10-Q 1 group3q2006.htm GROUP 3Q 2006


UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTERLY PERIOD ENDED:		Commission file number:
September 30, 2006		1-15731

EVEREST RE GROUP, LTD.
(Exact name of registrant as specified in its charter)

Bermuda		98-0365432
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Wessex House - 2nd Floor
45 Reid Street
PO Box HM 845
Hamilton HM DX, Bermuda
441-295-0006
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive office)

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


	YES X	NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.


	Large accelerated filer X	Accelerated filer	Non-accelerated filer

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


	YES	NO X

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


				Number of Shares Outstanding
Class				at November 1, 2006

Common Shares, $.01 par value				65,000,336

	EVEREST RE GROUP, LTD. Index To Form 10-Q PART I FINANCIAL INFORMATION
Item 1.	Financial Statements	Page
	Consolidated Balance Sheets at September 30, 2006 (unaudited) and December 31, 2005	3
	Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2006 and 2005 (unaudited)	4
	Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2006 and 2005 (unaudited)	5
	Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2006 and 2005 (unaudited)	6
	Notes to Consolidated Interim Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	58
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Submission of Matters to a Vote of Security Holders	60
Item 5.	Other Information	60
Item 6.	Exhibits	61

EVEREST RE GROUP, LTD. CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value per share)	September 30, 2006		December 31, 2005
	(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value
(amortized cost: 2006, $10,126,101; 2005, $9,872,239)	$	10,241,261	$	10,042,134
Equity securities, at market value (cost: 2006, $1,210,787; 2005, $922,090)		1,460,325		1,090,825
Short-term investments		1,338,366		1,443,751
Other invested assets (cost: 2006, $386,646; 2005, $285,385)		388,356		286,812
Cash		209,762		107,275

Total investments and cash		13,638,070		12,970,797
Accrued investment income		136,068		133,213
Premiums receivable		1,125,934		1,188,866
Reinsurance receivables		852,485		1,048,749
Funds held by reinsureds		292,087		286,856
Deferred acquisition costs		382,807		352,745
Prepaid reinsurance premiums		63,012		84,798
Deferred tax asset		218,141		234,562
Current federal income taxes receivable		-		75,022
Other assets		132,152		98,932

TOTAL ASSETS	$	16,840,756	$	16,474,539

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	8,862,231	$	9,126,702
Future policy benefit reserve		111,296		133,155
Unearned premium reserve		1,637,009		1,596,309
Funds held under reinsurance treaties		100,214		190,641
Losses in the course of payment		46,800		19,434
Contingent commissions		15,984		19,378
Other net payable to reinsurers		38,419		50,354
Current federal income taxes payable		16,120		-
8.75% Senior notes due 3/15/2010		199,531		199,446
5.4% Senior notes due 10/15/2014		249,643		249,617
Junior subordinated debt securities payable		546,393		546,393
Accrued interest on debt and borrowings		9,041		10,041
Other liabilities		184,219		193,375

Total liabilities		12,016,900		12,334,845

Commitments and Contingencies (Note 5)
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $0.01; 50 million shares authorized;
no shares issued and outstanding		-		-
Common shares, par value: $0.01; 200 million shares authorized;
(2006) 65.0 million and (2005) 64.6 million issued		650		646
Additional paid-in capital		1,759,171		1,731,746
Accumulated other comprehensive income, net of deferred income taxes of
$157.2 million at 2006 and $134.9 million at 2005		266,779		221,146
Retained earnings		2,797,256		2,186,156

Total shareholders' equity		4,823,856		4,139,694

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	16,840,756	$	16,474,539

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

EVEREST RE GROUP, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	2006			2005			2006			2005
	(unaudited)						(unaudited)
REVENUES:
Premiums earned	$	958,343		$	959,409		$	2,873,465		$	3,057,824
Net investment income		147,470			117,532			445,829			387,866
Net realized capital gains		8,651			27,699			24,724			57,485
Net derivative (expense) income		(6,201	)		5,019			(1,006	)		(3,018	)
Other income (expense)		5,626			(5,958	)		1,294			(8,888	)

Total revenues		1,113,889			1,103,701			3,344,306			3,491,269

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		546,670			1,319,706			1,789,250			2,678,575
Commission, brokerage, taxes and fees		215,971			204,664			659,876			703,571
Other underwriting expenses		34,118			32,561			96,777			94,264
Interest expense on senior notes		7,788			7,785			23,361			27,729
Interest expense on junior subordinated debt		9,362			9,362			28,086			28,086
Amortization of bond issue costs		235			235			704			784
Interest and fee expense on credit facilities		90			124			285			332

Total claims and expenses		814,234			1,574,437			2,598,339			3,533,341

INCOME (LOSS) BEFORE TAXES		299,655			(470,736	)		745,967			(42,072	)
Income tax expense (benefit)		53,977			(52,991	)		111,490			14,398

NET INCOME (LOSS)	$	245,678		$	(417,745	)	$	634,477		$	(56,470	)

Other comprehensive income (loss), net of tax		204,250			(64,584	)		45,633			(59,051	)

COMPREHENSIVE INCOME (LOSS)	$	449,928		$	(482,329	)	$	680,110		$	(115,521	)

PER SHARE DATA:
Average shares outstanding (000's)		64,733			56,361			64,688			56,257
Net income (loss) per common share - basic	$	3.80		$	(7.41	)	$	9.81		$	(1.00	)

Average diluted shares outstanding (000's)		65,375			56,361			65,325			56,257
Net income (loss) per common share - diluted	$	3.76		$	(7.41	)	$	9.71		$	(1.00	)

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

EVEREST RE GROUP, LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except share amounts)	2006			2005			2006			2005
	(unaudited)						(unaudited)
COMMON SHARES (shares outstanding):
Balance, beginning of period		64,948,041			56,400,339			64,643,338			56,177,902
Issued during the period, net		11,415			239,489			316,118			461,926

Balance, end of period		64,959,456			56,639,828			64,959,456			56,639,828

COMMON SHARES (par value):
Balance, beginning of period	$	649		$	569		$	646		$	566
Issued during the period, net		1			2			4			5

Balance, end of period		650			571			650			571

ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period		1,756,511			990,523			1,731,746			975,917
Share-based compensation plans		2,622			7,691			27,305			22,207
Other		38			44			120			134

Balance, end of period		1,759,171			998,258			1,759,171			998,258

ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		62,529			334,270			221,146			328,737
Net increase (decrease) during the period		204,250			(64,584	)		45,633			(59,051	)

Balance, end of period		266,779			269,686			266,779			269,686

RETAINED EARNINGS:
Balance, beginning of period		2,559,376			2,779,123			2,186,156			2,430,248
Net income (loss)		245,678			(417,745	)		634,477			(56,470	)
Dividends declared ($0.12 and $0.36 per share in 2006,
and $0.11 and $0.33 per share in 2005)		(7,798	)		(6,216	)		(23,377	)		(18,616	)

Balance, end of period		2,797,256			2,355,162			2,797,256			2,355,162

TREASURY SHARES AT COST:
Balance, beginning of period		-			(22,950	)		-			(22,950	)

Balance, end of period		-			(22,950	)		-			(22,950	)

TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD	$	4,823,856		$	3,600,727		$	4,823,856		$	3,600,727

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

EVEREST RE GROUP, LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS
	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2006			2005			2006			2005
	(unaudited)						(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	245,678		$	(417,745	)	$	634,477		$	(56,470	)
Adjustments to reconcile net income to net cash provided by
operating activities:
Decrease in premiums receivable		6,005			9,848			75,067			16,391
Increase in funds held by reinsureds, net		(37,722	)		(58,709	)		(80,331	)		(151,832	)
Decrease (increase) in reinsurance receivables		113,109			(6,195	)		216,310			110,999
Increase in deferred tax asset		(851	)		(30,082	)		(5,836	)		(39,264	)
(Decrease) increase in reserve for losses and loss adjustment expenses		(195,795	)		848,575			(373,306	)		1,125,918
Decrease in future policy benefit reserve		(5,507	)		(4,505	)		(21,859	)		(14,279	)
Increase in unearned premiums		53,403			89,995			29,022			71,492
Decrease (increase) in other assets and liabilities, net		2,017			(36,524	)		16,493			(34,484	)
Non-cash compensation expense		3,205			1,896			9,555			5,013
Amortization of bond premium		6,015			8,261			19,230			19,538
Amortization of underwriting discount on senior notes		38			36			111			127
Realized capital gains		(8,651	)		(27,699	)		(24,724	)		(57,485	)

Net cash provided by operating activities		180,944			377,152			494,209			995,664

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale		258,708			163,592			617,797			492,281
Proceeds from fixed maturities sold - available for sale		2,215			144,353			154,590			1,316,352
Proceeds from equity securities sold		66,273			106,602			186,495			116,933
Proceeds from other invested assets sold		15,618			8,475			42,321			39,197
Cost of fixed maturities acquired - available for sale		(107,552	)		(432,147	)		(950,459	)		(1,987,081	)
Cost of equity securities acquired		(62,580	)		(146,066	)		(440,350	)		(546,783	)
Cost of other invested assets acquired		(74,076	)		(28,938	)		(133,028	)		(118,116	)
Net (purchases) sales of short-term securities		(237,254	)		(60,210	)		116,610			(54,016	)
Net decrease in unsettled securities transactions		(8,726	)		(100,843	)		(9,926	)		(29,911	)

Net cash used in investing activities		(147,374	)		(345,182	)		(415,950	)		(771,144	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period		(545	)		5,841			17,873			17,333
Dividends paid to shareholders		(7,799	)		(6,216	)		(23,378	)		(18,616	)
Repayment of senior notes		-			-			-			(250,000	)

Net cash used in financing activities		(8,344	)		(375	)		(5,505	)		(251,283	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		9,113			(8,965	)		29,733			(22,588	)

Net increase (decrease) in cash		34,339			22,630			102,487			(49,351	)
Cash, beginning of period		175,423			112,949			107,275			184,930

Cash, end of period	$	209,762		$	135,579		$	209,762		$	135,579

SUPPLEMENTAL CASH FLOW INFORMATION
Cash transactions:
Income taxes paid, net	$	37,718		$	2,452		$	12,632		$	109,903
Interest paid	$	18,103		$	18,237		$	52,621		$	63,406
The accompanying notes are an integral part of the consolidated financial statements.

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Nine Months Ended September 30, 2006 and 2005

1. General

As used in this document, “Group” means Everest Re Group, Ltd.; “Holdings” means Everest Reinsurance Holdings, Inc.; “Everest Re” means Everest Reinsurance Company and its subsidiaries (unless the context otherwise requires); and the “Company” means Everest Re Group, Ltd. and its subsidiaries.

The unaudited consolidated financial statements of the Company for the three and nine months ended September 30, 2006 and 2005 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis. Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The year end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results for the three and nine months ended September 30, 2006 and 2005 are not necessarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2005, 2004 and 2003 included in the Company’s most recent Form 10-K filing.

2. New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement 123(R) “Share-Based Payment” (“FAS 123(R)”), which is effective for fiscal years beginning after June 15, 2005. The Company adopted FAS 123(R) effective January 1, 2006. FAS 123(R) requires all share-based compensation awards, granted, modified or settled after December 15, 1994 to be accounted for using the fair value method of accounting. Under the modified prospective application, compensation cost is recognized for the outstanding, non-vested awards based on the grant date fair value of those awards as calculated under Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“FAS 123”). As the Company implemented FAS 123 prospectively for grants issued on or after January 1, 2002, the adoption of FAS 123(R) resulted in $169,037 of compensation expense for the nine months ended September 30, 2006.

In November 2005, the FASB issued FASB Staff Position (“FSP”) FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FAS 115-1”), which is effective for reporting periods beginning after December 15, 2005. FAS 115-1 addresses the determination as to when an investment is considered impaired, whether the impairment is other than temporary and the measurement of an impairment loss. FAS 115-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses not recognized as other-than-temporary impairments. The Company adopted FAS 115-1 prospectively effective January 1, 2006. The Company believes that the unrealized losses in its investment portfolio are temporary in nature.

In July 2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which is effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes” (“FAS 109”). FIN 48 prescribes the recognition and measurement criteria for the financial statements for tax positions taken or expected to be taken in a tax return. Further, FIN 48 expands the required disclosures associated with uncertain tax positions. The Company will adopt FIN 48 on January 1, 2007. The Company is unable to determine the impact on its financial statements at this time, although it does not believe the impact will be material.

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS 157”), which is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. FAS 157 defines fair value, establishes a framework for measuring fair value consistently in GAAP and expands disclosures about fair value measurements. The Company will adopt FAS 157 on January 1, 2008. The Company does not believe the impact on its financial statements will be material.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“FAS 158”), which is effective for employers with publicly traded equity securities as of the end of the fiscal year ending after December 15, 2006. FAS 158 requires an employer to (a) recognize in its financial statements an asset for a plan’s over funded status or a liability for a plan’s under funded status, (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur as other comprehensive income. The Company will adopt FAS 158 for the reporting period ended December 31, 2006. As of September 30, 2006, the impact on the Company’s financial statements at December 31, 2006 is estimated to be a $27.5 million pre-tax or $17.9 million after-tax reduction to other comprehensive income. This amount will differ based on the end of year weighted average discount rate used to determine the actuarial present value of projected benefit obligations and the expected long-term annualized rate of return on plan assets at December 31, 2006.

3. Capital Transactions

On December 1, 2005, the Company, under the new registration and offering revisions to the Securities Act of 1933, filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”), as a Well Known Seasoned Issuer. Generally, under this shelf registration statement, Group is authorized to issue common shares, preferred shares, debt securities, warrants and hybrid securities, Holdings is authorized to issue debt securities and Everest Re Capital Trust III (“Capital Trust III”) is authorized to issue trust preferred securities.

•

On December 1, 2005, the Company issued 2,298,000 of its common shares at a price of $102.89 per share, which resulted in $236.4 million of proceeds before expenses of approximately $0.3 million and Holdings sold Group shares it acquired in 2002 at a price of $102.89 per share, which resulted in $46.5 million of proceeds, before expenses of approximately $0.3 million.

On June 27, 2003, the Company filed a shelf registration statement on Form S-3 with the SEC, providing for the issuance of up to $975.0 million of securities. Generally, under this shelf registration statement, Group was authorized to issue common shares, preferred shares, debt securities, warrants and hybrid securities, Holdings was authorized to issue debt securities and Everest Re Capital Trust II (“Capital Trust II”) and Capital Trust III were authorized to issue trust preferred securities. This shelf registration statement became effective on December 22, 2003 and was exhausted with the October 6, 2005 transaction described below. The following securities were issued pursuant to that registration statement.

•

On March 29, 2004, Capital Trust II, an unconsolidated affiliate, issued trust preferred securities resulting in a takedown from the shelf registration statement of $320.0 million. In conjunction with the issuance of Capital Trust II’s trust preferred securities, Holdings issued $329.9 million of 6.20% junior subordinated debt securities due March 29, 2034 to Capital Trust II. Part of the proceeds from the junior

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

subordinated debt securities issuance was used for capital contributions to Holdings’ operating subsidiaries.

•

On October 12, 2004, Holdings completed a public offering of $250.0 million principal amount of 5.40% senior notes due October 15, 2014. The net proceeds were used to retire existing debt at Holdings, which was due and retired on March 15, 2005.

•

On October 6, 2005, the Company expanded the size of the remaining shelf registration to $486.0 million by filing under Rule 462(b) of the Securities Act of 1933, as amended, and General Instruction IV of Form S-3 promulgated there under. On the same date, the Company entered into an agreement to issue 5,200,000 of its common shares at a price of $91.50 per share, which resulted in $475.8 million in proceeds received on October 12, 2005, before expenses of approximately $0.3 million. This transaction effectively exhausted the December 22, 2003 shelf registration.

4. Earnings Per Common Share

Net income (loss) per common share has been computed below, based upon weighted average common and diluted shares outstanding.

