014			2013

Beginning balance of URA (D) on securities	$	55,457		$	157,163
Current period change in URA (D) of investments - temporary		(11,501	)		(101,447	)
Current period change in URA (D) of investments - non-credit OTTI		(6,328	)		(259	)
Ending balance of URA (D) on securities		37,628			55,457

Beginning balance of foreign currency translation adjustments		71,087			90,215
Current period change in foreign currency translation adjustments		(29,210	)		(19,128	)
Ending balance of foreign currency translation adjustments		41,877			71,087

Beginning balance of benefit plan net gain (loss)		(38,896	)		(62,511	)
Current period change in benefit plan net gain (loss)		(36,090	)		23,615
Ending balance of benefit plan net gain (loss)		(74,986	)		(38,896	)

Ending balance of accumulated other comprehensive income (loss)	$	4,519		$	87,648

F-29

14. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans.

The Company maintains both qualified and non-qualified defined benefit pension plans for its U.S. employees employed prior to April 1, 2010. Generally, the Company computes the benefits based on average earnings over a period prescribed by the plans and credited length of service. The Company’s non-qualified defined benefit pension plan, affected in October 1995, provides compensating pension benefits for participants whose benefits have been curtailed under the qualified plan due to Internal Revenue Code limitations.

Although not required to make contributions under IRS regulations, the following table summarizes the Company’s contributions to the defined benefit pension plans for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Company contributions	$	16,484	$	22,536	$	267

The following table summarizes the Company’s pension expense for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Pension expense	$	18,543	$	19,348	$	16,542

The following table summarizes the status of these defined benefit plans for U.S. employees for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014			2013
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	214,059		$	212,159
Service cost		10,015			11,182
Interest cost		10,474			8,511
Actuarial (gain) / loss		55,107			(12,742	)
Benefits paid		(19,588	)		(5,052	)
Projected benefit obligation at end of year		270,065			214,059

Change in plan assets:
Fair value of plan assets at beginning of year		152,446			114,807
Actual return on plan assets		7,747			20,155
Actual contributions during the year		16,484			22,536
Benefits paid		(19,588	)		(5,052	)
Fair value of plan assets at end of year		157,090			152,446

Funded status at end of year	$	(112,976	)	$	(61,613	)

(Some amounts may not reconcile due to rounding.)

Amounts recognized in the consolidated balance sheets for the periods indicated:

	At December 31,
(Dollars in thousands)	2014			2013
Other assets (due beyond one year)	$	-		$	-
Other liabilities (due within one year)		(5,469	)		(17,000	)
Other liabilities (due beyond one year)		(107,507	)		(44,613	)
Net amount recognized in the consolidated balance sheets	$	(112,976	)	$	(61,613	)

F-30

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) for the periods indicated:

	At December 31,
(Dollars in thousands)	2014			2013
Prior service cost	$	(21	)	$	(70	)
Accumulated income (loss)		(102,671	)		(53,318	)
Accumulated other comprehensive income (loss)	$	(102,692	)	$	(53,387	)

(Some amounts may not reconcile due to rounding.)

Other changes in other comprehensive income (loss) for the periods indicated are as follows:

	Years Ended December 31,
(Dollars in thousands)	2014			2013
Other comprehensive income (loss) at December 31, prior year	$	(53,387	)	$	(85,939	)
Net gain (loss) arising during period		(58,647	)		24,402
Recognition of amortizations in net periodic benefit cost:
Prior service cost		49			49
Actuarial loss		9,294			8,101
Other comprehensive income (loss) at December 31, current year	$	(102,692	)	$	(53,387	)

Net periodic benefit cost for U.S. employees included the following components for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
Service cost	$	10,015		$	11,182		$	9,370
Interest cost		10,474			8,511			7,971
Expected return on assets		(11,288	)		(8,495	)		(7,743	)
Amortization of actuarial loss from earlier periods		4,341			8,101			6,896
Amortization of unrecognized prior service cost		49			49			49
Settlement		4,953			-			-
Net periodic benefit cost	$	18,543		$	19,348		$	16,542

Other changes recognized in other comprehensive income (loss):
Other comprehensive income (loss) attributable to change from prior year		49,305			(32,552	)

Total recognized in net periodic benefit cost and other
comprehensive income (loss)	$	67,847		$	(13,204	)

(Some amounts may not reconcile due to rounding.)

