-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E6GPzl+7Iw7xf+v0zOKy19oT6T5RA45jDXBPtfPKuQnfSsqDgM6SMOvxrVz6pNmZ jHojn7/E52hgjS0Kk5TOrA== 0000914748-98-000005.txt : 19980507 0000914748-98-000005.hdr.sgml : 19980507 ACCESSION NUMBER: 0000914748-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980506 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVEREST REINSURANCE HOLDINGS INC CENTRAL INDEX KEY: 0000914748 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 223263609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-71652 FILM NUMBER: 98611725 BUSINESS ADDRESS: STREET 1: 477 MARTINSVILLE RD STREET 2: PO BOX 830 CITY: LIBERTY CORNER STATE: NJ ZIP: 07938 BUSINESS PHONE: 9086043000 MAIL ADDRESS: STREET 1: 477 MARTINSVILLE RD STREET 2: PO BOX 830 CITY: LIBERTY CORNER STATE: NJ ZIP: 07938 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL REINSURANCE HOLDINGS INC DATE OF NAME CHANGE: 19931115 10-Q 1 EVEREST REINSURANCE HOLDINGS, INC. 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: Commission File Number: MARCH 31, 1998 1-13816 - ---------------------- ----------------------- EVEREST REINSURANCE HOLDINGS, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) DELAWARE 22-3263609 - ------------------------ ---------------------------- (State or other juris- (IRS Employer Identification diction of incorporation Number) or organization) WESTGATE CORPORATE CENTER LIBERTY CORNER, NEW JERSEY 07938-0830 ------------------------------------- (908) 604-3000 ------------------------------------- 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 at least the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of Shares Outstanding Class at May 5, 1998 ----- ---------------------------- COMMON STOCK, $.01 PAR VALUE 50,485,551 EVEREST REINSURANCE HOLDINGS, INC. INDEX TO FORM 10-Q PART I FINANCIAL INFORMATION --------------------- PAGE ITEM 1. FINANCIAL STATEMENTS ---- -------------------- Consolidated Balance Sheets at March 31, 1998 (unaudited) and December 31, 1997 3 Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited) 4 Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 1998 and 1997 (unaudited) 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited) 6 Notes to Consolidated Interim Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS 12 ----------------------------------- PART II OTHER INFORMATION ----------------- ITEM 1. LEGAL PROCEEDINGS 15 ----------------- ITEM 2. CHANGES IN SECURITIES 15 --------------------- ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ------------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY ------------------------------------------- HOLDERS None ------- ITEM 5. OTHER INFORMATION None ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15 -------------------------------- PART I - ITEM 1 EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value per share)
March 31, December 31, --------------- --------------- ASSETS: 1998 1997 --------------- --------------- (unaudited) Fixed maturities - available for sale, at market value (amortized cost: 1998, $3,768,393; 1997, $3,658,370) $ 3,973,775 $ 3,866,860 Equity securities, at market value (cost: 1998, $120,912; 1997, $120,510) 178,205 158,784 Short-term investments 104,927 75,244 Other invested assets 9,270 10,848 Cash 38,684 51,578 --------------- --------------- Total investments and cash 4,304,861 4,163,314 Accrued investment income 61,615 60,424 Premiums receivable 264,705 256,191 Reinsurance receivables 688,100 692,473 Funds held by reinsureds 189,341 186,454 Deferred acquisition costs 81,460 82,332 Prepaid reinsurance premiums 8,493 8,980 Deferred tax asset 69,726 74,434 Other assets 17,383 13,418 --------------- --------------- TOTAL ASSETS $ 5,685,684 $ 5,538,020 =============== =============== LIABILITIES: Reserve for losses and adjustment expenses $ 3,478,340 $ 3,437,818 Unearned premium reserve 338,522 337,383 Funds held under reinsurance treaties 199,149 190,639 Losses in the course of payment 47,144 55,969 Contingent commissions 98,662 100,027 Other net payable to reinsurers 9,208 13,231 Current federal income taxes 19,532 13,567 Other liabilities 138,848 81,903 --------------- --------------- Total liabilities 4,329,405 4,230,537 --------------- --------------- STOCKHOLDERS' EQUITY: Preferred stock, par value: $0.01; 50 million shares authorized; no shares issued and outstanding - - Common stock, par value: $0.01; 200 million shares authorized; 50.8 million shares issued 508 508 Additional paid-in capital 389,928 389,876 Unearned compensation (436) (514) Accumulated other comprehensive income, net of deferred income taxes 163,683 152,319 Retained earnings 810,657 773,380 Treasury stock, at cost; 0.3 million shares (8,061) (8,086) --------------- --------------- Total stockholders' equity 1,356,279 1,307,483 --------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,685,684 $ 5,538,020 =============== =============== The accompanying notes are an integral part of the consolidated financial statements.
