Press Center

XL Capital Reports Second Quarter 2007 Net Income of $544.5 Million, or $3.00 Per Ordinary Share.



First-Half 2007 Net Income of $1.09 billion, or $6.06 per ordinary share


Second Quarter Highlights


  • •  "Net income excluding net realized gains and losses"(1) was $516.2 million, or $2.84 per ordinary share
  • • Total net investment income increased 19.8% to $567.2 million
  • •  Net income from investment and operating affiliates was $108.7 million
  • •  Combined ratio from P&C operations was 86.3%
  • •  Return on ordinary shareholders' equity, based on "net income excluding net realized gains and losses"(1), was 20.9% for the quarter (annualized)
  • •  Fully diluted book value per ordinary share was $54.74

HAMILTON, Bermuda, July 24 XL Capital Ltd ("XL" or the "Company") today reported net income available to ordinary shareholders for the quarter ended June 30, 2007 of $544.5 million, or $3.00 per ordinary share, compared with net income of $377.1 million, or $2.10 per ordinary share, for the quarter ended June 30, 2006. "Net income excluding net realized gains and losses"(1) for the second quarter of 2007 was $516.2 million, or $2.84 per ordinary share, compared with $375.8 million, or $2.10 per ordinary share, for the prior year period. These results include pre-tax net losses of approximately $30 million related to the June U.K. floods and the Australian storms.

Included in net realized gains and losses on investments for the quarter ended June 30, 2007 is a gain of $81.3 million related to the previously announced sale of 16.6% of Security Capital Assurance Ltd ("SCA") common shares. After the sale, the Company owns approximately 46% of SCA common shares.

Commenting on the current quarter results, President and Chief Executive Officer Brian M. O'Hara said: "XL's six consecutive quarters of excellent earnings demonstrate the advantages of our unique dual platform. Our continuous improvement in risk management, commitment to disciplined growth, along with our sharpened strategic focus, have all contributed to the achievement of record results, and as we have demonstrated in this quarter, provide a solid platform for delivering shareholder value."

For the first half of 2007, net income available to ordinary shareholders was a record $1.09 billion, or $6.06 per ordinary share, compared with $835.6 million, or $4.64 per ordinary share, in the first half of 2006. "Net income excluding net realized gains and losses" for the same period was $1.06 billion, or $5.87 per ordinary share, as compared with $781.4 million, or $4.34 per ordinary share, in the first half of 2006.

At June 30, 2007, fully diluted book value per ordinary share was $54.74, as compared to $54.85 as at March 31, 2007. Offsetting net income for the quarter was a decrease in net unrealized gains/losses on investments of $615.5 million, due to the rise in interest rates. Basic book value per ordinary share was $55.01 at June 30, 2007 as compared to $54.95 and $53.12 as at March 31, 2007 and December 31, 2006, respectively.

Segment results reflect the Company's previously announced realignment of its operating segments. As a result, information related to prior periods has been re-presented to conform to the current period presentation. There was no effect on net income as a result of these changes.

SEGMENT HIGHLIGHTS - SECOND QUARTER 2007 VERSUS SECOND QUARTER 2006

Insurance

Underwriting profit for the quarter ended June 30, 2007 was $102.2 million compared with $63.8 million in the prior year period. This increase was due mainly to net favorable prior year development of $43.7 million, as compared to net adverse development of $4.8 million in the prior year.

    -- Gross premiums written increased 2.1% primarily as a result of
       favorable foreign exchange movements and new business operations.
    -- Net premiums written decreased by 1.7% mainly due to the effect of
       commutations of ceded treaties in the prior year quarter.
    -- Net premiums earned increased marginally as a result of the above
       factors.
    -- The combined ratio was 90.6% compared with 94.7% for the prior year
       period. The loss ratio excluding the impact of net prior year
       development for the current and prior year quarter was 66.8% and 67.9%,
       respectively.

