DUBLIN, Ireland, April 29, 2015 /PRNewswire/ --
- Operating net income1, 2 of $194.4 million, or $0.75 per share, for the quarter on a fully
diluted basis
- P&C combined ratio of 88.9% for the quarter, compared to
89.7% in the prior year quarter
- Natural catastrophe pre-tax losses net of reinsurance and
reinstatement premiums in the quarter of $14.7 million, compared to $17.2 million in the prior year quarter
- Operating return on average ordinary shareholders'
equity3 excluding unrealized gains and losses on
investments was 9.1% and including unrealized gains and losses on
investments was 7.7%, annualized for the quarter
- Net income attributable to ordinary shareholders and net
income attributable to ordinary shareholders excluding the impact
of the Life Retrocession Arrangements4 of $36.3 million and $164.6
million, respectively, for the quarter. Note: As a result of
the Life Retrocession Arrangements4, XL's net
income is impacted by the gains or losses on the Life Funds
Withheld Assets4, with an equal and opposite
accounting adjustment in XL's comprehensive income so that there is
no effect on XL's book value
- Fully diluted tangible book value per ordinary
share5 of $37.60 at
March 31, 2015, an increase of $0.81, or 2.2%, from December 31,
2014
- There were no share buybacks during the quarter
XL Group plc ("XL" or the "Company") (NYSE: XL) today
reported its first quarter results.
Commenting on the Company's performance, Chief Executive Officer
Mike McGavick said:
"In the first quarter of 2015 we kept our eye firmly on the ball
and produced strong underwriting results while the ongoing
integration planning for our combination with Catlin proceeds. Our
property and casualty combined ratio for the first quarter was a
very solid 88.9%. Insurance results included a combined ratio
of 94.1%, 1.3 points better than a year ago, and Reinsurance was
74.7%, a 1.6 point improvement from the same period a year ago.
While nearing what we hope will be a successful close to the
transaction, we continue to focus on delivering our 2015 plan while
being incredibly excited about what XL Catlin will achieve
together."
Highlights
|
|
|
|
Three Months Ended
March 31
|
|
|
|
(U.S. dollars in
thousands, except per share amounts)
|
|
|
|
|
Three Months
Ended
|
|
March
31,
|
|
(Unaudited)
|
|
2015
|
|
2014
|
Operating net income
(loss)
|
$
|
194,376
|
|
|
$
|
238,649
|
Per ordinary
share-fully diluted
|
$
|
0.75
|
|
|
$
|
0.85
|
|
|
|
|
Net income (loss)
attributable to ordinary shareholders
|
$
|
36,281
|
|
|
$
|
255,717
|
Per ordinary
share-fully diluted
|
$
|
0.14
|
|
|
$
|
0.91
|
- Operating net income of $194.4
million for the quarter decreased compared to operating net
income of $238.6 million in the prior
year quarter primarily due to lower levels of affiliate and life
reinsurance income. Net income (loss) attributable to
ordinary shareholders of $36.3
million for the quarter decreased compared to $255.7 million in the prior year quarter.
As highlighted in the reconciliation of net income to operating
income on page 9 of this press release, net income for the current
quarter was negatively impacted by the life retrocession
derivative, which is offset by an increase in accumulated
comprehensive income and therefore does not impact overall book
value.
- The P&C combined ratio for the quarter of 88.9% was 0.8
percentage points lower than in the prior year quarter, when it was
89.7%.
- Net investment income for the quarter was $208.5 million, compared to $233.2 million in the prior year quarter and
$226.2 million in the fourth quarter
of 2014. The overall decline is primarily due to the normal
turnover of the portfolio combined with foreign exchange
impacts. Included in investment income in the current quarter
is $50.4 million of income related to
designated investments that support the Life Retrocession
Arrangements written on a funds withheld basis compared to
$53.9 million in the fourth quarter
of 2014.
- Net income from investment fund and investment manager
operating affiliates was $39.1
million for the quarter, compared to net income of
$60.3 million in the prior year
quarter. The decrease was driven primarily by lower earnings
from our investment manager affiliates.
- Fully diluted tangible book value per ordinary share increased
by $0.81 from the prior quarter to
$37.60, driven by our net income and
an increase in net unrealized gain on investments net of deferred
tax, reduced by the payment of dividends.
- At March 31, 2015, $267.6
million of ordinary shares remained available for purchase
under our share buyback program.
