XL Group Rebounds on Lower Cat Loss - Analyst Blog

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XL Group ( XL ) kick started 2012 with first-quarter 2012 operating income of 52 cents per share, outpacing the Zacks Consensus Estimate of 40 cents.  The company reversed the loss of 52 cents incurred in the year-ago quarter. Operating income was $165.2 million, compared with a loss of $163.0 million in the prior-year quarter.

The company fared well largely on account of lower catastrophe losses.

Adjusting for net realized gains on investments of $20.5 million, net realized and unrealized gains on derivatives of $0.7 million, net realized and unrealized gain on investments and derivatives related to XL's insurance company affiliates of $0.04 million and foreign exchange loss of $9.8 million, net income attributable to shareholders was $176.6 million in the quarter, compared with a net loss of $227.3 million in the prior-year quarter.

Net income was 56 cents per share in the quarter under review, reversing the loss of 73 cents in the first quarter of 2011.

The year-earlier quarter included net realized losses on investments of $63.3 million, net realized and unrealized gains on derivatives of $5.2 million, net realized and unrealized gain on investments and derivatives related to XL's insurance company affiliates of $0.9 million and foreign exchange gain of $7.2 million.

Operational Performance

Total revenue in the quarter was $1.75 billion, up 8.5% year over year. Revenue was ahead of the Zacks Consensus Estimate of $1.67 billion.

Net premiums earned in the quarter increased 6.8% year over year to $1.34 billion.

Net investment income of $265.2 million in the quarter was down 5.4% year over year largely due to lower investment rates and lower cash flows from the investment portfolio.

XL Group's underwriting profit was $63.2 million, reversing the loss of $328.1 million in the year-ago quarter.

The combined ratio in the first quarter improved substantially to 95.3% from 125.8% recorded in the earlier-year quarter. A lower level of catastrophe losses aided the improvement.

Operating expenses increased 8.2% year over year to $282.4 million, primarily attributable to the build-out of previously announced initiatives.

P&C Operations : Gross premiums written in the quarter improved 10.4%, driven by primarily driven by new business lines, higher retention levels and pricing increases.

Net premiums earned improved 6.8% year over year in the quarter under review.

Combined ratio (excluding prior year development and the impact of natural catastrophe losses) improved 110 basis points to 99.8% in the quarter.

Life Operations : Gross premiums written declined 11.2% year over year in the first quarter.

Net premiums earned written in the quarter decreased 12.5%.

Financial Position

XL Group exited the quarter with cash and cash equivalents of $2.5 billion down from 2011 level end of $3.8 billion.

Notes payable and debt at quarter end were $1.67 billion down from $2.27 billion at 2011 end.

Book value per ordinary share as of March 31, 2012, was $30.88, up 4.3% from $29.59 as of December 31, 2011. The improvement was driven by net income, unrealized gains on investments and the benefit of share buybacks.

Share Repurchase

In the first quarter, XL Group spent $100 million to buy back 4.7 million shares at an average price of $21.14.

The company is left with $650 million under its authorization.

Peer Comparison

ACE Limited ( ACE ), which competes with XL Group, reported first-quarter 2012 operating income of $2.05 per share, breezing past the Zacks Consensus Estimate by 15 cents. Earnings exhibited a massive improvement of 170% from 76 cents earned in the year-ago quarter. Operating income was $701 million, which was nearly a fourfold increase from the year-ago quarter.

The quarter largely benefited from lower catastrophe activities and higher premiums. Pre-tax catastrophe losses, including reinstatement premiums, were $19 million, narrowing from $489 million in the prior year.

Zacks Rank

We maintain our Neutral recommendation on XL Group. The quantitative Zacks #3 Rank (short term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.


 
ACE LIMITED (ACE): Free Stock Analysis Report
 
XL GROUP PLC (XL): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ACE , XL

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