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EX-99.1 - EXHIBIT 99.1 - XL GROUP LTD | exhibit9912018q1.htm |
8-K - 8-K - XL GROUP LTD | a8-kcover2018q1.htm |
© 2018, XL Group Ltd. All rights reserved.
XL Group Ltd
Q1 2018 Results and Overview
May 2, 2018
© 2018, XL Group Ltd. All rights reserved.
Cautionary Note Regarding Forward – Looking
Statements
2
This presentation contains forward-looking statements. Statements that are not historical facts, including statements about XL Group Ltd.’s (“XL” or the
“Company”) beliefs, plans, expectations or future results of operations are forward-looking statements and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current plans, estimates and expectations, all of which
involve risk and uncertainty. Investors should consider the important risks and uncertainties that may cause actual results to differ, including in particular
those discussed in our press releases issued on February 1, 2018 and March 5, 2018, as well as those included in our reports on Form 10-K, 10-Q and
other documents on file with the Securities and Exchange Commission.
Actual results may differ materially from those included in such forward-looking statements and therefore you should not place undue reliance on them.
Forward-looking statements speak only as of the dates on which they are made. We undertake no obligation to update publicly or revise any forward
looking statement, whether as a result of new information, future developments or otherwise.
This document contains certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP measures in
accordance with Regulation G is included in the Reconciliation starting on page 39 of this document.
© 2018, XL Group Ltd. All rights reserved.
Q1 2018 Results
© 2018, XL Group Ltd. All rights reserved.
Q1 2018 Highlights
Compared to the same period last year unless otherwise noted
• We are pleased with our solid start to 2018, in-line with our expectations
• Maintained market leadership globally across a variety of business lines
• Broad rate increases being achieved across the portfolio, which will earn into our results
over the rest of the year
• Growth in gross written premiums, while managing net risk by ceding certain
exposures
• Continued growth and underlying margin improvement across the Insurance portfolio
• Reinsurance lower margin was largely driven by strategic initiatives including a shift in
portfolio mix towards lower volatility and an increase in outward reinsurance protection
• Positive net prior year development (“PYD”), which included minor adverse
development of $53 million, or 2.6% of 2017 catastrophe losses
• Continue to enhance risk transfer program and increase usage of alternative capital
• Announced definitive agreement to be acquired by AXA SA for $57.60 per share on
March 5, 2018
4
© 2018, XL Group Ltd. All rights reserved.
Earnings and ROE
Compared to the same period last year unless otherwise noted
Net Income / (Loss) Available to Common Shareholders
• Q1 $152.6 million compared to $152.8 million; $0.58 per share compared to $0.57
• Includes $23 million, or $0.09 per share, for AXA–related transaction costs
• Includes $41.5 million related to the retrocession arrangement of our legacy Life operations.
This is offset by the same item with opposite sign as part of AOCI therefore with no impact on
our Balance Sheet1
Operating Net Income / (Loss)2
• Q1 $214.4 million compared to $136.1 million; $0.82 Operating EPS1 compared to $0.50
3 months
3/31/18
3 months
3/31/17
Annualized ROE 6.3% 5.6%
Annualized Operating ROE3 8.8% 5.0%
Annualized Operating ROE3 excluding average AOCI 9.4% 5.4%
Annualized Operating ROE3 excluding average AOCI and
Catlin-related Integration Costs4 9.4% 6.5%
1 For further details please see slide 36
2 Operating Net Income and Operating EPS are non-GAAP financial measures. Operating Net Income excludes $23 million of AXA-related transaction costs. See reconciliation to Net Income
(Loss) attributable to common shareholders on page 40.
3 Please see Regulation G reconciliation starting on page 39 for a definition and adjustments made to calculate Annualized Operating ROE measures, which are non-GAAP financial measures.
4 Catlin-related Integration costs completed June 30, 2017.
5
© 2018, XL Group Ltd. All rights reserved.
0.50
0.82
0.82
0.30
0.09
0.13
0.13
0.20
0.20
0.13
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
Q1-17 AY UW
Income
ex-Cats
Cats PYD NII +
Aff.
Income
Corp.
Op.
Exp.
NCI Other
incl. Tax
Q1-18
3
153
214
65
23
26
-
50
100
150
200
250
300
Q1-18
Net Income
Real.
gains/loss
on Inv.
AXA-related
expenses
FX, Life
FWA, Tax &
Other
Q1-18
Operating
Net Income
Net Income and Operating Earnings
Net income largely unchanged compared to prior year period;
Operating EPS increase driven by lower cats, PYD releases, positive
contributions from the investment portfolio and expenses, offset by lower
Accident Year UW income ex cats in Reinsurance
Operating EPS¹
Amounts may not add up due to rounding
Abbreviations defined in the glossary on page 39
1 Operating EPS (or “Operating Net Income (Loss) Per Share”) and Operating Net Income are non-GAAP financial measures. See Reconciliation on pages 40-41.
2 Net Income (Loss) Attributable to Common Shareholders.
3 Includes Gain (Losses) on Other Investments
• Increases in premiums in Insurance; increases in premiums in Reinsurance with decline in accident year loss ratio excluding cats
largely driven by shift in portfolio mix towards lower volatility/lower cat-exposed risk and increases in reinsurance protection
• Favorable PYD, which included minor adverse development of $53 million, or 2.6% of 2017 catastrophe losses
• Positive contribution from the investment portfolio, including affiliate and hedge funds performance
• Corporate operating expense favorable to prior year
• Non-Controlling Interests benefit primarily attributable to lower Preference Share dividends
• AXA-related transaction expenses of $22.6 million included in net income and not in operating net income
• Effective tax rate 12% excluding a discrete tax expense of $6.4 million
• Fully diluted book value per common share $36.53, decreased by $1.51, or 4.0% compared to 12/31/17 driven primarily by
unrealized losses in the investment portfolio from rising interest rates more than offsetting net income
Net Income2 vs. Operating Net Income1
Amounts may not add up due to roundingUSD million
6
© 2018, XL Group Ltd. All rights reserved.
5.4%
7.7%
(8.9%)
(5.4%)
9.4%
6.5%
9.0%
(8.0%)
(4.8%)
9.4%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Q1-17 Q2-17 Q3-17 Q4-17 Q1-18
136 255
(1,029)
116
214 153 302
(1,044)
29
153
(1,100)
(900)
(700)
(500)
(300)
(100)
100
300
Q1-17 Q2-17 Q3-17 Q4-17 Q1-18
Trends in Net Income, Operating Earnings and ROE
Annualized operating ROE continuing progress and trend from 1H17
7
Net Income1 & Operating Net Income2 YTD Annualized Operating ROE3
Operating Net Income Net income1USD million
Annualized Operating ROE ex AOCI
Annualized Operating ROE ex AOCI ex Catlin-related Integration
Costs
1 Net Income (Loss) Attributable to Common Shareholders.
2 Operating Net Income and Operating EPS (or “Operating Net Income (Loss) Per Share”) are non-GAAP financial measures. See reconciliation on pages 40-41.
