Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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Financial Statements and Schedules.

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

Exhibits.

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

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 1, 2013.

EVEREST RE GROUP, LTD.
By:/S/ JOSEPH V. TARANTO
Joseph V. Taranto
(Chairman and Chief Executive Officer)

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

SignatureTitleDate
/S/ JOSEPH V. TARANTOChairman and Chief Executive Officer and Director (Principal Executive Officer)March 1, 2013
Joseph V. Taranto
/S/ DOMINIC J. ADDESSOPresident and DirectorMarch 1, 2013
Dominic J. Addesso
/S/ CRAIG HOWIEExecutive Vice President andMarch 1, 2013
Craig HowieChief Financial Officer
/S/ KEITH T. SHOEMAKERComptroller (Principal Accounting Officer)March 1, 2013
Keith T. Shoemaker
/S/ JOHN J. AMOREDirectorMarch 1, 2013
John J. Amore
/S/ JOHN R. DUNNEDirectorMarch 1, 2013
John R. Dunne
/S/ WILLIAM F. GALTNEY, JR.DirectorMarch 1, 2013
William F. Galtney, Jr.
/S/ JOHN P. PHELANDirectorMarch 1, 2013
John P. Phelan
/S/ ROGER M. SINGERDirectorMarch 1, 2013
Roger M. Singer
/S/ JOHN A. WEBERDirectorMarch 1, 2013
John A. Weber
INDEX TO EXHIBITS
Exhibit No.
2.1Agreement and Plan of Merger among Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd. and Everest Re Merger Corporation, incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4 (No. 333-87361)
3.1Memorandum of Association of Everest Re Group, Ltd., incorporated herein by reference to Exhibit 3.1 to the Registration Statement on Form S-4 (No. 333-87361)
3.2Bye-Laws of Everest Re Group, Ltd., incorporated herein by reference to exhibit 3.2 to the Everest Re Group, Ltd., Quarterly Report for Form 10-Q for the quarter ended June 30, 2011 (the “second quarter 2011 10-Q”)
4.1Specimen Everest Re Group, Ltd. common share certificate, incorporated herein by reference to Exhibit 4.1 of the Registration Statement on Form S-4 (No. 333-87361)
4.2Indenture, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank (now known as JPMorgan Chase Bank), as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000
4.3Second Supplemental Indenture relating to the 8.75% Senior Notes due March 15, 2010, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank, as Trustee, incorporated herein by reference to Exhibit 4.3 to the Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000
4.4Junior Subordinated Indenture, dated November 14, 2002, between Everest Reinsurance Holdings, Inc. and JPMorgan Chase Bank as Trustee, incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-3 (No. 333-106595)
4.5Second Supplemental Indenture relating to Holdings 6.20% Junior Subordinated Debt Securities due March 29, 2034, dated as of March 29, 2004, among Holdings, Group and JPMorgan Chase Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 30, 2004 (the “March 30, 2004 8-K”)
4.6Amended and Restated Trust Agreement of Everest Re Capital Trust II, dated as of March 29, 2004, incorporated herein by reference to Exhibit 4.2 to the March 30, 2004 8-K
4.7Guarantee Agreement, dated as of March 29, 2004, between Holdings and JPMorgan Chase Bank, incorporated herein by reference to Exhibit 4.3 to the March 30, 2004 8-K
4.8Expense Agreement, dated as of March 29, 2004, between Holdings and Everest Re Capital Trust, incorporated herein by reference to Exhibit 4.4 to the March 30, 2004 8-K
4.9Third Supplemental Indenture relating to Holdings 5.40% Senior Notes due October 15, 2014, dated as of October 12, 2004, among Holdings and JPMorgan Chase Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on October 12, 2004

E-1

*10.1Everest Re Group, Ltd. Annual Incentive Plan effective January 1, 1999, incorporated herein by reference to Exhibit 10.1 to Everest Reinsurance Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 1998 (the “1998 10-K”)
*10.2Everest Re Group, Ltd. 1995 Stock Option Plan for Non-Employee Directors, incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-8 (No. 333-05771)
*10.3Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation Plan, incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (No. 333-105483)
*10.4Form of Non-Qualified Stock Option Award Agreement under the Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation Plan, incorporated herein by reference to Exhibit 10.47 to Everest Re Group, Ltd., Report on Form 10-K for the year ended December 31, 2004
*10.5Amendment of Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation Plan adopted by shareholders at the annual general meeting on May 25, 2005, incorporated herein by reference to Appendix B to the 2005 Proxy Statement filed on April 14, 2005
*10.6Form of Restricted Stock Award Agreement under the Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation Plan, incorporated by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on September 22, 2005
10.7Credit Agreement, dated August 23, 2006, between Everest Reinsurance Holdings, Inc., the lenders named therein and Citibank, National Association, as administrative agent, providing for a $150.0 million five year revolving credit facility, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. This new agreement replaces the October 10, 2003 three year senior revolving credit facility which expired on October 10, 2006
10.8Credit Agreement, dated July 27, 2007, among Everest Re Group, Ltd., Everest Reinsurance (Bermuda), Ltd. and Everest International Reinsurance, Ltd., certain lenders party thereto and Wachovia Bank, N.A. as administrative agent, incorporated herein by reference to Exhibit 10.1 Form 8-K filed on July 27, 2007
10.9Completion of Tender Offer relating to Everest Reinsurance Holdings, Inc. 6.60% Fixed to Floating Rate Long Term Subordinated Notes (LoTSSM) dated March 19, 2009, incorporated herein by reference to Exhibit 99.1 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2009
*10.10Everest Re Group, Ltd. 2009 Stock Option and Restricted Stock Plan for Non-Employee Directors incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. second quarter 2009 10-Q
*10.11Employment Agreement between Everest Reinsurance (Bermuda), Ltd. and Mark S. deSaram, dated October 7, 2010, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on October 12, 2010
*10.12Mutual Agreement and General Release and Waiver between Everest Global Services, Inc. and Ralph E. Jones III, dated October 7, 2010, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed in October 12, 2010
*10.13Everest Re Group, Ltd. 2010 Stock Incentive Plan for employees is incorporated herein by reference to exhibit 10.2 to Everest Re Group, Ltd. Form S-8 filed on September 30, 2010

E-2

*10.14Employment Agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Joseph V. Taranto, dated January 1, 2011, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2011
*10.15Change of Control Agreement between and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated January 1, 2011, incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2011
*10.16Amendment of Executive Performance Annual Incentive Plan adopted by shareholders at the annual general meeting on May 18, 2011, incorporated herein by reference to Appendix B to the 2011 Proxy Statement filed on April 15, 2011
*10.17Employment Agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Dominic J. Addesso, dated June 16, 2011, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on June 20, 2011
*10.18Employment Agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Joseph V. Taranto, dated January 1, 2011, This employment supersedes the prior agreement between registrant and Joseph V. Taranto dated March 25, 2011. This new agreement dated January 1, 2011, incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on June 20, 2011
10.19Credit Agreement, dated August 15, 2011, between Everest Reinsurance Holdings, Inc., the lenders named therein and Citibank, National Association, as administrative agent, providing for a $150.0 million three year revolving credit facility, filed herewith. This new agreement replaces the August 23, 2006 five year senior revolving credit facility
10.20Credit Agreement, dated June 22, 2012, between Everest Re Group, Ltd., Everest Reinsurance (Bermuda), Ltd. and Everest International Reinsurance, Ltd., certain lenders party thereto and Wells Fargo Bank, N.A. as administrative agent, providing for an $800.0 million four year senior credit facility, incorporated herein by reference to Exhibit 10.31 to Everest Re Group, Ltd. Form 10-Q filed on August 9, 2012. This new agreement replaces the July 27, 2007 five year, $850.0 million senior credit facility
*10.21Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Dominic J. Addesso, dated July 1, 2012, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012
*10.22Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Joseph V. Taranto, dated July 1, 2012, incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012
*10.23Change of Control Agreement between and among Everest Reinsurance Company, Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd., Everest Global Services, Inc. and Joseph V. Taranto, dated January 1, 2012, incorporated herein by reference to Exhibit 10.3 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012
*10.24Employment agreement between Everest Reinsurance (Bermuda), Ltd. and Mark S. deSaram, dated September 13, 2012, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on December 4, 2012

E-3

21.1Subsidiaries of the registrant, filed herewith
23.1Consent of PricewaterhouseCoopers LLP, filed herewith
31.1Section 302 Certification of Joseph V. Taranto, filed herewith
31.2Section 302 Certification of Craig Howie, filed herewith
32.1Section 906 Certification of Joseph V. Taranto and Craig Howie, furnished herewith
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
* Management contract or compensatory plan or arrangement.

E-4

EVEREST RE GROUP, LTD.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Pages
Report of Independent Registered Public Accounting FirmF-2
Consolidated Balance Sheets at December 31, 2012 and 2011F-4
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended
December 31, 2012, 2011 and 2010F-5
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended
December 31, 2012, 2011 and 2010F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2012, 2011 and 2010F-7
Notes to Consolidated Financial StatementsF-8
Schedules
ISummary of Investments Other Than Investments in Related Parties at December 31, 2012S-1
IICondensed Financial Information of Registrant:
Balance Sheets as of December 31, 2012 and 2011S-2
Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010S-3
Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010S-4
IIISupplementary Insurance Information for the Years Ended
December 31, 2012, 2011 and 2010S-5
IVReinsurance for the Years Ended December 31, 2012, 2011 and 2010S-6
Schedules other than those listed above are omitted for the reason that they are not applicable or the information is otherwise contained in the Financial Statements.

F-1

Index

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

of Everest Re Group, Ltd.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Everest Re Group, Ltd. and its subsidiaries (the “Company”) at December 31, 2012 and 2011 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-2

Index

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

PricewaterhouseCoopers, LLP

New York, New York

March 1, 2013

F-3

Index

EVEREST RE GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

December 31,
(Dollars and share amounts in thousands, except par value per share)20122011
ASSETS:
Fixed maturities - available for sale, at market value$13,141,657$12,293,524
(amortized cost: 2012, $12,444,880; 2011, $11,731,173)
Fixed maturities - available for sale, at fair value41,470113,606
Equity securities - available for sale, at market value (cost: 2012, $131,630; 2011, $463,620)143,493448,930
Equity securities - available for sale, at fair value1,255,5571,249,106
Short-term investments860,379685,332
Other invested assets (cost: 2012, $596,590; 2011, $558,232)596,590558,232
Cash537,050448,651
Total investments and cash16,576,19615,797,381
Accrued investment income130,209130,193
Premiums receivable1,237,8591,077,548
Reinsurance receivables659,081580,339
Funds held by reinsureds228,375267,295
Deferred acquisition costs303,268378,026
Prepaid reinsurance premiums71,10785,409
Deferred tax asset262,024332,783
Income taxes recoverable68,44241,623
Other assets241,346202,958
TOTAL ASSETS$19,777,907$18,893,555
LIABILITIES:
Reserve for losses and loss adjustment expenses$10,069,055$10,123,215
Future policy benefit reserve66,10767,187
Unearned premium reserve1,322,5251,412,778
Funds held under reinsurance treaties2,7552,528
Commission reserves65,53355,103
Other net payable to reinsurers162,77860,775
Losses in course of payment191,07618,392
5.4% Senior notes due 10/15/2014249,907249,858
6.6% Long term notes due 5/1/2067238,357238,354
Junior subordinated debt securities payable329,897329,897
Accrued interest on debt and borrowings4,7814,781
Equity index put option liability79,46769,729
Unsettled securities payable48,8308,793
Other liabilities213,372180,790
Total liabilities13,044,44012,822,180
Commitments and contingencies (Note 16)
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $0.01; 50,000 shares authorized;
no shares issued and outstanding--
Common shares, par value: $0.01; 200,000 shares authorized; (2012) 67,105
and (2011) 66,455 outstanding before treasury shares671665
Additional paid-in capital1,946,4391,892,988
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $119,629 at 2012 and $112,969 at 2011537,049366,978
Treasury shares, at cost; 15,687 shares (2012) and 12,719 shares (2011)(1,363,958)(1,073,970)
Retained earnings5,613,2664,884,714
Total shareholders' equity6,733,4676,071,375
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$19,777,907$18,893,555
The accompanying notes are an integral part of the consolidated financial statements.

F-4

Index

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,
(Dollars in thousands, except per share amounts)201220112010
REVENUES:
Premiums earned$4,164,628$4,101,347$3,934,625
Net investment income600,202620,041653,463
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities(10,022)(16,223)(2,975)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss)---
Other net realized capital gains (losses)174,42223,146104,886
Total net realized capital gains (losses)164,4006,923101,911
Net derivative gain (loss)(9,738)(11,261)(1,119)
Other income (expense)3,318(23,089)16,927
Total revenues4,922,8104,693,9614,705,807
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses2,745,2653,726,2042,945,712
Commission, brokerage, taxes and fees952,701950,521931,855
Other underwriting expenses207,659182,403166,258
Corporate expenses23,97616,46114,914
Interest, fees and bond issue cost amortization expense53,68352,31955,830
Total claims and expenses3,983,2844,927,9084,114,569
INCOME (LOSS) BEFORE TAXES939,526(233,947)591,238
Income tax expense (benefit)110,572(153,461)(19,516)
NET INCOME (LOSS)$828,954$(80,486)$610,754
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period174,02591,481102,532
Less: reclassification adjustment for realized losses (gains) included in net income (loss)(19,676)(11,340)(42,368)
Total URA(D) on securities arising during the period154,34980,14160,164
Foreign currency translation adjustments22,698(15,969)1,871
Pension adjustments(6,976)(29,452)(1,815)
Total other comprehensive income (loss), net of tax170,07134,72060,220
COMPREHENSIVE INCOME (LOSS)$999,025$(45,766)$670,974
EARNINGS PER COMMON SHARE:
Basic$15.85$(1.49)$10.73
Diluted15.79(1.49)10.70
Dividends declared1.921.921.92
The accompanying notes are an integral part of the consolidated financial statements.