1 Defined
as net income (loss) attributable to ordinary shareholders
excluding: (1) our net investment income - Life Funds Withheld
Assets, net of tax, (2) our net realized (gains) losses on
investments sold - excluding Life Funds Withheld Assets, net of
tax, (3) our net realized (gains) losses on investments sold
(including OTTI) and net unrealized (gains) losses on investments,
Trading - Life Funds Withheld Assets, (4) our net realized and
unrealized (gains) losses on derivatives, net of tax, (5) our net
realized and unrealized (gains) losses on life retrocession
embedded derivative and derivative instruments - Life Funds
Withheld Assets, (6) our share of items (2) and (4) for XL's
insurance company affiliates for the periods presented, and (7) our
foreign exchange (gains) losses, net of tax. "Operating net
income", "annualized operating return on average ordinary
shareholders' equity" and "annualized operating return on average
ordinary shareholders' equity excluding average unrealized gains
and losses on investments" are non-GAAP financial measures. See the
schedule entitled "Reconciliation" on page 9 of this press release
for a reconciliation of "operating net income" to net income (loss)
attributable to ordinary shareholders and the calculation of
"annualized operating return on average ordinary shareholders'
equity" and "annualized operating return on average ordinary
shareholders' equity excluding average unrealized gains and losses
on investments", both of which are based on operating net
income.
2
Transaction costs directly related to the acquisition of Catlin
Group Limited have been excluded.
3 Ordinary
shareholders' equity is defined as total shareholders' equity less
non-controlling interest in equity of consolidated
subsidiaries.
4 On May
1, 2014, our wholly-owned subsidiary, XL Insurance (Bermuda) Ltd
("XLIB"), entered into a sale and purchase agreement with
GreyCastle Holdings Ltd. ("GreyCastle") providing for the sale of
100% of the common shares of XLIB's wholly-owned subsidiary, XL
Life Reinsurance (SAC) Ltd ("XLLR"), for $570 million in cash. This
transaction was completed on May 30, 2014. As a result of the
transaction, we have ceded the majority of our life reinsurance
business to XLLR via 100% quota share reinsurance (the "Life
Retrocession Arrangements"). The designated investments that
support the Life Retrocession Arrangements, which are written on a
funds withheld basis ("Life Funds Withheld Assets"), are included
within "Total investments available for sale" and "Fixed
maturities, trading at fair value" on our balance sheet. Investment
results for these assets - including interest income, unrealized
gains and losses, and gains and losses from sales - are passed
directly to the reinsurer pursuant to a contractual arrangement
that is accounted for as a derivative. Changes in the fair value of
the embedded derivative associated with these Life Retrocession
Arrangements are grouped within "Contribution from Life
Retrocession Arrangements" in the schedule entitled
"Reconciliation" on page 9 of this press release. Net income
attributable to ordinary shareholders excluding the impact of the
Life Retrocession Arrangements is a non-GAAP financial
measure.
5 Book
value per ordinary share, fully diluted book value per ordinary
share and fully diluted tangible book value per ordinary share are
non-GAAP financial measures. Fully diluted book value per ordinary
share represents book value per ordinary share (total shareholders'
equity less non-controlling interest in equity of consolidated
subsidiaries, divided by the number of outstanding ordinary shares
at any period end) combined with the dilutive impact of potential
future share issuances at any period end. Fully diluted tangible
book value per ordinary share is calculated in the same manner as
fully diluted book value per ordinary share except that goodwill
and intangible assets are excluded from ordinary shareholders'
equity. XL believes that fully diluted tangible book value per
ordinary share is a financial measure important to investors and
other interested parties who benefit from having a consistent basis
for comparison with other companies within the industry. However,
this measure may not be comparable to similarly titled measures
used by companies either outside or inside of the insurance
industry.
|
P&C
Operations
|
|
Three Months Ended
March 31
|
|
(U.S. dollars in
thousands)
|
|
|
Three Months
Ended
|
|
March
31,
|
|
(Unaudited)
|
|
2015
|
|
2014
|
Gross premiums
written
|
$
|
2,480,409
|
|
$
|
2,428,639
|
Net premiums
written
|
$
|
1,836,743
|
|
$
|
1,919,540
|
Net premiums
earned
|
$
|
1,319,494
|
|
$
|
1,412,528
|
|
|
|
|
Underwriting profit
(loss)
|
$
|
146,836
|
|
$
|
144,874
|
|
|
|
|
Loss ratio
|
58.3%
|
|
58.9%
|
Underwriting expense
ratio
|
30.6%
|
|
30.8%
|
Combined
ratio
|
88.9%
|
|
89.7%
|
- P&C gross premiums written ("GPW") in the first quarter
increased 2.1% compared to the prior year quarter. The Insurance
segment GPW increased 5.3% from the prior year quarter as a result
of increased new business particularly in International
Property and Casualty lines, North America Surplus Lines and
Construction, International Financial Lines and Specialty Marine
and a higher renewing premium base in International Middle Market,
Global Risk Management and North America Construction business
lines. These increases were offset in part by unfavorable foreign
exchange movement of $85.0 million as
compared to the prior year quarter. The Reinsurance segment GPW
decreased 3.7% from the prior year quarter, primarily driven by the
impact of foreign exchange on the International operations,
partially offset by growth in North America Crop premiums.
