XL Group (XL) Beats On Q2 Earnings And Revenue Estimates

XL Group plc (NYSE:XL) reported second-quarter 2016 operating net income of 37 cents per share that comfortably surpassed the Zacks Consensus Estimate by 60.9%. However, earnings plummeted around 56% year over year due to escalating expenses and higher catastrophe losses.

After including non-recurring items, net income plunged 95.2% year over year to 15 cents per share.

Behind the Headlines

Total revenue of XL Group increased 19.1% year over year to $2.8 billion on higher net premiums earned. Also, the top line beat the Zacks Consensus Estimate of $2.5 billion.

Net premiums earned increased 21.6% year over year to $2.5 billion.

Net investment income was $215.4 million, down 3.5% year over year.

Pre-tax cat losses, net of reinsurance and reinstatement premiums, came in at $240.1 million. The reported figure was significantly higher than $59.9 million in the year-ago quarter.

Total expenses of XL Group increased 25.7% year over year to $2.6 billion owing to higher net losses and loss expenses incurred, acquisition costs, interest expenses, and operating expenses.

With respect to P&C operations, gross premiums written in the quarter rose 17.6% year over year to $3.5 billion, mainly due to the combination with Catlin.

Growth in insurance and reinsurance premiums was primarily driven by the merger with Catlin. However, adverse foreign exchange impacts, continued rate pressures and selected discontinued lines, offset the Insurance segment’s business growth. Nevertheless, the Reinsurance segment was also favorably impacted by Catlin merger besides new business across all regions, in particular Bermuda, EMEA and North America.

XL Group’s underwriting profit plunged 51.2% year over year to $101.9 million. Combined ratio deteriorated 610 basis points to 96% in the reported quarter.

Financial Update

XL Group exited the quarter with cash and cash equivalents of $3.32 billion, up 1.9% from $3.26 billion at the end of 2015.

Notes payable and debt at the end of the quarter inched up 0.1% to $2.65 billion from the 2015-end level of $2.64 billion.

Diluted book value of XL Group as of Jun 30, 2016 was $41.71 per share, up 7.3% from Dec 31, 2015.

Share Repurchase Update

XL Group bought back approximately 9.7 million shares worth $328.3 million during the reported quarter. As of Jun 30, 2016 XL Group had shares worth $815.8 million remaining under its authorization.

Zacks Rank and Performance of Other P&C Insurers

XL Group currently carries a Zacks Rank #5 (Strong Sell). Among other property and casualty insurers that have reported their second-quarter earnings so far, the bottom line at RLI Corp. (NYSE:RLI) and Progressive Corp. (NYSE:PGR) missed their respective Zacks Consensus Estimates, while First American Financial Corporation’s (NYSE:FAF) earnings beat the same.

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