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XL Group, Plc (XL)

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We are downgrading our recommendation on XL Group Plc (XL) to Underperform from Neutral based on the weak fourth quarter performance. The company posted a loss, comparing unfavorably with the Zacks Consensus Estimate. XL delivered lower numbers largely due to higher catastrophe losses, lower levels of positive prior-year loss development and higher tax expenses.

A soft property and casualty environment will continue to restrict top-line growth. Moreover, the current interest rate environment and exposure to the credit market will hurt investment income to some extent.

Our six-month price target of $20.00 per share equates to about 10.8x our earnings estimate for 2012. Combined with the $0.44 per share annual dividend, this target price implies an expected total negative return of 7.1% over that period. This is consistent with our Underperform recommendation on the stock.




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