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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 --------------
                                    FORM 10-K
                                 --------------

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001       Commission file number 1-13816

                       EVEREST REINSURANCE HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)


          Delaware                                              22-3263609
 (State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                            Identification No.)

                              477 Martinsville Road
                               Post Office Box 830
                      Liberty Corner, New Jersey 07938-0830
                                 (908) 640-3000
          (Address, including zip code, and telephone number, including
             area code, of registrant's principal executive office)

                                 --------------

           Securities registered pursuant to Section 12(b) of the Act:

                                                           Name of Each Exchange
   Title of Each Class                                      on Which Registered
   -------------------                                     ---------------------
8.5% Senior Notes Due 2005                                         NYSE
8.75% Senior Notes Due 2010                                        NYSE


                                 --------------
        Securities registered pursuant to Section 12(g) of the Act: None
                                 --------------

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes _X_ No___

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the

<PAGE>
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

     At  March  28,  2002,  the  number  of  common  shares  of  the  registrant
outstanding was 1,000, all of which are owned by Everest Re Group, Ltd.

     The  Registrant  meets  the  conditions  set forth in  General  Instruction
I(1)(a) and (b) of Form 10-K and is therefore  filing this form with the reduced
disclosure format permitted by General Instruction I of Form 10-K.


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                                       2
<PAGE>
TABLE OF CONTENTS




Item                                                                        Page
----                                                                        ----

PART I

     1.   Business
     2.   Properties
     3.   Legal Proceedings
     4.   Submission of Matters to a Vote of Security Holders

PART II

     5.   Market for Registrant's Common Equity and Related
           Stockholder Matters
     6.   Selected Financial Data
     7.   Management's Discussion and Analysis of Financial
           Condition and Results of Operations
    7A.   Quantitative and Qualitative Disclosures About Market Risk
     8.   Financial Statements and Supplementary Data
     9.   Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure

PART III

    10.   Directors and Executive Officers of the Registrant
    11.   Executive Compensation
    12.   Security Ownership of Certain Beneficial Owners and Management
    13.   Certain Relationships and Related Transactions

PART IV

    14.   Exhibits, Financial Statement Schedules, and Reports
           on Form 8-K


                                       3
<PAGE>
PART I


UNLESS OTHERWISE INDICATED, ALL FINANCIAL DATA IN THIS DOCUMENT HAVE BEEN
PREPARED USING GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"). AS USED IN
THIS DOCUMENT, "HOLDINGS" MEANS EVEREST REINSURANCE HOLDINGS, INC.; "GROUP"
MEANS EVEREST RE GROUP, LTD. (FORMERLY EVEREST REINSURANCE GROUP, LTD.);
"EVEREST RE" MEANS EVEREST REINSURANCE COMPANY AND ITS SUBSIDIARIES (UNLESS THE
CONTEXT OTHERWISE REQUIRES); "BERMUDA RE" MEANS EVEREST REINSURANCE (BERMUDA),
LTD. AND THE "COMPANY" MEANS HOLDINGS AND ITS SUBSIDIARIES (UNLESS THE CONTEXT
OTHERWISE REQUIRES).


ITEM 1.  BUSINESS

THE COMPANY
Holdings, a Delaware corporation,  is a wholly-owned  subsidiary of Group, which
is a Bermuda  holding  company  whose common  shares are publicly  traded in the
United States on the New York Stock Exchange under the symbol "RE".  Group files
an annual report on Form 10-K with the Securities and Exchange  Commission  with
respect to its consolidated  operations,  including Holdings.  Holdings became a
wholly-owned   subsidiary   of  Group  on  February  24,  2000  in  a  corporate
restructuring  pursuant to which  holders of shares of common  stock of Holdings
automatically became holders of the same number of common shares of Group.

On March 14, 2000, Holdings completed public offerings of $200 million principal
amount of 8.75%  senior  notes due March  15,  2010 and $250  million  principal
amount of 8.50%  senior  notes due March 15, 2005.  This  abbreviated  filing is
required as a result of this outstanding  debt. During 2000, the net proceeds of
these offerings and additional funds were distributed by Holdings to Group.

The Company's principal business,  conducted through its operating subsidiaries,
is the  underwriting  of  reinsurance  and  insurance  in the United  States and
international markets. The Company underwrites  reinsurance both through brokers
and directly with ceding companies, giving it the flexibility to pursue business
regardless of the ceding company's preferred reinsurance  purchasing method. The
Company underwrites  insurance principally through general agency relationships.
The Company's operating subsidiaries,  excluding Mt. McKinley Insurance Company,
are  each  rated  A+  ("Superior")  by  A.M.  Best  Company  ("A.M.  Best"),  an
independent   insurance  industry  rating   organization  that  rates  insurance
companies on factors of concern to policyholders.

Following is a summary of the Company's operating subsidiaries:

  o      Everest Re,  a  Delaware  insurance  company and a direct subsidiary of
         Holdings, is a licensed property  and casualty insurer and/or reinsurer
         in all states (except Nevada and  Wyoming),  the  District of Columbia,
         Puerto Rico and  Canada,  and  is  authorized  to  conduct  reinsurance
         business in the United  Kingdom  and  Singapore. Everest Re underwrites
         property and casualty reinsurance on a treaty and facultative basis for
         insurance  and   reinsurance  companies  in   the  United   States  and
         international markets. Everest Re had statutory surplus at December 31,
         2001 of $1,293.8 million.

                                       1
<PAGE>
  o      Everest  National  Insurance  Company  ("Everest National"), an Arizona
         insurance company and a direct subsidiary of Everest Re, is licensed in
         42 states and  the District of Columbia  and  is  authorized  to  write
         property and  casualty insurance in the states in which it is licensed.
         This is often called writing insurance on an admitted basis.

  o      Everest  Insurance  Company  of  Canada  ("Everest Canada"), a Canadian
         insurance company and a direct subsidiary of Everest Re, is licensed in
         all Canadian provinces and territories  and  is  federally  licensed to
         write property and casualty insurance under the Insurance Companies Act
         of Canada.

  o      Everest Indemnity Insurance Company ("Everest Indemnity"),  a  Delaware
         insurance company and a direct subsidiary of Everest Re, engages in the
         excess  and  surplus  lines  insurance  business  in the United States.
         Excess and surplus lines insurance is specialty property and  liability
         coverage  that  an  insurer  not  licensed  to  write  insurance  in  a
         particular state is permitted to provide when  the  specific  specialty
         coverage is unavailable from admitted insurers.  This  is  often called
         writing  insurance  on  a  non-admitted  basis.  Everest  Indemnity  is
         licensed  in   Delaware  and   is  eligible  to  write  business  on  a
         non-admitted basis in 41 states,  the  District of  Columbia and Puerto
         Rico.

  o      Everest  Security  Insurance  Company  ("Everest  Security"),  formerly
         Southeastern Security Insurance Company, a  Georgia  insurance  company
         and a direct subsidiary of Everest Re, was acquired in January 2000 and
         writes property and casualty insurance on an admitted basis in Georgia.

  o      Mt. McKinley  Managers,  L.L.C.  ("Managers"),  a  New  Jersey  limited
         liability company and a direct subsidiary of Holdings, is  licensed  in
         New Jersey as  an  insurance  producer.  An  insurance  producer is any
         intermediary, such as an agent or broker,  which  acts  as  the conduit
         between  an  insurance  company  and  an  insured.  Managers,  which is
         licensed to act in New Jersey as  an  insurance  producer in connection
         with policies written on both an admitted and a surplus lines basis, is
         the underwriting manager for Everest  Indemnity.  As a result of a 1998
         acquisition  of the  assets of insurance  agency  operations in Alabama
         and Georgia, the continuing insurance agency operations are now carried
         on  by  subsidiaries  of  Managers.  These  subsidiaries  are  WorkCare
         Southeast, Inc., an Alabama insurance  agency,  and WorkCare  Southeast
         of Georgia, Inc., a Georgia insurance agency.

  o      Mt.  McKinley  Insurance  Company (f/k/a  Gibraltar  Casualty  Company,
         "Gibraltar")  ("Mt.  McKinley"),  a Delaware insurance  company  and  a
         direct subsidiary of Holdings, was  acquired  by  Holdings in September
         2000 from The  Prudential.  Mt.  McKinley  was formed by Everest  Re in
         1978 to  engage  in the excess and  surplus  lines  insurance  business
         in the United  States.  In 1985,  Mt. McKinley  ceased  writing new and
         renewal insurance  and now its ongoing  operations  relate to servicing
         claims arising  from its  previously  written  business.  Mt.  McKinley
         was a subsidiary of Everest Re until 1991 when Everest  Re  distributed
         the  stock  of  Mt.  McKinley  to  a  wholly-owned  subsidiary  of  The
         Prudential.

  o      Everest Re Holdings,  Ltd.  ("Everest  Ltd."), a Bermuda company and  a
         direct subsidiary of Everest Re, was formed in 1998 and owns Everest Re
         Ltd.,  a  United  Kingdom  company  that  is  in  the  process of being
         dissolved  because its reinsurance  operations have been converted into
         branch operations of Everest Re. Everest Ltd. also holds $104.3 million
         of  investments,  the  management  of  which  constitutes its principal
         operations.

                                       2
<PAGE>
REINSURANCE INDUSTRY OVERVIEW
Reinsurance  is an  arrangement  in which an insurance  company,  the reinsurer,
agrees to indemnify another insurance company,  the ceding company,  against all
or a portion of the insurance risks underwritten by the ceding company under one
or more  insurance  contracts.  Reinsurance  can provide a ceding  company  with
several  benefits,  including a reduction  in net  liability  on  individual  or
classes  of risks,  catastrophe  protection  from large or  multiple  losses and
assistance in maintaining acceptable financial ratios. Reinsurance also provides
a ceding  company with  additional  underwriting  capacity by  permitting  it to
accept  larger risks and write more  business  than would be possible  without a
concomitant  increase in capital and  surplus.  Reinsurance,  however,  does not
discharge the ceding company from its liability to policyholders.

There are two basic types of reinsurance  arrangements:  treaty and  facultative
reinsurance. In treaty reinsurance,  the ceding company is obligated to cede and
the  reinsurer is obligated to assume a specified  portion of a type or category
of risks insured by the ceding  company.  Treaty  reinsurers  do not  separately
evaluate  each  of the  individual  risks  assumed  under  their  treaties  and,
consequently, after a review of the ceding company's underwriting practices, are
largely dependent on the original risk underwriting decisions made by the ceding
company. In facultative reinsurance,  the ceding company cedes and the reinsurer
assumes all or part of the risk under a single insurance  contract.  Facultative
reinsurance  is  negotiated  separately  for  each  insurance  contract  that is
reinsured. Facultative reinsurance normally is purchased by ceding companies for
individual  risks not  covered by their  reinsurance  treaties,  for  amounts in
excess of the dollar limits of their reinsurance treaties and for unusual risks.

Both  treaty  and  facultative  reinsurance  can be written on either a pro rata
basis or an excess of loss basis. Under pro rata reinsurance, the ceding company
and the  reinsurer  share the  premiums as well as the losses and expenses in an
agreed proportion.  Under excess of loss reinsurance,  the reinsurer indemnifies
the ceding company against all or a specified  portion of losses and expenses in
excess of a specified dollar amount,  known as the ceding company's retention or
reinsurer's  attachment  point,  generally  subject to a negotiated  reinsurance
contract limit.

Premiums  paid  by  the  ceding  company  to a  reinsurer  for  excess  of  loss
reinsurance  are not  directly  proportional  to the  premiums  that the  ceding
company receives because the reinsurer does not assume a proportionate  risk. In
pro rata reinsurance,  the reinsurer  generally pays the ceding company a ceding
commission.  The ceding  commission  generally is based on the ceding  company's
cost of acquiring the business  being  reinsured  (commissions,  premium  taxes,
assessments  and  miscellaneous  administrative  expense).  There is  usually no
ceding commission on excess of loss reinsurance.

Reinsurers   may  purchase   reinsurance  to  cover  their  own  risk  exposure.
Reinsurance  of a  reinsurer's  business is called a  retrocession.  Reinsurance
companies cede risks under retrocessional agreements to other reinsurers,  known
as  retrocessionaires,  for  reasons  similar to those that  cause  insurers  to
purchase reinsurance: to reduce net liability on individual or classes of risks,
protect  against  catastrophic  losses,  stabilize  financial  ratios and obtain
additional underwriting capacity.

Reinsurance can be written through professional  reinsurance brokers or directly
with ceding  companies.  From a ceding  company's  perspective,  both the broker
market  and the  direct  market  have  advantages  and  disadvantages.  A ceding
company's decision to select one market over the other will be influenced by its
perception of such  advantages  and  disadvantages  relative to the  reinsurance
coverage being placed.

                                       3
<PAGE>
BUSINESS STRATEGY
The  Company's  underwriting  strategies  seek to  capitalize  on its  financial
capacity,  its employee expertise and its flexibility to offer multiple products
through  multiple  distribution   channels.  The  Company's  strategies  include
effective  management  of the property and casualty  underwriting  cycle,  which
refers to the  tendency of  insurance  premiums,  profits and the demand for and
availability  of coverage to rise and fall over time.  The Company also seeks to
manage its catastrophe  exposures and retrocessional  costs.  Efforts to control
expenses and to operate in a  cost-efficient  manner are also a continuing focus
for the Company.

The  Company's  products  include  the  full  range  of  property  and  casualty
reinsurance and insurance coverages,  including marine, aviation, surety, errors
and omissions  liability  ("E&O"),  directors' and officers'  liability ("D&O"),
medical malpractice, other specialty lines, accident and health ("A&H"), workers
compensation,  and other standard  lines.  The Company's  distribution  channels
include both the direct and broker reinsurance  markets,  U.S. and international
markets,  reinsurance, both treaty and facultative, and insurance, both admitted
and non-admitted.

The Company's underwriting strategy emphasizes underwriting profitability rather
than  premium  volume,  writing  specialized  property  and  casualty  risks and
integration  of  underwriting  expertise  across  all  underwriting  units.  Key
elements  of this  strategy  are prudent  risk  selection,  appropriate  pricing
through  strict  underwriting   discipline  and  continuous  adjustment  of  the
Company's  business mix to respond to changing  market  conditions.  The Company
focuses on reinsuring  companies that effectively  manage the underwriting cycle
through proper analysis and pricing of underlying  risks and whose  underwriting
guidelines and performance are compatible with its objectives.

The  Company's   underwriting   strategy   also   emphasizes   flexibility   and
responsiveness  to  changing  market  conditions,  such as  increased  demand or
favorable  pricing  trends.  The Company  believes that its existing  strengths,
including its broad underwriting expertise,  U.S. and international presence and
substantial   capital,   facilitate   adjustments   to  its   mix  of   business
geographically,  by line of  business  and by type of  coverage,  allowing it to
capitalize on those market opportunities that provide the greatest potential for
underwriting  profitability.  The  Company's  insurance  infrastructure  further
facilitates  this  strategy by allowing  the  Company to develop  business  that
requires the Company to issue  insurance  policies.  The Company also  carefully
monitors its mix of business to avoid inappropriate concentrations of geographic
or other risk.

RATINGS
The  following  table  shows the  financial  strength  ratings of the  Company's
operating  subsidiaries  as reported  by A.M.  Best,  Standard & Poor's  Ratings
Services ("Standard & Poor's) and Moody's Investors Service  ("Moody's").  These
ratings  are based upon  factors of concern to  policyholders  and should not be
considered  an  indication  of the degree or lack of risk  involved in an equity
investment in an insurance company.

                                       4
<PAGE>
<TABLE>
<CAPTION>

Operating Subsidiary     A.M. Best        Standard & Poor's      Moody's
--------------------------------------------------------------------------------
<S>                      <C>              <C>                    <C>
Everest Re               A+ (Superior)    AA- (Very Strong)      Aa3 (Excellent)
Everest National         A+ (Superior)    AA- (Very Strong)      Not Rated
Everest Indemnity        A+ (Superior)    Not Rated              Not Rated
Everest Security         A+ (Superior)    BB pi                  Not Rated
Everest Canada           A+ (Superior)    Not Rated              Not Rated
Mt. McKinley             Not Rated        B pi                   Not Rated
</TABLE>

A.M.  Best  states  that the  "A+"  ("Superior")  rating  is  assigned  to those
companies which, in its opinion,  have, on balance,  achieved superior financial
strength,  operating  performance  and  market  profile  when  compared  to  the
standards  established by A.M. Best and have  demonstrated a very strong ability
to meet their ongoing obligations to policyholders. The "A+" ("Superior") rating
is the second highest of fifteen ratings assigned by A.M. Best, which range from
"A++" ("Superior") to "F" ("In Liquidation"). Additionally, A.M. Best has eleven
classifications  within the "Not  Assigned"  category.  Standard & Poor's states
that the "AA-" rating is assigned to those  insurance  companies  which,  in its
opinion,   offer  excellent  financial  security  and  whose  capacity  to  meet
policyholder  obligations is strong under a variety of economic and underwriting
conditions.  The "AA-" rating is the fourth highest of nineteen ratings assigned
by  Standard & Poor's,  which  range from "AAA"  (Superior)  to "R"  (Regulatory
Action). Ratings from AA to B may be modified by the use of a plus or minus sign
to show  relative  standing  of the  insurer  within  those  rating  categories.
Ratings,  denoted with a "pi" subscript,  are ratings based on Standard & Poor's
analysis of published financial information and do not reflect in-depth meetings
with the  Company's  management.  The "BB pi" and "B pi" ratings are the twelfth
and fifteenth highest of the nineteen Standard & Poor's ratings.  Moody's states
that insurance companies rated "Aa" offer excellent financial security. Together
with the Aaa rated companies,  Aa rated companies  constitute what are generally
known as high grade companies, with Aa rated companies generally having somewhat
larger long-term risks.  Moody's rating  gradations are shown through the use of
nine distinct symbols,  each symbol representing a group of ratings in which the
financial  security is broadly  the same.  The "Aa3"  (Excellent)  rating is the
fourth  highest  of  ratings  assigned  by  Moody's,   which  range  from  "Aaa"
(Exceptional) to "C" (Lowest).  Moody's further  distinguishes the ranking of an
insurer  within its generic rating  classification  from Aa to B with 1, 2 and 3
("1" being the highest).

The following table shows the investment  grade ratings of the Holdings'  senior
notes due March 15, 2005 and March 15, 2010 by A.M. Best,  Standard & Poor's and
Moody's.  Debt ratings are a current assessment of the  credit-worthiness  of an
obligor with respect to a specific obligation.
<TABLE>
<CAPTION>
                         A.M. Best        Standard & Poor's      Moody's
--------------------------------------------------------------------------------
<S>                      <C>              <C>                    <C>
Senior Notes             a                A-                     A3
</TABLE>

A company with a debt rating of "a" is  considered by A.M. Best to have a strong
capacity and willingness to meet the terms of the obligation and possesses a low
level of credit risk. The "a" rating is the sixth highest of 19 ratings assigned
by A.M.  Best,  which range from "aaa" to "ccc". A company with a debt rating of
"A-" is  considered  by  Standard  &  Poor's  to have a strong  capacity  to pay
interest and repay  principal,  although it is somewhat more  susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated  categories.  The "A-" rating from Standard & Poor's is the seventh
highest of 24 ratings  assigned by Standard & Poor's,  which range from "AAA" to
"D".  A  company   with  a  debt  rating  of  "A3"  is   considered   to  be  an
upper-medium-grade  obligation  by  Moody's.  This  rating  represents  adequate

                                       5
<PAGE>
capacity with respect to repayment of principal  and interest,  but elements may
be present which suggest a susceptibility to impairment  sometime in the future.
The "A3" rating is the seventh  highest of 21 ratings  assigned by Moody's which
range from "AAA" to "C".

All of the  above-mentioned  ratings are continually  monitored and revised,  if
necessary, by each of the rating agencies.

COMPETITION
The worldwide  reinsurance and insurance businesses are highly competitive.  The
September  11  terrorist  attacks  resulted  in losses  which  reduced  industry
capacity and were of sufficient  magnitude to cause most individual companies to
reassess their capital position, tolerance for risk, exposure control mechanisms
and the pricing terms and  conditions at which they are willing to take on risk.
The gradual and variable  improving trend,  which has been apparent through 2000
and earlier in 2001 firmed  significantly.  This firming generally took the form
of  immediate  and  significant  upward  pressure  on  prices,   including  more
restrictive terms and conditions and a reduction of coverage limits and capacity
availability.  Such pressures were widespread with some variability depending on
the product and markets involved, but mainly depending on the characteristics of
the underlying  risk  exposures.  The magnitude of the changes was sufficient to
create temporary disequilibrium in some markets as individual buyers and sellers
adapted to changes in both their internal and market dynamics.

