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Everest Re (RE) Issues Catastrophe Loss Estimates for Q1


Everest Re Group, Ltd. RE has recently provided catastrophe loss estimate of $100 million for the first quarter of 2018, mainly attributable to the California wildfires and other weather-related events. These losses are net of reinsurance recoverables and reinstatement premiums.

Notably, the property and casualty (P&C) insurer had incurred catastrophe loss of $161.5 million in fourth-quarter 2017, stemming from both the Northern and Southern California wildfires.

Last October and December, several areas in California were ravaged by a series of wildfires, causing in massive damages to homes and businesses. The industry’s loss estimates for the fourth quarter of 2017 ranged between $8 billion and $10 billion, which have now increased to more than $13 billion since the year-end. The above-mentioned loss estimates have mainly emanated from both the Northern and Southern Californian wildfires.

Everest Re as a P&C insurer, has been significantly exposed to catastrophe loss, rendering volatility to the company’s earnings. In 2017, the company incurred pre-tax catastrophe loss amounting to $1.5 billion, primarily due to the unprecedented hurricane activity as well as two successive earthquakes in Mexico and the California wildfires. As a result, the company saw a sharp decline of 61.5% in its operating earnings in 2017.

Moreover, the catastrophe loss also had a substantial impact on the company’s combined ratio, which deteriorated 1650 basis points (bps) year over year in 2017.

Nonetheless, we expect improving premiums, fueled by the company’s growing global presence as well as product diversification along with higher net investment income (forming a major portion of the company’s top line) and capital adequacy to lend it enough cushion for delivering overall desirable results.

Everest Re is set to release first-quarter 2018 results on Apr 25. The Zacks Consensus Estimate for earnings in the period is pegged at $7.10 per share, improving 12.9% year over year. However, this estimate might change once the analysts start incorporating the catastrophe loss impact in the numbers.

Further, Everest Re has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, a company’s 0.00% ESP makes surprise prediction difficult.

Shares of the company have underperformed the industry in a year’s time. The stock has gained 12.7% compared with the industry’s rally of 17.1%.

Among other P&C insurers, Chubb Limited CB has also released its preliminary net loss estimates with a projected total catastrophe loss at $380 million pretax or $305 million after tax, springing from the Californian mudslides.

Stocks to Consider

Two better-ranked stocks from the same space are Alleghany Corporation Y and CNA Financial Corporation CNA, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany Corporation provides property and casualty reinsurance and insurance products in the United States and internationally. The company delivered positive surprises in two of the last four quarters with an average beat of 5.2%.

CNA Financial offers commercial property and casualty insurance products, primarily in the United States. The company pulled off positive surprises in all the last four quarters with an average beat of 46.9%.

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