- P&C net premiums earned ("NPE") in the first quarter of
$1.3 billion were comprised of
$962.3 million from the Insurance
segment and $357.2 million from the
Reinsurance segment. Compared to the prior year quarter, Insurance
NPE decreased by 3.0%, largely attributable to utilization of
proportional reinsurance in International Primary Casualty as well
as an increase in cessions in several North America business lines.
Reinsurance NPE decreased by 15.0%, due to the market factors
impacting GPW combined with the earn through of lower net written
premiums over the past year in International Casualty Treaty and
Emerging Markets and the impact of foreign exchange.
- The P&C loss ratio in the current quarter was 0.6
percentage points lower than in the prior year quarter. Included in
the P&C loss ratio was favorable development of $48.5 million compared to $38.8 million in the prior year quarter. The
P&C loss ratio variance was impacted by natural catastrophe
pre-tax losses of $14.7 million net
of reinsurance and reinstatement premiums from the Insurance
segment in the current year quarter and $17.2 million in the prior year quarter.
Excluding prior year development and natural catastrophe losses net
of reinsurance and reinstatement premiums, the first quarter
P&C loss ratio was in line with the prior year quarter.
- The P&C combined ratio excluding prior year development and
the impact of natural catastrophe losses for the quarter was 91.4%,
compared to 91.3% for the prior year quarter. The Insurance
segment combined ratio on this basis was 93.2% for the quarter
compared to 94.6% for the prior year quarter, while the Reinsurance
segment combined ratio on this basis was 86.6% for the quarter
compared to 83.5% for the prior year quarter.
- Operating expenses in the quarter were 4.9% higher than in the
prior year quarter primarily due to the impact of the proposed
acquisition of Catlin. Excluding the Catlin-related
transaction costs of approximately $10.5
million, operating expenses were up 1.6% compared to
the prior year quarter. Interest expense in the quarter
includes approximately $15.0 million
in bridge financing costs related to the Catlin transaction. Both
operating and interest expenses related to the Catlin transaction,
totaling $25.5 million, have been
excluded from operating net income.
Further details of the results for the quarter may be found in
the Company's Financial Supplement, which is dated
April 29, 2015 and is available on the Investor Relations
section of XL's website.
A conference call to discuss the Company's results will be held
at 5:00 p.m. Eastern Time on Wednesday, April 29, 2015.
The conference call can be accessed through a listen-only dial-in
number or through a live webcast. To listen to the conference call,
please dial (210) 795-0624 or (866) 617-1526: Passcode: "XL
GLOBAL". The webcast will be available at www.xlgroup.com and will
be archived on XL's website from approximately 9:00 p.m. Eastern Time on April 29, 2015,
until approximately midnight Eastern
Time on May 29,
2015. A telephone replay of the conference call will
also be available beginning at approximately 9:00 p.m. Eastern Time on April 29, 2015,
until approximately midnight Eastern
Time on May 29, 2015, by
dialing (203) 369-3064 or (888) 566-0568. The following password
will be required: 84719.
In connection with XL's acquisition of Catlin, which is expected
to close on May 1, 2015, subject to
customary closing conditions, XL intends to hold a conference call
on Thursday, May 28, 2015, regarding
this transaction. Details regarding this call will be provided at a
later date.
About XL Group plc
XL Group plc (NYSE: XL), through
its subsidiaries, 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. XL is the company clients look to
for answers to their most complex risks and to help move their
world forward. To learn more, visit www.xlgroup.com.
This press release contains forward-looking statements.
Statements that are not historical facts, including statements
about XL's beliefs, plans or expectations, are forward-looking
statements. These statements are based on current plans, estimates
and expectations, all of which involve risk and uncertainty.
