RE - Everest Re

[tombgrt]

A quick view at RE tells me that the stock is at 85,xx$ while book value is at 114$, 25% discount to book (5y median around 1,15-1,20). Management is aggressively involved in share buybacks under book value (hence the 6,4% BV growth last quarter).

A good combined ratio of around 92% on average since 2006 (2005 at 120%). I dont really have a view on the investing part.

 

 

Anyone here with more insight in this insurer?

 

 

note : I am not very familiar with insurance investments, so forgive me any stupid mistakes. I am interested in the opinion of others so please share your thoughts. :)

[beerbaron]

Here is a spreadsheet given by a board member about 4 months ago. Not up to date but a good place to start.

 

BeerBaron

[Fairfaxnut]

Picked some Everest RE up for our partnership.  Great insurance company for underwriting.  Combine ratio has been amazing and expansion into China and Brazil.  Their float is mainly short term bonds, and they keep their underwriting profits in the currency in which they receive it so it's a true global play.  No Fairfax for float investment, but their great underwriting grows things pretty well.  This company should be trading above 100 but recent problems with CEO retirement and COO leaving the company has left the shares dangling for the picking.

[Viking]

I recommend you read Q3 conference call notes to get a good summary of Everest and answers to current questions: http://seekingalpha.com/article/233873-everest-re-group-ceo-discusses-q3-2010-results-earnings-call-transcript

 

Their business mix is 80% re-insurance and 20% insurance. The re-insurance CR has been hit harder than other re-insurers due to catastrophe claims; the insurance CR is over 100 and looks to be a bit of a mess that will likely continue to weigh on results (US casualty).

 

On the investment side, they have been shifting more towards equities.

 

On the people front, the CEO was going to retire and the COO was going to become the CEO; the board asked the CEO to stay on for two more years (the answer was yes) and then the COO was asked to leave. No reason given for this strange turn of events.

 

They do have a very good track record of growing book value per share. They have $500 million to $1 billion in excess capital. They are purchasing huge amounts of stock back (7.5% of total in first 9 months) with lots more happening in Q4.

 

When I weave it all together I see very attractive valuation but also have questions regarding the US insurance business and what is going on a senior levels of management. Should shares fall below $80 I would likely start to get interested.

 

[Viking]

Here are some stats for Everest Re that perhaps only I find interesting... Shows me how far out of favour the re-insurance sector is. Also leads me to believe that there is a much higher margin of safety built into stock price today that 9 years ago. Or we are still in the early stages of a soft market that everyone is expecting to get bloody and that will lead to underwriting losses and a reduction in book values...???

 

                2001                2010

Share Price $78.80 (high)  $85.00

BV            $37.19/sh        $115/sh

Earnings  $2.10/sh          $7.80 (est)

Dividends  $0.28/sh          $1.92/sh

Invest Assets $4.4 bill      $15 bill

Debt          $1 bill              $1 bill

Com Equ    $1.1 bill          $6.1 bill

Tot Rev      $1.8 bill          $4.5 bill 

[tombgrt]

Amazing spreadsheet beerbaron, véry useful! Thanks and thanks to the boardmember who made it!

Thanks for the other comments as well btw. ;)

 

Im going to look into the Q3 conference call notes and the annual reports more detailed soon. Sub 80 is around 70% of book and would be just plain cheap for a company with this track record (as far as I have looked into it at least), even if we stay in a crappy soft market for a few more years.

[Fairfaxnut]

I think this is one of the best times to be picking up insurance companies.  When the market goes hard (not if.... but when), there will be good money made on a lot of these companies.  Everest has a 14% average annual growth in their float (mostly made with premiums).  Trading at 80 cents on the dollar, I think this is a bargain regardless of the short term problems.  I'm currently holding Fairfax and Everest RE as kind of a hybrid insurance company.  One underwrites well and the other is a premier float investor.  A very good proposition for a long term value investor.

[tombgrt]

I agree with you about this being the time to pick up insurance companies. At the moment I only have FFH (love the hedging lately..) and I am looking at RE, AHL and HALL as well. But I am sure I am missing a lot of other opportunities too.

 

Presuming RE growns BV at only 10% (and not the historical almost 15%) a year and share price finally gets to around book value somewhere in the period of 5 years, that still gives you a very fair annual return of around 16,7% at the current price (shareprice of around 183,5 after 5 years if 10% BV growth and 1x P/B). This in case the market doesn't get much worser, but even then I don't really see how you could lose money here.

 

IF a hard market would come in this time period and BV growth keeps up, we could have a P/B of around 1,20 easily, but let's not take this into consideration.

 

Also the fact that the CEO stays for another 2 years (which definitly had his impact on the stockprice) and that they are growing in new markets are good signs to me.

 

Am I too optimistic? What am I missing that mr market sees?

[onyx1]

Here is a spreadsheet given by a board member about 4 months ago. Not up to date but a good place to start.

 

BeerBaron

 

Attached is the updated and expanded version of the Insurance spreadsheet I use to make first cut comparisons.  Keep in mind that BV numbers are not on a fiully diluted basis and that all data is generated from a database so there are going to be some errors.  Hope you find it helpful.

 

Best

 

Onyx1

[Myth465]

Thanks Onyx1, very useful.

 

It doesnt look like the LRE stuff loads.

[onyx1]

It doesnt look like the LRE stuff loads.

 

Yeah unfortunately there is less than 5 years of data for LRE

[twacowfca]

It doesnt look like the LRE stuff loads.

 

Yeah unfortunately there is less than 5 years of data for LRE

 

However, if i'm not mistaken, the data that does appear shows that LRE has the best CR average of the 60 or so insurers on the spreadsheet for the last four years.   This is even more impressive, considering that there were no reserve releases available to goose their CR in 06, their first year of operation, and they weren't able to deploy all of their capital for some months after their start up.  Plus, they had a lag at their start up between written and earned premiums flowing to the income statement.  :)

[tombgrt]

What am I missing here?

 

It's no LRE or FFH, just an average good hybrid insurer with stable BV growth, good combined ratio's, etc. But if BV is 120$ this quarter then the stock price is at 0,685 x BV.