Improved Rate Conditions Across Most Lines;
Continued Benefit from Market Leadership Position
- Net income attributable to common shareholders of
$319.0 million, or $1.21 per fully diluted share, for the quarter,
compared to $301.6 million, or
$1.14 per fully diluted share, in the
prior year quarter
- Operating net income1 of $220.3 million, or $0.84 per fully diluted share, for the quarter,
compared to $255.1 million, or
$0.96 per fully diluted share, in the
prior year quarter
- P&C gross premiums written ("GPW") increased 10.6%
compared to the prior year quarter; GPW increased by 7.8% excluding
the impact of foreign exchange. Insurance rate increase year to
date through June was 3.8%, Reinsurance rate increase year to date
through July was 3.7%
- Natural catastrophe pre-tax losses net of reinsurance,
reinstatement and premium adjustments for the quarter of
$76.8 million (2.9 points to the loss
ratio), compared to $92.1 million
(3.7 points to the loss ratio), in the prior year quarter
- Net favorable prior year development ("PYD") was
$8.9 million (0.4 points to the loss
ratio) in the current quarter, compared to favorable PYD of
$86.7 million (3.5 points to the loss
ratio) in the prior year quarter
- P&C combined ratio of 95.8% for the quarter, compared to
92.3% in the prior year quarter
- Investment returns positively impacted by ongoing portfolio
rotations capitalizing on rising interest rates and a gain on the
sale of one operating affiliate. Potential for future enhancement
in investment returns as we continue to actively manage the
portfolio
HAMILTON, Bermuda, July 31, 2018 /PRNewswire/ -- XL Group Ltd
("XL" or the "Company") (NYSE: XL) today reported its second
quarter 2018 results.
Commenting on the Company's performance, XL's Chief Executive
Officer Mike McGavick said:
"In the second quarter we have continued our progress toward a
strong and diversified book, particularly as rate conditions
improved across most lines. We grew top line by 10.6%, maintained
underwriting discipline and continued our shift of our book
toward lower volatility business. Partially offsetting these
positive trends was non-catastrophe large loss activity from the
current quarter as well as prior year development from short tail
lines in Insurance. Our investment results continue to improve as
active portfolio rotation allows us to take advantage of rising
interest rates. Overall, we are pleased with the results and
look forward to continuing to realize the full potential of what we
have built when we become part of AXA Group."
Return on Common
Shareholder's Equity and Book Value
|
|
|
|
|
|
|
|
|
(U.S. dollars in
thousands except per share amounts)
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
(Unaudited)
|
|
(Unaudited)
|
Return on Common
Shareholder's Equity:
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Annualized Return on
average common shareholder's equity
("ROE")3
|
13.2
%
|
|
10.9
%
|
|
9.7
%
|
|
8.3
%
|
Annualized Operating
ROE1,3
|
9.1
%
|
|
9.3
%
|
|
8.9
%
|
|
7.1
%
|
Annualized Operating
ROE ex-Accumulated other comprehensive
income ("AOCI")1
|
9.3
%
|
|
10.1
%
|
|
9.4
%
|
|
7.7
%
|
Annualized Operating
ROE ex-Catlin-related integration cost1,4
|
9.1
%
|
|
10.5
%
|
|
8.9
%
|
|
8.3
%
|
Annualized Operating
ROE ex-AOCI and ex-Catlin-related
integration cost1,4
|
9.3
%
|
|
11.4
%
|
|
9.4
%
|
|
9.0
%
|
|
|
|
|
|
|
|
|
Book value per
common share:
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2018
|
|
December 31,
2017
|
Fully diluted book
value per common share
|
$
|
36.56
|
|
$
|
36.53
|
|
$
|
36.56
|
|
$
|
38.04
|
Fully diluted
tangible book value per common share2
|
$
|
28.23
|
|
$
|
28.06
|
|
$
|
28.23
|
|
$
|
29.44
|
Second Quarter
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(U.S. dollars in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
(Unaudited)
|
|
(Unaudited)
|
|
2018
|
|
2017
|
|
$
Change
|
|
%
Change
|
|
2018
|
|
2017
|
|
$
Change
|
|
%
Change
|
Net income (loss)
attributable
to common shareholders
|
$
|
318,996
|
|
|
$
|
301,620
|
|
|
$
|
17,376
|
|
|
5.8 %
|
|
|
$
|
471,644
|
|
|
$
|
454,463
|
|
|
$
|
17,181
|
|
|
3.8 %
|
|
Per average common
share
outstanding-basic
|
$
|
1.23
|
|
|
$
|
1.16
|
|
|
$
|
0.07
|
|
|
6.0 %
|
|
|
$
|
1.83
|
|
|
$
|
1.73
|
|
|
$
|
0.10
|
|
|
5.8 %
|
|
Per average common
share
outstanding-fully diluted
|
$
|
1.21
|
|
|
$
|
1.14
|
|
|
$
|
0.07
|
|
|
6.1 %
|
|
|
$
|
1.80
|
|
|
$
|
1.70
|
|
|
$
|
0.10
|
|
|
5.9 %
|
|
Operating net income
(loss)
|
$
|
220,341
|
|
|
$
|
255,080
|
|
|
$
|
(34,739)
|
|
|
(13.6)%
|
|
|
$
|
434,700
|
|
|
$
|
391,223
|
|
|
$
|
43,477
|
|
|
11.1 %
|
|
Per average common
share
outstanding-fully diluted
|
$
|
0.84
|
|
|
$
|
0.96
|
|
|
$
|
(0.12)
|
|
|
(12.5)%
|
|
|
$
|
1.66
|
|
|
$
|
1.46
|
|
|
$
|
0.20
|
|
|
13.7 %
|
|
- Net income attributable to common shareholders of $319.0 million, or $1.21 per fully diluted share, for the quarter,
compared to $301.6 million, or
$1.14 per fully diluted share, in the
prior year quarter.
- Operating net income of $220.3
million, or $0.84 per fully
diluted share, for the quarter, compared to $255.1 million, or $0.96 per fully diluted share, in the prior year
quarter, primarily driven by lower favorable PYD, partially offset
by improved investment returns.
- Net investment income for the current quarter was $231.8 million, compared to $208.7 million in the prior year quarter. Net
investment income for the current quarter, excluding the Life Funds
Withheld Assets, was $201.5 million,
compared to $177.2 million in the
prior year quarter. This increase was primarily due to active
sector rotation and portfolio management activities, and an
increase in new money rates, all of which resulted in an increase
in investment yields.
- Income from investment affiliates was $67.7 million for the current quarter, compared
to $73.5 million in the prior year
quarter. Lower income from investment affiliates driven by private
investments while hedge funds performed in line with prior year
quarter. Investment manager affiliates results were lower due to
the gain on sale of one of our investment manager affiliates
recorded in the prior year quarter. Strategic operating affiliates
benefited from a realized gain of $43.0
million on the sale of one affiliate in the current
quarter.