The estimated transition obligation, actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year are $0 thousand, $9,005 thousand and $21 thousand, respectively.

The weighted average discount rates used to determine net periodic benefit cost for 2014, 2013 and 2012 were 5.00%, 4.00% and 4.60%, respectively. The rate of compensation increase used to determine the net periodic benefit cost for 2014, 2013 and 2012 was 4.0%. The expected long-term rate of return on plan assets for 2014, 2013 and 2012 was 7.50%, 7.50% and 7.75%, respectively, and was based on expected portfolio returns and allocations.

The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation for years end 2014, 2013 and 2012 were 4.00%, 5.00% and 4.00%, respectively.

F-31

The following table summarizes the accumulated benefit obligation for the periods indicated:

	At December 31,
(Dollars in thousands)	2014		2013
Qualified Plan	$	200,205	$	147,803
Non-qualified Plan		19,167		29,774
Total	$	219,371	$	177,577

The following table displays the plans with projected benefit obligations in excess of plan assets for the periods indicated:

	At December 31,
(Dollars in thousands)	2014		2013
Qualified Plan
Projected benefit obligation	$	243,525	$	179,512
Fair value of plan assets		157,090		152,446
Non-qualified Plan
Projected benefit obligation	$	26,540	$	34,547
Fair value of plan assets		-		-

The following table displays the plans with accumulated benefit obligations in excess of plan assets for the periods indicated:

	At December 31,
(Dollars in thousands)	2014		2013
Qualified Plan
Accumulated benefit obligation	$	200,205		N/A
Fair value of plan assets		157,090		N/A
Non-qualified Plan
Accumulated benefit obligation	$	19,167	$	29,774
Fair value of plan assets		-		-

(N/A, not applicable)

The following table displays the expected benefit payments in the periods indicated:

(Dollars in thousands)
2015	$	9,683
2016		6,297
2017		7,619
2018		9,120
2019		11,350
Next 5 years		63,370

Plan assets consist of shares in investment trusts with approximately 76%, 15% and 9% of the underlying assets consisting of equity securities, fixed maturities and cash, respectively. The Company manages the qualified plan investments for U.S. employees. The assets in the plan consist of debt and equity mutual funds. Due to the long term nature of the plan, the target asset allocation has historically been 70% equities and 30% bonds.

F-32

The following tables present the fair value measurement levels for the qualified plan assets at fair value for the periods 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, 2014		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash	$	-	$	-	$	-	$	-
Short-term investments, which approximates fair value (a)		14,328		14,328		-		-
Mutual funds, fair value
Fixed income (b)		23,948		23,948		-		-
Equities (c)		96,762		96,762		-		-
Multi-strategy equity fund, fair value (d)		10,629		-		-		10,629
Private equity limited partnerships (e)		11,423		-		-		11,423
Total	$	157,090	$	135,037	$	-	$	22,053

(Some amounts may not reconcile due to rounding.)

(a)	This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.

(b)	This category includes fixed income funds, which invest in investment grade securities of corporations, governments and government agencies with approximately 50% in U.S. securities and 50% in international securities.

(c)

This category includes funds, which invest in small, mid and multi-cap equity securities including common stocks, securities convertible into common stock and securities with common stock characteristics, such as rights and warrants, with approximately 90% in U.S. equities and 10% in international equities.

(d)	This category consists of a privately held fund of U.S. and international equity funds and may include currency hedges for the foreign funds. The fair value is provided by the external investment manager.

(e)	This category consists of private equity limited partnerships.

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash	$	-	$	-	$	-	$	-
Short-term investments, which approximates fair value (a)		10,590		10,590		-		-
Mutual funds, fair value
Fixed income (b)		24,630		24,630		-		-
Equities (c)		97,305		97,305		-		-
Multi-strategy equity fund, fair value (d)		10,765		-		-		10,765
Private equity limited partnerships (e)		9,156		-		-		9,156
Total	$	152,446	$	132,525	$	-	$	19,921

(Some amounts may not reconcile due to rounding.)

