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XL Capital Reports First Quarter 2008 Net Income Available to Ordinary Shareholders of $211.9 Million, or $1.20 per Ordinary Share

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First Quarter Highlights

  • • Net income excluding net realized gains and losses"(1) was $276.9 million, or $1.57 per ordinary share
  • • Combined ratio from P&C operations was 93.6% for the quarter
  • • Return on ordinary shareholders' equity, based on "net income excluding net realized gains and losses"(1), was 12.9% for the quarter
  • • Basic and diluted book value per ordinary share was $46.11 at March 31, 2008

HAMILTON, Bermuda, April 22, 2008 --- XL Capital Ltd ("XL" or the "Company") today reported net income available to ordinary shareholders for the quarter ended March 31, 2008 of $211.9 million, or $1.20 per ordinary share, compared with $549.7 million, or $3.06 per ordinary share, for the quarter ended March 31, 2007. The reduction in net income of $337.8 million is due primarily to the following:

    -- A decrease in net income from investment affiliates of $107.1 million
    -- Net realized losses on investments of $102.3 million, as compared to a
       gain of $9.3 million in the prior year quarter
    -- A decrease in underwriting profit from Property and Casualty operations
       of $52.4 million
    -- An increase in foreign exchange losses of $44.2 million
    -- A decrease in net income from financial operating affiliates of
       $39.6 million

"Net income excluding net realized gains and losses"(1) for the first quarter of 2008 was $276.9 million, or $1.57 per ordinary share, compared with $540.0 million, or $3.01 per ordinary share, for the prior year quarter.

Annualized return on ordinary shareholders' equity was 9.9% and 22.7% for the three months ended March 31, 2008 and 2007, respectively. Return on ordinary shareholders' equity, based on net income excluding net realized gains and losses was 12.9% and 22.3% for the three months ended March 31, 2008 and 2007, respectively.

At March 31, 2008, diluted and basic book value per ordinary share was $46.11, as compared to diluted book value of $50.29 and basic book value of $50.30 as at December 31, 2007. The decrease is due primarily to the increase in the net unrealized losses on investments, which has more than offset net income and positive currency translation adjustments.

Commenting on the current quarter results, President, Chief Executive Officer and Acting Chairman Brian M. O'Hara said: "Although XL is steadily navigating through some extremely difficult global credit market conditions, which is reflected in our lower investment performance relative to the outstanding results in the prior year quarter, we have still achieved another solid performance from our Insurance, Reinsurance, and Life operations."

SEGMENT HIGHLIGHTS -- FIRST QUARTER 2008 VERSUS FIRST QUARTER 2007

Insurance

Underwriting profit for the quarter ended March 31, 2008 was $40.7 million compared with $116.8 million in the prior year quarter. Included in the current quarter's underwriting results is net favorable prior year development of $17.3 million, as compared with $20.2 million in the prior year quarter.

    -- Gross premiums written increased 3.1% primarily due to higher levels of
       long-term agreements, positive foreign exchange movements, favorable
       customer retention, and selective writing of new business.  These
       increases have been partially offset by the decline in premium rates
       across most lines and lower premiums from the run off of ICAT.
    -- Net premiums earned decreased 4.1% mainly as a result of an increase in
       ceded premiums related to the purchase of an adverse development cover
       related to our Lloyd's operations.
    -- The combined ratio was 96.7% compared with 89.2% for the prior year
       quarter.  The loss ratio excluding the impact of net prior year
       development for the current and prior year quarter was 69.6% and 63.5%,
       respectively.  The increase in the loss ratio reflects an increase in
       property risk and catastrophe losses in the current quarter relative to
       the prior year quarter, as well as the effect of the decline in premium
       rates.

Reinsurance

Underwriting profit for the quarter ended March 31, 2008 was $67.4 million compared with $43.6 million for the prior year quarter. Included in the current quarter's underwriting results is net favorable prior year development of $49.7 million, as compared with $44.5 million in the prior year quarter.

    -- Gross premiums written decreased by 22.0% due principally to selective
       treaty cancellations and competitive market conditions.  Favorable
       foreign exchange movements offset the impact of timing differences on
       certain large contracts.
    -- Net premiums earned decreased marginally by 0.4% primarily due to lower
       net premiums written in previous quarters that have been partially
       offset by the earned impact of the decrease in the cession rate to
       Cyrus Re.
    -- The combined ratio was 87.8% compared with 92.0% in the prior year
       quarter.  The loss ratio excluding the impact of net prior year
       development for the current and prior year quarter was 67.2% and 71.9%,
       respectively.  The decrease in the loss ratio is due mainly to a lower
       level of property catastrophe losses in the current quarter relative to
       the prior year quarter that included Windstorm Kyrill.

