EVEREST GROUP, LTD. - Quarter Report: 2009 September (Form 10-Q)

group10q3q2009.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:

SEPTEMBER 30, 2009

Commission file number:

1-15731

EVEREST RE GROUP, LTD.

(Exact name of registrant as specified in its charter)

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

Wessex House – 2nd Floor

45 Reid Street

PO Box HM 845

Hamilton HM DX, Bermuda

441-295-0006

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive office)

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

YES

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or shorter period that the registrant was required to submit and post such files).

YES

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	X	Accelerated filer
Non-accelerated filer		Smaller reporting company
(Do not check if smaller reporting company)

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

YES

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

	Number of Shares Outstanding
Class	At November 1, 2009
Common Shares, $0.01 par value		60,382,170

EVEREST RE GROUP, LTD

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Form 10-Q

Page

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at September 30, 2009 (unaudited) and
	December 31, 2008	1

	Consolidated Statements of Operations and Comprehensive Income (Loss) for the
	three and nine months ended September 30, 2009 and 2008 (unaudited)	2

	Consolidated Statements of Changes in Shareholders’ Equity for the three and
	nine months ended September 30, 2009 and 2008 (unaudited)	3

	Consolidated Statements of Cash Flows for the three and nine months ended
	September 30, 2009 and 2008 (unaudited)	4

	Notes to Consolidated Interim Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operation	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56

Item 4.	Controls and Procedures	57

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	57

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 3.	Defaults Upon Senior Securities	58

Item 4.	Submission of Matters to a Vote of Security Holders	58

Item 5.	Other Information	58

Item 6.	Exhibits	59

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PART I

ITEM 1. FINANCIAL STATEMENTS

EVEREST RE GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
(Dollars in thousands, except par value per share)	2009			2008
	(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value	$	12,637,625		$	10,759,612
(amortized cost: 2009, $12,175,370; 2008, $10,932,076)
Fixed maturities - available for sale, at fair value		52,815			43,090
Equity securities - available for sale, at market value (cost: 2009, $14,244; 2008, $14,915)		16,572			16,900
Equity securities - available for sale, at fair value		158,456			119,829
Short-term investments		1,340,481			1,889,799
Other invested assets (cost: 2009, $644,320; 2008, $687,265)		642,025			679,356
Cash		265,075			205,694
Total investments and cash		15,113,049			13,714,280
Accrued investment income		149,193			149,215
Premiums receivable		979,127			908,110
Reinsurance receivables		625,138			657,169
Funds held by reinsureds		382,062			331,817
Deferred acquisition costs		367,663			354,992
Prepaid reinsurance premiums		104,356			79,379
Deferred tax asset		245,471			442,367
Federal income taxes recoverable		44,810			32,295
Other assets		118,022			176,966
TOTAL ASSETS	$	18,128,891		$	16,846,590

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	8,889,681		$	8,840,660
Future policy benefit reserve		66,153			66,172
Unearned premium reserve		1,467,392			1,335,511
Funds held under reinsurance treaties		89,859			83,431
Losses in the course of payment		47,219			45,654
Commission reserves		41,877			52,460
Other net payable to reinsurers		51,676			51,138
8.75% Senior notes due 3/15/2010		199,931			199,821
5.4% Senior notes due 10/15/2014		249,759			249,728
6.6% Long term notes due 5/1/2067		238,347			399,643
Junior subordinated debt securities payable		329,897			329,897
Accrued interest on debt and borrowings		12,821			11,217
Equity index put option liability		61,022			60,552
Unsettled securities payable		157,305			1,476
Other liabilities		141,000			158,875
Total liabilities		12,043,939			11,886,235

Commitments and contingencies (Note 8)

