XL Group (XL) guided preliminary losses from the earthquake and tsunami in Japan to be between $190 million and $290 million, pre-tax and net of reinsurance and reinstatement premiums. The company expects 70% of the loss to be attributable to XL’s reinsurance segment.

In 2010, XL Group incurred higher net losses of $294.3 million from natural catastrophes, compared with $52.3 million in 2009. Major natural catastrophes in 2010 included the Chilean Earthquake, European Windstorm Xynthia, U.S. tornadoes and hailstorm, the New Zealand Earthquake and floods in Central Europe, China, Poland and Queensland, Australia.

In addition, other large loss events as well as property losses relating to the Deepwater Horizon oil rig contributed to the higher risk losses in 2010 than in 2009.

Underwriting profit at the Reinsurance segment in 2010 increased 4.7% year over year to $299.1 million. The huge catastrophe loss is likely to weigh on the profits in the first quarter of 2011.

ACE Limited (ACE), which competes with Axis Capital, guided first quarter 2011 preliminary net after-tax losses from natural catastrophes to be $210 million, including reinstatement premiums.

The total amount comprises $115 million attributable to the New Zealand earthquake, $80 million for the Australian floods and Cyclone Yasi, and $15 million for the U.S. winter storms. ACE Limited estimates net after-tax losses from the recent Japanese earthquake to range between $200 million and $250 million.

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.

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.

 
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