Income from
Investment and Operating affiliates
|
(U.S. dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
(Unaudited)
|
|
(Unaudited)
|
Net Income/(loss)
from:
|
2018
|
|
2017
|
|
$
Change
|
|
%
Change
|
|
2018
|
|
2017
|
|
$
Change
|
|
%
Change
|
Investment affiliates
(hedge
funds/private investments)
|
$
|
16,548
|
|
|
$
|
30,818
|
|
|
$
|
(14,270)
|
|
|
(46.3)%
|
|
|
$
|
62,217
|
|
|
$
|
69,079
|
|
|
$
|
(6,862)
|
|
|
(9.9)%
|
|
Investment
manager
affiliates
|
$
|
1,975
|
|
|
$
|
36,108
|
|
|
$
|
(34,133)
|
|
|
(94.5)%
|
|
|
$
|
12,086
|
|
|
$
|
39,405
|
|
|
$
|
(27,319)
|
|
|
(69.3)%
|
|
Strategic
operating
affiliates
|
$
|
49,212
|
|
|
$
|
6,596
|
|
|
$
|
42,616
|
|
|
N/M
|
|
|
$
|
49,383
|
|
|
$
|
16,908
|
|
|
$
|
32,475
|
|
|
N/M
|
|
Income from
Investment
and Operating affiliates
|
$
|
67,735
|
|
|
$
|
73,522
|
|
|
$
|
(5,787)
|
|
|
(7.9)%
|
|
|
$
|
123,686
|
|
|
$
|
125,392
|
|
|
$
|
(1,706)
|
|
|
(1.4)%
|
|
N/M = not meaningful
- Operating expenses during the current quarter of $470.5 million were $2.3
million or 0.5% favorable compared to the prior year
quarter. After excluding $8.3 million
of AXA-related transaction costs in the current quarter,
$39.1 million of Catlin-related
integration costs in the prior year quarter and unfavorable impact
of foreign exchange of $21.6 million,
expenses increased by $7.0 million,
or 1.6%, reflecting further investment to support growth in our
business while staying in line with our commitment to create
operating expense leverage.
- Income tax expense of $27.0
million is lower as compared to $29.0
million recognized during the prior year quarter. The
decrease in current quarter income tax expense is primarily
attributable to the mix of profit by jurisdiction.
- Fully diluted book value per common share increased by
$0.03 from the end of the prior
quarter to $36.56, driven primarily
by Operating net income of $220.3
million during the current quarter, partially offset by
unrealized losses on mark to market investments, and the payment of
dividends. Fully diluted tangible book value per common share
increased by $0.17 from the end of
the prior quarter to $28.23.
- There were no share buybacks5 during the
current quarter. At June 30, 2018,
$529.1 million of common shares
remained available for purchase under the current share buyback
authorization.
P&C
Operations
|
|
|
(U.S. dollars in
thousands)
|
|
|
|
|
Three Months
Ended
|
|
|
June 30,
2018
|
|
|
|
June 30,
2017
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
Insurance
|
Reinsurance
|
Total
P&C
|
|
Insurance
|
|
Reinsurance
|
|
Total
P&C
|
Gross premiums
written
|
$
|
2,881,921
|
|
$
|
1,048,352
|
|
$
|
3,930,273
|
|
|
$
|
2,576,754
|
|
$
|
977,676
|
|
|
$
|
3,554,430
|
|
Net premiums
written
|
$
|
1,929,564
|
|
$
|
889,675
|
|
$
|
2,819,239
|
|
|
$
|
1,741,201
|
|
$
|
905,240
|
|
|
$
|
2,646,441
|
|
Net premiums
earned
|
$
|
1,748,355
|
|
$
|
944,309
|
|
$
|
2,692,664
|
|
|
$
|
1,652,304
|
|
$
|
861,789
|
|
|
$
|
2,514,093
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(loss)
|
$
|
(20,680)
|
|
$
|
134,909
|
|
$
|
114,229
|
|
|
$
|
54,628
|
|
$
|
139,964
|
|
|
$
|
194,592
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
70.1 %
|
|
52.6 %
|
|
63.9 %
|
|
|
65.2 %
|
|
52.4 %
|
|
|
60.8 %
|
|
Underwriting expense
ratio
|
31.1 %
|
|
33.1 %
|
|
31.9 %
|
|
|
31.5 %
|
|
31.4 %
|
|
|
31.5 %
|
|
Combined
ratio
|
101.2 %
|
|
85.7 %
|
|
95.8 %
|
|
|
96.7 %
|
|
83.8 %
|
|
|
92.3 %
|
|
|
Six Months
Ended
|
|
June 30,
2018
|
|
June 30,
2017
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Insurance
|
|
Reinsurance
|
|
Total
P&C
|
|
Insurance
|
|
Reinsurance
|
|
Total
P&C
|
Gross premiums
written
|
$
|
5,748,460
|
|
|
$
|
3,108,953
|
|
|
$
|
8,857,413
|
|
|
$
|
5,270,970
|
|
|
$
|
2,905,066
|
|
|
$
|
8,176,036
|
|
Net premiums
written
|
$
|
3,411,431
|
|
|
$
|
2,560,419
|
|
|
$
|
5,971,850
|
|
|
$
|
3,249,792
|
|
|
$
|
2,376,409
|
|
|
$
|
5,626,201
|
|
Net premiums
earned
|
$
|
3,414,144
|
|
|
$
|
1,875,701
|
|
|
$
|
5,289,845
|
|
|
$
|
3,287,619
|
|
|
$
|
1,745,955
|
|
|
$
|
5,033,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
(loss)
|
$
|
41,775
|
|
|
$
|
194,894
|
|
|
$
|
236,669
|
|
|
$
|
133,368
|
|
|
$
|
205,201
|
|
|
$
|
338,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
67.1 %
|
|
|
56.2 %
|
|
|
63.2 %
|
|
|
65.0 %
|
|
|
55.8 %
|
|
|
61.8 %
|
|
Underwriting expense
ratio
|
31.7 %
|
|
|
33.4 %
|
|
|
32.3 %
|
|
|
30.9 %
|
|
|
32.4 %
|
|
|
31.5 %
|
|
Combined
ratio
|
98.8 %
|
|
|
89.6 %
|
|
|
95.5 %
|
|
|
95.9 %
|
|
|
88.2 %
|
|
|
93.3 %
|
|
- P&C gross premiums written ("GPW") in the second quarter
increased 10.6% compared to the prior year quarter. Excluding the
impact of foreign exchange, GPW increased by 7.8%.
- The Insurance segment GPW increased 11.8% from the prior year
quarter, driven primarily by rate increases and new business in
Global Lines, Property and Financial Lines in International and
Property and Construction in North
America. Excluding the impact of foreign exchange, Insurance
GPW increased 8.5%.
