We are reiterating our 'Neutral' recommendation on the shares
Everest Re Group, Ltd.
) following its third-quarter earnings release. While the company
performed strongly during the third quarter, beating the Zacks
Consensus Estimates substantially, we expect the fourth quarter
to be low on earnings due to the estimated loss as a result of
Everest's U.S. Reinsurance segment has been performing quite
well. 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
Everest is realigning its insurance segment to emerge in those
lines of businesses, which will lead to meaningful and
sustainable long-term growth. The company has also grown its
business internationally in the Middle East, Latin America and
Asia. Much of the company's top-line growth in the past few years
has come from its overseas business and the trend will continue
in the future.
Everest's combined ratio, which signifies an insurer's
profitability, has remained below breakeven levels over the past
five years, reflecting its superior underwriting discipline.
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 costs under control and has successfully
delivered underwriting profitability year after year.
However, the negatives include exposure to catastrophes, which
causes earnings to fluctuate and a low interest environment,
which pressurizes investment income.
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
REINSURANCE GRP (RGA): Free Stock Analysis
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