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XL Group plc Announces Q3 2013 Results

•  Operating net income1 of $154.6 million, or $0.53 per share, and net income of $135.6 million, or $0.47 per share, for the quarter on a fully diluted basis

•  Operating net income1 of $656.1 million, or $2.23 per share, and net income of $759.1 million, or $2.57 per share, for the year to date on a fully diluted basis

•  P&C combined ratio of 95.0% for the quarter, compared to 92.2% in the prior year quarter, and a year to date P&C combined ratio of 92.2% compared to 92.7% in the prior year period

•  Natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums of $85.0 million compared to $32.0 million in the prior year quarter

•  Annualized operating return on ordinary shareholders' equity2 excluding and including unrealized gains and losses on investments were 6.8% and 6.2%, respectively, for the quarter and 9.6% and 8.6%, respectively, for the year to date

•  Fully diluted tangible book value per ordinary share3 of $32.96 at September 30, 2013, an increase from June 30, 2013 of $0.51 or 1.6%, and a decrease of $0.39, or 1.2%, from December 31, 2012, including a decrease in unrealized investment gains, net of tax, of $665.5 million

•  Share buybacks totaled 4.8 million ordinary shares for $150.0 million during the quarter

DUBLIN, Ireland, Oct. 30, 2013 - XL Group plc ("XL" or the "Company") (NYSE: XL) today reported its third quarter 2013 results.

Commenting on the Company's performance, Chief Executive Officer Mike McGavick said:

"Our year to date Insurance segment accident year combined ratio ex-cat of 96.1% and loss ratio ex-cat of 65.6% are the best results since 2007 on the same basis. And our nine-month P&C combined ratio of 92.2% is 0.5 percentage points better than the same period last year. While we are encouraged by the progress, we have continuing work to do, and in the third quarter catastrophe and individual loss activity contributed to higher than desired quarterly accident year loss ratios. Overall, looking at the first nine months of 2013, and particularly at having the lowest insurance ex-cat loss ratio in six years, we find validation in the steps we have taken. We remain confident that we are on the right track and are focused on the work at hand."

Highlights

Three and Nine Months Ended September 30

(U.S. dollars in thousands, except per share amounts)


Three Months Ended


Nine Months Ended


September 30


September 30



(Unaudited)



(Unaudited)




2013


2012


2013


2012

Net income (loss) attributable to ordinary shareholders

$

135,648


$

171,902


$

759,136


$

569,684

Per ordinary share - fully diluted

$

0.47


$

0.56


$

2.57


$

1.82














Operating net income (loss)

$

154,628


$

188,038


$

656,087


$

575,213

Per ordinary share - fully diluted

$

0.53


$

0.61


$

2.23


$

1.84



  • Net income and operating net income of $135.6 million and $154.6 million, respectively, compared to net income and operating net income of $171.9 million and $188.0 million, respectively, in the prior year quarter decreased, primarily due to natural catastrophe losses, as well as higher levels of medium to large losses in Insurance, in the current quarter as compared to the prior year quarter. For the nine months ended September 30, 2013, however, the P&C combined ratio of 92.2% remains lower than for the same period in 2012 when it was 92.7%.
  • Net investment income for the quarter was $237.9 million, compared to $239.5 million in the prior year quarter and $232.5 million in the second quarter of 2013.
  • Net income from investment fund and investment manager operating affiliates was $15.1 million in the quarter, compared to income of $8.6 million in the prior year quarter. The increase was primarily due to a solid quarter from our investment manager affiliates.
  • Fully diluted tangible book value per ordinary share increased by $0.51 from the prior quarter driven by net income growth combined with the benefit of share buybacks and an increase in net unrealized gains on investments.
  • During the quarter, the Company purchased 4.8 million ordinary shares for $150.0 million at an average price of $31.03 per share, which was accretive to fully diluted tangible book value per ordinary share by $0.03.  At September 30, 2013, $425.0 million of ordinary shares remained available for purchase under the Company's previously announced $850 million share buyback program.

