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

group10q2q14.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:

June 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 August 1, 2014
Common Shares, $0.01 par value		45,471,636

EVEREST RE GROUP, LTD

Table of Contents

Form 10-Q

Page

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements

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

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

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

	Consolidated Statements of Cash Flows for the three and six months ended
	June 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	57

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	58

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

Item 3.	Defaults Upon Senior Securities	58

Item 4.	Mine Safety Disclosures	58

Item 5.	Other Information	58

Item 6.	Exhibits	59

PART I

ITEM 1. FINANCIAL STATEMENTS

EVEREST RE GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

	June 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	$	13,577,366		$	12,636,907
(amortized cost: 2014, $13,173,675; 2013, $12,391,164)
Fixed maturities - available for sale, at fair value		-			19,388
Equity securities - available for sale, at market value (cost: 2014, $149,024; 2013, $148,342)		151,377			144,081
Equity securities - available for sale, at fair value		1,424,792			1,462,079
Short-term investments		1,636,937			1,214,199
Other invested assets (cost: 2014, $509,396; 2013, $508,447)		509,396			508,447
Cash		341,570			611,382
Total investments and cash		17,641,438			16,596,483
Accrued investment income		120,559			119,058
Premiums receivable		1,551,615			1,453,114
Reinsurance receivables		685,643			540,883
Funds held by reinsureds		226,845			228,000
Deferred acquisition costs		368,117			363,721
Prepaid reinsurance premiums		150,206			81,779
Income taxes		141,887			178,334
Other assets		305,334			246,664
TOTAL ASSETS	$	21,191,644		$	19,808,036

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	9,704,463		$	9,673,240
Future policy benefit reserve		58,368			59,512
Unearned premium reserve		1,677,971			1,579,945
Funds held under reinsurance treaties		3,337			2,692
Commission reserves		54,073			66,160
Other net payable to reinsurers		217,041			116,387
Losses in course of payment		494,640			332,631
4.868% Senior notes due 6/1/2044		400,000			-
5.4% Senior notes due 10/15/2014		249,984			249,958
6.6% Long term notes due 5/1/2067		238,362			238,361
Accrued interest on debt and borrowings		6,133			4,781
Equity index put option liability		33,309			35,423
Unsettled securities payable		88,463			53,867
Other liabilities		266,724			333,425
Total liabilities		13,492,868			12,746,382

NONCONTROLLING INTERESTS:
Redeemable noncontrolling interests - Mt. Logan Re		375,908			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) 68,280
and (2013) 67,965 outstanding before treasury shares		683			680
Additional paid-in capital		2,052,682			2,029,774
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $79,020 at 2014 and $57,661 at 2013		299,304			157,728
Treasury shares, at cost; 22,589 shares (2014) and 20,422 shares (2013)		(2,310,824	)		(1,985,873	)
Retained earnings		7,281,023			6,765,967
Total shareholders' equity attributable to Everest Re Group		7,322,868			6,968,276
TOTAL LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY	$	21,191,644		$	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						Six Months Ended
	June 30,						June 30,
(Dollars in thousands, except per share amounts)	2014			2013			2014			2013
	(unaudited)						(unaudited)
REVENUES:
Premiums earned	$	1,272,317		$	1,151,533		$	2,416,807		$	2,240,292
Net investment income		131,224			148,729			254,381			294,510
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		(389	)		-			(389	)		(191	)
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss)		-			-			-			-
Other net realized capital gains (losses)		59,405			33,905			80,531			160,831
Total net realized capital gains (losses)		59,016			33,905			80,142			160,640
Net derivative gain (loss)		3,774			12,081			2,113			27,366
Other income (expense)		(13,871	)		8,295			(17,167	)		(592	)
Total revenues		1,452,460			1,354,543			2,736,276			2,722,216

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		735,697			711,590			1,355,106			1,304,234
Commission, brokerage, taxes and fees		283,687			242,067			529,689			475,113
Other underwriting expenses		58,414			54,901			109,052			107,847
Corporate expenses		3,899			6,168			8,844			11,885
Interest, fees and bond issue cost amortization expense		8,978			17,362			16,546			30,843
Total claims and expenses		1,090,675			1,032,088			2,019,237			1,929,922

INCOME (LOSS) BEFORE TAXES		361,785			322,455			717,039			792,294
Income tax expense (benefit)		63,860			46,813			117,092			132,309

