EVEREST GROUP, LTD. - Quarter Report: 2014 September (Form 10-Q)

group10q3q2014.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, 2014

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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such 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, 2014
Common Shares, $0.01 par value		45,246,968

EVEREST RE GROUP, LTD

Table of Contents

Form 10-Q

Page

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets September 30, 2014 (unaudited)
	and December 31, 2013	1

	Consolidated Statements of Operations and Comprehensive Income (Loss) for the
	three and nine months ended September 30, 2014 and 2013 (unaudited)	2

	Consolidated Statements of Changes in Shareholders’ Equity for the three and
	nine months ended September 30, 2014 and 2013 (unaudited)	3

	Consolidated Statements of Cash Flows for the three and nine months ended
	September 30, 2014 and 2013 (unaudited)	4

	Notes to Consolidated Interim Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operation	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57

Item 4.	Controls and Procedures	58

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	59

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3.	Defaults Upon Senior Securities	59

Item 4.	Mine Safety Disclosures	59

Item 5.	Other Information	59

Item 6.	Exhibits	60

PART I

ITEM 1. FINANCIAL STATEMENTS

EVEREST RE GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
(Dollars and share amounts in thousands, except par value per share)	2014			2013
	(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value	$	13,643,326		$	12,636,907
(amortized cost: 2014, $13,327,754; 2013, $12,391,164)
Fixed maturities - available for sale, at fair value		18,426			19,388
Equity securities - available for sale, at market value (cost: 2014, $147,068; 2013, $148,342)		146,135			144,081
Equity securities - available for sale, at fair value		1,341,111			1,462,079
Short-term investments		1,496,739			1,214,199
Other invested assets (cost: 2014, $551,179; 2013, $508,447)		551,179			508,447
Cash		401,803			611,382
Total investments and cash		17,598,719			16,596,483
Accrued investment income		115,326			119,058
Premiums receivable		1,705,394			1,453,114
Reinsurance receivables		776,465			540,883
Funds held by reinsureds		234,825			228,000
Deferred acquisition costs		393,191			363,721
Prepaid reinsurance premiums		180,737			81,779
Income taxes		186,924			178,334
Other assets		295,632			246,664
TOTAL ASSETS	$	21,487,213		$	19,808,036

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	9,795,429		$	9,673,240
Future policy benefit reserve		57,633			59,512
Unearned premium reserve		1,831,831			1,579,945
Funds held under reinsurance treaties		3,506			2,692
Commission reserves		70,168			66,160
Other net payable to reinsurers		216,031			116,387
Losses in course of payment		497,727			332,631
4.868% Senior notes due 6/1/2044		400,000			-
5.4% Senior notes due 10/15/2014		249,998			249,958
6.6% Long term notes due 5/1/2067		238,363			238,361
Accrued interest on debt and borrowings		18,312			4,781
Equity index put option liability		31,455			35,423
Unsettled securities payable		97,059			53,867
Other liabilities		193,103			333,425
Total liabilities		13,700,615			12,746,382

NONCONTROLLING INTERESTS:
Redeemable noncontrolling interests - Mt. Logan Re		404,411			93,378

Commitments and contingencies (Note 9)

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; (2014) 68,309
and (2013) 67,965 outstanding before treasury shares		683			680
Additional paid-in capital		2,059,956			2,029,774
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $63,790 at 2014 and $57,661 at 2013		185,397			157,728
Treasury shares, at cost; 23,060 shares (2014) and 20,422 shares (2013)		(2,385,815	)		(1,985,873	)
Retained earnings		7,521,966			6,765,967
Total shareholders' equity attributable to Everest Re Group		7,382,187			6,968,276
TOTAL LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY	$	21,487,213		$	19,808,036

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

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)	2014			2013			2014			2013
	(unaudited)						(unaudited)
REVENUES:
Premiums earned	$	1,389,998		$	1,225,755		$	3,806,805		$	3,466,047
Net investment income		142,143			127,872			396,524			422,382
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		(106	)		-			(495	)		(191	)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss)		-			-			-			-
Other net realized capital gains (losses)		(9,342	)		44,958			71,189			205,789
Total net realized capital gains (losses)		(9,448	)		44,958			70,694			205,598
Net derivative gain (loss)		1,855			5,639			3,968			33,005
Other income (expense)		11,332			(2,726	)		(5,835	)		(3,318	)
Total revenues		1,535,880			1,401,498			4,272,156			4,123,714

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		837,757			770,102			2,192,863			2,074,336
Commission, brokerage, taxes and fees		290,519			248,587			820,208			723,700
Other underwriting expenses		63,113			59,860			172,165			167,707
Corporate expenses		9,958			4,758			18,802			16,643
Interest, fees and bond issue cost amortization expense		12,424			7,637			28,970			38,480
Total claims and expenses		1,213,771			1,090,944			3,233,008			3,020,866

INCOME (LOSS) BEFORE TAXES		322,109			310,554			1,039,148			1,102,848
Income tax expense (benefit)		20,856			72,027			137,948			204,336

NET INCOME (LOSS)	$	301,253		$	238,527		$	901,200		$	898,512
Net (income) loss attributable to noncontrolling interests		(26,337	)		(3,768	)		(42,167	)		(3,768	)
NET INCOME (LOSS) ATTRIBUTABLE TO EVEREST RE GROUP	$	274,916		$	234,759		$	859,033		$	894,744

Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period		(74,074	)		(20,925	)		65,318			(340,267	)
Reclassification adjustment for realized losses (gains) included in net income (loss)		(5,684	)		(1,592	)		(1,641	)		(7,511	)
Total URA(D) on securities arising during the period		(79,758	)		(22,517	)		63,677			(347,778	)

Foreign currency translation adjustments		(34,974	)		(5,913	)		(38,374	)		(13,228	)

Benefit plan actuarial net gain (loss) for the period		-			-			-			-
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)		825			1,470			2,366			4,161
Total benefit plan net gain (loss) for the period		825			1,470			2,366			4,161
Total other comprehensive income (loss), net of tax		(113,907	)		(26,960	)		27,669			(356,845	)
Other comprehensive (income) loss attributable to noncontrolling interests		-			-			-			-
Total other comprehensive income (loss), net of tax attributable to Everest Re Group		(113,907	)		(26,960	)		27,669			(356,845	)

COMPREHENSIVE INCOME (LOSS)	$	161,009		$	207,799		$	886,702		$	537,899

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO EVEREST RE GROUP:
Basic	$	6.05		$	4.85		$	18.64		$	18.09
Diluted		6.00			4.81			18.47			17.94
Dividends declared		0.75			0.48			2.25			1.44

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

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 share and dividends per share amounts)	2014			2013			2014			2013
	(unaudited)						(unaudited)
COMMON SHARES (shares outstanding):
Balance, beginning of period		45,691,015			48,588,040			47,543,132			51,417,962
Issued during the period, net		29,622			51,018			344,761			758,110
Treasury shares acquired		(470,807	)		(724,654	)		(2,638,063	)		(4,261,668	)
Balance, end of period		45,249,830			47,914,404			45,249,830			47,914,404

COMMON SHARES (par value):
Balance, beginning of period	$	683		$	678		$	680		$	671
Issued during the period, net		-			1			3			8
Balance, end of period		683			679			683			679

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period		2,052,682			2,003,166			2,029,774			1,946,439
Share-based compensation plans		7,274			10,025			30,182			66,752
Balance, end of period		2,059,956			2,013,191			2,059,956			2,013,191

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		299,304			207,164			157,728			537,049
Net increase (decrease) during the period		(113,907	)		(26,960	)		27,669			(356,845	)
Balance, end of period		185,397			180,204			185,397			180,204

RETAINED EARNINGS:
Balance, beginning of period		7,281,023			6,225,705			6,765,967			5,613,266
Net income (loss) attributable to Everest Re Group		274,916			234,759			859,033			894,744
Dividends declared ($0.75 per share in third quarter 2014 and $2.25 year-to-date
per share in 2014 and $0.48 per share in third quarter 2013 and $1.44
year-to-date per share in 2013)		(33,973	)		(23,174	)		(103,034	)		(70,720	)
Balance, end of period		7,521,966			6,437,290			7,521,966			6,437,290