3 Annualized Operating ROE based on Operating Net Income is a non-GAAP financial measure. See reconciliation on page 41.
Net Inc. (Loss) attrib. to Common Shareholders per Share
0.57 1.14 (4.06) 0.11 0.58
Operating EPS2
0.50 0.96 (4.00) 0.45 0.82
© 2018, XL Group Ltd. All rights reserved.
1,509 1,741 1,660 1,794 1,482
1,186 836 651 694
1,385
2,694 2,577
2,311
2,488
2,867
-
500
1,000
1,500
2,000
2,500
3,000
Q1-17 Q2-17 Q3-17 Q4-17 Q1-18
Underwriting - Insurance
Continuing trend of Loss Ratio improvements driven by disciplined
underwriting and risk selection
8
Insurance
Amounts may not add up due to rounding
Net premium written Ceded premium written
USD million
Top Line &
Portfolio
Management
Premium growth driven by Property and
Casualty lines in our International business
group and Construction and Global Risk
Management in North America
Ceded premiums increased in alignment with
gross written as well as due to additional cat-
exposure covers
Rates
Broad increase of 3.3% across multiple lines
and geographies. North America Property up
10-15%, Int’l Property up 3%, Casualty and
Professional up low-to-single digit globally
Prior Year
Development
(“PYD”)
Reductions in pre-2017 cats and favorable
ceded reserves offset $10 million net increase
on 2017 catastrophe losses
Natural
Catastrophes
Cats included multiple US storms, European
windstorm Eleanor, Australian flooding and
severe winter weather in Europe and the UK
Loss Ratio ex-
PYD & Cats
Improvement driven by underwriting actions
and improved rate environment
Operating
Expenses
Higher than prior year quarter largely due to
investment in the business and certain one-time
variable compensation related costs
USD millions Q1-18 Q1-17
Gross premium written 2,867 2,694
Net premium earned 1,666 1,635
Loss ratio 63.9% 64.8%
Acquisition expense ratio 13.3% 12.9%
Operating expense ratio 19.1% 17.5%
Combined ratio 96.3% 95.2%
Underwriting profit (loss) 62 79
PYD (release)/strengthen (5) (5)
Loss ratio ex-PYD & Cats 60.4% 60.8%
Combined ratio ex-PYD 96.6% 95.5%
Combined ratio ex-PYD & Cats 92.8% 91.2%
UW profit (loss) ex-PYD & Cats 121 144
© 2018, XL Group Ltd. All rights reserved.
1,471
905 666 922
1,671
456
73
39
150
390
1,927
978
705
1,072
2,061
-
500
1,000
1,500
2,000
2,500
3,000
Q1-17 Q2-17 Q3-17 Q4-17 Q1-18
Underwriting – Reinsurance
Loss Ratio impacted by strategic initiatives including the shift in portfolio
towards lower volatility business and incremental reinsurance protection
9
Reinsurance
Amounts may not add up due to rounding
Net premium written Ceded premium written
USD million
Top Line &
Portfolio
Management
Growth in written and earned premiums while
maintaining strict discipline
Rates
Rates improved 4.3% through April 1 in all
regions and classes of business. Property Cat
up 6% with April 1 Japan renewals flat.
Casualty up 4% and Property Treaty up 4% as
well
Prior Year
Development
(“PYD”)
Favorable development on attritional and
general catastrophe reserves and pre-2017
cats partially offset by unfavorable $43 million
development on 2017 catastrophe losses
Natural
Catastrophes
Benign Catastrophe quarter. Net impact of Cat
on Loss ratio only 1.0%.
Loss Ratio ex-
PYD & Cats
Lower margin was largely driven by strategic
initiatives including a shift in portfolio mix
towards lower volatility and an increase in
outward reinsurance protection earning in
Operating
Expenses
Slight improvement
USD millions Q1-18 Q1-17
Gross premium written 2,061 1,927
Net premium earned 931 884
Loss ratio 59.8% 59.2%
Acquisition expense ratio 25.9% 25.3%
Operating expense ratio 7.9% 8.1%
Combined ratio 93.6% 92.6%
Underwriting profit (loss) 60 65
PYD (release)/strengthen (4) 29
Loss ratio ex-PYD & Cats 59.2% 53.0%
Combined ratio ex-PYD 94.0% 89.4%
Combined ratio ex-PYD & Cats 92.9% 86.5%
UW profit (loss) ex-PYD & Cats 66 120
© 2018, XL Group Ltd. All rights reserved.
0
500
1,000
1,500
2,000
2,500
3,000
Q415 Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417
PF
Q118
PF
1:250 Net Probable Maximum Loss1 by peril region
22
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Q415 Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417
PF
Q118
PF
1:100 Net Probable Maximum Loss1 by peril region
Catastrophe Risk Management
Increased major catastrophe protection by over $600 million, or 18%,
compared to 2017 - includes per occurrence, stop loss and pro rata coverages
10
1 Probable maximum losses (“PML”), do not represent our maximum potential exposures and are pre-tax. Please see page 37 in the Appendix for additional disclosure regarding use of PMLs
2 Pro forma applying the reinsurance programs that are in place as of January 31, 2018 against the October 1, 2017 in-force exposures for Q4-17PF and reinsurance programs in place as of April 1, 2018 against the
January 1, 2018 in-force exposures for Q1-18PF. Q4-17 1:100 PMLs applying reinsurance programs as of October 1 2017 are $1,229 million for N. Atlantic WS, $939 million for N. America EQ, $425 million for Europe
WS, $475 million for Japan EQ and $292 million for Japan WS; 1:250 PMLs are $2,382 million for N. Atlantic WS, $1,673 million for N. America EQ, $854 million for Europe WS, $780 million for Japan EQ and $391
million for Japan WS. Q1-18 1:100 PMLs applying reinsurance programs as of January 1 2018 are $864 million for N. Atlantic WS, $814 million for N. America EQ, $698 million for Europe WS, $524 million for Japan EQ
and $448 million for Japan WS; 1:250 PMLs are $1,911 million for N. Atlantic WS, $1,117 million for N. America EQ, $839 million for Europe EQ, $714 million for Japan EQ and $482 million for Japan WS.