(a)	This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.

(b)	This category includes fixed income funds, which invest in investment grade securities of corporations, governments and government agencies with approximately 50% in U.S. securities and 50% in international securities.

(c)

(d)	This category consists of a privately held fund of U.S. and international equity funds and may include currency hedges for the foreign funds. The fair value is provided by the external investment manager.

(e)	This category consists of private equity limited partnerships.

F-33

The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs for fixed maturity investments, for the period indicated:

	Year Ended December 31,
(Dollars in thousands)	2014			2013
Assets:
Balance, beginning of period	$	19,921		$	14,616
Actual return on plan assets:
Realized gains (losses) relating to assets sold during the period		75			7
Unrealized gains (losses) relating to assets still held at the reporting date		331			2,589
Purchases and capital contributions		3,390			2,951
Investment income earned on assets		-			-
Sales and capital distributions		(1,664	)		(242	)
Transfers in and/or (out) of Level 3		-			-
Balance, end of period	$	22,053		$	19,921

The amount of total gains (losses) for the period included in changes in
net assets attributable to the change in unrealized gains (losses)
relating to assets still held at the reporting date	$	256		$	2,582

(Some amounts may not reconcile due to rounding.)

The Company does not expect to make any contributions to the qualified plan in 2015.

Defined Contribution Plans.

The Company also maintains both qualified and non-qualified defined contribution plans (“Savings Plan” and “Non-Qualified Savings Plan”, respectively) covering U.S. employees. Under the plans, the Company contributes up to a maximum 3% of the participants’ compensation based on the contribution percentage of the employee. The Non-Qualified Savings Plan provides compensating savings plan benefits for participants whose benefits have been curtailed under the Savings Plan due to Internal Revenue Code limitations. In addition, effective for new hires (and rehires) on or after April 1, 2010, the Company will contribute between 3% and 8% of an employee’s earnings for each payroll period based on the employee’s age. These contributions will be 100% vested after three years.

The following table presents the Company’s incurred expenses related to these plans for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Incurred expenses	$	4,676	$	3,903	$	3,209

In addition, the Company maintains several defined contribution pension plans covering non-U.S. employees. Each non-U.S. office (Brazil, Canada and Singapore) maintains a separate plan for the non-U.S. employees working in that location. The Company contributes various amounts based on salary, age and/or years of service. The contributions as a percentage of salary for the branch offices range from 5.7% to 8.4%. The contributions are generally used to purchase pension benefits from local insurance providers. The following table presents the Company’s incurred expenses related to these plans for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Incurred expenses	$	479	$	462	$	412

Post-Retirement Plan.

The Company sponsors a Retiree Health Plan for employees employed prior to April 1, 2010. This plan provides healthcare benefits for eligible retired employees (and their eligible dependants), who have elected coverage. The Company anticipates that most covered employees will become eligible for these benefits if they retire while working for the Company. The cost of these benefits is shared with the retiree. The Company accrues the post-retirement benefit expense during the period of the employee’s service.

F-34

The following medical cost trend rates were used to determine net cost and benefit obligations: a healthcare inflation rate for pre-Medicare claims of 7.2% in 2014 was assumed to decrease gradually to 4.5% in 2027 and then remain at that level; and a healthcare inflation rate for post-Medicare claims of 6.3% in 2014 was assumed to decrease gradually to 4.5% in 2027 and then remain at that level.

Changes in the assumed healthcare cost trend can have a significant effect on the amounts reported for the healthcare plans. A one percent change in the rate would have the following effects on:

	Percentage		Percentage
	Point Increase		Point Decrease
(Dollars in thousands)	($ Impact)		($ Impact)
a. Effect on total service and interest cost components	$	674	$	(518	)
b. Effect on accumulated post-retirement benefit obligation		8,442		(6,426	)

The following table presents the post-retirement benefit expenses for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Post-retirement benefit expenses	$	3,196	$	3,801	$	3,141

The following table summarizes the status of this plan for the periods indicated:

	At December 31,
(Dollars in thousands)	2014			2013
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	27,594		$	27,938
Service cost		1,619			1,899
Interest cost		1,320			1,164
Actuarial loss		6,475			(3,040	)
Benefits paid		(502	)		(366	)
Benefit obligation at end of year		36,506			27,594

Change in plan assets:
Fair value of plan assets at beginning of year		-			-
Employer contributions		502			366
Benefits paid		(502	)		(366	)
Fair value of plan assets at end of year		-			-

Funded status at end of year	$	(36,506	)	$	(27,594	)

Amounts recognized in the consolidated balance sheets for the periods indicated:

	At December 31,
(Dollars in thousands)	2014			2013
Other liabilities (due within one year)	$	(639	)	$	(463	)
Other liabilities (due beyond one year)		(35,867	)		(27,130	)
Net amount recognized in the consolidated balance sheets	$	(36,506	)	$	(27,594	)

(Some amounts may not reconcile due to rounding.)

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) for the periods indicated:

	At December 31,
(Dollars in thousands)	2014			2013
Accumulated income (loss)	$	(12,670	)	$	(6,452	)
Accumulated other comprehensive income (loss)	$	(12,670	)	$	(6,452	)

F-35

Other changes in other comprehensive income (loss) for the periods indicated are as follows:

	Years Ended December 31,
(Dollars in thousands)	2014			2013
Other comprehensive income (loss) at December 31, prior year	$	(6,452	)	$	(10,231	)
Net gain (loss) arising during period		(6,475	)		3,040
Recognition of amortizations in net periodic benefit cost:
Actuarial loss (gain)		257			739
Other comprehensive income (loss) at December 31, current year	$	(12,670	)	$	(6,452	)

Net periodic benefit cost included the following components for the periods indicated:

	Years Ended December 31,
(Dollars in thousands)	2014		2013			2012
Service cost	$	1,619	$	1,899		$	1,677
Interest cost		1,320		1,164			1,033
Net loss recognition		257		739			432
Net periodic cost	$	3,196	$	3,801		$	3,142

Other changes recognized in other comprehensive income (loss):
Other comprehensive gain (loss) attributable to change from prior year		6,218		(3,779	)

Total recognized in net periodic benefit cost and
other comprehensive income (loss)	$	9,414	$	22

(Some amounts may not reconcile due to rounding.)

The estimated transition obligation, actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $0 thousand, $843 thousand and $0 thousand, respectively.

The weighted average discount rates used to determine net periodic benefit cost for 2014, 2013 and 2012 were 5.00%, 4.00% and 4.60%, respectively.

The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation at year end 2014, 2013 and 2012 were 4.00%, 5.00% and 4.00%, respectively.

The following table displays the expected benefit payments in the years indicated:

(Dollars in thousands)
2015	$	639
2016		738
2017		794
2018		926
2019		1,054
Next 5 years		7,802

15. DIVIDEND RESTRICTIONS AND STATUTORY FINANCIAL INFORMATION

Holdings and its operating subsidiaries are subject to various regulatory restrictions, including the amount of dividends that may be paid and the level of capital that the operating entities must maintain. These regulatory restrictions are based upon statutory capital as opposed to GAAP basis equity or net assets. Holdings’ primary operating subsidiary, Everest Re, is regulated by Delaware law and is subject to the Risk-Based Capital Model (“RBC”) developed by the National Association of Insurance Commissioners (“NAIC”). This model represents the aggregate regulatory restrictions on net assets and statutory capital and surplus.

F-36

Dividend Restrictions.

Delaware law provides that an insurance company which is a member of an insurance holding company system and is domiciled in the state shall not pay dividends without giving prior notice to the Insurance Commissioner of Delaware and may not pay dividends without the approval of the Insurance Commissioner if the value of the proposed dividend, together with all other dividends and distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory surplus or (2) net income, not including realized capital gains, each as reported in the prior year’s statutory annual statement. In addition, no dividend may be paid in excess of unassigned earned surplus. At December 31, 2014, Everest Re has $357,297 thousand available for payment of dividends in 2015 without the need for prior regulatory approval.

Statutory Financial Information.

