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XL Group Ltd (“XL” or the “Company”) (NYSE: XL) today reported its fourth quarter and full year 2017 results.

Commenting on the Company’s performance, XL’s Chief Executive Officer Mike McGavick said:

"XL’s fourth quarter and full year 2017 results were impacted by the severe natural catastrophes in the year. At the same time, we feel positive about where we are going due to some important factors including: our solid capital position, our progress made in our 2017 ex-catastrophe underlying results, the strength of our market relevance as demonstrated by our 8 percent growth in gross written premiums year-over-year, and that we are seeing early signs of a return to realistic and sustainable rate. Additionally, with the benefit of learnings from our 2017 catastrophe experience and seeing the early way in which the rate environment is reacting following the 2017 events, we have already made a series of adjustments to optimize the balance of risk and return, meaningfully enhancing our catastrophe exposure profile while keeping us a leading player in these businesses.  We expect to make further adjustments as the market environment unfolds.

Throughout 2017 and clearly into 2018 we have shown that XL Catlin continues to be a market leader in customer satisfaction and innovation, earning, for the second straight year, Highest in Customer Satisfaction among large commercial insurers from J.D. Power, the top spot in the Gracechurch survey of the London Market, and first place in Advisen’s innovation index, among numerous other external recognitions. All of this taken together, as we look at our industry, we feel well positioned for what comes next.”

Fourth Quarter Summary
(U.S. dollars in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
(Unaudited) (Unaudited)
2017 2016 $ Change % Change 2017 2016 $ Change % Change
Net income (loss) attributable to common shareholders $28,828 $304,700 $(275,872) (90.5)% $(560,398) $440,968 $(1,001,366) N/M
Per average common share outstanding-basic $0.11 $1.13 $(1.02) (90.3)% $(2.16) $1.58 $(3.74) N/M
Per average common share outstanding-fully diluted $0.11 $1.12 $(1.01) (90.2)% $(2.16) $1.56 $(3.72) N/M
Operating net income (loss) $116,054 $128,440 $(12,386) (9.6)% $(521,585) $460,729 $(982,314) N/M
Per average common share outstanding-fully diluted $0.45 $0.47 $(0.02) (4.3)% $(2.01) $1.63 $(3.64) N/M

N/M = not meaningful

  • Net income attributable to common shareholders and net operating income were both significantly impacted by catastrophe losses during the current quarter, lower PYD and lower operating expenses. Net income attributable to common shareholders was also impacted by a non-recurring tax charge of $100.5 million related to the revaluation of the net deferred tax asset as a result of the reduced U.S. corporate income tax rate enacted under the U.S. Tax Cuts and Jobs Act.
  • Net investment income for the current quarter was $217.7 million, compared to $196.1 million in the prior year quarter. Net investment income for the current quarter, excluding the Life Funds Withheld Assets, was $186.3 million, compared to $161.0 million in the prior year quarter . This increase was primarily due to higher reinvestment rates in the current quarter from active sector rotation and portfolio management activities.
  • Income from affiliates was $14.8 million for the current quarter, compared to $47.9 million in the prior year quarter, primarily due to lower hedge fund performance as compared to the prior year quarter. The fourth quarter of 2016 included a one-time portfolio rebalancing gain.
  • Operating expenses during the current quarter were 21.3% or $110.1 million favorable compared to the prior year quarter, primarily driven by the absence of integration costs, which were $58.8 million in the prior year quarter, and a reduction to variable compensation costs resulting from the catastrophe loss impact on the Company's results.
  • Income tax expense of $77.1 million was recognized during the current quarter driven largely by the $100.5 million discrete charge on the write-down of the net deferred tax asset as a result of the U.S. Tax Cuts and Jobs Act. In addition, the current quarter income tax expense included the benefit of a lower full year effective tax rate resulting from third quarter losses and other discrete items recognized in the quarter.
  • Fully diluted book value per common share decreased by $0.23 from the end of the prior quarter to $38.04, driven primarily by unrealized losses on the mark to market of our available for sale investments and by dividend payments made, partially offset by net income. Fully diluted tangible book value per common share also decreased by $0.26 from the end of the prior quarter to $29.44.
  • There were no share buybacks4 under our current share buyback authorization during the current quarter. Share buybacks for the full year ended December 31, 2017 totaled approximately 13.8 million shares at an average price of $41.36 per share or $571.6 million, compared to 30.2 million shares or $1.1 billion in the prior year. At December 31, 2017, $529.1 million of common shares remained available for purchase under our current share buyback authorization.
P&C Operations
(U.S. dollars in thousands)
Three Months Ended
December 31, 2017 December 31, 2016
(Unaudited) (Unaudited)
Insurance Reinsurance Total P&C Insurance Reinsurance Total P&C
Gross premiums written $2,488,403 $1,072,403 $3,560,806 $2,481,140 $535,456 $3,016,596
Net premiums written $1,794,452 $921,550 $2,716,002 $1,816,711 $496,421 $2,313,132
Net premiums earned $1,757,004 $915,944 $2,672,948 $1,707,440 $746,620 $2,454,060
Underwriting profit (loss) $(42,142) $68,482 $26,340 $30,043 $96,377 $126,420
Loss ratio 71.9% 61.1% 68.2% 67.8% 54.8% 63.8%
Underwriting expense ratio 30.5% 31.4% 30.8% 30.4% 32.3% 31.0%
Combined ratio 102.4% 92.5% 99.0% 98.2% 87.1% 94.8%
Twelve Months Ended
December 31, 2017 December 31, 2016
(Unaudited) (Unaudited)
Insurance Reinsurance Total P&C Insurance Reinsurance Total P&C
Gross premiums written $10,070,463 $4,682,110 $14,752,573 $9,650,503 $3,975,106 $13,625,609
Net premiums written $6,704,548 $3,963,876 $10,668,424 $6,715,969 $3,514,667 $10,230,636
Net premiums earned $6,721,812 $3,602,466 $10,324,278 $6,651,495 $3,114,392 $9,765,887
Underwriting profit (loss) $(454,255) $(407,812)