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, 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, which has negatively impacted the financial resources of the industry. 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 maturity and equity securities has resulted in significant declines in the capital bases of most insurance and reinsurance companies. While there has been improvement in the financial markets during 2009, it is too early to predict the timing and extent of impact the capital deterioration and subsequent partial recovery will have on insurance and reinsurance market conditions.

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.

The reinsurance industry has experienced a period of falling rates and volume, particularly in the casualty lines of business. 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 nine months of 2008, industry-wide capital declined and rating agency scrutiny increased. It is too early to gauge the extent of hardening, if any, that will occur; however, it appears that much of the redundant capital in the industry has been depleted, and the stage is set for firmer markets.

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 with the opening of 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 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
(loss), ratios and shareholders' equity for the periods indicated.

                              Three Months Ended         Percentage            Nine Months Ended              Percentage
                                 September 30,            Increase/              September 30,                 Increase/
(Dollars in millions)         2009          2008         (Decrease)          2009              2008           (Decrease)
Gross written premiums      $ 1,128.8     $   999.2            13.0 %   $      3,100.4     $     2,782.0            11.4 %
Net written premiums          1,057.3         960.6            10.1 %          2,954.7           2,664.0            10.9 %

REVENUES:
Premiums earned             $   975.4     $   931.9             4.7 %   $      2,864.6     $     2,785.9             2.8 %
Net investment income           165.4         164.5             0.6 %            401.4             490.5           -18.2 %
Net realized capital
gains (losses)                   31.1        (293.4 )        -110.6 %            (10.6 )          (461.3 )         -97.7 %
Realized gain on debt
repurchase                          -             -              NM               78.3                 -              NM
Net derivative (expense)
income                           (2.1 )        14.9          -114.2 %             (0.5 )            13.2          -103.6 %
Other expense                   (13.2 )        (8.2 )          60.2 %            (16.0 )           (23.6 )         -32.1 %
Total revenues                1,156.5         809.7            42.8 %          3,317.1           2,804.8            18.3 %

CLAIMS AND EXPENSES:
Incurred losses and loss
adjustment expenses             587.2         813.7           -27.8 %          1,723.9           1,963.8           -12.2 %
Commission, brokerage,
taxes and fees                  229.3         218.0             5.1 %            684.5             689.9            -0.8 %
Other underwriting
expenses                         48.9          40.3            21.3 %            134.4             120.3            11.7 %
Interest, fees and bond
issue cost amortization
expense                          17.4          19.8           -12.2 %             54.6              59.4            -8.0 %
Total claims and expenses       882.8       1,091.8           -19.1 %          2,597.5           2,833.3            -8.3 %

INCOME (LOSS) BEFORE
TAXES                           273.7        (282.2 )        -197.0 %            719.6             (28.6 )            NM
Income tax expense
(benefit)                        45.1         (49.0 )        -191.9 %            109.9             (26.4 )            NM
NET INCOME (LOSS)           $   228.6     $  (233.1 )        -198.1 %   $        609.8     $        (2.2 )            NM

                                                            Point                                                Point
RATIOS:                                                    Change                                               Change
Loss ratio                       60.2 %        87.3 %         (27.1 )             60.2 %            70.5 %         (10.3 )
Commission and brokerage
ratio                            23.5 %        23.4 %           0.1               23.9 %            24.8 %          (0.9 )
Other underwriting
expense ratio                     5.0 %         4.3 %           0.7                4.7 %             4.3 %           0.4
Combined ratio                   88.7 %       115.0 %         (26.3 )             88.8 %            99.6 %         (10.8 )

                                                                               At                At           Percentage
                                                                         September 30,      December 31,       Increase/
(Dollars in millions,
except per share amounts)                                                      2009               2008        (Decrease)
Balance sheet data:
  Total investments and
cash                                                                    $     15,113.0     $    13,714.3            10.2 %
  Total assets                                                                18,128.9          16,846.6             7.6 %
  Loss and loss
adjustment expense
reserves                                                                       8,889.7           8,840.7             0.6 %
  Total debt                                                                   1,017.9           1,179.1           -13.7 %
  Total liabilities                                                           12,043.9          11,886.2             1.3 %
  Shareholders' equity                                                         6,085.0           4,960.4            22.7 %
Book value per share                                                            100.75             80.77

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

Revenues.
Premiums. Gross written premiums increased by $129.7 million, or 13.0%, for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, reflecting an increase of $93.2 million in our reinsurance business and $36.5 million in our insurance business. Gross written premiums increased by $318.5 million, or 11.4%, for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, reflecting an increase of $265.2 million in our reinsurance business and $53.3 million in our insurance business. The increased reinsurance business was primarily attributable to increased rates on property business, in both the international and U.S. markets,

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 increase in insurance premiums were primarily in the financial institutions directors and officers ("D&O") and errors and omissions ("E&O") lines of business, which are new offerings for us, as well as additional written property insurance premiums in Florida where rates to exposure remain attractive.

