Everest Re Group Ltd. (



Q3 2011 Earnings Conference Call

October 27, 2011 10:30 AM ET


Beth Farrell – VP, IR

Joe Taranto – Chairman and CEO

Dom Addesso – President and CFO



Jay H. Gelb – Barclays Capital, Inc.

Matthew G. Heimermann – JPMorgan Securities LLC

Gregory Locraft – Morgan Stanley Smith Barney

Brian R. Meredith – UBS Securities LLC

Joshua Shanker – Deutsche Bank

Vinay Misquith – Evercore Partners

Ian Gutterman – Adage Capital



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Welcome to the Everest Re Group Ltd Third Quarter 2011 Earnings Release Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Beth Farrell, Vice President Investor Relations. Please go ahead.

Beth Farrell

Thank you, Patrica. Good morning and welcome to Everest Re Group’s third 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 prefix our comments by noting that our SEC filings include extensive disclosures with respect to forward-looking statements. In that regard, I note that 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.

Joe Taranto

Thanks, Beth. Good morning. I’m pleased to report $147 million of operating income or $2.70 per share for the quarter. This is a solid result when you consider the catastrophes in the quarter and the stock market decline during this period.

The story this year has been one of heavy catastrophes. Property casualty reinsurers know when they budget for expected catastrophe losses at the actual outcome will in all likelihood be anything but what has been budgeted. Mother Nature doesn’t work that way, typically losses will be much lower or much higher. This year, it was the much higher variety. What’s important is that Everest has the underwriting the diversification to the underlying earnings and the capital to manage through this volatility.

Indeed, despite this year’s earthquakes, Hurricanes floods and tornados, we still expect to generate an operating profit for the year given a reasonable fourth quarter. Lost projection is what we sell. Without losses, we don’t have a product. Heightened losses reinforce to our customers while they buy and reinforce to us and to our competitors the importance of charging rates that will lead to meaningful profits overtime.

We expect property catastrophe rates to continue to go up into 2012. We expect retro prices at 1:1 to go up about 15%. We expect catastrophe rates on programs without losses in 2011 to average 5% rate increase. Of course, 1:1 programs with losses will have significant increases. The will include Australian and New Zealand accounts as well as some U.S. regional accounts.

As we move forward to the 1:1 renewals in 2012, we will continue to execute the following strategies. First, we will continue to reposition our reinsurance portfolio towards the better opportunities. I expect that this will mean we will continue to ride more property business as a percentage of the overall writings and less casualty business. This is based on the expectations that property catastrophe reinsurance rates will continue to improve.

As we did for the June and July renewals, our mindset will be more rate, better terms, better upside with no increase in our higher P&L zones. I expect our portfolio will continue move toward more accessible loss less pro rata. This is based on the expectation that property excess of loss rates will continue to improve, while underlying insurance generally will not meaningfully improve. Of course, there will be exceptions for this role. For example, Florida homeowner rates are increasing, improving pro rata results.

Second, we will continue to extend our global footprint and distribution capabilities. Whereas we already operate around the globe with a great reputation in ratings there are always seeds to be planted for the future in different countries and in different products. Our operation in Brazil is a good example of a recent success. Our entry into the China market makes for future opportunities.

Third, we will continue to reposition our insurance operation towards the better opportunities. I expect we will continue to grow our short-tail book including Heartland our crop insurance company. We will continue to push for higher rates on our property facilities in Florida and California.

In the third quarter, we average 3% rate increase on this property business. We will continue to remain in the workers comp market where we are more recently averaging 15% rate increases in California.

We will continue to maintain our profitable D&O business written out of New York. We will continue to push for rate increases on our general liability book of business where we average 9% rate increase in the third quarter. We will continue to reduce the amount of standalone access umbrella business that we are right at this space continues to be very competitive.

At our last report, we expected our crop book to be profitable this year as it has been most prior years. However, severe weather will now likely make for an unprofitable year when you include our transition and startup costs. This is one of the factors that drove the poor results for the quarter in the insurance segment. Again most years, we expect this book to be profitable. Given the significant restructuring and rate activity, I expect our insurance book will be much improved in 2012.

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