10-Q

UNITED STATES

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:
September 30, 2003	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)

477 Martinsville Road
Post Office Box 830
Liberty Corner, New Jersey 07938-0830
(908) 604-3000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

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

YES   X       NO       

Indicate by check mark whether the registrant is an accelerated filer (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, 2003
Common Stock,     $.01 par value	1,000

EVEREST REINSURANCE HOLDINGS, INC.

Index To Form 10-Q

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 2003 (unaudited)	3
and December 31, 2002
Consolidated Statements of Operations and Comprehensive Income	4
for the three and nine months ended September 30, 2003
and 2002 (unaudited)
Consolidated Statements of Changes in Stockholder's Equity for the	5
three and nine months ended September, 2003 and 2002
(unaudited)
Consolidated Statements of Cash Flows for the three and nine	6
months ended September 30, 2003 and 2002 (unaudited)
Notes to Consolidated Interim Financial Statements	7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 4. CONTROLS AND PROCEDURES	36

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	37
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS	None
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	38

Part I- Item 1

EVEREST RE HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value per share)

	September 30,			December 31,
		2003			2002
ASSETS:		(unaudited)
Fixed maturities - available for sale, at market value
(amortized cost: 2003, $5,353,275; 2002, $4,569,844)	$	5,621,150		$	4,805,976
Equity securities, at market value (cost: 2003, $82,915 ; 2002, $79,791)		91,400			72,468
Short-term investments		195,300			130,075
Other invested assets		54,437			42,307
Cash		112,968			116,843
Total investments and cash		6,075,255			5,167,669
Accrued investment income		86,036			61,708
Premiums receivable		889,942			639,327
Reinsurance receivables unaffiliated		1,161,644			1,104,827
Reinsurance receivables affiliated		994,699			735,248
Funds held by reinsureds		142,680			121,308
Deferred acquisition costs		199,763			161,450
Prepaid reinsurance premiums		311,437			149,588
Deferred tax asset		140,078			144,376
Other assets		137,276			95,763
TOTAL ASSETS	$	10,138,810		$	8,381,264
LIABILITIES:
Reserve for losses and adjustment expenses	$	5,686,964		$	4,875,225
Unearned premium reserve		1,249,353			809,813
Funds held under reinsurance treaties		438,707			399,492
Losses in the course of payment		57,679			38,016
Contingent commissions		2,149			4,333
Other net payable to reinsurers		323,291			147,342
Current federal income taxes		(7,970	)		(16,365	)
8.5% Senior notes due 3/15/2005		249,850			249,780
8.75% Senior notes due 3/15/2010		199,223			199,158
Revolving credit agreement borrowings		70,000			70,000
Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts holding solely subordinated debentures
("trust preferred securities")		210,000			210,000
Interest accrued on debt and borrowings		3,830			13,481
Other liabilities		145,962			90,261
Total liabilities		8,629,038			7,090,536
STOCKEHOLDERS' EQUITY:
Common shares, par value: $0.01; 200 million shares authorized;
1,000 shares issued in 2003 and 2002		-			-
Additional paid-in capital		261,317			259,508
Accumulated other comprehensive income, net of
deferred income taxes of $97.3 million in 2003 and
$75.1 million in 2002		180,712			139,486
Retained earnings		1,067,743			891,734
Total stockholders' equity		1,509,772			1,290,728
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	10,138,810		$	8,381,264

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

3

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)

	Three Months,							Nine Months,
	Ended September 30,							Ended September 30,
	2003				2002			2003			2002
		(unaudited)						(unaudited)
REVENUES:
Premiums earned	$	776,895		$	456,387		$	1,974,187		$	1,366,112
Net investment income		70,491			64,402			210,627			194,673
Net realized capital (loss)		(11,843	)		(7,074	)		(23,922	)		(45,944	)
Net derivative expense		--			(1,009	)		--			(1,259	)
Other income (expense)		625			540			1,202			(3,941	)
Total revenues		836,168			513,246			2,162,094			1,509,641
CLAIMS AND EXPENSES:
Incurred loss and loss adjustment expenses		571,914			328,831			1,419,312			966,981
Commission, brokerage, taxes and fees		158,158			107,872			418,380			333,107
Other underwriting expenses		20,973			16,581			60,012			45,980
Distributions related to trust preferred securities		4,121			--			12,364			--
Interest expense on senior notes		9,733			9,730			29,197			29,186
Interest expense on credit facility		327			966			1,035			2,728
Total claims and expenses		765,226			463,980			1,940,300			1,377,982
INCOME BEFORE TAXES		70,942			49,266			221,794			131,659
Income tax expense		10,451			14,463			45,785			27,993
NET INCOME	$	60,491		$	34,803		$	176,009		$	103,666
Other comprehensive (loss) income , net of tax		(74,279	)		68,840			41,226			59,346
COMPREHENSIVE (LOSS) INCOME	$	(13,788	)	$	103,643		$	217,235		$	163,012

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

4

EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
(Dollars in thousands, except per share amounts)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2003			2002		2003		2002
	(unaudited)					(unaudited)
COMMON STOCK (shares outstanding):
Balance, beginning of period		1,000			1,000		1,000		1,000
Issued during the period		--			--		--		--
Balance, end of period		1,000			1,000		1,000		1,000
COMMON STOCK (par value):
Balance, beginning of period		--			--		--		--
Issued during the period		--			--		--		--
Balance, end of period		--			--		--		--
ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period	$	259,711		$	259,411	$	259,508	$	258,775
Common stock issued during the period		1,606			21		1,809		657
Balance, end of period		261,317			259,432		261,317		259,432
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		254,992			66,509		139,486		76,003
Net (decrease) increase during the period		(74,280	)		68,840		41,226		59,346
Balance, end of period		180,712			135,349		180,712		135,349
RETAINED EARNINGS:
Balance, beginning of period		1,007,252			845,494		891,734		776,631
Net income		60,491			34,803		176,009		103,666
Balance, end of period		1,067,743			880,297		1,067,743		880,297
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD	$	1,509,772		$	1,275,078	$	1,509,772	$	1,275,078

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

5

EVEREST RE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2003			2002			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:	(unaudited)						(unaudited)
Net income	$	60,491		$	34,803		$	176,009		$	103,666
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase in premiums receivable		(60,278	)		(51,001	)		(249,742	)		(148,862	)
(Increase) decrease in funds held, net		(646	)		44,077			15,836			76,910
Increase in reinsurance receivables		(134,764	)		(88,498	)		(306,787	)		(157,057	)
(Increase) decrease in deferred tax asset		(6,906	)		16,993			(17,819	)		7,019
Increase in reserve for losses and loss adjustment expenses		374,912			91,407			780,262			230,065
Increase in unearned premiums		117,403			100,647			435,631			266,115
Decrease in other assets and liabilities		(35,154	)		(22,511	)		(82,211	)		(166,603	)
Accrual of bond discount/amortization of bond premium		(1,050	)		(2,169	)		(5,456	)		(6,332	)
Amortization of underwriting discount on senior notes		46			42			135			124
Realized capital losses		11,843			7,074			23,922			45,944
Net cash provided by operating activities		325,897			130,864			769,780			250,989
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale		182,695			155,982			451,886			340,555
Proceeds from fixed maturities sold - available for sale		88,168			157,604			402,181			610,234
Proceeds from equity securities sold		7,759			--			8,056			19,940
Proceeds from other invested assets sold		3			4			244			3,064
Cost of fixed maturities acquired - available for sale		(577,342	)		(292,701	)		(1,624,881	)		(1,025,585	)
Cost of equity securities acquired		(6,095	)		(22,978	)		(10,254	)		(32,276	)
Cost of other invested assets acquired		(5,197	)		(4,529	)		(6,757	)		(6,368	)
Net purchases of short-term securities		(36,318	)		(145,586	)		(63,580	)		(206,169	)
Net increase (decrease) in unsettled securities transactions		45,147			(11,327	)		65,742			56,326
Net cash used in investing activities		(301,180	)		(163,531	)		(777,363	)		(240,279	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued during the period		1,606			21			1,809			657
Borrowing on revolving credit agreement		--			25,000			--			45,000
Repayments on revolving credit agreement		--			(5,000	)		--			(25,000	)
Net cash provided by financing activities		1,606			20,021			1,809			20,657
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(7,231	)		2,807			1,899			7,582
Net increase (decrease) in cash		19,092			(9,839	)		(3,875	)		38,949
Cash, beginning of period		93,876			116,297			116,843			67,509
Cash, end of period	$	112,968		$	106,458		$	112,968		$	106,458
SUPPLEMENTAL CASH FLOW INFORMATION
Cash transactions:
Income taxes paid, net	$	818		$	12,747		$	46,856		$	6,052
Interest paid	$	23,731		$	20,291		$	52,112		$	41,461

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 and Nine Months Ended September 30, 2003 and 2002

1. General

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

The consolidated financial statements of the Company for the three and nine months ended September 30, 2003 and 2002 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the results on an interim basis. Certain financial information, which is normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America, 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 generally accepted accounting principles in the United States of America. The results for the three and nine months ended September 30, 2003 and 2002 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, 2002, 2001 and 2000 included in the Company’s most recent Form 10-K filing.

