Industry Conditions.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As a result, financial results tend to fluctuate with periods of constrained availability, high rates and strong profits followed by periods of abundant capacity, low 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 Company and/or Standard & Poor's Rating Services, 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 and domestic and international underwriting operations, including underwriting syndicates at Lloyd's. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and the potential for securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.

Starting in the latter part of 2007, throughout 2008 and into 2009, there has been a significant slowdown in the global economy. Excessive availability and use of credit, particularly by individuals, led to increased defaults on sub-prime mortgages in the U.S. and elsewhere, falling values for houses and many commodities and contracting consumer spending. The significant increase in default rates negatively impacted the value of asset-backed securities held by both foreign and domestic institutions. The defaults have led to a corresponding increase in foreclosures, which have driven down housing values, resulting in additional losses on the asset-backed securities. During the third and fourth quarters of 2008, the credit markets deteriorated dramatically, evidenced by widening credit spreads and dramatically reduced availability of credit. Many financial institutions, including some insurance entities, experienced liquidity crises due to immediate demands for funds for withdrawals or collateral, combined with falling asset values and their inability to sell assets to meet the increased demands. As a result, several financial institutions have failed or been acquired at distressed prices, while others have received loans from the U.S. government to continue operations. The liquidity crisis significantly increased the spreads on fixed maturities and, at the same time, had a dramatic and negative impact on the stock markets around the world. The combination of losses on securities from failed or impaired companies combined with the decline in values of fixed maturities and equity securities has resulted in significant declines in the capital bases of most insurance and reinsurance companies. While there was some slight improvement in the financial markets during the first quarter of 2009, it is too early to predict the timing and extent of impact the capital deterioration will have on insurance and reinsurance market conditions. There is an expectation that these events will ultimately result in increased rates for insurance and reinsurance in certain segments of the market, but there is no assurance that this will not be the case.

Worldwide insurance and reinsurance market conditions continued to be very competitive. Generally, there was ample insurance and reinsurance capacity relative to demand. We noted, however, that in many markets and lines, the rates of decline have slowed, pricing in some segments was relatively flat and there was upward movement in some others, particularly property catastrophe coverage. Competition and its effect on rates, terms and conditions vary widely by market and coverage yet continues to be most prevalent in the U.S. casualty insurance and reinsurance markets. The U.S. insurance markets in which we participate were extremely competitive as well, particularly in the workers' compensation, public entity and contractor

sectors. While our growth in existing programs has slowed, given the specialty nature of our business and our underwriting discipline, we believe the impact on the profitability of our business will be less pronounced than on the market generally. In addition, we continue to opportunistically add new programs and lines of business to enhance growth and profitability.

Rates in the international markets have generally been more adequate than in the U.S., and we have seen some increases, particularly for catastrophe exposed business. We have grown our business in the Middle East, Latin America and Asia. We are expanding our international reach by opening a new office in Brazil to capitalize on the recently expanded opportunity for professional reinsurers in that market and on the economic growth expected for Brazil in the future.

The reinsurance industry has experienced a period of falling rates and volume. Profit opportunities have become generally less available over time; however the unfavorable trends appear to have abated somewhat. We are now seeing smaller rate declines, pockets of stability and some increases in some markets and for some coverages. As a result of very significant investment and catastrophe losses incurred by both primary insurers and reinsurers over the past year, but principally in the last six months of 2008, industry-wide capital declined and rating agency scrutiny increased. There is an expectation that given the rate softening that has occurred over the past several quarters, the industry-wide decline in capital combined with volatile and unreceptive markets and a looming recession, will lead to a hardening of insurance and reinsurance marketplace rates, terms and conditions. It is too early to gauge the extent of hardening, if any, that will occur; however, it appears that much of the redundant capital has been wrung out of the industry, and the stage is set for firmer markets.

Both January and April, 2009, renewal rates, particularly for property catastrophes and retrocessional covers and in international markets were generally firmer compared to a year ago.

Overall, we believe that current marketplace conditions offer profit opportunities for us given our strong ratings, distribution system, reputation and expertise. We continue to employ our strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in our overall portfolio.

Financial Summary.

We monitor and evaluate our overall performance based upon financial results.
The following table displays a summary of the consolidated net income, ratios
and shareholders' equity for the periods indicated.



