Everest Re Group Ltd. (RE - Free Report) remains well-poised for growth, banking on its prudent risk management capabilities, compelling product portfolio, solid market share and capital adequacy. The Zacks Rank #3 (Hold) company writes property and casualty reinsurance and insurance in the United States, Bermuda and international markets.
Everest Re’s return on equity — a profitability measure — is 11.8%, better than the industry average of 6.6%. This reflects the company’s efficiency in utilizing its shareholders’ funds.
The company surpassed earnings expectations in three of the last nine quarters, reflecting operational excellence.
Everest Re’s traditional risk management capabilities have helped it improve its underwriting profitability. The company has deployed capital in long-tailed and short-tailed lines that exclude cat exposure. Product diversification, international expansion, ramping up of existing platforms should continue to aid the Insurance segment. The Reinsurance segment is poised to benefit from expanded distribution capabilities along with industry-leading expense advantage and advanced capital and hedging abilities.
A strengthening economy has been supporting the Federal Reserve in consistently raising interest rates. Insurers are one of the beneficiaries of a rising rate environment and Everest Re’s investment results reflect the same. Given Fed’s projection of two rate hikes in 2019, we expect the growth momentum in investment income to continue. Also, gradually lowering exposure to high-yield debt and public equity and focusing more on limited partnership investment are bearing fruit.
However, exposure to catastrophe loss continues to weigh on underwriting profitability. Despite using catastrophe mitigation techniques, exposure to weather-related calamities makes its earnings volatile. The Zacks Consensus Estimate for earnings has moved 5.4% south for 2018 in the past 60 days.
Shares of Everest Re have lost 2.9% year to date compared with the industry’s decrease of 3.1% and the Zacks S&P 500 composite’s decline of 6.8%.
The company has a strong capital management policy in place. Its dividend has been increased 2.7x since the third quarter of 2013. Everest Re’s dividend currently yields 2.6%, better than the industry average of 0.5%. The insurer also buys back shares, thus boosting the bottom line.
The Zacks Consensus Estimate for earnings reflects a year-over-year increase of nearly 47% on nearly 10.4% higher revenues in 2019. The expected long-term earnings growth rate is pegged at 10%.
Stocks to Consider
Some better-ranked property and casualty insurers are Mercury General Corporation (MCY - Free Report) , National General Holdings Corp. (NGHC - Free Report) and State Auto Financial Corporation (STFC - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Mercury General engages in writing personal automobile insurance in the United States. The company delivered positive surprise of 85.00% in the last reported quarter.
National General provides various insurance products and services in the United States. The company delivered positive surprise of 75.68% in the last reported quarter.
State Auto Financial engages in writing personal, business and specialty insurance products. The company pulled off a positive surprise of 62.96% in the last reported quarter.
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