China Insurance Regulatory Commission has granted a license to XL Group (XL) to function as a property and casualty company in Shanghai. XL Insurance (China) Company Limited will commence its operations following the completion of all regulatory registrations. Zheqiang (Al) Xie will head the new entity.
This license, to operate in Shanghai, widens XL Group's presence in the emerging market. XL Group believes that China with a growing insurance market offers opportunities to write more premiums.
Recently, Chubb Insurance (China) Company Limited, an indirect wholly owned subsidiary of The Chubb Corporation (CB) was also granted a final approval to open a branch in Nanjing, Jiangsu Province. Chubb opened its first Chinese branch in Shanghai in September 2000.
The company reported a year-over-year decline in premium due to lower insurance as well as reinsurance premiums written. We expect the company's entry in the new market will help it to write higher premium going forward.
Though XL Group's third-quarter operating income surpassed the Zacks Consensus Estimate, it was way behind year-ago results. The year-over-year decline emanated from lower income from investment affiliates, lower net investment income, as well as a lower underwriting income from the insurance segment. However, higher underwriting income from the reinsurance segment was a partial offset.
The Zacks Consensus Estimate for fourth-quarter 2010 is 67 cents per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, $2.35 per share and $2.34 per share.
Based on the company's conservative underwriting practices and repositioned property and casualty portfolio, we expect XL Group to fare better going forward. The company is also taking initiatives to expand its operations and is aiming to tap opportunities in the growing economy.
We maintain our long-term Neutral recommendation on XL Group. The quantitative Zacks #4 Rank (short-term Neutral 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.
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