3 EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
Three Months Ended March 31, --------------------------------- 1998 1997 ------------ ------------ (unaudited) REVENUES: Premiums earned $ 241,336 $ 230,443 Net investment income 60,013 54,042 Net realized capital loss (17) (199) Other income 1,546 3,234 ------------ ------------ Total revenues 302,878 287,520 ------------ ------------ CLAIMS AND EXPENSES: Incurred loss and loss adjustment expenses 178,592 166,841 Commission, brokerage, taxes and fees 60,437 62,015 Other underwriting expenses 11,824 12,739 ------------ ------------ Total claims and expenses 250,853 241,595 ------------ ------------ INCOME BEFORE TAXES 52,025 45,925 Income tax 12,224 11,461 ------------ ------------ NET INCOME $ 39,801 $ 34,464 ============ ============ Other comprehensive income/(loss), net of tax 11,364 (45,844) ------------ ------------ COMPREHENSIVE INCOME/(LOSS) $ 51,165 $ (11,380) ============ ============ PER SHARE DATA: Average shares outstanding (000's) 50,481 50,490 Net income per common share - basic $ 0.79 $ 0.68 ============ ============ Average diluted shares outstanding (000's) 50,800 50,725 Net income per common share - diluted $ 0.78 $ 0.68 ============ ============ The accompanying notes are an integral part of the consolidated financial statements.
4 EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands, except per share amounts)
Three Months Ended March 31, ---------------------------------- 1998 1997 ------------- ------------ (unaudited) COMMON STOCK (SHARES OUTSTANDING): Balance, beginning of period 50,479,271 50,490,273 Issued during the period 2,000 400 Treasury stock reissued during period 1,055 - ------------- ------------ Balance, end of period 50,482,326 50,490,673 ============= ============ COMMON STOCK (PAR VALUE): Balance, beginning of period $ 508 $ 508 Issued during the period - - ------------- ------------ Balance, end of period 508 508 ------------- ------------ ADDITIONAL PAID IN CAPITAL: Balance, beginning of period 389,876 389,196 Common stock issued during the period 33 6 Treasury stock reissued during period 19 - ------------- ------------ Balance, end of period 389,928 389,202 ------------- ------------ UNEARNED COMPENSATION: Balance, beginning of period (514) (374) Net increase during the period 78 50 ------------- ------------ Balance, end of period (436) (324) ------------- ------------ ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF DEFERRED INCOME TAXES: Balance, beginning of period 152,319 77,412 Net increase (decrease) during the period 11,364 (45,844) ------------- ------------ Balance, end of period 163,683 31,568 ------------- ------------ RETAINED EARNINGS: Balance, beginning of period 773,380 626,501 Net income 39,801 34,464 Dividends declared ($0.05 per share in 1998 and $0.04 per share in 1997) (2,524) (2,020) ------------- ------------ Balance, end of period 810,657 658,945 ------------- ------------ TREASURY STOCK AT COST: Balance, beginning of period (8,086) (7,220) Treasury stock reissued during period 25 - ------------- ------------ Balance, end of period (8,061) (7,220) ------------- ------------ TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD $ 1,356,279 $ 1,072,679 ============= ============ The accompanying notes are an integral part of the consolidated financial statements.