Statements that include the words "expect," "intend," "plan,"
"believe," "project," "anticipate," "may" , "could", or "would" and
similar statements of a future or forward-looking nature identify
forward-looking statements. Actual results may differ materially
from those included in such forward-looking statements and
therefore you should not place undue reliance on them. A
non-exclusive list of the important factors that could cause actual
results to differ materially from those in such forward-looking
statements includes (a) changes in the size of XL's claims relating
to natural or man-made catastrophe losses due to the preliminary
nature of some reports and estimates of loss and damage to date;
(b) trends in rates for property and casualty insurance and
reinsurance; (c) the timely and full recoverability of
reinsurance placed by XL with third parties, or other amounts due
to XL; (d) changes in the projected amount of ceded reinsurance
recoverables and the credit ratings and credit worthiness of
reinsurers; (e) actual loss experience from insured or reinsured
events and the timing of claims payments being faster or the
receipt of reinsurance recoverables being slower than anticipated;
(f) increased competition on the basis of pricing, capacity,
coverage terms or other factors such as the increased inflow of
third party capital into reinsurance markets, which could harm XL's
ability to maintain or increase its business volumes or
profitability; (g) greater frequency or severity of claims and loss
activity than XL's underwriting, reserving or investment practices
anticipate based on historical experience or industry data;
(h) the impact of changes in the global financial markets,
such as the effects of inflation on XL's business, including on
pricing and reserving, increased government involvement or
intervention in the financial services industry and changes
in interest rates, credit spreads, foreign currency exchange rates
and future volatility in the world's credit, financial and capital
markets that adversely affect the performance and valuation of XL's
investments, future financing activities and access to such markets
or general financial condition; (i) XL's ability to successfully
implement its business strategy, including its proposed acquisition
of Catlin Group Limited ("Catlin\"); (j) XL's ability to
successfully attract and raise additional third party capital for
existing or new investment vehicles; (k) the potential impact on XL
of government-mandated insurance coverage for acts of terrorism;
(l)changes in ratings and rating agency policies or practices; (m)
the potential for changes to methodologies, estimations and
assumptions that underlie the valuation of XL's financial
instruments that could result in changes to investment valuations;
(n) changes to XL's assessment as to whether it is more likely than
not that it will be required to sell, or has the intent to sell,
available-for-sale debt securities before their anticipated
recovery; (o) the availability of borrowings and letters of
credit under credit facilities; (p) the ability of XL's
subsidiaries to pay dividends to XL Group plc and XLIT Ltd.; (q)
the potential effect of legislative or regulatory developments in
the jurisdictions in which XL operates, such as those that could
impact the financial markets or increase XL's business costs and
required capital levels, including but not limited to changes
in regulatory capital balances that must be maintained by our
operating subsidiaries and governmental actions for the purpose of
stabilizing the financial markets; (r) the effects of
business disruption, economic contraction or economic sanctions due
to global political and social conditions such as war, terrorism or
other hostilities, or pandemics; (s) changes in regulators or laws
applicable to us or our subsidiaries, brokers or customers; (t) the
actual amount of new and renewal business and acceptance of XL's
products and services, including new products and services and the
materialization of risks related to such products and services; (u)
changes in the availability, cost or quality of reinsurance; (v)
changes in the distribution or placement of risks due to increased
consolidation of insurance and reinsurance brokers; (w) the loss of
key personnel and changes in accounting standards, policies or
practices or the application thereof; (x) changes in applicable tax
laws, tax treaties or tax regulations or the interpretation or
enforcement thereof; (y) the effects of mergers, acquisitions
and divestitures, including XL's ability to modify its internal
controls over financial reporting, changes to its risk appetite and
its ability realize the value or benefits expected, in each case,
as a result of such transactions, including the Life Retrocession
Arrangements and XL's proposed acquisition of Catlin; (z) changes
in general economic conditions, including new or continued
sovereign debt concerns in Euro-Zone countries or downgrades of US
securities by credit rating agencies, which could affect XL's
financial condition, results of operations, liquidity or cash
flows; (aa) developments related to bankruptcies or other financial
concerns of companies insofar as they affect property and casualty
insurance and reinsurance coverage or claims that XL may have as a
counterparty; (bb) judicial decisions and rulings, new theories of
liability or emerging claims coverage issues, legal tactics and
settlement terms and (cc) the other factors set forth in XL's
reports on Form 10-K and Form 10-Q and other documents on file with
the Securities and Exchange Commission. XL undertakes no obligation
to update publicly or revise any forward looking statement, whether
as a result of new information, future developments or otherwise,
except as required by the federal securities laws.
XL intends to use its website as a means of disclosing
material non-public information and for complying with its
disclosure obligations under Regulation FD. Such disclosures will
be included on the website in the Investor Relations section.
Accordingly, investors should monitor such portions of XL's
website, in addition to following its press releases, SEC filings
and public conference calls and webcasts.
