Sandy to Dent 4Q Earnings at RE

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U.S. reinsurer Everest Re Group, Ltd. (RE), expects to incur a loss to the tune of $220 million due to hurricane Sandy. This loss estimate is net of reinstatement premium and taxes. This loss amounts to approximately 1% of the total industry loss currently estimated at $20 to $25 billion.

Before it reached such rough estimates for the cat loss, Everest Re had ceased its share repurchase program to pay for claims. Since the company now has a fair idea of the amount of loss it will incur from Sandy it has resumed the share buyback program.

For the first nine months of 2012, Everest Re had incurred $85.0 million of catastrophe losses, related to U.S. storms ($60.0 million) and Hurricane Isaac ($25.0 million).   However, these were small compared with $920.3 million of loss incurred in the same time period in 2011.

Despite being subjected to cat loss from Sandy, Everest Re is expected to post a favorable fourth quarter earnings given the strength of overall pricing. A strong balance sheet, and better-than-average underwriting performance will also shield the company from any adverse developments.  
Sandy, one of the top-10 most expensive U.S. hurricanes for insurers, has also hit The Travelers Companies Inc. (TRV), which has significant homeowners and commercial property exposures throughout the East Coast. Furthermore, The Allstate Corp. (ALL), the second largest homeowners’ insurance underwriter, has a substantial exposure to Sandy.   
Despite causing huge insured losses, Superstorm Sandy will not be able to change the industry pricing trends. Losses caused by it are not large enough to reduce the huge surplus capital base of the industry. Although the event will increase insurance pricing for the affected lines in impacted areas, a broad-based hardening of rates is nowhere to be seen.

Additional details on the impacts of losses due to Sandy and consequent update on share repurchase will be provided by the company during its fourth quarter earnings release.   Till then, we maintain our long-term ‘Neutral’ recommendation on the shares. The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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