2. Capital Resources

On June 27, 2003, Group filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission, which was subsequently amended on September 10, 2003 and provides for the issuance of up to $975 million of securities. 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 II and III are authorized to issue trust preferred securities. As of the date of this Form 10-Q filing, the registration statement was not yet effective.

On July 30, 2002, Group filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission, which provided for the issuance of up to $475.0 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 (“Capital Trust”) was authorized to issue trust preferred securities. This shelf registration statement became effective on September 26, 2002.

In November 2002, pursuant to a trust agreement between Holdings and JPMorgan Chase Bank, the property trustee, and Chase Manhattan Bank USA, the Delaware trustee, Capital Trust completed a public offering of $210.0 million of 7.85% trust preferred securities, resulting in net proceeds of $203.4 million. The proceeds of the issuance were used to purchase $210 million of 7.85% junior subordinated debt securities of Holdings that will be

7

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

                 held in trust by the property trustee for the benefit of the holders of the trust preferred securities.

Holdings used the proceeds from the sale of the junior subordinated debt securities for general corporate purposes and made capital contributions to its operating subsidiaries.

On April 23, 2003, Group expanded the size of the remaining shelf registration to $318 million by filing a post-effective amendment under Rule 462(b) of the Securities Act of 1933, as amended, and General Instruction IV of Form S-3 promulgated thereunder. On the same date, Group issued 4,480,135 of its common shares at a price of $70.75 per share, which resulted in $317.0 million in proceeds, before expenses of approximately $0.2 million. This transaction effectively exhausted the September 26, 2002 shelf registration.

On November 7, 2001, Group filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission, which provided for the issuance of up to $575 million of common equity. On February 27, 2002, pursuant to this registration statement, Group completed an offering of 5,000,000 of its common shares at a price of $69.25 per share, which resulted in $346.3 million of proceeds, before expenses of approximately $0.5 million. On October 2, 2002, Group filed a post-effective amendment to this registration statement that removed the remaining securities from registration.

On March 14, 2000, the Company completed public offerings of $200.0 million in principal amount of 8.75% senior notes due March 15, 2010 and $250.0 million in principal amount of 8.5% senior notes due March 15, 2005.

3. Contingencies

The Company continues to receive claims under expired contracts which assert alleged injuries and/or damages relating to or resulting from environmental pollution and hazardous substances, including 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 (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 reserves include an estimate of the Company’s ultimate liability for asbestos and environmental (“A&E”) 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 A&E claims. Among the complications are: (a) potentially

8

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

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) potential for an asbestos or environmental claim to involve many insurance providers over many policy periods; (f) long reporting delays, both from insureds to insurance companies and ceding companies to reinsurers; (g) historical data on A&E losses, which is more limited and variable than historical information on other types of casualty claims; (h) questions concerning interpretation and application of insurance and reinsurance coverage; and (i) uncertainty regarding the number and identity of insureds with potential asbestos or environmental exposure.

With respect to asbestos claims in particular, several additional factors further compound the difficulty in estimating the Company’s liability. These include: (a) the aggressiveness of the plaintiff bar; (b) claims filed by individuals with no functional injury from asbestos, claims with little to no financial value; (c) the number and significance of bankruptcy filings by companies as a result of asbestos claims; (d) claim filings against defendants formerly regarded as “peripheral”; (e) concentrations of claims in a small number of states that favor plaintiffs; (f) the number of claims that might impact the general liability portion of insurance policies rather than the product liability portion; (g) responses in which specific courts have adopted measures to ameliorate the worst procedural abuses; and (h) the potential that the U.S. Congress may consider legislation to address the asbestos litigation issue.

Management believes that these factors continue to render reserves for A&E losses significantly less subject to traditional actuarial methods than are 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.

In connection with the acquisition of Mt. McKinley Insurance Company (“Mt. McKinley”), which has significant exposure to A&E claims, Prudential Property and Casualty Insurance Company (“Prupac”), a subsidiary of The Prudential Insurance Company of America (“The Prudential”), 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 Prupac’s obligations to Mt. McKinley. Through September 30, 2003, cessions under this reinsurance agreement have reduced the available remaining limits to $54.4 million net of coinsurance.

Mt.     McKinley provided stop-loss reinsurance protection, in connection with the Company’s October 5, 1995 initial public offering, for any adverse loss development on Everest Re’s June 30, 1995 (December 31, 1994 for catastrophe losses) reserves, with $375.0 million in limits, of which $103.9 million remains available (the “Stop Loss Agreement”). The Stop Loss Agreement

9

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

and other reinsurance contracts between Mt. McKinley and Everest Re remain in effect following the acquisition. However, these contracts became transactions with affiliates effective on the date of the Mt. McKinley acquisition, and their financial impact is thereafter eliminated on consolidation. Effective September 19, 2000, Mt. McKinley and Bermuda Re entered into a loss portfolio transfer reinsurance agreement, whereby Mt. McKinley transferred, for what management believes to be arm’s-length consideration, all of its net insurance exposures and reserves to Bermuda Re.

Due to the uncertainties discussed above, the ultimate losses may vary materially from current loss reserves and, depending on coverage under the Company’s various reinsurance arrangements, 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 and nine months ended September 30, 2003 and 2002:

(dollar amounts in thousands)	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2003			2002			2003				2002
Gross basis:
Beginning of period reserves	$	646,159		$	639,102		$	667,922		$	644,390
Incurred losses		56,323			--			73,996			30,000
Paid losses		(9,702	)		(22,148	)		(49,138	)		(57,436	)
End of period reserves	$	692,780		$	616,954		$	692,780		$	616,954
Net basis:
Beginning of period reserves	$	237,529		$	262,602		$	243,157		$	276,169
Incurred losses		5,154			--			13,620			1,885
Paid losses		(11,839	)		(11,609	)		(2,255	)		(27,061	)
End of period reserves	$	254,522		$	250,993		$	254,522		$	250,993

At September 30, 2003, the gross reserves for A&E losses were comprised of $130.9 million representing case reserves reported by ceding companies, $75.6 million representing additional case reserves established by the Company on assumed reinsurance claims, $263.4 million representing case reserves established by the Company on direct excess insurance claims including Mt. McKinley, and $222.9 million representing incurred but not reported reserves.

10

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

For the Three and Nine Months Ended September 30, 2003 and 2002

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements and other more general contracts. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other disputes, the Company is resisting attempts by others to collect funds or enforce alleged rights. Such disputes are resolved through formal and informal means, including litigation and arbitration.

In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company also regularly evaluates those positions, and where appropriate, establishes or adjusts insurance reserves to reflect its evaluation. The Company’s aggregate reserves take into account the possibility that the Company may not ultimately prevail in each and every disputed matter. The Company believes its aggregate reserves reduce the potential that an adverse resolution of one or more of these matters, at any point in time, would have a material impact on the Company’s financial condition or results of operations. However, there can be no assurance that adverse resolutions of such matters in any one period or in the aggregate will not result in a material adverse effect on the Company’s results of operations.

The Company does not believe that there are any other materials pending legal proceedings to which it or any of its subsidiaries or their properties are subject.

The Prudential sold annuities, which were purchased by property and casualty insurance companies to settle certain types of claim liabilities. In 1993 and prior years, the Company, for a fee, accepted the claim payment obligation of these property and casualty insurers, 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 September 30, 2003 was $153.6 million.

In 1990, the Company purchased annuities from an unaffiliated life insurance company with an A+ (Superior) 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, 2003 was $15.7 million.

11

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

For the Three and Nine Months Ended September 30, 2003 and 2002

4. Other Comprehensive Income (Loss)

The Company’s other comprehensive income (loss) is comprised as follows:

(dollar amounts in thousands)	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2003	2002	2003	2002
Net unrealized
(depreciation)/appreciation
of investments, net of
deferred income taxes	($69,979)	$69,735	$31,168		$57,903
Currency translation
adjustments, net of deferred
income taxes	(4,301)	(895)	10,058		1,443
Other comprehensive income/(loss),
net of deferred
income taxes	($74,280)	$68,840	$41,226		$59,346

5. Credit Line

On December 21, 1999, the Company entered into a three-year senior revolving credit facility with a syndicate of lenders (the “Credit Facility”). On November 21, 2002, the maturity date of the Credit Facility was extended to December 19, 2003. Wachovia Bank, National Association (“Wachovia Bank”) is the administrative agent for the Credit Facility. The Credit Facility is used for liquidity and general corporate purposes. The Credit Facility provides for the borrowing of up to $150.0 million with interest at a rate selected by the Company equal to either (i) the Base Rate (as defined below) or (ii) 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 plus 0.5% per annum. The amount of margin and the fees payable for the Credit Facility depends upon the Company’s senior unsecured debt rating. Group guaranteed the Company’s obligations under the Credit Facility.

The Credit Facility requires the Company to maintain a debt to capital ratio of not greater than 0.35 to 1 and to maintain a minimum interest coverage ratio of 2.5 to 1 to maintain its statutory surplus at $850.0 million plus 25% of future aggregate net income and 25% of future aggregate capital contributions. As of September 30, 2003, the Company was in compliance with these covenants.

12

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

For the Three and Nine Months Ended September 30, 2003 and 2002

During the three and nine months ended September 30, 2003, Holdings made no payments and no borrowings on the Credit Facility. For the three and nine months ended September 30, 2002, Holdings made payments on the Credit Facility of $5.0 million and $25.0 million, respectively and had new Credit Facility borrowings of $25.0 million and $45.0 million, respectively.

As of September 30, 2003 and December 31, 2002, Holdings had outstanding Credit Facility borrowings of $70.0 million. Interest expense incurred in connection with the borrowing was $0.3 million and $1.0 million for the three months ended September 30, 2003 and 2002, respectively, and $1.0 million and $2.7 million for the nine months ended September 30, 2003 and 2002, respectively.

Effective October 10, 2003, the Company entered into a new three-year, $150.0 million revolving credit facility (the “New Credit Facility”), under similar terms, with a syndicate of lenders. Wachovia Bank is the administrative agent for the New Credit Facility. The required debt to capital and minimum interest coverage ratios have remained the same while the Everest Re statutory surplus requirement was increased to $1.0 billion plus 25% of future aggregate net income and 25% of future aggregate capital contributions and Group no longer guarantees Holdings’ obligations under the New Credit Facility. This New Credit Facility will replace the existing Credit Facility which would have expired on December 19, 2003 and will continue to be used for liquidity and general corporate purposes. A $70.0 million borrowing under the New Credit Facility was used to pay off the $70.0 million indebtedness under the old Credit Facility.

6. 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. Under these arrangements, at September 30, 2003 and 2002, letters of credit for $77.9 million and $11.3 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, 2003. All dollar amounts are in thousands.

			Year of
Bank	Commitment	In Use	Expiry
Citibank (London)	Individual	$     886	12/31/2003
Citibank (London)	Individual	$  3,206	01/28/2005
Citibank (London)	Individual	$67,791	12/31/2006
Wachovia	Individual	$  5,002	12/31/2003
Wachovia	Individual	$  1,045	03/31/2004
Total		$ 77,921

13

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

For the Three and Nine Months Ended September 30, 2003 and 2002

7. Senior Notes

During the first quarter of 2000, the Company completed a public offering of $200.0 million in principal amount of 8.75% senior notes due March 15, 2010 and $250.0 million in principal amount of 8.5% senior notes due March 15, 2005.

Interest expense incurred in connection with these senior notes was $9.7 million for the three months ended September 30, 2003 and 2002 and $29.2 million for the nine months ended September 30, 2003 and 2002.

8. Trust Preferred Securities

Capital Trust is a wholly owned finance subsidiary of Holdings. 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’s payment obligations with respect to the trust preferred securities.

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 require Everest Re, Holdings’ principal insurance subsidiary, to maintain a certain statutory surplus level.  At December 31, 2002, $986.3 million of the $1,290.7 million in net assets of Holdings’ consolidated subsidiaries were subject to the foregoing regulatory restrictions.

In November 2002, pursuant to a trust agreement between the Company and JPMorgan Chase Bank, the property trustee, and Chase Manhattan Bank USA, the Delaware trustee, Capital Trust completed a public offering of $210.0 million of 7.85% trust preferred securities, resulting in net proceeds of $203.4 million. The proceeds of the issuance were used to purchase $210 million of 7.85% junior subordinated debt securities of the Company that will be held in trust by the property trustee for the benefit of the holders of the trust preferred securities. The Company used the proceeds from the sale of the junior subordinated debt securities principally for capital contributions to its operating subsidiaries.

Holdings may elect to redeem the junior subordinated debt securities, in whole or in part, at any time after November 14, 2007. If such an early redemption occurs, the outstanding trust preferred securities will also be proportionately redeemed. If there is no early redemption, Everest Re Capital Trust will redeem all of the outstanding trust preferred securities when the junior subordinated debt securities are paid at maturity on November 15, 2032.

Capital Trust will redeem all of the outstanding trust preferred securities when the junior subordinated debt securities are paid at maturity on November 15, 2032. The Company may

14

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

elect to redeem the junior subordinated debt securities, in whole or in part, at any time after November 14, 2007. If such an early redemption occurs, the outstanding trust preferred securities will also be proportionately redeemed.

Distributions on the trust preferred securities are cumulative and pay quarterly in arrears. Distributions relating to the trust preferred securities for the three and nine months ended September 30, 2003 were $4.1 million and $12.4 million, respectively.

9. Segment Reporting

The Company, through its subsidiaries, operates in four segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting and International. 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 United States. The U.S. Insurance operation writes property and casualty insurance primarily through general agent relationships and surplus lines brokers within the United States. The Specialty Underwriting operation writes accident and health, marine, aviation and surety business within the United States and worldwide through brokers and directly with ceding companies. The International operation writes property and casualty reinsurance through the Company’s branches in London, Canada, and Singapore, in addition to foreign business, written through the Company’s New Jersey headquarters and Miami office.

These segments are managed in a carefully coordinated fashion with strong elements of central control, including with respect to capital, investments and support operations. As a result, management monitors and evaluates the financial performance of these operating segments based upon their underwriting gain or loss (“underwriting results”). The Company utilizes inter-affiliate reinsurance and such reinsurance does not impact segment results, since business is generally reported within the segment in which the business was first produced. Underwriting results include earned premium less incurred loss and loss adjustment expenses (“LAE”) incurred, commission and brokerage expenses and other underwriting expenses.

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.

Group has recently announced that one of its subsidiaries, Everest Re, has reached agreement, subject to regulatory approval, to sell its United Kingdom branch to another of Group’s subsidiaries, Bermuda Re. Business for this branch is currently reported through the International segment. Upon completion of the transaction, the UK branch business will no longer be reported in Holdings. However, this will not have a material impact on the operating results of the company.

15

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

The following tables present the relevant underwriting results for the operating segments for the three and nine months ended September 30, 2003 and 2002.

                                                                                      U.S. Reinsurance

(dollar values in thousands)	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2003	2002	2003	2002
Gross written premiums	$ 533,497	$ 254,083	$ 1,259,026	$ 589,841
Net written premiums	412,614	201,264	951,193	508,380
Earned premiums	$ 336,747	$ 153,940	$ 786,943	$ 458,587
Incurred losses and loss adjustment
expenses	266,010	113,282	597,590	327,425
Commission and brokerage	80,828	32,786	188,385	112,707
Other underwriting expenses	4,935	4,538	15,341	13,797
Underwriting (loss) gain	($  15,026)	$     3,334	($  14,373)	$     4,658

                                                                                      U.S. Insurance

(dollar values in thousands)	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2003	2002	2003	2002
Gross written premiums	$ 221,604	$ 196,527	$ 808,297	$ 616,937
Net written premiums	135,145	123,535	563,565	430,515
Earned premiums	$ 173,680	$ 118,352	$ 505,448	$ 324,848
Incurred losses and loss adjustment
expenses	131,843	87,762	368,927	230,237
Commission and brokerage	21,152	30,868	81,221	78,895
Other underwriting expenses	9,231	5,861	25,714	16,788
Underwriting gain (loss)	$   11,454	($     6,139)	$   29,586	($     1,072)

16

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

                                                                                      Specialty Underwriting

(dollar values in thousands)	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2003	2002	2003	2002
Gross written premiums	$ 124,090	$ 109,345	$ 393,762	$ 346,090
Net written premiums	94,316	97,450	301,388	320,233
Earned premiums	$ 91,688	$ 89,239	$ 295,538	$ 307,786
Incurred losses and loss adjustment
expenses	58,649	71,484	202,747	238,082
Commission and brokerage	23,427	23,368	78,128	86,699
Other underwriting expenses	1,473	1,584	4,392	4,476
Underwriting gain (loss)	$   8,139	($   7,197)	$     10,271	($  21,471)

