PROPERTIES Everest Re's corporate offices are located in approximately 112,000 square feet of leased office space in Liberty Corner, New Jersey. The Company's other eleven locations occupy a total of approximately 69,500 square feet, all of which are leased. Management believes that the above-described office space is adequate for its current and anticipated needs.
Effective September 19, 2000, Mt. McKinley and Everest Reinsurance (Bermuda), Ltd. ("Bermuda Re") entered into a loss portfolio transfer reinsurance agreement, whereby Mt. McKinley transferred, for arm's-length consideration, all of its net insurance exposures and reserves, including allocated and unallocated loss adjustment expenses, to Bermuda Re.
On January 18, 2000, Everest Re purchased all of the issued and outstanding shares of Cra-Co Holdings Ltd., the Georgia holding company parent of Southeastern Security Insurance Company ("SSIC"), for $10.1 million, which approximated book value. SSIC is a Georgia property and casualty insurance company, whose primary line of business is non-standard auto coverage.
the United States and worldwide through brokers and directly with ceding companies. The International operation writes property and casualty reinsurance through the Company's branches in Belgium, London, Canada, and Singapore, in addition to foreign "home-office" business.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 PREMIUMS. Gross premiums written increased 20.3% to $1,374.0 million in 2000 from $1,141.8 million in 1999 as the Company took advantage of selected growth opportunities, while continuing to maintain a disciplined underwriting approach. Premium growth areas included a 255.9% ($180.1 million) increase in the U.S. Insurance operation, principally attributable to growth in worker's compensation insurance, an 18.5% ($49.7 million) increase in the Specialty Underwriting operation, attributable to growth in A&H writings and a 3.6% ($11.2 million) increase in the International operation, mainly attributable to growth in North and South America and the markets served from the Company's London branch. These increases were partially offset by a 1.8% ($8.9 million) decrease in the U.S. Reinsurance operation where growth across property and casualty lines was offset by reductions in non-standard auto writings. The Company continued to decline business that did not meet its objectives regarding underwriting profitability.
Ceded premiums increased to $166.7 million in 2000 from $46.3 million in 1999. This increase was principally attributable to the higher utilization of contract specific cessions in the U.S. Insurance and U.S. Reinsurance operations, including a new 100% ceded U.S. Longshore and Harbor Workers' Compensation Act and state act workers' compensation program in the U.S. Insurance operation, which contributed $37.0 million to the increase. In addition, adjustment premiums of $35.2 million were ceded in 2000 relating to losses ceded under the 1999 accident year aggregate excess of loss element of the Company's corporate retrocessional program.
PREMIUM REVENUES. Net premiums earned increased by 8.5% to $1,162.6 million in 2000 from $1,071.5 million in 1999. Contributing to this increase was a 75.8% ($43.8 million) increase in the U.S. Insurance operation, a 14.1% ($37.3 million) increase in the Specialty Underwriting operation, and a 3.3% ($15.1 million) increase in the U.S. Reinsurance operation. These increases were partially offset by a 1.7% ($5.0 million) decrease in the International 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.
The Company's combined ratio, which is the sum of the loss and expense ratios, decreased by 0.7 percentage points to 102.8% in 2000 compared to 103.5% in 1999. The following table shows the combined ratios for each of the Company's operating segments for 2000 and 1999. The combined ratios for all operations were impacted by the loss and expense ratio variability noted above.
Interest expense was $39.4 million for 2000 compared to $1.5 million in 1999. Interest expense for 2000 reflects $30.9 million relating to the Company's issuance of senior notes and $8.5 million relating to the Company's borrowing under its revolving credit facility. Interest expense for 1999 reflects $1.5 million relating to the Company's borrowing under its credit facility.
Other income was $3.3 million in 2000 compared to other expense of $1.0 million in 1999. Significant contributors to other income for 2000 were foreign exchange gains as well as financing fees from SSIC, offset by net derivative income and fair value adjustments and expenses relating to the Company's issuance of senior notes. Other expense for 1999 principally reflected foreign exchange losses. The foreign exchange gains and losses are attributable to fluctuations in foreign currency exchange rates.
INVESTMENTS. Net investment income increased by 7.3% to $271.4 million in 2000 from $253.0 million in 1999, principally reflecting the growth in cash and invested assets, including $50.0 million in retained proceeds from the Company's issuance of senior notes coupled with the impact of portfolio management activities. The following table shows a comparison of various investment yields as of December 31, 2000 and 1999, respectively, and for the periods then ended.
INCOME TAXES. The Company recognized income tax expense of $43.8 million in 2000 compared to $38.5 million in 1999 with the increase mainly attributable to decreased realized capital losses.
1) Changes in the level of competition in the United States and international reinsurance or insurance markets that adversely affect the volume or profitability of the Company's reinsurance or insurance business. These changes include, but are not limited to, the intensification of price and contract terms competition, the entry of new competitors, consolidation in the reinsurance and insurance industry and the development of new products by new and existing competitors;
7) Changes in inflation that affect the profitability of the Company's current reinsurance and insurance businesses or the adequacy of its claim, claim expense and policy benefit liabilities;
In addition to the factors outlined above that are directly related to the Company's businesses, the Company is also subject to general business risks, including, but not limited to, adverse state, federal or foreign legislation and regulation, adverse publicity or news coverage and changes in general economic factors.