F-5

Index

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

Years Ended December 31,
(Dollars in thousands, except share and dividends per share amounts)201220112010
COMMON SHARES (shares outstanding):
Balance, beginning of period53,735,55154,428,16859,317,741
Issued during the period, net650,836437,427175,999
Treasury shares acquired(2,968,425)(1,130,044)(5,065,572)
Balance, end of period51,417,96253,735,55154,428,168
COMMON SHARES (par value):
Balance, beginning of period$665$660$658
Issued during the period, net652
Balance, end of period671665660
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period1,892,9881,863,0311,845,181
Share-based compensation plans53,45129,95717,850
Balance, end of period1,946,4391,892,9881,863,031
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period366,978332,258272,038
Net increase (decrease) during the period170,07134,72060,220
Balance, end of period537,049366,978332,258
RETAINED EARNINGS:
Balance, beginning of period4,884,7145,069,0484,566,771
Net income (loss)828,954(80,486)610,754
Dividends declared ($1.92 per share in 2012, 2011 and 2010)(100,402)(103,848)(108,477)
Balance, end of period5,613,2664,884,7145,069,048
TREASURY SHARES AT COST:
Balance, beginning of period(1,073,970)(981,480)(582,926)
Purchase of treasury shares(289,988)(92,490)(398,554)
Balance, end of period(1,363,958)(1,073,970)(981,480)
TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD$6,733,467$6,071,375$6,283,517
The accompanying notes are an integral part of the consolidated financial statements.

F-6

Index

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,
(Dollars in thousands)201220112010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$828,954$(80,486)$610,754
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable(153,694)(235,560)132,986
Decrease (increase) in funds held by reinsureds, net42,29818,2361,573
Decrease (increase) in reinsurance receivables(55,274)97,549(62,954)
Decrease (increase) in current income taxes(26,831)82,702(9,951)
Decrease (increase) in deferred tax asset64,909(194,029)22,023
Decrease (increase) in prepaid reinsurance premiums16,35846,374(25,281)
Increase (decrease) in reserve for losses and loss adjustment expenses(169,595)826,230420,748
Increase (decrease) in future policy benefit reserve(1,080)4,185(1,534)
Increase (decrease) in unearned premiums(98,418)(39,822)36,883
Increase (decrease) in other net payable to reinsurers100,5664,911(4,982)
Increase (decrease) in losses in course of payment173,23218,477(41,539)
Change in equity adjustments in limited partnerships(63,779)(56,549)(71,493)
Change in other assets and liabilities, net76,788108,611(47,804)
Non-cash compensation expense31,98417,69314,786
Amortization of bond premium (accrual of bond discount)61,84447,87246,095
Amortization of underwriting discount on senior notes524976
Net realized capital (gains) losses(164,400)(6,923)(101,911)
Net cash provided by (used in) operating activities663,914659,520918,475
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value1,830,5821,702,9731,717,659
Proceeds from fixed maturities matured/called - available for sale, at fair value1,30012,775-
Proceeds from fixed maturities sold - available for sale, at market value913,1391,732,2461,632,719
Proceeds from fixed maturities sold - available for sale, at fair value84,91765,15820,237
Proceeds from equity securities sold - available for sale, at market value280,80727,2073,037
Proceeds from equity securities sold - available for sale, at fair value558,740247,227234,112
Distributions from other invested assets84,454166,27379,849
Cost of fixed maturities acquired - available for sale, at market value(3,328,409)(3,238,113)(2,766,212)
Cost of fixed maturities acquired - available for sale, at fair value(7,955)(27,481)(134,324)
Cost of equity securities acquired - available for sale, at market value(26,571)(127,837)(353,265)
Cost of equity securities acquired - available for sale, at fair value(426,507)(755,734)(514,092)
Cost of other invested assets acquired(58,369)(64,832)(66,408)
Cost of businesses acquired-(63,100)-
Net change in short-term investments(175,043)100,969(110,241)
Net change in unsettled securities transactions35,08513,563(13,084)
Net cash provided by (used in) investing activities(233,830)(208,706)(270,013)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net21,47312,2693,066
Purchase of treasury shares(289,988)(92,490)(398,554)
Revolving credit borrowings-(50,000)50,000
Net cost of senior notes maturing--(200,000)
Dividends paid to shareholders(100,402)(103,848)(108,477)
Net cash provided by (used in) financing activities(368,917)(234,069)(653,965)
EFFECT OF EXCHANGE RATE CHANGES ON CASH27,232(26,502)16,313
Net increase (decrease) in cash88,399190,24310,810
Cash, beginning of period448,651258,408247,598
Cash, end of period$537,050$448,651$258,408
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)$59,754$(44,537)$(30,978)
Interest paid53,00851,64760,198
Non-cash transaction:
Net assets acquired and liabilities assumed from business acquisitions-19,130-
Conversion of equity securities - available for sale, at market value, to fixed
maturity securities - available for sale, at market value, including accrued
interest at time of conversion92,981--
The accompanying notes are an integral part of the consolidated financial statements.

F-7

Index

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2012, 2011 and 2010

  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Business and Basis of Presentation.

Everest Re Group, Ltd. (“Group”), a Bermuda company, through its subsidiaries, principally provides reinsurance and insurance in the U.S., Bermuda and international markets. As used in this document, “Company” means Group and its subsidiaries. On December 30, 2008, Group contributed Everest Reinsurance Holdings, Inc. (“Holdings”) and its subsidiaries to its Irish holding company, Everest Underwriting Group (Ireland), Limited (“Holdings Ireland”).

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The statements include all of the following domestic and foreign direct and indirect subsidiaries of Group: Everest International Reinsurance, Ltd. (“Everest International”), Everest Global Services, Inc. (“Global Services”), Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”), Everest Re Advisors, Ltd., Everest Advisors (UK), Ltd., Holdings Ireland, Everest Reinsurance Company (Ireland) Limited (“Ireland Re”), Everest Insurance Company of Canada (“Everest Canada”), Premiere Insurance Underwriting Services (“Premiere”), Holdings, Heartland Crop Insurance, Inc. (“Heartland”), Specialty Insurance Group, Inc. (“Specialty”), Mt. McKinley Insurance Company (“Mt. McKinley”), Mt. McKinley Managers, L.L.C., Workcare Southeast, Inc., Workcare Southeast of Georgia, Inc., Everest Reinsurance Company (“Everest Re”), Everest National Insurance Company (“Everest National”), Everest Reinsurance Company Ltda. (Brazil), Mt. Whitney Securities, Inc., Everest Indemnity Insurance Company (“Everest Indemnity”) and Everest Security Insurance Company (“Everest Security”). All amounts are reported in U.S. dollars.

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

All intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2012 presentation.

B. Investments.

Fixed maturity and equity security investments available for sale, at market value, reflect unrealized appreciation and depreciation, as a result of temporary changes in market value during the period, in shareholders’ equity, net of income taxes in “accumulated other comprehensive income (loss)” in the consolidated balance sheets. Fixed maturity and equity securities carried at fair value reflect fair value re-measurements as net realized capital gains and losses in the consolidated statements of operations and comprehensive income (loss). The Company records changes in fair value for its fixed maturities available for sale, at market value through shareholders’ equity, net of taxes in accumulated other comprehensive income (loss) since cash flows from these investments will be primarily used to settle its reserve for losses and loss adjustment expense liabilities. The Company anticipates holding these investments for an extended period as the cash flow from interest and maturities will fund the projected payout of these liabilities. Fixed maturities carried at fair value represent a portfolio of convertible bond securities, which have characteristics similar to equity securities and at times, designated foreign denominated fixed maturity securities, which will be used to settle loss and loss adjustment reserves in the same currency. The Company carries all of its equity securities at fair value except for mutual fund investments whose underlying investments are comprised of fixed maturity securities. For equity securities, available for sale, at fair value, the Company reflects changes in value as net realized capital gains and losses since these securities may be sold in the near term depending on financial market conditions. Interest income on all fixed maturities and dividend income on all equity securities are included as part of net investment income in the consolidated statements of operations and comprehensive income (loss). Unrealized losses on fixed maturities, which are

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Index

deemed other-than-temporary and related to the credit quality of a security, are charged to net income (loss) as net realized capital losses. Short-term investments are stated at cost, which approximates market value. Realized gains or losses on sales of investments are determined on the basis of identified cost. For non-publicly traded securities, market prices are determined through the use of pricing models that evaluate securities relative to the U.S. Treasury yield curve, taking into account the issue type, credit quality, and cash flow characteristics of each security. For publicly traded securities, market value is based on quoted market prices or valuation models that use observable market inputs. When a sector of the financial markets is inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. Retrospective adjustments are employed to recalculate the values of asset-backed securities. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used to effect the calculation of projected and prepayments for pass-through security types. Other invested assets include limited partnerships, rabbi trusts and an affiliated entity. Limited partnerships and the affiliated entity are accounted for under the equity method of accounting, which can be recorded on a monthly or quarterly lag.

C. Uncollectible Receivable Balances.

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

Years Ended December 31,
(Dollars in thousands)20122011
Reinsurance receivables and premium receivables$32,011$33,796

D. Deferred Acquisition Costs.

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

Years Ended December 31,
(Dollars in thousands)201220112010
Deferred acquisition costs$952,701$950,521$931,855

E. Reserve for Losses and Loss Adjustment Expenses.

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

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Index

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

F. Future Policy Benefit Reserve.

Liabilities for future policy benefits on annuity policies are carried at their accumulated values. Reserves for policy benefits include mortality claims in the process of settlement and IBNR claims. Actual experience in a particular period may fluctuate from expected results.

G. Premium Revenues.

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

Payout annuity premiums are recognized as revenue over the premium-paying period of the policies.

H. Prepaid Reinsurance Premiums.

Prepaid reinsurance premiums represent unearned premium reserves ceded to other reinsurers. Prepaid reinsurance premiums for any foreign reinsurers comprising more than 10% of the outstanding balance at December 31, 2012 were collateralized either through a trust arrangement or letters of credit, thereby limiting the credit risk to the Company.

I. Income Taxes.

Holdings and its wholly-owned subsidiaries file a consolidated U.S. federal income tax return. Foreign branches of subsidiaries file local tax returns as required. Group and subsidiaries not included in Holdings’ consolidated tax return file separate company U.S. federal income tax returns as required. Holdings Ireland files an Irish income tax return. The UK branch of Bermuda Re files a UK income tax return. Deferred income taxes have been recorded to recognize the tax effect of temporary differences between the financial reporting and income tax bases of assets and liabilities, which arise because of differences between GAAP and income tax accounting rules.

J. Foreign Currency.

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

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K. Earnings Per Common Share.

Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that would occur if options granted under various share-based compensation plans were exercised resulting in the issuance of common shares that would participate in the earnings of the entity.

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

Years Ended December 31,
(Dollars in thousands, except per share amounts)201220112010
Net income (loss) per share:
Numerator
Net income (loss)$828,954$(80,486)$610,754
Less: dividends declared-common shares and nonvested common shares(100,402)(103,848)(108,477)
Undistributed earnings728,552(184,334)502,277
Percentage allocated to common shareholders (1)99.2%99.3%99.5%
722,717(183,134)499,882
Add: dividends declared-common shareholders99,576103,150107,926
Numerator for basic and diluted earnings per common share$822,293$(79,984)$607,808
Denominator
Denominator for basic earnings per weighted-average common shares51,89453,79256,630
Effect of dilutive securities:
Options173124156
Denominator for diluted earnings per adjusted weighted-average common shares52,06753,91656,786
Per common share net income (loss)
Basic$15.85$(1.49)$10.73
Diluted$15.79$(1.49)$10.70
(1)Basic weighted-average common shares outstanding51,89453,79256,630
Basic weighted-average common shares outstanding and nonvested common shares expected to vest52,31354,14556,902
Percentage allocated to common shareholders99.2%99.3%99.5%
(Some amounts may not reconcile due to rounding.)

The table below presents the options to purchase common shares that were outstanding, but were not included in the computation of earnings per diluted share as they were anti-dilutive, for the periods indicated:

Years Ended December 31,
201220112010
Anti-dilutive options894,7041,490,7301,873,070

All outstanding options expire on or between September 18, 2013 and September 19, 2022.

L. Segmentation.

The Company, through its subsidiaries, operates in four segments: U.S. Reinsurance, International, Bermuda and Insurance. See also Note 19.

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Index

M. Derivatives.

The Company sold seven equity index put option contracts, based on two indices, in 2001 and 2005, which remain outstanding. The Company sold these equity index put options as insurance products with the intent of achieving a profit. These equity index put option contracts meet the definition of a derivative under FASB guidance and the Company’s position in these equity index put option contracts is unhedged. Accordingly, these equity index put option contracts are carried at fair value in the consolidated balance sheets with changes in fair value recorded in the consolidated statements of operations and comprehensive income (loss).

The fair value of the equity index put options can be found in the Company’s consolidated balance sheets as follows:

(Dollars in thousands)
Derivatives not designated asLocation of fair valueAt December 31,
hedging instrumentsin balance sheets20122011
Equity index put option contractsEquity index put option liability$79,467$69,729
Total$79,467$69,729

The change in fair value of the equity index put option contracts can be found in the Company’s statement of operations and comprehensive income (loss) as follows:

(Dollars in thousands)
Derivatives not designated asLocation of gain (loss) in statements ofFor the Years Ended December 31,
hedging instrumentsoperations and comprehensive income (loss)201220112010
Equity index put option contractsNet derivative gain (loss)$(9,738)$(11,261)$(1,119)
Total$(9,738)$(11,261)$(1,119)

N. Deposit Assets and Liabilities.

In the normal course of its operations, the Company may enter into contracts that do not meet risk transfer provisions. Such contracts are accounted for using the deposit accounting method and are included in other liabilities in the Company’s consolidated balance sheets. For such contracts, the Company originally records deposit liabilities for an amount equivalent to the assets received. Actuarial studies are used to estimate the final liabilities under such contracts with any change reflected in the consolidated statements of operations and comprehensive income (loss).

O. Share-Based Compensation.

Share-based compensation option or restricted share awards are fair valued at the grant date and expensed over the vesting period of the award. The tax benefit on the recorded expense is deferred until the time the award is exercised or vests (becomes unrestricted). See Note 17.

P. Application of Recently Issued Accounting Standard Changes.

Intangibles-Goodwill or Other. In September 2011, the Financial Accounting Standards Board (“FASB“) amended the authoritative guidance for disclosures on Goodwill Impairment. The amendment allows an entity first to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis in determining whether it is necessary to perform the two-step goodwill impairment test. This guidance is effective for periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012.

