By Dan Reynolds, managing editor of Risk & Insurance®
XL Group PLC CEO Michael McGavick gave some insight into what product lines are bedeviling the Dublin-based insurer during his remarks at a banking insurance conference in New York on Feb. 15.
The company, hit as many others were by the extraordinary catastrophe losses in 2011, referred to experiencing an "unacceptable level of noncatastrophic insurance losses in isolated underwriting areas," the company said, in a report filed with the Securities and Exchange Commission Feb. 9.
The company reported a net loss of $515.5 million for the fourth quarter and a net loss of $474.8 million for all of 2011. A key element of those fourth quarter losses was a noncash goodwill impairment of $429 million. To date, the company has not indicated on what assets it was recording the goodwill impairment.
McGavick said the company is taking measures to address underwriting performance in certain areas, according to a conference transcript provided by XL. Those measures include personnel changes in the company's international property division, McGavick told conference attendees.
"We've already had a turnover of something on the order of 30 percent to 40 percent of the underwriters in that group," McGavick said.
Other problem areas for the company are its program business and its large workers' compensation business, he said. Smaller lines, professional lines coverage for architects, realtors and attorneys, were also identified as problematic.
Cliff Gallant, an analyst with Keefe, Bruyette & Woods, wrote in a Feb. 9 note to investors that XL is "aggressively not simply trying to 'fix things,' " but instead is trying to place XL "in the premier category of underwriters."
"With the pricing environment showing signs of improvement, the wind could be at its back," Gallant wrote.
The impression that prices are firming was echoed in Gallant's notes on XL.
"Management noted that XL experienced positive rate trends in most lines of business, with North America up for the third consecutive quarter and momentum expected to continue," Gallant wrote.
"U.S. directors' and officers' rates are increasing despite benign loss trends, but management feels that business is underpriced," Gallant wrote.
Peter Taffae, managing director of Los Angeles-based Executive Perils Inc., told Risk & Insurance® in January that he saw Dec. 31 renewal increases in directors' and officers' for his California-based clients in the 20 percent range, with some carriers pulling out of that business altogether.
"This time around I think they are being very cautious and they are looking at their retention level," Taffae said. Directors' and officers' rates in the Midwest remained soft, Taffae said.
February 21, 2012
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