EVEREST GROUP, LTD. - Quarter Report: 2015 March (Form 10-Q)

group10q1q2015.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:

March 31, 2015

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 May 1, 2015
Common Shares, $0.01 par value		44,430,804

EVEREST RE GROUP, LTD

Table of Contents

Form 10-Q

Page

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets March 31, 2015 (unaudited)
	and December 31, 2014	1

	Consolidated Statements of Operations and Comprehensive Income (Loss) for the
	three months ended March 31, 2015 and 2014 (unaudited)	2

	Consolidated Statements of Changes in Shareholders’ Equity for the three months
	ended March 31, 2015 and 2014 (unaudited)	3

	Consolidated Statements of Cash Flows for the three months ended
	March 31, 2015 and 2014 (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	51

Item 4.	Controls and Procedures	51

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3.	Defaults Upon Senior Securities	52

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits	53

EVEREST RE GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
(Dollars and share amounts in thousands, except par value per share)	2015			2014
	(unaudited)
ASSETS:
Fixed maturities - available for sale, at market value	$	13,415,871		$	13,101,067
(amortized cost: 2015, $13,010,017; 2014, $12,831,159)
Fixed maturities - available for sale, at fair value		363			1,509
Equity securities - available for sale, at market value (cost: 2015, $151,044; 2014, $148,326)		141,478			140,210
Equity securities - available for sale, at fair value		1,504,694			1,447,820
Short-term investments		1,706,684			1,705,932
Other invested assets (cost: 2015, $626,799; 2014, $601,925)		626,799			601,925
Cash		398,575			437,474
Total investments and cash		17,794,464			17,435,937
Accrued investment income		106,788			111,075
Premiums receivable		1,485,095			1,397,983
Reinsurance receivables		700,009			670,854
Funds held by reinsureds		236,846			228,192
Deferred acquisition costs		373,160			398,408
Prepaid reinsurance premiums		135,042			154,177
Income taxes		159,445			184,762
Other assets		276,438			236,436
TOTAL ASSETS	$	21,267,287		$	20,817,824

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	9,633,982		$	9,720,813
Future policy benefit reserve		59,693			59,820
Unearned premium reserve		1,675,413			1,728,745
Funds held under reinsurance treaties		78,423			3,932
Commission reserves		93,337			87,990
Other net payable to reinsurers		200,262			139,841
Losses in course of payment		228,079			157,527
4.868% Senior notes due 6/1/2044		400,000			400,000
6.6% Long term notes due 5/1/2067		238,365			238,364
Accrued interest on debt and borrowings		12,341			3,537
Equity index put option liability		47,264			47,022
Unsettled securities payable		76,074			41,092
Other liabilities		253,829			316,469
Total liabilities		12,997,062			12,945,152

NONCONTROLLING INTERESTS:
Redeemable noncontrolling interests - Mt. Logan Re		603,595			421,552

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; (2015) 68,496
and (2014) 68,336 outstanding before treasury shares		685			683
Additional paid-in capital		2,073,977			2,068,807
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $32,751 at 2015 and $20,715 at 2014		52,969			48,317
Treasury shares, at cost; 24,085 shares (2015) and 23,650 shares (2014)		(2,560,937	)		(2,485,897	)
Retained earnings		8,099,936			7,819,210
Total shareholders' equity attributable to Everest Re Group		7,666,630			7,451,120
TOTAL LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY	$	21,267,287		$	20,817,824

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
	March 31,
(Dollars in thousands, except per share amounts)	2015			2014
	(unaudited)
REVENUES:
Premiums earned	$	1,307,077		$	1,144,490
Net investment income		122,583			123,157
Net realized capital gains (losses):
Other-than-temporary impairments on fixed maturity securities		(26,018	)		-
Other-than-temporary impairments on fixed maturity securities
transferred to other comprehensive income (loss)		-			-
Other net realized capital gains (losses)		15,513			21,126
Total net realized capital gains (losses)		(10,505	)		21,126
Net derivative gain (loss)		(242	)		(1,661	)
Other income (expense)		46,073			(3,296	)
Total revenues		1,464,986			1,283,816

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		722,465			619,409
Commission, brokerage, taxes and fees		287,167			246,002
Other underwriting expenses		60,664			50,638
Corporate expenses		5,463			4,945
Interest, fees and bond issue cost amortization expense		8,990			7,568
Total claims and expenses		1,084,749			928,562