SHAREHOLDERS' EQUITY:
Preferred shares, par value: $0.01; 50 million shares authorized;
no shares issued and outstanding		-			-
Common shares, par value: $0.01; 200 million shares authorized; (2009) 65.8 million and
(2008) 65.6 million issued		658			656
Additional paid-in capital		1,836,342			1,824,552
Accumulated other comprehensive income (loss), net of deferred income tax expense
of $117.9 million at 2009 and tax benefit of $16.5 million at 2008		332,564			(291,851	)
Treasury shares, at cost; 5.4 million shares (2009) and 4.2 million shares (2008)		(482,824	)		(392,329	)
Retained earnings		4,398,212			3,819,327
Total shareholders' equity		6,084,952			4,960,355
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	18,128,891		$	16,846,590

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

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EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands, except per share amounts)	2009			2008			2009			2008
	(unaudited)						(unaudited)
REVENUES:
Premiums earned	$	975,380		$	931,859		$	2,864,578		$	2,785,927
Net investment income		165,387			164,478			401,350			490,527
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		-			(153,435	)		(13,210	)		(159,935	)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income		-			-			-			-
Other net realized capital gains (losses)		31,063			(139,930	)		2,598			(301,379	)
Total net realized capital gains (losses)		31,063			(293,365	)		(10,612	)		(461,314	)
Realized gain on debt repurchase		-			-			78,271			-
Net derivative (expense) income		(2,118	)		14,943			(470	)		13,228
Other expense		(13,204	)		(8,243	)		(15,995	)		(23,570	)
Total revenues		1,156,508			809,672			3,317,122			2,804,798

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		587,247			813,668			1,723,937			1,963,760
Commission, brokerage, taxes and fees		229,257			218,045			684,509			689,905
Other underwriting expenses		48,937			40,335			134,409			120,307
Interest, fees and bond issue cost amortization expense		17,376			19,795			54,634			59,376
Total claims and expenses		882,817			1,091,843			2,597,489			2,833,348

INCOME (LOSS) BEFORE TAXES		273,691			(282,171	)		719,633			(28,550	)
Income tax expense (benefit)		45,073			(49,044	)		109,871			(26,383	)

NET INCOME (LOSS)	$	228,618		$	(233,127	)	$	609,762		$	(2,167	)
Other comprehensive income (loss), net of tax		376,448			(248,664	)		681,727			(421,714	)

COMPREHENSIVE INCOME (LOSS)	$	605,066		$	(481,791	)	$	1,291,489		$	(423,881	)

EARNINGS PER COMMON SHARE:
Basic	$	3.76		$	(3.79	)	$	9.97		$	(0.04	)
Diluted	$	3.75		$	(3.79	)	$	9.94		$	(0.04	)
Dividends declared	$	0.48		$	0.48		$	1.44		$	1.44

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

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EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands, except per share amounts)	2009			2008			2009			2008
	(unaudited)						(unaudited)
COMMON SHARES (shares outstanding):
Balance, beginning of period		60,852,944			61,643,803			61,414,027			62,863,845
Issued during the period, net		36,647			66,278			183,464			176,536
Treasury shares acquired		(491,731	)		(302,000	)		(1,199,631	)		(1,632,300	)
Balance, end of period		60,397,860			61,408,081			60,397,860			61,408,081

COMMON SHARES (par value):
Balance, beginning of period	$	657		$	655		$	656		$	654
Issued during the period, net		1			1			2			2
Balance, end of period		658			656			658			656

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period		1,831,695			1,816,174			1,824,552			1,805,844
Share-based compensation plans		4,647			5,195			11,753			15,431
Other		-			37			37			131
Balance, end of period		1,836,342			1,821,406			1,836,342			1,821,406

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		(43,884	)		(9,895	)		(291,851	)		163,155
Cumulative adjustment of initial adoption (1), net of tax		-			-			(57,312	)		-
Net increase (decrease) during the period		376,448			(248,664	)		681,727			(421,714	)
Balance, end of period		332,564			(258,559	)		332,564			(258,559	)

