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XL Group (XL) Estimates Q4 Catastrophe Loss of $245 Million

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XL Group plc projects pre-tax catastrophe loss of $245 million, net of reinsurance and including reinstatement premiums, in the fourth quarter. The estimated losses are likely to have stemmed from Hurricane Matthew and the earthquake in New Zealand. Shares lost about 1.68% to close the trading session at $36.76 on Jan 9.

While Hurricane Matthew resulted in cat loss of about $130 million, the company incurred a loss of $75 million due to the earthquake in New Zealand. The remaining cat loss was attributable to other natural calamities.

XL Group believes that the Insurance segment will bear a loss of $125 million ($75 million from Hurricane Matthew and nearly $19 million from the earthquake in New Zealand). The Reinsurance segment will incur a loss of $120 million ($75 million from Hurricane Matthew and $56 million from the earthquake in New Zealand).

As a property and casualty (P&C) insurer, XL Group remains exposed to losses from natural disasters. Catastrophe losses continue to pose concerns for XL Group, with the pre-tax cat losses for both Insurance and Reinsurance segments witnessing a significant rise. Catastrophe losses through the first three quarters widened as combined ratios deteriorated.

Shares of XL Group underperformed the Zacks categorized Property, Casualty and Title Insurance industry in the last three months. While shares of XL Group gained 6.89%, the industry gained 10.88%. The company also witnessed its annual estimates moving south in the last 60 days.

XL Group is scheduled to release fourth-quarter results on Feb 1. Our proven model shows that the insurer is likely to beat on earnings. This is because XL Group has a favorable Zacks Rank #3 (Hold) and an Earnings ESP of +18.00%. The Zacks Consensus Estimate for the quarter is currently pegged at 50 cents. However, we expect the number to change as analysts incorporate the catastrophe loss in their estimates. The insurer delivered positive surprises in three of the last four quarters with an average beat of 11.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Given that the P&C insurance industry is plagued by the vagaries of catastrophe events, insurers regularly come up with their catastrophe loss estimates. The industry is likely to incur between $3 billion and $9 billion in loss in the fourth quarter. While Alleghany Corporation (Y) projects fourth-quarter catastrophe loss to be less than million $75 million, Chubb Limited (CB) projects catastrophe loss of $200 million pre tax. Everest Re Group Ltd. (RE), on the other hand, is expected to incur cat loss of $75–$200 million in the fourth quarter.

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