- The Reinsurance segment GPW increased by 7.2% from the prior
year quarter due to a number of premium drivers, including new
business and rate improvements. Excluding the impact of foreign
exchange, GPW increased 6.1%. The increase in premium written in
the quarter is predominantly from our Bermuda and London regions. The Bermuda increase is mainly from additional
business underwritten with a key client, while the London increase is mainly from new business
and additional rate.
- The P&C loss ratio excluding PYD and the impact of
catastrophe losses in the current quarter was 61.4%, compared to
60.6% in the prior year quarter. On the same basis, the Insurance
segment loss ratio in the current quarter deteriorated to 62.6%,
compared to 61.4% in the prior year quarter, due to large loss
activity. The Reinsurance segment loss ratio was 59.2% in the
current quarter compared to 59.0% in the prior year quarter,
largely driven by strategic initiatives including a shift in
portfolio mix towards lower volatility and an increase in outward
reinsurance protection.
- The P&C combined ratio excluding PYD and the impact of
catastrophe losses in the current quarter was 93.2%, compared to
92.0% for the prior year quarter. On the same basis, the Insurance
segment combined ratio in the current quarter was 93.7%, compared
to 92.9% for the prior year quarter with the increase due to large
loss activity. The Reinsurance segment combined ratio on the same
basis was 92.4% in the current quarter, compared to 90.3% for the
prior year quarter, due in part to the strategic portfolio mix and
retrocession items noted above, combined with increased outward
profit commission.
- The P&C net favorable PYD resulting from the current
quarter was $8.9 million (0.4 points
to the loss ratio), compared to net favorable development of
$86.7 million, (3.5 points to the
loss ratio) in the prior year quarter. This reflects unfavorable
development of $51.9 million in the
Insurance segment and favorable development of $60.8 million in the Reinsurance segment.
Further details of the results for the current quarter may be
found in the Company's Financial Supplement and Earnings
Presentation, each of which is dated July 31, 2018 and is
available on the Investor Relations section of XL's website at
www.xlgroup.com.
The closing of the acquisition of the Company by AXA SA is expected to be completed during the
second half of 2018, subject to customary closing conditions,
including the receipt of required regulatory approvals, which
remain pending.
About XL Group Ltd
XL Group Ltd (NYSE: XL), through its subsidiaries and under the
"XL Catlin" brand, is a global insurance and reinsurance company
providing property, casualty and specialty products to industrial,
commercial and professional firms, insurance companies and other
enterprises throughout the world. Clients look to XL Catlin for
answers to their most complex risks and to help move their world
forward. To learn more, visit www.xlgroup.com.
This press release contains forward-looking statements.
Statements that are not historical facts, including statements
about XL's beliefs, plans or expectations, are forward-looking
statements. These statements are based on current plans, estimates
and expectations, all of which involve risk and uncertainty.
Statements that include the words "expect," "estimate," "intend,"
"plan," "believe," "project," "anticipate," "may," "could," or
"would" and similar statements of a future or forward-looking
nature identify forward-looking statements. Actual results may
differ materially from those included in such forward-looking
statements and therefore you should not place undue reliance on
them. A non-exclusive list of the important factors that could
cause actual results to differ materially from those in such
forward-looking statements includes (a) changes in rates for
property and casualty insurance and reinsurance; (b) changes in the
size of our claims relating to unpredictable natural or man-made
catastrophe losses due to the preliminary nature of some reports
and estimates of loss and damage to date and the likelihood of
longer development periods associated with the characteristics of
certain catastrophes; (c) risks and uncertainties relating to the
proposed acquisition of XL by AXA SA, including but not limited to
(i) that XL may be unable to complete the proposed transaction
because, among other reasons, conditions to the closing of the
proposed transaction may not be satisfied or waived, including that
a governmental entity may prohibit, delay or refuse to grant
approval for the consummation of the transaction; (ii) uncertainty
as to the timing of completion of the proposed transaction; (iii)
the occurrence of any event, change or other circumstances that
could give rise to the termination of the merger agreement between
XL and AXA dated March 5, 2018; (iv) risks related to disruption of
management's attention from XL's ongoing business operations due to
the proposed transaction; (v) the effect of the announcement of the
proposed transaction on XL's relationships with its clients,
operating results and business generally; and (vi) the outcome of
any legal proceedings to the extent initiated against XL or others
related to the proposed transaction, as well as XL's management's
response to any of the aforementioned factors; (d) the impact of
tax reform on our business, investments and assets, including (i)
changes to valuation of deferred tax assets and liabilities, (ii)
that the costs associated with such tax reform may be greater than
expected, (iii) the risk that technical corrections, regulations,
and supplemental legislation and future interpretations or
applications thereof or other changes may be issued in the future,
including the rules affecting the valuation of deferred tax
assets; (e) changes in the number of insureds and ceding
companies impacted or the ultimate number and value of individual
claims relating to natural catastrophe events due to the
preliminary nature of reports and estimates of loss and damage to
date; (f) changes in the amount or type of business that we write,
whether due to our actions, changes in market conditions or other
factors, and the amount of premium attributable to such business;
(g) the availability, cost or quality of ceded reinsurance, and the
timely and full recoverability of such reinsurance, or other
amounts due to us, or changes to our projections related to such
recoverables; (h) actual loss experience from insured or reinsured
events and the timing of claims payments being faster or the
receipt of reinsurance recoverables being slower than we
anticipated; (i) increased competition on the basis of pricing,
capacity, coverage terms or other factors, such as the increased
inflow of third party capital into reinsurance markets, which could
harm our ability to maintain or increase business volumes or
profitability; (j) greater frequency or severity of claims and loss
activity than our underwriting, reserving or investment practices
anticipate based on historical experience or industry data,
including due to the change in climate conditions; (k) the impact
of changes in the global financial markets, such as the effects of
inflation on our business, including on pricing and reserving,
changes in interest rates, credit spreads, foreign currency
exchange rates and future volatility in the world's credit,
financial and capital markets that adversely affect the performance
and valuation of our investments, future financing activities and
access to such markets, our ability to pay claims or general
financial condition; (l) our ability to successfully implement our
business strategy; (m) our ability to successfully attract and
raise additional third party capital for existing or new investment
vehicles; (n) changes in credit ratings and rating agency policies
or practices, which could trigger cancelation provisions in our
assumed reinsurance agreements or impact the availability of our
credit facilities; (o) the potential for changes to methodologies,
estimations and assumptions that underlie the valuation of our
financial instruments that could result in changes to investment
valuations; (p) unanticipated constraints on our liquidity,
including the availability of borrowings and letters of credit
under credit facilities that inhibit our ability to support our
operations, including our ability to underwrite policies and pay
claims; (q) the ability of our subsidiaries to pay dividends to XL
Group Ltd, XLIT Ltd. and Catlin Insurance Company Ltd; (r) changes
in regulators or regulations applicable to us; (s) the effects of
business disruption, economic contraction or economic sanctions due
to unpredictable global political and social conditions such as
war, terrorism or other hostilities, or pandemics; (t) the actual
amount of new and renewal business and acceptance of our products
and services, including new products and services and the
materialization of risks related to such products and services; (u)
changes in the distribution or placement of risks due to increased
consolidation of insurance and reinsurance brokers; (v)
bankruptcies or other financial concerns of companies insofar as
they affect P&C insurance and reinsurance coverages or claims
that we may have as a counterparty; (w) the economic, political,
monetary and operational impacts of the U.K.'s expected withdrawal
vote in favor of withdrawing from European Union ("Brexit")
effective March 2019, including unanticipated costs or
complications associated with our decision to redomesticate XL
Insurance Company SE from the U.K. to Ireland, or the possibility
that this redomestication or other Brexit-related decisions do not
have the results anticipated; (x) changes in general economic,
political or monetary conditions in Euro-Zone countries or emerging
markets, or governmental actions for the purposes of stabilizing
financial markets; (y) judicial decisions and rulings, new theories
of liability or emerging claims coverage issues, legal tactics and
settlement terms; and (z) the other factors set forth in our
reports on Form 10-K and Form 10-Q and other documents on file with
the Securities and Exchange Commission. XL undertakes no obligation
to update publicly or revise any forward looking statement, whether
as a result of new information, future developments or
otherwise.
