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XL Group Provides Loss Estimates Stemming from Catastrophes

Zacks

XL Group Ltd. XL has recently announced catastrophe loss estimates of approximately $1.33 billion, emanating from Hurricanes Harvey, Irma and Maria. Total catastrophe losses, including smaller loss events, is estimated at about $1.48 billion pre-tax or $1.35 billion post tax. These estimates are within the company’s expectations.

The Zacks Consensus Estimate for the third quarter has also changed to a loss of $4.23 per share against the year-ago earnings of 42 cents per share. The estimate has been revised down over the last 30 days. The company is set to release third-quarter earnings results on Oct 24.

However, our proven model cannot conclusively state if the company is likely to beat estimates this time. Thisis because XL Group’s Zacks Rank #4 (Sell), which lower the predictive power of an earnings beat, when combined with a 0.00% Earnings ESP makes prediction difficult.

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Nonetheless, the insurer has a track of delivering positive surprise in the last five quarter.

Being a property and casualty insurer the company has been prone to suffering losses owing to catastrophe events. Catastrophe pre-tax losses net of reinsurance and reinstatement premiums for the second-quarter 2017 was $92.1 million compared with $240.1 million in the prior-year quarter. The company’s underwriting profit for the first-half 2017 was $338.6 million which grew 22.1% year over year.

The P&C insurer will not be able to evade the aftermath of such catastrophe events, which in turn poses a serious threat to weigh on the company’s underwriting profitability in the soon-to-be-reported quarter. While hurricanes Harvey, Irma and Maria each contributed to the company’s loss estimates by 25%, 40% and 25%, respectively, 10% of such estimates is attributable to Mexican earthquakes and Typhoon Hato. The loss will however be borne equally by Insurance and Reinsurance segments.

Challenged by these natural calamities, the company continues to have significant catastrophe reinsurance protections for 2017 and 2018, including catastrophe bond protections, some of which will extend through 2019.

A catastrophe loss materially reduces profitability, thereby affecting the companies’ finances. Being a property and casualty insurer, XL Group will not escape the disaster caused by such catastrophe events. However, banking on its strong capital position and expert team,the company remains well positioned in addressing the challenges or risks faced by its clients and brokers.

Share Price Movement

Shares of the company have underperformed the industry year to date. While the stock has gained 9.6%, the industry has rallied 12.3%. We expect its diversified product offerings fueling higher premiums to drive the stock higher in the future.

Other Cat Loss Estimates

Other insurers too have come up with their loss estimates. The Navigators Group, Inc NAVG anticipates incurring pre-tax catastrophe loss of $50-$70 million ($33-$45 million after tax) in the third quarter. W.R. Berkley Corporation WRB has recently projected a catastrophe loss of about $110 million, which translates to $72 million after tax. Assurant Inc. AIZ has estimated between $134 million and $140 million pretax of reportable catastrophe losses from Harvey and expects gross losses from Irma to exceed its retention of $125 million pretax.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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