HAMILTON, BERMUDA, November 4, 1999 -- XL Capital Ltd ("XL" or the "Company") (NYSE: XL, BSX: XL.BH) today reported that economic operating income for the quarter ended September 30, 1999 was $164.5 million, or $1.28 per share, compared with $139.8 million, or $1.15 per share, in 1998's third quarter. GAAP operating income for the third quarter ended September 30, 1999 was $150.7 million, or $1.17 per share, compared with $133.7 million, or $1.10 per share, in 1998's third quarter ended September 30, 1998.
"These results include the positive contributions from the organizations we acquired or merged with over the past two years," stated Brian M. O'Hara, President and Chief Executive Officer of XL. "The alignment of NAC Re Corporation, Intercargo Corporation and ECS, Inc. with XL's businesses has gone very well and I am pleased with the progress we have made in such a short period of time."
"Although there is improvement in selected product segments, overall underwriting conditions remain poor," Mr. O'Hara noted. "However, our focus on underwriting profit has enabled us to sustain these strong results. We are seeing the benefits of our selective diversification strategy in providing moderate levels of premium growth and new sources of income at a time when traditional lines are under pressure."
Economic operating income, before one time charges, for the nine months ended September 30, 1999 was $479.0 million, or $3.66 per share, compared with $368.7 million, or $3.33 per share, for the same period in 1998. GAAP operating income, before one time charges, was $442.0 million for the nine months ended September 30, 1999, or $3.38 per share, compared with $356.0 million, or $3.22 per share, for the same period in 1998. One time charges incurred during the second quarter of 1999, on an after tax basis were $101.7 million, or $0.78 per share for the nine months of 1999. These charges primarily reflect merger-related expenses incurred with respect to XL's merger with NAC Re, which was completed on June 18, 1999 and increases in NAC Re's loss reserves in order to be consistent with XL's methodology. In addition, charges were recognized for the integration of other operations acquired during the period, including ECS, Inc., Intercargo Corporation and MKP Capital Management ("MKP").
At the end of August, XL announced that it was changing its fiscal year-end from November 30 to December 31, with effect from the third quarter ended September 30, 1999. In addition, XL's financial results have been accounted for on a pooling basis following its merger with NAC Re Corporation ("NAC Re") on June 18, 1999. As a result, all prior periods have been presented on a pooled basis including NAC Re as if it had been included in XL's results for 1998 and have been conformed to reflect the new fiscal year. Effective with the quarter ended September 30, 1999, the Company's Lloyd's operations, which had previously been reported on a two-month lag, are reported on a concurrent basis with the other operating units of XL. Prior periods have been adjusted to reflect this.
Economic operating income for the third quarter of 1999 excludes on an after tax basis, realized losses from the sale of investments of $12.3 million, or $0.09 per share, and amortization of intangible assets of $13.9 million, or $0.11 per share. In the third quarter of 1998, realized investment gains on an after tax basis were $24.9 million, or $0.21 per share, and amortization of intangible assets was $6.1 million, or $0.05 per share. Investment gains on an after tax basis realized in the first nine months of 1999 amounted to $71.4 million, or $0.55 per share, and amortization of intangible assets was $37.0 million, or $0.28 per share. For the comparable nine-month period ended September 30, 1998, investment gains on an after tax basis totaled $156.1 million, or $1.41 per share, and amortization of intangible assets was $12.7 million, or $0.11 per share.
For the third quarter of 1999, net income, including realized investment results and the amortization of intangible assets was $137.4 million, or $1.06 per share, compared with $140.3 million, or $1.16 per share in 1998. Net income for the nine months ended September 30, 1999 was $409.9 million, or $3.14 per share, and was $492.0 million, or $4.45 per share for the comparable period in 1998.
Revenues were $650.8 million compared with $550.0 million for the quarters ended September 30, 1999 and 1998, respectively, and $1.8 billion and $1.4 billion for the nine-month periods ended September 30, 1999 and 1998, respectively. Total assets as of September 30, 1999 were $14.1 billion, compared with $13.6 billion as of December 31, 1998. Shareholders' equity was $5.4 billion as of September 30, 1999 and $5.6 billion as of December 31, 1998. Fully diluted book value per share as of September 30, 1999 was $41.67 compared with $43.20 as of December 31, 1998.
For the third quarter ended September 30, gross premiums written were $629.6 million in 1999, compared with $494.4 million in 1998, and $1.9 billion and $1.2 billion for the first nine months of 1999 and 1998, respectively. Net earned premiums were $488.7 million in the third quarter of 1999, compared with $384.1 million in 1998. For the nine months ended September 30, 1999 and 1998, net earned premiums were $1.3 billion and $922.9 million, respectively.
For the third quarter, net investment income, excluding realized investment gains and losses, was $130.6 million in 1999, compared with $111.3 million in 1998's third quarter. For the nine month period ended September 30, 1999, net investment income, excluding realized investment gains and losses, was $398.8 million compared to $291.4 million for the equivalent 1998 period.
The Company's equity in the net earnings of its affiliates, principally Risk Capital Holdings, Inc., Highfields Capital Management and MKP, for the third quarter was $15.4 million in 1999, compared with $17.5 million in 1998, and $24.7 million and $53.7 million for the first nine months of 1999 and 1998, respectively.
The third quarter combined ratio was 98.6 percent in 1999 compared with 96.0 percent in the third quarter of 1998. The loss ratio was 63.4 percent and 65.7 percent for the third quarters of 1999 and 1998, respectively, with the underwriting expense ratio for such periods being 35.2 percent and 30.3 percent, respectively.
The combined ratio for the first nine months of 1999 was 95.7 percent in 1999, compared with 95.2 percent for the 1998 period. The loss ratio was 60.5 percent and 63.8 percent for the third quarters of 1999 and 1998, respectively, with the underwriting expense ratio for such periods being 35.2 percent and 31.4 percent, respectively.
The weighted average number of ordinary shares and share equivalents outstanding on a fully diluted basis in the third quarter was 129.0 million in 1999 versus 121.1 million in 1998, and 130.7 million and 110.7 million for the respective nine-months period of 1999 and 1998. In 1999, the Company has repurchased 2.1 million of its shares for $126.8 million. The Company's share repurchase program was rescinded on June 18, 1999 in connection with its merger with NAC Re.
The figures in this release include the consolidation of the results of Mid Ocean Limited, ("Mid Ocean") including its Lloyd's managing agency, The Brockbank Group plc, following the completion of the Company's merger with Mid Ocean on August 7, 1998. Prior to the merger, XL owned 26 percent of Mid Ocean. Financial information prior to August 7, 1998 reflects the Company's equity in the net earnings of Mid Ocean. The merger with Mid Ocean was accounted for as a purchase under U.S. generally accepted accounting principles ("GAAP").
XL Capital Ltd, through its subsidiaries, is a leading provider of insurance and reinsurance coverages and financial products to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. Additional information on XL is available from our web site: www.xl-capital.com.