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  • • Property and Casualty ("P&C") operations combined ratio of 91.4% for the quarter and 94.8% for the full year.
  • • Operating net income1 of $242.4 million, or $0.74 per ordinary share, for the quarter and $809.7 million, or $2.40 per ordinary share for the full year.
  • • Net income attributable to ordinary shareholders of $188.1 million, or $0.57 per ordinary share, for the quarter and $585.5 million, or $1.73 per ordinary share, for the full year.
  • • Share buybacks of $250.9 million during the quarter and $520.0 million for the full year.
  • • Fully diluted book value per ordinary share2 of $29.78 at December 31, 2010, an increase of 0.7% in the quarter and 21.1% from December 31, 2009.
  • • Full year return on ordinary shareholders' equity based on operating net income of 9.0%.
  • HAMILTON, Bermuda, Feb. 8, 2011 -- XL Group plc ("XL" or the "Company") (NYSE: XL) today reported its fourth quarter and full year 2010 results.

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

"XL's fourth quarter results demonstrated progress in several key elements driving shareholder value. Our P&C operations' 91.4% combined ratio benefited from outstanding performance from our Reinsurance segment, positive prior year development and sustained operating efficiency. We received our license to offer insurance in China and added experienced teams in lines we believe offer prospects for strategic growth. Our on-going risk management discipline resulted in our catastrophe losses being at the low end of the expected range, with only modest changes to our initial estimates for the New Zealand earthquake. We reduced exposures to non-core holdings, and we continued to return excess capital through share buybacks. We believe XL is in a solid position to meet the challenges of current market conditions and the opportunities that will come as conditions improve."

The Company also announced that fourth quarter natural catastrophe losses include $23.3 million related to flooding in Australia. Based on preliminary data available, the Company’s first quarter losses related to flooding in Australia are expected to range between an additional $75.0 million and $95.0 million. The Company’s estimates are based on its review of individual treaties and policies expected to be impacted and client data received to date. The Company’s loss estimates involve the exercise of considerable judgment and are accordingly subject to revision.

Highlights - Three and twelve months ended December 31

(US Dollars in thousands except per share amounts)

 

Three months ended

Twelve months ended

December 31

December 31

2010

2009

2010

2009

Net income (loss) attributable to ordinary shareholders

$ 188,122

$ (40,319)

$ 585,472

$ 206,607

Per ordinary share (diluted)

$ 0.57

$ (0.12)

$ 1.73

$ 0.61

Operating net income 1

$ 242,434

$ 217,406

$ 809,650

$ 992,285

Per ordinary share (diluted)

$ 0.74

$ 0.63

$ 2.40

$ 2.91

 

 

  • The improvement in operating net income compared to the prior year quarter was driven by an increase in P&C underwriting income, where premiums written and earned have increased and combined ratios during the quarter have improved by 5.0 points over the prior year quarter.
  • Net investment income for the quarter was $290.4 million compared to $316.4 million in the prior year quarter. The decline was due to the impact of lower US interest rates on the P&C portfolio and changes in foreign exchange rates on the Life portfolio.
  • The Company's net income attributable to ordinary shareholders also improved compared to the prior year, primarily due to less realized investment losses - $99.3 million in 2010, compared to $254.8 million in 2009 - plus a gain of $51.6 million on the sale of shares of Primus Guaranty.
  • Fully diluted book value per ordinary share continued to grow, with an increase of 0.7% from the prior quarter, driven by a combination of net income and the impact of the purchase of 11.8 million shares during the quarter under the previously announced share buyback programs, mostly offset by declines in investment portfolio values due to increasing interest rates. In the fourth quarter of 2010, the Company purchased 11.8 million ordinary shares for $250.9 million at an average price of $21.29 per share, which were accretive to book value per ordinary share by $0.29. During the full year, 25.7 million shares were purchased at an average price of $20.23 per share for a total of $520.0 million.
  • The full year return on ordinary shareholders' equity based on operating net income was 9.0% compared to 14.7% in 2009. The increase in average ordinary shareholders' equity from 2009 to 2010 was a large driver of this decline.

