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On Mar 25, 2013, shares of XL Group plc (XL - Analyst Report) hit a 52-week high of $30.61. Previously, the company had reported solid fourth-quarter results with an earnings surprise of 138.2%. This property & casualty insurer witnessed positive earnings surprises in all four quarters of 2012, with an average beat of 54.3%.

On Feb 7, XL Group reported fourth-quarter 2012 operating income of 13 cents per share, surpassing the Zacks Consensus Estimate of a loss of 35 cents, and the year-ago loss of 25 cents. Total revenue increased 11.8% year over year to $1.9 billion, outpacing the Zacks Consensus Estimate.

XL Group has an $850 million share buyback program under its authorization, approved by the board of directors in Feb 2013. In addition, it approved of a dividend hike of 27% to 14 cents per share.

Moreover, the North America Marine insurance business launched a marine coverage product named “ShipShape.” The new product will insure the yacht owners from sudden weather shocks and foul seas.

The absence of any major catastrophe events in the first nine months of 2012 was beneficial to the underwriting results of the company. However, the occurrence of Hurricane Sandy in the fourth quarter altered the picture. Though its exposure to cat loss weighs on the results, prudent underwriting practices managed to limit the adverse effect. The company enjoyed underwriting income of $216.1 million for full year 2012, reversing the year-ago loss. The combined ratio improved 1120 basis points to 96.3% in 2012.

Valuation for XL Group looks stretched. The shares are trading at a discount to the peer group average, both on a price-to-book basis (28.7% discount to peer group average) and forward price-to-earnings basis (4.9% discount to peer group average), with return on equity remaining 39.3% below the peer group average. The 1-year return from the stock is 43.4%, much above S&P’s return of 11.1%.   

We believe that the conservative underwriting practices and repositioned P&C portfolio will help XL Group fare well going forward. The overall long-term expected earnings growth rate for this stock is 7.5%.

XL Group presently carries a Zacks Rank # 1 (Strong Buy). Property and casualty insurers like Aspen Insurance Holding Ltd. (AHL - Snapshot Report), Cincinnati Financial Corp. (CINF - Analyst Report) and Arch Capital Group Ltd. (ACGL - Snapshot Report), among others, carry a favorable Zacks Rank # 1 and appear impressive.
 

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