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XL Group reports P&C combined ratio of 94.8% for Q4 2016


February 2, 2017   by Canadian Underwriter


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XL Group Ltd. has reported a P&C combined ratio of 94.8% for the fourth quarter of 2016 ending Dec. 31, up 2.5% from the prior-year quarter. For the full year 2016, XL Group reported a combined ratio of 94.2% compared to 92% in the prior year.

Net income attributable to common shareholders was US$304.7 million for Q4 2016 and US$441 million for the full-year, compared to US$228.5 million in Q4 2015 and US$1.21 billion for the full year of 2015, XL Group said in a statement on Wednesday. The most recent quarter included approximately US$58.8 million in integration costs, as well as US$246.1 million in natural catastrophe losses, compared to US$73.3 million in integration costs and US$107.8 million in nat cat losses in Q4 2015.

Operating net income was US$128.4 million for the quarter and US$460.7 million for FY 2016. The Q4 operating net income decreased compared to operating net income of US$195 million in the prior year quarter due largely to greater cat losses incurred in 2016 as compared to 2015, most significantly Hurricane Matthew and the recent earthquake activity in New Zealand.

XL Group also reported natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums in the quarter of US$246.1 million (10.1 points to the loss ratio), compared to US$107.8 million (4.6 points to the loss ratio), in the prior-year quarter and US$636.3 million (6.6 points to the loss ratio) for the full year compared to US$213.2 million (2.6 points to the loss ratio) in the prior year.

P&C gross premiums written (GPW) in the fourth quarter of 2016 increased 19.3% compared to the prior-year quarter, the statement said. The Insurance segment GPW increased 6.9% from the prior-year quarter, driven primarily by new business in Political Risk and Trade Credit, Property International Open Market, Professional, US, Construction North America and North America programs along with stronger renewals in International Financial Lines and Casualty Global Risk Management. Excluding the impact of foreign exchange, GPW increased 8.7%.

The Reinsurance segment GPW increased dramatically by 159.5% in the most recent quarter from the prior-year quarter. The increase was primarily due to significant new proportional business in Bermuda in the Property Treaty line of business offset by cancellations in Bermuda and London in the Casualty line of business, XL Group reported.

P&C net premiums earned (NPE) in the fourth quarter of US$2.5 billion were comprised of US$1.71 billion from the Insurance segment and US$746.6 million from the Reinsurance segment.

The P&C loss ratio in the current quarter was 5.7 percentage points higher than in the prior-year quarter. The P&C loss ratio variance was impacted by nat cat pre-tax losses net of reinsurance and reinstatement premiums of US$246.1 million, compared to US$107.8 million in the prior-year quarter. Included in the P&C loss ratio was favourable development of US$105.9 million compared to US$121.2 million in the prior-year quarter. Excluding prior-year development and nat cat losses, the fourth quarter P&C loss ratio was 0.6 percentage points favorable versus the prior year quarter.

The statement also pointed out that the P&C combined ratio excluding prior-year development and the impact of nat cat losses for the quarter was 89.1%, compared to 92.8% for the prior-year quarter. The Insurance segment combined ratio on this basis was 92.3% for the quarter compared to 95.7% for the prior year quarter, while the Reinsurance segment combined ratio on this basis was 81.9% for the quarter compared to 86.3% for the prior-year quarter. Overall, improvements on each component of the combined ratio reflect disciplined underwriting as well as continued emergence of operational efficiencies, XL Group reported.

“2016 was undoubtedly a challenging year,” XL Group chief executive officer Mike McGavick said in the statement. “Our results were impacted by both a disappointing start as well as a number of significant catastrophe losses throughout the year and in the fourth quarter in particular.”

At the same time, McGavick continued, as the year developed, underlying strengths continued to emerge. “For example, our grinding focus on efficiency and underwriting quality produced a lower expense ratio and an improved loss ratio excluding catastrophes,” he said. “We were even able to grow a bit – bolstered by our new market presence our fourth quarter P&C net premium earned, for example, was up 3.3% over the prior year quarter. All in, we feel we took important steps in the year and, despite challenging market conditions, are very much looking forward to 2017.”

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.