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- January 01, 0001
- Operating net income1 of $245.8 million, or $0.84 per share, for the quarter on a fully diluted basis
- Net income attributable to ordinary shareholders and net income attributable to ordinary shareholders excluding the impact of the Life Retrocession Arrangements2 of $915.0 million and $598.0 million, respectively, for the quarter. As a result of the Life Retrocession Arrangements, XL’s net income is impacted by the gains or losses on the Life Funds Withheld Assets2, with an equal and opposite accounting adjustment in XL’s comprehensive income such that there is no effect on XL’s book value
- Gain of $340.4 million related to the sale of our interest in our operating affiliate ARX Holding Corp. ("ARX")
- P&C combined ratio of 89.9% for the quarter, compared to 88.3% in the prior year quarter
- Natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums in the quarter of $59.9 million, compared to $34.6 million in the prior year quarter
- Annualized operating return on average ordinary shareholders' equity3 excluding and including average unrealized gains and losses on investments was 10.0% and 8.7%, respectively, for the quarter
- Fully diluted tangible book value per ordinary share4of $32.53 at June 30, 2015, a decrease of $4.26, or 11.6%, from December 31, 2014. The reduction results from the goodwill and intangible assets acquired from Catlin Group Limited ("Catlin") in exchange for cash and equity consideration
- Share buybacks totaled 2.9 million ordinary shares for $110.0 million during the quarter
1Defined as net income (loss) attributable to ordinary shareholders excluding: (1) our net investment income - Life Funds Withheld Assets (defined below), net of tax, (2) our net realized (gains) losses on investments sold - excluding Life Funds Withheld Assets, net of tax, (3) our net realized (gains) losses on investments sold (including OTTI) and net unrealized (gains) losses on investments, Trading - Life Funds Withheld Assets, (4) our net realized and unrealized (gains) losses on derivatives, net of tax, (5) our net realized and unrealized (gains) losses on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets, (6) our share of items (2) and (4) for XL's insurance company affiliates for the periods presented, (7) our foreign exchange (gains) losses, net of tax, (8) our expenses related to the Catlin acquisition, net of tax. (9) our gain on the sale of our interest in our operating affiliate, ARX, and (10) our loss on sale of life reinsurance subsidiary, XLLR, net of tax “Operating net income”, “annualized operating return on average ordinary shareholders' equity" and "annualized operating return on average ordinary shareholders' equity excluding average unrealized gains and losses on investments" are non-GAAP financial measures. See the schedule entitled “Reconciliation” on page 9 of this press release for a reconciliation of “operating net income” to net income (loss) attributable to ordinary shareholders and the calculation of “annualized operating return on average ordinary shareholders' equity" and "annualized operating return on average ordinary shareholders' equity excluding average unrealized gains and losses on investments", both of which are based on operating net income.
2On May 1, 2014, our wholly-owned subsidiary, XL Insurance (Bermuda) Ltd (“XLIB”), entered into a sale and purchase agreement with GreyCastle Holdings Ltd. (“GreyCastle”) providing for the sale of 100% of the common shares of XLIB's wholly-owned subsidiary, XL Life Reinsurance (SAC) Ltd ("XLLR"), for $570 million in cash. This transaction was completed on May 30, 2014. As a result of the transaction, we have ceded the majority of our life reinsurance business to XLLR via 100% quota share reinsurance (the "Life Retrocession Arrangements"). The designated investments that support the Life Retrocession Arrangements, which are written on a funds withheld basis ("Life Funds Withheld Assets"), are included within "Total investments available for sale" and "Fixed maturities, trading at fair value" on our balance sheet. Investment results for these assets - including interest income, unrealized gains and losses, and gains and losses from sales - are passed directly to the reinsurer pursuant to a contractual arrangement that is accounted for as a derivative. Changes in the fair value of the embedded derivative associated with these Life Retrocession Arrangements are grouped within "Contribution from Life Retrocession Arrangements" in the schedule entitled "Reconciliation" on page 8 of this press release. Net income attributable to ordinary shareholders excluding the impact of the Life Retrocession Arrangements is a non-GAAP financial measure.