RETAINED EARNINGS:
Balance, beginning of period		4,198,694			4,127,991			3,819,327			3,956,701
Cumulative adjustment of initial adoption (1), net of tax		-			-			57,312			-
Net income (loss)		228,618			(233,127	)		609,762			(2,167	)
Dividends declared ($0.48 per quarter and $1.44 year-to-date
per share in 2009 and 2008)		(29,100	)		(29,463	)		(88,189	)		(89,133	)
Balance, end of period		4,398,212			3,865,401			4,398,212			3,865,401

TREASURY SHARES AT COST:
Balance, beginning of period		(441,747	)		(367,322	)		(392,329	)		(241,584	)
Purchase of treasury shares		(41,077	)		(25,006	)		(90,495	)		(150,744	)
Balance, end of period		(482,824	)		(392,328	)		(482,824	)		(392,328	)

TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD	$	6,084,952		$	5,036,576		$	6,084,952		$	5,036,576

(1) The cumulative adjustment to accumulated other comprehensive income (loss), net of deferred income taxes and retained earnings represents the effect of initially adopting ASC 320-10-65-1
(FASB Staff Position No. FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments").

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

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EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2009			2008			2009			2008
	(unaudited)						(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	228,618		$	(233,127	)	$	609,762		$	(2,167	)
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable		10,974			9,685			(48,369	)		23,195
Increase in funds held by reinsureds, net		7,458			(7,133	)		(23,327	)		(33,500	)
Decrease (increase) in reinsurance receivables		34,620			(25,938	)		78,435			(12,877	)
Decrease (increase) in deferred tax asset		5,771			59,187			59,989			(31,615	)
Increase (decrease) in reserve for losses and loss adjustment expenses		26,614			291,530			(152,544	)		357,606
Decrease in future policy benefit reserve		(1,168	)		(3,972	)		(20	)		(11,524	)
Increase (decrease) in unearned premiums		103,568			17,019			114,033			(137,396	)
Change in equity adjustments in limited partnerships		(23,512	)		21,051			29,964			5,453
Change in other assets and liabilities, net		(56,631	)		(54,159	)		(24,819	)		(33,827	)
Non-cash compensation expense		3,534			2,941			10,290			13,511
Amortization of bond premium		5,912			4,905			12,793			9,381
Amortization of underwriting discount on senior notes		48			45			142			133
Realized gain on debt repurchase		-			-			(78,271	)		-
Net realized capital (gains) losses		(31,063	)		293,365			10,612			461,314
Net cash provided by operating activities		314,743			375,399			598,670			607,687

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		364,585			154,577			924,998			701,138
Proceeds from fixed maturities matured/called - available for sale, at fair value		-			-			5,570			-
Proceeds from fixed maturities sold - available for sale, at market value		109,963			95,500			239,621			225,447
Proceeds from fixed maturities sold - available for sale, at fair value		4,010			-			12,012			-
Proceeds from equity securities sold - available for sale, at market value		23,067			-			24,143			-
Proceeds from equity securities sold - available for sale, at fair value		11,309			345,063			23,548			674,297
Distributions from other invested assets		27,280			52,045			50,591			65,926
Cost of fixed maturities acquired - available for sale, at market value		(840,561	)		(582,558	)		(2,203,804	)		(2,435,862	)
Cost of fixed maturities acquired - available for sale, at fair value		(2,548	)		(11,444	)		(19,101	)		(11,444	)
Cost of equity securities acquired - available for sale, at market value		-			(16	)		-			(456	)
Cost of equity securities acquired - available for sale, at fair value		(12,948	)		(181,408	)		(32,247	)		(330,789	)
Cost of other invested assets acquired		(11,882	)		(176,333	)		(36,624	)		(224,432	)
Net change in short-term securities		(229,898	)		55,779			561,164			1,019,830
Net change in unsettled securities transactions		104,102			(52,820	)		157,430			(58,562	)
Net cash used in investing activities		(453,521	)		(301,615	)		(292,699	)		(374,907	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net		1,114			2,292			1,502			2,053
Purchase of treasury shares		(41,077	)		(25,006	)		(90,495	)		(150,744	)
Net cost of debt repurchase		-			-			(83,026	)		-
Dividends paid to shareholders		(29,100	)		(29,463	)		(88,189	)		(89,133	)
Net cash used in financing activities		(69,063	)		(52,177	)		(260,208	)		(237,824	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		616			(23,855	)		13,618			(21,893	)