XL intends to use its website as a means of disclosing
material non-public information and for complying with its
disclosure obligations under Regulation FD. Such disclosures will
be included on the website in the Investor Relations section.
Accordingly, investors should monitor such portions of XL's
website, in addition to following its press releases, SEC filings
and public conference calls and webcasts.
1Operating net income (loss) is defined as net
income (loss) attributable to common shareholders excluding: (1)
our net investment income - Life Funds Withheld Assets, (as defined
in footnote 6 below), (2) our net realized (gains) losses on
investments available for sale - excluding Life Funds Withheld
Assets, (3) our net realized and change in net unrealized (gains)
losses on equity securities - excluding Life Funds Withheld Assets,
(4) our net realized (gains) losses on investments (including OTTI)
and change in net unrealized (gains) losses on investments, trading
- Life Funds Withheld Assets, (5) our net realized and unrealized
(gains) losses on derivatives, (6) our net realized and unrealized
(gains) losses on life retrocession embedded derivative and
derivative instruments - Life Funds Withheld Assets, (7) our share
of items (2) and (5) for our insurance company affiliates for the
periods presented, (8) our foreign exchange (gains) losses, (9) our
expenses related to the pending acquisition by AXA SA, (10) our gain on the sale of our
wholly-owned subsidiary XL Life Insurance and Annuity Company and
the partial sale of our holdings in New Ocean Capital Management,
(11) our net (gains) losses on the early extinguishment of debt,
(12) our net (gains) losses from the repurchase of preference
shares, (13) tax provision arising from our write-down of our
deferred tax asset related to the U.S. Tax Cuts and Jobs Act, and
(14) a provision (benefit) for income tax on items excluded from
operating income ."Operating net income", "annualized operating
return on average common shareholders' equity" ("Operating ROE")
including and excluding average AOCI, both inclusive and exclusive
of Catlin-related integration costs are non-GAAP financial
measures. See the schedule entitled "Reconciliation of Non-GAAP
Financial Measures" on pages 11 and 12 of this press release for a
reconciliation of net income (loss) attributable to common
shareholders to "operating net income" and the calculation of
"annualized operating return on average common shareholders'
equity" including and excluding average AOCI, both inclusive and
exclusive of Catlin-related integration costs, which are based on
operating net income.
2Fully diluted tangible book value per common
share is a non-GAAP financial measure. See page 12 of this press
release for a reconciliation of fully diluted tangible book value
per common share to fully diluted book value per common share.
3Common shareholders' equity is defined as
total shareholders' equity less non-controlling interest in equity
of consolidated subsidiaries.
4Catlin-related integration costs were
completed in the second quarter of 2017.
5Amount remaining for purchase under our share
buyback program does not include (i) the commission expense paid to
brokers for execution of share buyback, or (ii) purchases
associated with settling employee withholding taxes incurred in
connection with the vesting of share-based compensation awards,
however, these two items are included in the share buyback
calculation.
6On May 1, 2014,
our wholly-owned subsidiary, XL Insurance (Bermuda) Ltd ("XLIB") (on June 9, 2016, XLIB and XL Re Ltd amalgamated to
form XL Bermuda Ltd), entered into a sale and purchase agreement
with GreyCastle Holdings Ltd. ("GreyCastle") providing for the sale
of 100% of the common shares of XLIB's wholly-owned subsidiary,
XLLR, for $570 million in cash. This
transaction was completed on May 30,
2014. As a result of the transaction, we have ceded the
majority of our life reinsurance business to XLLR via 100% quota
share reinsurance (the "GreyCastle Life Retro Arrangements"). The
designated investments that support the GreyCastle Life Retro
Arrangements, which are written on a funds withheld basis ("Life
Funds Withheld Assets"), are included within "Total investments
available for sale" and "Fixed maturities, trading at fair value"
on our balance sheet. Investment results for these assets -
including interest income, unrealized gains and losses, and gains
and losses from sales - are passed directly to the reinsurer
pursuant to a contractual arrangement that is accounted for as a
derivative. Net income attributable to common shareholders
excluding the contribution from the GreyCastle Life Retro
Arrangements is a non-GAAP measure. See the schedule entitled
"Reconciliation of Non-GAAP Financial Measures" on pages 11 and 12
of this press release for a reconciliation of net income (loss)
attributable to common shareholders to net income (loss)
attributable to common shareholders excluding the Contribution from
the GreyCastle Life Retro Arrangements. During 2015, we entered
into another reinsurance agreement (the "U.S. Term Life Retro
Arrangements") ceding the vast majority of the remaining life
reinsurance business.
