XL Group reports combined ratio up 6.1 points in second quarter, net income drops substantially

Global insurance and reinsurance company XL Group plc reported on Wednesday that its P&C combined ratio climbed 6.1 points in the second quarter of 2016 to 96%, while net income attributable to ordinary shareholders of US$43.8 million for the quarter decreased drastically compared to US$915 million in the prior year quarter.

XL said in a statement that operating net income of US$106.4 million for the latest quarter ending June 30 decreased compared to operating net income of US$245.8 million in the prior year quarter. The current quarter includes approximately US$52.1 million in integration costs as well as US$240.1 million in natural catastrophe losses compared to US$39.6 million in integration costs and US$59.9 million in natural catastrophe losses in the prior year quarter.

Natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums in the quarter of US$240.1 million (9.8 points to the loss ratio), compared to US$59.9 million (2.9 points to the loss ratio), in the prior year quarter.

P&C gross premiums written (GPW) in the second quarter of this year increased 17.6% compared to the prior-year quarter as a result of the combination with Catlin Group (the second quarter of 2015 included only two months of Catlin results). The Insurance segment GPW increased 13.2% from the prior year quarter primarily due to the combination with Catlin. More generally, continued new business growth was partially offset by adverse foreign exchange impacts, continued rate pressures and selected discontinued lines, the statement said.

The Reinsurance segment GPW increased by 30.2% from the prior year quarter. The increase was due to the combination with Catlin, and significant new business across all regions, in particular Bermuda, Europe, the Middle East and Africa and North America.

P&C net premiums earned in the second quarter of US$2.5 billion were comprised of US$1.7 billion from the Insurance segment and US$832 million from the Reinsurance segment.

XL said in its financial results that the P&C loss ratio in the current quarter was 8.8 percentage points higher than in the prior year quarter. The P&C loss ratio variance was impacted by natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums of US$240.1 million, compared to US$59.9 million in the prior year quarter. Included in the P&C loss ratio was favourable development of US$98.6 million compared to US$108.9 million in the prior year quarter. Excluding prior year development and natural catastrophe losses, the second quarter P&C loss ratio was 0.5 percentage points higher than the prior year quarter “due to the impact of harmonized reserving on the assumptions impacting the current accident year as well as mix and rate change,” XL said in the statement.

The P&C combined ratio excluding prior year development and the impact of natural catastrophe losses for the quarter was 90.3%, compared to 92.3% for the prior year quarter. The Insurance segment combined ratio on this basis was 92.6% for the quarter compared to 95.4% for the prior year quarter, while the Reinsurance segment combined ratio on this basis was 85.5% for the quarter compared to 85.3% for the prior year quarter. Overall, improvements in the expense ratios were partially offset by slight increases in loss ratios.

“XL Catlin’s second quarter results were significantly impacted by global catastrophes, reducing operating earnings per share by 84 cents,” said XL Group CEO Mike McGavick in the statement. “In the face of these events and challenging markets, we demonstrated progress in our underlying performance. We generated gross premiums written of US$3.6 billion, P&C underwriting profit of US$102 million, and an accident-year, ex-catastrophe P&C combined ratio of US90.3%. The benefits of our integration are emerging and we are committed to the hard work and execution required to succeed.”

XL Group Ltd, through its subsidiaries and under the XL Catlin brand, is a global insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises throughout the world.