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Everest Re (RE) Estimates $695M of Catastrophe Loss in Q4

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Everest Re Group, Ltd. recently released catastrophe loss estimates totaling $695 million, net of reinsurance, reinstatement premiums and taxes. The loss primarily stemmed from Hurricane Michael, which affected Florida and other states in the Southeastern region of the United States as well as California wildfires, occurring in November 2018. Also, the hailstorm occurring in Australia in last December contributed to the cat loss estimate. The insurer’s fourth-quarter results will likely be hit by these losses.

It is important to note here that the property and casualty (P&C) insurer’s reinsurance operations are mainly responsible for the aforementioned impact. Everest Re relies on the loss reported from ceding insurers across many underlying insurance policies.

Everest Re’s status as a P&C insurer has made it fairly susceptible to losses from natural disasters, man-made catastrophes and other weather-oriented events. This in turn render volatility to its underwriting results.

In the first nine months of 2018, this P&C insurer suffered catastrophe losses of nearly $837 million, noticeably lower than $1.4 billion incurred in the same period of 2017. However, with the incident of Hurricane Michael, California wildfires and other weather-related occurrences, the insurer’s fourth-quarter results might be adversely impacted.

Everest Re expects industry losses from the aforementioned cat events to be around $30 billion.

On Dec 6, 2018, catastrophe risk modelling firm AIR Worldwide predicted industry insured losses from Camp Fire in Northern California along with Woolsey fire in Southern California to range between $9 billion and $13 billion. With respect to losses emerging from Hurricane Michael, last December, reinsurance giant Munich Re envisioned the same totaling $10 billion.  

Everest Re has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. Our proven model does not conclusively show that Everest Re is likely to beat on earnings when it releases results on Feb 11. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

The Zacks Consensus Estimate for the fourth quarter of 2018 is currently pegged at a loss of $1.20 per share against the year-ago quarter’s delivered earnings of $13.48. We expect this consensus mark to move south as analysts incorporate the cat loss impact.

Shares of Everest Re have lost 5.9% in a year’s time, narrower than the industry’s decline of 8.8%.

 

Other insurers have also come up with their cat loss estimates that might impact fourth quarter underwriting profitability. Recently, Chubb Limited (CB - Free Report) issued net catastrophe loss estimates of about $585 million pretax or $505 million after tax, net of reinsurance including reinstatement premiums, stemming from Hurricane Michael, California wildfires and other worldwide weather-related events.

Earlier Arch Capital Group Ltd. (ACGL - Free Report) initiated pre-tax gross catastrophe loss estimates of $110-$130 million, ensued from Hurricane Michael and the California wildfire. With respect to California wildfires, Mercury General Corporation (MCY - Free Report) previously gave pre-tax gross catastrophe loss estimate of $253 million, originating from Camp Fire and Woolsey Fire.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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