Washington, D. C. 20549
For the quarter ended: Commision File Number:
June 30, 2003 1-15731
Everest Reinsurance Holdings, Inc.
(Exact name
of Registrant as specified in its charter)
Delaware 22-3263609
(State or other juris- (IRS Employer Identification diction of incorporation or organization) Number)
| (Address, | including zip code, and telephone number, including area code, of registrant’s principal executive office) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
YES X NO
Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act).
YES NO X
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Number of Shares Outstanding | |
| Class | at July 1, 2003 |
| Common Shares, $.01 par value | 1,000 |
| ITEM 1. FINANCIAL STATEMENTS | |
| Consolidated Balance Sheets at June 30, 2003 (unaudited) | 3 |
| and December 31, 2002 | |
| Consolidated Statements of Operations and Comprehensive Income | 4 |
| for the three and six months ended June 30, 2003 | |
| and 2002 (unaudited) | |
| Consolidated Statements of Changes in Stockholder's Equity for the | 5 |
| three and six months ended June, 2003 and 2002 | |
| (unaudited) | |
| Consolidated Statements of Cash Flows for the three and six | 6 |
| months ended June 30, 2003 and 2002 (unaudited) | |
| Notes to Consolidated Interim Financial Statements | 7 |
| ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF | |
| FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20 |
| ITEM 4. CONTROLS AND PROCEDURES | 32 |
| ITEM 1. LEGAL PROCEEDINGS | 33 |
| ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS | 33 |
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 33 |
| ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF | |
| SECURITY HOLDERS | 33 |
| ITEM 5. OTHER INFORMATION | 33 |
| ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K | 34 |
Part I — Item 1
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value per share)
| June 30, | December 31, | |||||||
| 2003 | 2002 | |||||||
| ASSETS: | (unaudited) | |||||||
| Fixed maturities - available for sale, at market value | ||||||||
| (amortized cost: 2003, $5,076,578; 2002, $4,569,844) | $ | 5,453,742 | $ | 4,805,976 | ||||
| Equity securities, at market value (cost: 2003, $83,851; 2002, $79,791) | 90,874 | 72,468 | ||||||
| Short-term investments | 157,337 | 130,075 | ||||||
| Other invested assets | 47,385 | 42,307 | ||||||
| Cash | 93,876 | 116,843 | ||||||
| Total investments and cash | 5,843,214 | 5,167,669 | ||||||
| Accrued investment income | 76,642 | 61,708 | ||||||
| Premiums receivable | 833,164 | 639,327 | ||||||
| Reinsurance receivables - unaffiliated | 1,128,833 | 1,104,827 | ||||||
| Reinsurance receivables - affiliated | 898,451 | 735,248 | ||||||
| Funds held by reinsureds | 134,460 | 121,308 | ||||||
| Deferred acquisition costs | 191,171 | 161,450 | ||||||
| Prepaid reinsurance premiums | 257,968 | 149,588 | ||||||
| Deferred tax asset | 96,421 | 144,376 | ||||||
| Other assets | 121,147 | 95,763 | ||||||
| TOTAL ASSETS | $ | 9,581,471 | $ | 8,381,264 | ||||
| LIABILITIES: | ||||||||
| Reserve for losses and adjustment expenses | $ | 5,335,634 | $ | 4,875,225 | ||||
| Unearned premium reserve | 1,135,140 | 809,813 | ||||||
| Funds held under reinsurance treaties | 432,275 | 399,492 | ||||||
| Losses in the course of payment | 34,416 | 38,016 | ||||||
| Contingent commissions | 2,228 | 4,333 | ||||||
| Other net payable to reinsurers | 286,274 | 147,342 | ||||||
| Current federal income taxes | (13,443 | ) | (16,365 | ) | ||||
| 8.5% Senior notes due 3/15/2005 | 249,826 | 249,780 | ||||||
| 8.75% Senior notes due 3/15/2010 | 199,201 | 199,158 | ||||||
| Revolving credit agreement borrowings | 70,000 | 70,000 | ||||||
| Company-obligated mandatorily redeemable preferred securities | ||||||||
| of subsidiary trusts holding solely subordinated debentures ("trust | ||||||||
| preferred securities") | 210,000 | 210,000 | ||||||
| Interest accrued on debt and borrowings | 13,425 | 13,481 | ||||||
| Deferred gain on reinsurance | -- | 16,904 | ||||||
| Other liabilities | 104,539 | 73,357 | ||||||
| Total liabilities | 8,059,515 | 7,090,536 | ||||||
| STOCKHOLDER'S EQUITY: | ||||||||
| Common stock, par value: $0.01; 200 million shares authorized; | ||||||||