                                                                                      International

(dollar values in thousands)	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2003	2002	2003	2002
Gross written premiums	$ 275,798	$ 133,673	$ 645,462	$ 358,280
Net written premiums	198,598	101,311	431,927	297,893
Earned premiums	$ 174,780	$   94,856	$ 386,258	$ 274,891
Incurred losses and loss adjustment
expenses	115,410	56,303	250,048	171,237
Commission and brokerage	32,751	20,850	70,646	54,806
Other underwriting expenses	4,221	3,053	11,491	9,374
Underwriting gain	$   22,398	$   14,650	$   54,073	$   39,474

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, with all dollar values presented in thousands:

	Three Months Ended			Nine Months Ended
	September 30,		September 30,
	2003	2002		2003	2002
Underwriting gain	$ 26,965	$ 4,648		$  79,557	$   21,589
Net investment income	70,491	64,402		210,627	194,673
Realized (loss)	(11,843)	(7,074)		(23,922)	(45,944)
Net derivative expense	-	(1,009)		-	(1,259)
Corporate expenses	(1,115)	(1,545)		(3,074)	(1,545)
Interest expense	(14,181)	(10,696)		(42,596)	(31,914)
Other income (expense)	625	540		1,202	(3,941)
Income before taxes	$ 70,942	$  49,266		$  221,794	$  131,659

17

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

The Company produces business in its United States 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 United States, in which the Company writes business, is the United Kingdom, with $86.2 and $219.9 million of gross written premiums for the three and nine months ended September 30, 2003, respectively. No other country represented more than 5% of the Company’s revenues.

10. Derivatives

The Company has in its product portfolio a credit default swap contract, which it no longer writes. This contract meets 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 this contract is unhedged and is accounted for as a derivative in accordance with FAS 133. Accordingly, this contract is carried at fair value with changes in fair value recorded in the statement of operations.

11. Investments — Interest Only Strips

Commencing with the second quarter of 2003 and continuing in the third quarter of 2003, the Company has invested in interest only strips of mortgage-backed securities (“Interest Only Strips”). 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 various entities. The ultimate cash flow from these investments is primarily dependent upon the average life of the mortgage pool. Generally, as market mortgage rates decline, mortgagees tend to refinance which will decrease the average life of a mortgage pool and decrease expected cash flows. Conversely, as market mortgage rates rise, repayments will slow and the ultimate cash flows will tend to rise. Accordingly, the market value of these investments tend to increase as interest rates rise and decline as interest rates fall. These movements are generally counter to the interest rate impact on the Company’s other fixed income investments. The total market value of the Interest Only Strips at September 30, 2003 was $151.6 million.

The Company accounts for its investment in Interest Only Strips in accordance with Emerging Issues Task Force 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 and determining when these securities must be written down to fair value because of impairment. EITF 99-20 requires 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 stockholders equity, when any portion of the decline in fair value is attributable to an impairment loss. As such, the Company recorded a realized capital loss on its Interest Only Strips of $13.7 million, net of income tax benefit of $7.4 million, for the three and nine months ended September 30, 2003.

18

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

12. New Accounting Pronouncement

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). FAS 142 established new accounting and reporting standards for acquired goodwill and other intangible assets. It requires that an entity determine if other intangible assets have an indefinite useful life or a finite useful life. Goodwill and those intangible assets with indefinite useful lives are not subject to amortization and must be tested at least annually for impairment. Those with finite useful lives are subject to amortization and must be tested annually for impairment. This statement is effective for all fiscal quarters of all fiscal years beginning after December 15, 2001. The Company adopted FAS 142 on January 1, 2002. The implementation of this statement has not had a material impact on the financial position, results of operations or cash flows of the Company.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“FAS 150”). The Company adopted the accounting treatment in accordance with FAS 150, and have reclassified its Trust Preferred Securities as a liability in its financial statements beginning with the period ending June 30, 2003.

In January 2003, the FASB issued Financial Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN No. 46 addresses whether certain types of entities, referred to as variable interest entities (“VIEs”), should be consolidated in a company’s financial statements. During October 2003, the FASB deferred the effective date of FIN 46 provisions for VIEs created prior to February 1, 2003 to the first reporting period ending after December 15, 2003. The Company is awaiting the final rules before implementing FIN 46. Based on the current provisions, the Company believes that the implementation of FIN 46 will not have a material effect on the Company’s consolidated financial position.

13. 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 one of its outside directors. These transactions are on terms as favorable as could have been obtained from unrelated third parties. Such transactions, individually and in the aggregate, are immaterial to the Company’s financial condition, results of operations and cash flows.

The Company engages in business transactions with Group and Bermuda Re. Effective January 1, 2003, Everest Re and Bermuda Re entered into a Quota Share Reinsurance agreement, for what management believes to be arm’s-length consideration, whereby Everest Re’s Canadian Branch cedes to Bermuda Re 50% of its net retained liability on all new and renewal property business written during the terms of this agreement. Effective January 1, 2003, Everest Re and Bermuda Re revised the Quota Share Reinsurance Agreement, whereby Everest Re cedes to

19

EVEREST REINSURANCE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)

For the Three and Nine Months Ended September 30, 2003 and 2002

Bermuda Re 25% of the net retained liability on all new and renewal policies written during the term of this agreement. For policies effective January 1, 2002 through December 31, 2002, Everest Re ceded 20% of the net retained liability to Bermuda Re. Management believes the quota share arrangements for both years were entered into as, and reflect, arm’s-length pricing. For premiums earned and losses incurred for the period January 1, 2002 through December 31, 2002, Everest Re, Everest National Insurance Company and Everest Security Insurance Company entered into an Excess of Loss Reinsurance Agreement with Bermuda Re, for what management believes to be arm’s- length consideration, covering workers’ compensation losses occurring on and after January 1, 2002, as respects new, renewal and in force policies effective on that date through December 31, 2002. Bermuda Re is liable for any loss exceeding $100,000 per occurrence, with its liability not to exceed $150,000 per occurrence. Effective October 1, 2001, Everest Re and Bermuda Re entered into a loss portfolio reinsurance agreement, whereby Everest Re transferred all of its Belgium Branch net insurance exposures and reserves to Bermuda Re for what management believes to be arm’s-length consideration and subsequently closed its Belgium Branch. Effective September 19, 2000, Mt. McKinley and Bermuda Re entered into a loss portfolio transfer reinsurance agreement, whereby Mt. McKinley transferred, for what management believes to be arm’s-length consideration, all of its net insurance exposures and reserves to Bermuda Re.

The following table summarizes the premiums and losses ceded by the Company to Bermuda Re:

	Three Months Ended		Nine Months Ended
	September 30,		September 30
(dollar values in thousands)	2003	2002	2003	2002
Ceded written premium	$ 269,487	$ 122,562	$ 704,579	$ 252,114
Ceded earned premium	$ 218,663	$   93,124	$ 561,902	$ 172,626
Ceded losses and LAE	$ 140,868	$   59,344	$ 361,083	$ 123,301

14. Subsequent Events

Effective October 10, 2003, the Company entered into a new three-year, $150.0 million revolving credit facility (the “New Credit Facility”), under similar terms, with a syndicate of lenders. Wachovia Bank is the administrative agent for the New Credit Facility. The required debt to capital and minimum interest coverage ratios have remained the same while the Everest Re statutory surplus requirement was increased to $1.0 billion plus 25% of future aggregate net income and 25% of future aggregate capital contributions and Group no longer guarantees Holdings’ obligations under the New Credit Facility. This New Credit Facility will replace the existing Credit Facility which would have expired on December 19, 2003 and will continue to be used for liquidity and general corporate purposes. A $70.0 million borrowing under the New Credit Facility was used to pay off the $70.0 million indebtedness under the old Credit Facility.

20

Part I — Item 2

EVEREST REINSURANCE HOLDINGS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Industry Conditions

The worldwide reinsurance and insurance businesses are highly competitive yet cyclical by product and market. The terrorist attacks on September 11, 2001 (the “September 11 attacks”) resulted in losses which reduced industry capacity and were of sufficient magnitude to cause most individual companies to reassess their capital position, tolerance for risk, exposure control mechanisms and the pricing terms and conditions at which they are willing to take on risk. The gradual and variable improving trend that had been apparent through 2000 and earlier in 2001 firmed significantly. This firming generally took the form of immediate and significant upward pressure on prices, more restrictive terms and conditions and a reduction of coverage limits and capacity availability. Such pressures were widespread, with variability depending on the product and markets involved, but mainly depending on the characteristics of the underlying risk exposures. The magnitude of the changes was sufficient to create temporary disequilibrium in some markets as individual buyers and sellers adapted to changes in both their internal and market dynamics.