P&C Operations - Three and Nine Months Ended September 30

(U.S. dollars in thousands)


Three Months Ended


Nine Months Ended


September 30


September 30



(Unaudited)



(Unaudited)




2013


2012


2013


2012

Gross premiums written

$

1,609,840


$

1,576,231


$

5,958,926


$

5,656,667

Net premiums written

$

1,327,379

$

1,308,265

$

4,829,560

$

4,618,770

Net premiums earned

$

1,550,629


$

1,468,554


$

4,503,372


$

4,227,421














Underwriting profit (loss)

$

76,900


$

114,203


$

349,612


$

306,813














Loss ratio


64.9%



60.9%



61.9%



60.9%

Underwriting expense ratio


30.1%



31.3%



30.3%



31.8%

Combined ratio


95.0%



92.2%



92.2%



92.7%
















  • P&C gross premiums written ("GPW") in the third quarter increased 2.1% compared to the prior year quarter. The Insurance segment GPW increased 8.7% from the prior year quarter, as a result of strong new business in the North American operation including the Construction and Property businesses, and favorable pricing and renewals  across most businesses.  The Reinsurance segment GPW decreased 16.2%  from the prior year quarter, predominantly driven by the non-renewal of a North America crop quota share treaty, reductions in volume and shares on certain North America property exposures, and a decrease in Latin America property treaty business.
  • P&C net premiums earned ("NPE") in the third quarter of $1.6 billion were comprised of $1.1 billion from the Insurance segment and $446.6 million from the Reinsurance segment. Compared to the prior year quarter, Insurance NPE increased by 12.0%, which is a reflection of the overall growth in GPW primarily across North American lines over recent quarters, driven in part by new business as well as improved pricing. Reinsurance NPE decreased by 7.5%, driven by our re-underwriting activities in the International business group on marine lines and in Latin America throughout the year, and from the non-renewal in North America property of a crop quota share treaty.
  • The P&C loss ratio in the current quarter was 4.0 percentage points higher than in the prior year quarter. Included in the P&C loss ratio was favorable prior year development of $79.2 million compared to $36.5 million in the prior year quarter. The P&C loss ratio variance was also impacted by natural catastrophe pre-tax losses of $85.0 million net of reinsurance and reinstatement premiums, compared to $32.0 million in the prior year quarter, with approximately $69.5 million related to our Reinsurance segment. Consistent with our previously released estimate, $59.0 million of such losses, pre-tax and net of reinsurance and reinstatement premiums, relates to the series of hailstorms in Germany and France in late July 2013. Excluding prior year development and natural catastrophe pre-tax losses net of reinsurance and reinstatement premiums, the third quarter P&C loss ratio was 3.5 percentage points higher than the prior year quarter due to a higher level of individual medium to large losses.
  • The P&C combined ratio excluding prior year development and the impact of natural catastrophe losses for the quarter was 94.7%, compared to 92.5% for the prior year quarter. The Insurance segment combined ratio on this basis was 97.8% for the quarter, compared to 94.7% for the prior year quarter, while the Reinsurance segment combined ratio on this basis was 86.8%, compared to 88.0% for the prior year quarter.
  • Operating expenses were marginally higher than the prior year quarter. An increase in professional costs and investments in technology were offset in part by lower overall compensation costs.

_________________________

1 Defined as net income (loss) attributable to ordinary shareholders excluding (1) net realized gains and losses on investments, net of tax, (2) net realized and unrealized gains and losses on derivatives, net of tax, (3) XL' share of items (1) and (2) for XL's insurance company affiliates for the periods presented, (4) goodwill impairment charges, net of tax and (5) foreign exchange gains or losses, net of tax. "Operating net income", "annualized return on ordinary shareholders' equity based on operating net income" and "annualized return on ordinary shareholders' equity based on operating net income excluding unrealized gains and losses on investments" are non-GAAP financial measures. See the schedule entitled "Reconciliation" at the end of this release for a reconciliation of "operating net income" to net income (loss) attributable to ordinary shareholders and the calculation of "annualized return on ordinary shareholders' equity based on operating net income" and "annualized return on ordinary shareholders' equity based on operating net income excluding unrealized gains and losses on investments".

