XL Group Q1 Earnings In Line, Down Y/Y on Low Reinsurance - Analyst Blog

XL Group plc XL reported first-quarter 2015 operating net income of 75 cents per share, in line with the Zacks Consensus Estimate. Earnings declined 12% year over year due to lower levels of affiliate and life reinsurance income.

Including non-recurring items, net income plunged 85% year over year to 14 cents per share. These one-time times include Life Retrocession Arrangements, net realized gains on investments sold excluding Life Funds Withheld Assets, net realized and unrealized gains on derivatives, exchange losses, expenses related to Catlin acquisition and net realized and unrealized losses on investments, and derivatives related to the company's insurance company affiliates.

Quarterly Operational Performance    

Total revenue of XL Group was $1.55 billion, which declined 13% year over year. However, revenues surpassed the Zacks Consensus Estimate of $1.48 billion.

Net premiums earned decreased nearly 11% year over year to $1.33 billion.

Net investment income of $208.5 million was down 11% year over year.

Pre-tax cat losses, net of reinsurance and reinstatement premiums, came in at $14.7 million, lower than $17.2 million in the year-ago quarter.

Total expense of XL Group increased 4.9% due to the impact of the proposed acquisition of Catlin. Adjusted operating expense decreased about 11% year over year to $1.35 billion due to lower net losses and loss expenses incurred on Property & Casualty (P&C) operations, lesser claims and policy benefits, and a decline in acquisition costs.

From the P&C operations, gross premiums written in the quarter increased 2.1% year over year. The upside was attributable to a 5.3% improvement in Insurance premium, partially offset by 3.7% lower Reinsurance premium.

Solid new business particularly in International Property and Casualty lines, North America Surplus Lines and Construction, International Financial Lines and Specialty Marine along with an increased renewing premium base in the International Middle Market, Global Risk Management and North America Construction business lines drove the upside in Insurance.

Though an adverse impact of foreign exchange on the International operations was responsible for lower Reinsurance premium, growth in North America Crop premiums compensated partially.

XL Group’s underwriting profit increased 1.3% year over year to $146.8 million.  Combined ratio improved 80 basis points to 88.9%.

Financial Update

XL Group exited the quarter with cash and cash equivalents of $3.2 billion, up 28% from $2.5 billion at the end of 2014.

Notes payable and debt at quarter end were $2.6 billion, up 53% from the 2014-end level of $1.6 billion.

Book value of XL Group as of Mar 31, 2015 was $39.00 per share, up 1.5% from $39.31 as of Dec 31, 2014.

Share Repurchase Update    

XL Group did not buy back any shares during the quarter. The company was left with $267.6 million under its authorization at Mar 31.

Catlin Acquisition

XL Group aims a premier position in global specialty insurance and reinsurance markets. In this regard, the P&C insurer inked a deal to buy Catlin Group Limited (CGL.L) CLNGF for about $4.1 billion. The transaction is expected to close in mid 2015.

In addition, the combined entity would also rank among the top 10 players in the competitive reinsurance market with increasing alternative capital opportunities. Moreover, XL Group will significantly increase its business in the Lloyd's platform, where Catlin boasts a leading presence. In addition, the transaction will straightaway widen quite a few lines of business of XL Group in which it has lately made investments.

Zacks Rank

XL Group currently carries a Zacks Rank #3 (Hold).

Performance by Other P&C Insurers    

Bottom line at ACE Limited ACE surpassed the Zacks Consensus Estimate but the same at The Travelers Companies Inc. TRV missed the expectation in the first quarter.
 

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