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EVEREST GROUP, LTD. - Quarter Report: 2016 June (Form 10-Q)

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, 2016
 
 
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.)
Seon Place – 4th Floor
141 Front Street
PO Box HM 845
Hamilton HM 19, 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
X
 
NO
 

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
X
 
NO
 

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
   
NO
X

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

   
Number of Shares Outstanding
Class
 
At August 1, 2016
Common Shares, $0.01 par value
 
41,888,224
 



EVEREST RE GROUP, LTD

Table of Contents
Form 10-Q


Page
PART I

FINANCIAL INFORMATION

Item 1.
Financial Statements
 
     
 
Consolidated Balance Sheets June 30, 2016 (unaudited)
 
 
and December 31, 2015 (unaudited)
1
     
 
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
 
 
three and six months ended June 30, 2016 and 2015 (unaudited)
2
     
 
Consolidated Statements of Changes in Shareholders' Equity for the three and
 
 
six months ended June 30, 2016 and 2015 (unaudited)
3
     
 
Consolidated Statements of Cash Flows for the six months ended
 
 
June 30, 2016 and 2015 (unaudited)
4
     
 
Notes to Consolidated Interim Financial Statements (unaudited)
5
     
Item 2.
Management's Discussion and Analysis of Financial Condition and
 
 
Results of Operation
32
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
56
     
Item 4.
Controls and Procedures
56
     

PART II

OTHER INFORMATION

Item 1.
Legal Proceedings
57
     
Item 1A.
Risk Factors
57
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
57
     
Item 3.
Defaults Upon Senior Securities
57
     
Item 4.
Mine Safety Disclosures
58
     
Item 5.
Other Information
58
     
Item 6.
Exhibits
58
     

EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS



   
June 30,
 
December 31,
(Dollars and share amounts in thousands, except par value per share)
 
2016
 
2015
   
(unaudited)
ASSETS:
           
Fixed maturities - available for sale, at market value
 
$
14,058,965
   
$
13,357,294
 
(amortized cost: 2016, $13,631,263; 2015, $13,276,206)
               
Fixed maturities - available for sale, at fair value
   
-
     
2,102
 
Equity securities - available for sale, at market value (cost: 2016, $124,699; 2015, $122,271)
   
118,740
     
108,940
 
Equity securities - available for sale, at fair value
   
1,104,430
     
1,337,733
 
Short-term investments
   
531,511
     
799,684
 
Other invested assets (cost: 2016, $1,216,171; 2015, $786,994)
   
1,216,171
     
786,994
 
Cash
   
429,287
     
283,658
 
Total investments and cash
   
17,459,104
     
16,676,405
 
Accrued investment income
   
96,772
     
100,942
 
Premiums receivable
   
1,461,563
     
1,483,090
 
Reinsurance receivables
   
950,323
     
894,037
 
Funds held by reinsureds
   
242,033
     
278,673
 
Deferred acquisition costs
   
319,781
     
372,351
 
Prepaid reinsurance premiums
   
219,050
     
164,971
 
Income taxes
   
195,094
     
258,541
 
Other assets
   
338,455
     
316,408
 
TOTAL ASSETS
 
$
21,282,175
   
$
20,545,418
 
                 
LIABILITIES:
               
Reserve for losses and loss adjustment expenses
 
$
10,263,267
   
$
9,951,798
 
Future policy benefit reserve
   
57,827
     
58,910
 
Unearned premium reserve
   
1,495,838
     
1,613,390
 
Funds held under reinsurance treaties
   
23,373
     
13,544
 
Commission reserves
   
85,670
     
60,098
 
Other net payable to reinsurers
   
224,380
     
173,087
 
Losses in course of payment
   
124,703
     
112,170
 
4.868% Senior notes due 6/1/2044
   
396,654
     
396,594
 
6.6% Long term notes due 5/1/2067
   
236,413
     
236,364
 
Accrued interest on debt and borrowings
   
3,537
     
3,537
 
Equity index put option liability
   
41,729
     
40,705
 
Unsettled securities payable
   
86,003
     
15,314
 
Other liabilities
   
257,313
     
261,322
 
Total liabilities
   
13,296,707
     
12,936,833
 
                 
Commitments and contingencies (Note 7)
               
                 
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; (2016) 68,805
               
and (2015) 68,606 outstanding before treasury shares
   
688
     
686
 
Additional paid-in capital
   
2,120,581
     
2,103,638
 
Accumulated other comprehensive income (loss), net of deferred income tax expense
               
(benefit) of $57,700 at 2016 and ($15,863) at 2015
   
84,000
     
(231,755
)
Treasury shares, at cost; 26,921 shares (2016) and 25,912 shares (2015)
   
(3,072,313
)
   
(2,885,956
)
Retained earnings
   
8,852,512
     
8,621,972
 
Total shareholders' equity
   
7,985,468
     
7,608,585
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
21,282,175
   
$
20,545,418
 
                 
The accompanying notes are an integral part of the consolidated financial statements.
               

