XL Group plc (XL)

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XL Group (XL)

Q1 2013 Earnings Call

May 02, 2013 5:00 pm ET

Executives

David R. Radulski - Senior Vice President and Director of Investor Relations

Michael S. McGavick - Chief Executive Officer and Director

Peter R. Porrino - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Gregory S. Hendrick - Chief Executive of Insurance Operations and Executive Vice President

James H. Veghte - Chief Executive of Reinsurance Operations, Executive Vice President and Chief Executive Officer of XL Reinsurance America Inc

Susan L. Cross - Global Chief Actuary and Executive Vice President

Sarah Elizabeth Street - Chief Investment Officer, Executive Vice President and Chief Executive Officer of XL Group Investments LLC

Analysts

Jay Gelb - Barclays Capital, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Jay Adam Cohen - BofA Merrill Lynch, Research Division

Brian Meredith - UBS Investment Bank, Research Division

Gregory Locraft - Morgan Stanley, Research Division

Michael Zaremski - Crédit Suisse AG, Research Division

Ian Gutterman - Adage Capital Management, L.P.

Vinay Misquith - Evercore Partners Inc., Research Division

Ryan J. Byrnes - Langen McAlenney

Presentation

Operator

Good afternoon, my name is Shirley, and I'll be your conference operator today. At this time, I would like to welcome everyone to the XL Group PLC First Quarter 2013 Earnings Call. [Operator Instructions] Please be advised that this conference is being recorded.

I would now like to turn the call over to Dave Radulski, XL's Director of Investor Relations. Please go ahead.

David R. Radulski

Thank you, Shirley, and welcome to XL Group's First Quarter 2013 Earnings Conference Call. This call is being simultaneously webcast in XL's website at www.xlgroup.com. We posted to our website several document, including our quarterly financial supplement. On our call this evening, you'll hear from Mike McGavick, XL Group's CEO, who'll offer opening remarks; Pete Porrino, XL's Chief Financial Officer, who'll review our financial results; followed by Greg Hendrick, our Chief Executive of Insurance Operations; and Jamie Veghte, our Chief Executive of Reinsurance Operations, who will review their segment results and market condition. Then we'll open it up for questions. Among those also available for questions are Susan Cross, our Global Chief Actuary; Sarah Street, the Chief Investment Officer; and Stephen Robb, our Controller.

Before they begin, I’d like to remind you that certain of the matters we'll discuss today are forward-looking statements. These statements are based on current plans, estimates and expectations. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in the forward-looking statements and therefore, you should not place undue reliance on them. Forward-looking statements are sensitive to many factors, including those identified in our annual report on Form 10-K, our quarterly reports on Form 10-Q and other documents on file with the SEC that could cause actual results to differ materially from those contained in the forward-looking statements. Forward-looking statements speak only as of the date in which they're made, and we undertake no obligation publicly to revise any forward-looking statement in response to new information, future developments or otherwise.

With that, I turn it over to Mike McGavick.

Michael S. McGavick

Good evening, and thank you for joining our call. In the first quarter of 2013, XL showed continued momentum. While the entire industry benefited from benign CAT and large loss experience, XL's core metrics again demonstrate that the margin-expanding initiatives we have shared with you in previous calls are producing the desired result. We have told you that an important indicator of progress for us is the improving trend in loss ratio especially in Insurance.

In the first quarter, our accident year loss ratio for Insurance improved by 9.8 points versus the same quarter a year ago, and Reinsurance by 8.5 points. Greg and Jamie will provide more detail when they discuss their segment results in a moment.

Our P&C combined ratio of 87.7% was 7.6 points better than the first quarter last year. Net income for the quarter almost doubled from a year ago with operating net income up 70%. Our first quarter annualized operating return on shareholders equity was 10.7%. As we discussed in our last call, we recognize that movement in our investment portfolio can lead to volatility, so we focus on our operating ROE ex-unrealized gains and losses. In the first quarter that was 12.3%.

We grew our fully diluted book value per ordinary share by 2.1% in the quarter. We also continue to buy back shares and raise our dividend as people discussed. In this regard, it is worth restating that it is not our goal to expand our capital buffer but rather to keep it level, and the economics continue to favor share purchases at these levels and we expect it to continue.

Overall, P&C gross premiums written for the quarter increased 3.8%. The Insurance segment saw an increase of 12.1% primarily due to new business initiatives and pricing improvements across most lines. However, the same improving pricing trend is not being played out in the reinsurance market and we wrote 7.5% less premium versus the same quarter a year ago. In sum, we are keenly focused on grinding our way through sourcing, selecting, underwriting and binding better performing risks across all of our businesses.

We should also note that we see 5 tailwinds that should help us sustain our progress. The first tailwind comes from the fact that we are seeing the reunderwriting of our books of business, now earning their way to the bottom line, and we expect that positive impact to continue over time. Second, the new leaders that we have put in charge of many of our businesses are hitting their strides. Whether they are industry stars attracted to join XL or company veterans who are rising to the challenge, and we expect these leaders to continue delivering improving results.

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