If the first half of 2005 was sunshine and fair weather for the insurance industry, the second half seems to be shaping up as its exact opposite, as storms, earthquakes and other natural disasters take their toll. Everest Re Group, Ltd. is one of the first Bermuda-based companies to report third quarter results – an after-tax operating loss, which excludes realized capital gains and losses, of $438.9 million, or ($7.79) per share, a significant decrease compared to after-tax operating income of $4.8 million, or $0.08 per diluted share, in the third quarter of 2004.
“The principal drivers of the Company’s loss, as commented on previously in its press releases of September 13, 2005 and October 6, 2005, were catastrophe losses, the net pre-tax impact of which totaled $ 784.6 million, including $652.7 million related to Hurricane Katrina,” said the earnings announcement. “The third quarter 2005 net loss was $417.7 million, or ($7.41) per share, as compared to net income of $11.5 million, or $0.20 per diluted share, for the third quarter of 2004. Operating income (loss) differs from net income (loss) only by the exclusion of realized gains and losses on investments.”
The Q3 loss also hit Everest Re’s full year earnings. The company reported an after-tax operating loss was $100.3 million, or ($1.78) per share, as compared to after-tax operating income of $330.7 million, or $5.82 per diluted share, in 2004, for the period ended Sept. 30, 2005. The net loss in the first nine months of 2005 was $56.5 million, or ($1.00) per share, as compared to net income of $401.5 million, or $7.07 per diluted share, in 2004.
Given the Katrina losses the industry suffered, Everest Re’s performance is not surprising. However, the company also reported that gross written premiums for the third quarter of 2005 were $1.08 billion, an 11.2 percent decrease compared to $1.22 billion in 2004. Net written premiums were $1.05 billion, a decrease of 10.9 percent from $1.18 billion for the third quarter of 2004. The Company’s GAAP combined ratio in the third quarter was 162.2 percent compared to 108.5 percent in 2004. Those figures are perhaps even more worrisome than the losses.
Commenting on the Company’s results, Chairman and Chief Executive Officer, Joseph V. Taranto said, “Losses from Hurricane Katrina have made this a most disappointing quarter. Going forward, our newly raised capital will allow us to participate in positive market changes, while we continue to offer our clients the highest quality security.”
Everest Re also reported that “net investment income for the third quarter was $117.5 million compared to $123.8 million for the third quarter of 2004. Cash flow from operations for the third quarter of 2005 was $376.0 million, a decrease of 24.5 percent from $498.1 million in the third quarter of 2004.
“For the nine months ended September 30, 2005, gross written premiums were $3.24 billion, an 8.2 percent decrease from $3.53 billion in the first nine months of 2004. Net written premiums for the same period decreased 8.0 percent to $3.14 billion from $3.41 billion in 2004. The GAAP combined ratio for the first nine months of 2005 was 113.6 percent compared to 97.3 percent in 2004. Net investment income for the nine months ended September 30, 2005 was $387.9 million, an increase of 7.3 percent from $361.5 million in 2004. Cash flow from operations for the first nine months was $992.3 million compared to $1.29 billion for the first nine months of 2004.
“At September 30, 2005, the Company’s shareholders’ equity was $3.60 billion, or $63.57 per outstanding share. The change in book value represents a 3.0 percent decrease from shareholders’ equity of $3.71 billion, or $66.09 per outstanding share, at December 31, 2004.”
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