On Nov 18, 2014, Zacks Investment Research downgraded Third Point Reinsurance Ltd. (TPRE), or Third Point Re, by a notch to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Earnings estimates for Third Point Re have been experiencing a downturn since the company reported dismal third-quarter 2014 results and provided a disappointing outlook for the upcoming quarters. Additionally, this property-casualty insurer underperformed the year-to-date S&P 500 index, which posted growth of 10.4% against a negative return of 20.6%.
On Nov 6, Third Point Re reported third-quarter 2014 operating loss per share of 6 cents, which was wider thanthe Zacks Consensus Estimate of a loss of 3 cents. Results also compared unfavourably with the prior-year earnings of 51 cents.
The downside was primarily led by investment income, which tanked to a mere $1.6 million from $54.6 million in the year-ago quarter. Losses from corporate credit as well as inadequate business renewals have been weighing significantly on the company’s financials. While premiums improved, Third Point Re incurred underwriting losses owing to higher loss and loss adjusted as well as acquisition expenses. Subsequently, return on equity (ROE) sank to a negative 0.4% from 4.2% in the year-ago quarter.
Third Point Re faces the disadvantage of being a novice, with a market experience of just about three years. Hence, stiff competition, catastrophe losses and low interest rate environment are major risks that management requires to counter with utmost prudence and on immediate basis. Going forward, absence of any major growth catalyst amid weak underwriting and investment risks may further drag estimates, thereby keeping investors at bay.
Meanwhile, the Zacks Consensus Estimate for 2014 and 2015 plunged 31.4% and 2.6% to 96 cents and $2.29 per share, respectively, in the last 30 days. There were no upward estimate revisions for both the years over the same time frame. On a year-over-year basis, earnings are expected to sink 68.4% in 2014. This indicates likely earnings misses for this year at least.
Other Worthy Insurers
While we prefer to avoid Third Point Re for the time being, some better-ranked insurers such as AmTrust Financial Services Inc. (AFSI), Arch Capital Group Ltd. (ACGL) and Hallmark Financial Services Inc. (HALL) are worth considering. All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment