Everest Group - 10-Q quarterly report FY2020 Q3

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

_X_

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended

September 30, 2020

___

Transition Report Pursuant to

Section 13 or 15(d) of the Securities Exchange Act of 1934

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

Indicate by check mark whether

the registrant has submitted

electronically every Interactive

Data File required to

be submitted 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

such

files).

Yes

Indicate by check mark

whether the registrant

is a large accelerated

filer, an

accelerated filer,

a non-accelerated filer,

a smaller reporting

company or

an emerging

growth company.

See the

definitions of

“large accelerated

filer,”

“accelerated filer,”

“smaller reporting

company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Indicate by

check mark if

the registrant

is an emerging

growth company

and has elected

not to use

the extended transition

period for

complying with any new or revised financial accounting standards provided

pursuant to Section 13(a) of the Exchange act.

YES

Indicate by check mark whether the registrant is a shell company

(as defined in Rule 12b-2 of the Exchange Act).

YES

Securities registered pursuant to Section 12(b) of the Act:

Class

Trading Symbol

Name of Exchange where Registered

Number of Shares Outstanding

At November 1, 2020

Common Shares, $0.01 par value

New York Stock Exchange

39,965,673

EVEREST RE GROUP,

LTD

Table of Contents

Form 10-Q

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets September 30, 2020 (unaudited)

and December 31, 2019

Consolidated Statements of Operations and Comprehensive Income (Loss) for the

three and nine months ended September 30, 2020 and 2019 (unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the nine

months ended September 30, 2020 and 2019 (unaudited)

Consolidated Statements of Cash Flows for the nine months ended

September 30, 2020 and 2019 (unaudited)

Notes to Consolidated Interim Financial Statements (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and

Results of Operation

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

EVEREST RE GROUP,

LTD.

CONSOLIDATED BALANCE SHEETS

September 30,

December 31,

(Dollars and share amounts in thousands, except par value per share)

2020

2019

(unaudited)

ASSETS:

Fixed maturities - available for sale, at

market value

17,856,377

16,824,944

(amortized cost: 2020, $

17,131,414

; 2019, $

16,473,491

, credit allowances: 2020,

19,641

; 2019, $

)

Fixed maturities - available for sale, at

fair value

3,748

5,826

Equity securities, at fair value

1,173,162

931,457

Short-term investments (cost:

2020, $

1,221,198

; 2019, $

414,639

)

1,220,753

414,706

Other invested assets (cost: 2020, $

1,911,757

; 2019, $

1,763,531

)

1,911,757

1,763,531

Cash

938,881

808,036

Total investments

and cash

23,104,678

20,748,500

Accrued investment income

132,513

116,804

Premiums receivable

2,611,036

2,259,088

Reinsurance receivables

1,923,012

1,763,471

Funds held by reinsureds

548,940

489,901

Deferred acquisition costs

601,784

581,863

Prepaid reinsurance premiums

455,961

445,716

Income taxes

77,761

305,711

Other assets

697,342

612,997

TOTAL

ASSETS

30,153,027

27,324,051

LIABILITIES:

Reserve for losses and loss adjustment expenses

15,233,125

13,611,313

Future policy benefit reserve

40,374

42,592

Unearned premium reserve

3,447,455

3,056,735

Funds held under reinsurance treaties

15,931

10,668

Other net payable to reinsurers

364,654

291,660

Losses in course of payment

184,894

51,950

Senior notes due

6/1/2044

397,164

397,074

Long term notes due

5/1/2067

223,649

236,758

Advances from FHLB

90,000

Accrued interest on debt and borrowings

7,215

2,878

Equity index put option liability

6,632

5,584

Unsettled securities payable

119,869

30,650

Other liabilities

430,773

453,264

Total liabilities

20,561,735

18,191,126

Commitments and contingencies (Note 8)

(nil)

SHAREHOLDERS' EQUITY:

Preferred shares, par value: $

0.01

;

50,000

shares authorized;

shares issued and outstanding

Common shares, par value: $

0.01

;

200,000

shares authorized; (2020)

69,603

and (2019)

69,464

outstanding before treasury shares

696

694

Additional paid-in capital

2,235,378

2,219,660

Accumulated other comprehensive income (loss), net of deferred

income

tax expense (benefit) of $

74,481

at 2020 and $

30,996

at 2019

411,598

28,152

Treasury shares, at cost;

29,636

shares (2020) and

28,665

shares (2019)

(3,622,172)

(3,422,152)

Retained earnings

10,565,792

10,306,571

Total shareholders'

equity

9,591,292

9,132,925

TOTAL

LIABILITIES AND SHAREHOLDERS' EQUITY

30,153,027

27,324,051

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

EVEREST RE GROUP,

LTD.

CONSOLIDATED STATEMENTS

OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands, except per share amounts)

2020

2019

2020

2019

(unaudited)

REVENUES:

Premiums earned

2,205,811

1,905,619

6,285,030

5,455,615

Net investment income

234,233

181,058

420,116

501,062

Net realized capital gains (losses):

Credit allowances on fixed maturity securities

6,196

(19,641)

Other-than-temporary impairments on fixed maturity securities

(7,314)

(15,404)

Other net realized capital gains (losses)

104,007

(5,629)

103,904

124,965

Total net realized capital gains

(losses)

110,203

(12,943)

84,263

109,561

Net derivative gain (loss)

2,456

(189)

(1,048)

3,395

Other income (expense)

57,481

(31,025)

48,354

(52,550)

Total revenues

2,610,184

2,042,520

6,836,715

6,017,083

CLAIMS AND EXPENSES:

Incurred losses and loss adjustment expenses

1,736,210

1,371,924

4,574,066

3,515,104

Commission, brokerage, taxes and fees

445,332

443,076

1,360,170

1,253,500

Other underwriting expenses

138,875

118,158

385,865

321,976

Corporate expenses

10,618

8,435

29,184

22,622

Interest, fees and bond issue cost amortization expense

6,641

7,907

21,477

23,972

Total claims and expenses

2,337,676

1,949,500

6,370,762

5,137,174

INCOME (LOSS) BEFORE TAXES

272,508

93,020

465,953

879,909

Income tax expense (benefit)

29,451

(11,378)

15,404

88,092

NET INCOME (LOSS)

243,057

104,398

450,549

791,817

Other comprehensive income (loss), net of tax:

Unrealized appreciation (depreciation) ("URA(D)") on securities arising during

the period

63,480

93,765

335,835

524,589

Reclassification adjustment for realized losses (gains) included in net income

(loss)

(11,453)

(529)

12,689

(4,220)

Total

URA(D) on securities arising during the period

52,027

93,236

348,524

520,369

Foreign currency translation adjustments

60,628

(3,426)

30,390

(15,206)

Reclassification adjustment for amortization of net (gain) loss included in net

income (loss)

1,806

1,363

4,532

3,665

Total benefit plan net gain (loss) for the period

1,806

1,363

4,532

3,665

Total other comprehensive income (loss), net of tax

114,461

91,173

383,446

508,828

COMPREHENSIVE INCOME (LOSS)

357,518

195,571

833,995

1,300,645

EARNINGS PER COMMON SHARE:

Basic

6.08

2.56

11.20

19.44

Diluted

6.07

2.56

11.18

19.38

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

EVEREST RE GROUP,

LTD.

CONSOLIDATED STATEMENTS

CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands, except share and dividends per share amounts)

2020

2019

(unaudited)

COMMON SHARES (shares outstanding):

Balance, January 1

40,798,963

40,651,148

Issued during the period, net

159,423

194,584

Treasury shares acquired

(970,892)

(75,193)

Balance, March 31

39,987,494

40,770,539

Issued during the period, net

(15,849)

9,403

Treasury shares acquired

(39,440)

Balance, June 30

39,971,645

40,740,502

Issued during the period, net

(5,129)

39,967

Treasury shares acquired

Balance, September 30

39,966,516

40,780,469

COMMON SHARES (par value):

Balance, January 1

694

692

Issued during the period, net

Balance, March 31

696

694

Issued during the period, net

Balance, June 30

696

694

Issued during the period, net

Balance, September 30

696

694

ADDITIONAL PAID-IN CAPITAL:

Balance, January 1

2,219,660

2,188,777

Share-based compensation plans

(3,181)

767

Balance, March 31

2,216,479

2,189,544

Share-based compensation plans

9,514

8,917

Balance, June 30

2,225,993

2,198,461

Share-based compensation plans

9,385

7,865

Balance, September 30

2,235,378

2,206,326

ACCUMULATED OTHER COMPREHENSIVE INCOME

(LOSS),

NET OF DEFERRED INCOME TAXES:

Balance, January 1

28,152

(462,557)

Net increase (decrease) during the period

(297,903)

246,446

Balance, March 31

(269,751)

(216,111)

Net increase (decrease) during the period

566,888

171,209

Balance, June 30

297,137

(44,902)

Net increase (decrease) during the period

114,461

91,174

Balance, September 30

411,598

46,272

RETAINED EARNINGS:

Balance, January 1

10,306,571

9,531,433

Change to beginning balance due to adoption of Accounting Standards Update 2016-13

(4,214)

Net income (loss)

16,612

354,551

Dividends declared ($

1.55

per share 2020 and

1.40

per share 2019)

(63,277)

(57,137)

Balance, March 31

10,255,692

9,828,847

Net income (loss)

190,880

332,868

Dividends declared ($

1.55

per share 2020 and

1.40

per share 2019)

(61,927)

(56,999)

Balance, June 30

10,384,645

10,104,716

Net income (loss)

243,057

104,398

Dividends declared ($

1.55

per share 2020 and

1.40

per share 2019)

(61,910)

(56,995)

Balance, September 30

10,565,792

10,152,118

TREASURY SHARES AT COST:

Balance, January 1

(3,422,152)

(3,397,548)

Purchase of treasury shares

(200,020)

(16,153)

Balance, March 31

(3,622,172)

(3,413,701)

Purchase of treasury shares

(8,451)

Balance, June 30

(3,622,172)

(3,422,152)

Purchase of treasury shares

Balance, September 30

(3,622,172)

(3,422,152)

TOTAL

SHAREHOLDERS' EQUITY,

September 30

9,591,292

8,983,258

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

EVEREST RE GROUP,

LTD.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

450,549

791,817

Adjustments to reconcile net income to net cash provided by operating activities:

Decrease (increase) in premiums receivable

(357,162)

(219,637)

Decrease (increase) in funds held by reinsureds, net

(53,878)

(17,961)

Decrease (increase) in reinsurance receivables

(172,454)

(42,891)

Decrease (increase) in income taxes

184,311

168,360

Decrease (increase) in prepaid reinsurance premiums

(7,963)

(145,846)

Increase (decrease) in reserve for losses and loss adjustment expenses

1,665,982

553,668

Increase (decrease) in future policy benefit reserve

(2,218)

(2,502)

Increase (decrease) in unearned premiums

392,904

388,597

Increase (decrease) in other net payable to reinsurers

68,784

160,306

Increase (decrease) in losses in course of payment

132,208

(6,438)

Change in equity adjustments in limited partnerships

(12,475)

(104,987)

Distribution of limited partnership income

55,576

62,359

Change in other assets and liabilities, net

(131,224)

(37,449)

Non-cash compensation expense

29,337

25,386

Amortization of bond premium (accrual of bond discount)

32,594

23,642

Net realized capital (gains) losses

(84,263)

(109,561)

Net cash provided by (used in) operating activities

2,190,608

1,486,863

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from fixed maturities matured/called - available for sale, at market value

1,781,821

1,631,298

Proceeds from fixed maturities sold - available for sale, at market value

1,390,747

2,589,232

Proceeds from fixed maturities sold - available for sale, at fair value

2,054

2,706

Proceeds from equity securities sold, at fair value

329,750

185,157

Distributions from other invested assets

210,527

215,800

Cost of fixed maturities acquired - available for sale, at market value

(3,874,890)

(5,039,728)

Cost of equity securities acquired, at fair value

(460,953)

(269,969)

Cost of other invested assets acquired

(392,650)

(299,480)

Net change in short-term investments

(804,744)

(213,048)

Net change in unsettled securities transactions

89,064

(13,770)

Net cash provided by (used in) investing activities

(1,729,274)

(1,211,802)

CASH FLOWS FROM FINANCING ACTIVITIES:

Common shares issued during the period for share-based compensation, net of expense

(13,617)

(7,836)

Purchase of treasury shares

(200,020)

(24,604)

Dividends paid to shareholders

(187,110)

(171,131)

Cost of debt repurchase

(10,647)

FHLB advances (repayments)

90,000

Cost of shares withheld on settlements of share-based compensation awards

(15,298)

(12,473)

Net cash provided by (used in) financing activities

(336,691)

(216,044)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

6,203

2,060

Net increase (decrease) in cash

130,845

61,077

Cash, beginning of period

808,036

656,095

Cash, end of period

938,881

717,172

SUPPLEMENTAL CASH FLOW INFORMATION:

Income taxes paid (recovered)

(169,149)

(80,544)

Interest paid

16,731

19,078

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

NOTES TO CONSOLIDATED

INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

For the Three and Nine Months Ended September 30, 2020 and 2019

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.