	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	2006		2005			2006		2005
Net income (loss) (numerator)	$	245,678	$	(417,745	)	$	634,477	$	(56,470	)

Weighted average common and effect of
dilutive shares used in the computation
of net income (loss) per share:
Weighted average shares
outstanding - basic (denominator)		64,733		56,361			64,688		56,257
Effect of dilutive options		642		914			637		893

Weighted average shares
outstanding - diluted (denominator)		65,375		57,275			65,325		57,150

Weighted average common equivalent shares
when anti-dilutive		-		56,361			-		56,257

Net income (loss) per common share:
Basic	$	3.80	$	(7.41	)	$	9.81	$	(1.00	)
Diluted	$	3.76	$	(7.41	)	$	9.71	$	(1.00	)

Options to purchase 317,100 common shares at prices ranging from $95.05 to $99.98 were outstanding for the three and nine months ended September 30, 2006, respectively, but were not included in the computation of earnings per diluted share as the options’ exercise price was greater than the average market price of the common shares for the period. Options to purchase 308,000 common shares at a price of $95.485 were outstanding for the three months ended September 30, 2005 and options to purchase 318,000 common shares at prices ranging from $95.05 to $95.485 were outstanding for the nine months ended September 30, 2005, but were not included in the computation of earnings per diluted share as the options’ exercise price was greater

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

than the average market price of the common shares for the relevant periods. All outstanding options expire on or between September 26, 2007 and September 27, 2016.

5. Contingencies

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance, reinsurance and other contractual 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 as they arise are addressed, and 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. While the final outcome of these matters cannot be predicted with certainty, the Company does not believe that any of these matters, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, an adverse resolution of one or more of these items in any one quarter or fiscal year could have a material adverse effect on the Company’s results of operations in that period.

In 1993 and prior, the Company had a business arrangement with The Prudential Insurance Company of America (“The Prudential”) wherein, for a fee, the Company accepted settled claim payment obligations of certain property and casualty insurers, and, concurrently, became the owner of the annuity or assignee of the annuity proceeds funded by the property and casualty insurers specifically to fulfill these fully settled obligations. In these circumstances, the Company would be liable if The Prudential, which has an A+ (Superior) financial strength rating from A.M. Best Company (“A.M. Best”), were unable to make the annuity payments. The estimated cost to replace all such annuities for which the Company was contingently liable at September 30, 2006 was $153.1 million.

Prior to its 1995 initial public offering, the Company purchased annuities from an unaffiliated life insurance company with an A+ (Superior) financial strength rating from A.M. Best to settle certain claim liabilities of the company. Should the life insurance company become unable to make the annuity payments, the Company would be liable for those claim liabilities. The estimated cost to replace such annuities at September 30, 2006 was $19.8 million.

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

6. Other Comprehensive Income (Loss)

The following table presents the components of other comprehensive income (loss) for the periods indicated:

	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2006		2005			2006		2005
Net unrealized appreciation (depreciation)
of investments, net of deferred income taxes	$	197,008	$	(68,485	)	$	8,997	$	(41,760	)
Currency translation adjustments, net of
deferred income taxes		7,242		3,901			36,636		(15,138	)
Additional minimum pension liability		-		-			-		(2,153	)

Other comprehensive income (loss),
net of deferred income taxes	$	204,250	$	(64,584	)	$	45,633	$	(59,051	)

7. Letters of Credit

The Company has arrangements available for the issuance of letters of credit, which letters are generally collateralized by the Company’s cash and investments. The Company’s agreement with Citibank is a bilateral letter of credit agreement only, while the Company’s other facility, the Wachovia Syndicated Facility, involves a syndicate of lenders (see Note 11, tranche two of the Group Credit Facility), with Wachovia acting as administrative agent. At September 30, 2006 and December 31, 2005, letters of credit for $384.1 million and $350.6 million, respectively, were issued and outstanding, generally supporting reinsurance provided by the Company’s non-U.S. operations. The following table summarizes the Company’s letters of credit as of September 30, 2006. All dollar amounts are in thousands.

Bank			Commitment		In Use		Date of Expiry

Citibank			$	350,000	$	31,518 11,216 16,567 1,222 201,858		12/31/2006 08/31/2007 12/31/2007 12/31/2008 12/31/2009

	Total Citibank Agreement		$	350,000	$	262,381

Wachovia Syndicated Facility		Tranche One Tranche Two	$	250,000 500,000	$	- 750 45,664 68,426 6,916		- 11/03/2006 11/13/2006 12/31/2006 05/09/2007

	Total Wachovia Syndicated Facility		$	750,000	$	121,756

Total letters of credit			$	1,100,000	$	384,137

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

8. Trust Agreements

Certain subsidiaries of the Company, principally Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”), a Bermuda insurance company and direct subsidiary of Group, have established trust agreements as security for assumed losses payable to certain non-affiliated ceding companies, which effectively use Company investments as collateral. At September 30, 2006, the total amount on deposit in trust accounts was $144.1 million.

9. Senior Notes

On October 12, 2004, Holdings completed a public offering of $250.0 million principal amount of 5.40% senior notes due October 15, 2014. On March 14, 2000, Holdings completed public offerings of $200.0 million principal amount of 8.75% senior notes due March 15, 2010 and $250.0 million principal amount of 8.50% senior notes due and retired March 15, 2005.

Interest expense incurred in connection with these senior notes was $7.8 million for the three months ended September 30, 2006 and 2005 and $23.4 million and $27.7 million for the nine months ended September 30, 2006 and 2005, respectively. Market value, which is based on quoted market price at September 30, 2006 and December 31, 2005, was $245.4 million and $250.9 million, respectively, for the 5.40% senior notes and $219.3 million and $226.2 million, respectively, for the 8.75% senior notes.

10. Junior Subordinated Debt Securities Payable

On March 29, 2004, Holdings issued $329.9 million of 6.20% junior subordinated debt securities due March 29, 2034 to Capital Trust II. Holdings can redeem the junior subordinated debt securities before their maturity at 100% of their principal amount plus accrued interest as of the date of redemption, in whole or in part, on one or more occasions at any time on or after March 30, 2009; or at any time, in whole, but not in part, within 90 days of the occurrence and continuation of specific events.

On November 14, 2002, Holdings issued $216.5 million of 7.85% junior subordinated debt securities due November 15, 2032 to Everest Re Capital Trust (“Capital Trust”). Holdings can redeem the junior subordinated debt securities before their maturity at 100% of their principal amount plus accrued interest as of the date of redemption, in whole or in part, on one or more occasions at any time on or after November 14, 2007; or at any time, in whole, but not in part, within 90 days of the occurrence and continuation of specific events.

Fair value, which is primarily based on quoted market price of the related trust preferred securities at September 30, 2006 and December 31, 2005, was $295.1 million and $293.5 million, respectively, for the 6.20% junior subordinated debt securities and $222.7 million and $220.5 million, respectively, for the 7.85% junior subordinated debt securities.

Interest expense incurred in connection with these junior subordinated notes was $9.4 million for the three months ended September 30, 2006 and 2005 and $28.1 million for the nine months ended September 30, 2006 and 2005.

Capital Trust and Capital Trust II are wholly owned finance subsidiaries of Holdings.

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

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

Capital Trust and Capital Trust II will redeem all of the outstanding trust preferred securities when the junior subordinated debt securities are paid at maturity on November 15, 2032 and March 29, 2034, respectively. The Company may elect to redeem the junior subordinated debt securities, in whole or in part, at any time on or after November 14, 2007 and March 30, 2009, respectively. If such an early redemption occurs, the outstanding trust preferred securities would also be proportionately redeemed.

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. In addition, the terms of Holdings Credit Facility (discussed in Note 11) require Everest Re, Holdings’ principal insurance subsidiary, to maintain a certain statutory surplus level as measured at the end of each fiscal year. At December 31, 2005, $2,112.0 million of the $2,724.9 million in net assets of Holdings’ consolidated subsidiaries were subject to the foregoing regulatory restrictions.

11. Credit Line

Effective December 8, 2004, Group, Bermuda Re, and Everest International Reinsurance, Ltd. (“Everest International”) entered into a three year, $750.0 million senior credit facility with a syndicate of lenders (the “Group Credit Facility”). Wachovia Bank is the administrative agent for the Group Credit Facility. The Group Credit Facility consists of two tranches. Tranche one provides up to $250.0 million of revolving credit for liquidity and general corporate purposes, and for the issuance of standby letters of credit. The interest on the revolving loans shall, at the option of each of the borrowers, be either (1) the Base Rate (as defined below) or (2) an adjusted London Interbank Offered Rate (“LIBOR”) plus a margin. The Base Rate is the higher of the rate of interest established by Wachovia Bank from time to time as its prime rate or the Federal Funds rate, in each case plus 0.5% per annum. The amount of margin and the fees payable for the Group Credit Facility depend on Group’s senior unsecured debt rating. Tranche two exclusively provides up to $500.0 million for the issuance of standby letters of credit on a collateralized basis.

The Group Credit Facility requires Group to maintain a debt to capital ratio of not greater than 0.35 to 1 and to maintain a minimum net worth amount. Minimum net worth is an amount equal to the sum of (i) $2,898.0 million (base amount) plus (ii) (A) 25% of consolidated net income for each of Group’s fiscal quarters and (B) 50% of any increase in consolidated net worth attributable to the issuance of ordinary and preferred shares. The base amount is reset at the end of each fiscal year to be the greater of 70% of Group’s consolidated net worth as of the last day of the fiscal year and the calculated minimum amount of net worth prior to the last day of the fiscal year. As of September 30, 2006, the Company was in compliance with these covenants.

For the three and nine months ended September 30, 2006 and 2005, there were no outstanding borrowings under tranche one of the Group Credit Facility. At September 30, 2006, there was $121.8 million used of the $500.0 million available for tranche two standby letters of credit.

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

Effective August 23, 2006, Holdings entered into a new five year, $150.0 million senior revolving credit facility with a syndicate of lenders, replacing the October 10, 2003 three year senior revolving credit facility, which expired on October 10, 2006. Both the August 23, 2006 and October 10, 2003 senior revolving credit agreements, which have similar terms, are referred to as the “Holdings Credit Facility”. Citibank N.A. is the administrative agent for the Holdings Credit Facility. The Holdings Credit Facility is used for liquidity and general corporate purposes. The Holdings Credit Facility provides for the borrowing of up to $150.0 million with interest at a rate selected by Holdings equal to either, (1) the Base Rate (as defined below) or (2) a periodic fixed rate equal to the Eurodollar Rate plus an applicable margin. The Base Rate means a fluctuating interest rate per annum in effect from time to time to be equal to the higher of (a) the rate of interest publicly announced by Citibank as its prime rate or 0.5% per annum above the Federal Funds Rate, in each case plus the applicable margin. The amount of margin and the fees payable for the Holdings Credit Facility depends upon Holdings’ senior unsecured debt rating.

The Holdings Credit Facility requires Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and Everest Re to maintain its statutory surplus at $1.5 billion plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, 2005. As of September 30, 2006, Holdings was in compliance with these covenants.

For the three and nine months ended September 30, 2006 and 2005, there were no outstanding borrowings under the Holdings Credit Facility.

Interest expense and fees incurred in connection with the Group Credit Facility and the Holdings Credit Facility were $0.1 million for the three months ended September 30, 2006 and 2005 and $0.3 million for the nine months ended September 30, 2006 and 2005.

12. Segment Reporting

The Company, through its subsidiaries, operates in five segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting, International and Bermuda. The U.S. Reinsurance operation writes property and casualty reinsurance, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S. The U.S. Insurance operation writes property and casualty insurance primarily through general agent relationships and surplus lines brokers within the U.S. The Specialty Underwriting operation writes accident and health (“A&H”), marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies. The International operation writes property and casualty reinsurance through Everest Re’s branches in Canada and Singapore, in addition to foreign business written through Everest Re’s Miami and New Jersey offices. The Bermuda operation provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers through brokers and directly with ceding companies from its Bermuda office and reinsurance to the United Kingdom and European markets through its UK branch.

These segments are managed in a carefully coordinated fashion with strong elements of central control with respect to pricing, risk management, monitoring aggregate exposures to catastrophe events, capital, investments and support operations. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results. Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred, commission and brokerage expenses and other underwriting expenses and are analyzed using ratios, in particular loss, commission and brokerage and other

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by earned premium. The Company utilizes inter-affiliate reinsurance, but such reinsurance generally does not impact segment results, as business is generally reported within the segment in which the business was first produced.

The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the Company does not review and evaluate the financial results of its operating segments based upon balance sheet data.

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

U.S.Reinsurance	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2006		2005			2006		2005
Gross written premiums	$	332,923	$	374,309		$	989,337	$	1,100,677
Net written premiums		332,638		374,316			984,668		1,097,810
Premiums earned	$	316,229	$	341,286		$	954,650	$	1,107,256
Incurred losses and loss adjustment expenses		187,114		660,069			630,915		1,174,168
Commission and brokerage		69,727		76,314			233,238		271,378
Other underwriting expenses		6,444		5,650			17,584		17,714

Underwriting gain (loss)	$	52,944	$	(400,747	)	$	72,913	$	(356,004	)

U.S. Insurance	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2006		2005		2006		2005
Gross written premiums	$	249,346	$	210,768	$	662,742	$	755,876
Net written premiums		227,950		184,775		586,889		670,390
Premiums earned	$	191,643	$	202,202	$	556,943	$	627,056
Incurred losses and loss adjustment expenses		123,732		118,638		370,255		411,592
Commission and brokerage		27,381		34,860		82,378		103,639
Other underwriting expenses		12,715		13,583		34,809		38,396

Underwriting gain	$	27,815	$	35,121	$	69,501	$	73,429

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

Specialty Underwriting	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2006		2005			2006		2005
Gross written premiums	$	77,844	$	51,891		$	194,958	$	247,868
Net written premiums		74,879		48,766			188,677		235,830
Premiums earned	$	69,219	$	52,953		$	187,309	$	238,992
Incurred losses and loss adjustment expenses		33,208		72,513			114,779		190,742
Commission and brokerage		15,901		11,178			49,399		60,071
Other underwriting expenses		1,714		1,635			4,656		4,990

Underwriting gain (loss)	$	18,396	$	(32,373	)	$	18,475	$	(16,811	)

International	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2006		2005			2006		2005
Gross written premiums	$	186,063	$	188,296		$	541,420	$	540,466
Net written premiums		186,032		188,076			541,248		539,474
Premiums earned	$	177,189	$	173,600		$	533,031	$	521,002
Incurred losses and loss adjustment expenses		75,837		128,865			288,479		319,457
Commission and brokerage		44,033		45,805			130,909		129,944
Other underwriting expenses		3,441		3,057			9,804		9,074

Underwriting gain (loss)	$	53,878	$	(4,127	)	$	103,839	$	62,527

Bermuda	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2006		2005			2006		2005
Gross written premiums	$	201,985	$	255,407		$	625,096	$	592,678
Net written premiums		203,179		255,610			625,507		593,398
Premiums earned	$	204,063	$	189,368		$	641,532	$	563,518
Incurred losses and loss adjustment expenses		126,779		339,621			384,822		582,616
Commission and brokerage		58,929		36,507			163,952		138,539
Other underwriting expenses		4,318		2,627			11,829		9,747

Underwriting gain (loss)	$	14,037	$	(189,387	)	$	80,929	$	(167,384	)

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

The following table reconciles the underwriting results for the operating segments to income before tax as reported in the consolidated statements of operations and comprehensive income for the periods indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2006			2005			2006			2005
Underwriting gain (loss)	$	167,070		$	(591,513	)	$	345,657		$	(404,243	)
Net investment income		147,470			117,532			445,829			387,866
Net realized capital gains		8,651			27,699			24,724			57,485
Net derivative (expense) income		(6,201	)		5,019			(1,006	)		(3,018	)
Corporate expense		(5,486	)		(6,009	)		(18,095	)		(14,343	)
Interest, fee and bond issue cost
amortization expense		(17,475	)		(17,506	)		(52,436	)		(56,931	)
Other income (expense)		5,626			(5,958	)		1,294			(8,888	)

Income (loss) before taxes	$	299,655		$	(470,736	)	$	745,967		$	(42,072	)

The Company produces business in its U.S., Bermuda and international operations. The net income and assets of the individual foreign countries in which the Company writes business are not identifiable in the Company’s financial records. The largest country, other than the U.S., in which the Company writes business is the United Kingdom, with $90.5 million and $268.5 million of written premium for the three and nine months ended September 30, 2006, respectively. No other country represented more than 5% of the Company’s revenues.

