Who is Insuring the Insurers?

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With the memory of Hurricane Sandy still fresh for many of those affected by last October’s tropical storm, insurance claims continue to roll in for those seeking reprieve for damages. While a largely negative event for insurance companies, most do not assume all of these risks and are able to pass on a significant amount to a secondary sector, known as the reinsurance industry. Reinsurers exist to help spread risk over multiple parties and thus better absorb the financial setbacks of unforeseen events. One of the most preeminent reinsurance players is Warren Buffet, and his interests have swelled into the billions of dollars, primarily through his Berkshire Hathaway holdings that include GEICO and General Re. (Read more about one of his reinsurance holdings that is currently in hot water.)

Warren Buffett portrait

The types of reinsurance vary across providers and depend heavily on the primary insurers they service. The size of liabilities, unforeseen events (i.e. weather-related), and solvency issues can create varying risk profiles and potential dips for buy-and-hold investors. However, buying opportunities exist in this sector, whose price-to book ratios have typically been seen above 1.00. We have compiled a list of five reinsurers that compete in the same spaces and have similar market capitalizations of $4-6 billion:

Everest Re Group (NYSE:RE) maintains operations primarily in the life, property, and casualty insurance. Investors who bought in this time last year netted the most impressive gain amongst the stocks in our list, garnering over 33%. Despite suffering a $12 loss during Sandy, RE has recovered to trade near 52-week highs. This shouldn’t deter value buyers however; Everest has both the highest EPS and lowest PEG ratio of our group, which we see as a strong indicator of further upside potential. Sell-side analysts agree, with the majority advocating both accumulation and holding.

A second player is PartnerRe Ltd (NYSE:PRE), a $5.8bn company who also has room to grow relative to their book value. Quarterly revenue grew almost 10% over the same quarter in 2011, and similar to Everest Re, the stock is trading near yearly highs. Dallas-based hedge fund manager Clint Carlson has over $16mm employed in PRE. Consensus estimates hint that the current price per share is the most aggressive of the group, supported by a high forward P/E and near parity of current price and analyst targets. Despite this, PRE gains a few notches in attractiveness as a buy-and-hold due to its high dividend yield.

Continue reading to see which other three reinsurers round out our list.

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