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- January 01, 0001
XL Group Ltd (“XL” or the “Company”) (NYSE: XL) today reported its first quarter 2018 results.
Commenting on the Company’s performance, XL’s Chief Executive Officer Mike McGavick said:
"We are pleased with our solid start to 2018, in-line with our expectations. During the first quarter our performance reflected benefits of our market leadership, focus on underwriting discipline, strong culture of innovation, continuous improvement, and efficiency.
In the quarter we grew gross premiums written more than 6% compared with the first quarter of 2017 and we continued to improve the Insurance loss ratio excluding PYD and the impact of catastrophe losses. We did see a lower Reinsurance margin in the quarter, largely driven by our strategic initiatives including a shift in portfolio mix towards lower volatility and an increase in outward reinsurance protections. With respect to pricing, we are pleased to have achieved broad rate increases throughout our Insurance and Reinsurance portfolio, which will earn into our results over the rest of the year. Also during the quarter we had strong contributions from the investment portfolio, and we continued managing our expenses.
As we look forward to the next phase in XL’s journey, with the proposed combination with AXA, we believe there is substantial opportunity to continue realizing the potential of what we have built."
|Book Value and Return on Common Shareholder's Equity|
|March 31, 2018||December 31, 2017|
|Book value per common share||(Unaudited)|
|Fully diluted book value per common share||$36.53||$38.04|
|Fully diluted tangible book value per common share2||$28.06||$29.44|
|Return on average common shareholder's equity ("ROE")||March 31, 2018||March 31, 2017|
|Annualized Return on average common shareholder's equity ("ROE")3||6.3%||5.6%|
|Annualized Operating ROE1,3||8.8%||5.0%|
|Annualized Operating ROE ex-Accumulated other comprehensive income ("AOCI")1||9.4%||5.4%|
|Annualized Operating ROE ex-Catlin-related integration cost1,4||8.8%||6.1%|
|Annualized Operating ROE ex-AOCI and ex-Catlin-related integration cost1,4||9.4%||6.5%|
|First Quarter Summary|
|(U.S. dollars in thousands, except per share amounts)|
|Three Months Ended|
|2018||2017||$ Change||% Change|
|Net income (loss) attributable to common shareholders||$152,648||$152,843||$(195)||(0.1)%|
|Per average common share outstanding-basic||$0.59||$0.58||$0.01||1.7%|
|Per average common share outstanding-fully diluted||$0.58||$0.57||$0.01||1.8%|
|Operating net income (loss)||$214,359||$136,143||$78,216||57.5%|
|Per average common share outstanding-fully diluted||$0.82||$0.50||$0.32||64.0%|
- Net income attributable to common shareholders of $152.6 million was virtually unchanged compared with the prior year quarter income of $152.8 million.
- Operating net income of $214.4 million increased compared to $136.1 million in the prior year quarter, primarily driven by improved investment returns and lower financing costs associated with our preferred shares, partially offset by marginally lower overall underwriting profit.
- Net investment income for the current quarter was $218.5 million, compared to $200.5 million in the prior year quarter. Net investment income for the current quarter, excluding the Life Funds Withheld Assets, was $188.1 million, compared to $167.2 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 $56.0 million for the current quarter, compared to $51.9 million in the prior year quarter. Hedge fund performance was strong in the current quarter, consistent with prior year quarter results. Results for private equity fund affiliates and investment manager affiliates improved in the current quarter, more than offsetting weaker results in other affiliates as compared to the prior year quarter.
- Operating expenses during the current quarter of $472.6 million were $4.5 million or 1.0% unfavorable compared to the prior year quarter. After excluding the $22.6 million of AXA-related transaction costs in the current quarter and $33.9 million of Catlin-related integration costs in the prior year quarter, expenses increased $15.7 million, or 3.6%, reflecting further investment in our business, predominately within the Insurance segment.
- Income tax expense of $31.9 million is higher as compared to $13.1 million recognized during the prior year quarter. The increase in current quarter income tax expense is primarily attributable to the combination of the significant increase in operating income and a greater proportion of earnings in taxable jurisdictions in Q1 of 2018 as compared to the prior year quarter.
- Fully diluted book value per common share decreased by $1.51 from the end of the prior quarter to $36.53, driven primarily by unrealized losses on mark to market investments, share-based compensation activity and the payment of dividends, partially offset by net income earned in the quarter. Fully diluted tangible book value per common share decreased by $1.38 from the end of the prior quarter to $28.06.
- There were no share buybacks5 during the current quarter. At March 31, 2018, $529.1 million of common shares remained available for purchase under the current share buyback authorization.
|(U.S. dollars in thousands)|
|Three Months Ended|
|March 31, 2018||March 31, 2017|
|Insurance||Reinsurance||Total P&C||Insurance||Reinsurance||Total P&C|
|Gross premiums written||$2,866,539||$2,060,601||$4,927,140||$2,694,216||$1,927,390||$4,621,606|
|Net premiums written||$1,481,867||$1,670,744||$3,152,611||$1,508,591||$1,471,169||$2,979,760|
|Net premiums earned||$1,665,789||$931,392||$2,597,181||$1,635,315||$884,166||$2,519,481|
|Underwriting profit (loss)||$62,455||$59,985||$122,440||$78,740||$65,237||$143,977|
|Underwriting expense ratio||32.4%||33.8%||32.8%||30.4%||33.4%||31.5%|
- P&C gross premiums written (“GPW”) in the first quarter increased 6.6% compared to the prior year quarter. Excluding the impact of foreign exchange, GPW increased by 3.8%.
- The Insurance segment GPW increased 6.4% from the prior year quarter, driven primarily by favorable rate changes across business groups as well as stronger renewals. Excluding the impact of foreign exchange, Insurance GPW increased 4.1%.
- The Reinsurance segment GPW increased by 6.9% from the prior year quarter primarily due to rate improvements. Excluding the impact of foreign exchange, GPW increased 3.5%. New business written in the quarter from our Bermuda and London businesses was largely offset by canceled business, a reflection of disciplined underwriting.
- The P&C loss ratio excluding PYD and the impact of catastrophe losses in the current quarter was 60.0%, compared to 58.1% in the prior year quarter. On the same basis, the Insurance segment loss ratio in the current quarter improved to 60.4%, compared to 60.8% in the prior year quarter as underwriting actions improved the overall portfolio. The Reinsurance segment loss ratio was 59.2% in the current quarter compared to 53.0% 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 92.8%, compared to 89.5% for the prior year quarter. On the same basis, the Insurance segment combined ratio in the current quarter was 92.8%, compared to 91.2% for the prior year quarter driven largely by investment in the business and certain one-time compensation related costs. The Reinsurance segment combined ratio on the same basis was 92.9% in the current quarter, compared to 86.5% for the prior year quarter, due in part to the strategic portfolio mix and retrocession items noted above, combined with increased outward profit commission on positive PYD.
- The P&C net favorable PYD resulting from the current quarter was $9.1 million (0.3 points to the loss ratio), compared to net unfavorable development of $24.0 million, (0.9 points to the loss ratio) in the prior year quarter. This reflects favorable development of $5.3 million in the Insurance segment and $3.8 million in the Reinsurance segment. The first quarter of 2018 includes adverse development of $53.2 million, or 2.6% of 2017 catastrophe losses. The first quarter of 2017 included adverse development of $75.0 million from the UK Ogden rate6 change.
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 May 2, 2018 and is available on the Investor Relations section of XL's website at www.xlgroup.com.
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) downward movement 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 the failure to obtain XL shareholder approval for the proposed transaction or 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 following the announcement of 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