13. Derivatives

The Company has outstanding seven specialized equity put options in its product portfolio. These products meet the definition of a derivative under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”). The Company’s position in these contracts is unhedged and is accounted for as a derivative in accordance with FAS 133. Accordingly, these contracts are carried at fair value and are recorded in “Other liabilities” in the consolidated balance sheets and changes in fair value are recorded in the consolidated statements of operations and comprehensive income.

14. Investments Interest Only Strips

The Company from time to time invests in interest only strips of mortgage-backed securities (“interest only strips”) in response to movement in, and levels of, capital market interest rates. These securities give the holder the right to receive interest payments at a stated coupon rate on an underlying pool of mortgages. The interest payments on the outstanding mortgages are guaranteed by entities generally rated AAA. The ultimate cash flow from these investments is primarily dependent upon the average life of the mortgage pool. Generally, as market interest rates and, more specifically, market mortgage rates decline, mortgagors tend to refinance which will decrease the average life of a mortgage pool and decrease expected cash flows. Conversely, as market interest rates and, more specifically, mortgage rates rise, repayments will slow and the ultimate cash flows will tend to rise. Accordingly, the market value of these investments tends to increase as general interest rates rise and decline as general interest rates fall. These movements are generally counter to the impact of interest rate movements on the Company’s other fixed income investments. The Company held no interest only strips investments at September 30, 2006. The market value of the interest only strips at September 30, 2005 was $78.2 million.

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

The Company accounts for its investment in interest only strips in accordance with Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (“EITF 99-20”). EITF 99-20 sets forth the rules for recognizing interest income on all credit-sensitive mortgage and asset-backed securities and certain prepayment-sensitive securities, including agency interest only strips, whether purchased or retained in securitization, as well as the rules for determining when these securities must be written down to fair value because of impairment. EITF 99-20 requires decreases in the valuation of residual interests in securitizations to be recorded as a reduction to the carrying value of the residual interests through a charge to earnings, rather than an unrealized loss in shareholders’ equity, when any portion of the decline in fair value is attributable to, as defined by EITF 99-20, an impairment loss. The Company had no realized capital loss due to impairments for the three and nine months ended September 30, 2006. The Company recorded a pre-tax and after-tax realized capital loss due to impairments of $7.0 million and $5.6 million, respectively, for the nine months ended September 30, 2005. In addition, during the third quarter of 2005 the Company liquidated a portion of its interest only strip portfolio and recognized pre-tax and after-tax realized capital gains of $22.8 million and $18.2 million, respectively.

15. Share-Based Compensation Plans

The Company has a 2002 Stock Incentive Plan (“2002 Employee Plan”), a 1995 Stock Incentive Plan (“1995 Employee Plan”), a 2003 Non-Employee Director Equity Compensation Plan (“2003 Director Plan”), a 1995 Stock Option Plan for Non-Employee Directors (“1995 Director Plan”) and has awarded options to non-employee directors in Board actions in 2001, 2000 and 1999. On January 1, 2002, the Company implemented FAS 123, and related interpretations in accounting for these plans and Board actions. On January 1, 2006, the Company implemented FAS 123(R).

Under the 2003 Director Plan, 500,000 common shares have been authorized to be granted as stock options or stock awards to non-employee directors of the Company. At September 30, 2006 there were 477,500 remaining shares available to be granted under the 2003 Director Plan. Under the 2002 Employee Plan 4,000,000 common shares have been authorized to be granted as stock options, stock awards or restricted stock awards to officers and key employees of the Company. At September 30, 2006, there were 2,232,350 remaining shares available to be granted under the 2002 Employee Plan. Under the 1995 Director Plan, a total of 50,000 common shares have been authorized to be granted as stock options to non-employee directors of the Company. At September 30, 2006, there were 37,439 remaining shares available to be granted under the 1995 Director Plan. The 2002 Employee Plan replaced the 1995 Employee Plan; therefore, no further awards will be granted under the 1995 Employee Plan.

Board actions in 2001, 2000 and 1999, which were not approved by shareholders, awarded options to non-employee directors. The Board actions were designed to award non-employee directors with the options to purchase common shares to increase the ownership interest in the Company of non-employee directors whose services are considered essential to the Company’s continued progress, to align such interests with those of the shareholders of the Company and to provide them with a further incentive to serve as directors to the Company. Under Board actions in 2001, 2000 and 1999; 40,000, 30,000 and 26,000 common shares have been granted as stock options to non-employee directors of the Company.

Options granted under the 2002 Employee Plan and the 1995 Employee Plan vest at the earlier of 20% per year over five years or upon expiration of any applicable employment agreement, options granted under the 1995

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

Director Plan vest at 50% per year over two years and options granted under the 2003 Director Plan and the 2001, 2000 and 1999 Board actions vest at 33% per year over three years. All options are exercisable at fair market value of the stock at the date of grant and expire ten years after the date of grant. Restricted shares granted under the 2002 Employee Plan and the 1995 Employee Plan vest at the earliest of 20% per year over five years or upon expiration of any applicable employment agreement.

For share options granted, nonvested shares granted and shares issued under the 2002 Employee Plan, the 1995 Employee Plan, the 2003 Director Plan and the 1995 Director Plan, share-based compensation expense recognized in the consolidated statements of operations and comprehensive income was $9.6 million for the nine months ended September 30, 2006. The corresponding income tax benefit recognized in the consolidated statements of operations and comprehensive income for share-based compensation was $2.7 million for the nine months ended September 30, 2006.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The following assumptions were used in calculating the fair value of the options granted for the nine months ended September 30, 2006:

Weighted Average Dividend Yield				0.9505%
Weighted Average Expected Volatility				27.1369%
Weighted Average Risk-free Interest Rate				4.6228%
Weighted Average Expected Life				6.3311 years
Weighted Average Forfeiture				11.3085%

The following table displays a summary of option activity under the Company’s plans during the period ended and the status as of September 30, 2006:

	Nine Months Ended September 30, 2006
Options	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding, beginning of year		2,325,578	$	60.7804
Granted		32,500		98.1467
Exercised		321,432		46.0127
Forfeited		56,470		81.4805

Outstanding, end of period		1,980,176	$	63.2006		6.1	$	69,464,194

Options exercisable at end of period		1,313,896	$	54.4908		5.1	$	57,514,710

The weighted-average grant date fair value of options granted during the nine months ended September 30, 2006 was $32.9237. The total intrinsic value of options exercised during the nine months ended September 30, 2006 was $16.8 million. The cash received from the exercised share options for the nine months ended September 30, 2006 was $14.8 million. The current tax benefit realized from the options exercised for the nine months ended September 30, 2006 was $5.9 million.

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

The following table displays a summary of the status of the Company’s restricted (nonvested) shares during the period ended and the status as of September 30, 2006:

	Nine Months Ended September 30, 2006
Restricted (nonvested) Shares	Shares		Weighted- Average Grant Date Fair Value
Nonvested, beginning of year		217,820	$	86.5981
Granted		15,000		91.4100
Vested		53,520		84.3839
Forfeited		-		-

Nonvested, end of period		179,300	$	87.6616

As of September 30, 2006, there was $13.7 million of total unrecognized compensation expense related to nonvested share-based compensation expense. That expense is expected to be recognized over a weighted-average period of 2.3 years. The total fair value of shares vested for the nine months ended September 30, 2006 was $4.5 million. The tax benefit realized from the shares vested for the nine months ended September 30, 2006 was $0.8 million.

In addition to the 2002 Employee Plan, the 1995 Employee Plan, the 2003 Director Plan and the 1995 Director Plan, Group issued 1,281 common shares during the nine months ended September 30, 2006 to the Company’s non-employee directors as compensation for their service as directors. These issuances had an aggregate value of $0.1 million.

16. Retirement Benefits

The Company maintains both qualified and non-qualified defined benefit pension plans for its U.S. employees. In addition, the Company has a retiree health plan for eligible retired employees.

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

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

	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2006			2005			2006			2005
Service cost	$	1,271		$	968		$	3,817		$	2,905
Interest cost		1,223			1,008			3,667			3,027
Expected return on plan assets		(1,135	)		(916	)		(3,404	)		(2,750	)
Amortization of prior service cost		32			32			95			96
Amortization of net loss		663			480			1,988			1,442

Net periodic benefit cost	$	2,054		$	1,572		$	6,163		$	4,720

	Other Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2006			2005			2006			2005
Service cost	$	158		$	123		$	473		$	368
Interest cost		116			102			348			306
Amortization of net loss		13			7			38			22

Net periodic benefit cost	$	287		$	232		$	859		$	696

Based upon current asset levels in the plans, the Company is not required to make contributions. However, the Company made voluntary contributions to the qualified and non-qualified pension benefit plans of $2.5 million and $5.7 million for the three and nine months ended September 30, 2006 and $0.0 million and $2.7 million for the three and nine months ended September 30, 2005.

17. Related-Party Transactions

During the normal course of business, the Company, through its affiliates, engages in reinsurance and brokerage and commission business transactions, which management believes to be at arm’s-length, with companies controlled by or affiliated with its outside directors. Such transactions, individually and in the aggregate, are not material to the Company’s financial condition, results of operations and cash flows.

18. Income Taxes

The Company uses a projected annual effective tax rate in accordance with FAS 109 to calculate its quarterly tax expense. Under this methodology, when an interim quarter’s pre-tax income (loss) varies significantly from a full year’s income (loss) projection, the tax impact resulting from the income (loss) variance is effectively spread between the impacted quarter and the remaining quarters of the year, except for discreet items impacting an individual quarter.

PART I - Item 2

EVEREST RE GROUP, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

RESULTS OF OPERATIONS

Industry Conditions

The worldwide reinsurance and insurance businesses are highly competitive, yet cyclical by product and market. Competition in the types of reinsurance and insurance business that the Company underwrites 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 Company and/or Standard & Poor’s (“S&P”), 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. These factors operate at the individual market participant level to varying degrees, as applicable to the specific participant’s circumstances. They also operate in aggregate across the reinsurance industry more generally, contributing, in combination with background economic conditions and variations in the reinsurance buying practices of insurance companies (by participant and in the aggregate), to cyclical movements in reinsurance rates, terms and conditions and ultimately reinsurance industry aggregate financial results.

The Company competes in the U.S., Bermuda 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 and domestic and international underwriting operations, including underwriting syndicates at Lloyd’s. Some of these competitors have greater financial resources than the Company 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 potential for securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.

During much of 2005, global reinsurance and insurance pricing was generally flat to down principally as a result of the relatively strong profitability and capital generation achieved by many reinsurers and insurers following the favorable market conditions that had persisted from 2001-2004. However, unprecedented catastrophic industry losses in the second half of 2005, principally driven by Hurricanes Katrina, Rita and Wilma, adversely impacted the 2005 financial results of most industry participants.

Thus far in 2006, the Company has observed strong price increases, and more restricted limits, in those property lines and regions that were most affected by the catastrophe events of 2005. Reinsurance capacity in these areas was, and continues to be, constrained, particularly for catastrophe reinsurance, which includes southeastern U.S. exposures and in the retrocession and energy lines. The record catastrophe losses of 2005 have also generally led to modest strengthening for U.S. property lines that have little or no substantive catastrophe exposure and price stabilization in most casualty insurance and reinsurance markets at adequate premium rates thus far in 2006. However, certain of the Company’s U.S. casualty lines continue to exhibit weaker market conditions led by the medical stop loss and directors & officers (“D&O”) reinsurance classes, as well as the California workers’ compensation insurance line. The Company believes that U.S. casualty reinsurance generally remains adequately priced; however, increased price competition at the insurance company level and cedants’ increased appetite for retaining more profitable business net following several strong years of hard-market conditions, may

influence these markets toward modest softening. The Company’s U.S. insurance operation is less affected by these standard casualty insurance market conditions given its specialty insurance program orientation. Finally, the Company continues to observe generally stable property and casualty reinsurance market conditions in most countries outside of the U.S., except for hardening property market conditions in Mexico following Hurricane Wilma.

Focusing on U.S. property reinsurance, market conditions have tightened, particularly within peak catastrophe zones, during 2006. This market hardening was particularly pronounced in third quarter renewals with incrementally higher rate changes and even more restrictive coverages than earlier in 2006. As a result, many reinsurance buyers have not been able to fully place their reinsurance program and have been forced to raise retention levels and/or reduce catastrophe limit purchases. In turn, insurance companies continue to adjust limits and coverages and increase the premium rates they charge their customers. Together, these trends have generally resulted in insurance companies retaining more property risk exposure and being more prone to potential future earnings volatility than they would prefer. This market dynamic, both at the individual company and industry level, is reflective of a fundamental imbalance between reinsurance supply and demand. The Company believes that this disequilibrium may continue through 2007 despite the relatively benign loss experience from the 2006 U.S. hurricane season. Reinsurers continue to reassess their risk appetites and rebalance their property portfolios so as to reflect improved price to exposure metrics against the backdrop of: (i) recent revisions to the industry’s catastrophe loss projection models, which are indicating significantly higher loss potentials and consequently higher pricing requirements and (ii) elevated rating agency scrutiny and capital requirements for many catastrophe exposed companies.

In light of its 2005 catastrophe experience, the Company reexamined its risk management practices, concluded that its control framework operated generally as intended and made appropriate portfolio adjustments to its property reinsurance operations during the first nine months of 2006. This portfolio repositioning, particularly within peak catastrophe zones, including Southeast USA, Mexico and Gulf of Mexico, has enabled the Company to take advantage of these dislocated markets in a carefully managed fashion by: (i) shifting the mix of its writings toward the most profitable classes, lines, customers and territories (ii) reducing aggregate catastrophe exposed limits and (iii) enhancing portfolio balance and diversification.

Overall, the Company believes that current marketplace conditions continue to offer solid opportunities for the Company given its strong ratings, distribution system, reputation and expertise. The Company continues to employ its opportunistic strategy of targeting those segments offering the best profit potential, while maintaining balance and diversification in its overall portfolio.

Financial Summary

The Company’s management monitors and evaluates overall Company performance based upon financial results. The following table displays a summary of the consolidated net income (loss), ratios and shareholders’ equity for the periods indicated:

	Three Months Ended September 30,						Percentage Increase/			Nine Months Ended September 30,						Percentage Increase/
(Dollars in thousands)	2006			2005			(Decrease)			2006			2005			(Decrease)
Gross written premiums	$	1,048,161		$	1,080,671			-3.0%		$	3,013,553		$	3,237,565			-6.9%
Net written premiums		1,024,678			1,051,543			-2.6%			2,926,989			3,136,902			-6.7%
REVENUES:
Premiums earned	$	958,343		$	959,409			-0.1%		$	2,873,465		$	3,057,824			-6.0%
Net investment income		147,470			117,532			25.5%			445,829			387,866			14.9%
Net realized capital gains		8,651			27,699			-68.8%			24,724			57,485			-57.0%
Net derivative (expense) income		(6,201	)		5,019			-223.6%			(1,006	)		(3,018	)		66.7%
Other income (expense)		5,626			(5,958	)		194.4%			1,294			(8,888	)		114.6%

Total revenues		1,113,889			1,103,701			0.9%			3,344,306			3,491,269			-4.2%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment
expenses		546,670			1,319,706			-58.6%			1,789,250			2,678,575			-33.2%
Commission, brokerage, taxes and
fees		215,971			204,664			5.5%			659,876			703,571			-6.2%
Other underwriting expenses		34,118			32,561			4.8%			96,777			94,264			2.7%
Interest, fee and bond issue
cost amortization expense		17,475			17,506			-0.2%			52,436			56,931			-7.9%

Total claims and expenses		814,234			1,574,437			-48.3%			2,598,339			3,533,341			-26.5%

INCOME (LOSS) BEFORE TAXES		299,655			(470,736	)		163.7%			745,967			(42,072	)		NM
Income tax expense (benefit)		53,977			(52,991	)		201.9%			111,490			14,398			NM

NET INCOME (LOSS)	$	245,678		$	(417,745	)		158.8%		$	634,477		$	(56,470	)		NM

RATIOS:								Point Change									Point Change
Loss ratio		57.0%			137.6%			(80.6	)		62.3%			87.6%			(25.3	)
Commission and brokerage ratio		22.5%			21.3%			1.2			23.0%			23.0%			0.0
Other underwriting expense ratio		3.6%			3.4%			0.2			3.3%			3.1%			0.2

Combined ratio		83.1%			162.3%			(79.2	)		88.6%			113.7%			(25.1	)

(Dollars in millions)										As of, September 30, 2006			As of, December 31, 2005
Shareholders' equity										$	4,823.9		$	4,139.7			16.5%

(NM, not meaningful)

Overall, the Company’s third quarter and nine months of 2006 results were very strong with net income of $246 million and $634 million, respectively, record amounts for the Company for both periods. Premium volume

declined during the three and nine months of 2006 compared to the same periods for 2005 as the Company continued its disciplined underwriting and risk management approaches. In particular, the Company re-engineered its U.S. property reinsurance portfolio resulting in improved pricing, but lower premium volume. The premium volume decline also reflects the Company’s greatly diminished insurance credit program business and the Company’s prudent response to market softening in many U.S. casualty reinsurance classes. The premium volume decline moderated in the third quarter, in comparison with the second quarter of 2006, reflecting strong premium rate growth in the U.S. property reinsurance market as the Company capitalized on much improved market conditions, as well as growth of new programs in the insurance operation.