Everest Re prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the NAIC and the Delaware Insurance Department. Prescribed statutory accounting practices are set forth in the NAIC Accounting Practices and Procedures Manual. The capital and statutory surplus of Everest Re was $2,892,999 thousand and $2,814,337 thousand at December 31, 2014 and 2013, respectively. The statutory net income of Everest Re was $357,298 thousand, $540,020 thousand and $359,816 thousand for the years ended December 31, 2014, 2013 and 2012, respectively.

There are certain regulatory and contractual restrictions on the ability of Holdings’ operating subsidiaries to transfer funds to Holdings in the form of cash dividends, loans or advances. The insurance laws of the State of Delaware, where Holdings’ direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or advances to Holdings that exceed certain statutory thresholds.

Capital Restrictions.

In the United States, Everest Re is subject to the RBC developed by the NAIC which determines an authorized control level risk-based capital. As long as the total adjusted capital is 200% or more of the authorized control level capital, no action is required by the Company.

The regulatory targeted capital and the actual statutory capital for Everest Re is as follows:

	Everest Re (1)
	At December 31,
(Dollars in thousands)	2014		2013
Regulatory targeted capital	$	1,209,601	$	1,094,605
Actual capital	$	2,892,999	$	2,814,337

(1) Regulatory targeted capital represents 200% of the RBC authorized control level calculation for the applicable year.

16. CONTINGENCIES

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.

F-37

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 December 31,
(Dollars in thousands)	2014		2013
The Prudential	$	142,653	$	144,734
Unaffiliated life insurance company	$	31,964	$	30,664

17. 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.

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

As of December 31, 2014, Holdings held 9,719,971 common shares of Group, which it had purchased in the open market between February 1, 2007 and March 8, 2011. The table below represents the total purchase price for these common shares purchased.

(Dollars in thousands)
Total purchase price		$	835,371

Holdings reports these purchases as other invested assets, fair value, in the consolidated balance sheets with changes in fair value re-measurement recorded in net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss). The following table presents the dividends received on these common shares that are reported as net investment income in the consolidated statements of operations and comprehensive income (loss) for the period indicated.

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Dividends received	$	31,104	$	21,287	$	18,663

F-38

Outside Directors

During the normal course of business, the Company, through its affiliates, engages in insurance and brokerage and commission business transactions, with companies controlled by or affiliated with one or more of Group’s outside directors. Such transactions, individually and in the aggregate, are not material to the Company’s financial condition, results of operation and cash flows. See also Note 12.

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.

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Expenses incurred	$	77,322	$	84,675	$	77,463

18. 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 within the U.S. and Canada.

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.

F-39

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.

U.S. Reinsurance	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Gross written premiums	$	2,154,529	$	1,826,044	$	1,310,683
Net written premiums		977,858		909,557		659,692

Premiums earned	$	988,315	$	842,341	$	722,384
Incurred losses and LAE		545,862		424,184		582,436
Commission and brokerage		201,912		159,747		168,606
Other underwriting expenses		45,583		47,177		44,776
Underwriting gain (loss)	$	194,958	$	211,233	$	(73,434	)

International	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Gross written premiums	$	1,630,381	$	1,370,615	$	1,209,523
Net written premiums		612,243		610,084		550,732

Premiums earned	$	600,964	$	591,695	$	572,466
Incurred losses and LAE		358,038		315,923		261,473
Commission and brokerage		119,655		114,331		124,552
Other underwriting expenses		34,603		33,910		29,294
Underwriting gain (loss)	$	88,668	$	127,531	$	157,147

Insurance	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
Gross written premiums	$	1,180,384		$	1,240,809		$	1,049,184
Net written premiums		516,873			597,736			481,177

Premiums earned	$	524,447		$	572,325		$	479,048
Incurred losses and LAE		450,193			532,049			405,835
Commission and brokerage		17,835			19,844			17,541
Other underwriting expenses		111,846			112,412			96,534
Underwriting gain (loss)	$	(55,427	)	$	(91,980	)	$	(40,862	)

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:

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
Underwriting gain (loss)	$	228,199		$	246,784		$	42,851
Net investment income		290,310			296,996			306,145
Net realized capital gains (losses)		206,679			723,149			391,702
Corporate expense		(7,252	)		(8,262	)		(8,764	)
Interest, fee and bond issue cost amortization expense		(37,970	)		(45,452	)		(50,746	)
Other income (expense)		(22,278	)		(7,714	)		12,136
Income (loss) before taxes	$	657,688		$	1,205,501		$	693,324

F-40

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:

	Years Ended December 31,
(Dollars in thousands)	2014		2013		2012
Canada	$	159,451	$	169,148	$	148,529

Approximately 17.6%, 19.6% and 20.3% of the Company’s gross written premiums in 2014, 2013 and 2012, respectively, were sourced through the Company’s largest intermediary.

