Date of Report (Date of earliest event reported): | October 27, 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 Third Quarter 2014 Results"), dated October 27, 2014. |
XL Group plc (Registrant) | ||
By: | /s/ Kirstin Gould | |
Name: Kirstin Gould Title: General Counsel and Secretary |
EXHIBIT 99.1 | ||
• | Operating net income1 of $187.1 million, or $0.70 per share for the quarter on a fully diluted basis |
• | P&C combined ratio of 90.1% for the quarter, compared to 95.0% in the prior year quarter |
• | Natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums in the quarter of $29.8 million, compared to $85.0 million in the prior year quarter |
• | Annualized operating return on ordinary shareholders' equity2 excluding and including unrealized gains and losses on investments were 8.6% and 7.5%, respectively, for the quarter |
• | Net income attributable to ordinary shareholders and net income attributable to ordinary shareholders excluding the impact of the Life Retrocession Arrangements3 of $72.4 million and $222.6 million, respectively, for the quarter |
• | Fully diluted tangible book value per ordinary share4 of $35.40 at September 30, 2014, an increase of $1.54, or 4.5%, from December 31, 2013 |
• | Share buybacks totaled 8.2 million ordinary shares for $275.0 million during the quarter |
Highlights | |||||||||||||||
Three and Nine Months Ended September 30 | |||||||||||||||
(U.S. dollars in thousands, except per share amounts) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Operating net income (loss) | $ | 187,088 | $ | 154,628 | $ | 705,313 | $ | 656,087 | |||||||
Per ordinary share-fully diluted | $ | 0.70 | $ | 0.53 | $ | 2.57 | $ | 2.23 | |||||||
Net income (loss) attributable to ordinary shareholders | $ | 72,384 | $ | 135,648 | $ | 48,840 | $ | 759,136 | |||||||
Per ordinary share-fully diluted | $ | 0.27 | $ | 0.47 | $ | 0.18 | $ | 2.57 |
• | Operating net income of $187.1 million for the quarter increased compared to operating net income of $154.6 million in the prior year quarter primarily due to higher underwriting profit in the current quarter. Net income (loss) attributable to ordinary shareholders of $72.4 million for the quarter decreased compared to $135.6 million in the prior year quarter. As highlighted in the summary consolidated financial data on page 6, net income for the current quarter was negatively impacted by the life retrocession derivative, which is offset by a movement in accumulated comprehensive income and therefore does not impact overall book value. |
• | The P&C combined ratio for the quarter of 90.1% was 4.9 percentage points lower than in the prior year quarter, when it was 95.0%. |
• | Net investment income for the quarter was $226.4 million, compared to $237.9 million in the prior year quarter and $232.8 million in the second quarter of 2014. Included in investment income in the current quarter is $56.5 million of income related to designated investments that support the Life Retrocession Arrangements written on a funds withheld basis. |
• | Net income from investment fund and investment manager operating affiliates was $40.4 million in the quarter, compared to net income of $15.1 million in the prior year quarter. The increase was primarily driven by higher returns from our alternative fund affiliates. |
• | Fully diluted tangible book value per ordinary share increased by $0.31 from the prior quarter to $35.40, driven by our net income, the payment of dividends and the benefit of share buyback activity, largely offset by a decrease in unrealized gain on investments net of deferred tax. |
• | During the quarter, the Company purchased 8.2 million ordinary shares for $275.0 million in the aggregate at an average price of $33.35 per share, which was accretive to fully diluted tangible book value per ordinary share by $0.15. At September 30, 2014, $442.6 million of ordinary shares remained available for purchase under our share buyback program. |