These  changes  reflect a reversal of the general  trend from 1987  through 1999
toward  increasingly  competitive  global market conditions across most lines of
business as reflected by decreasing  prices and broadening  contract terms.  The
earlier  trend  resulted  from a number of factors  including  the  emergence of
significant  reinsurance  capacity  in  Bermuda,  changes in the Lloyds  market,
consolidation  and increased  capital  levels in the  insurance and  reinsurance
industries,  as well as the emergence of new reinsurance and financial  products
addressing traditional exposures in alternative fashions.  Many of these factors
continue to exist. As a result, although the Company is encouraged by the recent
improvements,  and more generally, current market conditions, the Company cannot
predict  with  any  reasonable  certainty  whether  and  to  what  extent  these
improvements will persist.

Competition  with respect to the types of reinsurance and insurance  business in
which the Company is engaged is based on many  factors,  including the perceived
overall  financial  strength of the  reinsurer or insurer,  the A.M. Best and/or
Standard & Poor's  rating of the reinsurer or insurer,  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.  The
Company  competes  in  the  United  States  and  international  reinsurance  and
insurance  markets with  numerous  international  and domestic  reinsurance  and
insurance companies.  The Company's 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  the  Company  and have  established  long-term  and  continuing
business  relationships  throughout  the  industry,  which can be a  significant
competitive  advantage.   In  addition,  the  potential  for  securitization  of
reinsurance and insurance  risks through capital markets  provides an additional
source of potential reinsurance and insurance capacity and competition.

                                       6
<PAGE>
EMPLOYEES
As of March 1, 2002, the Company employed 345 persons.  Management believes that
its employee relations are good. None of the Company's  employees are subject to
collective  bargaining  agreements,  and the Company is not aware of any current
efforts to implement such agreements.

ITEM 2.  PROPERTIES
Everest Re's corporate offices are located in approximately  112,000 square feet
of leased  office  space in Liberty  Corner,  New Jersey.  The  Company's  other
thirteen  locations occupy a total of  approximately  67,000 square feet, all of
which are leased.  Management believes that the above-described  office space is
adequate for its current and anticipated needs.

ITEM 3.  LEGAL PROCEEDINGS
The Company is involved  from time to time in ordinary  routine  litigation  and
arbitration proceedings incidental to its business. The Company does not believe
that there are any other material  pending legal  proceedings to which it or any
of its subsidiaries or their properties are subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information for this Item 4 is not required pursuant to General Instruction I(2)
of Form 10-K.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION AND HOLDER OF COMMON STOCK
As of December 31, 2001,  all of the  Company's  common stock was owned by Group
and was not publicly traded.

During  2000 and 1999,  the  Company  declared  dividends  on its  common  stock
totaling $495.0 million and $11.6 million, respectively. The Company did not pay
any dividends during 2001.

The declaration and payment of future dividends,  if any, by the Company will be
at the  discretion  of the Board of Directors and will depend upon many factors,
including the Company's earnings, financial condition, business needs and growth
objectives,   capital  and  surplus  requirements  of  operating   subsidiaries,
regulatory  restrictions,  rating agency considerations and other factors. As an
insurance  holding  company,  the Company is dependent  on  dividends  and other
permitted   payments  from  its  subsidiaries  to  pay  cash  dividends  to  its
stockholders.  The payment of  dividends to Holdings by Everest Re is subject to
limitations  imposed  by  Delaware  law.  Generally,  Everest  Re may  only  pay
dividends  out of its  statutory  earned  surplus,  which was $915.2  million at
December  31,  2001,  and only  after it has given 10 days  prior  notice to the
Delaware  Insurance  Commissioner.  During this 10-day period,  the Commissioner
may, by order,  limit or  disallow  the  payment of  ordinary  dividends  if the
Commissioner  finds the insurer to be  presently  or  potentially  in  financial
distress.  Further the maximum  amount of dividends that may be paid without the
prior approval of the Delaware Insurance Commissioner in any twelve month period
is the greater of (1) 10% of an insurer's statutory surplus as of the end of the
prior  calendar  year or (2) the insurer's  statutory net income,  not including
realized capital gains, for the prior calendar year. Under this definition,  the
maximum amount that will be available for the payment of dividends by Everest Re
in 2002 without  triggering  the  requirement  for prior  approval of regulatory
authorities  in connection  with a dividend is $129.4  million.  See Note 11A of
Notes to Consolidated Financial Statements.

                                       7
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
None.

ITEM 6.  SELECTED FINANCIAL DATA

Information for this Item 6 is not required pursuant to General Instruction I(2)
of Form 10-K.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

The  following  is a  discussion  of the  results of  operations  and  financial
condition  of Everest  Reinsurance  Holdings,  Inc.  and its  subsidiaries  (the
"Company").  This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto presented under ITEM 8.

RESTRUCTURING
On February 24, 2000, a corporate  restructuring  was  completed  and Everest Re
Group,  Ltd.  ("Group")  became the new parent  holding  company of the Company,
which remains the holding company for Group's U.S. based operations.  Holders of
the Company's  common stock  automatically  became holders of the same number of
Group common shares. The Company is filing this report as a result of its public
issuance  of  senior  notes on March  14,  2000.  See ITEM 1 -  "Business  - The
Company" for a further discussion.

ACQUISITIONS
On September  19, 2000,  the Company  completed  the  acquisition  of all of the
issued and outstanding capital stock of Gibraltar Casualty Company ("Gibraltar")
from The Prudential  Insurance  Company of America ("The  Prudential") for $51.8
million,  which  approximated  book  value.  As a  result  of  the  acquisition,
Gibraltar  became a wholly  owned  subsidiary  of the Company  and,  immediately
following  the  acquisition,  its name was  changed  to Mt.  McKinley  Insurance
Company ("Mt.  McKinley").  In connection with the acquisition of Mt.  McKinley,
which has significant exposure to asbestos and environmental claims,  Prudential
Property  and  Casualty  Insurance  Company  ("Prupac"),  a  subsidiary  of  The
Prudential,  provided  reinsurance to Mt. McKinley covering 80% ($160.0 million)
of the  first  $200.0  million  of any  adverse  development  of Mt.  McKinley's
reserves  as of  September  19,  2000  and The  Prudential  guaranteed  Prupac's
obligation  to Mt.  McKinley.  There were $22.2  million of cessions  under this
reinsurance  at December  31,  2001,  reducing  the limit  available  under this
contract to $137.8 million.

In connection with the Mt. McKinley acquisition,  Prupac also provided excess of
loss  reinsurance  for 100% of the first $8.5  million  of loss with  respect to
certain  of  Mt.   McKinley's   retrocessions   and  potentially   uncollectible
reinsurance coverage. There were $2.5 million and $3.6 million of cessions under
this  reinsurance  during  the  periods  ending  December  31,  2000  and  2001,
respectively, reducing the limit available under the contract to $2.4 million.

Mt. McKinley,  a run-off property and casualty insurer in the United States, has
had a long  relationship with the Company and its principal  operating  company,
Everest  Reinsurance  Company ("Everest Re"). Mt. McKinley was formed in 1978 by
Everest Re and wrote  insurance  until 1985,  when it was placed in run-off.  In
1991, Mt. McKinley became a subsidiary of The Prudential. Mt. McKinley is also a
reinsurer  of Everest Re.  Under a series of  transactions  dating to 1986,  Mt.

                                       8
<PAGE>
McKinley reinsured several  components of Everest Re's business.  In particular,
Mt. McKinley provided stop-loss reinsurance  protection,  in connection with the
Company's  October 5, 1995 IPO, for any adverse loss development on Everest Re's
June 30, 1995 (December 31, 1994 for catastrophe  losses) reserves,  with $375.0
million in limits,  of which $89.4  million  remains  available  (the "Stop Loss
Agreement"). The Stop Loss Agreement and other reinsurance contracts between Mt.
McKinley and Everest Re remain in effect  following  the  acquisition.  However,
these  contracts have become  transactions  with  affiliates  with the financial
impact eliminated in consolidation.

Effective  September 19, 2000, Mt. McKinley and Everest  Reinsurance  (Bermuda),
Ltd.  ("Bermuda  Re")  entered  into  a  loss  portfolio  transfer   reinsurance
agreement, whereby Mt. McKinley transferred, for arm's-length consideration, all
of its net insurance exposures and reserves, including allocated and unallocated
loss adjustment expenses, to Bermuda Re.

During 2000, the Company completed an additional  acquisition,  Everest Security
Insurance Company ("Everest Security"),  formerly known as Southeastern Security
Insurance  Company,  a United States property and casualty company whose primary
business is non-standard automobile insurance.

RESULTS OF OPERATIONS
Unusual Loss  Events.  As a result of the  terrorist  attacks at the World Trade
Center, the Pentagon and on various airlines on September 11, 2001 (collectively
the "September 11 attacks"),  the Company incurred  pre-tax losses,  based on an
estimate of ultimate exposure developed through a review of its coverages, which
totaled  $213.2   million  gross  of  reinsurance   and  $55.0  million  net  of
reinsurance.  Associated  with this  reinsurance  were $60.0  million of pre-tax
charges,  predominantly from adjustment  premiums,  resulting in a total pre-tax
loss from the  September  11 attacks  of $115.0  million.  After tax  recoveries
relating  specifically  to this  unusual  loss  event,  the net  loss  from  the
September 11 attacks totaled $75.0 million. Over 90% of the losses ceded were to
treaties where the reinsurers'  obligations are secured,  which in the Company's
opinion eliminates material reinsurance collection risk.

As a result of the Enron bankruptcy,  the Company has incurred losses, after-tax
and reinsurance,  amounting to $18.6 million.  This unusual loss reflects all of
the Company's exposures, including underwriting, credit and investment.

INDUSTRY  CONDITIONS.  The worldwide  reinsurance  and insurance  businesses are
highly  competitive.  The September 11 attacks  resulted in losses which reduced
industry  capacity and were of  sufficient  magnitude  to cause most  individual
companies to reassess  their  capital  position,  tolerance  for risk,  exposure
control  mechanisms  and the  pricing  terms and  conditions  at which  they are
willing to take on risk.  The gradual and variable  improving  trend,  which has
been  apparent  through  2000 and  earlier in 2001  firmed  significantly.  This
firming generally took the form of immediate and significant  upward pressure on
prices,  including  more  restrictive  terms and  conditions  and a reduction of
coverage limits and capacity  availability.  Such pressures were widespread with
variability depending on the product and markets involved,  but mainly depending
on the  characteristics  of the underlying risk exposures.  The magnitude of the
changes was  sufficient to create  temporary  disequilibrium  in some markets as
individual  buyers and  sellers  adapted to changes in both their  internal  and
market dynamics.

These  changes  reflect a reversal of the general  trend from 1987  through 1999
toward  increasingly  competitive  global market conditions across most lines of
business as reflected by decreasing  prices and broadening  contract terms.  The
earlier  trend  resulted  from a number of factors  including  the  emergence of
significant  reinsurance  capacity  in  Bermuda,  changes in the Lloyds  market,

                                       9
<PAGE>
consolidation  and increased  capital  levels in the  insurance and  reinsurance
industries,  as well as the emergence of new reinsurance and financial  products
addressing traditional exposures in alternative fashions.  Many of these factors
continue to exist. As a result, although the Company is encouraged by the recent
improvements,  and more generally, current market conditions, the Company cannot
predict  with  any  reasonable  certainty  whether  and  to  what  extent  these
improvements will persist.

SEGMENT INFORMATION
The  Company,  through  its  subsidiaries,   operates  in  four  segments:  U.S.
Reinsurance, U.S. Insurance, Specialty Underwriting, and International. 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 United States. The U.S.  Insurance  operation writes
property and casualty  insurance  primarily through general agent  relationships
and surplus lines brokers within the United States.  The Specialty  Underwriting
operation  writes  accident  and health  ("A&H"),  marine,  aviation  and surety
business  within the United  States and worldwide  through  brokers and directly
with ceding companies.  The International operation writes property and casualty
reinsurance  through the  Company's  branches in Belgium,  London,  Canada,  and
Singapore, in addition to foreign "home-office" business.

These  segments  are  managed in a  carefully  coordinated  fashion  with strong
elements of central control, including with respect to capital,  investments and
support operations. As a result, management monitors and evaluates the financial
performance  of  these   operating   segments   principally   based  upon  their
underwriting results.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
PREMIUMS.  Gross premiums  written  increased 34.6% to $1,849.8  million in 2001
from $1,374.0  million in 2000, as the Company took advantage of selected growth
opportunities, while continuing to maintain a disciplined underwriting approach.
Premium  growth areas included a 100.6%  ($251.9  million)  increase in the U.S.
Insurance operation, principally attributable to growth in worker's compensation
insurance,  a 30.1%  ($95.7  million)  increase  in the  Specialty  Underwriting
operation, mainly attributable to growth in A&H medical stop loss writings and a
26.7% ($128.8 million)  increase in the U.S.  Reinsurance  operation,  primarily
reflecting improved market conditions.  These increases were partially offset by
a 0.2% ($0.8  million)  decrease  in the  International  operation.  The Company
continued  to  decline  business  that  did not meet  its  objectives  regarding
underwriting profitability.

Ceded premiums  increased to $432.9 million in 2001 from $166.7 million in 2000.
This increase was  principally  attributable to $123.2 million of ceded premiums
in 2001 relating to an  arm's-length  loss  portfolio  reinsurance  transaction,
whereby the Company  transferred  the net  exposures and reserves of its Belgium
branch to Bermuda Re. In addition,  ceded  premiums in 2001 also  reflect  $81.3
million of adjustment  premiums  incurred under the 2001 accident year aggregate
excess  of  loss  element  of the  Company's  corporate  retrocessional  program
relating  to losses  incurred  as a result of the  September  11 attacks and the
Enron  bankruptcy.  In addition,  ceded  premiums for 2001 and 2000 also include
adjustment premiums of $58.1 million and $35.2 million,  respectively,  relating
to claims made under the 1999 accident year aggregate  excess of loss element of
the Company's corporate  retrocessional  program. The increase in ceded premiums
in 2001 also  reflects  the impact on the U.S.  Insurance  operation's  specific
reinsurance protections resulting from this unit's volume increase.

Net  premiums  written  increased  by 17.4% to  $1,416.9  million  in 2001  from
$1,207.3  million in 2000.  This  increase was  consistent  with the increase in
gross premiums written and the increase in ceded premiums.

                                       10
<PAGE>
PREMIUM REVENUES.  Net premiums earned increased by 14.7% to $1,333.5 million in
2001 from $1,162.6 million in 2000.  Contributing to this increase were a 189.7%
($192.6  million)  increase  in the U.S.  Insurance  operation,  a 22.9%  ($69.2
million)  increase in the  Specialty  Underwriting  operation  and a 5.5% ($26.0
million)  increase  in the U.S.  Reinsurance  operation.  These  increases  were
partially  offset by a 40.8%  ($116.9  million)  decrease  in the  International
operation principally attributable to $122.3 million relating to the reinsurance
transaction  between  the Company  and  Bermuda Re noted  earlier.  All of these
changes  reflect  period  to  period  variability  in gross  written  and  ceded
premiums,  and  business  mix,  together  with  normal  variability  in earnings
patterns.  Business mix changes  occur not only as the Company  shifts  emphasis
between products, lines of business,  distribution channels and markets but also
as  individual  contracts  renew or  non-renew,  almost  always with  changes in
coverage, structure, prices and/or terms, and as new contracts are accepted with
coverages,  structures,  prices  and/or terms  different  from those of expiring
contracts.   As  premium   reporting  and  earnings  and  loss  and   commission
characteristics  derive  from  the  provisions  of  individual  contracts,   the
continuous turnover of individual contracts,  arising from both strategic shifts
and day to day  underwriting,  can and  does  introduce  appreciable  background
variability in various underwriting line items.

EXPENSES.  Incurred loss and loss adjustment expenses ("LAE") increased by 22.9%
to  $1,079.2  million in 2001 from  $878.2  million  in 2000.  The  increase  in
incurred losses and LAE was principally  attributable to an increase in business
volume as  reflected  by the  increase  in net  premiums  earned,  the impact of
incurred  losses  relating to the September 11 attacks and the Enron  bankruptcy
and modest reserve  strengthening  in select areas,  together with the impact of
changes in the Company's mix of business. The Enron bankruptcy contributed $34.0
million  of  unusual  losses  in  2001,  before  cessions  under  the  corporate
retrocessional  program.  Incurred  losses and LAE include  catastrophe  losses,
which  reflect  the  impact of both  current  period  events and  favorable  and
unfavorable  development  on prior period events and are net of  reinsurance.  A
catastrophe  is an event that causes a pre-tax loss on property  exposures of at
least  $5.0  million  and  has an  event  date of  January  1,  1988  or  later.
Catastrophe  losses, net of contract specific cessions but before cessions under
the corporate  retrocessional  program in 2001,  were $222.6  million,  relating
principally to the September 11 attacks,  tropical  storm Alison,  the Petrobras
Oil Rig loss and the El Salvador  earthquake loss,  compared to $13.9 million in
2000.  Incurred  losses and LAE in 2001 reflected ceded losses and LAE of $619.4
million  compared to ceded  losses and LAE in 2000 of $176.4  million,  with the
increase  principally  attributable  to cessions  relating to the  September  11
attack losses and the Enron bankruptcy,  together with increased  cessions under
specific  reinsurance  arrangements in the U.S. Insurance  operation.  The ceded
losses and LAE for 2001  reflect  $164.0  million of losses ceded under the 2001
accident year  aggregate  excess of loss  component of the  Company's  corporate
retrocessional  program.  The  ceded  losses  and LAE for 2001 and 2000  reflect
$105.0 million and $70.0 million,  respectively,  of losses ceded under the 1999
accident year  aggregate  excess of loss  component of the  Company's  corporate
retrocessional  program,  with the amounts in both  periods  reflecting  reserve
strengthening  in select lines.  In addition,  ceded losses and LAE in 2001 also
reflects  $119.4 million  relating to the  reinsurance  transaction  between the
Company and Bermuda Re noted earlier.

Contributing to the increase in incurred losses and LAE in 2001 from 2000 were a
200.7% ($141.0 million)  increase in the U.S.  Insurance  operation  principally
reflecting  increased  premium volume, a 41.5% ($131.9 million)  increase in the
U.S. Reinsurance operation, principally reflecting losses in connection with the
September  11 attacks and  tropical  storm  Alison and a 30.1%  ($76.5  million)
increase in the Specialty  Underwriting  operation  principally  attributable to
increased premium volume in A&H medical stop loss business together with marine,

                                       11
<PAGE>
aviation  and surety  losses  relating to the  September  11 attacks,  the Enron
bankruptcy and the Petrobras Oil Rig loss event.  These increases were partially
offset by a 62.9%  ($148.5  million)  decrease  in the  International  operation
principally   attributable  to  $119.4  million   relating  to  the  reinsurance
transaction  between  the  Company  and  Bermuda Re noted  earlier,  and to more
favorable loss experience.  Incurred losses and LAE for each operation were also
impacted by  variability  relating to changes in the level of premium volume and
mix of business by class and type.