The Company’s net income increased dramatically by $663 million and $691 million in the third quarter and nine months ended September 30, 2006 compared to the same periods for 2005. This significant earnings improvement reflects the favorable effect of a benign U.S. hurricane season relative to unprecedented Company and industry hurricane losses experienced in 2005, as well as continued strong underlying underwriting fundamentals and increased investment income from an expanded invested asset base. These improvements were partially offset by a decline in net realized capital gains.

The Company’s shareholders’ equity increased by $0.7 billion from year end 2005 to $4.8 billion at September 30, 2006 principally attributable to the record net income generated during the nine months of 2006.

Revenues. Both gross and net written premiums declined 3% and 7% for the third quarter and for the nine months ended September 30, 2006 compared to the same periods for 2005, while net premiums earned remained flat for the third quarter and declined 6% for the nine months in comparison with the same period for 2005. The year to date net premiums earned decrease was primarily due to a decline in the U.S. insurance segment of 11%, reflective of: i) a reduction in credit business from an auto loan program which is in runoff; and ii) continued declines in the California workers’ compensation writings due to competitive market conditions. In addition, net premiums earned for the worldwide reinsurance segments in the aggregate decreased by 5% for the nine months ended September 30, 2006, reflecting multiple segment level factors, including a significant return premium for a Florida property quota share contract cancelled in 2006, the absence of sizable reinstatement premiums triggered in 2005 from severe catastrophic events, as well as a disciplined underwriting approach within both property and casualty lines emphasizing potential profitability rather than volume growth.

Net investment income increased 26% and 15% for the third quarter and nine months of 2006, respectively, as compared to the same periods for 2005, reflecting continued year-over-year growth in invested assets from positive cash flow from operations, despite significant catastrophe loss payouts related to the 2005 and 2004 hurricanes. The average investment portfolio yields through September 30, 2006 were 4.6% pre-tax and 4.0% after-tax, and were slightly higher compared to the prior year.

Net realized capital gains were modest in relation to the Company’s invested asset base, with variability mainly reflecting normal portfolio management activities.

Expenses. The Company’s incurred losses and loss adjustment expenses (“LAE”) decreased 59% and 33% for the third quarter and nine months of 2006, respectively, compared to the same periods for 2005, primarily due to the absence of current year catastrophe losses and lower earned premiums.

The Company’s loss ratio improvements of 81 and 25 points for the third quarter and nine months of 2006, respectively, year over year, were primarily the result of reduced catastrophe losses. Included in the Company’s third quarter 2006 loss ratio was favorable prior year reserve development of 3 points, comprised of a 13 point decrease in prior year attritional reserves, due to favorable claims emergence trends, primarily within property and other short-tailed lines of business, partially offset by a 5 point increase in prior years catastrophe reserve

development and a 5 point increase in prior years asbestos and environmental (“A&E”) reserves. The Company’s loss ratio for the nine months ended September 30, 2006 was 62.3% representing a 25 point decline from prior year, reflecting the absence of current year catastrophes, strong premium rate increases in property classes of business, partially offset by higher prior years reserve development, particularly related to catastrophes.

Commission, brokerage, and tax expenses increased by 6% for the three months ended September 30, 2006 compared to the same period in 2005, while expenses decreased by 6% for the nine months ended September 30, 2006 compared to the same period in 2005. For the third quarter of 2006, commission adjustments related to underlying business experience were the primary reason for the increase in commission expense. For the nine months ended September 30, 2006, overall changes in the business mix and premium volume were the primary reason for the decrease in commission expense. Other underwriting expenses for the three and nine months ended September 30, 2006 increased by 5% and 3%, respectively, compared to the same periods for 2005, mainly reflecting normal expense growth.

The Company’s effective income tax rate for the third quarter and nine months of 2006 was 18% and 15%, respectively. The higher effective tax rate for the quarter was primarily attributable to a smaller proportion of income being earned in the Company’s lower taxed jurisdictions.

Segment Information

The Company, through its subsidiaries, operates in five segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting, International and Bermuda. The U.S. Reinsurance operation writes property and casualty reinsurance, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S. The U.S. Insurance operation writes property and casualty insurance primarily through general agent relationships and surplus lines brokers within the U.S. The Specialty Underwriting operation writes A&H, marine, aviation and surety business within the U.S. and worldwide through brokers and directly with ceding companies. The International operation writes property and casualty reinsurance through Everest Re’s branches in Canada and Singapore, in addition to foreign business written through Everest Re’s Miami and New Jersey offices. The Bermuda operation provides reinsurance and insurance to worldwide property and casualty markets and reinsurance to life insurers through brokers and directly with ceding companies from its Bermuda office and property and casualty reinsurance to the United Kingdom and European markets through its UK branch.

These segments are managed in a carefully coordinated fashion with strong elements of central control, with respect to pricing, risk management, monitoring aggregate exposures to catastrophic events, 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 and are analyzed 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 earned premium. The Company utilizes inter-affiliate reinsurance but such reinsurance generally does not impact segment results, as business is generally reported within the segment in which the business was first produced.

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

U.S. Reinsurance	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2006		2005			2006		2005
Gross written premiums	$	332,923	$	374,309		$	989,337	$	1,100,677
Net written premiums		332,638		374,316			984,668		1,097,810
Premiums earned	$	316,229	$	341,286		$	954,650	$	1,107,256
Incurred losses and loss adjustment expenses		187,114		660,069			630,915		1,174,168
Commission and brokerage		69,727		76,314			233,238		271,378
Other underwriting expenses		6,444		5,650			17,584		17,714

Underwriting gain (loss)	$	52,944	$	(400,747	)	$	72,913	$	(356,004	)

U.S. Insurance	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2006		2005		2006		2005
Gross written premiums	$	249,346	$	210,768	$	662,742	$	755,876
Net written premiums		227,950		184,775		586,889		670,390
Premiums earned	$	191,643	$	202,202	$	556,943	$	627,056
Incurred losses and loss adjustment expenses		123,732		118,638		370,255		411,592
Commission and brokerage		27,381		34,860		82,378		103,639
Other underwriting expenses		12,715		13,583		34,809		38,396

Underwriting gain	$	27,815	$	35,121	$	69,501	$	73,429

Specialty Underwriting	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2006		2005			2006		2005
Gross written premiums	$	77,844	$	51,891		$	194,958	$	247,868
Net written premiums		74,879		48,766			188,677		235,830
Premiums earned	$	69,219	$	52,953		$	187,309	$	238,992
Incurred losses and loss adjustment expenses		33,208		72,513			114,779		190,742
Commission and brokerage		15,901		11,178			49,399		60,071
Other underwriting expenses		1,714		1,635			4,656		4,990

Underwriting gain (loss)	$	18,396	$	(32,373	)	$	18,475	$	(16,811	)

International	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2006		2005			2006		2005
Gross written premiums	$	186,063	$	188,296		$	541,420	$	540,466
Net written premiums		186,032		188,076			541,248		539,474
Premiums earned	$	177,189	$	173,600		$	533,031	$	521,002
Incurred losses and loss adjustment expenses		75,837		128,865			288,479		319,457
Commission and brokerage		44,033		45,805			130,909		129,944
Other underwriting expenses		3,441		3,057			9,804		9,074

Underwriting gain (loss)	$	53,878	$	(4,127	)	$	103,839	$	62,527

Bermuda	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2006		2005			2006		2005
Gross written premiums	$	201,985	$	255,407		$	625,096	$	592,678
Net written premiums		203,179		255,610			625,507		593,398
Premiums earned	$	204,063	$	189,368		$	641,532	$	563,518
Incurred losses and loss adjustment expenses		126,779		339,621			384,822		582,616
Commission and brokerage		58,929		36,507			163,952		138,539
Other underwriting expenses		4,318		2,627			11,829		9,747

Underwriting gain (loss)	$	14,037	$	(189,387	)	$	80,929	$	(167,384	)

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2006			2005			2006			2005
Underwriting gain (loss)	$	167,070		$	(591,513	)	$	345,657		$	(404,243	)
Net investment income		147,470			117,532			445,829			387,866
Net realized capital gains		8,651			27,699			24,724			57,485
Net derivative (expense) income		(6,201	)		5,019			(1,006	)		(3,018	)
Corporate expenses		(5,486	)		(6,009	)		(18,095	)		(14,343	)
Interest, fee and bond issue cost
amortization expense		(17,475	)		(17,506	)		(52,436	)		(56,931	)
Other income (expense)		5,626			(5,958	)		1,294			(8,888	)

Income (loss) before taxes	$	299,655		$	(470,736	)	$	745,967		$	(42,072	)

Three Months Ended September 30, 2006 compared to Three Months Ended September 30, 2005

Premiums Written. Gross written premiums decreased 3.0% to $1,048.2 million for the three months ended September 30, 2006 from $1,080.7 million for the three months ended September 30, 2005. The decrease in gross written premiums was primarily due to a decrease in the Bermuda operation of 20.9% ($53.4 million),

reflecting a decline in treaty business in the UK, Europe and Bermuda and a decline in facultative business in Bermuda. The U.S. Reinsurance operation decreased 11.1% ($41.4 million), principally reflecting a $24.4 million decrease in treaty property business, a $13.2 million decrease in treaty casualty business and a $4.6 million decrease in facultative business. The International operation decreased 1.2% ($2.2 million), primarily due to a $29.6 million decrease in Asian business, largely offset by both a $25.6 million increase in international business written through the Miami and New Jersey offices, representing primarily Latin American business and a $1.9 million increase in Canadian business. Partially offsetting these decreases was an increase in the Specialty Underwriting operations of 50.0% ($26.0 million), primarily due to a $20.4 million increase in surety business, a $4.7 million increase in marine and aviation business and a $0.9 million increase in A&H business. The U.S. Insurance operation increased 18.3% ($38.6 million), mainly reflecting an increase in the non-workers’ compensation business, partially offset by the continued retrenchment in the California workers’ compensation business and run-off of the credit business.

Ceded premiums decreased to $23.5 million for the three months ended September 30, 2006 from $29.1 million for the three months ended September 30, 2005. Ceded premiums generally relate to specific reinsurance purchased by the U.S. Insurance operation and fluctuate based upon the level of premiums written in the individual reinsured programs.

Net written premiums decreased by 2.6% to $1,024.7 million for the three months ended September 30, 2006 from $1,051.5 million for the three months ended September 30, 2005, reflecting the $32.5 million decrease in gross written premiums and the $5.6 million decrease in ceded premiums.

Premium Revenues. Net premiums earned for the three months ended September 30, 2006 declined less than 1% to $958.3 million compared to $959.4 million for the three months ended September 30, 2005. Contributing to this marginal decrease was a 7.3% ($25.1 million) decrease in the U.S. Reinsurance operation and a 5.2% ($10.6 million) decrease in the U.S. Insurance operation. Partially offsetting these decreases was an increase of 30.7% ($16.3 million) in the Specialty Underwriting operation, a 7.8% ($14.7 million) increase in the Bermuda operation and a 2.1% ($3.6 million) increase in the International operation. All of these changes reflect period to period changes in net written premiums and business mix, together with normal variability in earning patterns. Business mix changes occur not only as the Company shifts emphasis between products, lines of business, distribution channels and markets, but also as individual contracts renew or non-renew, almost always with changes in coverage, structure, prices and/or terms, and as new contracts are accepted with coverages, structures, prices and/or terms different from those of expiring contracts. As premium reporting, earnings, loss and commission characteristics derive from the provisions of individual contracts, the continuous turnover of individual contracts, arising from both strategic shifts and day to day underwriting, can and does introduce appreciable background variability in various underwriting line items. Changes in estimates related to the reporting patterns of ceding companies also affect premiums earned.

Expenses
Incurred Losses and LAE. Incurred losses and LAE represent the Company’s estimates, which are subject to considerable uncertainty due to the timing, complexity and nature of the underlying ceding company exposures. These estimates reflect management’s best judgment based on all available information, but ultimate losses could differ, perhaps materially. The change in incurred losses and LAE, period over period also reflects variability in premiums earned and changes in the loss expectation assumptions for business written, net prior period reserve development, as well as catastrophe losses. Incurred losses and LAE are also impacted by changes in the pricing of the underlying business, as well as variability relating to changes in the mix of business by class and type.

The Company’s loss and LAE reserves reflect estimates of ultimate claim liability. Such estimates are re-evaluated on an ongoing basis, including re-estimates of prior period reserves, taking into consideration all available information and, in particular, newly reported loss and claim experience. The effect of such re-evaluations impacts incurred losses for the current period. The Company notes that its analytical methods and processes operate at multiple levels, including individual contracts, groupings of like contracts, classes and lines of business, internal business units, segments, legal entities, and in the aggregate. The complexities of the Company’s business and operations require analyses and adjustments, both qualitative and quantitative, at these various levels. Additionally, the attribution of reserves, changes in reserves and incurred losses between accident year and underwriting year requires adjustments and allocations, both qualitative and quantitative, at these various levels. All of these processes, methods and practices appropriately balance actuarial science, business expertise and management judgment in a manner intended to assure the accuracy, precision and consistency of the Company’s reserving practices, which are fundamental to the Company’s operation. The Company notes, however, that the underlying reserves remain estimates, which are subject to variation, and that the relative degree of variability is generally least when reserves are considered in the aggregate and generally increases as the focus shifts to more granular data levels.

The following table shows the components of the Company’s incurred losses and LAE for the three months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred
All Segments
Attritional (a)	$	575.2		$	(120.2	)	$	455.0		$	539.0		$	(100.0	)	$	438.9
Catastrophes		0.5			47.1			47.7			809.4			23.7			833.1
A&E		-			44.0			44.0			-			47.7			47.7

Total segment	$	575.7		$	(29.0	)	$	546.7		$	1,348.4		$	(28.7	)	$	1,319.7

Loss Ratio		60.1	%		-3.0	%		57.0	%		140.5	%		-3.0	%		137.6	%
(a) Attritional losses exclude catastrophe and A&E losses. (Some amounts may not reconcile due to rounding.)

The Company’s incurred losses and LAE decreased 58.6% to $546.7 million for the three months ended September 30, 2006 from $1,319.7 million for the three months ended September 30, 2005, primarily reflective of significantly improved current year catastrophe losses and lower earned premiums, partially offset by an increase in prior years reserve strengthening for catastrophe losses.

The Company’s loss ratio, which is calculated by dividing incurred losses and LAE by current year net premiums earned, improved by 80.6 points to 57.0% over the comparable 2005 period, principally due to an 84.3 point improvement of current year catastrophe losses, partially offset by 3.8 points related to more current year attritional losses. Included in the 3.0 points of prior years reserve adjustments for the three months ended September 30, 2006 was 12.5 points of favorable prior years attritional reserve development due to favorable claims emergence trends, primarily within property and other short-tailed lines of business, partially offset by 4.9 points of unfavorable prior years catastrophe reserve development, principally from the 2005 hurricanes and 4.6 points of unfavorable A&E reserve development.

The following table shows the U.S. Reinsurance segment components of incurred losses and LAE for the three months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	207.6		$	(63.8	)	$	143.8		$	151.7		$	(23.2	)	$	128.5
Catastrophes		-			36.5			36.5			509.0			17.8			526.8
A&E		-			6.7			6.7			-			4.8			4.8

Total segment	$	207.6		$	(20.5	)	$	187.1		$	660.7		$	(0.6	)	$	660.1

Loss Ratio		65.7	%		-6.5	%		59.2	%		193.6	%		-0.2	%		193.4	%
(Some amounts may not reconcile due to rounding.)

