Everest Re reported a slight drop in second-quarter operatingearnings yesterday, with catastrophe losses of $70.4 million fromstorms and flooding in Australia and England contributing to thedecline.

Net operating earnings were $213.3 million, or $3.36 per share,compared with $218.7 million, or $3.35 per share, in last year'ssecond quarter.

Including realized investment gains of $91.7 million, net incomefor the quarter was $282.9 million, or $4.45 per share, up roughly28 percent over last year's second quarter.

Investment income (from interest and dividends) also contributedto a stronger overall bottom line, jumping 17 percent to $179.7million in the quarter.

Although underwriting profits fell, as evidenced by a risingcombined ratio, the second-quarter combined ratio was still nearly11 points below breakeven, coming in at 89.2 overall. The combinedratio was just 1.5 points above last year's 87.7 ratio for the samequarter, even though this year's result included 8.1 pointsattributable to catastrophe losses.

Joseph Taranto, chairman and chief executive officer, declaredit a good quarter and first half for his company during aconference call yesterday morning. He highlighted six-month netincome of $580 million, just over $9 per share, compared with$388.8 million last year, or just under $6 per share, noting thatthis year's first-half figure represents a 22 percent annualizedreturn.

In addition, he said the fact that Everest Re's worldwide grosspremiums were essentially flat through six months “given changes inthe market is a good result,” attributing some of the ability tomaintain volume to Everest's position as a large, establishedplayer in the reinsurance sector.

Although overall gross written premiums rose slightly in thequarter–to $935 million, or 2.8 percent over last year's secondquarter–Mr. Taranto admitted to being surprised by the pace ofintensifying competition, particularly in the primary casualtyinsurance business.

Noting that Everest's gross insurance premiums–representingroughly 20 percent of worldwide premiums overall–fell 8 percentthrough six months, he said competition is getting “much tougher”on contractors liability business, and that rates on medicalmalpractice business “have reduced to the point where we areessentially out of the market.”

Insulating the company some from current market conditions, hesaid, Everest recently agreed to three new programs.

Tom Gallagher, president, said the three programs will add $150million to annual premiums, identifying them as atowing-and-recovery program, a program covering brownstones in NewYork and Boston for property and casualty, and a program coveringmoving and storage as well as forestry and agricultural risks.

Mr. Taranto said growth in U.S. property reinsurance businesshas largely offset declines in U.S. casualty operations. Havingrecently concluded midyear Florida deals, he said he expectsEverest will write “as much or a bit more” Florida propertyreinsurance business in 2007 than in 2006.

“Many [Florida] clients have purchased pro-rata andexcess-of-loss reinsurance from the professional reinsurance marketbeyond what was contemplated this past January,” he said.

Commenting on the situation for property reinsurance worldwide,he said “recent losses in the U.K. and Australia may mitigate some[price] declines, but we do not expect this to produce materialupward market corrections.”