The Navigators Group Counts Cat Loss Estimates, Shares Slip

Shares of The Navigators Group, Inc. NAVG have slid 1.8% in the last three trading sessions after the company announced expected catastrophe loss estimates emanating from Hurricane Harvey, Irma and Maria and two Mexican tremors. The company anticipates to incur catastrophe loss of $50-$70 million pre-tax ($33-$45 million after-tax) in the third quarter.

The Zacks Consensus Estimate for the third quarter is currently pegged at 65 cents per share, reflecting a year-over-year decline of 7.1%. We expect the estimates to move downward as analysts incorporate impact of catastrophe losses.

Despite challenging market conditions, in 2016, the company had delivered underwriting profits for the fifth year with a combined ratio of 96.7%. However, underwriting profit plunged 38.2% compared with 2015 as the International Insurance underwriting segment was adversely affected by North American exposures underwritten at Lloyd’s. The recent catastrophe events are expected to weigh heavily on the company’s underwriting income, draining its margins in the process.  

Third-quarter 2017 was one of the costliest in history with respect to cat loss. Mass devastation rampaged parts of the United States, which again bore the brunt of a slew of hurricanes and ravages of successive tremors.

While Harvey shook Houston and Texas Gulf Coast, Irma ran roughshod in regions across the Caribbean to Florida. Both storms are considered the deadliest in a decade. No sooner than the country had experienced a breather with Hurricane Jose not turning as destructive as expected than another hurricane Maria happened to hit Puerto Rico and the Virgin Islands.

A catastrophe loss materially reduces profitability, thereby affecting the companies’ finances. Being a property and casualty insurer, The Navigators Group will not escape the disaster caused by such catastrophe events. Irrespective of the techniques deployed by the company to ease catastrophes, exposure to weather-related calamities makes its earnings volatile.

Other insurers too have come up with their loss estimates. W.R. Berkley Corporation WRB has recently projected a catastrophe loss of about $110 million, which translates to a $72 million after-tax. Assurant Inc. AIZ has estimated between $134 million and $140 million pre-tax of reportable catastrophe losses from Harvey and expects gross losses from Irma to exceed its retention of $125 million pre-tax. The Travelers Companies, Inc. TRV estimates pre-tax catastrophe loss from Harvey between $375 million and $750 million or $245 million and $490 million after-tax.

Zacks Rank and Share Price Movement

The Navigators Group carries a Zacks Rank #3 (Hold). Shares of the company have underperformed the industry in a year’s time. While the stock has gained 20%, the industry has rallied 25%. We expect strong product portfolio and sustained operational performance to drive the stock higher in the future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

 

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