Reinsurance

Underwriting profit for the quarter ended June 30, 2007 was $129.8 million compared with $81.8 million for the prior year period. The increase is principally due to net favorable prior year development of $80.4 million, compared to net adverse development of $3.0 million in the prior year period. The current quarter net favorable prior year development of $80.4 million includes $48.5 million related to property and other short-tail lines and $31.9 million related to casualty and other lines.

    -- Gross premiums written decreased by 13.1% due primarily to continued
       increased retentions by cedants and reduced share participations on
       certain casualty lines as well as the impact of positive premium
       adjustments in the prior year quarter.
    -- Net premiums earned decreased 11.3% reflecting the effects of lower net
       premiums written in the current and prior periods.
    -- The combined ratio was 78.4% compared with 87.7% in the prior year
       period. The loss ratio excluding the impact of the net prior year
       development for the current and prior year quarter was 60.3% and 59.0%,
       respectively.

Life Operations

Gross premiums written were $235.0 million compared with $194.7 million in the prior year quarter, reflecting continued growth in the underlying business and favorable foreign exchange movements. Net income was $24.7 million as compared with $27.7 million in the second quarter last year.

Financial Operations

SCA's results for the quarter ended June 30, 2007 are consolidated for the period through the effective date of the sale. Comparative results for the quarter ended June 30, 2006 are for the full quarter. XL's share of SCA's results from the date of sale to June 30, 2007 are included in net income from operating affiliates.

Net income for the segment before equity minority interest was $23.5 million compared with $38.3 million in the prior year quarter. The current quarter included an equity minority interest charge of $9.1 million.

Investment Operations

Net investment income from P&C operations, excluding investment income from Structured Products, increased 23.6% from the prior year period to $323.0 million due to a continued rise in average yields. Net income from investment affiliates was $67.0 million in the second quarter of 2007 compared with $28.8 million in the second quarter of 2006. Net income from investment manager affiliates increased to $43.9 million as compared to $28.3 million for the prior year period.

Total net realized gains on investments were $18.3 million in the quarter, or a loss of $63.0 million excluding the gain on sale of SCA shares, compared with net realized losses of $23.6 million in the prior year period. Net unrealized losses on investments, net of tax, were $309.9 million at June 30, 2007 compared with net unrealized gains of $305.6 million and $410.5 million at March 31, 2007 and December 31, 2006, respectively. This decrease of $615.5 million for the quarter and $720.4 million for the six months ended June 30, 2007, was substantially due to the rise in U.S., U.K. and Euro-Zone interest rates during these periods.

Other Items

Total operating expenses were $306.6 million in the quarter, up from $279.5 million in the prior year period. The increase was due mainly to an increase in compensation costs related to both business development initiatives and performance-based programs and the impact of foreign exchange.

During the quarter, the Company repurchased 7.7 million ordinary shares at an average price of $77.92 per share. Year to date, the Company repurchased 10.9 million ordinary shares at an average price of $75.56 per share. The Company has approximately $177.1 million remaining from its previously authorized share repurchase program.

On May 15, 2007, the Company settled the purchase contract component of its Equity Security Units originally issued on March 23, 2004, and also bought back all of its 2.53% Senior Notes due 2009 that formed a part thereof. The settlement of the purchase contracts resulted in the issuance of approximately 10.8 million of the Company's ordinary shares.

On May 7, 2007, the Company issued $325 million of 6.25% Senior Notes.