| 1,000 shares issued in 2003 and 2002 | -- | -- | ||||||
| Additional paid-in capital | 259,711 | 259,508 | ||||||
| Accumulated other comprehensive income, net of | ||||||||
| deferred income taxes of $137.3 million in 2003 and $73.4 | ||||||||
| million in 2002 | 254,992 | 139,486 | ||||||
| Retained earnings | 1,007,253 | 891,734 | ||||||
| Total stockholder's equity | 1,521,956 | 1,290,728 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 9,581,471 | $ | 8,381,264 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
(Dollars in thousands, except per share
amounts)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
| (unaudited | (unaudited) | |||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||
| Premiums earned | $ | 665,601 | $ | 451,607 | $ | 1,197,292 | $ | 909,725 | ||||||||||||||
| Net investment income | 72,550 | 65,472 | 140,136 | 130,271 | ||||||||||||||||||
| Net realized capital (loss) | (2,003 | ) | (39,909 | ) | (12,078 | ) | (38,870 | ) | ||||||||||||||
| Net derivative (expense) | -- | -- | -- | (250 | ) | |||||||||||||||||
| Other income (expense) | 221 | (6,059 | ) | 576 | (4,481 | ) | ||||||||||||||||
| Total revenues | 736,369 | 471,111 | 1,325,926 | 996,395 | ||||||||||||||||||
| CLAIMS AND EXPENSES: | ||||||||||||||||||||||
| Incurred loss and loss adjustment expenses | 471,208 | 312,437 | 847,398 | 638,150 | ||||||||||||||||||
| Commission, brokerage, taxes and fees | 155,516 | 110,748 | 260,222 | 225,235 | ||||||||||||||||||
| Other underwriting expenses | 20,821 | 15,898 | 39,039 | 29,399 | ||||||||||||||||||
| Distributions related to trust preferred securities | 4,122 | -- | 8,243 | -- | ||||||||||||||||||
| Interest expense on senior notes | 9,733 | 9,728 | 19,464 | 19,456 | ||||||||||||||||||
| Interest expense on credit facility | 348 | 853 | 708 | 1,762 | ||||||||||||||||||
| Total claims and expenses | 661,748 | 449,664 | 1,175,074 | 914,002 | ||||||||||||||||||
| INCOME BEFORE TAXES | 74,621 | 21,447 | 150,852 | 82,393 | ||||||||||||||||||
| Income tax expense (benefit) | 18,690 | (1,101 | ) | 35,333 | 13,530 | |||||||||||||||||
| NET INCOME | $ | 55,931 | $ | 22,548 | $ | 115,519 | $ | 68,863 | ||||||||||||||
| Other comprehensive income (loss), net of tax | 94,378 | 34,885 | 115,506 | (9,494 | ) | |||||||||||||||||
| COMPREHENSIVE INCOME | $ | 150,309 | $ | 57,433 | $ | 231,025 | $ | 59,369 | ||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDER'S EQUITY
(Dollars in thousands, except per share amounts)
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||
| COMMON STOCK (shares outstanding): | |||||||||||||||||
| Balance, beginning of period | 1,000 | 1,000 | 1,000 | 1,000 | |||||||||||||
| Issued during the period | -- | -- | -- | -- | |||||||||||||
| Balance, end of period | 1,000 | 1,000 | 1,000 | 1,000 | |||||||||||||
| COMMON STOCK (par value): | |||||||||||||||||
| Balance, beginning of period | -- | -- | -- | -- | |||||||||||||
| Common stock retired during the period | -- | -- | -- | -- | |||||||||||||
| Balance, end of period | -- | -- | -- | -- | |||||||||||||
| ADDITIONAL PAID IN CAPITAL: | |||||||||||||||||
| Balance, beginning of period | $ | 259,508 | $ | 259,024 | $ | 259,508 | $ | 258,775 | |||||||||
| Common stock issued during the period | 203 | 387 | 203 | 636 | |||||||||||||
| Balance, end of period | 259,711 | 259,411 | 259,711 | 259,411 | |||||||||||||
| ACCUMULATED OTHER COMPREHENSIVE INCOME, | |||||||||||||||||
| NET OF DEFERRED INCOME TAXES: | |||||||||||||||||
| Balance, beginning of period | 160,614 | 31,624 | 139,486 | 76,003 | |||||||||||||
| Net increase (decrease) during the period | 94,378 | 34,885 | 115,506 | (9,494 | ) | ||||||||||||
| Balance, end of period | 254,992 | 66,509 | 254,992 | 66,509 | |||||||||||||
| RETAINED EARNINGS: | |||||||||||||||||
| Balance, beginning of period | 951,322 | 822,946 | 891,734 | 776,631 | |||||||||||||
| Net income | 55,931 | 22,548 | 115,519 | 68,863 | |||||||||||||
| Balance, end of period | 1,007,253 | 845,494 | 1,007,253 | 845,494 | |||||||||||||
| TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | $ | 1,521,956 | $ | 1,171,414 | $ | 1,521,956 | $ | 1,171,414 | |||||||||
| </ | |||||||||||||||||