P&C Operations | |||||||||||||||
Three and Nine Months Ended September 30 | |||||||||||||||
(U.S. dollars in thousands) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Gross premiums written | $ | 1,600,702 | $ | 1,609,840 | $ | 6,140,870 | $ | 5,958,926 | |||||||
Net premiums written | $ | 1,214,246 | $ | 1,327,379 | $ | 4,567,112 | $ | 4,829,560 | |||||||
Net premiums earned | $ | 1,453,673 | $ | 1,550,629 | $ | 4,304,277 | $ | 4,503,372 | |||||||
Underwriting profit (loss) | $ | 144,375 | $ | 76,900 | $ | 457,195 | $ | 349,612 | |||||||
Loss ratio | 59.1 | % | 64.9 | % | 58.5 | % | 61.9 | % | |||||||
Underwriting expense ratio | 31.0 | % | 30.1 | % | 30.9 | % | 30.3 | % | |||||||
Combined ratio | 90.1 | % | 95.0 | % | 89.4 | % | 92.2 | % |
• | P&C net premiums written in the third quarter decreased 8.5% compared to the prior year quarter, primarily as a result of increased ceded written premiums mainly due to the increase of proportional reinsurance in our Insurance Professional, Excess Casualty and International Casualty businesses. |
• | P&C net premiums earned (“NPE”) in the third quarter of $1.5 billion were comprised of $1.0 billion from the Insurance segment and $435 million from the Reinsurance segment. Compared to the prior year quarter, Insurance NPE decreased by 7.8%, primarily due to the earn through of increased proportional reinsurance in our Professional business. Reinsurance NPE decreased by 2.5%, driven by the overall earn through of lower current quarter premiums partially offset by premium adjustments on prior years. |
• | The P&C loss ratio in the current quarter was 5.8 percentage points lower than in the prior year quarter. Included in the P&C loss ratio was favorable development of $35.1 million compared to $79.2 million in the prior year quarter. The P&C loss ratio variance was impacted by natural catastrophe pre-tax losses of $29.8 million net of reinsurance and restatement premiums, with approximately $18.4 million related to our Insurance segment and $11.4 million related to our Reinsurance segment, as compared to $85.0 million in the prior year quarter. Excluding prior year development and natural catastrophe losses net of reinsurance and reinstatement premiums, the third quarter P&C loss ratio was 5.0 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 90.4%, compared to 94.7% for the prior year quarter. The Insurance segment combined ratio on this basis was 94.8% for the quarter compared to 97.8% for the prior year quarter, while the Reinsurance segment combined ratio on this basis was 80.1% for the quarter compared to 86.8% for the prior year quarter. |
• | Operating expenses in the quarter were 9.6% higher than in prior year quarter primarily due to the impact of improved performance on variable compensation. |
XL Group plc | ||||||||||||||||
SUMMARY CONSOLIDATED FINANCIAL DATA | ||||||||||||||||
(U.S. Dollars in thousands) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
Income statement data (Note 1): | September 30 | September 30 | ||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues (Note 1): | ||||||||||||||||
Net premiums written | $ | 1,233,985 | $ | 1,402,062 | $ | 4,721,680 | $ | 5,043,584 | ||||||||
Net premiums earned | $ | 1,473,412 | $ | 1,625,312 | $ | 4,458,845 | $ | 4,717,396 | ||||||||
Net investment income - excluding Life Funds Withheld Assets (Note 1) | 169,956 | 237,921 | 616,753 | 716,935 | ||||||||||||
Net realized gains (losses) on investments - excluding Life Funds Withheld Assets (Note 1) | 9,813 | (1,958 | ) | 109,886 | 75,519 | |||||||||||
Net realized and unrealized (losses) gains on derivative instruments | 5,131 | 880 | 18,540 | 3,660 | ||||||||||||
Income (loss) from investment fund affiliates | 24,500 | 5,079 | 75,486 | 83,843 | ||||||||||||
Fee income and other | 10,782 | 10,875 | 31,942 | 31,378 | ||||||||||||
Total revenues | $ | 1,693,594 | $ | 1,878,109 | $ | 5,311,452 | $ | 5,628,731 | ||||||||
Expenses (Note 1): | ||||||||||||||||
