XL Group Posts Q2, 1st HY Earnings; Boosted by Catlin Acquisition

August 4, 2015

XL Group’s second quarter report showed a net decrease in operating income to $245.8, compared to $279.6 million in Q2 2014. For the first half of 2015 XL reported operating earnings of $440 million, down from $518 million in 2014.

Net income, however, increased substantially over the prior periods, rising to $915 million, compared to a loss of $279 million in Q2, 2014. For the first half of 2015 net income was $951.3 million, compared to a loss of $23.5 million in 2014.

The combination with Catlin seems to paying off. “P&C gross premiums written (GPW) in the second quarter increased 42.2 percent compared to the prior year quarter following the combination with Catlin,” the report said. Q2 GPW were over $3 billion, compared to, $2.1 billion in Q2 2014.

In addition the report said: “The Insurance segment GPW increased 37.1 percent 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 percent.

“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.”

In the reinsurance segment the report highlighted a 58.6 percent increase 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 percent due to a competitive pricing environment with respect to property treaty business.”

The report also listed the following earnings highlights:
— 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 Assets, 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 percent for the quarter, compared to 88.3 percent 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’ equity excluding and including average unrealized gains and losses on investments was 10.0 percent and 8.7 percent, 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 percent, 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

CEO Mike McGavick commented: “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 percent.

“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.”

Source: XL Group

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