 

 

P&C operations - Three and twelve months ended December 31

(US Dollars in thousands)

 

Three months ended

Twelve months ended

December 31

December 31

2010

2009

2010

2009

Gross premiums written

$ 1,306,427

$ 1,147,684

$ 6,261,331

$ 6,111,311

Net premiums written

1,122,387

965,004

4,999,588

4,743,712

Net premiums earned

1,282,482

1,254,424

5,031,137

5,151,739

Underwriting income

109,765

45,736

262,494

327,306

Loss ratio

59.3%

62.2%

63.8%

61.5%

Underwriting expense ratio

32.1%

34.2%

31.0%

32.1%

Combined ratio

91.4%

96.4%

94.8%

93.6%

 

 

  • P&C gross premiums written in the fourth quarter increased 13.8% from the prior year quarter. This growth was driven by a multi-year insurance agreement, partially offset by a negative impact from foreign exchange rate fluctuations. Excluding these items, the Insurance segment saw an increase of 8.6% from the prior year quarter, comprised of increases from selective growth initiatives, including international professional lines, upper middle markets and construction, marine lines and improved retention rates in environmental businesses, offset by reductions in US professional lines, excess casualty and equine. The 27.0% decrease in Reinsurance was due to reductions in the Company's US crop portfolio and timing differences.
  • P&C net premiums earned of $1.28 billion for the fourth quarter of 2010 was comprised of $891.3 million from the Insurance segment and $391.2 million from the Reinsurance segment, compared to $1.25 billion in the prior year quarter, which was comprised of $862.8 million from the Insurance segment and $391.6 million from the Reinsurance segment. For the full year, P&C net premiums earned was $5.0 billion, comprised of $3.5 billion from the Insurance segment and $1.5 billion from the Reinsurance segment. For the prior year, P&C net premiums earned was $5.2 billion, comprised of $3.6 billion from the Insurance segment and $1.6 billion from the Reinsurance segment.
  • Included in the current quarter loss ratio was favorable prior year development of $121.5 million compared to $30.8 million in the fourth quarter of 2009. The current quarter loss ratio was also impacted by natural catastrophe losses of $30.3 million, net of reinstatement premiums. In the prior year quarter, natural catastrophe loss activity had a favorable impact of $5.5 million. Excluding prior year development and natural catastrophes, the current quarter loss ratio was largely in line with the prior year quarter.
  • The current quarter underwriting expense ratio decreased 2 percentage points compared to the prior year quarter from 34.2% to 32.1%, in line with the Company's 2009 restructuring and cost management plan.

 

 

Further details of the results for the quarter and of the Company's fixed income investment portfolio may be found in the Company's Financial Supplement and Fixed Income Portfolio Data Supplement, respectively. These documents are both dated February 8, 2011 and are available from the Investor Relations section of the XL Group website.

The Company will host a conference call to discuss its fourth quarter and full year results on Tuesday, February 8, 2011 at 5:00 p.m. Eastern Standard Time ("EST"). The conference call can be accessed through a listen-only dial-in number or through a live webcast. To listen to the conference call, please dial (866) 617-1526 or (210) 795-0624, passcode: 'XL GLOBAL'. The webcast will be available at www.xlgroup.com and will be archived on XL's website from approximately 9:00 p.m. EST on February 8, 2011, through midnight EST on March 8, 2011. A telephone replay of the conference call will also be available beginning at 9:00 p.m. EST on February 8, 2011, until midnight EST on March 8, 2011 by dialing (402) 220-9768 or (800) 294-3089.

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," "intend," "plan," "believe," "project," "anticipate," "will," "may" or 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 the size of XL's claims relating to natural or man-made catastrophe losses due to the preliminary nature of some reports and estimates of loss and damage to date; (b) trends in rates for property and casualty insurance and reinsurance; (c) the timely and full recoverability of reinsurance placed by XL with third parties, or other amounts due to XL; (d) changes in ratings, rating agency policies or practices; (e) changes in the projected amount of ceded reinsurance recoverables; (f) XL's ability to successfully implement its business strategy especially during the "soft" market cycle; (g) greater frequency or severity of claims and loss activity than XL's underwriting, reserving or investment practices anticipate based on historical experience or industry data; (h) changes in general economic conditions, including the effects of inflation and changes in interest rates, credit spreads, foreign currency exchange rates and other factors; (i) developments, including uncertainties related to the depth and duration of the recession and to the financial condition of counterparties, reinsurers and other companies that are at risk of bankruptcy and affect XL's business, and future volatility in the world's credit, financial and capital markets that adversely affect the performance and valuation of XL's investments or access to such markets; (j) the potential for changes to methodologies, estimations and assumptions that underlie the valuation of XL's financial instruments that could result in changes to investment valuations; (k) changes to XL's assessment as to whether it is more likely than not that it will be required to sell, or has the intent to sell, available-for-sale debt securities before their anticipated recovery