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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, 2002       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
7.85% Trust Preferred Securities                                    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 ___ No _X_

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 ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2).

                                Yes ___ No __X__

The  aggregate  market  value on June 28,  2002  (the last  business  day of the
registrant's most recently completed second quarter) of the voting stock held by
non-affiliates was zero.

At March 20, 2003, 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 and Related Stockholder Matters
       13.  Certain Relationships and Related Transactions
       14.  Controls and Procedures

PART IV

       15.  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.);
"CAPITAL  TRUST" MEANS  EVEREST RE CAPITAL  TRUST;  "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.

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 agent relationships
and surplus lines brokers. The Company's operating  subsidiaries,  excluding Mt.
McKinley Insurance Company ("Mt.  McKinley"),  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:

-    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,  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, 2002 of $1,494.0 million.

-    Everest  National  Insurance  Company  ("Everest  National"),   an  Arizona
     insurance  company and a direct subsidiary of Everest Re, is licensed in 45
     states and the District of Columbia and is authorized to write property and
     casualty  insurance in the  jurisdictions in which it is licensed.  This is
     often called writing insurance on an admitted basis.

                                       1
<PAGE>
-    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
     jurisdiction  is  permitted  to  provide  to  insureds  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 48 states, the District of Columbia and Puerto Rico.

-    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  and
     Alabama.

-    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  non-admitted  basis,  is  the  underwriting   manager  for  Everest
     Indemnity.  Managers  is also the parent  company for  WorkCare  Southeast,
     Inc., an Alabama insurance agency, and WorkCare Southeast of Georgia, Inc.,
     a Georgia insurance agency.

-    Mt. McKinley (f/k/a Gibraltar  Casualty Company,  "Gibraltar"),  a Delaware
     insurance  company and a direct  subsidiary  of  Holdings,  was acquired by
     Holdings in September 2000 from The Prudential Insurance Company of America
     ("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.

-    Everest Re Holdings,  Ltd. ("Everest Ltd."), a Bermuda company and a direct
     subsidiary  of Everest Re, was formed in 1998 and owned  Everest Re Ltd., a
     United Kingdom company that was dissolved after its reinsurance  operations
     were  converted  into branch  operations of Everest Re.  Everest Ltd. holds
     $79.4  million of  investments,  the  management of which  constitutes  its
     principal operations.

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.

                                       2
<PAGE>
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.

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.

                                       3
<PAGE>
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,
high  ratings 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.

CAPITAL TRANSACTIONS
The Company has flexibility with respect to  capitalization as the result of its
perceived  financial  strength,  including  its  financial  strength  ratings as
assigned by independent rating agencies,  and its access to the capital markets.
The Company continuously monitors its capital and financial position, as well as
investment and security  market  conditions,  in general and with respect to the
Company's securities, and responds accordingly.

In November  2002,  Capital  Trust  completed  public  offerings of $210 million
principal amount of 7.85% trust preferred  securities.  The net proceeds of this
offering were used for working capital and general corporate  purposes.  Capital
Trust, a Delaware statutory trust owned by the Company,  was established in 1999
and exists to issue and sell preferred securities to the public.

On March  14,  2000,  Holdings  completed  a  public  offering  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.  During 2000, the net
proceeds of these offerings and additional funds were distributed by Holdings to
Group.

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,  Inc.  ("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- (Positive)            Aa3 (Excellent)
Everest National                 A+ (Superior)               AA- (Positive)                 Not Rated
Everest Indemnity                A+ (Superior)                   Not Rated                  Not Rated
Everest Security                 A+ (Superior)                   Not Rated                  Not Rated
Mt. McKinley                        Not Rated                    Not Rated                  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" to "R". 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.  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
Trust Preferred Securities            a-                 BBB                           Baa1
</TABLE>

A company with a debt rating of "a" or "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" and "a-" ratings are the sixth and
seventh 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.  A company with a debt
rating of "BBB" is considered by Standard & Poor's to have adequate  capacity to
pay interest and repay  principal,  but is susceptible to the adverse effects of
changes in  circumstances  and  economic  conditions  than debt in higher  rated
categories.  The "A-" and "BBB"  ratings from  Standard & Poor's are the seventh
and ninth highest of 24 ratings assigned by Standard & Poor's,  which range from

                                       5
<PAGE>
"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
capacity with respect to repayment of principal  and interest,  but elements may
be present which suggest a susceptibility to impairment  sometime in the future.
A  company  with a debt  rating of "Baa1"  is  considered  to be a  medium-grade
obligation by Moody's.  This rating represents adequate capacity with respect to
repayment of principal  and  interest,  but certain  protective  elements may be
lacking or may be  characteristically  unreliable over any great length of time.
The "A3" and "Baa1"  ratings are the  seventh  and eighth  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,  yet
cyclical by product and market. The terrorist attacks on September 11, 2001 (the
"September 11 attacks")  resulted in losses which reduced industry  capacity and
were of sufficient  magnitude to cause most  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 that had been apparent through 2000 and earlier in 2001
firmed significantly after the September 11 attacks. This firming generally took
the  form  of  immediate  and  significant  upward  pressure  on  prices,   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.

During 2002,  the  reinsurance  and insurance  markets  continued to firm.  This
firming  reflects the losses  arising  from the  September 11 attacks as well as
reactions to broad and growing  recognition  that  competition in the late 1990s
reached extremes in many classes and markets, which ultimately led to inadequate
pricing and overly broad terms,  conditions and  coverages.  The effect of these
extremes,  which is becoming apparent through  excessive loss emergence,  varies
widely by company depending on product offerings, markets accessed, underwriting
and operating practices, competitive strategies and business volumes. Across all
market  participants,  however, the aggregate effect has been impaired financial
results and erosion of the industry  capital  base.  Coupled with  deteriorating
investment  market  conditions  and  results,  and  renewed  concerns  regarding
longer-term  industry specific issues,  including  asbestos exposure and sub-par
capital returns,  these financial  impacts have introduced  substantial,  and in
some  cases  extreme,  pressure  for  the  initiation  and/or  strengthening  of
corrective  action by  individual  market  participants.  These  pressures  have
resulted in firming prices,  more restrictive terms and conditions and tightened
coverage availability across most classes and markets.

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 Lloyd's  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,  by current market  conditions,  the Company
cannot  predict with any reasonable  certainty  whether and to what extent these
improvements will persist.

                                       6
<PAGE>
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.

EMPLOYEES
As of March 1, 2003, the Company employed 367 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.

AVAILABLE  INFORMATION
The Company's  Annual Reports on Form 10-K,  Quarterly  Reports on Form 10-Q and
Current  Reports on Form 8-K and  amendments to those reports are available free
of charge through the Company's internet website at  HTTP://WWW.EVERESTRE.COM as
soon as reasonably  practicable after such reports are electronically filed with
the Securities and Exchange Commission.

ITEM 2. PROPERTIES
Everest Re's corporate offices are located in approximately  115,000 square feet
of leased office space in Liberty Corner, New Jersey. The Company's other eleven
locations occupy a total of  approximately  56,000 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
In the  ordinary  course of  business,  the  Company is  involved  in  lawsuits,
arbitrations and other formal and informal dispute  resolution  procedures,  the
outcomes of which will  determine the  Company's  rights and  obligations  under
insurance and reinsurance  agreements and other more general contracts.  In some
disputes,  the Company  seeks to enforce  its rights  under an  agreement  or to
collect funds owing to it. In other matters,  the Company is resisting  attempts
by others to collect funds or enforce alleged rights. Such disputes are resolved
through formal and informal means, including litigation and arbitration.

In all such  matters,  the Company  believes  that its positions are legally and
commercially  reasonable.  The Company also regularly evaluates those positions,
and where appropriate,  establishes or adjusts insurance reserves to reflect the
results of its evaluation.  The Company's  aggregate  reserves take into account
the  possibility  that the Company may not ultimately  prevail in each and every
disputed  matter.  The  Company  believes  its  aggregate  reserves  reduce  the

                                       7
<PAGE>
potential  that an adverse  resolution of one or more of these  matters,  at any
point in time, would have a material impact on the Company's financial condition
or results of  operations.  However,  there can be no  assurances  that  adverse
resolutions  of such  matters  in any one  period or in the  aggregate  will not
result in a material adverse effect on the Company's results of operations.

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, 2002,  all of the  Company's  common stock was owned by Group
and was not publicly traded.

During 2000, the Company declared  dividends on its common stock totaling $495.0
million.  The  Company  did not pay any  dividends  during  2002 and  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
stockholder.  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 $921.0  million at
December  31,  2002,  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 2003 without  triggering  the  requirement  for prior  approval of regulatory
authorities  in connection  with a dividend is $149.4  million.  See Note 13A of
Notes to Consolidated Financial Statements.

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.

                                       8
<PAGE>
ITEM 7. MANAGEMENT'S   DISCUSSION   AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
RESULTS OF OPERATIONS

The  following  is  a  discussion  of  the  results  of  operations  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.  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.  In addition,  The  Prudential  guaranteed
Prupac's obligation to Mt. McKinley.  There were $78.9 million of cessions under
this  reinsurance at December 31, 2002,  reducing the limit available under this
contract to $81.1 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 $0.0 million and $3.6 million of cessions under
this  reinsurance  during  the  periods  ending  December  31,  2002  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  Holdings 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.
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  initial  public  offering,  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 $103.9 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 became  transactions  with
affiliates  effective  on the date of the Mt.  McKinley  acquisition,  and their
financial impact is thereafter eliminated in consolidation.  Effective September
19, 2000, Mt. McKinley and Everest  Reinsurance  (Bermuda),  Ltd. ("Bermuda Re")

                                       9
<PAGE>
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 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.

INDUSTRY CONDITIONS
The worldwide  reinsurance and insurance businesses are highly competitive,  yet
cyclical by product and market. The terrorist attacks on September 11, 2001 (the
"September 11 attacks")  resulted in losses which reduced industry  capacity and
were of sufficient  magnitude to cause most  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 that had been apparent through 2000 and earlier in 2001
firmed significantly after the September 11 attacks. This firming generally took
the  form  of  immediate  and  significant  upward  pressure  on  prices,   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.

During 2002,  the  reinsurance  and insurance  markets  continued to firm.  This
firming  reflects the losses  arising  from the  September 11 attacks as well as
reactions to broad and growing  recognition  that competition in the late 1990's
reached extremes in many classes and markets, which ultimately led to inadequate
pricing and overly broad terms,  conditions and  coverages.  The effect of these
extremes,  which is becoming apparent through  excessive loss emergence,  varies
widely by company depending on product offerings, markets accessed, underwriting
and operating practices, competitive strategies and business volumes. Across all
market  participants,  however, the aggregate effect has been impaired financial
results and erosion of the industry  capital  base.  Coupled with  deteriorating
investment  market  conditions  and  results,  and  renewed  concerns  regarding
longer-term  industry specific issues,  including  asbestos exposure and sub-par
capital returns,  these financial  impacts have introduced  substantial,  and in
some  cases  extreme,  pressure  for  the  initiation  and/or  strengthening  of
corrective  action by  individual  market  participants.  These  pressures  have
resulted in firming prices,  more restrictive terms and conditions and tightened
coverage availability across most classes and markets.

These  changes  reflect a clear  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 Lloyd's  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 and have taken on  additional  importance as the result of the
firming  conditions  which have  emerged.  As a result,  although the Company is
encouraged by the recent  improvements,  and more  generally,  by current market
conditions, the Company cannot predict with any reasonable certainty whether and
to what extent these improvements will persist.

                                       10
<PAGE>
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 London, Canada, and Singapore,  in
addition  to  foreign   business   written  through  the  Company's  New  Jersey
headquarters and Miami office.

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.

RESULTS OF OPERATIONS
Unusual  Loss  Events in 2001.  As a result of 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 by the Company  were  pursuant to  treaties,  where the
reinsurers'  obligations  are  secured,  which the Company  believes  eliminates
material reinsurance collection risk.

