Combined ratio improves 8.8 points, gross written premiums up 11.1% for commercial insurer XL Group

XL Group plc released Monday its financial results for the three months ending Dec. 31 and for the full year, reporting an 8.8-point improvement in its combined ratio, an 11.1% increase in gross written premiums, a 116% increase in underwriting profit and a 53.6% drop in net income attributable to ordinary shareholders, which was affected by its life retrocession derivative.

Fourth-quarter gross written premiums for the Dublin-based commercial insurance carrier and reinsurer increased from $1.46 billion in 2013 to $1.62 billion last year. All figures are in United States dollars.

The increase in Q4 gross written premiums, in the insurance sector was 13.1% “as a result of strong new business particularly in International Financial Lines, Construction, North America Primary Casualty, Marine, and Political Risk and solid premium retention across most of the portfolio,” XL Group stated in a press release Monday.

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Underwriting profit more than doubled, from $101.45 million in Q4 2013 to $219 million in the most recent quarter.

The Q4 loss ratio improved 10.2 points, from 62.5% in 2013 to 52.3% last year.

“Included in the P&C loss ratio was favorable development of $96.7 million compared to $60.9 million in the prior year quarter,” XL Group said. “The P&C loss ratio variance was impacted by natural catastrophe pre-tax losses of $31.7 million net of reinsurance and reinstatement premiums, with $17.7 million related to our Insurance segment and $14.0 million related to our Reinsurance segment, as compared to $94.3 million in the prior year quarter, with $23.7 million related to our Insurance segment and $70.6 million related to our Reinsurance segment. Excluding prior year development and natural catastrophe losses net of reinsurance and reinstatement premiums, the fourth quarter P&C loss ratio was 3.3 percentage points lower than the prior year quarter.”

XL Group’s North America p&c business provides property, primary and excess casualty, environmental liability, excess and surplus lines, construction, surety and program business. Its global professional lines include directors’ and officers’ liability, errors and omissions liability, employment practices liability and technology and cyber liability coverages. Its global and specialty lines include aviation and satellite, marine and offshore energy, fine art and specie, equine, product recall, political violence, political risk and trade credit and North America inland marine. Its reinsurance includes casualty, property, marine and aviation, among others.

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For the fourth quarter, XL Group’s combined ratio improved 8.8 points, from 93.3% in 2013 to 84.5% in 2014.

Net income attributable to ordinary shareholders, in the final quarter, dropped 53.6%, from $300.8 million in 2013 to $139.5 million in the final quarter of 2014. For the full year, net income attributable to ordinary shareholders dropped 82.2%, from $1.06 billion in 2013 to $188.3 million in 2014.

“Net income for the current quarter was negatively impacted by the life retrocession derivative, which is offset by an increase in accumulated comprehensive income and therefore does not impact overall book value,” XL Group noted.

For the full year, net income attributable to ordinary shareholders, excluding contribution from life retrocession arrangements, increased 10.8%, from $1.06 billion in 2013 to $1.175 billion in 2014.

In 2014, XL Group recorded a $621.3-million loss on the sale of its life reinsurance subsidiary, net of tax. Last May, the company announced that XL Insurance (Bermuda) Ltd. had entered into an agreement to sell XL Life Reinsurance (SAC) Ltd. to GreyCastle Holdings Ltd. for $570 million in cash. The subsidiary sold to GreyCastle had reinsured “substantially all” of XL’s life reinsurance business in Britain and continental Europe, the company said at the time. In 2009, XL Group sold a portion of its U.S. life reinsurance business, started running off its existing book of life and annuity business and stopped accepting new business.

In the three months ending Dec. 31, 2014, XL Group recorded net realized losses of $269 million on life retrocession embedded derivative and derivative instruments – life funds withheld assets. That figure was $488.2 million for all of 2014.

Also for the full year, XL Group reported a 4.6% increase in gross written premiums, from $7.417 billion in 2013 to $7.761 billion in 2014. Net premiums earned for the full year dropped 4.9%, from $6.014 billion in 2013 to $5.717 billion last year.

Underwriting income increased 50%, from $451 million in 2013 to $676 million in 2014.

The loss ratio improved five points, from 62% in 2013 to 57% in 2014, while the combined ratio improved 4.3 points, from 92.5% in 2013 to 88.2% in 2014.

“Many of our results were the best we have achieved in over 15 years, including our property and casualty combined ratio of 88.2%,” XL Group Chief Executive Officer Mike McGavick stated in a release. “Insurance results included a 2014 combined ratio of 94.4%, the best performance since 2007, and a loss ratio of 63.2%. And our Reinsurance segment achieved a stellar 73.3% combined ratio, one of its best performances as well. Of course, these results were helped, in part, by one of the lowest catastrophe years we have seen in years.”