Through 2002, the Company’s markets, and reinsurance and insurance markets in general, continued to firm, reflecting the continuing implications of losses arising from the September 11 attacks as well as aggregate company reactions to broad and growing recognition that competition in the late 1990s reached extremes in many classes and markets, which ultimately led to inadequate pricing and overly broad terms, conditions and coverages. The effect of these extremes, which has become apparent through excessive loss emergence, varies widely by company depending on product offerings, markets accessed, underwriting and operating practices, competitive strategies and business volumes. Across all market participants, however, the aggregate effect has been impaired financial results and erosion of the industry capital base. Coupled with deteriorating investment market conditions and results, and renewed concerns regarding longer term industry specific issues, including asbestos exposure and sub-par capital returns, these financial impacts introduced substantial, and in some cases extreme, pressure for the initiation and/or strengthening of corrective action by individual market participants. These pressures, aggregating across industry participants, resulted in firming prices, more restrictive terms and conditions, tightened coverage availability across most classes and markets and increasing concern with respect to the financial security of insurance and reinsurance providers.

Thus far in 2003 these general trends have continued, generally sustaining upward pressure on pricing, continued constriction of terms, conditions and coverages and constrained capacity. There are signs that pressures for incremental firming may be abating for some property classes, but these are offset by clear signs that pressures for incremental firming continue to build for casualty classes in general. More broadly, the industry remains exposed to fundamental issues that negatively impacted 2002, including difficult investment market conditions and adverse loss emergence, both of which have continued to erode the industry’s aggregate financial performance and perceptions of the financial strength of industry participants. These factors indicate the current strong market conditions are likely to persist until further corrective actions, possibly combined with improved investment conditions, restore more normal competitive conditions.

21

These current trends reflect a clear reversal of the general trend from 1987 through 1999 toward increasingly competitive global market conditions across most lines of business, as reflected by decreasing prices and broadening contract terms. The earlier trend resulted from a number of factors, including the emergence of significant reinsurance capacity in Bermuda, changes in the Lloyd’s market, consolidation and increased capital levels in the insurance and reinsurance industries, as well as the emergence of new reinsurance and financial products addressing traditional exposures in alternative fashions.

Many of these factors continue to operate and may take on additional importance as the result of the firming market conditions that have emerged. As a result, although the Company is encouraged by recent industry developments, which operate to its advantage, and more generally, by current market conditions, the Company cannot predict with any reasonable certainty whether and to what extent these favorable conditions will persist.

Segment Information

The Company, through its subsidiaries, operates in four segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting and International. 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 United States. The U.S. Insurance operation writes property and casualty insurance primarily through general agent relationships and surplus lines brokers within the United States. The Specialty Underwriting operation writes accident and health, marine, aviation and surety business within the United States and worldwide through brokers and directly with ceding companies. The International operation writes property and casualty reinsurance through the Company’s branches in London, Canada, and Singapore, in addition to foreign business, written through the Company’s New Jersey headquarters and Miami office.

These segments are managed in a carefully coordinated fashion with strong elements of central control, including with respect to capital, investments and support operations. As a result, management monitors and evaluates the financial performance of these operating segments principally based upon their underwriting results. The Company utilizes inter-affiliate reinsurance, but such reinsurance does not impact segment results, as business is generally reported within the segment in which the business was first produced.

Group has recently announced that one of its subsidiaries, Everest Re, has reached agreement, subject to regulatory approval, to sell its United Kingdom branch to another of Group’s subsidiaries, Bermuda Re. Business for this branch is currently reported through the International segment. Upon completion of the transaction, the UK branch business will no longer be reported in Holdings. However, this will not have a material impact on the operating results of the Company.

Group also announced that another subsidiary, Everest National Insurance Company, has opened a regional office in California to better serve its western U.S. Insurance business. The additional office will not affect segment reporting.

22

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002

Premiums.     Gross premiums written increased 66.6% to $1,155.0 million in the three months ended September 30, 2003 from $693.5 million in the three months ended September 30, 2002, as the Company took advantage of the general firming of rates, terms and conditions and selected growth opportunities, while continuing to maintain a disciplined underwriting approach. Due to the nature of its businesses, the Company is unable to precisely differentiate the effects of price changes as compared to changes in exposure. Similarly, because individual reinsurance arrangements often reflect revised coverages, structuring, pricing, terms and/or conditions from period to period, the Company is unable to precisely differentiate between the premium volume attributable to new business as compared to renewal business. Management believes however that, during the period, the more significant element of its period to period growth related, for most of its operations, to growth in exposures underwritten, with a lesser but still significant element relating to increased pricing and/or improved terms and conditions. Management believes further that market conditions are generally more favorable for casualty business classes than for property business classes although pricing for the latter generally remains at/or above attractive levels. As each of the Company’s operations monitors conditions for the products they offer in the markets they serve and adjusts its marketing and underwriting activities opportunistically, the current period reflected growth across all operations. Although premium volumes have increased significantly, the Company continued to decline business that did not meet its objectives regarding underwriting profitability.

Premium growth areas included an 110.0% ($279.4 million) increase in the U.S. Reinsurance operation, principally related to a $201.5 million increase in treaty casualty business and a $72.7 million increase in treaty property business. The International operation increased 106.3% ($142.1 million), primarily due to a $93.4 million increase in premiums from the London branch, a $27.8 million increase in international business written through the home office representing primarily Latin American business and an $18.1 million increase in Canadian business. The U.S. Insurance operation grew 12.8% ($25.1 million), principally as a result of a $16.2 million increase in excess and surplus lines insurance and a $7.4 million increase in errors and omissions exposures. The Specialty Underwriting operation increased 13.5% ($14.7 million), resulting primarily from a $24.7 million increase in accident and health business partially offset by an $8.1 million decline in marine business.

Ceded premiums increased to $314.3 million in the three months ended September 30, 2003 from $169.9 million in the three months ended September 30, 2002. This increase was principally attributable to $269.2 million of ceded premiums relating to quota share reinsurance agreements between Everest Re and Bermuda Re. Under these agreements Everest Re cedes 25% of its net retained liability on all new and renewal policies written for underwriting year 2003, Everest Re cedes 20% of its net retained liability on all new and renewal policies written for underwriting year 2002, and Everest Re’s Canadian branch cedes 50% of its net retained liability on all new and renewal property policies written for the 2003 underwriting year. Ceded premiums for the three months ended September 30, 2002 included $4.5 million and $11.9 million in adjustment premium relating to claims made under the 2001 and 2000 accident year aggregate excess of loss elements of the Company’s corporate retrocessional programs, respectively. There were no such adjustment premiums ceded under the Company’s corporate retrocessional program in the three months ended September 30, 2003.

23

Net premiums written increased by 60.6% to $840.7 million in the three months ended September 30, 2003 from $523.6 million in the three months ended September 30, 2002, reflecting the increase in gross premiums written, combined with the growth in ceded premiums.

Premium Revenues.     Net premiums earned increased by 70.2% to $776.9 million in the three months ended September 30, 2003 from $456.4 million in the three months ended September 30, 2002. Contributing to this increase was an 118.8% ($182.8 million) increase in the U.S. Reinsurance operation, an 84.3% ($79.9 million) increase in the International operation, a 46.7% ($55.3 million) increase in the U.S. Insurance operation, and a 2.7% ($2.4 million) increase in the Specialty Underwriting operation. All of these changes reflect period-to-period changes in net written premiums and business mix, together with normal variability in earnings 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.

Expenses.     Incurred loss and LAE increased by 73.9% to $571.9 in the three months ended September 30, 2003 from $328.8 million in the three months ended September 30, 2002. The increase in incurred losses and LAE was principally attributable to the increase in net premiums earned, the impact of changes in the Company’s mix of business and reserve adjustments for prior period losses.

Net reserve adjustments for non-asbestos and environmental exposures for the three months ended September 30, 2003, were $46.2 million, and are comprised of $26.7 million related principally to the casualty and, in particular, directors and officers liability exposures of the U.S. Reinsurance operation, $8.2 million related mainly to the casualty exposures of the London and Canadian branch units of the International operation, $8.3 million relating to the workers compensation exposures of the U.S. Insurance operation and $3.0 million relating to the surety exposures of the Specialty Underwriting operation. The increase for the U.S. Insurance operation relates to the 2001 and 2002 accident exposure years and all other reserve adjustments relate to the 1996-1999 accident exposure years.

