Date of Report (Date of earliest event reported): | July 28, 2014 |
Ireland | 1-10804 | 98-0665416 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
XL House, 8 St. Stephen's Green, Dublin, Ireland | 2 | |
(Address of principal executive offices) | (Zip Code) |
Not Applicable |
(Former name or former address, if changed since last report) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Exhibit No. | Description |
99.1 | Press Release ("XL Group plc Announces Second Quarter 2014 Results“), dated July 28, 2014. |
XL Group plc (Registrant) | ||
By: | /s/ Kirstin Gould | |
Name: Kirstin Gould Title: General Counsel and Secretary |
EXHIBIT 99.1 | ||
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• | Operating net income1 of $279.6 million, or $1.02 per share, and a net loss attributable to ordinary shareholders of $279.3 million including the loss on sale of our life reinsurance subsidiary, or $1.03 per share, for the quarter on a fully diluted basis |
• | Loss on sale of $621.3 million, net of tax, relating to the consummation of the previously announced life transaction |
• | P&C combined ratio of 88.3% for the quarter, compared to 93.8% in the prior year quarter |
• | Natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums in the quarter of $34.6 million, compared to $134.1 million in the prior year quarter |
• | Annualized operating return on ordinary shareholders' equity2 excluding and including unrealized gains and losses on investments were 12.3% and 11.0%, respectively, for the quarter |
• | Fully diluted tangible book value per ordinary share3 of $35.09 at June 30, 2014, an increase of $1.23, or 3.6%, from December 31, 2013 |
• | Share buybacks totaled 5.5 million ordinary shares for $175.0 million during the quarter |
Highlights | |||||||||||||||
Three and Six Months Ended June 30 | |||||||||||||||
(U.S. dollars in thousands, except per share amounts) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income (loss) attributable to ordinary shareholders | $ | (279,261 | ) | $ | 272,698 | $ | (23,544 | ) | $ | 623,488 | |||||
Per ordinary share-fully diluted | $ | (1.03 | ) | $ | 0.93 | $ | (0.09 | ) | $ | 2.10 | |||||
Operating net income (loss) | $ | 279,576 | $ | 221,591 | $ | 518,225 | $ | 501,459 | |||||||
Per ordinary share-fully diluted | $ | 1.02 | $ | 0.75 | $ | 1.86 | $ | 1.69 |
• | Net loss attributable to ordinary shareholders of $279.3 million for the quarter compared to net income of $272.7 million in the prior year quarter, primarily due to a $621.3 million after-tax loss on the sale of our life reinsurance subsidiary. The $35.0 million increase from the estimated loss as of March 31, 2014 relates to the changes in market value of the ceded assets and exposures between signing and closing. |
• | Operating profit of $279.6 million for the quarter increased compared to operating profit of $221.6 million in the prior year quarter primarily due to higher underwriting profit in the current quarter. The P&C combined ratio for the quarter of 88.3% was 5.5 percentage points lower than in 2013, when it was 93.8%. |
• | Net investment income for the quarter was $232.8 million, compared to $232.5 million in the prior year quarter and $233.2 million in the first quarter of 2014. Included in investment income in the current quarter is $19.2 million of income related to designated investments that support life retrocession agreements written on a funds withheld basis related to the life reinsurance transaction subsequent to May 30, 2014. |
• | Net income from investment fund and investment manager operating affiliates was $30.8 million in the quarter, compared to income of $73.6 million in the prior year quarter. The decrease was primarily driven by lower returns from our alternative fund affiliates. |
• | Fully diluted tangible book value per ordinary share decreased by $0.21 from the prior quarter to $35.09, driven by our net income (loss) and the payment of dividends partially offset by an increase in unrealized gain on investments net of deferred tax and the benefit of share buyback activity. |
• | During the quarter, the Company purchased 5.5 million ordinary shares for $175.0 million at an average price of $31.96 per share, which was accretive to fully diluted tangible book value per ordinary share by $0.10. At June 30, 2014, $717.6 million of ordinary shares remained available for purchase under our share buyback program. |
• | Net income for the quarter includes $28.7 million of profit associated with the commutation of a structured product transaction. The benefit is reflected as a reduction to interest expense. |