The Company's loss and LAE ratio ("loss ratio"), which is calculated by dividing
incurred losses and LAE by premiums earned,  increased by 5.4 percentage  points
to 80.9% in 2001 from  75.5% in 2000  reflecting  the  incurred  losses  and LAE
discussed  above.  The  following  table  shows the loss  ratios for each of the
Company's  operating  segments  for  2001 and  2000.  The  loss  ratios  for all
operations were impacted by the expense factors noted above, the impact on ceded
premiums of adjustment  premiums  under the Company's  corporate  retrocessional
program.
<TABLE>
<CAPTION>
                          OPERATING SEGMENT LOSS RATIOS
--------------------------------------------------------------------------------
      Segment                                  2001                         2000
--------------------------------------------------------------------------------
<S>                                            <C>                          <C>
U.S. Reinsurance                               90.4%                        67.4%
U.S. Insurance                                 71.8%                        69.2%
Specialty Underwriting                         89.0%                        84.0%
International                                  51.5%                        82.3%
</TABLE>

Underwriting  expenses  increased by 41.3% to $448.9 million in 2001 from $317.7
million  in 2000.  Commission,  brokerage,  taxes and fees  increased  by $126.2
million,  principally  reflecting increases in premium volume and changes in the
mix of  business.  In  addition,  in 2000,  the  Company's  reassessment  of the
expected  losses  on a  multi-year  reinsurance  treaty  led to a $33.8  million
decrease in  contingent  commissions  with a  corresponding  increase to losses.
Other  underwriting  expenses  increased  by $5.0  million  as the  Company  has
expanded its business  volume and operations.  Contributing to the  underwriting
expense  increase were a 122.7% ($45.6 million)  increase in the U.S.  Insurance
operation,  mainly  relating to the  increased  premium  volume,  a 70.8% ($68.0
million) increase in the U.S. Reinsurance  operation,  which included the impact
of the contingent  commission adjustment noted above and a 22.5% ($19.8 million)
increase in the Specialty operation.  These increases were partially offset by a
0.2% ($1.9 million)  decrease in the International  operation.  Except as noted,
the changes for each operation's  expenses  principally resulted from changes in
commission  expenses  related to changes in premium  volume and  business mix by
class  and  type  and,  in  some  cases,  the  underwriting  performance  of the
underlying  business.  The  Company's  expense  ratio,  which is  calculated  by
dividing underwriting  expenses by premiums earned,  increased by 6.4 percentage
points to 33.7% in 2001 compared to 27.3% in 2000.

The Company's  combined ratio,  which is the sum of the loss and expense ratios,
increased  by 11.8  percentage  points to 114.6% in 2001  compared  to 102.8% in
2000.  The following  table shows the combined  ratios for each of the Company's
operating  segments for 2001 and 2000.  The combined  ratios for all  operations
were impacted by the loss and expense ratio  variability  noted above as well as
by the impact on ceded  premiums  of  adjustment  premiums  under the  Company's
corporate  retrocessional  program and,  for the  International  operation,  the
effect on the expense  ratio related to the ceded  premium  associated  with the
reinsurance transaction between the Company and Bermuda Re noted earlier.

                                       12
<PAGE>
<TABLE>
<CAPTION>
                        OPERATING SEGMENT COMBINED RATIOS
--------------------------------------------------------------------------------
      Segment                                  2001                         2000
--------------------------------------------------------------------------------
<S>                                           <C>                          <C>
U.S. Reinsurance                              123.3%                        88.0%
U.S. Insurance                                 99.9%                       105.8%
Specialty Underwriting                        118.0%                       113.1%
International                                 106.2%                       115.4%
</TABLE>

INVESTMENTS.  Net investment  income decreased by 0.2% to $265.9 million in 2001
from $271.4 million in 2000,  principally reflecting the effect of investing the
$303.8  million  of cash  flow  from  operations  in 2001,  offset  by the lower
interest rate environment and increased  interest expense on funds held relating
to the  utilization of the 1999 and 2001 accident year aggregate  excess of loss
elements of the corporate  retrocessional  program.  The following table shows a
comparison  of  various  investment  yields as of  December  31,  2001 and 2000,
respectively, and for the periods then ended.
<TABLE>
<CAPTION>
                                                       2001                 2000
                                                       -------------------------
<S>                                                    <C>                  <C>
Imbedded pre-tax yield of cash and
 invested assets at end of period                       6.0%                 6.7%
Imbedded after-tax yield of cash and
 invested assets at end of period                       4.6%                 5.0%
Annualized pre-tax yield on average
 cash and invested assets                               6.2%                 6.5%
Annualized after-tax yield on average
 cash and invested assets                               4.7%                 5.0%
</TABLE>

Net realized  capital  losses were $15.7  million in 2001,  reflecting  realized
capital losses on the Company's  investments  of $45.5  million,  which includes
$3.1 million  relating to  write-downs  in the value of securities  deemed to be
other than  temporary,  partially  offset by $29.8  million of realized  capital
gains,  compared  to realized  capital  gains of $0.3  million in 2000.  The net
realized  capital  gains  in 2000  reflected  realized  capital  gains  of $30.3
million,  which  were  partially  offset by $30.0  million of  realized  capital
losses.  The net  realized  capital  losses  for 2001  allowed  the  Company  to
recapture  taxes  paid on net  realized  capital  gains  in prior  periods.  The
realized  capital  gains in 2001 and 2000  arose  mainly  from  activity  in the
Company's equity  portfolio.  The realized capital losses in 2001 and 2000 arose
mainly from activity in the Company's fixed maturity portfolios.

Interest  expense was $46.0  million for 2001 compared to $39.4 million in 2000.
Interest  expense for 2001  reflects  $38.9  million  relating to the  Company's
senior notes issued on March 14, 2000 and $7.1 million relating to the company's
borrowing  under  its  revolving  credit  facility.  Interest  expense  for 2000
reflects  $30.9 million  relating to the Company's  issuance of senior notes and
$8.5 million  relating to the Company's  borrowing  under its  revolving  credit
facility.

Other income was $26.6 million in 2001  compared to $3.3 million in 2000.  Other
income for 2001 includes $25.9 million arising from a  non-recurring  receipt of
shares in connection  with the  demutualization  of a former  insurance  company
client, which issued annuities, owned by the Company, in connection with certain
claim  settlement  transactions.  In addition,  other  income for 2001  includes
foreign exchange gains as well as financing fees from Everest  Security,  offset
by the amortization of deferred expenses  relating to the Company's  issuance of

                                       13
<PAGE>
senior  notes.  Significant  contributors  to other income for 2000 were foreign
exchange gains as well as financing fees from Everest Security, partially offset
by net derivative  expense and the amortization of deferred expenses relating to
Holdings'  issuance of senior notes.  The foreign  exchange gains and losses are
attributable to fluctuations in foreign currency exchange rates.

During 2000,  the Company added to its product  portfolio a credit default swap,
which it no longer offers, that has characteristics which allow this transaction
to be analyzed  using  approaches  consistent  with those used in the  Company's
other  operations.  This product  meets the  definition  of a  derivative  under
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and  Hedging   Activities"  ("FAS  133").  Net  derivative   expense  from  this
transaction in 2001 was $7.0 million, principally attributable to credit default
losses relating to the Enron bankruptcy.

INCOME TAXES. The Company  generated income tax benefits of $9.2 million in 2001
compared  to income tax  expense  of $43.8  million  in 2000.  This tax  benefit
primarily  resulted  from the  impact of losses  relating  to the  September  11
attacks,  the Enron bankruptcy and realized  capital losses  recognized in 2001,
which  reduced  taxable  income,  partially  offset by the  impact of income tax
expense  relating to the  non-recurring  receipt of shares in connection  with a
former client's demutualization.

NET INCOME.  Net income was $38.3 million in 2001 compared to $158.5  million in
2000. This decrease generally reflects the losses  attributable to the September
11 attacks and the Enron  bankruptcy,  partially  offset by improved  investment
results  and the  non-recurring  receipt of shares in  connection  with a former
client's demutualization.

SAFE HARBOR DISCLOSURE
This report contains  forward-looking  statements within the meaning of the U.S.
federal securities laws. The Company intends these forward-looking statements to
be covered by the safe harbor provisions for  forward-looking  statements in the
federal  securities  laws. In some cases,  these statements can be identified by
the use of  forward-looking  words  such as "may",  "will",  "should",  "could",
"anticipate",  "estimate",  "expect", "plan", "believe", "predict",  "potential"
and  "intend".  Forward-looking  statements  contained  in this  report  include
information regarding the Company's reserves for losses and LAE and estimates of
the Company's catastrophe exposure.  Forward-looking statements only reflect the
Company's  expectations and are not guarantees of performance.  These statements
involve  risks,  uncertainties  and  assumptions.  Actual  events or results may
differ materially from the Company's expectations.  Important factors that could
cause actual  events or results to be  materially  different  from the Company's
expectations include those discussed below under the caption "Risk Factors". The
Company   undertakes   no   obligation   to  update  or  revise   publicly   any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.

RISK FACTORS
The following  risk factors,  in addition to the other  information  provided in
this report,  should be considered  when  evaluating the Company.  The risks and
uncertainties described below are not the only ones the Company faces. There may
be additional  risks and  uncertainties.  If any of the following risks actually
occur,  the  Company's  business,  financial  condition or results of operations
could  be  materially  and  adversely  affected  and the  trading  price  of the
Company's common shares could decline significantly.

THE COMPANY'S RESULTS MAY FLUCTUATE AS A RESULT OF FACTORS  GENERALLY  AFFECTING
THE INSURANCE AND REINSURANCE INDUSTRY.

The results of companies in the insurance and reinsurance industry  historically
have been subject to significant  fluctuations and  uncertainties.  Factors that

                                       14
<PAGE>
affect the  industry  in  general  could  also  cause the  Company's  results to
fluctuate. The industry's profitability can be affected significantly by:

     o  fluctuations in interest rates, inflationary pressures and other changes
        in the investment environment, which affect returns on  invested capital
        and may impact the ultimate payout of loss amounts;

     o  rising  levels of  actual costs that are  not  known by companies at the
        time they price their products;

     o  volatile and unpredictable  developments,  including weather-related and
        other natural catastrophes;

     o  events like the September 11, 2001 attacks, which  affect the  insurance
        and reinsurance markets generally;

     o  changes in  reserves  resulting  from different types of claims that may
        arise and the development of judicial  interpretations  relating  to the
        scope of insurers' liability; and

     o  the overall level of economic  activity and the competitive  environment
        in the industry.

IF THE COMPANY'S  LOSS RESERVES ARE  INADEQUATE TO MEET ITS ACTUAL  LOSSES,  THE
COMPANY'S NET INCOME WOULD BE REDUCED OR IT COULD INCUR A LOSS.

The Company is required to  maintain  reserves to cover its  estimated  ultimate
liability  of  losses  and  loss  adjustment  expenses  for  both  reported  and
unreported  claims  incurred.  These  reserves  are only  estimates  of what the
Company thinks the settlement  and  administration  of claims will cost based on
facts and circumstances known to the Company.  Because of the uncertainties that
surround  estimating  loss reserves and loss  adjustment  expenses,  the Company
cannot be certain that ultimate losses will not exceed these estimates of losses
and loss  adjustment  reserves.  If the Company's  reserves are  insufficient to
cover its actual losses and loss adjustment expenses,  the Company would have to
augment its reserves and incur a charge to its earnings.  These charges could be
material.  The  difficulty  in estimating  the  Company's  reserves is increased
because the Company's loss reserves include reserves for potential  asbestos and
environmental liabilities. Asbestos and environmental liabilities are especially
hard to estimate for many reasons,  including the long waiting  periods  between
exposure and  manifestation of any bodily injury or property damage,  difficulty
in identifying the source of the asbestos or environmental  contamination,  long
reporting  delays  and  difficulty  in  properly  allocating  liability  for the
asbestos or environmental damage.

THE COMPANY'S  INABILITY TO ASSESS UNDERWRITING RISK ACCURATELY COULD REDUCE ITS
NET INCOME.

The Company's success is dependent on its ability to assess accurately the risks
associated  with the  businesses  on which the risk is retained.  If the Company
fails to  assess  accurately  the  risks it  retains,  the  Company  may fail to
establish appropriate premium rates and the Company's reserves may be inadequate
to cover its losses,  requiring augmentation of the Company's reserves, which in
turn, could reduce the Company's net income.

DECREASES IN RATES FOR PROPERTY AND CASUALTY  REINSURANCE  AND  INSURANCE  COULD
REDUCE THE COMPANY'S NET INCOME.

                                       15
<PAGE>
The Company  primarily  writes property and casualty  reinsurance and insurance.
The property and casualty industry historically has been highly cyclical.  Rates
for property and casualty  reinsurance and insurance are influenced primarily by
factors that are outside of the Company's control.  Any significant  decrease in
the rates for property and casualty  insurance or  reinsurance  could reduce the
Company's net income.

IF RATING AGENCIES  DOWNGRADE THEIR RATINGS OF THE COMPANY'S  INSURANCE  COMPANY
SUBSIDIARIES,  THE COMPANY'S FUTURE PROSPECTS FOR GROWTH AND PROFITABILITY COULD
BE SIGNIFICANTLY AND ADVERSELY AFFECTED.

The Company's insurance company subsidiaries, other than Mt. McKinley, currently
hold an A+ ("Superior") financial strength rating from A.M. Best Company, an AA-
("Very  Strong")  financial  strength  rating  from  Standard  & Poor's  Ratings
Services  and  an Aa3  ("Excellent")  financial  strength  rating  from  Moody's
Investors  Service,  Inc.  Financial  strength  ratings are used by insurers and
reinsurance and insurance  intermediaries as an important means of assessing the
financial  strength  and quality of  reinsurers.  In  addition,  the rating of a
company  purchasing  reinsurance  may be  adversely  affected by an  unfavorable
rating or the lack of a rating of its  reinsurer.  A downgrade or  withdrawal of
any of these ratings might adversely affect the Company's  ability to market its
insurance products and would have a significant and adverse effect on its future
prospects for growth and profitability.

THE COMPANY'S REINSURERS MAY NOT SATISFY THEIR OBLIGATIONS.

The Company is subject to credit risk with respect to its reinsurers because the
transfer of risk to a reinsurer does not relieve the Company of its liability to
the insured.  In addition,  reinsurers  may be unwilling to pay the Company even
though  they  are able to do so.  The  failure  of one or more of the  Company's
reinsurers  to honor their  obligations  in a timely  fashion  would  impact the
Company's  cash flow and reduce its net  income and could  cause the  Company to
incur a significant loss.

IF  THE  COMPANY  IS  UNABLE  TO  PURCHASE  REINSURANCE  AND  TRANSFER  RISK  TO
REINSURERS, ITS NET INCOME COULD BE REDUCED OR THE COMPANY COULD INCUR A LOSS.

The Company  attempts  to limit its risk of loss by  purchasing  reinsurance  to
transfer  a  portion  of the  risks it  assumes.  The  availability  and cost of
reinsurance is subject to market conditions,  which are outside of the Company's
control.  As a result,  the  Company  may not be able to  successfully  purchase
reinsurance  and  transfer  risk  through  reinsurance  arrangements.  A lack of
available  reinsurance  might  adversely  affect the  marketing of the Company's
programs  and/or  force the  Company  to  retain  all or a part of the risk that
cannot be  reinsured.  If the Company  were  required to retain  these risks and
ultimately  pay claims with respect to these  risks,  the  Company's  net income
could be reduced or the Company could incur a loss.

THE COMPANY'S  INDUSTRY IS HIGHLY COMPETITIVE AND THE COMPANY MAY NOT BE ABLE TO
COMPETE SUCCESSFULLY IN THE FUTURE.

The Company's  industry is highly  competitive and has experienced  severe price
competition  over the last  several  years.  The Company  competes in the United
States and  international  markets  with  domestic and  international  insurance
companies.  Some of these competitors have greater financial  resources than the
Company,  have been  operating for longer than the Company and have  established
long-term and continuing business relationships  throughout the industry,  which
can be a significant  competitive advantage. In addition, the Company expects to
face further  competition in the future.  The Company may not be able to compete
successfully in the future.

                                       16
<PAGE>
THE COMPANY IS DEPENDENT ON ITS KEY PERSONNEL.

The  Company's  success  has been,  and will  continue to be,  dependent  on its
ability to retain the  services of its existing  key  executive  officers and to
attract and retain additional qualified personnel in the future. The loss of the
services  of any of its key  executive  officers  or the  inability  to hire and
retain other highly qualified personnel in the future could adversely affect the
Company's ability to conduct its business.

THE VALUE OF THE COMPANY'S  INVESTMENT  PORTFOLIO AND THE  INVESTMENT  INCOME IT
RECEIVES FROM THAT  PORTFOLIO  COULD DECLINE AS A RESULT OF MARKET  FLUCTUATIONS
AND ECONOMIC CONDITIONS.

A significant  portion of the Company's  investment  portfolio consists of fixed
income securities and a smaller portion consists of equity securities.  Both the
fair market  value of these assets and the  investment  income from these assets
fluctuate depending on general economic and market conditions.  For example, the
fair market value of the Company's fixed income securities  generally  increases
or decreases in an inverse relationship with fluctuations in interest rates. The
fair market value of the Company's fixed income  securities can also decrease as
a result of any downturn in the business cycle that causes the credit quality of
those  securities to  deteriorate.  The net  investment  income that the Company
realizes  from future  investments  in fixed income  securities  will  generally
increase or decrease with interest rates.  Interest rate  fluctuations  can also
cause net investment income from investments that carry prepayment risk, such as
mortgage-backed  and other  asset-backed  securities,  to differ from the income
anticipated from those  securities at the time the Company bought them.  Because
all of the Company's securities are classified as available for sale, changes in
the market value of the  Company's  securities  are  reflected in its  financial
statements.  Similar treatment is not available for liabilities.  As a result, a
decline in the value of the securities in the Company's  portfolio  could reduce
its net income or cause the Company to incur a loss.

INSURANCE LAWS AND REGULATIONS RESTRICT THE COMPANY'S ABILITY TO OPERATE.

The Company is subject to  extensive  regulation  under U.S.,  state and foreign
insurance laws. These laws limit the amount of dividends that can be paid to the
Company by its operating  subsidiaries,  impose  restrictions  on the amount and
type of investments that they can hold,  prescribe  solvency standards that must
be met and maintained by them and require them to maintain reserves.  These laws
also require disclosure of material intercompany  transactions and require prior
approval  of  certain   "extraordinary"   transactions.   These  "extraordinary"
transactions include declaring dividends from operating subsidiaries that exceed
statutory  thresholds.  These laws also generally require approval of changes of
control.  The  Company's  failure to comply with these laws could  subject it to
fines and penalties and restrict it from conducting business. The application of
these laws could affect the Company's  liquidity and ability to pay dividends on
its  common  shares  and could  restrict  the  Company's  ability  to expand its
business  operations  through  acquisitions  involving the  Company's  insurance
subsidiaries.

FAILURE TO COMPLY  WITH  INSURANCE  LAWS AND  REGULATIONS  COULD HAVE A MATERIAL
ADVERSE EFFECT ON THE COMPANY'S BUSINESS.

The Company cannot assure that it has or can maintain all required  licenses and
approvals  or that  its  business  fully  complies  with  the  wide  variety  of
applicable laws and regulations or the relevant  authority's  interpretation  of
the  laws  and  regulations.  In  addition,  some  regulatory  authorities  have
relatively broad discretion to grant, renew or revoke licenses and approvals. If
the Company does not have the requisite  licenses and approvals or do not comply

                                       17
<PAGE>
with applicable regulatory  requirements,  the insurance regulatory  authorities
could preclude or  temporarily  suspend the Company from carrying on some or all
of its  activities  or monetarily  penalize the Company.  These types of actions
could have a material adverse effect on the Company's business.

THE COMPANY  MAY  EXPERIENCE  EXCHANGE  LOSSES IF IT DOES NOT MANAGE ITS FOREIGN
CURRENCY EXPOSURE PROPERLY.

The Company's  functional  currency is the United States  dollar.  However,  the
Company  writes a portion of its business and receives a portion of its premiums
in currencies  other than United States  dollars.  The Company also  maintains a
portion of its  investment  portfolio in  investments  denominated in currencies
other than United  States  dollars.  Consequently,  the  Company may  experience
exchange  losses if its foreign  currency  exposure is not  properly  managed or
otherwise hedged. If the Company seeks to hedge its foreign currency exposure by
using forward foreign currency exchange contracts or currency swaps, the Company
will be subject to the risk that the counter parties to those  arrangements will
fail to  perform,  or that  those  arrangements  will not  precisely  offset the
Company's exposure.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET SENSITIVE INSTRUMENTS

The Securities and Exchange Commission  Financial Reporting Release #48 requires
registrants  to  clarify  and  expand  upon  the  existing  financial  statement
disclosure   requirements  for  derivative  financial  instruments,   derivative
commodity instruments,  and other financial instruments  (collectively,  "market
sensitive instruments").

