XL Group Misses on Earnings, Tops Revs

Zacks

XL Group plc (XL) reported its third quarter 2013 operating net income of 53 cents per share missing the Zacks Consensus Estimate by a penny. The results also lagged 13.1% from the prior year quarter numbers.

Including net realized losses on investments of $5.3 million, net realized and unrealized gains on derivatives of nearly $0.9 million, net realized and unrealized gains on investments and derivatives related to XL Group’s insurance company affiliates of $0.1 million and foreign exchange losses of $14.7 million, XL Group reported net income of 47 cents per share, down 16.1% year over year.

Higher natural catastrophe losses and higher levels of losses in Insurance were attributed to the year-over-year decline.

Quarterly Operational Performance

Total revenue of XL Group in the quarter was $1.88 billion, up nearly 3.3% year over year. Revenues were higher than the Zacks Consensus Estimate of $1.81 billion.

Net premiums earned in the quarter increased nearly 5% year over year to $1.62 billion.

Net investment income of $237.9 million in the quarter was down 0.6% year over year.

XL Group’s underwriting profit was $76.9 million, declining 32.7% year over year.

The combined ratio in the third quarter deteriorated 280 basis points year over year to 95%. The downside resulted from higher natural catastrophe losses, which included a series of hailstorms in Germany, flooding in Toronto and Colorado and  a hurricane in Mexico.

Pre-tax cat losses, net of reinsurance and reinstatement premiums of $85 million, more than doubled year-over-year.

Total expenses of XL Group increased 7.4% year over year to $1.73 billion, attributable to higher net losses and loss expense as well as higher operating expenses.

P&C Operations: Gross premiums written in the quarter were $1.60 billion, up 2.1% year over year. The upside was driven by 8.7% increase in insurance premium due to solid new business in North America including the Construction and Property businesses. Moreover, improved renewal rates and pricing across most of the businesses also added to the upside. However, 16.2% year over year decrease in gross premiums written in the reinsurance segment limited the upside.

Net premiums earned improved 5.6% year over year in the quarter under review.

Combined ratio (excluding prior-year development and the impact of natural catastrophe losses) deteriorated 220 basis points to 94.7% in the reported quarter.

Life Operations: Gross premiums written declined 5.8% year over year to $82.3 million in the reported quarter.

Net premiums earned fell 6% year over year to $74.7 million.

Financial Update

XL Group exited the quarter with cash and cash equivalents of $2.13 billion, down 18.6% from $2.62 billion at the end of 2012.

Notes payable and debt at the end of the reported quarter were $1.67 billion, 0.1% below the 2012-end level.

Book value of XL Group as of Sep 30, 2013 was $32.96 per share, down 1.2% from $33.35 as on Dec 31, 2012.

Share Repurchase Update

In the reported quarter, XL Group spent $150 million to buy back 4.8 million shares.  The company, as on Sep 30, was left with $425 million under its $850 million authorization approved in February this year.

Performance of Other Property and Casualty insurers

The Travelers Companies Inc. (TRV) reported operating net earnings of $2.35 per share in the third quarter of 2013, surpassing the Zacks Consensus Estimate of $1.99 per share and also improving 5.9% year over year.

RLI Corporation (RLI) reported third-quarter 2013 operating earnings of $1.40 per share, surpassing both the Zacks Consensus Estimate by 47% and the year-ago figure by 37.2%.

W.R. Berkley Corp. (WRB) reported third-quarter core operating earnings of 77 cents per share, 5 cents ahead of the Zacks Consensus Estimate. Earnings were also up 26.2% year over year.

Zacks Rank

XL Group presently carries a Zacks Rank #2 (Buy).

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