P&C Operations | |||||||||||||||
Three and Six Months Ended June 30 | |||||||||||||||
(U.S. dollars in thousands) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Gross premiums written | $ | 2,111,529 | $ | 1,944,170 | $ | 4,540,168 | $ | 4,349,086 | |||||||
Net premiums written | $ | 1,433,326 | $ | 1,459,972 | $ | 3,352,866 | $ | 3,502,181 | |||||||
Net premiums earned | $ | 1,438,076 | $ | 1,488,497 | $ | 2,850,604 | $ | 2,952,743 | |||||||
Underwriting profit (loss) | $ | 167,946 | $ | 92,124 | $ | 312,820 | $ | 272,712 | |||||||
Loss ratio | 57.6 | % | 63.0 | % | 58.2 | % | 60.3 | % | |||||||
Underwriting expense ratio | 30.7 | % | 30.8 | % | 30.8 | % | 30.5 | % | |||||||
Combined ratio | 88.3 | % | 93.8 | % | 89.0 | % | 90.8 | % |
• | P&C gross premiums written (“GPW”) in the second quarter increased 8.6% compared to the prior year quarter. The Insurance segment GPW increased 9.9% from the prior year quarter, as a result of new business in International Primary Casualty, Political Risk and Crisis Management lines and higher renewed premiums in International Financial Lines and North American Excess Casualty and Construction lines. The Reinsurance segment GPW increased 4.5% from the prior year quarter, predominantly driven by new aviation business in Europe, growth in agricultural premiums and timing of casualty treaty renewals in North America. |
• | P&C net premiums written in the second quarter decreased 1.8% compared to the prior year quarter, primarily as a result of increased use of proportional reinsurance in our Insurance Professional business. |
• | P&C net premiums earned (“NPE”) in the second quarter of $1.4 billion were comprised of $1.0 billion from the Insurance segment and $434 million from the Reinsurance segment. Compared to the prior year quarter, Insurance NPE decreased by 5.2%, primarily due to the earn through of increased proportional reinsurance |
• | The P&C loss ratio in the current quarter was 5.4 percentage points lower than in the prior year quarter. Included in the P&C loss ratio was favorable development of $84.4 million compared to $118.6 million in the prior year quarter. The P&C loss ratio variance was impacted by natural catastrophe pre-tax losses of $34.6 million net of reinsurance and restatement premiums, with approximately $19.7 million related to our Reinsurance segment and $14.9 million related to our Insurance segment, as compared to $134.1 million in the prior year quarter. Excluding prior year development and natural catastrophe losses net of reinsurance and reinstatement premiums, the second quarter P&C loss ratio was 0.7 percentage points lower than the prior year quarter. |
• | The P&C combined ratio excluding prior year development and the impact of natural catastrophe losses for the quarter was 91.8%, compared to 92.7% for the prior year quarter. The Insurance segment combined ratio on this basis was 96.0% for the quarter compared to 97.0% for the prior year quarter, while the Reinsurance segment combined ratio on this basis was 82.0% for both this quarter as well as the prior year quarter. |
• | Operating expenses in the quarter were 9.9% higher than in prior year quarter primarily due to underlying expense growth as well as the impact of improved performance on variable compensation and the impact of foreign exchange. |
XL Group plc | ||||||||||||||||
SUMMARY CONSOLIDATED FINANCIAL DATA | ||||||||||||||||
(U.S. Dollars in thousands) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
Income statement data (Note 1): | June 30 | June 30 | ||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues (Note 1): | ||||||||||||||||
Net premiums written | $ | 1,491,844 | $ | 1,533,868 | $ | 3,487,695 | $ | 3,641,522 | ||||||||
Net premiums earned | $ | 1,496,594 | $ | 1,562,393 | $ | 2,985,433 | $ | 3,092,084 | ||||||||
Net investment income - excluding Life Funds Withheld Assets (Note 1) | 213,608 | 232,546 | 446,797 | 479,014 | ||||||||||||
Net realized gains (losses) on investments - excluding Life Funds Withheld Assets (Note 1) | 80,844 | 40,968 | 100,073 | 77,477 | ||||||||||||
Net realized and unrealized (losses) gains on derivative instruments | 11,599 | (5,105 | ) | 13,409 | 2,780 | |||||||||||
Income (loss) from investment fund affiliates | 17,683 | 46,543 | 50,986 | 78,764 | ||||||||||||
Fee income and other | 9,706 | 10,871 | 21,160 | 20,503 | ||||||||||||
Total revenues | $ | 1,830,034 | $ | 1,888,216 | $ | 3,617,858 | $ | 3,750,622 | ||||||||
Expenses (Note 1): | ||||||||||||||||
Net losses and loss expenses incurred - P&C operations | $ | 827,880 | $ | 937,606 | $ | 1,659,385 | $ | 1,780,690 | ||||||||
