XL Group Expands in Brazil

XL Group plc (XL - Analyst Report) got a nod from Superintendencia de Seguros Privados, Brazilian insurance and reinsurance regulator to commence its insurance operations in the country.

Earlier, in September 2011, XL Group had received prior approval from the regulators. Yesterday, the company received the final approval.

XL Group will now offer Casualty, Property, Professional and Specialty insurance products through XL Seguros Brasil S.A., thereby launching its insurance operations there. The company intends to commence its operations in the first quarter of 2012. XL Group already has reinsurance operations in the country.

The company noted that Brazil stood for 42% of South America’s non-life insurance premiums in 2010. The company expects this market to grow to $160 billion in the next 20 years. With Brazil continuing to play an important part in the global economy, we expect XL Group to capitalize on the opportunities as and when they arise.

XL Group’s third quarter earnings lagged the Zacks Consensus Estimate as well as year ago results on higher catastrophe losses and lower levels of positive prior year loss development, partially offset by  an increase in income from operating affiliates.

The Zacks Consensus Estimate for third quarter 2011 is 53 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are $1.07 and $2.23 per share, respectively.

Though the company is taking initiatives to expand its operations and tap the opportunities in the reviving economy, remains focused on boosting shareholders’ value through dividend increase and continued share repurchase and scores favorably with the credit rating agencies, significant exposure to catastrophe losses, soft property and casualty environment and low interest rate environment will dwarf these positives to some extent.

We thus retain our long-term Neutral recommendation on XL Group. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional 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. The compnay competes with ACE Limited (ACE - Analyst Report).

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