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XL Capital Ltd Reports Third Quarter 2005 Net Loss
"Net loss excluding net realized gains and losses"
1 for the quarter was $1,115.0 million, or $8.01 per ordinary share, compared with a loss of $31.2 million, or $0.23 per ordinary share, for the year ago quarter. See below for a reconciliation of "net loss excluding net realized gains and losses" to net loss available to ordinary shareholders.Commenting on these results, President and Chief Executive Officer Brian M. O'Hara said: "The third quarter's insured market catastrophe losses, which we estimate at $60 billion to $72 billion, were greater than our industry has seen in any previous calendar year. Our loss estimation process has embraced the extraordinary breadth, magnitude and complexity of these events."
"First and foremost we would like to re-emphasize our commitment to maintain our financial strength and leadership position in catastrophe exposed lines of business," he continued. "In the wake of these catastrophes, we expect to see significant opportunities across the board, especially in these lines, for the 2006 renewal season".
"In addition, we are pleased to announce a strategic initiative that will augment our underwriting capacity to take advantage of these opportunities. XL has agreed in principle to enter into a quota share reinsurance treaty with a newly-formed reinsurance company. This company will be funded with $500 million to $1 billion of dedicated capital from its parent holding company which, in turn, will be owned by a group of institutional investors. The lead investor in this company is expected to be investment funds managed by an alternative asset manager with which XL has had a long-standing relationship. XL will not be an equity investor in this new company. Under this agreement, XL expects to cede to this company specified portions of XL's property catastrophe and retrocessional lines of business. We believe that this treaty will reinforce XL's leadership position in these lines of business, reduce our volatility, provide incremental earnings, and therefore maximize our shareholders' risk adjusted return."
For the nine months ended September 30, 2005, net loss to ordinary shareholders was $470.4 million, or a loss of $3.39 per ordinary share, compared with net income of $838.2 million or $6.05 per ordinary share for the nine months of 2004. "Net loss excluding net realized gains and losses"
1 for the first nine months ended September 30, 2005 was $667.2 million or a loss of $4.81 per ordinary share as compared with "net income excluding net realized gains and losses"1 of $621.3 million or $4.49 per ordinary share for the first nine months of 2004.Total net invested assets were $37.2 billion, up 15% from December 31, 2004, and total assets were $54.9 billion, up 11% from December 31, 2004.
SEGMENT HIGHLIGHTS:
Insurance Operations
Underwriting loss for the quarter ended September 30, 2005 was $625.7 million as compared with a loss of $85.9 million in the quarter ended September 30, 2004. These results included the net impact of third quarter catastrophes of $751.0 million and $200.0 million, respectively. See attached table for further details.Third quarter 2005 as compared with third quarter 2004 results excluding the impact of catastrophes in both quarters:
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Gross premiums written were down slightly, due to competitive market pressure in most lines of business partially offset by growth in excess casualty lines.·
Net premiums written were $916.0 million, up 1.9%, due primarily to increased net retentions.·
Net premiums earned decreased, reflecting the earned impact of decreasing premium rates over the last twelve months.·
The combined ratio was 88.5%, a 3.5 point improvement, largely due to lower acquisition expenses from reduced brokerage costs and a lower loss ratio. The loss ratio was 63.6%, an improvement of 1.4 points, due mainly to prior year net reserve strengthening in 2004.Reinsu rance Operations
General Operations - Underwriting loss for the quarter ended September 30, 2005 was $738.2 million as compared with a loss of $76.6 million in the quarter ended September 30, 2004. These results included the net impact of third quarter catastrophes of $802.3 million and $245.9 million, respectively. See attached table for further details.
Third quarter 2005 as compared with third quarter 2004 results excluding the impact of catastrophes in both quarters:
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Gross and net premiums written were up 13.9% and 11.5%, respectively driven primarily by timing differences, reported last quarter, on assumed and ceded premiums related to two large contracts.·
Net premiums earned were down 10.6% representing lower net premiums written over the last twenty four months.·
The combined ratio was 89.1% as compared with 79.5%, due mainly to a higher loss ratio. The loss ratio increased primarily due to the impact of relatively lower premium rates together with other non catastrophe losses.Life and Annuity Operations - Gross premiums written increased 3.8% as a result of continued growth in the term assurance business. Net income was $11.2 million, an increase of $6.9 million from the third quarter of 2004.
Financial Products and Services Operations
Total contribution and underwriting income for the segment were $51.3 million and $1.7 million, respectively, in the third quarter 2005 as compared with a $0.3 million contribution and $29.6 million underwriting loss in the third quarter of 2004. Underwriting profit in the third quarter of 2005 included a $21.4 million net loss from Hurricane Katrina that arose from the XL Financial Solutions business. Total contribution in the third quarter of 2005 was driven largely by favorable performance in the quarter in XL Financial Solutions' structured finance business and the year over year increase in net invested assets related to municipal GIC and funding agreement issuances.
Corporate Items
Net investment income from general operations increased 17% over the third quarter of 2004 to $184.1 million principally due to a higher investment base and yields. Net income from investment affiliates increased to $56.7 million as compared with $5.2 million in the third quarter of 2004, due primarily to strong performance in the alternative fund affiliates.
Net realized gains on investments were $53.2 million in the quarter, compared with $57.0 million in the prior year period. Net unrealized gains on investments, net of tax, were $551.6 million at September 30, 2005 compared with $819.2 million at June 30, 2005 primarily reflecting the increase in overall interest rates in the quarter.
Total operating expenses in the quarter were $262.3 million compared with $271.9 million in the third quarter of 2004.
The third quarter of 2005 and 2004 effective tax rates reflect the limited deductibility of the catastrophe losses.
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The Company will host a conference call to discuss its third quarter 2005 results on November 1, 2005 at 10:00 a.m. Eastern time. The conference call can be accessed through a listen-only dial-in number or through a live webcast. To listen to the conference call, please dial (201) 689-8320 password XL1101. The webcast will be available on XL's website located at www.xlcapital.com and will be archived on XL's website from approximately 1:00 p.m. Eastern time on November 1, 2005 through midnight Eastern time on November 30, 2005. A slide presentation accompanying the Company's discussion of its third quarter 2005 results will also be available on the Company's website located at ww.xlcapital.com beginning approximately 15 minutes before the commencement of the conference call.
A telephone replay of the conference call will be available beginning at approximately 1:00 p.m. Eastern time November 1, 2005 until approximately 8:00 p.m. Eastern time on November 8, 2005 by dialing (201) 612- 7415 (account number: 290 and conference I.D. number: 156740). An unaudited financial supplement relating to the Company's third quarter 2005 results is available on its website located at www.xlcapital.com.
XL Capital Ltd, through its operating subsidiaries, is a leading provider of insurance and reinsurance cove rages and financial products and services to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. As of September 30, 2005, XL Capital Ltd had consolidated assets of approximately $54.9 billion and consolidated shareholders' equity of approximately $7.0 billion. More information about XL Capital Ltd is available at www.xlcapital.com.
This press release contains forward-looking statements. Statements that are not historical facts, including statements about XL's beliefs, plans or expectations, are forward-looking statements. These statements are based on current plans, estimates, and expectations. Actual results may differ materially from those included in such forward-looking statements and therefore you should not place undue reliance on them.
A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: (a) changes in the size of XL's claims relating to the hurricane losses described above due to the preliminary nature of some of the reports and estimates of loss and damage to date, (b) the timely and full recoverability of reinsurance placed by XL with third parties, or other amounts due to XL, including, without limitation, amounts due to XL from Winterthur Swiss Insurance Company (i) in connection with the independent actuarial process or (ii) under other contractual arrangements; (c) greater frequency or severity of claims and loss activity than XL's underwriting, reserving or investment practices anticipate based on historical experience or industry data; (d) trends in rates for property and casualty insurance and reinsurance; (e) developments in the world's financial and capital markets that adversely affect the performance of XL's investments or access to such markets; (f) changes in general economic conditions, including foreign currency exchange rates, inflation and other factors; and (g) the other factors set forth in XL's most recent reports on Form 10-K, Form 10-Q, and other documents on file with the Securities and Exchange Commission, as well as management's response to any of the aforementioned factors. XL undertakes no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future developments or otherwise.