XL Group
plc
|
SUMMARY
CONSOLIDATED FINANCIAL DATA
|
(U.S. dollars in
thousands)
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Adjusted Income
statement and other data (Note 1):
|
March
31,
|
|
|
|
(Unaudited)
|
|
|
2015
|
|
2014
|
|
Adjusted Revenues
(Note 1):
|
|
|
|
|
Net premiums
written
|
$
|
1,851,249
|
|
|
$
|
1,995,851
|
|
|
Net premiums
earned
|
$
|
1,334,000
|
|
|
$
|
1,488,839
|
|
|
Net investment income
- excluding Life Funds Withheld Assets (Note 1)
|
158,094
|
|
|
233,189
|
|
|
Net realized gains
(losses) on investments sold - excluding Life Funds Withheld Assets
(Note 1)
|
4,602
|
|
|
19,229
|
|
|
Net realized and
unrealized (losses) gains on derivative instruments
|
16,521
|
|
|
1,810
|
|
|
Income (loss) from
investment fund affiliates
|
35,329
|
|
|
33,303
|
|
|
Fee income and
other
|
4,728
|
|
|
11,454
|
|
|
Total adjusted
revenues
|
$
|
1,553,274
|
|
|
$
|
1,787,824
|
|
|
|
|
|
|
|
Adjusted Expenses
(Note 1):
|
|
|
|
|
Net losses and loss
expenses incurred - P&C operations
|
$
|
769,827
|
|
|
$
|
831,505
|
|
|
Claims and policy
benefits - run-off Life operations
|
19,387
|
|
|
113,587
|
|
|
Acquisition
costs
|
153,696
|
|
|
199,414
|
|
|
Operating
expenses
|
324,358
|
|
|
310,424
|
|
|
Exchange (gains)
losses
|
31,074
|
|
|
10,441
|
|
|
Interest
expense
|
51,438
|
|
|
42,941
|
|
|
Total adjusted
expenses
|
$
|
1,349,780
|
|
|
$
|
1,508,312
|
|
|
|
|
|
|
|
Income (loss)
before income tax, income (loss) from operating affiliates,
and Life Retrocession Arrangements (Note 1)
|
$
|
203,494
|
|
|
$
|
279,512
|
|
|
Net income (loss)
from operating affiliates
|
22,668
|
|
|
46,285
|
|
|
Provision (benefit)
for income tax
|
24,218
|
|
|
34,321
|
|
|
|
|
|
|
|
Net income (loss)
before Life Retrocession Arrangements (Notes 1 and
2)
|
201,944
|
|
|
291,476
|
|
|
Contribution from
Life Retrocession Arrangements (Note 1)
|
(128,273)
|
|
|
—
|
|
|
|
|
|
|
|
Net income
(loss)
|
73,671
|
|
|
291,476
|
|
|
|
|
|
|
|
Non-controlling
interests
|
37,390
|
|
|
35,759
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to ordinary shareholders
|
36,281
|
|
|
255,717
|
|
|
|
|
|
|
|
|
Other comprehensive
income - Contribution from Life Retrocession Arrangements (Note
1)
|
128,273
|
|
|
—
|
|
|
Other comprehensive
income - P&C, Corporate and Other
|
92,440
|
|
|
210,004
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
$
|
256,994
|
|
|
$
|
465,721
|
|
|
|
|
|
|
|
|
Note 1: This
presentation includes non-GAAP financial measures, as income and
expense items related to the Life Retrocession Arrangements are
excluded from revenues and expenses and shown above in
"Contribution from Life Retrocession Arrangements". Investment
results for the Life Funds Withheld Assets - including interest
income, unrealized gains and losses, and gains and losses from
sales - are passed directly to the reinsurer pursuant to a
contractual arrangement which is accounted for as a derivative.
Changes in the fair value of the embedded derivative associated
with these Life Retrocession Arrangements are also grouped above
within "Contribution from Life Retrocession
Arrangements".
|
|
Note 2: "Net income
(loss) before Life Retrocession Arrangements" less "Non-controlling
interests" is equal to "Net income (loss) attributable to ordinary
shareholders excluding Contribution from Life Retrocession
Arrangements" reported on page 9.
|
XL Group
plc
|
SUMMARY
CONSOLIDATED FINANCIAL DATA
|
|
|
|
|
|
Selected balance
sheet data:
|
|
|
|
(U.S. dollars in
thousands except share and per share amounts)
|
At
March 31, 2015
|
|
At
December 31, 2014
|
|
(Unaudited)
|
|
(Note
1)
|
Total investments
available for sale
|
$
|
30,062,733
|
|
|
$
|
30,484,053
|
|
Cash and cash
equivalents
|
3,209,934
|
|
|
2,521,814
|
|
Investments in
affiliates
|
1,655,394
|
|
|
1,637,620
|
|
Unpaid losses and
loss expenses recoverable
|
3,529,331
|
|
|
3,429,368
|
|
Goodwill and other
intangible assets
|
442,431
|
|
|
447,952
|
|
Total
assets
|
46,080,556
|
|
|
45,046,819
|
|
|
|
|
|
Unpaid losses and
loss expenses
|
18,965,264
|
|
|
19,353,243
|
|
Deposit
liabilities
|
1,211,203
|
|
|
1,245,367
|
|
Future policy benefit
reserves
|
4,375,863
|
|
|
4,707,199
|
|
|
|
|
|
|
|
Funds withheld
liability on Life Retrocession Arrangements, net of future policy
benefit reserves recoverable
|
1,138,652
|
|
|
1,155,016
|
|
Unearned
premiums
|
4,532,022
|
|
|
3,973,132
|
|
Notes payable and
debt
|
2,643,561
|
|
|
1,662,580
|
|
|
|
|
|
Total shareholders'
equity
|
11,646,423
|
|
|
11,435,766
|
|
Ordinary
shareholders' equity
|
10,244,057
|
|
|
10,033,751
|
|
Ordinary shares
outstanding (Note 2)
|
256,723,675
|
|
|
255,222,835
|
|
|
|
|
|
Basic book value per
ordinary share (Note 3)
|
$
|
39.90
|
|
|
$
|
39.31
|
|
Fully diluted book
value per ordinary share (Note 3)
|
$
|
39.30
|
|
|
$
|
38.51
|
|
Fully diluted
tangible book value per ordinary share (Note 3)
|
$
|
37.60
|
|
|
$
|
36.79
|
|
|
|
|
|
Note 1: Certain items
have been reclassified to conform to the current period
presentation.