1

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)
 
2016
 
2015
 
2016
 
2015
   
(unaudited)
 
(unaudited)
REVENUES:
                       
Premiums earned
 
$
1,288,860
   
$
1,285,255
   
$
2,507,727
   
$
2,557,743
 
Net investment income
   
132,737
     
124,990
     
235,261
     
247,556
 
Net realized capital gains (losses):
                               
Other-than-temporary impairments on fixed maturity securities
   
(1,470
)
   
(16,238
)
   
(30,263
)
   
(42,256
)
Other-than-temporary impairments on fixed maturity securities
                               
transferred to other comprehensive income (loss)
   
-
     
-
     
-
     
-
 
Other net realized capital gains (losses)
   
34,128
     
(7,940
)
   
(11,338
)
   
7,573
 
Total net realized capital gains (losses)
   
32,658
     
(24,178
)
   
(41,601
)
   
(34,683
)
Net derivative gain (loss)
   
1,996
     
6,445
     
(1,024
)
   
6,203
 
Other income (expense)
   
(28,367
)
   
(2,064
)
   
(30,433
)
   
49,217
 
Total revenues
   
1,427,884
     
1,390,448
     
2,669,930
     
2,826,036
 
                                 
CLAIMS AND EXPENSES:
                               
Incurred losses and loss adjustment expenses
   
857,816
     
778,184
     
1,558,565
     
1,493,339
 
Commission, brokerage, taxes and fees
   
295,502
     
290,520
     
570,508
     
573,614
 
Other underwriting expenses
   
72,077
     
61,902
     
144,187
     
120,643
 
Corporate expenses
   
7,117
     
5,925
     
15,003
     
11,388
 
Interest, fees and bond issue cost amortization expense
   
9,073
     
9,026
     
18,301
     
18,016
 
Total claims and expenses
   
1,241,585
     
1,145,557
     
2,306,564
     
2,217,000
 
                                 
INCOME (LOSS) BEFORE TAXES
   
186,299
     
244,891
     
363,366
     
609,036
 
Income tax expense (benefit)
   
30,607
     
35,834
     
35,988
     
77,001
 
                                 
NET INCOME (LOSS)
 
$
155,692
   
$
209,057
   
$
327,378
   
$
532,035
 
                                 
Other comprehensive income (loss), net of tax:
                               
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
   
124,356
     
(136,481
)
   
267,318
     
(53,276
)
Reclassification adjustment for realized losses (gains) included in net income (loss)
   
(1,448
)
   
12,747
     
30,933
     
34,930
 
Total URA(D) on securities arising during the period
   
122,908
     
(123,734
)
   
298,251
     
(18,346
)
                                 
Foreign currency translation adjustments
   
5,050
     
54,337
     
14,823
     
(48,003
)
                                 
Benefit plan actuarial net gain (loss) for the period
   
-
     
-
     
-
     
-
 
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
   
1,341
     
1,609
     
2,681
     
3,213
 
Total benefit plan net gain (loss) for the period
   
1,341
     
1,609
     
2,681
     
3,213
 
Total other comprehensive income (loss), net of tax
   
129,299
     
(67,788
)
   
315,755
     
(63,136
)
                                 
COMPREHENSIVE INCOME (LOSS)
 
$
284,991
   
$
141,269
   
$
643,133
   
$
468,899
 
                                 
EARNINGS PER COMMON SHARE
                               
Basic
 
$
3.70
   
$
4.72
   
$
7.73
   
$
11.99
 
Diluted
   
3.67
     
4.68
     
7.68
     
11.88
 
Dividends declared
   
1.15
     
0.95
     
2.30
     
1.90
 
                                 
The accompanying notes are an integral part of the consolidated financial statements.
                               

2

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)
 
2016
 
2015
 
2016
 
2015
   
(unaudited)
 
(unaudited)
COMMON SHARES (shares outstanding):
                       
Balance, beginning of period
   
42,399,666
     
44,410,420
     
42,694,252
     
44,685,637
 
Issued during the period, net
   
28,492
     
59,606
     
198,266
     
219,267
 
Treasury shares acquired
   
(544,728
)
   
(277,500
)
   
(1,009,088
)
   
(712,378
)
Balance, end of period
   
41,883,430
     
44,192,526
     
41,883,430
     
44,192,526
 
                                 
COMMON SHARES (par value):
                               
Balance, beginning of period
 
$
688
   
$
685
   
$
686
   
$
683
 
Issued during the period, net
   
-
     
-
     
2
     
2
 
Balance, end of period
   
688
     
685
     
688
     
685
 
                                 
ADDITIONAL PAID-IN CAPITAL:
                               
Balance, beginning of period
   
2,111,828
     
2,073,977
     
2,103,638
     
2,068,807
 
Share-based compensation plans
   
8,753
     
10,659
     
16,943
     
15,829
 
Balance, end of period
   
2,120,581
     
2,084,636
     
2,120,581
     
2,084,636
 
                                 
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
                               
NET OF DEFERRED INCOME TAXES:
                               