5 EVEREST REINSURANCE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Three Months Ended March 31, ----------------------------- 1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited) Net income $ 39,801 $ 34,464 Adjustments to reconcile net income to net cash provided by operating activities: (Increase) in premiums receivable (8,672) (28,549) Decrease in funds held by reinsureds, net 5,231 16,776 Decrease in reinsurance receivables 4,486 19,104 (Increase) in deferred tax asset (1,955) (3,905) Increase in reserve for losses and loss adjustment expenses 41,021 34,812 Increase in unearned premiums 1,036 6,730 (Increase) decrease in other assets and liabilities (10,813) 6,760 Non cash compensation expense 78 50 Accrual of bond discount/amortization of bond premium (73) (347) Realized capital losses 17 199 ------------ ------------ Net cash provided by operating activities 70,157 86,094 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from fixed maturities matured/called - held to maturity - 2,155 Proceeds from fixed maturities matured/called - available for sale 29,983 60,394 Proceeds from fixed maturities sold - available for sale 53,159 133,562 Proceeds from equity securities sold 2,660 10,379 Proceeds from other invested assets sold 1,314 - Cost of fixed maturities acquired - available for sale (192,560) (285,674) Cost of equity securities acquired (1,409) (13,326) Cost of other invested assets acquired (295) (1,495) Net (purchases) of short-term securities (32,070) (1,611) Net increase in unsettled securities transactions 28,892 11,379 ------------ ------------ Net cash used in investing activities (110,326) (84,237) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock 44 - Common stock issued during the period 33 6 Dividends paid to stockholders (2,524) (2,020) Net increase in collateral for loaned securities 27,898 - ------------ ------------ Net cash provided by (used in) financing activities 25,451 (2,014) ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,824 (7,155) ------------ ------------ Net (decrease) in cash (12,894) (7,312) Cash, beginning of period 51,578 52,595 ------------ ------------ Cash, end of period $ 38,684 $ 45,283 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION CASH TRANSACTIONS: Income taxes paid, net $ 7,744 $ 19,211 NON-CASH FINANCING TRANSACTION: Issuance of common stock in connection with public offering $ 78 $ 50 The accompanying notes are an integral part of the consolidated financial statements.
6 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (DOLLARS IN THOUSANDS) 1. GENERAL The consolidated financial statements of Everest Reinsurance Holdings, Inc. (the "Company") for the three months ended March 31, 1998 and 1997 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of results on an interim basis. Certain financial information which is normally included in annual financial statements prepared in accordance with generally accepted accounting principles has been omitted since it is not required for interim reporting purposes. The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The results for the three months ended March 31, 1998 and 1997 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, 1997, 1996 and 1995. 2. CONTINGENCIES The Company continues to receive claims under expired contracts which assert alleged injuries and/or damages relating to or resulting from toxic torts, toxic waste and other hazardous substances, such as asbestos. 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 environmental claims typically involve potential liability for (i) the mitigation or remediation of environmental contamination or (ii) bodily injury or property damages caused by the release of hazardous substances into the land, air or water. The Company's reserves include an estimate of the Company's ultimate liability for asbestos and environmental claims 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 asbestos and environmental claims. Among the complications are: (i) potentially long waiting periods between exposure and manifestation of any bodily injury or property damage; (ii) difficulty in identifying sources of asbestos or environmental contamination; (iii) difficulty in properly allocating responsibility and/or liability for asbestos or environmental damage; (iv) changes in underlying laws and judicial interpretation of those laws; (v) potential for an asbestos or environmental claim to involve many insurance providers over many policy periods; (vi) long reporting delays, both from insureds to insurance companies and ceding companies to reinsurers; (vii) limited historical data concerning asbestos and environmental losses; (viii) questions concerning interpretation and application of insurance and reinsurance coverage; and (ix) uncertainty regarding the number and identity of insureds with potential asbestos or environmental exposure. 