INCOME (LOSS) BEFORE TAXES		380,237			355,254
Income tax expense (benefit)		41,167			53,232

NET INCOME (LOSS)	$	339,070		$	302,022
Net (income) loss attributable to noncontrolling interests		(16,092	)		(8,089	)
NET INCOME (LOSS) ATTRIBUTABLE TO EVEREST RE GROUP	$	322,978		$	293,933

Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period		83,205			53,471
Reclassification adjustment for realized losses (gains) included in net income (loss)		22,183			1,874
Total URA(D) on securities arising during the period		105,388			55,345

Foreign currency translation adjustments		(102,340	)		(2,637	)

Benefit plan actuarial net gain (loss) for the period		-			-
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)		1,604			771
Total benefit plan net gain (loss) for the period		1,604			771
Total other comprehensive income (loss), net of tax		4,652			53,479
Other comprehensive (income) loss attributable to noncontrolling interests		-			-
Total other comprehensive income (loss), net of tax attributable to Everest Re Group		4,652			53,479

COMPREHENSIVE INCOME (LOSS)	$	327,630		$	347,412

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO EVEREST RE GROUP:
Basic	$	7.26		$	6.26
Diluted		7.19			6.21
Dividends declared		0.95			0.75

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
	March 31,
(Dollars in thousands, except share and dividends per share amounts)	2015			2014
	(unaudited)
COMMON SHARES (shares outstanding):
Balance, beginning of period		44,685,637			47,543,132
Issued during the period, net		159,661			206,071
Treasury shares acquired		(434,878	)		(1,692,164	)
Balance, end of period		44,410,420			46,057,039

COMMON SHARES (par value):
Balance, beginning of period	$	683		$	680
Issued during the period, net		2			2
Balance, end of period		685			682

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period		2,068,807			2,029,774
Share-based compensation plans		5,170			6,546
Balance, end of period		2,073,977			2,036,320

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period		48,317			157,728
Net increase (decrease) during the period		4,652			53,479
Balance, end of period		52,969			211,207

RETAINED EARNINGS:
Balance, beginning of period		7,819,210			6,765,967
Net income (loss) attributable to Everest Re Group		322,978			293,933
Dividends declared ($0.95 per share in 2015 and $0.75 per share in 2014)		(42,252	)		(34,742	)
Balance, end of period		8,099,936			7,025,158

TREASURY SHARES AT COST:
Balance, beginning of period		(2,485,897	)		(1,985,873	)
Purchase of treasury shares		(75,040	)		(249,983	)
Balance, end of period		(2,560,937	)		(2,235,856	)

TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD	$	7,666,630		$	7,037,511

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

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	March 31,
(Dollars in thousands)	2015			2014
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	339,070		$	302,022
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable		(98,195	)		25,533
Decrease (increase) in funds held by reinsureds, net		62,973			3,399
Decrease (increase) in reinsurance receivables		(84,665	)		(114,898	)
Decrease (increase) in income taxes		14,214			34,417
Decrease (increase) in prepaid reinsurance premiums		12,144			2,359
Increase (decrease) in reserve for losses and loss adjustment expenses		55,334			(56,348	)
Increase (decrease) in future policy benefit reserve		(127	)		(1,423	)
Increase (decrease) in unearned premiums		(40,934	)		80,016
Increase (decrease) in other net payable to reinsurers		68,365			1,176
Increase (decrease) in losses in course of payment		71,568			107,003
Change in equity adjustments in limited partnerships		(6,762	)		2,313
Distribution of limited partnership income		8,600			8,600
Change in other assets and liabilities, net		24,542			(23,959	)
Non-cash compensation expense		5,170			4,427
Amortization of bond premium (accrual of bond discount)		13,333			13,572
Amortization of underwriting discount on senior notes		1			14
Net realized capital (gains) losses		10,505			(21,126	)
Net cash provided by (used in) operating activities		455,136			367,097

