XL Group Q1 income jumps despite greater catastrophe losses

XL Group has announced a significant increase in net income for the first quarter despite greater catastrophe losses and a hit from the UK’s personal injury Ogden discount rate change.

Net income for the first three months of 2017 came to $152.8 million, a substantial increase on the $21.8 million it posted for the same period of 2016.

Operating net income for the period came to $136.1 million, again up on the $103.4 million it made over the first quarter of 2016.

The improvement was largely attributable to core premium growth, increased investment income from affiliates and operating expense reductions. Net income attributable to common shareholders also improved as a result of lower life retrocession derivative losses incurred as compared to the prior year quarter.

The positive development was partially offset by greater catastrophe losses and adverse prior year reserves primarily attributable to the UK Ogden rate table change announced earlier this year.

The property/casualty (P&C) loss ratio in the first quarter was 62.8percent, up 4.0 percentage points compared to the prior-year quarter. The P&C loss ratio variance was impacted by natural catastrophe pre-tax losses net of reinsurance and related reinstatement premiums of $96.1 million, compared to $52.8 million in the prior year quarter. Included in the P&C loss ratio was adverse development of $24.0 million including $75.0 million of adverse development attributable to UK Ogden rate table changes.

The UK’s Lord Chancellor and Justice Secretary Elizabeth Truss decided on February 27 to change the Ogden discount rate to -0.75 percent from 2.5 percent.

The so-called Ogden tables detail figures to be used to multiply the annual cost of a damage to be awarded and calculate compensation awards for serious personal injuries.

Excluding prior year development and natural catastrophe losses, the first quarter P&C loss ratio was 0.3 percentage points favourable versus the prior year quarter.

Gross written premiums for the company’s P&C operations came to $4.62 billion for the first quarter of the year, up slightly on the $4.36 billion written over the same period of 2016.

Net premiums written fell slightly, going from $3.06 billion in the first quarter of 2016 to $2.97 billion in the first quarter of 2017. Despite this, net premiums earned over the first three months of 2017 came to $2.52 billion, a slight increase on the $2.35 billion it reported for the first quarter of 2016.

At the same time, XL Group reported that integration costs related to its takeover of Catlin Group in 2015 totalled around $33.9 million for the quarter compared to $55 million in the prior year quarter.

“We are pleased to start off 2017 with solid performance, focused growth and the continuation of lower operating expenses,” said XL Group CEO Mike McGavick.

“As we approach the two year anniversary of the Catlin acquisition, we see the benefits of our increased market presence, our focus on underwriting discipline, our strong culture of innovation and continuous improvement, and a more efficient operating platform. Additionally, our realigned operating model seamlessly went live at the beginning of the year and with it we remained steadfast on superior client experience. As a result, our performance included an accident year combined ratio excluding catastrophes of 89.5 percent, an improvement of 2.6 points compared to the first quarter of 2016. 2017 is all about delivering on what we have built.”

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