Everest Re expects $215m catastrophe & $50m crop losses in Q4

Global insurance and reinsurance group Everest Re has pre-announced an expectation of a $215 million catastrophe loss hit and a further $50 million hit from its crop reinsurance book in the fourth-quarter of 2019.

Ahead of its results Everest Re has joined the group of companies pre-warning of the expected hits to the final quarter of the year.

The company expects $215 million of catastrophe losses, the majority of which are expected from Japanese typhoon Hagibis, which was the largest industry loss of the quarter.

Typhoon Hagibis is expected to result in a $190 million loss for the firm, while tornado losses in Dallas, Texas are expected to add a further $25 million, all after accounting for estimated reinsurance recoveries and reinstatement premiums, Everest Re explained.

There isn’t a great deal to compare Everest Re’s Hagibis loss with at this time, but given the size of the companies portfolio it seems aligned with other pre-announcements such as AXIS Capital’s expectation of up to $110 million of losses from the typhoon.

Adding to the fourth quarter loss impacts, Everest Re has also revealed a forecast for around $50 million of losses to its crop reinsurance book.

The company said that higher than normal current year losses in its reinsurance crop book have been driven by poor weather conditions in the U.S. and Canada, with the expected hit to underwriting income estimated at $50 million.

Crop insurance losses in the United States have been on a steady rise through 2019, partially following the significant flooding in the middle of the country earlier in the year.

Global re/insurer Chubb had also pre-announced U.S. crop losses within its insurance book, saying that preventive planting claims and crop yield shortfalls resulted from poor growing conditions caused by the weather.

Everest Re has also announced that it expects to report $19 million of net favourable prior year reserve development in Q4, which analysts say may be slightly reduced due to potential loss creep from hurricane Irma.

Many re/insurers have reported adding to their hurricane Irma losses in Q4 of 2019, but it’s not clear at this time if this has been a factor for Everest Re.

Everest Re said that it expects to report net investment income of about $146 million, with slightly lower limited partnership income of $6 million, but for the for the full year 2019 the company forecasts around $1 billion of net income, which will equate to a net income return on equity of 12%.

Everest Re said that it “continued to see strong rate improvement in most classes of insurance and reinsurance during the fourth quarter of 2019 and at the important January 1 renewal date.”

The company believes that its size, scale and financial strength, plus large and well diversified portfolio of business, is allowing it to capitalise on the favorable market conditions it sees in 2020.

Everest Re has a habit of being conservative in its loss picks for major catastrophe events, so there will be every chance some of the losses flow back from reserves in future quarters as the true impact of events such as typhoon Hagibis emerge.

For comparison, Everest Re had estimated a loss of $120 million for typhoon Faxai after Q3, so the $190 million for Hagibis seems ample by comparison.

As ever, it’s worth highlighting that with any major catastrophe market loss there is a chance some of the impact will be shared with investors in Everest Re’s collateralised reinsurance sidecar-like vehicle Mt. Logan Re. Mt. Logan Re supports the firms catastrophe exposure and provides a relatively significant chunk of its overall capital.

The reinsurer leverages third-party reinsurance capital through Mt. Logan Re and also its catastrophe bonds, the latest of which was recently issued. However the cat bonds are not exposed to Japanese losses

Any losses ceded to Mt. Logan Re are unlikely to be particularly significant, based on where Everest Re’s loss estimates currently sit and there is every chance the ultimate’s settle somewhere a little lower than these initial reserves.