The U.S. Reinsurance segment’s incurred losses and LAE decreased 71.7%, or $473.0 million, for the three months ended September 30, 2006 as compared to the same period in 2005, due principally to the significant reduction of current year catastrophe losses within the treaty property unit. The segment’s loss ratio improved by 134.2 points over the comparable 2005 period, reflecting a significant decrease in catastrophe losses, partially offset by an increase in the attritional loss ratio. Favorable prior years loss development on attritional reserves was more than offset by an increase in current year reserves on attritional losses, which resulted in the deterioration of the attritional loss ratio period over period.

The following table shows the U.S. Insurance segment components of incurred losses and LAE for the three months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	131.1		$	(7.1	)	$	124.0		$	144.2		$	(25.6	)	$	118.6
Catastrophes		-			(0.2	)		(0.2	)		-			-			-

Total segment	$	131.1		$	(7.3	)	$	123.7		$	144.2		$	(25.6	)	$	118.6

Loss Ratio		68.4	%		-3.8	%		64.6	%		71.3	%		-12.7	%		58.7	%
(Some amounts may not reconcile due to rounding.)

The U.S. Insurance segment’s incurred losses and LAE increased 4.3%, or $5.1 million, for the three months ended September 30, 2006 as compared to the same period in 2005, mainly reflecting lower favorable reserve adjustments on prior years mostly for the California workers’ compensation business, partially offset by an improvement in current year reserves on attritional losses.

The following table shows the Specialty Underwriting segment components of incurred losses and LAE for the three months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	38.5		$	(15.1	)	$	23.5		$	39.9		$	(25.3	)	$	14.7
Catastrophes		-			9.7			9.7			52.5			5.4			57.9

Total segment	$	38.5		$	(5.3	)	$	33.2		$	92.4		$	(19.9	)	$	72.5

Loss Ratio		55.7	%		-7.7	%		48.0	%		174.6	%		-37.6	%		136.9	%
(Some amounts may not reconcile due to rounding.)

The Specialty Underwriting segment’s incurred losses and LAE decreased 54.2%, or $39.3 million, for the three months ended September 30, 2006 as compared to the same period in 2005, reflecting the reduced current year catastrophe losses principally for the marine lines of business, partially offset by lower favorable reserve adjustments on prior years.

The following table shows the International segment components of incurred losses and LAE for the three months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	99.1		$	(23.6	)	$	75.5		$	88.0		$	(7.3	)	$	80.8
Catastrophes		0.5			(0.2	)		0.3			46.7			1.4			48.1

Total segment	$	99.6		$	(23.8	)	$	75.8		$	134.7		$	(5.9	)	$	128.9

Loss Ratio		56.2	%		-13.4	%		42.8	%		77.6	%		-3.4	%		74.2	%
(Some amounts may not reconcile due to rounding.)

The International segment’s incurred losses and LAE decreased 41.2%, or $53.1 million, for the three months ended September 30, 2006 as compared to the same period in 2005, principally attributable to the reduction in current year catastrophe losses. The segment’s loss ratio improved by 31.4 points over the comparable 2005 period, primarily due to the decrease in both current and prior years catastrophe reserve adjustments and more favorable loss development on prior years attritional reserves.

The following table shows the Bermuda segment components of incurred losses and LAE for the three months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	98.8		$	(10.6	)	$	88.2		$	115.1		$	(18.7	)	$	96.4
Catastrophes		-			1.3			1.3			201.2			(0.9	)		200.3
A&E		-			37.2			37.2			-			42.9			42.9

Total segment	$	98.8		$	28.0		$	126.8		$	316.3		$	23.3		$	339.6

Loss Ratio		48.4	%		13.7	%		62.1	%		167.0	%		12.3	%		179.3	%
(Some amounts may not reconcile due to rounding.)

The Bermuda segment’s incurred losses and LAE decreased 62.7%, or $212.8 million, for the three months ended September 30, 2006 as compared to the same period in 2005. The segment’s loss ratio improved by 117.2 points over the comparable 2005 period due to the decrease in current year catastrophe and attritional losses as well as a decrease in prior years A&E losses.

Underwriting Expenses. The Company’s expense ratio, which is calculated by dividing underwriting expenses by net premiums earned, was 26.1% for the three months ended September 30, 2006 compared to 24.7% for the three months ended September 30, 2005.

The following table shows the expense ratios for each of the Company’s operating segments for the three months ended September 30, 2006 and 2005.

Segment Expense Ratios
Segment	2006			2005
U.S. Reinsurance		24.1	%		24.0	%
U.S. Insurance		20.9	%		24.0	%
Specialty Underwriting		25.4	%		24.2	%
International		26.8	%		28.2	%
Bermuda		31.0	%		20.7	%

Segment underwriting expenses increased by 5.8% to $244.6 million for the three months ended September 30, 2006 from $231.2 million for the three months ended September 30, 2005. Commission, brokerage, taxes and fees increased by $11.3 million, principally reflecting a contingent commission adjustment of approximately $9.0 million for the UK Branch of the Bermuda segment recorded in the third quarter and changes in the mix and distribution channel of business, which more than offset decreases in premium volume. Segment other underwriting expenses increased by $2.1 million, or 7.8%, reflecting normal infrastructure growth. Contributing to the segment underwriting expense increase was a 61.7% ($24.1 million) increase in the Bermuda operation and a 37.5% ($4.8 million) increase in the Specialty Underwriting operation, partially offset by a 17.2% ($8.3 million) decrease in the U.S. Insurance operation, a 7.1% ($5.8 million) decrease in the U.S. Reinsurance operation and a 2.8% ($1.4 million) decrease in the International operation. The changes for each operation’s expenses principally resulted from changes in commission expenses related to changes in premium volume and business mix by class and type and, in some cases, changes in the use of specific reinsurance.

The Company’s combined ratio, which is the sum of the loss and expense ratios, decreased by 79.2 points to 83.1% for the three months ended September 30, 2006 compared to 162.3% for the three months ended September 30, 2005, primarily resulting from reduced catastrophe losses, partially offset by an increase in expenses and attritional losses.

The following table shows the combined ratios for each of the Company’s operating segments for the three months ended September 30, 2006 and 2005. The combined ratios for all operations were impacted by the loss and expense ratio variability noted above.

Segment Combined Ratios
Segment	2006			2005
U.S. Reinsurance		83.3	%		217.4	%
U.S. Insurance		85.5	%		82.7	%
Specialty Underwriting		73.4	%		161.1	%
International		69.6	%		102.4	%
Bermuda		93.1	%		200.0	%

Investment Results. Net investment income increased 25.5% to $147.5 million for the three months ended September 30, 2006 from $117.5 million for the three months ended September 30, 2005, reflecting the growth in invested assets to $13.6 billion at September 30, 2006 from $12.2 billion at September 30, 2005. Period to period changes in investment income are impacted by changes in the level and mix of invested assets, prevailing interest rates and the results from equity investments in limited partnerships included in other investment income (expense), which tend to fluctuate period to period.

The following table shows the components of net investment income for the three months ended as indicated:

(Dollars in thousands)	2006			2005
Fixed maturities	$	125,759		$	121,245
Equity securities		3,573			3,345
Short-term investments		14,679			4,523
Other investment income (expense)		8,903			(6,528	)

Total gross investment income		152,914			122,585
Interest credited and other expense		(5,444	)		(5,053	)

Total net investment income	$	147,470		$	117,532

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


Imbedded pre-tax yield of cash and invested assets at
September 30 and December 31	4.6	%	4.5	%
Imbedded after-tax yield of cash and invested assets at
September 30 and December 31	4.0	%	3.9	%
Annualized pre-tax yield on average cash and invested
assets for the three months ended September 30	4.5	%	4.0	%
Annualized after-tax yield on average cash and invested
assets for the three months ended September 30	3.9	%	3.6	%

Net realized capital gains of $8.7 million for the three months ended September 30, 2006 reflected realized capital gains on the Company’s investments of $9.6 million, resulting principally from gains on equity securities of $9.1 million and fixed maturities of $0.6 million, partially offset by $1.0 million of realized capital losses. Net realized capital gains of $27.7 million for the three months ended September 30, 2005 reflected $29.5 million of realized capital gains on the Company’s investments, resulting principally from $22.8 million of gains on the partial sale of the interest only strips of mortgage-backed securities (“interest only strips”) portfolio, partially offset by $1.8 million of realized capital losses.

The Company has seven outstanding specialized equity put options in its product portfolio. These products meet the definition of a derivative under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”). The Company recognized net derivative expense of $6.2 million for the three months ended September 30, 2006 as compared to net derivative income of $5.0 million for the three months ended September 30, 2005, reflecting changes in the fair value of these specialized equity put options.

Corporate, Non-allocated Expenses. Corporate underwriting expenses not allocated to segments were $5.5 million for the three months ended September 30, 2006, which were comparable with the $6.0 million for the three months ended September 30, 2005.

Interest, fees and bond issue cost amortization expense for the three months ended September 30, 2006 and 2005 was $17.5 million. Interest, fees and bond issue cost amortization expense for the three months ended September 30, 2006 and 2005 included $7.8 million related to the senior notes, $9.4 million related to the junior subordinated debt securities, $0.2 million related to the bond issue cost amortization and $0.1 million related to the credit line under the Company’s revolving credit facilities.

Other income for the three months ended September 30, 2006 was $5.6 million compared to other expense of $6.0 million for the three months ended September 30, 2005. The change in other income for the three months ended September 30, 2006 was primarily due to variability in the impact of foreign currency exchange gains and losses.

Income Taxes. The Company’s income tax expense is primarily a function of the statutory tax rates and corresponding net income in the jurisdictions where the Company operates, coupled with the impact from tax preferenced investment income. Variations generally reflect changes in the relative levels of pre-tax income between jurisdictions with different tax rates. The Company recognized income tax expense of $54.0 million for the three months ended September 30, 2006 compared to an income tax benefit of $53.0 million for the three months ended September 30, 2005 primarily due to pre-tax income in 2006 as compared to a pre-tax loss in 2005.

Net Income (Loss). Net income was $245.7 million for the three months ended September 30, 2006 compared to a net loss of $417.7 million for the three months ended September 30, 2005, essentially reflecting the differential in catastrophe losses between periods.

Nine Months Ended September 30, 2006 compared to Nine Months Ended September 30, 2005

Premiums Written. Gross written premiums decreased 6.9% to $3,013.6 million for the nine months ended September 30, 2006 from $3,237.6 million for the nine months ended September 30, 2005. The decrease in gross written premiums was primarily due to segment level variability. The Specialty Underwriting operation decreased 21.3% ($52.9 million), reflecting a $48.0 million decrease in A&H business, as pricing for this business continues to be difficult and a $14.6 million decrease in marine and aviation business, partially offset

by a $9.7 million increase in surety business. The U.S. Insurance operation decreased 12.3% ($93.1 million), mainly reflecting continued retrenchment in the California workers’ compensation business and run-off of the credit business. The U.S. Reinsurance operation decreased 10.1% ($111.3 million), principally reflecting an $85.0 million decrease in treaty casualty business and a $25.8 million decrease in treaty property business, partially offset by a $4.8 million increase in facultative business. Partially offsetting these declines was a 5.5% ($32.4 million) increase in the Bermuda operation, reflecting increases in treaty business in the UK, Europe and Bermuda, partially offset by decreased facultative business in Bermuda. The International operation increased 0.2% ($1.0 million), primarily due to a $30.4 million increase in international business written through the Miami and New Jersey offices, representing primarily Latin American business and a $14.3 million increase in Canadian business offset by a $42.8 million decrease in Asian business.

Ceded premiums decreased to $86.6 million for the nine months ended September 30, 2006 from $100.7 million for the nine months ended September 30, 2005. Ceded premiums generally relate to specific reinsurance purchased by the U.S. Insurance operation and fluctuate based upon the level of premiums written in the individual reinsured programs.

Net written premiums decreased by 6.7% to $2,927.0 million for the nine months ended September 30, 2006 from $3,136.9 million for the nine months ended September 30, 2005, reflecting the $224.0 million decrease in gross written premiums and the $14.1 million decrease in ceded premiums.

Premium Revenues. Net premiums earned decreased by 6.0% to $2,873.5 million for the nine months ended September 30, 2006 from $3,057.8 million for the nine months ended September 30, 2005. Contributing to this decrease was a 21.6% ($51.7 million) decrease in the Specialty Underwriting operation, a 13.8% ($152.6 million) decrease in U.S. Reinsurance operation and an 11.2% ($70.1 million) decrease in the U.S. Insurance operation, partially offset by a 13.8% ($78.0 million) increase in the Bermuda operation and a 2.3% ($12.0 million) increase in the International operation. Reinstatement premiums, related to catastrophe business, included in net earned premiums contributed a $0.6 million reduction and a $55.4 million increase for the nine months ended September 30, 2006 and 2005, respectively. All of these changes reflect period to period changes in net written premiums and business mix, together with normal variability in earning patterns. Business mix changes occur not only as the Company shifts emphasis between products, lines of business, distribution channels and markets, but also as individual contracts renew or non-renew, almost always with changes in coverage, structure, prices and/or terms and as new contracts are accepted with coverages, structures, prices and/or terms different from those of expiring contracts. As premium reporting, earnings, loss and commission characteristics derive from the provisions of individual contracts, the continuous turnover of individual contracts, arising from both strategic shifts and day to day underwriting, can and does introduce appreciable background variability in various underwriting line items. Changes in estimates related to the reporting patterns of ceding companies also affect premiums earned.

The following table shows the components of the Company’s incurred losses and LAE for the nine months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred
All Segments
Attritional (a)	$	1,696.0		$	(181.8	)	$	1,514.3		$	1,828.6		$	(109.4	)	$	1,719.2
Catastrophes		5.9			209.9			215.8			809.4			77.7			887.1
A&E		-			59.1			59.1			-			72.3			72.3

Total segment	$	1,702.0		$	87.3		$	1,789.3		$	2,638.0		$	40.6		$	2,678.6

Loss Ratio		59.2	%		3.0	%		62.3	%		86.3	%		1.3	%		87.6	%
(a) Attritional losses exclude catastrophe and A&E losses. (Some amounts may not reconcile due to rounding.)

The Company’s incurred losses and LAE decreased 33.2% to $1,789.3 million for the nine months ended September 30, 2006 from $2,678.6 million for the nine months ended September 30, 2005, reflective of significantly reduced current year catastrophe losses and a reduction in current and prior years attritional losses, partially offset by increased prior years reserve development on catastrophe losses and lower earned premiums.

The Company’s loss ratio, which is calculated by dividing incurred losses and LAE by current year net premiums earned, improved by 25.3 points to 62.3% over the comparable 2005 period, principally due to a 26.3 point improvement of current year catastrophe losses, partially offset by 1.7 points related to more prior years reserve strengthening. Included in the 3.0 points of prior years reserve strengthening for the nine months ended September 30, 2006 was 7.3 points of unfavorable prior years catastrophe reserve development, principally from the 2005 hurricanes, and 2.1 points of unfavorable A&E reserve development, partially offset by 6.3 points of favorable attritional reserve development due to favorable claims emergence trends, primarily within property and other short-tailed lines of business.

The following table shows the U.S. Reinsurance segment components of incurred losses and LAE for the nine months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	535.7		$	(59.0	)	$	476.8		$	625.6		$	(13.4	)	$	612.1
Catastrophes		-			146.2			146.2			509.0			42.4			551.4
A&E		-			8.0			8.0			-			10.7			10.7

Total segment	$	535.7		$	95.2		$	630.9		$	1,134.6		$	39.6		$	1,174.2

Loss Ratio		56.1	%		10.0	%		66.1	%		102.5	%		3.6	%		106.0	%
(Some amounts may not reconcile due to rounding.)