BASIS OF PRESENTATION

The unaudited interim

consolidated financial statements

of the Company

as of September 30,

2020 and

December 31, 2019 and for the three

and nine months ended September 30, 2020 and 2019 include

all

adjustments, consisting of

normal recurring accruals,

which, in the

opinion of management,

are necessary for

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, 2019 consolidated balance sheet data was derived from

audited financial statements but does not

include all disclosures required

by GAAP.

The results for

the three and nine

months ended September 30,

2020

and 2019 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, 2019, 2018 and 2017 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 circumstance

surrounding each entity.

The preparation of

financial statements

in conformity with

GAAP requires management

to make estimates

and

assumptions that affect

the reported amounts

of assets and

liabilities (and disclosure

of contingent

assets and

liabilities) at the date of the financial statements and the reported amounts of

revenues and expenses during the

reporting period.

Ultimate actual results

could differ,

possibly materially,

from those estimates.

This is

particularly true given the

fluid and continuing

nature of the

COVID-19 pandemic.

This is an ongoing

event and

so is the

Company’s evaluation

and analysis.

While the Company’s

analysis considers all

aspects of its

operations, it

does not

take into

account legal,

regulatory or

legislative intervention

that could

retroactively

mandate or

expand coverage

provisions. Given

the uncertainties

in the

current public

health and

economic

environment, there could be an adverse impact on

results for the Property & Casualty industry and the Company

for the remainder of the year.

The impact is dependent on the shape and length of the economic recovery.

With recent

changes in

executive management

and organizational

structure, the

Company manages

its

reinsurance and insurance

operations as autonomous

units and key

strategic decisions are

based on the

aggregate operating

results and

projections for

these segments

of business.

Accordingly, effective

January 1,

2020, the

Company revised

it reporting

segments to

Reinsurance Operations

and Insurance

Operations.

This

replaces the

previous reported

segments of

U.S. Reinsurance,

International (reinsurance),

Bermuda

(reinsurance) and Insurance.

The prior year presented segment information

has been reformatted to

reflect this

change.

All intercompany accounts and transactions have been eliminated.

Certain reclassifications

and format

changes have

been made to

prior years’

amounts to

conform to

the 2020

presentation.

Application of Recently Issued Accounting Standard Changes.

Modernization of Regulation

S-K Disclosures.

In August 2020,

the Securities and

Exchange Commission

(“SEC”)

issued Final

Rule Release

#33-10825 which

addresses the

modernization of

the disclosure

requirements for

business, legal

proceeding and

risk factor

disclosures in

Regulation S-K

filings.

Rule #33-10825

will become

effective for

all financial

reports filed

after November

9, 2020

(30 days

after its

publication in

the Federal

be adopted by

the Company in

the fourth quarter

of 2020 for

implementation within its

2020

10-K filings.

Accounting for Income Taxes

In December 2019, The Financial Accounting Standards Board

(“FASB”) issued ASU

2019-12, which

provides simplification

of existing

guidance for

income taxes,

including the removal

of certain

exceptions related

to recognition of

deferred tax

liabilities on foreign

subsidiaries. The guidance

is effective

for

annual reporting

periods beginning after

December 15, 2020

and interim periods

within that

annual reporting

period. The Company is

currently evaluating the

impact of the adoption

of ASU 2019-12 on

its financial

statements.

Simplification of

Disclosure Requirements.

In August

2018, the

SEC issued

Final Rule

Release #33-10532

(“the

Rule”) which addresses the simplification

of the SEC’s disclosure

requirements for quarterly

and annual financial

reports.

The main changes

addressed by the

Rule that are

applicable to the

Company are 1)

elimination of the

requirement to disclose dividend per share information

on the face of the Statements of Operations

and

Comprehensive Income (Loss) and 2) a new requirement to disclose

changes in equity by line item with subtotals

for each

interim reporting

period on

the Statements

of Changes

in Shareholders’

Equity. The

Rule became

effective for

all financial

reports filed

after November

5, 2018

(30 days

after its

publication in

the Federal

for the

additional requirement

for the

Statements of

Changes in

Shareholders’ Equity

which

was to be implemented for

first quarter 2019 reporting. The

Company has adopted the portions of

the Rule that

became effective November 5, 2018.

The portion of the Rule related to the new requirement for the Statements

of Changes in Shareholders’ Equity was adopted by the Company in the first quarter of 2019.

Accounting for Cloud Computing Arrangement.

In August 2018, FASB

issued ASU 2018-15, which outlines

accounting for implementation costs

of a cloud computing arrangement that

is a service contract.

This guidance

requires that implementation costs

of a cloud computing arrangement that is

a service contract must be

capitalized and

expensed in

accordance with

the existing

provisions provided

in Subtopic

350-40 regarding

development of

internal use

software. In

addition, any

capitalized implementation

costs should

be amortized

over the term of the hosting arrangement.

The guidance is effective for annual reporting periods beginning after

December 15, 2019 and interim periods within that annual reporting period. The Company adopted the guidance

as of January

1, 2020. The

adoption of ASU

2018-15 did not

have a material

impact on the

Company’s financial

statements.

Accounting for Long

Duration Contracts.

In August 2018,

FASB issued

ASU 2018-12, which

discusses changes to

the recognition, measurement and presentation of long duration contracts.

The main provisions of this guidance

address the

following:

1) In

determining liability

for future

policy benefits,

companies must

review cash

flow

assumptions at least annually and the discount

rate assumption at each reporting

period date 2) Amortization of

deferred acquisition

costs has

been simplified

to be

in constant

level proportion

to either

premiums, gross

profits or

gross margins

3) Disaggregated

roll forwards

of beginning

and ending

liabilities for

future policy

benefits are required.

The guidance was

originally effective

for annual reporting

periods beginning after

December 15, 2020 and interim periods within that

annual reporting period. However,

FASB issued ASU 2019-09

in November 2019 which defers the

effective date of ASU 2018-12

until annual reporting periods beginning after

December 15,

2021. The

Company is

currently evaluating

the impact

of the

adoption of

ASU 2018-12

on its

financial statements.

Accounting for Impact

on Income Taxes

due to Tax

Reform.

In December 2017, the

SEC issued Staff

Accounting

Bulletin (“SAB”)

118 which

provides guidance

on the

application of

FASB Accounting

Standards Codification

(“ASC”) Topic

740, Income Taxes,

due to the

enactment of TCJA.

SAB 118 became

effective upon

release.

The

Company has adopted the

provisions of SAB 118

with respect to measuring

the tax effects

for the modifications

to the determination

of tax basis

loss reserves.

In 2018, the

Company recorded

adjustments to the

amount of

tax expense

it recorded

in 2017 with

respect to

the TCJA

as estimated

amounts were

finalized, which

did not

have a material impact on the Company’s financial statements.

Amortization of

Bond Premium.

In March

2017, FASB

issued ASU

2017-08 which

outlines guidance

on the

amortization period for

premium on callable

debt securities.

The new guidance

requires that

the premium on

callable debt securities be

amortized through the

earliest call date

rather than through

the maturity date

of the

callable security.

The guidance is

effective for

annual and interim

reporting periods beginning

after December

15, 2018.

The Company adopted

the guidance effective

January 1, 2019.

The adoption of

ASU 2017-08 did

not

have a material impact on the Company’s financial statements.

Valuation of Financial Instruments.

In June 2016, FASB issued ASU 2016-13 (and has

subsequently issued related

guidance and amendments in

ASU 2019-11 and ASU

2019-10 in November 2019)

which outline guidance on the

valuation of

and accounting

for assets

measured at

amortized cost

and available

for sale

debt securities.

The

new guidance

requires the

carrying value

of assets

measured at

amortized cost,

including reinsurance

and

premiums receivables

to be

presented as

the net

amount expected

to be

collected on

the financial

asset

(amortized cost

less an

allowance for

credit losses

valuation account).

The allowance

reflects expected

credit

losses of

the financial

asset which

considers available

information using

a combination

both historical

information, current

market conditions

and reasonable

and supportable

forecasts.

For available

-for-sale debt

securities, the

guidance modified

the previous

other than

temporary impairment

model, now

requiring an

allowance for estimated

credit related losses

rather than a

permanent impairment, which

will be limited

to the

amount by which

fair value is

below amortized cost.

The guidance is

effective for

annual and interim

reporting

periods beginning after December 15, 2019.

The Company adopted the guidance effective

January 1, 2020, on a

modified retrospective

basis.

The adoption resulted

in a cumulative

reduction of $

4,214

thousand in retained

earnings, net of tax, which is disclosed separately within the Consolidated Statements

of Shareholders’ Equity.

Leases

In February 2016, FASB

issued ASU 2016-02 (and

subsequently issued ASU 2018-11

in July,

2018) which

outline new guidance

on the accounting

for leases.

The new guidance

requires the recognition

of lease assets

and lease

liabilities on

the balance

sheets for

most leases

that were

previously deemed

operating leases

and

required only lease

expense presentation in

the statements of

operations.

The guidance is

effective for

annual

and interim reporting periods beginning after

December 15, 2018.

The Company adopted ASU 2016-02 effective

January 1, 2019 and elected to utilize a cumulative

-effect adjustment to the opening balance of retained

earnings for

the year

of adoption.

Accordingly, the

Company’s reporting

for the

comparative periods

prior to

adoption continue

to be

presented in

the financial

statements in

accordance with

previous lease

accounting

guidance.

The Company also elected

to apply the package

of practical expedients

applicable to the Company

the updated

guidance for

transition for

leases in effect

at adoption.

The Company

did not elect

the hindsight

practical expedient

to determine

the lease

term of

existing leases

(e.g. The

Company did

not re

-assess lease

renewals, termination

options nor purchase

options in determining

lease terms).

The adoption of

the updated

guidance resulted in

the Company recognizing

a right-of-use

asset of $

69,869

thousand as part

other assets

and a lease liability of

77,270

thousand as part of

other liabilities

in the consolidated balance

sheet at the time

of adoption,

as well

as de-recognizing

the liability

for deferred

rent that

was required

under the

guidance.

The cumulative effect adjustment to

the opening balance of retained earnings was

zero

. The adoption

of the updated guidance did not have a material effect on the Company’s

results of operations or liquidity.

Any issued

guidance and

pronouncements, other

than those

directly referenced

above, are

deemed by

the

Company to be either not applicable or immaterial to its financial statements.

INVESTMENTS

Effective January

1, 2020, the

Company adopted

ASU 2016-13 which

modified the previous

other than

temporary impairment model

for available

for sale fixed

maturity securities.

The guidance requires

the

Company to

record allowances

for credit

losses for

securities that are

deemed to have

valuation deterioration

due to

credit related

factors.

The initial table

below presents

the amortized

cost, allowance

for credit

losses,

gross unrealized

appreciation/(depreciation) and

market value

of fixed maturity

securities as of

September 30,

2020 in accordance with ASU 2016-13

guidance.

