XL Group Reiterated at Neutral - Analyst Blog
May 26 2011 - 1:49PM
Zacks
XL Group plc (XL) remains focused on business
lines within its insurance and reinsurance operations that provide
the best return on capital over the pricing cycle. The company is
also taking initiatives to expand its operations. Moreover, XL
Group continues to enhance shareholder value through dividend
payment as well as share repurchase.
However, these positives are somewhat dampened by XL Group’s
substantial exposure to losses resulting from natural and man-made
disasters as well as continued lower net investment income. We thus
retain our Neutral recommendation on the company.
The company is aiming to tap opportunities in the growing
economy. A subsidiary of XL Group, XL Insurance Company Limited,
got the license from the Malaysian Federal Territory of Labuan to
underwrite business in and through the Labuan insurance market.
Also, XL Insurance, the global insurance operations of XL Group
inked a deal with Breed's Hill Insurance Agency Inc. for providing
General Liability and Property coverages for multi-unit apartment
buildings, condominium associations and mixed-use real estate risks
mainly in the New England market. Recently, XL Insurance inked a
deal to provide comprehensive insurance coverage to the forest
products industry.
XL Group registered higher premiums written in the quarter with
the majority of organic growth coming from selective initiatives in
more profitable businesses, including international professional,
construction and marine lines.
On the flip side, the company’s exposure to catastrophe losses
weighed on its results. In the first quarter of 2011, catastrophe
losses totaled $387.4 million, reflecting a more than two-fold
increase from $181.1 million in the first quarter of 2010.
Net investment income at XL Group has shown a declining trend
for the past few years. The first quarter experienced lower U.S.
interest rates on the property and casualty portfolio as well as
cash outflows from the invested portfolio affecting net investment
income.
XL Group reported its first-quarter 2011 operating loss of 52
cents per share, wider than the Zacks Consensus Estimate of a loss
of 38 cents. Results also compared unfavorably with operating
profit of 44 cents earned in the year-ago quarter. The quarter
suffered hugely due tothe Australian floods in January, the New
Zealand earthquake in February and the Tohoku earthquake in
March.
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. It competes with ACE
Limited (ACE).
ACE LIMITED (ACE): Free Stock Analysis Report
XL GROUP PLC (XL): Free Stock Analysis Report
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