Balance, beginning of period
   
(45,299
)
   
52,969
     
(231,755
)
   
48,317
 
Net increase (decrease) during the period
   
129,299
     
(67,788
)
   
315,755
     
(63,136
)
Balance, end of period
   
84,000
     
(14,819
)
   
84,000
     
(14,819
)
                                 
RETAINED EARNINGS:
                               
Balance, beginning of period
   
8,744,952
     
8,099,936
     
8,621,972
     
7,819,210
 
Net income (loss)
   
155,692
     
209,057
     
327,378
     
532,035
 
Dividends declared ($1.15 per share in second quarter 2016 and $2.30 year-to-date
                               
per share in 2016 and $0.95 per share in second quarter 2015 and $1.90
                               
year-to-date per share in 2015)
   
(48,132
)
   
(41,955
)
   
(96,838
)
   
(84,207
)
Balance, end of period
   
8,852,512
     
8,267,038
     
8,852,512
     
8,267,038
 
                                 
TREASURY SHARES AT COST:
                               
Balance, beginning of period
   
(2,971,870
)
   
(2,560,937
)
   
(2,885,956
)
   
(2,485,897
)
Purchase of treasury shares
   
(100,443
)
   
(49,941
)
   
(186,357
)
   
(124,981
)
Balance, end of period
   
(3,072,313
)
   
(2,610,878
)
   
(3,072,313
)
   
(2,610,878
)
                                 
TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD
 
$
7,985,468
   
$
7,726,662
   
$
7,985,468
   
$
7,726,662
 
                                 
The accompanying notes are an integral part of the consolidated financial statements.
                               
 
3

EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS



   
Six Months Ended
   
June 30,
(Dollars in thousands)
 
2016
 
2015
   
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
 
$
327,378
   
$
532,035
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Decrease (increase) in premiums receivable
   
20,168
     
(56,849
)
Decrease (increase) in funds held by reinsureds, net
   
45,656
     
(6,755
)
Decrease (increase) in reinsurance receivables
   
(68,284
)
   
(49,185
)
Decrease (increase) in income taxes
   
(10,424
)
   
(20,898
)
Decrease (increase) in prepaid reinsurance premiums
   
(51,243
)
   
(39,563
)
Increase (decrease) in reserve for losses and loss adjustment expenses
   
352,147
     
113,567
 
Increase (decrease) in future policy benefit reserve
   
(1,083
)
   
(364
)
Increase (decrease) in unearned premiums
   
(119,315
)
   
(160,849
)
Increase (decrease) in other net payable to reinsurers
   
46,508
     
16,712
 
Increase (decrease) in losses in course of payment
   
11,188
     
95,003
 
Change in equity adjustments in limited partnerships
   
(16,518
)
   
(12,840
)
Distribution of limited partnership income
   
41,296
     
18,332
 
Change in other assets and liabilities, net
   
17,012
     
32,728
 
Non-cash compensation expense
   
14,262
     
10,364
 
Amortization of bond premium (accrual of bond discount)
   
24,125
     
25,514
 
Amortization of underwriting discount on senior notes
   
2
     
2
 
Net realized capital (gains) losses
   
41,601
     
34,683
 
Net cash provided by (used in) operating activities
   
674,476
     
531,637
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from fixed maturities matured/called - available for sale, at market value
   
923,832
     
1,172,211
 
Proceeds from fixed maturities matured/called - available for sale, at fair value
   
-
     
-
 
Proceeds from fixed maturities sold - available for sale, at market value
   
594,764
     
731,673
 
Proceeds from fixed maturities sold - available for sale, at fair value
   
1,587
     
1,613
 
Proceeds from equity securities sold - available for sale, at market value
   
226
     
4,599
 
Proceeds from equity securities sold - available for sale, at fair value
   
430,038
     
300,620
 
Distributions from other invested assets
   
2,261,682
     
27,705
 
Cost of fixed maturities acquired - available for sale, at market value
   
(1,932,527
)
   
(2,448,121
)
Cost of fixed maturities acquired - available for sale, at fair value
   
-
     
(234
)
Cost of equity securities acquired - available for sale, at market value
   
(2,393
)
   
(5,541
)
Cost of equity securities acquired - available for sale, at fair value
   
(194,043
)
   
(317,650
)
Cost of other invested assets acquired
   
(2,711,306
)
   
(98,890
)
Net change in short-term investments
   
271,913
     
207,879
 
Net change in unsettled securities transactions
   
59,619
     
4,475
 
Net cash provided by (used in) investing activities
   
(296,608
)
   
(419,661
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Common shares issued during the period, net
   
2,683
     
5,468
 
Purchase of treasury shares
   
(186,357
)
   
(124,981
)
Dividends paid to shareholders
   
(96,838
)
   
(84,207
)
Net cash provided by (used in) financing activities
   
(280,512
)
   
(203,720
)
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
   
48,273
     
(6,829
)
                 
Net increase (decrease) in cash
   
145,629
     
(98,573
)
Cash, beginning of period
   
283,658
     
437,474
 
Cash, end of period
 
$
429,287
   
$
338,901
 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Income taxes paid (recovered)
 
$
41,905
   
$
93,352
 
Interest paid
   
18,192
     
17,907
 
                 
The accompanying notes are an integral part of the consolidated financial statements.
               