Net written premiums increased $96.7 million, or 10.1%, for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, and $290.7 million, or 10.9%, for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. The increases in net written premiums are primarily due to the increase in gross written premiums, partially offset by increased cessions. Premiums earned increased $43.5 million, or 4.7%, for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, and increased $78.7 million, or 2.8%, for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, reflecting the higher net written premiums, which will be earned over the contract periods.

Net Investment Income. Net investment income remained relatively flat for the three months ended September 30, 2009, compared to the three months ended September 30, 2008 despite strong cash flow and therefore larger invested asset base as available yields for new long and short term fixed maturity investments have declined considerably. Net investment income decreased by 18.2% for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, due primarily to losses from our limited partnership investments that invest in public and non-public securities, both equity and debt. As a result, net pre-tax investment income, as a percentage of average invested assets, was 4.6% for the three months ended September 30, 2009 compared to 4.5% for the three months ended September 30, 2008 and 3.7% for the nine months ended September 30, 2009 compared to 4.5% for the nine months ended September 30, 2008.

Net Realized Capital Gains (Losses). Net realized capital gains were $31.1 million and net realized capital losses were $293.4 million for the three months ended September 30, 2009 and 2008, respectively. Net realized capital losses were $10.6 million and $461.3 million for the nine months ended September 30, 2009 and 2008, respectively. The realized gains and losses reflected for each period were primarily a function of changes in the fair value of our public equity portfolio. During 2008, our equity portfolio was much larger and the equity markets were declining rapidly. Conversely in 2009, our equity portfolio has been reduced and the equity markets have improved. In addition, for the nine months ended September 30, 2008, the Company recorded $159.9 million of other-than-temporary impairments on the values of specific fixed income securities, whereas for the comparable period in 2009, only $13.2 million of other-than-temporary write-downs had been recorded.

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) Income. In 2005 and prior, we sold seven equity index put options, which are outstanding. These contracts meet the definition of a derivative under ASC 815 and accordingly, are fair valued each quarter. As a result of these adjustments in value, we recognized net derivative expense of $2.1 million and $0.5 million for the three and nine months ended September 30, 2009, respectively. We recognized net derivative income of $14.9 million and $13.2 million for the three and nine months ended September 30, 2008, respectively. Although the indices upon which these contracts have risen, a declining interest rate environment raises the present value of any potential obligation, thereby more than offsetting the rise in the indices.

Other Expense. We recorded other expense of $13.2 million and $16.0 million for the three and nine months ended September 30, 2009, respectively. We recorded other expense of $8.2 million and $23.6 million for the three and nine months ended September 30, 2008, respectively. The changes were primarily the result of fluctuations in foreign currency exchange rates for the corresponding periods.

Claims and Expenses.
Incurred Losses and LAE. The following tables present our incurred losses and
loss adjustment expenses ("LAE") for the periods indicated.


                                                 Three Months Ended September 30,
                        Current        Ratio %/      Prior        Ratio %/       Total         Ratio %/
(Dollars in millions)     Year         Pt Change     Years       Pt Change     Incurred        Pt Change
2009
Attritional (a)         $  554.0        56.8 %       $  8.7        0.9 %       $   562.7        57.7 %
Catastrophes                20.1         2.1 %          4.5        0.5 %            24.5         2.5 %
A&E                            -         0.0 %            -        0.0 %               -         0.0 %
Total segment           $  574.1        58.9 %       $ 13.2        1.3 %       $   587.2        60.2 %

2008
Attritional (a)         $  516.8        55.5 %       $ (9.1 )     -1.0 %       $   507.8        54.5 %
Catastrophes               302.5        32.5 %          3.4        0.4 %           305.9        32.8 %
A&E                            -         0.0 %            -        0.0 %               -         0.0 %
Total segment           $  819.3        87.9 %       $ (5.7 )     -0.6 %       $   813.7        87.3 %

Variance 2009/2008
Attritional (a)         $   37.2         1.3   pts   $ 17.7        1.9   pts   $    54.9         3.2   pts
Catastrophes              (282.4 )     (30.4 ) pts      1.1        0.1   pts      (281.4 )     (30.3 ) pts
A&E                            -           -   pts        -          -   pts           -           -   pts
Total segment           $ (245.2 )     (29.0 ) pts   $ 18.8        1.9   pts   $  (226.4 )     (27.1 ) pts






                                           Nine Months Ended September 30,
                 Current         Ratio %/       Prior        Ratio %/       Total         Ratio %/
(Dollars in
millions)          Year          Pt Change      Years       Pt Change     Incurred        Pt Change
2009
Attritional
(a)             $  1,625.4        56.7 %       $  32.6        1.1 %       $ 1,658.0        57.9 %
Catastrophes          56.0         2.0 %           9.9        0.4 %            65.9         2.3 %
A&E                      -         0.0 %             -        0.0 %               -         0.0 %
Total
segment         $  1,681.3        58.7 %       $  42.6        1.5 %       $ 1,723.9        60.2 %

2008
Attritional
(a)             $  1,553.0        55.8 %       $  65.9        2.4 %       $ 1,619.0        58.1 %
Catastrophes         336.2        12.1 %           8.6        0.3 %           344.8        12.4 %
A&E                      -         0.0 %             -        0.0 %               -         0.0 %
Total
segment         $  1,889.2        67.8 %       $  74.6        2.7 %       $ 1,963.8        70.5 %

Variance
2009/2008
Attritional

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

Incurred losses and LAE were lower by $226.4 million, or 27.8%, for the three months ended September 30, 2009 compared to the same period in 2008. Catastrophe losses, at $24.5 million for the three months ended September 30, 2009, were $281.4 million lower than the same period in 2008, primarily due to the absence, in 2009, of any large 2008 catastrophe losses. Prior years' losses incurred for the third quarter were higher by 1.9 points as 2009 reserve development was $8.7 million unfavorable compared to the $9.1 million favorable reserve development in 2008.