Claims and policy benefits - run-off Life operations | 85,299 | 116,767 | 198,886 | 227,720 | ||||||||||||
Acquisition costs | 184,619 | 231,886 | 384,033 | 452,145 | ||||||||||||
Operating expenses | 333,011 | 303,159 | 643,435 | 586,991 | ||||||||||||
Exchange (gains) losses | 21,141 | (11,331 | ) | 31,582 | (44,766 | ) | ||||||||||
Interest expense | 14,085 | 38,204 | 57,026 | 76,904 | ||||||||||||
Total expenses | $ | 1,466,035 | $ | 1,616,291 | $ | 2,974,347 | $ | 3,079,684 | ||||||||
Income (loss) before income tax, income (loss) from operating affiliates, and Life Retrocession Arrangements (Note 1) | $ | 363,999 | $ | 271,925 | $ | 643,511 | $ | 670,938 | ||||||||
Net income (loss) from operating affiliates | 27,738 | 32,825 | 74,023 | 63,823 | ||||||||||||
Provision (benefit) for income tax, excluding amount related to loss on sale of life reinsurance subsidiary (Note 1) | 39,446 | 28,872 | 73,767 | 72,351 | ||||||||||||
Net income (loss) before Life Retrocession Arrangements (Note 1) | 352,291 | 275,878 | 643,767 | 662,410 | ||||||||||||
Contribution from Life Retrocession Arrangements (Note 1) | (6,547 | ) | — | (6,547 | ) | — | ||||||||||
Loss on sale of life reinsurance subsidiary, net of tax (Note 1) | 621,323 | — | 621,323 | — | ||||||||||||
Net income (loss) | (275,579 | ) | 275,878 | 15,897 | 662,410 | |||||||||||
Non-controlling interests | 3,682 | 3,180 | 39,441 | 38,922 | ||||||||||||
Net income (loss) attributable to ordinary shareholders | (279,261 | ) | 272,698 | (23,544 | ) | 623,488 | ||||||||||
Other comprehensive income - Life Retrocession Arrangements (Note 1) | 6,547 | — | 6,547 | — | ||||||||||||
Other comprehensive income - P&C, Corporate and Other | 253,826 | (694,363 | ) | 463,830 | (809,261 | ) | ||||||||||
Comprehensive Income | $ | (18,888 | ) | $ | (421,665 | ) | $ | 446,833 | $ | (185,773 | ) | |||||
Note 1: On May 1, 2014, 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 XL Life Reinsurance (SAC) Ltd. (“XLLR”), a wholly-owned subsidiary of XLIB, to GreyCastle for $570 million in cash. This transaction was completed on May 30, 2014. As a result of the transaction, XLLR reinsures the majority of the Company's life reinsurance business via 100% quota share reinsurance ("Life Retrocession Arrangements") written on a funds withheld basis. Investment results for designated investments that support the Life Retrocession Arrangements (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 recorded in “Net realized and unrealized gains (losses) on life retrocession embedded derivative” on the consolidated statements of income, which is grouped within "Contribution from Life Retrocession Arrangements" in the presentation above. This presentation includes non-GAAP financial measures as income, gains and losses related to the Life Funds Withheld Assets are excluded from revenues and expenses. |
XL Group plc | |||||||
SUMMARY CONSOLIDATED FINANCIAL DATA | |||||||
Selected balance sheet data: | |||||||
(U.S. Dollars in thousands except share and per share amounts) | At | At | |||||
June 30, 2014 | December 31, 2013 | ||||||
(Unaudited) | (Note 1) | ||||||
Total investments available for sale | $ | 31,779,305 | $ | 28,996,661 | |||
Fixed maturities, held to maturity | — | 2,858,695 | |||||
Cash and cash equivalents | 3,071,139 | 1,800,832 | |||||
Investments in affiliates | 1,500,548 | 1,370,943 | |||||
Unpaid losses and loss expenses recoverable | 3,354,273 | 3,435,230 | |||||
Goodwill and other intangible assets | 455,057 | 411,611 | |||||
Total assets | 48,162,318 | 45,652,887 | |||||
Unpaid losses and loss expenses | 20,281,934 | 20,481,065 | |||||
Deposit liabilities | 1,288,376 | 1,509,243 | |||||
Future policy benefit reserves | 5,273,549 | 4,803,816 | |||||
Funds withheld liability on life retrocession arrangements, net of future policy benefit reserves recoverable | 842,753 | — | |||||
Unearned premiums | 4,704,993 | 3,846,526 | |||||
Notes payable and debt | 2,262,452 | 2,263,203 | |||||
Total shareholders’ equity | 11,408,577 | 11,349,298 | |||||
Ordinary shareholders' equity | 10,034,289 | 9,997,633 | |||||
Ordinary shares outstanding (Note 2) | 268,351,959 | 278,297,762 | |||||
Basic book value per ordinary share (Note 3) | $ | 37.39 | $ | 35.92 | |||
Fully diluted book value per ordinary share (Note 3) | $ | 36.76 | $ | 35.32 | |||
Fully diluted tangible book value per ordinary share (Note 3) | $ | 35.09 | $ | 33.86 | |||
