XL Group plc (XL) reported third-quarter 2014 operating net income of 70 cents per share, which beat the Zacks Consensus Estimate by 9%. This marked four straight quarters of positive earnings surprise by the company, with an average beat of 18%. Earnings improved 32% year over year.
The outperformance came largely on the back of solid underwriting results in both segments owing to a quite catastrophic environment, despite pricing and renewal pressure.
Including non-recurring items, the property and casualty insurer reported net income of 27 cents per share, which dropped 43% year over year.
Quarterly Operational Performance
Total revenue of XL Group was $1.68 billion, which declined 6% year over year. Revenues managed to surpass the Zacks Consensus Estimate of $1.61 billion.
Net premiums earned decreased nearly 9.3% year over year to $1.47 billion.
Net investment income of $226.4 million was down 4.8% year over year.
XL Group’s underwriting profit shot up 87% to $144.4 million. The combined ratio in the quarter improved 490 basis points (bps) year over year to 88.3%.
Pre-tax cat losses, net of reinsurance and reinstatement premiums, came in at $29.8 million, much lower than $85 million in the year-ago quarter.
Total expense of XL Group decreased about 18% year over year to $1.43 billion attributable to lower net losses and loss expenses incurred in P&C operations, acquisition costs and interest expense.
In the release, the company stated that it continues to expect 2014 operating expense to be higher than the 2013 level, indicating a mid single-digit increase.
P&C Operations: Gross premiums written in the quarter decreased 0.6% year over year. The downside was attributable to a 21% decline in Reinsurance premium, partially offset by 5.1% higher Insurance premium.
Unfavorable renewals in Casualty Treaty in North America and share decreases, timing and cancellations in International Casualty Treaty resulted in lower Reinsurance premium. However, Insurance premium improved on the back of new business in North America Construction, Marine, Surety and Political Risk businesses and higher renewed premiums in North American Excess Casualty, Programs and Construction lines.
Combined ratio (excluding prior-year development and the impact of natural catastrophe losses) improved 430 bps to 90.4%.
Financial Update
XL Group exited the quarter with cash and cash equivalents of $2.35 billion, up 33% from $1.80 billion at the end of 2013.
Notes payable and debt at quarter end were $1.7 billion, lower than the 2013-end level 0f $2.3 billion.
Book value of XL Group as of Sep 30, 2014 was $37.10 per share, up 5% from $35.32 as of Dec 31, 2013.
Share Repurchase Update
In the reported quarter, XL Group spent $275 million to buy back 8.2 million shares. The company was left with $442.6 million under its authorization at Sep 30.
Zacks Rank
XL Group currently carries a Zacks Rank #3 (Hold).
Performance by Other P&C Insurers
The bottom line at RLI Corporation (RLI), The Travelers Companies Inc. (TRV) and ACE Limited (ACE) has outperformed each of their Zacks Consensus Estimate in the third quarter.
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