As a result  of the Enron  bankruptcy  in 2001,  the  Company  incurred  losses,
after-tax and net of reinsurance,  amounting to $18.6 million. This unusual loss
reflects all of the Company's exposures to this event,  including  underwriting,
credit and investment.


YEAR ENDED  DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

PREMIUMS.  Gross premiums  written  increased 49.0% to $2,755.4  million in 2002
from $1,849.8  million in 2001, as the Company took advantage of selected growth
opportunities  and  improving  pricing  in  many  classes  of  business,   while
continuing to maintain a disciplined underwriting approach. Premium growth areas
included a 70.5%  ($227.9  million)  increase  in the  International  operation,
mainly  attributable  to  growth in the  London,  Canadian  and  Latin  American
markets,  a 63.5% ($319.1  million)  increase in the U.S.  Insurance  operation,
principally  attributable to growth in worker's compensation  insurance, a 46.5%
($284.1  million)  increase  in  the  U.S.  Reinsurance   operation,   primarily
reflecting  growth  across  property  and  casualty  lines,  and an 18.0% ($74.6
million) increase in the Specialty Underwriting  operation,  mainly attributable
to growth in marine,  aviation  and surety  business.  The Company  continued to
decline  business  that  did not  meet  its  objectives  regarding  underwriting
profitability.

Ceded premiums  increased to $565.9 million in 2002 from $432.9 million in 2001.
This increase was  principally  attributable to $372.9 million of ceded premiums
relating to a Quota Share  Reinsurance  Agreement between Everest Re and Bermuda
Re,  whereby  Everest Re cedes 20% of its net retained  liability on all new and
renewal  policies  written during the term of this  agreement,  and an Excess of
Loss Agreement between Everest Re, Everest National Insurance  Company,  Everest

                                       11
<PAGE>
Security  and  Bermuda  Re,  whereby  Bermuda Re assumes  liability  for primary
insurance workers'  compensation losses exceeding $100,000 per occurrence,  with
its  liability not to exceed  $150,000 per  occurrence.  Ceded  premiums in 2002
included  $5.1  million and $49.4  million in  adjustment  premiums  relating to
claims  made  under the 2001 and 2000  accident  year  aggregate  excess of loss
elements of the Company's corporate retrocessional program, respectively.  Ceded
premiums in 2001 included $81.3 million and $58.1 million in adjustment premiums
relating to claims made under the 2001 and 1999 accident year  aggregate  excess
of  loss   elements  of  the   Company's   corporate   retrocessional   program,
respectively,  with the 2001  accident  year  cessions  principally  relating to
losses  incurred  as a  result  of  the  September  11  attacks  and  the  Enron
bankruptcy.

Net  premiums  written  increased  by 54.5% to  $2,189.5  million  in 2002  from
$1,416.9  million in 2001.  This  increase was a result of the increase in gross
premiums written and ceded premiums.

PREMIUM REVENUES.  Net premiums earned increased by 46.8% to $1,957.3 million in
2002 from $1,333.5 million in 2001.  Contributing to this increase were a 140.7%
($239.0  million)  increase  in the  International  operation,  a 58.3%  ($171.5
million)  increase in the U.S.  Insurance  operation,  a 32.3% ($160.5  million)
increase in the U.S. Reinsurance  operation and a 14.2% ($52.9 million) increase
in the Specialty Underwriting operation.  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 29.6%
to  $1,399.0  million in 2002 from  $1,079.2  million in 2001.  The  increase in
incurred  losses and LAE was  principally  attributable  to the  increase in net
premiums earned and modest reserve  strengthening in select areas,  most notably
in directors and officers liability,  surety and workers' compensation lines and
with respect to asbestos exposures, partially offset by lower catastrophe losses
and improvements in rates, terms and conditions in many classes of business,  as
well as the impact of changes in the Company's mix of business.  Incurred losses
and LAE include  catastrophe  losses,  which  reflect the impact both of 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, were $30.2 million
in 2002,  principally  relating to European flood losses and Hurricanes  Isidore
and Kenna,  compared to net catastrophe  losses of $222.6 million in 2001, which
was principally related to the September 11 attacks.  Incurred losses and LAE in
2002 reflected  ceded losses and LAE of $486.1 million  compared to ceded losses
and LAE in 2001 of $619.4  million.  Ceded losses and LAE in 2002 include $178.6
million of ceded losses relating to the reinsurance  transactions  noted earlier
between the Company  and Bermuda Re. The ceded  losses and LAE in 2002  included
$11.0 million and $90.0 million of losses ceded under the 2001 and 2000 accident
year   aggregate   excess  of  loss   components  of  the  Company's   corporate
retrocessional program,  respectively. The ceded losses and LAE in 2001 included
$164.0  million  and  $105.0  million  of losses  ceded  under the 2001 and 1999

                                       12
<PAGE>
accident year  aggregate  excess of loss  components of the Company's  corporate
retrocessional  program,  respectively,  with the 2001  accident  year  cessions
relating  principally  to losses  incurred  as the  result of the  September  11
attacks.

Contributing to the increase in incurred losses and LAE in 2002 from 2001 were a
198.4% ($173.4 million) increase in the International operation, a 63.4% ($134.0
million)  increase  in the  U.S.  Insurance  operation,  principally  reflecting
increased  premium  volume  coupled  with  changes  in this  segment's  specific
reinsurance  programs  and  an  11.4%  ($51.4  million)  increase  in  the  U.S.
Reinsurance  operation,  principally due to increased premium volume,  partially
offset by decreased catastrophe losses. These increases were partially offset by
an 11.8%  ($39.1  million)  decrease in the  Specialty  Underwriting  operation,
principally  attributable to decreased  catastrophe losses.  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,  decreased by 9.4 percentage  points
to 71.5% in 2002 from 80.9% in 2001, reflecting the earned premiums and incurred
losses and LAE discussed  above.  The following  table shows the loss ratios for
each of the Company's  operating segments for 2002 and 2001. The loss ratios for
all  operations  were impacted by the expense  factors noted above as well as by
the impact on ceded  premiums of the  adjustment  premiums  under the  Company's
corporate retrocessional program.

<TABLE>
<CAPTION>
                          OPERATING SEGMENT LOSS RATIOS
---------------------------------------------------------------------------
Segment                            2002                                2001
---------------------------------------------------------------------------
<S>                                <C>                                 <C>
U.S. Reinsurance                   76.1%                               90.4%
U.S. Insurance                     74.1%                               71.8%
Specialty Underwriting             68.7%                               89.0%
International                      63.8%                               51.5%
</TABLE>

Underwriting  expenses  increased by 23.3% to $553.5 million in 2002 from $448.9
million  in 2001.  Commission,  brokerage,  taxes  and fees  increased  by $94.8
million,  principally  reflecting increases in premium volume and changes in the
mix of business.  Other  underwriting  expenses increased by $9.8 million as the
Company  expanded  its  operations  to support its  increased  business  volume.
Contributing to the  underwriting  expense increase were a 66.1% ($54.7 million)
increase in the U.S.  Insurance  operation,  a 17.6% ($19.0 million) increase in
the Specialty  operation,  a 13.8% ($12.8 million) increase in the International
operation  and  an  11.4%  ($18.7  million)  increase  in the  U.S.  Reinsurance
operation.  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,  decreased by 5.4 percentage
points to 28.3% in 2002 compared to 33.7% in 2001.

The Company's  combined ratio,  which is the sum of the loss and expense ratios,
decreased by 14.9 percentage points to 99.7% in 2002 compared to 114.6% in 2001.
The  following  table  shows  the  combined  ratios  for  each of the  Company's
operating  segments for 2002 and 2001.  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 the  adjustment  premiums under the Company's
corporate retrocessional program.

                                       13
<PAGE>
<TABLE>
<CAPTION>
                        OPERATING SEGMENT COMBINED RATIOS
--------------------------------------------------------------------------------
Segment                                 2002                                2001
--------------------------------------------------------------------------------
<S>                                    <C>                                 <C>
U.S. Reinsurance                       103.8%                              123.3%
U.S. Insurance                         103.6%                               99.9%
Specialty Underwriting                  98.6%                              118.0%
International                           89.7%                              106.2%
</TABLE>

INVESTMENTS.  Net investment  income decreased by 3.0% to $257.9 million in 2002
from $265.9  million in 2001,  principally  reflecting  the lower  interest rate
enviroment,  partially  offset by the effect of investing the $425.2  million of
cash flow from  operations  in 2002 and  $203.4  million  of net  proceeds  from
Everest  Re  Capital  Trust's  ("Capital  Trust")  issuance  of trust  preferred
securities in November 2002.  The following  table shows a comparison of various
investment  yields as of December 31, 2002 and 2001,  respectively,  and for the
periods then ended.

<TABLE>
<CAPTION>
                                                         2002               2001
                                                         -----------------------
<S>                                                      <C>                <C>
Imbedded pre-tax yield of cash and invested
 assets at end of period                                  5.1%               6.0%
Imbedded after-tax yield of cash and invested
 assets at end of period                                  4.2%               4.6%
Annualized pre-tax yield on average cash and
 invested assets                                          5.6%               6.2%
Annualized after-tax yield on average cash and
 invested assets                                          4.3%               4.7%
</TABLE>

Net realized  capital  losses were $53.1  million in 2002,  reflecting  realized
capital losses on the Company's  investments of $108.9  million,  which includes
$79.7 million  relating to write-downs  in the value of securities  deemed to be
impaired  on an other than  temporary  basis,  of which $25.7  million  were for
WorldCom,  partially offset by $55.8 million of realized capital gains, compared
to net  realized  capital  losses of $15.7  million  in 2001.  The net  realized
capital losses in 2001 reflected realized capital losses of $45.5 million, which
included $16.7 million relating to write-downs in the value of securities deemed
to be impaired on an other than temporary basis,  which were partially offset by
$29.8 million of realized capital gains.

Interest  expense was $42.4 million for 2002 compared to $46.0 million for 2001.
Interest  expense for 2002  reflects  $38.9  million  relating to the  Company's
senior  notes and $3.5 million  relating to the  Company's  borrowing  under its
revolving  credit  facility.  Interest  expense for 2001 reflects  $38.9 million
relating  to the  Company's  senior  notes  and  $7.1  million  relating  to the
Company's  borrowing  under its revolving  credit  facility.  In addition,  2002
includes  incurred expense of $2.1 million for  distributions on Capital Trust's
trust preferred securities.

Other  expense  was $21.8  million  in 2002  compared  to other  income of $26.6
million in 2001. Significant contributors to other expense in 2002 were deferred
gains principally on the Mt. McKinley  reinsurance  transaction with Bermuda Re,
which is retroactive in nature,  foreign exchange  losses,  normal provision for
uncollectible audit premium in the U.S. Insurance operation and the amortization
of deferred  expenses  relating to the  Company's  issuance of senior  notes and
Capital  Trust's  issuance  of trust  preferred  securities  in  November  2002,
partially  offset by fee income.  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 that had issued annuities
to the Company in connection  with certain  claim  settlement  transactions.  In

                                       14
<PAGE>
addition,  other income for 2001 includes  foreign exchange gains as well as fee
income,  offset  by  the  amortization  of  deferred  expenses  relating  to the
Company's issuance of senior notes.

The Company has in its product  portfolio  a credit  default  swap,  which it no
longer writes. This product meets the definition of a derivative under Financial
Accounting  Standard No. 133 "Accounting for Derivative  Instruments and Hedging
Activities" ("FAS 133"). Net derivative expense,  essentially reflecting changes
in fair value from this credit  default  transaction  in 2002, was $3.5 million,
compared  to  $7.0  million  in  2001.  See  also  Footnote  2 to  Notes  to the
Consolidated Financial Statements.