|
|
|
|
|
|
|
|
XL Group
Ltd
|
Unaudited
Consolidated Statements Of Income
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
(U.S. dollars in
thousands)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
(Note 1)
|
|
|
|
(Note 1)
|
Revenues:
|
|
|
|
|
|
|
|
Net premiums
earned
|
$
|
2,695,169
|
|
|
$
|
2,516,917
|
|
|
$
|
5,295,457
|
|
|
$
|
5,039,708
|
|
Net investment
income:
|
|
|
|
|
|
|
|
Net investment income
- excluding Life Funds Withheld Assets (Note 2)
|
201,536
|
|
|
177,235
|
|
|
389,619
|
|
|
344,403
|
|
Net investment income
- Life Funds Withheld Assets (Note 2)
|
30,252
|
|
|
31,439
|
|
|
60,650
|
|
|
64,803
|
|
Total net investment
income
|
$
|
231,788
|
|
|
$
|
208,674
|
|
|
$
|
450,269
|
|
|
$
|
409,206
|
|
Total realized
investments gains (losses) (Note 3)
|
90,805
|
|
|
56,628
|
|
|
7,450
|
|
|
93,914
|
|
Net realized and
unrealized gains (losses) on derivative instruments
|
16,126
|
|
|
(906)
|
|
|
20,347
|
|
|
(7,975)
|
|
Net realized and
unrealized gains (losses) on life retrocession embedded derivative
and derivative
instruments - Life Funds Withheld Assets (Note 2)
|
(36,120)
|
|
|
(34,596)
|
|
|
(13,199)
|
|
|
(84,697)
|
|
Income (loss) from
investment affiliates
|
16,548
|
|
|
30,818
|
|
|
62,217
|
|
|
69,079
|
|
Fee income and
other
|
8,304
|
|
|
10,225
|
|
|
15,021
|
|
|
23,886
|
|
Total
revenues
|
$
|
3,022,620
|
|
|
$
|
2,787,760
|
|
|
$
|
5,837,562
|
|
|
$
|
5,543,121
|
|
Expenses:
|
|
|
|
|
|
|
|
Net losses and loss
expenses incurred
|
$
|
1,721,309
|
|
|
$
|
1,529,083
|
|
|
$
|
3,343,315
|
|
|
$
|
3,112,539
|
|
Claims and policy
benefits
|
10,117
|
|
|
7,595
|
|
|
20,424
|
|
|
14,886
|
|
Acquisition
costs
|
471,491
|
|
|
433,584
|
|
|
935,318
|
|
|
869,453
|
|
Operating
expenses
|
470,508
|
|
|
472,778
|
|
|
943,071
|
|
|
940,816
|
|
Foreign exchange
(gains) losses
|
(12,140)
|
|
|
(5,643)
|
|
|
(2,299)
|
|
|
(8,979)
|
|
Interest
expense
|
48,686
|
|
|
54,018
|
|
|
102,231
|
|
|
104,729
|
|
Total
expenses
|
$
|
2,709,971
|
|
|
$
|
2,491,415
|
|
|
$
|
5,342,060
|
|
|
$
|
5,033,444
|
|
Income (loss) before
income tax and income (loss) from operating affiliates
|
$
|
312,649
|
|
|
$
|
296,345
|
|
|
$
|
495,502
|
|
|
$
|
509,677
|
|
Income (loss) from
operating affiliates
|
51,187
|
|
|
42,704
|
|
|
61,469
|
|
|
56,313
|
|
Provision (benefit)
for income tax
|
27,036
|
|
|
29,006
|
|
|
58,938
|
|
|
42,098
|
|
Net income
(loss)
|
$
|
336,800
|
|
|
$
|
310,043
|
|
|
$
|
498,033
|
|
|
$
|
523,892
|
|
Non-controlling
interests
|
17,804
|
|
|
8,423
|
|
|
26,389
|
|
|
69,429
|
|
Net income (loss)
attributable to common shareholders
|
$
|
318,996
|
|
|
$
|
301,620
|
|
|
$
|
471,644
|
|
|
$
|
454,463
|
|
Note 1: Certain items have been reclassified to conform
to the current period presentation.
Note 2: On May 1, 2014, our
wholly-owned subsidiary, XLIB (on June 9,
2016, XLIB and XL Re Ltd amalgamated to form XL Bermuda
Ltd), entered into a sale and purchase agreement with GreyCastle
providing for the sale of 100% of the common shares of XLIB's
wholly-owned subsidiary, XLLR, for $570
million in cash. This transaction was completed on
May 30, 2014. As a result of the
transaction, we have ceded the majority of our life reinsurance
business to XLLR via the GreyCastle Life Retro Arrangements. The
Life Funds Withheld Assets that support the GreyCastle Life Retro
Arrangements are included within "Total investments available for
sale" and "Fixed maturities, trading at fair value" on our balance
sheet. Investment results for these assets - including interest
income, unrealized gains and losses, and gains and losses from
sales - are passed directly to the reinsurer pursuant to a
contractual arrangement that is accounted for as a derivative. Net
income attributable to common shareholders excluding the
contribution from the GreyCastle Life Retro Arrangements is a
non-GAAP measure. See the schedule entitled "Reconciliation of
Non-GAAP Financial Measures" on pages 11 and 12 of this press
release for a reconciliation of net income (loss) attributable to
common shareholders to net income (loss) attributable to common
shareholders excluding the Contribution from the GreyCastle Life
Retro Arrangements. During 2015, we entered into the U.S. Term Life
Retro Arrangements, ceding the vast majority of the remaining life
reinsurance business.
Note 3: Effective 2018, in accordance with ASU 2016-01,
realized investment gains (losses) includes the change in net
unrealized gains (losses) on equity securities and other
investments.
XL Group
Ltd
|
Key Financial
Data
|
|
|
|
|
|
Selected balance
sheet and other data:
|
|
|
|
(U.S. dollars in
thousands except share and per share amounts)
|
At
|
|
At
|
|
June 30,
2018
|
|
December 31,
2017
|
|
(Unaudited)
|
|
(Note
1)
|
Total
investments
|
$
|
36,112,823
|
|
|
$
|
37,555,645
|
|
Cash and cash
equivalents
|
2,903,070
|
|
|
3,435,954
|
|
Unpaid losses and
loss expenses recoverable
|
7,209,084
|
|
|
7,247,723
|
|
Goodwill and other
intangible assets
|
2,201,085
|
|
|
2,225,751
|
|
Total
assets
|
63,585,889
|
|
|
63,436,236
|
|
|
|
|
|
Unpaid losses and
loss expenses
|
29,181,147
|
|
|
29,696,779
|
|
Deposit
liabilities
|
940,557
|
|
|
1,042,677
|
|
Future policy benefit
reserves
|
3,380,442
|
|
|
3,610,926
|
|
Funds withheld
liability on GreyCastle Life Retro Arrangements, net of future
policy benefit reserves recoverable (Note 2)
|
736,092
|
|
|
999,219
|
|
Unearned
premiums
|
9,539,454
|
|
|
8,307,431
|
|
Notes payable and
debt
|
3,217,123
|
|
|
3,220,769
|
|
|
|
|
|
Total shareholders'
equity
|
11,257,006
|
|
|
11,461,320
|
|
Common shareholders'
equity
|
9,660,011
|
|
|
9,848,317
|
|
Common shares
outstanding (Note 3)
|
258,780,274
|
|
|
256,033,895
|
|
|
|
|
|
Basic book value per
common share
|
$
|
37.33
|
|
|
$
|
38.46
|
|
Fully diluted book
value per common share
|
$
|
36.56
|
|
|
$
|
38.04
|
|
Fully diluted
tangible book value per common share (Note 4)
|
$
|
28.23
|
|
|
$
|
29.44
|
|
Note 1: Certain amounts have been reclassified to conform
to the current period presentation.
