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Everest RE Group Ltd. Earnings Rise on Higher Premium Sales

By Demitri Kalogeropoulos - Feb 5, 2016 at 4:07PM

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But the reinsurance giant said the economic environment remains weak.

Everest RE Group (RE 0.49%) posted mixed fourth-quarter earnings results on Wednesday, Feb. 3. The reinsurance giant finished a record profit year, with operating income jumping to $25 per share, but revenue growth slowed substantially in 2015. At the same time, net income fell for the full year thanks to general weakness in the reinsurance industry.

Here's how Everest's headline Q4 results stacked up against the prior-year period:

 

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Revenue

$1.56 billion

$1.52 billion

3%

Net Income

$357 million

$340 million

5%

EPS

$8.26

$7.47

11%

Source: Everest RE's financial filings.

What happened with Everest this quarter?
In a volatile selling environment, the company booked an encouraging rebound in earned premium revenue and an increase in profitability. Here are a few highlights from the quarter and full year.

  • Earned premiums rose 6% in Q4, which was an acceleration from the third quarter's 2% uptick. That increase brought full-year premium revenue to a steady 5% gain (compared to 10% in 2014)
  • Global reinsurance sales, which make up 80% of the business, were flat as direct insurance premiums grew.
  • Investment income fell to $115 million from $142 million.
  • The combined ratio, a measure of profitability, improved to 76.4% from 80.5% a year ago. Excluding one-time charges, the combined ratio for 2015 worsened slightly, ticking up to 83% from the prior year's 82%.
  • Bottom line profitability decreased from 17% in 2014 to 15% for the 2015 fiscal year.
  • Operating cash flow was $321 million, down from $388 million.
  • Book value per share rose 7% to $178.

What management had to say
CEO Dominic Addesso called the sales environment "challenging," but noted that management was pleased with the overall performance given those relatively weak industry conditions. "Everest continues to generate superior results with an underwriting combined ratio of 83.4% and an operating return on equity of 15% for the year," he said. "This is an impressive result considering the volatility in our financial markets."

As for fiscal 2016, Addesso said that the company is "focused on increasing value for our shareholders as we continue building out the Everest franchise." But the overall industry environment "remains challenging," he explained.

That broad weakness might keep a lid on earned premium revenue gains this year, suggesting that 2014's double-digit growth pace won't be easily repeated soon. In fact, flat or slightly declining revenue is likely in 2016. In that case, Everest is likely to focus on maximizing key financial metrics like operating profit, return on equity, and book value, as it did this quarter.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Everest Re Group, Ltd.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Everest Re Group, Ltd. Stock Quote
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