The Company's  current  investment  strategy seeks to maximize  after-tax income
through a high quality, diversified,  taxable and tax-preferenced fixed maturity
portfolio,  while maintaining an adequate level of liquidity.  The Company's mix
of taxable and tax-preferenced investments is adjusted continuously,  consistent
with its current and projected  operating results,  market  conditions,  and tax
position.  The fixed  maturities  in the  investment  portfolio are comprised of
non-trading available for sale securities.  Additionally, the Company invests in
equity securities, which it believes will enhance the risk-adjusted total return
of the  investment  portfolio.  The Company has also engaged in a credit default
swap, the market sensitivity of which is believed to be immaterial.

The overall  investment  strategy considers the scope of present and anticipated
Company operations.  In particular,  estimates of the financial impact resulting
from  non-investment  asset  and  liability  transactions,   together  with  the
Company's  capital  structure  and  other  factors,  are used to  develop  a net
liability analysis.  This analysis includes estimated payout characteristics for
which the  investments  of the  Company  provide  liquidity.  This  analysis  is
considered  in the  development  of  specific  investment  strategies  for asset
allocation, duration, and credit quality. The change in overall market sensitive
risk exposure  principally reflects the asset changes that took place during the
year together with minor changes in the underlying risk characteristics.

The $4.5 billion investment  portfolio is comprised of fixed maturity securities
that are  subject to  interest  rate risk and foreign  currency  rate risk,  and
equity  securities  that are subject to equity  price risk.  The impact of these
risks in the investment portfolio is generally mitigated by changes in the value
of  operating  assets and  liabilities  and their  associated  income  statement
impact.

                                       18
<PAGE>
Interest  rate  risk is the  potential  change  in value of the  fixed  maturity
portfolio  due  to  change  in  market  interest  rates.  Further,  it  includes
prepayment risk in a declining  interest rate  environment on the $450.8 million
of the $4.3 billion fixed maturity portfolio,  which consists of mortgage-backed
securities.   Prepayment  risk  results  from  potential  accelerated  principal
payments  that  shorten the average  life and thus,  the  expected  yield of the
security.

The tables below display the potential  impact of market value  fluctuations and
after-tax unrealized appreciation on the fixed maturity portfolio as of December
31, 2001 and 2000 based on parallel 200 basis point shifts in interest  rates up
and down in 100 basis point  increments.  For legal entities with a U.S.  dollar
functional currency,  this modeling was performed on each security individually.
To generate appropriate price estimates on mortgage-backed  securities,  changes
in prepayment  expectations under different interest rate environments are taken
into account. For legal entities with a non-U.S. dollar functional currency, the
effective  duration of the involved  portfolio of securities was used as a proxy
for the market value change under the various  interest  rate change  scenarios.
All amounts are in U.S. dollars and are presented in millions.
<TABLE>
<CAPTION>
                                      2001
                       INTEREST RATE SHIFT IN BASIS POINTS
------------------------------------------------------------------------------------------
                               -200         -100           0           100          200
------------------------------------------------------------------------------------------
<S>                          <C>          <C>          <C>          <C>          <C>
Total Market Value           $ 4,875.7    $ 4,578.3    $ 4,302.8    $ 4,043.8    $ 3,807.1

Market Value Change
 from Base (%)                    13.3%         6.4%         0.0%        (6.0%)      (11.5%)

Change in Unrealized
 Appreciation After-tax
 from Base ($)               $   372.4    $   179.1    $       -    $  (168.3)   $  (322.2)
</TABLE>
<TABLE>
<CAPTION>
                                      2000
                       INTEREST RATE SHIFT IN BASIS POINTS
------------------------------------------------------------------------------------------
                               -200         -100           0           100          200
------------------------------------------------------------------------------------------
<S>                          <C>          <C>          <C>          <C>          <C>
Total Market Value           $ 4,637.3    $ 4,384.1    $ 4,150.6    $ 3,923.7    $ 3,710.2

Market Value Change
 from Base (%)                    11.8%         5.6%         0.0%        (5.5%)      (10.6%)

Change in Unrealized
 Appreciation After-tax
 from Base ($)               $   316.4    $   151.8    $       -    $  (147.5)   $  (286.3)
</TABLE>

Foreign  currency rate risk is the potential change in value,  income,  and cash
flow  arising from  adverse  changes in foreign  currency  exchange  rates.  The
Company's  foreign  operations  each  maintain  capital in the  currency  of the
country of its geographic location consistent with local regulatory  guidelines.
Generally, the Company prefers to maintain the capital of its foreign operations
in U.S.  dollar  assets  although  this  varies by  regulatory  jurisdiction  in
accordance with market needs. Each foreign operation may conduct business in its

                                       19
<PAGE>
local currency as well as the currency of other  countries in which it operates.
The primary  foreign  currency  exposures are the Canadian  Dollar,  the British
Pound Sterling and the Euro for these foreign operations.  The Company mitigates
foreign exchange  exposure by a general matching of the currency and duration of
its  assets to its  corresponding  operating  liabilities.  In  accordance  with
Financial  Accounting  Standards Board Statement No. 52, the Company  translates
the assets,  liabilities and income of non-U.S. dollar functional currency legal
entities to the U.S. dollar.  This translation amount is reported as a component
of other comprehensive income. The primary functional foreign currency exposures
are the Canadian  Dollar,  the Belgian Franc and the British Pound  Sterling for
these foreign operations.

The tables  below  display the  potential  impact of a parallel 20% increase and
decrease in foreign  exchange rates on the valuation of invested  assets subject
to foreign currency exposure in 10% increments as of December 31, 2001 and 2000.
This analysis  includes the after-tax impact of translation  from  transactional
currency to functional  currency as well as the after-tax  impact of translation
from functional currency to the U.S. dollar reporting currency.  All amounts are
in U.S. dollars and are presented in millions.
<TABLE>
<CAPTION>
                                      2001
                   CHANGE IN FOREIGN EXCHANGE RATES IN PERCENT
---------------------------------------------------------------------------------
                                 -20%        -10%       0%        10%        20%
---------------------------------------------------------------------------------
<S>                            <C>         <C>        <C>      <C>        <C>
Total After-tax Foreign
 Exchange Exposure            ($  40.7)   ($  21.6)   $   -    $  23.3    $  47.9
</TABLE>
<TABLE>
<CAPTION>
                                      2000
                   CHANGE IN FOREIGN EXCHANGE RATES IN PERCENT
---------------------------------------------------------------------------------
                                 -20%        -10%       0%        10%        20%
---------------------------------------------------------------------------------
<S>                            <C>         <C>        <C>      <C>        <C>
Total After-tax Foreign
 Exchange Exposure            ($  42.9)   ($  22.5)   $   -    $  24.2    $  49.5
</TABLE>

Equity  risk is the  potential  change in market  value of the common  stock and
preferred  stock  portfolios  arising from changing  equity prices.  The Company
invests in index mutual funds and high quality common and preferred  stocks that
are traded on the major exchanges in the United States. The primary objective in
managing the $67.5  million  equity  portfolio is to provide  long-term  capital
growth through market appreciation and income.

The tables  below  display the impact on market value and  after-tax  unrealized
appreciation  of a 20% change in equity prices up and down in 10%  increments as
of December 31, 2001 and 2000. All amounts are in U.S. dollars and are presented
in millions.
<TABLE>
<CAPTION>
                                      2001
                       CHANGE IN EQUITY VALUES IN PERCENT
----------------------------------------------------------------------------------
                                 -20%        -10%        0%         10%        20%
----------------------------------------------------------------------------------
<S>                            <C>         <C>        <C>        <C>        <C>
Market Value of the
 Equity Portfolio              $  54.0     $  60.7    $  67.5    $  74.2    $  80.9

After-tax Change in
 Unrealized Appreciation          (8.8)       (4.4)         -        4.4        8.8
</TABLE>

                                       20
<PAGE>
<TABLE>
<CAPTION>
                                      2000
                       CHANGE IN EQUITY VALUES IN PERCENT
----------------------------------------------------------------------------------
                                 -20%        -10%        0%         10%        20%
----------------------------------------------------------------------------------
<S>                            <C>         <C>        <C>        <C>        <C>
Market Value of the
 Equity Portfolio              $  29.3     $  33.0    $  36.6    $  40.3    $  44.0

After-tax Change in
 Unrealized Appreciation          (4.8)       (2.4)         -        2.4        4.8
</TABLE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial  statements  and  schedules  listed in the  accompanying  Index to
Financial Statements and Schedules on page F-1 are filed as part of this report.

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE.
None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information  for this Item 10 is not  required  pursuant to General  Instruction
I(2) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION
Information  for this Item 11 is not  required  pursuant to General  Instruction
I(2) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information  for this Item 12 is not  required  pursuant to General  Instruction
I(2) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information  for this Item 13 is not  required  pursuant to General  Instruction
I(2) of Form 10-K.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS AND SCHEDULES
The financial  statements  and  schedules  listed in the  accompanying  Index to
Financial Statements and Schedules on page F-1 are filed as part of this report.

EXHIBITS
The exhibits listed on the accompanying  Index to Exhibits on page E-1 are filed
as part of this report.

REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of 2001.

                                       21
<PAGE>
SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 28, 2002.


                                EVEREST REINSURANCE HOLDINGS, INC.


                                By:  /s/ JOSEPH V. TARANTO
                                     -----------------------------------------
                                     Joseph V. Taranto
                                     (Chairman and Chief Executive Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


/s/  JOSEPH V. TARANTO        Chairman and Chief                  March 28, 2002
------------------------      Executive Officer and
     Joseph V. Taranto        Director (Principal
                              Executive Officer)

/s/  STEPHEN L. LIMAURO       Executive Vice President,           March 28, 2002
------------------------      Chief Financial Officer and
     Stephen L. Limauro       Director (Principal Financial
                              and Accounting Officer)

/s/  THOMAS J. GALLAGHER      Director                            March 28, 2002
------------------------
     Thomas J. Gallagher



                                       22
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

                                                                           Pages
                                                                           -----

Everest Reinsurance Holdings, Inc.

Report of Independent Accountants on Financial
 Statements and Schedules                                                    F-2
                                                                             ---

Consolidated Balance Sheets at December 31, 2001 and 2000                    F-3
                                                                             ---

Consolidated Statements of Operations and Comprehensive Income
 for the years ended December 31, 2001, 2000 and 1999                        F-4
                                                                             ---

Consolidated Statements of Changes in Stockholder's Equity
 for the years ended December 31, 2001, 2000 and 1999                        F-5
                                                                             ---

Consolidated Statements of Cash Flows for the years ended
 December 31, 2001, 2000 and 1999                                            F-6
                                                                             ---

Notes to Consolidated Financial Statements                                   F-7
                                                                             ---

Schedules

I     Summary of Investments Other Than Investments in Related
       Parties at December 31, 2001                                          S-1
                                                                             ---

II    Condensed Financial Information of Registrant:
       Balance Sheets as of December 31, 2001 and 2000                       S-2
                                                                             ---
       Statements of Operations for the Years Ended
        December 31, 2001, 2000 and 1999                                     S-3
                                                                             ---
       Statements of Cash Flows for the Years Ended
        December 31, 2001, 2000 and 1999                                     S-4
                                                                             ---

III   Supplementary Insurance Information as of
       December 31, 2001 and 2000 and for the years
       ended December 31, 2001, 2000 and 1999                                S-5
                                                                             ---

IV    Reinsurance for the years ended December 31, 2001,
       2000 and 1999                                                         S-6
                                                                             ---


Schedules other than those listed above are omitted for the reason that they are
not  applicable  or the  information  is otherwise  contained  in the  Financial
Statements.

                                      F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholder
of Everest Reinsurance Holdings, Inc.


In our opinion, the consolidated financial statements listed in the accompanying
index  present  fairly,  in all material  respects,  the  financial  position of
Everest Reinsurance Holdings, Inc. and its subsidiaries at December 31, 2001 and
2000,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity  with accounting
principles  generally accepted in the United States of America. In addition,  in
our opinion,  the financial statement schedules listed in the accompanying index
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated  financial  statements.  These
financial statements and financial statement schedules are the responsibility of
the Company's  management;  our responsibility is to express an opinion on these
financial  statements and financial  statement schedules based on our audits. We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


PricewaterhouseCoopers LLP
New York, New York
February 14, 2002



                                      F-2
<PAGE>
Part I - Item 1


                       EVEREST REINSURANCE HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
               (Dollars in thousands, except par value per share)
<TABLE>
<CAPTION>
                                                   December 31,     December 31,
                                                   ------------     ------------
                                                       2001             2000
                                                   ------------     ------------
<S>                                                <C>              <C>
ASSETS:
Fixed maturities - available for sale,
 at market value (amortized cost:
 2001, $4,051,833; 2000, $3,793,279)               $  4,186,923     $  3,879,335
Equity securities, at market value
 (cost: 2001, $66,412; 2000, $22,395)                    67,453           36,634
Short-term investments                                  115,850          271,216
Other invested assets                                    32,039           29,211
Cash                                                     67,509           68,397
                                                   ------------     ------------
   Total investments and cash                         4,469,774        4,284,793

Accrued investment income                                64,972           64,508
Premiums receivable                                     454,548          393,229
Reinsurance receivables                               1,471,357          996,689
Funds held by reinsureds                                149,710          161,350
Deferred acquisition costs                              114,948           92,478
Prepaid reinsurance premiums                             48,100           58,196
Deferred tax asset                                      178,476          174,451
Other assets                                             60,496           37,622
                                                   ------------     ------------
TOTAL ASSETS                                       $  7,012,381     $  6,263,316
                                                   ============     ============

LIABILITIES:
Reserve for losses and loss
 adjustment expenses                               $  4,274,335     $  3,785,747
Unearned premium reserve                                473,308          401,148
Funds held under reinsurance
 treaties                                               308,811          110,464
Losses in the course of payment                          83,360          101,995
Contingent commissions                                    3,345            9,380
Other net payable to reinsurers                         132,252           60,332
Current federal income taxes                            (30,365)          (8,210)
8.5% Senior notes due 3/15/2005                         249,694          249,615
8.75% Senior notes due 3/15/2010                        199,077          199,004
Revolving credit agreement
 borrowings                                             105,000          235,000
Accrued interest on debt and
 borrowings                                              11,944           12,212
Other liabilities                                        90,211           56,142
                                                   ------------     ------------
   Total liabilities                                  5,900,972        5,212,829
                                                   ------------     ------------

Commitments and contingencies (Note 12)

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 200
 million shares authorized; 1,000
 shares issued in 2001 and 2000                              -                -
Additional paid-in capital                              258,775          255,359
Accumulated other comprehensive
 income, net of deferred income
 taxes of $40.8 million in 2001
 and deferred income taxes of
 $30.4 million in 2000                                   76,003           56,747
Retained earnings                                       776,631          738,381
                                                   ------------     ------------
   Total stockholder's equity                         1,111,409        1,050,487
                                                   ------------     ------------
TOTAL LIABILITIES AND
 STOCKHOLDER'S EQUITY                              $  7,012,381     $  6,263,316
                                                   ============     ============
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-3
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                     -------------------------------------------
                                        2001            2000            1999
                                     -----------     -----------     -----------
<S>                                  <C>             <C>             <C>
REVENUES:
Premiums earned                      $ 1,333,501     $ 1,162,597     $ 1,071,451
Net investment income                    265,924         271,389         252,999
Net realized capital
 (loss) gain                             (15,745)            291         (16,760)
Net derivative (expense)                  (7,020)             -               -
Other income (expense)                    26,565           3,341          (1,030)
                                     -----------     -----------     -----------
                                       1,603,225       1,437,618       1,306,660
                                     -----------     -----------     -----------

CLAIMS AND EXPENSES:
Incurred losses and loss
 adjustment expenses                   1,079,219         878,241         771,570
Commission, brokerage,
 taxes and fees                          393,645         267,410         285,957
Other underwriting expenses               55,292          50,264          48,263
Non-recurring restructure
 expenses                                     -               -            2,798
Interest expense on senior
 notes                                    38,903          30,896              -
Interest expense on credit
 facility                                  7,101           8,490           1,490
                                     -----------     -----------     -----------
                                       1,574,160       1,235,301       1,110,078
                                     -----------     -----------     -----------

INCOME BEFORE TAXES                       29,065         202,317         196,582

Income tax (benefit) expense              (9,185)         43,822          38,521
                                     -----------     -----------     -----------

NET INCOME                           $    38,250     $   158,495     $   158,061
                                     ===========     ===========     ===========

Other comprehensive income
 (loss), net of tax                       19,256          73,448        (202,219)
                                     -----------     -----------     -----------

COMPREHENSIVE INCOME (LOSS)          $    57,506     $   231,943     $   (44,158)
                                     ===========     ===========     ===========
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-4
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.
                       CONSOLIDATED STATEMENTS OF CHANGES
                             IN STOCKHOLDER'S EQUITY
                (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                     -------------------------------------------
                                        2001            2000            1999
                                     -----------     -----------     -----------
<S>                                  <C>             <C>             <C>
COMMON STOCK (shares outstanding):
Balance, beginning of period               1,000      46,457,817      49,989,204
Issued during the period                      -            8,500          17,400
Treasury stock acquired during
 the period                                   -         (650,400)     (3,554,047)
Treasury stock reissued during
 the period                                   -            1,780           5,260
Common stock retired during the
 period                                       -      (45,817,697)             -
Issued during the period                      -            1,000              -
                                     -----------     -----------     -----------
Balance, end of period                     1,000           1,000      46,457,817
                                     ===========     ===========     ===========

COMMON STOCK (par value):
Balance, beginning of period         $        -      $       509     $       509
Common stock retired during
 the period                                   -             (509)             -
                                     -----------     -----------     -----------
Balance, end of period                        -               -              509
                                     -----------     -----------     -----------

ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period             255,359         390,912         390,559
Retirement of treasury stock
 during the period                            -         (138,546)             -
Common stock issued during
 the period                                3,416           2,339             317
Treasury stock reissued
 during period                                -               (2)             36
Contribution from subsidiary                  -              198              -
Common stock retired during
 the period                                   -              458              -
                                     -----------     -----------     -----------
Balance, end of period                   258,775         255,359         390,912
                                     -----------     -----------     -----------

UNEARNED COMPENSATION:
Balance, beginning of period                  -             (109)           (240)
Net increase during the period                -              109             131
                                     -----------     -----------     -----------
Balance, end of period                        -               -             (109)
                                     -----------     -----------     -----------

ACCUMULATED OTHER COMPREHENSIVE
 INCOME, NET OF DEFERRED INCOME
 TAXES:
Balance, beginning of period              56,747         (16,701)        185,518
Net increase (decrease) during
 the period                               19,256          73,448        (202,219)
                                     -----------     -----------     -----------
Balance, end of period                    76,003          56,747         (16,701)
                                     -----------     -----------     -----------

RETAINED EARNINGS:
Balance, beginning of period             738,381       1,074,941         928,500
Net income                                38,250         158,495         158,061
Restructure adjustments                       -              (55)             -
Dividends paid to parent                      -         (495,000)        (11,620)
                                     -----------     -----------     -----------
Balance, end of period                   776,631         738,381       1,074,941
                                     -----------     -----------     -----------

TREASURY STOCK AT COST:
Balance, beginning of period                  -         (122,070)        (25,642)
Treasury stock retired
 during the period                            -          138,454              -
Treasury stock acquired
 during period                                -          (16,426)        (96,551)
Treasury stock reissued
 during period                                -               42             123
                                     -----------     -----------     -----------
Balance, end of period                        -               -         (122,070)
                                     -----------     -----------     -----------

TOTAL STOCKHOLDER'S EQUITY,
 END OF PERIOD                       $ 1,111,409     $ 1,050,486     $ 1,327,482
                                     ===========     ===========     ===========
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-5
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                     -------------------------------------------
                                        2001           2000 *           1999
                                     -----------     -----------     -----------
<S>                                  <C>             <C>             <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
Net income                           $    38,250     $   158,495     $   158,061
 Adjustments to reconcile net
  income to net cash provided
  by operating activities net
  of effects from the purchase
  of Mt. McKinley Insurance
  Company
  (Increase) in premiums
   receivable                            (62,901)       (101,894)        (36,179)
  Decrease in funds held by
  reinsureds, net                        209,558          29,135          23,007
 (Increase) decrease in
  reinsurance receivables               (476,736)       (173,954)        239,763
 (Increase) in deferred tax asset        (15,968)        (16,247)        (17,169)
 Increase (decrease) in reserve
  for losses and loss adjustment
  expenses                               506,128             827        (133,706)
 Increase in unearned premiums            73,201          95,076          25,077
 Decrease (increase) in other
  assets and liabilities                  22,179         (16,887)        (67,106)
 Non cash compensation expense                -              109             131
 Accrual of bond discount/
  amortization of bond premium            (5,836)         (7,553)         (5,203)
 Amortization of underwriting
  discount on senior notes                   152             112              -
 Restructure adjustment                       -              (55)             -
 Realized capital losses (gains)          15,745            (291)         16,760
                                     -----------     -----------     -----------
Net cash provided by (used in)
 operating activities                    303,772         (33,127)        203,436
                                     -----------     -----------     -----------

