XL Group plc (XL) reported fourth-quarter 2014 operating net income of $1.12 per share, which beat the Zacks Consensus Estimate by 27%. Earnings improved 12% year over year and marked five straight quarters of positive earnings surprise.
The outperformance came largely on the back of solid underwriting results in both segments – Insurance and Reinsurance – owing to a quite catastrophic environment.
Including non-recurring items, the property and casualty insurer reported net income of 53 cents per share, which dropped 50% year over year.
Quarterly Operational Performance
Total revenue of XL Group was $1.66 billion, which declined 13% year over year. Revenues managed to surpass the Zacks Consensus Estimate of $1.54 billion.
Net premiums earned decreased nearly 9.8% year over year to $1.44 billion.
Net investment income of $226.2 million was down 6.1% year over year.
XL Group’s underwriting profit more than doubled to $219 million. The combined ratio in the quarter improved 880 basis points to 84.5%.
Pre-tax cat losses, net of reinsurance and reinstatement premiums, came in at $31.7 million, much lower than $94.3 million in the year-ago quarter.
Total expense of XL Group decreased about 21% year over year to $1.29 billion attributable to lower net losses and loss expenses incurred on P&C operations, claims and policy benefits, acquisition costs and interest expense.
P&C Operations: Gross premiums written in the quarter increased 11.2% year over year. The upside was attributable to a 13.1% improvement in Insurance premium, partially offset by 3.6% lower Reinsurance premium.
Solid new business particularly in International Financial Lines, Construction, North America Primary Casualty, Marine and Political Risk, and solid premium retention across most of the portfolio drove the upside in Insurance. Though non-renewal activity in the US Casualty Treaty book and foreign exchange were responsible for lower Reinsurance premium, growth in International Casualty Treaty, Property Facultative, US Property Treaty and Crop compensated partially.
Combined ratio (excluding prior-year development and the impact of natural catastrophe losses) improved 190 bps to 89.1%.
Full-Year Review
XL Group posted operating income of $3.68 which outperformed the Zacks Consensus Estimate by 6.4% and improved 14% year over year.
Net income slumped to 69 cents from $3.63 earned in the year-ago quarter.
Revenues declined 7.5% year over year to $6.97 billion.
While underwriting profit increased 50%, combined ratio improved 430 basis points to 88.2%
Financial Update
XL Group exited 2014 with cash and cash equivalents of $2.52 billion, up 40% 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 of $2.3 billion.
Book value of XL Group as of Dec 31, 2014 was $38.51 per share, up 9% from $35.32 as of Dec 31, 2013.
Share Repurchase Update
In the reported quarter, XL Group spent $175 million on buying back 5.2 million shares, taking the full-year tally to 24.7 million shares repurchased for $800 million. The company was left with $267.6 million under its authorization at Dec 31.
Zacks Rank
XL Group currently carries a Zacks Rank #3 (Hold).
Performance by Other P&C Insurers
Bottom lines at RLI Corporation (RLI), ACE Limited (ACE) and The Travelers Companies Inc. (TRV) outperformed their respective Zacks Consensus Estimate in the fourth quarter.
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