|
|
|
|
|
Note 2: Ordinary
shares outstanding include all ordinary shares legally issued and
outstanding (as disclosed on the face of the balance sheet) as well
as all director share units outstanding.
|
|
|
|
|
Note 3: Book value
per ordinary share, fully diluted book value per ordinary
share and fully diluted tangible book value per ordinary share are
non-GAAP financial measures. Fully diluted book value per ordinary
share represents book value per ordinary share (total shareholders'
equity less non-controlling interest in equity of consolidated
subsidiaries, divided by the number of outstanding ordinary shares
at any period end) combined with the dilutive impact of potential
future share issuances at any period end. Fully diluted tangible
book value per ordinary share is calculated in the same manner as
fully diluted book value per ordinary share except that goodwill
and intangible assets are excluded from ordinary shareholders'
equity.
|
Comment on
Regulation G
XL presents its operations in the way
it believes will be most meaningful and useful to investors,
analysts, rating agencies and others who use XL's financial
information in evaluating XL's performance. This press
release contains the presentation of (i) operating net income
(loss) ("Operating Net Income"), which is defined as net income
(loss) attributable to ordinary shareholders excluding: (1) net
investment income - Life Funds Withheld Assets, net of tax, (2) net
realized (gains) losses on investments sold - excluding Life Funds
Withheld Assets, net of tax,(3) net realized (gains) losses on
investments sold (including OTTI) and net unrealized (gains) losses
on investments, Trading - Life Funds Withheld Assets, (4) net
realized and unrealized (gains) losses on derivatives, net of tax,
(5) net realized and unrealized (gains) losses on life retrocession
embedded derivative and derivative instruments - Life Funds
Withheld Assets, (6) share of items (2) and (4) for XL's insurance
company affiliates for the periods presented, (7) foreign exchange
(gains) losses, net of tax, and (8) expenses related to the Catlin
acquisition, net of tax; (ii) annualized return on average ordinary
shareholders' equity ("ROE") based on operating net income (loss)
("Operating ROE"); (iii) Operating ROE excluding average unrealized
gains and losses on investments; (iv) annualized net income (loss)
attributable to ordinary shareholders excluding the Contribution
from the Life Retrocession Arrangements and (v) book value per
ordinary share (ordinary shareholders' equity divided by the
number of shares outstanding at the period end date), fully diluted
book value per ordinary share (book value per share combined with
the dilutive impact of potential future share issues at any period
end), and fully diluted tangible book value per ordinary share
(calculated in the same manner as fully diluted book value per
ordinary share except that goodwill and intangible assets are
excluded from ordinary shareholders' equity). These items are
"non-GAAP financial measures" as defined in Regulation G. The
reconciliation of such measures to the most directly comparable
GAAP financial measures in accordance with Regulation G is included
in this press release on page 9.
Although the investment of premiums to
generate income (or loss) and realize capital gains (or losses) is
an integral part of XL's operations, the determination to realize
capital gains (or losses) is independent of the underwriting
process. In addition, under applicable GAAP accounting
requirements, losses can be created as the result of other than
temporary declines in value and from goodwill impairment charges
without actual realization. In this regard, certain users of
XL's financial information, including certain rating agencies,
evaluate earnings before tax and capital gains to understand the
profitability of the operational sources of income without the
effects of these two variables. Furthermore, these users believe
that, for many companies, the timing of the realization of capital
gains and the recognition of goodwill impairment charges are
largely a function of economic and interest rate
conditions.
Net realized and unrealized (gains)
losses on derivatives, net of tax, include all derivatives entered
into by XL other than certain credit derivatives and the life
retrocession embedded derivative. With respect to credit
derivatives, because XL and its insurance company operating
affiliates generally hold financial guaranty contracts written in
credit default derivative form to maturity, the net effects of the
changes in fair value of these credit derivatives are excluded
(similar with other companies' treatment of such contracts) as the
changes in fair value each quarter are not indicative of underlying
business performance.
