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Everest Re's Crop Insurance, Low Investment Returns Caution

We issued an updated research report on Everest Re Group Ltd.RE on Sep 28, 2015.

The company's competitive reinsurance market and a low interest rate environment are expected to limit growth. Given a low catastrophe loss experience by the insurance industry in 2014, reinsurance rates have come under pressure. Also, excess capital is allowing primary insurance companies to retain risks, thus dampening the demand for reinsurance.

Moreover, Everest Re's crop insurance book of business has been suffering underwriting loss over the past several quarters. Though the crop business remained favorable in second-quarter 2015, we wait to see if the momentum will continue. Soft performance in the crop business is likely to hurt the company's insurance underwriting margin. Also, persistent decline in investment returns has been a headwind to Everest Re's profitability. The insurer remains exposed to catastrophe losses, which causes earnings to fluctuate.

Nevertheless, Everest Re has a huge market in the insurance and reinsurance industries. Also, the company is set to benefit from its capital adequacy, financial flexibility and traditional risk management capabilities.

The company's Insurance segment has consistently been performing well over several past quarters. This improvement has been backed by staffing up of underwriting operations, expansion of the relationship between property and casualty, increase in the geographic footprint of property insurance, and growth of the existing Canadian platform. Also, building new product distribution and strategic relationships within its specialty insurance operations, both in the U.S. and internationally, have been helping in this regard.

The Reinsurance segment has also been doing well. The segment's performance has been supported by several growth initiatives such as deployment of increased capacity to a pro-rata deal where the company saw attractive original pricing terms and conditions. Favorable combined ratio is another positive.

However, during the last reported quarter, Everest Re's earnings missed the Zacks Consensus Estimate and decreased year over year on high expenses.

EverestRe currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks from the property and casualty insurance space are Cincinnati Financial Corp. CINF , Hallmark Financial Services Inc. HALL and The Travelers Companies, Inc. TRV . All three stocks sport a Zacks Rank #1 (Strong Buy).

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EVEREST RE LTD (RE): Free Stock Analysis Report

TRAVELERS COS (TRV): Free Stock Analysis Report

CINCINNATI FINL (CINF): Free Stock Analysis Report

HALLMARK FINL (HALL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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