CASH FLOWS FROM INVESTING
 ACTIVITIES:
Proceeds from fixed maturities
 matured/called - available
 for sale                                265,316         181,381         205,669
Proceeds from fixed maturities
 sold - available for sale               470,561         730,589         665,873
Proceeds from equity
 securities sold                          33,373          49,556          69,397
Proceeds from other invested
 assets sold                                  47              -              181
Cost of fixed maturities
 acquired - available for sale        (1,036,759)     (1,174,662)       (990,369)
Cost of equity securities
 acquired                                (64,267)         (2,732)        (16,643)
Cost of other invested assets
 acquired                                 (1,497)         (1,698)        (23,109)
Net sales (purchases) of
 short-term securities                   156,735        (205,524)        (38,200)
Net increase (decrease) in
 unsettled securities
 transactions                              1,595            (955)            (47)
Payment for purchase of Mt.
 McKinley Insurance Company,
 net of cash acquired                         -          349,743              -
                                     -----------     -----------     -----------
Net cash (used in) investing
 activities                             (174,896)        (74,302)       (127,248)
                                     -----------     -----------     -----------

CASH FLOWS FROM FINANCING
 ACTIVITIES:
Acquisition of treasury stock
 net of reissuances                           -          (16,478)        (96,392)
Common stock issued during
 the period                                3,416           2,288             317
Dividends paid to stockholders                -         (495,000)        (11,620)
Proceeds from issuance of
 senior notes                                 -          448,507              -
Borrowings on revolving credit
 agreement                                22,000         176,000          59,000
Repayments on revolving credit
 agreement                              (152,000)             -               -
Contribution from subsidiary                  -              198              -
                                     -----------     -----------     -----------
Net cash (used in) provided
 by financing activities                (126,584)        115,515         (48,695)
                                     -----------     -----------     -----------

EFFECT OF EXCHANGE RATE
 CHANGES ON CASH                          (3,180)         (1,916)         (4,592)
                                     -----------     -----------     -----------

Net (decrease) increase in cash             (888)          6,170          22,901
Cash, beginning of period                 68,397          62,227          39,326
                                     -----------     -----------     -----------
Cash, end of period                  $    67,509     $    68,397     $    62,227
                                     ===========     ===========     ===========

Supplemental cash flow
 information
Cash transactions:
Income taxes paid, net               $    24,370     $    62,141     $    59,586
Interest paid                        $    46,120     $    27,169     $     1,384
Non-cash operating/investing
 transaction:
Shares received from
 demutualization                     $    25,921     $        -      $        -
Non-cash financing
 transaction:
Issuance of common stock             $        -      $       109     $       131
</TABLE>


* In the quarter  ended  September  30, 2000,  the Company  purchased all of the
  capital  stock of  Mt. McKinley Insurance Company for $51,800.  In conjunction
  with  the  acquisition,  the  fair  value  of assets acquired was $679,672 and
  liabilities was $627,872.

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-6
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years Ended December 31, 2001, 2000 and 1999


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.   BUSINESS AND BASIS OF PRESENTATION

Everest Re Group, Ltd. ("Group"), a Bermuda company with its principal executive
office in Barbados,  was  established  in 1999 as a  wholly-owned  subsidiary of
Everest  Reinsurance  Holdings,  Inc.  ("Holdings").  On February  24,  2000,  a
corporate  restructuring  was completed and Group became the new parent  holding
company of Holdings. Holders of shares of common stock of Holdings automatically
became holders of the same number of common shares of Group. The "Company" means
Holdings  and its  subsidiaries,  unless the  context  otherwise  requires.  The
Company,  through its subsidiaries,  principally  provides property and casualty
reinsurance and insurance in the United States and internationally.  The Company
is filing  this  report as a result of its public  issuance  of senior  notes on
March 14, 2000. See also Note 5.

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with generally accepted accounting principles in the United States of
America.  The statements  include the following  domestic and foreign direct and
indirect  subsidiaries of the Company:  Everest  Reinsurance  Company  ("Everest
Re"), Everest National Insurance Company ("Everest National"), Everest Indemnity
Insurance Company ("Everest  Indemnity"),  Everest Re Holdings,  Ltd.  ("Everest
Ltd."), a Bermuda domiciled  successor company of Everest Re Ltd. (the assets of
which funded  Everest Ltd. and which was formerly  known as Everest  Reinsurance
Ltd.),  Everest  Security  Insurance  Company  ("Everest  Security"),   formerly
Southeastern  Security  Insurance  Company,  Everest Insurance Company of Canada
("Everest  Canada"),  Mt.  McKinley  Managers,  L.L.C.  ("Managers"),   Workcare
Southeast,  Inc.  ("Workcare  Southeast"),  Workcare Southeast of Georgia,  Inc.
("Workcare  Georgia"),  Workcare,  Inc and Mt. McKinley  Insurance Company ("Mt.
McKinley"). All amounts are reported in U.S. dollars.

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  in the United States of America  requires  management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities (and disclosure of contingent assets and liabilities) at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

B.   INVESTMENTS

Fixed maturity investments are all classified as available for sale.  Unrealized
appreciation and depreciation,  as a result of temporary changes in market value
during the period, are reflected in shareholders' equity, net of income taxes in
"accumulated  other  comprehensive  income".  Equity  securities  are carried at
market  value  with  unrealized  appreciation  or  depreciation,  as a result of
temporary  changes  in  market  value  during  the  period,   are  reflected  in
shareholders'  equity, net of income taxes in "accumulated  other  comprehensive
income". Unrealized losses on fixed maturities and equity securities,  which are
deemed  other than  temporary,  are  charged to net income as  realized  capital
losses.  Short-term  investments are stated at cost, which  approximates  market
value.  Realized  gains or losses on sale of  investments  are determined on the
basis of identified cost. For non-publicly traded securities,  market prices are
determined through the use of pricing models that evaluate  securities  relative
to the U.S.  Treasury  yield curve,  taking into account the issue type,  credit
quality and cash flow  characteristics  of each  security.  For publicly  traded
securities,  market  value is  based  on  quoted  market  prices.  Retrospective
adjustments   are  employed  to  recalculate   the  values  of  loan-backed  and
asset-backed  securities.  Each  acquisition  lot is reviewed to recalculate the
effective yield. The recalculated effective yield is used to derive a book value
as if the  new  yield  were  applied  at the  time of  acquisition.  Outstanding
principal  factors from the time of acquisition to the adjustment  date are used

                                      F-7
<PAGE>
to calculate the prepayment history for all applicable  securities.  Conditional
prepayment  rates,  computed  with life to date factor  histories  and  weighted
average  maturities,  are  used to  affect  the  calculation  of  projected  and
prepayments  for pass through  security  types.  Other  invested  assets include
limited partnerships and rabbi trusts.  Limited partnerships are valued pursuant
to the equity  method of  accounting,  which  management  believes  approximates
market value. The Supplemental  Retirement Plan rabbi trust is carried at market
value, while the Deferred Compensation Plan rabbi trust and Supplemental Savings
Plan rabbi trust are carried at cost,  which  approximates  market  value.  Cash
includes cash and bank time deposits with original  maturities of ninety days or
less.

C.   UNCOLLECTIBLE REINSURANCE BALANCES

The Company provides  reserves for uncollectible  reinsurance  balances based on
management's  assessment of the collectibility of the outstanding balances. Such
reserves  were $34.1  million at December 31, 2001 and $27.9 million at December
31, 2000. See also Note 8.

D.   DEFERRED ACQUISITION COSTS

Acquisition costs,  consisting principally of commissions and brokerage expenses
and certain premium taxes and fees associated with the Company's reinsurance and
insurance  business  incurred  at the time a contract  or policy is issued,  are
deferred and amortized over the period in which the related premiums are earned,
generally one year.  Deferred  acquisition  costs are limited to their estimated
realizable value based on the related unearned premiums,  anticipated claims and
claim expenses and anticipated  investment  income.  Deferred  acquisition costs
amortized  to income  (expense)  were $22.7  million,  $10.1  million  and $12.4
million in 2001, 2000 and 1999, respectively.

E.   RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

The reserve for unpaid losses and loss adjustment  expenses  ("LAE") is based on
individual  case  estimates  and  reports  received  from  ceding  companies.  A
provision is included  for losses and LAE  incurred  but not  reported  ("IBNR")
based on past  experience.  A provision is also  included for certain  potential
liabilities relating to asbestos and environmental exposures,  which liabilities
cannot be estimated with traditional reserving techniques. See also Note 12. The
reserves are reviewed  continually and any changes in estimates are reflected in
earnings in the period the adjustment is made. Management believes that adequate
provision has been made for the Company's  losses and LAE. Loss and LAE reserves
are presented  gross of reinsurance  receivables and incurred losses and LAE are
presented net of ceded reinsurance.

Accruals for contingent  commission  liabilities are established for reinsurance
contracts  that  provide  for the stated  commission  percentage  to increase or
decrease based on the loss experience of the contract.  Changes in the estimated
liability for such arrangements are recorded as contingent commissions. Accruals
for contingent  commission  liabilities are determined through the review of the
contracts  that  have  these  adjustable  features  and are  estimated  based on
expected loss and loss adjustment expenses.

F.   PREMIUM REVENUES

Premiums  written are earned  ratably over the periods of the related  insurance
and reinsurance contracts or policies. Unearned premium reserves are established
to cover the  remainder of the  unexpired  contract  period.  Such  reserves are
established  based upon reports received from ceding companies or computed using

                                      F-8
<PAGE>
pro rata methods based on statistical data. Written and earned premiums, and the
related costs, which have not yet been reported to the Company are estimated and
accrued. Premiums are net of ceded reinsurance.

G.   INCOME TAXES

The Company and its wholly-owned  subsidiaries  file a consolidated U.S. federal
income tax return.  Group and its other subsidiaries,  not included in Holdings'
consolidated tax return,  file separate company U.S. federal income tax returns,
where  required.  Deferred  income taxes have been recorded to recognize the tax
effect of temporary  differences  between the financial reporting and income tax
bases of assets and liabilities.

H.   FOREIGN CURRENCY TRANSLATION

Assets and liabilities  relating to foreign  operations are translated into U.S.
dollars at the exchange rates in effect at the balance sheet date;  revenues and
expenses are translated into U.S.  dollars using average  exchange rates.  Gains
and losses resulting from translating foreign currency financial statements, net
of deferred  income  taxes,  are  excluded  from net income and  accumulated  in
stockholder's equity.

I.   UNUSUAL LOSS EVENTS

As a result of the terrorist attacks at the World Trade Center, the Pentagon and
on various  airlines on  September  11, 2001  (collectively  the  "September  11
attacks"), the Company incurred pre-tax losses, based on an estimate of ultimate
exposure  developed  through a review of its  coverages,  which  totaled  $213.2
million gross of reinsurance  and $55.0 million net of  reinsurance.  Associated
with this reinsurance were $60.0 million of pre-tax charges,  predominantly from
adjustment  premiums,  resulting in a total  pre-tax loss from the  September 11
attacks of $115.0 million.  After tax recoveries  relating  specifically to this
unusual loss event,  the net loss from the  September 11 attacks  totaled  $75.0
million.  Over 90% of the losses  ceded were to treaties  where the  reinsurers'
obligations  are secured,  which in the Company's  opinion  eliminates  material
reinsurance collection risk.

As a result of the Enron bankruptcy,  the Company has incurred losses, after-tax
and reinsurance,  amounting to $18.6 million.  This unusual loss reflects all of
the Company's exposures, including underwriting, credit and investment.

J.   ACQUISITIONS

On  September  19, 2000,  the Company  acquired Mt.  McKinley,  f/k/a  Gibraltar
Casualty  Company,  for $51.8 million.  Mt.  McKinley is a run-off  property and
casualty  insurer  in the  United  States.  No  goodwill  was  generated  in the
transaction.   The  acquisition  was  recorded  using  the  purchase  method  of
accounting. Accordingly, the December 31, 2000 consolidated financial statements
of the Company include the results of Mt. McKinley from September 19, 2000.

In connection  with the  acquisition of Mt.  McKinley,  Prudential  Property and
Casualty Insurance Company ("Prupac"),  a subsidiary of The Prudential Insurance
Company of America ("The  Prudential"),  provided  reinsurance  to Mt.  McKinley
covering  80%  ($160.0  million)  of the first  $200.0  million  of any  adverse
development  of Mt.  McKinley's  reserves  as of  September  19,  2000  and  The
Prudential  guaranteed  Prupac's  obligation  to Mt.  McKinley.  The  stop  loss
reinsurance  protection  that was  provided  by Mt.  McKinley at the time of the
Company's  Initial  Public  Offering  ("IPO")  and other  reinsurance  contracts

                                      F-9
<PAGE>
between Mt. McKinley and Everest Re remain in effect  following the acquisition.
However,  these contracts have become  transactions  with  affiliates,  with the
financial impact eliminated in consolidation.

The following  unaudited pro forma  information  assumes the  acquisition of Mt.
McKinley  occurred at the  beginning of each year  presented.  The unaudited pro
forma financial information is presented for informational  purposes only and is
not necessarily indicative of the operating results that would have occurred had
the acquisition been consummated at the beginning of each year presented, nor is
it necessarily indicative of future operating results.
<TABLE>
<CAPTION>
                                                  Years ended December 31,
                                            ------------------------------------
                                                2000                     1999
(Dollars in thousands)                                  (Unaudited)
                                            ------------------------------------
<S>                                         <C>                      <C>
Revenues                                    $ 1,457,284              $ 1,336,672
Net income                                      161,079                   82,919
</TABLE>

The Company also completed the  acquisition of Everest  Security  during 2000, a
United  States  property  and  casualty   company  whose  primary   business  is
non-standard auto. The purchase price of the acquisition was approximately $10.1
million.  Goodwill of $3.0 million was generated as a result of the  acquisition
and was recorded using the purchase method of accounting.

K.   SEGMENTATION

The  Company,  through  its  subsidiaries,   operates  in  four  segments:  U.S.
Reinsurance, U.S. Insurance, Specialty Underwriting and International.  See also
Note 14.

M.   CODIFICATION

The NAIC has published a codification of statutory accounting principles,  which
has been  adopted by the states of  domicile  of the  Company's  U.S.  operating
subsidiaries  with an  effective  date of January  1, 2001.  On January 1, 2001,
significant changes to the  statutory-basis of accounting became effective.  The
cumulative  effect of these changes has been recorded as a direct  adjustment to
statutory surplus.

M.   DERIVATIVES

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standard  ("SFAS") No. 133,  "Accounting for Derivative  Instruments and Hedging
Activities". SFAS No. 133 requires that all derivative instruments be recognized
as either assets or  liabilities on the balance sheet and measured at their fair
value.  Gains or losses from changes in the derivative  values are accounted for
based  on how  the  derivative  is used  and  whether  it  qualifies  for  hedge
accounting.

N.   FUTURE APPLICATION OF ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 142,
"Goodwill and Other Intangible Assets".  SFAS 142 establishes new accounting and
reporting  standards  for acquired  goodwill  and other  intangible  assets.  It
requires that an entity  determine if the goodwill or other intangible asset has
an indefinite  useful life or a finite useful life. Those with indefinite useful
lives  will not be  subject  to  amortization  and must be tested  annually  for
impairment.  Those with finite useful lives will be subject to amortization  and
must be tested  annually for  impairment.  This  statement is effective  for all

                                      F-10
<PAGE>
fiscal  quarters of all fiscal years  beginning  after  December  15, 2001.  The
implementation  of  this  statement  will  not  have a  material  impact  on the
financial position, results of operations or cash flows of the Company.


2.   INVESTMENTS

The  amortized  cost,  market  value,  and  gross  unrealized  appreciation  and
depreciation of fixed maturity  investments and equity  securities are presented
in the tables below:
<TABLE>
<CAPTION>

(dollar values in thousands)                Amortized      Unrealized      Unrealized       Market
                                              Cost        Appreciation    Depreciation       Value
                                           ----------------------------------------------------------
<S>                                        <C>            <C>             <C>             <C>
As of December 31, 2001
Fixed maturities - available for sale
 U.S. Treasury securities and
  obligations of U.S. government
  agencies and corporations                $   114,046    $      5,242    $        127    $   119,161
 Obligations of U.S. states and
  political subdivisions                     1,762,867          78,427           2,768      1,838,526
 Corporate securities                        1,295,371          41,342          31,717      1,304,996
 Mortgage-backed securities                    432,330          18,663             237        450,756
 Foreign government securities                 194,920          18,145             123        212,942
 Foreign corporate securities                  252,299          10,098           1,855        260,542
                                           ----------------------------------------------------------
Total fixed maturities                     $ 4,051,833    $    171,917    $     36,827    $ 4,186,923
                                           ==========================================================
Equity securities                          $    66,412    $      1,480    $        439    $    67,453
                                           ==========================================================

As of December 31, 2000
Fixed maturities - available for sale
 U.S. Treasury securities and
  obligations of U.S. government
  agencies and corporations                $   133,053    $      4,777    $         -     $   137,830
 Obligations of U.S. states and
  political subdivisions                     1,514,099          85,261             423      1,598,937
 Corporate securities                        1,198,216          25,865          66,089      1,157,992
 Mortgage-backed securities                    449,438          13,932             495        462,875
 Foreign government securities                 211,711          17,137             130        228,718
 Foreign corporate securities                  286,762           7,735           1,514        292,983
                                           ----------------------------------------------------------
Total fixed maturities                     $ 3,793,279    $    154,707    $     68,651    $ 3,879,335
                                           ==========================================================
Equity securities                          $    22,395    $     14,266    $         27    $    36,634
                                           ==========================================================
</TABLE>

                                      F-11
<PAGE>
The  amortized  cost  and  market  value of fixed  maturities  are  shown in the
following table by contractual  maturity.  Mortgage-backed  securities generally
are more  likely to be  prepaid  than  other  fixed  maturities.  As the  stated
maturity of such  securities  may not be  indicative of actual  maturities,  the
total for mortgage-backed securities is shown separately.
<TABLE>
<CAPTION>
                                                       December 31, 2001,
                                                   ---------------------------
                                                    Amortized        Market
(dollar values in thousands)                          Cost            Value
                                                   -----------     -----------
<S>                                                <C>             <C>
Fixed maturities - available for sale
 Due in one year or less                           $    82,047     $    83,307
 Due after one year through five years                 777,004         815,642
 Due after five years through ten years              1,163,696       1,204,077
 Due after ten years                                 1,596,756       1,633,141
 Mortgage-backed securities                            432,330         450,756
                                                   -----------     -----------
Total                                              $ 4,051,833     $ 4,186,923
                                                   ===========     ===========
</TABLE>

Proceeds from sales of fixed  maturity  investments  during 2001,  2000 and 1999
were $470.6  million,  $730.6 million and $665.9  million,  respectively.  Gross
gains of $16.4 million, $8.7 million and $0.9 million, and gross losses of $42.4
million,  $27.7 million and $28.5 million were realized on those fixed  maturity
sales during 2001,  2000 and 1999,  respectively.  Proceeds from sales of equity
security  investments  during  2001,  2000 and 1999 were  $33.4  million,  $49.6
million and $69.4 million,  respectively.  Gross gains of $13.4  million,  $20.6
million and $16.3  million and gross  losses of $0.1  million,  $1.4 million and
$5.4  million were  realized on those  equity sales during 2001,  2000 and 1999,
respectively.

