Everest Re Group Ltd. Earnings Analysis: Q2 2016 By The Numbers

| About: Everest Re (RE)

By CapitalCube

Everest Re Group Ltd. (NYSE:RE) reports financial results for the quarter ended June 30, 2016.

We analyze the earnings alongside the following peers of Everest Re Group Ltd. - RenaissanceRe Holdings Ltd. (NYSE:RNR), Aspen Insurance Holdings Limited (NYSE:AHL), Validus Holdings, Ltd. (NYSE:VR) and Arch Capital Group Ltd. (NASDAQ:ACGL) - that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD1,434.72 million; net earnings of USD155.69 million.
  • Year-on-year change in operating cash flow of 495.20% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from operating margin decreases as well as from unusual items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2015-06-30

2015-09-30

2015-12-31

2016-03-31

2016-06-30

Relevant Numbers (Quarterly)

Revenues (mil)

1448.09

1523.76

1589.91

1302.27

1434.72

Revenue Growth (%YOY)

3.7

0.75

1.07

-10.84

-0.92

Earnings (mil)

206.84

87.66

353.6

169.91

155.69

Earnings Growth (%YOY)

-27.96

-67.78

5.05

-46.83

-24.73

Net Margin (%)

14.28

5.75

22.24

13.05

10.85

EPS

4.68

2

8.26

4

3.67

Return on Equity (%)

9.87

4.19

17.04

8.39

7.87

Return on Assets (%)

3.87

1.62

6.56

3.21

2.96

Click to enlarge

Market Share Versus Profits

Revenues History

Earnings History

RE's change in revenue this period compared to the same period last year of -0.92% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that the company is holding onto its market share. Also, for comparison purposes, revenues changed by 10.17% and earnings by -8.37% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

Insurance companies sometimes trade-off for improvements in premiums earned by relaxing standards in underwriting policies. A quick way to check against such activity is to compare the changes in loan loss provisions as well any changes in the level of policy claims. If either of these checks point to a decline in the underwriting standards, it is quite possible that the company's performance is a result of underwriting policy changes that could have a longer-term impact compared to the shorter-term pop in premiums earned.

Premiums Earned Percent History

Loss Ratio History

The company's year-on-year decline in earnings has been influenced by the following factors: (1) Decline in premiums earned as a percent of total revenues from 92.01% to 89.83% and (2) issues with underwriting policies. As a result, loss ratio went from 81.48% to 89.48% in this period. For comparison, premiums earned as a percent of revenues were 93.60% and the loss ratio was 80.05% in the immediate last period.

Premiums Earned Percent Versus Loss Ratio

Cash Versus Earnings - Sustainable Performance?

Operating Cash Flow Growth Versus Earnings Growth

RE's change in operating cash flow of 495.20% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

The company's fall in earnings have been influenced by the following factors: (1) Contraction in operating margins after interest from 20.02% to 12.12% and (2) one-time items that contributed to a weakening of pretax margins from 18.74% to 12.99%.

EBIT Margin Versus PreTax Margin

EBIT Margin History

PreTax Margin History

Company Profile

Everest Re Group Ltd. operates as a holding company, which engages in underwriting of reinsurance and insurance services in the United States, Bermuda and international markets through its subsidiaries. The company operates through following segments: U.S. Reinsurance, International, Bermuda, Insurance and Mt. Logan Re. The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S. The International operation writes foreign property and casualty reinsurance through Everest Re's branches in Canada and Singapore and through offices in Brazil, Miami and New Jersey. The Bermuda operation provides reinsurance and insurance to worldwide property and casualty markets through brokers and directly with ceding companies from its Bermuda office and reinsurance to the United Kingdom and European markets through its U.K. branch and Ireland Re. The Insurance operation writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S. and Canada. The Mt. Logan Re segment represents business written for the segregated accounts of Mt. Logan Re, which were formed on July 1, 2013. The Mt. Logan Re business represents a diversified set of catastrophe exposures, diversified by risk or peril and across different geographical regions globally. Everest Re Group was founded in 1999 and is headquartered in Hamilton, Bermuda.