Will Catastrophe Loss Impact XL Group's (XL) Q4 Earnings?
Zacks Investment Research | Jan 29, 2018 08:53PM ET
XL Group Ltd (NYSE:XL) is slated to report fourth-quarter 2017 results on Feb 1 after the market closes. Last quarter, the company delivered a negative earnings surprise of 2.83%.
Let’s see, how things are shaping up for this announcement.
Factors to be Considered This Quarter
The occurrence of the California wildfires is anticipated to have a significant impact on XL Group’s fourth-quarter results. In fact, the property and casualty insurer has projected total pre-tax catastrophe loss, net of reinsurance, reinstatement and adjusted premiums plus redeemable non-controlling interest amounting to $315 million. Losses at such level will thus hamper the company’s underwriting profitability.
Such a massive loss might lead to noticeably deteriorating the combined ratio as well. The Zacks Consensus Estimate for the metric in the to-be-reported period is pegged at 92%.
Further, the company has likely witnessed an increase in operating expenses in the soon-to-be-reported quarter, mainly due to higher net loss and loss expenses incurred, claims and policy benefits as well as forex loss. This in turn might restrict the operating margin expansion as well.
Notably, for 2017 the company expects operating expenses to be about $1.77 billion.
Thanks to the recent corporate tax rate cut, the P&C insurer might incur a charge of $98 million in the fourth quarter of 2017 due to revaluation of its net Deferred Tax Asset. However, it is important to mention here that the charge will not have a material impact on the company’s fourth-quarter operating net income.
Despite the interest rate hikes, the company is anticipating a fall in net investment income due to the still low-interest rate environment.
Nonetheless, the company is likely to witness improvement in gross premiums written in the soon-to-be-reported quarter, fueled by higher premiums at both its Insurance and Reinsurance segments.
Additionally, continued share buybacks have likely cushioned the company’s bottom line. The Zacks Consensus Estimate is pegged at 49 cents, representing a year-over-year increase of 4.3%.
What Our Quantitative Model Says
Our proven model does not conclusively show that XL Group is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Zacks Investment Research
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