The second table presents the

amortized cost, gross unrealized

appreciation/(depreciation), market

value and

other-than-temporary impairments

(“OTTI”) in

AOCI as

December 31, 2019, in accordance with previously applicable guidance.

At September 30, 2020

Amortized

Allowance for

Unrealized

Market

(Dollars in thousands)

Cost

Credit Losses

Appreciation

Depreciation

Value

Fixed maturity securities

U.S. Treasury securities and obligations of

U.S. government agencies and corporations

1,387,482

67,544

(3,023)

1,452,003

Obligations of U.S. states and political subdivisions

514,787

30,939

(2,443)

543,283

Corporate securities

6,526,127

(17,474)

363,613

(66,917)

6,805,349

Asset-backed securities

1,326,918

23,191

(11,907)

1,338,202

Mortgage-backed securities

Commercial

892,998

78,298

(1,976)

969,320

Agency residential

2,044,837

76,284

(2,468)

2,118,653

Non-agency residential

2,559

(39)

2,520

Foreign government securities

1,476,092

(119)

86,015

(26,913)

1,535,075

Foreign corporate securities

2,959,614

(2,048)

165,297

(30,891)

3,091,972

Total fixed maturity securities

17,131,414

(19,641)

891,181

(146,577)

17,856,377

At December 31, 2019

Amortized

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

1,489,660

28,357

(2,214)

1,515,803

Obligations of U.S. states and political subdivisions

507,353

29,651

(89)

536,915

Corporate securities

6,227,661

185,052

(37,767)

6,374,946

469

Asset-backed securities

892,373

6,818

(1,858)

897,333

Mortgage-backed securities

Commercial

814,570

31,236

(1,249)

844,557

Agency residential

2,173,099

36,361

(10,879)

2,198,581

Non-agency residential

5,723

(20)

5,703

Foreign government securities

1,492,315

47,148

(33,513)

1,505,950

Foreign corporate securities

2,870,737

107,999

(33,580)

2,945,156

447

Total fixed maturity securities

16,473,491

472,622

(121,169)

16,824,944

987

(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 September 30, 2020

At December 31, 2019

Amortized

Market

Amortized

Market

(Dollars in thousands)

Cost

Value

Cost

Value

Fixed maturity securities – available for sale:

Due in one year or less

1,475,335

1,483,621

1,456,960

1,457,919

Due after one year through five years

6,408,491

6,624,753

6,757,107

6,869,359

Due after five years through ten years

3,878,019

4,186,765

3,471,370

3,609,816

Due after ten years

1,102,257

1,132,543

902,289

941,676

Asset-backed securities

1,326,918

1,338,202

892,373

897,333

Mortgage-backed securities:

Commercial

892,998

969,320

814,570

844,557

Agency residential

2,044,837

2,118,653

2,173,099

2,198,581

Non-agency residential

2,559

2,520

5,723

5,703

Total fixed

maturity securities

17,131,414

17,856,377

16,473,491

16,824,944

The changes in

net unrealized

appreciation (depreciation) for

the Company’s

investments are

derived from the

following sources for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Increase (decrease) during the period between the market value and cost

of investments carried at market value, and deferred

taxes thereon:

Fixed maturity securities

55,587

103,173

392,640

584,333

Fixed maturity securities, other-than-temporary impairment

(1,671)

Change in unrealized appreciation (depreciation), pre-tax

55,587

103,245

392,640

582,662

Deferred tax benefit (expense)

(3,560)

(9,984)

(44,116)

(62,415)

Deferred tax benefit (expense), other-than-temporary

impairment

(25)

122

Change in unrealized appreciation (depreciation),

net of deferred taxes, included in shareholders’

equity

52,027

93,236

348,524

520,369

The Company reviews all of

its fixed maturity,

available for sale securities whose

fair value has fallen

below their

amortized cost

at the time

of review.

The Company then

assesses whether the

decline in value

is due to

non-

credit related or credit related factors.

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 a credit

impairment, but rather a non-credit related

decline in market value.

Non-credit related declines in market

value

are recorded as unrealized

losses in accumulated other comprehensive income (loss).

If the Company intends to

sell the

security or

is more

likely than

not to

sell the

security, the

Company records

the entire

fair value

adjustment in

net realized

capital gains

(losses) in

the Company’s

consolidated statements

of operations

and

comprehensive income

(loss).

If the Company

determines that

the decline is

credit related

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 Company

establishes a credit allowance equal

to the estimated

credit loss

and is

recorded in

net realized

capital gains

(losses) in

the Company’s

consolidated statements

operations and comprehensive income

(loss).

The amount of the allowance for

a given security will generally be

the difference between a discounted

cash flow model and the Company’s

carrying value.

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. We will adjust

the credit allowance account

for future changes in

credit loss estimates for

a security and

record this

adjustment through

net realized

capital gains

(losses) in the

Company’s consolidated

statements of

operations and comprehensive income (loss).

The Company does

not create an

allowance for uncollectible

interest.

If interest is

not received when

due, the

interest receivable

is immediately

reversed and

no additional

interest is

accrued. If

future interest

is received

that has not been accrued, it is recorded as income at that time.

Prior to

the adoption

of ASU

2016-13 effective

January 1,

2020, estimated

credit losses

were recorded

adjustments to

the carrying

value of

the security

and any

subsequent improvement

in market

value were

recorded through other comprehensive income.

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

relevant information provided by rating

agencies, investment advisors and analysts.

Retrospective adjustments

are employed to

recalculate the values

of asset-backed

securities.

All of the

Company’s asset-backed

and mortgage-backed

securities have a

pass-through structure.

Each acquisition lot

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

securities, by

security type and

contractual maturity,

in each case

subdivided according

to length

of time that

individual securities had been in a continuous unrealized loss position for the periods indicated:

Duration of Unrealized Loss at September 30, 2020 By Security Type

Less than 12 months

Greater than 12 months

Total

Gross

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

69,055

(3,023)

69,055

(3,023)

Obligations of U.S. states and political subdivisions

50,368

(2,278)

4,943

(165)

55,311

(2,443)

Corporate securities

752,828

(24,799)

196,660

(42,118)

949,488

(66,917)

Asset-backed securities

328,216

(8,346)

163,014

(3,561)

491,230

(11,907)

Mortgage-backed securities

Commercial

77,850

(1,524)

6,634

(452)

84,484

(1,976)

Agency residential

248,155

(1,256)

65,145

(1,212)

313,300

(2,468)

Non-agency residential

213

(3)

2,308

(36)

2,521

(39)

Foreign government securities

83,267

(4,352)

176,739

(22,561)

260,006

(26,913)

Foreign corporate securities

399,841

(11,117)

193,809

(19,774)

593,650

(30,891)

Total fixed maturity securities

2,009,793

(56,698)

809,252

(89,879)

2,819,045

(146,577)

Duration of Unrealized Loss at September 30, 2020 By Maturity

Less than 12 months

Greater than 12 months

Total

Gross

Unrealized

(Dollars in thousands)

Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation

Fixed maturity securities

Due in one year or less

76,867

(2,652)

135,762

(21,608)

212,629

(24,260)

Due in one year through five years

675,450

(22,976)

304,410

(29,003)

979,860

(51,979)

Due in five years through ten years

377,219

(12,287)

69,424

(4,266)

446,643

(16,553)

Due after ten years

225,823

(7,654)

62,555

(29,741)

288,378

(37,395)

Asset-backed securities

328,216

(8,346)

163,014

(3,561)

491,230

(11,907)

Mortgage-backed securities

326,218

(2,783)

74,087

(1,700)

400,305

(4,483)

Total fixed maturity securities

2,009,793

(56,698)

809,252

(89,879)

2,819,045

(146,577)

The aggregate market

value and gross

unrealized losses related

to investments

in an unrealized

loss position at

September 30, 2020

were $

2,819,045

thousand and

146,577

thousand, respectively.

The market

value of

securities for the

single issuer whose securities

comprised the largest

unrealized loss position

at September 30,

2020, did not exceed

0.1

% of the overall market value

of the Company’s fixed maturity securities.

In addition, as

indicated on

the above

table, there

was no

significant concentration

of unrealized

losses in

any one

market

sector.

The $

56,698

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, asset-backed securities and

foreign government securities.

Of these unrealized losses, $

42,015

thousand were

related to

securities that

were rated

investment grade

by at

least one

nationally recognized

statistical rating

agency.

The $

89,879

thousand of

unrealized losses

related to

fixed maturity

securities in

unrealized loss

position for more

than one year

related primarily to

domestic and foreign

corporate securities,

foreign government

securities and asset-backed

securities.

Of these unrealized

losses, $

53,247

thousand were

related to

securities that

were rated

investment grade

by at

least one

nationally recognized

statistical rating

agency.

There was

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 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

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, 2019 By Security Type

Less than 12 months

Greater than 12 months

Total

Gross

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

85,527

(1,005)

249,371

(1,209)

334,898

(2,214)

Obligations of U.S. states and political subdivisions

4,600

(38)

5,522

(51)

10,122

(89)

Corporate securities

547,120

(9,877)

395,369

(27,890)

942,489

(37,767)

Asset-backed securities

176,222

(1,027)

94,190

(831)

270,412

(1,858)

Mortgage-backed securities

Commercial

83,127

(689)

23,063

(560)

106,190

(1,249)

Agency residential

344,267

(1,834)

488,680

(9,045)

832,947

(10,879)

Non-agency residential

332

3,976

(20)

4,308

(20)

Foreign government securities

210,766

(4,770)

283,648

(28,743)

494,414

(33,513)

Foreign corporate securities

278,403

(7,553)

365,808

(26,027)

644,211

(33,580)

Total fixed maturity securities

1,730,364

(26,793)

1,909,627

(94,376)

3,639,991

(121,169)

Duration of Unrealized Loss at December 31, 2019 By Maturity

Less than 12 months

Greater than 12 months

Total

Gross

Unrealized

(Dollars in thousands)

Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation

Fixed maturity securities

Due in one year or less

67,879

(1,237)

416,583

(23,004)

484,462

(24,241)

Due in one year through five years

464,753

(7,960)

689,195

(38,138)

1,153,948

(46,098)

Due in five years through ten years

495,741

(12,388)

103,612

(11,100)

599,353

(23,488)

Due after ten years

98,043

(1,658)

90,328

(11,678)

188,371

(13,336)

Asset-backed securities

176,222

(1,027)

94,190

(831)

270,412

(1,858)

Mortgage-backed securities

427,726

(2,523)

515,719

(9,625)

943,445

(12,148)

Total fixed maturity securities

1,730,364

(26,793)

1,909,627

(94,376)

3,639,991

(121,169)

The aggregate market

value and gross

unrealized losses related

to investments

in an unrealized

loss position at

December 31,

2019 were

3,639,991

thousand and

121,169

thousand, respectively.

The market

value of

securities for the

single issuer whose

securities comprised the

largest unrealized

loss position at

December 31,

2019, did not exceed

0.8

% 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 $

26,793

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 and

foreign government

securities.

Of these

unrealized losses,

23,104

thousand were

related to

securities that were

rated investment

grade by at

least one nationally

recognized statistical

rating agency.

The

94,376

thousand of unrealized losses related

to fixed maturity securities in

an unrealized loss position for

than one year related

primarily to domestic and

foreign corporate

securities, foreign government

securities and

agency residential

mortgage-backed securities.

Of these

unrealized losses,

73,144

thousand were

related to

securities that were rated investment

grade by at least one nationally recognized

statistical rating agency.

There

was

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

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Fixed maturities

136,104

130,139

407,946

383,440

Equity securities

4,402

4,147

11,585

12,250

Short-term investments and cash

494

3,899

4,356

13,497

Other invested assets

Limited partnerships

88,778

43,758

22,092

100,298

Other

14,742

7,286

(1,291)

13,565

Gross investment income before

adjustments

244,520

189,229

444,688

523,050

Funds held interest

income (expense)

684

2,325

10,921

9,715

Future policy benefit reserve income (expense)

(291)

(372)

(805)

(965)

Gross investment income

244,913

191,182

454,804

531,800

Investment expenses

(10,680)

(10,124)

(34,688)

(30,738)

Net investment income

234,233

181,058

420,116

501,062

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 $

1,464,947

thousand in limited

partnerships and

private placement

loans at

September 30,

2020.