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale, at market value		594,807			490,745
Proceeds from fixed maturities matured/called - available for sale, at fair value		-			875
Proceeds from fixed maturities sold - available for sale, at market value		355,812			328,709
Proceeds from fixed maturities sold - available for sale, at fair value		1,236			20,763
Proceeds from equity securities sold - available for sale, at market value		83			534
Proceeds from equity securities sold - available for sale, at fair value		137,966			178,598
Distributions from other invested assets		10,797			17,077
Cost of fixed maturities acquired - available for sale, at market value		(1,370,458	)		(1,163,440	)
Cost of fixed maturities acquired - available for sale, at fair value		-			(1,309	)
Cost of equity securities acquired - available for sale, at market value		(4,464	)		(8,546	)
Cost of equity securities acquired - available for sale, at fair value		(171,411	)		(92,329	)
Cost of other invested assets acquired		(41,961	)		(4,961	)
Net change in short-term investments		(7,567	)		(152,715	)
Net change in unsettled securities transactions		(505	)		1,564
Net cash provided by (used in) investing activities		(495,665	)		(384,435	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net		2			2,121
Purchase of treasury shares		(75,040	)		(249,983	)
Third party investment in redeemable noncontrolling interest		156,848			70,700
Dividends paid to shareholders		(42,252	)		(34,742	)
Dividends paid on third party investment in redeemable noncontrolling interest		(30,896	)		-
Net cash provided by (used in) financing activities		8,662			(211,904	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(7,032	)		3,264

Net increase (decrease) in cash		(38,899	)		(225,978	)
Cash, beginning of period		437,474			611,382
Cash, end of period	$	398,575		$	385,404

SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)	$	24,266		$	16,260
Interest paid		132			174

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

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended March 31, 2015 and 2014

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 months ended March 31, 2015 and 2014 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, 2014 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results for the three months ended March 31, 2015 and 2014 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, 2014, 2013 and 2012 included in the Company’s most recent Form 10-K filing.

All intercompany accounts and transactions have been eliminated.

Application of Recently Issued Accounting Standard Changes.

No accounting standards or guidance have been issued recently that would have a material impact on the Company’s financial statements or financial reporting process.

3. INVESTMENTS

The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity, equity security investments, carried at market value and other-than-temporary impairments (“OTTI”) in accumulated other comprehensive income (“AOCI”) are as follows for the periods indicated:

	At March 31, 2015
	Amortized		Unrealized		Unrealized			Market		OTTI in AOCI
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value		(a)
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	373,554	$	19,474	$	(89	)	$	392,939	$	-
Obligations of U.S. states and political subdivisions		750,671		39,085		(914	)		788,842		-
Corporate securities		4,763,380		187,765		(31,335	)		4,919,810		2,773
Asset-backed securities		414,435		2,992		(1,335	)		416,092		-
Mortgage-backed securities
Commercial		274,115		11,238		(424	)		284,929		-
Agency residential		2,196,325		48,489		(3,941	)		2,240,873		-
Non-agency residential		2,530		50		(57	)		2,523		-
Foreign government securities		1,357,620		82,506		(45,451	)		1,394,675		-
Foreign corporate securities		2,877,387		165,099		(67,298	)		2,975,188		-
Total fixed maturity securities	$	13,010,017	$	556,698	$	(150,844	)	$	13,415,871	$	2,773
Equity securities	$	151,044	$	3,822	$	(13,388	)	$	141,478	$	-

	At December 31, 2014
	Amortized		Unrealized		Unrealized			Market		OTTI in AOCI
(Dollars in thousands)	Cost		Appreciation		Depreciation			Value		(a)
Fixed maturity securities
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	221,052	$	10,290	$	(304	)	$	231,038	$	-
Obligations of U.S. states and political subdivisions		783,129		41,969		(626	)		824,472		-
Corporate securities		4,626,002		143,889		(62,906	)		4,706,985		(6,910	)
Asset-backed securities		340,761		1,691		(1,230	)		341,222		-
Mortgage-backed securities
Commercial		231,439		10,675		(429	)		241,685		-
Agency residential		2,157,182		37,555		(11,573	)		2,183,164		-
Non-agency residential		2,734		54		(57	)		2,731		-
Foreign government securities		1,488,144		71,177		(26,866	)		1,532,455		-
Foreign corporate securities		2,980,716		109,673		(53,074	)		3,037,315		-
Total fixed maturity securities	$	12,831,159	$	426,973	$	(157,065	)	$	13,101,067	$	(6,910	)
Equity securities	$	148,326	$	3,831	$	(11,947	)	$	140,210	$	-

(a)	Represents the amount of OTTI recognized in AOCI. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