3Ordinary shareholders' equity is defined as total shareholders' equity less non-controlling interest in equity of consolidated subsidiaries.
4 Book value per ordinary share, fully diluted book value per ordinary share and fully diluted tangible book value per ordinary share are non-GAAP financial measures. Fully diluted book value per ordinary share represents book value per ordinary share (total shareholders' equity less non-controlling interest in equity of consolidated subsidiaries, divided by the number of outstanding ordinary shares at any period end) combined with the dilutive impact of potential future share issuances at any period end. Fully diluted tangible book value per ordinary share is calculated in the same manner as fully diluted book value per ordinary share except that goodwill and intangible assets are excluded from ordinary shareholders' equity. XL believes that fully diluted tangible book value per ordinary share is a financial measure important to investors and other interested parties who benefit from having a consistent basis for comparison with other companies within the industry. However, this measure may not be comparable to similarly titled measures used by companies either outside or inside of the insurance industry.
Commenting on the Company’s performance, Chief Executive Officer Mike McGavick said:
"I’m pleased to announce the first quarterly financial results for the combined XL Catlin. We reported 84 cents of operating earnings per share and delivered an annualized operating ROE excluding unrealized gains and losses on investments of 10.0%. We are pleased with our progress in the major areas that we view as key to unlocking the value created by XL's combination with Catlin notwithstanding continued market headwinds. First, our top line results demonstrated the strong support our clients and brokers have shown for the new XL Catlin. Second, we are on target with respect to synergies and expenses and will continue to manage those with discipline; third, we delivered on our capital management commitment through resumed share buybacks; and finally, XL Catlin’s culture continues to take on the best parts of what each of our companies brought to the transaction. We were one company for only two months of the second quarter and in that short time my belief that we can meet and exceed the expectations we set for this company has only grown. We are very excited about where we are and what lies ahead for XL Catlin."
|Three and Six Months Ended June 30|
|(U.S. dollars in thousands, except per share amounts)|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Operating net income (loss)||$||245,797||$||279,577||$||440,173||$||518,226|
|Per ordinary share-fully diluted||$||0.84||$||1.02||$||1.59||$||1.86|
|Net income (loss) attributable to ordinary shareholders||$||915,039||$||(279,260)||$||951,320||$||(23,543)|
|Per ordinary share-fully diluted||$||3.11||$||(1.03)||$||3.43||$||(0.09)|
- Operating net income of $245.8 million for the quarter decreased compared to operating net income of $279.6 million in the prior year quarter. The current quarter includes approximately $27.8 million in integration costs as well as $59.9 million in catastrophe losses compared to $34.6 million in catastrophe losses in the prior year quarter. In addition, the prior year quarter benefited from the recognition of $28.7 million of profit associated with the commutation of a structured product transaction.
- Net income (loss) attributable to ordinary shareholders of $915.0 million for the quarter increased compared to a loss of $279.3 million in the prior year quarter. The current year includes a $340.4 million gain on the sale of our interest in an operating affiliate as well as a $239.2 million favorable impact from the life retrocession derivative, which is offset by a decrease in accumulated comprehensive income and therefore does not impact book value. Additionally, the prior year included a $621.3 million after tax loss on the sale of our life reinsurance subsidiary.
- Net investment income for the quarter was $223.2 million, compared to $232.8 million in the prior year quarter and $208.5 million in the first quarter of 2015. The overall year over year decline is primarily due to the Life Funds Withheld Assets, along with the impact of lower reinvestment yields, partially offset by the addition of two months of investment income on the legacy Catlin portfolio.
- Net income from investment fund and investment manager operating affiliates was $39.9 million for the quarter, compared to net income of $30.8 million in the prior year quarter. The increase was driven primarily by higher earnings from our private investment fund affiliates.
- Fully diluted tangible book value per ordinary share decreased by $5.07 from the prior quarter to $32.53, driven by the increase in goodwill and intangibles acquired from the combination with Catlin in exchange for cash and equity, our unrealized losses on investments and our payment of dividends, partially offset by net income. Excluding the impact of the Catlin transaction, fully diluted tangible book value per ordinary share increased by $0.66 or 1.7%.
