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Analyst Blog

XL Group plc (XL - Analyst Report) remains focused on business lines within its insurance and reinsurance operations that provide the best return on capital over the pricing cycle. The company is also taking initiatives to expand its operations. Moreover, XL Group continues to enhance shareholder value through dividend payment as well as share repurchase.

However, these positives are somewhat dampened by XL Group’s substantial exposure to losses resulting from natural and man-made disasters as well as continued lower net investment income. We thus retain our Neutral recommendation on the company.

The company is aiming to tap opportunities in the growing economy. A subsidiary of XL Group, XL Insurance Company Limited, got the license from the Malaysian Federal Territory of Labuan to underwrite business in and through the Labuan insurance market.

Also, XL Insurance, the global insurance operations of XL Group inked a deal with Breed's Hill Insurance Agency Inc. for providing General Liability and Property coverages for multi-unit apartment buildings, condominium associations and mixed-use real estate risks mainly in the New England market. Recently, XL Insurance inked a deal to provide comprehensive insurance coverage to the forest products industry.

XL Group registered higher premiums written in the quarter with the majority of organic growth coming from selective initiatives in more profitable businesses, including international professional, construction and marine lines.

On the flip side, the company’s exposure to catastrophe losses weighed on its results. In the first quarter of 2011, catastrophe losses totaled $387.4 million, reflecting a more than two-fold increase from $181.1 million in the first quarter of 2010.   

Net investment income at XL Group has shown a declining trend for the past few years. The first quarter experienced lower U.S. interest rates on the property and casualty portfolio as well as cash outflows from the invested portfolio affecting net investment income.

XL Group reported its first-quarter 2011 operating loss of 52 cents per share, wider than the Zacks Consensus Estimate of a loss of 38 cents. Results also compared unfavorably with operating profit of 44 cents earned in the year-ago quarter. The quarter suffered hugely due tothe Australian floods in January, the New Zealand earthquake in February and the Tohoku earthquake in March.

The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward 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 - Analyst Report).

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