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XL Group (XL) Posts Wider-than-Expected Q3 Loss, Sales Beat

Zacks Equity Research
Updated

XL Group Ltd XL reported third-quarter 2017 operating net loss of $4.00 per share, wider than the Zacks Consensus Estimate loss of $3.89. Also, the operating net loss in the reported quarter compared unfavorably with the operating earnings of 44 cents in the year-ago quarter. The massive catastrophe losses incurred in the reported quarter were mainly responsible for such a dismal earnings performance.

XL Group Ltd. Price, Consensus and EPS Surprise

 

XL Group Ltd. Price, Consensus and EPS Surprise | XL Group Ltd. Quote

Including non-recurring items, the company reported net loss of $4.06 per share, as against the net income of 25 cents in the year-ago quarter.

Behind the Headlines

Total revenue of XL Group improved 6.9% year over year to $2.8 billion owing to higher net premiums earned as well as fee income and other. Also, revenues outperformed the Zacks Consensus Estimate by 6.1%.

Net premiums earned rose 7.7% year over year to $2.6 billion.

Net investment income declined 3.3% year over year to $202.8 million.

Pre-tax cat losses, net of reinsurance and reinstatement premiums were $1.5 billion. The reported figure was significantly wider than a loss of $97.4 million in the year-ago quarter. The losses incurred in the reported quarter are primarily attributable to hurricanes Harvey, Irma and Maria.

Total expenses of XL Group shot up 63.9% year over year to $4.0 billion due to substantially higher net losses and loss expenses incurred, claims and policy benefits, acquisition costs and foreign exchange losses.

With respect to Property and Casualty operations, gross premiums written in the quarter improved 10.9% year over year to $3.0 billion.

The insurance segment witnessed an improvement in premiums, primarily owing to growth in International and North America Property lines, Accident & Health, North America Construction and Fine Art & Specie. However, decreases in North America programs and Excess & Surplus lines partially offset this upside.

The reinsurance segment experienced improvement in its premiums in the reported quarter on the back of higher level of new business written and reinstatement premiums from the recent catastrophic activity. The rise in new business can be attributable to the Casualty line of business, mainly within the Bermuda and EMEA regions. Plus, significant new business was written within the Property Treaty line of business from both the North America and Latin America regions.

XL Group reported underwriting loss of $1.2 billion in contrast to an underwriting profit of $0.2 billion in the prior-year quarter. Combined ratio deteriorated 5380 basis points to 146.9% in the reported quarter.

Financial Update

XL Group exited the third quarter with cash and cash equivalents of $3.0 billion, down 11.6% from $3.4 billion at the end of 2016.

Notes payable and debt at the end of the quarter were $3.2 billion, up 21.2% from the year-end 2016.

As of Sep 30, 2017, diluted book value of XL Group was $38.27 per share, down 5.1% from Dec 31, 2016.

Share Repurchase Update    

In the third quarter, XL Group bought back approximately 2.7 million shares worth $120.9 million. As of Sep 30, 2017, XL Group had shares worth $529.1 million remaining under its authorization.

Zacks Rank

XL Group carries a Zacks Rank #5 (Strong Sell).

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Performance of Other P&C Insurers

Among other players from the same space that have reported third-quarter earnings so far, the bottom line at The Progressive Corporation PGR, The Travelers Companies, Inc. TRV and RLI Corp. RLI surpassed their respective Zacks Consensus Estimate.

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