U
S
D
m
i
l
l
i
o
n
Changes in the Ceded Re
program in Q1-18
− Expanded our net property quota share transaction from $225 million of
limit at January 1 2018 to $380 million of limit at April 1 2018
− Further catastrophe cessions planned
22
Zone
USD million
Peril Q1-17 Q2-17 Q3-17
Q4-17
PF
Q1-18
PF
N. Atlantic Windstorm 1,045 1,069 1,071 832 770
N. America Earthquake 944 995 1,010 793 774
Europe Windstorm 840 824 891 790 637
Japan Earthquake 751 740 758 529 545
Japan Windstorm 537 538 535 462 415
22 Q1-17 Q2-17 Q3-17
Q4-17
PF
Q1-18
PF
1,893 1,973 1,970 1,828 1,723
1,552 1,557 1,600 989 974
1,061 1,064 1,109 931 764
1,013 1,042 1,076 740 647
698 679 692 487 505
22
U
S
D
m
i
l
l
i
o
n
Europe Windstorm
North America Earthquake
North Atlantic Windstorm
Japan Earthquake
Japan Windstorm
© 2018, XL Group Ltd. All rights reserved.
113 94 58
(92)
(391)
(700)
(500)
(300)
(100)
100
300
500
Q1-17 Q2-17 Q3-17 Q4-17 Q1-18
167 177 172 186 188
52
74 63 15
56
-
50
100
150
200
250
300
Q1-17 Q2-17 Q3-17 Q4-17 Q1-18
Investments1
Strong investment results driven by an increase in Net Investment
Income (“NII”) and Affiliate income
11
Change in unrealized gains & losses3
Net Inv. Income
Income from Affiliates
1 All figures based on U.S. GAAP and excluding the designated investments that support the life retrocession arrangement with GreyCastle (“Life Funds Withheld Assets”)
2 Investment & Operating Affiliates
3 Total available-for-sale, equities and other investments
Usual
Accounting lag
Hedge Funds Affiliates 1 month
Private Investments & Operating Affiliates 3 month
USD million
NII benefited from targeted portfolio rotations, capitalizing on the increase in interest
rates
Affiliate income was primarily driven by strong hedge fund returns
NII and Affiliate Income2
USD million
© 2018, XL Group Ltd. All rights reserved.
491 460 470 454 458 434 434 409 407 450
73 55 52 55 59 34 39
-
23
515 523 508 517 468 473
409 407
473
-
100
200
300
400
500
600
700
Q415 Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118
564
2.17
2.09
1.84
1.69
1.75 - 1.85
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2014 2015 2016 2017 2018
Continuous Improvement
Expect continuing operating leverage in 2018
Q1 2018 Total operating expenses 4% higher
compared to prior year quarter, excluding $22.6
million AXA-related transaction expenses versus prior
year period excluding Catlin-related integration costs
Corporate operating expense favorable to prior year
due to lower variable non-underwriting executive
compensation
Insurance segment operating expenses higher than
prior year period due to investment in the business
and certain one-time variable compensation related
costs
2018 Total operating expenses expected to increase
at a slower rate than revenue, driving continued
operating leverage
• $1.75 - $1.85 billion
• Investments in the business commensurate
with growth in premiums
12
Catlin-related integration cost
USD million
Operating Expenses
Amounts may not add up due to rounding
AXA-related transaction cost
Efficiency trend
continues to improve
Total Operating Expenses excluding Integration costs1
USD
billion
1 Total Operating Expenses for 2015 include Catlin as if the acquisition had closed on
1/1/2015. In addition to the integration costs, the Total Operating Expenses excludes
costs related to the Catlin acquisition incurred in 2015 of $64.7 million. 2014 figure based
on: (a) Catlin’s 2014 “Administrative & other expenses” (as reported in Catlin’s 2014
Annual Report), with a $100 million reclassification to reflect XL’s accounting policies for
certain ceding commissions, for a total of $827 million; plus (b) XL’s 2014 operating
expenses of $1.341 billion (as reported in XL’s Form 10-K for the year ended December
31, 2014)
Operating Expenses excluding Catlin-related integration
Q3 and Q4 2017 included
lower management variable
compensation driven by
catastrophe loss impact on
Group results
© 2018, XL Group Ltd. All rights reserved.
Overview of XL
© 2018, XL Group Ltd. All rights reserved.
Global P&C re/insurance provider, specialized
in providing solutions to commercial risks
14
Market Scale Portfolio Diversification
Strong brand
and client
satisfaction
Relevance
and global
distribution
network
A unique franchise dedicated to underwriting and claims
excellence and to create solutions to even the most complex risks
© 2018, XL Group Ltd. All rights reserved.
0
500
1,000
1,500
2,000
MS
Amlin
XL Catlin Hiscox Beazley Tokio
Marine
Kiln
QBE Liberty
A leader in commercial lines with strong
distribution in specialty markets
15
Global reach and broad product suite allows XL to establish a leadership position in
Commercial Risks
Sub-sector leadership with expertise in large and upper mid-market segments
• Leader in the U.S. Commercial lines, London Market and Specialty risks
• Recognized brand in Casualty and Professional lines where significant barriers to
entry exist
• Top 10 Global Reinsurer – A business where size and scale matter
Leading position in the London Market provides a competitive
advantage with a privileged access to Global Specialty Risks
Source: AON Benfield
Global Reinsurers by 2016
NPW $m Non-Life Only
Ranking Company Gross Net
1 Swiss Re 21,878 21,430
2 Munich Re 18,784 17,931
3 Hannover Re 9,699 8,414
4 Berkshire Hathaway 8,037 8,037
5 SCOR 5,942 5,323
6 Transatlantic 4,330 3,969
7 Everest Re 4,247 3,885
8 Partner Re 4,189 3,837
9 XL Group 3,975 3,515
10 MS&AD 3,192 na
Source: © AM Best – used with permission - Global Reinsurance
Overview Sept 5th 2017
Top 10 Lloyd’s Managers by 2017 capacity
G
B
P
m
i
l
l
i
o
n
Market
Scale
© 2018, XL Group Ltd. All rights reserved.
48%
45%
7%
68%
32%
Risk origination power from combination
of Insurance and Reinsurance
Our reinsurance companies serve most of the world's
500 leading insurance companies
More than
90%
of Fortune 500
companies
Our insurance companies serve large corporations and
specialized middle market organizations from different
sectors – including many key players in local and global
economies
16
Market
Scale
Insurance
Reinsurance
2017 GPW $14.8 billion
2017 NPW split by country
of subsidiary
North America
Europe
Other
99%
of UK’s FTSE 100
companies
© 2018, XL Group Ltd. All rights reserved.
LATIN AMERICA
Argentina
Brazil
Colombia
Mexico
N.AMERICA
Bermuda
Canada
US
ASIA PACIFIC
Australia
China
Hong Kong
India
Japan**
Malaysia
Singapore
EUROPE, MIDDLE EAST & AFRICA
Austria
Belgium
Denmark
France
Germany
Ireland
Italy
Norway
Spain
Sweden
Switzerland
The Netherlands
United Kingdom
UAE (Dubai)
17
* Country capability count is based on the International Organization for Standardization (ISO.org) country code listing - ISO 3166.
** Representative office
Complete and diversified set-up with
means to deploy capital on a global basis
Strong presence in N. America, Lloyd’s Europe and Asia-Pacific
Market
Scale
© 2018, XL Group Ltd. All rights reserved.