Net losses and loss expenses incurred - P&C operations | $ | 859,588 | $ | 1,006,520 | $ | 2,518,973 | $ | 2,787,210 | ||||||||
Claims and policy benefits - run-off Life operations | 20,101 | 116,549 | 218,987 | 344,269 | ||||||||||||
Acquisition costs | 182,882 | 238,328 | 566,915 | 690,473 | ||||||||||||
Operating expenses | 341,379 | 311,506 | 984,814 | 898,497 | ||||||||||||
Exchange (gains) losses | (21,286 | ) | 20,303 | 10,296 | (24,463 | ) | ||||||||||
Interest expense | 42,851 | 37,926 | 99,877 | 114,830 | ||||||||||||
Total expenses | $ | 1,425,515 | $ | 1,731,132 | $ | 4,399,862 | $ | 4,810,816 | ||||||||
Income (loss) before income tax, income (loss) from operating affiliates, and Life Retrocession Arrangements (Note 1) | $ | 268,079 | $ | 146,977 | $ | 911,590 | $ | 817,915 | ||||||||
Net income (loss) from operating affiliates | 20,021 | 24,590 | 94,044 | 88,413 | ||||||||||||
Provision (benefit) for income tax, excluding amount related to loss on sale of life reinsurance subsidiary (Note 1) | 30,057 | 897 | 103,824 | 73,248 | ||||||||||||
Net income (loss) before Life Retrocession Arrangements (Note 1) | 258,043 | 170,670 | 901,810 | 833,080 | ||||||||||||
Contribution from Life Retrocession Arrangements (Note 1) | (148,076 | ) | — | (154,623 | ) | — | ||||||||||
Loss on sale of life reinsurance subsidiary, net of tax (Note 1) | — | — | 621,323 | — | ||||||||||||
Net income (loss) | 109,967 | 170,670 | 125,864 | 833,080 | ||||||||||||
Non-controlling interests | 37,583 | 35,022 | 77,024 | 73,944 | ||||||||||||
Net income (loss) attributable to ordinary shareholders | 72,384 | 135,648 | 48,840 | 759,136 | ||||||||||||
Other comprehensive income - Life Retrocession Arrangements (Note 1) | 148,076 | — | 154,623 | — | ||||||||||||
Other comprehensive income - P&C, Corporate and Other | (123,182 | ) | 51,556 | 340,649 | (757,704 | ) | ||||||||||
Comprehensive Income | $ | 97,278 | $ | 187,204 | $ | 544,112 | $ | 1,432 | ||||||||
Note 1: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 recorded in “Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets” 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 and expense items related to the Life Funds Withheld Assets are excluded from revenues and expenses and shown in Contribution from Life Retrocession Arrangements. |
XL Group plc | |||||||
SUMMARY CONSOLIDATED FINANCIAL DATA | |||||||
Selected balance sheet data: | |||||||
(U.S. Dollars in thousands except share and per share amounts) | At | At | |||||
September 30, 2014 | December 31, 2013 | ||||||
(Unaudited) | (Note 1) | ||||||
Total investments available for sale | $ | 31,048,399 | $ | 28,996,661 | |||
Fixed maturities, held to maturity | — | 2,858,695 | |||||
Cash and cash equivalents | 2,353,734 | 1,800,832 | |||||
Investments in affiliates | 1,599,586 | 1,370,943 | |||||
Unpaid losses and loss expenses recoverable | 3,431,137 | 3,435,230 | |||||
Goodwill and other intangible assets | 450,411 | 411,611 | |||||
Total assets | 45,909,756 | 45,652,887 | |||||
Unpaid losses and loss expenses | 19,936,982 | 20,481,065 | |||||
Deposit liabilities | 1,242,696 | 1,509,243 | |||||
Future policy benefit reserves | 4,965,907 | 4,803,816 | |||||
Funds withheld liability on Life Retrocession Arrangements, net of future policy benefit reserves recoverable | 914,773 | — | |||||
Unearned premiums | 4,301,271 | 3,846,526 | |||||
Notes payable and debt | 1,662,206 | 2,263,203 | |||||
Total shareholders’ equity | 11,220,774 | 11,349,298 | |||||
Ordinary shareholders' equity | 9,841,054 | 9,997,633 | |||||
Ordinary shares outstanding (Note 2) | 260,289,496 | 278,297,762 | |||||
Basic book value per ordinary share (Note 3) | $ | 37.81 | $ | 35.92 | |||
Fully diluted book value per ordinary share (Note 3) | $ | 37.10 | $ | 35.32 | |||
Fully diluted tangible book value per ordinary share (Note 3) | $ | 35.40 | $ | 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 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 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 | Nine Months Ended | |||||||||||||
