Solid Q4 Earnings at XL Group

XL Group plc (XL) reported fourth-quarter 2013 operating net income of $1.00 per share beating the Zacks Consensus Estimate by 19%. The results surged from 13 cents per share earned in the year-ago quarter.

Including net realized gains on investments of $7.1 million; net realized and unrealized gains on derivatives of nearly $4.1 million; net realized and unrealized losses on investments and derivatives related to XL Group’s insurance company affiliates of $6.9 million and foreign exchange gains of $9.5 million, XL Group reported net income of $1.05 per share, improving from 27 cents earned in the year-ago quarter.

Lower natural catastrophe losses due to a benign cat environment and higher net income from investment funds and investment manager operating affiliates aided the upside.

Full Year Highlights

For full year 2013, XL Group delivered operating net income of $3.63 per share on revenues of $7.5 billion. While the top line improved 4.2%, the bottom line surged 73% year over year. The bottom-line also outperformed the Zacks Consensus Estimate by 17.5%.

Quarterly Operational Performance

Total revenue of XL Group in the quarter was $1.91 billion, which slipped 0.1% year over year. Revenues however, exceeded the Zacks Consensus Estimate of $1.85 billion.

Net premiums earned in the quarter increased nearly 1.8% year over year to $1.51 billion.

Net investment income of $240.8 million in the quarter was down 1.7% year over year.

XL Group’s underwriting profit was $101.5 million, rebounding from the year-ago loss of $90.7 million.

The combined ratio in the quarter improved 1260 basis points (bps) year over year to 93.3% due to absence of significant cat events.

Pre-tax cat losses, net of reinsurance and reinstatement premiums, came in at $94.3 million, comparing favorably with $351.8 million in the year-ago quarter.

Total expense of XL Group decreased 11.8% year over year to $1.64 billion attributable to lower net losses and loss expense, and acquisition costs.

P&C Operations: Gross premiums written in the quarter were $1.46 billion, down 2.6% year over year. The downside was attributable to 5% decrease in Insurance premium. A 4.4% higher Reinsurance premium limited the downside.

Insurance premium declined due to non-renewal of a large International professional program. Nonetheless, XL Group witnessed growth in the North American business group – Property lines in particular, robust new business in emerging Political Risk and Crisis Management businesses, and favorable pricing and renewals across the majority of the businesses.

Reinsurance premium improved, fueled by new casualty business in the International business group, partially offset by higher catastrophe-related reinstatement premiums in the prior-year quarter associated with the storm Sandy.

Net premiums earned declined 1.9% year over year in the quarter under review.

Combined ratio (excluding prior-year development and the impact of natural catastrophe losses) deteriorated 170 bps to 91% in the reported quarter.

Life Operations: Gross premiums written slid 1% year over year to $87.8 million in the reported quarter.

Net premiums earned inched up 0.7% year over year to $81.4 million.

Financial Update

XL Group exited 2013 with cash and cash equivalents of $1.8 billion, down 16.7% from $2.62 billion at the end of 2012.

Notes payable and debt at 2013 end were $2.26 billion, 35% above the 2012-end level.

Book value of XL Group as of Dec 31, 2013 was $33.86 per share, up 1.5% from $33.35 as on Dec 31, 2012.

Share Repurchase Update

In the reported quarter, XL Group spent $150 million to buy back 4.9 million shares. The company, as on Dec 31, 2013 was left with $425 million under its $850 million authorization approved in February last year.

Performance of Other Property and Casualty insurers

The Travelers Companies Inc. (TRV) reported operating net earnings of $2.68 per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 23.5%. Moreover, earnings improved nearly fourfold on a year-over-year basis.

RLI Corporation (RLI) reported fourth-quarter 2013 operating earnings of 72 cents per share exceeding the Zacks Consensus Estimate by 28.6% and year-ago quarter’s earnings by 64%.

ACE Limited (ACE) reported operating net earnings of $2.39 per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 19.5%. Moreover, earnings surged nearly 67% on a year-over-year basis.

Zacks Rank

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

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