The Company will host a conference call to discuss its second quarter 2007 results on Wednesday, July 25, 2007 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# 4428219. 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 July 25, 2007 through midnight Eastern time on August 27, 2007. A slide presentation accompanying the Company's discussion of its second quarter results will also be available on the Company's website located at www.xlgroup.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 pm. Eastern time on July 25, 2007 until midnight Eastern time on August 15, 2007 by dialing (800) 642-1687 or (706) 645-9291, Conference ID # 4428219. An unaudited financial supplement relating to the Company's second quarter 2007 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 June 30, 2007, XL Capital Ltd had consolidated assets of $60.2 billion and consolidated shareholders' equity of $11.5 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 frequency or severity of claims and loss activity than XL's underwriting, reserving or investment practices anticipate based on historical experience or industry data; (b) trends in rates for property and casualty insurance and reinsurance; (c) developments in the world's financial and capital markets that adversely affect the performance of XL's investments or access to such markets; (d) changes in general economic conditions, including foreign currency exchange rates, inflation and other factors; and (e) 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 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, 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       Six Months Ended
    Income Statement Data:               June 30                  June 30
                                       (Unaudited)              (Unaudited)
                                    2007         2006        2007        2006
    Revenues:                                (Note 1)                 (Note 1)
    Gross premiums written:
            - P&C operations  $1,944,186   $1,995,325  $4,898,478  $4,985,515
           - Life operations     234,961      194,682     448,236     366,442
      - Financial operations      52,025      106,174     156,983     186,737

    Net premiums written:
            - P&C operations   1,504,533    1,587,270   3,902,540   3,975,337
           - Life operations     224,487      185,335     427,425     347,159
      - Financial operations      45,720      102,222     130,445     181,269

    Net premiums earned:
            - P&C operations   1,651,149    1,723,231   3,248,820   3,389,567
           - Life operations     239,853      201,911     386,847     310,547
      - Financial operations      39,303       59,448      85,682     103,025
    Net investment income        567,215      473,622   1,120,307     937,364
    Net realized gains (losses)
     on investments               18,296      (23,604)     27,588        (839)
    Net realized and
     unrealized gains on
     derivative investments        9,188       29,238      16,929      78,089
    Net income from
     investment affiliates        67,043       28,849     185,979     135,242
    Fee and other income           4,649        6,630       7,986      19,592
              Total revenues  $2,596,696   $2,499,325  $5,080,138  $4,972,587
    Expenses:
    Net losses and loss
     expenses incurred          $941,948   $1,115,004  $1,936,735  $2,203,509
    Claims and policy benefits   279,100      237,010     467,443     388,509
    Acquisition costs            298,021      295,512     557,972     562,599
    Operating expenses           306,552      279,464     587,055     541,025
    Exchange losses               22,600       22,693      46,169      53,442
    Interest expense             164,695      134,632     307,486     262,501
    Amortization of
     intangible assets               420          420         840       1,515
              Total expenses  $2,013,336   $2,084,735  $3,903,700  $4,013,100

      Net income before
       minority interest,
       income tax and net
       income from operating
       affiliates               $583,360     $414,590  $1,176,438    $959,487

    Minority interest in
     net income of subsidiary      9,096            0      23,994       2,258
    Income tax                    61,288       66,437     134,043     133,073
    Net (income) from
     operating affiliates        (41,639)     (39,016)    (98,721)    (31,596)

    Net income                  $554,615     $387,169  $1,117,122    $855,752
    Preference share dividends   (10,080)     (10,080)    (22,869)    (20,160)
    Net income available
     to ordinary shareholders   $544,535     $377,089  $1,094,253    $835,592

Note 1: Certain amounts in 2006 have been reclassified to conform with the current period presentation

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

                                    Three Months Ended       Six Months Ended
    Income Statement Data (continued):   June 30                  June 30
                                       (Unaudited)              (Unaudited)
                                    2007         2006        2007         2006
                                             (Note 1)                 (Note 1)

    Weighted average number
     of ordinary shares and
     ordinary share equivalents:

                       Basic     178,378      178,728     178,650     179,631
                     Diluted     181,613      179,198     180,570     180,069

    Per Share Data:
    Net income available
     to ordinary shareholders      $3.00        $2.10       $6.06       $4.64

    Ratios - P&C operations:

    Loss ratio                      56.9%        64.6%       59.6%       64.8%
    Expense ratio                   29.4%        27.3%       28.6%       26.5%