These commitments

will be

funded when

called in

accordance with

the partnership

and loan

agreements, which

have investment

periods that

expire,

unless extended, through

2026

The Company participates in

a private placement

liquidity sweep facility (“the

facility”).

The primary purpose of

the facility

is to

enhance the Company’s

return on

its short-term

investments and

cash positions.

The facility

invests in high quality,

short-duration securities and

permits daily liquidity.

The Company consolidates its

participation in the

facility.

As of September

30, 2020, the

market value of

investments in

the facility

consolidated within the Company’s balance sheets was $

1,101,256

thousand.

The components of net realized capital gains (losses) are presented in the tables below for

the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Fixed maturity securities, market value:

Allowance for credit losses

6,196

(19,641)

Other-than-temporary impairments

(7,314)

(15,404)

Gains (losses) from sales

5,398

5,290

941

16,660

Fixed maturity securities, fair value:

Gains (losses) from sales

(1,968)

356

Gains (losses) from fair value adjustments

3,339

1,944

Equity securities, fair value:

Gains (losses) from sales

(1,317)

(1,192)

(12,642)

2,541

Gains (losses) from fair value adjustments

96,673

(12,008)

114,364

102,795

Other invested assets

1,084

2,098

2,341

Short-term investments gain

(loss)

798

183

1,215

259

Total net realized

capital gains (losses)

110,203

(12,943)

84,263

109,561

Roll Forward of Allowance for Credit Losses

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Foreign

Corporate

Government

Corporate

Government

Corporate

Securities

Total

Securities

Total

(Dollars in thousands)

Beginning Balance

(22,253)

(92)

(3,492)

(25,837)

Credit losses on securities where credit

losses were not previously recorded

(6)

(144)

(150)

(27,666)

(519)

(4,699)

(32,884)

Increases in allowance on previously

impaired securities

(5,354)

(27)

(181)

(5,562)

(6,136)

(27)

(481)

(6,644)

Decreases in allowance on previously

impaired securities

159

151

310

3,590

212

844

4,646

Reduction in allowance due to disposals

9,980

1,618

11,598

12,738

215

2,288

15,241

Balance as of September 30, 2020

(17,474)

(119)

(2,048)

(19,641)

(17,474)

(119)

(2,048)

(19,641)

The Company

recorded as

net realized

capital gains

(losses) in the

consolidated statements

of operations

and

comprehensive income

(loss) fair

value re-measurements,

allowances for

credit losses

per ASU

2016-13 and

write-downs in the value of securities deemed to

be impaired on an other-than-temporary basis in prior years

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

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Proceeds from sales of fixed maturity securities

402,528

271,025

1,392,801

2,591,938

Gross gains from sales

18,721

14,270

54,077

42,316

Gross losses from sales

(15,291)

(8,980)

(55,104)

(25,300)

Proceeds from sales of equity securities

116,565

35,924

329,750

185,157

Gross gains from sales

9,512

1,035

30,268

9,286

Gross losses from sales

(10,829)

(2,227)

(42,910)

(6,745)

RESERVE FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE

Activity in the reserve for losses and LAE is summarized for the periods indicated:

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

Gross reserves beginning of period

13,611,313

13,119,090

Less reinsurance recoverables

(1,640,712)

(1,619,641)

Net reserves beginning of period

11,970,601

11,499,449

Incurred related to:

Current year

4,572,640

3,559,505

Prior years

1,426

(44,401)

Total incurred

losses and LAE

4,574,066

3,515,104

Paid related to:

Current year

1,015,538

550,724

Prior years

2,042,712

2,406,753

Total paid losses and LAE

3,058,250

2,957,477

Foreign exchange/translation

adjustment and cumulative adjustment due to adoption of

ASU

2016-13

(28,024)

(52,125)

Net reserves end of period

13,458,393

12,004,952

Plus reinsurance recoverables

1,774,732

1,632,687

Gross reserves end of period

15,233,125

13,637,639

(Some amounts may not reconcile due to rounding.)

Current year

incurred losses

were $

4,572,640

thousand and

3,559,505

thousand for

the nine

months ended

September 30,

2020 and 2019,

respectively. The

increase in current

year incurred

losses in 2020

compared to

2019 was primarily

due to $

434,918

thousand of incurred

losses due to

COVID-19 as well

as the impact

of the

increase in premiums earned.

DERIVATIVES

The Company

sold

seven

equity index

put option

contracts, based

two

indices, in

2001 and

2005.

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).

Six

of these

contracts had

expired

prior to

September 30, 2020

, with

liabilities due under the terms of the expired contracts.

The Company had

one

remaining equity index put option contract

at September 30, 2020, based on the

Standard &

Poor’s 500

(“S&P 500”) index.

Based on historical

index volatilities

and trends and

the September

30, 2020 S&P 500

index value, the

Company estimates the

probability that the

equity index put option

contract

of the S&P

500 index falling

below the strike

price on the

exercise date

to be

less than

0.5

The theoretical

maximum payout

under this equity

index put option

contract would

occur if on

the exercise

date the S&P

500

index value was

zero

At September 30,

2020, the present value

of the theoretical maximum

payout using a

discount factor

was $

146,796

thousand.

Conversely, if

the contract

had expired

on September 30,

2020, with

the S&P index at

3,363.00

, there would have been

settlement amount.

At September 30, 2020 and

December 31, 2019, the fair value

for these equity put options was

6,632

thousand

and $

5,584

thousand, respectively.

The fair

value of

the equity

index put

options can

be found

in the

Company’s consolidated

balance sheets

follows:

(Dollars in thousands)

Derivatives not designated as

Location of fair value

hedging instruments

in balance sheets

September 30, 2020

December 31, 2019

Equity index put option contracts

Equity index put option liability

6,632

5,584

Total

6,632

5,584

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

For the, Nine Months Ended

Derivatives not designated as

Location of gain (loss) in statements of

September 30,

hedging instruments

operations and comprehensive income (loss)

2020

2019

2020

2019

Equity index put option contracts

Net derivative gain (loss)

2,456

(189)

(1,048)

3,395

Total

2,456

(189)

(1,048)

3,395

FAIR VALUE

GAAP guidance regarding fair value measurements address how

companies should measure fair value when they

are required

to use

fair value

measures for

recognition or

disclosure purposes

under GAAP

and provides

common definition of

fair value

to be

used throughout GAAP.

It defines fair

value as

the price that

would be

received to

sell an asset

or paid to

transfer a

liability in an

orderly fashion between

market participants

at the

measurement date.

In addition, it

establishes a

three-level valuation

hierarchy for

the disclosure

of fair

value

measurements.

The valuation hierarchy

is based on

the transparency

of inputs to

the valuation of

an asset or

liability.

The level in the hierarchy

within which a given fair value

measurement falls is determined based

on the

lowest level

input that

is significant

to the

measurement, with

Level 1

being the

highest priority

and Level

being the lowest priority.

The levels in the hierarchy are defined as follows:

Level 1: Inputs

to the valuation

methodology are observable

inputs that reflect

unadjusted quoted

prices for

identical assets or liabilities in an active market;

Level 2: Inputs

to the

valuation methodology

include quoted

prices for

similar assets

and liabilities

in active

markets, and

inputs that

are observable

for the

asset or

liability, either

directly or

indirectly, for

substantially the full term of the financial instrument;

Level 3: Inputs

to the valuation methodology are unobservable and significant to the fair value measurement.

The Company’s

fixed maturity

and equity

securities are

primarily managed

by third

party investment

asset

managers.

The investment

asset managers

managing publicly

traded securities

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.

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.

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.

At September

30, 2020,

1,134,535

thousand of fixed

maturities, market value

and $

3,748

thousand of fixed

maturities, fair value

were

fair valued

using unobservable inputs.

The majority of

the fixed maturities,

market value,

805,061

thousand,

were valued by

investment managers’ valuation

committees and many

of these fair values

and all of the

3,748

thousand of fixed

maturities, fair

value were

substantiated by

valuations from

independent third

parties.

The

Company has procedures

in place to

evaluate these independent

third party valuations.

The remaining Level

fixed maturities of $

329,474

thousand were valued at

either par or amortized cost,

which the Company believes

approximates fair value.

At December 31, 2019, $

772,979

thousand of fixed maturities, market value and $

5,826

thousand of fixed

maturities, fair

value were

fair valued

using unobservable

inputs.

The majority of

the fixed

maturities, market value, $

610,873

thousand, were valued by investment

managers’ valuation committees and a

majority of these fair

values and all of

the $

5,826

thousand of fixed

maturities, fair value

were substantiated

valuations from independent

third parties.

The Company has

procedures in place

to review and

evaluate these

independent third party valuations.

The remaining Level 3 fixed maturities of $

162,106

thousand were valued at

either par or amortized cost, which the Company believes approximates fair value.

The Company

internally manages

a public

equity portfolio

which had

a fair

value at

September 30,

2020 and

December 31,

2019 of

591,681

thousand and

170,888

thousand, respectively,

and all

prices were

obtained

from publicly published sources.

Equity securities

denominated in

U.S. currency

with quoted

prices in

active markets

for identical

assets are

categorized as

Level 1

since the

quoted prices

are directly

observable.

Equity securities

traded on

foreign

exchanges are categorized

as Level 2 due to the

added input of a foreign exchange

conversion rate

to determine

fair or

market value.

The Company

uses foreign

currency exchange

rates published

by nationally

recognized

sources.

All categories of

fixed maturity securities

listed in the

tables below are

generally categorized

as Level 2,

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.

For foreign

government securities

and foreign

corporate securities,

the fair

values

provided by

the third

party pricing

services in

local currencies,

and where

applicable, are

converted to

U.S.

dollars using currency exchange rates from nationally

recognized sources.

The fixed maturities with fair values categorized

as Level 3 result when prices are not available

from the

nationally recognized pricing services.

The composition and valuation inputs for the presented fixed maturities categories are as follows:

• U.S.

Treasury securities

and obligations

of U.S.

government agencies

and corporations

are primarily

comprised of U.S.

Treasury bonds

and the fair

value is based

on observable market

inputs such as

quoted

prices, reported trades, quoted prices for similar issuances or benchmark yields;

• Obligations

of U.S. states and political subdivisions are comprised

of state and municipal bond issuances and

the fair

values are

based on

observable market

inputs such

as quoted

market prices,

quoted prices

for

similar securities, benchmark yields and credit spreads;

• Corporate

securities are primarily comprised of

U.S. corporate and

public utility bond issuances and

the fair

values are

based on

observable market

inputs such

as quoted

market prices,

quoted prices

for similar

securities, benchmark yields and credit spreads;

• Asset-backed

and mortgage

-backed securities

fair values

are based

on observable

inputs such

as quoted

prices, reported trades,

quoted prices for similar

issuances or benchmark yields and

cash flow models using

observable inputs such as prepayment speeds, collateral performance and default spreads;

• Foreign

government securities

are comprised

of global

non-U.S. sovereign

bond issuances

and the

fair

values are

based on

observable market

inputs such

as quoted

market prices,

quoted prices

for similar

securities and models with

observable inputs such as

benchmark yields and credit

spreads and then, where

applicable, converted to U.S. dollars using an exchange

rate from a nationally recognized source;

• Foreign

corporate securities are

comprised of global

non-U.S. corporate

bond issuances and

the fair values

are based

on observable

market inputs

such as

quoted market

prices, quoted

prices for

similar securities

and models with observable inputs such as benchmark yields and credit spreads and then, where applicable,

converted to U.S. dollars using an exchange

rate from a nationally recognized source.

The Company’s liability

for equity index

put options is

categorized as

Level 3 since

there is no

active market for

these equity

put options.