The U.S. Reinsurance segment’s incurred losses and LAE decreased 46.3%, or $543.3 million, for the nine months ended September 30, 2006 as compared to the same period in 2005, primarily due to significantly reduced current year catastrophe losses, principally within the treaty property unit and decreased earned premiums. The segment’s loss ratio improved by 39.9 points over the comparable 2005 period due to a decrease in current year catastrophe losses, coupled with an improvement in the overall attritional loss ratio. The segment’s attritional loss ratio improvement generally reflects more favorable current year pricing, principally on the property business.

The following table shows the U.S. Insurance segment components of incurred losses and LAE for the nine months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	401.5		$	(31.6	)	$	369.9		$	434.7		$	(23.1	)	$	411.6
Catastrophes		-			0.4			0.4			-			-			-

Total segment	$	401.5		$	(31.2	)	$	370.3		$	434.7		$	(23.1	)	$	411.6

Loss Ratio		72.1	%		-5.6	%		66.5	%		69.3	%		-3.7	%		65.6	%
(Some amounts may not reconcile due to rounding.)

The U.S. Insurance segment’s incurred losses and LAE decreased 10.0%, or $41.3 million, for the nine months ended September 30, 2006 as compared to the same period in 2005, primarily reflecting reduced earned premiums, which related to the continued reduction in the California workers’ compensation business and run-off of the credit program. The segment’s loss ratio increased 0.9 points from the comparable 2005 period primarily due to increased current year reserves for attritional losses, reflecting higher loss ratios established for new programs.

The following table shows the Specialty Underwriting segment components of incurred losses and LAE for the nine months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	110.4		$	(38.2	)	$	72.2		$	148.3		$	(23.7	)	$	124.6
Catastrophes		-			42.6			42.6			52.5			13.6			66.1

Total segment	$	110.4		$	4.4		$	114.8		$	200.8		$	(10.0	)	$	190.7

Loss Ratio		58.9	%		2.4	%		61.3	%		84.0	%		-4.2	%		79.8	%
(Some amounts may not reconcile due to rounding.)

The Specialty Underwriting segment’s incurred losses and LAE decreased 39.8%, or $75.9 million, for the nine months ended September 30, 2006 as compared to the same period in 2005, reflecting a reduction in earned premiums across all classes of business. In addition, the segment’s loss ratio improved by 18.5 points over the comparable 2005 period, primarily due to decreased catastrophe and attritional losses.

The following table shows the International segment components of incurred losses and LAE for the nine months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	282.7		$	(18.0	)	$	264.7		$	280.7		$	(24.8	)	$	255.9
Catastrophes		5.9			17.8			23.7			46.7			16.9			63.6

Total segment	$	288.7		$	(0.2	)	$	288.5		$	327.4		$	(7.9	)	$	319.5

Loss Ratio		54.2	%		0.0	%		54.1	%		62.8	%		-1.5	%		61.3	%
(Some amounts may not reconcile due to rounding.)

The International segment’s incurred losses and LAE decreased 9.7%, or $31.0 million, for the nine months ended September 30, 2006 as compared to the same period in 2005, reflecting lower catastrophe losses. The segment’s loss ratio improved by 7.2 points over the comparable 2005 period, primarily reflective of reduced current year catastrophe losses in Canada, Asia and international.

The following table shows the Bermuda segment components of incurred losses and LAE for the nine months ended as indicated:

	September 30, 2006									September 30, 2005
(Dollars in millions)	Current Year			Prior Years			Total Incurred			Current Year			Prior Years			Total Incurred

Attritional	$	365.7		$	(35.0	)	$	330.8		$	339.3		$	(24.4	)	$	315.0
Catastrophes		-			2.9			2.9			201.2			4.9			206.1
A&E		-			51.1			51.1			-			61.6			61.6

Total segment	$	365.7		$	19.1		$	384.8		$	540.5		$	42.1		$	582.6

Loss Ratio		57.0	%		3.0	%		60.0	%		95.9	%		7.5	%		103.4	%
(Some amounts may not reconcile due to rounding.)

The Bermuda segment’s incurred losses and LAE decreased 34.0%, or $197.8 million, for the nine months ended September 30, 2006 as compared to the same period in 2005. The segment’s loss ratio improved by 43.4 points over the comparable 2005 period, reflecting a reduction in catastrophe losses in the current year and more favorable development on prior period reserves for both attritional and A&E losses. These loss improvements were partially offset by an increase in the current year attritional losses reflecting increased earned premiums and a mix of business shift toward more casualty business.

Underwriting Expenses. The Company’s expense ratio, which is calculated by dividing underwriting expenses by net premiums earned, was 26.3% for the nine months ended September 30, 2006 compared to 26.1% for the nine months ended September 30, 2005.

The following table shows the expense ratios for each of the Company’s operating segments for the nine months ended September 30, 2006 and 2005.

Segment Expense Ratios
Segment	2006			2005
U.S. Reinsurance		26.3	%		26.2	%
U.S. Insurance		21.0	%		22.7	%
Specialty Underwriting		28.8	%		27.2	%
International		26.4	%		26.7	%
Bermuda		27.4	%		26.3	%

Segment underwriting expenses decreased by 5.7% to $738.6 million for the nine months ended September 30, 2006 from $783.5 million for the nine months ended September 30, 2005. Commission, brokerage, taxes and fees decreased by $43.7 million, principally reflecting decreases in premium volume and changes in the mix and distribution channel of business. Segment other underwriting expenses decreased by $1.2 million. Contributing to the segment underwriting expense decreases were a 17.5% ($24.8 million) decrease in the U.S. Insurance operation, a 16.9% ($11.0 million) decrease in the Specialty Underwriting operation and a 13.2% ($38.3 million) decrease in the U.S. Reinsurance operation, partially offset by an 18.6% ($27.5 million) increase in the Bermuda operation and a 1.2% ($1.7 million) increase in the International operation. The changes for each operation’s expenses principally resulted from changes in commission expenses related to changes in premium volume and business mix by class and type and, in some cases, changes in the use of specific reinsurance.

The Company’s combined ratio, which is the sum of the loss and expense ratios, decreased by 25.1 points to 88.6% for the nine months ended September 30, 2006 compared to 113.7% for the nine months ended September 30, 2005, as a result of lower catastrophe and attritional losses.

The following table shows the combined ratios for each of the Company’s operating segments for the nine months ended September 30, 2006 and 2005. The combined ratios for all operations were impacted by the loss and expense ratio variability noted above.

Segment Combined Ratios
Segment	2006			2005
U.S. Reinsurance		92.4	%		132.2	%
U.S. Insurance		87.5	%		88.3	%
Specialty Underwriting		90.1	%		107.0	%
International		80.5	%		88.0	%
Bermuda		87.4	%		129.7	%

Investment Results. Net investment income increased 14.9% to $445.8 million for the nine months ended September 30, 2006 from $387.9 million for the nine months ended September 30, 2005, primarily reflecting the growth in invested assets to $13.6 billion at September 30, 2006 from $12.2 billion at September 30, 2005. Period to period changes in investment income are impacted by changes in the level and mix of invested assets, prevailing interest rates and the results from equity investments in limited partnerships included in other investment income, which tend to fluctuate period to period.

The following table shows the components of net investment income for the nine months ended as indicated:

(Dollars in thousands)	2006			2005
Fixed maturities	$	381,427		$	375,722
Equity securities		9,754			7,935
Short-term investments		39,607			10,736
Other investment income		31,113			13,843

Total gross investment income		461,901			408,236
Interest credited and other expense		(16,072	)		(20,370	)

Total net investment income	$	445,829		$	387,866

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


Imbedded pre-tax yield of cash and invested assets at
September 30 and December 31	4.6	%	4.5	%
Imbedded after-tax yield of cash and invested assets at
September 30 and December 31	4.0	%	3.9	%
Annualized pre-tax yield on average cash and invested
assets for the nine months ended September 30	4.6	%	4.5	%
Annualized after-tax yield on average cash and invested
assets for the nine months ended September 30	4.0	%	3.9	%

Net realized capital gains of $24.7 million for the nine months ended September 30, 2006 reflected realized capital gains on the Company’s investments of $30.9 million, resulting principally from gains on equity

securities of $20.5 million and fixed maturities of $10.4 million, partially offset by $6.2 million of realized capital losses, resulting principally from losses on equity securities of $4.5 million and fixed maturities of $1.7 million. Net realized capital gains of $57.5 million for the nine months ended September 30, 2005 reflected $71.6 million of realized capital gains on the Company’s investments, resulting primarily from transactions to realign the investment portfolio in response to interest and credit market conditions, coupled with gains from the partial sale of the Company’s interest only strip portfolio, partially offset by $14.1 million of realized capital losses, which included $7.0 million related to write downs in the value of interest only strips deemed to be impaired on an other than temporary basis in accordance with Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (“EITF 99-20”).

The Company has seven outstanding specialized equity put options in its product portfolio. These products meet the definition of a derivative under FAS 133. The Company recognized net derivative expense of $1.0 million and $3.0 million for the nine months ended September 30, 2006 and 2005, respectively, reflecting changes in the fair value of the specialized equity put options.

Corporate, Non-allocated Expenses. Corporate underwriting expenses not allocated to segments were $18.1 million for the nine months ended September 30, 2006, which were comparable with the $14.3 million for the nine months ended September 30, 2005.

Interest, fees and bond issue cost amortization expense for the nine months ended September 30, 2006 and 2005 were $52.4 million and $56.9 million, respectively. Interest, fees and bond issue cost amortization expense for the nine months ended September 30, 2006 included $23.4 million related to the senior notes, $28.1 million related to the junior subordinated debt securities, $0.7 million related to the bond issue cost amortization and $0.3 million related to the credit line under the Company’s revolving credit facilities. Interest, fees and bond issue cost amortization expense for the nine months ended September 30, 2005 included $27.7 million related to the senior notes, $28.1 million related to the junior subordinated debt securities, $0.8 million to the bond issue cost amortization and $0.3 million related to the credit line under the Company’s revolving credit facilities. Interest expense on senior notes decreased due to the retirement on March 15, 2005 of the 8.5% senior notes issued on March 14, 2000.

Other income for the nine months ended September 30, 2006 was $1.3 million and other expense for the nine months ended September 30, 2005 was $8.9 million. The change in other expense for the nine months ended September 30, 2006 was primarily due to variability in the impact of foreign currency exchange gains and losses.

Income Taxes. The Company’s income tax expense is primarily a function of the statutory tax rates and corresponding net income in the jurisdictions where the Company operates, coupled with the impact from tax preferenced investment income. Variations generally reflect changes in the relative levels of pre-tax income between jurisdictions with different tax rates. The Company recognized income tax expense of $111.5 million for the nine months ended September 30, 2006 compared to $14.4 million for the nine months ended September 30, 2005. The increase was primarily due to the significant change in pre-tax income for the nine months ended September 30, 2006 as compared to the net pre-tax loss for the same period in 2005.

Net Income (Loss). Net income was $634.5 million for the nine months ended September 30, 2006 compared to a net loss of $56.5 million for the nine months ended September 30, 2005, essentially reflecting the differential in catastrophe losses between periods.

FINANCIAL CONDITION

Cash and Invested Assets. Aggregate invested assets, including cash and short-term investments, were $13,638.1 million at September 30, 2006 and $12,970.8 million at December 31, 2005. This increase in cash and invested assets resulted primarily from $494.2 million in cash flows from operations, $128.4 million of foreign currency translation, $24.7 million of net realized capital gains and a $26.4 million increase in net pre-tax unrealized appreciation of the Company’s investments comprised of an $81.1 million increase in pre-tax unrealized appreciation on the equity securities portfolio, partially offset by a $54.7 million decrease in pre-tax unrealized appreciation on the fixed maturities portfolio. Gross pre-tax unrealized appreciation and depreciation across the Company’s investment portfolio were $497.7 million and $131.3 million, respectively, at September 30, 2006 compared to $443.1 million and $103.0 million, respectively, at December 31, 2005.

The Company’s current investment strategy generally 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. The Company’s mix of taxable and tax-preferenced investments is adjusted continuously, consistent with the Company’s current and projected operating results, market conditions and the Company’s tax position. The fixed maturities in the investment portfolio are comprised of available for sale securities. The Company continues to evaluate its overall portfolio to modestly increase the emphasis on total return. In this context, the Company has invested in equity securities, principally public equity index securities, which it believes will enhance the risk-adjusted total return of the investment portfolio. Equity investments accounted for 30.3% of the Company’s shareholders’ equity at September 30, 2006 as compared to 26.4% at December 31, 2005.

The tables below summarize the composition and characteristics of the Company’s investment portfolio for the periods indicated:

(Dollars in thousands)	As of September 30, 2006				As of December 31, 2005
Fixed maturities	$	10,241.3	75.1	%	$	10,042.1	77.4	%
Equity securities		1,460.3	10.7	%		1,090.8	8.4	%
Short-term investments		1,338.4	9.8	%		1,443.8	11.1	%
Other invested assets		388.3	2.8	%		286.8	2.2	%
Cash		209.8	1.6	%		107.3	0.9	%

Total investments and cash	$	13,368.1	100.0	%	$	12,970.8	100.0	%


Fixed income portfolio duration	4.3	years	4.3	years
Fixed income composite credit quality	Aa	2	Aa	1
Imbedded end of period yield, pre-tax	4.6	%	4.5	%
Imbedded end of period yield, after-tax	4.0	%	3.9	%

The decrease in short-term investments was due principally to a reallocation to fixed maturities and equity securities.

The Company, because of its historical income orientation, has generally considered total return, the combination of income yield and capital appreciation/depreciation, to be relatively less important as a measure of performance than its overall income yield. However, with changes the Company perceives in overall investment market conditions, the Company continues to reweight its view of total return and added $288.7 million of equity securities into the overall investment portfolio in 2006. The following table provides a comparison of the Company’s total return by asset class to broadly accepted industry benchmarks for the periods indicated:


Company's fixed income portfolio total return	3.3	%	3.2	%
Lehman bond aggregate	3.1	%	2.4	%
Company's common equity portfolio total return	9.0	%	13.8	%
S & P 500	8.5	%	4.9	%
Company's other invested asset portfolio total return	10.7	%	7.2	%

Reinsurance Receivables. Reinsurance receivables for both paid and unpaid losses were $852.5 million at September 30, 2006, an 18.7% decrease from the $1,048.7 million at December 31, 2005. At September 30, 2006, $180.4 million, or 21.2%, was receivable from Transatlantic Reinsurance Company (“Transatlantic”), $124.4 million, or 14.6%, was receivable from LM Property and Casualty Insurance Company (“LM”), whose obligations are guaranteed by The Prudential Insurance Company of America (“The Prudential”), and $100.0 million, or 11.7%, was receivable from Continental Insurance Company (“Continental”), which is partially collateralized by funds held arrangements. In addition, $97.2 million, or 11.4%, was receivable from subsidiaries of London Reinsurance Group (“London Life”), which are collateralized by a combination of letters of credit and funds held arrangements under which the Company has retained the premium payments due the retrocessionaire, recognized liabilities for such amounts and reduced such liabilities as payments are due from the retrocessionaire. No other retrocessionaire accounted for more than 5% of the Company’s receivables.

Loss and LAE Reserves. Gross loss and LAE reserves totaled $8,862.2 million at September 30, 2006 and $9,126.7 million at December 31, 2005. The decrease during the nine months ended September 30, 2006 is primarily attributable to the payout of prior years catastrophe losses. Net prior period reserve adjustments, including lower catastrophe loss reserves and normal variability in claim settlements also impacted the period over period change.

The following tables summarize gross outstanding loss and LAE reserves by segment, segregated into case reserves and incurred but not reported loss (“IBNR”) reserves for the periods indicated. Reserves for A&E exposures, which are managed on a combined basis, are shown separately.