Our P&C Operating Model
business groups aligned to drive underwriting and claims
excellence with consistent quality standards
18
Global Lines
Insurance
North America
Insurance
International
Insurance Reinsurance
4
Risk Origination benefit from the combination of Insurance and Reinsurance: as capital becomes
more commoditized, access to risk is the key differentiator for success…we are uniquely positioned
to build on our brand and reputation to partner with capital providers
Scale matters: for Insurance we are relevant to our brokers and partners; for Reinsurance, given
the natural consolidation of reinsurance panels to focus on a few large partners…and we are one of
them (top 10 Global Reinsurer)
Reinsurance key strategic imperative: As underwriting and analytical expertise are the key
technologies of the industry, the continuous development of Reinsurance capabilities ensures we
remain at the forefront of the industry with a sustainable competitive advantage
Portfolio
Diversification
© 2018, XL Group Ltd. All rights reserved.
22%
28%
20%
30%37%
23%
40%
Portfolio Diversification
Dual platform
19
Casualty &
Professional
Property
Catastrophe
Property
Non-Catastrophe
Global Lines
North
America
International
Specialty &
Other
Broad range of P&C risks
Well positioned to benefit from and lead sustainable, broad market hardening
Portfolio
Diversification
Insurance Reinsurance
2017 Gross Premiums Written
© 2018, XL Group Ltd. All rights reserved.
Rich and diversified product mix with
varied product lines
Global Lines Insurance
20
UW Unit Distinctive Advantage
Fine Art & Specie and
Private Clients
Dominant position in the London Market with ability to offer a complete suite
of products
Equine, Livestock,
Aquaculture Recognized brand with ability to deliver globally on diverse product lines
Political Risk &
Commercial Bond
Top 3 market position with one of the broadest product ranges, line size and
tenor capabilities available, supported by a robust Country Risk Management
Crisis Management A global operation offering a broad suite of specialist coverages, with a
combined approach of insurance and expert third party services
Aviation & Aerospace Ranked among the top 3 writers world-wide, long established Aerospace
team (since 1998), with one of the broadest underwriting networks of any
aviation insurer
Accident & Health One of the largest underwriter in Lloyd’s, one of a handful of carriers who can
deliver a combination of Life, Accident & Health
Energy & Marine
Highly technical expertise coupled with significant lead market capacity
London Wholesale
One of the largest markets for UK, US and International Coverholders
Portfolio
Diversification
© 2018, XL Group Ltd. All rights reserved. 21(1) Fitch research
UW Unit Distinctive Advantage
Professional
Recognized brand, ranked among the top writers world-wide due to our track
record of superior technical expertise
U.S. market activity is concentrated within a smaller number of larger insurers (top
10 D&O writers combined write approximately 70% of the U.S. market1). Unique
underwriting, claims expertise and a willingness to write relatively large policy limits
constitute a natural barrier to entry
Construction
Introduced in 2010 with a unique vertical approach to its market, reached $2 billion
in top line in its 7 years of operation
The only vertically organized multi-line Construction insurer with dedicated
underwriters in all lines, plus Risk Engineering
Casualty
The root of XL’s franchise – track record in low frequency high severity lines. XL
was created in 1986 in response to the U.S. liability insurance crisis of the 1980s.
Historic Brand with strong reputation as a recognized leader, broad product
offering and large line size capacity
Global Risk
Management
A global perspective to deliver insurance solutions to address the domestic and
multinational exposures of North American based companies
Property Blend of UW and engineering expertise Large size global capacity with over 200 property risk engineers worldwide
Environmental One of the few vertical offering with expertise on complex environmental risks
Portfolio
Diversification
Rich and diversified product mix with
varied product lines
North America Insurance
© 2018, XL Group Ltd. All rights reserved. 22
UW Unit Distinctive Advantage
Casualty
One of the leading franchise in Global Programs
Broad commercial client profile ranging from Small Medium Enterprises
with a minimum turnover of USD 10 million up to Top 100 companies
Property
Highly diversified portfolio by geography, customer size, industry, product
and distribution channel.
Strong depth and breadth of property underwriting expertise and product
knowledge, across all geographies. This is married with key senior broker
relationships that attracts profitable business and improves retention
Financial Lines
Flexible platform across geographies serving multiple distribution
channels solidifying strong trading partner relationships. Experienced
local underwriting teams with superior technical expertise providing client
tailored solutions supported by best in class claims handling and service
Construction
Global network for policy issuance, claims handling and risk engineering.
Superior handling of global captive solutions from underwriting through
administration, claims handling and risk engineering
Portfolio
Diversification
Rich and diversified product mix with
varied product lines
International Insurance
© 2018, XL Group Ltd. All rights reserved.
Reinsurance
Global reach, local touch
23
Organized around the primary reinsurance centers, all our regions have
market leading capabilities supported by cutting-edge management
information tools
Resilient and diverse portfolio built around strong relationship with clients.
For example in the Bermuda book we have traded continuously with > 60%
of our clients since 1993
Nimble, highly adaptable operations: 43 offices,18 countries $4 billion NPW
Regions N. America Bermuda London Europe, Middle East & Africa
Asia Pacific &
Latin America
% of
portfolio 16% 40% 14% 15% 15%
Products Property Cat Property Other
Casualty &
Professional
Casualty
Other
Specialty &
Other
% of
portfolio 22% 28% 6% 13% 31%
Classes of business
Property
Aggregate Excess of Loss
Catastrophe Excess of Loss
Facultative
Per-Risk Excess of Loss
Proportional Treaty
Casualty & Professional
General Liability
Professional Liability
Workers’ Compensation
Facultative
Specialty
Accident & Health
Agriculture
Aviation
Credit and Surety
Marine & Energy
Whole Accounts
Portfolio
Diversification
© 2018, XL Group Ltd. All rights reserved.
Strong Brand
Highest client satisfaction
Re/insurance Company of the Year – European and UK Captive Awards 2017
Captive Fronting Partner & Customer Care Award – UK Captive Services Awards 2017
US Captive Services Award for Re/insurance Award – US Captive Awards 2017
Bermuda Insurer of the Year – Reactions magazine 2017
24
Gracechurch SurveyJ.D. Power 2016 & 2017
Large Commercial Insurance Study
Highest in Customer
Satisfaction, Large Insurers
Top Performer,
London Market Across
Nearly All Metrics
Continue to lead in client excellence and innovation
Strong
Brand and
client
satisfaction
© 2018, XL Group Ltd. All rights reserved.
Uncompromising, high levels of service
no matter where you work with us or across which products
highly experienced, locally empowered professionals
Delivered by a team of
Strong Brand and Reputation for paying
claims quickly and fairly
25
Strong
Brand and
client
satisfaction
Key Highlights
700+ Dedicated Claims Staff
50 Offices around the world
24 Countries
100+ additional Countries through Network Partners
150,000 claims managed in 2017
Our reputation is built upon our track record
11.7
17.5
23.2
29.3
36.2 38.2
0
10
20
30
40
50
2013 2014 2015 2016 2017 2018
Reinsurance Insurance
Cumulative Paid Losses - 2013 to 1Q 2018
(USD billion)
© 2018, XL Group Ltd. All rights reserved.