The fair

values for

these options

are calculated

by the

Company using

an industry

accepted pricing

model, Black-Scholes.

The model inputs

and assumptions are:

risk free

interest rates,

equity

market indexes values,

volatilities and dividend yields and duration.

The model results are then adjusted

for the

Company’s credit default swap rate.

All of these inputs and assumptions are updated quarterly.

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

(Dollars in thousands)

September 30, 2020

(Level 1)

(Level 2)

(Level 3)

Assets:

Fixed maturities, market value

U.S. Treasury securities and obligations

U.S. government agencies and corporations

1,452,003

Obligations of U.S. States and political

subdivisions

543,283

Corporate securities

6,805,349

6,081,305

724,044

Asset-backed securities

1,338,202

933,413

404,789

Mortgage-backed securities

Commercial

969,320

Agency residential

2,118,653

Non-agency residential

2,520

Foreign government securities

1,535,075

Foreign corporate securities

3,091,972

3,086,270

5,702

Total fixed

maturities, market value

17,856,377

16,721,842

1,134,535

Fixed maturities, fair value

3,748

Equity securities, fair value

1,173,162

1,084,448

88,714

Liabilities:

Equity index put option contracts

6,632

There were

transfers between Level 1 and Level 2 for

the nine months ended September 30, 2020.

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

(Dollars in thousands)

December 31, 2019

(Level 1)

(Level 2)

(Level 3)

Assets:

Fixed maturities, market value

U.S. Treasury securities and obligations

U.S. government agencies and corporations

1,515,803

Obligations of U.S. States and political

subdivisions

536,915

Corporate securities

6,374,946

5,757,358

617,588

Asset-backed securities

897,333

743,692

153,641

Mortgage-backed securities

Commercial

844,557

Agency residential

2,198,581

Non-agency residential

5,703

Foreign government securities

1,505,950

Foreign corporate securities

2,945,156

2,943,406

1,750

Total fixed

maturities, market value

16,824,944

16,051,965

772,979

Fixed maturities, fair value

5,826

Equity securities, fair value

931,457

864,584

66,873

Liabilities:

Equity index put option contracts

5,584

In addition,

218,821

thousand and

209,578

thousand of

investments within

other invested

assets on

the

consolidated balance

sheets as of

September 30,

2020 and December

31, 2019, respectively,

are not included

within the fair

value hierarchy

tables as the

assets are measured

at NAV

as a practical

expedient to

determine

fair value.

The following tables

present the activity

under Level 3,

fair value measurements

using significant unobservable

inputs for fixed maturities, for the periods indicated:

Total Fixed Maturities, Market

Value

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Corporate

Asset-Backed

Foreign

Corporate

Asset-Backed

Foreign

(Dollars in thousands)

Securities

Corporate

Total

Securities

Corporate

Total

Beginning balance fixed maturities at market value

721,834

295,730

6,274

1,023,838

617,588

153,641

1,750

772,979

Total gains or (losses) (realized/unrealized)

Included in earnings

362

457

845

(100)

582

(71)

411

Included in other comprehensive income (loss)

(992)

5,028

126

4,162

(4,898)

7,238

2,426

Purchases, issuances and settlements

(1,349)

103,574

139

102,364

112,060

243,328

3,823

359,211

Transfers in and/or (out) of Level

4,189

(863)

3,326

(606)

114

(492)

Ending balance

724,044

404,789

5,702

1,134,535

724,044

404,789

5,702

1,134,535

The amount of total gains or losses for the period

included in earnings (or changes in net assets)

attributable to the change in unrealized gains

or losses relating to assets still held

at the reporting date

(539)

(Some amounts may not reconcile due to rounding.)

Total Fixed Maturities, Market

Value

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

Corporate

Asset-Backed

Foreign

Corporate

Asset-Backed

Foreign

(Dollars in thousands)

Securities

Corporate

Total

Securities

Corporate

Total

Beginning balance fixed maturities at market value

542,878

2,093

544,971

428,215

7,744

435,959

Total gains or (losses) (realized/unrealized)

Included in earnings

1,018

3,348

(119)

3,229

Included in other comprehensive income (loss)

(1,314)

644

(670)

1,130

644

1,774

Purchases, issuances and settlements

42,289

40,000

82,289

150,659

40,000

(5,532)

185,127

Transfers in and/or (out) of Level

3,176

4,695

Ending balance

588,047

40,644

2,093

630,784

588,047

40,644

2,093

630,784

The amount of total gains or losses for the period

included in earnings (or changes in net assets)

attributable to the change in unrealized gains

or losses relating to assets still held

at the reporting date

(Some amounts may not reconcile due to rounding.)

Total Fixed Maturities, Fair Value

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Foreign

(Dollars in thousands)

Corporate

Total

Corporate

Total

Beginning balance fixed maturities at market value

4,431

5,826

Total gains or (losses) (realized/unrealized)

Included in earnings

1,371

(24)

Included in other comprehensive income (loss)

Purchases, issuances and settlements

(2,054)

Transfers in and/or (out) of Level 3

Ending balance

3,748

The amount of total gains or losses for the period

included in earnings (or changes in net assets)

attributable to the change in unrealized gains

or losses relating to assets still held

at the reporting date

(Some amounts may not reconcile due to rounding.)

Total Fixed Maturities, Fair Value

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

Foreign

(Dollars in thousands)

Corporate

Total

Corporate

Total

Beginning balance fixed maturities at market value

2,337

Total gains or (losses) (realized/unrealized)

Included in earnings

369

Included in other comprehensive income (loss)

Purchases, issuances and settlements

(2,706)

Transfers in and/or (out) of Level 3

Ending balance

The amount of total gains or losses for the period

included in earnings (or changes in net assets)

attributable to the change in unrealized gains

or losses relating to assets still held

at the reporting date

(Some amounts may not reconcile due to rounding.)

The following table

presents the activity

under Level 3,

fair value measurements

using significant unobservable

inputs for equity securities, for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Common Stock

Balance, beginning of period

9,877

Total (gains) or losses (realized/unrealized)

Included in earnings

Included in other comprehensive income (loss)

Purchases, issuances and settlements

9,877

Transfers in and/or (out) of Level 3

(9,877)

Balance, end of period

The amount of total gains or losses for the period included in earnings

(or changes in net assets) attributable to the change in unrealized

gains or losses relating to liabilities still held at the reporting date

(Some amounts may not reconcile due to rounding.)

The net

transfers to/(from)

Level 3,

fair value

measurements using

significant unobservable

inputs for

fixed

maturities, market

value were

3,326

thousand and

492

) thousand

for the

three and

nine months

ended

September 30,

2020, respectively,

and were

3,176

thousand and

4,695

thousand for

the three

and nine

months ended

September 30,

2019, respectively.

The transfers

of $

3,326

thousand during

the three

months

ended September 30, 2020 were

previously priced by a recognized

pricing service and were subsequently priced

using investment managers as

of September 30, 2020.

The transfers of ($

492

) thousand during the nine months

ended September

30, 2020

were related

to securities

that were

previously priced

using investment

managers

and were subsequently priced by a

recognized pricing service as of September

30, 2020.

The transfers of $

3,176

thousand and $

4,695

thousand during 2019

were related

to securities that

were previously priced

by a

recognized pricing service and were subsequently priced using investment managers as of September 30, 2019.

The net

transfers to/(from)

Level 3,

fair value

measurements using

significant unobservable

inputs for

equity

securities, fair

value were

9,877

) thousand for

both the three

and nine

months ended

September 30,

2020.

The transfers

of ($

9,877

) thousand

during both

the three

and nine

months ended

September 30,

2020, were

related to

preferred stock

in a private

entity purchased during

the second quarter

of 2020 which

was priced at

cost as of June 30, 2020 and was subsequently priced based upon the

book value of the underlying private entity

as of September 30, 2020.

The following table

presents the activity

under Level 3,

fair value measurements

using significant unobservable

inputs for equity index put option contracts, for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Liabilities:

Balance, beginning of period

9,088

8,374

5,584

11,958

Total (gains) or losses (realized/unrealized)

Included in earnings

(2,456)

189

1,048

(3,395)

Included in other comprehensive income (loss)

Purchases, issuances and settlements

Transfers in and/or (out) of Level 3

Balance, end of period

6,632

8,563

6,632

8,563

The amount of total gains or losses for the period included in earnings

(or changes in net assets) attributable to the change in unrealized

gains or losses relating to liabilities still held at the reporting date

(Some amounts may not reconcile due to rounding.)

EARNINGS PER COMMON SHARE

Basic earnings

per share

are calculated

by dividing

net income

by the

weighted average

number of

common

shares outstanding.

Diluted earnings per share reflect

the potential dilution that

would occur if options granted

under various share

-based compensation plans

were exercised

resulting in the issuance

of common shares

that

would participate in the earnings of the entity.

Net income (loss) per

common share has been

computed as per

below, based

upon weighted average

common

basic and dilutive shares outstanding.

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands, except per share amounts)

2020

2019

2020

2019

Net income (loss) per share:

Numerator

Net income (loss)

243,057

104,398

450,549

791,817

Less:

dividends declared-common shares and unvested common shares

(61,910)

(56,995)

(187,115)

(171,131)

Undistributed earnings

181,148

47,403

263,435

620,687

Percentage

allocated to common shareholders (1)

98.8

98.9

98.7

98.9

178,938

46,869

260,096

613,847

Add:

dividends declared-common shareholders

61,199

56,403

184,836

169,329

Numerator for basic and diluted earnings per common share

240,138

103,273

444,931

783,176

Denominator

Denominator for basic earnings per weighted-average common shares

39,483

40,287

39,711

40,289

Effect of dilutive securities:

Options

125

131

Denominator for diluted earnings per adjusted weighted-average common shares

39,557

40,411

39,790

40,421

Per common share net income (loss)

Basic

6.08

2.56

11.20

19.44

Diluted

6.07

2.56

11.18

19.38

(1)

Basic weighted-average common shares outstanding

39,483

40,287

39,711

40,289

Basic weighted-average common shares outstanding and unvested

common shares expected to vest

39,971

40,746

40,221

40,738

Percentage allocated to common shareholders

98.8

98.9

98.7

98.9

(Some amounts may not reconcile due to rounding.)

There were

anti-diluted options outstanding

for the three

and nine months

ended September 30,

2020 and

2019.

All outstanding options expire on or between

February 24, 2021

and

September 19, 2022

COMMITMENTS AND CONTINGENCIES

In the

ordinary course

of business,

the Company

is involved

in lawsuits,

arbitrations and

other formal

and

informal dispute resolution

procedures, the outcomes

of which will determine

the Company’s rights

and

obligations under

insurance and reinsurance

agreements.

In some disputes,

the Company seeks

to enforce

its

rights under an agreement or to collect funds owing to it.

In other matters, the Company is resisting attempts

others to

collect funds

or enforce

alleged rights.

These disputes

arise from

time to

time and

are ultimately

resolved through both

informal and formal means,

including negotiated resolution, arbitration

and litigation.

all such matters, the Company

believes that its positions are legally

and commercially reasonable.

The Company

considers the statuses

of these proceedings

when determining its

reserves for unpaid

loss and loss

adjustment

expenses.

Aside from

litigation and

arbitrations related

to these

insurance and

reinsurance agreements,

the Company

not a party to any other material litigation or arbitration.

The Company

has entered

into separate

annuity agreements

with The

Prudential Insurance

of America

(“The

Prudential”) and an

additional unaffiliated

life insurance

company in

which the Company

has either purchased

annuity contracts

or become the

assignee of annuity

proceeds that are

meant to settle

claim payment

obligations in

the future.

In both

instances, the

Company would

become contingently

liable if

either The

Prudential or the

unaffiliated life

insurance company

were unable to

make payments

related to

the respective

annuity contract.

