Everest Re Settles Reinsurance Dispute With Pru Unit

Everest Reinsurance Holdings says its subsidiary, Everest Reinsurance Company, has settled its dispute with Gibraltar Casualty Company, a wholly-owned subsidiary of The Prudential Insurance Company of America, concerning billings by Everest Re to its Stop Loss Retrocession contract with Gibraltar.

The Stop Loss contract protects Everest Re against adverse development in its reserves for loss and loss adjustment expenses for losses occurring June 1995 and earlier. As previously described in the company's SEC filings on Forms 10-K and 10-Q, Gibraltar took the position that Everest Re's net reserves as of year-end 1998 were overstated by approximately $155 million and that Everest Re's cessions to the Stop Loss were excessive by that same amount.

Pursuant to the contract, the parties retained a qualified actuary to perform an independent examination of Everest Re's reserves to help determine the proper level of reserves and cessions to the Stop Loss. With the assistance of the independent examination and the normal year-end reserve review, the company will reduce the disputed gross reserves for 1995 and prior by $67.6 million and will accordingly reduce the disputed claim to the Stop Loss by $60.8 million.

The impact of this settlement will be as follows (all amounts are approximate):

• The Company will receive $2.3 million in additional cash from Gibraltar. This represents the amount remaining due under the revised billing.

• The reversal of the $67.6 million in gross reserves previously ceded to the Stop Loss will also cause the reversal of a 10 percent coinsurance requirement previously recorded by the company as an underwriting loss; by itself the settlement transaction will result in an underwriting gain of $6.8 million in the fourth quarter of 1999.

• The gross coverage limits (before 10 percent coinsurance) remaining under the Stop Loss will increase to $107.4 million. Pursuant to the contract, Everest Re will continue to evaluate its reserves each quarter to determine if additional cessions to the Stop Loss are appropriate.