Marsh 17%
Aon 14%
Willis
Towers
Watson 10%
JLT 4%
Arthur J
Gallagher &
Co 4%
Lockton 4%
All Other
47%
26
Portfolio reliance on top 3 brokers is
stable, but reduced since 2014…
Top 3
42%
Relevance with brokers partners
Access to global business through network
of proprietary and Global partners’
‘Rented’ networks
2017 Full
Year GWP
Broker Distribution A truly Global Network
Owned Network
Rented Network
2014 2015 2016 2017
Business originated
from top 3 Brokers
47% 41% 41% 41%
Relevance
and Global
Distribution
Network
© 2018, XL Group Ltd. All rights reserved.
XL Catlin’s answer to multinational
coverage
27
One of the largest providers in
the world
Over $1.0 billion in Global Program
premiums written in 2017
Lead ~2500 Global Programs,
encompassing over 20,000 policies
globally. Recognized as a market leader in
the captive space.
With our extensive network, we can localize
coverage in more than 215 countries
around the world
Our network partners are managed through
regional hubs with multi-lingual personnel
How we differentiate from our
competitors
Long standing track record of 30+ years of
global program management
Flat and simple organization structure with
access to decision makers
Supported by a core team, the Global
Program Center of Excellence, working
with underwriters and operations
personnel to ensure quality delivery of
programs
Accelerated money movement to captives
and panel reinsurers
Recognized brand for handling critical and
complex claims timely and fairly
Client-centric approach based on award
winning single-point claim and a global
financial management system
EMEA
Americas
UK & Ireland
Asia Pacific
0% 20% 40% 60% 80%
Liability
Property
Marine
Professional
Fine Art & Specie
0% 20% 40% 60%
Global Programs portfolio
By Producing Region
(country of the master policy) By Business Line
Relevance
and Global
Distribution
Network
© 2018, XL Group Ltd. All rights reserved.
Recognized Leader in Innovation
Examples of execution:
Partner of Blockchain Insurance Industry
Initiative (B3i) based in Zurich
Partner with UK based Oxbotica, autonomous
vehicle software company
28
Constructive
A cultural mind set
instilled across the
entire organization
#1 position in the Pacesetter
ranking for the second year in a row. Annual
recognition for product innovation in the P&C
insurance industry. 26 new products in 2017
and 75+ new products since 2014
An XL core value “Be future-focused”. Encourages and
inspires employees to embrace change and think
creatively
Disruptive XL Innovate - Our venture fund focused
on solutions to emerging and underserved
risks or innovative insurance models or
applications
Provides companies with equity capital, unparalleled
partnership experience in building new ventures in
insurance and risk management, as well as access to
the global underwriting skills and capacity of XL Catlin
Accelerate – Internal incubator, creates and
delivers proof of concepts, which if
successful, are rapidly scaled across the
Company
Works with external partners on a wide range of
initiatives; from artificial intelligence to distribution,
product propositions and process innovation.
© 2018, XL Group Ltd. All rights reserved.
Continuing to build on our multi-faceted
alternative capital strategy to leverage our risk
origination position
29
Integrated Underwriting Capital Management team overseeing all underwriting risk transfer
effort - blending the best combination of reinsurance and alternative capital to build
sustainable, long term shareholder value and beneficial risk transfer partnerships
Well positioned to continue to capture the benefits of efficiencies in the risk transfer chain
matching our superior risk origination engine as directly as possible with the right capital
Currently
deploying over
$3.5 billion in
alternative
capital
Across a spectrum of structures and activities including sponsoring catastrophe
bonds
Purchasing collateralized reinsurance for both natural catastrophe risk and whole
account exposures
Building aligned relationships with large end investors (e.g. institutional asset
managers and pension funds)
Involving our majority owned insurance linked securities asset management
platform, New Ocean Capital Management, where appropriate
© 2018, XL Group Ltd. All rights reserved.
98.5%
93.7%
92.0%
90.6%
93.1%
90.7% 90.2%
85.0%
87.5%
90.0%
92.5%
95.0%
97.5%
100.0%
102.5%
105.0%
2011 2012 2013 2014 2015 2016 2017
30.9%
31.0%
30.5%
31.2%
33.6%
32.0%
30.8%
29.0%
30.0%
31.0%
32.0%
33.0%
34.0%
35.0%
2011 2012 2013 2014 2015 2016 2017
6.9 7.2 7.4
7.8
10.7
13.6
14.8
0
2
4
6
8
10
12
14
16
2011 2012 2013 2014 2015 2016 2017
Operating Highlights - Expanding P&C Margins
Consistently improved Accident Year loss ratio and dramatically improved
expense ratio while growing the portfolio
30
Expense Ratio
Accident Year* Combined Ratio ex-Cats Accident Year* Loss Ratio ex-Cats
P&C GPW USD Billion
* Excluding net prior year development
CAGR 12%
67.5%
62.6%
61.5%
59.4% 59.5% 58.7% 59.2%
55.0%
57.5%
60.0%
62.5%
65.0%
67.5%
70.0%
2011 2012 2013 2014 2015 2016 2017
© 2018, XL Group Ltd. All rights reserved.
12.6
6.4
12.1
6.1
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Avail.
Capital
Q4-16
ECR
Q4-16
Est. Avail.
Capital
Q4-17
Est. ECR
Q4-17
213% 198%
Internal
Model /
Regulatory
Significant capital buffer allowed us
to absorb net catastrophe losses in
2017
All capital instruments recognized as
Eligible Capital by Group Regulator
XL is first and only company to have
Internal Model approved by the
Bermuda Monetary Authority
Rating
Agencies
Operating Highlights - Strong Balance Sheet
Capital position remains strong and redundant to all stakeholders models,
ample flexibility through a combination of Operating Earnings and Risk
Optimization
31
1 Enhanced Capital Requirement
S&P Full Analysis Report December 8th 2017
“We assess XL's capital and earnings as very
strong, which we view as reflective of the
company's long-term capital management…
…although the company has historically
maintained 'AAA' capitalization and it may be
the case during certain periods, our view of the
company's long-term capital management
strategy is better aligned with capital
redundancy at the 'AA' level”
Financial
Strength
Rating
Senior
Notes Sub Preferred
AM Best A - - -
Fitch A+ BBB+ BBB- BBB-
Moody’s A2 Baa2 Baa3 Ba1
S&P A+ A- BBB BBB
1 1
USD Billion
© 2018, XL Group Ltd. All rights reserved.