The table below

presents the estimated

cost to

replace all such

annuities for which

the Company was

contingently liable for the periods indicated:

At September 30,

At December 31,

(Dollars in thousands)

2020

2019

The Prudential

141,488

141,703

Unaffiliated life insurance company

34,441

35,082

OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents

the components of comprehensive

income (loss) in the

consolidated statements of

operations for the periods indicated:

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

(Dollars in thousands)

Before Tax

Tax Effect

Net of Tax

Before Tax

Tax Effect

Net of Tax

Unrealized appreciation (depreciation) ("URA(D)") on securities - non-

credit related

68,264

(4,784)

63,480

373,990

(38,155)

335,835

Reclassification of net realized losses (gains) included in net income

(loss)

(12,678)

1,225

(11,453)

18,650

(5,961)

12,689

Foreign currency translation adjustments

64,453

(3,825)

60,628

28,555

1,835

30,390

Reclassification of benefit plan liability amortization included in net

income (loss)

2,285

(479)

1,806

5,736

(1,204)

4,532

Total other comprehensive income (loss)

122,324

(7,863)

114,461

426,931

(43,485)

383,446

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

(Dollars in thousands)

Before Tax

Tax Effect

Net of Tax

Before Tax

Tax Effect

Net of Tax

Unrealized appreciation (depreciation) ("URA(D)") on securities - non-

credit related

103,247

(9,529)

93,718

587,930

(61,792)

526,138

URA(D) on securities - OTTI

(25)

(1,671)

122

(1,549)

Reclassification of net realized losses (gains) included in net income

(loss)

(74)

(455)

(529)

(3,597)

(623)

(4,220)

Foreign currency translation adjustments

(2,665)

(761)

(3,426)

(13,890)

(1,316)

(15,206)

Reclassification of benefit plan liability amortization included in net

income (loss)

1,726

(363)

1,363

4,640

(975)

3,665

Total other comprehensive income (loss)

102,306

(11,133)

91,173

573,412

(64,584)

508,828

The following table presents details of the amounts reclassified from AOCI for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

Affected line item within the statements of

AOCI component

2020

2019

2020

2019

operations and comprehensive income (loss)

(Dollars in thousands)

URA(D) on securities

(12,678)

(74)

18,650

(3,597)

Other net realized capital gains (losses)

1,225

(455)

(5,961)

(623)

Income tax expense (benefit)

(11,453)

(529)

12,689

(4,220)

Net income (loss)

Benefit plan net gain (loss)

2,285

1,726

5,736

4,640

Other underwriting expenses

(479)

(363)

(1,204)

(975)

Income tax expense (benefit)

1,806

1,363

4,532

3,665

Net income (loss)

The following table

presents the components

of accumulated other

comprehensive income (loss),

net of tax,

the consolidated balance sheets for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Beginning balance of URA (D) on securities

600,922

247,741

304,425

(179,392)

Current period change in URA (D) of investments - non-credit related

52,027

93,190

348,524

521,919

Current period change in URA (D) of investments - non-credit OTTI

(1,549)

Ending balance of URA (D) on securities

652,949

340,978

652,949

340,978

Beginning balance of foreign currency translation adjustments

(231,955)

(227,527)

(201,717)

(215,747)

Current period change in foreign currency translation adjustments

60,628

(3,426)

30,390

(15,206)

Ending balance of foreign currency translation adjustments

(171,327)

(230,953)

(171,327)

(230,953)

Beginning balance of benefit plan net gain (loss)

(71,830)

(65,116)

(74,556)

(67,418)

Current period change in benefit plan net gain (loss)

1,806

1,363

4,532

3,665

Ending balance of benefit plan net gain (loss)

(70,024)

(63,753)

(70,024)

(63,753)

Ending balance of accumulated other comprehensive income (loss)

411,598

46,272

411,598

46,272

(Some amounts may not reconcile due to rounding.)

10.

CREDIT FACILITIES

The Company

has

two

active credit

facilities for

a total

commitment of

up to

1,000,000

thousand and

additional credit facility

for a total

commitment of up to

52,175

thousand, providing for

the issuance of letters

of credit and/or

unsecured revolving credit

lines.

The following table

presents the interest

and fees incurred

connection with the

two

credit facilities for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Credit facility interest and fees incurred

105

560

315

The terms and outstanding amounts for each facility are discussed below:

Group Credit Facility

Effective May

26, 2016, Group,

Everest Reinsurance

(Bermuda), Ltd.

(“Bermuda Re”)

and Everest

International

Reinsurance, Ltd.

(“Everest International”),

both direct subsidiaries of

Group, entered into

five year

, $

800,000

thousand senior credit

facility with a

syndicate of lenders,

which amended and

restated in

its entirety the

June

22, 2012,

four year

, $

800,000

thousand senior credit

facility.

Both the May

26, 2016 and

June 22, 2012

senior

credit facilities, which have similar terms,

are referred to as

the “Group Credit Facility”.

Wells Fargo Corporation

(“Wells Fargo

Bank”) is

the administrative

agent for

the Group

Credit Facility,

which consists

of two

tranches.

Tranche one

provides up to $

200,000

thousand of unsecured revolving

credit for liquidity and

general corporate

purposes, and for

the issuance of unsecured

standby letters

of credit.

The interest on

the revolving loans

shall,

at the

Company’s option,

be either

(1) the

Base Rate

(as defined

below) or

(2) an

adjusted London

Interbank

Offered Rate

(“LIBOR”) plus

a margin.

The Base

Rate is

the higher

of (a)

the prime

commercial lending

rate

established by

Wells Fargo

Bank, (b) the

Federal Funds

Rate plus

0.5

% per annum

or (c) the

one month LIBOR

Rate plus

1.0

% per annum.

The amount of margin and the fees

payable for the Group

Credit Facility depends on

Group’s senior

unsecured debt

rating.

Tranche two

exclusively provides

up to

600,000

thousand for

the

issuance of standby letters of credit on a collateralized

basis.

The Group Credit

Facility requires Group

to maintain a

debt to capital

ratio of not

greater than

0.35

to 1 and to

maintain a

minimum net worth.

Minimum net worth

is an amount

equal to

the sum of

5,370,979

thousand

plus

% of

consolidated net

income for

each of

Group’s fiscal

quarters, for

which statements

are available

ending on or after March 31, 2016 and for

which consolidated net income is positive, plus

% of any increase in

consolidated net worth

during such period attributable

to the issuance

of ordinary and

preferred shares,

which

at September 30,

2020, was $

6,372,662

thousand.

As of September

30, 2020, the

Company was in

compliance

with all Group Credit Facility covenants.

On March 25, 2020, Group

borrowed $

50,000

thousand under Tranche

one of the credit facility

as an unsecured

revolving credit loan.

The loan was

fully paid off

on June 26,

2020.

There were

revolving credit borrowings

from the facility during the year ended 2019.

The following table summarizes the outstanding letters of credit and/or

borrowings for the periods indicated:

(Dollars in thousands)

At September 30, 2020

At December 31, 2019

Bank

Commitment

In Use

Date of Expiry

Commitment

In Use

Date of Expiry

Wells Fargo Bank Group Credit Facility

Tranche One

200,000

99,077

12/31/2020

200,000

33,737

12/31/2020

Tranche Two

600,000

586,186

12/31/2020

600,000

2,381

7/29/2020

Tranche Two

1,649

9/30/2020

Tranche Two

573,353

12/31/2020

Tranche Two

12,364

1/4/2021

Total Wells Fargo

Bank Group Credit Facility

800,000

685,263

800,000

623,484

Bermuda Re Letter of Credit Facility

Effective December 31, 2019, Bermuda Re renewed

its letter of credit issuance facility with Citibank N.A.

referred to

as the

“Bermuda Re

Letter of

Credit Facility”,

which commitment

is reconfirmed

annually with

updated fees.

The current renewal of

the Bermuda Re Letter

of Credit Facility provides

for the issuance of up

200,000

thousand of secured letters

of credit to

collateralize reinsurance

obligations as a

non-admitted

reinsurer.

The interest on drawn letters

of credit shall be (A)

0.35

% per annum of the principal amount of issued

standard letters

of credit

(expiry of

15 months

or less)

and (B)

0.45

% per

annum of

the principal

amount of

issued extended tenor letters

of credit (expiry maximum of up

months).

The commitment fee on undrawn

credit shall be

0.15

% per annum.

The following table summarizes the outstanding letters of credit for

the periods indicated:

(Dollars in thousands)

At September 30, 2020

At December 31, 2019

Bank

Commitment

In Use

Date of Expiry

Commitment

In Use

Date of Expiry

Citibank Bilateral Letter of Credit Agreement

200,000

3,672

11/24/2020

200,000

4,425

02/29/2020

93,846

12/31/2020

512

09/03/2020

4,425

02/28/2021

3,672

11/24/2020

183

12/16/2021

177

12/16/2020

109

12/20/2021

125

12/20/2020

5,475

12/31/2021

101,404

12/31/2020

777

08/15/2022

559

08/15/2021

37,802

09/30/2024

37,096

12/30/2023

Total Citibank Bilateral Agreement

200,000

146,289

200,000

147,970

Everest International Credit Facility

Effective May

12, 2020, Everest

International amended

its credit facility

with Lloyds Bank

plc (“Everest

International Credit Facility”).

The current amendment of the Everest

International Credit Facility provides

up to

52,175

thousand for

the issuance of

standby letters

of credit

on a

collateralized basis.

The Company

pays a

commitment fee of

0.1

% per annum on the average

daily amount of the remainder

of (1) the aggregate

amount

available under

the facility

and (2)

the aggregate

amount of

drawings outstanding

under the

facility.

The

Company pays a credit commission fee of

0.35

% per annum on drawings outstanding under the facility.

The Everest

International Credit

Facility requires

Group to

maintain a

debt to

capital ratio

of not greater

than

0.35

to 1

and to

maintain a

minimum net

worth.

Minimum net

worth is

an amount

equal to

the sum

5,532,663

thousand (

% of consolidated

net worth as

of December 31,

2018), plus

% of consolidated

net

income for each of Group’s

fiscal quarters, for which statements

are available ending on or after

January 1, 2019

and for which

net income is

positive, plus

% of any

increase in consolidated

net worth of

Group during such

period attributable to

the issuance of ordinary and

preferred shares,

which at September 30,

2020, was

5,910,400

thousand.

As of September 30,

2020, the Company was

in compliance with all

Everest International

Credit Facility requirements.

The following table summarizes the outstanding letters of credit for

the periods indicated:

(Dollars in thousands)

At September 30, 2020

At December 31, 2019

Bank

Commitment

In Use

Date of Expiry

Commitment

In Use

Date of Expiry

Lloyd's Bank plc

52,175

12/31/2023

47,000

12/31/2023

Total Lloyd's Bank Credit Facility

52,175

47,000

Federal Home Loan Bank Membership

Effective August

15, 2019, Everest

Reinsurance Company (“Everest

Re”) became a member

of the Federal Home

Loan Bank

of New

York (“FHLBNY”),

which allows

Everest Re

to borrow

up to

% of

its statutory

admitted

assets.

As of

September 30,

2020, Everest

Re had

admitted assets

of approximately

14,667,099

thousand

which provides borrowing capacity of up to approximately $

1,466,709

thousand.

On August 31,

2020, Everest

Re borrowed

90,000

thousand under its

FHLBNY available capacity.

The $

90,000

thousand collateralized

borrowing has

interest payable

at a

rate of

0.35

% and

will mature

November 30,

2020

The FHLBNY membership agreement

requires that

4.5

% of borrowed funds

be used to acquire

additional

membership stock.

11.

COLLATERALIZED REINSURANCE AND TRUST AGREEMENTS

Certain subsidiaries

of Group

have established

trust agreements,

which effectively

use the

Company’s

investments as collateral,

as security for

assumed losses payable

to certain non-affiliated

ceding companies.

September 30, 2020, the total amount on deposit in trust accounts was $

1,158,783

thousand.

The Company reinsures

some of its

catastrophe exposures

with the segregated

accounts of Mt.

Logan Re.

Mt.