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 March 31, 2015				At December 31, 2014
	Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value
Fixed maturity securities – available for sale:
Due in one year or less	$	1,083,697	$	1,097,956	$	1,183,247	$	1,189,416
Due after one year through five years		5,892,475		6,042,830		5,646,466		5,726,277
Due after five years through ten years		2,221,028		2,303,349		2,270,073		2,313,672
Due after ten years		925,412		1,027,319		999,257		1,102,900
Asset-backed securities		414,435		416,092		340,761		341,222
Mortgage-backed securities:
Commercial		274,115		284,929		231,439		241,685
Agency residential		2,196,325		2,240,873		2,157,182		2,183,164
Non-agency residential		2,530		2,523		2,734		2,731
Total fixed maturity securities	$	13,010,017	$	13,415,871	$	12,831,159	$	13,101,067

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
	March 31,
(Dollars in thousands)	2015			2014
Increase (decrease) during the period between the market value and cost
of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	126,262		$	64,466
Fixed maturity securities, other-than-temporary impairment		9,684			76
Equity securities		(1,450	)		2,083
Change in unrealized appreciation (depreciation), pre-tax		134,496			66,625
Deferred tax benefit (expense)		(25,700	)		(11,280	)
Deferred tax benefit (expense), other-than-temporary impairment		(3,408	)		-
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity	$	105,388		$	55,345

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 March 31, 2015 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	$	790	$	(7	)	$	2,043	$	(82	)	$	2,833	$	(89	)
Obligations of U.S. states and political subdivisions		26,973		(579	)		18,171		(335	)		45,144		(914	)
Corporate securities		488,670		(27,477	)		236,354		(3,858	)		725,024		(31,335	)
Asset-backed securities		98,812		(1,330	)		608		(5	)		99,420		(1,335	)
Mortgage-backed securities
Commercial		15,585		(259	)		9,911		(165	)		25,496		(424	)
Agency residential		64,680		(503	)		440,500		(3,438	)		505,180		(3,941	)
Non-agency residential		-		-			243		(57	)		243		(57	)
Foreign government securities		259,268		(32,821	)		107,252		(12,630	)		366,520		(45,451	)
Foreign corporate securities		424,380		(54,966	)		153,632		(12,332	)		578,012		(67,298	)
Total fixed maturity securities	$	1,379,158	$	(117,942	)	$	968,714	$	(32,902	)	$	2,347,872	$	(150,844	)
Equity securities		50,526		(4,380	)		76,250		(9,008	)		126,776		(13,388	)
Total	$	1,429,684	$	(122,322	)	$	1,044,964	$	(41,910	)	$	2,474,648	$	(164,232	)

	Duration of Unrealized Loss at March 31, 2015 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	$	98,306	$	(13,754	)	$	49,712	$	(8,753	)	$	148,018	$	(22,507	)
Due in one year through five years		626,834		(72,805	)		290,672		(10,553	)		917,506		(83,358	)
Due in five years through ten years		424,515		(22,845	)		134,516		(7,421	)		559,031		(30,266	)
Due after ten years		50,426		(6,446	)		42,552		(2,510	)		92,978		(8,956	)
Asset-backed securities		98,812		(1,330	)		608		(5	)		99,420		(1,335	)
Mortgage-backed securities		80,265		(762	)		450,654		(3,660	)		530,919		(4,422	)
Total fixed maturity securities	$	1,379,158	$	(117,942	)	$	968,714	$	(32,902	)	$	2,347,872	$	(150,844	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at March 31, 2015 were $2,474,648 thousand and $164,232 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at March 31, 2015, did not exceed 0.2% 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 $117,942 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities, as well as foreign government securities. The majority of these unrealized losses are attributable to net unrealized foreign exchange losses, $77,379 thousand, as the U.S. dollar has strengthened against other currencies and unrealized losses in the energy sector, $40,563 thousand, as falling oil prices have disrupted the market values for this sector, particularly for oil exploration, production and servicing companies. The $32,902 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to foreign and domestic corporate securities, foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses, $27,718 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 $15 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, 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	$	13,187	$	(20	)	$	26,897	$	(284	)	$	40,084	$	(304	)
Obligations of U.S. states and political subdivisions		20,428		(242	)		18,199		(384	)		38,627		(626	)
Corporate securities		1,245,830		(55,388	)		362,320		(7,518	)		1,608,150		(62,906	)
Asset-backed securities		192,253		(1,230	)		-		-			192,253		(1,230	)
Mortgage-backed securities
Commercial		28,191		(123	)		9,777		(306	)		37,968		(429	)
Agency residential		141,807		(172	)		678,972		(11,401	)		820,779		(11,573	)
Non-agency residential		-		-			266		(57	)		266		(57	)
Foreign government securities		235,725		(15,415	)		139,200		(11,451	)		374,925		(26,866	)
Foreign corporate securities		567,905		(36,926	)		290,234		(16,148	)		858,139		(53,074	)
Total fixed maturity securities	$	2,445,326	$	(109,516	)	$	1,525,865	$	(47,549	)	$	3,971,191	$	(157,065	)
Equity securities		50,285		(4,068	)		73,994		(7,879	)		124,279		(11,947	)
Total	$	2,495,611	$	(113,584	)	$	1,599,859	$	(55,428	)	$	4,095,470	$	(169,012	)