7 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (DOLLARS IN THOUSANDS) Management believes that these issues are not likely to be resolved in the near future. 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 company. In connection with its initial public offering in October 1995, the Company purchased an aggregate stop loss retrocession agreement (the "Stop Loss Agreement") from Gibraltar Casualty Company ("Gibraltar"), an affiliate of the Company's former parent, The Prudential Insurance Company of America ("The Prudential"). This coverage protects the Company's consolidated earnings against up to $375.0 million of the first $400.0 million of adverse development, if any, on the Company's consolidated reserves for losses, allocated loss adjustment expenses and uncollectible reinsurance at June 30, 1995 (December 31, 1994 for catastrophe losses). Due to the uncertainties discussed above, the ultimate losses may vary materially from current loss reserves and, if coverage under the Stop Loss Agreement is exhausted, could have a material adverse effect on the Company's future financial condition, results of operations and cash flows. The following table shows the development of prior year asbestos and environmental reserves on both a gross and net of retrocessional basis for the three months ended March 31, 1998 and 1997: Three Months Ended March 31, 1998 1997 ---------- ----------- Gross Basis: Beginning of period reserves $ 446,132 $ 423,336 Incurred losses 27,895 11,198 Paid losses (4,361) (5,849) ---------- ----------- End of period reserves $ 469,666 $ 428,685 ========== =========== Net Basis: Beginning of period reserves $ 212,376 $ 199,557 Incurred losses 2,222 - Paid losses 17,779 2,328 ---------- ----------- End of period reserves $ 232,377 $ 201,885 ========== =========== 8 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (DOLLARS IN THOUSANDS) At March 31, 1998, the gross reserves for asbestos and environmental losses were comprised of $125,122 representing case reserves reported by ceding companies, $50,426 representing additional case reserves established by the Company on assumed reinsurance claims, $45,405 representing case reserves established by the Company on direct excess insurance claims and $248,713 representing IBNR reserves. To the extent loss reserves on assumed reinsurance need to be increased and were not ceded to unaffiliated reinsurers under existing reinsurance agreements, the Company would be entitled to certain reimbursements under the Stop Loss Agreement. To the extent loss reserves on direct excess insurance policies needed to be increased and were not ceded to unaffiliated reinsurers under existing reinsurance agreements, the Company would be entitled to 100% protection from Gibraltar under a retrocessional agreement in place since 1986. While there can be no assurance that reserves for and losses from these claims would not increase in the future, management believes that the Company's existing reserves and ceded reinsurance arrangements, including reimbursements available under the Stop Loss Agreement, lessen the probability that such increases, if any, would have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company is also named in various legal proceedings incidental to its normal business activities. In the opinion of management, none of these proceedings is likely to have a material adverse effect upon the financial condition, results of operations or cash flows of the Company. The Prudential sells annuities which are purchased by property and casualty insurance companies to settle certain types of claim liabilities. In 1993 and prior, the Company, for a fee, accepted the claim payment obligation of the property and casualty insurer, and, concurrently, became the owner of the annuity or assignee of the annuity proceeds. In these circumstances, the Company would be liable if The Prudential were unable to make the annuity payments. The estimated cost to replace all such annuities for which the Company was contingently liable at March 31, 1998 was $140,127. The Company has purchased annuities from an unaffiliated life insurance company 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. The estimated cost to replace such annuities at March 31, 1998 was $10,167. 