XL Group provides property and casualty insurance and reinsurance to industrial, commercial and professional firms, insurance companies and other enterprises.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
XL Group plc is a financial company. Financial companies, by their nature, typically have high debt to equity leverage, which is not a meaningful analytical metric. We suggest you use the equity to assets ratio instead.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
At a class meeting held on August 3, 1998, the shareholders of the Company approved a Scheme of Arrangement (the "EXEL Arrangement") pursuant to section 85 of the Companies Law (1995 Revision) of the Cayman Islands under which EXEL became a wholly-owned subsidiary of EXEL Merger Company, which has since been renamed "EXEL Limited" ("New EXEL"), an exempted limited liability company incorporated under the laws of the Cayman Islands. At separate class meetings held on the same date, the shareholders of Mid Ocean Limited ("Mid Ocean") approved a similar Scheme of Arrangement (the "Mid Ocean Arrangement" and, together with the EXEL Arrangement, the "Arrangements") pursuant to section 85 of the Companies Law (1995 Revision) of the Cayman Islands under which Mid Ocean became a wholly-owned subsidiary of New EXEL. Under the terms of the EXEL Arrangement and, subject to the cash election rights described below, each outstanding share of the Company was allotted and issued one share in New EXEL. Under the terms of the Mid Ocean Arrangement and, subject to the cash election rights described below, each outstanding share of the Mid Ocean was allotted and issued 1.0215 shares in New EXEL. Under the Arrangements, shareholders of EXEL and Mid Ocean had the opportunity to elect to receive cash in lieu of shares in New EXEL up to a maximum of $300 million in the aggregate. As this election was oversubscribed, $204 million was made available to shareholders of EXEL and $96 million was allotted to shareholders of Mid Ocean. The Arrangements have been accounted for as a purchase under U.S. generally accepted accounting principles and, as such, the consolidated financial statements include the financial statements of Mid Ocean effective August 1, 1998, which has been deemed the closing date of the transactions for accounting purposes. The purchase price amounted to $2.2 billion of which $0.9 billion represented the fair value of Mid Ocean's net assets not already owned by the Company with the balance of $1.3 billion representing goodwill which is being amortized over 40 years.
On June 18, 1999, XL Capital Ltd completed its merger with NAC Re Corp., a Delaware Corporation, in a stock merger. Shareholders of NAC Re received 0.915 Company share for each NAC Re share in a tax free exchange. Approximately 16.9 million of the Company's Class A ordinary shares were issued in this transaction. NAC Re has reinsurance and insurance subsidiaries in the United States and the United Kingdom. The NAC Re merger was accounted for as a pooling of interests under U.S generally accepted accounting principles ("U.S GAAP"). Accordingly, all prior period information contained in this document includes the results of NAC Re as though it had always been a part of the Company. Following the merger, the Company changed its fiscal year end from November 30(th) to December 31(st) as a conforming pooling adjustment.
On July 25, 2001, the Company acquired certain Winterthur International insurance operations (Winterthur International) to extend its predominantly North American based large corporate insurance business globally. This was an all-cash transaction preliminarily valued at approximately $405.6 million which was based on audited financial statements as at December 31, 2000 for the business being acquired, and was subject to adjustment based on the audited June 30, 2001 financial statements of Winterthur International. In December 2003, the Company reached an agreement with the Winterthur Swiss Insurance Company (the Seller) as to the final purchase price, which was $330.2 million. As a result $75.4 million in cash was returned to the Company.
In December 2005, the Company issued 38.9 million ordinary shares at a price of $65.0 per share to support capital requirements subsequent to the 2005 Atlantic hurricane losses and the loss related to the conclusion of the independent actuarial process with WSIC. The net proceeds from this issuance were $2.4 billion.
Pursuant to the Company's shelf registration statement, the Company issued 143.8 million Class A ordinary shares in August 2008 at a price of $16.00 per share. The net proceeds from this issuance totaled approximately $2.2 billion. The proceeds were used to fund the payments described above in relation to the Master Agreement as well as to redeem X.L. America's $255 million 6.58% Guaranteed Notes as described below. In addition, proceeds were used for general corporate purposes and capital funding for certain of the Company's subsidiaries. In addition, as part of the Master Agreement, the Company issued 8,000,000 Class A ordinary shares, valued at $16.00 per share, to Syncora and its subsidiaries. The shares are subject to a registration rights agreement.
On May 1, 2015 (the "Acquisition Date"), the Company completed its acquisition (the "Acquisition") of the entire issued share capital of Catlin Group Limited ("Catlin") as contemplated by that certain Implementation Agreement, dated January 9, 2015 (the "Implementation Agreement"), by and among XL-Ireland, Green Holdings Limited, a direct, wholly-owned subsidiary of the Company ("Green Holdings"), and Catlin. Pursuant to the terms of the Implementation Agreement, the Acquisition was implemented by way of a scheme of arrangement (the "Scheme") under Section 99 of the Companies Act 1981 of Bermuda, as amended (the "Companies Act"), and sanctioned by the Supreme Court of Bermuda (the "Court"), immediately after which Catlin was merged with and into Green Holdings under Section 104H of the Companies Act, with Green Holdings as the surviving company, pursuant to the terms of that certain Merger Agreement, dated January 9, 2015 (the "Merger Agreement"), among XL-Ireland, Green Holdings and Catlin. The XL Shares issued in connection with the Acquisition were issued in reliance upon an exemption from registration under U.S. federal securities laws provided by Section 3(a)(10) of the Securities Act of 1933, as amended (the "Securities Act"). Pursuant to the terms of the Implementation Agreement, XL-Ireland acquired each ordinary share of Catlin, par value $0.01 per share ("Catlin Shares"), for consideration per Catlin Share (the "Acquisition Consideration") equal to 388 pence in cash and 0.130 of an XL-Ireland ordinary share, par value $0.01 per share ("XL Shares"), subject to the mix and match facility set forth in the Implementation Agreement. The newly-issued XL Shares are listed on the New York Stock Exchange. XL-Ireland issued approximately 49.9 million XL Shares and paid approximately £1.49 billion in cash to the holders of Catlin Shares as Acquisition Consideration pursuant to the terms of the Scheme.
AXA announced that it has entered into an agreement to acquire 100% of XL Group Ltd (NYSE: XL), a leading global Property & Casualty commercial lines insurer and reinsurer with strong presence in North America, Europe, Lloyds and Asia-Pacific. The merger agreement has been unanimously approved by the boards of AXA and XL Group. Total consideration for the acquisition would amount to USD 15.3 billion (or Euro 12.4 billion), to be fully paid in cash. Under the terms of the transaction, XL Group shareholders will receive USD 57.60 per share. This represents a premium of 33% to XL Group closing share price on March 2, 2018.