XL Group plc (XL) expects its preliminary net loss to range from $70 million to $85 million, pretax and net of reinsurance and reinstatement premium, attributable to the earthquake in New Zealand in February 2011. The company also stated that the majority of the losses are attributable to XL’s reinsurance segment.
The company also stated these preliminary loss estimates could translate into insured market losses for the New Zealand Earthquake in the range of $8 billion to $12 billion.
The company had incurred natural catastrophe losses of $30.3 million, net of reinstatement premiums in the fourth quarter of 2010. Net premiums earned at the segment have been declining over the last three years, due to lower net premiums written. It declined 6% year over year to $1.5 billion ion 2010. However, combined ratio in2010 improved 200 basis points year over year.
XL Group reported its fourth-quarter 2010 operating income of 74 cents per share beating the Zacks Consensus Estimate of 67 cents as well as year ago operating earnings of 63 cents. The year-over-year improvement stemmed from increase in property and casualty underwriting income.
The Zacks Consensus Estimate for first-quarter 2011 is 37 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $2.07 per share and $2.24 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 opportunities in the growing economy.
XL Group has also obtained a license from the China Insurance Regulatory Commission to function as a property and casualty company in Shanghai. This license will widen 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 the 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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