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Asbestos reserve pushes Everest Q4 combined ratio to 108.4 percent

Bermudian reinsurer Everest Re reported a 21-point deterioration in its combined ratio, to 108.4 percent for the final quarter of 2007, owing largely to the $311.2mn asbestos charge announced in January.

Everest also experienced $211.6mn deterioration of prior-year reserves in the quarter, partially offset by core reserve releases of $99.6mn.

Post-tax operating income and net income were both significantly down on the prior-year period, at $63.2mn, or $1.00 per diluted share, and $12.2mn, or $0.19 per diluted share, respectively for the final quarter of 2007. The same figures for fourth quarter 2006 were $201.2mn, or $3.07 per diluted share, and $206.4mn, or $3.15 per diluted share, respectively.

Bear Stearns analyst David Small commented that earnings per share were “slightly below the mid-point of the earnings range”.

“In terms of profitability, the quarter was roughly inline with our expectations, although core profitability was slightly worse than expected, which was offset by greater than anticipated reserve releases,” he added.

For the full year 2007, however, the result was only marginally below 2006. After-tax operating income was $776.9mn, or $12.21 per diluted share, compared to $817.9mn, or $12.52 per diluted share for 2006. Net income, including net realised capital gains and losses, was $839.3mn for the full year 2007, just below the $840.8mn reported for 2006. On a per diluted share basis, net income was $13.19, an increase of 2.5 percent from $12.87 per diluted share reported for 2006.

Gross written premiums for the fourth quarter 2007 were $1.1bn, a 6.4 percent increase on the prior-year period.

Gross premiums in the US insurance book rose by 37 percent, largely owing to “a newly incepted programme”, according to the firm.

Small noted, however, that the gross premium increase “did not fall to net premiums, as retentions fell dramatically to 68.5 percent versus 81.8 percent in the year-ago quarter”.

“Everest has historically not relied on reinsurance and this would be a shift in strategy,” he added.

Shareholders’ equity grew from $5.1bn to $5.7bn during 2007, after share repurchases of $241.6mn and dividend payouts of $121.4mn.

Everest did not buyback any shares in the quarter, a move that “surprised” Small, “even though it has a remaining 2.5 million shares under its outstanding repurchase authorisation”, he said.

Book value per share grew 15.2 percent from $78.53 at year end 2006 to $90.43 at 31 December 2007.

Commenting on the company's results, chairman and CEO, Joseph Taranto said: “It was yet another exceptional year for Everest with net income in excess of $800mn, which provided a return on shareholders’ equity of 16 percent and book value growth per share of 15 percent. This was accomplished while strengthening our balance sheet and returning capital to shareholders. As we look at 2008, we feel extremely well positioned to deal with any challenges that the market may bring.”

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