XL Group got smacked with a negative ratings outlook from Fitch Ratings, thanks to pre-tax natural catastrophe losses in Q3 that hit $1.48 billion.
Fitch said it revised the ratings outlook to negative from stable. At the same time, however, it affirmed its existing ratings for XL Group and its property/casualty insurance and reinsurance subsidiaries.
“The outlook revision to negative reflects a meaningful deterioration in capitalization following approximately $1.48 billion (pre-tax) of net natural catastrophe losses incurred in the third quarter of 2017, primarily from Hurricanes Harvey, Irma and Maria,” Fitch explained in its note on the company.
Fitch pointed out that as a result of those losses, XL was faced with an 11 percent decline in shareholders’ equity as of Sept. 30, to $ 11.3 billion, down from $13 billion at the end of 2016. What’s more, Fitch said its negative outlook reflects the possibility that XL Group’s loss estimates could climb even higher, “given the uncertainty in estimating losses for the recent catastrophe events, as well as the possibility of significant loss events occurring as the company looks to replenish its capital.”
There are plenty of positive signs, however. Fitch noted, for example, that XL has more than $3 billion in reinsurance protections remaining to respond to future catastrophe losses by the end of 2017. Also, Fitch noted that XL has said it will rebuild its capital in the coming months by way of increased retention of net earnings, limiting the amount of capital it returns to shareholders.
Also, if the market rate environment improves, XL could restore its capital more quickly, Fitch added.
Fitch ratings affirmations include the insurer financial strength rating of XL’s core operating companies at ‘A+’ (Strong} and XL’s senior unsecured debt at ‘BBB+’ and issuer default rating (IDR) at ‘A-‘.
On October 24, XL Group reported a $1.04 billion net loss for the 2017 third quarter, versus $70.6 million in net income for the 2016 third quarter.
Source: Fitch Ratings