Everest Group: Navigating Q1 Underperformance Amid Valuation Opportunities

Everest Group (NYSE:EG) reported a disappointing Q1 2025 earnings, with net income plummeting to $210 million from $733 million a year earlier. The underperformance was driven by catastrophic losses—primarily from California wildfires—highlighting the fragility of the reinsurance sector in the face of climate volatility. Yet, beneath the headline numbers lies a compelling story of strategic resilience and undervaluation opportunities. Let's dissect the risks and rewards for investors.

The Q1 Blues: Catastrophe-Driven Declines

Everest's Q1 net income missed analyst estimates due to a staggering $472 million in pre-tax catastrophe losses—a 455% surge from Q1 2024. The group combined ratio worsened to 102.7%, with catastrophes contributing 13.9 points. While underwriting challenges are acute, the attritional combined ratio (excluding catastrophes) held at 90.2%, reflecting disciplined pricing in core segments like property and specialty lines.

The valuation question hinges on whether this underperformance is a temporary setback or a structural weakness. Here's where the data matters:

Valuation Metrics: A Mixed Picture

• P/E Ratio: At ~71x (based on Q1 EPS of $4.90 and a share price of ~$348), Everest's valuation seems elevated. However, this metric is skewed by one-off catastrophe losses. Stripping out non-recurring items, the operating P/E (using net operating income of $276 million) drops to ~42x, more reasonable given its growth segments.
• Price-to-Book (P/B): The stock trades at 1.05x book value (excluding unrealized gains), near its historical average. With book value per share rising to $345.57 (excluding unrealized losses), the P/B suggests fair value at current levels.
• Dividend and Buybacks: Everest returned $285 million to shareholders via dividends ($85M) and repurchases ($200M), underscoring capital discipline.

Peer Comparison: Everest's Undervalued Case

Let's benchmark Everest against key peers:

Metric	Everest (EG)	Hamilton (HG)	RenaissanceRe (RNR)	Reinsurance Group (RGA)
Q1 Revenue Growth	+3.1%	+16.7%	+33.5%	-17.5%
P/E Ratio	71x (reported)	9.4x	12.2x	16.5x
P/B Ratio	1.05x	0.89x	1.15x	1.15x
Yield	0.5%	0.9%	0.8%	1.2%

While Everest underperformed in revenue growth, its P/B ratio aligns with peers, and its dividend yield—though modest—is supported by strong investment income ($491M in Q1, up from $457M in 2024). Notably, RenaissanceRe and Hamilton outperformed in top-line growth but trade at higher valuations, suggesting Everest's current price offers a margin of safety.

Key Catalysts for Recovery

1. Strategic Shifts: Everest is reducing exposure to low-margin casualty lines while expanding in property and specialty reinsurance. These segments grew double-digits in Q1, demonstrating execution capability.
2. Catastrophe Cycle: The $472M Q1 loss is an outlier. Over time, diversification and risk modeling should mitigate such volatility.
3. Interest Rate Benefits: Rising rates boosted investment income, a tailwind that could offset underwriting headwinds.

Investment Thesis

• Bull Case: Everest's long-term strategy in high-return segments, coupled with improving book value (+$12.42 per share since end-2024), positions it to rebound. If catastrophe losses normalize, EPS could surge in 2026.
• Bear Case: Climate-related risks are escalating. A repeat of Q1's loss severity could pressure margins further, especially if reinsurance pricing softens due to new capital entrants.

Conclusion: A Hold with Upside Potential

Everest is undervalued relative to its book value and strategic positioning, but its stock remains vulnerable to macro risks. Investors should consider a gradual accumulation strategy, targeting dips below $330. However, those with a long-term horizon (3+ years) could initiate positions at current levels, mindful of catastrophe exposure.

For now, the key data to watch is Q2's combined ratio and casualty portfolio reductions. If underwriting discipline holds, Everest's valuation could re-rate upward. Until then, it's a stock for cautious opportunists.