NET INCOME (LOSS)	$	297,925		$	275,642		$	599,947		$	659,985
Net (income) loss attributable to noncontrolling interests		(7,741	)		-			(15,830	)		-
NET INCOME (LOSS) ATTRIBUTABLE TO EVEREST RE GROUP	$	290,184		$	275,642		$	584,117		$	659,985

Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period		85,921			(272,540	)		139,392			(319,342	)
Reclassification adjustment for realized losses (gains) included in net income (loss)		2,169			(1,828	)		4,043			(5,919	)
Total URA(D) on securities arising during the period		88,090			(274,368	)		143,435			(325,261	)

Foreign currency translation adjustments		(763	)		13,751			(3,400	)		(7,315	)

Benefit plan actuarial net gain (loss) for the period		-			-			-			-
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)		770			1,345			1,541			2,691
Total benefit plan net gain (loss) for the period		770			1,345			1,541			2,691
Total other comprehensive income (loss), net of tax		88,097			(259,272	)		141,576			(329,885	)
Other comprehensive (income) loss attributable to noncontrolling interests		-			-			-			-
Total other comprehensive income (loss), net of tax attributable to Everest Re Group		88,097			(259,272	)		141,576			(329,885	)

COMPREHENSIVE INCOME (LOSS)	$	378,281		$	16,370		$	725,693		$	330,100

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO EVEREST RE GROUP:
Basic	$	6.32		$	5.60		$	12.58		$	13.19
Diluted		6.26			5.56			12.46			13.09
Dividends declared		0.75			0.48			1.50			0.96

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						Six Months Ended
	June 30,						June 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		46,057,039			49,965,812			47,543,132			51,417,962
Issued during the period, net		109,068			208,935			315,139			707,092
Treasury shares acquired		(475,092	)		(1,586,707	)		(2,167,256	)		(3,537,014	)
Balance, end of period		45,691,015			48,588,040			45,691,015			48,588,040

COMMON SHARES (par value):
Balance, beginning of period	$	682		$	676		$	680		$	671
Issued during the period, net		1			2			3			7
Balance, end of period		683			678			683			678

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period		2,036,320			1,978,966			2,029,774			1,946,439
Share-based compensation plans		16,362			24,200			22,908			56,727
Balance, end of period		2,052,682			2,003,166			2,052,682			2,003,166

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		211,207			466,436			157,728			537,049
Net increase (decrease) during the period		88,097			(259,272	)		141,576			(329,885	)
Balance, end of period		299,304			207,164			299,304			207,164

RETAINED EARNINGS:
Balance, beginning of period		7,025,158			5,973,378			6,765,967			5,613,266
Net income (loss) attributable to Everest Re Group		290,184			275,642			584,117			659,985
Dividends declared ($0.75 per share in second quarter 2014 and $1.50 year-to-date
per share in 2014 and $0.48 per share in second quarter 2013 and $0.96
year-to-date per share in 2013)		(34,319	)		(23,315	)		(69,061	)		(47,546	)
Balance, end of period		7,281,023			6,225,705			7,281,023			6,225,705

TREASURY SHARES AT COST:
Balance, beginning of period		(2,235,856	)		(1,602,590	)		(1,985,873	)		(1,363,958	)
Purchase of treasury shares		(74,968	)		(211,323	)		(324,951	)		(449,955	)
Balance, end of period		(2,310,824	)		(1,813,913	)		(2,310,824	)		(1,813,913	)

TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD	$	7,322,868		$	6,622,800		$	7,322,868		$	6,622,800

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

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2014			2013			2014			2013
	(unaudited)						(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	297,925		$	275,642		$	599,947		$	659,985
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable		(123,360	)		(167,239	)		(97,827	)		(220,306	)
Decrease (increase) in funds held by reinsureds, net		(1,251	)		(16,828	)		2,148			(12,244	)
Decrease (increase) in reinsurance receivables		(22,179	)		26,758			(137,077	)		(65,978	)
Decrease (increase) in income taxes		(19,160	)		(7,498	)		15,257			56,729
Decrease (increase) in prepaid reinsurance premiums		(70,705	)		(10,354	)		(68,346	)		(6,908	)
Increase (decrease) in reserve for losses and loss adjustment expenses		64,403			(47,200	)		8,055			(175,142	)
Increase (decrease) in future policy benefit reserve		279			229			(1,144	)		(567	)
Increase (decrease) in unearned premiums		16,787			72,212			96,803			126,535
Increase (decrease) in other net payable to reinsurers		99,370			25,577			100,546			29,765
Increase (decrease) in losses in course of payment		54,987			81,362			161,990			230,135
Change in equity adjustments in limited partnerships		(5,513	)		(18,994	)		(3,200	)		(36,350	)
Distribution of limited partnership income		4,830			9,409			13,430			43,095
Change in other assets and liabilities, net		(32,913	)		(31,052	)		(56,872	)		(74,866	)
Non-cash compensation expense		5,341			4,551			9,768			10,165
Amortization of bond premium (accrual of bond discount)		13,496			16,900			27,068			35,507
Amortization of underwriting discount on senior notes		14			14			28			27
Net realized capital (gains) losses		(59,016	)		(33,905	)		(80,142	)		(160,640	)
Net cash provided by (used in) operating activities		223,335			179,584			590,432			438,942

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		556,764			706,674			1,047,509			1,318,718
Proceeds from fixed maturities matured/called - available for sale, at fair value		-			4,213			875			7,213
Proceeds from fixed maturities sold - available for sale, at market value		277,767			376,688			606,476			631,184
Proceeds from fixed maturities sold - available for sale, at fair value		-			13,678			20,763			17,342
Proceeds from equity securities sold - available for sale, at market value		8,138			44,194			8,672			45,423
Proceeds from equity securities sold - available for sale, at fair value		126,294			252,594			304,892			358,769
Distributions from other invested assets		5,443			24,437			22,520			74,453
Cost of fixed maturities acquired - available for sale, at market value		(1,295,283	)		(1,105,870	)		(2,458,723	)		(2,122,159	)
Cost of fixed maturities acquired - available for sale, at fair value		-			(1,411	)		(1,309	)		(2,706	)
Cost of equity securities acquired - available for sale, at market value		(2,073	)		(51,921	)		(10,619	)		(53,487	)
Cost of equity securities acquired - available for sale, at fair value		(90,985	)		(121,327	)		(183,314	)		(243,944	)
Cost of other invested assets acquired		(29,427	)		(4,617	)		(34,388	)		(11,301	)
Net change in short-term investments		(270,962	)		53,629			(423,677	)		132,136
Net change in unsettled securities transactions		19,069			64,135			20,633			55,668
Net cash provided by (used in) investing activities		(695,255	)		255,096			(1,079,690	)		207,309

CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net		11,022			19,651			13,143			46,569
Purchase of treasury shares		(74,968	)		(211,323	)		(324,951	)		(449,955	)
Revolving credit borrowings		-			40,000			-			40,000
Net cost of junior subordinated debt securities redemption		-			(329,897	)		-			(329,897	)
Net proceeds from issuance of senior notes		400,000			-			400,000			-
Third party investment in redeemable noncontrolling interest		53,000			-			123,700			-
Subscription advances for third party redeemable noncontrolling interest		77,500			-			77,500			-
Dividends paid to shareholders		(34,319	)		(23,315	)		(69,061	)		(47,546	)
Net cash provided by (used in) financing activities		432,235			(504,884	)		220,331			(740,829	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(4,149	)		(14,796	)		(885	)		(3,336	)

Net increase (decrease) in cash		(43,834	)		(85,000	)		(269,812	)		(97,914	)
Cash, beginning of period		385,404			524,136			611,382			537,050
Cash, end of period	$	341,570		$	439,136		$	341,570		$	439,136

SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)	$	80,981		$	47,550		$	97,241		$	66,738
Interest paid		14,844			17,280			15,018			23,281

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

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended June 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 six months ended June 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 six months ended June 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 six months ended June 30, 2013, $9,409 thousand and $43,095 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 June 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	$	521,496	$	3,711	$	(930	)	$	524,277
Obligations of U.S. states and political subdivisions		881,697		44,770		(2,050	)		924,417
Corporate securities		4,531,862		175,499		(14,021	)		4,693,340
Asset-backed securities		265,436		3,383		(91	)		268,728
Mortgage-backed securities
Commercial		222,204		15,166		(681	)		236,689
Agency residential		2,103,439		43,127		(15,815	)		2,130,751
Non-agency residential		3,894		296		(157	)		4,033
Foreign government securities		1,629,068		76,302		(13,176	)		1,692,194
Foreign corporate securities		3,014,579		108,724		(20,366	)		3,102,937
Total fixed maturity securities	$	13,173,675	$	470,978	$	(67,287	)	$	13,577,366
Equity securities	$	149,024	$	5,319	$	(2,966	)	$	151,377

