XL Group (XL) reported its second-quarter 2010 operating income of 71 cents per share, beating the Zacks Consensus Estimate of 64 cents. Results were below second-quarter 2009 operating earnings of 85 cents. Operating income was $242.6 million, compared with $291.4 million in the prior-year quarter.
The year-over-year decline was due to lower net investment income as well as a previously announced charge to fully extinguish and terminate all of the guarantees issued to European Investment Bank (EIB).
Adjusting for net realized losses on investments of $57.9 million, net realized and unrealized losses on derivatives of $19.9 million, net realized and unrealized losses on investments and derivatives of the company's insurance company affiliates of $0.06 million and foreign exchange gains of $27.1 million, net income attributable to shareholders was $191.8 million in the quarter. Results compare favorably with $79.9 million in the prior-year quarter.
The year-earlier quarter included net realized losses on investments of $82.8 million, net realized and unrealized gains on derivatives of $0.02 million, net realized and unrealized gains on investments and derivatives of the company's insurance company affiliates of $0.1 million and foreign exchange losses of $128.7 million.
Adjusting for a net charge of 15 cents a share from one-time items, net income attributable to shareholders climbed up to 56 cents per share from 23 cents per share in the prior-year period. The prior-year quarter included a cumulative effect of a charge of 62 cents from one-time items.
Total revenues in the quarter were $1.6 billion, down 10% year over year from $1.7 billion in the year-ago period. Net investment income of $302.6 million was down 7.8% year over year, as lower U.S. interest rates as well as the actions taken over the last couple of years to reposition the portfolio resulted in lower portfolio yields.
Operating expenses declined 7.3% year over year to $244.9 million from $264.2 million in the prior-year quarter.
P&C operations: Gross premiums written in the quarter were $1.5 billion, up slightly by 0.45% year over year largely due to new business growth, partially offset by planned reductions in long-term agreements, an adverse impact of a previous withdrawal from two programs and unfavorable foreign exchange.
Net premiums written were $1.1 billion, up 3.4% year over year due to higher gross written premiums and lower ceded premiums.
Net premiums earned were $1.2 billion, down 5.1% year over year largely attributable to lower-than-expected net premiums written.
Combined ratio was 92.2% in the quarter, down 80 basis points year over year.
Life operations: Gross premiums written were $92.8 million, down 38.4% year over year. Net premiums written were $86.0 million, up 38.8% year over year. Net premiums earned were $86.4 million, down 41.6% year over year.
Financial Position
Cash and cash equivalents of XL Group were $3.8 billion at the end of second-quarter 2010 compared with $3.6 billion since the end of fiscal year 2009.
Notes payable and debt at second-quarter 2010 end were $2.47 billion compared with $2.45 billion since the end of fiscal year 2009.
Book value per ordinary share as of June 30, 2010, was $27.74, up 12.8% from $24.60 as of December 31, 2010.
Return on equity (ROE) was 10.5% in second-quarter 2010, substantially lower than 20.1% in second-quarter 2009. The lower ROE was largely due to an increase in total shareholders’ equity partially offset by an increase in operating income.
Based on the company’s conservative underwriting practices and repositioned P&C portfolio, we expect XL Group to fare well going forward. However, the low interest rate environment keeps us on the sidelines in the meantime. We maintain our “Neutral” recommendation on XL Group. The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the shares over the near term.
XL GROUP PLC (XL): Free Stock Analysis Report
Zacks Investment Research
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Adjusting for net realized losses on investments of $57.9 million, net realized and unrealized losses on derivatives of $19.9 million, net realized and unrealized losses on investments and derivatives of the company's insurance company affiliates of $0.06 million and foreign exchange gains of $27.1 million, net income attributable to shareholders was $191.8 million in the quarter. Results compare favorably with $79.9 million in the prior-year quarter.
The year-earlier quarter included net realized losses on investments of $82.8 million, net realized and unrealized gains on derivatives of $0.02 million, net realized and unrealized gains on investments and derivatives of the company's insurance company affiliates of $0.1 million and foreign exchange losses of $128.7 million.
Adjusting for a net charge of 15 cents a share from one-time items, net income attributable to shareholders climbed up to 56 cents per share from 23 cents per share in the prior-year period. The prior-year quarter included a cumulative effect of a charge of 62 cents from one-time items.
Total revenues in the quarter were $1.6 billion, down 10% year over year from $1.7 billion in the year-ago period. Net investment income of $302.6 million was down 7.8% year over year, as lower U.S. interest rates as well as the actions taken over the last couple of years to reposition the portfolio resulted in lower portfolio yields.
Operating expenses declined 7.3% year over year to $244.9 million from $264.2 million in the prior-year quarter.
P&C operations: Gross premiums written in the quarter were $1.5 billion, up slightly by 0.45% year over year largely due to new business growth, partially offset by planned reductions in long-term agreements, an adverse impact of a previous withdrawal from two programs and unfavorable foreign exchange.
Net premiums written were $1.1 billion, up 3.4% year over year due to higher gross written premiums and lower ceded premiums.
Net premiums earned were $1.2 billion, down 5.1% year over year largely attributable to lower-than-expected net premiums written.
Combined ratio was 92.2% in the quarter, down 80 basis points year over year.
Life operations: Gross premiums written were $92.8 million, down 38.4% year over year. Net premiums written were $86.0 million, up 38.8% year over year. Net premiums earned were $86.4 million, down 41.6% year over year.
Financial Position
Cash and cash equivalents of XL Group were $3.8 billion at the end of second-quarter 2010 compared with $3.6 billion since the end of fiscal year 2009.
Notes payable and debt at second-quarter 2010 end were $2.47 billion compared with $2.45 billion since the end of fiscal year 2009.
Book value per ordinary share as of June 30, 2010, was $27.74, up 12.8% from $24.60 as of December 31, 2010.
Return on equity (ROE) was 10.5% in second-quarter 2010, substantially lower than 20.1% in second-quarter 2009. The lower ROE was largely due to an increase in total shareholders’ equity partially offset by an increase in operating income.
Based on the company’s conservative underwriting practices and repositioned P&C portfolio, we expect XL Group to fare well going forward. However, the low interest rate environment keeps us on the sidelines in the meantime. We maintain our “Neutral” recommendation on XL Group. The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the shares over the near term.
XL GROUP PLC (XL): Free Stock Analysis Report
Zacks Investment Research
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