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Analyst Blog

On May 30, 2014, we issued an updated research report on the Everest Re Group Ltd. (RE - Analyst Report). The company reported first-quarter 2014 operating earnings of $5.93 per share, handily beating the Zacks Consensus Estimate by nearly 14%. This marked two successive quarters of positive surprise by the Bermuda-based property and casualty insurer.

Though Everest Re is a niche player in the reinsurance space, it is building up its insurance market to achieve meaningful and sustainable long-term growth. The company is diversifying its products and forming new lines of businesses in the insurance business. We believe that recent insurance initiatives, including the company’s primary Accident and Health, Canadian insurance, and contingency business are poised for profitable growth in 2014 and beyond.

Everest Re is also making inroads in the international market, a business which commands high margin returns and is expected to fuel long-term growth.

The company’s due diligence to maintain combined ratio historically at low levels compared to the industry also remains commendable. A combined ratio below 100 signifies underwriting profitability and we expect the company to continue with the trend given its disciplined underwriting principles.

Turning to Everest Re’s capital position, the company remains firmly poised with superior risk-adjusted capital and moderate leverage ratios.

Nevertheless, Everest Re’s results are exposed to volatility from cat losses. Historically, cat losses have drained the bottom line and despite cat modeling deployed by the company, weather-related losses will continue to dampen results.  

Also the company is subjected to soft reinsurance pricing given benign cat loss suffered by the industry in 2013. A low pricing environment is consequently expected to restrict top-line growth in 2014 in the reinsurance segment

Other Stocks

While Everest Re carries a Zacks Rank #3 (Hold), better-ranked stocks in the industry include Allied World Assurance Company Holdings, AG (AWH - Snapshot Report), Aspen Insurance Holdings Ltd. (AHL - Snapshot Report), AmTrust Financial Services, Inc. (AFSI - Snapshot Report). All these carry a Zacks Rank # 1(Strong Buy).

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