Gross Reserves By Segment
	As of September 30, 2006
(Dollars in thousands)	Case Reserves		IBNR Reserves		Total Reserves		% of Total
U.S. Reinsurance	$	1,712,549	$	2,050,984	$	3,763,533		42.5	%
U.S. Insurance		598,246		975,997		1,574,243		17.7	%
Specialty Underwriting		353,050		133,600		486,650		5.5	%
International		556,590		380,874		937,464		10.6	%
Bermuda		794,035		663,210		1,457,245		16.4	%

Total excluding A&E		4,014,470		4,204,665		8,219,135		92.7	%
A&E		497,971		145,125		643,096		7.3	%

Total including A&E	$	4,512,441	$	4,349,790	$	8,862,231		100.0	%

	As of December 31, 2005
(Dollars in thousands)	Case Reserves		IBNR Reserves		Total Reserves		% of Total
U.S. Reinsurance	$	1,654,597	$	2,423,192	$	4,077,789		44.7	%
U.S. Insurance		583,729		948,288		1,532,017		16.8	%
Specialty Underwriting		273,369		184,719		458,088		5.0	%
International		577,276		434,541		1,011,817		11.1	%
Bermuda		618,066		779,465		1,397,531		15.3	%

Total excluding A&E		3,707,037		4,770,205		8,477,242		92.9	%
A&E		526,210		123,250		649,460		7.1	%

Total including A&E	$	4,233,247	$	4,893,455	$	9,126,702		100.0	%

The changes by segment generally reflect changes in earned premium, changes in business mix, the impact of reserve re-estimations and changes in catastrophe loss reserves, together with claim settlement activity. The fluctuations for A&E reflect the impact of reserve re-evaluations and claim settlement activity.

The Company’s loss and LAE reserves reflect estimates of ultimate claim liability. Such estimates are re-evaluated on an ongoing basis, including re-estimates of prior period reserves, taking into consideration all available information and, in particular, newly reported loss and claim experience. The effect of such re-evaluations impacts incurred losses for the current period. The Company notes that its analytical methods and processes operate at multiple levels including individual contracts, groupings of like contracts, classes and lines of business, internal business units, segments, legal entities, and in the aggregate. The complexities of the Company’s business and operations require analyses and adjustments, both qualitative and quantitative, at these various levels. Additionally, the attribution of reserves, change in reserves and incurred losses between accident year and underwriting year requires adjustments and allocations, both qualitative and quantitative, at these various levels. All of these processes, methods and practices appropriately balance actuarial science, business expertise and management judgment in a manner intended to assure the accuracy, precision and consistency of the Company’s reserving practices, which are fundamental to the Company’s operations. The Company notes however, that the underlying reserves remain estimates, which are subject to variation, and that the relative degree of variability is generally least when reserves are considered in the aggregate and generally increases as the focus shifts to more granular data levels.

There can be no assurance that reserves for, and losses from, claim obligations will not increase in the future. However, management believes that the Company’s existing reserves and reserving methodologies lessen the probability that any such increase would have a material adverse effect on the Company’s financial condition, results of operations or cash flows. In this context, the Company notes that over the past 10 years, its past calendar year operations have been affected variably by effects from prior period reserve re-estimates, with such effects ranging from a favorable $62.1 million in 1997, representing 2.2% of the net prior period reserves for the year in which the adjustment was made, to an unfavorable $249.4 million in 2004, representing 3.7% of the net prior period reserves for the year in which the adjustment was made. The Company’s Annual Report on Form 10-K for the year ended December 31, 2005 discusses the Company’s past experience more fully in Part I, Item 1, “Changes in Historical Reserves”.

Asbestos and Environmental Exposures. The Company continues to receive claims under expired contracts, both insurance and reinsurance, asserting alleged injuries and/or damages relating to or resulting from environmental pollution and hazardous substances, including asbestos. The Company’s environmental claims typically involve potential liability for (a) the mitigation or remediation of environmental contamination or (b) bodily injury or property damages caused by the release of hazardous substances into the land, air or water. The Company’s asbestos claims typically involve potential 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. This estimate is made based on judgmental assessment of the underlying exposures as the result of (1) long and variable reporting delays, both from insureds to insurance companies and from ceding companies to reinsurers; (2) historical data, which is more limited and variable on A&E losses than historical information on other types of casualty claims; and (3) unique aspects of A&E exposures for which ultimate value cannot be estimated using traditional reserving techniques. There are significant uncertainties in estimating the amount of the Company’s potential losses from A&E claims. Among the uncertainties are: (a) potentially long waiting periods between exposure and manifestation of any bodily injury or property damage; (b) difficulty in identifying sources of asbestos or environmental contamination; (c) difficulty in properly allocating responsibility and/or liability for asbestos or environmental damage; (d) changes in underlying laws and judicial interpretation of those laws; (e) the potential for an asbestos or environmental claim to involve many insurance providers over many policy periods; (f) questions concerning interpretation and application of insurance and reinsurance coverage; and (g) uncertainty regarding the number and identity of insureds with potential asbestos or environmental exposure.

With respect to asbestos claims in particular, several additional factors have emerged in recent years that further compound the difficulty in estimating the Company’s liability. These developments include: (a) continued growth in the number of claims filed, in part reflecting a much more aggressive plaintiff bar and including claims against defendants who may only have a “peripheral” connection to asbestos; (b) a disproportionate percentage of claims filed by individuals with no functional injury, which should have little to no financial value but that have increasingly been considered in jury verdicts and settlements; (c) the growth in the number and significance of bankruptcy filings by companies as a result of asbestos claims (including, more recently, bankruptcy filings in which companies attempt to resolve their asbestos liabilities in a manner that is prejudicial to insurers and forecloses insurers from participating in the negotiation of asbestos related bankruptcy reorganization plans); (d) the concentration of claims in a small number of states that favor plaintiffs; (e) the growth in the number of claims that might impact the general liability portion of insurance policies rather than the product liability portion; (f) measures adopted by specific courts to ameliorate the worst procedural abuses; (g) an increase in settlement values being paid to asbestos claimants, especially those with cancer or functional impairment; (h) legislation in some states to address asbestos litigation issues; and (i) the potential that other states or the U.S. Congress may adopt legislation on asbestos litigation.

Management believes that these uncertainties and factors continue to render reserves for A&E and particularly asbestos losses significantly less subject to traditional actuarial analysis than reserves for other types of losses. Given these uncertainties, management believes that no meaningful range for such ultimate losses can be established. The Company establishes reserves to the extent that, in the judgment of management, the facts and prevailing law reflect an exposure for the Company or its ceding companies. The Company’s A&E liabilities stem from Mt. McKinley’s direct insurance business and Everest Re’s assumed reinsurance business.

In connection with the acquisition of Mt. McKinley, which has significant exposure to A&E claims, LM provided reinsurance to Mt. McKinley covering 80% ($160.0 million) of the first $200.0 million of any adverse development of Mt. McKinley’s reserves as of September 19, 2000 and The Prudential guaranteed LM’s obligations to Mt. McKinley. Cessions under this reinsurance agreement exhausted the limit available under the contract at December 31, 2003.

Due to the uncertainties discussed above, the ultimate losses attributable to A&E, and particularly asbestos, may be subject to more variability than are non-A&E reserves and such variation could have a material adverse effect on the Company’s financial condition, results of operations and/or cash flows.

With respect to Mt. McKinley, where the Company has a direct relationship with policyholders, the Company’s aggressive litigation posture and the uncertainties inherent in the asbestos coverage and bankruptcy litigation have provided an opportunity to actively engage in settlement negotiations with a number of those policyholders who have potentially significant asbestos liabilities. Those discussions are oriented towards achieving reasonable negotiated settlements that limit Mt. McKinley’s liability to a given policyholder to a sum certain. In 2004 and 2005 and thus far in 2006, the Company concluded such settlements or reached agreement in principle with 14 of its high profile policyholders. The Company has currently identified 9 policyholders based on their past claim activity and/or potential future liabilities as “High Profile Policyholders” and its settlement efforts are generally directed at such policyholders, in part because their exposures have developed to the point where both the policyholder and the Company have sufficient information to be motivated to settle. The Company believes that this active approach will ultimately result in a more cost-effective liquidation of Mt. McKinley’s liabilities than a passive approach, although it may also introduce additional variability in Mt. McKinley’s losses and cash flows as reserves are adjusted to reflect the development of negotiations and, ultimately, potentially accelerated settlements.

There is less potential for similar settlements with respect to the Company’s reinsurance asbestos claims. Ceding companies, with their direct obligation to insureds and overall responsibility for claim settlements, are not consistently aggressive in developing claim settlement information and conveying this information to reinsurers, which can introduce significant and perhaps inappropriate delays in the reporting of asbestos claims/exposures to reinsurers. These delays not only extend the timing of reinsurance claim settlements, but also restrict the information available to estimate the reinsurers’ ultimate exposure. At September 30, 2006 the Company had gross asbestos loss reserves of $572.6 million, of which $312.5 million was for assumed business and $260.1 million was for direct excess business.

The following table summarizes incurred losses with respect to A&E on both a gross and net of retrocessional basis for the periods indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2006			2005			2006			2005
Gross basis:
Beginning of period reserves	$	619,879		$	701,756		$	649,460		$	728,325
Incurred losses		47,000			49,550			63,400			67,550
Paid losses		(23,783	)		(16,224	)		(69,764	)		(60,793	)

End of period reserves	$	643,096		$	735,082		$	643,096		$	735,082

Net basis:
Beginning of period reserves	$	440,015		$	490,204		$	450,350		$	506,675
Incurred losses		43,996			47,667			59,121			72,270
Paid losses		(3,740	)		(15,144	)		(29,200	)		(56,218	)

End of period reserves	$	480,271		$	522,727		$	480,271		$	522,727

At September 30, 2006, the gross reserves for A&E losses were comprised of $144.2 million representing case reserves reported by ceding companies, $143.5 million representing additional case reserves established by the Company on assumed reinsurance claims, $210.3 million representing case reserves established by the Company on direct excess insurance claims, including Mt. McKinley, and $145.1 million representing IBNR reserves.

The gross incurred losses for A&E exposures increased by $47.0 million and $49.6 million for the three months ended September 30, 2006 and 2005, respectively, and $63.4 million and $67.6 million for the nine months ended September 30, 2006 and 2005, respectively. These increases are the result of re-evaluations by management reflecting additional information received from insureds and ceding companies, ongoing litigation, additional claims received and settlement activity. Management closely monitors this additional information and adjusts reserves accordingly.

Industry analysts have developed a measurement, known as the survival ratio, to compare the A&E reserves among companies with such liabilities. The survival ratio is typically calculated by dividing a company’s current net reserves by the three year average of paid losses, and therefore measures the number of years that it would take to exhaust the current reserves based on historical payment patterns. Using this measurement, the Company’s net three year A&E survival ratio was 4.1 years at September 30, 2006. Adjusting for the effect of the reinsurance ceded under the reinsurance agreement with LM, this ratio rises to the equivalent of 5.1 years at September 30, 2006. The cession of $124.4 million to the stop loss reinsurance provided by LM in connection with the acquisition of Mt. McKinley results in unpaid proceeds that are not reflected in past net payments and effectively extend the funding available for future net payments.

Because the survival ratio was developed as a comparative measure of reserve strength and not of absolute reserve adequacy, the Company considers, but does not rely on, the survival ratio when evaluating its reserves. In particular, the Company notes that loss payout variability, which can be material, due in part to the Company’s orientation to negotiated settlements, particularly on its Mt. McKinley exposures, significantly impairs the credibility and utility of this measure as an analytical tool.

The Company’s net three year survival ratio on its asbestos exposures was 3.9 years for the period ended September 30, 2006. This three year survival ratio, when adjusted for the effect of the reinsurance ceded under the stop loss cover from LM, was 5.1 years and, when adjusted for settlements in place and structured

settlements, which are either fully funded by reserves or subject to financial terms that substantially limit the potential variability in the liability, and the stop loss protection from LM, was 10.6 years.

Shareholders’ Equity. The Company’s shareholders’ equity increased to $4,823.9 million as of September 30, 2006 from $4,139.7 million as of December 31, 2005, principally reflecting $634.5 million of net income for the nine months ended September 30, 2006, a $36.6 million increase due to net currency translation, a $27.4 million increase in net share-based compensation activity and a $9.0 million increase in net unrealized appreciation on investments, partially offset by $23.4 million of shareholder dividends.

LIQUIDITY AND CAPITAL RESOURCES

Capital. The Company’s business operations are in part dependent on the Company’s financial strength, and the market’s perception thereof. The Company has flexibility with respect to capitalization as a result of its perceived financial strength, in part measured by the Company’s shareholders’ equity noted above, its financial strength ratings as assigned by independent rating agencies, and its access to the debt and equity markets. The Company continuously monitors its capital and financial position, as well as investment and security market conditions, both in general and with respect to the Company’s securities, and responds accordingly.

From time to time, the Company has used open market share repurchases to effectively adjust its capital position. It made no such purchases for the nine months ended September 30, 2006 or in 2005. At September 30, 2006, 5.0 million shares remained under the existing repurchase authorization.

On December 1, 2005 under the new registration and offering revisions to the Securities Act of 1933, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”), as a Well Known Seasoned Issuer. Generally, under this shelf registration statement, Group is authorized to issue common shares, preferred shares, debt securities, warrants and hybrid securities, Holdings is authorized to issue debt securities and Everest Re Capital Trust III (“Capital Trust III”) is authorized to issue trust preferred securities.

•

On June 27, 2003, the Company filed a shelf registration statement on Form S-3 with the SEC, providing for the issuance of up to $975.0 million of securities. Generally, under this shelf registration statement, Group was authorized to issue common shares, preferred shares, debt securities, warrants and hybrid securities, Holdings was authorized to issue debt securities and Everest Re Capital Trust II (“Capital Trust II”) and Everest Re Capital Trust III were authorized to issue trust preferred securities. This shelf registration statement became effective on December 22, 2003 and was exhausted with the October 6, 2005 transaction described below. The following securities were issued pursuant to that registration statement.

•

On March 14, 2000, the Company completed a public offering of $200.0 million principal amount of 8.75% senior notes due March 15, 2010 and $250.0 million principal amount of 8.50% senior notes due and retired March 15, 2005. During 2000, the net proceeds of these offerings and additional funds were distributed by Holdings to Group.

Liquidity. The Company’s current investment strategy generally seeks to maximize after-tax income through a high quality, diversified, taxable bond and tax-preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity. The Company’s mix of taxable and tax-preferenced investments is adjusted continuously, consistent with the Company’s current and projected operating results, market conditions and tax position. With changes the Company perceives in overall investment market conditions, the Company continues to reweight its view of total return and added $288.7 million and $434.0 million of equity securities to the overall portfolio for the nine months ended September 30, 2006 and 2005, respectively.

The Company’s liquidity requirements are generally met from positive cash flow from operations. Positive cash flow results from reinsurance and insurance premiums being collected prior to disbursements for claims, which disbursements generally take place over an extended period after the collection of premiums, sometimes a period of many years. Collected premiums are generally invested, prior to their use in such disbursements, and investment income provides additional funding for loss payments. The Company’s net cash flows from operating activities were $494.2 million and $995.7 million for the nine months ended September 30, 2006 and 2005, respectively. Additionally, these cash flows reflected net tax payments of $12.6 million and $109.9 million for the nine months ended September 30, 2006 and 2005, respectively; net catastrophe loss payments of $708.2 million and $219.5 million for the nine months ended September 30, 2006 and 2005, respectively; and A&E loss payments of $29.2 million and $56.2 million for the nine months ended September 30, 2006 and 2005, respectively.

In periods for which disbursements for claims and benefits, policy acquisition costs and other operating expenses exceed premium inflows, cash flow from insurance operations would be negative. The effect on cash flow from operations would be partially offset by cash flow from investment income. Additionally, cash flow from investment maturities and dispositions, both short-term investments and longer term maturities, would further mitigate the impact on total cash flow.

Management expects the trend of positive cash flow from operations, which in general reflects the strength of overall pricing, to persist over the near term; however, this continuing underlying trend is negatively impacted by the payout of catastrophe loss reserves. In the intermediate and long term, the trend will be impacted by the extent to which competitive pressures change overall pricing available in the Company’s markets and the extent to which the Company successfully maintains its strategy of emphasizing profitability over volume.

As the exact timing of the payment of claims and benefits cannot be predicted with certainty, the Company maintains portfolios of long-term invested assets with varying maturities, along with short-term investments that are intended to provide adequate cash for payment of claims. At September 30, 2006 and December 31, 2005 the Company held cash and short-term investments of $1,548.1 million and $1,551.0 million, respectively. In addition to these cash and short-term investments at September 30, 2006, the Company had at fair value, available for sale fixed maturity securities of $600.5 million maturing within one year or less, $2,419.4 million maturing within one to five years and $7,221.4 million maturing after five years. These fixed maturity and equity securities, in conjunction with the short-term investments and positive cash flow from operations, provide adequate sources of liquidity for the expected payment of losses in the near future. The Company does not anticipate selling securities or using available credit facilities to pay losses and LAE but has the ability to do so. Sales may result in realized capital gains or losses and the Company notes that at September 30, 2006 it had $223.6 million of net unrealized appreciation, net of $142.8 million of taxes, comprised of $497.7 million of pre-tax appreciation and $131.3 million of pre-tax depreciation.