Net reserve adjustments related to asbestos and environmental exposures were $5.2 million for the three months ended September 30, 2003. The Company has asbestos and environmental exposure principally relating to contracts written by the Company prior to 1986, and commutations thereof. The development on business written by the Company, net of reinsurance, was $ 5.2 million. Substantially all of the Company’s asbestos and environmental exposures relate to insurance and reinsurance contracts with coverage periods prior to 1986.

In all cases, the prior period development reflects management’s judgment as to the implications of losses reported during the period on the Company’s reserve balances.

Incurred losses and LAE include catastrophe losses, which include the impact of both current period events and favorable and unfavorable development on prior period events, and are net of reinsurance. A catastrophe is an event that causes a pre-tax loss on property exposures of at least $5.0 million and has an event date of January 1, 1988 or later. Catastrophe losses, net of contract specific cessions were $6.5 million in the three months ended September 30, 2003, relating principally to hurricanes Fabian and Isabel, compared to $10.2 million in the three months ended September 30, 2002.

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Incurred losses and LAE for the three months ended September 30, 2003 reflected ceded losses and LAE of $186.9 million compared to ceded losses and LAE in the three months ended September 30, 2002 of $130.4 million. Ceded losses and LAE in the three months ended September 30, 2003 include $131.6 million of ceded losses relating to the quota share reinsurance transactions noted earlier between the Company and Bermuda Re. The ceded losses and LAE for the three months ended September 30, 2002 included $9.6 million and $22.0 million of losses ceded under the 2001 and 2000 accident year aggregate excess of loss component of the Company’s corporate retrocessional program, respectively. There were no comparable losses ceded to the accident year aggregate excess of loss components of the Company’s corporate retrocessional program in the three months ended September 30, 2003.

The segment components of the increase in incurred losses and LAE in the three months ended September 30, 2003 from the three months ended September 30, 2002 were an 134.8% ($152.7 million) increase in the U.S. Reinsurance operation, an 105.0% ($59.1 million) increase in the International operation, and a 50.2% ($44.1 million) increase in the U.S. Insurance operation, partially offset by a 18.0% ($12.8 million) decrease in the Specialty Underwriting operation. These increases generally reflect the increases in earned premiums, modest reductions in the current year loss expectationassumptions for most segments reflecting continued improvement in market conditions and pricing, and the prior period reserve development discussed above. Incurred losses and LAE for each operation were also impacted by variability relating to changes in the level of premium volume and mix of business by class and type.

The Company’s loss and LAE ratio (“loss ratio”), which is calculated by dividing incurred losses and LAE by net premiums earned, increased by 1.5 percentage points to 73.6% in the three months ended September 30, 2003 from 72.1% in the three months ended September 30, 2002, reflecting the incurred losses and LAE discussed above.

The following table shows the loss ratios for each of the Company’s operating segments for the three months ended September 30, 2003 and 2002. The loss ratios for all operations were impacted by the factors noted above.

	Operating Segment Loss Ratios
Segment		2003	2002
U.S. Reinsurance		79.0%	73.6%
U.S. Insurance		75.9%	74.2%
Specialty Underwriting		64.0%	80.1%
International		66.0%	59.4%

Underwriting expenses increased by 43.9% to $179.1 million in the three months ended September 30, 2003 from $124.5 million in the three months ended September 30, 2002. Commission, brokerage, taxes and fees increased by $50.3 million, principally reflecting an increase of $134.0 million in expenses due to premium volume, which was partially offset by an increase in ceded commissions of $83.7 million. Other underwriting expenses increased by $4.4 million as the Company expanded operations to support it’s increased business volume. Contributing to the $54.7 million increase in expenses was an 129.8% ($48.4 million) increase in the U.S. Reinsurance operation and a 54.7% ($13.1 million) increase in the International operation, which were partially offset by a 17.3% ($6.3 million) decrease in the U.S. Insurance operation and a 0.2% ($0.1 million) decrease in the Specialty Underwriting 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 reinsurance, including with Bermuda Re, and the underwriting performance of the underlying business. The Company’s expense ratio, which is calculated by dividing underwriting expenses by net premiums earned, was 23.1% for the three months ended September 30, 2003 compared to 27.3% for the three months ended September 30, 2002.

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The Company’s combined ratio, which is the sum of the loss and expense ratios, decreased by 2.6 percentage points to 96.7% in the three months ended September 30, 2003 compared to 99.3% in the three months ended September 30, 2002.

The following table shows the combined ratios for each of the Company’s operating segments for the three months ended September 30, 2003 and 2002. The combined ratios for all operations were impacted by the loss and expense ratio variability noted above.

Operating Segment Combined Ratios
Segment	2003	2002
U.S. Reinsurance	104.5%	97.8%
U.S. Insurance	93.4%	105.2%
Specialty Underwriting	91.1%	108.1%
International	87.2%	84.6%

Investment Results. Net investment income increased 9.5% to $70.5 million in the three months ended September 30, 2003 from $64.4 million in the three months ended September 30, 2002, principally reflecting the effects of investing the $944.0 million of cash flow from operations in the twelve months ended September 30, 2003, and $203.4 million of net proceeds from the issuance of trust preferred securities in November 2002, partially offset by the effects of the lower interest rate environment.

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

	2003	2002
Imbedded pre-tax yield of cash and invested
assets at September 30, 2003 and 2002	4.7%	5.6%
Imbedded after-tax yield of cash and invested
assets at September 30, 2003 and 2002	3.9%	4.4%
Annualized pre-tax yield on average cash and
invested assets for the three months ended
September 30, 2003 and 2002	5.0%	5.6%
Annualized after-tax yield on average cash and
invested assets for the three months ended
September 30,2003 and 2002	4.0%	4.4%

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Net realized capital losses of $11.8 million in the three months ended September 30, 2003, reflected realized capital losses on the Company’s investments of $22.5 million which included $1.2 million relating to write-downs in the value of securities deemed to be impaired on an other than temporary basis and $21.1 million related to the impairment on Interest Only Strips in accordance with EITF 99-20, partially offset by $10.6 million of realized capital gains, which included $5.3 million of realized capital gains on the Interest Only Strips, compared to net realized capital losses of $7.1 million in the three months ended September 30, 2002. The net realized capital losses in the three months ended September 30, 2002 reflected realized capital losses of $18.4 million, which included $8.7 million relating to write-downs in the value of securities deemed to be impaired on an other than temporary basis, partially offset by $11.3 million of realized capital gains.

Interest expense for the three months ended September 30, 2003 was $10.1 million compared to $10.7 million for the three months ended September 30, 2002. Interest expense for the three months ended September 30, 2003 reflected $9.7 million relating to the senior notes and $0.3 million relating to borrowings under the revolving Credit Facility. Interest expense for the three months ended September 30, 2002 reflected $9.7 million relating to senior notes and $1.0 million relating to borrowings under the revolving Credit Facility.

Distributions on the trust preferred securities are cumulative and pay quarterly in arrears. Distributions relating to the trust preferred securities for the three months ended September 30, 2003 were $4.1 million. The securities were issued in November 2002.

Other income for the three months ended September 30, 2003 was $0.6 million compared to other income of $0.5 million for the three months ended September 30, 2002. This change is primarily due to recognition of gains previously deferred under retroactive reinsurance agreements with affiliates, partially offset by higher foreign exchange losses.

The Company has in its product portfolio a credit default swap contract, which it no longer writes. This contract meets the definition of a derivative under FAS 133. There was no net derivative expense from this credit default transaction for the three months ended September 30, 2003 and a $1.0 million derivative expense for the three months ended September 30, 2002.

Income Taxes. The Company recognized income tax expense of $10.5 million in the three months ended September 30, 2003 compared to an income tax benefit of $14.5 million in the three months ended September 30, 2002. The decrease in taxes generally resulted from an increase in realized capital losses, partially offset by improved underwriting and investment results.

Net Income. Net income was $60.5million in the three months ended September 30, 2003 compared to a net income of $34.8 million in the three months ended September 30, 2002, reflecting the factors noted above.

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

Premiums.     Gross premiums written increased 62.6% to $3,106.6 million in the nine months ended September 30, 2003 from $1,911.1 million in the nine months ended September 30, 2002, as the Company took advantage of the general firming of rates, terms and conditions and selected growth opportunities, while continuing to maintain a disciplined underwriting approach. Due to the nature of its businesses, the Company is unable to precisely differentiate the effects of price changes as compared to changes in exposure. Similarly, because individual reinsurance arrangements often reflect revised coverages, structuring, pricing, terms and/or conditions from period to period, the Company is unable to precisely differentiate between the premium volume attributable to new business as compared to renewal business. Management believes however that, during the period, the more significant element of its period to period growth related, for most of its operations, to growth in exposures underwritten, with a lesser but still significant element relating to increased pricing and/or improved terms and conditions. Management believes further that market conditions are generally more favorable for casualty business classes than for property business classes although pricing for the latter generally remains at/or above attractive levels. As each of the Company’s operations monitors conditions for the products they offer, and in the markets they serve and adjust its marketing and underwriting activities opportunistically, the current period saw growth across all operations. Although premium volumes have increased significantly, the Company continued to decline business that did not meet its objectives regarding underwriting profitability.