The changes in net  unrealized  gains (losses) of investments of the Company are
derived from the following sources:
<TABLE>
<CAPTION>
                                               Years Ended December 31,
                                       ----------------------------------------
(dollar values in thousands)              2001           2000           1999
                                       ----------     ----------     ----------
<S>                                    <C>            <C>            <C>
Increase (decrease) during the
 period between the market value
 and cost of investments carried
 at market value, and deferred
 tax thereon:
  Equity securities                    $  (13,199)    $  (26,229)    $  (14,018)
  Fixed maturities                         49,033        141,403       (304,872)
  Other invested assets                        20             23            (42)
  Deferred taxes                          (12,549)       (40,319)       111,626
                                       ----------     ----------     ----------
Increase (decrease) in unrealized
 appreciation, net of deferred
 taxes, included in stockholder's
 equity                                $   23,305     $   74,878     $ (207,306)
                                       ==========     ==========     ==========
</TABLE>


                                      F-12
<PAGE>
The components of net investment income are presented in the table below:
<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                           -------------------------------------
(dollar values in thousands)                 2001          2000          1999
                                           ---------     ---------     ---------
<S>                                        <C>           <C>           <C>
Fixed maturities                           $ 270,570     $ 274,905     $ 256,067
Equity securities                                896         1,198         3,796
Short-term investments                         4,991         6,908         3,702
Other interest income                          4,567         3,081         1,652
                                           ---------     ---------     ---------
Total gross investment income                281,024       286,092       265,217
                                           ---------     ---------     ---------
Interest on funds held                        11,909        11,316         9,133
Other investment expenses                      3,191         3,387         3,085
                                           ---------     ---------     ---------
Total investment expenses                     15,100        14,703        12,128
                                           ---------     ---------     ---------
Total net investment income                $ 265,924     $ 271,389     $ 252,999
                                           =========     =========     =========
</TABLE>

The  components of realized  capital  (losses)  gains are presented in the table
below:
<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                           -------------------------------------
(dollar values in thousands)                 2001          2000          1999
                                           ---------     ---------     ---------
<S>                                        <C>           <C>           <C>
Fixed maturities                           $ (29,074)    $ (18,967)    $ (27,615)
Equity securities                             13,326        19,260        10,836
Short-term investments                             3            (2)           19
                                           ---------     ---------     ---------
Total                                      $ (15,745)    $     291     $ (16,760)
                                           =========     =========     =========
</TABLE>

The net  realized  capital  losses for 2001  include  $3.1  million  relating to
write-downs in the value of securities deemed to be other than temporary.

Securities  with a carrying  value amount of $260.9 million at December 31, 2001
were on deposit with various  state or  governmental  insurance  departments  in
compliance with insurance laws.

During 2000, the Company entered into a credit swap derivative  contract,  which
provides credit default protection on a portfolio of referenced securities.  Due
to changing  credit market  conditions  and defaults,  the Company  recorded net
after-tax  losses from this  contract  of $4.6  million in 2001 to reflect it at
fair  value,  with the 2001 losses  principally  attributable  to the  Company's
exposure to the Enron bankruptcy. As of December 31, 2001, the remaining maximum
after-tax net loss exposure under this contract is $2.4 million.

The  Company's  position in this  contract is unhedged and is accounted for as a
derivative in accordance with SFAS 133. Accordingly, this contract is carried at
fair value with changes in fair value recorded in the statement of operations.

                                      F-13
<PAGE>
3.   RESERVE FOR LOSSES AND LAE

Activity in the reserve for losses and LAE expenses is summarized as follows:
<TABLE>
<CAPTION>
                                                Years Ended December 31,
                                        -----------------------------------------
(dollar values in thousands)               2001           2000           1999
                                        -----------    -----------    -----------
<S>                                     <C>            <C>            <C>
Reserves at January 1                   $ 3,785,747    $ 3,646,992    $ 3,800,041
 Less reinsurance recoverables              980,396        727,780        915,741
                                        -----------    -----------    -----------
 Net balance at January 1                 2,805,351      2,919,212      2,884,300
                                        -----------    -----------    -----------
Incurred related to:
 Current year                             1,074,053        870,454        806,930
 Prior years                                  5,166          7,787        (35,360)
                                        -----------    -----------    -----------
  Total incurred losses and LAE           1,079,219        878,241        771,570
                                        -----------    -----------    -----------
Paid related to:
 Current year                               387,100        318,673        252,407
 Prior years                                675,620        673,429        484,251
                                        -----------    -----------    -----------
  Total paid losses and LAE               1,062,720        992,102        736,658
                                        -----------    -----------    -----------
Net balance at December 31                2,821,850      2,805,351      2,919,212
 Plus reinsurance recoverables (1)        1,452,485        980,396        727,780
                                        -----------    -----------    -----------
  Balance at December 31                $ 4,274,335    $ 3,785,747    $ 3,646,992
                                        ===========    ===========    ===========
</TABLE>

(1) Reinsurance recoverables for 2001 include $115,342 resulting  from  the loss
    portfolio  from   Everest  Re  to  Bermuda  Re.   In  addition,  reinsurance
    recoverables for 2001  and 2000 include $453,777 and $491,572, respectively,
    resulting from  the loss portfolio transfer from Mt. McKinley to Bermuda Re.
    See also Note 1J.

Prior year incurred losses increased by $5.2 million in 2001,  increased by $7.8
million in 2000 and decreased by $35.4  million in 1999.  These changes were the
result of normal reserve development inherent in the uncertainty in establishing
loss  and  LAE  reserves,  as  well  as the  impact  of  foreign  exchange  rate
fluctuations  on  loss  reserves  and,  for  1999,   changes  in  the  Company's
coinsurance in connection with stop loss reinsurance  protection provided by Mt.
McKinley at the time of the Company's IPO of ($6.0) million.  Although  coverage
remains under this  reinsurance,  the  acquisition  of Mt.  McKinley  causes the
financial  impact  of  any  cession  under  this  reinsurance  to  eliminate  in
consolidation. See also Note 1J.

4.   CREDIT LINE

On December 21, 1999,  the Company  entered into a three-year  senior  revolving
credit facility with a syndicate of lenders (the "Credit Facility"). First Union
National Bank is the  administrative  agent for the Credit Facility.  The Credit
Facility  will be used for  liquidity  and  general  corporate  purposes  and to
refinance  existing debt under the Company's  prior credit  facility,  which has
been terminated.  The Credit Facility provides for the borrowing of up to $150.0
million with  interest at a rate selected by the Company equal to either (1) the
Base Rate (as defined below) or (2) an adjusted  London  InterBank  Offered Rate
("LIBOR")  plus a margin.  The Base Rate is the  higher of the rate of  interest
established  by First Union National Bank from time to time as its prime rate or
the Federal  Funds rate plus 0.5% per annum.  On December 18,  2000,  the Credit
Facility  was  amended to extend the  borrowing  limit to $235.0  million  for a
period of 120 days, at which time the limit reverts back to $150.0 million.  The

                                      F-14
<PAGE>
amount of margin and the fees  payable for the Credit  Facility  depend upon the
Company's  senior  unsecured  debt.  Group has  guaranteed  all of the Company's
obligations under the Credit Facility.

The Credit Facility agreement requires Group to maintain a debt to capital ratio
of not greater than 0.35 to 1, Holdings to maintain a minimum interest  coverage
ratio of 2.5 to 1 and Everest Re to maintain statutory surplus at $850.0 million
plus 25% of future  aggregate  net  income and 25% of future  aggregate  capital
contributions.

As of December  31, 2001 and 2000,  the Company had  outstanding  borrowings  of
$105.0 million and $235.0 million,  respectively.  Interest  expense incurred in
connection with these borrowings was $7.1 million, $8.5 million and $1.5 million
for the periods  ending  December 31,  2001,  December 31, 2000 and December 31,
1999, respectively.


5.   SENIOR NOTES

On March 14, 2000,  the Company  completed  public  offerings of $200.0  million
principal  amount of 8.75%  senior  notes due March 15, 2010 and $250.0  million
principal  amount of 8.5% senior notes due March 15, 2005.  During 2000, the net
proceeds of these offerings and additional funds were distributed by the Company
to Group.  Interest  expense  incurred in connection with these senior notes was
$38.9  million and $30.9  million for the periods  ending  December 31, 2001 and
December 31, 2000, respectively.


6.   OPERATING LEASE AGREEMENTS

The future minimum rental commitments,  exclusive of cost escalation clauses, at
December  31, 2001 for all of the  Company's  operating  leases  with  remaining
non-cancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
                                                    ----------------------------
                                                    (dollar values in thousands)
                                                    ----------------------------
<S>                                                            <C>
2002                                                           $  4,364
2003                                                              4,412
2004                                                              4,353
2005                                                              3,862
2006                                                              3,996
Thereafter                                                       15,560
                                                    ----------------------------
Net commitments                                                $ 36,547
                                                    ============================
</TABLE>

All of these leases,  the expiration terms of which range from 2001 to 2010, are
for the rental of office space.  Rental expense,  net of sublease rental income,
was $5.6  million,  $4.4  million  and $4.2  million  for  2001,  2000 and 1999,
respectively.

                                      F-15
<PAGE>
7.   INCOME TAXES

The components of income taxes for the periods presented are as follows:
<TABLE>
<CAPTION>
                                               Years Ended December 31,
                                          ----------------------------------
(dollar values in thousands)                2001         2000         1999
                                          --------     --------     --------
<S>                                       <C>          <C>          <C>
Current tax:
 U.S.                                     $   (529)    $ 61,401     $ 53,076
 Foreign                                     5,912         (289)       2,615
                                          --------     --------     --------
 Total current tax                           5,383       61,112       55,691
Total deferred U.S. tax (benefit)          (14,568)     (17,290)     (17,170)
                                          --------     --------     --------
 Total income tax (benefit) provision     $ (9,185)    $ 43,822     $ 38,521
                                          ========     ========     ========
</TABLE>

A reconciliation of the U.S. federal income tax rate to the Company's  effective
tax rate is as follows:
<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                                 -------------------------------
                                                  2001        2000        1999
                                                 -------     -------     -------
<S>                                              <C>         <C>         <C>
Federal income tax rate                             35.0%       35.0%       35.0%
Increase (reduction) in
 taxes resulting from:
  Tax exempt income                                (95.9)      (14.7)      (17.5)
  Other, net                                        29.3         1.4         2.1
                                                 -------     -------     -------
  Effective tax rate                               (31.6%)      21.7%       19.6%
                                                 =======     =======     =======
</TABLE>

Deferred  income  taxes  reflect  the tax  effect of the  temporary  differences
between the value of assets and liabilities for financial statement purposes and
such values as  measured by the U.S.  tax laws and  regulations.  The  principal
items making up the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
                                                           December 31,
                                                    --------------------------
(dollar values in thousands)                           2001            2000
                                                    ----------      ----------
<S>                                                 <C>             <C>
Deferred tax assets:
 Reserve for losses and loss
  adjustment expenses                               $  226,532      $  188,364
 Unearned premium reserve                               29,765          24,007
 Foreign currency translation                            6,848           4,670
 Net operating loss carryforward                        21,159          22,514
 Other assets                                               -            2,360
 Net unrealized depreciation of
  investments                                               -               -
                                                    ----------      ----------
Total deferred tax assets                              284,304         241,915
                                                    ----------      ----------

Deferred tax liabilities:
 Deferred acquisition costs                             40,232          32,367
 Net unrealized appreciation of
  investments                                           64,598          35,097
 Other liabilities                                         998              -
                                                    ----------      ----------
Total deferred tax liabilities                         105,828          67,464
                                                    ----------      ----------
Net deferred tax assets                             $  178,476      $  174,451
                                                    ==========      ==========
</TABLE>

                                      F-16
<PAGE>
The Company and its subsidiaries have total net operating loss  carryforwards of
$43.6 million that expire during years 2002 - 2021.  Management believes that it
is more likely than not that the Company  will  realize the  benefits of its net
deferred tax assets and,  accordingly,  no valuation allowance has been recorded
for the periods presented.

Tax benefits of $3.4 million  related to  compensation  expense  deductions  for
stock  options  exercised in 2001 are  reflected in the change in  stockholder's
equity in "additional paid in capital".

8.   REINSURANCE

The Company  utilizes  reinsurance  agreements  to reduce its  exposure to large
claims and catastrophic loss occurrences.  These agreements provide for recovery
from  reinsurers  of a  portion  of  losses  and  loss  expenses  under  certain
circumstances   without   relieving  the  insurer  of  its   obligation  to  the
policyholder.  Losses and LAE incurred and earned  premiums are after  deduction
for reinsurance.  In the event reinsurers were unable to meet their  obligations
under reinsurance agreements,  the Company would not be able to realize the full
value of the  reinsurance  recoverable  balances.  The Company may hold  partial
collateral,  including letters of credit, under these agreements.  See also Note
1(C).

The Company  purchases  corporate  level  retrocessions  covering the  potential
accumulation of all exposures.  For 1999, the Company purchased an accident year
aggregate  excess of loss  retrocession  agreement  which  provided up to $175.0
million of coverage if Everest Re's  consolidated  statutory basis accident year
loss ratio exceeded a loss ratio  attachment  point provided in the contract for
the 1999 accident  year.  During 2000 and 2001,  the Company ceded $70.0 million
and $105.0 million of losses,  respectively,  to this cover,  reducing the limit
available under the contract to $0.0 million. For 2001, the Company purchased an
accident year aggregate excess of loss retrocession  agreement which provided up
to $175.0  million of  coverage if Everest  Re's  consolidated  statutory  basis
accident year loss ratio exceeded a loss ratio  attachment point provided in the
contract  for the 2001  accident  year.  During 2001,  the Company  ceded $164.0
million of losses to this cover, reducing the limit available under the contract
to $11.0 million.

In  addition,  the  Company  has  coverage  under an  aggregate  excess  of loss
reinsurance  agreement  provided by Prudential  Property and Casualty  Insurance
Company of Indiana ("Prupac"),  a wholly-owned subsidiary of The Prudential,  in
connection  with the Company's  acquisition of Mt.  McKinley in September  2000.
This  agreement  covers 80% or $160  million  of the first  $200  million of any
adverse loss reserve  development on the carried reserves of Mt. McKinley at the
date of  acquisition  and  reimburses the Company as such losses are paid by the
Company. There were $22.2 million of cessions under this reinsurance at December
31, 2001, reducing the limit available under the contract to $137.8 million.

In connection with the Mt. McKinley acquisition,  Prupac also provided excess of
loss  reinsurance  for 100% of the first $8.5  million  of loss with  respect to
certain  of  Mt.   McKinley's   retrocessions   and  potentially   uncollectible
reinsurance coverage. There were $2.5 million and $3.6 million of cessions under
this  reinsurance  during  the  periods  ending  December  31,  2000  and  2001,
respectively, reducing the limit available under the contract to $2.4 million.

Effective  September 19, 2000, Mt. McKinley and Everest  Reinsurance  (Bermuda),
Ltd.  ("Bermuda  Re")  entered  into  a  loss  portfolio  transfer   reinsurance
agreement,  whereby Mt. McKinley transferred, for what management believes to be
arm's-length  consideration,  all of its net  insurance  exposures and reserves,
including allocated and unallocated loss adjustment expenses to Bermuda Re.

                                      F-17
<PAGE>
Effective  October 1,  2001,  Everest  Re and  Bermuda  Re  entered  into a loss
portfolio transfer reinsurance  agreement,  whereby Everest Re transferred,  for
what management believes to be arm's-length consideration, its Belgium branches'
net insurance  exposures and reserves,  including allocated and unallocated loss
adjustment expenses to Bermuda Re.

Written and earned premiums are comprised of the following:
<TABLE>
<CAPTION>
                                             Years Ended December 31,
                                     -----------------------------------------
(dollar values in thousands)            2001           2000           1999
                                     -----------    -----------    -----------
<S>                                  <C>            <C>            <C>
Written premium
 Direct                              $   438,837    $   224,177    $    70,473
 Assumed                               1,410,963      1,149,848      1,071,344
 Ceded                                  (432,872)      (166,704)       (46,248)
                                     -----------    -----------    -----------
 Net written premium                 $ 1,416,928    $ 1,207,321    $ 1,095,569
                                     ===========    ===========    ===========
Earned premium
 Direct                              $   380,178    $   138,982    $    73,822
 Assumed                               1,396,211      1,145,142      1,042,921
 Ceded                                  (442,888)      (121,527)       (45,292)
                                     -----------    -----------    -----------
 Net earned premium                  $ 1,333,501    $ 1,162,597    $ 1,071,451
                                     ===========    ===========    ===========
</TABLE>

The amounts deducted from losses and LAE incurred for net reinsurance recoveries
were  $619.4  million,  $173.1  million  and $7.4  million  for the years  ended
December 31, 2001, 2000 and 1999,  respectively.  The net reinsurance recoveries
for 2001 include $119.4 million relating to the reinsurance  transaction between
Everest Re and Bermuda Re noted earlier. The net reinsurance recoveries for 1999
were impacted by cessions to stop loss  reinsurance  provided by Mt. McKinley at
the time of the Company's IPO.

As of December 31, 2001,  the Company  carried as an asset  $1,471.4  million in
reinsurance  receivables  with respect to losses ceded.  Of this amount,  $584.6
million, or 39.7%, was receivable from Bermuda Re, $339.0 million, or 23.0%, was
receivable  from  subsidiaries of London  Reinsurance  Group ("London Life") and
$145.0  million,  or 9.9%, was receivable  from  Continental  Insurance  Company
("Continental"). As of December 31, 2000, the Company carried as an asset $996.7
million in reinsurance receivables with respect to losses ceded. Of this amount,
$491.6 million,  or 49.3%,  was receivable  from Bermuda Re, $145.0 million,  or
14.5%, was receivable from Continental  Insurance  Company  ("Continental")  and
$70.0 million,  or 7.0%, was receivable from subsidiaries of London  Reinsurance
Group ("London Life"). No other  retrocessionaire  accounted for more than 5% of
the Company's receivables. See also Note 3.

The Company's  arrangements with Bermuda Re are secured through the use of trust
agreements.  The Company's  arrangements  with London Life and  Continental  are
managed on a funds held basis,  which  means that the  Company has not  released
premium  payments to the  retrocessionaire  but rather  retains such payments to
secure obligations of the retrocessionaire, records them as a liability, credits
interest on the balances and reduces the  liability  account as payments  become
due. As of December 31, 2001,  such funds had reduced the Company's net exposure
to London Life to $158.9  million,  100% of which has been secured by letters of
credit,  and its exposure to Continental  to $67.9  million.  As of December 31,
2000,  such funds had reduced the Company's net exposure to Continental to $74.4
million,  and its  exposure to London Life to $33.5  million,  100% of which has
been secured by letters of credit.

