We have reiterated our Neutral recommendation on
XL Group plc
) as we expect the sustained low interest rate environment and
catastrophe loss to weigh on the performance of the company.
The Zacks Consensus Estimate for the fourth quarter is pegged at
a loss of 33 cents, representing a year-over-year decline of
XL has substantial exposure to losses resulting from natural and
man-made disasters and other catastrophic events. Given the
impact of Hurricane Sandy in the fourth quarter, the industry is
likely to incur an approximate loss of $25 billion. XL expects
its preliminary net loss from Sandy to be $350 million, of which
60% is to be borne by the reinsurance segment. On account of huge
cat losses, underwriting profit for XL is expected to decline.
Net investment income at XL Group has been on a declining trend
for the past few years, and the third quarter was no exception.
The performance of the investment portfolio is dependant on the
volatile credit market environment. The exposure of assets in
these markets might have an adverse impact on investment
earnings. Also, any loss from the investment portfolio will
depreciate the book value. Management expects net investment
income to remain constrained due to the persistent low interest
However, these headwinds are countered by several positives. XL
Group remains focused on those lines of business within its
insurance and reinsurance operations that provide the best return
on capital over the pricing cycle. Given its strong international
exposure and a diversified suite of product offerings, we believe
that the company is well positioned to write higher premiums to
propel top-line growth, going forward.
XL Group is also taking initiatives to expand its operations.
Following the final approval, the company established its
insurance operations in Brazil.
XL Group continues to enhance shareholders' value through
dividend payment as well as share repurchase. In the third
quarter, the company spent $125 million to buy back 5.3 million
shares. The company was left with $400 million under its
authorization. The company, with a quarterly dividend payout of
11 cents, offers a dividend yield of 1.77%.
Riding on the solid performance in the first three quarters, the
full year Zacks Consensus Estimate is currently pegged at $1.58
per share. It carries a Zacks #3 rank, translating into a short
term 'Hold' rating. It closely competes with
), which also carries the same Zacks Rank.
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XL GROUP PLC (XL): Free Stock Analysis Report
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