2 Ordinary shareholders' equity is defined as total shareholders' equity less non-controlling interest in equity of consolidated subsidiaries.

3 Book value per share, fully diluted book value per ordinary share and fully diluted tangible book value per ordinary share are non-GAAP financial measures. Fully diluted book value per share represents book value per ordinary share (total shareholders' equity less non-controlling interest in equity of consolidated subsidiaries, divided by the number of outstanding ordinary shares at any period end) combined with the dilutive impact of potential future share issues at any period end. Fully diluted tangible book value per ordinary share is calculated in the same manner as fully diluted book value per ordinary share except that goodwill and intangible assets are removed from ordinary shareholders' equity. XL believes that fully diluted tangible book value per ordinary share is a financial measure important to investors and other interested parties who benefit from having a consistent basis for comparison with other companies within the industry. However, this measure may not be comparable to similarly titled measures used by companies either outside or inside of the insurance industry.

Further details of the results for the quarter may be found in the Company's Financial Supplement, which is dated October 30, 2013 and is available from the Investor Relations section of the XL website. A conference call to discuss the Company's results will be held at 5 p.m. Eastern Time on Wednesday, October 30, 2013. 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 (210) 795-0624 or (866) 617-1526: Passcode: "XL GLOBAL". The webcast will be available at www.xlgroup.com and will be archived on XL's website from approximately 9:00 p.m. Eastern Time on October 30, 2013, through midnight Eastern Time on November 30, 2013. A telephone replay of the conference call will also be available beginning at approximately 9:00 p.m. Eastern Time on October 30, 2013, until midnight Eastern Time on November 30, 2013, by dialing (203) 369-3301 or (800) 627-3229.

About XL Group plc

XL Group plc (NYSE: XL), through its subsidiaries, is a global insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises throughout the world. XL is the company clients look to for answers to their most complex risks and to help move their world forward. To learn more, visit 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, all of which involve risk and uncertainty. Statements that include the words "expect," "intend," "plan," "believe," "project," "anticipate," "may" or similar statements of a future or forward-looking nature identify forward-looking statements. 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 (a) changes in the size of XL's claims relating to natural or man-made catastrophe losses due to the preliminary nature of some reports and estimates of loss and damage to date; (b) trends in rates for property and casualty insurance and reinsurance; (c) the timely and full recoverability of reinsurance placed by XL with third parties, or other amounts due to XL; (d) changes in ratings, rating agency policies or practices; (e) changes in the projected amount of ceded reinsurance recoverables; (f) XL's ability to successfully implement its business strategy; (g) 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; (h) changes in general economic conditions, including the effects of inflation and changes in interest rates, credit spreads, foreign currency exchange rates and future volatility in the world's credit, financial and capital markets that adversely affect the performance and valuation of XL's investments or access to such markets; (i) developments, including uncertainties related to: the future of the Euro-zone, the ability of Euro-zone countries to service existing debt obligations and the strength of the Euro as a currency; and to the financial condition of counterparties, reinsurers and other companies that are at risk of bankruptcy; (j) the impact of downgrades of U.S. securities by credit rating agencies or the European sovereign debt crisis, and the resulting effect on the value of securities (i) in our investment portfolio and (ii) posted as collateral by and to us; (k) the potential for changes to methodologies, estimations and assumptions that underlie the valuation of XL's financial instruments that could result in changes to investment valuations; (l) changes to XL's assessment as to whether it is more likely than not that it will be required to sell, or has the intent to sell, available-for-sale debt securities before their anticipated recovery; (m) the ability of XL's subsidiaries to pay dividends to XL Group plc and XLIT Ltd.; (n) the potential effect of regulatory developments in the jurisdictions in which XL operates, including those that could impact the financial markets or increase XL's business costs and required capital levels; (o) changes in applicable tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof; and (p) the other factors set forth in XL's reports on Form 10-K, Form 10-Q and other documents on file with the Securities and Exchange Commission. XL undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

XL intends to use its website as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Such disclosures will be included on the website in the Investor Relations section. Accordingly, investors should monitor such portions of XL's website, in addition to following its press releases, SEC filings and public conference calls and webcasts.