                                      F-18
<PAGE>
9.   COMPREHENSIVE INCOME

The components of comprehensive income for the periods ending December 31, 2001,
2000 and 1999 are shown in the following table:
<TABLE>
<CAPTION>
(dollar values in thousands)            2001           2000           1999
                                     ----------     ----------     ----------
<S>                                  <C>            <C>            <C>
Net income                           $   38,250     $  158,495     $  158,061
                                     ----------     ----------     ----------

Other comprehensive income,
 before tax:
 Foreign currency translation
  adjustments                            (6,228)        (2,201)         7,824
  Unrealized gains (losses)
   on securities arising
   during the period                     20,112        115,488       (302,172)
  Less: reclassification
   adjustment for realized
   losses (gains) included in
   net income                            15,745           (291)        16,760
                                     ----------     ----------     ----------
Other comprehensive income
 (loss), before tax                      29,629        112,996       (311,108)
                                     ----------     ----------     ----------

Income tax expense (benefit)
 related to items of other
 comprehensive income:
 Tax (benefit) expense from
  foreign currency translation           (2,179)          (771)         2,737
 Tax expense (benefit) from
  unrealized gains (losses)
  arising during period                   7,041         40,421       (105,760)
 Tax expense (benefit) from
  realized gains (losses)
  included in net income                 (5,511)           102         (5,866)
                                     ----------     ----------     ----------
Income tax expense (benefit)
 related to items of other
 comprehensive income:                   10,373         39,548       (108,889)
Other comprehensive income
 (loss), net of tax                      19,256         73,448       (202,219)
                                     ----------     ----------     ----------
Comprehensive income (loss)          $   57,506     $  231,943     $  (44,158)
                                     ==========     ==========     ==========
</TABLE>

                                      F-19
<PAGE>
The  following  table shows the  components of the change in  accumulated  other
comprehensive income for the years ending December 31, 2001 and 2000.
<TABLE>
<CAPTION>
(dollar values in thousands)                     2001                       2000
                                       ---------------------------------------------------
<S>                                    <C>           <C>          <C>           <C>
Beginning balance of accumulated
 other comprehensive income (loss)                   $  56,747                  $  (16,701)
                                                     ---------                  ----------

Beginning balance of foreign
 currency translation adjustments      $   (8,433)                $   (7,003)
Current period change in foreign
 currency translation adjustments          (4,049)      (4,049)       (1,430)       (1,430)
                                       ----------    ---------    ----------    ----------
Ending balance of foreign currency
 translation adjustments                  (12,482)                    (8,433)
                                       ----------                 ----------

Beginning balance of unrealized
 gains on securities                       65,180                     (9,698)
Current period change in
 unrealized gains on securities            23,305       23,305        74,878        74,878
                                       ----------    ---------    ----------    ----------
Ending balance of unrealized
 gains on securities                       88,485                     65,180
                                       ----------                 ----------

Current period change in accumulated
 other comprehensive income                             19,256                      73,448
                                                     ---------                  ----------
Ending balance of accumulated other
 comprehensive income                                $  76,003                  $   56,747
                                                     =========                  ==========
</TABLE>

10.  EMPLOYEE BENEFIT PLANS

The Company  maintains  both a qualified  and a  non-qualified  defined  benefit
pension  plan  for its U.S.  employees.  Generally,  the  Company  computes  the
benefits  based on average  earnings  over a period  prescribed by the plans and
credited  length  of  service.  The  Company  has  not  been  required  to  fund
contributions to its qualified  defined benefit pension plan for the years ended
December 31, 2001 and 2000 because the Company's  qualified  plan was subject to
the full funding limitation under the Internal Revenue Service  guidelines.  The
Company's  non-qualified defined benefit pension plan, effected in October 1995,
provides compensating pension benefits for participants whose benefits have been
curtailed  under the qualified  plan due to Internal  Revenue Code  limitations.
Although not required under Internal  Revenue  Service  guidelines,  the Company
contributed  $0.3 million and $0.9 million to the  qualified  and  non-qualified
plans  respectively  in 2001.  The  change in the  accumulated  pension  benefit
obligation for 2001 reflects the net effect of amendments made to the plans as a
result of the Economic Growth and Tax Relief Reconciliation Act of 2001. Pension
expense for the Company's  plans for the years ended December 31, 2001, 2000 and
1999 were $1.6 million, $1.0 million and $1.5 million, respectively.

                                      F-20
<PAGE>
The following table summarizes the status of these plans:
<TABLE>
<CAPTION>
                                                        Years Ended December 31,
                                                        ------------------------
(dollar values in thousands)                              2001           2000
                                                        ---------      ---------
<S>                                                     <C>            <C>
Change in projected benefit obligation:
 Benefit obligation at beginning of year                $  24,572      $  22,060
 Service cost                                               1,398          1,351
 Interest cost                                              1,921          1,628
 Change in accumulated benefit obligation                      36             -
 Actuarial gain (loss)                                      3,786           (252)
 Benefits paid                                               (311)          (215)
                                                        ---------      ---------
 Benefit obligation at end of year                         31,402         24,572
                                                        ---------      ---------

Change in plan assets:
 Fair value of plan assets at beginning of year            20,200         21,375
 Actual return on plan assets                                (250)          (960)
 Actual contributions during the year                       1,229             -
 Benefits paid                                               (311)          (215)
                                                        ---------      ---------
 Fair value of plan assets at end of year                  20,868         20,200
                                                        ---------      ---------
 Funded status                                            (10,534)        (4,372)
 Unrecognized prior service cost                              924          1,034
 Unrecognized net (gain)                                    4,099         (1,820)
                                                        ---------      ---------
 (Accrued) pension cost                                 $  (5,511)     $  (5,158)
                                                        =========      =========
</TABLE>

Plan assets are comprised of shares in investment trusts with  approximately 64%
and 36% of the  underlying  assets  consisting  of equity  securities  and fixed
maturities, respectively.

Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                              ----------------------------------
(dollar values in thousands)                    2001         2000         1999
                                              --------     --------     --------
<S>                                           <C>          <C>          <C>
Service cost                                  $  1,397     $  1,351     $  1,476
Interest cost                                    1,921        1,628        1,532
Expected return on assets                       (1,905)      (1,915)      (1,625)
Amortization of net loss (gain)
 from earlier periods                               21         (225)           6
Amortization of unrecognized
 prior service cost                                147          147          147
                                              --------     --------     --------
Net periodic pension cost                     $  1,582     $    986     $  1,536
                                              ========     ========     ========
</TABLE>

The weighted  average  discount  rates used to determine the  actuarial  present
value of the projected benefit obligation for 2001, 2000 and 1999 are 7.0%, 7.5%
and 7.5%, respectively.  The rate of compensation increase used to determine the
actuarial present value of the projected  benefit  obligation for 2001, 2000 and
1999 is 4.50%.  The expected  long-term  rate of return on plan assets for 2001,
2000 and 1999 is 9.0%.

                                      F-21
<PAGE>
The Company also maintains both qualified and non-qualified defined contribution
plans ("Savings Plan" and "Non-Qualified  Savings Plan",  respectively) covering
U.S.  employees.  Under the plans, the Company contributes up to a maximum 3% of
the  participants'  compensation  based on the  contribution  percentage  of the
employee.  The  Non-Qualified  Savings Plan provides  compensating  savings plan
benefits for  participants  whose benefits have been curtailed under the Savings
Plan due to Internal Revenue Code limitations.  The Company's  incurred expenses
related to these plans were $0.6  million,  $0.6  million  and $0.6  million for
2001, 2000 and 1999, respectively.

In addition,  the Company maintains several defined  contribution  pension plans
covering non-U.S. employees. Each non-U.S. office (Canada, London, Belgium, Hong
Kong,  and  Singapore)  maintains  a separate  plan for the  non-U.S.  employees
working in that  location.  The Company  contributes  various  amounts  based on
salary,  age,  and/or years of service.  The  contributions  as a percentage  of
salary  for the  branch  offices  range from 2% to 12%.  The  contributions  are
generally used to purchase pension benefits from local insurance providers.  The
Company's  incurred  expenses  related to these  plans were $0.4  million,  $0.3
million and $0.3 million for 2001, 2000 and 1999, respectively.

11.  DIVIDEND RESTRICTIONS AND STATUTORY FINANCIAL INFORMATION

A.   DIVIDEND RESTRICTIONS

Delaware law provides  that an  insurance  company  which is either an insurance
holding  company or a member of an insurance  holding system and is domiciled in
the state shall not pay dividends  without  giving prior notice to the Insurance
Commissioner  of Delaware and may not pay dividends  without the approval of the
Insurance Commissioner if the value of the proposed dividend,  together with all
other dividends and distributions  made in the preceding twelve months,  exceeds
the greater of (1) 10% of  statutory  surplus or (2) net income,  not  including
realized  capital gains,  each as reported in the prior year's  statutory annual
statement.  In addition,  no dividend may be paid in excess of unassigned earned
surplus.  At December  31, 2001,  Everest Re had $129.4  million  available  for
payment of dividends in 2002 without prior regulatory approval.

B.   STATUTORY FINANCIAL INFORMATION

Everest Re prepares  its  statutory  financial  statements  in  accordance  with
accounting  practices  prescribed  or permitted by the National  Association  of
Insurance   Commissioners   ("NAIC")  and  the  Delaware  Insurance  Department.
Prescribed  statutory  accounting practices are set forth in the NAIC Accounting
Practices and Procedures Manual. The capital and statutory surplus of Everest Re
was $1,293.8  million  (unaudited) and $1,272.7 million at December 31, 2001 and
2000,  respectively.  The  statutory  net income of Everest Re was $78.9 million
(unaudited),  $165.3 million and $149.9 million for the years ended December 31,
2001, 2000 and 1999, respectively.

                                      F-22
<PAGE>
C.   CODIFICATION

The Company's operating  subsidiaries file statutory-basis  financial statements
with the state departments of insurance in the states in which the subsidiary is
licensed.  On January 1, 2001,  significant  changes to the  statutory-basis  of
accounting  became  effective.  The cumulative  effect of these changes has been
recorded as a direct adjustment to statutory  surplus.  The cumulative effect of
these  changes  increased  Everest  Re's  statutory  surplus  by  $57.1  million
(unaudited).

12.  CONTINGENCIES

The Company  continues to receive  claims under  expired  contracts  that assert
alleged injuries and/or damages relating to or resulting from toxic torts, toxic
waste and other hazardous substances,  such as asbestos.  The Company's asbestos
claims typically involve liability or potential liability for bodily injury from
exposure to asbestos or for property damage  resulting from asbestos or products
containing  asbestos.  The  Company's  environmental  claims  typically  involve
potential  liability for (1) the  mitigation  or  remediation  of  environmental
contamination  or (2) bodily injury or property damages caused by the release of
hazardous substances into the land, air or water.

The Company's  reserves include an estimate of the Company's  ultimate liability
for  asbestos  and  environmental  claims  for which  ultimate  value  cannot be
estimated  using  traditional  reserving   techniques.   There  are  significant
uncertainties  in estimating the amount of the Company's  potential  losses from
asbestos and environmental  claims. Among the complications are: (1) potentially
long waiting periods between exposure and  manifestation of any bodily injury or
property  damage;   (2)  difficulty  in  identifying   sources  of  asbestos  or
environmental    contamination;    (3)   difficulty   in   properly   allocating
responsibility  and/or  liability  for  asbestos or  environmental  damage;  (4)
changes in  underlying  laws and  judicial  interpretation  of those  laws;  (5)
potential  for an  asbestos or  environmental  claim to involve  many  insurance
providers  over  many  policy  periods;  (6) long  reporting  delays,  both from
insureds  to  insurance  companies  and  ceding  companies  to  reinsurers;  (7)
historical  data concerning  asbestos and  environmental  losses,  which is more
limited  than  historical  information  on other types of casualty  claims;  (8)
questions concerning interpretation and application of insurance and reinsurance
coverage; and (9) uncertainty regarding the number and identity of insureds with
potential asbestos or environmental exposure.

Management  believes that these factors continue to render reserves for asbestos
and environmental  losses  significantly  less subject to traditional  actuarial
methods than are reserves on other types of losses.  Given these  uncertainties,
management  believes  that no meaningful  range for such ultimate  losses can be
established.  The  Company  establishes  reserves  to the  extent  that,  in the
judgment of management, the facts and prevailing law reflect an exposure for the
Company or its ceding company.  Due to the  uncertainties  discussed  above, the
ultimate  losses may vary materially from current loss reserves and could have a
material adverse effect on the Company's future financial condition,  results of
operations and cash flows. See also Note 8.

                                      F-23
<PAGE>
The  following   table  shows  the   development  of  prior  year  asbestos  and
environmental  reserves on both a gross and net of retrocessional  basis for the
years ended:
<TABLE>
<CAPTION>
(dollar values in thousands)               2001           2000           1999
                                        ----------     ----------     ----------
<S>                                     <C>            <C>            <C>
Gross basis
Beginning of reserves                   $  693,704     $  614,236     $  660,793
Incurred losses                             29,674         (5,852)         3,690
Paid losses                                (78,988)        85,320        (50,247)
                                        ----------     ----------     ----------
End of period reserves                  $  644,390     $  693,704     $  614,236
                                        ==========     ==========     ==========

Net basis
Beginning of reserves                   $  317,196     $  365,069     $  263,542
Incurred losses                                 -          (5,645)            -
Paid losses  (1)                           (41,027)       (42,228)       101,527
                                        ----------     ----------     ----------
End of period reserves                  $  276,169     $  317,196     $  365,069
                                        ==========     ==========     ==========
</TABLE>

(1) Net of $0.0 million, $0.0 million and $118.8 million  ceded  paid  losses in
    2001,  2000  and  1999,  respectively,  under  the  stop  loss   reinsurance
    protection provided by Mt. McKinley at the time of the Company's IPO.

At December 31, 2001, the gross reserves for asbestos and  environmental  losses
were comprised of $107.1 million  representing  case reserves reported by ceding
companies,  $59.5 million  representing  additional case reserves established by
Everest  Re on assumed  reinsurance  claims,  $65.5  million  representing  case
reserves  established  by Everest Re on direct excess  insurance  claims,  $88.6
million  representing  case  reserves  resulting  from  the  acquisition  of Mt.
McKinley and $323.7 million representing IBNR reserves.

The Company is also named in various legal proceedings  incidental to its normal
business  activities.  In the opinion of the Company,  none of these proceedings
would have a material  adverse effect upon the financial  condition,  results of
operations or cash flows of the Company.

The  Prudential  sells  annuities  which are  purchased by property and casualty
insurance  companies to settle certain types of claim  liabilities.  In 1993 and
prior,  Everest Re, for a fee,  accepted  the claim  payment  obligation  of the
property  and  casualty  insurer,  and,  concurrently,  became  the owner of the
annuity or assignee of the annuity proceeds. In these circumstances,  Everest Re
would be liable if The Prudential were unable to make the annuity payments.  The
estimated  cost  to  replace  all  such  annuities  for  which  Everest  Re  was
contingently  liable at December 31, 2001 and 2000 was $147.1 million and $148.7
million,  respectively.  In 2001, the Company  received shares in The Prudential
valued  at  $25.9  million,  as a  result  of The  Prudential's  demutualization
process,  representing The Prudential common equity interest attributed to these
annuities.  The value of these  shares  was  recorded  in "other  income" in the
consolidated  statement of operations and comprehensive  income. These shares in
no way affect the underlying contingent liability of the Company.

Everest Re has purchased  annuities from an unaffiliated  life insurance company
to settle  certain claim  liabilities  of Everest Re. Should the life  insurance
company become unable to make the annuity payments,  Everest Re would be liable.
The estimated  cost to replace such  annuities at December 31, 2001 and 2000 was
$13.7 million and $12.6 million, respectively.

                                      F-24
<PAGE>
13.  RELATED-PARTY TRANSACTIONS

During the normal  course of  business,  the  Company,  through its  affiliates,
engages in what mangement believes to be arm's-length  reinsurance and brokerage
and commission  business  transactions  with companies  controlled or affiliated
with its outside  directors.  These transactions are immaterial to the Company's
financial condition, results of operations and cash flows.

The  Company  engages  in  business  transactions  with  Group and  Bermuda  Re.
Effective  October 1,  2001,  Everest  Re and  Bermuda  Re  entered  into a loss
portfolio  reinsurance  agreement,  whereby Everest Re transferred  it's Belgium
Branch,  for what  management  believes to be  arm's-length  consideration,  net
insurance  exposures  and  reserves  to Bermuda  Re.  During  2000,  the Company
distributed  $495.0  million  to  Group  to  facilitate  the  completion  of the
corporate restructuring. In addition, effective September 19, 2000, Mt. McKinley
and Bermuda Re entered into a loss  portfolio  transfer  reinsurance  agreement,
whereby  Mt.  McKinley   transferred,   for  what  management   believes  to  be
arm's-length  consideration,  all of its net  insurance  exposures and reserves,
including allocated and unallocated loss adjustment expenses to Bermuda Re.

14.  SEGMENT REPORTING

The  Company,  through  its  subsidiaries,   operates  in  four  segments:  U.S.
Reinsurance, U.S. Insurance, Specialty Underwriting and International.  The U.S.
Reinsurance  operation writes property and casualty treaty  reinsurance  through
reinsurance  brokers as well as directly with ceding companies within the United
States, in addition to property,  casualty and specialty facultative reinsurance
through brokers and directly with ceding companies within the United States. The
U.S.  Insurance  operation  writes  property  and casualty  insurance  primarily
through general agent  relationships and surplus lines brokers within the United
States. The Specialty Underwriting operation writes accident and health, marine,
aviation and surety  business  within the United  States and  worldwide  through
brokers and directly with ceding companies.  The International  operation writes
property and casualty  reinsurance  through the  Company's  branches in Belgium,
London, Canada, and Singapore, in addition to foreign "home-office" business.

These  segments  are  managed in a  carefully  coordinated  fashion  with strong
elements of central control, including with respect to capital,  investments and
support operations. As a result, management monitors and evaluates the financial
performance of these operating  segments based upon their  underwriting  gain or
loss ("underwriting results").  Underwriting results include earned premium less
losses  and  LAE  incurred,   commission   and  brokerage   expenses  and  other
underwriting expenses. The accounting policies of the operating segments are the
same as those described in Note 1K, Summary of Significant Accounting Policies.

The Company  does not maintain  separate  balance  sheet data for its  operating
segments.  Accordingly,  the Company does not review and evaluate the  financial
results of its operating segments based upon balance sheet data.

                                      F-25
<PAGE>
The following tables present the relevant underwriting results for the operating
segments for the three years ended December 31, 2001, 2000 and 1999.
<TABLE>
<CAPTION>
                                U.S. REINSURANCE
--------------------------------------------------------------------------------
(dollar values in thousands)               2001           2000           1999
                                        ----------     ----------     ----------
<S>                                     <C>            <C>            <C>
Earned premiums                         $  497,600     $  471,631     $  456,572
Incurred losses and loss
 adjustment expenses                       449,635        317,735        316,507
Commission and brokerage                   148,807         78,978        112,285
Other underwriting expenses                 15,211         17,039         18,270
                                        ----------     ----------     ----------
Underwriting (loss) gain                $ (116,053)    $   57,879     $    9,510
                                        ==========     ==========     ==========
</TABLE>
<TABLE>
<CAPTION>
                                 U.S. INSURANCE
--------------------------------------------------------------------------------
(dollar values in thousands)               2001           2000           1999
                                        ----------     ----------     ----------
<S>                                     <C>            <C>            <C>
Earned premiums                         $  294,225     $  101,576     $   57,791
Incurred losses and loss
 adjustment expenses                       211,311         70,277         41,077
Commission and brokerage                    63,512         25,487         15,702
Other underwriting expenses                 19,185         11,646          8,593
                                        ----------     ----------     ----------
Underwriting gain (loss)                $      217     $   (5,834)    $   (7,581)
                                        ==========     ==========     ==========
</TABLE>
<TABLE>
<CAPTION>
                             SPECIALTY UNDERWRITING
--------------------------------------------------------------------------------
(dollar values in thousands)               2001           2000           1999
                                        ----------     ----------     ----------
<S>                                     <C>            <C>            <C>
Earned premiums                         $  371,805     $  302,637     $  265,343
Incurred losses and loss
 adjustment expenses                       330,841        254,302        185,608
Commission and brokerage                   102,144         81,794         76,024
Other underwriting expenses                  5,688          6,253          4,702
                                        ----------     ----------     ----------
Underwriting (loss)                     $  (66,868)    $  (39,712)    $     (991)
                                        ==========     ==========     ==========
</TABLE>
<TABLE>
<CAPTION>
                                  INTERNATIONAL
--------------------------------------------------------------------------------
(dollar values in thousands)               2001           2000           1999
                                        ----------     ----------     ----------
<S>                                     <C>            <C>            <C>
Earned premiums                         $  169,871     $  286,753     $  291,745
Incurred losses and loss
 adjustment expenses                        87,432        235,927        228,378
Commission and brokerage                    79,182         81,151         81,946
Other underwriting expenses                 13,829         13,798         14,892
                                        ----------     ----------     ----------
Underwriting (loss)                     $  (10,572)    $  (44,123)    $  (33,471)
                                        ==========     ==========     ==========
</TABLE>

                                      F-26
<PAGE>
The  following  table  reconciles  the  underwriting  results for the  operating
segments  to income  before tax as reported in the  consolidated  statements  of
operations and comprehensive income:
<TABLE>
<CAPTION>
(dollar values in thousands)               2001           2000           1999
                                        ----------     ----------     ----------
<S>                                     <C>            <C>            <C>
Underwriting (loss)                     $ (193,276)    $  (31,790)    $  (32,533)
Net investment income                      265,924        271,389        252,999
Realized (loss) gain                       (15,745)           291        (16,760)
Net derivative (expense)                    (7,020)            -              -
Corporate expenses                          (1,379)        (1,528)        (4,604)
Interest expense                           (46,004)       (39,386)        (1,490)
Other income (expense)                      26,565          3,341         (1,030)
                                        ----------     ----------     ----------
Income before taxes                     $   29,065     $  202,317     $  196,582
                                        ==========     ==========     ==========
</TABLE>

The Company writes premium in the United States and international  markets.  The
revenues, net income and identifiable assets of the individual foreign countries
in which the Company writes business are not material.

