In the normal course of business, the Company seeks to reduce the potential amount of loss arising from claims events by reinsuring certain levels of risk assumed in various areas of exposure with other insurers or reinsurers. While reinsurance agreements are designed to limit the Company’s losses from large exposures and permit recovery of a portion of direct unpaid losses, reinsurance does not relieve the Company of its ultimate liability to its insureds. Accordingly, the loss and loss expense reserves on the balance sheet represent the Company’s total unpaid gross losses. Unpaid losses and loss expenses recoverable relate to estimated reinsurance recoveries on the unpaid loss and loss expense reserves.
Unpaid losses and loss expense recoverables were $3.7 billion at September 30, 2011 and December 31, 2010. At September 30, 2011 and December 31, 2010, reinsurance balances receivable were $0.2 billion. The table below presents the Company’s net paid and unpaid losses and loss expenses recoverable and reinsurance balances receivable at September 30, 2011 and December 31, 2010:
Liquidity is a measure of the Company’s ability to generate sufficient cash flows to meet the short and long-term cash requirements of the Company’s business operations. As a global insurance and reinsurance company, one of the Company’s principal responsibilities to its clients is to ensure that the Company has ready access to funds with which to settle large unforeseen claims. The Company would generally expect that positive cash flow from operations (underwriting activities and investment income) will be sufficient to cover cash outflows under most future loss scenarios. However, there is a possibility that unforeseen demands could be placed on the Company due to extraordinary events and, as such, the Company’s liquidity needs may change. Such events include, among other things, several significant catastrophes occurring in a relatively short period of time resulting in material incurred losses; rating agency downgrades of the Company’s core insurance and reinsurance subsidiaries that would require posting of collateral in connection with the Company’s letter of credit and revolving credit facilities, return of unearned premium and/or the settlement of derivative transactions and large scale uncollectible reinsurance recoverables on paid losses (as a result of coverage disputes, reinsurers’ credit problems or decreases in the value of collateral supporting reinsurance recoverables), etc. Any one or a combination of such events may cause a liquidity strain for the Company. In addition, a liquidity strain could also occur in an illiquid market, such as that which was experienced in 2008. Investments that may be used to meet liquidity needs in the event of a liquidity strain may not be liquid, given inactive markets, or may have to be sold at a significant loss as a result of depressed prices. Because each subsidiary focuses on a more limited number of specific product lines than are collectively provided by the consolidated group of companies, the mix of business tends to be less diverse at the subsidiary level. As a result, the probability of a liquidity strain, as described above, may be greater for individual subsidiaries than when liquidity is assessed on a consolidated basis. If such a liquidity strain were to occur in a subsidiary, XL-Ireland may be required to contribute capital to the particular subsidiary and/or curtail dividends from the subsidiary to support holding company operations, which may be difficult given that XL-Ireland is a holding company and has limited liquidity.
A downgrade below “A–” of the Company’s principal insurance and reinsurance subsidiaries by either S&P or A.M. Best, which is two notches below the current S&P financial strength rating of “A” (Stable) and the A.M. Best financial strength rating of “A” (Stable) of these subsidiaries, may trigger cancellation provisions in a significant amount of the Company’s assumed reinsurance agreements and may potentially require the Company to return unearned premiums to cedants. In addition, due to collateral posting requirements under the Company’s letter of credit and revolving credit facilities, such a downgrade may require the posting of cash collateral in support of certain “in use” portions of these facilities. Specifically, a downgrade below “A–” by A.M. Best would trigger such collateral posting requirements for the Company’s largest credit facility. With respect to the Company’s secured letter of credit facility, such a downgrade may result in the sale of all or a portion of the collateral securitizing the credit facility. In addition, in certain limited instances, such downgrades may require the Company to return cash or assets to counterparties or to settle derivative and/or other transactions with the respective counterparties.
Holding Company Liquidity
As a holding company, XL-Ireland has no operations of its own and its assets consist primarily of its investments in its subsidiaries. Accordingly, XL-Ireland’s future cash flows largely depend on the availability of dividends or other statutorily permissible payments from its subsidiaries. The ability to pay such dividends is limited by the applicable laws and regulations of the various countries and states in which XL-Ireland’s subsidiaries operate, including, among others, Bermuda, the U.S., New York, Ireland, Switzerland and the U.K. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, Item 8, Note 25, “Statutory Financial Data,” to the Consolidated Financial Statements for further discussion and details regarding the dividend capacity of the Company’s major operating subsidiaries. See also Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, “Risk Factors – Our holding company structure and certain regulatory and other constraints affect our ability to pay dividends, make payments on our debt securities and make other payments.” The ability to pay such dividends is also limited by the regulations of the Society of Lloyd’s and certain contractual provisions. No assurance can be given that the Company’s subsidiaries will pay dividends in the future to XL-Ireland.
