Everest Re Group Ltd. (
Q2 2011 Earnings Call
July 28, 2011 10:30 am ET
Elizabeth B. Farrell – Vice President, Investor Relations, Everest Global Services, Inc.
Joseph V. Taranto – Chairman and Chief Executive Officer
Dominic J. Addesso – President and Chief Financial Officer
Jay Gelb – Barclays Capital
Matthew Heimermann – JPMorgan
Cliff Gallant – Keefe, Bruyette & Woods.
Gregory Locraft – Morgan Stanley
Brian Meredith – UBS
Ron Bobman – Capital Returns
Jerry Fine – Charter Oak Partners
Previous Statements by RE
» Everest Re Group CEO Discusses Q3 2010 Results – Earnings Call Transcript
» Everest Re Group Ltd. Q2 2010 Earnings Call Transcript
» Everest Re Group, Ltd. Q1 2010 Earnings Call Transcript
Good day everyone, welcome to the Everest Re Group Limited Second Quarter 2011 Earnings Call. Today’s conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Beth Farrell. Please go ahead ma’am.
Elizabeth B. Farrell
Thank you, Jessica. Good morning and welcome to Everest Re Group’s second quarter 2011 earnings conference call. With me today are Joe Taranto, the company’s Chairman and Chief Executive Officer, and Dom Addesso, our President and Chief Financial Officer.
Before we begin, I will preface our comments by noting that our SEC filings include extensive disclosures with respect to forward-looking statements. In that regard I know such statements made during today’s call which are forward-looking in nature, such as statements about projections, estimates, expectations and the like are subject to various risks. As you know actual results could differ materially from current projections or expectations. Our SEC filings have a full listing of the risks that investors should consider in connection with such statements.
Now, let me turn the call over to Joe.
Joseph V. Taranto
Good morning, thank you Beth. For the first six months of this year the industry and for that matter of the world as experience catastrophes on a scale never seen before. Neither history nor any models could have forecasted the devastation experience. Despite these events Everest has maintained its extremely strong capital position. Shareholders equity at the end of June is $6.2 billion or 2% down from the $6.3 billion at December 31
, 2010. Despite second quarter catastrophes, Everest earned $134 million in operating earnings for an annualized ROE of 9.5%.
And in the quarter, we increased capital by $238 million or 4%. Given these events, property catastrophe prices have gone up and we are achieving higher risk adjusted returns. While some parts of the property and casualty market are seeing upward rate corrections other parts are not. Our approach is to continue to be disciplined and only right business at proper prices. This has led and will continue to lead to shifts in our business composite. I am pleased with the underwriting portfolio that we have constructed through the most recent renewal cycles. And I believe we are positioned to do well despite a challenging marketplace.
Let me take you through some of these underwriting particulars. First let’s begin with our insurances operation. Insurance business is roughly 25% of our overall business. A couple of years back, it was mostly casualty business much return through MGAs. Today it has a significant short tail specialty component led by Heartland our Crop Insurance Company and a growing majority of our business is written directly. About one third of our business is property or crop business, which is running quite well for the first six months even though parts of the country have experienced severe weather. We expect our premium from crop business to continue to grow into 2012 and 2013.
Roughly another third of our business is workers comp, mostly California workers comp. Through June, we have achieved an overall rate increase of 15% and this is on top of a 9% rate increase we had achieved in 2010. This is the only pocket of casualty business where meaningful increases are being achieved. We have been in the market for many years and have an experienced team that is focused on achieving an underwriting profit.
Another 15-ish percent of our book is our special casualty business written out of New York and Canada, this is primarily D&O for financial institutions. We stated this unit in 2008 when there was a tremendous market need. Our team has generated great results in the last 2.5 years. Unfortunately this market has recently become more competitive. Many having short memories of the 2008 financial chaos, still we will be disciplined and I expect we will continue to perform quite well.
The remaining 20% of our book is general casualty, rates continue to flat at best. We have greatly reduced this book in response to market conditions and will continue to do so if the market does not improve. In total, our insurance operation booked an underwriting profit for the quarter, albeit a small one, at 99 combined. Nonetheless, I believe we are positioned to continue do well despite the challenging market as we remain disciplined, growing in areas where we can profit and reducing in areas where we cannot.
Turning to our reinsurance operations; for our U.S. book, we continue to reduce our casualty business as we stayed focus on an underwriting profit. We are largely down to a core group of clients, so we believe we’ll be disciplined themselves. On the property side, we were very pleased with the June Florida renewals. Catastrophe excess loss coverage experienced rate increase between 10% and 15%. We also achieved improvements on our pro rata deals and underlying insurance rates are finally being allowed to increase by the Department of Insurance. Our plan was more rates, more premiums, bigger upside and yet not growing our PML or downside. I’m pleased that we have fully achieved our plan.