Life Operations

Gross premiums written were $235.0 million compared with $213.3 million in the prior year quarter. The contribution to earnings from life operations was $27.4 million as compared with $23.1 million in the first quarter last year, due mainly to business growth, higher net investment income and favorable foreign exchange movements.

Investment Operations

Net investment income from P&C operations, excluding investment income from Structured Products, decreased 2.0% from the prior year period to $308.0 million primarily due to lower investment yields. Net income from investment affiliates was $11.8 million in the first quarter of 2008 compared with $118.9 million in the first quarter of 2007. Net income from investment manager affiliates was $12.9 million as compared with $37.4 million for the prior year period.

Net realized losses on investments were $102.3 million in the current quarter. This includes charges of $114.8 million for "other than temporary impairments."

Net unrealized losses on investments, net of tax, were $1.4 billion at March 31, 2008 compared with net unrealized losses, net of tax of $332.5 million at December 31, 2007. The increase in net unrealized losses of $1.1 billion for the quarter was substantially due to continuing widening credit spreads on corporate and structured credit investments, and unfavorable foreign exchange rate movements, partially offset by declines in interest rates.

Total investments available for sale decreased from $36.3 billion at December 31, 2007 to $32.2 billion at March 31, 2008 due mainly to asset sales to fund the redemption of the Company's muni-GIC liabilities.

Other Items

Total operating expenses were $263.8 million for the first quarter 2008, a decrease from $280.5 million in the prior year quarter. The decrease is primarily due to the inclusion of $24.1 million of operating expenses of SCA in the prior year quarter.

The quarter ended March 31, 2008 includes a foreign exchange loss of $67.7 million as compared with a loss of $23.6 million in the prior year quarter. The current quarter loss is primarily driven by the significant decline of the U.S. Dollar against most European currencies. The overall impact of foreign exchange movement has been accretive to shareholders' equity, as the foreign exchange loss in the current quarter was more than offset by currency translation gains.

The quarter ended March 31, 2007 included $23.5 million of net income from SCA as a consolidated subsidiary and $11.1 million of income from XL's share of earnings from Primus Guaranty Ltd ("Primus"). The current quarter includes a charge of $4.8 million related to the unwinding of the discounted loss reserves ceded by SCA and no equity earnings from SCA or Primus.

The Company declared a semi-annual dividend of $32.50 per share on the Company's Fixed/Floating Series E Perpetual Non-Cumulative Preference Shares on February 22, 2008. The dividend was paid on April 15, 2008.

The Company will host a conference call to discuss its First Quarter 2008 results on Wednesday, April 23, 2008 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 (877) 422-4657 or (706) 679-0474, Conference ID# 41008704. The webcast will be available on XL's website located at www.xlgroup.com and will be archived on this site from approximately 1:00 p.m. Eastern time on April 23, 2008 through midnight Eastern time on May 23, 2008.

A telephone replay of the conference call will be available beginning at approximately 1:00 pm. Eastern time on April 23, 2008 until midnight Eastern time on May 14, 2008 by dialing (800) 642-1687 or (706) 645-9291, Conference ID # 41008704. An unaudited financial supplement relating to the Company's First Quarter 2008 results is available on its website located at www.xlgroup.com.

XL Capital Ltd, through its operating subsidiaries, is a leading provider of global insurance and reinsurance coverages to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. As of March 31, 2008, XL Capital Ltd had consolidated assets of $54.8 billion and consolidated shareholders' equity of $9.3 billion. More information about XL Capital Ltd is available at www.xlgroup.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) greater risk of loss in connection with obligations guaranteed by certain of our insurance company operating affiliates due to recent deterioration in the credit markets stemming from the poor performance of sub-prime residential mortgage loans; (b) 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; (c) trends in rates for property and casualty insurance and reinsurance; (d) developments, including further volatility, in the world's credit, financial and capital markets that adversely affect the performance of XL's investments or access to such markets, including but not limited to, further market developments relating to sub-prime and residential mortgages; (e) changes in general economic conditions, including foreign currency exchange rates, inflation and other factors; and (f) 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.

(1) Defined as net income available to ordinary shareholders excluding net realized gains and losses on investments, net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax, for the Company and its share of these items for Security Capital Assurance Ltd ("SCA") and the Company's other insurance company operating affiliates, herein referred to as "net income excluding net realized gains and losses." "Net income excluding net realized gains and losses" is a non-GAAP measure. See the schedule entitled "Reconciliation" at the end of this release for a reconciliation of net income/loss excluding net realized gains and losses to net income available to ordinary shareholders.

