CEO Mike McGavick seemed quite pleased with XL’s results for, the first quarter of 2013. “XL once again delivered solid results — the kind of results we seek to routinely produce,” he wrote in the earnings report.
“While none of us are ready to declare victory, particularly with the benefit of a quiet catastrophe and large loss quarter, such results make us all the more driven to deliver consistent, quality performance, even as catastrophes and losses normalize. We are pleased with our progress and are maintaining our diligent, grinding work,” he added.
The report gave the following relevant figures for the period:
• Operating net income for the quarter of $279.9 million, compared to operating net income of $165.2 million in the prior year quarter, primarily due to improved underwriting results in the current quarter, including lower levels of catastrophe and large risk losses, combined with higher affiliate earnings than in the prior year quarter.
• Net income for the quarter of $350.8 million, compared to net income of $176.6 million in the prior year quarter, primarily due to operating income improvements combined with higher net realized gains on investments and derivatives, than in the prior year quarter.
• Net investment income for the quarter was $246.5 million, compared to $265.2 million in the prior year quarter and $245.0 million in the fourth quarter of 2012. The decline against the prior year quarter was primarily due to lower yields as a result of lower reinvestment rates.
• Net income from investment fund and investment manager operating affiliates was $50.7 million in the quarter, compared to income of $30.0 million in the prior year quarter. Strong alternative portfolio returns were driven by excellent returns from our managers supported by positive markets over the past six months.
• Net realized investment gains for the quarter of $36.5 million, compared to gains of $20.8 million in the prior year quarter.
• Fully diluted tangible book value per ordinary share increased by $0.70 from the prior quarter driven by net income growth combined with the benefit of share buybacks, partially offset by net unrealized losses on investments.
• During the quarter, the Company purchased 8.0 million shares for $223.3 million at an average price of $27.89 per share, which was accretive to fully diluted tangible book value per ordinary share by $0.20. At March 31, 2013, $725.0 million of shares remained available for purchase under the Company’s previously announced $850 million share buyback program.
First quarter results in XL’s P&C sector were listed as follows:
• P&C gross premiums written (“GPW”) in the first quarter increased 3.8 percent compared to the prior year quarter. The Insurance segment GPW increased 12.1 percent from the prior year quarter, as a result of new business initiatives in North American Programs and Construction lines combined with increased policy retentions and moderate pricing improvements across most lines. The decrease in GPW for the Reinsurance segment of 7.5 percent was primarily from International due to the non-renewal of certain Marine exposures as a result of the re-underwriting of this line, and in Casualty, from reduced renewals as a result of increased cedant retentions and reductions in participation on certain treaties.
• P&C net premiums earned (“NPE”) in the first quarter of $1.5 billion were comprised of $1.0 billion from the Insurance segment and $425.2 million from the Reinsurance segment. Compared to the prior year quarter, Insurance NPE increased by 11.2 percent primarily due to increased premiums in North American and Global Professional lines over the last twelve months. Reinsurance NPE increased by 0.3 percent primarily due to increases in Bermuda Property Catastrophe, partially offset by a reduction in Property Treaty in Latin America.
• The P&C loss ratio in the current quarter was 5.3 percentage points lower than in the prior year quarter. Included in the P&C loss ratio was favorable prior year development of $31.2 million compared to $80.3 million in the prior year quarter. The P&C loss ratio variance was also impacted by natural catastrophe pre-tax losses of $4.0 million, net of reinsurance and reinstatement premiums, compared to $20.0 million in the prior year quarter. Excluding prior year development and natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums, the first quarter P&C loss ratio was 7.9 percentage points lower than the prior year quarter. The improvements were driven by lower large loss levels combined with changes in business mix and moderately improved pricing.
• Operating expenses were generally in line with the prior year quarter. An increase in compensation costs due to added headcount as a result of business expansion was offset by the timing of costs associated with infrastructure and organizational initiatives. Expenses were slightly lower than in the fourth quarter of 2012 due to the timing of costs associated with infrastructure and organizational initiatives, partially offset by higher compensation costs due to the impact of Sandy on fourth quarter 2012 compensation.
• The P&C combined ratio excluding prior year development and the impact of natural catastrophe losses for the quarter was 89.5 percent, compared to 99.8 percent for the prior year quarter. The Insurance segment combined ratio on this basis was 93.5 percent for the quarter, compared to 104.8 percent for the prior year quarter, while the Reinsurance segment combined ratio on this basis was 79.9 percent, compared to 88.7 percent for the prior year quarter.
Source: XL Group
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