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XL Group Value Play? You May Be Waiting

By Tim Plaehn   |   Thursday, 16 Feb 2012 08:32 AM

Global insurance company XL Group (XL) had a rough 2011 as the company's property and casualty insurance and reinsurance business were hit by catastrophic losses from various regions around the globe. Investors looking for a value play in this stock, however, may be waiting a while for the turnaround.

XL Group provides reinsurance — taking a portion of the risk written by other insurance companies — in both the property and casualty and life insurance areas. The company also writes property and casualty insurance policies directly.

A significant portion of the company's business comes through the Lloyd's underwriting system. The flooding of computer component factories in Thailand was a major hit on the company's results for 2011 fourth quarter.

For the year, XL reported total premiums collected of $6.89 billion, up 10 percent from $6.26 billion in 2010. Operating income for the year was 28 cents per share, down 88 percent from earnings of $2.40.

Losses were reported in the first and fourth quarter of the year, including a loss of 25 cents per share in the fourth quarter, well below the consensus earnings estimate of a 16 cent profit.

Reviewing operations


To avoid a repeat of the poor 2011 showing, XL Group management has been making significant changes in the company's underwriting staff and leadership. All of the losses stem from seven of the 25 business lines XL covers. New leadership has been installed in six of the seven business lines.

In the fourth quarter earnings report, the company stated that its exposure to the Costa Concordia cruise ship disaster would be limited to about $50 million in losses. This number is small in comparison to catastrophic losses of almost $800 million in 2011.

With the recent low values put on property and casualty insurance companies, XL has been active in the repurchase of its own shares. Since 2010, 17 percent of the outstanding share base has been retired.

Recently, the analysts at Sterne Agee initiated coverage on XL with a buy rating on the stock. Their target price is approximately 25 percent above the current share value.

The company next reports on May 3.

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