Logan Re is

a Class 3 insurer

registered in Bermuda

effective February 27,

2013 under The Segregated

Accounts

Companies Act 2000 and

100

% of the voting common

shares are owned

by Group.

Separate segregated

accounts for Mt.

Logan Re began

being established effective

July 1, 2013 and

non-voting, redeemable preferred

shares have been

issued to capitalize

the segregated accounts.

Each segregated

account invests predominantly

in a

diversified set

of catastrophe

exposures, diversified

by risk/peril

and across

different geographic

regions

globally.

The following

table summarizes

the premiums

and losses

that are

ceded by

the Company

to Mt.

Logan Re

segregated accounts and assumed by the Company from Mt. Logan Re segregated

accounts.

Three Months Ended

Nine Months Ended

September 30,

Mt. Logan Re Segregated Accounts

2020

2019

2020

2019

(Dollars in thousands)

Ceded written premiums

86,712

97,391

245,422

237,841

Ceded earned premiums

71,396

79,560

233,089

220,200

Ceded losses and LAE

87,917

79,499

173,968

164,914

Assumed written premiums

8,894

9,867

14,448

14,900

Assumed earned premiums

8,894

9,867

14,448

14,900

Assumed losses and LAE

Each segregated

account is permitted

to assume net

risk exposures equal

to the amount

of its available

posted

collateral, which

in the aggregate

was $

806,564

thousand and $

993,036

thousand at September

30, 2020 and

December 31, 2019,

respectively.

Of this

amount, Group

had investments

recorded at

66,175

thousand and

46,390

thousand at September 30, 2020 and December 31, 2019, respectively, in the segregated accounts.

Effective April

1, 2018,

the Company

entered into

a retroactive

reinsurance transaction

with one

of the

Mt.

Logan Re segregated

accounts to retrocede

269,198

thousand of casualty reserves held

by Bermuda Re related

to accident

years

2002

through

2015

As consideration

for entering

the agreement,

the Company

transferred

cash of

252,000

thousand to the

Mt. Logan

Re segregated

account.

The maximum

liability to

be retroceded

under the agreement

will be $

319,000

thousand.

The Company will

retain liability

for any

amounts exceeding

the maximum liability.

On April

24, 2014,

the Company

entered into

two

collateralized reinsurance

agreements with

Kilimanjaro Re

Limited (“Kilimanjaro”), a

Bermuda based special

purpose reinsurer,

to provide

the Company with

catastrophe

reinsurance coverage.

These agreements

are multi-year

reinsurance contracts

which cover

specified named

storm and earthquake

events.

The first agreement

provides up to

250,000

thousand of reinsurance

coverage

from named storms in specified states

of the Southeastern United States.

The second agreement provides up to

200,000

thousand of

reinsurance coverage

from named

storms in

specified states

of the

Southeast, Mid-

Atlantic and

Northeast regions

of the

United States

and Puerto

Rico as

well as

reinsurance coverage

from

earthquakes in specified states

of the Southeast, Mid-Atlantic,

Northeast and West

regions of the United States,

Puerto Rico and British Columbia.

These reinsurance agreements expired in

April, 2018

On November 18,

2014, the Company

entered into

a collateralized

reinsurance agreement

with Kilimanjaro to

provide the Company with catastrophe

reinsurance coverage.

This agreement is a multi-year reinsurance

contract which covers specified earthquake events.

The agreement provides up to $

500,000

thousand of

reinsurance coverage

from earthquakes in the

United States, Puerto

Rico and Canada. These reinsurance

agreements expired in

November 2019

On December 1, 2015

the Company entered

into

two

collateralized reinsurance

agreements with Kilimanjaro

provide the

Company with

catastrophe reinsurance

coverage.

These agreements

are multi-year

reinsurance

contracts which

cover named

storm and

earthquake events.

The first

agreement provides

up to

300,000

thousand of reinsurance

coverage from

named storms

and earthquakes

in the United

States, Puerto

Rico and

Canada.

The second agreement provides

up to $

325,000

thousand of reinsurance coverage

from named storms

and earthquakes in the United States, Puerto Rico and Canada.

On April

13, 2017

the Company

entered into

six

collateralized reinsurance

agreements with

Kilimanjaro to

provide the Company with annual aggregate catastrophe

reinsurance coverage.

The initial

three

agreements are

four year

reinsurance contracts which cover named storm and earthquake

events.

These agreements provide up

to $

225,000

thousand, $

400,000

thousand and

325,000

thousand, respectively,

of annual

aggregate

reinsurance coverage

from named storms

and earthquakes in

the United States,

Puerto Rico and

Canada.

The

subsequent

three

agreements are

five year

reinsurance contracts

which cover

named storm

and earthquake

events.

These agreements provide

up to $

50,000

thousand, $

75,000

thousand and $

175,000

thousand,

respectively, of

annual aggregate

reinsurance coverage

from named

storms and

earthquakes in

the United

States, Puerto Rico and Canada.

On April

30, 2018

the Company

entered into

four

collateralized reinsurance

agreements with

Kilimanjaro to

provide the

Company with

catastrophe reinsurance

coverage.

These agreements

are multi-year

reinsurance

contracts which cover named

storm and earthquake events.

The first

two

agreements are

four year

reinsurance

contracts which

provide up

to $

62,500

thousand and

200,000

thousand, respectively,

of annual

aggregate

reinsurance coverage

from named

storms and

earthquakes in

the United

States, Puerto

Rico, the

U.S. Virgin

Islands and

Canada.

The remaining

two

agreements are

five year

reinsurance contracts

which provide

up to

62,500

thousand and $

200,000

thousand, respectively,

of annual aggregate

reinsurance coverage

from named

storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin

Islands and Canada.

On December 12,

2019, the Company

entered into

four

collateralized reinsurance

agreements with Kilimanjaro

to provide the

Company with catastrophe

reinsurance coverage.

These agreements are

multi-year reinsurance

contracts which cover named

storm and earthquake events.

The first

two

agreements are

four year

reinsurance

contracts which

provide up

to $

150,000

thousand and

275,000

thousand, respectively,

of annual

aggregate

reinsurance coverage

from named

storms and

earthquakes in

the United

States, Puerto

Rico, the

U.S. Virgin

Islands and

Canada.

The remaining

two

agreements are

five year

reinsurance contracts

which provide

up to

150,000

thousand and $

275,000

thousand, respectively, of annual aggregate

reinsurance coverage from named

storms and earthquakes in the United State, Puerto Rico, the U.S. Virgin

Islands and Canada.

Recoveries under

these collateralized

reinsurance agreements

with Kilimanjaro

are primarily

dependent on

estimated industry

level insured losses

from covered

events, as well

as, the geographic

location of the

events.

The estimated industry

level of insured

losses is obtained

from published estimates

by an independent

recognized authority

on insured

property losses.

Currently, none

of the

published insured

loss estimates

for

catastrophe events

during the applicable

covered periods

of the various

agreements have

exceeded the

single

event retentions or aggregate retentions

under the terms of the agreements that would result in a recovery.

Kilimanjaro has financed

the various property

catastrophe reinsurance

coverages by

issuing catastrophe

bonds

to unrelated,

external investors.

On April

24, 2014,

Kilimanjaro issued

450,000

thousand of

notes (“Series

2014-1 Notes”).

The $

450,000

thousand of Series 2014-1

Notes were fully

redeemed on April 30,

2018 and are

no longer outstanding.

On November 18,

2014, Kilimanjaro issued

500,000

thousand of notes

(“Series 2014-2

Notes”).

The $

500,000

thousand of

Series 2014-2

Notes were

fully redeemed

in November

2019 and

are no

longer outstanding.

On December

1, 2015,

Kilimanjaro issued

625,000

thousand of

notes (“Series

2015-1

Notes).

On April 13, 2017,

Kilimanjaro issued $

950,000

thousand of notes (“Series

2017-1 Notes) and $

300,000

thousand of

notes (“Series

2017-2 Notes).

On April

30, 2018,

Kilimanjaro issued

262,500

thousand of

notes

(“Series 2018-1

Notes”) and

262,500

thousand of

notes (“Series

2018-2 Notes”).

On December

12, 2019

Kilimanjaro issued

425,000

thousand of notes

(“Series 2019-1 Notes”)

and $

425,000

of notes

(“Series 2019-2

Notes”).

The proceeds from the

issuance of the Notes listed

above are held in

reinsurance trust throughout

the

duration of

the applicable reinsurance

agreements and invested

solely in US

government money

market funds

with a rating of at least “AAAm”

by Standard & Poor’s.

12.

SENIOR NOTES

The table below

displays Everest

Reinsurance Holdings’ (“Holdings”)

outstanding senior notes.

Market value

based on quoted

market prices, but

due to limited

trading activity,

these senior notes are

considered Level 2

the fair value hierarchy.

September 30, 2020

December 31, 2019

Consolidated Balance

(Dollars in thousands)

Date Issued

Date Due

Principal Amounts

Sheet Amount

Market Value

Sheet Amount

Market Value

Senior notes

06-05-2014

06-01-2044

400,000

397,164

460,252

397,074

452,848

On June 5,

2014, Holdings issued

400,000

thousand of

year senior notes

4.868

%, which will

mature on

June 1, 2044

Interest will be paid semi-annually on June 1 and December 1 of each year.

Interest expense incurred in connection with these senior notes is as follows for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars In thousands

2020

2019

2020

2019

Interest expense incurred

4,868

14,604

In addition to the above senior notes outstanding, Holdings issued $

1,000,000

thousand of

30 year

senior notes

October 7, 2020

at an interest rate of

3.5

These senior notes will mature on

October 15, 2050

and will pay

interest semi-annually on April 15th and October 15th of each year.

13.

LONG TERM SUBORDINATED NOTES

The table

below displays

Holdings’ outstanding

fixed to

floating rate

long term

subordinated notes.

Market

value is

based on

quoted market

prices, but

due to

limited trading

activity, these

subordinated notes

are

considered Level 2 in the fair value hierarchy.

Maturity Date

September 30, 2020

December 31, 2019

Original

Consolidated

Balance

Consolidated

Balance

(Dollars in thousands)

Date Issued

Principal

Amount

Scheduled

Final

Sheet Amount

Market Value

Sheet Amount

Market Value

Long term subordinated notes

04-26-2007

400,000

05-15-2037

05-01-2067

223,649

191,301

236,758

233,191

During the fixed rate

interest period from

May 3, 2007

through

May 14, 2017

, interest was

at the annual rate

6.6

%, payable semi-annually in arrears on November 15 and May 15 of each year,

commencing on

November 15,

2007

During the floating rate interest

period from May 15, 2017 through maturity,

interest will be based on the

3 month

LIBOR plus

238.5

basis points,

reset quarterly,

payable quarterly

in arrears

on February

15, May

15,

August 15 and November

15 of each year,

subject to Holdings’ right

to defer interest

one

or more occasions

for up to

ten

consecutive years.

Deferred interest

will accumulate interest

at the applicable

rate compounded

quarterly for periods

from and including

May 15, 2017.

The reset quarterly interest

rate for August

17, 2020 to

November 15, 2020 is

2.67

Holdings may redeem the long term subordinated

notes on or after May 15,

2017, in whole or in part at

100

% of

the principal amount plus accrued and unpaid interest;

however,

redemption on or after the scheduled

maturity

date and prior

May 1, 2047

is subject to

a replacement capital

covenant.

This covenant is

for the benefit

certain senior

note holders

and it

mandates that

Holdings receive

proceeds from

the sale

of another

subordinated debt

issue, of at

least similar size,

before it

may redeem

the subordinated notes.

Effective upon

the maturity

of the Company’s

5.40

% senior notes

October 15, 2014

, the

Company’s

4.868

% senior notes,

due on

June 1, 2044

, have

become the

Company’s long

term indebtedness

that ranks

senior to

the long term

subordinated notes.

The Company repurchased

and retired $

thousand and $

13,183

thousand of its

outstanding long term

subordinated notes

during the three

and nine months

ended September 30,

2020, respectively.

