Everest Re Falls in Line - Analyst Blog

Everest Re Group Ltd. (RE) reported third quarter operating profit of $2.67 per share, in line with the Zacks Consensus Estimate. The company had earned $3.43 in the prior year quarter.

Including realized capital gains and losses, Everest reported a net income of $174.2 million or $3.11 per share, compared with a net income of $228.6 million or $3.75 per share in the year-ago period.

The Bermuda-based reinsurer reported total revenues of $1.18 billion, greater than the Zacks Consensus Estimate of $1.16 billion. Revenues were also up 13% on the yearly basis led by an increase in premiums earned, higher net realized capital gains, and higher other income.

Gross written premiums were $1.2 billion, up 3% from the prior-year quarter. However, excluding the effects of foreign exchange, premiums were up 2%. Reinsurance premiums increased 6% to $952, new business opportunities coupled with rate increases on select covers and insurance market growth in some international regions contributed to this increased volume. Insurance gross premiums written were down 8% primarily due to underwriting measures adopted in response to unprofitable business.

The loss and combined ratios were 67.7% and 95.9% respectively, compared with 60.2% and 88.3% in the prior-year quarter. The loss ratio increased due to the increase in current year catastrophe losses emanating from New Zealand earthquake and a hailstorm in Calgary.

Net investment income was $141.4 million, down 15% year over year, primarily led by lower return on alternative assets. After-tax net realized capital gains totaled $24.9 million, compared with after-tax net realized capital gains of $19.3 million in the same period last year. The gains for the current quarter were primarily attributable to fair value adjustments on the equity portfolio.

Book value per share increased to $114.16 as of September 30, 2010, from $102.87 as of the year-end 2009, led by share repurchases. Return on equity was 10.6% compared with 14.9% in the 2009 period. 

Cash flow from operations was $297.8 million down 5% year over year. During the quarter, the company repurchased 1.2 million of its common shares at an average price of $80.84 and a total cost of $99.7 million.

Though Everest Re is growing its share in the international and US property markets, it is facing difficulty in the US casualty insurance market. However, the company continues to benefit from its strong underwriting skills, a multi-operating platform and a vast geographic coverage.

We think the company's excellent reputation and solid diversification of its product lines are a strong advantage over its peers. Therefore, we give a “Neutral” recommendation to the shares for the long term (3–6 months). The shares carry a Zacks #3 Rank, which translates into a “Hold” recommendation for the short term (1–3 months).