Note 2: On May 1, 2014, our
wholly-owned subsidiary, XLIB (on June 9,
2016, XLIB and XL Re Ltd amalgamated to form XL Bermuda
Ltd), entered into a sale and purchase agreement with GreyCastle
providing for the sale of 100% of the common shares of XLIB's
wholly-owned subsidiary, XLLR, for $570
million in cash. This transaction was completed on
May 30, 2014. As a result of the
transaction, we have ceded the majority of our life reinsurance
business to XLLR via the GreyCastle Life Retro Arrangements. The
Life Funds Withheld Assets that support the GreyCastle Life Retro
Arrangements are included within "Total investments available for
sale" and "Fixed maturities, trading at fair value" on our balance
sheet. Investment results for these assets - including interest
income, unrealized gains and losses, and gains and losses from
sales - are passed directly to the reinsurer pursuant to a
contractual arrangement that is accounted for as a derivative. Net
income attributable to common shareholders excluding the
contribution from the GreyCastle Life Retro Arrangements is a
non-GAAP measure. See the schedule entitled "Reconciliation of
Non-GAAP Financial Measures" on pages 11 and 12 of this press
release for a reconciliation of net income (loss) attributable to
common shareholders to net income (loss) attributable to common
shareholders excluding the Contribution from the GreyCastle Life
Retro Arrangements. During 2015, we entered into the U.S. Term Life
Retro Arrangements, ceding the vast majority of the remaining life
reinsurance business.
Note 3: Common shares outstanding include all common
shares issued and outstanding (as disclosed on the face of the
balance sheet).
Note 4: Fully diluted tangible book value per common
share is a non-GAAP financial measure. See page 12 of this press
release for a reconciliation of fully diluted tangible book value
per common share to fully diluted book value per common share.
XL Group
Ltd
|
Reconciliation of
Non-GAAP Financial Measures
|
|
The following is a
reconciliation of XL's net income (loss) attributable to common
shareholders to operating net income (loss) and also includes the
calculation of net income (loss) attributable to common
shareholders and annualized return on average common shareholders'
equity including and excluding average AOCI, both inclusive and
exclusive of Catlin-related integration costs and based on
operating net income (loss) for the three and six months ended June
30, 2018 and 2017. (Notes 3 and 5)
|
|
(U.S. dollars in
thousands except share and per share
amounts)
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
(Note 1)
|
|
|
|
(Note 1)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income (loss)
attributable to common shareholders
|
$
|
318,996
|
|
|
$
|
301,620
|
|
|
$
|
471,644
|
|
|
$
|
454,463
|
|
Net realized and
unrealized (gains) losses on life retrocession
embedded derivative and derivative instruments - Life Funds
Withheld Assets
|
36,120
|
|
|
34,596
|
|
|
13,199
|
|
|
84,697
|
|
Net realized (gains)
losses on investments and change in net
unrealized (gains) losses on investments, trading and OTTI -
Life Funds Withheld Assets
|
(63,409)
|
|
|
(7,459)
|
|
|
(40,897)
|
|
|
(40,527)
|
|
Net investment income
- Life Funds Withheld Assets
|
(30,252)
|
|
|
(31,439)
|
|
|
(60,650)
|
|
|
(64,803)
|
|
Foreign exchange
revaluation (gains) losses on and other
income and expense items related to Life Funds Withheld
Assets
|
14,874
|
|
|
(14,945)
|
|
|
4,190
|
|
|
(18,169)
|
|
Net income (loss)
attributable to common shareholders
excluding Contribution from GreyCastle Life Retro
Arrangements (Note 2)
|
$
|
276,329
|
|
|
$
|
282,373
|
|
|
$
|
387,486
|
|
|
$
|
415,661
|
|
Net realized (gains)
losses and OTTI on investments -
excluding Life Funds Withheld Assets
|
—
|
|
|
(49,169)
|
|
|
—
|
|
|
(53,387)
|
|
Net realized (gains)
losses on investments available for sale
and OTTI - excluding Life Funds Withheld Assets
|
17,100
|
|
|
—
|
|
|
50,578
|
|
|
—
|
|
Net realized and
change in net unrealized gains (losses) on
equity securities - excluding Life Funds Withheld Assets
|
(35,194)
|
|
|
—
|
|
|
820
|
|
|
—
|
|
Net realized and
unrealized (gains) losses on derivatives
|
(16,126)
|
|
|
906
|
|
|
(20,347)
|
|
|
7,975
|
|
Net realized and
unrealized (gains) losses on investments and
derivatives related to the Company's insurance company
affiliates
|
(12)
|
|
|
115
|
|
|
(648)
|
|
|
(1,936)
|
|
Foreign exchange
(gains) losses excluding Life Funds
Withheld Assets
|
(27,014)
|
|
|
9,302
|
|
|
(6,489)
|
|
|
9,190
|
|
Expenses related to
the pending acquisition by AXA SA
|
8,264
|
|
|
—
|
|
|
30,912
|
|
|
—
|
|
Provision (benefit)
for income tax on items excluded from
operating income
|
(3,006)
|
|
|
11,553
|
|
|
(7,612)
|
|
|
13,720
|
|
Operating net income
(loss) (Note 3)
|
$
|
220,341
|
|
|
$
|
255,080
|
|
|
$
|
434,700
|
|
|
$
|
391,223
|
|
Catlin-related
integration costs (Note 5)
|
—
|
|
|
39,118
|
|
|
—
|
|
|
73,067
|
|
Provision (benefit)
for income tax on Catlin-related
integration costs
|
—
|
|
|
(4,147)
|
|
|
—
|
|
|
(7,745)
|
|
Operating net income
(loss) (excluding Catlin-related integration costs)
|
$
|
220,341
|
|
|
$
|
290,051
|
|
|
$
|
434,700
|
|
|
$
|
456,545
|
|
Per common share
results:
|
|
|
|
|
|
|
|
Net income (loss)
attributable to common shareholders
|
$
|
1.21
|
|
|
$
|
1.14
|
|
|
$
|
1.80
|
|
|
$
|
1.70
|
|
Operating net income
(loss) (Note 3)
|
$
|
0.84
|
|
|
$
|
0.96
|
|
|
$
|
1.66
|
|
|
$
|
1.46
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
258,375,286
|
|
|
260,989,627
|
|
|
257,652,845
|
|
|
263,327,347
|
|
Diluted (Note
4)
|
263,821,785
|
|
|
264,942,669
|
|
|
262,610,119
|
|
|
267,279,097
|
|
Diluted - Operating
net income
|
263,821,785
|
|
|
264,942,669
|
|
|
262,610,119
|
|
|
267,279,097
|
|
Return on common
shareholders' equity:
|
|
|
|
|
|
|
|
Opening common
shareholders' equity attributable to XL
Group Ltd
|
$
|
9,628,529