9 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (DOLLARS IN THOUSANDS) 3. EARNINGS PER SHARE Net income per common share has been computed as follows (Shares in thousands, except per share amounts): Three Months Ended March 31, 1998 1997 -------- -------- Net income (numerator) $ 39,801 $ 34,464 ======== ======== Weighted average common and effect of dilutive shares used in the computation of net income per share: Average shares outstanding-basic (denominator) 50,481 50,490 Effect of dilutive shares 319 235 -------- -------- Average shares outstanding-diluted (denominator) 50,800 50,725 Net income per common share: Basic $ 0.79 $ 0.68 Diluted 0.78 0.68 Options to purchase 340,750 shares of common stock were outstanding as of March 31, 1998, but were not included in the computation of diluted earnings per share for the three month period ended on that date, because the options' exercise price was greater than the average market price of the common shares during the period. All options outstanding as of March 31, 1997 were included in the computation of diluted earnings per share for the three month period ended on that date. 4. CHANGES IN ACCOUNTING PRINCIPLES Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". This statement requires an enterprise to present items of other comprehensive income in a financial statement and to disclose accumulated balances of other comprehensive income in the equity section of a financial statement. The additional required presentation has been provided in the interim consolidated financial statements for the current period as well as earlier periods. The Company's components of other comprehensive income include unrealized gains and losses on investments 10 EVEREST REINSURANCE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued) FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (DOLLARS IN THOUSANDS) and foreign currency translation adjustments. As those items were previously presented as direct charges or credits to the Company's stockholders' equity, the only impact of adopting this standard is to reflect an additional presentation of those items. The Company's other comprehensive income is comprised as follows: Three Months Ended March 31, 1998 1997 ---------- ---------- Net unrealized appreciation (depreciation) of investments, net of deferred income taxes $ 10,342 $ (41,532) Cumulative translation adjustments, net of deferred income taxes 1,022 (4,312) ---------- ---------- Other comprehensive income/(loss), net of deferred income taxes $ 11,364 $ (45,844) ========== ========== 5. NEW ACCOUNTING STANDARDS In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". This statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair value of plan assets that will facilitate financial analysis and eliminates certain disclosures. This statement is effective for fiscal years beginning after December 15, 1997. When adopted, the additional required disclosures will be provided for earlier periods. 6. INCOME TAXES On April 21, 1998, the Supreme Court issued its decision in ATLANTIC MUTUAL V. COMMISSIONER, upholding the Internal Revenue Service's position regarding the computation of the fresh start benefit which relates to 1986 reserve strengthening. Management believes that the Company has adequate provisions for tax contingencies and, as a result, this decision will not materially impact the Company's financial statements. 11 PART I - ITEM 2 EVEREST REINSURANCE HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 PREMIUMS. Gross premiums written increased 2.8% to $253.0 million in the three months ended March 31, 1998 from $246.0 million in the three months ended March 31, 1997, as the Company continued to maintain a cautious approach to the increasingly competitive market conditions. Factors contributing to this increase included a 40.5% increase (to $80.5 million) in U.S. broker treaty operations, primarily attributable to the expansion of lines of business where the Company's participation has historically been limited and a 17.1% increase (to $53.1 million) in U.S. direct treaty reinsurance and insurance operations, largely attributable to growth in primary insurance written through Everest National. The increases were partially offset by a 26.3% decrease (to $15.7 million) in U.S. facultative operations, a 20.0% decrease (to $29.3 million) in marine, aviation and surety premiums and a 12.9% decrease (to $74.3 million) in international operations reflecting the competitive conditions in these markets. Ceded premiums decreased 15.4% to $10.3 million in the three months ended March 31, 1998 from $12.2 million in the three months ended March 31, 1997. This decrease was principally attributable to reduced common account retrocessions by ceding sources. Net premiums written increased by 3.8% to $242.7 million in the three months ended March 31, 1998 from $233.8 million in the three months ended March 31, 1997 reflecting the increases in gross premiums written and the decreases in ceded premiums. REVENUES. Net premiums earned increased by 4.7% to $241.3 million in the three months ended March 31, 1998 from $230.4 million in the three months ended March 31, 1997, generally consistent with the growth in net premiums written over the preceding year. Net investment income increased 11.0% to $60.0 million in the three months ended March 31, 1998 from $54.0 million in the three months ended March 31, 1997, reflecting principally the effect of investing the $360.5 million of cash flow in the twelve months ended March 31, 1998. The annualized pre-tax yield on average cash and invested assets of 6.0% in the three months ended March 31, 1998 