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

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Common Fair Value Measurement. In May 2011, FASB issued amendments to existing guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. The amendments change wording used to describe many GAAP fair value measurement requirements and disclosures. FASB does not intend for the amendments to cause a change in application of fair value accounting guidance. The guidance is effective for reporting periods beginning after December 15, 2011. The Company implemented this guidance prospectively as of January 1, 2012.

Treatment of Insurance Contract Acquisition Costs. In October 2010, the FASB issued authoritative guidance for the accounting for costs associated with acquiring or renewing insurance contracts. The guidance identifies the incremental direct costs of contract acquisition and costs directly related to acquisition activities that should be capitalized. This guidance is effective for reporting periods beginning after December 15, 2011. The Company implemented this guidance as of January 1, 2012 and determined that $13,492 thousand of previously deferrable acquisition costs will be expensed during 2012 and the first quarter of 2013, including $10,876 thousand of previously deferrable acquisition costs expensed in 2012. If the guidance had been applicable for the prior periods, the Company would have expensed $13,901 thousand of deferrable acquisition costs during 2011.

Improving Disclosures About Fair Value Measurements. In January 2010, the FASB amended the authoritative guidance for disclosures on fair value measurements. Effective for interim and annual reporting periods beginning after December 15, 2009, the guidance requires a new separate disclosure for: significant transfers in and out of Level 1 and 2 and the reasons for the transfers; and provided clarification on existing disclosures to include: fair value measurement disclosures by class of assets and liabilities and disclosure on valuation techniques and inputs used to measure fair value that fall in either Level 2 or Level 3. The Company implemented this guidance effective January 1, 2010. Effective for interim and annual reporting periods beginning after December 15, 2010, the guidance requires another new separate disclosure in regards to Level 3 fair value measurements in that, the period activity will present separately information about purchases, sales, issuances and settlements. Comparative disclosures shall be required only for periods ending after initial adoption. The Company implemented this guidance beginning with the third quarter of 2010.

  1. INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity and equity security investments, carried at market value, are as follows for the periods indicated:

At December 31, 2012
AmortizedUnrealizedUnrealizedMarket
(Dollars in thousands)CostAppreciationDepreciationValue
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations$302,050$11,079$(1,007)$312,122
Obligations of U.S. states and political subdivisions1,214,99078,097(1,124)1,291,963
Corporate securities3,794,979247,439(7,098)4,035,320
Asset-backed securities169,6157,296(333)176,578
Mortgage-backed securities
Commercial294,59627,965(2,473)320,088
Agency residential2,091,67263,794(3,331)2,152,135
Non-agency residential7,660590(201)8,049
Foreign government securities1,785,738132,947(6,457)1,912,228
Foreign corporate securities2,783,580159,632(10,038)2,933,174
Total fixed maturity securities$12,444,880$728,839$(32,062)$13,141,657
Equity securities$131,630$11,864$(1)$143,493

F-13

Index

At December 31, 2011
AmortizedUnrealizedUnrealizedMarket
(Dollars in thousands)CostAppreciationDepreciationValue
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations$284,514$16,407$(287)$300,634
Obligations of U.S. states and political subdivisions1,558,615102,815(525)1,660,905
Corporate securities3,495,761197,914(27,054)3,666,621
Asset-backed securities186,9367,020(550)193,406
Mortgage-backed securities
Commercial310,38720,942(9,902)321,427
Agency residential2,198,93786,722(3,066)2,282,593
Non-agency residential53,365499(775)53,089
Foreign government securities1,555,707120,900(8,389)1,668,218
Foreign corporate securities2,086,95191,869(32,189)2,146,631
Total fixed maturity securities$11,731,173$645,088$(82,737)$12,293,524
Equity securities$463,620$4,060$(18,750)$448,930

The $1,912,228 thousand of foreign government securities at December 31, 2012 included $862,544 thousand of European sovereign securities. Approximately 51.7%, 19.1%, 6.7% and 5.1% of European sovereign securities represented securities held in the governments of the United Kingdom, France, Austria and the Netherlands, respectively. No other countries represented more than 5% of the European sovereign securities. The Company held no sovereign securities of Portugal, Italy, Ireland, Greece or Spain at December 31, 2012.

In accordance with FASB guidance, the Company reclassified the non-credit portion of other-than-temporary impairments from retained earnings into accumulated other comprehensive income (loss), on April 1, 2009. The table below presents the pre-tax cumulative unrealized appreciation (depreciation) on those corporate securities, for the periods indicated:

At December 31,
(Dollars in thousands)20122011
Pre-tax cumulative unrealized appreciation (depreciation)$4,748$2,567

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

At December 31, 2012At December 31, 2011
AmortizedMarketAmortizedMarket
(Dollars in thousands)CostValueCostValue
Fixed maturity securities – available for sale:
Due in one year or less$944,446$957,775$494,098$494,911
Due after one year through five years5,463,1585,741,2585,052,4845,268,748
Due after five years through ten years2,331,5932,511,5252,188,0802,325,142
Due after ten years1,142,1401,274,2491,246,8861,354,208
Asset-backed securities169,615176,578186,936193,406
Mortgage-backed securities:
Commercial294,596320,088310,387321,427
Agency residential2,091,6722,152,1352,198,9372,282,593
Non-agency residential7,6608,04953,36553,089
Total fixed maturity securities$12,444,880$13,141,657$11,731,173$12,293,524

F-14

Index

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

Years Ended December 31,
(Dollars in thousands)20122011
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities$132,246$122,393
Fixed maturity securities, other-than-temporary impairment2,181824
Equity securities26,553(15,143)
Other invested assets-(1,515)
Change in unrealized appreciation (depreciation), pre-tax160,980106,559
Deferred tax benefit (expense)(6,714)(26,484)
Deferred tax benefit (expense), other-than-temporary impairment8366
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity$154,349$80,141

The Company frequently reviews all of its fixed maturity, available for sale securities for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized cost at the time of review. The Company then assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. Generally, a change in a security’s value caused by a change in the market, interest rate or foreign exchange environment does not constitute an other-than-temporary impairment, but rather a temporary decline in market value. Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company determines that the decline is other-than-temporary and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the carrying value of the investment is written down to fair value. The fair value adjustment that is credit or foreign exchange related is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company’s consolidated balance sheets. The Company’s assessments are based on the issuers current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.

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

Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company’s asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected prepayments for pass-through security types.

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The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:

Duration of Unrealized Loss at December 31, 2012 By Security Type
Less than 12 monthsGreater than 12 monthsTotal
GrossGrossGross
UnrealizedUnrealizedUnrealized
(Dollars in thousands)Market ValueDepreciationMarket ValueDepreciationMarket ValueDepreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations$21,468$(430)$3,386$(577)$24,854$(1,007)
Obligations of U.S. states and political subdivisions38,754(1,073)5,781(51)44,535(1,124)
Corporate securities174,665(2,069)71,483(5,029)246,148(7,098)
Asset-backed securities--13,714(333)13,714(333)
Mortgage-backed securities
Commercial--50,999(2,473)50,999(2,473)
Agency residential396,016(2,215)67,781(1,116)463,797(3,331)
Non-agency residential--2,105(201)2,105(201)
Foreign government securities85,032(923)66,329(5,534)151,361(6,457)
Foreign corporate securities197,029(2,802)103,720(7,236)300,749(10,038)
Total fixed maturity securities$912,964$(9,512)$385,298$(22,550)$1,298,262$(32,062)
Equity securities--13(1)13(1)
Total$912,964$(9,512)$385,311$(22,551)$1,298,275$(32,063)
Duration of Unrealized Loss at December 31, 2012 By Maturity
Less than 12 monthsGreater than 12 monthsTotal
GrossGrossGross
UnrealizedUnrealizedUnrealized
(Dollars in thousands)Market ValueDepreciationMarket ValueDepreciationMarket ValueDepreciation
Fixed maturity securities
Due in one year or less$21,909$(502)$30,177$(3,631)$52,086$(4,133)
Due in one year through five years261,625(3,891)163,480(12,748)425,105(16,639)
Due in five years through ten years135,391(1,409)37,926(1,431)173,317(2,840)
Due after ten years98,023(1,495)19,116(617)117,139(2,112)
Asset-backed securities--13,714(333)13,714(333)
Mortgage-backed securities396,016(2,215)120,885(3,790)516,901(6,005)
Total fixed maturity securities$912,964$(9,512)$385,298$(22,550)$1,298,262$(32,062)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2012 were $1,298,275 thousand and $32,063 thousand, respectively. There were no unrealized losses on a single issuer that exceeded 0.02% of the market value of the fixed maturity securities at December 31, 2012. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $9,512 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities, as well as agency residential mortgage-backed securities. Of these unrealized losses, $7,982 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The $22,550 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, foreign government securities and commercial mortgage-backed securities. Of these unrealized losses, $19,150 thousand related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The non-investment grade securities with unrealized losses were mainly comprised of corporate and commercial mortgage-backed securities. The gross unrealized depreciation for mortgage-backed securities included $250 thousand related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.

F-16

Index

The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:

Duration of Unrealized Loss at December 31, 2011 By Security Type
Less than 12 monthsGreater than 12 monthsTotal
GrossGrossGross
UnrealizedUnrealizedUnrealized
(Dollars in thousands)Market ValueDepreciationMarket ValueDepreciationMarket ValueDepreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations$-$-$3,452$(287)$3,452$(287)
Obligations of U.S. states and political subdivisions--7,518(525)7,518(525)
Corporate securities512,255(14,962)120,064(12,092)632,319(27,054)
Asset-backed securities20,839(339)3,655(211)24,494(550)
Mortgage-backed securities
Commercial9,292(1,267)54,535(8,635)63,827(9,902)
Agency residential253,171(2,524)43,894(542)297,065(3,066)
Non-agency residential1,542(19)35,679(756)37,221(775)
Foreign government securities39,534(1,035)132,977(7,354)172,511(8,389)
Foreign corporate securities278,949(12,287)259,641(19,902)538,590(32,189)
Total fixed maturity securities$1,115,582$(32,433)$661,415$(50,304)$1,776,997$(82,737)
Equity securities108,939(8,499)204,466(10,251)313,405(18,750)
Total$1,224,521$(40,932)$865,881$(60,555)$2,090,402$(101,487)
Duration of Unrealized Loss at December 31, 2011 By Maturity
Less than 12 monthsGreater than 12 monthsTotal
GrossGrossGross
UnrealizedUnrealizedUnrealized
(Dollars in thousands)Market ValueDepreciationMarket ValueDepreciationMarket ValueDepreciation
Fixed maturity securities
Due in one year or less$26,581$(326)$72,083$(8,953)$98,664$(9,279)
Due in one year through five years421,995(12,001)256,698(15,635)678,693(27,636)
Due in five years through ten years337,232(13,019)159,476(8,264)496,708(21,283)
Due after ten years44,930(2,938)35,395(7,308)80,325(10,246)
Asset-backed securities20,839(339)3,655(211)24,494(550)
Mortgage-backed securities264,005(3,810)134,108(9,933)398,113(13,743)
Total fixed maturity securities$1,115,582$(32,433)$661,415$(50,304)$1,776,997$(82,737)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2011 were $2,090,402 thousand and $101,487 thousand, respectively. There were no unrealized losses on a single issuer that exceeded 0.04% of the market value of the fixed maturity securities at December 31, 2011. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $32,433 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities. Of these unrealized losses, $17,207 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The $50,304 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, foreign government securities and commercial mortgage-backed securities. Of these unrealized losses, $34,840 thousand related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. All of the unrealized losses related to foreign corporate and foreign government securities are due to temporary currency exchange rate movements as opposed to market value movements. The non-investment grade securities with unrealized losses were mainly comprised of corporate

F-17

Index

and commercial mortgage-backed securities. The gross unrealized depreciation for mortgage-backed securities included $322 thousand related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments. The unrealized losses related to equity securities represent temporary declines in value of mutual fund investments where the underlying investments are comprised of emerging market debt fixed maturities.

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

Years Ended December 31,
(Dollars in thousands)201220112010
Fixed maturity securities$489,801$521,991$581,870
Equity securities59,15657,57312,200
Short-term investments and cash1,2521,281151
Other invested assets
Limited partnerships64,89656,85170,740
Other3,8512,7411,274
Total gross investment income618,956640,437666,235
Interest debited (credited) and other investment expense(18,754)(20,396)(12,772)
Total net investment income$600,202$620,041$653,463

The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.

The Company had contractual commitments to invest up to an additional $106,766 thousand in limited partnerships at December 31, 2012. These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2016.

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

Years Ended December 31,
(Dollars in thousands)201220112010
Fixed maturity securities, market value:
Other-than-temporary impairments$(10,022)$(16,223)$(2,975)
Gains (losses) from sales14,70820,37827,491
Fixed maturity securities, fair value:
Gains (losses) from sales5,675(905)775
Gains (losses) from fair value adjustments1,941(15,518)15,091
Equity securities, market value:
Gains (losses) from sales14,9203877
Equity securities, fair value:
Gains (losses) from sales21,0318,0216,136
Gains (losses) from fair value adjustments116,16311,13055,308
Short-term investments gain (loss)(16)28
Total net realized capital gains (losses)$164,400$6,923$101,911

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

F-18

Index

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

Years Ended December 31,
(Dollars in thousands)201220112010
Proceeds from sales of fixed maturity securities$998,056$1,797,404$1,652,956
Gross gains from sales38,14486,519141,038
Gross losses from sales(17,761)(67,046)(112,772)
Proceeds from sales of equity securities$839,547$274,434$237,149
Gross gains from sales57,81416,32511,562
Gross losses from sales(21,863)(8,266)(5,349)

During the second quarter of 2012, the Company redeemed one of its mutual fund investments reflected on the balance sheet as an equity security – available for sale, at market value. As part of the redemption settlement, the Company received its proportionate share of the fund’s fixed maturities and related accrued interest in the amount of $92,981 thousand. The Company has categorized the fixed maturities as available for sale, at market value.

Securities with a carrying value amount of $1,478,079 thousand at December 31, 2012 were on deposit with various state or governmental insurance departments in compliance with insurance laws.

  1. RESERVE FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE

Reserves for losses and LAE.