Net investment income - Life Funds
Withheld Assets, net of tax, and net realized (gains) losses on the
life retrocession embedded derivative and derivative instruments -
Life Funds Withheld Assets, have been excluded because,
as a result of the Life Retrocession Arrangement, XL no longer
shares in the risks and rewards of the underlying performance of
the Life Funds Withheld Assets that support these retrocession
arrangements. The returns on the Life Funds Withheld Assets
are passed directly to the reinsurer pursuant to a contractual
arrangement that is accounted for as a derivative. Therefore,
net investment income from the Life Funds Withheld Assets and
changes in the fair value of the embedded derivative associated
with these life retrocession arrangements are not relevant to XL's
underlying business performance. In addition, the loss on the sale
of life reinsurance subsidiary, net of tax, has been excluded due
to the one-time, non-operating nature of this loss.
Foreign exchange (gains) losses in the
income statement are only one element of the overall impact of
foreign exchange fluctuations on XL's financial position and are
not representative of any economic gain or loss made by XL.
Accordingly, it is not a relevant indicator of financial
performance and it is excluded.
In summary, XL evaluates the
performance of and manages its business to produce an underwriting
profit. In addition to presenting net income (loss), XL believes
that showing operating net income (loss) enables investors and
other users of XL's financial information to analyze XL's
performance in a manner similar to how management of XL analyzes
performance. In this regard, XL believes that providing only a GAAP
presentation of net income (loss) would make it much more difficult
for users of XL's financial information to evaluate XL's underlying
business. Also, as stated above, XL believes that the equity
analysts and certain rating agencies that follow XL (and the
insurance industry as a whole) exclude these items from their
analyses for the same reasons and they request that XL provide this
non-GAAP financial information on a regular basis.
Operating ROE is a widely used measure
of any company's profitability that is calculated by dividing
annualized operating net income for any period other than a fiscal
year when actual operating income is used by the average of the
opening and closing ordinary shareholders' equity. XL establishes
target Operating ROEs for its total operations, segments and lines
of business. If XL's Operating ROE targets are not met with respect
to any line of business over time, XL seeks to re-evaluate these
lines. Operating ROE excluding net unrealized gains and losses on
investments is an additional measure of a company's profitability
that eliminates the impacts of mark to market fluctuations on a
company's investment portfolio that have not been realized through
sales, which XL believes provides a more consistent measure of
company performance.
XL Group
plc
|
RECONCILIATION
|
The following is a
reconciliation of XL's net income (loss) attributable to ordinary
shareholders to operating net income (loss) (Note 3) and also
includes the calculation of annualized return on average ordinary
shareholders' equity and annualized return on average ordinary
shareholders' equity excluding average unrealized gains and losses
on investments in each case based on operating net income
(loss) for the three months ended March 31, 2015 and
2014.
|
|
|
|
(U.S. dollars in
thousands except share and per share amounts)
|
Three Months
Ended
|
|
|
March
31,
|
|
|
(Unaudited)
|
|
|
2015
|
|
2014
|
|
|
|
|
(Note 1)
|
|
Net income (loss)
attributable to ordinary shareholders
|
$
|
36,281
|
|
$
|
255,717
|
|
Net realized and
unrealized (gains) losses on life retrocession embedded derivative
and derivative instruments - Life Funds Withheld Assets
|
229,367
|
|
—
|
|
Net realized (gains)
losses on investments and net unrealized (gains) losses on
investments, Trading - Life Funds Withheld Assets
|
(48,289)
|
|
—
|
|
Net investment income
- Life Funds Withheld Assets, net of tax
|
(50,419)
|
|
—
|
|
Foreign exchange
revaluation (gains) losses on and other income and expense items
related to Life Funds Withheld Assets
|
(2,386)
|
|
|
|
Net income (loss)
attributable to ordinary shareholders excluding Contribution from
Life Retrocession Arrangements (Note 2)
|
$
|
164,554
|
|
$
|
255,717
|
|
Net realized (gains)
losses on investments sold - excluding Life Funds Withheld Assets,
net of tax
|
(4,518)
|
|
(18,889)
|
|
Net realized and
unrealized (gains) losses on derivatives, net of tax
|
(16,521)
|
|
(1,810)
|
|
Net realized and
unrealized (gains) losses on investments and derivatives related to
the Company's insurance company affiliates, net of tax
|
658
|
|
(3,958)
|
|
Exchange (gains)
losses, net of tax
|
24,739
|
|
7,589
|
|
Expenses related to