Net (decrease) increase in cash		(207,225	)		(2,248	)		59,381			(26,937	)
Cash, beginning of period		472,300			225,878			205,694			250,567
Cash, end of period	$	265,075		$	223,630		$	265,075		$	223,630

SUPPLEMENTAL CASH FLOW INFORMATION
Cash transactions:
Income taxes paid (recovered)	$	2,983		$	(97,418	)	$	70,762		$	3,286
Interest paid	$	14,194		$	13,937		$	52,318		$	53,004

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

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Nine Months Ended September 30, 2009 and 2008

1. General

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. and its subsidiaries (“Holdings”) to its recently established Irish holding company, Everest Underwriting Group (Ireland), Limited.

2. Basis of Presentation

The unaudited consolidated financial statements of the Company for the three and nine months ended September 30, 2009 and 2008 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis. Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The December 31, 2008 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results for the three and nine months ended September 30, 2009 and 2008 are not necessarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2008, 2007 and 2006 included in the Company’s most recent Form 10-K filing.

Financial Accounting Standards Board Launched Accounting Codification

The Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles”. This guidance establishes the FASB Accounting Standards CodificationTM (“Codification” or “ASC”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.

Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.

GAAP is not intended to be changed as a result of the FASB’s Codification, but it will change the way the guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in the accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009.

Application of Recently Issued Accounting Standard Changes

Additional Disclosures for Derivative Instruments. On January 1, 2009, the Company adopted the additional disclosure requirements of ASC 815-10-65-1 (FASB No. 161 “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133”). The standard requires enhanced

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disclosures on derivative instruments and hedged items. No comparative information for periods prior to the effective date is required. ASC 815-10-65-1 had no impact on how the Company accounts for these items.

Revisions to Earnings per Share Calculation. ASC 260-10-45 to 66 (FASB Staff Position (“FSP”) Emerging Issues Task Force 03-6-1 “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”) requires unvested share-based payment awards that contain non-forfeitable rights to dividends be considered as a separate class of common stock and included in the earnings per share calculation using the two-class method. The Company’s restricted share awards meet this definition and are therefore included in the basic earnings per share calculation. All prior period earnings per share data presented have been adjusted retrospectively.

Measurement of Fair Value in Inactive Markets. ASC 820-10-65-4 (FSP No. FAS 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”) reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. It also reaffirms the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. There was no impact to the Company’s financial statements upon adoption.

Other-Than-Temporary Impairments on Investment Securities. ASC 320-10-65-1 (FSP No. FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments”) amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary impairments on debt and equity securities. For available for sale debt securities that the Company has no intent to sell and more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment would be recognized in earnings, while the rest of the fair value loss would be recognized in accumulated other comprehensive income. The Company adopted ASC 320-10-65-1 guidance effective April 1, 2009. Upon adoption the Company recognized a $57.3 million cumulative-effect adjustment from retained earnings, net of $8.3 million of tax.

Interim Disclosures about Fair Value of Financial Instruments. ASC 825-10-65-1 (FSP FAS 107-1 and FSP APB 28-1 “Interim Disclosures about Fair Value of Financial Instruments”) requires quarterly disclosures on the qualitative and quantitative information about the fair value of all financial instruments including methods and significant assumptions used to estimate fair value during the period. These disclosures were previously only done annually. The Company included these disclosures in the second quarter 2009 Notes to Consolidated Interim Financial Statements.

Subsequent Events Disclosures. ASC 855-10-50 (FAS 165 “Subsequent Events”) requires a disclosure as to the date through which subsequent events have been evaluated as well as whether that date is the date the financial statements were issued. The Company included this disclosure in its second quarter 2009 Notes to Consolidated Interim Financial Statements.