|
|
|
$
|
10,974,884
|
|
|
$
|
9,848,317
|
|
|
$
|
10,938,512
|
|
Closing common
shareholders' equity attributable to XL Group
Ltd
|
$
|
9,660,011
|
|
|
$
|
11,080,552
|
|
|
$
|
9,660,011
|
|
|
$
|
11,080,552
|
|
Average common
shareholders' equity attributable to XL
Group Ltd for the period
|
$
|
9,644,270
|
|
|
$
|
11,027,718
|
|
|
$
|
9,754,164
|
|
|
$
|
11,009,532
|
|
Opening
AOCI
|
$
|
312,255
|
|
|
$
|
844,974
|
|
|
$
|
889,431
|
|
|
$
|
715,546
|
|
Closing
AOCI
|
$
|
51,264
|
|
|
$
|
921,165
|
|
|
$
|
51,264
|
|
|
$
|
921,165
|
|
Average AOCI for the
period
|
$
|
181,760
|
|
|
$
|
883,070
|
|
|
$
|
470,348
|
|
|
$
|
818,356
|
|
Average common
shareholders' equity attributable to XL
Group Ltd excluding average AOCI
|
$
|
9,462,511
|
|
|
$
|
10,144,649
|
|
|
$
|
9,283,817
|
|
|
$
|
10,191,177
|
|
Annualized net income
(loss)
|
$
|
1,275,984
|
|
|
$
|
1,206,480
|
|
|
$
|
943,288
|
|
|
$
|
908,926
|
|
Annualized operating
net income (loss) (Note 3)
|
$
|
881,364
|
|
|
$
|
1,020,320
|
|
|
$
|
869,400
|
|
|
$
|
782,446
|
|
Annualized operating
net income (loss) (excluding Catlin-related integration costs)
(Note 3 and 5)
|
$
|
881,364
|
|
|
$
|
1,160,206
|
|
|
$
|
869,400
|
|
|
$
|
913,090
|
|
Annualized return on
average common shareholders' equity
|
13.2
%
|
|
|
10.9
%
|
|
|
9.7
%
|
|
|
8.3
%
|
|
Annualized operating
return on average common shareholders' equity (Note 3)
|
9.1
%
|
|
|
9.3
%
|
|
|
8.9
%
|
|
|
7.1
%
|
|
Annualized operating
return on average common
shareholders' equity excluding average AOCI (Note 3)
|
9.3
%
|
|
|
10.1
%
|
|
|
9.4
%
|
|
|
7.7
%
|
|
Annualized operating
return on average common
shareholders' equity excluding Catlin-related integration costs
(Notes 3 and 5)
|
9.1
%
|
|
|
10.5
%
|
|
|
8.9
%
|
|
|
8.3
%
|
|
Annualized operating
return on average common
shareholders' equity excluding Catlin-related integration costs
and AOCI (Notes 3 and 5)
|
9.3
%
|
|
|
11.4
%
|
|
|
9.4
%
|
|
|
9.0
%
|
|
|
|
|
|
|
|
|
|
Book value per
common share:
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2018
|
|
December 31,
2017
|
Closing common shares
outstanding - basic
|
258,780,274
|
|
|
258,171,836
|
|
|
258,780,274
|
|
|
256,033,895
|
|
Closing common shares
outstanding - diluted
|
264,188,936
|
|
|
263,605,861
|
|
|
264,188,936
|
|
|
258,901,212
|
|
Book value per common
share
|
$
|
37.33
|
|
|
$
|
37.30
|
|
|
$
|
37.33
|
|
|
$
|
38.46
|
|
Fully diluted book
value per common share
|
$
|
36.56
|
|
|
$
|
36.53
|
|
|
$
|
36.56
|
|
|
$
|
38.04
|
|
Goodwill and other
intangible assets
|
$
|
2,201,085
|
|
|
$
|
2,230,506
|
|
|
$
|
2,201,085
|
|
|
$
|
2,225,751
|
|
Tangible book
value
|
$
|
7,458,926
|
|
|
$
|
7,398,023
|
|
|
$
|
7,458,926
|
|
|
$
|
7,622,566
|
|
Fully diluted
tangible book value per common share2
|
$
|
28.23
|
|
|
$
|
28.06
|
|
|
$
|
28.23
|
|
|
$
|
29.44
|
|
Note 1: Certain amounts have been reclassified to conform
to the current period presentation.
Note 2: Investment results for the Life Funds Withheld
Assets - including interest income, unrealized gains and losses,
and gains and losses from sales - are passed directly to the
reinsurer pursuant to a contractual arrangement that is accounted
for as a derivative. Changes in the fair value of the embedded
derivative associated with these GreyCastle Life Retro Arrangements
are reflected within "Net realized and unrealized (gains) losses on
life retrocession embedded derivative and derivative instruments -
Life Funds Withheld Assets" in the reconciliation above.
Note 3: Defined as net income (loss) attributable to
common shareholders excluding: (1) our net investment income - Life
Funds Withheld Assets, (2) our net realized (gains) losses on
investments available for sale - excluding Life Funds Withheld
Assets, (3) our net realized and change in net unrealized (gains)
losses on equity securities - excluding Life Funds Withheld Assets,
(4) our net realized (gains) losses on investments (including OTTI)
and change in net unrealized (gains) losses on investments, trading
- Life Funds Withheld Assets, (5) our net realized and unrealized
(gains) losses on derivatives, (6) our net realized and unrealized
(gains) losses on life retrocession embedded derivative and
derivative instruments - Life Funds Withheld Assets, (7) our share
of items (2) and (5) for our insurance company affiliates for the
periods presented, (8) our foreign exchange (gains) losses, (9) our
expenses related to the pending acquisition by AXA SA, (10) our gain on the sale of our
wholly-owned subsidiary XL Life Insurance and Annuity Company and
the partial sale of our holdings in New Ocean Capital Management,
(11) our net (gains) losses on the early extinguishment of debt,
(12) our net (gains) losses from the repurchase of preference
shares, (13) tax provision arising from our write-down of our
deferred tax asset related to the U.S. Tax Cuts and Jobs Act, and
(14) a provision (benefit) for income tax on items excluded from
operating income. We believe that showing "operating net income
(loss)", "annualized operating return on average common
shareholders' equity including and excluding average AOCI, both
inclusive and exclusive of Catlin-related integration costs"
enables investors and other users of our financial information to
analyze our performance in a manner similar to how we analyze our
performance. In this regard, we believe that providing only a GAAP
presentation of net income (loss) would make it more difficult for
users of our financial information to evaluate our underlying
business. We also believe that equity analysts and certain rating
agencies that follow us (and the insurance industry as a whole)
exclude these items from their analyses for the same reasons, and
they request that we provide this non-GAAP financial information on
a regular basis. A reconciliation of our net income (loss)
attributable to common shareholders to operating net income (loss)
is provided above.