Operating Highlights - Investments1
High quality and well diversified investment portfolio with the principal objective
to support (re)insurance operations while maximizing risk adjusted return on
capital
32
1 All figures based on U.S. GAAP and excluding the designated investments that support the life retrocession arrangement with GreyCastle (“Life Funds Withheld Assets”)
2 Gross of expenses
Highlights Q1-18 Q4-17
Fixed Income Portfolio
Carrying value $m 28,648 28,902
Avg. pre-tax book yield2 2.7% 2.6%
Avg. market yield 2.6% 2.3%
Avg. new money yield 2.7% 2.3%
Avg. duration 3.9 3.9
Avg. credit quality AA AA
U.S. Gov. related and supported
Non-U.S. Gov. related and Supported
Corporate
Mortgage & asset-backed securities
Equities
Hedge Funds & PE
Other Investments
Cash and Short Term
17%
14%
27%
20%
2%
5%
3%
12%
Q1-18
AAA,
47.8%
AA,
16.1%
A,
21.2%
BBB,
11.4%
BB and
below,
3.5%
Our investment strategy is based on a structured
investment process to maximize enterprise value
subject to various considerations and constraints,
including the liability profile, business needs, liquidity,
and regulatory requirements
Asset Allocation Fixed Income Portfolio by credit rating
© 2018, XL Group Ltd. All rights reserved. 33
© 2018, XL Group Ltd. All rights reserved.
Appendix
© 2018, XL Group Ltd. All rights reserved.
Coupon Interest Expenses1 and Preference Shares
Dividends schedule
35
Income Statement view2
USD million
Amounts may not add up due to rounding
1 Coupon expense excludes the impact of discount accretion and amortization of issuance costs
associated with these bonds. It also excludes other expenses related to a capital lease and funds
held liabilities that are reported as interest expense within our financial statements.
2 Accounting of Preference Shares dividends is based on the dividend declaration date with no
accrual posted (this differs from the accounting of coupon interests on Debt securities for which
interest accrual is posted every quarter).
3 EURO denominated Subordinated Debt converted into USD for US GAAP reporting at the
respective quarter end prevailing rate.
4 CICL = Catlin Insurance Company Ltd.
5 Total represents only items related to Preference Shares and does not include the equity interest
attributable to third party investors which is also reported within Non-controlling Interests.
6 LIBOR determination date is defined as two LIBOR business days prior to the first day of dividend
calculation period.
FY 2017
Maturity Struct. Coupon Spread
Princ.
($m)
Prefs
Coupon
%
Int. /
Div.
($m)
Princ.
($m)
Prefs
Coupon
%
Int. /
Div.
($m)
Princ.
($m)
Prefs
Coupon
%
Int. /
Div.
($m)
Princ.
($m)
Prefs
Coupon
%
Int. /
Div.
($m)
Int. / Div.
($m)
Princ.
($m)
Prefs
Coupon
%
Int. /
Div.
($m)
2018 Senior 2.30% 300.0 1.7 300.0 1.7 300.0 1.7 300.0 1.7 6.9 300.0 1.7
2021 Senior 5.75% 400.0 5.8 400.0 5.8 400.0 5.8 400.0 5.8 23.0 400.0 5.8
2024 Senior 6.38% 350.0 5.6 350.0 5.6 350.0 5.6 350.0 5.6 22.3 350.0 5.6
2027 Senior 6.25% 325.0 5.1 325.0 5.1 325.0 5.1 325.0 5.1 20.3 325.0 5.1
2043 Senior 5.25% 300.0 3.9 300.0 3.9 300.0 3.9 300.0 3.9 15.8 300.0 3.9
2025 Sub 4.45% 500.0 5.6 500.0 5.6 500.0 5.6 500.0 5.6 22.3 500.0 5.6
2045 Sub 5.50% 500.0 6.9 500.0 6.9 483.3 6.6 483.3 6.6 27.0 483.3 6.6
2047 Sub3 3.25% ‐ 568.8 0.1 587.0 4.8 597.1 4.9 9.7 616.1 4.8
Coupon Interests on Debt Securities1 34.5 34.6 39.0 39.1 147.3 39.3
(Reported within Interest Expense in the Income Statement)
(Gain)/Loss from tender of Sub‐Debt securities 1.6 1.6
(Reported within Extinguishment of Debt in the Income Statement)
Perp. Prefs D Floating 3.1200% 345 4.14% 3.6 345 287 4.28% 3.5 287 4.43% 3.2 10.3 287 4.48% 3.3
Perp. Prefs CICL4 Floating 2.9750% 600 7.25% 21.8 600 4.00% 6.0 553 4.13% 5.8 553 4.28% 6.1 39.6 553 4.33% 6.1
Perp. Prefs E Floating 2.4575% 1,000 6.50% 32.5 1,000 670 3.62% 6.2 670 3.76% 6.4 45.1 670 3.82% 6.5
Preference Shares Dividends 57.8 6.0 15.5 15.7 95.0 15.6
(Gain)/Loss from repurchase of Preference Shares (14.3) (14.3)
Total5 57.8 6.0 1.2 15.7 80.7 15.6
(Reported within Non‐controlling Interests in the Income Statement)
3mth LIBOR at Determination Date6 1.02% 1.02% 1.16% 1.31% 1.36%
3mth LIBOR on Determination Date for Q1 and Q2, 2018 was 1.36% and 1.72%, respectively
Q117 Q217 Q317 Q417 Q1 2018
© 2018, XL Group Ltd. All rights reserved.
Details of Life Retrocession Arrangements
XL does not bear underwriting or investment risk
36
Impact on Income Statement is offset by the same item with opposite sign
within Other Comprehensive Income (“OCI”) resulting in a neutral effect on our
Balance Sheet and Capital
Movement in OCI
offsets the Income
Statement resulting in
a net zero impact
on XL’s Capital
© 2018, XL Group Ltd. All rights reserved.
Disclosure related to the estimation of Probable
Maximum Loss (“PML”)
37
PML includes secondary uncertainty that incorporates variability around the expected probable maximum loss for each event, do not
represent our maximum potential exposures and are pre-tax. These estimates assume that amounts due from reinsurance and
retrocession purchases are 100% collectible. There may be credit or other disputes associated with these potential receivables.
Loss exposure estimates for all event risks are derived from a combination of commercially available and internally
developed models together with the judgment of management, as overseen by XL’s Board of Directors. Actual incurred losses may
vary materially from our estimates. Factors that can cause a deviation between estimated and actual incurred losses may include:
• Inaccurate assumptions of event frequency and severity;
• Inaccurate or incomplete data;
• Changing climate conditions that may add to the unpredictability of frequency and severity of natural catastrophes in certain parts
of the world and create additional uncertainty as to future trends and exposures;
• Future possible increases in property values and the effects of inflation that may increase the severity of catastrophic events to
levels above the modeled levels;
• Natural catastrophe models that incorporate and are critically dependent on meteorological, seismological and other earth science
assumptions and related statistical relationships that may not be representative of prevailing conditions and risks, and may
therefore misstate how particular events actually materialize, causing a material deviation between forecasted and actual
damages associated with such events; and
• A change in the legislative, regulatory and judicial climate.