The Company

realized a

gain of $

thousand and $

2,536

thousand from the

repurchase of the

long term subordinated

notes

for the three and nine months ended September 30, 2020, respectively.

On March 19,

2009, Group announced

the commencement of

a cash tender

offer for

any and all

of the

6.60

fixed to

floating rate

long term

subordinated notes.

Upon expiration

of the

tender offer,

the Company

had

reduced its outstanding debt by $

161,441

thousand.

Interest expense

incurred in

connection with these

long term subordinated

notes is as

follows for

the periods

indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Interest expense incurred

1,587

2,881

6,126

8,892

14.

LEASES

Effective January 1,

2019, the Company adopted

ASU 2016-02 and ASU

2018-11 which outline new

guidance on

the accounting for

leases.

The Company enters

into lease agreements

for real estate

that is primarily

used for

office space

in the

ordinary course

of business.

These leases are

accounted for

as operating

leases, whereby

lease expense is recognized

on a straight

-line basis over the term

of the lease.

Most leases include an option

extend or renew the lease term.

The exercise of the renewal is at the Company’s

discretion.

The operating lease

liability includes lease payments related to options to extend

or renew the lease term if the Company is

reasonably certain of exercise

those options.

The Company, in

determining the present value of

lease payments

utilizes either

the rate

implicit in

the lease

if that

rate is

readily determinable

or the

Company’s incremental

secured borrowing rate commensurate with terms of the underlying lease.

Supplemental information related to operating

leases is as follows for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Lease expense incurred:

Operating lease cost

8,424

5,384

24,572

16,602

At September 30,

At December 31,

(Dollars in thousands)

2020

2019

Operating lease right of use assets

149,206

161,435

Operating lease liabilities

163,329

169,909

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Operating cash flows from operating

leases

(5,047)

(5,739)

(14,883)

(14,665)

At September 30,

At December 31,

2020

2019

Weighted average

remaining operating lease term

12.3 years

12.6 years

Weighted average

discount rate on operating leases

4.11

3.91

Maturities of the existing lease liabilities are expected to occur as follows:

(Dollars in thousands)

Remainder of 2020

5,235

2021

18,433

2022

20,882

2023

20,110

2024

19,859

2025

16,868

Thereafter

119,204

Undiscounted lease payments

220,591

Less:

present value adjustment

57,262

Total operating

lease liability

163,329

On July

2, 2019,

the Company

entered into

a lease

agreement to

relocate its

corporate offices

from Liberty

Corner, New

Jersey to a

corporate complex in

Warren, New Jersey.

The new lease, which

covers approximately

315,000

square feet of

office space, was effective

October 1, 2019 and

runs through

2036

The initial base rent

payment of

the lease

will be

approximately $

650

thousand per

month or

7,800

thousand per

year.

The

Company expects to relocate

the existing operations and

employees of the Liberty Corner,

New Jersey facility to

the new corporate complex during 2021.

15.

SEGMENT REPORTING

The Reinsurance

operation writes worldwide

property and casualty

reinsurance and specialty

lines of business,

on both a

treaty and

facultative basis,

through reinsurance

brokers, as

well as directly

with ceding companies.

Business is written

in the U.S.,

Bermuda, and Ireland

offices, as well

as, through branches

in Canada, Singapore

and the United

Kingdom.

The Insurance operation

writes property and

casualty insurance directly

and through

brokers, surplus

lines brokers

and general agents

within the U.S.,

Canada and Europe

through its offices

in the

U.S., Canada, Ireland and a branch located in Zurich.

These segments are managed independently,

but conform with corporate

guidelines with respect to pricing, risk

management, control

of aggregate

catastrophe exposures,

capital, investments

and support

operations.

Management generally

monitors and

evaluates the

financial performance

of these

operating segments

based

upon their underwriting results.

Underwriting results include

earned premium less

losses and loss

adjustment expenses (“LAE”)

incurred,

commission and

brokerage expenses

and other underwriting

expenses.

We measure

our underwriting results

using ratios, in

particular loss, commission and

brokerage and

other underwriting expense ratios,

which,

respectively, divide

incurred losses, commissions

and brokerage

and other underwriting expenses

by premiums

earned.

The Company

does not

maintain separate

balance sheet

data for

its operating

segments.

Accordingly, the

Company does not review and evaluate

the financial results of its operating

segments based upon balance sheet

data.

The following tables present the underwriting results for the operating segments for the periods indicated:

Three Months Ended

Nine Months Ended

Reinsurance

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Gross written premiums

2,086,961

1,736,672

5,403,080

4,678,310

Net written premiums

1,936,851

1,583,713

4,974,034

4,212,952

Premiums earned

1,669,257

1,420,799

4,656,733

4,072,078

Incurred losses and LAE

1,335,048

1,050,621

3,361,367

2,605,901

Commission and brokerage

373,251

371,098

1,130,946

1,039,113

Other underwriting expenses

51,333

43,832

135,170

117,031

Underwriting gain (loss)

(90,375)

(44,752)

29,250

310,033

Three Months Ended

Nine Months Ended

Insurance

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Gross written premiums

704,643

666,602

2,328,733

2,018,727

Net written premiums

511,829

484,844

1,693,603

1,491,286

Premiums earned

536,554

484,820

1,628,297

1,383,537

Incurred losses and LAE

401,162

321,303

1,212,699

909,203

Commission and brokerage

72,081

71,978

229,224

214,387

Other underwriting expenses

87,542

74,326

250,695

204,945

Underwriting gain (loss)

(24,231)

17,213

(64,321)

55,002

The following

table reconciles

the underwriting

results for

the operating

segments to

income before

taxes as

reported in the

consolidated statements

of operations and

comprehensive income (loss)

for the periods

indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Underwriting gain (loss)

(114,606)

(27,539)

(35,071)

365,035

Net investment income

234,233

181,058

420,116

501,062

Net realized capital gains (losses)

110,203

(12,943)

84,263

109,561

Net derivative gain (loss)

2,456

(189)

(1,048)

3,395

Corporate expenses

(10,618)

(8,435)

(29,184)

(22,622)

Interest, fee and bond issue cost amortization

expense

(6,641)

(7,907)

(21,477)

(23,972)

Other income (expense)

57,481

(31,025)

48,354

(52,550)

Income (loss) before taxes

272,508

93,020

465,953

879,909

The Company

produces business

in the

U.S., Bermuda

and internationally.

The net

income deriving from

and

assets residing in

the individual foreign

countries in which

the Company writes

business are not

identifiable in

the Company’s financial records.

Based on gross written premium, the

table below presents the largest

country,

other than the U.S., in which the Company writes business, for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

United Kingdom gross written premium

314,502

272,297

857,310

743,294

No other country represented more than

% of the Company’s revenues.

16.

SHARE-BASED COMPENSATION PLANS

For the three months

ended September 30, 2020,

5,590

restricted stock awards

were granted on

September 11,

2020

, with a fair value of $

207.5050

For the

nine months

ended September

30, 2020,

a total

173,419

restricted stock

awards were

granted:

167,829

restricted share awards were

granted on

February 26, 2020

, with a fair value

of $

277.145

per share and

5,590

September 11, 2020

with a fair value

of $

207.5050

Also,

16,120

performance share unit awards

were

granted on

February 26, 2020

, with a fair value of $

277.145

per unit.

17.

RETIREMENT BENEFITS

The Company

maintains both

qualified and non-qualified

defined benefit

pension plans for

its U.S.

employees

employed prior to April 1, 2010.

Generally, the Company

computes the benefits based on average

earnings over

a period prescribed

by the plans

and credited

length of service.

The Company’s

non-qualified defined benefit

pension plan provided compensating pension benefits for participants

whose benefits have been curtailed under

the qualified

plan due

to Internal

Revenue Code

limitations.

Effective January

1, 2018,

participants of

the

Company’s non-qualified defined benefit pension plan may no longer accrue additional service benefits.

Net periodic benefit cost for U.S. employees included the following components for the periods indicated:

Pension Benefits

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Service cost

2,040

2,064

8,092

6,616

Interest cost

2,562

2,928

7,608

8,788

Expected return on plan assets

(5,197)

(4,492)

(15,591)

(14,523)

Amortization of net (income) loss

2,462

1,909

6,137

5,111

FAS 88 settlement charge

871

102

871

309

Net periodic benefit cost

2,738

2,511

7,117

6,301

Other Benefits

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Service cost

311

245

763

818

Interest cost

215

245

644

835

Amortization of prior service cost

(177)

(144)

(401)

(433)

Amortization of net (income) loss

(39)

Net periodic benefit cost

349

307

1,006

1,181

The service cost component

of net periodic benefit

costs is included

within other underwriting expenses

on the

consolidated statement of operations

and comprehensive income (loss).

In accordance with ASU 2017-07, other

staff compensation costs are also primarily recorded within this line item.

The Company

did

t make

any contributions

to the

qualified pension

benefit plan

for the

three and

nine

months ended September 30, 2020 and 2019, respectively.

18.

INCOME TAXES

The Company

is domiciled

in Bermuda

and has

significant subsidiaries

and/or branches

in Canada,

Ireland,

Singapore, Switzerland, the

United Kingdom, and

the United States.

The Company’s Bermuda

domiciled

subsidiaries are exempt

from income taxation

under Bermuda law

until 2035.

The Company’s

non-Bermudian

subsidiaries and branches are subject to income taxation at varying rates

in their respective domiciles.

The Company generally applies the estimated

Annualized Effective Tax

Rate (“AETR”)

approach for calculating its

tax provision

for interim

periods as prescribed

by ASC 740-270,

Interim Reporting.

Under the AETR

approach,

the estimated annualized

effective tax

rate is applied

to the interim

year-to-date pre-tax

income/loss to

determine the

income tax

expense or

benefit for

the year-to-date

period.

The tax

expense or

benefit for

the

quarter represents the

difference between

the year-to-date

tax expense or

benefit for the

current year-to-date

period less such amount for

the immediately preceding year-to-date

period.

Management considers the impact

of all known

events in its

estimation of the

Company’s annual pre

-tax income/loss and

annualized effective

tax

rate.

19.

SUBSEQUENT EVENTS

The Company has

evaluated known recognized

and non-recognized subsequent

events. In October

2020,

Hurricanes Delta

and Zeta

impacted the Caribbean

and southeastern

United States.

Due to

the recentness

these events,

the Company

is unable

to estimate

the amount

of losses

at this

time.

However,

the Company

anticipates that the losses from these events will adversely impact its fourth quarter 2020 financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION

AND ANALYSIS

OF FINANCIAL CONDITION

AND RESULTS

OPERATION

Industry Conditions.

The worldwide reinsurance

and insurance businesses

are highly competitive,

as well as

cyclical by product

and

market.

As such,

financial results

tend to

fluctuate with

periods of

constrained availability,

higher rates

and

stronger profits

followed by

periods of abundant capacity,

lower rates and constrained

profitability.

Competition in the

types of reinsurance

and insurance business

that we

underwrite is based

on many

factors,

including the perceived overall financial strength

of the reinsurer or insurer,

ratings of the reinsurer or insurer by

A.M. Best and/or

Standard &

Poor’s, underwriting expertise,

the jurisdictions where

the reinsurer

or insurer is

licensed or

otherwise authorized,

capacity and

coverages offered,

premiums charged,

other terms

and

conditions of

the reinsurance

and insurance

business offered,

services offered,

speed of

claims payment

and

reputation and

experience in

lines written.

Furthermore, the

market impact

from these

competitive factors

related to

reinsurance and

insurance is

generally not

consistent across

lines of business,

domestic and

international geographical areas and distribution channels.

We compete

in the U.S.,

Bermuda and international

reinsurance and

insurance markets

with numerous

global

competitors. Our

competitors include

independent reinsurance

and insurance

companies, subsidiaries or

affiliates of

established worldwide

insurance companies,

reinsurance departments

of certain

insurance

companies, domestic and

international underwriting operations,

including underwriting syndicates

at Lloyd’s

London and

certain government

Everest Group - 10-Q quarterly report FY2020 Q3

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