                                XL Capital Ltd
                     SUMMARY CONSOLIDATED FINANCIAL DATA
                         (U.S. dollars in thousands)

                                             Three Months Ended
     Income Statement Data:                       March 31
                                                (Unaudited)
                                             2008          2007
    Revenues:                                            (Note 1)
    Gross premiums written:
            - P&C operations           $2,700,894    $2,954,292
           - Life operations              234,958       213,275
      - Financial operations                    -       104,958

    Net premiums written:
            - P&C operations            2,136,553     2,398,007
           - Life operations              224,213       202,938
      - Financial operations                    -        84,725

    Net premiums earned:
            - P&C operations            1,552,780     1,597,671
           - Life operations              159,582       146,994
      - Financial operations                    -        46,379
    Net investment income                 499,229       553,092
    Net realized (losses)
     gains on investments                (102,251)        9,292
    Net realized and unrealized
     gains on derivative instruments       44,682         7,741
    Net income from
     investment affiliates                 11,799       118,936
    Fee and other income                    8,291         3,337
                     Total revenues    $2,174,112    $2,483,442

    Expenses:
    Net losses and loss
     expenses incurred                 $1,000,893      $994,787
    Claims and policy benefits            196,299       188,343
    Acquisition costs                     266,297       259,951
    Operating expenses                    263,824       280,503
    Exchange losses                        67,745        23,569
    Interest expense                      124,112       142,791
    Amortization of
     intangible assets                        420           420
                     Total expenses    $1,919,590    $1,890,364

    Net income before
     minority interest,
     income tax and
     net income from
     operating affiliates                $254,522      $593,078

    Minority interest in
     net income of subsidiary                   -        14,898
    Income tax                             30,702        72,755
    Net (income) from
     operating affiliates                 (20,553)      (57,082)

    Net income                           $244,373      $562,507
    Preference share dividends            (32,500)      (12,789)
    Net income available
     to ordinary shareholders            $211,873      $549,718

Note 1: Certain amounts in 2007 have been represented to conform with the current period presentation.

                                XL Capital Ltd
                     SUMMARY CONSOLIDATED FINANCIAL DATA
               (Shares in thousands, except per share amounts)

                                         Three Months Ended
    Income Statement Data (continued):          March 31
                                               (Unaudited)
                                            2008         2007
                                                       (Note 1)

    Weighted average number
     of ordinary shares and
     ordinary share equivalents:

                      Basic              176,336      178,772
                    Diluted              176,827      179,601

    Per Share Data:
    Net income available
     to ordinary shareholders              $1.20        $3.06

    Ratios -- P&C operations:
    Loss ratio                              64.5%        62.3%
    Expense ratio                           29.1%        27.9%

    Combined ratio                          93.6%        90.2%

Note 1: Certain amounts in 2007 have been represented to conform with the current period presentation.

                                XL Capital Ltd
                     SUMMARY CONSOLIDATED FINANCIAL DATA
            (U.S. dollars in thousands, except per share amounts)

    Balance Sheet Data:                    As at                As at
                                      March 31, 2008      December 31, 2007
                                       (Unaudited)

    Total investments
     available for sale                  $32,221,387            $36,265,803

    Cash and cash equivalents              3,904,966              3,880,030

    Investments in affiliates              2,508,796              2,611,149

    Unpaid losses and loss
     expenses recoverable                  4,664,039              4,697,471

    Total assets                          54,801,075             57,762,264


    Unpaid losses and loss expenses       23,365,213             23,207,694

    Deposit liabilities                    3,888,731              7,920,085

    Future policy benefit reserves         6,907,053              6,772,042

    Unearned premiums                      5,531,248              4,681,989

    Notes payable and debt                 2,868,980              2,868,731

    Total shareholders' equity             9,255,351              9,948,142

    Diluted book value per ordinary share     $46.11                 $50.29

    Basic book value per ordinary share       $46.11                 $50.30



                                XL Capital Ltd
                                RECONCILIATION

The following is a reconciliation of the Company's (i) net income (loss) available to ordinary shareholders to 'net income (loss) excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax' for the Company and its share of these items for SCA and the Company's other insurance company operating affiliates (which is a non-GAAP measure, the "Exclusions") and (ii) annualized return on ordinary shareholders' equity (based on net income (loss) minus the Exclusions) to average ordinary shareholders' equity for the three months ended March 31, 2008 and 2007 (U.S. dollars in thousands, except per share amounts):

                                               Three Months Ended
                                                    March 31
                                                   (Unaudited)
                                              2008             2007
                                                             (Note 1)
    Net income available to
     ordinary shareholders                $211,873         $549,718

    Net realized losses (gains)
     on investments, net of tax             98,377          (13,042)

    Net realized and unrealized
     losses (gains) on investment
     derivatives, net of tax               (34,120)          (4,694)

