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Everest Re Eyes Long-Term Growth Despite Macro Headwinds

Zacks

We issued an updated research report on Everest Re Group Ltd. RE.

Everest Re closed the sale Heartland Crop Insurance, Inc., last month. The divestiture was made to CGB Diversified Services, Inc. for $49 million. Everest Re’s crop insurance book has been incurring underwriting loss over the past several quarters. Hence, the divesture seems a strategic step by the company to brace its growth profile.

Nonetheless, Everest Re entered into a long-term reinsurance relationship with CGB Diversified Services. Everest Re will gain access to a wider, more diversified, crop insurance portfolio through its association with CGB Diversified Services, owing to the strong market penetration of the latter. We expect this strategic initiative to help Everest Re diversify and thrive in the crop insurance business much more quickly along with growing its economies of scale.

Everest Re’s focus on product diversification, staffing up underwriting operations as well as expanding the relationship between property and casualty (P&C) bode well. Also, increasing the property insurance geographic footprint, international insurance expansion, growth of the existing Canadian platform and building new product distribution and strategic relationships within its specialty insurance operations – both in the U.S. and internationally – positions its Insurance operations well for long-term growth.

Banking on favorable operational performance, the company enjoys disciplined capital management strategy and strong capital balance position. This should enable it to engage in shareholders friendly moves. This makes it an attractive pick for yield seeking investors

Riding on the positives, the Zacks Consensus Estimate has been witnessing upward revision over the last 60 days.

However, Everest Re is a P&C insurer and hence, remains exposed to catastrophe events. This makes its in underwriting results volatile. Nonetheless, the insurer has been able to maintain its combined ratio at better levels than the industry levels.

A competitive reinsurance market, which has been pushing rates lower and commissions higher, remains concern. Also, a low interest rate environment, which has been responsible for the persistent decline in investment returns, has been limiting the company’s profitability.

Stocks to Consider

Some better-ranked property and casualty insurers are National Interstate Corporation NATL, NMI Holdings, Inc NMIH and Cincinnati Financial Corp CINF. While National Interstate and NMI Holdings sport Zacks Rank #1 (Strong Buy), Cincinnati Financial carries Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NMI Holdings, a provider of private mortgage guaranty insurance services in the United States, has witnessed upward revision in the Zacks Consensus Estimate over the last 60 days for 2016.

National Interstate, a specialty property and casualty insurance, has witnessed upward revision in the Zacks Consensus Estimate over the last 60 days for both 2016 and 2017.

Cincinnati Financial, a property casualty insurer, has witnessed upward revision in the Zacks Consensus Estimate over the last 60 days for both 2016 and 2017.

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