Reinsurance Resilience And Calm Market Will Broaden Industry Opportunities Ahead

Key Takeaways

• Strategic focus on catastrophe reinsurance and specialty lines drives growth, margin expansion, and benefits from global insurance market trends.
  
• Prudent risk selection and technology investments improve efficiency, profitability, and position the company for sustained, resilient long-term earnings.
  
• Increased catastrophe exposure, rising competition, high expenses, reduced diversification, and potentially unsustainable reserve benefits all threaten Everest Group's future profitability and earnings stability.

Catalysts

Through its subsidiaries, provides reinsurance and insurance products in the United States, Europe, and internationally.

• Everest Group continues to see strong growth opportunities from the rising frequency and severity of natural catastrophes, which is driving sustained high demand and robust pricing for property catastrophe reinsurance; the company is strategically increasing its exposure in well-priced cat programs with returns well above cost of capital, supporting future revenue and net margin expansion.
  
• Expansion into international and specialty insurance lines, including engineering, renewable energy, marine, and accident business, is leveraging global economic growth and increasing insurance penetration in emerging markets; this diversification is already delivering double-digit premium growth and is expected to provide sustained long-term revenue and earnings growth.
  
• Everest's disciplined pruning of U.S. casualty exposures and focus on higher-margin, lower-risk segments is improving the quality of its insurance portfolio; as the premium mix shifts and earned premium catches up, the company anticipates improvement in loss and expense ratios, supporting higher profitability and net margins over time.
  
• Ongoing investments in technology, advanced analytics, and scalable platforms are enhancing risk selection and underwriting accuracy, expected to yield greater cost efficiencies and improved combined ratios as international operations and premium scale further, supporting long-term margin improvement.
  
• The hard reinsurance and specialty insurance market, characterized by disciplined terms, attractive risk-adjusted returns, and high entry barriers, positions Everest Group-given its capital strength and capability-to capture above-market premium growth and maintain resilient net margins and earnings, even as industry cycles evolve.

Everest Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Everest Group's revenue will decrease by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 21.7% in 3 years time.
• Analysts expect earnings to reach $3.6 billion (and earnings per share of $70.57) by about September 2028, up from $798.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.0x on those 2028 earnings, down from 17.9x today. This future PE is lower than the current PE for the US Insurance industry at 14.3x.
• Analysts expect the number of shares outstanding to decline by 2.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.81%, as per the Simply Wall St company report.

Everest Group Future Earnings Per Share Growth

Risks

• Everest Group is actively growing its property catastrophe (Cat) exposure and deploying more capital into Cat risk, leaving it increasingly vulnerable to the long-term secular trend of more frequent and severe natural catastrophes due to climate change, which could result in unpredictable volatility in catastrophe losses, negatively impacting earnings and book value.
  
• Competitive pressures are mounting in both US and international property insurance and reinsurance markets, with management noting increasing rate pressure, especially on larger accounts, and an increasingly crowded field of alternative capital (e.g., cat bonds, ILS funds); this can compress pricing and reduce Everest's premium growth, affecting future revenues and net margins.
  
• The Insurance segment is experiencing a persistently elevated expense ratio, driven by ongoing investments in building out international capabilities and technology, and premium growth that has not yet scaled to offset those costs-prolonged high expense ratios could erode net margins and delay profitable growth from the segment.
  
• Everest's aggressive reduction of US casualty exposure as part of its 1-Renewal Strategy has resulted in a significant contraction in casualty premiums and a higher proportion of business in select lines; should market conditions in core remaining lines deteriorate, or growth in international markets fall short, overall revenues and diversification may be negatively impacted.
  
• Sustained earnings tailwinds from prior-year favorable reserve development, particularly in the property reinsurance book, may not be repeatable over the long term; as loss trends evolve or reserve redundancy is depleted, this could lead to less support for future earnings and a heightened risk of negative reserve development impacting net income.

Valuation

• The analysts have a consensus price target of $393.429 for Everest Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $483.0, and the most bearish reporting a price target of just $360.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.8 billion, earnings will come to $3.6 billion, and it would be trading on a PE ratio of 5.0x, assuming you use a discount rate of 6.8%.
• Given the current share price of $340.61, the analyst price target of $393.43 is 13.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.