Future Accounting Standard Changes

Fair Value Disclosures about Pension Plan Assets. ASC 715-20-65-2 (FSP FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets”) requires that information about plan assets be disclosed, on an annual basis, based on the fair value disclosure requirements of ASC 820-10. The Company will be required to separate plan assets into the three fair value hierarchy levels and provide a roll forward of the changes in fair value of plan assets classified as Level 3 in the 2009 annual consolidated financial statements. These disclosures have no effect on the Company’s accounting for plan benefits and obligations.

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3. 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 September 30, 2009
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	337,184	$	20,109	$	(1,677	)	$	355,616
Obligations of U.S. states and political subdivisions		3,747,780		231,278		(12,632	)		3,966,426
Corporate securities		2,331,007		111,093		(46,339	)		2,395,761
Asset-backed securities		309,288		9,176		(6,327	)		312,137
Mortgage-backed securities
Commercial		475,911		5,359		(49,610	)		431,660
Agency residential		2,015,323		68,626		(457	)		2,083,492
Non-agency residential		188,646		284		(28,204	)		160,726
Foreign government securities		1,500,230		112,474		(7,933	)		1,604,771
Foreign corporate securities		1,270,001		73,431		(16,396	)		1,327,036
Total fixed maturity securities	$	12,175,370	$	631,830	$	(169,575	)	$	12,637,625
Equity securities	$	14,244	$	2,330	$	(2	)	$	16,572

	At December 31, 2008
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	354,195	$	55,186	$	(663	)	$	408,718
Obligations of U.S. states and political subdivisions		3,846,754		113,885		(164,921	)		3,795,718
Corporate securities		2,408,978		60,898		(198,479	)		2,271,397
Asset-backed securities		281,808		654		(29,213	)		253,249
Mortgage-backed securities
Commercial		440,833		-		(90,108	)		350,725
Agency residential		1,334,042		26,331		(502	)		1,359,871
Non-agency residential		213,484		-		(45,688	)		167,796
Foreign government securities		1,087,731		117,973		(23,598	)		1,182,106
Foreign corporate securities		964,251		56,813		(51,032	)		970,032
Total fixed maturity securities	$	10,932,076	$	431,740	$	(604,204	)	$	10,759,612
Equity securities	$	14,915	$	1,985	$	-		$	16,900

In accordance with ASC 320-10-65-1, the Company reclassified previously other-than-temporary impairments from retained earnings into accumulated other comprehensive income. The pre-tax amount of the reclassification was $65.7 million with $65.4 million related to corporate securities and $0.3 million related to foreign corporate securities. At September 30, 2009, the cumulative unrealized depreciation on these securities had improved and the remaining unrealized depreciation for the corporate securities was $13.0 million and the foreign corporate securities were in an unrealized appreciation position at September 30, 2009.

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The amortized cost and market value of fixed maturities are shown in the following table by contractual maturity. Mortgage-backed securities generally are more likely to be prepaid than other fixed maturities. 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 September 30, 2009
	Amortized		Market
(Dollars in thousands)	Cost		Value
Fixed maturity securities – available for sale
Due in one year or less	$	573,183	$	594,689
Due after one year through five years		2,894,035		3,032,711
Due after five years through ten years		2,474,668		2,610,605
Due after ten years		3,244,316		3,411,605
Asset-backed securities		309,288		312,137
Mortgage-backed securities
Commercial		475,911		431,660
Agency residential		2,015,323		2,083,492
Non-agency residential		188,646		160,726
Total fixed maturity securities	$	12,175,370	$	12,637,625

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2009			2008			2009			2008
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	428,617		$	(254,242	)	$	700,376		$	(468,894	)
Fixed maturity securities ASC 320-10-65-1 adjustment		-			-			(65,658	)		-
Equity securities		448			612			343			494
Other invested assets		3,387			(2,231	)		5,614			(3,122	)
Change in unrealized appreciation (depreciation), pre-tax		432,452			(255,861	)		640,675			(471,522	)
Deferred tax (expense) benefit		(88,942	)		65,403			(130,628	)		116,078
Deferred tax benefit ASC 320-10-65-1 adjustment		-			-			8,346			-
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity	$	343,510		$	(190,458	)	$	518,393		$	(355,444	)

The Company frequently reviews its investment portfolio for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized value 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 or interest rate 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. 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 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 related is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income. The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income, net of tax, and is included in accumulated other comprehensive income in the Company’s consolidated balance sheets. The Company’s assessments are based on the issuers current and expected future financial position,

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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.

