Q3 combined ratio up 5.2 points, gross written premiums up 66.1% for XL Group

Following its acquisition earlier this year of insurance carrier Catlin Group Ltd., XL Group plc reported a 66.1% year-over-year increase in third-quarter gross written premiums in property & casualty and a 3.3-point increase in its expense ratio, while an explosion last August in the Chinese port of Tianjin contributed to a 5.2-point increase in XL’s combined ratio.

Dublin-based XL released Monday its financial results for the three months ending Sept. 30.

The insurer and reinsurer reported gross written premiums, in P&C, of $2.659 billion in the most recent quarter, up 66.1% from $1.6 billion in Q3 2014. All figures are in United States dollars.

XL’s acquisition of Catlin closed May 1, and XL now operates under the XL Catlin brand. XL reported net premiums written of $2.073 billion and net premiums earned of $2.41 billion in the latest quarter.

“Excluding the impacts of the additional Catlin business and foreign exchange, the segment experienced an increase of 6.0%,” XL stated of its P&C results for Q3. “Rates were under pressure in most lines. However, this was offset by new business, particularly in our International Financial Lines, Political Risk & Trade Credit and Cyber business lines. Renewals were reduced where premium rates did not support our target returns.”

The combined ratio deteriorated by 5.2 points, from 90.1% in Q3 2014 to 95.3% in the most recent quarter.

The loss ratio increased 1.8 points, from 59.1% in Q3 2014 to 60.9% during the same quarter of this year.

“Excluding Catlin related transaction and integration costs, operating expenses were 50.5% higher than the prior year quarter primarily due to the impact of the combination with Catlin,” XL reported. “However, overall run rate expenses for the quarter continue to be less than the combined operating expenses of XL and legacy Catlin in the prior year quarter, indicating that synergy savings are already being achieved. The operating expense ratio decreased 1.0% to 17.6% in the quarter, compared to 18.6% in the prior year quarter.”

XL’s P&C loss ratio in Q3 2015 included favourable development of $28.1 million compared to $35.1 million in Q3 2014.

“The P&C loss ratio variance was impacted by natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums of $30.8 million, compared to $29.8 million in the prior year quarter,” XL stated. “Excluding prior year development and natural catastrophe losses the third quarter P&C loss ratio was 1.2% higher than the prior year quarter, driven significantly by the Tianjin, China port explosion loss.”

As of Sept. 11 – 30 days after the tragedy in Tianjin – the Associated Press reported 173 were dead. AP reported the Aug. 12 explosion originated at a warehouse storing 700 tons of sodium cyanide, which can form a flammable gas on contact with water.

A.M. Best Company Inc. predicted, in a report Aug. 21, that claims will arise from business interruption, property, auto, marine cargo, liability, personal accident and life.

In a report released last month, Guy Carpenter & Company LLC said the explosion – which blasted shipping containers, incinerated vehicles and destroyed warehouses and production facilities – also blew out windows in homes several kilometres from the site.

XL reported Monday its underwriting profit dropped 20.8%, from $144 million in Q3 2014 to $114 million in the most recent quarter.

Total adjusted revenues were $2.6 billion in Q3 2015, up from $1.69 billion in Q3 2014. XL’s Q3 net income dropped from $110 million in 2014 to $85 million this year.

For the first nine months of the year, gross written premiums increased 32.6%, from $6.14 billion in 2014 to $8.14 billion this year.

Underwriting profit increased 2.7%, from $457 million in the first nine months of 2014 to $469.7 million during the first three quarters of this year.

The loss ratio, year-to-date as of Sept. 30, was 59.5%, unchanged from 2014.

The combined ratio for the first three quarters was 91.9% this year, up 2.5 points from 89.4% in 2014.