Catlin acquisition
|
25,464
|
|
—
|
|
Operating net income
(loss) (Note 3)
|
$
|
194,376
|
|
$
|
238,649
|
|
Per ordinary share
results: (Note 4)
|
|
|
|
|
Net income (loss)
attributable to ordinary shareholders
|
$
|
0.14
|
|
$
|
0.91
|
|
Operating net income
(loss) (Note 3)
|
$
|
0.75
|
|
$
|
0.85
|
|
Weighted average
ordinary shares outstanding:
|
|
|
|
|
Basic
|
255,723,731
|
|
276,336,989
|
|
Diluted - Net
income
|
260,703,815
|
|
280,458,123
|
|
Diluted - Operating
net income
|
260,703,815
|
|
280,458,123
|
|
Return on ordinary
shareholders' equity:
|
|
|
|
|
Closing ordinary
shareholders' equity (Note 5)
|
10,244,057
|
|
10,244,962
|
|
Closing unrealized
(gain) loss on investments, net of tax (Note 6)
|
$
|
(1,697,606)
|
|
$
|
(947,047)
|
|
Average ordinary
shareholders' equity excluding average unrealized gains (losses) on
investments, net of tax (Note 4)
|
$
|
8,533,067
|
|
$
|
9,281,153
|
|
Average ordinary
shareholders' equity (Note 5)
|
$
|
10,138,905
|
|
$
|
10,121,298
|
|
Operating net income
(loss) (Note 3)
|
$
|
194,376
|
|
$
|
238,649
|
|
Annualized operating
net income (loss) (Note 3)
|
$
|
777,504
|
|
$
|
954,596
|
|
Annualized operating
return on average ordinary shareholders' equity (Notes 3 and
5)
|
7.7%
|
|
9.4%
|
|
Annualized operating
return on average ordinary shareholders' equity excluding average
unrealized gains and losses on investments (Notes 3 and
5)
|
9.1%
|
|
10.3%
|
|
|
|
|
|
|
Note 1: Certain
amounts have been reclassified to conform to the current period
presentation.
|
|
|
|
Note 2: Investment
results for the Life Funds Withheld Assets - including interest
income, unrealized gains and losses, and gains and losses from
sales - are passed directly to the reinsurer pursuant to a
contractual arrangement which is accounted for as a derivative.
Changes in the fair value of the embedded derivative associated
with these Life Retrocession Arrangements are grouped within "Net
realized and unrealized (gains) losses on life retrocession
embedded derivative and derivative instruments - Life Funds
Withheld Assets" in the reconciliation above.
|
|
Note 3: Defined as
net income (loss) attributable to ordinary shareholders excluding:
(1) our net investment income - Life Funds Withheld Assets, net of
tax, (2) our net realized (gains) losses on investments sold -
excluding Life Funds Withheld Assets, net of tax, (3) our net
realized (gains) losses on investments sold (including OTTI) and
net unrealized (gains) losses on investments, Trading - Life Funds
Withheld Assets, (4) our net realized and unrealized (gains) losses
on derivatives, net of tax, (5) our net realized and unrealized
(gains) losses on life retrocession embedded derivative and
derivative instruments - Life Funds Withheld Assets, (6) our share
of items (2) and (4) for XL's insurance company affiliates for the
periods presented, (7) our foreign exchange (gains) losses, net of
tax, and (8) our expenses related to the Catlin acquisition, net of
tax. In addition to presenting net income (loss), we believe
that showing "operating net income (loss)", "annualized operating
return on average ordinary shareholders' equity" and "annualized
operating return on average ordinary shareholders' equity excluding
average unrealized gains and losses on investments" enables
investors and other users of our financial information to analyze
our performance in a manner similar to how we analyze our
performance. In this regard, we believe that providing only a GAAP
presentation of net income (loss) would make it more difficult for
users of our financial information to evaluate our underlying
business. We also believe that equity analysts and certain rating
agencies that follow us (and the insurance industry as a whole)
exclude these items from their analyses for the same reasons, and
they request that we provide this non-GAAP financial information on
a regular basis. A reconciliation of our net income (loss)
attributable to ordinary shareholders to operating net income
(loss) is provided above.
|
|
Note 4: Diluted
weighted average number of ordinary shares outstanding is used to
calculate per share data except where it is anti-dilutive to
earnings per share or where there is a net loss. When it is
anti-dilutive or when a net loss occurs, basic weighted average
ordinary shares outstanding is utilized in the calculation of net
loss per share and net operating loss per share.
|
|
Note 5: Ordinary
shareholders' equity is defined as total shareholders' equity less
non-controlling interest in equity of consolidated
subsidiaries.
|
|
Note 6: Unrealized
(gain) loss on investments, net of tax is the cumulative impact of
mark to market fluctuations on our investment portfolio that have
not been realized through sales.
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/xl-group-plc-announces-first-quarter-2015-results-300074549.html
SOURCE XL Group plc