TREASURY SHARES AT COST:
Balance, beginning of period		(2,310,824	)		(1,813,913	)		(1,985,873	)		(1,363,958	)
Purchase of treasury shares		(74,991	)		(100,001	)		(399,942	)		(549,956	)
Balance, end of period		(2,385,815	)		(1,913,914	)		(2,385,815	)		(1,913,914	)

TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD	$	7,382,187		$	6,717,450		$	7,382,187		$	6,717,450

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

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013
	(unaudited)						(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	301,253		$	238,527		$	901,200		$	898,512
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable		(157,818	)		(181,317	)		(255,645	)		(401,623	)
Decrease (increase) in funds held by reinsureds, net		(9,077	)		12,729			(6,929	)		485
Decrease (increase) in reinsurance receivables		(119,381	)		(11,187	)		(256,458	)		(77,165	)
Decrease (increase) in income taxes		(29,953	)		73,279			(14,696	)		130,008
Decrease (increase) in prepaid reinsurance premiums		(33,132	)		(14,605	)		(101,478	)		(21,513	)
Increase (decrease) in reserve for losses and loss adjustment expenses		164,456			(100,751	)		172,511			(275,893	)
Increase (decrease) in future policy benefit reserve		(735	)		(285	)		(1,879	)		(852	)
Increase (decrease) in unearned premiums		158,734			178,193			255,537			304,728
Increase (decrease) in other net payable to reinsurers		1,438			33,937			101,984			63,702
Increase (decrease) in losses in course of payment		3,115			174,701			165,105			404,836
Change in equity adjustments in limited partnerships		(21,238	)		(4,343	)		(24,438	)		(40,693	)
Distribution of limited partnership income		27,735			5,638			41,165			48,733
Change in other assets and liabilities, net		24,758			6,754			(32,114	)		(68,112	)
Non-cash compensation expense		4,952			4,923			14,720			15,088
Amortization of bond premium (accrual of bond discount)		10,942			14,773			38,010			50,280
Amortization of underwriting discount on senior notes		15			14			43			41
Net realized capital (gains) losses		9,448			(44,958	)		(70,694	)		(205,598	)
Net cash provided by (used in) operating activities		335,512			386,022			925,944			824,964

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		590,769			594,260			1,638,278			1,912,978
Proceeds from fixed maturities matured/called - available for sale, at fair value		-			-			875			7,213
Proceeds from fixed maturities sold - available for sale, at market value		443,606			214,173			1,050,082			845,357
Proceeds from fixed maturities sold - available for sale, at fair value		3,093			1,056			23,856			18,398
Proceeds from equity securities sold - available for sale, at market value		2,502			326			11,174			45,749
Proceeds from equity securities sold - available for sale, at fair value		147,622			101,176			452,514			459,945
Distributions from other invested assets		36,744			5,236			59,264			79,689
Cost of fixed maturities acquired - available for sale, at market value		(1,270,700	)		(671,876	)		(3,729,423	)		(2,794,035	)
Cost of fixed maturities acquired - available for sale, at fair value		(22,375	)		(2,092	)		(23,684	)		(4,798	)
Cost of equity securities acquired - available for sale, at market value		(1,254	)		(1,097	)		(11,873	)		(54,584	)
Cost of equity securities acquired - available for sale, at fair value		(79,557	)		(180,308	)		(262,871	)		(424,252	)
Cost of other invested assets acquired		(86,523	)		(3,762	)		(120,911	)		(15,063	)
Net change in short-term investments		138,855			(139,544	)		(284,822	)		(7,408	)
Net change in unsettled securities transactions		(7,137	)		(70,186	)		13,496			(14,518	)
Net cash provided by (used in) investing activities		(104,355	)		(152,638	)		(1,184,045	)		54,671

CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net		2,322			5,103			15,465			51,672
Purchase of treasury shares		(74,991	)		(100,001	)		(399,942	)		(549,956	)
Revolving credit borrowings		-			(40,000	)		-			-
Net cost of junior subordinated debt securities redemption		-			-			-			(329,897	)
Net proceeds from issuance of senior notes		-			-			400,000			-
Third party investment in redeemable noncontrolling interest		(65,000	)		87,500			136,200			87,500
Dividends paid to shareholders		(33,973	)		(23,174	)		(103,034	)		(70,720	)
Dividends paid on third party investment in redeemable noncontrolling interest		(10,334	)		-			(10,334	)		-
Net cash provided by (used in) financing activities		(181,976	)		(70,572	)		38,355			(811,401	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		11,052			(12,414	)		10,167			(15,750	)

Net increase (decrease) in cash		60,233			150,398			(209,579	)		52,484
Cash, beginning of period		341,570			439,136			611,382			537,050
Cash, end of period	$	401,803		$	589,534		$	401,803		$	589,534

SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)	$	49,319		$	(1,820	)	$	146,560		$	64,918
Interest paid		132			243			15,150			23,524

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

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Nine Months Ended September 30, 2014 and 2013

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.

Effective February 27, 2013, the Company established a new subsidiary, Mt. Logan Re Ltd. (“Mt. Logan Re”) and effective July 1, 2013, Mt. Logan Re established separate segregated accounts and issued non-voting redeemable preferred shares to capitalize the segregated accounts. Accordingly, the financial position and operating results for Mt. Logan Re are consolidated with the Company and the non-controlling interests in Mt. Logan Re’s operating results and equity are presented as separate captions in the Company’s financial statements.

2. BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three and nine months ended September 30, 2014 and 2013 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, 2013 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, 2014 and 2013 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, 2013, 2012 and 2011 included in the Company’s most recent Form 10-K filing.

All intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2014 presentation. One reclassification relates to a correction in the manner in which the Company reports distributions received from limited partnership investments in the consolidated Statements of Cash Flows. Prior to the fourth quarter of 2013, the Company incorrectly reflected all distributions as cash flows from investing activities in its Consolidated Statements of Cash Flows. Starting with the fourth quarter of 2013, cash distributions from the limited partnerships that represent net investment income are reflected as cash flows from operating activities and distributions that represent the return of capital contributions are reflected as cash flows from investing activities. For the three and nine months ended September 30, 2013, $5,638 thousand and $48,733 thousand, respectively, have been reclassified from “Distributions from other invested assets” included in cash flows from investing activities to “Distribution of limited partnership income” included in cash flows from operations. The Company has determined that this error is not material to the financial statements of any prior period.

Application of Recently Issued Accounting Standard Changes.

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. In February, 2013, the FASB issued an additional amendment for the presentation of amounts reclassified out of accumulated other comprehensive income by component. The Company implemented the proposed guidance as of January 1, 2013.

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 would be expensed, including $10,876 thousand and $2,616 thousand expensed in the years ended December 31, 2012 and 2013, respectively. No additional expense will be incurred related to this guidance implementation in future periods.

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, 2014
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	716,191	$	5,513	$	(830	)	$	720,874
Obligations of U.S. states and political subdivisions		792,193		43,524		(994	)		834,723
Corporate securities		4,594,903		144,022		(30,854	)		4,708,071
Asset-backed securities		311,772		1,950		(519	)		313,203
Mortgage-backed securities
Commercial		216,264		12,385		(686	)		227,963
Agency residential		2,156,374		37,989		(17,151	)		2,177,212
Non-agency residential		2,982		54		(69	)		2,967
Foreign government securities		1,532,505		63,180		(15,853	)		1,579,832
Foreign corporate securities		3,004,570		95,383		(21,472	)		3,078,481
Total fixed maturity securities	$	13,327,754	$	404,000	$	(88,428	)	$	13,643,326
Equity securities	$	147,068	$	5,419	$	(6,352	)	$	146,135

