XL Group is Evenly Poised - Analyst Blog

On Jun 5, we issued update research report on XL Group plc XL.

XL Group reported first-quarter 2014 operating net income of 85 cents per share. Earnings outpaced the Zacks Consensus Estimate by 19.7%, but declined 8.6% year over year due to lower underwriting profit. With respect to surprise trend, this property and casualty insurer delivered a positive surprise in 3 out of the last 4 quarters, with an average beat of 13.5%.

XL Group focuses on its insurance and reinsurance business lines that provide the best return on capital over the pricing cycle. It also eyes opportunities in the growing economy.

Recently, XL Insurance (Bermuda) Ltd divested its wholly owned subsidiary, XL Life Reinsurance (SAC) Ltd to GreyCastle Holdings Ltd. for $570 million in cash. The divestiture was intended to improve its risk profile and gain additional flexibility to pursue capital management initiatives as well as intensify its focus on the property and casualty business.

With respect to enhancing shareholders' value, XL Group engages in share buybacks as well as increases dividend. In the first quarter, the company bought back $175 million shares and is left with $892.6 million under its authorization. In Feb 2014, the board of directors approved a share $1 billion repurchase program. It expects to buy back $300 million shares in 2014 from additional capital flexibility generated from divestitures. The board also approved a 14% hike in dividend, which currently yields 2.2%.

This Zacks Rank #3 (Hold) insurer has been witnessing declining net investment income due to lower reinvestment rates. Also, cash provided by operating activities has been fluctuating over the past few years. The fluctuating cash position of XL Group makes us skeptical about its ability to meet debt and liquidity needs as well as working capital requirements.

Being a property and casualty insurer, XL Group is exposed to catastrophic events that weigh on underwriting performance and combined ratio.

The Zacks Consensus Estimate slid 0.7% to $2.98 for 2014 and 0.9% to $3.18 for 2015 as a few estimates moved south over the last 30 days.

Other Stocks to Consider

Some better-ranked property and casualty insurers worth reckoning are 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).
 

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XL GROUP PLC XL: Free Stock Analysis Report
 
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AMTRUST FIN SVC AFSI: Free Stock Analysis Report
 
ASPEN INS HLDGS AHL: Free Stock Analysis Report
 
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