XL Group (XL) Projects Q4 Cat Loss of $250M Due to Wildfires

XL Group plc XL has evaluated pre-tax catastrophe loss of $250 million for the fourth quarter of 2017. Of this, $200 million is attributable to the Reinsurance segment, which was affected by the wildfires of Northern California in October.

The Zacks Consensus Estimate for earnings in the fourth quarter is currently pegged at 96 cents per share. We expect this estimate to move further south as analysts incorporate the catastrophe loss impact.

Being a property and casualty insurer, XL Group could not escape the vagaries of natural disasters inducing volatility in underwriting results. Combined ratio — an indicator of underwriting profitability — deteriorated 1770 bps year over year through the first nine months of 2017.

Last quarter was also bruised by the huge $1.48 billion cat loss of which, $1.33 billion stemmed from the hurricanes inducing $0.9 billion as underwriting loss.

Nonetheless, XL Group has started the fourth quarter with a significant reinsurance in place including insurance catastrophe cover with a limit of $400 million and $1.9 billion of multi-year catastrophe bond protection. In total, the company just has over $3 billion of major catastrophe cover limit at its disposal and is working toward the renewal of its annual covers for 2018.

Shares of XL Group have lost 6.5% quarter to date, underperforming the industry’s increase of 5.9%. The stock has seen the Zacks Consensus Estimate of a loss for 2017 being widened to $1.47 from $1.41 per share over the last 30 days. The consensus mark for 2018 earnings slipped 1.3% to $3.68 over the same time frame.  Calamities affecting underwriting results will possibly be a drag on the company’s share price. XL Group carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the insurance industry are NMI Holdings Inc. NMIH, Infinity Property and Casualty Corporation IPCC and CNA Financial Corporation CNA.

NMI Holdings provides private mortgage guaranty insurance services in the United States. The company came up with a four-quarter average positive surprise of 11.75%. Shares of the company have surged 41.4% quarter to date. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Infinity Property and Casualty provides personal automobile insurance products in the United States. The company pulled off a four-quarter average beat of 300.65%. Shares of the company have rallied 14.5% year to date. The stock sports a Zacks Rank of 1.

CNA Financial provides commercial property and casualty insurance products primarily in the United States. The company delivered a four-quarter average positive surprise of 39.78%. Shares of the company have gained 6.5% quarter to date. The stock is a #1 Ranked player.

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