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Everest Re Raises Loss Estimate for Thailand Floods

Source: Dow Jones

Posted on 25 Jan 2012

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Everest Re Group Ltd. (RE) said it expects to incur net catastrophe losses of about $245 million, after reinstatement premiums and taxes, for the fourth quarter as losses from the flooding in Thailand topped prior estimates.

The insurer now expects losses from the Thailand flooding of $145 million, up from the $100 million to $125 million projected late last month. The latest estimate is based on an expected loss for the insurance industry that tops $15 billion.

Heavy flooding in Thailand from July through December had a significant impact on the Thai economy and has also damaged a large chunk of the world's hard-drive manufacturing operations.

The insurance sector has faced some of the worst quarters in years for catastrophe losses, due to devastating natural disasters around the globe.

The catastrophe loss estimate for the quarter also includes upward revisions for prior events in the year, including the Japan and New Zealand earthquakes. The period also includes an added $50 million of catastrophe reserves for all 2011 events.

"2011 catastrophe losses have generated meaningful market price corrections, which continued through January renewals," Chief Executive Joseph V. Taranto said. "In order to fully realize these benefits in 2012 we have taken a cautious approach to reserving for these events as we close the year."

In October, Everest reported its third-quarter earnings dropped 64% as it swung to capital losses from gains, but the reinsurer's core profit--which excludes investment effects--improved slightly.
Everest plans to report fourth-quarter results Feb. 8.

Later Tuesday, Moody's Investors Service heightened the likelihood of a downgrade for Everest Re, lowering the ratings outlook on the company to negative because of earnings volatility and increased exposure to higher-volatility assets.

The firm said while the company has a track record of good pretax operating returns on average, its net earnings have been volatile relative to expectations for an issuer with its Aa3 rating. That rating is three notches below triple-A, the highest possible ranking of credit quality.

Moody's said such earnings volatility suggests Everest Re's risk profile may not be consistent with its rating, despite the company's conservative capital structure.