Catastrophes Significantly Impact XL Catlin’s Q2 Earnings

Commenting on the Company's performance, Chief Executive Officer Mike McGavick said:

"XL Catlin's second quarter results were significantly impacted by global catastrophes, reducing operating earnings per share by 84 cents. In the face of these events and challenging markets, we demonstrated progress in our underlying performance. We generated gross premiums written of $3.6 billion, P&C underwriting profit of $102 million, and an accident-year, ex-catastrophe P&C combined ratio of 90.3%. The benefits of our integration are emerging and we are committed to the hard work and execution required to succeed."

Net income attributable to ordinary shareholders of $43.8 million for the quarter decreased compared to $915.0 million in the prior year quarter.

• Operating net income of $106.4 million for the quarter decreased compared to operating net income of $245.8 million in the prior year quarter. The current quarter includes approximately $52.1 million in integration costs as well as $240.1 million in natural catastrophe losses compared to $39.6 million in integration costs and $59.9 million in natural catastrophe losses in the prior year quarter.
• Net income from affiliates was $34.6 million for the quarter, compared to net income of $40.8 million in the prior year quarter. This decrease was driven primarily by our hedge fund affiliates where equity and credit market volatility fed through to returns, partially offset by gains in operating affiliates.

Net investment income for the quarter was $215.4 million, compared to $223.2 million in the prior year quarter and $205.9 million in the first quarter of 2016. Net investment income excluding the Life Funds Withheld Assets for the quarter was $176.2 million, compared to $176.3 million in the prior year quarter and $164.3 million in the first quarter of 2016.

• Excluding Catlin-related transaction and integration costs, ongoing operating expenses were in line with the prior year quarter, reflecting the emergence of operational efficiencies and realization of synergy savings resulting from the Catlin transaction.
• Income tax expense for the quarter of $2.5 million represents a year-to-date operating effective tax rate of approximately 10.5% combined with certain taxes on non-operating marked to market movements.
• Fully diluted tangible book value per ordinary share increased by $1.17 from the prior quarter to $33.79, driven by the increase in our unrealized gains on investments combined with share buybacks and net income and partially offset by payment of dividends.
• Share buybacks totaled approximately 9.7 million shares or $328.3 million during the quarter, compared to none in the prior year quarter. At June 30, 2016, $815.8 million of ordinary shares remained available for purchase under our share buyback program.
• P&C gross premiums written ("GPW") in the second quarter increased 17.6% compared to the prior year quarter as a result of the combination with Catlin. The second quarter of 2015 included only 2 months of Catlin results.
• The Insurance segment GPW increased 13.2% from the prior year quarter primarily due to the combination with Catlin. More generally, continued new business growth was partially offset by adverse foreign exchange impacts, continued rate pressures and selected discontinued lines.
• The Reinsurance segment GPW increased by 30.2% from the prior year quarter. The increase was due to the combination with Catlin, and significant new business across all regions, in particular Bermuda, EMEA and North America.
• P&C net premiums earned ("NPE") in the second quarter of $2.5 billion were comprised of $1.7 billion from the Insurance segment and $832.0 million from the Reinsurance segment.
• The P&C loss ratio in the current quarter was 8.8 percentage points higher than in the prior year quarter. The P&C loss ratio variance was impacted by natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums of $240.1 million, compared to $59.9 million in the prior year quarter. Included in the P&C loss ratio was favorable development of $98.6 million compared to $108.9 million in the prior year quarter. Excluding prior year development and natural catastrophe losses, the second quarter P&C loss ratio was 0.5 percentage points higher than the prior year quarter due to the impact of harmonized reserving on the assumptions impacting the current accident year as well as mix and rate change.
• The P&C combined ratio excluding prior year development and the impact of natural catastrophe losses for the quarter was 90.3%, compared to 92.3% for the prior year quarter. The Insurance segment combined ratio on this basis was 92.6% for the quarter compared to 95.4% for the prior year quarter, while the Reinsurance segment combined ratio on this basis was 85.5% for the quarter compared to 85.3% for the prior year quarter. Overall, improvements in the expense ratios were partially offset by slight increases in loss ratios.