Everest Re Group Ltd. ( RE - Analyst Report ) reported second quarter 2012 operating earnings of $4.25 per share, substantially higher than the Zacks Consensus Estimate of $3.83. Results surged 73% from $2.46 earned in the prior-year quarter. Operating income improved 66% year over year to $223 million.

The quarter’s earnings primarily benefited from lower claims expenses along with a modest revenue increase.

Including after tax net realized capital loss of 16 cents, the company reported net income of $4.08 per share, comparing favorably with $2.41 per share in the year-ago quarter. Net earnings of $214 million were 63% higher in comparison to the year-ago quarter.

Operational Update

Total revenue for the quarter came in at $1.18 billion, up 0.4% year over year, primarily driven by higher other income. Top line missed the Zacks Consensus Estimate of $1.19 billion.

Gross written premiums declined 8% year over year to $909 million, attributable largely to the non-renewal of a large Florida quota share reinsurance contract in the quarter.

Net investment income dropped 6% over the prior-year quarter to $149.3 million, primarily due to declining reinvestment rates.

Total claims and expenses were down 9% year over year to $942.6 million, primarily led by lower incurred losses and loss adjustment expenses.

The loss ratio in the quarter narrowed down to 56.1% from 59.7% in the prior-year quarter, while combined ratio improved to 86.8% from 87.2% in the year-ago quarter.

Segment Results

The company’s Insurance segment reported net premium written of $203 million, down 4.8% year over year. The segment reported underwriting gain of $7.4 million, which improved 60% over the prior-year quarter. Combined ratio improved 130 basis points to 96.5%.

The Reinsurance segment reported premium written of $653.6 million, down 11.9% year over year. Underwriting gain was $107 million, exhibiting an immense a huge improvement from the gain of $16 million in the year-ago quarter. Combined ratio improved 1100 basis points to 87%.

Financial update

Everest Re exited the second quarter with total investments and cash of $16 billion, improving from $15.8 billion as of December 31, 2011.

Long term debt at quarter end stood at $818 million, almost flat with 2011-end level.

Cash from operations totaled $138 million in the quarter under review, down 7.9% over the year-ago quarter due to higher catastrophe loss payouts and taxes.

Book value per share as of June 30 was $123.75, up 9.5% from the end of fiscal 2011.

Share Repurchase Update

During the quarter, Everest Re spent $100 million to buyback 0.99 million shares. The company is still left with 4.9 million shares under its current share buyback authorization program.

Peer Take

ACE Ltd. ( ACE - Analyst Report ) , which competes with Everest Re, reported second quarter operating income of $2.17 per share, breezing past the Zacks Consensus Estimate by 24 cents. Earnings improved 10% from $1.97 earned in the year-ago quarter. The quarter largely benefited from solid current accident year underwriting results as well as lower catastrophe losses.

Another peer, XL Group Plc. ( XL - Analyst Report ) is scheduled to release its second quarter results on August 7 after the bell.

Our Take

Everest Re is aggressively expanding its overseas business, thereby contributing significantly to the overall top line in recent years. Moreover, given its conservative financial leverage measures, the company maintains strong financial flexibility coupled with the ability to effectively manage its capital mid-market cycles. However, lower reinvestment rates and reserving performances are near-term headwinds to its earnings.

The quantitative Zacks #2 Rank (short-term Buy rating) for Everest Re indicates slight boost on the stock over the near term.