XL Group plc

SUMMARY CONSOLIDATED FINANCIAL DATA














Income statement data:












(U.S. dollars in thousands)










Three Months Ended


Nine Months Ended


September 30


September 30



(Unaudited)



(Unaudited)






2013


2012


2013


2012

Revenues:












Gross premiums written:













- P&C operations

$

1,609,840


$

1,576,231


$

5,958,926


$

5,656,667


- Life operations


82,291



87,413



236,563



266,999














Net premiums written:













- P&C operations

$

1,327,379


$

1,308,265


$

4,829,560


$

4,618,770


- Life operations


74,683



79,487



214,024



243,606














Net premiums earned:













- P&C operations

$

1,550,629


$

1,468,554


$

4,503,372


$

4,227,421


- Life operations


74,683



79,487



214,024



243,630














Net investment income

$

237,921


$

239,481


$

716,935


$

767,354

Net realized gains (losses) on investments


(1,958)



(5,493)



75,519



2,916

Net realized and unrealized gains (losses) on derivative instruments


880



6,254



3,660



2,656

Net income (loss) from investment fund affiliates


5,079



16,049



83,843



38,555

Fee income and other


10,875



13,306



31,378



36,378

Total revenues

$

1,878,109


$

1,817,638


$

5,628,731


$

5,318,910

Expenses:












Net losses and loss expenses incurred  - P&C operations

$

1,006,520


$

894,077


$

2,787,210


$

2,574,497

Claims and policy benefits - Life operations


116,549



119,438



344,269



371,893

Acquisition costs


238,328



236,347



690,473



679,434

Operating expenses


311,506



305,745



898,497



887,210

Exchange (gains) losses


20,303



18,690



(24,463)



13,432

Interest expense


37,926



37,907



114,830



134,564

Total expenses

$

1,731,132


$

1,612,204


$

4,810,816


$

4,661,030

Income (loss) before income tax and income (loss) from operating affiliates

$

146,977


$

205,434


$

817,915


$

657,880













Net (income) loss from operating affiliates


24,590



2,763



88,413



39,473

Provision (benefit) for income tax


897



451



73,248



51,813














Net income (loss)

$

170,670


$

207,746


$

833,080


$

645,540














Non-controlling interests


(35,022)



(35,844))



(73,944))



(75,856)














Net income (loss) attributable to ordinary shareholders

$

135,648


$

171,902


$

759,136


$

569,684




 


XL Group plc

SUMMARY CONSOLIDATED FINANCIAL DATA








Selected balance sheet data:






(U.S. dollars in thousands, except per share amounts)


As at



As at



September 30,



December 31,




2013



2012 (Note 1)



(Unaudited)




Total investments available for sale

$

28,529,880


$

28,818,982

Total fixed maturities, held to maturity


2,802,111



2,814,447

Cash and cash equivalents


2,130,893



2,618,378

Investments in affiliates


1,362,484



1,126,875

Unpaid losses and loss expenses recoverable


3,352,667



3,382,102

Goodwill and other intangible assets


410,933



408,527

Total assets (Note 2)


45,626,383



45,386,895







Unpaid losses and loss expenses


20,407,428



20,484,121

Deposit liabilities


1,505,180



1,551,398

Future policy benefit reserves


4,762,044



4,812,046

Unearned premium


4,254,939



3,755,086

Notes payable and debt


1,671,062



1,672,778







Total shareholders' equity (Note 2)


11,252,514



11,856,402

Ordinary shareholders' equity (Note 2)


9,907,896



10,510,077

Ordinary shares outstanding (Note 3)


282,854,768



298,732,832







Basic book value per ordinary share (Notes 2 and 4)

$

35.03


$

35.18

Fully diluted book value per ordinary share (Notes 2 and 4)

$

34.39


$

34.70

Fully diluted tangible book value per ordinary share (Notes 2 and 4)

$

32.96


$

33.35








Note 1: Certain items have been reclassified to conform to the current period presentation.








