XL Group plc (XL)

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XL Group (XL)

Q3 2012 Earnings Call

November 05, 2012 5:00 pm ET

Executives

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

Michael S. Mcgavick - Chief Executive Officer and Director

James H. Veghte - Chief Executive of Reinsurance Operations and Executive Vice President

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

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

Analysts

Jay Adam Cohen - BofA Merrill Lynch, Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

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

Michael Zaremski - Crédit Suisse AG, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Ian Gutterman - Adage Capital Management, L.P.

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

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

Presentation

Operator

Good afternoon. My name Shirley, and I'll be your conference operator today. At this time I would like to welcome everyone to the XL Group plc Third Quarter 2012 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 2012 Earnings Conference Call. This call is being simultaneously webcast in XL's website at www.xlgroup.com, and we posted to our website several documents including our quarterly financial supplement.

On our call this evening, you will hear from Mike Mcgavick, XL Group's CEO; Jamie Veghte, our Chief Executive of Reinsurance operations; Greg Hendrick, our Chief Executive Insurance operations; and Pete Porrino, XL's Chief Financial Officer.

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 of which they are 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

Thanks, Dave. Welcome to our third quarter call. Obviously, this call comes in a difficult time. We know a lot about the third quarter, and I've been looking forward to sharing it with you. What we don't know a lot about is the event that occurred just last week with Sandy, which I'm sure is on all of your minds.

The first thing to say with respect to Sandy is the most important truth about being in the risk business. It is sadly often about human misery. Our thoughts go out to those who are still suffering.

To respect your obvious curiosity about Sandy, we'll start the call with a brief discussion of what we know. Following this, we'll discuss the third quarter in our usual way, and then we will take your questions.

With Sandy, we know you are working hard to understand the answers to 3 basic questions: how big is the industry loss; what is the XL loss going to be; and is this a market changing event of some kind. I will comment on how we're thinking of the markets after Sandy, Jamie will give our perspectives on the early industry loss estimates as well as what he can on XL Re. And I'll ask Greg to talk more about what we're seeing in our insurance book from Sandy at this point.

Of course, the reality is that no one really knows anything with certainty about Sandy from an overall point of view at this stage. I would point out that even the external risks modeling group we work with most closely has not yet posted its own industry estimate.

In terms of the broader market. I do not think Sandy ends up being a capital event for the industry, at least based on what we are seeing so far. But while Sandy might not change the industry's capital position, I do believe that this may change the industry's perception of risk. When this is all said and done, I don't think any of us are going to feel that people were as well insured as they could have been. I don't think people will feel that the region was as well prepared as it could have been as several leading elected officials have already said. And in the end, I believe the underwriting community will have to we think with care what they should charge for risks in a region with such a complex concentration of values exposed to such storms.

Now I'll turn it over to Jamie for his comments on Sandy.

James H. Veghte

Thanks, Mike. We've had very little specific information from our customer base. Those dialogues are just beginning. We have seen the ranges of industry loss estimates from various sources. And as Mike mentioned, one of the prominent modeling companies has not released an estimate, and it's due out with information for us to work with tomorrow.

Our instinct is that the industry loss will be at the top end of the published ranges, $20 billion or above. This loss really highlights the concentration of values in the region, a loss of perhaps $20 billion to the industry or above from the storm that was classified as post-tropical cyclone as it came ashore is remarkable.

We will have exposure from several sources and clearly a $20 billion market loss. It's a significant loss to the reinsurance market broadly. However, we typically do not provide significant capacity on lower layers of New England mutual companies, principally due to our historic concern over winter storm exposure. Our capacity on those accounts would typically be skewed to the middle and upper parts of the program.

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