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Premium growth areas included an 113.5% ($669.2 million) increase in the U.S. Reinsurance operation, principally related to a $418.3 million increase in treaty casualty business, an $181.1 million increase in treaty property business and a $59.0 million increase in facultative business. The International operation increased 80.2% ($287.2 million) primarily due to an $192.2 million increase in premiums from the London branch, a $40.5 million increase in international business written through the home office representing primarily Latin American business and a $43.9 million increase to Canadian business. The U.S. Insurance operation grew 31.0% ($191.4 million) principally as a result of an $83.9 million increase in workers’ compensation and a $53.9 million increase in excess and surplus lines insurance. The Specialty Underwriting operation increased 13.8% ($47.7 million) resulting primarily from a $47.8 million increase in accident and health business.

Ceded premiums increased to $504.5 million in the nine months ended September 30, 2003 from $354.0 million in the nine months ended September 30, 2002. This increase was principally attributable to $700.8 million of ceded premiums relating to quota share reinsurance agreements between Everest Re and Bermuda Re. Under these agreements Everest Re cedes to Bermuda Re 25% of its net retained liability on all new and renewal policies written for underwriting year 2003, Everest Re cedes to Bermuda Re 20% of its net retained liability on all new and renewal policies written for underwriting year 2002, and Everest Re’s Canadian branch cedes to Bermuda Re 50% of its net retained liability on all new and renewal property policies written for the 2003 underwriting year. In addition, ceded premiums for the nine months ended September 30, 2003 included $20.0 million in adjustment of the Company’s corporate retrocessional programs, while ceded premiums for the nine months ended September 30, 2002 included $5.1 million and $11.9 million in adjustment premium relating to claims made under the 2001 and 2000 accident year aggregate excess of loss elements of the Company’s corporate retrocessional programs, respectively.

Net premiums written increased by 44.4% to $2,248.1 million in the nine months ended September 30, 2003 from $1,557.0 million in the nine months ended September 30, 2002, reflecting the increase in gross premiums written, combined with the growth in ceded premiums.

Premium Revenues. Net premiums earned increased by 44.5% to $1,974.2 million in the nine months ended September 30, 2003 from $1,366.1 million in the nine months ended September 30, 2002. Contributing to this increase was a 71.6% ($328.4 million) increase in the U.S. Reinsurance operation, a 55.6% ($180.6 million) increase in the U.S. Insurance operation and a 40.5% ($111.4 million) increase in the International operation, which was partially offset by a 4.0% ($12.2 million) decrease in the Specialty Underwriting operation. All of these changes reflect period-to-period changes in net written premiums and business mix, together with normal variability in earnings 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 terms different from those of expiring contracts. As premium reporting and earnings and 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.

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Expenses.     Incurred loss and LAE increased by 46.8% to $1,419.3 in the nine months ended September 30, 2003 from $967.0 million in the nine months ended September 30, 2002. The increase in incurred losses and LAE was principally attributable to the increase in net premiums earned, the impact of changes in the Company’s mix of business and reserve adjustments for prior period losses.

Net reserve adjustments for non-asbestos and environmental exposures for the nine months ended September 30, 2003 were $105.5 million, which amount is net of a 2000 accident year cession of $35.0 million, and are comprised of a $66.0 million increase relating principally to the casualty exposures including, directors and officers liability exposures in the U.S. Reinsurance operation, an $18.0 million increase relating to the surety exposures in the Specialty Underwriting operation, a $13.2 million increase relating mainly to the casualty exposures of the London and Canadian branch elements in the International operation and an $8.3 million increase relating to the workers’ compensation exposures in the U.S. Insurance operation. The increase for the U.S. Insurance operation relates to the 2001 and 2002 accident exposure years and all other reserve adjustments relate to the 1996-2000 accident exposure years.

Net reserve adjustments related to asbestos and environmental exposures were $ 13.6 million for the nine months ended September 30, 2003. The Company has asbestos and environmental exposure principally related to contracts written by the Company prior to 1986 and commutations thereof. The development on business written by the Company, net of reinsurance, was $ 13.6 million. Substantially all of the Company’s asbestos and environmental exposures relate to insurance and reinsurance contracts with coverage periods prior to 1986.

In all cases, the prior period development reflects management’s judgement as to the implications of losses reported during the period on the Company’s reserve balances.

Incurred losses and LAE include catastrophe losses, which include the impact of both current period events and favorable and unfavorable development on prior period events, and are net of reinsurance. A catastrophe is an event that causes a pre-tax loss on property exposures of at least $5.0 million and has an event date of January 1, 1988 or later. Catastrophe losses, net of contract specific cessions, were $23.7 million in the nine months ended September 30, 2003 relating principally to May 2003 tornado and hailstorm events and hurricanes Fabian and Isabel, compared to $11.9 million in the nine months ended September 30, 2002.

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Incurred losses and LAE for the nine months ended September 30, 2003 reflected ceded losses and LAE of $473.0 million compared to ceded losses and LAE in the nine months ended September 30, 2002 of $263.7 million. Ceded losses and LAE in the nine months ended September 30, 2003 include $348.7 million of ceded losses relating to the quota share reinsurance transactions noted earlier between Everest Re and Bermuda Re. The ceded losses and LAE for the nine months ended September 30, 2003 included $35.0 million of losses ceded under the 2000 accident year aggregate excess of loss component of the Company’s corporate retrocessional program. The ceded losses and LAE for the nine months ended September 30, 2002 included $11.0 million and $22.0 million of losses ceded under the 2001 and 2000 accident year aggregate excess of loss component of the Company’s corporate retrocessional program, respectively.

The segment components of the increase in incurred losses and LAE in the nine months ended September 30, 2003 from the nine months ended September 30, 2002 were a 82.5% ($270.2 million) increase in the U.S. Reinsurance operation, a 60.2% ($138.7 million) increase in the U.S. Insurance operation, and a 46.0% ($78.8 million) increase in the International operation. These increases were partially offset by a 14.8% ($35.3 million) decrease in the Specialty Underwriting operation. These increases generally reflected the increases in earned premiums, modest reductions in the current year loss expectation assumptions for most segments, reflecting continued improvement in market conditions and pricing, the increase in catastrophe losses and the prior period reserve development discussed above. Incurred losses and LAE for each operation were also impacted by variability relating to changes in the level of premium volume and mix of business by class and type.

The Company’s loss and LAE ratio (“loss ratio”), which is calculated by dividing incurred losses and LAE by net premiums earned, increased by 1.1 percentage points to 71.9% in the nine months ended September 30, 2003 from 70.8% in the nine months ended September 30, 2002, reflecting the incurred losses and LAE discussed partially offset by the general firming of rates, terms and conditions.

The following table shows the loss ratios for each of the Company’s operating segments for the nine months ended September 30, 2003 and 2002. The loss ratios for all operations were impacted by the factors noted above.

Operating Segment Loss Ratios
Segment	2003	2002
U.S. Reinsurance	75.9%	71.4%
U.S. Insurance	73.0%	70.9%
Specialty Underwriting	68.6%	77.4%
International	64.7%	62.3%

Underwriting expenses increased by 26.2% to $478.4 million in the nine months ended September 30, 2003 from $379.1 million in the nine months ended September 30, 2002. Commission, brokerage, taxes and fees increased by $85.3 million, principally reflecting an increase of $244.9 million in the expenses due to premium volume which was partially offset by an increase in ceded commissions of $159.6 million. Other underwriting expenses increased by $14.0 million. Contributing to the $99.3 million increase in expenses were a 61.0% ($77.2 million) increase in the U.S. Reinsurance operation, a 28.0% ($18.0 million) increase in the International operation, and a 11.8% ($11.3 million) increase in the U.S. Insurance operation, partially offset by a 9.5% ($8.7 million) decrease in the Specialty Underwriting 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 reinsurance, including with Bermuda Re, and the underwriting performance of the underlying business. The Company’s expense ratio, which is calculated by dividing underwriting expenses by net premiums earned, was 24.2% for the nine months ended September 30, 2003 compared to 27.7% for the nine months ended September 30, 2002.

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The Company’s combined ratio, which is the sum of the loss and expense ratios, decreased by 2.4 percentage points to 96.1% in the nine months ended September 30, 2003 compared to 98.5% in the nine months ended September 30, 2002. The following table shows the combined ratios for each of the Company’s operating segments for the nine months ended September 30, 2003 and 2002. The combined ratios for all operations were impacted by the loss and expense ratio variability noted above.

