On Jan 19, 2015, we issued an updated research report on XL Group plcXL .
XL Group is primarily focused on its insurance and reinsurance lines as these provide the best return on capital. In order to strengthen its position in the market, the property and casualty insurer (P&C) actively engages in capital deployment in businesses with lower loss ratios, which will ultimately lead to margin expansion.
The acquisition of Catlin in early May 2015 has lent XL Group an added edge with regard to global specialty insurance and reinsurance markets. Increase in alternative capital opportunities as well as expansion of some business lines of the company are few of the expected benefits of this acquisition. With this buyout, XL Group is likely to achieve its expense synergy target of $250 million by 2017.
Through the divestiture XL Life Reinsurance (SAC) Ltd. in May 2015, the company intends to improve its risk profile and gain additional flexibility in pursuing capital management initiatives. The company has also decided to tap into opportunities in the growing economy which will help in diversification of its operations. Moreover, in order to retain and boost investor confidence, the company regularly engages in dividend payments and share repurchases.
However, exposure to natural and man-made disasters and other catastrophe losses weigh on the company's bottom line and continue to remain a concern. The P&C insurer also witnessed lesser investment yields owing to lower reinvestment rates. Additionally, declining investment income, escalating expenses, and inconsistency in cash inflow will have an adverse impact on the investment earnings, operating margin and liquidity needs of the company.
XL Group is slated to report fourth-quarter earnings on Feb 3, 2016. The Zacks Consensus Estimate for the stock stands at 68 cents per share, which translates into year over year decline of 39.7%.
Zacks Rank and Stocks to Consider
XL Group currently has a Zacks Rank #3 (Hold). Some better-ranked P&C insurers are Fidelity National Financial Ventures FNFV , PartnerRe Ltd. PRE and Universal Insurance Holdings Inc. UVE . Each of these stocks sports a Zacks Rank #1 (Strong Buy).