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Will Catastrophe Loss Impact XL Group's (XL) Q4 Earnings?
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XL Group Ltd is slated to report fourth-quarter 2017 results on Feb 1 after the market closes. Last quarter, the company delivered a negative earnings surprise of 2.83%.
Let’s see, how things are shaping up for this announcement.
Factors to be Considered This Quarter
The occurrence of the California wildfires is anticipated to have a significant impact on XL Group’s fourth-quarter results. In fact, the property and casualty insurer has projected total pre-tax catastrophe loss, net of reinsurance, reinstatement and adjusted premiums plus redeemable non-controlling interest amounting to $315 million. Losses at such level will thus hamper the company’s underwriting profitability.
Such a massive loss might lead to noticeably deteriorating the combined ratio as well. The Zacks Consensus Estimate for the metric in the to-be-reported period is pegged at 92%.
Further, the company has likely witnessed an increase in operating expenses in the soon-to-be-reported quarter, mainly due to higher net loss and loss expenses incurred, claims and policy benefits as well as forex loss. This in turn might restrict the operating margin expansion as well.
Notably, for 2017 the company expects operating expenses to be about $1.77 billion.
Thanks to the recent corporate tax rate cut, the P&C insurer might incur a charge of $98 million in the fourth quarter of 2017 due to revaluation of its net Deferred Tax Asset. However, it is important to mention here that the charge will not have a material impact on the company’s fourth-quarter operating net income.
Despite the interest rate hikes, the company is anticipating a fall in net investment income due to the still low-interest rate environment.
Nonetheless, the company is likely to witness improvement in gross premiums written in the soon-to-be-reported quarter, fueled by higher premiums at both its Insurance and Reinsurance segments.
Additionally, continued share buybacks have likely cushioned the company’s bottom line. The Zacks Consensus Estimate is pegged at 49 cents, representing a year-over-year increase of 4.3%.
What Our Quantitative Model Says
Our proven model does not conclusively show that XL Group is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.
Zacks ESP: XL Group has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 49 cents. A company's 0.00% ESP also makes suprise prediction difficult. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Zacks Rank: XL Group holds a Zacks Rank #5 (Strong Sell), which lowers the predictive power of ESP. We caution against all Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Some stocks worth considering from the insurance industry with the right combination of elements to surpass estimates this time around are as follows:
Primerica, Inc. (PRI - Free Report) has an Earnings ESP of +0.58% and a Zacks Rank of 1. The company is set to announce fourth-quarter earnings on Feb 7.
Torchmark Corporation has an Earnings ESP of +0.12% and is a Zacks #1 Ranked player. The company is slated to release fourth-quarter earnings on Feb 7.
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Image: Bigstock
Will Catastrophe Loss Impact XL Group's (XL) Q4 Earnings?
XL Group Ltd is slated to report fourth-quarter 2017 results on Feb 1 after the market closes. Last quarter, the company delivered a negative earnings surprise of 2.83%.
Let’s see, how things are shaping up for this announcement.
Factors to be Considered This Quarter
The occurrence of the California wildfires is anticipated to have a significant impact on XL Group’s fourth-quarter results. In fact, the property and casualty insurer has projected total pre-tax catastrophe loss, net of reinsurance, reinstatement and adjusted premiums plus redeemable non-controlling interest amounting to $315 million. Losses at such level will thus hamper the company’s underwriting profitability.
Such a massive loss might lead to noticeably deteriorating the combined ratio as well. The Zacks Consensus Estimate for the metric in the to-be-reported period is pegged at 92%.
Further, the company has likely witnessed an increase in operating expenses in the soon-to-be-reported quarter, mainly due to higher net loss and loss expenses incurred, claims and policy benefits as well as forex loss. This in turn might restrict the operating margin expansion as well.
Notably, for 2017 the company expects operating expenses to be about $1.77 billion.
Thanks to the recent corporate tax rate cut, the P&C insurer might incur a charge of $98 million in the fourth quarter of 2017 due to revaluation of its net Deferred Tax Asset. However, it is important to mention here that the charge will not have a material impact on the company’s fourth-quarter operating net income.
Despite the interest rate hikes, the company is anticipating a fall in net investment income due to the still low-interest rate environment.
Nonetheless, the company is likely to witness improvement in gross premiums written in the soon-to-be-reported quarter, fueled by higher premiums at both its Insurance and Reinsurance segments.
Additionally, continued share buybacks have likely cushioned the company’s bottom line. The Zacks Consensus Estimate is pegged at 49 cents, representing a year-over-year increase of 4.3%.
What Our Quantitative Model Says
Our proven model does not conclusively show that XL Group is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.
Zacks ESP: XL Group has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 49 cents. A company's 0.00% ESP also makes suprise prediction difficult. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
XL Group Ltd. Price and EPS Surprise
XL Group Ltd. Price and EPS Surprise | XL Group Ltd. Quote
Zacks Rank: XL Group holds a Zacks Rank #5 (Strong Sell), which lowers the predictive power of ESP. We caution against all Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Some stocks worth considering from the insurance industry with the right combination of elements to surpass estimates this time around are as follows:
American Equity Investment Life Holding Company (AEL - Free Report) is set to report fourth-quarter earnings on Feb 7. The stock has an Earnings ESP of +1.12% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Primerica, Inc. (PRI - Free Report) has an Earnings ESP of +0.58% and a Zacks Rank of 1. The company is set to announce fourth-quarter earnings on Feb 7.
Torchmark Corporation has an Earnings ESP of +0.12% and is a Zacks #1 Ranked player. The company is slated to release fourth-quarter earnings on Feb 7.
Don’t Even Think About Buying Bitcoin Until You Read This
The most popular cryptocurrency skyrocketed last year, giving some investors the chance to bank 20X returns or even more. Those gains, however, came with serious volatility and risk. Bitcoin sank 25% or more 3 times in 2017.
Zacks has just released a new Special Report to help readers capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 4 crypto-related stocks now >>