	Duration of Unrealized Loss at December 31, 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	$	98,021	$	(5,166	)	$	80,002	$	(8,174	)	$	178,023	$	(13,340	)
Due in one year through five years		1,233,244		(68,124	)		518,613		(12,761	)		1,751,857		(80,885	)
Due in five years through ten years		679,374		(28,529	)		187,717		(10,734	)		867,091		(39,263	)
Due after ten years		72,436		(6,172	)		50,518		(4,116	)		122,954		(10,288	)
Asset-backed securities		192,253		(1,230	)		-		-			192,253		(1,230	)
Mortgage-backed securities		169,998		(295	)		689,015		(11,764	)		859,013		(12,059	)
Total fixed maturity securities	$	2,445,326	$	(109,516	)	$	1,525,865	$	(47,549	)	$	3,971,191	$	(157,065	)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2014 were $4,095,470 thousand and $169,012 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2014, did not exceed 0.2% 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 $109,516 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities, as well as foreign government securities. The majority of these unrealized losses are attributable to unrealized losses in the energy sector, $58,891 thousand, as falling oil prices disrupted the market values for this sector, particularly for oil exploration, production and servicing companies during the fourth quarter of 2014 and unrealized foreign exchange losses, $34,687 thousand, as the U.S. dollar has strengthened against other currencies. The $47,549 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to foreign and domestic corporate securities, foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses, $42,884 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 $15 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
	March 31,
(Dollars in thousands)	2015			2014
Fixed maturities	$	109,355		$	116,253
Equity securities		11,678			11,459
Short-term investments and cash		247			330
Other invested assets
Limited partnerships		6,968			(2,258	)
Other		625			2,021
Gross investment income before adjustments		128,873			127,805
Funds held interest income (expense)		2,876			3,017
Future policy benefit reserve income (expense)		(393	)		(303	)
Gross investment income		131,356			130,519
Investment expenses		(8,773	)		(7,362	)
Net investment income	$	122,583		$	123,157

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

The Company had contractual commitments to invest up to an additional $364,068 thousand in limited partnerships at March 31, 2015. These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2020.

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

	Three Months Ended
	March 31,
(Dollars in thousands)	2015			2014
Fixed maturity securities, market value:
Other-than-temporary impairments	$	(26,018	)	$	-
Gains (losses) from sales		(8,024	)		(1,948	)
Fixed maturity securities, fair value:
Gains (losses) from sales		28			940
Gains (losses) from fair value adjustments		62			-
Equity securities, market value:
Gains (losses) from sales		19			(488	)
Equity securities, fair value:
Gains (losses) from sales		(150	)		(1,415	)
Gains (losses) from fair value adjustments		23,578			24,035
Short-term investments gain (loss)		-			2
Total net realized capital gains (losses)	$	(10,505	)	$	21,126

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

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

	Three Months Ended
	March 31,
(Dollars in thousands)	2015			2014
Proceeds from sales of fixed maturity securities	$	357,048		$	349,472
Gross gains from sales		8,835			7,936
Gross losses from sales		(16,831	)		(8,944	)

Proceeds from sales of equity securities	$	138,049		$	179,132
Gross gains from sales		5,206			6,620
Gross losses from sales		(5,337	)		(8,523	)

4. DERIVATIVES

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

The Company sold six equity index put option contracts, based on the Standard & Poor’s 500 (“S&P 500”) index, for total consideration, net of commissions, of $22,530 thousand. At March 31, 2015, fair value for these equity index put option contracts was $39,250 thousand. Based on historical index volatilities and trends and the March 31, 2015 S&P 500 index value, the Company estimates the probability that each equity index put option contract of the S&P 500 index falling below the strike price on the exercise date to be less than 19%. The theoretical maximum payouts under these six equity index put option contracts would occur if on each of the exercise dates the S&P 500 index value were zero. At March 31, 2015, the present value of these theoretical maximum payouts using a 3% discount factor was $423,085 thousand. Conversely, if the contracts had all expired on March 31, 2015, with the S&P index at $2,067.89, there would have been no settlement amount.