19. SUBSEQUENT EVENTS

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

20. UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data for the periods indicated:

	2014
(Dollars in thousands)	1st Quarter			2nd Quarter		3rd Quarter			4th Quarter

Operating data:
Gross written premiums	$	1,084,455		$	1,224,820	$	1,453,394		$	1,202,625
Net written premiums		499,704			492,727		611,916			502,627

Premiums earned		470,445			520,736		569,597			552,948
Net investment income		63,787			68,636		83,446			74,441
Net realized capital gains (losses)		(4,050	)		125,114		(160	)		85,775
Total claims and underwriting expenses		393,391			453,997		510,371			527,768
Net income (loss)		86,466			158,174		100,141			109,345

	2013
(Dollars in thousands)	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter

Operating data:
Gross written premiums	$	983,746	$	1,080,305	$	1,239,528	$	1,133,889
Net written premiums		476,167		531,610		585,262		524,338

Premiums earned		448,006		490,022		523,521		544,812
Net investment income		76,869		81,736		68,828		69,563
Net realized capital gains (losses)		309,806		15,526		208,426		189,391
Total claims and underwriting expenses		380,285		453,548		427,626		498,118
Net income (loss)		285,651		85,262		243,753		183,597

F-41

SCHEDULE I – SUMMARY OF INVESTMENTS -

OTHER THAN INVESTMENTS IN RELATED PARTIES

DECEMBER 31, 2014

Column A	Column B		Column C		Column D
					Amount
					Shown in
			Market		Balance
(Dollars in thousands)	Cost		Value		Sheet
Fixed maturities-available for sale
Bonds:
U.S. government and government agencies	$	135,724	$	136,836	$	136,836
State, municipalities and political subdivisions		783,129		824,472		824,472
Foreign government securities		515,016		537,087		537,087
Foreign corporate securities		1,061,546		1,063,558		1,063,558
Public utilities		60,100		61,271		61,271
All other corporate bonds		2,002,575		1,987,515		1,987,515
Mortgage - backed securities
Commercial		57,027		59,268		59,268
Agency residential		596,140		598,117		598,117
Non-agency residential		271		315		315
Redeemable preferred stock		23,995		24,972		24,972
Total fixed maturities-available for sale		5,235,523		5,293,411		5,293,411
Fixed maturities - available for sale, at fair value(1)		2,143		1,509		1,509
Equity securities - available for sale, at market value		15		16		16
Equity securities - available for sale, at fair value(1)		964,825		1,299,037		1,299,037
Short-term investments		564,364		564,364		564,364
Other invested assets		435,010		435,010		435,010
Other invested assets, at fair value (1)		835,371		1,655,311		1,655,311
Cash		323,975		323,975		323,975

Total investments and cash	$	8,361,226	$	9,572,633	$	9,572,633

(1) Original cost does not reflect adjustments, which have been realized through the statements of operations and comprehensive income.

S-1

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

CONDENSED BALANCE SHEETS

	At December 31,
(Dollars and share amounts in thousands, except par value per share)	2014		2013
ASSETS:
Fixed maturities - available for sale, at market value	$	9,040	$	10,776
(amortized cost: 2014, $9,008; 2013, $10,778)
Equity securities - available for sale, at fair value		96,890		88,338
Other invested assets		3,047		3,046
Other invested assets, at fair value		1,655,311		1,515,052
Short-term investments		92,390		25,181
Cash		6,206		159
Total investments and cash		1,862,884		1,642,552
Investment in subsidiaries, at equity in the underlying net assets		3,276,082		3,136,782
Note receivable - affiliated		250,000		-
Accrued investment income		92		97
Advances to affiliates		130,018		63,999
Other assets		18,340		17,487
TOTAL ASSETS	$	5,537,416	$	4,860,917

