XL Group Poised For Growth Despite Exposure To Cat Losses

On Jun 7, 2016, we issued an updated research report on XL Group plc (NYSE:XL) .

The property and casualty (P&C) insurer’s first-quarter 2016 earnings missed the Zacks Consensus Estimate and also deteriorated year over year mainly due to escalating expenses and higher catastrophe losses. Nonetheless, the company was able to brave the challenging market conditions and deliver good underlying results. The company also displayed excellent performance with respect to revenues and premiums in the first quarter.

XL Group remains focused on its insurance and reinsurance business lines that provide the best return on capital over the pricing cycle. Moreover, XL Group strives to refine its business mix by deploying capital in businesses with lower loss ratios. This, in turn, should result in margin expansion.

The company is on track to achieve non-operating expense savings from reinsurance, purchasing, claims adjustment expenses and investment management fees. The property and casualty insurer expects to witness a decline in integration costs in the years 2016 and 2017, which in turn raises optimism.

XL Group maintains its momentum when it comes to enhancing shareholders’ value through dividend payments as well as share repurchases. During the first quarter, the company spent $355.1 million to buy back around 10 million shares. As of Mar 31, 2016, the company is left with $348.2 million available under the share buyback program. The company plans to repurchase shares of about $950 million in 2016.

However, exposure to catastrophic events as well as natural and man-made disasters will remain a concern owing to their uncertainty and the magnitude of impact. Notably, cat losses for both insurance and reinsurance segments were significantly higher than the prior-year quarter.

Further, escalating operating expenses have restricted expansion of operating margin.

Also, net investment income is anticipated to remain under pressure as the company’s assets of about $3.6 billion with an average gross book yield of 2.4% are expected to mature and are likely to be paid down over the next 12 months.

Zacks Rank and Stocks to Consider

Currently, XL Group carries a Zacks Rank #3 (Hold). Some better-ranked stocks are Cincinnati Financial Corp. (NASDAQ:CINF) , Markel Corp. (NYSE:MKL) and NMI Holdings, Inc. (NASDAQ:NMIH) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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