The Company sold one equity index put option contract based on the FTSE 100 index for total consideration, net of commissions, of $6,706 thousand. At March 31, 2015, fair value for this equity index put option contract was $8,013 thousand. Based on historical index volatilities and trends and the March 31, 2015 FTSE 100 index value, the Company estimates the probability that the equity index put option contract of the FTSE 100 index will fall below the strike price on the exercise date to be less than 39%. The theoretical maximum payout under the equity index put option contract would occur if on the exercise date the FTSE 100 index value was zero. At March 31, 2015, the present value of the theoretical maximum payout using a 3% discount factor and current exchange rate was $41,427 thousand. Conversely, if the contract had expired on March 31, 2015, with the FTSE index at ₤6,773.00, there would have been no settlement amount.

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

(Dollars in thousands)
Derivatives not designated as	Location of fair value	At		At
hedging instruments	in balance sheets	March 31, 2015		December 31, 2014

Equity index put option contracts	Equity index put option liability	$	47,264	$	47,022
Total		$	47,264	$	47,022

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

(Dollars in thousands)		For the Three Months Ended
Derivatives not designated as	Location of gain (loss) in statements of	March 31,
hedging instruments	operations and comprehensive income (loss)	2015			2014

Equity index put option contracts	Net derivative gain (loss)	$	(242	)	$	(1,661	)
Total		$	(242	)	$	(1,661	)

5. FAIR VALUE

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

In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers. The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the

prices. In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. Due to the unavailability of prices for one private placement security, the Company valued the security at $6,125 thousand at March 31, 2015 and made no such adjustments at December 31, 2014.

The Company internally manages a small public equity portfolio which had a fair value at March 31, 2015 and December 31, 2014 of $208,846 thousand and $196,980 thousand, respectively, and all prices were obtained from publically published sources.

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

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

At March 31, 2015 and December 31, 2014, all Level 3 fixed maturity securities, except the one security priced by the Company, were priced using single non-binding broker quotes since prices for these securities were not provided by normal pricing service companies. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company.

The Company sold seven equity index put option contracts which meet the definition of a derivative. The Company’s position in these contracts is unhedged. The Company records the change in fair value of equity index put option contracts in its consolidated statements of operations and comprehensive income (loss).

The fair value of the equity put option contract is calculated using an industry accepted option pricing model, Black-Scholes. The inputs and assumptions for the model are updated on a quarterly basis.

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

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	March 31, 2015		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	392,939	$	-	$	392,939	$	-
Obligations of U.S. States and political subdivisions		788,842		-		788,842		-
Corporate securities		4,919,810		-		4,917,157		2,653
Asset-backed securities		416,092		-		416,092		-
Mortgage-backed securities
Commercial		284,929		-		284,929
Agency residential		2,240,873		-		2,240,873		-
Non-agency residential		2,523		-		2,523		-
Foreign government securities		1,394,675		-		1,394,675		-
Foreign corporate securities		2,975,188		-		2,969,063		6,125
Total fixed maturities, market value		13,415,871		-		13,407,093		8,778

Fixed maturities, fair value		363		-		363		-
Equity securities, market value		141,478		126,792		14,686		-
Equity securities, fair value		1,504,694		1,391,189		113,505		-

Liabilities:
Equity index put option contracts	$	47,264	$	-	$	-	$	47,264

There were no transfers between Level 1 and Level 2 for the three months ended March 31, 2015.

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

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2014		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	231,038	$	-	$	231,038	$	-
Obligations of U.S. States and political subdivisions		824,472		-		824,472		-
Corporate securities		4,706,985		-		4,706,985		-
Asset-backed securities		341,222		-		341,222		-
Mortgage-backed securities
Commercial		241,685		-		233,088		8,597
Agency residential		2,183,164		-		2,183,164		-
Non-agency residential		2,731		-		2,731		-
Foreign government securities