Note 2: On January 1, 2012, for all fiscal years and interim periods presented, XL adopted a FASB accounting standards update to address disparities in practice regarding the interpretation of which costs relating to the acquisition of new and renewal insurance contracts qualify for deferral. The adoption of this guidance did not have an impact on XL's consolidated statements of income or comprehensive income.








Note 3: Ordinary shares outstanding include all ordinary shares legally issued and outstanding (as disclosed on the face of the balance sheet) as well as all director share units outstanding.








Note 4: Book value per share, fully diluted book value per ordinary share and fully diluted tangible book value per ordinary share are non-GAAP financial measures. Fully diluted book value per share represents book value per ordinary share (total shareholders’ equity less non-controlling interest in equity of consolidated subsidiaries, divided by the number of outstanding ordinary shares at any period end) combined with the dilutive impact of potential future share issues at any period end. Fully diluted tangible book value per ordinary share is calculated in the same manner as fully diluted book value per ordinary share except that goodwill and intangible assets are removed from ordinary shareholders’ equity.




XL Group plc
RECONCILIATION

The following is a reconciliation of XL's net income (loss) attributable to ordinary shareholders to operating net income (loss) (Note 2) and also includes the calculation of annualized return on ordinary shareholders' equity (based on operating net income (loss)) and annualized return on ordinary shareholders' equity (based on operating net income (loss)) excluding unrealized gains and losses on investments for the three and nine months ended September 30, 2013 and 2012.












(U.S. dollars in thousands except per share amounts)

Three Months Ended


Nine Months Ended


September 30


September 30



(Unaudited)



(Unaudited)






2013


2012 (Note 1)


2013


2012 (Note 1)

Net income (loss) attributable to ordinary shareholders

$

135,648


$

171,902


$

759,136


$

569,684

Net realized (gains) losses on investments, net of tax


5,306



5,733



(75,462)



(3,308)

Net realized and unrealized (gains) losses on derivatives, net of tax


(880)



(6,253)



(3,660)



(2,651)

Net realized and unrealized (gains) losses on investments and derivatives related to the Company's insurance company affiliates


(108)



(6)



(363)



(42)

Exchange (gains) losses, net of tax


14,662



16,662



(23,564)



11,530

Operating net income (loss): (Note 2)


$ 154,628



$ 188,038



$ 656,087



$ 575,213

Per ordinary share results: (Note 3)












Net income (loss) attributable to ordinary shareholders - diluted

$

0.47


$

0.56


$

2.57


$

1.82

Operating net income (loss) - diluted (Note 2)

$

0.53


$

0.61


$

2.23


$

1.84

Weighted average ordinary shares outstanding:












Basic


285,392,500



304,198,602



289,957,218



309,674,698

Diluted - Net income


290,489,613



307,764,352



294,827,974



312,601,640

Diluted - Operating net income


290,489,613



307,764,352



294,827,974



312,601,640














Return on ordinary shareholders' equity:












Closing ordinary shareholders' equity (Notes 4 and 5)

$

9,907,896


$

10,411,049


$

9,907,896


$

10,411,049

Unrealized (gain) loss on investments, net of tax

$

(810,953)


$

(1,383,446)


$

(810,953)


$

(1,383,446)

Average ordinary shareholders' equity excluding unrealized gains and losses on investments (Notes 4 and 5)

$

9,131,199


$

9,004,583


$

9,065,284


$

8,958,733

Average ordinary shareholders' equity (Notes 4 and 5)

$

9,900,233


$

10,139,433


$

10,208,987


$

9,911,354

Operating net income (loss) (Note 2)

$

154,628


$

188,038


$

656,087


$

575,213

Annualized operating net income (loss) (Note 2)

$

618,512


$

752,152


$

874,783


$

766,951














Annualized return on ordinary shareholders' equity - operating net income (loss) (Notes 2, 4 and 5)


6.2%



7.4%



8.6%



7.7%

Annualized return on ordinary shareholders' equity excluding unrealized gains and losses on investments - operating net income (loss) (Notes 2, 4 and 5)


6.8%



8.4%



9.6%



8.6%














Note 1: Certain amounts have been reclassified to conform to the current period presentation.














