We are reiterating our recommendation on the shares of
Everest Re Group, Ltd.
) at 'Neutral' prior to its third-quarter earnings release
scheduled on October 24, 2012. While the company has shown a
better-than-average underwriting performance, we remain on the
sidelines due to the lack of broad-based improvement in pricing
across the spectrum of business classes.
Everest's U.S. Reinsurance segment has been performing quite
well at present. Management continues to reduce casualty business
to focus on underwriting profit. In its property lines business,
the company is witnessing renewal rate increases.
We expect meaningful rate increases, particularly in the regions
mostly affected by catastrophes. Other factors that are expected to
increase reinsurance demand include higher capital requirements
owing to the implementation of Solvency II in Europe.
Everest is realigning its insurance segment to emerge in those
lines of businesses, which leads to meaningful and sustainable
long-term growth. The company has also grown its business
internationaly in the Middle East, Latin America and Asia. Much of
the company's top-line growth in the past few years have emanated
from its overseas business and the trend will continue in
Everest's combined ratio, which signifies an insurer's
profitability has remained at below breakeven levels over the past
The company also has a liquid investment portfolio, which is of
short duration maturity. The company has kept its investment
portfolio conservative by investing just 10% of the total
investment money in equities. A low incidence of equity in the
investment portfolio will protect the company from equity market
Everest boasts a seasoned and experienced management team, which
has kept operating cost under control and has successfully
delivered underwriting profitability year after year.
However, the negatives include exposure to catastrophe losses,
which causes earnings to fluctuate in case large catastrophe occurs
and a low interest environment, which pressurizes investment
Everest Re currently retains a Zacks # 3 Rank, which translates
into a short-term Hold rating. Its peer -
Reinsurance Group of America Inc.
) - also retains a Zacks # 3 Rank and a long-term Neutral
EVEREST RE LTD (RE): Free Stock Analysis Report
REINSURANCE GRP (RGA): Free Stock Analysis
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