- At June 30, 2015, $157.6 million of ordinary shares remained available for purchase under our share buyback program.
|Three and Six Months Ended June 30|
|(U.S. dollars in thousands)|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Gross premiums written||$||3,001,692||$||2,111,529||$||5,482,101||$||4,540,168|
|Net premiums written||$||2,100,073||$||1,433,326||$||3,936,816||$||3,352,866|
|Net premiums earned||$||2,063,795||$||1,438,076||$||3,383,289||$||2,850,604|
|Underwriting profit (loss)||$||208,779||$||167,947||$||355,615||$||312,821|
|Loss ratio||55.8 %||57.6 %||56.8 %||58.2 %|
|Underwriting expense ratio||34.1 %||30.7 %||32.7 %||30.8 %|
|Combined ratio||89.9 %||88.3 %||89.5 %||89.0 %|
- P&C gross premiums written (“GPW”) in the second quarter increased 42.2% compared to the prior year quarter following the combination with Catlin.
- The Insurance segment GPW increased 37.1% from the prior year quarter primarily due to the combination with Catlin. Excluding the impacts of the additional Catlin business and foreign exchange, the segment experienced an increase of 1.1%. Rates were under pressure in most lines, however, this was offset by new business, particularly in our Marine, Political Risk & Trade Credit and North American Construction. Renewals were reduced where premium rates did not support our target returns. Relative to the prior year quarter, the Catlin portfolio experienced similar impacts.
- The Reinsurance segment GPW increased 58.6% from the prior year quarter, primarily due to the combination with Catlin. Excluding the impact of the acquired Catlin business, the segment experienced a decrease of 2.9% due to a competitive pricing environment with respect to property treaty business.
- P&C net premiums earned (“NPE”) in the second quarter of $2.1 billion were comprised of $1.4 billion from the Insurance segment and $650.9 million from the Reinsurance segment.
- The P&C loss ratio in the current quarter was 1.8 percentage points lower than in the prior year quarter. Included in the P&C loss ratio was favorable development of $108.9 million compared to $84.4 million in the prior year quarter. The P&C loss ratio variance was impacted by natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums of $59.9 million, compared to $34.6 million in the prior year quarter. Excluding prior year development and natural catastrophe losses net of reinsurance and reinstatement premiums, the second quarter P&C loss ratio was 2.8% lower than the prior year quarter, driven primarily by the Catlin combination.
- The P&C combined ratio excluding prior year development and the impact of natural catastrophe losses for the quarter was 92.3%, compared to 91.8% for the prior year quarter. The Insurance segment combined ratio on this basis was 95.4% for the quarter compared to 96.0% for the prior year quarter, while the Reinsurance segment combined ratio on this basis was 85.3% for the quarter compared to 82.0% for the prior year quarter with the increase driven by higher acquisition costs resulting from purchase accounting adjustments and a change in business mix from the combination with Catlin.
- Operating expenses in the quarter were 52.3% higher than in the prior year quarter primarily due to the impact of the combination with Catlin. Excluding deal related transaction and integration costs operating expenses were up 32.9%. However, overall run rate expenses for the quarter were less than the combined operating expenses of XL and Catlin in the prior year quarter, indicating that savings are already beginning to be achieved. The operating expense ratio decreased 0.5% to 17.6% in the quarter.
Further details of the results for the quarter may be found in the Company’s Financial Supplement, which is dated August 3, 2015 and is available on the Investor Relations section of XL's website.
A conference call to discuss the Company’s results will be held at 10:00 a.m. Eastern Time on Tuesday, August 4, 2015. 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 (210) 795-0624 or (866) 617-1526: Passcode: “XL GLOBAL”. The webcast will be available at www.xlcatlin.com and will be archived on the website from approximately 1:00 p.m. Eastern Time on August 4, 2015, until approximately midnight Eastern Time on September 4, 2015. A telephone replay of the conference call will also be available beginning at approximately 1:00 p.m.