Note 2: Defined as net income (loss) attributable to ordinary shareholders excluding (1) net realized gains and losses on investments, net of tax, (2) net realized and unrealized gains and losses on derivatives, net of tax, (3) XL's share of items (1) and (2) for XL's insurance company affiliates for the periods presented, (4) goodwill impairment charges, net of tax and (5) foreign exchange gains or losses, net of tax. "Operating net income", "return on ordinary shareholders’ equity" based on operating net income and "return on ordinary shareholders’ equity" based on operating net income excluding unrealized gains and losses on investments are non-GAAP financial measures.














Note 3: Diluted weighted average number of ordinary shares outstanding is used to calculate per share data except where it is anti-dilutive to earnings per share or where there is a net loss. When it is anti-dilutive or when a net loss occurs, basic weighted average ordinary shares outstanding is utilized in the calculation of net loss per share and net operating loss per share.














Note 4: Ordinary shareholders’ equity is defined as total shareholders’ equity less non-controlling interest in equity of consolidated subsidiaries.














Note 5: On January 1, 2012, for all fiscal years and interim periods presented, XL adopted a FASB accounting standards update to address disparities in practice regarding the interpretation of which costs relating to the acquisition of new and renewal insurance contracts qualify for deferral. The adoption of this guidance did not have an impact on XL’s consolidated statements of income or comprehensive income.



Comment on Regulation G

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 press release contains the presentation of (i) operating net income (loss) ("Operating Net Income"), which is defined as net income (loss) attributable to ordinary shareholders excluding: (1) net realized gains and losses on investments, net of tax, (2) net realized and unrealized gains and losses on derivatives, net of tax, (3) XL's share of items (1) and (2) for XL's insurance company affiliates for the periods presented, (4) goodwill impairment charges, net of tax and (5) foreign exchange gains or losses, net of tax; (ii) annualized return on ordinary shareholders' equity ("ROE") based on operating net income (loss) ("Operating ROE"); (iii) Operating ROE excluding unrealized gains and losses on investments; and (iv)  book value per ordinary share  (ordinary shareholders' equity divided by the number of shares outstanding at the period end date), fully diluted book value per ordinary share (book value per share combined with the dilutive impact of potential future share issues at any period end), and fully diluted tangible book value per ordinary share (calculated in the same manner as fully diluted book value per ordinary share except that goodwill and intangible assets are removed from 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 in this press release.

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 and from goodwill impairment charges 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 and the recognition of goodwill impairment charges are largely a function of economic and interest rate conditions.

Net realized and unrealized (gains) losses on derivatives, net of tax include all derivatives entered into by XL other than certain credit derivatives.  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' treatment of such contracts) as the changes in fair value each quarter are not indicative of underlying business performance.

Foreign exchange gains and losses in the income statement are only one element of the overall impact of foreign exchange fluctuations on XL's financial position and are not representative of any economic gain or loss made by XL.  Accordingly, it is not a relevant indicator of financial performance and it is excluded.

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 operating net income (loss) 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.

Operating ROE is a widely used measure of any company's profitability that is calculated by dividing annualized Operating net income for any period by the average of the opening and closing ordinary shareholders' equity. XL establishes target Operating ROEs for its total operations, segments and lines of business. If XL's Operating ROE targets are not met with respect to any line of business over time, XL seeks to re-evaluate these lines. Operating ROE excluding unrealized gains and losses on investments is an additional measure of a company's profitability that eliminates the impacts of mark to market fluctuations on a company's investment portfolio that have not been realized through sales, which XL believes provides a more consistent measure of company performance.


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