INCOME TAXES. The Company  generated income tax expense of $24.8 million in 2002
compared  to an income tax benefit of $9.2  million in 2001.  The tax expense in
2002 was mainly attributable to improved  underwriting  results. The tax benefit
in 2001 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 taxable income relating to the
non-recurring   receipt  of  shares  in  connection   with  a  former   client's
demutualization.

NET INCOME.  Net income was $115.1  million in 2002 compared to $38.3 million in
2001.  This  increase  generally  reflects  the improved  underwriting  results,
partially  offset by  increased  tax  expense,  realized  capital  losses  and a
decrease in other income.

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 elements 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 as a result of the increase in gross
premiums written and the increase in ceded premiums.

                                       15
<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 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,
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 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,
aviation  and surety  losses  relating to the  September  11 attacks,  the Enron
bankruptcy and the Petrobras Oil Rig loss. These increases were partially offset
by a 62.9% ($148.5 million) decrease in the International operation, principally

                                       16
<PAGE>
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 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.

                                       17
<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
$16.7 million  relating to write-downs  in the value of securities  deemed to be
impaired on an other than temporary basis,  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.

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 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  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 that had issued annuities to 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 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 the
Company's  issuance of senior notes.  The foreign  exchange gains and losses are
attributable to fluctuations in foreign currency exchange rates.

                                       18
<PAGE>
During 2000,  the Company added to its product  portfolio a credit default swap,
which it no longer writes, 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 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 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.  If any of the
following risks actually occur, the Company's  business,  financial condition or
results of operations could be materially and adversely affected.

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

-    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;

                                       19
<PAGE>
-    rising  levels of actual  costs that are not known by companies at the time
     they price their products;

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

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

-    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

-    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.

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.

                                       20
<PAGE>
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. Everest Re and
Everest  National  hold  an AA-  ("Positive")  financial  strength  rating  from
Standard & Poor's.  Everest  Re holds an Aa3  ("Excellent")  financial  strength
rating  from  Moody's.  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
business  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  signifiacant
price  competition.  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.

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

                                       21
<PAGE>
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.  In
addition,  if  issuers  of  individual  investments  are  unable  to meet  their
obligations,  investment  income will be reduced and realized capital losses may
arise.  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 may not have all required  licenses and  approvals or may not comply
with  the wide  variety  of  applicable  laws and  regulations  or the  relevant
authorities' interpretation of the laws and regulations. If the Company does not
have the  requisite  licenses and  approvals or does not comply 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.

                                       22
<PAGE>
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  does not enter  into  market  sensitive
instruments for trading purposes.

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 the
Company's 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
not to be material.

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, with minor changes in the underlying risk characteristics.

The $5.2 billion investment portfolio is comprised principally 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.

Interest  rate  risk is the  potential  change  in value of the  fixed  maturity
portfolio,  including short-term  investments,  due to change in market interest
rates. In a declining interest rate environment,  it includes prepayment risk on
the $401.4  million of  mortgage-backed  securities  in the $4.9  billion  fixed

                                       23
<PAGE>
maturity portfolio. 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, 2002 and 2001 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>
                                          2002
                           INTEREST RATE SHIFT IN BASIS POINTS
---------------------------------------------------------------------------------------------------------
                                       -200           -100              0           100             200
---------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>             <C>           <C>            <C>
Total Market Value                   $5,711.7       $5,306.2        $4,936.1      $4,590.3       $4,282.3

Market Value Change from Base
(%)                                      15.7%           7.5%            0.0%         (7.0)%        (13.2)%

Change in Unrealized
Appreciation After-tax from
Base ($)                             $  504.2       $  240.6        $      -      $ (224.7)      $ (425.0)
</TABLE>

<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>

Foreign  currency rate risk is the potential change in value,  income,  and cash
flow arising from adverse changes in foreign  currency  exchange rates.  Each of
the  Company's  foreign  operations  maintains  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
local currency as well as the currency of other  countries in which it operates.
The primary  foreign  currency  exposures for these foreign  operations  are the
Canadian Dollar,  the British Pound Sterling and the Euro. The Company mitigates

                                       24
<PAGE>
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
for these foreign  operations are the Canadian Dollar,  the Euro and the British
Pound Sterling.

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, 2002 and 2001.
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>
                                              2002
                         CHANGE IN FOREIGN EXCHANGE RATES IN PERCENT
------------------------------------------------------------------------------------------------------
                                      -20%           -10%            0%            10%            20%
------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>             <C>          <C>            <C>
Total After-tax Foreign
 Exchange Exposure                   $(29.9)        $(16.8)         $ -          $ 19.0         $ 41.3
</TABLE>
<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>

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 high quality common and preferred stocks that are traded on the major
exchanges  in the United  States and funds  investing  in such  securities.  The
primary  objective in managing the $72.5 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, 2002 and 2001. All amounts are in U.S. dollars and are presented
in millions.

<TABLE>
<CAPTION>
                                                 2002
                                   CHANGE IN EQUITY VALUES IN PERCENT
----------------------------------------------------------------------------------------------------------
                                                    -20%        -10%           0%         10%         20%
----------------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>          <C>         <C>         <C>
Market Value of the Equity Portfolio                $58.0       $65.2        $72.5       $79.7       $87.0

After-tax Change in Unrealized Appreciation         $(9.4)      $(4.7)       $   -       $ 4.7       $ 9.4
</TABLE>

                                       25
<PAGE>
<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>

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 AND
RELATED STOCKHOLDER MATTERS
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.

ITEM 14. CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this report,  an evaluation  was
carried out under the  supervision and with the  participation  of the Company's
management,  including the Chief Executive Officer and Chief Financial  Officer,
of the  effectiveness  of the disclosure  controls and procedures (as defined in
Rule  13a-14(c)  under the  Securities  Exchange  Act of  1934).  Based on their
evaluation, the Chief Executive Officer and Chief Financial Officer believe that
the Company's  disclosure  controls and  procedures are effective to ensure that
information  required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms. Subsequent to the date of their evaluation, there were no significant
changes  in the  Company's  internal  controls  or in other  factors  that could
significantly  affect these  controls,  including  any  corrective  actions with
regard to significant deficiencies and material weaknesses.

                                       26
<PAGE>
PART IV

ITEM 15. 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 2002.

                                       27
<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 Executive Officer    March 20, 2003
----------------------    and  Director (Principal Executive
     Joseph V. Taranto    Officer)

/s/  STEPHEN L. LIMAURO   Executive Vice President, Chief         March 20, 2003
-----------------------   Financial Officer and Director
     Stephen L. Limauro   (Principal Financial Officer)

/s/  KEITH T. SHOEMAKER   Comptroller (Principal Accounting       March 20, 2003
-----------------------   Officer)
     Keith T. Shoemaker

/s/  THOMAS J. GALLAGHER  Director                                March 20, 2003
------------------------
     Thomas J. Gallagher

                                       28
<PAGE>
I, Joseph V. Taranto, certify that:

1.   I have  reviewed  this  annual  report on Form 10-K of Everest  Reinsurance
     Holdings, Inc;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;

     a.   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b.   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c.   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a.   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b.   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



March 20, 2003                                           /s/ JOSEPH V. TARANTO
--------------                                           -----------------------
                                                         Joseph V. Taranto
                                                         Chairman and Chief
                                                         Executive Officer

<PAGE>
I, Stephen L. Limauro, certify that:

1.   I have  reviewed  this  annual  report on Form 10-K of Everest  Reinsurance
     Holdings, Inc;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;

     a.   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b.   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c.   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a.   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b.   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



March 20, 2003                                       /s/ STEPHEN L. LIMAURO
--------------                                       ---------------------------
                                                     Stephen L. Limauro
                                                     Executive Vice President
                                                     and Chief Financial Officer


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

                                     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

 10.17    Second  Amendment  to Credit  Agreement  dated as of November 21, 2002
          between Everest Holdings, Inc., the Lenders Named Therein and Wachovia
          Bank,  National  Association  (formerly  known as First Union National
          Bank), incorporated herein by reference to Exhibit 10.31 to Everest Re
          Group, Ltd. Annual Report on Form 10-K for the year ended December 31,
          2002

  23.1    Consent of PricewaterhouseCoopers LLP, filed herewith

  99.1    Certification of Chief Executive Officer and Chief Financial Officer.


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

                                     3
<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, 2002 and 2001                    F-3
                                                                             ---

Consolidated Statements of Operations and Comprehensive Income for the
 years ended December 31, 2002, 2001 and 2000                                F-4
                                                                             ---

Consolidated Statements of Changes in Stockholder's Equity for
 the years ended December 31, 2002, 2001 and 2000                            F-5
                                                                             ---

Consolidated Statements of Cash Flows for the years ended
 December 31, 2002, 2001 and 2000                                            F-6
                                                                             ---

Notes to Consolidated Financial Statements                                   F-7
                                                                             ---

Schedules

I   Summary of Investments Other Than Investments in Related Parties at
     December 31, 2002                                                       S-1
                                                                             ---

II  Condensed Financial Information of Registrant:
     Balance Sheets as of December 31, 2002 and 2001                         S-2
                                                                             ---
    Statements of Operations for the Years Ended
     December 31, 2002, 2001 and 2000                                        S-3
                                                                             ---
    Statements of Cash Flows for the Years Ended December 31, 2002,
     2001 and 2000                                                           S-4
                                                                            ---

III Supplementary Insurance Information as of December 31, 2002 and
     2001 and for the years ended December 31, 2002, 2001 and 2000           S-5
                                                                             ---

IV  Reinsurance for the years ended December 31, 2002, 2001 and 2000         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, 2002 and
2001,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2002 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 6, 2003


                                       F-2
<PAGE>

                       EVEREST REINSURANCE HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
               (Dollars in thousands, except par value per share)
<TABLE>
<CAPTION>

                                               December 31,      December 31,
                                               ------------      ------------
                                                   2002              2001
                                               ------------      ------------
<S>                                            <C>               <C>
ASSETS:
Fixed maturities - available for sale,
 at market value (amortized cost:
 2002, $4,569,844; 2001, $4,051,833)           $  4,805,976      $  4,186,923
Equity securities, at market value
 (cost: 2002, $79,791; 2001, $66,412)                72,468            67,453
Short-term investments                              130,075           115,850
Other invested assets                                42,307            32,039
Cash                                                116,843            67,509
                                               ------------      ------------
   Total investments and cash                     5,167,669         4,469,774

Accrued investment income                            61,708            64,972
Premiums receivable                                 639,327           454,548
Reinsurance receivables - unaffiliated            1,104,827           886,734
Reinsurance receivables - affiliated                735,248           584,623
Funds held by reinsureds                            121,308           149,710
Deferred acquisition costs                          161,450           114,948
Prepaid reinsurance premiums                        149,588            48,100
Deferred tax asset                                  144,376           178,476
Other assets                                         95,763            60,496
                                               ------------      ------------
TOTAL ASSETS                                   $  8,381,264      $  7,012,381
                                               ============      ============

LIABILITIES:
Reserve for losses and adjustment
 expenses                                      $  4,875,225      $  4,274,335
Unearned premium reserve                            809,813           473,308
Funds held under reinsurance treaties               399,492           308,811
Losses in the course of payment                      38,016            83,360
Contingent commissions                                4,333             3,345
Other net payable to reinsurers                     147,342           132,252
Current federal income taxes                        (16,365)          (30,365)
8.5% Senior notes due 3/15/2005                     249,780           249,694
8.75% Senior notes due 3/15/2010                    199,158           199,077
Revolving credit agreement borrowings                70,000           105,000
Interest accrued on debt and borrowings              13,481            11,944
Deferred gain on reinsurance                         16,904                 -
Other liabilities                                    73,357            90,211
                                               ------------      ------------
   Total liabilities                              6,880,536         5,900,972
                                               ------------      ------------

