A.M. Best Co. has assigned issuer credit ratings (ICR) of “bbb” to XL Group plc (XL). The rating agency also assigned an FSR of A (Excellent) and an ICR of “a” to XL Insurance Switzerland Ltd. The outlook assigned to the ratings is stable.
Additionally, FSR of A (Excellent) and ICR of “a” for the property casualty subsidiaries XL Group has been affirmed by A.M. Best Co. Also, the rating agency affirmed the ICR of “bbb” and all debt ratings of XL Group Ltd. The outlook for all the ratings is stable.
The rating affirmations came on the back of continued strong operational performance, superior risk-based capitalization and de-risking of its investment portfolio.
XL Group delivered solid operating results in both primary and reinsurance segments. Underwriting income of the company increased substantially to $109.8 million in the quarter from $45.8 million in the year ago quarter. Combined ratio in fourth quarter improved 500 basis points.
A.M. Best Co. expects debt-to-capital ratio to remain in the 15%-25% range. Though the fixed charge coverage ratios declined due to the unstable capital market and the settlement with Syncora Holdings Ltd., the rating agency expects it to remain comparable to 2010 going forward.
XL Group reported its fourth-quarter 2010 operating income of 74 cents per share beating the Zacks Consensus Estimate of 67 cents. The year-over-year improvement stemmed from an increase in property and casualty underwriting income.
The Zacks Consensus Estimate for first-quarter 2011 is 45 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $2.19 per share and $2.25 per share.
Based on the company’s conservative underwriting practices and repositioned P&C portfolio, we expect XL Group to fare well going forward. The company is also taking initiatives to expand its operations and is aiming to tap the opportunities in the growing economy.
XL Group also obtained the license from China Insurance Regulatory Commission to function as a property and casualty company in Shanghai. This license, to operate in Shanghai, widens XL Group’s presence in the emerging market. XL Group believes that China with a growing insurance market offers opportunities to write more premiums. Also, the addition of CIMI Professional to XL Insurance will broaden the latter’s exposure to long-term care industry.
We maintain our long-term Neutral recommendation on XL Group. 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. XL Group competes with ACE Limited (ACE).
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XL GROUP PLC (XL): Free Stock Analysis Report
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