We are upgrading XL Group (XL) to Neutral from Underperform based on the strength of its second quarter results. The quarter benefited from select new business growth coupled with an increase in income from operating affiliates and positive prior year loss development. However, larger natural catastrophe losses and other large individual losses somewhat dwarfed the positives.
XL Group reported second-quarter operating profit of 75 cents per share, surpassing the Zacks Consensus Estimate 48 cents and 71 cents earned in the year-ago quarter.
XL Group remains focused on those lines of business within its insurance and reinsurance operations that provide the best return on capital over the pricing cycle. Premiums written in the quarter were better than that of the prior year with the majority of organic growth coming from selective initiatives in more profitable businesses. Premium writings in XL Re Bermuda and Europe mainly contributed to the growth.
XL Group is also taking initiatives to expand its operations. Recently, XL Insurance's Design Professional group inked a deal to offer physical damage insurance coverage for Dealerships nationwide.
The company continues to buy back shares in an effort to return more value to the shareholders. In the second quarter of 2011, XL Group spent $92.3 million to buy back 4.3 million shares. Subsequent to the second quarter, the company bought back another 7.3 million shares for $157.7 million. XL Group also scores strongly with the raing agencies.
On the flip side, XL has substantial exposure to losses resulting from natural and man-made disasters and other catastrophic events. However, the magnitude of loss was lower in the last quarter.
Net investment income at XL Group has been declining in the past few years. The second quarter experienced lower US interest rates on the property and casualty portfolio and cash outflows from the invested portfolio effecting net investment income.
The Zacks Consensus Estimate for third-quarter 2011 is 43 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $1.34 per share and $2.22 per share.
The quantitative Zacks #3 Rank (short term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Based in Dublin, Ireland, XL Group is a leading global provider of insurance, reinsurance and financial risk solutions to enterprises and insurance companies. It competes with ACE Limited (ACE).
ACE LIMITED (ACE): Free Stock Analysis Report
XL GROUP PLC (XL): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment