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Cats a significant driver in Everest Re Group’s posting US$639.4 million net loss in 2017 Q3


October 31, 2017   by Canadian Underwriter


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Losses from hurricanes Harvey, Irma, Maria (HIM) and the Mexico City earthquake contributed to Everest Re Group, Ltd. posting a US$639.4 million net loss for 2017 Q3 compared to net income of US$295.4 million for the prior-year quarter.

For the quarter ended Sept. 30, 2017, catastrophe losses – net of reinstatement premiums – amounted to US$1.2 billion for HIM and the Mexico City earthquake, while the net after-tax impact on earnings from the events was US$897.7 million, Everest Re Group notes in a statement issued Monday.

Year-to-date (YTD) results were also influenced by the Cat experience. For the first nine months of 2017, net loss was US$102.1 million compared to net income of US$622.8 million for the same period of 2016, reports the Bermuda holding company that includes Everest Reinsurance Company, which provides reinsurance to p&c insurers in both the U.S. and international markets.

Related: Hurricanes expected to deliver 1.4 billion euro hit to Munich Re in third quarter, total tally estimated at 2.7 billion euros

“The company believes that the level of net realized capital gains (losses) for any particular period is not indicative of the performance of the underlying business in that particular period,” the statement points out.

“Providing only a GAAP presentation of net income (loss) makes it more difficult for users of the financial information to evaluate the company’s success or failure in its basic business, and may lead to incorrect or misleading assumptions and conclusions,” it contends.

“This series of natural catastrophes highlights the nature of our business model. We have consistently generated strong margins which gives us the financial ability to respond to these events, without impairment,” comments Dominic Addesso, president and CEO of Everest Re Group.

The influence of the recent Cat events was reflected in the company’s combined ratio for 2017 Q3, which increased to 163.6% from 85.6% for the same period of 2016.

“Excluding catastrophe losses, reinstatement premiums and nominal prior-period loss development, the current quarter attritional combined ratio was 85.5% compared to 84.4% in the same period last year,” the company explains.

With regard to Everest Re’s after-tax operating loss, excluding realized capital gains and losses, in 2017 Q3, this amounted to US$667.6 million compared to after-tax operating income of US$273.2 million for the same quarter a year earlier.

YTD, the after-tax operating loss, excluding realized capital gains and losses, was US$180.6 million compared to after-tax operating income of US$630.1 million for the first three quarters of 2016.

On the premium front, the company reports that gross written premiums (GWP) for 2017 Q3 amounted to US$2.0 billion, up 15% compared to 2016 Q3.

For premiums earned, these were US$1.6 billion in the third quarter of 2017 compared to US$1.4 billion in the same quarter of 2016. YTD, premiums earned amounted to US$4.3 billion in 2017 compared to US$3.9 billion in 2016.

With regard to reinsurance premiums worldwide, these were up even more – 25% — “attributable to the new crop reinsurance program, growing premium from financial lines business and increased shares on existing business,” Everest Re reports.

That said, “adjusting for the high level of reinstatement premiums and the modest impact of foreign currency movements in the quarter (2017 Q3), premiums in this division were up 13%,” it adds.

Related: Combined ratio down 4.6 points for Everest Re

“Insurance premiums were down 10%, quarter over quarter, but excluding the HCI crop business sold in 2016, premium was up 30%, with continued growth on new initiatives,” the statement explains.

Other financial results for Everest Re Group include the following:

  • net investment income increased to US$137.0 million for 2017 Q3 compared to US$122.7 million in 2016 Q3, while net investment income for the first nine months of the year amounted to US$393.8 million in 2017 compared to US$357.9 million in 2016;
  • net after-tax realized capital gains amounted to US$28.2 million in the third quarter of 2017 compared to US$22.2 million in the same quarter of 2016, while this amounted to US$78.6 million for the first nine months of 2017 compared to a loss of US$7.3 million for the same period in 2016;
  • total claims and expenses were US$2.6 billion in 2017 Q3 compared to US$1.2 billion in 2016 Q3, while total claims and expenses for the first three quarters of 2017 were US$5.0 billion compared to US$3.5 billion; and
  • shareholders’ equity ended 2017 Q3 at US$8.0 billion, down slightly from year-end 2016.

“Looking forward, market conditions are expected to be more favourable, allowing the industry to continue on a sound footing. We should benefit to a greater degree given the strong underwriting fundamentals of our portfolio,” Addesso suggests.