XL Group plc (XL) reported its first-quarter 2014 operating net income of 85 cents per share, which beat the Zacks Consensus Estimate by 19.7%. The results, however, declined 8.6% year over year.
Including net realized gains on investments of $18.9 million; net realized and unrealized gains on derivatives of nearly $1.8 million; net realized and unrealized losses on investments and derivatives related to XL Group’s insurance company affiliates of $3.9 million and foreign exchange losses of $7.6 million, XL Group reported net income of 91 cents per share, down 22.2%.
A lower underwriting profit largely attributed to the decline. However, higher net income from investment funds and investment manager operating affiliates limited the downside.
Quarterly Operational Performance
Total revenue in the quarter was $1.79 billion, which declined 4% year over year. Revenues also missed the Zacks Consensus Estimate of $1.75 billion.
Net premiums earned in the quarter decreased nearly 3.5% year over year to $1.41 billion.
Net investment income of $233.2 million in the quarter was down 5.4% year over year.
XL Group’s underwriting profit was $144.9 million, down 19.8% year over year. The combined ratio in the quarter deteriorated 200 basis points (bps) year over year to 89.7%.
Pre-tax cat losses, net of reinsurance and reinstatement premiums, came in at $17.2 million, compared with $4.0 million in the year-ago quarter.
Total expense of XL Group increased 3.1% year over year to $1.51 billion attributable to higher claims and policy benefits in Life operations, operating expenses and interest expense.
P&C Operations: Gross premiums written in the quarter inched up 1% year over year. The upside was attributable to a 4.9% increase in Insurance premium. A 5.4% higher Reinsurance premium, however, limited the upside.
Insurance premium improved due to higher renewed premiums in International Professional and North American Casualty and Construction lines. Reinsurance premium declined due to non-renewal of a large UK Motor treaty and competitive trading conditions in Property.
Net premiums earned increased 40% year over year in the quarter under review.
Combined ratio (excluding prior-year development and the impact of natural catastrophe losses) deteriorated 200 bps to 89.7% in the reported quarter.
Life Operations: Gross premiums written increased 15.5% year over year to $84.3 million in the reported quarter.
Net premiums earned rose 16.7% year over year to $76.3 million.
Financial Update
XL Group exited the quarter with cash and cash equivalents of $2.47 billion, down 37.7% from $1.80 billion at the end of 2013.
Notes payable and debt at quarter end were $2.26 billion, a tad lower from the 2013-end level.
Book value of XL Group as of Mar 31, 2014 was $36.95 per share, up 4.6% from $35.32 as on Dec 31, 2013.
Share Repurchase Update
In the reported quarter, XL Group spent $175 million to buy back 5.8 million shares. The company, as on March 31, 2014 was left with $892.6 million under its authorization. In Feb 2014, the board increased the buyback program to $1 billion.
Divestiture
In a recent development, XL Insurance (Bermuda) Ltd has inked a deal to vend off its wholly-owned subsidiary, XL Life Reinsurance (SAC) Ltd (“XLLR”), to GreyCastle Holdings Ltd. for $570 million in cash. The transaction is expected to culminate in the second quarter of 2014 pending necessary approvals.
Following the divestment, XLLR will reinsure the majority of XL's life reinsurance business through 100% quota share reinsurance. XL will also retain about $438 million of reserves related to disability, accident and health policies and U.S. term assurance in its Life operations segment. The company will record reinsurance recoverable from XLLR of $4.4 billion.
XL Group believes the divestiture improves the risk profile, cushioning it with additional flexibility to pursue capital management initiatives. This includes buying back additional $300 million of shares in 2014.
Performance of Other Property and Casualty insurers
RLI Corporation (RLI) posted first-quarter 2014 operating earnings of 57 cents per share, exceeding the Zacks Consensus Estimate by 5.6% and the year-ago quarter’s earnings by 9.6%.
The Travelers Companies Inc.’s (TRV) first-quarter net income of $2.95 per share outperformed the Zacks Consensus Estimate by 38% and improved 28% year over year.
W.R. Berkley Corp. (WRB) reported first-quarter 2014 core operating earnings of $1.00 per share, handily beating the Zacks Consensus Estimate of 79 cents. Earnings also surged 35.1% year over year.
Zacks Rank
XL Group presently carries a Zacks Rank #3 (Hold).
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