XL Group plc today reported its results for the second quarter of 2010.
Commenting on the Company’s performance, Chief Executive Officer Mike McGavick said: ” We are pleased to report another quarter of solid operating results. Our P&C operations delivered a healthy combined ratio of 92.2% which includes 6.8 points of favourable prior period development. The current accident year combined ratio for our P&C operations was 99.0% in the quarter and our top-line remains strong.
“Our operating income was $242.6 million in the second quarter, compared to $291.4 million in the same quarter last year. Included in operating income was a net charge of $23.5 million for the previously announced termination of the EIB guarantees. This termination continues our progress in eliminating distractions from our core P&C focus.
“We grew our book value per ordinary share for the fifth consecutive quarter, this time by 5%, driven by both investment portfolio gains and net income. Our tangible book value per ordinary share increased 6% during the quarter to $25.30. Total shareholders’ equity was $10.5 billion at June 30, 2010, an increase of 5% in the quarter and 11% since the end of 2009.
“Our investment portfolio’s favorable mark to market of $349 million this quarter was driven by interest rate declines even as corporate credit spreads widened. Our repositioned P&C portfolio weathered the turmoil in the credit markets, as we had limited exposure to the impacted Euro governments. “Annualized operating return on ordinary shareholders’ equity was 10.5%. Both our investment income and P&C operations contributed to these gains.”
Mr. McGavick concluded: “We believe these results demonstrate our continued commitment to disciplined underwriting and vigorous risk management despite anemic pricing conditions.” The Company realized net income attributable to ordinary shareholders for the second quarter of $191.8 million, or $0.56 per ordinary share, compared to $79.9 million, or $0.23 per ordinary share for the second quarter of 2009.
Included in net income attributable to ordinary shareholders for the quarter ended June 30, 2010 were pre-tax foreign exchange gains of $32.3 million compared to pre-tax foreign exchange losses of $145.2 million for the quarter ended June 30, 2009.
Operating income was $242.6 million, or $0.71 per ordinary share, compared to $291.4 million, or $0.85 per ordinary share in the second quarter of 2009. This decrease was primarily due to a reduction in net investment income for the quarter of $25.7 million and the previously announced charge of $23.5 million to fully extinguish and terminate all of the guarantees issued to European Investment Bank (“EIB”) by the Company in connection with financial guarantee policies between Syncora and EIB.
Net investment income for the quarter was $302.6 million compared to $328.3 million in the prior year quarter. Net investment income on the P&C and Corporate portfolio decreased approximately 7% from the prior year quarter to $227.2 million due to lower portfolio yields driven by lower US interest rates along with the actions taken over the last couple of years to reposition the portfolio.
Pre-tax net realized investment losses for the quarter were $61.4 million compared to $80.4 million in the prior year quarter. Net realized investment losses in the second quarter of 2010 included other-thantemporary impairments of $57.4 million, evenly split between credit impairment on structured credit securities and change in the expected holding period of certain corporate securities.
The annualized return on ordinary shareholders’ equity, based on operating income, was 10.5% for the quarter as compared to 20.1% in the prior year quarter. The decrease in annualized operating return on equity was primarily due to the increase in total shareholders’ equity of $3.0 billion, or 40.4%, since June 30, 2009 partially offset by an increase in operating income.
With effect from January 1, 2010, the Company changed its definition of operating income to exclude after-tax foreign exchange gains and losses. The results from prior periods have been represented to conform to the current year’s presentation.
