XL Q1 Net Income Soars; CEO IDs Factors Beyond Low Losses

XL Group's 2013 first-quarter net income nearly doubled compared to the same period a year ago as operating income soared thanks to lower levels of large losses.

The Dublin, Ireland-based company says Q1 net income was $350.8 million, compared to $176.6 million in the prior year's first quarter. 

CEO Mike McGavick says in a statement, “While none of us are ready to declare victory, particularly with the benefit of a quiet catastrophe and large loss quarter, such results make us all the more driven to deliver consistent, quality performance, even as catastrophes and losses normalize.”

P&C net losses and loss expenses incurred fell to $843 million in Q1 2013 compared to $854 million the year before, contributing to the company's operating income of $279.9 million, which was up from $165.2 million in 2012's first quarter. 

The P&C combined ratio was 87.7 compared to 95.3 in the prior year quarter.

But the improved results were not due to lower losses alone. P&C gross premiums written grew to $2.4 billion in Q1 2013 compared to $2.3 billion a year ago, while net premiums earned increased to $1.5 billion compared to $1.4 billion in 2012's first quarter. 

In a conference call, McGavick said, according to a transcript on Seeking Alpha, gross premiums written in the insurance segment increased 12.1 percent “primarily due to new business initiatives and pricing improvements across most lines.”

But he said the same improving pricing trend “is not being played out in the reinsurance market, and we wrote 7.5 percent less premium versus the same quarter a year ago. In sum, we are keenly focused on grinding our way through sourcing, selecting, underwriting and binding better performing risks across all of our businesses.”

McGavick also said five tailwinds should help XL sustain its progress. He said these tailwinds are:

• Benefits to the company's bottom line from re-underwriting its books of business. 
• New leaders put in charge of many of XL's businesses hitting their strides. 
• Continued refinement of XL's business mix — “allocating more capital to those businesses with lower loss ratios [which is] leading to expanded margins.” 
• Improvements in the company's operating leverage. 
• Continued improvement in rate for the risk XL takes on. “It is not yet where it should be, but it is moving in the right direction, and we will continue to push for adequate rate in all of our lines in both insurance and reinsurance,” McGavick said.

Summing up XL's results, McGavick said, “While the entire industry benefited from benign cat and large loss experience, XL's core metrics again demonstrate that the margin-expanding initiatives we have shared with you in previous calls are producing the desired result.”