Operating Segment Combined Ratios
Segment	2003	2002
U.S. Reinsurance	101.8%	99.0%
U.S. Insurance	94.1%	100.3%
Specialty Underwriting	96.5%	107.0%
International	86.0%	85.6%

Investment Results. Net investment income increased 8.2% to $210.6 million in the nine months ended September 30, 2003 from $194.7 million in the nine months ended September 30, 2002, principally reflecting the effects of investing the $944.0 million of cash flow from operations in the twelve months ended September 30, 2003 and $203.4 million of net proceeds from the issuance of trust preferred securities in November 2002, all partially offset by the effect of the lower interest rate environment.

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

	2003	2002
Imbedded pre-tax yield of cash and invested
assets at September 30, 2003 and December 31, 2002	4.7%	5.1%
Imbedded after-tax yield of cash and invested
assets at September 30, 2003 and December 31, 2002	3.9%	4.2%
Annualized pre-tax yield on average cash
and invested assets for the six months ended
September 30, 2003 and 2002	5.2%	5.8%
Annualized after-tax yield on average cash
and invested assets for the six months ended
September 30,2003 and 2002	4.2%	4.5%

Net realized capital losses were $23.9 million in the nine months ended September 30, 2003, reflecting realized capital losses on the Company’s investments of $41.4 million which included $15.3 million relating to write-downs in the value of securities deemed to be impaired on an other than temporary basis and $21.1 million related to the impairment on Interest Only Strips in accordance with EITF 99-20, partially offset by $17.5 million of realized capital gains, which included $5.3 million of realized capital gains on the Interest Only Strips, compared to net realized capital losses of $45.9 million in the nine months ended September 30, 2002. The net realized capital loss in the nine months ended September 30, 2002 reflected realized capital losses of $79.8 million, which included $65.6 million relating to write-downs in the value of securities, of which $25.7 million was for WorldCom, Inc., deemed to be impaired on an other than temporary basis, partially offset by $33.9 million of realized capital gains.

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Interest expense for the nine months ended September 30, 2003 was $30.2 million compared to $31.9 million for the nine months ended September 30, 2002. Interest expense for the nine months ended September 30, 2003 reflected $29.2 million relating to the senior notes and $1.0 million relating to borrowings under the revolving Credit Facility. Interest expense for the nine months ended September 30, 2002 reflected $29.2 million relating to the senior notes and $2.7 million relating to borrowings under the revolving Credit Facility.

Distributions on the trust preferred securities are cumulative and pay quarterly in arrears. Distributions relating to the trust preferred securities for the nine months ended September 30, 2003 were $12.4 million. These securities were issued in November 2002.

Other income for the nine months ended September 30, 2003 was $1.2 million compared to other expense of $3.9 million for the nine months ended September 30, 2002. This change is primarily due to recognition through amortization of gains previously deferred under retroactive reinsurance agreements with affiliates, partially offset by higher foreign exchange losses.

The Company has in its product portfolio a credit default swap contract, which it no longer writes. This contract meets the definition of a derivative under FAS 133. There was no net derivative expense, essentially reflecting changes in fair value, from this credit default transaction for the nine months ended September 30, 2003, compared to the $1.3 million derivative expense for the nine months ended September 30, 2002.

Income Taxes. The Company recognized income tax expense of $45.8 million in the nine months ended September 30, 2003 compared to an income tax expense of $28.0 million in the nine months ended September 30, 2002. The increase in taxes generally reflects the improved underwriting and investment income results.

Net Income. Net income was $176.0 million in the nine months ended September 30, 2003 compared to a net income of $103.7 million in the nine months ended September 30, 2002.

Market Sensitive Instruments. The Securities and Exchange Commission’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 enter into market sensitive instruments for trading purposes.

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 its current and projected operating results, market conditions and 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 credit default swap, the market sensitivity of which is believed not to be material.

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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 year, with minor changes in the underlying risk characteristics.

The $6.1 billion investment portfolio is comprised principally of fixed maturity securities that are subject to interest rate risk and foreign currency rate risk, and equity securities that are subject to equity price risk. The impact of these risks in 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 $382.1 million of mortgage-backed securities in the $5.8 billion fixed maturity portfolio, which could result is lower reinvestment rates.

The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on the fixed maturity portfolio as of September based on parallel 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.

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As of September 30, 2003
Interest Rate Shift in Basis Points
	-200	-100	0	100	200
Total Market Value	$   6,552.5	$   6,159.4	$   5,816.5	$   5,471.9	$   5,131.2
Market Value Change
from Base (%)	12.7%	5.9%	0%	(5.9)%	(11.8)%
Change in Unrealized
Appreciation After-tax
from Base ($)	$     478.4	$     222.9	$    0	($   223.9)	($   445.4)

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 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 foreign 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. The primary functional foreign currency exposures for these foreign operations are the Canadian Dollar, the Euro and the British Pound Sterling. As of September 30, 2003, there has been no material change in exposure to foreign exchange rates as compared to December 31, 2002.

Equity risk is the potential change in market value of the common stock and preferred stock portfolios arising from changing equity prices. The Company invests in high quality common and preferred stocks that are traded on the major exchanges in the United States and funds investing in such securities. The primary objective in managing the equity portfolio is to provide long-term capital growth through market appreciation and income. As of September 30, 2003, there has been no material change in exposure to changing equity prices as compared to December 31, 2002.

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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, including reserves for asbestos and environmental claims, the adequacy of the Company’s provision for uncollectible balances, estimates of the Company’s catastrophe exposure, and the effects of catastrophe events on the Company’s financial statements and the ability of the Company’s subsidiaries to pay dividends. 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 results to be materially different from its expectations include the uncertainties that surround the estimating of reserves for losses and LAE, those discussed in Note 3 to the Financial Statements 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. 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.

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Part I – Item 4

EVEREST REINSURANCE HOLDINGS, INC.
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 believe 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.

36

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 and reinsurance agreements and other more general contracts. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other disputes, the Company is resisting attempts by others to collect funds or enforce alleged rights. Such disputes are resolved through formal and informal means, including litigation and arbitration.

In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company also regularly evaluates those positions, and where appropriate, establishes or adjusts insurance reserves to reflect its evaluation. The Company’s aggregate reserves take into account the possibility that the Company may not ultimately prevail in each and every disputed matter. The Company believes its aggregate reserves reduce the potential that an adverse resolution of one or more of these matters, at any point in time, would have a material impact on the Company’s financial condition or results of operations. However, there can be no assurance that adverse resolutions of such matters in any one period or in the aggregate will not result in a material adverse effect on the Company’s results of operations.

Part II - Item 2. Changes in Securities and Use of Proceeds

      None

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

37

Part II - Item 6. Exhibits and Reports on Form 8-K

a)     Exhibit Index:

Exhi	bit	Description
10	.1	Credit Agreement, dated October 10, 2003, between Everest Reinsurance Holdings, Inc., The Lenders Named
		Lenders Named therein and Wachovia Bank, National Association providing for a $150 million revolving credit facility,
		herein by reference to Exhibit 10.1 of the Everest Re Group, Ltd. Report on Form 10-Q for the
		quarter ended September 30, 2003.
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

Omitted from this Part II are items which are inapplicable or to which the answer is negative for the period covered.

38

Everest Reinsurance Holdings, Inc.

Signatures

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

Everest Reinsurance Holdings, Inc.

(Registrant)

/S/ STEPHEN L. LIMAURO

Stephen L. Limauro

Executive Vice President and Chief

Financial Officer

(Duly Authorized Officer and Principal

Financial Officer)

Dated: November 14, 2003

EX-31

Exhibit 31.1

CERTIFICATIONS

I, Joseph V. Taranto, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Everest Reinsurance Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 14, 2003

/s/ JOSEPH V. TARANTO      
Joseph V. Taranto
Chairman and
Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATIONS

I, Stephen L. Limauro, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Everest Reinsurance Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 14, 2003

      /s/ STEPHEN L. LIMAURO      
Stephen L. Limauro
Executive Vice President
and Chief Financial Officer

EX-32

Exhibit 32.1

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 of Everest Reinsurance Holdings, Inc., a corporation organized under the laws of Delaware (the “Company”), filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify, pursuant to 18 U.S.C. ss. 1350, as enacted by section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 14, 2003

/s/ JOSEPH V. TARANTO         
Joseph V. Taranto
Chairman and Chief
Executive Officer

/s/ STEPHEN L. LIMAURO         
Stephen L. Limauro
Executive Vice President
and Chief Financial Officer