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

At December 31,
(Dollars in thousands)201220112010
Gross reserves at January 1$10,123,215$9,340,183$8,937,858
Less reinsurance recoverables(580,998)(689,445)(641,269)
Net reserves at January 19,542,2178,650,7388,296,589
Incurred related to:
Current year2,748,9253,722,5132,976,578
Prior years(3,660)3,691(30,866)
Total incurred losses and LAE2,745,2653,726,2042,945,712
Paid related to:
Current year633,894810,530568,330
Prior years2,220,2022,008,3071,988,749
Total paid losses and LAE2,854,0962,818,8372,557,079
Foreign exchange/translation adjustment32,919(15,888)(34,484)
Net reserves at December 319,466,3059,542,2178,650,738
Plus reinsurance recoverables602,750580,998689,445
Gross reserves at December 31$10,069,055$10,123,215$9,340,183

Incurred prior years’ reserves decreased by $3,660 thousand, increased by $3,691 thousand and decreased by $30,866 thousand for the years ended December 31, 2012, 2011 and 2010, respectively. The decrease for 2012 was attributable to a $57,205 thousand decrease in reinsurance business, primarily related to favorable development on treaty casualty reserves, partially offset by a $53,545 thousand increase in insurance business, primarily related to development on contractors’ liability and workers compensation reserves.

F-19

Index

The increase for 2011 was attributable to a $113,833 thousand increase in insurance and U.S. reinsurance business, primarily related to development on contractors’ liability, excess casualty and California workers compensation reserves, partially offset by the $110,142 thousand decrease in non-US reinsurance business (Bermuda and International), primarily related to favorable development on non-catastrophe property reserves.

The decrease for 2010 was attributable to a $140,760 thousand decrease in non-US reinsurance business, partially offset by the $109,894 thousand increase in insurance and U.S. reinsurance business. The decrease in the non-U.S. reinsurance business was due to reserve studies that indicated net favorable reserve development, as well as reductions in loss estimates for prior year catastrophes. The increase in the US reinsurance is primarily due to reserve strengthening in casualty lines for construction liability claims and the increase in the insurance business is due to reserve strengthening on several terminated programs.

Reinsurance Receivables. Reinsurance receivables for both paid and recoverable on unpaid losses totaled $659,081 thousand and $580,339 thousand at December 31, 2012 and 2011, respectively. At December 31, 2012, $181,535 thousand, or 27.5%, was receivable from C.V. Starr (Bermuda); $79,902 thousand, or 12.1%, was receivable from Federal Crop Insurance Company; $65,152 thousand, or 9.9%, was receivable from XL Reinsurance America; $58,024 thousand, or 8.8%, was receivable from Berkley Insurance Company; and $54,095 thousand, or 8.2%, was receivable from Transatlantic Reinsurance Company. The receivable from C.V. Starr is fully collateralized by a trust agreement. No other retrocessionaire accounted for more than 5% of our receivables.

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

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

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

At December 31,
(Dollars in thousands)201220112010
Gross basis:
Beginning of period reserves$499,911$554,790$638,674
Incurred losses132752-
Paid losses(57,222)(55,631)(83,884)
End of period reserves$442,821$499,911$554,790
Net basis:
Beginning of period reserves$480,160$532,906$613,121
Incurred losses124764-
Paid losses(54,593)(53,510)(80,215)
End of period reserves$425,691$480,160$532,906

F-20

Index

At December 31, 2012, the gross reserves for A&E losses were comprised of $138,449 thousand representing case reserves reported by ceding companies, $90,637 thousand representing additional case reserves established by the Company on assumed reinsurance claims, $36,667 thousand representing case reserves established by the Company on direct excess insurance claims, including Mt. McKinley, and $177,068 thousand representing IBNR reserves.

With respect to asbestos only, at December 31, 2012, the Company had gross asbestos loss reserves of $422,849 thousand, or 95.5%, of total A&E reserves, of which $339,654 thousand was for assumed business and $83,195 thousand was for direct business.

Future Policy Benefit Reserve.

Activity in the reserve for future policy benefits is summarized for the periods indicated:

At December 31,
(Dollars in thousands)201220112010
Balance at beginning of year$67,187$63,002$64,536
Liabilities assumed126176172
Adjustments to reserves2,3658,4492,944
Benefits paid in the current year(3,571)(4,440)(4,650)
Balance at end of year$66,107$67,187$63,002
  1. FAIR VALUE

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

In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers. The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. The Company made no such adjustments at December 31, 2012 and 2011.

The Company internally manages a small public equity portfolio which had a fair value at December 31, 2012 of $117,602 thousand and all prices were obtained from publically published sources.

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

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

F-21

Index

Significant Unobservable Inputs. These securities include broker priced securities and the Company’s equity index put option contracts.

At December 31, 2012 and 2011, all Level 3 fixed maturity securities, were priced using single non-binding broker quotes since prices for these securities were not provided by normal pricing service companies. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company.

The Company sold seven equity index put option contracts, based on two indices, in 2001 and 2005, which remain outstanding. The Company sold these equity index put options as insurance products with the intent of achieving a profit. These equity index put option contracts meet the definition of a derivative under FASB guidance and the Company’s position in these equity index put option contracts is unhedged. Accordingly, these equity index put option contracts are carried at fair value in the consolidated balance sheets with changes in fair value recorded in the consolidated statements of operations and comprehensive income (loss).

The Company sold six equity index put option contracts, based on the Standard & Poor’s 500 (“S&P 500”) index, for total consideration, net of commissions, of $22,530 thousand. At December 31, 2012, fair value for these equity index put option contracts was $69,809 thousand. These equity index put option contracts each have a single exercise date, with maturities ranging from 12 to 30 years and strike prices ranging from $1,141.21 to $1,540.63. No amounts will be payable under these equity index put option contracts if the S&P 500 index is at, or above, the strike prices on the exercise dates, which fall between June 2017 and March 2031. If the S&P 500 index is lower than the strike price on the applicable exercise date, the amount due would vary proportionately with the percentage by which the index is below the strike price. Based on historical index volatilities and trends and the December 31, 2012 S&P 500 index value, the Company estimates the probability that each equity index put option contract of the S&P 500 index falling below the strike price on the exercise date to be less than 44%. The theoretical maximum payouts under these six equity index put option contracts would occur if on each of the exercise dates the S&P 500 index value were zero. At December 31, 2012, the present value of these theoretical maximum payouts using a 3% discount factor was $395,902 thousand. Conversely, if the contracts had all expired on December 31, 2012, with the S&P index at $1,426.19, the settlement amount would have been $11,031 thousand.

The Company sold one equity index put option contract based on the FTSE 100 index for total consideration, net of commissions, of $6,706 thousand. At December 31, 2012, fair value for this equity index put option contract was $9,658 thousand. This equity index put option contract has an exercise date of July 2020 and a strike price of ₤5,989.75. No amount will be payable under this equity index put option contract if the FTSE 100 index is at, or above, the strike price on the exercise date. If the FTSE 100 index is lower than the strike price on the exercise date, the amount due will vary proportionately with the percentage by which the index is below the strike price. Based on historical index volatilities and trends and the December 31, 2012 FTSE 100 index value, the Company estimates the probability that the equity index put option contract of the FTSE 100 index will fall below the strike price on the exercise date to be less than 47%. The theoretical maximum payout under the equity index put option contract would occur if on the exercise date the FTSE 100 index value was zero. At December 31, 2012, the present value of the theoretical maximum payout using a 3% discount factor and current exchange rate was $42,513 thousand. Conversely, if the contract had expired on December 31, 2012, with the FTSE index at ₤5,897.80, the settlement amount would have been $816 thousand.

The Company’s equity index put option contracts contain provisions that require collateralization of the fair value, as calculated by the counterparty, above a specified threshold, which is based on the Company’s financial strength ratings (Moody’s Investors Service, Inc.) and/or debt ratings (Standard & Poor’s Ratings Services). The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on December 31, 2012, was $79,467 thousand for which the Company had posted collateral with a market value of $48,266 thousand. If on December 31, 2012, the Company’s ratings were such that the collateral threshold was zero, the Company’s collateral requirement would increase by $55,000 thousand.

F-22

Index

The fair value was calculated using an industry accepted option pricing model, Black-Scholes, which used the following assumptions:

At December 31, 2012
Contract
Contractsbased on
based onFTSE 100
S & P 500 IndexIndex
Equity index1,426.25,897.8
Interest rate1.28% to 3.25%2.08%
Time to maturity4.4 to 18.3 yrs7.6 yrs
Volatility21.7% to 25.2%24.4%

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

Fair Value Measurement Using:
Quoted Prices
in ActiveSignificant
Markets forOtherSignificant
IdenticalObservableUnobservable
AssetsInputsInputs
(Dollars in thousands)December 31, 2012(Level 1)(Level 2)(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations$312,122$-$312,122$-
Obligations of U.S. States and political subdivisions1,291,963-1,291,963-
Corporate securities4,035,320-4,035,320-
Asset-backed securities176,578-171,7294,849
Mortgage-backed securities
Commercial320,088-320,088-
Agency residential2,152,135-2,117,29334,842
Non-agency residential8,049-7,623426
Foreign government securities1,912,228-1,912,228-
Foreign corporate securities2,933,174-2,921,26111,913
Total fixed maturities, market value13,141,657-13,089,62752,030
Fixed maturities, fair value41,470-41,470-
Equity securities, market value143,493126,39517,098-
Equity securities, fair value1,255,5571,114,997140,560-
Liabilities:
Equity index put option contracts$79,467$-$-$79,467

There were no transfers between Level 1 and Level 2 for the twelve months ended December 31, 2012.

F-23

Index

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

Fair Value Measurement Using:
Quoted Prices
in ActiveSignificant
Markets forOtherSignificant
IdenticalObservableUnobservable
AssetsInputsInputs
(Dollars in thousands)December 31, 2011(Level 1)(Level 2)(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations$300,634$-$300,634$-
Obligations of U.S. States and political subdivisions1,660,905-1,660,905-
Corporate securities3,666,621-3,666,621-
Asset-backed securities193,406-176,46916,937
Mortgage-backed securities
Commercial321,427-321,427-
Agency residential2,282,593-2,282,593-
Non-agency residential53,089-52,603486
Foreign government securities1,668,218-1,668,218-
Foreign corporate securities2,146,631-2,143,5873,044
Total fixed maturities, market value12,293,524-12,273,05720,467
Fixed maturities, fair value113,606-113,606-
Equity securities, market value448,930433,27815,652-
Equity securities, fair value1,249,1061,133,011116,095-
Liabilities:
Equity index put option contracts$69,729$-$-$69,729

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

December 31, 2012December 31, 2011
Asset-backedForeignNon-agencyAgencyAsset-backedForeignNon-agency
(Dollars in thousands)SecuritiesCorporateRMBSRMBSTotalSecuritiesCorporateRMBSTotal
Beginning balance$16,937$3,044$486$-$20,467$995$4,416$1,500$6,911
Total gains or (losses) (realized/unrealized)
Included in earnings114(34)172(4)248193(8)634819
Included in other comprehensive income (loss)71416716(194)703(714)(80)(230)(1,024)
Purchases, issuances and settlements5,41118,541(248)35,04058,74416,4703,131(1,070)18,531
Transfers in and/or (out) of Level 3(18,327)(9,805)--(28,132)(7)(4,415)(348)(4,770)
Ending balance$4,849$11,913$426$34,842$52,030$16,937$3,044$486$20,467
The amount of total gains or losses for the period included
in earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets
still held at the reporting date$-$-$-$-$-$-$-$-$-
(Some amounts may not reconcile due to rounding.)

F-24

Index

The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs for equity index put option contracts, for the periods indicated:

Years Ended December 31,
(Dollars in thousands)20122011
Liabilities:
Balance, beginning of period$69,729$58,467
Total (gains) or losses (realized/unrealized)
Included in earnings9,73811,261
Included in other comprehensive income (loss)--
Purchases, issuances and settlements--
Transfers in and/or (out) of Level 3--
Balance, end of period$79,467$69,729
The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized
gains or losses relating to liabilities still held at the reporting date$-$-
(Some amounts may not reconcile due to rounding.)
  1. CREDIT FACILITIES

The Company has three credit facilities for a total commitment of up to $1,250,000 thousand, providing for the issuance of letters of credit and/or unsecured revolving credit lines. The following table presents the costs incurred in connection with the three credit facilities for the periods indicated:

Years Ended December 31,
(Dollars in thousands)201220112010
Credit facility fees incurred$3,519$2,211$2,034

The terms and outstanding amounts for each facility are discussed below:

Group Credit Facility

Effective June 22, 2012, Group, Bermuda Re and Everest International entered into a four year, $800,000 thousand senior credit facility with a syndicate of lenders, which amended and restated in its entirety the July 27, 2007, five year, $850,000 thousand senior credit facility. Both the June 22, 2012 and July 27, 2007 senior credit facilities, which have similar terms, are referred to as the “Group Credit Facility”. Wells Fargo Corporation (“Wells Fargo Bank”) is the administrative agent for the Group Credit Facility, which consists of two tranches. Tranche one provides up to $200,000 thousand of unsecured revolving credit for liquidity and general corporate purposes, and for the issuance of unsecured standby letters of credit. The interest on the revolving loans shall, at the Company’s option, be either (1) the Base Rate (as defined below) or (2) an adjusted London Interbank Offered Rate (“LIBOR”) plus a margin. The Base Rate is the higher of (a) the prime commercial lending rate established by Wells Fargo Bank, (b) the Federal Funds Rate plus 0.5% per annum or (c) the one month LIBOR Rate plus 1.0% per annum. The amount of margin and the fees payable for the Group Credit Facility depends on Group’s senior unsecured debt rating. Tranche two exclusively provides up to $600,000 thousand for the issuance of standby letters of credit on a collateralized basis.

The Group Credit Facility requires Group to maintain a debt to capital ratio of not greater than 0.35 to 1 and to maintain a minimum net worth. Minimum net worth is an amount equal to the sum of $4,249,963 thousand plus 25% of consolidated net income for each of Group’s fiscal quarters, for which statements are available ending on or after January 1, 2012 and for which consolidated net income is positive, plus 25% of any increase in consolidated net worth during such period attributable to the issuance of ordinary and preferred shares, which at December 31, 2012, was $4,470,565 thousand. As of December 31, 2012, the Company was in compliance with all Group Credit Facility covenants.