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 and prepayments for pass-through security types.

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity securities, by security type and maturity type, 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 by security type of unrealized loss at September 30, 2009
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	83,202	$	(1,677	)	$	-	$	-		$	83,202	$	(1,677	)
Obligations of U.S. states and political subdivisions		15,698		(736	)		254,791		(11,896	)		270,489		(12,632	)
Corporate securities		116,139		(13,318	)		423,993		(33,021	)		540,132		(46,339	)
Asset-backed securities		2,618		(203	)		58,303		(6,124	)		60,921		(6,327	)
Mortgage-backed securities
Commercial		-		-			319,335		(49,610	)		319,335		(49,610	)
Agency residential		60,630		(435	)		4,274		(22	)		64,904		(457	)
Non-agency residential		1		(1	)		159,349		(28,203	)		159,350		(28,204	)
Foreign government securities		131,053		(6,553	)		46,898		(1,380	)		177,951		(7,933	)
Foreign corporate securities		177,058		(11,038	)		116,586		(5,358	)		293,644		(16,396	)
Total fixed maturity securities	$	586,399	$	(33,961	)	$	1,383,529	$	(135,614	)	$	1,969,928	$	(169,575	)

	Duration by maturity of unrealized loss at September 30, 2009
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	83,509	$	(7,867	)	$	54,485	$	(846	)	$	137,994	$	(8,713	)
Due in one year through five years		254,768		(12,863	)		180,862		(11,485	)		435,630		(24,348	)
Due in five years through ten years		145,700		(10,210	)		142,075		(5,031	)		287,775		(15,241	)
Due after ten years		39,173		(2,382	)		464,846		(34,293	)		504,019		(36,675	)
Asset-backed securities		2,618		(203	)		58,303		(6,124	)		60,921		(6,327	)
Mortgage-backed securities		60,631		(436	)		482,958		(77,835	)		543,589		(78,271	)
Total fixed maturity securities	$	586,399	$	(33,961	)	$	1,383,529	$	(135,614	)	$	1,969,928	$	(169,575	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position as of September 30, 2009 were $1,969.9 million and $169.6 million, respectively. There were no unrealized losses on a single security that exceeded 0.11% of the market value of the fixed maturities at September 30, 2009. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $34.0 million 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 highly rated government, municipal, corporate and mortgage-backed securities. Of these unrealized losses,

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$23.9 million were related to securities that were rated investment grade or better by at least one nationally recognized statistical rating organization. The $135.6 million of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year also related primarily to highly rated government, municipal, corporate and mortgage-backed securities. Of these unrealized losses, $102.5 million related to securities that were rated investment grade or better by at least one nationally recognized statistical rating organization. The non-investment grade securities with unrealized losses are mainly comprised of non-credit other-than-temporary impaired securities and non-agency residential mortgage-backed securities. 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. Unrealized losses have decreased since year end as a result of improved conditions in the overall financial market resulting from increased liquidity and lower interest rates.