LIABILITIES:
4.868% Senior notes due 6/1/2044	$	400,000	$	-
5.4% Senior notes due 10/15/2014		-		249,958
6.6% Long term notes due 5/1/2067		238,364		238,361
Accrued interest on debt and borrowings		3,537		4,781
Income taxes		317,991		126,140
Due to affiliates		932		42,456
Other liabilities		3,875		8,743
Total liabilities		964,699		670,439

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 3,000 shares authorized;
1,000 shares issued and outstanding (2014 and 2013)		-		-
Additional paid-in capital		362,293		351,051
Accumulated other comprehensive income (loss), net of deferred income
tax expense (benefit) of $2,434 at 2014 and $47,195 at 2013		4,519		87,648
Retained earnings		4,205,905		3,751,779
Total stockholder's equity		4,572,717		4,190,478
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	5,537,416	$	4,860,917

See notes to consolidated financial statements.

S-2

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

CONDENSED STATEMENTS OF OPERATIONS

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
REVENUES:
Net investment income	$	32,774		$	23,451		$	21,526
Net realized capital gains (losses)		149,932			467,999			254,680
Other income (expense)		(309	)		(420	)		(371	)
Net income (loss) of subsidiaries		364,869			511,976			377,963
Total revenues		547,266			1,003,006			653,798

EXPENSES:
Interest expense		37,970			45,452			50,685
Corporate expense		5,070			6,065			7,108
Total expenses		43,040			51,517			57,793

INCOME (LOSS) BEFORE TAXES		504,226			951,489			596,005
Income tax expense (benefit)		50,100			153,226			75,676

NET INCOME (LOSS)	$	454,126		$	798,263		$	520,329

Other comprehensive income (loss), net of tax :
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period		(44,902	)		(99,241	)		9,390
Less: reclassification adjustment for realized losses (gains) included in net income (loss)		27,073			(2,465	)		633
Total URA(D) on securities arising during the period		(17,829	)		(101,706	)		10,023

Foreign currency translation adjustments		(29,210	)		(19,128	)		7,030

Benefit plan actuarial net gain (loss) for the period		(39,110	)		17,837			(11,771	)
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)		3,020			5,778			4,795
Total benefit plan net gain (loss) for the period		(36,090	)		23,615			(6,976	)
Total other comprehensive income (loss), net of tax		(83,129	)		(97,219	)		10,077

COMPREHENSIVE INCOME (LOSS)	$	370,997		$	701,044		$	530,406

See notes to consolidated financial statements.

S-3

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

CONDENSED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	454,126		$	798,263		$	520,329
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in (earnings) deficit of subsidiaries		(364,869	)		(511,976	)		(377,963	)
Dividends received from subsidiaries		155,000			359,000			100,000
Decrease (increase) in advances to affiliates		(66,019	)		(26,298	)		(37,701	)
Decrease (increase) in income taxes		191,840			104,724			50,929
Change in other assets and liabilities, net		(48,486	)		46,916			24,215
Amortization of bond premium (accrual of bond discount)		139			280			303
Amortization of underwriting discount on senior notes		46			54			52
Net realized capital losses (gains)		(149,932	)		(467,999	)		(254,680	)
Net cash provided by (used in) operating activities		171,845			302,964			25,484

CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in subsidiaries		(1,342	)		(1,102	)		(11,102	)
Proceeds from fixed maturities matured/called - available for sale, at market value		1,631			1,993			1,749
Proceeds from fixed maturities sold - available for sale, at market value		300,049			-			-
Proceeds from equity maturities sold - available for sale, at fair value		14,655			24,750			13,659
Proceeds from other invested assets sold		-			9,897			-
Cost of fixed maturities acquired - available for sale, at market value		(300,007	)		-			-
Cost of equity securities acquired - available for sale, at fair value		(13,575	)		(29,537	)		(28,334	)
Net change in short-term investments		(67,209	)		20,802			(1,494	)
Net cost of lending for long term note - affiliated		(250,000	)		-			-
Net cash provided by (used in) investing activities		(315,798	)		26,803			(25,522	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior notes		400,000			-			-
Net cost of junior subordinated notes redemption		-			(329,897	)		-
Net cost of senior notes maturing		(250,000	)		-			-
Net cash provided by (used in) financing activities		150,000			(329,897	)		-

