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XL Group Upgraded to Neutral

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We are upgrading our recommendation on XL Group plc to Neutral from Underperform based on the company’s initiative to expand its operations and tap the opportunities in the reviving economy. The company is aggressively pursuing share buybacks and has a new authorized share repurchase program under its belt, which in turn will aid the bottom line numbers.

XL Group is slated to report its first quarter earnings on May 8. We expect the company to register earnings of 40 cents per share, reversing the loss incurred in the year-ago quarter.  

XL Group is aiming to widen its operations. The company has received the final approval for establishing a Brazilian insurance operation. With Brazil playing a crucial role in the global economy, we expect XL Group to capitalize on the opportunities as and when they arise. Recently, the company has also teamed up with Hays Affinity Solutions, a division of Hays Companies of Minneapolis in order to offer professional liability insurance to dentists.

XL Group continues to enhance shareholders’ value through dividend payment as well as share repurchase. The board approved a share repurchase program wherein the company is authorized to buy back up to $750 million worth of shares.

On the flip side, net investment income at XL Group has been declining over the past few years. With the prevailing low interest rate environment, we expect investment income to remain low.

Also, given the company’s substantial exposure to catastrophe losses, occurrence of any natural and man-made disasters or other catastrophic events will weigh on the results of the company.

Based in Dublin, Ireland, XL Group is a leading global provider of insurance, reinsurance and financial risk solutions to enterprises and insurance companies. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term. The company competes with ACE Limited .

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