XL Group Shares Move Higher After Being Added To Morgan Stanley's 'Best Ideas' List

In a note released Tuesday morning, Morgan Stanley analyst Kai Pan added XL Group plc (NYSE: XL) to the firm's list of "best ideas."

The addition to the list comes amid what Pan said is "solid" progress to 10 percent plus ROE. He noted that this view was reinforced by the company's second quarter results.

Currently, Pan rates XL Group as Overweight and has a $39 price target for the company.

Pan said the path to 10 percent plus ROE is being carved by improved underwriting and share buybacks. In conjunction with a better ROE, Pan thinks the company will be able to hit a combined ratio in the low 90s.

In terms of buybacks, Pan noted the $2.6 billion repurchase program over 2014-2016 accounts for approximately 29 percent of the company's market cap and will likely be fueled by ~$700 million in excess capital.

Looking ahead, Pan has raised his EPS estimates for 2014-2016 to $3.34, $3.59 and $4.38, respectively, and said the 10 percent ROE should come by 2016.

Following the release of the note, shares of XL Group are up ~1.5 percent in Tuesday's pre-market.