4

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended June 30, 2016 and 2015

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.

During the fourth quarter of 2015, the Company established new subsidiaries, Everest Preferred International Holdings, Ltd. ("Preferred International"), a Bermuda based company and Everest International Holdings (Bermuda), Ltd. ("International Holdings"), a Bermuda based company.  These new subsidiaries were part of a capital restructuring within the Company to support a planned increase in international business production, which includes directly supporting Group's new Lloyd's of London Syndicate corporate member.

Effective July 13, 2015, the Company sold all of the outstanding shares of capital stock of a wholly-owned subsidiary entity, Mt. McKinley Insurance Company ("Mt. McKinley"), to Clearwater Insurance Company.  The operating results of Mt. McKinley for the three and six months ended June 30, 2015, are included within the Company's financial statements.

Effective February 27, 2013, the Company established a new subsidiary, Mt. Logan Re Ltd. ("Mt. Logan Re"). Mt. Logan Re manages separate segregated accounts whose assets and capital relate mainly to third party external investors.

2.   BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company for the three and six months ended June 30, 2016 and 2015 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, 2015 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, 2016 and 2015 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, 2015, 2014 and 2013 included in the Company's most recent Form 10-K filing.

The Company consolidates the results of operations and financial position of all voting interest entities ("VOE") in which the Company has a controlling financial interest and all variable interest entities ("VIE") in which the Company is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.

Effective January 1, 2016, the Company adopted Accounting Standards Update 2015-02, "Consolidation (Topic 810) Amendments to the Consolidation Analysis"  issued by the United States Financial Accounting Standards Board ("FASB"), which changed the method in which the Company determines whether entities are consolidated by the Company. The adoption of this amended accounting guidance has been implemented utilizing a full retrospective application for all periods presented in the Company's unaudited interim consolidated financial statements.

5


The amended guidance includes changes in the identification of the primary beneficiary of companies considered to be VIEs. These changes resulted in the Company concluding that Mt. Logan Re is a VIE given it has insufficient equity at risk and that each underlying separate segregated account is likewise a VIE.  The Company has concluded that it is the primary beneficiary of Mt. Logan Re, but not of the underlying separate segregated accounts and therefore has deconsolidated these segregated accounts.  This change had no impact to the net income or retained earnings of the Company.

All significant intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years' amounts to conform to the 2016 presentation.

Application of Recently Issued Accounting Standard Changes.

Disclosures about Short-Duration Contracts. In May 2015, the FASB issued ASU 2015-09, authoritative guidance regarding required disclosures associated with short duration insurance contracts.  The new disclosure requirements focus on information about initial claim estimates and subsequent claim estimate adjustment, methodologies in estimating claims and the timing, frequency and severity of claims related to short duration insurance contracts. This guidance is effective for annual reporting periods beginning after December 15, 2015 and interim reporting periods beginning after December 15, 2016.  Therefore, the initial presentation of this guidance in the Company's financial statements and footnotes will be for its 10-K filing as of December 31, 2016. The Company does not anticipate that it will have a significant impact on its financial statements.

Debt Issuance Costs. In April 2015, The FASB issued ASU 2015–03, authoritative guidance on the presentation of debt issuance costs.  This guidance requires that debt issuance costs be presented within the balance sheet as a reduction of the carrying value of the debt liability, rather than as a separate asset.  This guidance is effective for annual reporting periods beginning after December 15, 2015 and related interim reporting periods.  Based upon this guidance, the Company has adjusted prior financial statements and footnotes to conform with this new presentation.

Consolidation. In February 2015, the FASB issued ASU 2015-02, authoritative guidance regarding consolidation of reporting entities.  The new guidance focuses on the required evaluation of whether certain legal entities should be consolidated.  This guidance is effective for annual and interim reporting periods beginning after December 15, 2015.  Based upon this guidance, the Company has determined that the separate segregated accounts associated with Mt. Logan Re, should not be consolidated. As a result, the Company has adjusted prior financial statements and footnotes to conform with this new consolidation presentation.

6


The following tables present certain financial statement line items as previously reported in 2015, the effect on those line items due to not consolidating the segregated accounts of Mt. Logan Re, in accordance with the newly adopted accounting policy and the line items as currently reported within the financial statements.