F-25

Index

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

(Dollars in thousands)At December 31, 2012At December 31, 2011
BankCommitmentIn UseDate of ExpiryCommitmentIn UseDate of Expiry
Wells Fargo Bank Group Credit FacilityTranche One$200,000$-$350,000$-
Tranche Two600,000463,15512/31/2013500,000446,32712/31/2012
-1279/30/2012
Total Wells Fargo Bank Group Credit Facility$800,000$463,155$850,000$446,454

Holdings Credit Facility

Effective August 15, 2011, Holdings entered into a new three year, $150,000 thousand unsecured revolving credit facility with a syndicate of lenders, replacing the August 23, 2006 five year senior revolving credit facility. Both the August 15, 2011 and August 23, 2006 revolving credit agreements, which have similar terms, are referred to as the “Holdings Credit Facility”. Citibank N.A. is the administrative agent for the Holdings Credit Facility. The Holdings Credit Facility may be used for liquidity and general corporate purposes. The Holdings Credit Facility provides for the borrowing of up to $150,000 thousand with interest at a rate selected by Holdings equal to either, (1) the Base Rate (as defined below) or (2) a periodic fixed rate equal to the Eurodollar Rate plus an applicable margin. The Base Rate means a fluctuating interest rate per annum in effect from time to time to be equal to the higher of (a) the rate of interest publicly announced by Citibank as its base rate, (b) 0.5% per annum above the Federal Funds Rate or (c) 1% above the one month LIBOR, in each case plus the applicable margin. The amount of margin and the fees payable for the Holdings Credit Facility depends upon Holdings’ senior unsecured debt rating.

The Holdings Credit Facility requires Holdings to maintain a debt to capital ratio of not greater than 0.35 to 1 and Everest Re to maintain its statutory surplus at $1,875,000 thousand plus 25% of future aggregate net income and 25% of future aggregate capital contributions after December 31, 2010, which at December 31, 2012, was $1,990,497 thousand. As of December 31, 2012, Holdings was in compliance with all Holdings Credit Facility covenants.

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

(Dollars in thousands)At December 31, 2012At December 31, 2011
BankCommitmentIn UseDate of LoanMaturity/Expiry DateCommitmentIn UseDate of LoanMaturity/Expiry Date
Citibank Holdings Credit Facility$150,000$-$150,000$-
Total revolving credit borrowings--
Total letters of credit1,55112/31/20135,02012/31/2012
Total Citibank Holdings Credit Facility$150,000$1,551$150,000$5,020

Bermuda Re Letter of Credit Facility

Bermuda Re has a $300,000 thousand letter of credit issuance facility with Citibank N.A. referred to as the “Bermuda Re Letter of Credit Facility”, which commitment is reconfirmed annually with updated fees. The Bermuda Re Letter of Credit Facility provides for the issuance of up to $300,000 thousand of secured letters of credit to collateralize reinsurance obligations as a non-admitted reinsurer. The interest on drawn letters of credit shall be (A) 0.35% per annum of the principal amount of issued standard letters of credit (expiry of 15 months or less) and (B) 0.45% per annum of the principal amount of issued extended tenor letters of credit (expiry maximum of up to 60 months). The commitment fee on undrawn credit shall be 0.15% per annum.

F-26

Index

The following table summarizes the outstanding letters of credit for the periods indicated:

(Dollars in thousands)At December 31, 2012At December 31, 2011
BankCommitmentIn UseDate of ExpiryCommitmentIn UseDate of Expiry
Citibank Bilateral Letter of Credit Agreement$300,000$3,67211/24/2013$300,000$3,35211/24/2012
75,47212/31/201380,77012/31/2012
1,1048/15/2014857/15/2013
1398/30/20148892/15/2014
20,83812/31/20144,77312/31/2014
145,2153/31/201725,5106/30/2015
--8,6429/30/2015
--10,08811/22/2015
--60,75212/31/2015
Total Citibank Bilateral Agreement$300,000$246,440$300,000$194,861
  1. SENIOR NOTES

The table below displays Holdings’ outstanding senior notes. Market value is based on quoted market prices, but due to limited trading activity, these senior notes are considered Level 2 in the fair value hierarchy.

December 31, 2012December 31, 2011
Consolidated BalanceConsolidated Balance
(Dollars in thousands)Date IssuedDate DuePrincipal AmountsSheet AmountMarket ValueSheet AmountMarket Value
5.40% Senior notes10/12/200410/15/2014$250,000$249,907$266,390$249,858$251,370
8.75% Senior notes (matured and paid on March 15, 2010)03/14/200003/15/2010$200,000$-$-$-$-

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

Years Ended December 31,
(Dollars in thousands)201220112010
Interest expense incurred$13,548$13,546$17,219
  1. LONG TERM SUBORDINATED NOTES

The table below displays Holdings’ outstanding fixed to floating rate long term subordinated notes. Market value is based on quoted market prices, but due to limited trading activity, these subordinated notes are considered Level 2 in the fair value hierarchy.

Maturity DateDecember 31, 2012December 31, 2011
OriginalConsolidated BalanceConsolidated Balance
(Dollars in thousands)Date IssuedPrincipal AmountScheduledFinalSheet AmountMarket ValueSheet AmountMarket Value
6.6% Long term subordinated notes04/26/2007$400,00005/15/203705/01/2067$238,357$242,138$238,354$210,195

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

F-27

Index

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

On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161,441 thousand.

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

Years Ended December 31,
(Dollars in thousands)201220112010
Interest expense incurred$15,748$15,748$15,748
  1. JUNIOR SUBORDINATED DEBT SECURITIES PAYABLE

The following table displays Holdings’ outstanding junior subordinated debt securities due to Everest Re Capital Trust II (“Capital Trust II”), a 100% owned finance subsidiary of Holdings. Fair value is primarily based on the quoted market price of the related trust preferred securities, and as such, these securities are considered Level 2 under the fair value hierarchy.

December 31, 2012December 31, 2011
Consolidated BalanceConsolidated Balance
(Dollars in thousands)Date IssuedDate DueAmount IssuedSheet AmountFair ValueSheet AmountFair Value
6.20% Junior subordinated debt securities03/29/200403/29/2034$329,897$329,897$333,225$329,897$326,313

Holdings may redeem the junior subordinated debt securities before their maturity at 100% of their principal amount plus accrued interest as of the date of redemption. The securities may be redeemed, in whole or in part, on one or more occasions at any time on or after March 30, 2009; or at any time, in whole, but not in part, within 90 days of the occurrence and continuation of a determination that the Trust may become subject to tax or the Investment Company Act.

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

Years Ended December 31,
(Dollars in thousands)201220112010
Interest expense incurred$20,454$20,454$20,454

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 II’s payment obligations with respect to their trust preferred securities.

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

F-28

Index

There are certain regulatory and contractual restrictions on the ability of Holdings’ operating subsidiaries to transfer funds to Holdings in the form of cash dividends, loans or advances. The insurance laws of the State of Delaware, where Holdings’ direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or advances to Holdings that exceed certain statutory thresholds. In addition, the terms of Holdings Credit Facility (discussed in Note 5) require Everest Re, Holdings’ principal insurance subsidiary, to maintain a certain statutory surplus level as measured at the end of each fiscal year. At December 31, 2012, $2,272,346 thousand of the $3,068,916 thousand in net assets of Holdings’ consolidated subsidiaries were subject to the foregoing regulatory restrictions.

  1. TRUST AGREEMENTS

Certain subsidiaries of Group have established trust agreements, which effectively use the Company’s investments as collateral, as security for assumed losses payable to certain non-affiliated ceding companies. At December 31, 2012, the total amount on deposit in trust accounts was $213,696 thousand.

  1. OPERATING LEASE AGREEMENTS

The future minimum rental commitments, exclusive of cost escalation clauses, at December 31, 2012, for all of the Company’s operating leases with remaining non-cancelable terms in excess of one year are as follows:

(Dollars in thousands)
2013$11,450
201411,220
201511,847
201611,850
201710,812
Thereafter36,365
Net commitments$93,544

All of these leases, the expiration terms of which range from 2013 to 2024, are for the rental of office space. Rental expense was $14,169 thousand, $14,148 thousand and $13,124 thousand for the years ended December 31, 2012, 2011 and 2010, respectively.

  1. INCOME TAXES

Under Bermuda law, no income or capital gains taxes are imposed on Group and its Bermuda subsidiaries. The Minister of Finance of Bermuda has assured Group and its Bermuda subsidiaries that, pursuant to The Exempted Undertakings Tax Protection Amendment Act of 2011, they will be exempt until 2035 from imposition of any such taxes.

All the income of Group's non-Bermuda subsidiaries is subject to the applicable federal, foreign, state and local taxes on corporations. Additionally, the income of foreign branches of the Company's insurance operating companies, in particular the UK branch of Bermuda Re, is subject to various rates of income tax. The provision for income taxes in the consolidated statement of operations and comprehensive income (loss) has been determined in accordance with the individual income of each entity and the respective applicable tax laws. The provision reflects the permanent differences between financial and taxable income relevant to each entity. The significant components of the provision are as follows for the periods indicated:

Years Ended December 31,
(Dollars in thousands)201220112010
Current tax expense (benefit):
U.S.$46,723$27,257$(57,073)
Non-U.S.14,13114,38835,056
Total current tax expense (benefit)60,85441,645(22,016)
Total deferred U.S. tax expense (benefit)49,718(195,106)2,500
Total income tax expense (benefit)$110,572$(153,461)$(19,516)
(Some amounts may not reconcile due to rounding.)

F-29

Index

The weighted average expected tax provision has been calculated using the pre-tax income (loss) in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. Reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate for the periods indicated is provided below:

Years Ended December 31,
(Dollars in thousands)201220112010
U.S.Non-U.S.U.S.Non-U.S.U.S.Non-U.S.
Pre-tax income (loss)$432,332$507,194$(395,206)$161,260$141,142$450,097
Expected tax provision at the applicable statutory rate(s)151,31611,013(138,322)12,21649,43633,716
Increase (decrease) in taxes resulting from:
Tax exempt income(20,623)-(33,672)-(56,457)-
Dividend received deduction(8,351)-(6,893)-(2,784)-
Proration3,138-5,080-8,510-
Tax audit settlement(2,508)-(710)-(36,511)-
Uncertain tax positions(31,912)-8,139-(5,237)-
Other5,3773,123(1,471)2,172(11,529)1,340
Total income tax provision$96,437$14,136$(167,849)$14,388$(54,572)$35,056

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

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

F-30

Index

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

Years Ended December 31,
(Dollars in thousands)20122011
Deferred tax assets:
Loss reserve$159,320$183,883
Foreign tax credits90,94174,253
Net operating loss carryforward64,353167,089
Alternative minimum tax credits64,08821,438
Deferred expenses40,20019,351
Unearned premium reserve37,55843,020
Unfunded pension liability33,66029,903
Deferred compensation12,55715,437
Uncollectible reinsurance reserve5,6755,675
Investment impairments3,1514,620
Other assets9,63017,724
Total deferred tax assets521,133582,393
Deferred tax liabilities:
Net unrealized investment gains87,52479,450
Net unrealized fair value income61,21129,633
Net unrealized foreign currency gains42,74246,738
Deferred acquisition costs33,96958,571
Deferred gain on tender of debt27,39527,395
Accrued market discount on bonds2,0022,183
Other liabilities2,5155,640
Total deferred tax liabilities257,357249,610
Net deferred tax assets263,776332,783
Valuation allowance(1,752)-
Total net deferred tax assets$262,024$332,783

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

(Dollars in thousands)201220112010
Balance at January 1$31,912$23,773$29,010
Additions based on tax positions related to the current year-8,1397,119
Additions for tax positions of prior years---
Reductions for tax positions of prior years(31,912)--
Settlements with taxing authorities--(12,356)
Lapses of applicable statutes of limitations---
Balance at December 31$-$31,912$23,773

As a result of closing the 2007 and 2008 IRS audit during 2012, the Company was able to re-measure its exposure and take down its reserve for uncertain tax positions by $31,912 thousand and accrued interest of $2,154 thousand. Thus, the entire amount of unrecognized tax benefits at December 31, 2011 and 2010 were recognized and beneficially affected the effective tax rate in 2012. The Company is no longer subject to U.S federal, state and local or foreign income tax examinations by tax authorities for years before 2009.

In 2010, the Company favorably settled a 2003 and 2004 IRS audit. During the years ended December 31, 2011 and 2010, the Company recorded a net overall tax benefit including accrued interest of $710 thousand and $25,920 thousand respectively. In addition, in 2010, the Company was able to take down a $12,356 thousand reserve for uncertain tax positions that had been established with respect to 2003 and 2004.

F-31

Index

The Company recognizes accrued interest related to net unrecognized tax benefits and penalties in income taxes. During the year ended December 31, 2012, 2011 and 2010 the Company accrued and recognized a net expense/(benefit) of approximately $(2,154) thousand, $957 thousand and $(9,938) thousand, respectively, in interest and penalties. Included within the 2010 net expense (benefit) of $(9,938) thousand is $(10,591) thousand of accrued interest related to the 2003 and 2004 IRS audit.

For U.S. income tax purposes the Company has foreign tax credit carry forwards of $90,941 thousand that begin to expire in 2017 and a net operating loss carryforward of $183,866 thousand that expires in 2031. In addition, for U.S. income tax purposes the Company has $64,088 thousand of Alternative Minimum Tax credits that do not expire. Management believes that it is more likely than not that the Company will realize the benefits of its net deferred tax assets, however, a valuation allowance of $1,752 thousand has been recorded in 2012 against a net operating loss carryforward in it's Canadian subsidiary.

The Company has recorded tax benefits related to share-based compensation deductions for dividends on restricted stock, vestings of restricted stock and exercised stock options in 2012 and 2011 respectively of $555 thousand and $10 thousand in additional paid-in capital the shareholders' equity section of the consolidated balance sheets.

