XL Group plc (XL)

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XL Group (XL)

Q3 2013 Earnings Call

October 30, 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

Analysts

Jay Gelb - Barclays Capital, Research Division

Brian Meredith - UBS Investment Bank, Research Division

Joshua D. Shanker - Deutsche Bank AG, Research Division

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

Vinay Misquith - Evercore Partners Inc., Research Division

Michael Zaremski - Crédit Suisse AG, Research Division

Jay Adam Cohen - BofA Merrill Lynch, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Gregory Locraft - Morgan Stanley, Research Division

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

J. Paul Newsome - Sandler O'Neill + Partners, L.P., Research Division

Ian Gutterman - Balyasny Asset Management L.P.

Ian Gutterman - Adage Capital Management, L.P.

Amit Kumar - Macquarie Research

Presentation

Operator

Good afternoon. My name is Shirly, and I'll be your conference operator today. At this time, I would like to welcome everyone to the XL Group plc Third 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. Please go ahead.

David R. Radulski

Thank you, Shirley, and welcome to XL Group's Third Quarter 2013 Earnings Conference Call. This call is being simultaneously webcast on XL's website at www.xlgroup.com. We post 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, 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 conditions. Then we'll open it up for questions.

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 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.

And with that, I'll turn it over to Mike McGavick.

Michael S. McGavick

Good evening. Tonight, we are pleased to share with you XL's third quarter 2013 results, a quarter in which we grew our book value per share, increase gross premiums written, continued to see the benefits of an improving Insurance segment and had another solid Reinsurance result. At the same time, as we'll discuss this quarter and this year to date, remind us that XL is a work in progress, and tonight, we have both work and progress to talk about.

The progress we have made is substantial. We want to give you a thorough update on what we had seen year-to-date and why these results continue to bolster our confidence. Equally, we want to describe our current work and why we are confident that we will reach our goals of an attractive ROE driven by much improved combined ratio in our Insurance segment. And we believe we are on our way there at a faster clip than this quarter might indicate.

So first, a few thoughts on the quarter itself. While I opened with a list of positives from the quarter, and should add to that list a positive prior year development, you would also have seen from our release that we experienced a degree of CAT and individual loss activity that contributed to a higher quarterly accident year loss ratio in both the Insurance and Reinsurance segments. Given our diverse lines of business and the complex risk we write, one or more businesses will be expected to from time to time produce unusual levels of loss as we saw in this quarter. When this happens, there are a few series of questions we ask. Is this an unusual event or indicative of a trend? Do we have the right leaders in place? Are the underwriters taking the kinds of risk we want? And are they in line with that business' strategy and the group's strategy? In our review this quarter, in the main, we like the answers to these questions. These losses do not change our views. In fact, it is helpful to provide some additional perspective. This quarter reminds me a little bit of the fourth quarter of 2011, another quarter where we had collection of sizable losses that impacted our results. In that quarter, our reviews of the loss-making businesses indicated a number of needs for improvement that caused a huge amount of revised work. Not so this time. And in that quarter, we reported a 108% combined ratio. This quarter, with a similar set of issues, we made an underwriting profit. Today is remarkably different, and it is a direct result of the progress we are making. So we like the underlying trend of where we are year-to-date. We are on track.

So the specifics. The Insurance segment's year-to-date accident year combined ratio ex-CAT of 96.1% and the loss ratio ex-CAT of 65.6% are the best results on the same basis since 2007. Reinsurance generated a combined ratio of 80.1%, ahead of the 80.5% at the same period last year. And our year-to-date overall P&C combined ratio of 92.2% is a 0.5 point better than at the same time a year ago. Greg and Jamie will talk in more detail about these segment results in a moment.

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