CONSOLIDATED BALANCE SHEET:
 
December 31, 2015
 
         
Effect of adoption
       
   
As previously
   
of new accounting
   
 
 
   
reported
   
policy
   
As adopted
 
(Dollars in thousands)
                 
ASSETS:
                 
Short-term investments
 
$
1,795,455
   
$
(995,771
)
 
$
799,684
 
Total investments and cash
   
17,672,176
     
(995,771
)
   
16,676,405
 
Premiums receivable
   
1,479,293
     
3,797
     
1,483,090
 
Reinsurance receivables
   
840,420
     
53,617
     
894,037
 
Deferred acquisition costs
   
373,072
     
(721
)
   
372,351
 
Prepaid reinsurance premiums
   
157,424
     
7,547
     
164,971
 
Other assets
   
265,634
     
56,184
     
321,818
 
TOTAL ASSETS
   
21,426,175
     
(875,347
)
   
20,550,828
 
                         
LIABILITIES:
                       
Funds held under reinsurance treaties
   
88,544
     
(75,000
)
   
13,544
 
Commission reserves
   
79,849
     
(19,751
)
   
60,098
 
Other net payable to reinsurers
   
166,822
     
6,265
     
173,087
 
Other liabilities
   
291,322
     
(30,000
)
   
261,322
 
Total liabilities
   
13,060,729
     
(118,486
)
   
12,942,243
 
                         
NONCONTROLLING INTERESTS:
                       
Redeemable noncontrolling interests - Mt. Logan Re
   
756,861
     
(756,861
)
   
-
 
                         
TOTAL LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY
   
21,426,175
     
(875,347
)
   
20,550,828
 



CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended June 30, 2015
   
Six Months Ended June 30, 2015
 
AND COMPREHENSIVE INCOME (LOSS):
       
Effect of
               
Effect of
       
         
adoption of
               
adoption of
       
   
As previously
   
new accounting
   
 
   
As previously
   
new accounting
   
 
 
   
reported
   
policy
   
As adopted
   
reported
   
policy
   
As adopted
 
(Dollars in thousands)
                                   
REVENUES:
                                   
Premiums earned
 
$
1,332,398
   
$
(47,143
)
 
$
1,285,255
   
$
2,639,475
   
$
(81,732
)
 
$
2,557,743
 
Net investment income
   
125,046
     
(56
)
   
124,990
     
247,629
     
(73
)
   
247,556
 
Other income (expense)
   
(3,925
)
   
1,861
     
(2,064
)
   
42,148
     
7,069
     
49,217
 
Total revenues
   
1,435,786
     
(45,338
)
   
1,390,448
     
2,900,772
     
(74,736
)
   
2,826,036
 
                                                 
CLAIMS AND EXPENSES:
                                               
Incurred losses and loss adjustment expenses
   
790,661
     
(12,477
)
   
778,184
     
1,513,126
     
(19,787
)
   
1,493,339
 
Commission, brokerage, taxes and fees
   
294,917
     
(4,397
)
   
290,520
     
582,084
     
(8,470
)
   
573,614
 
Other underwriting expenses
   
63,951
     
(2,049
)
   
61,902
     
124,615
     
(3,972
)
   
120,643
 
Total claims and expenses
   
1,164,480
     
(18,923
)
   
1,145,557
     
2,249,229
     
(32,229
)
   
2,217,000
 
                                                 
INCOME (LOSS) BEFORE TAXES
   
271,306
     
(26,415
)
   
244,891
     
651,543
     
(42,507
)
   
609,036
 
NET INCOME (LOSS)
   
235,472
     
(26,415
)
   
209,057
     
574,542
     
(42,507
)
   
532,035
 
                                                 
Net income (loss) attributable to noncontrolling interests
   
(26,415
)
   
26,415
     
-
     
(42,507
)
   
42,507
     
-
 
                                                 
NET INCOME (LOSS) ATTRIBUTABLE TO EVEREST RE GROUP
   
209,057
     
-
     
209,057
     
532,035
     
-
     
532,035
 


7



CONSOLIDATED STATEMENT OF CASH FLOWS:
 
Six Months Ended June 30, 2015
 
         
Effect of adoption
       
   
As previously
   
of new accounting
     
(Dollars in thousands)
 
reported
   
policy
   
As adopted
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net income (loss)
 
$
574,542
   
$
(42,507
)
 
$
532,035
 
Decrease (increase) in premiums receivable
   
(51,422
)
   
(5,427
)
   
(56,849
)
Decrease (increase) in funds held by reinsureds, net
   
68,245
     
(75,000
)
   
(6,755
)
Decrease (increase) in reinsurance receivables
   
(32,526
)
   
(16,659
)
   
(49,185
)
Decrease (increase) in prepaid reinsurance premiums
   
(28,916
)
   
(10,647
)
   
(39,563
)
Increase (decrease) in other net payable to reinsurers
   
23,867
     
(7,155
)
   
16,712
 
Change in other assets and liabilities, net
   
26,768
     
5,960
     
32,728
 
Net cash provided by (used in) operating activities
   
683,072
     
(151,435
)
   
531,637
 
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Net change in short-term investments
   
(199,226
)
   
407,105
     
207,879
 
Net cash provided by (used in) investing activities
   
(826,766
)
   