  1. REINSURANCE

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

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

Years Ended December 31,
(Dollars in thousands)201220112010
Written premiums:
Direct$1,074,206$815,087$823,378
Assumed3,236,3313,471,0873,377,341
Ceded(229,466)(177,275)(255,141)
Net written premiums$4,081,071$4,108,899$3,945,578
Premiums earned:
Direct$1,054,707$871,598$823,811
Assumed3,353,6673,454,6223,340,977
Ceded(243,746)(224,873)(230,163)
Net premiums earned$4,164,628$4,101,347$3,934,625
Incurred losses and LAE:
Direct$926,364$744,017$708,212
Assumed2,017,5263,099,7872,392,758
Ceded(198,625)(117,600)(155,258)
Net incurred losses and LAE$2,745,265$3,726,204$2,945,712

F-32

Index

  1. COMPREHENSIVE INCOME (LOSS)

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

Years Ended December 31,
(Dollars in thousands)201220112010
Net income (loss)$828,954$(80,486)$610,754
Other comprehensive income (loss), before tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
URA(D) of investments - temporary178,405109,92865,199
URA(D) of investments - non-credit OTTI2,1818247,831
URA(D) on securities arising during the period180,586110,75273,030
Less: reclassification adjustment for realized losses (gains) included in net income (loss)(19,606)(4,193)(24,593)
Total URA(D) on securities arising during the period160,980106,55948,437
Foreign currency translation adjustments26,484(16,429)16,429
Pension adjustments(10,732)(45,310)(2,792)
Total other comprehensive income (loss), before tax176,73244,82062,074
Income tax benefit (expense) related to items of other comprehensive income (loss):
Tax benefit (expense) on URA(D) arising during the period
Tax benefit (expense) on URA(D) of investments - temporary(6,644)(19,338)30,504
Tax benefit (expense) on URA(D) of investments - non-credit OTTI8366(1,002)
Tax benefit (expense) on URA(D) on securities arising during the period(6,561)(19,272)29,502
Less: reclassification of tax expense (benefit) on realized losses (gains) included in net income (loss)(70)(7,146)(17,775)
Total tax benefit (expense) from URA(D) arising during the period(6,631)(26,418)11,727
Tax benefit (expense) from foreign currency translation(3,786)460(14,558)
Tax benefit (expense) on pension3,75615,858977
Total income tax benefit (expense) related to items of other comprehensive income (loss):(6,661)(10,100)(1,854)
Other comprehensive income (loss), net of tax170,07134,72060,220
Comprehensive income (loss)$999,025$(45,766)$670,974

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

Years Ended December 31,
(Dollars in thousands)20122011
Beginning balance of URA (D) on securities$449,579$369,438
Current period change in URA (D) of investments - temporary152,08679,251
Current period change in URA (D) of investments - non-credit OTTI2,263890
Ending balance of URA (D) on securities603,928449,579
Beginning balance of foreign currency translation adjustments(27,066)(11,097)
Current period change in foreign currency translation adjustments22,698(15,969)
Ending balance of foreign currency translation adjustments(4,368)(27,066)
Beginning balance of pension(55,535)(26,083)
Current period change in pension(6,976)(29,452)
Ending balance of pension(62,511)(55,535)
Ending balance of accumulated other comprehensive income (loss)$537,049$366,978

F-33

Index

  1. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans.

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

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

Years Ended December 31,
(Dollars in thousands)201220112010
Company contributions$267$3,223$6,759

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

Years Ended December 31,
(Dollars in thousands)201220112010
Pension expense$16,542$10,874$10,783

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

Years Ended December 31,
(Dollars in thousands)20122011
Change in projected benefit obligation:
Benefit obligation at beginning of year$175,364$138,392
Service cost9,3707,548
Interest cost7,9717,702
Actuarial loss21,78626,802
Benefits paid(2,332)(5,080)
Projected benefit obligation at end of year212,159175,364
Change in plan assets:
Fair value of plan assets at beginning of year101,304114,470
Actual return on plan assets15,568(11,309)
Actual contributions during the year2673,223
Benefits paid(2,332)(5,080)
Fair value of plan assets at end of year114,807101,304
Funded status at end of year$(97,352)$(74,060)

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

At December 31,
(Dollars in thousands)20122011
Other assets (due beyond one year)$-$-
Other liabilities (due within one year)(5,497)(3,497)
Other liabilities (due beyond one year)(91,855)(70,563)
Net amount recognized in the consolidated balance sheets$(97,352)$(74,060)

F-34

Index

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

At December 31,
(Dollars in thousands)20122011
Prior service cost$(119)$(168)
Accumulated income (loss)(85,820)(78,755)
Accumulated other comprehensive income (loss)$(85,939)$(78,923)

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

Years Ended December 31,
(Dollars in thousands)20122011
Other comprehensive income (loss) at December 31, prior year$(78,923)$(36,436)
Net gain (loss) arising during period(13,961)(47,177)
Recognition of amortizations in net periodic benefit cost:
Prior service cost4949
Actuarial loss6,8964,641
Other comprehensive income (loss) at December 31, current year$(85,939)$(78,923)

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

Years Ended December 31,
(Dollars in thousands)201220112010
Service cost$9,370$7,548$6,944
Interest cost7,9717,7027,052
Expected return on assets(7,743)(9,067)(7,971)
Amortization of actuarial loss from earlier periods6,8963,3672,467
Amortization of unrecognized prior service cost494949
Settlement-1,2752,242
Net periodic benefit cost$16,542$10,874$10,783
Other changes recognized in other comprehensive income (loss):
Other comprehensive income (loss) attributable to change from prior year7,01742,487
Total recognized in net periodic benefit cost and other
comprehensive income (loss)$23,559$53,361
(Some amounts may not reconcile due to rounding.)

The estimated transition obligation, actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year are $0 thousand, $7,415 thousand and $49 thousand, respectively.

The weighted average discount rates used to determine net periodic benefit cost for 2012, 2011 and 2010 were 4.60%, 5.60% and 6.10%, respectively. The rate of compensation increase used to determine the net periodic benefit cost for 2012, 2011 and 2010 was 4.0%. The expected long-term rate of return on plan assets for 2012, 2011 and 2010 was 7.75%, 8.0% and 8.0%, respectively, and was based on expected portfolio returns and allocations.

The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation for year end 2012, 2011 and 2010 were 4.00%, 4.60% and 5.60%, respectively.

F-35

Index

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

At December 31,
(Dollars in thousands)20122011
Qualified Plan$148,107$118,981
Non-qualified Plan25,57921,231
Total$173,686$140,212

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

At December 31,
(Dollars in thousands)20122011
Qualified Plan
Projected benefit obligation$181,617$146,350
Fair value of plan assets114,807101,304
Non-qualified Plan
Projected benefit obligation$30,542$29,014
Fair value of plan assets--

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

At December 31,
(Dollars in thousands)20122011
Qualified Plan
Accumulated benefit obligation$148,107$118,981
Fair value of plan assets114,807101,304
Non-qualified Plan
Accumulated benefit obligation$25,579$21,231
Fair value of plan assets--

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

(Dollars in thousands)
2013$8,567
20147,233
20156,582
20166,759
20177,299
Next 5 years48,914

Plan assets consist of shares in investment trusts with approximately 68%, 29% and 3% of the underlying assets consisting of equity securities, fixed maturities and cash, respectively. The Company manages the qualified plan investments for U.S. employees. The assets in the plan consist of debt and equity mutual funds. Due to the long term nature of the plan, the target asset allocation has historically been 70% equities and 30% bonds.

F-36

Index

The following tables present the fair value measurement levels for the qualified plan assets at fair value for the periods indicated:

Fair Value Measurement Using:
Quoted Prices
in ActiveSignificant
Markets forOtherSignificant
IdenticalObservableUnobservable
AssetsInputsInputs
(Dollars in thousands)December 31, 2012(Level 1)(Level 2)(Level 3)
Assets:
Cash$-$-$-$-
Short-term investments, which approximates fair value (a)3,3433,343--
Mutual funds, fair value
Fixed income (b)33,78333,783--
Equities (c)63,06563,065--
Multi-strategy equity fund, fair value (d)9,092--9,092
Private equity limited partnership (e)5,524--5,524
Total$114,807$100,191$-$14,616
(a)This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.
(b)This category includes three fixed income funds, which invest in investment grade securities of corporations, governments and government agencies with approximately half in U.S. securities and half in international securities.
(c)This category includes eight funds, which invest in small, mid and multi-cap equity securities including common stocks, securities convertible into common stock and securities with common stock characteristics, such as rights and warrants, with approximately three-fourths in U.S. equities and one-fourth in international equities.
(d)This category consists of a privately held fund of U.S. and international equity funds and may include currency hedges for the foreign funds. The fair value is provided by the external investment manager.
(e)This category consists of two private equity limited partnerships.
Fair Value Measurement Using:
Quoted Prices
in ActiveSignificant
Markets forOtherSignificant
IdenticalObservableUnobservable
AssetsInputsInputs
(Dollars in thousands)December 31, 2011(Level 1)(Level 2)(Level 3)
Assets:
Cash$317$317$-$-
Short-term investments, which approximates fair value (a)3,1093,109--
Mutual funds, fair value
Fixed income (b)33,57333,573--
Equities (c)55,42355,423--
Multi-strategy equity fund, fair value (d)7,891--7,891
Private equity limited partnership (e)991--991
Total$101,304$92,422$-$8,882
(Some amounts may not reconcile due to rounding.)
(a)This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.
(b)This category includes three fixed income funds, which invest in investment grade securities of corporations, governments and government agencies with approximately half in U.S. securities and half in international securities.
(c)This category includes eight funds, which invest in small, mid and multi-cap equity securities including common stocks, securities convertible into common stock and securities with common stock characteristics, such as rights and warrants, with approximately three-fourths in U.S. equities and one-fourth in international equities.
(d)This category consists of a privately held fund of U.S. and international equity funds and may include currency hedges for the foreign funds. The fair value is provided by the external investment manager.
(e)This category consists of a private equity limited partnership.

F-37

Index

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

Year Ended December 31,
(Dollars in thousands)20122011
Assets:
Balance, beginning of period$8,882$10,259
Actual return on plan assets:
Realized gains (losses)(22)21
Unrealized gains (losses)997(2,380)
Purchases and capital contributions5,9551,200
Investment income earned on assets118(95)
Sales and capital distributions(1,314)(123)
Transfers in and/or (out) of Level 3--
Balance, end of period$14,616$8,882
The amount of total gains (losses) for the period included in changes in
net assets attributable to the change in unrealized gains (losses)
relating to assets still held at the reporting date$1,019$(2,401)
(Some amounts may not reconcile due to rounding.)

The Company does not expect to make any contributions to the qualified plan in 2013.

Defined Contribution Plans.

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

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

Years Ended December 31,
(Dollars in thousands)201220112010
Incurred expenses$3,209$2,062$1,801

In addition, the Company maintains several defined contribution pension plans covering non-U.S. employees. Each non-U.S. office (Brazil, Canada, London, Belgium, Singapore, Ireland and Bermuda) maintains a separate plan for the non-U.S. employees working in that location. The Company contributes various amounts based on salary, age and/or years of service. The contributions as a percentage of salary for the branch offices range from 5.3% to 12.0%. The contributions are generally used to purchase pension benefits from local insurance providers. The following table presents the Company’s incurred expenses related to these plans for the periods indicated:

Years Ended December 31,
(Dollars in thousands)201220112010
Incurred expenses$1,064$1,031$995

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Index

Post-Retirement Plan.

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

The following medical cost trend rates were used to determine net cost and benefit obligations: a healthcare inflation rate for pre-Medicare claims of 7.7% in 2012 was assumed to decrease gradually to 4.5% in 2027 and then remain at that level; and a healthcare inflation rate for post-Medicare claims of 6.3% in 2012 was assumed to decrease gradually to 4.5% in 2027 and then remain at that level.

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

PercentagePercentage
Point IncreasePoint Decrease
(Dollars in thousands)($ Impact)($ Impact)
a. Effect on total service and interest cost components$617$(478)
b. Effect on accumulated post-retirement benefit obligation5,905(4,611)

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

Years Ended December 31,
(Dollars in thousands)201220112010
Post-retirement benefit expenses$3,141$2,258$1,947

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

At December 31,
(Dollars in thousands)20122011
Change in projected benefit obligation:
Benefit obligation at beginning of year$21,462$16,754
Service cost1,6771,165
Interest cost1,033934
Actuarial loss4,1362,930
Excise tax cost1153
Benefits paid(381)(374)
Benefit obligation at end of year27,93821,462
Change in plan assets:
Fair value of plan assets at beginning of year--
Employer contributions381374
Benefits paid(381)(374)
Fair value of plan assets at end of year--
Funded status at end of year$(27,938)$(21,462)

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

At December 31,
(Dollars in thousands)20122011
Other liabilities (due within one year)$(472)$(470)
Other liabilities (due beyond one year)(27,466)(20,992)
Net amount recognized in the consolidated balance sheets$(27,938)$(21,462)

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Index

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

At December 31,
(Dollars in thousands)20122011
Accumulated income (loss)$(10,231)$(6,516)
Accumulated other comprehensive income (loss)$(10,231)$(6,516)

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

Years Ended December 31,
(Dollars in thousands)20122011
Other comprehensive income (loss) at December 31, prior year$(6,516)$(3,692)
Net gain (loss) arising during period(4,147)(2,983)
Recognition of amortizations in net periodic benefit cost:
Actuarial loss (gain)432159
Other comprehensive income (loss) at December 31, current year$(10,231)$(6,516)

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

Years Ended December 31,
(Dollars in thousands)201220112010
Service cost$1,677$1,165$1,017
Interest cost1,033934849
Net loss recognition43215981
Net periodic cost$3,142$2,258$1,947
Other changes recognized in other comprehensive income (loss):
Other comprehensive gain (loss) attributable to change from prior year3,7152,823
Total recognized in net periodic benefit cost and
other comprehensive income (loss)$6,857$5,081

The estimated transition obligation, actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $0 thousand, $614 thousand and $0 thousand, respectively.

The weighted average discount rates used to determine net periodic benefit cost for 2012, 2011 and 2010 were 4.60%, 5.60% and 6.10%, respectively.

The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation at year end 2012, 2011 and 2010 were 4.00%, 4.60% and 5.60%, respectively.

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

(Dollars in thousands)
2013$472
2014538
2015672
2016760
2017820
Next 5 years6,403

F-40

Index

  1. DIVIDEND RESTRICTIONS AND STATUTORY FINANCIAL INFORMATION

Dividend Restrictions.

Under Bermuda law, Group is prohibited from declaring or paying a dividend if such payment would reduce the realizable value of its assets to an amount less than the aggregate value of its liabilities and its issued share capital and share premium (additional paid-in capital) accounts. Group’s ability to pay dividends and its operating expenses is dependent upon dividends from its subsidiaries. The payment of such dividends by insurer subsidiaries is limited under Bermuda law and the laws of the various U.S. states in which Group’s insurance and reinsurance subsidiaries are domiciled or deemed domiciled. The limitations are generally based upon net income and compliance with applicable policyholders’ surplus or minimum solvency margin and liquidity ratio requirements as determined in accordance with the relevant statutory accounting practices.

