3 Favorite Post-Sandy Insurance Plays: Merrill Lynch

1. XL Group

Shares of XL Group PLC (XL) of Dublin closed at $24.31 Monday, returning 25% year-to-date.

The shares trade for 0.7 times their reported Sept. 30 fully diluted tangible book value of $32.82, and for 10 times the consensus 2013 EPS estimate of $2.36. The consensus 2014 EPS estimate is $2.51.

Cohen called XL Group his "top name" among P&C carriers, "looking at both risk and reward," saying that the company was a "turnaround story, with the shares trading at 70% of last reported book value, there appears to be some lasting skepticism among investors regarding XL's ability to improve its returns, most notably in its insurance business where margins have lagged peers."

XL Group reported earnings attributed to ordinary shareholders of $569.7 million, or $1.82 a share, for the first nine months of 2012, increasing from a profit of $40.8 million, or 13 cents a share, during the first nine months of 2011. For its P&C business, the company reported an underwriting profit of $306.8 million during the first three quarters, compared to an underwriting loss of $283.2 million a year earlier, while the combined ratio improved to 92.7% from 107.2%.

Cohen said that "given the continued momentum in commercial insurance pricing and our view that price increases will remain ahead of claims inflation, we would expect the fundamental backdrop to remain favorable for XL's efforts to improve margins.

The analyst's price target for XL group is $30, and he estimates the company's adjusted tangible book value will increase from $33.01 at the end of 2012 to $35.79 at the end of 2013.

XL data by YCharts

Interested in more on XL Group? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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