Everest Re Group, Ltd. reported third quarter 2002 results on Monday evening with both operating earnings and net income affected by a $12.5 million expense due to a mark-to-market valuation adjustment on certain derivative contracts.

Excluding the impact of this adjustment, operating earnings per diluted share and net income per diluted share would have been $1.53 and $1.43 respectively. Morgan Stanley analyst Alice Schroeder said this marks the second consecutive quarter where the company has reported a loss on derivative contracts as in the second quarter of this year they reported a loss of $4.9 million or $0.10 per share.

Ms Schroeder said: "Prior to late 2001, Everest's MTM earnings impact had been deminimus, and we expect that investors are likely to be surprised by the news."

Despite the mark-to-market impact, Everest chairman and chief executive officer Joseph V. Taranto said: "Our focus and discipline continue to produce strong underwriting and cash flow results. We are pleased with these fundamentals and believe we are extremely well positioned to capitalise on the opportunities presented to us in an improving marketplace."

The company reported after-tax operating income, which excludes realised capital gains and losses, of $66.5 million, or $1.29 per diluted share, compared to a loss of $37.8 million, or $0.82 per diluted share, in the third quarter of 2001. For the nine months ended September 30, 2002, gross premiums written were $1.93 billion, a 37.6 percent increase from $1.41 billion in the first nine months of 2001. Net written premiums grew 54.2 percent to $1.83 billion from $1.18 billion in 2001. The GAAP combined ratio for the first nine months of 2002 was 97.8 percent compared to 115.3 percent in 2001. Net investment income for the nine months ended September 30, 2002 was $262.8 million, an increase of 2.2 percent from $257.2 million in 2001. Cash flow from operations in the first nine months was $455.0 million compared to $215.5 million in the first nine months of 2001, an increase of 111.2 percent.

At September 30, 2002, the company's shareholders' equity was $2.30 billion (a book value per share of $45.18), which represents a 33.6 percent increase from shareholders' equity of $1.72 billion ($37.19 per share) at December 31, 2001.

Although the practice is not required, the company has implemented the expensing of stock options. The impact of options granted in 2002 on earnings per diluted share is estimated to be $0.01 in 2002 and approximately $0.03 for 2003. The company reaffirmed its estimate of operating earnings for 2003 of $6.60-$7.20 per diluted share, absent any unusual losses or market developments.

The company also announced that it has replaced its previous common equity-only shelf registration statement with an expanded universal shelf registration statement in the amount of $475 million; this new registration statement, which has been declared effective by the SEC, will give the company and its affiliates, Everest Reinsurance Holdings Inc. and Everest Re Capital Trust, additional financing flexibility.

In addition, during the quarter, the company repurchased 450,000 common shares at an average price of $50.86, leaving 1.73 million shares outstanding in its repurchase authorisation.