                                                         Three Months Ended           Percentage
                                                             March 31,                Increase/
(Dollars in millions)                                  2009              2008         (Decrease)
Gross written premiums                            $        997.8    $        877.5         13.7%
Net written premiums                                       970.7             838.7         15.7%

REVENUES:
Premiums earned                                   $        932.3    $        912.0          2.2%
Net investment income                                       68.8             150.1        -54.2%
Net realized capital losses                               (65.1)           (136.4)        -52.2%
Realized gain on debt repurchase                            78.3                 -            NM
Net derivative expense                                    (19.7)             (3.8)            NM
Other expense                                              (5.2)             (5.2)          0.4%
Total revenues                                             989.3             916.8          7.9%

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses               569.9             545.4          4.5%
Commission, brokerage, taxes and fees                      226.0             227.1         -0.5%
Other underwriting expenses                                 40.1              40.2         -0.3%
Interest, fees and bond issue cost amortization             20.1              19.8          1.8%
expense
Total claims and expenses                                  856.2             832.5          2.8%

INCOME BEFORE TAXES                                        133.1              84.2         58.0%
Income tax expense                                          24.5               6.3            NM
NET INCOME                                        $        108.6    $         77.9         39.3%

                                                                                        Point
RATIOS:                                                                                 Change
Loss ratio                                                 61.1%             59.8%           1.3
Commission and brokerage ratio                             24.2%             24.9%         (0.7)
Other underwriting expense ratio                            4.4%              4.4%             -
Combined ratio                                             89.7%             89.1%           0.6

                                                        At                At          Percentage
                                                    March 31,        December 31,     Increase/
(Dollars in millions, except per share amounts)        2009              2008         (Decrease)
Balance sheet data:
   Total investments and cash                     $     13,601.1    $     13,714.3         -0.8%
   Total assets                                         16,725.0          16,846.6         -0.7%
   Loss and loss adjustment expense reserves             8,775.5           8,840.7         -0.7%
   Total debt                                            1,017.8           1,179.1        -13.7%
   Total liabilities                                    11,685.1          11,886.2         -1.7%
   Shareholders' equity                                  5,039.9           4,960.4          1.6%
Book value per share                                       81.89             80.77

(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)

Revenues.

Premiums. Gross written premiums increased by $120.3 million, or 13.7%, for the three months ended March 31, 2009 compared to the three months ended March 31, 2008, reflecting an increase of $126.0 million in our reinsurance business, partially offset by a decline of $5.7 million in our U.S. insurance business. The increase in our reinsurance business was primarily attributable to increased rates on property business, in both the international and U.S. markets, the new crop hail quota share treaty business, expanded participation on renewal contracts and new writings as ceding companies continue to favor

reinsurers such as Everest, with strong financial ratings. The decrease in insurance premiums were primarily the result of primary casualty rates that were generally down. Net written premiums increased $132.1 million, or 15.7%, for the three months ended March 31, 2009 compared to the three months ended March 31, 2008, primarily due to the increase in gross written premiums. Premiums earned increased $20.3 million, or 2.2%, for the three months ended March 31, 2009 compared to the three months ended March 31, 2008 reflecting the higher net written premiums, which will be earned over the contract periods.

Net Investment Income. Net investment income decreased by 54.2% for the three months ended March 31, 2009 compared to the three months ended March 31, 2008, primarily due to net investment losses from our limited partnership investments. The limited partnership investment losses this quarter were primarily from limited partnerships that invested in non-public securities, both equity and debt, which report to us on a quarter lag. As such, these specific partnership results reflected the results incurred for the fourth quarter of last year. Net pre-tax investment income as a percentage of average invested assets was 2.0% for the three months ended March 31, 2009 compared to 4.1% for the three months ended March 31, 2008.

Net Realized Capital Losses. Net realized capital losses were $65.1 million and $136.4 million for the three months ended March 31, 2009 and 2008, respectively.

Net realized capital losses for the three months ended March 31, 2009 continue to reflect the influence of the global financial market credit crisis. As such, our equity security portfolio decreased $16.9 million as a result of fair value adjustments and our fixed maturity securities decreased $8.3 million due to other-than-temporary impairments. In addition, we recognized $39.9 million of net realized capital losses, from the sale of fixed maturity and equity securities we owned as we reduced exposure to certain credit risks. We report changes in fair values of our equity securities as realized capital gains or losses in accordance with FAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment to FASB Statement No. 115" ("FAS 159"), and we report realized losses on our fixed income portfolio from other-than-temporary impairments as realized capital losses in accordance with FAS No. 115-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" ("FAS 115-1").

Net realized capital losses for the three months ended March 31, 2008 included $121.5 million from fair value adjustments on our equity securities as a result of the decrease in worldwide equity markets. In addition, we recognized $14.0 million of net realized capital losses, principally from sales of equity securities.

Realized Gain on Debt Repurchase. On March 19, 2009, we announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes due 2067. Upon expiration of the tender offer, we had reduced our outstanding debt by $161.4 million, which resulted in a pre-tax gain on debt repurchase of $78.3 million.