Note 4: Diluted weighted average number of common shares
outstanding is used to calculate per share data except when it is
anti-dilutive to earnings per share or when there is a net loss.
When it is anti-dilutive or when a net loss occurs, basic weighted
average common shares outstanding is utilized in the calculation of
net loss per share and net operating loss per share.
Note 5: Catlin-related integration costs were completed
in the second quarter of 2017.
Comment on Regulation G
XL presents its operations in ways it believes will be most
meaningful and useful to investors, analysts, rating agencies and
others who use XL's financial information in evaluating XL's
performance. This press release includes the presentation of (i)
operating net income (loss) ("Operating Net Income"), which is
defined as net income (loss) attributable to common shareholders
excluding:(1) our net investment income - Life Funds Withheld
Assets, (2) our net realized (gains) losses on investments
available for sale - excluding Life Funds Withheld Assets, (3) our
net realized and change in net unrealized (gains) losses on equity
securities - excluding Life Funds Withheld Assets, (4) our net
realized (gains) losses on investments (including OTTI) and change
in net unrealized (gains) losses on investments, trading - Life
Funds Withheld Assets, (5) our net realized and unrealized (gains)
losses on derivatives, (6) our net realized and unrealized (gains)
losses on life retrocession embedded derivative and derivative
instruments - Life Funds Withheld Assets, (7) our share of items
(2) and (5) for our insurance company affiliates for the periods
presented, (8) our foreign exchange (gains) losses, (9) our
expenses related to the pending acquisition by AXA SA, (10) our gain on the sale of our
wholly-owned subsidiary XL Life Insurance and Annuity Company and
the partial sale of our holdings in New Ocean Capital Management,
(11) our net (gains) losses on the early extinguishment of debt,
(12) our net (gains) losses from the repurchase of preference
shares, (13) tax provision arising from our write-down of our
deferred tax asset related to the U.S. Tax Cuts and Jobs Act, and
(14) a provision (benefit) for income tax on items excluded from
operating income; (ii) annualized return on average common
shareholders' equity ("ROE") based on operating net income (loss)
("Operating ROE") including and excluding average AOCI, both
inclusive and exclusive of Catlin-related integration costs and
(iii) Fully diluted tangible book value per common share
(common shareholders' equity excluding goodwill and intangible
assets divided by the number of shares outstanding at the period
end date combined with the dilutive impact of potential future
share issues at any period end). These items are "non-GAAP
financial measures" as defined in Regulation G. The reconciliation
of such measures to the most directly comparable GAAP financial
measures in accordance with Regulation G is included in this press
release on pages 11 and 12.
Although the investment of premiums to generate income (or loss)
and realized capital gains (or losses) is an integral part of our
operations, the determination to realize capital gains (or losses),
as well as absorb the volatility associated with marking our
portfolio of public equity securities to market, is independent of
the underwriting process. In addition, losses as the result
of other-than-temporary declines in value and goodwill impairment
charges are recognized in net income without actual realization. In
this regard, certain users of our financial information, including
certain rating agencies, evaluate earnings before tax and realized
capital gains to understand the profitability of the operational
sources of income without the effects of these variables.
Furthermore, these users believe that, for many companies, the
timing of the realization of capital gains is largely a function of
economic and interest rate conditions.
Net realized and unrealized (gains) losses on derivatives
include all derivatives entered into by XL other than certain
credit derivatives and the life retrocession embedded derivative.
With respect to credit derivatives, because XL and its insurance
company operating affiliates generally hold financial guaranty
contracts written in credit default derivative form to maturity,
the net effects of the changes in fair value of these credit
derivatives are excluded (similar with other companies' treatment
of such contracts), as the changes in fair value each quarter are
not indicative of underlying business performance.
Net investment income - Life Funds Withheld Assets, and net
realized (gains) losses on the life retrocession embedded
derivative and derivative instruments - Life Funds Withheld Assets,
have been excluded because, as a result of the GreyCastle Life
Retro Arrangement, XL no longer shares in the risks and rewards of
the underlying performance of the Life Funds Withheld Assets that
support these retrocession arrangements. The returns on the
Life Funds Withheld Assets are passed directly to the reinsurer
pursuant to a contractual arrangement that is accounted for as a
derivative. Therefore, net investment income from the Life
Funds Withheld Assets and changes in the fair value of the embedded
derivative associated with these GreyCastle Life Retro Arrangements
are not relevant to XL's underlying business performance.
Foreign exchange (gains) losses in the income statement are only
one element of the overall impact of foreign exchange fluctuations
on XL's financial position and are not representative of any
economic gain or loss made by XL. Accordingly, it is not a relevant
indicator of financial performance and it is excluded.
In summary, XL evaluates the performance of and manages its
business to produce an underwriting profit. In addition to
presenting net income (loss), XL believes that showing operating
net income (loss) enables investors and other users of XL's
financial information to analyze XL's performance in a manner
similar to how management of XL analyzes performance. In this
regard, XL believes that providing only a GAAP presentation of net
income (loss) would make it much more difficult for users of XL's
financial information to evaluate XL's underlying business. Also,
as stated above, XL believes that the equity analysts and certain
rating agencies that follow XL (and the insurance industry as a
whole) exclude these items from their analyses for the same reasons
and they request that XL provide this non-GAAP financial
information on a regular basis.
Operating ROE is a widely used measure of any company's
profitability that is calculated by dividing annualized operating
net income for any period other than a fiscal year when actual
operating income is used by the average of the opening and closing
common shareholders' equity. XL establishes target Operating ROEs
for its total operations, segments and lines of business. If XL's
Operating ROE targets are not met with respect to any line of
business over time, XL seeks to re-evaluate these lines. Operating
ROE including and excluding average AOCI, both inclusive and
exclusive of Catlin-related integration costs, are additional
measures of Company profitability. The most significant component
of this exclusion is the mark to market fluctuations on XL's
investment portfolio that have not been realized through sales,
and/or distortions to XL's performance from Catlin-related
integration costs related to the acquisition of Catlin. By
providing these additional measures, users of our financial
statements have the ability to include or exclude these items when
considering our performance either on a standalone basis or for
purposes of peer performance comparison.
Fully diluted tangible book value per common share ("Fully
diluted TBVPS") is a widely used non-GAAP financial measure that,
much like BVPS, represents the value generated for our common
shareholders excluding items such as goodwill and other intangible
assets. The exclusion of these amounts allow for more meaningful
comparisons between peers, specifically those that have been less
acquisitive. Fully diluted TBVPS is calculated by dividing common
shareholders' equity excluding intangible assets by the number of
outstanding common shares at the applicable period end combined
with the impact from dilution of share-based compensation and
certain conversion features where dilutive.
Contact:
Giovanni
Astolfi
Investor Relations
(203) 674-6973
Carol Parker Trott
Media Relations
(441) 294-7290
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SOURCE XL Group Ltd