    Net realized and unrealized
     losses (gains) on credit
     and structured financial
     derivatives, net of tax                    57           11,410

    Net realized and unrealized
     losses (gains) on investments
     and derivatives of the
     Company's insurance company
     operating affiliates                      680           (3,385)

    Net income excluding net
     realized gains and losses (Note 2)   $276,867         $540,007

    Per ordinary share results:
    Net income available to
     ordinary shareholders                   $1.20            $3.06

    Net income excluding net
     realized gains and losses (Note 2)      $1.57            $3.01

    Weighted average ordinary
     shares outstanding:

    Basic                                  176,336          178,772
    Diluted                                176,827          179,601

    Return on Ordinary
     Shareholders' Equity:
    Average ordinary
     shareholders' equity               $8,601,747       $9,704,357

    Net income excluding
     net realized gains
     and losses (Note 2)                  $276,867         $540,007

    Annualized net income
     excluding net realized
     gains and losses (Note 2)          $1,107,468       $2,160,028

    Annualized Return on
     Ordinary Shareholders'
     Equity - Net income
     excluding net realized
     gains and losses (Note 2)                12.9%            22.3%

Note 1: Certain amounts in 2007 have been represented to conform with the current period presentation.

Note 2: Defined as "net income available to ordinary shareholders excluding net realized gains and losses on investments, net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax for the Company and its share of these items for SCA and the Company's other insurance company operating affiliates."

Comment on Regulation G

This press release contains the presentation of (i) net income (loss) excluding net realized gains and losses on investments, net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax, and (ii) annualized return on ordinary shareholders' equity (based on net income minus the Exclusions) to average ordinary shareholders' equity. These items are "non-GAAP financial measures" as defined in Regulation G. The reconciliation of such measures to the most directly comparable GAAP financial measures in accordance with Regulation G is included above.

XL presents its operations in the way it believes will be most meaningful and useful to investors, analysts, rating agencies and others who use XL's financial information in evaluating XL's performance. This presentation includes the use of 'net income excluding net realized gains and losses on investments, net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax'. Investment derivatives include all derivatives entered into by XL other than weather and energy and credit derivatives (discussed further below).

Although the investment of premiums to generate income (or loss) and realized capital gains (or losses) is an integral part of XL's operations, the determination to realize capital gains (or losses) is independent of the underwriting process. In addition, under applicable GAAP accounting requirements, losses can be created as the result of other-than-temporary declines in value without actual realization. In this regard, certain users of XL's financial information, including certain rating agencies, evaluate earnings before tax and capital gains to understand the profitability of the recurring sources of income without the effects of these two variables. Furthermore, these users believe that, for many companies, the timing of the realization of capital gains is largely opportunistic and are a function of economic and interest rate conditions.

In addition, with respect to credit derivatives, because XL and its insurance company operating affiliates generally hold financial guaranty contracts written in credit default derivative form to maturity, the net effects of the changes in fair value of these credit derivatives are excluded (similar with other companies in the financial guarantee business) as the changes in fair value each quarter are not indicative of underlying business performance. Unlike these credit derivatives, XL's weather and energy derivatives are actively traded (i.e., they are not held to maturity) and are, therefore, not excluded from net income as any gains or losses from this business are considered by management when evaluating and managing the underlying business.

In summary, XL evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income (loss), XL believes that showing net income (loss) exclusive of the items mentioned above enables investors and other users of XL's financial information to analyze XL's performance in a manner similar to how management of XL analyzes performance. In this regard, XL believes that providing only a GAAP presentation of net income (loss) makes it much more difficult for users of XL's financial information to evaluate XL's underlying business. Also, as stated above, XL believes that the equity analysts and certain rating agencies that follow XL (and the insurance industry as a whole) exclude these items from their analyses for the same reasons and they request that XL provide this non-GAAP financial information on a regular basis.

Return on average ordinary shareholder's equity ("ROE") excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit and investment derivative instruments, net of tax, for the Company and its share of these items for SCA and the Company's other insurance company operating affiliates (the "Exclusions"), is a widely used measure of any company's profitability. Annualized return on average ordinary shareholders' equity (minus the Exclusions) is calculated by dividing annualized net income minus the Exclusions for any period by the average of the opening and closing ordinary shareholders' equity. The Company establishes target ROEs (minus the Exclusions) for its total operations, segments and lines of business. If the Company's ROE (minus the Exclusions) return targets are not met with respect to any line of business over time, the Company seeks to re-evaluate these lines. In addition, the Company's compensation of its senior officers is dependant upon, among other things, the achievement of the Company's performance goals to enhance shareholder value which include ROE (minus the Exclusions).

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