decreased from the 6.1% yield in the three months ended March 31, 1997 reflecting the lower interest rate environment and an increasing orientation to tax-preferenced fixed maturity instruments. Net realized capital gains/losses were $0.0 million in the three months ended March 31, 1998, reflecting realized capital gains on the Company's common stock investments of $1.6 million which were offset by $1.6 million of realized capital losses on the Company's fixed maturity investments, compared to losses of $0.2 million in the three months ended March 31, 1997. The net realized capital loss in the three months ended March 31, 1997 reflected realized capital 12 gains on the Company's common stock investments of $0.4 million which were more than offset by $0.6 million of realized capital losses on the Company's fixed maturity investments. During both periods, the Company continued to seek enhanced yield on its fixed maturity investment portfolio. EXPENSES. Incurred losses and loss adjustment expenses ("LAE") increased by 7.0% to $178.6 million in the three months ended March 31, 1998 from $166.8 million in the three months ended March 31, 1997. Catastrophe losses in the three months ended March 31, 1998 were $6.0 million compared with $0.0 million in the three months ended March 31, 1997. The Company's loss and LAE ratio increased by 1.6 percentage points to 74.0% in the three months ended March 31, 1998 from 72.4% in the three months ended March 31, 1997 principally as a result of higher catastrophe losses and changes in the Company's mix of business towards certain reinsurance treaties with higher expected losses and lower ceding commissions. Net incurred losses and LAE for the three months ended March 31, 1998 reflected ceded losses and LAE of $33.8 million, including $20.0 million ceded under the Stop Loss Agreement, compared to ceded losses and LAE of $12.3 million, including $5.3 million ceded under the Stop Loss Agreement, in the three months ended March 31, 1997. Underwriting expenses decreased by 3.3% to $72.3 million in the three months ended March 31, 1998 from $74.8 million in the three months ended March 31, 1997. Commission, brokerage, taxes and fees decreased by $1.6 million, principally relating to the impact of the above mentioned changes in the business mix. Other underwriting expenses for the three months ended March 31, 1998 decreased by $0.9 million to $11.8 million from the three months ended March 31, 1997 reflecting the impact of the Company's continuing expense reduction initiatives. The Company's expense ratio decreased by 2.5 percentage points to 29.9% in the three months ended March 31, 1998 from 32.4% in the three months ended March 31, 1997. The Company's combined ratio decreased to 103.9% in the three months ended March 31, 1998 from 104.8% in the three months ended March 31, 1997. INCOME TAXES. The Company recognized income tax expense of $12.2 million in the three months ended March 31, 1998 compared to $11.5 million in the three months ended March 31, 1997 as pretax income in the three months ended March 31, 1998 increased to $52.0 million from $45.9 million in the three months ended March 31, 1997, the impact of which was partially offset by an increase in tax-preferenced investment income. NET INCOME. Net income was $39.8 million in the three months ended March 31, 1998 compared to $34.5 million in the three months ended March 31, 1997. This mainly reflected improved underwriting results and higher investment income, partially offset by increased taxes. FINANCIAL CONDITION INVESTED ASSETS. Aggregate invested assets, including cash and short-term investments, were $4,304.9 million at March 31, 1998 and $4,163.3 million at December 31, 1997. The increase in invested assets between December 31, 1997 and March 31, 1998 resulted primarily from cash flow from operations of $70.2 mil- lion generated during the three months ended March 31, 1998, a $28.9 million in- crease in unsettled investment security transactions, a $27.9 million increase 13 in collateral for loaned securities and a $15.9 million increase in unrealized appreciation of the Company's investment portfolio. STOCKHOLDERS' EQUITY. Holdings' stockholders' equity increased to $1,356.3 million as of March 31,1998, from $1,307.5 million as of December 31, 1997 principally reflecting net income of $39.8 million for the three months ended March 31, 1998 and a $10.3 million increase in net unrealized appreciation on investments, net of deferred income taxes. Dividends of $2.5 million were declared and paid by Holdings in the three months ended March 31, 1998. 