Under Bermuda law, Bermuda Re and Everest International are prohibited from declaring or making payment of a dividend if they fail to meet their minimum solvency margin or minimum liquidity ratio. As a long term insurer, Bermuda Re is also unable to declare or pay a dividend to anyone who is not a policyholder unless, after payment of the dividend, the value of the assets in their long term business fund, as certified by their approved actuary, exceeds their liabilities for long term business by at least the $250 thousand minimum solvency margin. Prior approval of the Bermuda Monetary Authority is required if Bermuda Re’s or Everest International’s dividend payments would exceed 25% of their prior year-end total statutory capital and surplus.

Under Irish corporate and regulatory law, Holdings Ireland and its subsidiaries are limited as to the dividends they can pay based on retained earnings and net income (loss) and/or capital and minimum solvency requirements.

Delaware law provides that an insurance company which is a member of an insurance holding company system and is domiciled in the state shall not pay dividends without giving prior notice to the Insurance Commissioner of Delaware and may not pay dividends without the approval of the Insurance Commissioner if the value of the proposed dividend, together with all other dividends and distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory surplus or (2) net income, not including realized capital gains, each as reported in the prior year’s statutory annual statement. In addition, no dividend may be paid in excess of unassigned earned surplus. At December 31, 2012, Everest Re has $359,026 thousand available for payment of dividends in 2013 without the need for prior regulatory approval.

Statutory Financial Information.

Everest Re prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the National Association of Insurance Commissioners (“NAIC”) and the Delaware Insurance Department. Prescribed statutory accounting practices are set forth in the NAIC Accounting Practices and Procedures Manual. The capital and statutory surplus of Everest Re was $2,612,995 thousand and $2,322,115 thousand at December 31, 2012 and 2011, respectively. The statutory net income of Everest Re was $359,816 thousand for the year ended December 31, 2012, the statutory net loss of Everest Re was $326,400 thousand for the year ended December 31, 2011 and the statutory net income of Everest Re was $218,452 thousand for the year ended December 31, 2010.

Bermuda Re prepares its statutory financial statements in conformity with the accounting principles set forth in Bermuda in The Insurance Act 1978, amendments thereto and related regulations. The statutory capital and surplus of Bermuda Re was $2,904,406 thousand and $2,736,599 thousand at December 31, 2012 and 2011, respectively. The statutory net income of Bermuda Re was $475,353 thousand, $97,359 thousand and $391,862 thousand for the years ended December 31, 2012, 2011 and 2010, respectively.

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Index

  1. CONTINGENCIES

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.

Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.

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

At December 31,
(Dollars in thousands)20122011
$144,628$143,447

Prior to its 1995 initial public offering, the Company purchased annuities from an unaffiliated life insurance company with an A+ (Superior) financial strength rating from A.M. Best to settle certain claim liabilities of the company. Should the life insurance company become unable to make the annuity payments, the Company would be liable for those claim liabilities. The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:

At December 31,
(Dollars in thousands)20122011
$29,132$27,634
  1. SHARE-BASED COMPENSATION PLANS

The Company has a 2010 Stock Incentive Plan (“2010 Employee Plan”), a 2002 Stock Incentive Plan (“2002 Employee Plan”), a 1995 Stock Incentive Plan (“1995 Employee Plan”), a 2009 Non-Employee Director Stock Option and Restricted Stock Plan (“2009 Director Plan”), a 2003 Non-Employee Director Equity Compensation Plan (“2003 Director Plan”) and a 1995 Stock Option Plan for Non-Employee Directors (“1995 Director Plan”). In addition, the Company has awarded options to non-employee directors in Board actions in 2001, 2000 and 1999.

Under the 2010 Employee Plan, 4,000,000 common shares have been authorized to be granted as non-qualified share options, incentive share options, share appreciation rights or restricted share and share awards to officers and key employees of the Company. At December 31, 2012, there were 2,989,748 remaining shares available to be granted under the 2010 Employee Plan. The 2010 Employee Plan replaced the 2002 Employee Plan, which replaced the 1995 Employee Plan; therefore, no further awards will be granted under the 2002 Employee Plan or the 1995 Employee Plan. Through December 31, 2012, only non-qualified share options and restricted share awards had been granted under the employee plans. Under the 2009 Director Plan, 37,439 common shares have been authorized to be granted as share options or restricted share awards to non-employee directors of the Company. At December 31, 2012, there were 34,738 remaining shares available to be granted under the 2009 Director Plan. The 2009 Director Plan replaced the 1995 Director Plan, which expired. Under the 2003 Director Plan, 500,000 common shares

F-42

Index

have been authorized to be granted as share options or share awards to non-employee directors of the Company. At December 31, 2012 there were 415,638 remaining shares available to be granted under the 2003 Director Plan.

Board actions in 2001, 2000 and 1999, which were not approved by shareholders, awarded options to non-employee directors. The Board actions were designed to award non-employee directors, whose services are considered essential to the Company’s continued success, with the option to purchase common shares to increase their ownership interest in the Company and to align such interests with those of the shareholders of the Company. Under Board actions in 2001, 2000 and 1999; 40,000, 30,000 and 26,000 common shares, respectively, were granted as share options to non-employee directors of the Company.

Options and restricted shares granted under the 2010 Employee Plan, the 2002 Employee Plan and the 1995 Employee Plan vest at the earliest of 20% per year over five years or in accordance with any applicable employment agreement. Options granted under the 1995 Director Plan vested at 50% per year over two years. Options and restricted shares granted under the 2003 Director Plan generally vest at 33% per year over three years, unless an alternate vesting period is authorized by the Board. Options and restricted shares granted under the 2009 Director Plan will vest as provided in the award agreement. The 2001, 2000 and 1999 Board actions vest at 33% per year over three years. All options are exercisable at fair market value of the stock at the date of grant and expire ten years after the date of grant.

For share options and restricted shares granted under the 2010 Employee Plan, the 2002 Employee Plan, the 1995 Employee Plan, the 2009 Director Plan, the 2003 Director Plan and the 1995 Director Plan, share-based compensation expense recognized in the consolidated statements of operations and comprehensive income (loss) was $31,984 thousand, $17,693 thousand and $14,726 thousand for the years ended December 31, 2012, 2011 and 2010, respectively. The corresponding income tax benefit recorded in the consolidated statements of operations and comprehensive income (loss) for share-based compensation was $2,792 thousand, $4,164 thousand and $3,684 thousand for the years ended December 31, 2012, 2011 and 2010, respectively.

For the year ended December 31, 2012, share-based compensation awards granted were 310,370 restricted shares; and 320,454 options, granted on February 22, 2012 and September 19, 2012, with a grant exercise price of $88.32 and $110.13, respectively, per share and a per option fair value of $19.20 and $22.55, respectively. The fair value per option was calculated on the date of the grant using the Black-Scholes option valuation model. The following assumptions were used in calculating the fair value of the options granted:

Years Ended December 31,
201220112010
Weighted-average volatility26.16%26.46%26.82%
Weighted-average dividend yield2.00%2.00%2.00%
Weighted-average expected term6.69 years6.73 years6.74 years
Weighted-average risk-free rate1.33%2.80%3.04%

In 2008, the Company adopted the required FASB accounting guidance that recognizes, as an increase to additional paid-in capital, a realized income tax benefit from dividends, charged to retained earnings and paid to employees on equity classified non-vested equity shares. In addition, the amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. For the years ended December 31, 2012, 2011 and 2010, the Company recognized $162 thousand, $136 thousand and $124 thousand, respectively, of additional paid-in capital due to tax benefits from dividends on restricted shares.

F-43

Index

A summary of the option activity under the Company’s shareholder approved and non-approved plans as of December 31, 2012, 2011 and 2010, and changes during the year then ended is presented in the following tables:

Compensation plans approved by shareholders:

Weighted-
Weighted-Average
AverageRemainingAggregate
(Aggregate Intrinsic Value in thousands)ExerciseContractualIntrinsic
OptionsSharesPrice/ShareTermValue
Outstanding at January 1, 20122,316,276$84.39
Granted320,45488.35
Exercised581,49676.51
Forfeited/Cancelled/Expired43,07086.56
Outstanding at December 31, 20122,012,16487.256.0$44,053
Exercisable at December 31, 2012995,07090.094.4$18,956
Weighted-
Weighted-Average
AverageRemainingAggregate
(Aggregate Intrinsic Value in thousands)ExerciseContractualIntrinsic
OptionsSharesPrice/ShareTermValue
Outstanding at January 1, 20112,657,796$81.16
Granted345,60086.68
Exercised477,32066.12
Forfeited/Cancelled/Expired209,80088.91
Outstanding at December 31, 20112,316,27684.396.0$12,121
Exercisable at December 31, 20111,229,48184.944.4$7,920
Weighted-
Weighted-Average
AverageRemainingAggregate
(Aggregate Intrinsic Value in thousands)ExerciseContractualIntrinsic
OptionsSharesPrice/ShareTermValue
Outstanding at January 1, 20102,418,756$79.86
Granted384,89084.63
Exercised78,73052.35
Forfeited/Cancelled/Expired67,12087.75
Outstanding at December 31, 20102,657,79681.165.8$22,309
Exercisable at December 31, 20101,479,17679.333.9$15,773

F-44

Index

Compensation plans not approved by shareholders:

Weighted-
Weighted-Average
AverageRemainingAggregate
(Aggregate Intrinsic Value in thousands)ExerciseContractualIntrinsic
OptionsSharesPrice/ShareTermValue
Outstanding at January 1, 2012-$-
Granted--
Exercised--
Forfeited/Cancelled/Expired--
Outstanding at December 31, 2012--0.0$-
Exercisable at December 31, 2012--0.0$-
Weighted-
Weighted-Average
AverageRemainingAggregate
(Aggregate Intrinsic Value in thousands)ExerciseContractualIntrinsic
OptionsSharesPrice/ShareTermValue
Outstanding at January 1, 201120,000$48.01
Granted--
Exercised20,00048.01
Forfeited/Cancelled/Expired--
Outstanding at December 31, 2011--0.0$-
Exercisable at December 31, 2011--0.0$-
Weighted-
Weighted-Average
AverageRemainingAggregate
(Aggregate Intrinsic Value in thousands)ExerciseContractualIntrinsic
OptionsSharesPrice/ShareTermValue
Outstanding at January 1, 201037,500$43.48
Granted--
Exercised17,50038.30
Forfeited/Cancelled/Expired--
Outstanding at December 31, 201020,00048.010.7$742
Exercisable at December 31, 201020,00048.010.7$742

The weighted-average grant-date fair value of options granted during the years 2012, 2011 and 2010 was $19.21, $21.85 and $22.06 per share, respectively. The aggregate intrinsic value (market price less exercise price) of options exercised during the years ended December 31, 2012, 2011 and 2010 was $14,603 thousand, $11,845 thousand and $3,305 thousand, respectively. The cash received from the exercised share options for the year ended December 31, 2012 was $44,493 thousand. The tax benefit realized from the options exercised for the year ended December 31, 2012 was $4,574 thousand.

F-45

Index

The following table summarizes information about share options outstanding for the period indicated:

At December 31, 2012
Options OutstandingOptions Exercisable
Weighted-
AverageWeighted-Weighted-
NumberRemainingAverageNumberAverage
Range ofOutstandingContractualExerciseExercisableExercise
Exercise Pricesat 12/31/12LifePriceat 12/31/12Price
$66.0780 - $77.0910464,8104.8$72.40256,530$72.96
$77.0911 - $88.1040566,0507.685.66125,65085.33
$88.1041 - $99.1170717,5505.993.53406,65097.50
$99.1171 - $110.1300263,7545.199.72206,24099.70
2,012,1646.087.25995,07090.09

The following table summarizes the status of the Company’s non-vested shares and changes for the periods indicated:

Years Ended December 31,
201220112010
Weighted-Weighted-Weighted-
AverageAverageAverage
Grant DateGrant DateGrant Date
Restricted (non-vested) SharesSharesFair ValueSharesFair ValueSharesFair Value
Outstanding at January 1,372,453$85.12250,125$84.09200,446$82.45
Granted310,37092.46226,70086.15150,05584.66
Vested313,57389.3069,87285.6158,37686.62
Forfeited11,50084.1734,50083.3942,00074.79
Outstanding at December 31,357,75087.86372,45385.12250,12584.09

As of December 31, 2012, there was $25,726 thousand of total unrecognized compensation cost related to non-vested share-based compensation expense. That cost is expected to be recognized over a weighted-average period of 3.5 years. The total fair value of shares vested during the years ended December 31, 2012, 2011 and 2010, was $28,003 thousand, $5,981 thousand and $5,057 thousand, respectively. The tax benefit realized from the shares vested for the year ended December 31, 2012 was $1,632 thousand.

In addition to the 2010 Employee Plan, the 2002 Employee Plan, the 1995 Employee Plan, the 2009 Director Plan, the 2003 Director Plan and the 1995 Director Plan, Group issued 518 common shares in 2012, 668 common shares in 2011 and 0 common shares in 2010 to the Company’s non-employee directors as compensation for their service as directors. These issuances had aggregate values of approximately $48 thousand, $56 thousand and $0, respectively.

Since its 1995 initial public offering, the Company has issued to certain key employees of the Company 1,272,988 restricted common shares, of which 171,660 restricted shares have been cancelled. The Company has issued to non-employee directors of the Company 73,519 restricted common shares, of which no restricted shares have been cancelled. The Company acquired 148,962, 53,474 and 21,005 common shares at a cost of $15,307 thousand, $4,730 thousand and $1,778 thousand in 2012, 2011 and 2010, respectively, from employees who chose to pay required withholding taxes with shares exercised or restricted shares vested. The Company acquired 79,086, 201,287 and 7,281 common shares at a cost of $8,322 thousand, $17,951 thousand and $618 thousand in 2012, 2011 and 2010, respectively, from employees and non-employee directors who chose to pay the option grant price with shares.

