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XL optimistic amid dropped quarterly income, possible billion-dollar merger

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Hours away from a transaction closing that will reshape the company, Dublin-based XL Group P.L.C. reported weaker first quarter financial data on Wednesday.

In a conference call with analysts, Mike McGavick, CEO of XL, said that despite having all necessary regulatory approvals in place for the $4.3 billion cash-and-stock acquisition of Hamilton, Bermuda-based Catlin Group Ltd., legal restrictions prevented him from offering details about the deal and what the combined company, to be known as XL Catlin, would look like.

Mr. McGavick was at greater liberty to discuss the quarterly data, which saw the company post a slightly improved property/casualty combined ratio of 88.9% for the quarter, compared to 89.7% in the prior year quarter. However, net written premiums fell 7.2 % to $1.85 billion, and net income dropped 85.8% from the first quarter of 2014 to $36.2 million. The company cited a one-time life retrocession arrangement as the reason for the drop in net income.

“Obviously, the big event we all want to talk about is the pending completion of our acquisition of Catlin, and our anticipated close date is as soon as this Friday, May 1,” Mr. McGavick said. “While May 1st is so very near it has not yet occurred, so what we can share about the transaction remains limited to what we have otherwise publicly disclosed as per the U.K. code on takeovers.”

Nonetheless, Mr. McGavick did say that the company did approach the Catlin deal with a full awareness of the potential pitfalls.

“As part of our work with the company’s risk management committee and full board we did an analysis of all the other deals that have gone before in our space and went through what we thought were the causes of failure in various transactions,” he said. “So we had a general rulebook of what can go wrong in such transactions and what can be done to mitigate it.”

“Both our insurance and reinsurance segments had strong starts to the year,” he said. “This quarter shows that the deal isn’t something that we needed to do because our own book of business is performing very well. Yet, at the same time we believe that once this deal closes the combined company will be even more effective.”