Everest Re: Declining Investment Returns Likely Limit Growth

On Jul 13, we issued an updated research report on Everest Re Group Ltd. (NYSE:RE) .

The reinsurance market remains challenged by average market rates between 5% and 15%, depending on the line of business, product type and territory. Intense competition in the reinsurance segment continues to push rates lower and commissions higher. While foreign exchange and rates continue to add pressure on performance, efforts taken by the company such as maintaining expense ratio, and a focus on growth could help the company.

Also, persistent decline in investment returns has adversely affected the company’s profitability. The investment income has been on a downtrend due to low rates in the fixed-income markets. Given that significant rate hikes are unlikely, investment income is expected to remain at low levels.

In addition, exposure to catastrophe losses has led to the volatility in the company’s earnings. Catastrophe losses have traditionally impacted earnings and are expected to continue doing so in the future.

Moreover, the Zacks Consensus estimate has witnessed downward revision in the last 60 days.

Nevertheless, Everest Re enjoys a solid position in the insurance and reinsurance industries. Further, the insurer has substantially benefited from its global presence, product diversification, capital adequacy, financial flexibility and traditional risk management capabilities.

The company also remains focused on boosting shareholders return via share repurchases and dividend hikes.

Everest Re is set to release its second-quarter 2016 earnings on Jul 25, 2016. The Zacks Consensus Estimate is currently pegged at $3.30, which translates to a year-over-year decline of 34.4%. This is because the company has an Earnings ESP of -15.8% but a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks are MS&AD Insurance Group Holdings, Inc. (OTC:MSADY) , Third Point Reinsurance Ltd. (NYSE:RE) and Argo Group International Holdings, Ltd. (NASDAQ:AGII) . Both MS&AD Insurance and Third Point Reinsurance sport a Zacks Rank #1 (Strong Buy), while Argo Group holds a Zacks Rank #2 (Buy).

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