	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 $1,692,194 thousand of foreign government securities at June 30, 2014 included $734,053 thousand of European sovereign securities. Approximately 57.5%, 19.0% and 5.9% 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 June 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 June 30, 2014				At December 31, 2013
Pre-tax cumulative unrealized appreciation (depreciation)		$	3,250			$	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 June 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	$	1,270,385	$	1,279,390	$	1,059,052	$	1,067,799
Due after one year through five years		6,063,017		6,240,153		5,565,112		5,740,662
Due after five years through ten years		2,289,958		2,362,018		2,081,908		2,101,234
Due after ten years		955,342		1,055,604		960,812		999,856
Asset-backed securities		265,436		268,728		169,980		173,043
Mortgage-backed securities:
Commercial		222,204		236,689		254,765		270,441
Agency residential		2,103,439		2,130,751		2,294,719		2,279,053
Non-agency residential		3,894		4,033		4,816		4,819
Total fixed maturity securities	$	13,173,675	$	13,577,366	$	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						Six Months Ended
	June 30,						June 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	$	93,403		$	(311,674	)	$	157,869		$	(359,621	)
Fixed maturity securities, other-than-temporary impairment		5			(1,144	)		81			(1,372	)
Equity securities		4,531			(12,058	)		6,614			(14,075	)
Other invested assets		-			-			-			-
Change in unrealized appreciation (depreciation), pre-tax		97,939			(324,876	)		164,564			(375,068	)
Deferred tax benefit (expense)		(9,849	)		50,402			(21,129	)		49,667
Deferred tax benefit (expense), other-than-temporary impairment		-			106			-			140
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity	$	88,090		$	(274,368	)	$	143,435		$	(325,261	)

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 June 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	$	143,260	$	(193	)	$	28,622	$	(737	)	$	171,882	$	(930	)
Obligations of U.S. states and political subdivisions		-		-			92,739		(2,050	)		92,739		(2,050	)
Corporate securities		497,454		(5,184	)		375,934		(8,837	)		873,388		(14,021	)
Asset-backed securities		17,510		(8	)		112		(83	)		17,622		(91	)
Mortgage-backed securities
Commercial		22		-			11,466		(681	)		11,488		(681	)
Agency residential		206,344		(730	)		727,344		(15,085	)		933,688		(15,815	)
Non-agency residential		-		-			1,659		(157	)		1,659		(157	)
Foreign government securities		74,204		(2,662	)		229,593		(10,514	)		303,797		(13,176	)
Foreign corporate securities		231,278		(6,024	)		419,731		(14,342	)		651,009		(20,366	)
Total fixed maturity securities	$	1,170,072	$	(14,801	)	$	1,887,200	$	(52,486	)	$	3,057,272	$	(67,287	)
Equity securities		15		-			123,541		(2,966	)		123,556		(2,966	)
Total	$	1,170,087	$	(14,801	)	$	2,010,741	$	(55,452	)	$	3,180,828	$	(70,253	)

	Duration of Unrealized Loss at June 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	$	72,606	$	(3,776	)	$	61,122	$	(5,888	)	$	133,728	$	(9,664	)
Due in one year through five years		604,549		(7,848	)		632,014		(16,155	)		1,236,563		(24,003	)
Due in five years through ten years		263,090		(2,316	)		301,212		(8,544	)		564,302		(10,860	)
Due after ten years		5,951		(123	)		152,271		(5,893	)		158,222		(6,016	)
Asset-backed securities		17,510		(8	)		112		(83	)		17,622		(91	)
Mortgage-backed securities		206,366		(730	)		740,469		(15,923	)		946,835		(16,653	)
Total fixed maturity securities	$	1,170,072	$	(14,801	)	$	1,887,200	$	(52,486	)	$	3,057,272	$	(67,287	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at June 30, 2014 were $3,180,828 thousand and $70,253 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at June 30, 2014, did not exceed 0.5% 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 $14,801 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, foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses, $12,169 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating organization. The $52,486 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, foreign government securities and municipal securities. Of these unrealized losses, $50,302 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 $199 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

Six Months Ended

June 30,

(Dollars in thousands)