Company-obligated mandatorily
 redeemable preferred securities
 of subsidiary trusts holding solely
 subordinated debentures ("trust
 preferred securities")                             210,000                 -
                                               ------------      ------------

STOCKHOLDER'S EQUITY:
Common stock, par value: $0.01; 200
 million shares authorized; 1,000
 shares issued in 2002 and 2001                           -                 -
Additional paid-in capital                          259,508           258,775
Accumulated other comprehensive
 income, net of deferred income
 taxes of $73.4 million in 2002 and
 $40.8 million in 2001                              139,486            76,003
Retained earnings                                   891,734           776,631
                                               ------------      ------------
   Total stockholder's equity                     1,290,728         1,111,409
                                               ------------      ------------
TOTAL LIABILITIES, TRUST
 PREFERRED SECURITIES AND
 STOCKHOLDER'S EQUITY                          $  8,381,264      $  7,012,381
                                               ============      ============
</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,
                                    -------------------------------------------
                                       2002            2001            2000
                                    -----------     -----------     -----------
<S>                                 <C>             <C>             <C>
REVENUES:
Premiums earned                     $ 1,957,346     $ 1,333,501     $ 1,162,597
Net investment income                   257,922         265,924         271,389
Net realized capital
 (loss) gain                            (53,127)        (15,745)            291
Net derivative (expense)                 (3,466)         (7,020)              -
Other (expense) income                  (21,847)         26,565           3,341
                                    -----------     -----------     -----------
                                      2,136,828       1,603,225       1,437,618
                                    -----------     -----------     -----------

CLAIMS AND EXPENSES:
Incurred losses and loss
 adjustment expenses                  1,398,953       1,079,219         878,241
Commission, brokerage, taxes
 and fees                               488,435         393,645         267,410
Other underwriting expenses              65,060          55,292          50,264
Distributions related to trust
 preferred securities                     2,091               -               -
Interest expense on senior notes         38,916          38,903          30,896
Interest expense on credit
 facility                                 3,501           7,101           8,490
                                    -----------     -----------     -----------
                                      1,996,956       1,574,160       1,235,301
                                    -----------     -----------     -----------

INCOME BEFORE TAXES                     139,872          29,065         202,317

Income tax expense (benefit)             24,769          (9,185)         43,822
                                    -----------     -----------     -----------

NET INCOME                          $   115,103     $    38,250     $   158,495
                                    ===========     ===========     ===========

Other comprehensive income,
 net of tax                              63,483          19,256          73,448
                                    -----------     -----------     -----------

COMPREHENSIVE INCOME                $   178,586     $    57,506     $   231,943
                                    ===========     ===========     ===========
</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,
                                       -------------------------------------------
                                          2002            2001            2000
                                       -----------     -----------     -----------
<S>                                    <C>             <C>             <C>
COMMON STOCK (shares outstanding):
Balance, beginning of period                 1,000           1,000      46,457,817
Issued during the period                         -               -           8,500
Treasury stock acquired during
 period                                          -               -        (650,400)
Treasury stock reissued during
 period                                          -               -           1,780
Common stock retired during
 the period                                      -               -     (45,817,697)
Issued during the period                         -               -           1,000
                                       -----------     -----------     -----------
Balance, end of period                       1,000           1,000           1,000
                                       ===========     ===========     ===========

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

ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period               258,775         255,359         390,912
Retirement of treasury stock
 during the period                               -               -        (138,546)
Common stock issued during
 the period                                    733           3,416           2,339
Treasury stock reissued
 during period                                   -               -              (2)
Contribution from subsidiary                     -               -             198
Common stock retired during
 the period                                      -               -             458
                                       -----------     -----------     -----------
Balance, end of period                     259,508         258,775         255,359
                                       -----------     -----------     -----------

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

ACCUMULATED OTHER COMPREHENSIVE
 INCOME, NET OF DEFERRED INCOME
 TAXES:
Balance, beginning of period                76,003          56,747         (16,701)
Net increase during the period              63,483          19,256          73,448
                                       -----------     -----------     -----------
Balance, end of period                     139,486          76,003          56,747
                                       -----------     -----------     -----------

RETAINED EARNINGS:
Balance, beginning of period               776,631         738,381       1,074,941
Net income                                 115,103          38,250         158,495
Restructure adjustments                          -               -             (55)
Dividends paid to parent                         -               -        (495,000)
                                       -----------     -----------     -----------
Balance, end of period                     891,734         776,631         738,381
                                       -----------     -----------     -----------

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

TOTAL STOCKHOLDER'S EQUITY,
 END OF PERIOD                         $ 1,290,728     $ 1,111,409     $ 1,050,487
                                       ===========     ===========     ===========
</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>
                                               Twelve Months Ended December 31,
                                          -------------------------------------------
                                             2002            2001            2000
                                          -----------     -----------     -----------
<S>                                       <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                $   115,103     $    38,250     $   158,495
 Adjustments to reconcile net income
  to net cash provided by operating
  activities net of effects from the
  purchase of subsidiary:
  (Increase) in premiums receivable          (180,683)        (62,901)       (101,894)
  Decrease in funds held by
   reinsureds, net                            115,679         209,558          29,135
  (Increase) in reinsurance
   receivables                               (349,061)       (476,736)       (173,954)
  (Increase) in deferred
   tax asset                                     (204)        (15,968)        (16,247)
  Increase in reserve for losses
   and loss adjustment expenses               556,265         506,128             827
  Increase in unearned premiums               333,547          73,201          95,076
  (Increase) decrease in other
   assets and liabilities                    (210,717)         22,179         (16,887)
  Non cash compensation expense                     -               -             109
  Accrual of bond discount/
   amortization of bond premium                (8,059)         (5,836)         (7,553)
  Amortization of underwriting
   discount on senior notes                       167             152             112
  Restructure adjustments                           -               -             (55)
  Realized capital losses (gains)              53,127          15,745            (291)
                                          -----------     -----------     -----------
Net cash provided by (used in)
 operating activities                         425,164         303,772         (33,127)
                                          -----------     -----------     -----------

CASH FLOWS FROM INVESTING
 ACTIVITIES:
Proceeds from fixed maturities
 matured/called - available for sale          456,342         265,316         181,381
Proceeds from fixed maturities
 sold - available for sale                  1,086,998         470,561         730,589
Proceeds from equity securities
 sold                                          19,940          33,373          49,556
Proceeds from other invested
 assets sold                                    3,222              47               -
Cost of fixed maturities acquired
 - available for sale                      (2,082,403)     (1,036,759)     (1,174,662)
Cost of equity securities acquired            (32,683)        (64,267)         (2,732)
Cost of other invested assets
 acquired                                     (12,886)         (1,497)         (1,698)
Net (purchases) sales of
 short-term securities                        (13,635)        156,735        (205,524)
Net increase (decrease) in
 unsettled securities transactions                887           1,595            (955)
Payment for purchase of
 subsidiary, net of cash acquired                   -               -         349,743
                                          -----------     -----------     -----------
Net cash (used in) investing
 activities                                  (574,218)       (174,896)        (74,302)
                                          -----------     -----------     -----------

CASH FLOWS FROM FINANCING
 ACTIVITIES:
Acquisition of treasury
 stock net of reissuances                           -               -         (16,478)
Common shares issued during
 the period                                       733           3,416           2,288
Dividends paid to shareholders                      -               -        (495,000)
Contribution from subsidiary                        -               -             198
Proceeds from issuance of
 senior notes                                       -               -         448,507
Proceeds from trust preferred
 securities                                   210,000               -               -
Borrowings on revolving
 credit agreement                              45,000          22,000         176,000
Repayments on revolving
 credit agreement                             (80,000)       (152,000)              -
                                          -----------     -----------     -----------
Net cash provided by (used in)
 financing activities                         175,733        (126,584)        115,515
                                          -----------     -----------     -----------

EFFECT OF EXCHANGE RATE
 CHANGES ON CASH                               22,656          (3,180)         (1,916)
                                          -----------     -----------     -----------

Net increase (decrease) in cash                49,334            (888)          6,170
Cash, beginning of period                      67,509          68,397          62,227
                                          -----------     -----------     -----------
Cash, end of period                       $   116,843     $    67,509     $    68,397
                                          ===========     ===========     ===========

Supplemental cash flow
 information
Cash transactions:
Income taxes paid, net                    $     9,716     $    24,370     $    62,141
Interest paid                             $    42,805     $    46,120     $    27,169
Non-Cash operating/investing
 transaction:
Shares received from
 demutualization                          $         -     $    25,921     $         -
Non-cash financing
 transaction:
Issuance of common stock                  $         -     $         -     $       109
</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
assumed 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, 2002, 2001 and 2000


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  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 Re Capital Trust ("Capital Trust")
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 stockholder's 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
stockholder's  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

                                      F-7
<PAGE>
principal  factors from the time of acquisition to the adjustment  date are used
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 $31.3  million at December 31, 2002 and $34.1 million at December
31, 2002. See also Note 10.

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 $488.4  million,  $393.6 million and $267.4
million in 2002, 2001 and 2000, 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 3. 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.3

G.  INCOME TAXES

The Company and its wholly-owned  subsidiaries  file a consolidated U.S. federal
income tax return. 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 IN 2001

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 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 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 and other  reinsurance  contracts between Mt.
McKinley and Everest Re remain in effect  following  the  acquisition.  However,
these contracts became transactions with affiliates effective on the date of the

                                       F-9
<PAGE>
Mt. McKinley acquisition, and their financial impact is thereafter 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 what
management believes to be arm's-length  consideration,  all of its net insurance
exposures and reserves to Bermuda Re.

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>
                                                               -----------
                                                                   2000
(Dollars in thousands)                                         (Unaudited)
                                                               -----------
<S>                                                            <C>
Revenues                                                       $ 1,457,284
Net income                                                         161,079
</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 16.

L.  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. See also Note 13C.

M.  DERIVATIVES

The Company has in its product  portfolio a credit default swap contract,  which
it no longer offers.  This contract  meets the definition of a derivative  under
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging  Activities" ("FAS 133"). The Company's position in this
contract is unhedged and is accounted for as a derivative in accordance with FAS
133. Accordingly,  this contract is carried at fair value and recorded in "Other
liabilities"  in the  statement of financial  position and changes in fair value
are recorded in the statement of operations.

N.  RETROACTIVE REINSURANCE

Premiums  on assumed  retroactive  contracts  are  earned  when  written  with a
corresponding   liability   established  for  the  estimated  loss  the  Company
ultimately  expects to pay out. The initial gain is deferred and amortized  into
income  over  an  actuarial  determined  pay  out  period.   Premiums  on  ceded
retroactive  contracts are earned when written with a corresponding  reinsurance

                                      F-10
<PAGE>
recoverable  established for the amount of reserves  ceded.  The initial loss is
deferred and amortized  into expense over an actuarial  determined  expected pay
out period.

O.  DEPOSIT ASSETS AND LIABILITIES

In the normal course of its  operations,  the Company enters into contracts that
do not  meet  the risk  transfer  provisions  of FAS No.  113,  "Accounting  and
Reporting for Reinsurance of Short Duration and Long Duration Contracts".  These
contracts  are  accounted  for using the deposit  accounting  method.  For these
contracts,  the Company  originally  records  deposit  liabilities for an amount
equivalent to the assets  received.  Actuarial  studies are used to estimate the
final  liabilities  under  these  contracts  with any  change  reflected  in the
Statement of Operations.

P.  POLICYHOLDER DIVIDENDS

The Company issues certain  insurance  policies with dividend payment  features.
These  policyholders share in the operating results of their respective policies
in the form of dividends declared. Dividends to policyholders are accrued during
the period in which the related  premiums are earned and are determined based on
the terms of the individual policies.

