XL Group plc (XL)

Q2 2011 Earnings Call

August 02, 2011 5:00 pm ET

Executives

David Duclos - Chief Executive of Insurance Operations and Executive Vice President

David Radulski - Senior Vice President and Director of Investor Relations

Susan Cross - Global Chief Actuary and Executive Vice President

Sarah Street - Chief Investment Officer and Executive Vice President

Simon Rich - Senior Vice President, Global Treasurer and Director

Michael McGavick - Chief Executive Officer and Director

James Veghte - Chief Executive of Reinsurance Operations and Executive Vice President

Analysts

Ian Gutterman - Adage Capital Management, L.P.

Jay Gelb - Barclays Capital

Keith Walsh - Citigroup Inc

Jay Cohen - BofA Merrill Lynch

Arun Kumar - JP Morgan Chase & Co

Brian Meredith - UBS Investment Bank

Matthew Heimermann - JP Morgan Chase & Co

Michael Nannizzi - Goldman Sachs Group Inc.

Joshua Shanker - Deutsche Bank AG

Presentation

Operator

Good afternoon. My name is Shirley, and I'll be your conference operator today. At this time, I would like to welcome everyone to the XL Group plc Second Quarter 2011 Earnings Call. [Operator Instructions] Please be advised this conference is being recorded. I would now like to turn the call over to David Radulski, XL's Director of Investor Relations. Please go ahead, sir.

David Radulski

Thank you, Shirley, and good evening, and welcome to XL Group's Second Quarter 2011 Earnings Conference Call. This call is being simultaneously webcast in XL's website at www.xlgroup.com. We posted to our website several documents. These include our quarterly financial supplement, which we are reposting to ensure the file is complete and readable. Our apologies for the inconvenience.

On the call today Mike McGavick, XL Group's CEO, will offer opening remarks. Susan Cross, our Global Chief Actuary, will do our reserving process; followed by Duke Duclos, our Chief Executive of Insurance Operations; and Jamie Veghte, our Chief Executive of Reinsurance Operations, who will review the segment results and market conditions. Then we'll open it up for questions. Sarah Street, our Chief Investment Officer; and Simon Rich, our Treasurer, are with us today and available for Q&A.

Before they begin, I’d like to remind you that certain of the matters we’ll discuss today are forward-looking statements. These statements are based on current plans, estimates and expectations. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in the forward-looking statements, and, therefore, you should not place undue reliance on them. Forward looking statements are sensitive to many factors, including those identified in our annual report on Form 10-K, our quarterly reports on Form 10-Q and other documents we've filed with the SEC and could cause actual results to differ materially from those contained in the forward-looking statements. Forward-looking statements speak only as of the date of which they are made, and we undertake no obligation publicly to revise any forward-looking statement in response to new information, future developments or otherwise.

With that, I turn it over to Mike McGavick.

Michael McGavick

Good evening. As we have discussed on previous calls and shared with you during our recent Investor Day, we are keenly focused on the 5 drivers that build value for XL's shareholders. These are underwriting excellence, strategic growth, strong enterprise risk management, optimized investing and operating in capital efficiency. We feel good about our progress across these 5 drivers as each has contributed to our results in this quarter. Have you seen the quarter produced $0.75 in operating earnings? And we grew our fully diluted book value per share by 6.3% and generated an annualized operating ROE of 10.3%.

Now first, as to our pursuit of underwriting excellence. Our P&C operations produced a combined ratio of 94.9% for the quarter, a solid result for this stage in the market cycle. Our top line growth of 16.9% year-over-year came from the business initiatives in both Insurance and Reinsurance, favorable FX movements and better pricing and account lines, particularly in Property Catastrophe. Market conditions continued their gradual improvement, and we saw pricing in several of our most important lines rise or, at least, bottomed out. RMS 11 has had a positive impact on Florida pricing already, and we also saw increases in several loss-driven markets, notably property, excess casualty and marine lines. Markets with very good recent loss histories like primary U.S. D&O and Reinsurance Aviation were exceptions to these positive trends.

We've already been taking advantage of what we've been learning both from our reinvigoration of our existing businesses and our strategic growth initiatives, the second of our value-creating levers.

With respect to strategic growth, we continued to add capacity and capability in markets we consider attractive and profitable, especially in lines that complement our existing strengths like construction and surety, and we expanded product offerings in environmental and excess in surplus.

A key part of our growth strategy is our focus on attracting and enabling the best talent in the industry. And we continue to add top teams and leaders in the second quarter to our already fine crew. And particularly, we are very pleased that Pete Parrino will be joining XL as our new CFO. Pete has a wealth of finance accounting and strategic leadership experience. He knows the insurance industry, and he knows XL. We look forward to him joining us full time at the end of August, so you can expect him to participate in our next earnings call.

We also recently announced that Paolo Ribotta will become the Head of our Global Distribution. This new position should build on the success we're already seeing from increased cross-selling among our businesses and will play a key role as we expand to new markets and geographies.

Read the rest of this transcript for free on seekingalpha.com