407,105
     
(419,661
)
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Third party investment in redeemable noncontrolling interest
   
296,848
     
(296,848
)
   
-
 
Dividends paid on third party investment in redeemable noncontrolling interest
   
(41,178
)
   
41,178
     
-
 
Net cash provided by (used in) financing activities
   
51,950
     
(255,670
)
   
(203,720
)


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 June 30, 2016
 
   
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
 
$
838,823
   
$
35,865
   
$
(161
)
 
$
874,527
   
$
-
 
Obligations of U.S. states and political subdivisions
   
701,171
     
49,219
     
(478
)
   
749,912
     
-
 
Corporate securities
   
4,833,072
     
173,613
     
(31,470
)
   
4,975,215
     
6,724
 
Asset-backed securities
   
501,999
     
5,045
     
(860
)
   
506,184
     
-
 
Mortgage-backed securities
                                       
Commercial
   
277,921
     
8,108
     
(2,069
)
   
283,960
     
-
 
Agency residential
   
2,480,550
     
50,009
     
(1,653
)
   
2,528,906
     
-
 
Non-agency residential
   
776
     
45
     
(46
)
   
775
     
-
 
Foreign government securities
   
1,331,323
     
75,287
     
(39,457
)
   
1,367,153
     
108
 
Foreign corporate securities
   
2,665,628
     
149,438
     
(42,733
)
   
2,772,333
     
3,592
 
Total fixed maturity securities
 
$
13,631,263
   
$
546,629
   
$
(118,927
)
 
$
14,058,965
   
$
10,424
 
Equity securities
 
$
124,699
   
$
4,477
   
$
(10,436
)
 
$
118,740
   
$
-
 


8



   
At December 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
 
$
805,273
   
$
13,465
   
$
(1,861
)
 
$
816,877
   
$
-
 
Obligations of U.S. states and political subdivisions
   
669,945
     
34,020
     
(890
)
   
703,075
     
-
 
Corporate securities
   
4,817,014
     
97,159
     
(109,310
)
   
4,804,863
     
1,412
 
Asset-backed securities
   
470,320
     
719
     
(3,813
)
   
467,226
     
-
 
Mortgage-backed securities
                                       
Commercial
   
264,924
     
4,750
     
(3,375
)
   
266,299
     
-
 
Agency residential
   
2,313,265
     
25,318
     
(18,059
)
   
2,320,524
     
-
 
Non-agency residential
   
893
     
51
     
(46
)
   
898
     
-
 
Foreign government securities
   
1,256,983
     
54,403
     
(52,205
)
   
1,259,181
     
53
 
Foreign corporate securities
   
2,677,589
     
107,163
     
(66,401
)
   
2,718,351
     
36
 
Total fixed maturity securities
 
$
13,276,206
   
$
337,048
   
$
(255,960
)
 
$
13,357,294
   
$
1,501
 
Equity securities
 
$
122,271
   
$
3,401
   
$
(16,732
)
 
$
108,940
   
$
-
 
 
(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 June 30, 2016
   
At December 31, 2015
 
   
Amortized
   
Market
   
Amortized
   
Market
 
(Dollars in thousands)
 
Cost
   
Value
   
Cost
   
Value
 
Fixed maturity securities – available for sale:
                       
    Due in one year or less
 
$
1,038,566
   
$
1,055,335
   
$
1,021,200
   
$
1,036,016
 
    Due after one year through five years
   
6,537,730
     
6,716,423
     
6,193,426
     
6,220,563
 
    Due after five years through ten years
   
1,880,481
     
1,956,278
     
2,217,075
     
2,203,932
 
    Due after ten years
   
913,240
     
1,011,104
     
795,103
     
841,836
 
Asset-backed securities
   
501,999
     
506,184
     
470,320
     
467,226
 
Mortgage-backed securities:
                               
Commercial
   
277,921
     
283,960
     
264,924
     
266,299
 
Agency residential
   
2,480,550
     
2,528,906
     
2,313,265
     
2,320,524
 
Non-agency residential
   
776
     
775
     
893
     
898
 
Total fixed maturity securities
 
$
13,631,263
   
$
14,058,965
   
$
13,276,206
   
$
13,357,294
 


9


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)
 
2016
   
2015
   
2016
   
2015
 
Increase (decrease) during the period between the market value and cost
                       
of investments carried at market value, and deferred taxes thereon:
                       
Fixed maturity securities
 
$
137,383
   
$
(144,172
)
 
$
337,691
   
$
(17,910
)
Fixed maturity securities, other-than-temporary impairment
   
8,714
     
(477
)
   
8,924
     
9,207
 
Equity securities
   
3,005
     
(430
)
   
7,371
     
(1,880
)
Change in unrealized appreciation (depreciation), pre-tax
   
149,102
     
(145,079
)
   
353,986
     
(10,583
)
Deferred tax benefit (expense)
   
(23,938
)
   
21,344
     
(53,410
)
   
(4,356
)
Deferred tax benefit (expense), other-than-temporary impairment
   
(2,256
)
   
1
     
(2,325
)
   
(3,407
)
Change in unrealized appreciation (depreciation),
                               
net of deferred taxes, included in shareholders' equity
 
$
122,908
   
$
(123,734
)
 
$
298,251
   
$
(18,346
)


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.
 