September 30, | September 30, | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
(Note 1) | (Note 1) | ||||||||||||||
Net income (loss) attributable to ordinary shareholders | $ | 72,384 | $ | 135,648 | $ | 48,840 | $ | 759,136 | |||||||
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets, net of tax | 201,264 | — | 218,810 | — | |||||||||||
Net realized gains (losses) on investments - Life Funds Withheld Assets | 5,472 | — | 13,619 | — | |||||||||||
Net investment income - Life Funds Withheld Assets, net of tax | (56,474 | ) | — | (75,639 | ) | — | |||||||||
Loss on sale of life reinsurance subsidiary, net of tax | — | — | 621,323 | — | |||||||||||
Net income (loss) attributable to ordinary shareholders excluding Contribution from Life Retrocession Arrangements (Note 2) | $ | 222,646 | $ | 135,648 | $ | 826,953 | $ | 759,136 | |||||||
Net realized gains (losses) on investments - ex. Life Funds Withheld Assets, net of tax | (8,860 | ) | 5,306 | (104,898 | ) | (75,462 | ) | ||||||||
Net realized and unrealized (gains) losses on derivatives, net of tax | (5,131 | ) | (880 | ) | (18,537 | ) | (3,660 | ) | |||||||
Net realized and unrealized (gains) losses on investments and derivatives related to the Company's insurance company affiliates | 8 | (108 | ) | (2,728 | ) | (363 | ) | ||||||||
Exchange (gains) losses, net of tax | (21,575 | ) | 14,662 | 4,523 | (23,564 | ) | |||||||||
Operating net income (loss) (Note 3) | $ | 187,088 | $ | 154,628 | $ | 705,313 | $ | 656,087 | |||||||
Per ordinary share results: (Note 4) | |||||||||||||||
Net income (loss) attributable to ordinary shareholders - diluted | $ | 0.27 | $ | 0.47 | $ | 0.18 | $ | 2.57 | |||||||
Operating net income (loss) - diluted (Note 2) | $ | 0.70 | $ | 0.53 | $ | 2.57 | $ | 2.23 | |||||||
Weighted average ordinary shares outstanding: | |||||||||||||||
Basic | 264,353,291 | 285,392,500 | 270,494,192 | 289,957,218 | |||||||||||
Diluted - Net income | 269,139,902 | 290,489,613 | 274,911,937 | 294,827,974 | |||||||||||
Diluted - Operating net income | 269,139,902 | 290,489,613 | 274,911,937 | 294,827,974 | |||||||||||
Return on ordinary shareholders' equity: | |||||||||||||||
Closing ordinary shareholders' equity (Note 5) | $ | 9,841,054 | $ | 9,907,896 | $ | 9,841,054 | $ | 9,907,896 | |||||||
Unrealized (gain) loss on investments, net of tax | $ | (1,253,127 | ) | $ | (734,033 | ) | $ | (1,253,127 | ) | $ | (734,033 | ) | |||
Average ordinary shareholders' equity excluding unrealized gains (losses) on investments, net of tax (Note 4) | $ | 8,702,648 | $ | 9,189,366 | $ | 8,926,159 | $ | 9,107,051 | |||||||
Average ordinary shareholders' equity (Note 5) | $ | 9,937,672 | $ | 9,900,233 | $ | 9,919,344 | $ | 10,208,987 | |||||||
Operating net income (loss) (Note 3) | $ | 187,088 | $ | 154,628 | $ | 705,313 | $ | 656,087 | |||||||
Annualized operating net income (loss) (Note 3) | $ | 748,352 | $ | 618,512 | $ | 940,417 | $ | 874,783 | |||||||
Annualized return on ordinary shareholders' equity - operating net income (loss) (Notes 3 and 5) | 7.5 | % | 6.2 | % | 9.5 | % | 8.6 | % | |||||||
Annualized return on ordinary shareholders' equity excluding unrealized gains (losses) on investments - operating net income (loss) (Notes 3 and 5) | 8.6 | % | 6.7 | % | 10.5 | % | 9.6 | % | |||||||
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 recorded in “Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets” 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. | |||||||||||||||
Note 3: Defined as net income (loss) attributable to ordinary shareholders excluding: (1) our net investment income attributable to Life Retrocession Arrangements, (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 and derivative instruments - Life Funds Withheld Assets, 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 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. |