F-46

Index

  1. RELATED-PARTY TRANSACTIONS

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

  1. SEGMENT REPORTING

During the quarter ended September 30, 2011, the Company realigned its reporting segments to reflect recent changes in the type and volume of business written. The Company previously reported the results of Marine & Aviation, Surety, Accident and Health ("A&H") Reinsurance and A&H Primary operations as a separate segment—Specialty Underwriting. The A&H primary business, which is a relatively new line of business for the Company, has increased significantly, representing approximately 2% of premiums earned and is projected to continue to grow. The A&H primary business is better aligned with the Insurance reporting segment based on the similarities of this business with those businesses already reflected in the Insurance segment. The other operating units included in the Specialty Underwriting segment would have encompassed less than 5% of the Company’s premiums earned and their volume is projected to remain less than 5%. As a result of the size of these remaining operating units and their similarity to the business reported within U.S. Reinsurance, they have been reclassified to the U.S. Reinsurance segment. There has been no change to the International and Bermuda reporting segments. The Company has restated all segment information for prior years to conform to the new reporting segment structure.

The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S. The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada and Singapore and through offices in Brazil, Miami and New Jersey. The Bermuda operation provides reinsurance and insurance to worldwide property and casualty markets through brokers and directly with ceding companies from its Bermuda office and reinsurance to the United Kingdom and European markets through its UK branch and Ireland Re. The Insurance operation writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S. and Canada.

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

Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned. We utilize inter-affiliate reinsurance, although such reinsurance does not materially impact segment results, as business is generally reported within the segment in which the business was first produced.

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

F-47

Index

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

U.S. ReinsuranceYears Ended December 31,
(Dollars in thousands)201220112010
Gross written premiums$1,310,683$1,346,830$1,395,433
Net written premiums1,306,4631,344,2731,392,637
Premiums earned$1,416,407$1,312,713$1,386,951
Incurred losses and LAE1,050,3941,034,111900,938
Commission and brokerage350,634327,845351,559
Other underwriting expenses44,77639,29042,510
Underwriting gain (loss)$(29,397)$(88,533)$91,944
InternationalYears Ended December 31,
(Dollars in thousands)201220112010
Gross written premiums$1,192,306$1,238,444$1,206,953
Net written premiums1,188,7451,218,5611,199,594
Premiums earned$1,214,840$1,244,492$1,168,130
Incurred losses and LAE586,3251,372,3091,050,079
Commission and brokerage300,116310,992288,423
Other underwriting expenses29,29427,30727,646
Underwriting gain (loss)$299,105$(466,116)$(198,018)
BermudaYears Ended December 31,
(Dollars in thousands)201220112010
Gross written premiums$734,405$725,261$732,962
Net written premiums733,751725,546733,046
Premiums earned$680,948$722,983$738,436
Incurred losses and LAE408,230613,870457,942
Commission and brokerage184,357174,031171,088
Other underwriting expenses30,60726,30526,426
Underwriting gain (loss)$57,754$(91,223)$82,980
InsuranceYears Ended December 31,
(Dollars in thousands)201220112010
Gross written premiums$1,073,143$975,639$865,371
Net written premiums852,112820,519620,301
Premiums earned$852,433$821,159$641,108
Incurred losses and LAE700,316705,914536,753
Commission and brokerage117,594137,653120,785
Other underwriting expenses102,98289,50169,676
Underwriting gain (loss)$(68,459)$(111,909)$(86,106)

F-48

Index

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

Years Ended December 31,
(Dollars in thousands)201220112010
Underwriting gain (loss)$259,003$(757,781)$(109,200)
Net investment income600,202620,041653,463
Net realized capital gains (losses)164,4006,923101,911
Net derivative gain (loss)(9,738)(11,261)(1,119)
Corporate expenses(23,976)(16,461)(14,914)
Interest, fee and bond issue cost amortization expense(53,683)(52,319)(55,830)
Other income (expense)3,318(23,089)16,927
Income (loss) before taxes$939,526$(233,947)$591,238

The Company produces business in the U.S., Bermuda and internationally. The net income deriving from and assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company’s financial records. Based on gross written premium, the table below presents the largest country, other than the U.S., in which the Company writes business, for the period indicated:

Years Ended December 31,
(Dollars in thousands)201220112010
United Kingdom$456,724$453,169$498,437

Approximately 21.1%, 24.8% and 22.3% of the Company’s gross written premiums in 2012, 2011 and 2010, respectively, were sourced through the Company’s largest intermediary.

  1. ACQUISITIONS

During the first quarter of 2011, the Company made several acquisitions to expand its domestic and Canadian insurance operations. Below are descriptions of the transactions.

On January 2, 2011, the Company acquired the entire business and operations of Heartland of Topeka, Kansas for $55,000 thousand in cash, plus contingent payments in future periods based upon achievement of performance targets. Heartland is a managing general agent specializing in crop insurance.

On January 28, 2011, the Company acquired the entire business and operations of Premiere of Toronto, Canada. Premiere is a managing general agent specializing in entertainment and sports and leisure risks. On January 31, 2011, the Company acquired the renewal rights and operations of the financial lines business of Executive Risk Insurance Services, Ltd. (“Executive Risk”) of Toronto, Canada. The financial lines business of Executive Risk mainly underwrites Directors and Officers Liability, Fidelity, and Errors and Omissions Liability.

Overall, the Company recorded $46,215 thousand of goodwill and $26,903 thousand of intangible assets related to these acquisitions, which are reported as part of other assets within the consolidated balance sheets. All intangible assets recorded as part of these acquisitions will be amortized on a straight line basis over seven years, subject to recoverability tests.

  1. SUBSEQUENT EVENTS

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

F-49

Index

  1. UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data for the periods indicated:

2012
(Dollars in thousands, except per share amounts)1st Quarter2nd Quarter3rd Quarter4th Quarter
Operating data:
Gross written premiums$1,046,466$909,018$1,203,997$1,151,056
Net written premiums1,014,862856,6811,100,4521,109,076
Premiums earned997,9781,037,8001,009,4541,119,396
Net investment income152,438149,329152,024146,411
Net realized capital gains (losses)98,719(16,580)62,74319,518
Total claims and underwriting expenses888,464923,334880,4981,213,329
Net income (loss)304,704214,551250,92258,777
Earnings per common share:
Basic$5.70$4.10$4.84$1.14
Diluted$5.68$4.08$4.82$1.13
2011
(Dollars in thousands, except per share amounts)1st Quarter2nd Quarter3rd Quarter4th Quarter
Operating data:
Gross written premiums$1,064,929$987,865$1,128,506$1,104,874
Net written premiums1,019,884955,1211,090,7901,043,104
Premiums earned1,011,4461,039,8351,044,3381,005,728
Net investment income178,705158,618156,465126,253
Net realized capital gains (losses)12,156(4,845)(137,671)137,283
Total claims and underwriting expenses1,531,1891,019,060998,1171,310,762
Net income (loss)(315,894)131,31263,05441,042
Earnings per common share:
Basic$(5.81)$2.42$1.16$0.76
Diluted$(5.81)$2.41$1.16$0.76

F-50

Index

SCHEDULE I — SUMMARY OF INVESTMENTS —
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2012
Column AColumn BColumn CColumn D
Amount
Shown in
MarketBalance
(Dollars in thousands)CostValueSheet
Fixed maturities-available for sale
Bonds:
U.S. government and government agencies$302,050$312,122$312,122
State, municipalities and political subdivisions1,214,9901,291,9631,291,963
Foreign government securities1,785,7381,912,2281,912,228
Foreign corporate securities2,783,5802,933,1742,933,174
Public utilities324,999353,657353,657
All other corporate bonds3,612,5713,830,3893,830,389
Mortgage - backed securities:
Commercial294,596320,088320,088
Agency residential2,091,6722,152,1352,152,135
Non-agency residential7,6608,0498,049
Redeemable preferred stock27,02427,85227,852
Total fixed maturities-available for sale12,444,88013,141,65713,141,657
Fixed maturities - available for sale at fair value (1)41,06841,47041,470
Equity securities - available for sale at market value131,630143,493143,493
Equity securities - available for sale at fair value (1)1,080,8701,255,5571,255,557
Short-term investments860,379860,379860,379
Other invested assets596,590596,590596,590
Cash537,050537,050537,050
Total investments and cash$15,692,467$16,576,196$16,576,196
(1) Original cost does not reflect fair value adjustments, which have been realized through the statements of operations and comprehensive income (loss).

S-1

Index

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED BALANCE SHEETS
December 31,
(Dollars and share amounts in thousands, except par value per share)20122011
ASSETS:
Fixed maturities - available for sale, at market value$40,233$67,483
(amortized cost: 2012, $38,620; 2011, $66,074)
Short-term investments131,61742,370
Cash864262
Investment in subsidiaries, at equity in the underlying net assets6,558,7345,961,172
Accrued investment income357551
Receivable from subsidiaries728728
Other assets2,817219
TOTAL ASSETS$6,735,350$6,072,785
LIABILITIES:
Due to subsidiaries$1,362$878
Other liabilities521532
Total liabilities1,8831,410
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $0.01; 50,000 shares authorized;
no shares issued and outstanding--
Common shares, par value: $0.01; 200,000 shares authorized;
(2012) 67,105 and (2011) 66,455 issued671665
Additional paid-in capital1,946,4391,892,988
Accumulated other comprehensive income (loss), net of deferred income
tax expense (benefit) of $119,629 at 2012 and $112,969 at 2011537,049366,978
Treasury shares, at cost; 15,687 shares (2012) and 12,719 shares (2011)(1,363,958)(1,073,970)
Retained earnings5,613,2664,884,714
Total shareholders' equity6,733,4676,071,375
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$6,735,350$6,072,785
See notes to consolidated financial statements.

S-2

Index

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
Years Ended December 31,
201220112010
(Dollars in thousands)
REVENUES:
Net investment income$1,160$1,673$1,125
Net realized capital gains (losses)286-7
Other income (expense)(754)(505)(385)
Net income (loss) of subsidiaries843,022(71,233)618,906
Total revenues843,714(70,065)619,653
EXPENSES:
Other expenses14,76010,4218,899
Total expenses14,76010,4218,899
INCOME (LOSS) BEFORE TAXES828,954(80,486)610,754
Income tax expense (benefit)---
NET INCOME (LOSS)$828,954$(80,486)$610,754
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period174,02591,481102,532
Less: reclassification adjustment for realized losses (gains) included in net income (loss)(19,676)(11,340)(42,368)
Total URA(D) on securities arising during the period154,34980,14160,164
Foreign currency translation adjustments22,698(15,969)1,871
Pension adjustments(6,976)(29,452)(1,815)
Total other comprehensive income (loss), net of tax$170,071$34,720$60,220
COMPREHENSIVE INCOME (LOSS)$999,025$(45,766)$670,974
See notes to consolidated financial statements.

S-3

Index

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Dollars in thousands)201220112010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$828,954$(80,486)$610,754
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in retained (earnings) deficit of subsidiaries(843,022)71,233(618,906)
Dividends received from subsidiaries465,000190,000215,000
Change in other assets and liabilities, net(2,414)(718)2,849
Increase (decrease) in due to/from affiliates484224(291)
Amortization of bond premium (accrual of bond discount)494875733
Realized capital losses (gains)(286)-(7)
Non-cash compensation expense1,536936813
Net cash provided by (used in) operating activities450,746182,064210,945
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in subsidiaries(49,673)(91,548)(28,619)
Proceeds from fixed maturities matured/called - available for sale, at market value5,2909,2194,211
Proceeds from fixed maturities sold - available for sale, at market value21,955-7
Cost of fixed maturities acquired - available for sale, at market value--(81,113)
Net change in short-term investments(89,247)30,1804,774
Net cash provided by (used in) investing activities(111,675)(52,149)(100,740)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net51,92129,02517,038
Purchase of treasury shares(289,988)(54,879)(18,963)
Dividends paid to shareholders(100,402)(103,848)(108,477)
Net cash provided by (used in) financing activities(338,469)(129,702)(110,402)
EFFECT OF EXCHANGE RATE CHANGES ON CASH---
Net increase (decrease) in cash602213(197)
Cash, beginning of period26249246
Cash, end of period$864$262$49
Non-cash transaction:
Purchase of treasury shares by subsidiary$-$37,611$379,591
See notes to consolidated financial statements.

S-4

Index

SCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION
Column AColumn BColumn CColumn DColumn EColumn FColumn GColumn HColumn IColumn J
ReserveIncurred
Geographic Areafor LossesLoss andAmortization
Deferredand LossUnearnedNetLossof DeferredOtherNet
AcquisitionAdjustmentPremiumPremiumsInvestmentAdjustmentAcquisitionOperatingWritten
(Dollars in thousands)CostsExpensesReservesEarnedIncomeExpensesCostsExpensesPremium
December 31, 2012
Domestic$183,021$6,281,606$857,325$2,268,840$261,727$1,750,710$468,228$147,758$2,158,575
International62,2501,825,443239,6711,214,84047,676586,325300,11629,2941,188,745
Bermuda57,9961,962,006225,529680,948290,799408,230184,35730,607733,751
Total$303,268$10,069,055$1,322,525$4,164,628$600,202$2,745,265$952,701$207,659$4,081,071
December 31, 2011
Domestic$257,155$6,104,930$979,490$2,133,872$263,608$1,740,025$465,498$128,791$2,164,792
International72,8562,145,726263,3731,244,49251,2321,372,309310,99227,3071,218,561
Bermuda48,0151,872,559169,915722,983305,201613,870174,03126,305725,546
Total$378,026$10,123,215$1,412,778$4,101,347$620,041$3,726,204$950,521$182,403$4,108,899
December 31, 2010
Domestic$258,688$5,944,708$998,755$2,028,059$307,274$1,437,691$472,344$112,186$2,012,938
International79,3851,665,932288,7211,168,13044,0881,050,079288,42327,6461,199,594
Bermuda45,6961,729,543167,743738,436302,101457,942171,08826,426733,046
Total$383,769$9,340,183$1,455,219$3,934,625$653,463$2,945,712$931,855$166,258$3,945,578

S-5

Index

SCHEDULE IV — REINSURANCE
Column AColumn BColumn CColumn DColumn EColumn F
Ceded toAssumed
GrossOtherfrom OtherNetAssumed
(Dollars in thousands)AmountCompaniesCompaniesAmountto Net
December 31, 2012
Total property and liability insurance
premiums earned$1,054,707$243,746$3,353,667$4,164,62880.5%
December 31, 2011
Total property and liability insurance
premiums earned$871,598$224,873$3,454,622$4,101,34784.2%
December 31, 2010
Total property and liability insurance
premiums earned$823,811$230,163$3,340,977$3,934,62584.9%

S-6

Previous: Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES