Zacks_Analysts' Blog : Cat Losses Mar Everest Re Earnings - Analyst Blog

Everest Re Group Ltd. (RE) reported fourth quarter 2011 operating loss of 94 cents per share, substantially wider than the Zacks Consensus Estimate of a loss of 27 cents. Results were in stark contrast to earnings of $4.70 per share reported in the year-ago quarter. Everest Re’s quarter and full year earnings were both badly affected by record catastrophe losses.

For full year 2011, Everest Re reported operating loss of $1.73 per share, also wider than the Zacks Consensus Estimate of a loss of $1.06. Results contrasted sharply with operating earnings of $9.08 per share last year.

Total pre-tax catastrophe losses (cat loss), net of reinstatement premiums, were $370.7 million in the reported quarter against $52.6 million in the fourth quarter of 2010.

The company’s total revenue for the quarter came in at $1.29 billion, up 2.2% year over year primarily due to higher net realized capital gains, partly offset by lower premiums earned and lower investment income.

Gross written premiums were $1.10 billion, up 10% from the prior-year quarter, led by an increase of 12% in reinsurance premiums and 5% increase in direst insurance premium.

Net investment income in the quarter decreased 32% year over year to $126.3 million.

Total claims and expenses rose 30% year over year to $1.3 billion led by high catastrophe losses. The loss ratio in the quarter increased to 101.4% compared with 70.6% in the prior-year quarter.

Shareholder equity was $6.1 billion at year end, with book value per share of $112.99, down 2% when compared with year-end 2010.

Share Repurchase and Dividend

During the quarter, Everest Re repurchased 105,000 common shares at a total cost of $8.3 million. During the full year 2011, the company repurchased 1.1 million shares for a total cost of $92.5 million. The company is still left with 2.3 million shares under its current share buyback authorization.

Our Take

The results clearly reflect that Everest Re has suffered record catastrophe losses round the year. However, we have an optimistic view of the management’s recent commentary that indicates favorable reinsurance market pricing. Any such development augurs well for the company, which is a big player in the reinsurance market.

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

Everest Re currently retains a Zacks # 5 Rank, which translates into a short-term Strong-Sell rating. However, considering the gradually improving insurance market we maintain our Neutral recommendation on the shares.

Peer Performance

Its peer ACE Ltd. (ACE) reported lower year over year earnings led by high cat losses. Another peer XL Group Plc (XL) is expected to report earnings shortly and we expect it to encounter a similar fate