XL First-Quarter Profit Falls 2%
NU Online News Service, April 28, 9:14 a.m. EDT?XL Capital Ltd. reported a quarterly profit lower by 2 percent but operating income at a record-high level.[@@]
The Bermuda-based XL, a global provider of property-casualty insurance and reinsurance, said its 2005 first-quarter profit came in at $453 million, down from $462.2 million one year ago. Its operating income was $346.5 million, up from $332.5 million last year.
"I am pleased with our results. We delivered one of our highest levels of net income ever and had record net income excluding net realized gains and losses," XL Chief Executive Brian O'Hara said during today's analyst conference call.
XL's insurance underwriting profit for the quarter fell to $82 million, down from $89.9 million one year ago. Net premiums written for the insurance segment fell 1 percent to $1.28 billion.
"As you have seen from our premium levels, we continue to pull back in areas where we feel the risk assumption is not being adequately rewarded," Mr. O'Hara explained.
Underwriting profit for reinsurance was $93.4 million, falling from $101.3 million one year ago. Net premiums written for reinsurance rose 4 percent to $1.568 billion.
Overall, net premiums written from general operations rose 2 percent to $2.8 billion. Total combined ratio was 89.7, deteriorating from 88.8 last year. The results were hurt by $50 million losses from European storm Erwin as well as unfavorable prior-year net loss development of $48 million, XL said.
XL's operating results got a boost from strong quarterly net investment income, which rose 17 percent to $171.9 million. But the insurer's one-time net realized gains on investments fell to $60.7 million, down from $115.3 million one year ago, which hurt XL's net profit figures.
Mr. O'Hara said that rate levels "continue to be more than adequate," but with some exceptions.
He observed that in insurance he saw rate decreases of around 7 percent on average. Property and professional lines continue to see the most pressure, with rates down in the low-teens on average, he noted.
Mr. O'Hara said specialty rates fell in low-to-mid single digits while casualty lines saw a price decrease in low single digits. "But at the same time, these lines continue to present good business opportunities," he said. Reinsurance renewal rates for Jan. 1 also showed similar trends, he reported.
However, terms and conditions remain firm, according to Mr. O'Hara. He said: "This is a critical and often-overlooked factor in assessing the rate adequacy. Thus I would characterize market conditions overall as still attractive, although increasingly margins will turn on risk selections and portfolio management."
Some analysts weren't impressed with XL's latest numbers. Brian Meredith, insurance analyst at Banc of America Securities, LLC, said XL's underwriting results were "weaker than expected across the board" from adverse reserve developments and hailstorm Erwin losses.
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