Net Derivative Expense. In 2005 and prior, we sold seven equity index put options, which are outstanding. These contracts meet the definition of a derivative under FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). We recognized net derivative expense of $19.7 million and $3.8 million for the three months ended March 31, 2009 and 2008, respectively. The net derivative expense represents changes in the fair value of these contracts. The increased expense for the three months ended March 31, 2009 was driven by declines in the underlying indexes and interest rates, which are the primary determinants of the contracts' fair values.

Other Expense. We recorded expense of $5.2 million for the three months ended March 31, 2009 and 2008, which were primarily the result of fluctuations in foreign currency exchange rates over the corresponding periods.

Claims and Expenses.

Incurred Losses and LAE. The following table presents our incurred losses and
loss adjustment expenses ("LAE") for the periods indicated.



                                                                Three Months Ended March 31,
                                     Current            Ratio %/          Prior        Ratio %/        Total        Ratio %/
(Dollars in millions)                  Year             Pt Change         Years       Pt Change      Incurred      Pt Change
2009
Attritional (a)                       $      518.8        55.7%        $       17.9     1.9%       $       536.7    57.6%
Catastrophes                                  28.9         3.1%                 4.2     0.5%                33.2     3.6%
A&E                                              -         0.0%                   -     0.0%                   -     0.0%
Total segment                         $      547.7        58.8%        $       22.2     2.4%       $       569.9    61.1%

2008
Attritional (a)                       $      503.6        55.2%        $       20.9     2.3%       $       524.5    57.5%
Catastrophes                                  15.7         1.7%                 5.1     0.6%                20.8     2.3%
A&E                                              -         0.0%                   -     0.0%                   -     0.0%
Total segment                         $      519.3        56.9%        $       26.0     2.9%       $       545.4    59.8%

Variance 2009/2008
Attritional (a)                       $       15.2          0.4 pts   $       (3.0)    (0.4) pts   $        12.2      0.1 pts
Catastrophes                                  13.2          1.4 pts           (0.9)    (0.1) pts            12.4      1.3 pts
A&E                                              -            - pts               -        - pts               -        - pts
Total segment                         $       28.4          1.9 pts   $       (3.8)    (0.5) pts   $        24.6      1.3 pts

(a) Attritional losses exclude catastrophe and A&E losses.
(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE were higher by $24.6 million, or 4.5%, for the three months ended March 31, 2009 compared to the same period in 2008. Attritional losses were slightly higher in 2009, which were largely the result of slightly higher 2009 premiums earned. Catastrophe losses, at $33.2 million for the three months ended March 31, 2009, were $12.4 million higher than the same period in 2008. The 2009 current year catastrophes primarily consisted of the European floods and Victoria brushfire compared to the 2008 catastrophes of the China snowstorm and winterstorm Emma.

Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees decreased by $1.1 million, or 0.5%, for the three months ended March 31, 2009 compared to the same period in 2008. The change in this directly variable expense was influenced by the change in the mix of business.

Other Underwriting Expenses. Other underwriting expenses for the three months ended March 31, 2009 were $40.1 million compared to $40.2 million for the three months ended March 31, 2008. Included in other underwriting expenses were corporate expenses, which are expenses that are not allocated to segments, of $3.8 million and $2.8 million for the three months ended March 31, 2009 and 2008, respectively.

Interest, Fees and Bond Issue Cost Amortization Expense. Interest and other expense was $20.1 million and $19.8 million for the three months ended March 31, 2009 and 2008, respectively.

Income Tax Expense. Our income tax was an expense of $24.5 million for the three months ended March 31, 2009, principally as a result of the realized gain on the repurchase of debt. We had income tax expense of $6.3 million for the three months ended March 31, 2008, primarily due to income from operations, partially offset by net realized capital losses and tax-preferenced investment income. Our income tax is primarily a function of the statutory tax rates and corresponding pre-tax income in the jurisdictions where we operate, coupled with the impact from tax-preferenced investment income. Variations in our effective tax rate generally result from changes in the relative levels of pre-tax income among jurisdictions with different tax rates.

Net Income.

Our net income was $108.6 million for the three months ended March 31, 2009 compared to $77.9 million for the three months ended March 31, 2008. This increase was primarily the result of the gain on debt

repurchase and lower net realized losses, partially offset by higher net derivative expense and higher tax expense in the first quarter of 2009 compared to the same period in 2008.

Ratios.