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 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 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 issues 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 removed from ordinary shareholders’ equity. |
(U.S. Dollars in thousands except share and per share amounts) | Three Months Ended | Six Months Ended | |||||||||||||
June 30, | June 30, | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
(Note 1) | (Note 1) | ||||||||||||||
Net income (loss) attributable to ordinary shareholders | $ | (279,261 | ) | $ | 272,698 | $ | (23,544 | ) | $ | 623,488 | |||||
Net realized (gains) losses on investments, net of tax | (69,002 | ) | (44,530 | ) | (87,891 | ) | (80,768 | ) | |||||||
Net realized and unrealized (gains) losses on derivatives, net of tax | (11,596 | ) | 5,105 | (13,406 | ) | (2,780 | ) | ||||||||
Net realized and unrealized (gains) losses on investments and derivatives related to the Company's insurance company affiliates | 1,222 | (75 | ) | (2,736 | ) | (255 | ) | ||||||||
Exchange (gains) losses, net of tax | 18,509 | (11,607 | ) | 26,098 | (38,226 | ) | |||||||||
Net investment income - Life Funds Withheld Assets, net of tax | (19,165 | ) | — | (19,165 | ) | — | |||||||||
Net realized and unrealized gains (losses) on life retrocession embedded derivatives, net of tax | 17,546 | — | 17,546 | — | |||||||||||
Loss on sale of life reinsurance subsidiary, net of tax | 621,323 | — | 621,323 | — | |||||||||||
Operating net income (loss) (Note 2) | $ | 279,576 | $ | 221,591 | $ | 518,225 | $ | 501,459 | |||||||
Per ordinary share results: (Note 3) | |||||||||||||||
Net income (loss) attributable to ordinary shareholders - diluted | $ | (1.03 | ) | $ | 0.93 | $ | (0.09 | ) | $ | 2.10 | |||||
Operating net income (loss) - diluted (Note 2) | $ | 1.02 | $ | 0.75 | $ | 1.86 | $ | 1.69 | |||||||
Weighted average ordinary shares outstanding: | |||||||||||||||
Basic | 270,923,986 | 289,513,239 | 273,615,535 | 292,277,406 | |||||||||||
Diluted - Net income | 270,923,986 | 294,332,781 | 273,615,535 | 297,044,192 | |||||||||||
Diluted - Operating net income | 275,199,604 | 294,332,781 | 277,917,607 | 297,044,192 | |||||||||||
Return on ordinary shareholders' equity: | |||||||||||||||
Closing ordinary shareholders' equity (Note 4) | $ | 10,034,289 | $ | 9,892,575 | $ | 10,034,289 | $ | 9,892,575 | |||||||
Unrealized (gain) loss on investments, net of tax | $ | (1,216,920 | ) | $ | (687,700 | ) | $ | (1,216,920 | ) | $ | (687,700 | ) | |||
Average ordinary shareholders' equity excluding unrealized gains (losses) on investments, net of tax (Note 4) | $ | 9,057,642 | $ | 9,166,933 | $ | 9,040,880 | $ | 9,122,556 | |||||||
Average ordinary shareholders' equity (Note 4) | $ | 10,139,626 | $ | 10,189,965 | $ | 10,015,961 | $ | 10,201,326 | |||||||
Operating net income (loss) (Note 2) | $ | 279,576 | $ | 221,591 | $ | 518,225 | $ | 501,459 | |||||||
Annualized operating net income (loss) (Note 2) | $ | 1,118,304 | $ | 886,364 | $ | 1,036,450 | $ | 1,002,918 | |||||||
Annualized return on ordinary shareholders' equity - operating net income (loss) (Notes 2 and 4) | 11.0 | % | 8.7 | % | 10.3 | % | 9.8 | % | |||||||
Annualized return on ordinary shareholders' equity excluding unrealized gains (losses) on investments - operating net income (loss) (Notes 2 and 4) | 12.3 | % | 9.7 | % | 11.5 | % | 11.0 | % | |||||||
Note 1: Certain amounts have been reclassified to conform to the current period presentation. | |||||||||||||||
Note 2: Defined as net income (loss) attributable to ordinary shareholders excluding: (1) our net investment income attributable to life retrocession agreements, (2) our net realized gains and losses on investments, net of tax, (3) our net realized and unrealized gains and losses on derivatives, net of tax, (4) our net realized and unrealized gains and losses on life retrocession embedded derivative, net of tax (5) our share of items (2) and (3) for our insurance company affiliates for the periods presented, (6) our loss on sale of life reinsurance subsidiary, net of tax, and (7) our foreign exchange gains and losses, net of tax. “Operating net income (loss)”, "Operating net income (loss) per ordinary share", “annualized return on ordinary shareholders’ equity” based on operating net income (loss), and “annualized return on ordinary shareholders’ equity” based on operating net income (loss) excluding unrealized gains and losses on investments, are non-GAAP measures. | |||||||||||||||
Note 3: 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 4: Ordinary shareholders’ equity is defined as total shareholders’ equity less non-controlling interest in equity of consolidated subsidiaries. |