For the above and other reasons, the incidence, timing and severity of catastrophes and other event types are inherently
unpredictable and it is difficult to estimate the amount of loss any given occurrence will generate. As a consequence, there is
material uncertainty around our ability to measure exposures associated with individual events and combinations of events.
This uncertainty can cause actual exposures and losses to deviate from those amounts estimated, which in turn can create a
material adverse effect on our financial condition and results of operations and may result in substantial liquidation of investments,
possibly at a loss, and outflows of cash as losses are paid.
© 2018, XL Group Ltd. All rights reserved.
Glossary
38
AY Accident Year NII + Aff. Income Net Investment Income plus Affiliate Income
AOCI Accumulated Other Comprehensive Income Non-op tax adj Non Operating Tax Adjustment
AY UW Income ex-Cats Accident Year Underwriting Income excluding the impact of Catastrophe Losses
Operating ROE ex
AOCI
Operating ROE excluding average accumulated
other comprehensive income
Corp. Op. Exp. Corporate Operating Expenses PYD Prior Year Development
DTA Deferred Tax Assets Real gains/loss on inv. Realized gains and losses on Investments
EPS Earnings Per Share WS Windstorm
EQ Earthquake
GPW Gross Premiums Written
Life FWA
Life Funds Withheld Assets, the designated
investments that support the life retrocession
arrangement with GreyCastle
NCI Non Controlling Interests
© 2018, XL Group Ltd. All rights reserved.
Reconciliation of Book Value Per Share to
Tangible Book Value Per Share
39
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(U.S. dollars in thousands, except share and
per share amounts)
Three Months
Ended
Twelve
Months Ended
Nine Months
Ended
Six Months
Ended
Three Months
Ended
Twelve
Months Ended
Nine Months
Ended
Six Months
Ended
March 31, December 31, September 30, June 30, March 31, December 31, September 30, June 30,
2018 2017 2017 2017 2017 2016 2016 2016
Closing common shares outstanding - basic 258,171,836 256,033,895 255,980,636 258,489,379 263,773,739 266,927,220 270,409,084 276,772,053
Closing common shares outstanding - diluted 263,605,861 258,901,212 259,717,348 262,858,782 267,007,606 271,224,790 274,054,062 280,159,516
Book value per common share 37.30 38.46 38.83 42.87 41.61 40.98 42.94 42.22
Fully diluted book value per common share 36.53 38.04 38.27 42.15 41.10 40.33 42.37 41.71
Goodwill and other intangible assets 2,230,506 2,225,751 2,227,014 2,219,390 2,208,612 2,203,653 2,234,071 2,217,973
Tangible book value 7,398,023 7,622,566 7,712,833 8,861,162 8,766,272 8,734,859 9,378,095 9,467,215
Fully diluted tangible book value per common
share 28.06 29.44 29.7 33.71 32.83 32.21 34.22 33.79
© 2018, XL Group Ltd. All rights reserved.
Reconciliation of Operating Net Income to Net
Income and Calculation of Related ROE
Measures
1 See glossary
40
The following is a reconciliation of XL’s net income (loss) attributable to common shareholders to operating net income (loss) and also includes the
calculation of annualized return on average common shareholders’ equity and annualized return on average common shareholders’ equity excluding
average AOCI, in each case, both including and excluding Catlin-related integration costs and based on operating net income (loss).
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(U.S. dollars in thousands) Three Months Ended Three Months Ended
March 31, March 31,
2018 2017
Net income (loss) attributable to common shareholders $ 152,648 $ 152,843
Net realized and unrealized (gains) losses on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets (1) (22,921) 50,101
Net realized (gains) losses on investments and change in net unrealized (gains) losses on investments, trading and OTTI - Life Funds Withheld Assets 22,512 (33,068)
Net investment income - Life Funds Withheld Assets (30,398) (33,364)
Foreign exchange revaluation (gains) losses on and other income and expense items related to Life Funds Withheld Assets (10,683) (3,224)
Net income (loss) attributable to common shareholders excluding Contribution from Life Retrocession Arrangements $ 111,158 $ 133,288
Net realized (gains) losses and OTTI on investments - excluding Life Funds Withheld Assets — (4,218)
Net realized (gains) losses on investments AFS and OTTI - excluding Life Funds Withheld Assets 33,478 —
Net realized (gains) losses and change in net unrealized gains (losses) on equity securities - excluding Life Funds Withheld Assets 36,014 —
Net realized and unrealized (gains) losses on derivatives (4,221) 7,069
Net realized and unrealized (gains) losses on investments and derivatives related to the Company's insurance company affiliates (636) (2,051)
Foreign exchange (gains) losses excluding Life Funds Withheld Assets 20,524 (112)
Expenses related to the pending acquisition by AXA SA 22,648 —
(Provision) benefit for income tax on items excluded from operating income (4,606) 2,167
Operating net income (loss) $ 214,359 $ 136,143
Catlin-related integration costs — 33,949
(Provision) benefit for income tax on Catlin-related integration costs — (3,768)
Operating net income (loss) (excluding Catlin-related integration costs) $ 214,359 $ 166,324
© 2018, XL Group Ltd. All rights reserved.
Reconciliation of Operating Net Income to Net
Income and Calculation of Related ROE
Measures (continued)
41
1 Diluted weighted average number of common shares outstanding is used to calculate per share data except when it is anti-dilutive to earnings per share or when there is a net
loss. When it is anti-dilutive or when a net loss occurs, basic weighted average common shares outstanding is utilized in the calculation of net loss per share and net operating
loss per share.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(U.S. dollars in thousands, except share and per share amounts) Three Months Ended Three Months Ended
March 31, March 31,
2018 2017
Per common share results - diluted:
Net income (loss) attributable to common shareholders $ 0.58 $ 0.57
Operating net income (loss) $ 0.82 $ 0.50
Weighted average common shares outstanding:
Basic 256,922,376 265,690,364
Diluted (1) 261,175,868 269,766,805
Diluted - For Operating net income per share 261,175,868 269,766,805
Return on common shareholders' equity:
Opening common shareholders' equity $ 9,848,317 $ 10,938,512
Closing common shareholders' equity (at period end) 9,628,529 10,974,884
Average common shareholders' equity for the period 9,738,423 10,956,698
Opening AOCI 889,431 715,546
Closing AOCI (at period end) 312,255 844,974
Average AOCI for the period 600,843 780,260
Average common shareholders' equity for the period excluding average AOCI 9,137,580 10,176,438
Annualized net income (loss) 610,592 611,372
Annualized operating net income (loss) 857,436 544,572
Annualized operating net income (loss) (excluding Catlin-related integration costs) 857,436 665,295
Annualized return on average common shareholders' equity 6.3% 5.6%
Annualized operating return on average common shareholders' equity 8.8% 5.0%
Annualized operating return on average common shareholders' equity excluding AOCI 9.4% 5.4%
Annualized operating return on average common shareholders' equity excluding Catlin-related integration costs 8.8% 6.1%
Annualized operating return on average common shareholders' equity excluding Catlin-related integration costs and AOCI 9.4% 6.5%
© 2018, XL Group Ltd. All rights reserved.