Q.  APPLICATION OF NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board issued FAS 142, "Goodwill
and Other Intangible  Assets".  FAS 142 established new accounting and reporting
standards for acquired goodwill and other intangible assets. It requires that an
entity determine if other intangible  assets have an indefinite useful life or a
finite useful life.  Goodwill and those intangible assets with indefinite useful
lives are not subject to  amortization  and must be tested at least annually for
impairment.  Those with finite useful lives are subject to amortization and must
be tested  annually for  impairment.  This statement is effective for all fiscal
quarters of all fiscal years  beginning  after  December  15, 2001.  The Company
adopted FAS 142 on January 1, 2002. The implementation of this statement has not
had a material impact on the financial  position,  results of operations or cash
flows of the Company.

Prior to 2002, Group accounted for its stock-based  employee  compensation plans
under  the  recognition  and  measurement  provisions  of APB  Opinion  No.  25,
"Accounting  for  Stock  Issued  to  Employees",  and  related  interpretations.
Effective January 1, 2002, Group adopted the fair value  recognition  provisions
of FAS No. 123, "Accounting for Stock-Based  Compensation,  prospectively to all
employee awards granted, modified or settled after January 1, 2002.

                                      F-11
<PAGE>
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, 2002
Fixed maturities - available for sale
 U.S. Treasury securities and obligations of
  U.S. government agencies and corporations     $  344,957     $      9,276     $        204     $  354,029
 Obligations of U.S. states and political
  subdivisions                                   2,520,597          144,574            2,593      2,662,578
 Corporate securities                              879,592           50,685           25,235        905,042
 Mortgage-backed securities                        376,251           25,443              319        401,375
 Foreign government securities                     249,055           22,737                -        271,792
 Foreign corporate securities                      199,392           13,239            1,471        211,160
                                                ----------     ------------     ------------     ----------
Total fixed maturities                          $4,569,844     $    265,954     $     29,822     $4,805,976
                                                ==========     ============     ============     ==========
Equity securities                               $   79,791     $      2,112     $      9,435     $   72,468
                                                ==========     ============     ============     ==========

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
                                                ==========     ============     ============     ==========
</TABLE>

                                      F-12
<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                         $   69,039      $   70,769
   Due after one year through five years            1,038,572       1,089,665
   Due after five years through ten years             855,793         903,276
   Due after ten years                              2,230,189       2,340,891
   Mortgage-backed securities                         376,251         401,375
                                                   ----------      ----------
Total                                              $4,569,844      $4,805,976
                                                   ==========      ==========
</TABLE>

Proceeds from sales of fixed  maturity  investments  during 2002,  2001 and 2000
were $1,087.0 million,  $470.6 million and $730.6 million,  respectively.  Gross
gains of $54.9  million,  $16.4  million and $8.7  million,  and gross losses of
$84.8  million,  $42.4  million and $27.7  million were  realized on those fixed
maturity sales during 2002, 2001 and 2000, respectively.  Proceeds from sales of
equity security investments during 2002, 2001 and 2000 were $19.9 million, $33.4
million and $49.6  million,  respectively.  Gross gains of $0.9  million,  $13.4
million and $20.6  million and gross  losses of $0.3  million,  $0.1 million and
$1.4  million were  realized on those  equity sales during 2002,  2001 and 2000,
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)                                      2002         2001          2000
                                                                ------------------------------------
<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                                              $ (8,363)    $ (13,199)    $ (26,229)
 Fixed maturities                                                101,043        49,033       141,403
 Other invested assets                                               (32)           20            23
 Deferred taxes                                                  (32,427)      (12,549)      (40,319)
                                                                --------     ---------     ---------
Increase in unrealized appreciation, net of
 deferred taxes, included in stockholder's equity               $ 60,221     $  23,305     $  74,878
                                                                ========     =========     =========
</TABLE>

                                      F-13
<PAGE>
The components of net investment income are presented in the table below:

<TABLE>
<CAPTION>
                                                        Years Ended December 31,
                                                --------------------------------------
(dollar values in thousands)                     2002             2001          2000
                                                --------------------------------------
<S>                                             <C>             <C>           <C>
Fixed maturities                                $273,572        $270,570      $274,905
Equity securities                                    934             896         1,198
Short-term investments                             3,485           4,991         6,908
Other interest income                              2,783           4,567         3,081
                                                --------        --------      --------
Total gross investment income                    280,774         281,024       286,092
                                                --------        --------      --------
Interest on funds held                            21,070          11,909        11,316
Other investment expenses                          1,782           3,191         3,387
                                                --------        --------      --------
Total investment expenses                         22,852          15,100        14,703
                                                --------        --------      --------
Total net investment income                     $257,922        $265,924      $271,389
                                                ========        ========      ========
</TABLE>

The components of realized capital (losses) gains are presented in the table
below:

<TABLE>
<CAPTION>
                                                          Years Ended December 31,
                                                 ------------------------------------------
(dollar values in thousands)                       2002             2001             2000
                                                 ------------------------------------------
<S>                                              <C>              <C>              <C>
Fixed maturities                                 $(53,773)        $(29,074)        $(18,967)
Equity securities                                     620           13,326           19,260
Short-term investments                                 26                3               (2)
                                                 --------         --------         --------
Total                                            $(53,127)        $(15,745)        $    291
                                                 ========         ========         ========
</TABLE>

The net  realized  capital  losses for 2002 and 2001 include  $79.7  million and
$16.7 million  respectively,  relating to write-downs in the value of securities
deemed to be impaired on an other than temporary basis.

Securities  with a carrying  value amount of $424.2 million at December 31, 2002
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 $2.3 million and $4.6 million in 2002 and
2001,  respectively,  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, 2002, there is no remaining  maximum after-tax net loss exposure
under this contract.

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

                                      F-14
<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)                 2002             2001              2000
                                          ---------------------------------------------
<S>                                       <C>              <C>               <C>
Reserves at January 1                     $4,274,335       $3,785,747        $3,646,992
 Less reinsurance recoverables             1,452,485          980,396           727,780
                                          ----------       ----------        ----------
 Net balance at January 1                  2,821,850        2,805,351         2,919,212
                                          ----------       ----------        ----------
Incurred related to:
 Current year                              1,279,785        1,074,053           870,454
 Prior years                                 119,168            5,166             7,787
                                          ----------       ----------        ----------
Total incurred losses and LAE              1,398,953        1,079,219           878,241
                                          ----------       ----------        ----------
Paid related to:
 Current year                                302,664          387,100           318,673
 Prior years                                 841,648          675,620           673,429
                                          ----------       ----------        ----------
Total paid losses and LAE                  1,144,312        1,062,720           992,102
                                          ----------       ----------        ----------
Net balance at December 31                 3,076,491        2,821,850         2,805,351
 Plus reinsurance recoverables             1,798,734        1,452,485           980,396
                                          ----------       ----------        ----------
Balance at December 31                    $4,875,225       $4,274,335        $3,785,747
                                          ==========       ==========        ==========
</TABLE>

Prior year incurred losses  increased by $119.2  million,  $5.2 million and $7.8
million  in 2002,  2001 and 2000,  respectively.  The  increase  in 2002 was the
result  of modest  reserve  strengthening  in  select  areas,  most  notably  in
directors and officers, surety and workers' compensation lines, and with respect
to  asbestos  exposures,  while the  increase  in 2000 was 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 for both periods.

The Company  continues to receive  claims under expired  contracts  which assert
alleged  injuries  and/or damages  relating to or resulting  from  environmental
pollution and hazardous substances,  including asbestos.  The Company's asbestos
claims typically involve 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 (a) the mitigation or remediation of  environmental  contamination
or (b) 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 ("A&E") 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: (a) potentially
long waiting periods between exposure and  manifestation of any bodily injury or
property  damage;   (b)  difficulty  in  identifying   sources  of  asbestos  or
environmental    contamination;    (c)   difficulty   in   properly   allocating
responsibility  and/or  liability  for  asbestos or  environmental  damage;  (d)
changes in  underlying  laws and  judicial  interpretation  of those  laws;  (e)

                                      F-15
<PAGE>
potential  for an  asbestos or  environmental  claim to involve  many  insurance
providers  over  many  policy  periods;  (f) long  reporting  delays,  both from
insureds  to  insurance  companies  and  ceding  companies  to  reinsurers;  (g)
historical data on asbestos and environmental  losses, which is more limited and
variable than  historical  information  on other types of casualty  claims;  (h)
questions concerning interpretation and application of insurance and reinsurance
coverage; and (i) uncertainty regarding the number and identity of insureds with
potential asbestos or environmental exposure.

With respect to asbestos claims in particular,  several  additional factors have
emerged  recently  that  further  compound  the  difficulty  in  estimating  the
Company's  liability.  These developments  include:  (a) continued growth in the
number of claims filed, in part reflecting a much more aggressive plaintiff bar;
(b) a  disproportionate  percentage  of  claims  filed  by  individuals  with no
functional  injury from asbestos,  claims with little to no financial  value but
that have increasingly been considered in jury verdicts and settlements; (c) the
growth in the number and  significance  of bankruptcy  filings by companies as a
result of asbestos  claims;  (d) the growth in claim filings against  defendants
formerly  regarded as "peripheral";  (e) the  concentration of claims in a small
number of states that favor  plaintiffs;  (f) the growth in the number of claims
that might impact the general  liability  portion of insurance  policies  rather
than the product liability portion;  (g) responses in which specific courts have
adopted  measures  to  ameliorate  the  worst  procedural  abuses;  and  (h) the
potential  that  the  U.  S.  Congress  and  state   legislatures  may  consider
legislation to address the asbestos litigation issue.

Management  believes  that these  uncertainties  and factors  continue to render
reserves  for A&E losses  significantly  less subject to  traditional  actuarial
analysis than are reserves for 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  companies.  In  connection  with the  acquisition  of Mt.
McKinley,  which has significant exposure to asbestos and environmental  claims,
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 obligations to Mt. McKinley. Through December 31,
2002,  cessions  under this  reinsurance  agreement  have reduced the  available
remaining limits to $81.1 million net of coinsurance.  Due to the  uncertainties
discussed  above,  the  ultimate  losses may vary  materially  from current loss
reserves  and,  depending on coverage  under the Company's  various  reinsurance
arrangements,  could  have a material  adverse  effect on the  Company's  future
financial condition, results of operations and cash flows.

                                      F-16
<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 December 31, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
(dollar values in thousands)                  2002            2001           2000
                                            ---------------------------------------
<S>                                         <C>             <C>            <C>
Gross basis
Beginning of reserves                       $644,390        $693,704       $614,236
Incurred losses                               95,004          29,674         (5,852)
Paid losses                                  (71,472)        (78,988)        85,320
                                            --------        --------       --------
End of period reserves                      $667,922        $644,390       $693,704
                                            ========        ========       ========
Net basis
Beginning of reserves                       $276,169        $317,196       $365,069
Incurred losses                                6,167               -         (5,645)
Paid losses                                  (39,179)        (41,027)       (42,228)
                                            --------        --------       --------
End of period reserves                      $243,157        $276,169       $317,196
                                            ========        ========       ========
</TABLE>

At December 31, 2002, the gross reserves for asbestos and  environmental  losses
were comprised of $112.5 million  representing  case reserves reported by ceding
companies,  $55.5 million  representing  additional case reserves established by
the Company on assumed  reinsurance  claims,  $262.1 million  representing  case
reserves established by the Company on direct excess insurance claims, including
Mt. McKinley, and $237.8 million representing IBNR reserves.

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"). On November
21, 2002, the maturity date of the Credit  Facility was extended to December 19,
2003. Wachovia Bank, National  Association  (formerly First Union National Bank)
is the administrative agent for the Credit Facility. The Credit Facility will be
used for liquidity and general corporate purposes.  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  Wachovia  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  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, 2002 and 2001,  the Company had  outstanding  borrowings  of
$70.0 million and $105.0 million,  respectively.  Interest  expense  incurred in
connection with these borrowings was $3.5 million, $7.1 million and $8.5 million
for the years ending December 31, 2002, 2001 and 2000, respectively.