	At December 31, 2013
	Amortized		Unrealized		Unrealized			Market
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	160,013	$	2,690	$	(1,678	)	$	161,025
Obligations of U.S. states and political subdivisions		970,735		40,815		(9,022	)		1,002,528
Corporate securities		3,950,887		155,619		(27,090	)		4,079,416
Asset-backed securities		169,980		3,485		(422	)		173,043
Mortgage-backed securities
Commercial		254,765		16,683		(1,007	)		270,441
Agency residential		2,294,719		34,509		(50,175	)		2,279,053
Non-agency residential		4,816		229		(226	)		4,819
Foreign government securities		1,740,337		69,779		(29,347	)		1,780,769
Foreign corporate securities		2,844,912		86,529		(45,628	)		2,885,813
Total fixed maturity securities	$	12,391,164	$	410,338	$	(164,595	)	$	12,636,907
Equity securities	$	148,342	$	4,336	$	(8,597	)	$	144,081

The $1,579,832 thousand of foreign government securities at September 30, 2014 included $672,976 thousand of European sovereign securities. Approximately 59.3%, 17.6% and 6.2% of European sovereign securities represented securities held in the governments of the United Kingdom, France 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 September 30, 2014.

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:

(Dollars in thousands)		At September 30, 2014				At December 31, 2013
Pre-tax cumulative unrealized appreciation (depreciation)		$	2,989			$	3,169

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 September 30, 2014				At December 31, 2013
	Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value
Fixed maturity securities – available for sale:
Due in one year or less	$	1,231,500	$	1,238,990	$	1,059,052	$	1,067,799
Due after one year through five years		6,155,821		6,283,753		5,565,112		5,740,662
Due after five years through ten years		2,309,641		2,353,164		2,081,908		2,101,234
Due after ten years		943,400		1,046,074		960,812		999,856
Asset-backed securities		311,772		313,203		169,980		173,043
Mortgage-backed securities:
Commercial		216,264		227,963		254,765		270,441
Agency residential		2,156,374		2,177,212		2,294,719		2,279,053
Non-agency residential		2,982		2,967		4,816		4,819
Total fixed maturity securities	$	13,327,754	$	13,643,326	$	12,391,164	$	12,636,907

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)	2014			2013			2014			2013
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	(87,859	)	$	(26,106	)	$	70,010		$	(385,727	)
Fixed maturity securities, other-than-temporary impairment		(261	)		(144	)		(180	)		(1,516	)
Equity securities		(3,287	)		(1,447	)		3,327			(15,522	)
Change in unrealized appreciation (depreciation), pre-tax		(91,407	)		(27,697	)		73,157			(402,765	)
Deferred tax benefit (expense)		11,649			5,180			(9,480	)		54,847
Deferred tax benefit (expense), other-than-temporary impairment		-			-			-			140
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity	$	(79,758	)	$	(22,517	)	$	63,677		$	(347,778	)

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.

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 September 30, 2014 By Security Type
	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	$	35,516	$	(190	)	$	25,462	$	(640	)	$	60,978	$	(830	)
Obligations of U.S. states and political subdivisions		18,198		(426	)		36,680		(568	)		54,878		(994	)
Corporate securities		1,533,633		(21,194	)		371,829		(9,660	)		1,905,462		(30,854	)
Asset-backed securities		159,751		(519	)		-		-			159,751		(519	)
Mortgage-backed securities
Commercial		15,440		(27	)		10,962		(659	)		26,402		(686	)
Agency residential		157,297		(563	)		829,667		(16,588	)		986,964		(17,151	)
Non-agency residential		-		-			1,362		(69	)		1,362		(69	)
Foreign government securities		284,210		(4,567	)		213,313		(11,286	)		497,523		(15,853	)
Foreign corporate securities		478,718		(5,997	)		410,294		(15,475	)		889,012		(21,472	)
Total fixed maturity securities	$	2,682,763	$	(33,483	)	$	1,899,569	$	(54,945	)	$	4,582,332	$	(88,428	)
Equity securities		41,908		(1,794	)		76,821		(4,558	)		118,729		(6,352	)
Total	$	2,724,671	$	(35,277	)	$	1,976,390	$	(59,503	)	$	4,701,061	$	(94,780	)