14 EVEREST REINSURANCE HOLDINGS, INC. OTHER INFORMATION Part II - ITEM 1. LEGAL PROCEEDINGS The Company is subject to litigation and arbitration in the normal course of its business. Management does not believe that any such pending litigation or arbitration will have a material adverse effect on the Company's results of operations, financial condition and cash flows. Part II - ITEM 2. CHANGES IN SECURITIES (c) Information required by Item 701 of Regulation S-K: (a) On January 1, 1998, 1,055 common shares of the Company (previously held as treasury shares) were distributed. (b) The securities were distributed to the Company's five non- employee directors. (c) The securities were issued as compensation to the non-employee directors for services rendered to the Company during the fourth quarter of 1997. (d) Exemption from registration was claimed pursuant to Section 4(2) of the Securities Act of 1933. There was no public offering and the participants in the transactions were the Company and its non-employee directors. (e) Not applicable. Part II - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit Index: Exhibit No. Description Location ----------- ----------- -------- 11.1 Statement regarding computation of per-share earnings Filed herewith 27.1 Financial Data Schedule (for the period ended March 31, 1998) Filed herewith 15 27.2 Financial Data Schedules (for the periods ended March 31, 1997, June 30, 1997 and September 30, 1997, each restated for SFAS No. 128) Filed herewith 27.3 Financial Data Schedules (for the periods ended June 30, 1996, September 30, 1996 and December 31, 1996, each restated for SFAS No. 128) Filed herewith (b) Reports on Form 8-K: There were no reports filed on Form 8-K for the three months ended March 31, 1998. Omitted from this Part II are items which are inapplicable or to which the answer is negative for the period covered. 16 EVEREST REINSURANCE HOLDINGS, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Everest Reinsurance Holdings, Inc. (Registrant) - By: /s/ Stephen L. Limauro ---------------------- Stephen L. Limauro Duly Authorized Officer, Vice President and Comptroller Dated: May 5, 1998 EX-11.1 2 COMPUTATION OF EARNINGS PER SHARE Exhibit 11.1 EVEREST REINSURANCE HOLDINGS, INC. COMPUTATION OF EARNINGS PER SHARE FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Dollars in thousands)
INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT -------------- ---------------- ------------ MARCH 31, 1998 - -------------- BASIC EPS Income available to common stockholders $ 39,801 50,481,362 $ 0.79 ============ EFFECT OF DILUTIVE SECURITIES Options outstanding 317,730 Options exercised 536 ---------------- DILUTED EPS Income available to common stockholders and assumed conversions $ 39,801 50,799,628 $ 0.78 ============ MARCH 31, 1997 - -------------- BASIC EPS Income available to common stockholders $ 34,464 50,490,384 $ 0.68 ============ EFFECT OF DILUTIVE SECURITIES Options outstanding 232,784 Options exercised 120 Options cancelled 1,298 ---------------- DILUTED EPS Income available to common stockholders and assumed conversions $ 34,464 50,724,586 $ 0.68 ============
EX-27.1 3 FDS FOR EVEREST REINSURANCE HOLDINGS, INC. 10-Q
7 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 3,973,775 0 0 178,205 0 0 4,266,177 38,684 688,100 81,460 5,685,684 3,478,340 338,522 0 0 0 0 0 508 1,355,771 5,685,684 241,336 60,013 (17) 1,546 178,592 882 71,379 52,025 12,224 39,801 0 0 0 39,801 0.79 0.78 0 0 0 0 0 0 0
EX-27.2 4 RESTATED FDS FOR 3/97, 6/97 AND 9/97
7 1,000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 3,285,285 3,592,042 3,718,365 78,974 0 0 85,508 0 0 161,585 153,849 169,537 0 0 0 0 0 0 3,592,589 3,841,589 3,929,651 45,283 37,980 62,299 730,089 673,789 672,527 80,316 79,323 82,121 5,088,187 5,248,887 5,369,003 3,265,220 3,305,266 3,367,522 359,830 357,352 360,029 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 508 508 508 1,072,171 1,164,719 1,246,411 5,088,187 5,248,887 5,369,003 230,443 477,958 749,478 54,042 111,410 169,327 (199) 13,211 15,933 3,234 4,007 3,577 166,841 347,032 551,266 3,295 4,268 1,143 71,459 148,723 228,525 45,925 106,563 157,381 11,461 27,761 40,147 34,464 78,802 117,234 0 0 0 0 0 0 0 0 0 34,464 78,802 117,234 0.68 1.56 2.32 0.68 1.55 2.31 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.3 5 RESTATED FDS FOR 6/96, 9/96 AND 12/96
7 1,000 6-MOS 9-MOS 12-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 2,885,762 3,068,611 3,281,972 82,026 83,987 80,522 92,288 91,988 88,374 132,275 131,371 147,280 0 0 0 0 0 0 3,229,931 3,405,389 3,572,010 55,416 50,104 52,595 725,525 715,768 749,062 79,435 84,526 84,123 4,763,556 4,925,098 5,047,767 3,056,620 3,081,757 3,246,858 322,584 353,682 355,908 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 508 508 508 972,280 1,014,083 1,085,515 4,763,556 4,925,098 5,047,767 429,075 674,416 973,611 91,029 140,496 191,901 7,484 979 5,695 243 230 (1,867) 316,555 496,411 716,033 437 (4,659) (3,987) 137,759 222,007 313,455 73,080 102,362 143,839 16,590 22,653 31,812 56,490 79,709 112,027 0 0 0 0 0 0 0 0 0 56,490 79,709 112,027 1.12 1.58 2.22 1.11 1.57 2.21 0 0 2,268,464 0 0 745,594 0 0 (29,561) 0 0 213,832 0 0 270,447 0 0 2,500,218 0 0 29,561
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