                                      F-17
<PAGE>
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, $38.9 million and $30.9 million for the years ending December 31,
2002, 2001, and 2000, respectively.

6.  TRUST PREFERRED SECURITIES

In November 2002, pursuant to a trust agreement between the Company and JPMorgan
Chase Bank,  the property  trustee,  and Chase  Manhattan Bank USA, the Delaware
trustee,  Capital Trust  completed a public  offering of $210.0 million of 7.85%
trust preferred  securities,  resulting in net proceeds of $203.4  million.  The
proceeds of the  issuance  were used to purchase  $210  million of 7.85%  junior
subordinated  debt  securities  of the Company that will be held in trust by the
property  trustee  for  the  benefit  of  the  holders  of the  trust  preferred
securities.  The  Company  used  the  proceeds  from  the  sale  of  the  junior
subordinated debt for general corporate purposes and made capital  contributions
to its operating subsidiaries.

Capital Trust will redeem all of the outstanding trust preferred securities when
the junior  subordinated  debt  securities  are paid at maturity on November 15,
2032. The Company may elect to redeem the junior  subordinated  debt securities,
in whole or in part,  at any time  after  November  14,  2007.  If such an early
redemption  occurs,  the  outstanding  trust  preferred  securities will also be
proportionately redeemed.

Distributions  on the trust  preferred  securities  will be  cumulative  and pay
quarterly in arrears.  Distributions  relating to the trust preferred securities
for the year ended December 31, 2002 were $2.1 million.


7.  LETTERS OF CREDIT

The Company has arrangements available for the issue of letters of credit, which
letters are generally  collateralized by the Company's cash and investments.  At
December  31,  2002,  $67.1  million  of  letters  of  credit  were  issued  and
outstanding under these arrangements,  generally supporting reinsurance provided
by the  Company's  non-U.S.  operations.  The  following  table  summarizes  the
Company's  letters of credit as of December 31, 2002.  All dollar amounts are in
the thousands.

<TABLE>
<CAPTION>
                                                                        Year of
Bank                         Commitment             In Use               Expiry
--------------------------------------------------------------------------------
<S>                          <C>                  <C>                 <C>
Citibank (London)            Individual           $  3,208             1/28/2005
                                                  $  1,272            12/31/2005
                                                  $ 62,641            12/31/2006
</TABLE>

                                      F-18
<PAGE>
8.  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>
 2003                                                           $ 5,274
 2004                                                             5,201
 2005                                                             4,710
 2006                                                             4,726
 2007                                                             4,581
 Thereafter                                                      15,043
                                            ---------------------------
 Net commitments                                                $39,535
                                            ===========================
</TABLE>

All of these leases,  the expiration terms of which range from 2004 to 2013, are
for the rental of office space.  Rental expense,  net of sublease rental income,
was $6.5  million,  $5.6  million  and $4.4  million  for  2002,  2001 and 2000,
respectively.

9.  INCOME TAXES

The components of income taxes for the periods presented are as follows:

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                    -------------------------------------
(dollar values in thousands)                         2002            2001           2000
                                                    -------------------------------------
<S>                                                 <C>             <C>           <C>
Current tax:
 U.S.                                               $12,069         $  (529)      $61,401
 Foreign                                             12,193           5,912          (289)
                                                    -------         -------       -------
 Total current tax                                   24,262           5,383        61,112
Total deferred U.S. tax expense (benefit)               507         (14,568)      (17,290)
                                                    -------         -------       -------
Total income tax expense (benefit)                  $24,769         $(9,185)      $43,822
                                                    =======         =======       =======
</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,
                                                       ----------------------------------
                                                       2002            2001          2000
                                                       ----------------------------------
<S>                                                    <C>             <C>           <C>
Federal income tax rate                                35.0%           35.0%         35.0%
Increase (reduction) in taxes resulting from:
 Tax exempt income                                    (18.6)          (95.9)        (14.7)
 Other, net                                             1.3            29.3           1.4
                                                       ----            ----          ----
Effective tax rate                                     17.7%          (31.6%)        21.7%
                                                       ====            ====          ====
</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:

                                      F-19
<PAGE>
<TABLE>
<CAPTION>

                                                                     December 31,
                                                              --------------------------
(dollar values in thousands)                                     2002            2001
                                                              --------------------------
<S>                                                           <C>              <C>
Deferred tax assets:
 Reserve for losses and loss adjustment expenses              $ 184,963        $ 226,532
 Unearned premium reserve                                        46,224           29,765
 Foreign currency translation                                     4,965            6,848
 Impairments                                                      7,799                -
 Deferred compensation                                            7,599                -
 Capital loss carryforward                                          371                -
 Foreign tax credit carryforwards                                17,956           21,159
 Other assets                                                    22,832                -
                                                              ---------        ---------
Total deferred tax assets                                       292,709          284,304
                                                              ---------        ---------

Deferred tax liabilities:
 Deferred acquisition costs                                      58,638           40,232
 Investments                                                      8,019                -
 Net unrealized appreciation of investments                      79,357           47,616
 Other liabilities                                                2,319           17,980
                                                              ---------        ---------
Total deferred tax liabilities                                  148,333          105,828
                                                              ---------        ---------
Net deferred tax assets                                       $ 144,376        $ 178,476
                                                              =========        =========
</TABLE>

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 $0.7 million and $3.4 million  related to  compensation  expense
deductions  for stock  options  exercised  in 2002 and 2001,  respectively,  are
reflected in the change in shareholders' equity in "additional paid in capital".

10. 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 and funds held, under these agreements.
See also Note 1C.

The Company considers the purchase of 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 2000, the
Company  purchased  an  accident  year  aggregate  excess  of loss  retrocession

                                      F-20
<PAGE>
agreement  which  provided  up to $175.0  million of  coverage  if Everest  Re's
consolidated  statutory  basis  accident year loss ratio  exceeded a loss ration
attachment  point  provided in the contract for the 2000 accident  year.  During
2002,  the Company  ceded $90.0  million of losses to this cover,  reducing  the
limit  available  under the  contract to $85.0  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 and 2002,  the Company
ceded $164.0 million and $11.0 million of losses,  respectively,  to this cover,
reducing the limit available under the contract to $0.0 million.

In  addition,  the  Company  has  coverage  under an  aggregate  excess  of loss
reinsurance  agreement  provided by 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  $78.9  million  of  cessions  under this
reinsurance  at  December  31,  2002,  reducing  the limit  available  under the
contract to $81.1 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 $0.0 million and $3.6 million of cessions under
this  reinsurance  during  the  periods  ending  December  31,  2002  and  2001,
respectively, reducing the limit available under the contract to $2.4 million.

Effective January 1, 2002,  Everest Re and Bermuda Re entered into a Quota Share
Reinsurance   Agreement,   for  what  management  believes  to  be  arm's-length
consideration, whereby Everest Re cedes 20% of the net retained liability on all
new and renewal  policies  written during the term of this agreement.  Effective
January 1, 2002,  Everest Re,  Everest  National  Insurance  Company and Everest
Security Insurance Company entered into an Excess of Loss Reinsurance  Agreement
with Bermuda Re, for what management believes to be arm's-length  consideration,
covering workers' compensation losses occurring on and after January 1, 2002, as
respects new, renewal and in force policies  effective on that date.  Bermuda Re
is liable for any loss exceeding $100,000 per occurrence, with its liability not
to exceed $150,000 per occurrence.

Effective  October 1,  2001,  Everest  Re and  Bermuda  Re  entered  into a loss
portfolio  transfer   reinsurance   agreement  which  are  accounted  for  on  a
retroactive basis, 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.

Effective  September 19, 2000,  Mt.  McKinley and Bermuda Re entered into a loss
portfolio  transfer   reinsurance   agreement  which  are  accounted  for  on  a
retroactive  basis,  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-21

<PAGE>
The following  table  summarizes the premiums and losses ceded by the Company to
Bermuda Re:

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                             -------------------------------------------
(dollar values in thousands)                   2002              2001             2000
                                             -------------------------------------------
<S>                                          <C>               <C>              <C>
Ceded written premium                        $381,071          $123,229         $484,810
Ceded earned premium                          283,786           122,310          484,810
Ceded losses and LAE                         $207,233          $123,886         $479,392
</TABLE>

Written and earned premiums are comprised of the following:

<TABLE>
<CAPTION>
                                                          Years Ended December 31,
                                             ---------------------------------------------
(dollar values in thousands)                    2002             2001              2000
                                             ---------------------------------------------
<S>                                          <C>              <C>               <C>
Written premium
 Direct                                      $  843,602       $  438,837        $  224,177
 Assumed                                      1,911,820        1,410,963         1,149,848
 Ceded                                         (565,903)        (432,872)         (166,704)
                                             ----------       ----------        ----------
 Net written premium                         $2,189,519       $1,416,928        $1,207,321
                                             ==========       ==========        ==========
Earned premium
 Direct                                      $  667,151       $  380,178        $  138,982
 Assumed                                      1,754,717        1,396,211         1,145,142
 Ceded                                         (464,522)        (442,888)         (121,527)
                                             ----------       ----------        ----------
 Net earned premium                          $1,957,346       $1,333,501        $1,162,597
                                             ==========       ==========        ==========
</TABLE>

The amounts deducted from losses and LAE incurred for net reinsurance recoveries
were  $486.1  million,  $619.4  million  and $173.1  million for the years ended
December 31, 2002, 2001 and 2000,  respectively.

As of December 31, 2002,  the Company  carried as an asset  $1,840.1  million in
reinsurance  receivables  with respect to losses ceded.  Of this amount,  $735.2
million, or 40.0%, was receivable from Bermuda Re, $440.0 million, or 23.9%, was
receivable  from  subsidiaries of London  Reinsurance  Group ("London Life") and
$145.0  million,  or 7.9%, was receivable  from  Continental  Insurance  Company
("Continental").  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 Life and $145.0
million,  or 9.9%, was receivable from  Continental.  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, 2002,  such funds had reduced the Company's net exposure
to London Life to $190.2 million,  effectively 100% of which has been secured by
letters of credit,  and its  exposure to  Continental  to $60.9  million.  As of
December 31, 2001,  such funds had reduced the  Company's net exposure to London

                                      F-22
<PAGE>
Life to $158.9 million,  100% of which has been secured by letters of credit and
its exposure to Continental to $67.9 million.

11. COMPREHENSIVE INCOME

The components of comprehensive income for the periods ending December 31, 2002,
2001 and 2000 are shown in the following table:

<TABLE>
<CAPTION>
(dollar values in thousands)                                2002              2001               2000
                                                          ---------------------------------------------
<S>                                                       <C>                <C>               <C>
Net income                                                $115,103           $38,250           $158,495
                                                          --------           -------           --------

Other comprehensive income, before tax:
 Foreign currency translation adjustments                    5,145            (6,228)            (2,201)
  Unrealized gains on securities arising during
  the period                                                39,521            20,112            115,488
  Less:  reclassification adjustment for
  realized losses (gains) included in net
  income                                                    53,127            15,745               (291)
                                                          --------           -------           --------
Other comprehensive income, before tax
                                                            97,793            29,629            112,996
                                                          --------           -------           --------

Income tax expense (benefit) related to items
 of other comprehensive income:
 Tax expense (benefit) from foreign
  currency translation                                       1,883            (2,179)              (771)
 Tax expense from unrealized
  gains arising during period                               13,832             7,041             40,421
 Tax (benefit) expense from realized (losses) gains
  included in net income                                   (18,595)           (5,511)               102
                                                          --------           -------           --------
Income tax expense related to
 items of other comprehensive income:                       34,310            10,373             39,548

Other comprehensive income, net of tax                      63,483            19,256             73,448
                                                          --------           -------           --------

Comprehensive income                                      $178,586           $57,506           $231,943
                                                          ========           =======           ========
</TABLE>

                                      F-23
<PAGE>
The  following  table shows the  components of the change in  accumulated  other
comprehensive income for the years ending December 31, 2002 and 2001.

