XL Capital Announces Year End Results

"The reduction in earnings in the fourth quarter reflects the previously announced impact of windstorms in Europe," stated Brian M. O'Hara, President and Chief Executive Officer of XL. "Absent the impact of these losses, the Company's operating results were consistent with expectations."

"Although overall market conditions remain at unsatisfactory levels, we are pleased to note that there are signs of positive change beginning to emerge," Mr. O'Hara noted. "Rates in property, marine and aviation have improved. In liability insurance we were gratified by the high level of business retained on January 1, 2000 in contrast to the erosion experienced over the past few years. However, there is still a way to go before these changes will be reflected in our operating results. I am confident that XL has the underwriting integrity and balance sheet strength to continue to provide leadership in this industry."

Economic operating income after taxes, including storm losses and excluding one-time charges, for the twelve months ended December 31, 1999 was $522.4 million, or $4.01 per share, compared with $520.0 million, or $4.47 per share, for the same period in 1998. GAAP operating income, on the same basis, was $473.3 million for the twelve months ended December 31, 1999, or $3.63 per share, compared with $492.8 million, or $4.24 per share, for the same period in 1998. The December 1999 storm losses also reduced twelve months' income by $125 million, or $0.97 per share, after tax. One-time charges of $100.4 million, or $0.77 per share, incurred during the second quarter of 1999 primarily reflect merger-related expenses incurred with respect to XL's merger with NAC Re Corporation ("NAC Re"). Net income for the twelve months ended December 31, 1999 was $470.5 million, or $3.62 per share, versus $656.3 million, or $5.68 per share for the comparable period in 1998.

Economic operating income for the fourth quarter of 1999 excludes, on an after tax basis, realized gains from the sale of investments of $28.3 million, or $0.22 per share, and amortization of intangible assets of $12.0 million, or $0.09 per share. In the fourth quarter of 1998, realized investment gains on an after tax basis were $43.4 million, or $0.33 per share, and amortization of intangible assets was $14.2 million, or $0.11 per share. Realized after tax investment gains for the full year were $99.7 million, or $0.77 per share, one-time charges were $100.4 million, or $0.76 per share, and amortization of intangible assets was $49.1 million, or $0.38 per share. In 1998, investment gains on an after tax basis totaled $184.5 million, or $1.59 per share, one-time charges were $17.5 million, or $0.15 per share, and amortization of intangible assets was $26.9 million, or $0.23 per share.

Revenues were $686.0 million compared with $579.0 million for the quarters ended December 31, 1999 and 1998, respectively, and $2.5 billion and $2.0 billion for the 1999 and 1998 twelve-month periods, respectively. Total assets as of December 31, 1999 were $15.1 billion, compared with $13.6 billion as of December 31, 1998. Shareholders' equity was $5.6 billion as of December 31, 1999 and 1998. Fully diluted book value per share as of December 31, 1999 was $42.54 compared with $43.20 as of December 31, 1998.

Gross premiums written in the fourth quarter were $580.0 million in 1999, compared with $405.6 million for the same quarter in 1998, and $2.4 billion and $1.6 billion for the 1999 and 1998 full years, respectively. Net premiums earned were $460.1 million in the fourth quarter of 1999 compared with $401.4 million in 1998. For the twelve months ended December 31, 1999 and 1998, net earned premiums were $1.8 billion and $1.3 billion, respectively.

For the fourth quarter, pre-tax net investment income, excluding realized investment gains and losses, was $130.5 million in 1999, compared with $125.9 million in 1998. For the twelve-month period ended December 31, 1999, pre-tax net investment income, excluding realized investment gains and losses, was $525.3 million compared to $417.3 million for the equivalent 1998 period.

The Company's equity in the net earnings of its affiliates for the fourth quarter was $16.2 million in 1999, compared with a loss of $3.4 million in 1998, and income of $40.9 million and $50.3 million for the 1999 and 1998 years, respectively.

The fourth quarter combined ratio, including the impact of the European storms, was 131.9 percent in 1999 compared with 93.2 percent in the fourth quarter of 1998. The loss ratio was 93.2 percent and 62.9 percent for the fourth quarters of 1999 and 1998, respectively, with the underwriting expense ratio for such periods being 38.7 percent and 30.2 percent, respectively. The storms losses added 27.2 points to the fourth quarter 1999 loss and combined ratios.

The combined ratio for the full year 1999, including the European storm losses, was 103.4 percent, compared with 93.8 percent in 1998. The loss ratio was 69.1 percent and 63.6 percent for 1999 and 1998, years respectively, with the underwriting expense ratio for the respective periods being 34.3 percent and 30.2 percent. For the 1999 full year, the loss and combined ratios were increased by 7.2 points as a result of the storm losses.

The weighted average number of ordinary shares and share equivalents outstanding on a fully diluted basis in the fourth quarter was 129.3 million in 1999 versus 131.6 million in 1998, and 130.3 million and 116.2 million for the respective twelve-month periods of 1999 and 1998. In 2000, the Company has repurchased approximately 1.3 million of its shares for $63.5 million and has $436.5 million remaining in its current share repurchase authorization, which was initiated on January 10, 2000.

During the fourth quarter, the Company's Brockbank (Lloyd's) subsidiary completed the sale of its U.K. motor books of business, for an increase in operating and net income of $40.2 million. XL views this as a one-time event rather than ongoing operating earnings. As part of our normal reserve review practices, XL has increased the reserves for our Lloyd's and international reinsurance operations to reflect potential adverse development in motor and other lines. The gain on the sale is included in €˜Fee and Other Income' and the increase in reserves is included in €˜Losses Incurred', resulting in increased loss and combined ratios, totaling 8.7 points for XL in the quarter and 2.3 points for the year.

The Company also noted that due to the growth in its asset accumulation and financial services businesses, it has begun in the fourth quarter of 1999 to separately show deposit liabilities and policy benefit reserves for this business on the Company's consolidated balance sheet. These reserves totaled $837.6 million at December 31, 1999.

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 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 all prior years 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.

XL Capital Ltd, through its principal operating subsidiaries, XL Insurance Ltd, XL Mid Ocean Reinsurance Ltd, The Brockbank Group plc, XL Capital Products, NAC Re Corp., ECS Inc. and Intercargo Corporation, is a leading provider of insurance and reinsurance coverages and financial services 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.