Our combined ratio increased by 0.6 points to 89.7% for the three months ended March 31, 2009 compared to 89.1% for the three months ended March 31, 2008. The loss ratio component increased 1.3 points for the three months ended March 31, 2009, principally due to the increase in current year catastrophe losses. The commission and brokerage ratio component decreased by 0.7 points for the three months ended March 31, 2009 compared to 2008, while the other underwriting expense ratio component remained flat.

Shareholders' Equity.

Shareholders' equity increased by $79.5 million to $5,039.9 million at March 31, 2009 from $4,960.4 million at December 31, 2008, principally as a result of $108.6 million of net income, $46.9 million of unrealized appreciation on investments, net of tax, and share-based compensation transactions of $3.3 million, partially offset by $49.7 million of foreign currency translation adjustments and $29.5 million of shareholder dividends.

Consolidated Investment Results

Net Investment Income.

Net investment income decreased 54.2% to $68.8 million for the three months ended March 31, 2009 from $150.1 million for the three months ended March 31, 2008, primarily due to losses incurred on our limited partnership investments. The limited partnership investment losses this quarter were primarily from limited partnerships that invested in non-public securities, both equity and debt, which report to us on a quarter lag. As such, these specific partnership results reflected the results incurred for the fourth quarter of last year.

The following table shows the components of net investment income for the periods indicated:

                                                           Three Months Ended
                                                                March 31,
(Dollars in millions)                                     2009            2008
Fixed maturities                                       $      144.6   $       128.4
Equity securities                                               0.7             5.5
Short-term investments and cash                                 3.6            22.6
Other invested assets
   Limited partnerships                                      (72.9)           (5.1)
   Other                                                        0.8             1.3
Total gross investment income                                  76.7           152.7
Interest credited and other
expense                                                       (8.0)           (2.6)
Total net investment income                           $        68.8   $       150.1

(Some amounts may not reconcile due to rounding.)

The following tables show a comparison of various investment yields for the periods indicated:

                                                        At            At
                                                     March 31,   December 31,
                                                       2009          2008
Imbedded pre-tax yield of cash and invested assets        4.2%           4.5%
Imbedded after-tax yield of cash and invested assets      3.7%           4.0%




                                                        Three Months Ended
                                                             March 31,
                                                         2009        2008
Annualized pre-tax yield on average cash and invested      2.0%         4.1%
assets
Annualized after-tax yield on average cash and             1.9%         3.4%
invested assets

Net Realized Capital Losses.

The following table presents the composition of our net realized capital losses
for the periods indicated:



                                                         Three Months Ended March 31,
(Dollars in millions)                                 2009            2008        Variance
(Losses) gains from sales:
  Fixed maturity securities, market
value
    Gains                                          $        2.7   $        1.4   $       1.3
    Losses                                               (42.3)          (1.5)        (40.8)
  Total                                                  (39.6)          (0.1)        (39.5)

  Fixed maturity securities, fair value
    Gains                                                   0.2              -           0.2
    Losses                                                (0.1)              -         (0.1)
  Total                                                     0.1              -           0.1

  Equity securities, fair value
    Gains                                                   0.2            2.7         (2.5)
    Losses                                                (0.7)         (16.6)          15.9
  Total                                                   (0.4)         (13.9)          13.5

Total net realized capital losses from sales
    Gains                                                   3.1            4.1         (1.0)
    Losses                                               (43.0)         (18.1)        (24.9)
  Total                                                  (39.9)         (14.0)        (25.9)

Other-than-temporary impairments:                         (8.3)          (0.9)         (7.4)

(Losses) gains from fair value adjustments:
  Equity securities, fair value                          (16.9)        (121.5)         104.6
Total                                                    (16.9)        (121.5)         104.6

Total net realized capital (losses) gains         $      (65.1)   $    (136.4)   $      71.3

(Some amounts may not reconcile due to rounding.)

We recorded $16.9 million and $121.5 million in net realized capital losses due to fair value re-measurements on equity securities for the three months ended March 31, 2009 and 2008, respectively. In addition, we recorded other-than-temporary impairments of $8.3 million and $0.9 million for the three months ended March 31, 2009 and 2008, respectively. These net realized capital losses were influenced by the continuing financial liquidity crisis and related global economic downturn. This continues to impact both the equity and credit markets. Equities are trading at multiyear lows, spreads on fixed maturity securities have been at unprecedented levels and many securities have been downgraded by rating agencies.

Segment Results.

Through our subsidiaries, we operate in five segments: U.S. Reinsurance, U.S. Insurance, Specialty Underwriting, International and Bermuda. The U.S. Reinsurance operation writes property and casualty reinsurance, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies within the U.S. The U.S. Insurance operation writes property and casualty insurance primarily through general agents and surplus lines . . .