Everest Re Group’s (RE) third-quarter earnings of $3.43 per share missed the Zacks Consensus Estimate of $3.47. Last year, the company had reported earnings of 20 cents per share. Strong property reinsurance rates coupled with the low catastrophe activity had resulted in favorable earnings.

The net income was $228.6 million, compared to a loss of $233.1 million in the prior year period.

Gross written premiums increased 13% to $1.1 billion for the quarter compared to $999.2 million for the same period in 2008. This growth was driven by a strong U.S. reinsurance property market, particularly for catastrophe exposed regions, the continued expansion of business in various international reinsurance markets and new program development on the insurance book.

Net investment income was $165.4 million, flat compared to the third quarter of 2008. Despite a higher invested asset base, the net investment income remained flat because of lower reinvestment rates.

Reinsurance premiums were up 12% year over year, with the insurance segment premiums up 19% over the same period. Most of the new premium has come from a new unit started during the year in New York to write financial institution, directors’ and officers’ liability, and additional property insurance written in Florida where rates to exposure remain attractive.

The GAAP combined ratio was 88.7%, compared to 115.0% last year. Loss ratio improved to 60.2% from 87.3% last year. The improvement in both the ratios was due to lower catastrophe activity.

The annualized after-tax operating income return on average adjusted shareholders’ equity was 14.9% compared to 0.9% in 2008. Book value per share increased 25% to $100.75 as of Sep 30, 2009, from $80.77 at year-end 2008, benefiting from strong earnings and the financial market recovery to date.

Strong capital position, solid diversification of product lines, geography and distribution and strong financial strength ratings give Everest a distinctive advantage over its peers. Going forward, we expect a hardening within the insurance and reinsurance rates, terms and conditions, though the current economic slowdown will restrict top-line growth of the company to some extent.

Thus we recommend a Neutral rating on the shares for now.

Zacks Investment Research
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