XL Capital Misses by a Penny - Analyst Blog

XL Capital’s (XL) fourth quarter earnings of 69 cents per share were only a penny short of the Zacks Consensus Estimate of 70 cents. Earnings dragged due to a 72% decline in underwriting income from the Property and Casualty segment, partially offset by low operating expenses.

XL Capital reported a net loss of $40.3 million, or 12 cents per ordinary share, primarily due to $254.8 million of after-tax net realized losses on investments. Last year the company had reported a loss of $4.33 per share. Losses during the quarter narrowed due to shrinking investment losses.

For the full-year 2009, XL Capital reported operating earnings of $917.3 million, or $2.69 per ordinary share, compared to $840.3 million or $3.49 per share in the prior year quarter.

In order to reduce its inherent volatility, the company undertook investment portfolio repositioning by selling $1.2 billion of risky assets. However, net investment income fell nearly 20% to $316.4 million from $393.1 million in the year-ago quarter.

Segment Results

Property and Casualty net premiums earned were down 10.6% year-over-year to $1.3 billion, due to the rolling effects of the prior period’s lower written premium. This rate of change is better than the previous quarters, reflecting the improving level of gross premiums written relative to the prior year. Improving trends in net premiums earned is expected to continue in to 2010.

Life operations net premiums earned were $125.5 million, down 15.0% year-over-year.

Book value grew for the third straight quarter to $24.60. Tangible book value per share increased 4% to $22.13 in the quarter. Total shareholders’ equity increased from $9.2 billion to $9.4 billion in the quarter.

XL Capital ended 2009 with over $12 billion in total capital, an increase of over 23% from the position at December 2008. It also had $1.5 billion of excess cash and investments at the holding company, rendering it financially flexible.

On the asset side, the company continued to restructure its investment portfolio by selling $1.2 billion of risky assets during the quarter. For the full year, the company had cleared itself with $5.6 billion of problem assets.

2010 Outlook

Management anticipates gross premiums written in 2010 to be up in the low single digits from 2009 levels. P&C and Corporate net investment income is estimated to lie in the range of $800 to $950 million, reflecting both the current low interest rate environment and a level asset base. On the back of these, a low double-digit operating ROE is expected in 2010.

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