10


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, 2016 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
 
$
7,851
   
$
(161
)
 
$
-
   
$
-
   
$
7,851
   
$
(161
)
Obligations of U.S. states and political subdivisions
   
-
     
-
     
562
     
(478
)
   
562
     
(478
)
Corporate securities
   
361,829
     
(7,778
)
   
403,815
     
(23,692
)
   
765,644
     
(31,470
)
Asset-backed securities
   
23,269
     
(76
)
   
64,821
     
(784
)
   
88,090
     
(860
)
Mortgage-backed securities
                                               
Commercial
   
19,532
     
(1,727
)
   
5,823
     
(342
)
   
25,355
     
(2,069
)
Agency residential
   
101,296
     
(467
)
   
203,950
     
(1,186
)
   
305,246
     
(1,653
)
Non-agency residential
   
-
     
-
     
146
     
(46
)
   
146
     
(46
)
Foreign government securities
   
128,397
     
(11,750
)
   
210,746
     
(27,707
)
   
339,143
     
(39,457
)
Foreign corporate securities
   
194,137
     
(10,879
)
   
296,452
     
(31,854
)
   
490,589
     
(42,733
)
Total fixed maturity securities
 
$
836,311
   
$
(32,838
)
 
$
1,186,315
   
$
(86,089
)
 
$
2,022,626
   
$
(118,927
)
Equity securities
   
-
     
-
     
100,535
     
(10,436
)
   
100,535
     
(10,436
)
Total
 
$
836,311
   
$
(32,838
)
 
$
1,286,850
   
$
(96,525
)
 
$
2,123,161
   
$
(129,363
)



   
Duration of Unrealized Loss at June 30, 2016 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
 
$
25,648
   
$
(1,137
)
 
$
95,994
   
$
(14,183
)
 
$
121,642
   
$
(15,320
)
Due in one year through five years
   
420,466
     
(21,372
)
   
604,273
     
(55,248
)
   
1,024,739
     
(76,620
)
Due in five years through ten years
   
233,230
     
(7,378
)
   
190,057
     
(12,431
)
   
423,287
     
(19,809
)
Due after ten years
   
12,870
     
(681
)
   
21,251
     
(1,869
)
   
34,121
     
(2,550
)
Asset-backed securities
   
23,269
     
(76
)
   
64,821
     
(784
)
   
88,090
     
(860
)
Mortgage-backed securities
   
120,828
     
(2,194
)
   
209,919
     
(1,574
)
   
330,747
     
(3,768
)
Total fixed maturity securities
 
$
836,311
   
$
(32,838
)
 
$
1,186,315
   
$
(86,089
)
 
$
2,022,626
   
$
(118,927
)


The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at June 30, 2016 were $2,123,161 thousand and $129,363 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at June 30, 2016, 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 $32,838 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 government securities, foreign corporate securities and domestic corporate securities.  The majority of these unrealized losses are attributable to net unrealized foreign exchange losses, $31,679 thousand, as the U.S. dollar has strengthened against other currencies. The $86,089 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to foreign corporate securities, foreign government securities and domestic corporate securities.  The majority of these unrealized losses are attributable to net unrealized foreign exchange losses, $74,394 thousand, as the U.S. dollar has strengthened against other currencies.  There was no gross unrealized depreciation for mortgage-backed securities 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.
11


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.

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 December 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
 
$
539,177
   
$
(1,855
)
 
$
692
   
$
(6
)
 
$
539,869
   
$
(1,861
)
Obligations of U.S. states and political subdivisions
   
6,434
     
(84
)
   
4,917
     
(806
)
   
11,351
     
(890
)
Corporate securities
   
1,818,331
     
(74,161
)
   
440,682
     
(35,149
)
   
2,259,013
     
(109,310
)
Asset-backed securities
   
348,545
     
(2,510
)
   
67,230
     
(1,303
)
   
415,775
     
(3,813
)
Mortgage-backed securities
                                               
Commercial
   
145,490
     
(3,375
)
   
-
     
-
     
145,490
     
(3,375
)
Agency residential
   
1,021,390
     
(10,014
)
   
326,449
     
(8,045
)
   
1,347,839
     
(18,059
)
Non-agency residential
   
152
     
(2
)
   
38
     
(44
)
   
190
     
(46
)
Foreign government securities
   
227,384
     
(21,996
)
   
216,428
     
(30,209
)
   
443,812
     
(52,205
)
Foreign corporate securities
   
821,548
     
(25,627
)
   
295,389
     
(40,774
)
   
1,116,937
     
(66,401
)
Total fixed maturity securities
 
$
4,928,451
   
$
(139,624
)
 
$
1,351,825
   
$
(116,336
)
 
