XL Capital: “Progress Continued During Q3″
Headquartered in Ireland and with its executive offices in Bermuda, XL Group plc this week reported its third quarter 2011 results. Commenting on the company’s performance, CEO Mike McGavick said: “Progress continued at XL in the quarter, and our own efforts were joined by a new factor — an improving rate environment.
“Our top line growth continued, our enterprise risk management quality continued to show through, and our growing attractiveness as the employer of choice for great complex risk underwriting was demonstrated by a number of important hires.
“But by far the most important of these externally is rate. The quarter saw accelerating rate achievement in most lines. In far more parts of the market the long overdue response to unrealistic risk pricing is underway.
“Taken together, I believe XL is exceptionally positioned for this phase, given our broadened and deepened team of first tier, experienced underwriters and other insurance and reinsurance professionals.”
Operating Highlights:
- Operating net income of $88.8 million, or $0.28 per share, for the quarter
- Net income attributable to ordinary shareholders of $42.4 million, or $0.14 per share for the quarter
- P&C operations combined ratio of 101.6% for the quarter
- Natural catastrophe losses of $110.6 million, net of reinsurance and reinstatement premiums, recorded for the quarter
- Fully diluted book value per ordinary share2 of $30.80 at September 30, 2011
- Share buybacks during the quarter totaled 15.1 million shares
- Gross P&C premiums written increased by 16.4% compared to the prior year quarter, primarily driven by foreign exchange, select new business and favorable pricing
Operating net income decreased from the prior year quarter due primarily to larger natural catastrophe losses and lower levels of positive prior year loss development incurred during the current quarter, offset somewhat by an increase in income from operating affiliates.
Net investment income for the quarter was $290.1 million compared to $296.7 million in the prior year quarter and $296.5 million for the second quarter of 2011. The slight decline against the prior year was primarily due to lower yields as a result of lower interest rates and cash outflows from the investment portfolio.
Net income from affiliates contributed $28.4 million in the quarter compared to $17.1 million in the prior year quarter as a result of strong performance primarily from investment manager affiliates due to profits on the sale of a fund manager affiliate, partially offset by alternative fund losses due to market conditions.
Net realized investment losses for the quarter were $62.4 million compared to $68.8 million in the prior year quarter.
Fully diluted book value per ordinary share decreased by $0.07 from the prior quarter driven primarily by the settlement of the forward purchase contracts associated with the equity security units, partially offset by the benefit of share buybacks and unrealized gains on investments.
During the quarter, the company purchased 15.1 million shares for $307.7 million at an average price of $20.33 per share, which was accretive to fully diluted book value per ordinary share by $0.46. $290.4 million of shares remains available for purchase under the Company’s previously announced $1 billion share buyback program.
P&C gross premiums written [GPW] increased 16.4% from the prior year quarter, driven by an increase in the Insurance segment of 16.6% and in the Reinsurance segment of 16.0%.
Insurance segment growth in GPW was primarily due to the impact of foreign exchange and new business initiatives in both North American and International Property and Casualty units. The increase in GPW for Reinsurance was attributable to higher prices impacting the Company’s U.S. crop portfolio and select new business opportunities worldwide.
P&C net premiums earned (“NPE”) of $1.4 billion was comprised of $930.1 million from the Insurance segment and $432.5 million from the Reinsurance segment. Compared to the prior year quarter, Insurance NPE increased by 6.6% and Reinsurance NPE increased by 9.0%.
The P&C loss ratio was 8.5 percentage points higher than the prior year quarter. Included in the loss ratio was favorable prior year development of $18.4 million compared to $82.3 million in the prior year quarter.
The loss ratio was also adversely impacted by natural catastrophe losses of $110.6 million, net of reinsurance and reinstatement premiums. In the prior year quarter, natural catastrophe losses totaled $66.2 million, including reinstatement premiums. Excluding prior year development and natural catastrophe losses, the third quarter loss ratio was 0.7 percentage points higher than the prior year quarter.
Operating expenses were higher than in the third quarter of 2010 and slightly lower than first and second quarters of 2011. Increased expenses versus the prior year quarter related largely to the build-out of the Company’s previously announced initiatives, partially offset by lower compensation costs.
The P&C combined ratio excluding prior year development and the impact of natural catastrophe losses for the quarter was 94.9%, compared to 96.2% for the prior year quarter.
The Insurance segment combined ratio on this basis was 101.7% for the quarter compared to 100.6% for the prior year quarter, while the Reinsurance segment combined ratio on this basis was 80.0% compared to 86.5% for the prior year quarter. Combined ratios were impacted by a decrease in acquisition expenses in the Reinsurance segment and lower operating expense ratios in both segments.
Dividends Declared
The company also announced that its board of directors declared a quarterly dividend on October 28, 2011 of $0.11 per ordinary share payable on the Company’s ordinary shares. The dividend will be payable on December 30, 2011 to ordinary shareholders of record as of December 15, 2011.
XL Group plc, through its subsidiaries, is a global insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises throughout the world.
Its principal offices are located in Dublin and the executive offices are on Par-La-Ville Road in Hamilton.