Approximately  13.6%, 12.9% and 17.9% of the Company's gross premiums written in
2001, 2000 and 1999,  respectively,  were sourced through the Company's  largest
intermediary.

                                      F-27
<PAGE>
15.  UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data were as follows:
<TABLE>
<CAPTION>
(dollar values in thousands
 except per share amounts)           1st          2nd          3rd          4th
                                   Quarter      Quarter      Quarter      Quarter
                                  ---------    ---------    ---------    ---------
<S>                               <C>          <C>          <C>          <C>
2001 Operating data:
 Gross written premium            $ 418,926    $ 482,578    $ 487,081    $ 461,215
 Net written premium                386,822      416,736      363,972      249,398
 Earned premium                     327,992      391,085      343,828      270,596
 Net investment income               67,362       68,747       65,316       64,499
 Net realized capital
  (loss) gain                        (4,789)       4,084         (991)     (14,049)
 Total claims and
  underwriting expenses             336,299      401,320      482,595      307,942
 Net income (loss)                   33,591       39,762      (53,082)      17,979
                                  =========    =========    =========    =========

2000 Operating data:
 Gross written premium            $ 304,252    $ 326,225    $ 355,550    $ 387,998
 Net written premium                287,537      295,129      302,043      322,612
 Earned premium                     266,184      285,780      291,191      319,442
 Net investment income               63,809       66,941       71,281       69,388
 Net realized capital
  gain (loss)                         7,864       (8,185)         (89)         701
 Total claims and
  underwriting expenses             273,555      292,675      298,336      331,349
 Net income                          49,051       31,541       40,390       37,513
                                  =========    =========    =========    =========
</TABLE>


                                      F-28
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.

                      SCHEDULE I - SUMMARY OF INVESTMENTS -
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                                DECEMBER 31, 2001
                             (Dollars in thousands)
<TABLE>
<CAPTION>
            Column A                  Column B        Column C        Column D
---------------------------------    -----------     -----------     -----------
                                                                       Amount
                                                                      Shown in
                                                        Market         Balance
                                        Cost            Value           Sheet
                                     -----------     -----------     -----------
<S>                                  <C>             <C>             <C>
Fixed maturities-available
 for sale
 Bonds:
  U.S. government and
   government agencies               $   114,046     $   119,161     $   119,161
  State, municipalities and
   political subdivisions              1,762,867       1,838,526       1,838,526
  Foreign government securities          194,920         212,942         212,942
  Foreign corporate securities           252,299         260,542         260,542
  Public utilities                       151,029         153,547         153,547
  All other corporate bonds            1,081,871       1,087,892       1,087,892
 Mortgage pass-through securities        432,330         450,756         450,756
 Redeemable preferred stock               62,471          63,557          63,557
                                     -----------     -----------     -----------
Total fixed maturities-available
 for sale                              4,051,833       4,186,923       4,186,923
Equity securities                         66,412          67,453          67,453
Short-term investments                   115,850         115,850         115,850
Other invested assets                     32,039          32,039          32,039
Cash                                      67,509          67,509          67,509
                                     -----------     -----------     -----------
Total investments and cash           $ 4,333,643     $ 4,469,774     $ 4,469,774
                                     ===========     ===========     ===========
</TABLE>



                                      S-1
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.

         SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                             CONDENSED BALANCE SHEET
               (Dollars in thousands, except par value per share)
<TABLE>
<CAPTION>
                                            December 31, 2001     December 31, 2000
                                            -----------------     -----------------
<S>                                         <C>                   <C>
ASSETS
 Equity securities, at market value
  (cost: 2001, $55; 2000, $55)              $             141     $             143
 Short-term investments                                   711                26,359
 Cash                                                      74                    28
 Investment in subsidiaries, at
  equity in the underlying net assets               1,667,808             1,706,111
 Receivable from affliate                              (2,153)               (2,488)
 Deferred tax asset                                    15,165                14,653
 Accrued investment income                                  2                     4
 Other assets                                           2,617                 3,312
                                            -----------------     -----------------
Total assets                                $       1,684,365     $       1,748,122
                                            =================     =================

LIABILITIES
 8.5% Senior notes due 3/15/2005            $         249,694     $         249,615
 8.75% Senior notes due 3/15/2010                     199,077               199,004
 Revolving credit facility                            105,000               235,000
 Current federal income taxes                         (26,644)                   -
 Accrued interest on debt and borrowings               11,944                12,212
 Due to affilitates                                    33,860                 1,748
 Other liabilities                                         25                    56
                                            -----------------     -----------------
Total liabilities                                     572,956               697,635
                                            -----------------     -----------------

STOCKHOLDER'S EQUITY
 Common stock, par value: $0.01; 200
  million shares authorized; 1,000
  issued in 2001 and 2000                                  -                     -
 Paid-in capital                                      258,775               255,359
 Accumulated other comprehensive
  income, net of deferred taxes
  of $40.8 million in 2001 and
  $30.4 million in 2000                                76,003                56,747
 Retained earnings                                    776,631               738,381
                                            -----------------     -----------------
  Total stockholder's equity                        1,111,409             1,050,487
                                            -----------------     -----------------
Total liabilities and stockholder's
 equity                                     $       1,684,365     $       1,748,122
                                            =================     =================
</TABLE>

                 See notes to consolidated financial statements.

                                      S-2
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.

         SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                        CONDENSED STATEMENT OF OPERATIONS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                              For Years Ended December 31,
                                        ----------------------------------------
                                           2001           2000           1999
                                        ----------     ----------     ----------
<S>                                     <C>            <C>            <C>
REVENUES
Net investment income                   $      241     $    1,371     $      612
Net realized capital gain                        1             -              -
Other (expense)                               (543)          (416)            -
Equity in undistributed
 change in retained
 earnings of subsidiaries                   68,027        184,191        161,388
                                        ----------     ----------     ----------
   Total revenues                           67,726        185,146        162,000
                                        ----------     ----------     ----------

EXPENSES
Interest expense                            46,004         39,386          1,490
Other expenses                                 427              5          2,489
                                        ----------     ----------     ----------

Income before taxes                         21,295        145,755        158,021
Income tax (benefit)                       (16,955)       (12,740)           (40)
                                        ----------     ----------     ----------
   Net income                           $   38,250     $  158,495     $  158,061
                                        ==========     ==========     ==========
</TABLE>
                 See notes to consolidated financial statements.


                                      S-3
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.

         SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
                        CONDENSED STATEMENT OF CASHFLOWS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                 For Years Ended December 31,
                                          ------------------------------------------
                                             2001           2000            1999
                                          ----------     -----------     -----------
<S>                                       <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                $   38,250     $   158,495     $   158,061
 Adjustments to reconcile net income
  to net cash provided by operating
  activities:
  Equity in undistributed change in
   retained earnings of subsidiaries         (68,027)       (585,734)       (161,388)
  Increase (decrease) in other
   liabilities                                32,085          (1,352)          1,488
  (Decrease) increase in accrued
   interest on debt and borrowings              (268)         12,106             106
  (Increase) in deferred tax asset           (27,156)        (12,709)            (40)
  Decrease (increase) in other
   assets                                        697          (2,881)           (435)
  (Increase) decrease in receivable
   from affliates                               (335)            568          20,754
  Restructure adjustment                          -              (55)             -
  Accrual of bond discount                      (107)           (877)             -
  Amortization of underwriting
   discount on senior notes                      152             112              -
  Realized capital (gain)                         (1)             -               -
  Non-cash compensation                           -              109             131
                                          ----------     -----------     -----------
NET CASH (USED IN) PROVIDED BY
 OPERATING ACTIVITIES                        (24,710)       (432,218)         18,677

CASH FLOWS FROM INVESTING ACTIVITIES
 Additional investment in
  subsidiaries, net of cash acquired              -          349,743              50
 Cost of equity securities acquired               -              (55)             -
 Net sales (purchases) of short-term
  securities                                  25,756         (25,482)             -
                                          ----------     -----------     -----------
NET CASH PROVIDED BY (USED IN)
 INVESTING ACTIVITIES                         25,756         324,206              50

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on revolving credit line            22,000         176,000          59,000
Repayments on revolving credit line         (152,000)             -               -
Proceeds from issuance of senior
 notes                                            -          448,507              -
Acquisition of treasury stock net
 of reissuances                                   -          (16,478)        (62,106)
Effect of restructuring                           -          (11,706)             -
Common stock issued during the
 period                                           -            2,288             317
Contribution from subsidiaries               129,000             198              -
Dividends paid to stockholders                    -         (495,000)        (11,707)
                                          ----------     -----------     -----------
NET CASH PROVIDED BY (USED IN)
 FINANCING ACTIVITIES                         (1,000)        103,809         (14,496)

Net increase in cash                              46          (4,203)          4,231
Cash, begining of period                          28           4,231              -
                                          ----------     -----------     -----------
Cash, end of period                       $       74     $        28     $     4,231
                                          ==========     ===========     ===========

Supplemental cash flow
 information
Non-cash operating transaction:
Dividends received from
 subsidiaries in the form of
 forgiveness of liabilities               $       -      $        -      $       836
</TABLE>
                 See notes to consolidated financial statements.

                                      S-4
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.

               SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
      Column A         Column B    Column C   Column D    Column F   Column G    Column H    Column I    Column J    Column K
---------------------  --------   ----------  ---------  ----------  ---------  ----------   ---------   ---------  ----------
                                   Reserve                                       Incurred
                                  for Losses                                       Loss     Amortization
                       Deferred    and Loss   Unearned                  Net      and Loss   of Deferred    Other
                     Acquisition  Adjustment   Premium     Earned   Investment  Adjustment  Acquisition  Operating   Written
   Geographic Area      Costs      Expenses   Reserves    Premium     Income     Expenses      Costs     Expenses    Premium
---------------------  --------   ----------  ---------  ----------  ---------  ----------   ---------   ---------  ----------
<S>                    <C>        <C>         <C>        <C>         <C>        <C>          <C>         <C>        <C>
December 31, 2001
 Domestic              $ 98,491   $3,641,323  $ 412,139  $1,163,630  $ 231,567  $  991,787   $ 314,463   $  41,463  $1,224,118
 International           16,457      633,012     61,169     169,871     34,357      87,432      79,182      13,829     192,810
                       --------   ----------  ---------  ----------  ---------  ----------   ---------   ---------  ----------
  Total                $114,948   $4,274,335  $ 473,308  $1,333,501  $ 265,924  $1,079,219   $ 393,645   $  55,292  $1,416,928
                       ========   ==========  =========  ==========  =========  ==========   =========   =========  ==========

December 31, 2000
 Domestic              $ 75,436   $3,176,004  $ 340,509  $  875,844  $ 236,079  $  642,314   $ 186,259   $  36,466  $  902,946
 International           17,042      609,743     60,639     286,753     35,310     235,927      81,151      13,798     304,375
                       --------   ----------  ---------  ----------  ---------  ----------   ---------   ---------  ----------
  Total                $ 92,478   $3,785,747  $ 401,148  $1,162,597  $ 271,389  $  878,241   $ 267,410   $  50,264  $1,207,321
                       ========   ==========  =========  ==========  =========  ==========   =========   =========  ==========

December 31, 1999 (1)
 Domestic                                               $  779,706  $ 209,617  $  543,192   $ 198,323   $  41,857  $  799,265
 International                                             291,745     43,382     228,378      81,946      14,892     296,304
                                                        ----------  ---------  ----------   ---------   ---------  ----------
  Total                                                 $1,071,451  $ 252,999  $  771,570   $ 280,269   $  56,749  $1,095,569
                                                        ==========  =========  ==========   =========   =========  ==========
</TABLE>


(1) The 1999 amounts have been restated  to conform to the 2001 and 2000 segment
    presentation.


                                      S-5
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.

                            SCHEDULE IV - REINSURANCE
                             (Dollars in thousands)
<TABLE>
<CAPTION>
          Column A              Column B        Column C           Column D         Column E       Column F
----------------------------    ---------    ---------------    ---------------    -----------    ----------
                                  Gross         Ceded To         Assumed From          Net        Assumed to
                                 Amount      Other Companies    Other Companies      Amount           Net
                                ---------    ---------------    ---------------    -----------    ----------
<S>                             <C>          <C>                <C>                <C>            <C>
December 31, 2001
Total property and liability
 insurance earned premium       $ 380,178    $       442,888    $     1,396,211    $ 1,333,501         104.7%
December 31, 2000
Total property and liability
 insurance earned premium       $ 138,982    $       121,527    $     1,145,142    $ 1,162,597          98.5%
December 31, 1999
Total property and liability
 insurance earned premium       $  73,822    $        45,292    $     1,042,921    $ 1,071,451          97.3%
</TABLE>



                                      S-6
<PAGE>
INDEX TO EXHIBITS


Exhibit No.                                                                 Page
-----------                                                                 ----

        2.1     Agreement and Plan of Merger among Everest Reinsurance
                Holdings, Inc., Everest Re Group, Ltd. and  Everest Re
                Merger Corporation, incorporated  herein by  reference
                to Exhibit 2.1 to the  Registration  Statement on Form
                S-4 (No. 333-87361)

        3.1     Certificate of Incorporation  of  Everest  Reinsurance
                Holdings, Inc., incorporated herein  by  reference  to
                Exhibit 4.1 to the Registration  Statement on Form S-8
                (No. 333-05771)

        3.2     Bye-Laws  of   Everest  Reinsurance   Holdings,  Inc.,
                incorporated herein by reference to Exhibit 3.2 to the
                Everest Reinsurance Holdings, Inc. Quarterly Report on
                Form 10-Q for the quarter ended March 31, 2000

        4.1     Indenture,  dated  March  14,  2000,  between  Everest
                Reinsurance Holdings,  Inc.  and  The  Chase Manhattan
                Bank, as Trustee, incorporated herein by  reference to
                Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form
                8-K filed on March 15, 2000

        4.2     First  Supplemental  Indenture  relating  to  the 8.5%
                Senior Notes due March 15, 2005, dated March 14, 2000,
                between  Everest  Reinsurance  Holdings,  Inc. and The
                Chase  Manhattan Bank, as Trustee, incorporated herein
                by  reference  to  Exhibit 4.2  to Everest Reinsurance
                Holdings, Inc. Form 8-K filed on March 15, 2000

        4.3     Second Supplemental  Indenture  relating  to the 8.75%
                Senior Notes due March 15, 2010, dated March 14, 2000,
                between  Everest  Reinsurance  Holdings,  Inc. and The
                Chase Manhattan Bank,  as Trustee, incorporated herein
                by reference to Exhibit 4.3 to the Everest Reinsurance
                Holdings, Inc. Form 8-K filed on March 15, 2000

      *10.1     Employment Agreement  with Joseph V. Taranto  executed
                on  July 15, 1998, incorporated herein by reference to
                Exhibit  10.21  to  Everest Reinsurance Holdings, Inc.
                Quarterly  Report  on  Form 10-Q for the quarter ended
                June 30, 1998 (the "second quarter 1998 10-Q")

      *10.2     Amendment  of   Employment   Agreement  by  and  among
                Everest  Reinsurance  Company,   Everest   Reinsurance
                Holdings,  Inc., Everest Re Group, Ltd. and Joseph  V.
                Taranto dated February  15,  2000, incorporated herein
                by reference  to  Exhibit 10.29 to Everest  Re  Group,

                                      E-1
<PAGE>
                Ltd. Annual Report on Form  10-K  for  the  year ended
                December 31, 1999 (the "1999 10-K")

      *10.3     Change  of  Control  Agreement  with Joseph V. Taranto
                effective  July  15,  1998,  incorporated   herein  by
                reference to Exhibit 10.22 to the  second quarter 1998
                10-Q

      *10.4     Amendment of Change of Control  Agreement by and among
                Everest   Reinsurance  Company,   Everest  Reinsurance
                Holdings,  Inc., Everest Re Group, Ltd. and  Joseph V.
                Taranto dated February 15, 2000,  incorporated  herein
                by reference to Exhibit 10.30 to the 1999 10-K

       10.5     Credit Agreement Between Everest Reinsurance Holdings,
                Inc.,  the  Lenders  Named  Therein  and  First  Union
                National Bank dated December 21, 1999 providing for  a
                $150  million  Senior   Revolving   Credit   Facility,
                incorporated herein  by reference to Exhibit 10.30  to
                Everest  Reinsurance  Holdings, Inc. Form 8-K filed on
                December 28, 1999

       10.6     First  Amendment  to  Credit  Agreement  dated  as  of
                December   21,  1999   between   Everest   Reinsurance
                Holdings,  Inc.,  the Lenders  Named Therein and First
                Union National Bank, incorporated  herein by reference
                to  Exhibit  10.19  to  Everest Re Group, Ltd.  Annual
                Report  on Form  10-K for the year ended  December 31,
                2000 (the "2000 10-K")

       10.7     Parent  Guaranty  dated  February  24,  2000  made  by
                Everest Re Group,  Ltd. in favor of the Lenders  under
                Everest Reinsurance Holdings, Inc.'s Credit  Facility,
                incorporated herein by reference to  Exhibit  10.33 to
                the 1999 10-K

       10.8     Guarantor  Consent dated  December  18,  2000  made by
                Everest Re Group,  Ltd. in  favor of the Lenders under
                Everest Reinsurance Holdings, Inc.'s Credit  Facility,
                incorporated herein by reference  to Exhibit  10.21 to
                the 2000 10-K

       10.9     Stock  Purchase   Agreement  between   The  Prudential
                Insurance Company of America and  Everest  Reinsurance
                Holdings,  Inc.  for  the  sale  of  common  stock  of
                Gibraltar  Casualty  Company  dated February 24, 2000,
                incorporated herein by  reference to Exhibit 10.32  to
                the 1999 10-K

      10.10     Amendment No. 1 to Stock  Purchase  Agreement  between
                The  Prudential  Insurance  Company  of  America   and
                Everest Reinsurance Holdings,  Inc. for  the  sale  of
                common  stock  of  Gibraltar  Casualty  Company  dated
                August 8, 2000,  incorporated  herein by  reference to
                Exhibit 10.1 to the Everest Re Group,  Ltd.  Quarterly
                Report  on  Form  10-Q  for the quarter ended June 30,
                2000

                                      E-2
<PAGE>

      10.11     Proportional  Excess  of  Loss  Reinsurance  Agreement
                entered  into  between  Gibraltar Casualty Company and
                Prudential Property and  Casualty  Insurance  Company,
                incorporated herein by reference to  Exhibit 10.24  to
                the 2000 10-K

      10.12     Guarantee  Agreement  made by The Prudential Insurance
                Company  of  America  in  favor  of Gibraltar Casualty
                Company, incorporated herein  by  reference to Exhibit
                10.25 to the 2000 10-K

      10.13     Lease,  effective  December 26, 2000  between  OTR, an
                Ohio  general  partnership,  and  Everest  Reinsurance
                Company, incorporated herein by reference  to  Exhibit
                10.26 to the 2000 10-K

     *10.14     Amendment  of   Employment   Agreement  by  and  among
                Everest   Reinsurance   Company,  Everest  Reinsurance
                Holdings, Inc., Everest Re Group, Ltd., Everest Global
                Services, Inc. and  Joseph V. Taranto, dated March 30,
                2001, incorporated herein by reference to Exhibit 10.1
                to Everest Re Group, Ltd. Report on Form  10-Q for the
                quarter ended March 31, 2001 (the "first quarter  2001
                10-Q")

     *10.15     Amendment  of  Employment   Agreement  by  and   among
                Everest  Reinsurance   Company,   Everest  Reinsurance
                Holdings, Inc., Everest Re Group, Ltd., Everest Global
                Services,  Inc. and Joseph V. Taranto, dated April 20,
                2001, incorporated herein by reference to Exhibit 10.2
                to the first quarter 2001 10-Q.

     *10.16     Amendment of Change of Control  Agreement by and among
                Everest  Reinsurance   Company,   Everest  Reinsurance
                Holdings, Inc., Everest Re Group, Ltd., Everest Global
                Services,  Inc. and Joseph V. Taranto, dated March 30,
                2001, incorporated herein by reference to Exhibit 10.3
                to the first quarter 2001 10-Q

       23.1     Consent of PricewaterhouseCoopers LLP, filed herewith


--------------------------
* Management contract or compensatory plan or arrangement.

                                      E-3