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Third Point Reinsurance Down to Strong Sell on Weak Fundamentals

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On Jul 10, 2014, Zacks Investment Research downgraded Third Point Reinsurance Ltd. (TPRE - Free Report) by a notch to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Third Point Reinsurance has been experiencing downward estimate revisions on the back of sluggish first-quarter 2013 results and a slack outlook for the upcoming quarters. Additionally, this property-casualty insurer underperformed the year-to-date S&P 500 index, which posted growth of 7.2% against a negative return of 12.4% from the company.

On May 8, Third Point Reinsurance reported first-quarter 2014 operating earnings per share of 37 cents, which significantly lagged both the Zacks Consensus Estimate and the prior-year figure by 11.9% and 60%, respectively.

Investment income tanked 38.6% year over year while gross premiums also deteriorated. Higher loss and loss adjusted expenses further dragged underwriting results, thereby weighing on its bottom line and return on equity (ROE). 

With just over two years of operational experience, Third Point Reinsurance is still at a nascent stage presently and is yet to create a niche for itself in the highly competitive U.S. property-casualty market. The downsides are also evident from the absence of any major growth catalyst going forward.

Overall, weak fundamental growth prospects amid significant underwriting and investment risks have failed to enlist any positive investor sentiment so far.

Meanwhile, the Zacks Consensus Estimate for 2014 and 2015 declined 7.2% and 1.2% to $1.80 and $2.57 per share, respectively, in the last 60 days. There were no upward estimate revisions for both the years over the same time frame. On a year-over-year basis, earnings are expected to sink 40.9% in 2014.

Moreover, the Most Accurate estimate for Third Point Reinsurance’s 2014 and 2015 earnings currently stand at $1.70 and $2.45 a share, resulting in an Earnings ESP of -5.6% and -4.7%, respectively. This indicates likely earnings misses for this year and the next.

Other Worthy Insurers

While we prefer to avoid Third Point Reinsurance for the time being, some better-ranked insurers such as Greenlight Capital Re Ltd. (GLRE - Free Report) , Hallmark Financial Services Inc. (HALL - Free Report) and Endurance Specialty Holdings Ltd. are worth considering. All these stocks sport a Zacks Rank #1 (Strong Buy).

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