$
6,280,276
   
$
(255,960
)
Equity securities
   
-
     
-
     
91,907
     
(16,732
)
   
91,907
     
(16,732
)
Total
 
$
4,928,451
   
$
(139,624
)
 
$
1,443,732
   
$
(133,068
)
 
$
6,372,183
   
$
(272,692
)



   
Duration of Unrealized Loss at December 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
 
$
29,737
   
$
(1,840
)
 
$
74,615
   
$
(13,440
)
 
$
104,352
   
$
(15,280
)
Due in one year through five years
   
2,328,805
     
(62,329
)
   
651,228
     
(59,993
)
   
2,980,033
     
(122,322
)
Due in five years through ten years
   
969,139
     
(52,725
)
   
206,538
     
(28,018
)
   
1,175,677
     
(80,743
)
Due after ten years
   
85,193
     
(6,829
)
   
25,727
     
(5,493
)
   
110,920
     
(12,322
)
Asset-backed securities
   
348,545
     
(2,510
)
   
67,230
     
(1,303
)
   
415,775
     
(3,813
)
Mortgage-backed securities
   
1,167,032
     
(13,391
)
   
326,487
     
(8,089
)
   
1,493,519
     
(21,480
)
Total fixed maturity securities
 
$
4,928,451
   
$
(139,624
)
 
$
1,351,825
   
$
(116,336
)
 
$
6,280,276
   
$
(255,960
)


The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2015 were $6,372,183 thousand and $272,692 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2015, did not exceed 0.7% 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 $139,624 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.  The majority of these unrealized losses are attributable to unrealized losses in the energy sector, $46,793 thousand, as falling oil prices have disrupted the market values for this sector, particularly for oil exploration, production and servicing companies and net unrealized foreign exchange losses, $39,037 thousand, as the U.S. dollar has strengthened against other currencies.  The $116,336 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
12

 
government securities and agency residential mortgage-backed securities.  The majority of these unrealized losses are attributable to net unrealized foreign exchange losses, $72,738 thousand, as the U.S. dollar has strengthened against other currencies and to unrealized losses in the energy sector, $18,447 thousand, as falling oil prices have disrupted the market values for this sector, particularly for oil exploration as well as production and servicing companies.  There was no gross unrealized depreciation for mortgage-backed securities 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,
   
June 30,
 
(Dollars in thousands)
 
2016
   
2015
   
2016
   
2015
 
Fixed maturities
 
$
102,851
   
$
109,481
   
$
205,376
   
$
218,836
 
Equity securities
   
10,923
     
13,015
     
22,062
     
24,693
 
Short-term investments and cash
   
345
     
400
     
745
     
630
 
Other invested assets
                               
Limited partnerships
   
23,003
     
6,655
     
16,845
     
13,623
 
Other
   
1,151
     
983
     
301
     
1,608
 
Gross investment income before adjustments
   
138,273
     
130,534
     
245,329
     
259,390
 
Funds held interest income (expense)
   
1,740
     
2,717
     
4,280
     
5,593
 
Future policy benefit reserve income (expense)
   
(425
)
   
(709
)
   
(726
)
   
(1,102
)
Gross investment income
   
139,588
     
132,542
     
248,883
     
263,881
 
Investment expenses
   
(6,851
)
   
(7,552
)
   
(13,622
)
   
(16,325
)
Net investment income
 
$
132,737
   
$
124,990
   
$
235,261
   
$
247,556
 


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 $471,801 thousand in limited partnerships at June 30, 2016.  These commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2020.

13


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


   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
(Dollars in thousands)
 
2016
   
2015
   
2016
   
2015
 
Fixed maturity securities, market value:
                       
Other-than-temporary impairments
 
$
(1,470
)
 
$
(16,238
)
 
$
(30,263
)
 
$
(42,256
)
Gains (losses) from sales
   
3,329
     
(2,570
)
   
(13,582
)
   
(10,594
)
Fixed maturity securities, fair value:
                               
Gains (losses) from sales
   
(1,854
)
   
14
     
(1,854
)
   
42
 
Gains (losses) from fair value adjustments
   
1,571
     
(6
)
   
1,339
     
56
 
Equity securities, market value:
                               
Gains (losses) from sales
   
8
     
(901
)
   
65
     
(882
)
Equity securities, fair value:
                               
Gains (losses) from sales
   
(7,690
)
   
755
     
(16,116
)
   
605
 
Gains (losses) from fair value adjustments
   
38,764
     
(5,232
)
   
18,809
     
18,346
 
Short-term investments gain (loss)
   
-
     
-
     
1
     
-
 
Total net realized capital gains (losses)
 
$
32,658
   
$
(24,178
)
 
$
(41,601
)
 
$
(34,683
)


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
   
Six Months Ended
 
   
June 30,
   
June 30,
 
(Dollars in thousands)
 
2016
   
2015
   
2016
   
2015
 
Proceeds from sales of fixed maturity securities
 
$
272,233
   
$
376,238
   
$
596,351<