Effective December 8, 2004, Group, Bermuda Re, and Everest International Reinsurance, Ltd. (“Everest International”) entered into a three year, $750.0 million senior credit facility with a syndicate of lenders (the “Group Credit Facility”). Wachovia Bank is the administrative agent for the Group Credit Facility. The Group Credit Facility consists of two tranches. Tranche one provides up to $250.0 million of revolving credit for liquidity and general corporate purposes, and for the issuance of standby letters of credit. The interest on the revolving loans shall, at the option of each of the borrowers, be either (1) the Base Rate (as defined below) or (2) an adjusted London Interbank Offered Rate (“LIBOR”) plus a margin. The Base Rate is the higher of the rate of interest established by Wachovia Bank from time to time as its prime rate or the Federal Funds rate, in each case plus 0.5% per annum. The amount of margin and the fees payable for the Group Credit Facility depend on Group’s senior unsecured debt rating. Tranche two exclusively provides up to $500.0 million for the issuance of standby letters of credit on a collateralized basis.

For the nine months ended September 30, 2006 and 2005, there were no outstanding borrowings under tranche one of the Group Credit Facility. At September 30, 2006, there was $121.8 million used of the $500.0 million available for tranche two of standby letters of credit. In addition, the Company had $262.4 million in letters of credit outstanding at September 30, 2006 under a $350.0 million bilateral agreement with Citibank. All of these letters of credit are collateralized by the Company’s cash and investments. These letters of credit are generally used to collateralize reinsurance assumed by Bermuda Re from jurisdictions where collateralization is generally required for the ceding company to receive credit for such reinsurance recoverables from its principal regulator. Bermuda Re and Everest International also used trust arrangements to provide collateralization to ceding companies, including affiliates. The Company generally avoids providing collateral except where required for ceding companies to receive credit from their regulators. Additionally, at September 30, 2006, $144.1 million of assets were deposited in trust accounts, primarily on behalf of Bermuda Re, as security for assumed losses payable to certain non-affiliated ceding companies.

agreements, which have similar terms, are referred to as the “Holdings Credit Facility”. Citibank N.A. is the administrative agent for the Holdings Credit Facility. The Holdings Credit Facility is used for liquidity and general corporate purposes. The Holdings Credit Facility provides for the borrowing of up to $150.0 million with interest at a rate selected by Holdings equal to either, (1) the Base Rate (as defined below) or (2) a periodic fixed rate equal to the Eurodollar Rate plus an applicable margin. The Base Rate means a fluctuating interest rate per annum in effect from time to time to be equal to the higher of (a) the rate of interest publicly announced by Citibank as its prime rate or 0.5% per annum above the Federal Funds Rate, in each case plus the applicable margin. The amount of margin and the fees payable for the Holdings Credit Facility depends upon Holdings’ senior unsecured debt rating.

For the nine months ended September 30, 2006 and 2005, there were no outstanding borrowings under the Holdings Credit Facility.

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”). The Company does not generally enter into market sensitive instruments for trading purposes.

The Company’s 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. The Company’s mix of taxable and tax-preferenced investments is adjusted continuously, consistent with its current and projected operating results, market conditions and the Company’s tax position. The fixed maturities in the investment portfolio are comprised of non-trading available for sale securities. Additionally, the Company invests in equity securities, which it believes will enhance the risk-adjusted total return of the investment portfolio. The Company has also engaged in a small number of specialized equity options.

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 the Company’s capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated payout characteristics for which the investments of the Company 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.

The Company’s $13.6 billion investment portfolio at September 30, 2006 is principally comprised of fixed maturity securities, which are subject to interest rate risk and foreign currency rate risk, and equity securities, which are subject to equity price risk. The impact of the foreign exchange risks on the investment portfolio is generally mitigated by changes in the value of operating assets and liabilities and their associated income statement impact.

Interest rate risk is the potential change in value of the fixed maturity portfolio, including short-term investments, due to change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the $1,638.7 million of mortgage-backed securities in the $10,241.3 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 table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on the Company’s fixed maturity portfolio (including $1,338.4 million of short-term investments) as of September 30, 2006 based on parallel and immediate 200 basis point shifts in interest rates up and down in 100 basis point increments. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimates on mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For legal entities with a 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. All amounts are in U.S. dollars and are presented in millions.

As of September 30, 2006 Interest Rate Shift in Basis Points
	-200			-100			0			100			200
Total Market Value	$	12,602.5		$	12,095.5		$	11,579.6		$	11,017.3		$	10,434.4
Market Value Change from Base (%)		8.8	%		4.5	%		0.0	%		-4.9	%		-9.9	%
Change in Unrealized Appreciation
After-tax from Base ($)	$	768.5		$	387.6		$	-		$	(418.9	)	$	(850.6	)

The Company had $8,862.2 million and $9,126.7 million of reserves for losses and LAE as of September 30, 2006 and December 31, 2005, respectively. These amounts are recorded at their nominal or estimated ultimate payment amount, as opposed to fair 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 fair value of the reserves is less than the nominal value. As interest rates rise, the fair value of the reserves decreases and, conversely, if interest rates decline, the fair value will increase. These movements are the opposite of the interest rate impacts on the fair value of investments since reserves are future obligations. While the difference between fair value and nominal value is not reflected in the Company’s financial statements, the Company’s financial results will include investment income over time from the investment portfolio until the claims are paid. The Company’s loss and loss reserve obligations have an expected duration of approximately 3.7 years, which is reasonably consistent with the duration of the Company’s fixed maturities portfolio. If the Company were to discount its loss and LAE reserves, net of $0.9 billion of reinsurance receivables on unpaid losses, the discount would be approximately $1.5 billion, resulting in a discounted reserve balance of approximately $6.5 billion, representing approximately 57% of the fixed maturities market value. The existence of such obligations, and the variable differential between ultimate and fair value, which in theory applies equally to invested assets and insurance liabilities, provides substantial mitigation of the economic effects of interest rate variability even though such mitigation is not reflected in the Company’s financial statements.

Equity risk is the potential change in market value of the common stock and preferred stock portfolios arising from changing equity prices. The Company’s equity investments are mainly exchange traded and mutual funds, which invest principally in high quality common and preferred stocks that are traded on the major exchanges in the U.S. The primary objective in managing the equity portfolio is to provide long-term capital growth through market appreciation and income.

The table below displays the impact on market value and after-tax unrealized appreciation of a 20% change in equity prices up and down in 10% increments for the period indicated. The growth in exposure is primarily due to the growth in the equity portfolio. All amounts are in U.S. dollars and are presented in millions.

As of September 30, 2006 Change in Equity Values in Percent
	-20%			-10%			0%		10%		20%
Market Value of the Equity Portfolio	$	1,168.3		$	1,314.3		$	1,460.3	$	1,606.4	$	1,752.4
After-tax Change in Unrealized
Appreciation	$	(213.5	)	$	(106.8	)	$	-	$	106.8	$	213.5

Foreign currency rate risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of the Company’s non-U.S./Bermuda (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Generally, the Company prefers to maintain the capital of its operations in U.S. dollar assets, although this varies by regulatory jurisdiction in accordance with market needs. 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 Canadian Dollar, the British Pound Sterling and the Euro. The Company mitigates foreign exchange exposure by a general matching of the currency and duration of its assets to its corresponding operating liabilities. In accordance with Financial Accounting Standards Board Statement No. 52, the Company translates the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar. This translation amount is reported as a component of other comprehensive income. As of September 30, 2006, there has been no material change in exposure to foreign exchange rates as compared to December 31, 2005.

Although not considered material in the context of the Company’s aggregate exposure to market sensitive instruments, the Company has issued six specialized equity put options based on the S&P 500 index and one specialized equity put option based on the FTSE 100 index, that are market sensitive and sufficiently unique to warrant supplemental disclosure.

The Company has sold six specialized equity put options based on the S&P 500 index for total consideration, net of commissions, of $22.5 million. These contracts each have a single exercise date, with original maturities ranging from 12 to 30 years and strike prices ranging from $1,141.21 to $1,540.63. No amounts will be payable under these contracts if the S&P 500 index is at or above the strike price on the exercise dates, which currently fall between June 2017 and March 2031. If the S&P 500 index is lower than the strike price on the applicable exercise date, the amount due will vary proportionately with the percentage by which the index is below the strike price. Based on historical index volatilities and trends and the September 30, 2006 index value, the Company estimates the probability for each contract of the S&P 500 index being below the strike price on the exercise date to be less than 5.5%. The theoretical maximum payouts under the contracts would occur if on each of the exercise dates the S&P 500 index value were zero. The present value of these theoretical maximum payouts using a 6% discount factor is $210.1 million.

The Company has sold one specialized equity put option based on the FTSE 100 index for total consideration, net of commissions, of $6.7 million. This contract has an exercise date of July 2020 and a strike price of £5,989.75. No amount will be payable under this contract if the FTSE 100 index is at or above the strike price on the exercise date. If the FTSE 100 index is lower than the strike price on the applicable exercise date, the amount due will vary proportionately with the percentage by which the index is below the strike price. Based on historical index volatilities and trends and the September 30, 2006 index value, the Company estimates the

probability for this FTSE 100 index contract being below the strike price on the exercise date to be less than 10.7%. The theoretical maximum payout under the contract would occur if on the exercise date the FTSE 100 index value was zero. The present value of the theoretical maximum payout using a 6.0% discount factor is $27.6 million.

As these specialized equity put options are derivatives within the framework of FAS 133, the Company reports the fair value of these instruments in its balance sheet and records any changes to fair value in its consolidated statements of operations and comprehensive income. The Company has recorded fair values for its obligations on these specialized equity put options at September 30, 2006 and December 31, 2005 of $37.8 million and $36.3 million, respectively; however, the Company does not believe that the ultimate settlement of these transactions is likely to require a payment that would exceed the initial consideration received or any payment at all.

As there is no active market for these instruments, the determination of their fair value is based on an industry accepted option pricing model, which requires estimates and assumptions, including those regarding volatility and expected rates of return.

The table below estimates the impact of potential movements in interest rates and the Equity Indices, which are the principal factors affecting fair value of these instruments, looking forward from the fair value at September 30, 2006. These are estimates and there can be no assurance regarding future market performance. The asymmetrical results of the interest rate and S&P 500 and FTSE 100 indices shifts reflect that the liability cannot fall below zero whereas it can increase to its theoretical maximum.

As of September 30, 2006 S & P 500 Index Put Options Obligation – Sensitivity Analysis (Dollars in millions)
Interest Rate Shift in Basis Points:	-100		-50		0		50		100
Total Market Value	$	53.6	$	45.1	$	37.8	$	31.7	$	26.5
Market Value Change from Base (%)		-41.5%		-19.1%		0.0%		16.2%		30.0%
S&P Index Shift in Points:	-200		-100		0		100		200
Total Market Value	$	46.1	$	41.7	$	37.8	$	34.5	$	31.6
Market Value Change from Base (%)		-21.9%		-10.1%		0.0%		8.8%		16.4%
Combined Interest Rate / S&P Index Shift:	-100/-200		-50/-100		0/0		50/100		100/200
Total Market Value	$	64.3	$	49.4	$	37.8	$	28.8	$	21.9
Market Value Change from Base (%)		-69.9%		-30.7%		0.0%		23.8%		42.2%

Safe Harbor Disclosure. This report contains forward-looking statements within the meaning of the U.S. federal securities laws. The Company intends 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 the Company’s reserves for losses and LAE, the adequacy of the Company’s provision for uncollectible balances, estimates of the Company’s catastrophe exposure, the effects of catastrophic events, including the most recent hurricanes, on the Company’s financial statements, the ability of Everest Re, Holdings and Bermuda Re to pay dividends and the settlement costs of the Company’s

specialized equity put options. Forward-looking statements only reflect the Company’s expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from the Company’s expectations. Important factors that could cause the Company’s actual events or results to be materially different from the Company’s expectations include the uncertainties that surround the estimating of reserves for losses and LAE, those discussed in Note 5 of Notes to Consolidated Financial Statements (unaudited) included in this report and the risks described under the caption “Risk Factors” in the Company’s most recent Annual Report on Form 10-K, Part I, Item 1A. The Company undertakes no obligation to update or revise publicly any forward looking statements, whether as a result of new information, future events or otherwise.

PART I — Item 3

EVEREST RE GROUP, LTD.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Market Risk Instruments. See "Liquidity and Capital Resources - Market Sensitive Instruments" in PART I - Item 2.

PART I – Item 4

EVEREST RE GROUP, LTD.
CONTROLS AND PROCEDURES

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

EVEREST RE GROUP, LTD.
OTHER INFORMATION

PART II – Item 1. Legal Proceedings

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance, reinsurance and other contractual 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 as they arise are addressed, and 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. While the final outcome of these matters cannot be predicted with certainty, the Company does not believe that any of these matters, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, an adverse resolution of one or more of these items in any one quarter or fiscal year could have a material adverse effect on the Company’s results of operations in that period.

In May 2005, Holdings received and responded to a subpoena from the SEC seeking information regarding certain loss mitigation insurance products. The Company has stated that Holdings will fully cooperate with this and any future inquiries and that Holdings does not believe that it has engaged in any improper business practices with respect to loss mitigation insurance products.

The Company’s insurance subsidiaries have also received and have responded to broadly distributed information requests by state regulators including among others, from Delaware and Georgia.

PART II – Item 1A. Risk Factors

No material changes.

PART II - Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities



Issuer Purchases of Equity Securities

	(a)	(b)	(c)	(d)

Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2)

July 1 – 31	0	N/A	0	5,000,000

August 1 – 31	3,960	$ 93.47	0	5,000,000

September 1 – 30 (1)	17,049	$ 98.03	0	5,000,000

Total	21,009	$ 97.17	0	5,000,000

1)The 21,009 shares were withheld as payment for taxes on restricted shares that became unrestricted in the quarter. (2) On September 21, 2004, the Company’s board of directors approved an amended share repurchase program authorizing the Company and/or its subsidiary Holdings to purchase up to an aggregate of 5,000,000 of the Company’s common shares through open market transactions, privately negotiated transactions or both.

PART II – Item 3. Defaults Upon Senior Securities

None.

PART II – Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II – Item 5. Other Information

None.

Part II – Item 6. Exhibits

Exhibit Index:

Exhibit No.

Description

31.1

Section 302 Certification of Joseph V. Taranto

31.2

Section 302 Certification of Stephen L. Limauro

32.1

Section 906 Certification of Joseph V. Taranto and
Stephen L. Limauro

Everest Re Group, Ltd.

Signatures

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



	Everest Re Group, Ltd.
	(Registrant)


	/s/ STEPHEN L. LIMAURO

	Stephen L. Limauro
	Executive Vice President and
	Chief Financial Officer

	(Duly Authorized Officer and Principal
	Financial Officer)

Dated: November 9, 2006

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)(continued)For the Three and Nine Months Ended September 30, 2006 and 2005

PART I - Item 2

EVEREST RE GROUP, LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATION

RESULTS OF OPERATIONSIndustry Conditions

PART I — Item 3

EVEREST RE GROUP, LTD.QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

PART I – Item 4

EVEREST RE GROUP, LTD. CONTROLS AND PROCEDURES

EVEREST RE GROUP, LTD.OTHER INFORMATION

PART II – Item 1. Legal Proceedings

PART II – Item 1A. Risk Factors

PART II – Item 3. Defaults Upon Senior Securities

PART II – Item 4. Submission of Matters to a Vote of Security Holders

PART II – Item 5. Other Information

Part II – Item 6. Exhibits

Everest Re Group, Ltd.

Signatures

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2006 and 2005

EVEREST RE GROUP, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

RESULTS OF OPERATIONS

Industry Conditions

EVEREST RE GROUP, LTD.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

EVEREST RE GROUP, LTD.
CONTROLS AND PROCEDURES

EVEREST RE GROUP, LTD.
OTHER INFORMATION