XL Closes Life Reinsurance Divestiture - Analyst Blog

XL Group plc XL announced that its subsidiary XL Insurance (Bermuda) Ltd closed the divestiture of XL Life Reinsurance (SAC) Ltd ("XLLR") to GreyCastle Holdings Ltd. for a cash consideration of $570 million.

On May 1, XL Insurance (Bermuda) inked a deal with GreyCastle Holdings Ltd. to vend its wholly owned subsidiary, XL Life Reinsurance in an effort to improve its risk profile and cushion itself with additional flexibility to pursue capital management initiatives. These include buying back of additional $300 million of shares in 2014.

Nonetheless, XLLR will reinsure the majority of XL's life reinsurance business through 100% quota share reinsurance.  XL will also retain about $438 million of reserves related to disability, accident and health policies and U.S. term assurance in its Life operations segment. The company will record $4.4 billion of reinsurance recoverable from XLLR. Also, XL will continue to own $5.5 billion of assets backing the retroceded business. In 2009, XL announced the run-off of its life reinsurance business as it intended to heighten its focus on property and casualty business and went for a strategic review of its Life reinsurance business.

XL Group projects the March 31, 2014 adjusted effect of the divestiture to result in approximately $585 million overall reduction in U.S. GAAP book value. The insurer also predicts after-tax U.S. GAAP net loss of around $580 million.

XL Group reported mixed results in the first quarter with bottom line outperforming the Zacks Consensus Estimate by 19.7% but deteriorating 8.6% year over year due to soft underwriting result. Subsequently, the Zacks Consensus Estimate for 2014 and 2015 decreased 0.7% to $2.98 and 1.5% to $3.18, respectively, after considering both upward and downward revisions in the last 30 days.

XL Group presently carries a Zacks Rank #3 (Hold). Some better-ranked property and casualty insurers include W.R. Berkley Corporation WRB, AmTrust Financial Services, Inc. AFSI and Aspen Insurance Holdings Ltd. AHL. All these stocks sport a Zacks Rank #1 (Strong Buy).