XL Group Upped to Buy as Solid Underwriting Drives Q2 Beat


On Aug 23, Zacks Investment Research upgraded XL Group plc (XL) to a Zacks Rank #2 (Buy).

Why the Upgrade?

XL Group has been witnessing rising earnings estimates on the back of strong second-quarter 2014 results. Moreover, this property and casualty insurer delivered positive earnings surprises in three straight quarters, with an average beat of 62%.

Riding on the strength of solid underwriting results, second-quarter earnings at XL Group topped the Zacks Consensus Estimate by 22.9% and were 36% higher than the year-ago figure. While underwriting profit improved 82% year over year, combined ratio improved 550 basis points (bps) year over year to 88.3%.

Total expense at XL Group decreased 9.3% on lower claims and policy benefits in Life Operations, lower net losses and loss expenses incurred in P&C operations, reduction in acquisition costs and lower interest expense.

The company has also been strengthening its balance sheet with increasing cash and cash equivalents as well as lesser notes payable and debt levels.

XL Group also bought back 5.5 million shares for $175 million that in turn lowered the share count and aided the bottom line. It was left with $717.6 million under its authorization at Jun 30.

In addition, XL Group divested XL Life Reinsurance to GreyCastle Holdings Ltd. to improve its risk profile and cushion itself with additional flexibility to pursue capital management initiatives. This includes buying back $300 million additional shares in 2014.

Strong performance prompted a rise in the Zacks Consensus Estimate for 2014 and 2015 in the last 30 days. It increased 9.4% to $3.27 in 2014 as 8 of 9 estimates moved up while the same moved up 4.4% to $3.30 for 2015 as 4 of 8 estimates moved north. The expected long-term growth rate for the stock is 2.3%.

Other Stocks to Consider

Investors interested in the property and casualty industry may also consider Global Indemnity plc (GBLI), Mercury General Corporation (MCY) and Endurance Specialty Holdings Ltd. (ENH). All these stocks share the Zacks Rank with XL Group.

Read the Full Research Report on XL
Read the Full Research Report on ENH
Read the Full Research Report on MCY
Read the Full Research Report on GBLI

Zacks Investment Research

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