Everest Re Group Ltd. (RE) reported first quarter 2011 operating loss of $5.95 per share, wider than the loss of $5.81, the Zacks Consensus Estimate. Results also compare unfavorably with the loss of $1.25 incurred in the year ago quarter. Operating loss in the quarter was $323.6 million compared with the loss of $73.8 million in the year-ago quarter.

The quarter suffered hugely due to the Australian flooding in January, the New Zealand Earthquake in February and the Tohoku Earthquake in March.

Catastrophe losses, net of reinstatement premiums and taxes, in the quarter totaled $530.9 million or $9.77 per share, almost a two fold increase from $275.6 million or $4.66 per share, in the first quarter of 2010.

Including net realized capital gains of $7.7 million or 14 cents per share, Everest Re reported a net loss of $315.9 million or $5.81 per share, wider than the net loss of $22.7 million or 38 cents per share in the first quarter 2010. The prior year quarter included net realized capital gains of $51.1 million or 86 cents per share.

Operational Update

The Bermuda-based reinsurer reported total revenues of $1.21 billion, higher than the Zacks Consensus Estimate of $1.10 billion. Revenues were also up 3% on a yearly basis led by an increase in premiums earned and higher investment income.

Gross written premiums were $1.1 billion, up 4% from the prior-year quarter. However, excluding the effects of foreign exchange, premiums were up 3%. Reinsurance premiums increased 2% to $810 million. Insurance premiums increased 11% largely due to new business premium generated with the acquisition of Heartland.

The loss ratio in the quarter was 123.6%, higher than 97.8% in the prior year quarter. Excluding 65.8 points of catastrophe losses and modest favorable development, loss ratio was 57.9% lower than 59.5% in the year ago quarter.

Net investment income in the quarter increased 11% year over year to $178.7 million.

Total claims and expenses increased 31% year over year to $1.5 billion, due to incurred losses and loss adjustment expenses, higher commission, brokerage, taxes and fees and higher other underwriting expenses.

Financial Update

Everest Re ended the quarter with cash balance of $284 million, up 10% from 2010 end level.

Book value per share decreased to $109.07 as of March 31, 2011, from $115.45 as of December 31, 2010.

Cash flow from operations was $188.1 million down 31% year over year.

Share Repurchase and Dividend

Everest Re spent $37.6 million in the first quarter to buy back 0.4 million shares at an average price of $87.87. The company is still left with 3.0 million shares under its authorization.

The company declared a dividend of 48 cents in the quarter.

Our Take

We expect the top line growth will remain somewhat restricted due to the expected decline in the casualty line as a result of tough market conditions. Additionally, the potential for future reserve additions remains a challenge.

We maintain our Underperform recommendation on Everest Re. The quantitative Zacks #5 Rank (short-term Strong Sell rating) for the company indicates downward pressure on the stock over the near term.

Based in Hamilton, Bermuda, Everest Re Group Ltd. writes property and casualty reinsurance and insurance in the United States, Bermuda and international markets. It competes with White Mountains Insurance Group Ltd. (WTM).

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