XL Group plc (XL)

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XL Group (XL)

Q2 2013 Earnings Call

July 29, 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

Analysts

Jay Adam Cohen - BofA Merrill Lynch, Research Division

Jay Gelb - Barclays Capital, Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

Michael Zaremski - Crédit Suisse AG, Research Division

Joshua D. Shanker - Deutsche Bank AG, Research Division

Brian Meredith - UBS Investment Bank, Research Division

Gregory Locraft - Morgan Stanley, Research Division

Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Ryan J. Byrnes - Langen McAlenney

Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division

Randy Binner - FBR Capital Markets & Co., Research Division

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 Second Quarter 2013 Earnings Call. [Operator Instructions] Please be advised, this conference is being recorded. I would now like to turn the call over to David Radulski, XL's Director of Investor Relations.

David R. Radulski

Thank you, Shirley, and welcome to XL Group Second Quarter 2013 Earnings Conference Call. This call is being simultaneously webcast on XL's website at www.xlgroup.com. We posted to our website several documents, including our quarterly financial supplement.

On our call this evening, you'll hear from Mike McGavick, XL Group's CEO, who will offer opening remarks; Pete Porrino, XL's Chief Financial Officer, will 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 conditions. Then we'll open it up for questions. Among those also available for questions are Susan Cross, our Global Chief Actuary; Sarah Street, our Chief Investment Officer; and Stephen Robb, our Controller.

Before they begin, I’d like to remind you that certain of 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 on 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 XL's second quarter 2013 earnings call. As you would have seen in our prerelease, XL's results for the second quarter, like those of many of our peers, were significantly impacted by natural catastrophes. This comes after our sector had enjoyed the benefits of relatively low CAT losses in the first quarter, yet we feel the same about each the first and the second quarter. Setting aside the level of CAT losses, we have maintained our focus on strengthening the quality of our underwriting businesses and enhancing our already strong leadership and we are excited with our progress as it is demonstrated when one looks at the first half of 2013 in its entirety.

Year-to-date, our all-in combined ratio was 90.8% versus 93% for the first half of 2012. Our combined ratio for the second quarter was 93.8%. Ex-CAT, this was a 92.7%. Again, an improvement over the 93.7% ex-CAT combined ratio for the second quarter a year ago. As regards the second quarter, it includes 3 positive results, one that moves sideways and one that was, at least on the surface, negative.

On the positive side, first is the fact that we had strong contributions from favorable prior year development of $119 million, a nice affirmation of the strength and prudence of our reserving process. Second, our income from investment affiliates was $74 million in the quarter versus just $17 million in the same quarter a year ago. And third, the pricing trends and insurance continue to be positive and we have seen positive rate in 19 of 22 of our insurance businesses. Those are the 3 things that went well.

As for a result that was more sideways, that would be this quarter's action ex-CAT combined ratio insurance. While it improved by 1.5 points versus the second quarter last year, it did not stay at the very healthy levels of the first quarter. We are unconcerned. As we near the goal of running a 90% combined, we would expect it to not always be improving but to bounce around some, and this was such a quarter. At the same time, we were able to grow insurance premiums written in the first half of the year by 12.2%, even as we chose to write 3.8% less premium in reinsurance, and the underlying trends in our books leave us convinced that we will continue to see the improvements towards our goals.

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