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24 January 2018

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XL disclosure points to higher industry cat losses

Catrin Shi 10 January 2017

Analysts warned of higher-than-expected catastrophe losses from P&C (re)insurers in Q4, as XL Group disclosed its own $245mn net cat loss for the period.

On Monday (9 January), XL said just over half of the loss would fall in the Bermuda-based carrier's insurance segment, with the remaining $120mn expected to be paid by its reinsurance division.

Hurricane Matthew generated a net loss of $130mn for XL, while earthquakes in New Zealand are expected to cost the carrier $75mn. Three quarters of the New Zealand quake losses will stem from the group's reinsurance division.

Morgan Stanley analyst Kai Pan said he expected other (re)insurers to make early cat loss disclosures.

"Hurricane Matthew losses could be less than feared versus original estimates. However, New Zealand earthquake losses could be higher than expected," he said.

Sarah DeWitt, an analyst at JP Morgan, said the higher-than-expected cat losses at XL boded badly for RenaissanceRe, Validus and Everest Re.

She reduced her fourth-quarter earnings per share estimate for XL from $0.50 to $0.25.

XL took around 3.3 percent of the estimated $2bn-$6bn of industry losses from Hurricane Matthew, while its New Zealand losses were around 3.6 percent of an estimated $700mn to $3.5bn industry tally, Morgan Stanley's Pan noted.

"These losses are significant but not outsized given XL's leading position in the global property cat marketplace," he wrote on 9 January.

Pan said core loss ratio improvement, expense savings and active buybacks were the three key drivers to a double-digit return on equity for XL.

"We believe XL's current 85 percent price-to-book valuation does not reflect that potential," he said. "In our view, steady execution is key to investor confidence. However, large cat losses do add to earnings volatility."

XL shares closed down 1.68 percent at $36.76 in New York on 9 January.

This article was published as part of issue January 2017/2

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