<TABLE>
<CAPTION>

(dollar values in thousands)                              2002                             2001
                                                   --------------------------------------------------------
<S>                                                <C>             <C>              <C>             <C>
Beginning balance of accumulated other
 comprehensive income                                              $ 76,003                         $56,747
                                                                   --------                         -------

Beginning balance of foreign currency
 translation adjustments                           $ (12,482)                       $ (8,433)
Current period change in foreign currency
 translation adjustments                               3,262          3,262           (4,049)        (4,049)
                                                   ---------       --------         --------        -------
Ending balance of foreign currency
 translation adjustments                              (9,220)                        (12,482)
                                                   ---------                        --------

Beginning balance of unrealized gains on
 securities                                           88,485                          65,180
Current period change in unrealized gains
 on securities                                        60,221         60,221           23,305         23,305
                                                   ---------       --------         --------        -------
Ending balance of unrealized gains on
 securities                                          148,706                          88,485
                                                   ---------                        --------

Current period change in accumulated
 other comprehensive income                                          63,483                          19,256
                                                                   --------                         -------

Ending balance of accumulated other
 comprehensive income                                              $139,486                         $76,003
                                                                   ========                         =======
</TABLE>

12. EMPLOYEE BENEFIT PLANS

A.  DEFINED BENEFIT PENSION PLANS

The Company maintains both qualified and  non-qualified  defined benefit pension
plans 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  $3.2 million and $2.0 million to the qualified,  and  non-qualified
plans  respectively  in 2002.  The  change in the  accumulated  pension  benefit
obligation  reflects the net effect of amendments  made to the plans during 2002
and 2001.  Pension  expense for the Company's plans for the years ended December
31,  2002,  2001 and 2000 were $3.5  million,  $1.6  million  and $1.0  million,
respectively.

                                      F-24
<PAGE>
The following table summarizes the status of these plans:

<TABLE>
<CAPTION>
                                                        Years Ended December 31,
                                                        -----------------------
(dollar values in thousands)                                2002          2001
                                                        -----------------------
<S>                                                     <C>             <C>
Change in projected benefit obligation:
 Benefit obligation at beginning of year                $31,402         $24,572
 Service cost                                             1,877           1,398
 Interest cost                                            2,376           1,921
 Change in accumulated benefit obligation                   784              36
 Actuarial gain                                           3,666           3,786
 Benefits paid                                             (309)           (311)
                                                        -------         -------
 Benefit obligation at end of year                       39,796          31,402
                                                        -------         -------

Change in plan assets:
 Fair value of plan assets at beginning of year          20,868          20,200
 Actual return on plan assets                            (2,387)           (250)
 Actual contributions during the year                     5,172           1,229
 Benefits paid                                             (309)           (311)
                                                        -------         -------
 Fair value of plan assets at end of year                23,344          20,868
                                                        -------         -------

 Funded status                                          (16,453)        (10,534)
 Unrecognized prior service cost                            811             924
 Unrecognized net loss                                   11,738           4,099
                                                        -------         -------
 (Accrued) pension cost                                 $(3,904)        $(5,511)
                                                        =======         =======
</TABLE>

Plan assets are comprised of shares in investment trusts with  approximately 77%
and 23% 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)                               2002            2001           2000
                                                          -------------------------------------
<S>                                                       <C>             <C>            <C>
Service cost                                              $1,877          $1,397         $1,351
Interest cost                                              2,376           1,921          1,628
Expected return on assets                                 (1,861)         (1,905)        (1,915)
Amortization of net loss (gain) from earlier periods         275              21           (225)
Amortization of unrecognized prior service cost              898             148            147
                                                          ------          ------         ------
Net periodic pension cost                                 $3,565          $1,582         $  986
                                                          ======          ======         ======
</TABLE>

The weighted  average  discount  rates used to determine the  actuarial  present
value of the projected  benefit  obligation  for 2002,  2001 and 2000 are 6.75%,
7.0% and 7.5%, respectively. The rate of compensation increase used to determine
the actuarial present value of the projected  benefit  obligation for 2002, 2001
and 2000 is 4.50%.  The  expected  long-term  rate of return on plan  assets for
2002, 2001 and 2000 is 9.0%.

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

                                      F-25
<PAGE>
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 $0.7  million,  $0.6  million  and $0.6  million for
2002, 2001 and 2000, 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, $0.4 million and $0.3 million
for 2002, 2001 and 2000, respectively.

B.  POST-RETIREMENT PLAN

Beginning January 1, 2002, the Company established the Retiree Health Plan. This
plan provides  health care benefits for eligible  retired  employees  (and their
eligible  dependants),  who have elected  coverage to traditional  formula.  The
Company  currently  anticipates that most covered employees will become eligible
for these  benefits if they retire while  working for the  Company.  The cost of
these   benefits  is  shared  with  the   retiree.   The  Company   accrues  the
postretirement benefit expense during the period of the employee's service.

A health care  inflation  rate of 9.0% in 2002, was assumed to change to 8.0% in
2003; and then decrease one percentage  point annually to 5.0% in 2006; and then
remain at that level.

Changes in the assumed  health care cost trend can have a significant  effect on
the amounts reported for the health care plans. A one percent change in the rate
would have the following effects on:

<TABLE>
<CAPTION>
                                         Percentage                 Percentage
(Dollars  in thousands)                Point Increase             Point Decrease
                                       -----------------------------------------
<S>                                    <C>                        <C>
a. Effect on total service and
    interest cost components                    $ 148                     ($ 114)
b. Effect on accumulated
    postretirement                              $ 952                     ($ 745)
</TABLE>

Pension  expense  for this plan for the year ended  December  31,  2002 was $0.6
million.

                                      F-26
<PAGE>
The following table summarizes the status of these plans:

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                                      ------------------------
(dollar values in thousands)                           2002             2001
                                                      ------------------------
<S>                                                   <C>               <C>
Change in projected benefit obligation:
   Benefit obligation at beginning of year            $     -           $    -
   Accrual for Retiree Health Plan                      3,888                -
   Service cost                                           327
   Interest cost                                          294                -
   Actuarial gain                                        (208)               -
   Benefits paid                                          (29)               -
                                                      -------           ------
   Benefit obligation at end of year                    4,272                -
                                                      -------           ------

   Funded status                                       (4,271)               -
   Unrecognized net loss                                 (208)               -
                                                      -------           ------
   (Accrued) cost                                     $(4,479)          $    -
                                                      =======           ======
</TABLE>

Net periodic cost included the following components:

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                            ------------------------------------
(dollar values in thousands)                2002             2001           2000
                                            ------------------------------------
<S>                                         <C>              <C>            <C>
Service cost                                $ 327            $  -           $  -
Interest cost                                 294               -              -
                                            -------          ----           ----
Net periodic cost                           $ 621            $  -           $  -
                                            =======          ====           ====
</TABLE>

13. 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, 2002,  Everest Re had $149.4  million  available  for
payment of dividends in 2003 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 $1,494.0  million  (unaudited) and $1,293.8 million at December 31, 2002 and

                                      F-27
<PAGE>
2001,  respectively.  The  statutory  net income of Everest Re was $77.6 million
(unaudited),  $78.9 million and $165.3  million for the years ended December 31,
2002, 2001 and 2000, respectively.

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 in 2001 increased Everest Re's statutory surplus by $57.1 million.

14. CONTINGENCIES

In the  ordinary  course of  business,  the  Company is  involved  in  lawsuits,
arbitrations and other formal and informal dispute  resolution  procedures,  the
outcomes of which will  determine the  Company's  rights and  obligations  under
insurance and reinsurance  agreements and other more general contracts.  In some
disputes,  the Company  seeks to enforce  its rights  under an  agreement  or to
collect funds owing to it. In other matters,  the Company is resisting  attempts
by others to collect funds or enforce alleged rights. Such disputes are resolved
through formal and informal means, including litigation and arbitration.

In all such  matters,  the Company  believes  that its positions are legally and
commercially  reasonable.  The Company also regularly evaluates those positions,
and where appropriate,  establishes or adjusts insurance reserves to reflect the
results of its evaluation.  The Company's  aggregate  reserves take into account
the  possibility  that the Company may not ultimately  prevail in each and every
disputed  matter.  The  Company  believes  its  aggregate  reserves  reduce  the
potential  that an adverse  resolution of one or more of these  matters,  at any
point in time, would have a material impact on the Company's financial condition
or results of  operations.  However,  there can be no  assurances  that  adverse
resolutions  of such  matters  in any one  period or in the  aggregate  will not
result in a material adverse effect on the Company's results of operations.

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.

The  Prudential  sells  annuities  which are  purchased by property and casualty
insurance  companies to settle certain types of claim  liabilities.  In 1993 and
prior years, the Company,  for a fee,  accepted the claim payment  obligation of
these property and casualty insurers, and, concurrently, became the owner of the
annuity or assignee of the annuity proceeds. In these circumstances, the Company
would be liable if The Prudential were unable to make the annuity payments.  The
estimated  cost to  replace  all  such  annuities  for  which  the  Company  was
contingently  liable at December 31, 2002 and 2001 was $150.5 million and $147.1
million respectively.

The Company has purchased  annuities from an unaffiliated life insurance company
with an A+ (Superior)  rating from A.M. Best to settle certain claim liabilities
of the Company.  Should the life  insurance  company  become  unable to make the
annuity payments,  the Company would be liable for those claim liabilities.  The
estimated cost to replace such annuities at December 31, 2002 and 2001 was $14.8
million and $13.7 million, respectively.

                                      F-28
<PAGE>
15. 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. See also
Note 10.

16. 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 London,
Canada,  and  Singapore,  in addition to foreign  business  written  through the
Company's New Jersey headquarters and Miami office.

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-29
<PAGE>
The following tables present the relevant underwriting results for the operating
segments for the three years ended December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
                                U.S. REINSURANCE
--------------------------------------------------------------------------------
(dollar values in thousands)             2002            2001             2000
                                      ------------------------------------------
<S>                                   <C>             <C>              <C>
Earned premiums                       $ 658,131       $  497,600       $ 471,631
Incurred losses and loss adjustment
  expenses                              501,000          449,635         317,735
Commission and brokerage                163,808          148,807          78,978
Other underwriting expenses              18,876           15,211          17,039
                                      ---------       ----------       ---------
Underwriting (loss) gain              $ (25,553)      $ (116,053)      $  57,879
                                      =========       ==========       =========
</TABLE>
<TABLE>
<CAPTION>
                                 U.S. INSURANCE
--------------------------------------------------------------------------------
(dollar values in thousands)             2002            2001             2000
                                      ------------------------------------------
<S>                                   <C>             <C>              <C>
Earned premiums                       $ 465,719       $  294,225       $ 101,576
Incurred losses and loss adjustment
 expenses                               345,326          211,311          70,277
Commission and brokerage                111,562           63,512          25,487
Other underwriting expenses              25,802           19,185          11,646
                                      ---------       ----------       ---------
Underwriting (loss) gain              $ (16,971)      $      217       $  (5,834)
                                      =========       ==========       =========
</TABLE>
<TABLE>
<CAPTION>
                             SPECIALTY UNDERWRITING
--------------------------------------------------------------------------------
(dollar values in thousands)             2002            2001             2000
                                      ------------------------------------------
<S>                                   <C>             <C>              <C>
Earned premiums                       $ 424,666       $  371,805       $ 302,637
Incurred losses and loss adjustment
  expenses                              291,772          330,841         254,302
Commission and brokerage                120,440          102,144          81,794
Other underwriting expenses               6,363            5,688           6,253
                                      ---------       ----------       ---------
Underwriting gain (loss)              $   6,091       $  (66,868)      $ (39,712)
                                      =========       ==========       =========
</TABLE>
<TABLE>
<CAPTION>

                                  INTERNATIONAL
--------------------------------------------------------------------------------
(dollar values in thousands)             2002            2001             2000
                                      ------------------------------------------
<S>                                   <C>             <C>              <C>
Earned premiums                       $ 408,830       $ 169,871        $ 286,753
Incurred losses and loss adjustment
  expenses                              260,855          87,432          235,927
Commission and brokerage                 92,625          79,182           81,151
Other underwriting expenses              13,196          13,829           13,798
                                      ---------       ---------        ---------
Underwriting gain (loss)              $  42,154       $ (10,572)       $ (44,123)
                                      =========       =========        =========
</TABLE>

                                      F-30
<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)             2002                2001               2000
                                       -----------------------------------------------
<S>                                    <C>                <C>                 <C>
Underwriting gain (loss)               $  5,721           $(193,276)          $(31,790)
Net investment income                   257,922             265,924            271,389
Realized (loss) gain                    (53,127)            (15,745)               291
Net derivative (expense)                 (3,466)             (7,020)                 -
Corporate expenses                         (823)             (1,379)            (1,528)
Distributions related to trust
  preferred securities                   (2,091)                  -                  -
Interest expense                        (42,417)            (46,004)           (39,386)
Other (expense) income                  (21,847)             26,565              3,341
                                       --------           ---------           --------
Income before taxes                    $139,872           $  29,065           $202,317
                                       ========           =========           ========
</TABLE>

The Company produces business in its United States and international operations.
The net income  and  assets of the  individual  foreign  countries  in which the
Company writes business are not identifiable in the Company's financial records.
The largest country,  other than the United States,  in which the Company writes
business is the United Kingdom,  with $188.5 million for the year ended December
31, 2002. No other country represented more than 5% of the Company's revenues.

