Everest Re puts Q3 cat losses at $280m, uses high industry loss picks

Global insurance and reinsurance firm Everest Re has pre-announced an estimate of its third-quarter 2019 catastrophe losses, saying it expects $280 million net impact, which analysts note is aligned on market-share estimates, but based on the highest estimates of industry loss.

Everest Re has made its estimates based on industry insured loss estimates of roughly $8.5 billion for Dorian and $9 billion for Faxai, both of which are at the high-end (perhaps even slightly above) where the market pegs these events currently.

It’s notable that AXIS based its estimates on a much-lower $6 billion estimate for Dorian and $8 billion for Faxai.

As a result, it seems Everest Re is being quite conservative in its loss picks for the catastrophes of the third-quarter of 2018, hoping to get close to the actual ultimate net loss and prevent the need for loss creep and reserve strengthening.

Given the experience of the last two years that may prove a sensible approach.

Everest Re said that its losses in the third-quarter of an estimated $280 million are net of any reinsurance and retrocessional recoveries and reinstatement premiums. After accounting for tax, the Everest Re loss estimate is $225 million.

The re/insurer also breaks down its Q3 losses to reveal that it estimates a $160 million loss from hurricane Dorian and a $120 million loss from typhoon Faxai.

However, the firm notes that given the recency of these loss events, there remains “meaningful uncertainty as to the ultimate loss amounts.”

Analysts said that Everest Re’s estimates were higher than their expectations, but based on the use of much higher industry loss estimates that’s not a surprise.

KBW had estimated roughly $189 million of catastrophe losses for Everest Re from Q3, while Goldman Sachs highlighted that as a market-share and based on the industry loss picks used these are now in-line.

Everest Re has not given any indication of its expectation for losses from more recent Q4 typhoon Hagibis at this time.

At this level of loss there is a chance that some of the impacts from Dorian and Faxai will be shared with Everest Re’s collateralised reinsurance sidecar-like vehicle Mt. Logan Re, as it supports the re/insurers 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. However the cat bonds are not exposed to Japan, where as Mt. Logan Re has a global risk portfolio.

However, any impact to Mt. Logan Re investors is unlikely to be too significant based on where these loss estimates currently sit and while there remains a lot of uncertainty in the impacts of these events there is every chance any impact shrinks once the final industry wide loss to insurance and reinsurance markets is understood.