    Combined ratio                  86.3%        91.9%       88.2%       91.3%

Note 1: Certain amounts in 2006 have been reclassified 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
                                   June 30, 2007    December 31, 2006
                                    (Unaudited)
                                                        (Note 1)


    Total investments
     available for sale              $38,461,012          $39,350,983

    Cash and cash equivalents          2,744,352            2,223,748

    Investments in affiliates          3,150,499            2,308,781

    Unpaid losses and loss
     expenses recoverable              4,745,898            5,027,772

    Total assets                      60,196,683           59,308,870


    Unpaid losses and loss expenses   22,689,706           22,895,021

    Deposit liabilities                8,496,507            7,857,827

    Future policy benefit reserves     6,700,987            6,476,057

    Unearned premiums                  5,659,415            5,652,897

    Notes payable and debt             2,868,226            3,368,376

    Total shareholders' equity        11,522,046           10,131,166

    Fully diluted book value
     per ordinary share                   $54.74               $53.01

    Basic book value per ordinary share   $55.01               $53.12

    Note 1: Certain amounts in 2006 have been reclassified to conform with the
current period presentation


                                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' (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 and six months ended June 30, 2007 and 2006 (U.S. dollars in millions, except per share amounts):

                                    Three Months Ended      Six Months Ended
                                         June 30                 June 30
                                       (Unaudited)             (Unaudited)
                                    2007         2006       2007         2006

    Net income available to
     ordinary shareholders        $544.5       $377.1   $1,094.3       $835.6

    Net realized losses (gains)
     on investments, net of tax    (21.5)        26.2      (34.7)         1.0

    Net realized and unrealized
     (gains) losses on investment
     derivatives, net of tax       (19.7)       (25.7)     (24.3)       (55.3)

    Net realized and unrealized
     (gains) losses on credit and
     structured financial
     derivatives, net of tax        12.9         (1.8)      24.3          0.1

    Net income excluding
     net realized gains
     and losses (Note 1)          $516.2       $375.8   $1,059.6       $781.4

    Per ordinary share results:
    Net income available to
     ordinary shareholders         $3.00        $2.10      $6.06        $4.64

    Net income excluding
     net realized gains
     and losses (Note 1)           $2.84        $2.10      $5.87        $4.34

    Weighted average ordinary
     shares outstanding:
    Basic                        178,378      178,728    178,650      179,631
    Diluted                      181,613      179,198    180,570      180,069

    Return on Ordinary
     Shareholders' Equity:
    Average ordinary
     shareholders' equity       $9,899.8     $8,001.4   $9,809.1     $7,992.0

    Net income excluding
     net realized gains
     and losses (Note 1)          $516.2       $375.8   $1,059.6       $781.4

    Annualized net income
     excluding net realized
     gains and losses (Note 1)  $2,064.8     $1,503.2   $2,119.2     $1,562.8

    Annualized Return on
     Ordinary Shareholders'
     Equity - Net income
     excluding net realized
     gains and losses (Note 1)      20.9%        18.8%      21.6%        19.6%

Note 1: Defined as "net income 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".

Comment on Regulation G

This press release contains the presentation of (i) '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' (the "Exclusions") 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 and 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 generally holds its 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 of XL's financial guaranty operations. 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 who 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 (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 shareholder's equity. The Company establishes target ROE's for its total operations, segments and lines of business. If the Company's ROE 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 significantly dependant on the achievement of the Company's performance goals to enhance shareholder value which include ROE.

Press Center
Contact

XL uses two forms of cookies on this site:

  1. to enable the site to operate and retain any preferences you set; and
  2. for analytics to make the site more relevant and easy to use.

These cookies do not collect personal information. For more information about our cookie usage, please click here. To comply with EU privacy laws you must consent to our use of cookies.

By using this site, you agree that we can place these types of cookies on your device. If you choose to change your cookie settings you will be presented with this message the next time you visit.