Net increase (decrease) in cash		6,047			(130	)		(38	)
Cash, beginning of period		159			289			327
Cash, end of period	$	6,206		$	159		$	289

Non-cash financing transaction:
Non-cash contribution from parent	$	11,242		$	10,828		$	6,807
Non-cash contribution to subsidiaries		(11,242	)		(10,828	)		(6,807	)

See notes to consolidated financial statements.

S-4

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

NOTES TO CONDENSED FINANCIAL INFORMATION

1)	The accompanying condensed financial information should be read in conjunction with the Consolidated Financial Statements and related Notes of Everest Reinsurance Holdings, Inc. and its Subsidiaries.

2)	The Senior Notes and Long-Term Subordinated Notes presented in Notes 6 and 7 are direct obligations of the Registrant.

Everest Re Group, Ltd., the parent company, entered into a $250,000 thousand long term promissory note agreement with Everest Reinsurance Holdings, Inc. 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 Condensed Balance Sheets of Everest Reinsurance Holdings, Inc.

S-5

SCHEDULE III – SUPPLEMENTARY INSURANCE INFORMATION

Column A	Column B		Column C		Column D		Column E		Column F		Column G		Column H		Column I		Column J
			Reserve								Incurred
Geographic Area			for Losses								Loss and		Amortization
	Deferred		and Loss		Unearned				Net		Loss		of Deferred		Other		Net
	Acquisition		Adjustment		Premium		Premiums		Investment		Adjustment		Acquisition		Operating		Written
(Dollars in thousands)	Costs		Expenses		Reserves		Earned		Income		Expenses		Costs		Expenses		Premium
December 31, 2014
Domestic	$	79,674	$	6,005,952	$	1,078,384	$	1,512,762	$	250,048	$	996,055	$	219,747	$	157,429	$	1,494,731
International		29,588		1,837,904		363,738		600,964		40,262		358,038		119,655		34,603		612,243
Total	$	109,262	$	7,843,856	$	1,442,122	$	2,113,726	$	290,310	$	1,354,093	$	339,402	$	192,032	$	2,106,974

December 31, 2013
Domestic	$	85,098	$	5,908,051	$	1,041,653	$	1,414,666	$	252,671	$	956,233	$	179,591	$	159,589	$	1,507,293
International		26,926		1,745,178		275,494		591,695		44,325		315,923		114,331		33,910		610,084
Total	$	112,024	$	7,653,229	$	1,317,147	$	2,006,361	$	296,996	$	1,272,156	$	293,922	$	193,499	$	2,117,377

December 31, 2012
Domestic	$	74,540	$	6,263,961	$	854,151	$	1,201,432	$	258,469	$	988,271	$	186,147	$	141,310	$	1,140,869
International		22,982		1,879,094		239,671		572,466		47,676		261,473		124,552		29,294		550,732
Total	$	97,522	$	8,143,055	$	1,093,822	$	1,773,898	$	306,145	$	1,249,744	$	310,699	$	170,604	$	1,691,601

S-6

SCHEDULE IV – REINSURANCE

Column A	Column B		Column C		Column D		Column E		Column F
			Ceded to		Assumed
	Gross		Other		from Other		Net		Assumed
(Dollars in thousands)	Amount		Companies		Companies		Amount		to Net

December 31, 2014
Total property and liability
insurance premiums earned	$	1,148,297	$	2,720,355	$	3,685,784	$	2,113,726		174.4	%

December 31, 2013
Total property and liability
insurance premiums earned	$	1,183,542	$	2,202,006	$	3,024,825	$	2,006,361		150.8	%

December 31, 2012
Total property and liability
insurance premiums earned	$	1,032,576	$	1,946,199	$	2,687,521	$	1,773,898		151.5	%

S-7