Comment on Regulation G
42
XL presents its operations in ways it believes will be most meaningful and useful to investors, analysts, rating agencies and others who use XL’s financial
information in evaluating XL’s performance. This document contains the presentation of (i) operating net income (loss) (“Operating Net Income”), which is
defined as net income (loss) attributable to common shareholders excluding: (1) our net investment income - Life Funds Withheld Assets, (2) our net realized
(gains) losses on investments available for sale - excluding Life Funds Withheld Assets, (3) our net realized and change in net unrealized (gains) losses on
equity securities - excluding Life Funds Withheld Assets, (4) our net realized (gains) losses on investments (including OTTI) and change in net unrealized
(gains) losses on investments, trading - Life Funds Withheld Assets, (5) our net realized and unrealized (gains) losses on derivatives, (6) our net realized and
unrealized (gains) losses on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets, (7) our share of items (2) and (5)
for our insurance company affiliates for the periods presented, (8) our foreign exchange (gains) losses, (9) our expenses related to the pending acquisition by
AXA SA, (10) our gain on the sale of our wholly-owned subsidiary XL Life Insurance and Annuity Company and the partial sale of our holdings in New Ocean
Capital Management, (11) our net (gains) losses on the early extinguishment of debt, (12) our net (gains) losses from the repurchase of preference shares,
(13) tax provision arising from our write-down of our deferred tax asset related to the U.S. Tax Cuts and Jobs Act, and (14) a provision (benefit) for income
tax on items excluded from operating income ; (ii) annualized return on average common shareholders’ equity (“ROE”) based on operating net income (loss)
(“Operating ROE”) including and excluding average AOCI, both inclusive and exclusive of Catlin-related integration costs; and (iii) Fully diluted tangible book
value per common share (common shareholders’ equity excluding goodwill and intangible assets divided by the number of shares outstanding at the period
end date combined with the dilutive impact of potential future share issues at any period end). These items are "non-GAAP financial measures" as defined in
Regulation G. The reconciliation of such measures to the most directly comparable GAAP financial measures in accordance with Regulation G is included in
this document on pages 40 and 41.
Although the investment of premiums to generate income (or loss) and realized capital gains (or losses) is an integral part of our operations, the
determination to realize capital gains (or losses), as well as absorb the volatility associated with marking our portfolio of public equity securities to market, is
independent of the underwriting process. In addition, losses as the result of other-than-temporary declines in value and goodwill impairment charges are
recognized in net income without actual realization. In this regard, certain users of our financial information, including certain rating agencies, evaluate
earnings before tax and realized capital gains to understand the profitability of the operational sources of income without the effects of these variables.
Furthermore, these users believe that, for many companies, the timing of the realization of capital gains is largely a function of economic and interest rate
conditions.
Net realized and unrealized (gains) losses on derivatives include all derivatives entered into by XL other than certain credit derivatives and the life
retrocession embedded derivative. With respect to credit derivatives, because XL and its insurance company operating affiliates generally hold financial
guaranty contracts written in credit default derivative form to maturity, the net effects of the changes in fair value of these credit derivatives are excluded
(similar with other companies’ treatment of such contracts), as the changes in fair value each quarter are not indicative of underlying business performance.
Net investment income - Life Funds Withheld Assets, and net realized (gains) losses on the life retrocession embedded derivative and derivative instruments
- Life Funds Withheld Assets, have been excluded because, as a result of the GreyCastle Life Retro Arrangement, XL no longer shares in the risks and
rewards of the underlying performance of the Life Funds Withheld Assets that support these retrocession arrangements.
(continued in the next page)
© 2018, XL Group Ltd. All rights reserved.
Comment on Regulation G
43
(continued from previous page)
The returns on the Life Funds Withheld Assets are passed directly to the reinsurer pursuant to a contractual arrangement that is accounted for as a
derivative. Therefore, net investment income from the Life Funds Withheld Assets and changes in the fair value of the embedded derivative associated with
these GreyCastle Life Retro Arrangements are not relevant to XL’s underlying business performance.
Foreign exchange (gains) losses in the income statement are only one element of the overall impact of foreign exchange fluctuations on XL’s financial
position and are not representative of any economic gain or loss made by XL. Accordingly, it is not a relevant indicator of financial performance and it is
excluded.
In summary, XL evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income (loss), XL
believes that showing operating net income (loss) enables investors and other users of XL’s financial information to analyze XL’s performance in a manner
similar to how management of XL analyzes performance. In this regard, XL believes that providing only a GAAP presentation of net income (loss) would
make it much more difficult for users of XL’s financial information to evaluate XL’s underlying business. Also, as stated above, XL believes that the equity
analysts and certain rating agencies that follow XL (and the insurance industry as a whole) exclude these items from their analyses for the same reasons and
they request that XL provide this non-GAAP financial information on a regular basis.
Operating ROE is a widely used measure of any company’s profitability that is calculated by dividing annualized operating net income for any period other
than a fiscal year when actual operating income is used by the average of the opening and closing common shareholders’ equity. XL establishes target
Operating ROEs for its total operations, segments and lines of business. If XL’s Operating ROE targets are not met with respect to any line of business over
time, XL seeks to re-evaluate these lines. Operating ROE including and excluding average AOCI, both inclusive and exclusive of Catlin-related integration
costs, are additional measures of Company profitability. The most significant component of this exclusion is the mark to market fluctuations on XL’s
investment portfolio that have not been realized through sales, and/or distortions to XL’s performance from Catlin-related integration costs related to the
acquisition of Catlin. By providing these additional measures, users of our financial statements have the ability to include or exclude these items when
considering our performance either on a standalone basis or for purposes of peer performance comparison. XL believes that fully diluted tangible book value
per common share is a financial measure important to investors and other interested parties who benefit from having a consistent basis for comparison with
other companies within the industry. However, this measure may not be comparable to similarly titled measures used by companies either outside or inside
of the insurance industry.
Fully diluted tangible book value per common share ("Fully diluted TBVPS") is a widely used non-GAAP financial measure that, much like BVPS, represents
the value generated for our common shareholders excluding items such as goodwill and other intangible assets. The exclusion of these amounts allow for
more meaningful comparisons between peers, specifically those that have been less acquisitive. Fully diluted TBVPS is calculated by dividing common
shareholders' equity excluding intangible assets by the number of outstanding common shares at the applicable period end combined with the impact from
dilution of share-based compensation and certain conversion features where dilutive.