Approximately  16.5%, 13.6% and 12.9% of the Company's gross premiums written in
2002, 2001 and 2000,  respectively,  were sourced through the Company's  largest
intermediary.

                                      F-31
<PAGE>
17. UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data were as follows:

<TABLE>
<CAPTION>
(dollar values in thousands)
                                                  1st           2nd           3rd             4th
                                                Quarter        Quarter       Quarter         Quarter
                                               -----------------------------------------------------
<S>                                            <C>            <C>            <C>            <C>
2002 OPERATING DATA:
 Gross written premium                         $590,884       $626,636       $693,456       $844,446
 Net written premium                            514,095        519,367        523,559        632,498
 Earned premium                                 458,118        451,607        456,387        591,234
 Net investment income                           64,799         65,472         64,402         63,249
 Net realized capital gain (loss)                 1,039        (39,909)        (7,074)        (7,183)
 Total claims and underwriting expenses         453,701        439,083        453,284        606,380
 Net income                                      46,315         22,548         34,803         11,437
                                               ========       ========       ========       ========


2001 OPERATING DATA:
 Gross written premium                         $418,929       $480,873       $486,275       $463,720
 Net written premium                            386,825        415,031        363,170        251,902
 Earned premium                                 327,992        389,382        343,022        273,105
 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        399,617        482,595        309,645
 Net income (loss)                               33,591         39,762        (53,082)        17,979
                                               ========       ========       ========       ========
</TABLE>

                                      F-32
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.
                      SCHEDULE I - SUMMARY OF INVESTMENTS -
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                                DECEMBER 31, 2002
                             (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                     $   344,957       $   354,029       $   354,029
   State, municipalities and political subdivisions              2,520,597         2,662,578         2,662,578
   Foreign government securities                                   249,055           271,792           271,792
   Foreign corporate securities                                    199,392           211,159           211,159
   Public utilities                                                 97,983           102,829           102,829
   All other corporate bonds                                       741,778           759,322           759,322
  Mortgage pass-through securities                                 376,251           401,376           401,376
  Redeemable preferred stock                                        39,831            42,891            42,891
                                                               -----------       -----------       -----------
Total fixed maturities-available for sale                        4,569,844         4,805,976         4,805,976
Equity securities                                                   79,791            72,468            72,468
Short-term investments                                             130,075           130,075           130,075
Other invested assets                                               42,338            42,307            42,307
Cash                                                               116,843           116,843           116,843
                                                               -----------       -----------       -----------
Total investments and cash                                     $ 4,938,891       $ 5,167,669       $ 5,167,669
                                                               ===========       ===========       ===========

</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,           December 31,
                                                                                 -----------            -----------
                                                                                    2002                    2001
                                                                                 -----------            -----------
<S>                                                                              <C>                    <C>
ASSETS
 Equity securities, at market value (cost: 2002, $22,950; 2001, $55)             $    24,996            $       141
 Short-term investments                                                               16,466                    711
 Cash                                                                                    384                     74
 Investment in subsidiaries, at equity in the underlying net assets                1,983,592              1,667,808
 Receivable from affliate                                                                126                 (2,153)
 Deferred tax asset                                                                     (607)                15,165
 Accrued investment income                                                                65                      2
 Other assets                                                                          8,955                  2,617
                                                                                 -----------            -----------
Total assets                                                                     $ 2,033,977            $ 1,684,365
                                                                                 ===========            ===========

LIABILITIES
 8.5% Senior notes due 3/15/2005                                                 $   249,780            $   249,694
 8.75% Senior notes due 3/15/2010                                                    199,158                199,077
 Revolving credit facility                                                            70,000                105,000
 Current federal income taxes                                                         (6,758)               (26,644)
 Accrued interest on debt and borrowings                                              13,546                 11,944
 Due to affilitates                                                                      993                 33,860
 Other liabilities                                                                        34                     25
 Subordinated Debentures                                                             216,496                      -
                                                                                 -----------            -----------
 Total liabilities                                                                   743,249                572,956
                                                                                 -----------            -----------

STOCKHOLDER'S EQUITY
 Common stock, par value: $0.01; 200 million shares authorized;
  1,000 issued in 2002 and 2001                                                            -                      -
 Paid-in capital                                                                     259,508                258,775
 Accumulated other comprehensive income, net of deferred taxes
  of $75.1 million in 2002 and $40.8 million in 2001                                 139,486                 76,003
 Retained earnings                                                                   891,734                776,631
                                                                                 -----------            -----------
 Total stockholder's equity                                                        1,290,728              1,111,409
                                                                                 -----------            -----------
Total liabilities and stockholder's equity                                       $ 2,033,977            $ 1,684,365
                                                                                 ===========            ===========
</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,
                                                                                  -----------------------------------------
                                                                                    2002             2001            2000
                                                                                  ---------        --------       ---------
<S>                                                                               <C>              <C>            <C>
Net investment income                                                             $     408        $    241       $   1,371
Net realized capital gain                                                                 -               1               -
Other (expense)                                                                      (2,241)           (543)           (416)
Equity in undistributed change in retained earnings of subsidiaries                 137,645          68,027         184,191
                                                                                  ---------        --------       ---------

 Total revenues                                                                     135,812          67,726         185,146
                                                                                  ---------        --------       ---------

EXPENSES
Interest expense                                                                     44,574          46,004          39,386
Other expenses                                                                          466             427               5
                                                                                  ---------        --------       ---------

Income before taxes                                                                  90,772          21,295         145,755
Income tax (benefit)                                                                (24,331)        (16,955)        (12,740)
                                                                                  ---------        --------       ---------
 Net income                                                                       $ 115,103        $ 38,250       $ 158,495
                                                                                  =========        ========       =========
</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 CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                        For Years Ended December 31,
                                                                                ------------------------------------------
                                                                                   2002            2001             2000
                                                                                ------------------------------------------
<S>                                                                             <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                      $ 115,103        $ 38,250        $ 158,495
 Adjustments to reconcile net income to net cash provided
  by operating activities:
 Equity in undistributed change in retained earnings of subsidiaries             (137,645)        (68,027)        (585,734)
 (Decrease) increase  in other liabilities                                        (32,858)         32,085           (1,352)
 Increase (decrease) in accrued interest on debt and borrowings                     1,602            (268)          12,106
 Decrease (increase) in deferred tax asset                                         34,972         (27,156)         (12,709)
 (Increase) decrease in other assets                                               (6,401)            697           (2,881)
 (Increase) decrease in receivable from affliates                                  (2,279)           (335)             568
 Restructure adjustment                                                                 -               -              (55)
 Accrual of bond discount                                                               -            (107)            (877)
 Amortization of underwriting discount on senior notes                                167             152              112
 Realized capital (gain)                                                                -              (1)               -
 Non-cash compensation                                                                  -               -              109
                                                                                ---------        --------        ---------
NET CASH (USED IN)  OPERATING ACTIVITIES                                          (27,339)        (24,710)        (432,218)
                                                                                ---------        --------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES
 Additional investment in subsidiaries, net of cash acquired                     (200,196)              -          349,743
 Cost of equity securities acquired                                               (22,895)              -              (55)
 Net (purchases) sales of short-term securities                                   (15,755)         25,756          (25,482)
                                                                                ---------        --------        ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                              (238,846)         25,756          324,206
                                                                                ---------        --------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on revolving credit line                                                 45,000          22,000          176,000
Repayments on revolving credit line                                               (80,000)       (152,000)               -
Proceeds from issuance of senior notes                                                  -               -          448,507
Proceeds from issuance of subordinated debentures                                 216,496               -                -
Acquisition of treasury stock net of reissuances                                        -               -          (16,478)
Effect of restructuring                                                                 -               -          (11,706)
Common stock issued during the period                                                   -               -            2,288
Contribution from subsidiaries                                                     85,000         129,000              198
Dividends paid to stockholders                                                          -               -         (495,000)
                                                                                ---------        --------        ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                               266,496          (1,000)         103,809
                                                                                ---------        --------        ---------

Net increase in cash                                                                  311              46           (4,203)
Cash, begining of period                                                               74              28            4,231
                                                                                ---------        --------        ---------

Cash, end of period                                                             $     385        $     74        $      28
                                                                                =========        ========        =========
</TABLE>


                 See notes to consolidated financial statements.

                                      S-4
<PAGE>
                       EVEREST REINSURANCE HOLDINGS, INC.
               SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>

COLUMN A            COLUMN B      COLUMN C    COLUMN D     COLUMN E    COLUMN F     COLUMN G    COLUMN H    COLUMN I    COLUMN J
-----------------   ---------    ----------   ---------   ----------   ---------   ----------   ---------   --------   ----------
                                RESERVE FOR                                        INCURRED    AMORTIZATION
                     DEFERRED  LOSSES & LOSS  UNEARNED                   NET     LOSS AND LOSS OF DEFERRED   OTHER        NET
                   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, 2002
 Domestic           $ 133,824    $4,125,389   $ 702,970   $1,548,516   $ 229,990   $1,138,098   $ 395,810   $ 51,864   $1,653,600
 International         27,626       749,836     106,843      408,830      27,932      260,855      92,625     13,196      535,919
                    ---------    ----------   ---------   ----------   ---------   ----------   ---------   --------   ----------
  Total             $ 161,450    $4,875,225   $ 809,813   $1,957,346   $ 257,922   $1,398,953   $ 488,435   $ 65,060   $2,189,519
                    =========    ==========   =========   ==========   =========   ==========   =========   ========   ==========

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                                                 $  875,844   $ 236,079   $  642,314   $ 186,259   $ 36,466   $  902,946
 International                                               286,753      35,310      235,927      81,151     13,798      304,375
  Total                                                   ----------   ---------   ----------   ---------   --------   ----------
                                                          $1,162,597   $ 271,389   $  878,241   $ 267,410   $ 50,264   $1,207,321
                                                          ==========   =========   ==========   =========   ========   ==========


</TABLE>
                                      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, 2002
Total property and liability
 insurance earned premium           $ 667,151           $ 464,523           $ 1,754,718         $ 1,957,346              89.6%
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%

</TABLE>

                                      S-6