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 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 securities, by security type and maturity type, in each case subdivided according to the length of time that individual securities had been in a continuous unrealized loss position for the period indicated:

	Duration by security type of unrealized loss at December 31, 2008
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	5,686	$	(663	)	$	-	$	-		$	5,686	$	(663	)
Obligations of U.S. states and political subdivisions		1,471,807		(146,293	)		176,555		(18,628	)		1,648,362		(164,921	)
Corporate securities		746,163		(98,335	)		781,367		(100,144	)		1,527,530		(198,479	)
Asset-backed securities		114,873		(9,251	)		92,593		(19,962	)		207,466		(29,213	)
Mortgage-backed securities
Commercial		171,692		(36,451	)		179,033		(53,657	)		350,725		(90,108	)
Agency residential		32,407		(394	)		22,182		(108	)		54,589		(502	)
Non-agency residential		65,523		(16,565	)		101,879		(29,123	)		167,402		(45,688	)
Foreign government securities		139,077		(18,613	)		27,164		(4,985	)		166,241		(23,598	)
Foreign corporate securities		246,915		(26,174	)		186,916		(24,858	)		433,831		(51,032	)
Total fixed maturity securities	$	2,994,143	$	(352,739	)	$	1,567,689	$	(251,465	)	$	4,561,832	$	(604,204	)

	Duration by maturity of unrealized loss at December 31, 2008
	Less than 12 months					Greater than 12 months					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(Dollars in thousands)	Market Value		Depreciation			Market Value		Depreciation			Market Value		Depreciation
Fixed maturity securities
Due in one year or less	$	116,392	$	(9,948	)	$	137,344	$	(6,636	)	$	253,736	$	(16,584	)
Due in one year through five years		531,986		(38,797	)		385,620		(36,183	)		917,606		(74,980	)
Due in five years through ten years		428,670		(46,694	)		348,062		(49,378	)		776,732		(96,072	)
Due after ten years		1,532,600		(194,639	)		300,976		(56,418	)		1,833,576		(251,057	)
Asset-backed securities		114,873		(9,251	)		92,593		(19,962	)		207,466		(29,213	)
Mortgage-backed securities		269,622		(53,410	)		303,094		(82,888	)		572,716		(136,298	)
Total fixed maturity securities	$	2,994,143	$	(352,739	)	$	1,567,689	$	(251,465	)	$	4,561,832	$	(604,204	)

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The aggregate market value and gross unrealized losses related to investments in an unrealized loss position as of December 31, 2008 were $4,561.8 million and $604.2 million, respectively. There were no unrealized losses on a single security that exceeded 0.25% of the market value of the fixed maturities at December 31, 2008. In addition, there was no significant concentration of unrealized losses in any one market sector. The $352.7 million 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 highly rated government, municipal, corporate and mortgage-backed securities with the losses primarily the result of widening credit spreads from the financial markets crisis during the latter part of the year. Of these unrealized losses, $346.6 million were related to securities that were rated investment grade or better by at least one nationally recognized statistical rating organization. The $251.5 million of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year also related primarily to highly rated government, municipal, corporate and mortgage-backed securities and were also the result of widening credit spreads during the latter part of the year. Of these unrealized losses, $224.5 million related to securities that were rated investment grade or better by at least one nationally recognized statistical rating organization. The gross unrealized depreciation greater than 12 months for mortgage-backed securities includes only $4.7 million related to sub-prime and alt-A loans.

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2009			2008			2009			2008
Fixed maturity securities	$	145,408		$	140,009		$	434,363		$	401,603
Equity securities		757			4,947			2,183			17,177
Short-term investments and cash		629			8,896			5,872			43,622
Other invested assets
Limited partnerships		23,452			11,076			(29,227	)		31,076
Other		(1,332	)		275			(297	)		2,027
Total gross investment income		168,914			165,203			412,894			495,505
Interest credited and other expense		(3,527	)		(725	)		(11,544	)		(4,978	)
Total net investment income	$	165,387		$	164,478		$	401,350		$	490,527

The Company reports results from limited partnership investments on the equity basis 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 indentifies the decline.

The Company had contractual commitments to invest up to an additional $256.8 million in limited partnerships at September 30, 2009. These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2014.

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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars in thousands)	2009		2008			2009			2008
Fixed maturity securities, market value:
Other-than-temporary impairments	$	-	$	(153,435	)	$	(13,210	)	$