	Duration of Unrealized Loss at September 30, 2014 By Maturity
	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	$	84,658	$	(1,512	)	$	107,000	$	(8,116	)	$	191,658	$	(9,628	)
Due in one year through five years		1,446,131		(17,614	)		617,461		(15,101	)		2,063,592		(32,715	)
Due in five years through ten years		772,425		(11,162	)		244,999		(10,019	)		1,017,424		(21,181	)
Due after ten years		47,061		(2,086	)		88,118		(4,393	)		135,179		(6,479	)
Asset-backed securities		159,751		(519	)		-		-			159,751		(519	)
Mortgage-backed securities		172,737		(590	)		841,991		(17,316	)		1,014,728		(17,906	)
Total fixed maturity securities	$	2,682,763	$	(33,483	)	$	1,899,569	$	(54,945	)	$	4,582,332	$	(88,428	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at September 30, 2014 were $4,701,061 thousand and $94,780 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at September 30, 2014, did not exceed 1.1% of the overall market value of the Company’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $33,483 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 foreign and domestic corporate securities, as well as foreign government securities. Of these unrealized losses, $13,870 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The $54,945 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to agency residential mortgage-backed securities, domestic and foreign corporate securities and foreign government securities. Of these unrealized losses, $51,746 thousand related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The gross unrealized depreciation for mortgage-backed securities included $28 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 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.

	Duration of Unrealized Loss at December 31, 2013 By Security Type
	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	$	74,847	$	(1,033	)	$	8,751	$	(645	)	$	83,598	$	(1,678	)
Obligations of U.S. states and political subdivisions		92,760		(4,852	)		39,689		(4,170	)		132,449		(9,022	)
Corporate securities		959,396		(22,331	)		75,946		(4,759	)		1,035,342		(27,090	)
Asset-backed securities		5,494		(6	)		1,128		(416	)		6,622		(422	)
Mortgage-backed securities
Commercial		51		-			11,353		(1,007	)		11,404		(1,007	)
Agency residential		1,220,845		(40,420	)		264,640		(9,755	)		1,485,485		(50,175	)
Non-agency residential		1,758		(22	)		1,541		(204	)		3,299		(226	)
Foreign government securities		409,252		(20,350	)		85,029		(8,997	)		494,281		(29,347	)
Foreign corporate securities		872,907		(34,819	)		151,748		(10,809	)		1,024,655		(45,628	)
Total fixed maturity securities	$	3,637,310	$	(123,833	)	$	639,825	$	(40,762	)	$	4,277,135	$	(164,595	)
Equity securities		127,030		(8,597	)		-		-			127,030		(8,597	)
Total	$	3,764,340	$	(132,430	)	$	639,825	$	(40,762	)	$	4,404,165	$	(173,192	)

	Duration of Unrealized Loss at December 31, 2013 By Maturity
	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	$	143,098	$	(3,503	)	$	46,691	$	(5,330	)	$	189,789	$	(8,833	)
Due in one year through five years		1,125,680		(25,365	)		204,779		(11,279	)		1,330,459		(36,644	)
Due in five years through ten years		810,969		(35,169	)		48,064		(3,844	)		859,033		(39,013	)
Due after ten years		329,415		(19,348	)		61,629		(8,927	)		391,044		(28,275	)
Asset-backed securities		5,494		(6	)		1,128		(416	)		6,622		(422	)
Mortgage-backed securities		1,222,654		(40,442	)		277,534		(10,966	)		1,500,188		(51,408	)
Total fixed maturity securities	$	3,637,310	$	(123,833	)	$	639,825	$	(40,762	)	$	4,277,135	$	(164,595	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2013 were $4,404,165 thousand and $173,192 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2013, did not exceed 0.4% of the overall market value of the Company’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $123,833 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, foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses, $112,658 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The $40,762 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, municipal securities and agency residential mortgage-backed securities. Of these unrealized losses, $38,964 thousand related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The gross unrealized depreciation for mortgage-backed securities included $273 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 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)	2014		2013		2014		2013
Fixed maturities	$	115,057	$	117,814	$	348,872	$	358,824