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Everest Re Group (RE) Provides Estimates for Q3 Cat Loss

Zacks Equity Research

Everest Re Group Ltd. RE estimates preliminary pre-tax catastrophe loss of $280 million or $225 million after tax primarily due to Hurricane Dorian and Typhoon Faxai. The estimated losses are net of reinsurance recoveries and reinstatement premiums.

The catastrophe losses stemmed from Hurricane Dorian, which affected the Bahamas and several states in Southeastern U.S., and Typhoon Faxai, which hit Japan in the third quarter of 2019. Pre-tax estimated cat loss from Hurricane Dorian is $160 million while that from Typhoon Faxai is $120 million.

The Zacks Consensus Estimate for Everest Re’s third-quarter earnings is currently pegged at $3.02, indicating a decline of 26.2% from the year-ago quarter reported figure. We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

Risk modeling and analytics firm RMS expects insured losses to be $8.5 billion from Hurricane Dorian while catastrophe risk modeling firm AIR Worldwide expects industry loss in the range of $1.5 billion to $3 billion in the Caribbean, per media release. Catastrophe modeler Karen Clark & Co. estimates insured losses of $3.62 billion in the Bahamas, $23 million in the Caribbean coming from Puerto Rico and $84 million from the U.S. Virgin Islands stemming from Hurricane Dorian. RMS estimates insured losses from Typhoon Faxai to be between $5 billion and $9 billion.

Being a property and casualty insurer, Everest Re’s exposure to cat losses induces earnings volatility.

However, its cat loss in the first half of 2019 was $55 million, lower than loss of $597 million incurred in the year-ago quarter, given a not-so-active cat environment. Everest Re’s active catastrophe management process that deploys modeling and establishes risk limits to control catastrophic exposure on both a probable maximum loss and aggregate basis should provide some respite.

Shares of this Zacks Rank #3 (Hold) property and casualty insurer rallied 7.6% in the third quarter against the industry’s decrease of 0.9%. Continued solid performance at Reinsurance and Insurance segments, traditional risk management capabilities coupled with well-balanced portfolio mix and capital adequacy should help the stock retain the momentum.

Recently another insurer, AXIS Capital Holdings AXS also provided third-quarter pre-tax catastrophe loss estimate. It projects losses in the range of $150 million and $175 million, from Hurricane Dorian, Japanese typhoons and other weather-related events. Arch Capital Group ACGL has also provided third-quarter pre-tax gross catastrophe loss estimate. It projects losses in the range of $65-$75 million from Hurricane Dorian and Typhoon Faxai.

Stock to Consider

Cincinnati Financial Corporation CINF is a better-ranked property and casualty insurer. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cincinnati Financial Corporation provides property casualty insurance products in the United States and offers coverage for commercial casualty, commercial property, commercial auto, and workers' compensation.  The company delivered 32.81% positive earnings surprise in the last reported quarter.

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