Tags: XL | insurance | rate | increases

XL Needs Insurance Rate Increases

By    |   Monday, 14 Nov 2011 12:56 PM

Insurance company XL Group (XL) faces the same current challenges of most commercial property and casualty (P&C) insurance companies. The company needs rate increases to allow a turnaround in profits.

The XL Group divides its business into three segments: property, casualty and specialty insurance, P&C reinsurance, and life insurance reinsurance. Reinsurance is the practice of assuming some of the risk from insurance policies written by other insurance companies for a portion of the premium received.

XL Group sells its insurance products on a global basis. The revenues of an insurance company are the premiums received plus the earnings from the investment portfolio of assets backing the insurance policies. Expenses are the money paid when a policy holder files a claim — losses to the insurance company — and collects on the insurance, in addition to underwriting expenses.

For the first nine months of 2011, XL Group had a combined ratio of 107.2 percent. This means the combination of losses plus underwriting expenses exceed the premiums received by 7.2 percent. The 2010 combined ratio for the same time period was 95.9 percent. The result is net operating income for the three quarters was 54 cents, down from $1.68. The higher level of losses was due to catastrophic losses in every quarter so far this year.

Positive results

The third quarter was not all bad for the company. Written P&C premiums in the third quarter increased by 16 percent compared to a year earlier. Reasons given for the increase were more favorable pricing, selected new business and positive foreign exchange rates.

CEO Mike McGavick noted in the earnings conference call that the bulk of excess losses were coming from one line of business and the top level managers responsible for that line had been replaced. He also noted the industry was turning more positive on rate increases, which should allow more profitable business in the future.

Recently the analysts at Barclays Capital upgraded their rating on XL to overweight from equal weight and increased their target price on the stock by 20 percent.

The company next reports on Feb. 8.

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Insurance company XL Group (XL) faces the same current challenges of most commercial property and casualty (P C) insurance companies. The company needs rate increases to allow a turnaround in profits. The XL Group divides its business into three segments: property,...
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Monday, 14 Nov 2011 12:56 PM
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