Incurred losses and LAE were lower by $239.8 million, or 12.2%, for the nine months ended September 30, 2009 compared to the same period in 2008. The primary contributor to the decrease was the reduction in current year catastrophe losses of $280.2 million. The variance in the prior years' attritional losses was due to the absence, in 2009, of the $85.3 million reserve strengthening on an auto loan credit program and the $32.6 million unfavorable arbitration decision on a reinsurance claim. Excluding these two items, prior years' attritional losses were $32.6 million unfavorable reserve development in 2009, in contrast to $52.0 million favorable reserve development in 2008.

Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased by $11.2 million, or 5.1%, for the three months ended September 30, 2009 compared to the same period in 2008, and decreased by $5.4 million, or 0.8%, for the nine months ended September 30, 2009 compared to the same period in 2008. The change in this directly variable expense was influenced by changes in the mix of business and premiums earned.

Other Underwriting Expenses. Other underwriting expenses were $48.9 million and $40.3 million for the three months ended September 30, 2009 and 2008, respectively, and $134.4 million and $120.3 million for the nine months ended September 30, 2009 and 2008, respectively. The increase was primarily due to the increase in staff and staff related expenses as the Company continues to grow its direct book of business. In addition, other underwriting expenses included corporate expenses, which are expenses that are not allocated to segments, of $4.4 million and $3.3 million for the three months ended September 30, 2009 and 2008, respectively, and $12.6 million and $10.7 million for the nine months ended September 30, 2009 and 2008, respectively.

Interest, Fees and Bond Issue Cost Amortization Expense. Interest and other expense was $17.4 million and $19.8 million for the three months ended September 30, 2009 and 2008, respectively, and $54.6 million and $59.4 million for the nine months ended September 30, 2009 and 2008, respectively. The decrease, period over period, was primarily due to the partial repurchase of long term subordinated notes in March 2009.

Income Tax Expense (Benefit). We had income tax expense of $45.1 million and $109.9 million for the three and nine months ended September 30, 2009, respectively. We had income tax benefit of $49.0 million and $26.4 million for the three and nine months ended September 30, 2008, respectively. The period over period increases were primarily due to the increase in pre-tax net income in 2009 versus pre-tax net losses in 2008. 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 (Loss).
Our net income was $228.6 million and $609.8 million for the three and nine months ended September 30, 2009, respectively, compared to a net loss of $233.1 million and $2.2 million for the three and nine months ended September 30, 2008, respectively. This increase was the result of the items discussed above.

Ratios.
Our combined ratio decreased by 26.3 points to 88.7% for the three months ended September 30, 2009 compared to 115.0% for the three months ended September 30, 2008 and decreased by 10.8 points to 88.8% for the nine months ended September 30, 2009 compared to 99.6% for the nine months ended September 30, 2008. The loss ratio component decreased 27.1 points and 10.3 points for the three and nine months ended September 30, 2009, respectively, compared to the same periods last year, principally due to the significant decrease in catastrophe losses. The commission and brokerage ratio component increased by 0.1 points and decreased by 0.9 points for the three and nine months ended September 30, 2009, respectively, compared to the same periods last year, due to mix of business, while the other

underwriting expense ratio component increased by 0.7 points and 0.4 points for the three and nine months ended September 30, 2009, respectively, compared to the same periods last year.

Shareholders' Equity.
Shareholders' equity increased by $1,124.6 million to $6,085.0 million at September 30, 2009 from $4,960.4 million at December 31, 2008, principally as a result of $609.8 million of net income, $575.7 million of unrealized appreciation on investments, net of tax, $103.7 million of foreign currency translation adjustments and share-based compensation transactions of $11.8 million, partially offset by common share repurchases of $90.5 million and $88.2 million of shareholder dividends.

Consolidated Investment Results

Net Investment Income.
Net investment income increased slightly to $165.4 million for the three months ended September 30, 2009 from $164.5 million for the three months ended September 30, 2008, and decreased to $401.4 million for the nine months ended September 30, 2009 from $490.5 million for the nine months ended September 30, 2008. The changes for the nine month comparison were primarily due to losses incurred in the first quarter of 2009 on our limited partnership investments that invest in public and non-public securities, both equity and debt, which reported to us on a quarter lag.

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

                                              Three Months Ended            Nine Months Ended
                                                 September 30,                September 30,
(Dollars in millions)                         2009           2008           2009          2008
. . .