Under Irish law, the Company must have sufficient “profits available for distribution” in order to make distributions of cash or assets and redeem and buyback shares. At September 30, 2011, XL-Ireland had approximately $4.3 billion in distributable reserves.
At September 30, 2011, XL-Ireland and XL-Cayman held cash and investments, net of liabilities associated with cash sweeping arrangements, of $5.6 million and $1.8 billion, respectively, compared to $2.8 million and $1.7 billion, respectively, at December 31, 2010.
The Company’s principal uses of liquidity are for dividend payments to holders of its ordinary shares and preferred shares, interest and principal payments on debt, capital investments in its subsidiaries and corporate operating expenses.
All outstanding debt of the Company at September 30, 2011 and December 31, 2010 was issued by XL-Cayman except for the $600 million par value 6.5% Guaranteed Senior Notes due January 2012 which were issued by XLCFE. Both XL-Cayman and XLCFE are wholly-owned subsidiaries of XL-Ireland. The XLCFE notes are fully and unconditionally guaranteed by XL-Switzerland. The Company’s ability to obtain funds from its subsidiaries to satisfy any of its obligations under this guarantee is subject to certain contractual restrictions, applicable laws and statutory requirements of the various countries in which the Company operates, including, among others, Bermuda, the United States, Ireland, Switzerland and the U.K. Required statutory capital and surplus for the principal operating subsidiaries of the Company was $6.2 billion at December 31, 2010.
XL-Ireland and its subsidiaries provide no guarantees or other commitments (express or implied) of financial support to the Company’s subsidiaries or affiliates, except for such guarantees or commitments that are in writing.
See also the Consolidated Statements of Cash Flows included in Item 1, Financial Statements, above.
Sources of Liquidity for the Company
At September 30, 2011, the consolidated Company had cash and cash equivalents of approximately $3.2 billion as compared to approximately $3.0 billion at December 31, 2010. There are three main sources of cash flows for the Company – those provided by operations, investing activities and financing activities.
Operating Cash Flows
Historically, cash receipts from operations, consisting of premiums and investment income, generally have provided sufficient funds to pay losses as well as operating expenses of the Company’s subsidiaries and to fund dividends to XL-Ireland. However, as a result of the combination of current soft market conditions, the decision to put the Life segment and certain P&C lines into run-off and lower investment yields, operating cash flows are lower in 2011 than in the prior year. Cash receipts from operations is generally derived from the receipt of investment income on the Company’s investment portfolio as well as the net receipt of premiums less claims and expenses related to the Company’s underwriting activities in its P&C operations as well as its Life operations segment. The Company’s operating subsidiaries provide liquidity in that premiums are generally received months or even years before losses are paid under the policies related to such premiums. Premiums and acquisition expenses are settled based on terms of trade as stipulated by an underwriting contract, and generally are received within the first year of inception of a policy when the premium is written, but can be up to three years on certain reinsurance business assumed. Operating expenses are generally paid within a year of being incurred. Claims, especially for casualty business, may take a much longer time before they are reported and ultimately settled, requiring the establishment of reserves for unpaid losses and loss expenses. Therefore, the amount of claims paid in any one year is not necessarily related to the amount of net losses incurred, as reported in the consolidated statement of income.
During the nine months ended September 30, 2011, net cash flows provided by operating activities were $365.5 million compared to net cash flows provided by operating activities of $829.3 million for the same period in 2010. This reduction was primarily due to P&C net loss and loss expenses paid of $2.9 billion in the nine months ended September 30, 2011, compared with
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$2.5 billion for the same period in 2010. This increase was due primarily to higher loss payments in the insurance segment in 2011 relating to the prior and current year catastrophes and other individual large property and excess casualty loss payments.
Investing Cash Flows
Generally, positive cash flow from operations and financing activities is invested in the Company’s investment portfolio, and in affiliates or the acquisition of subsidiaries.
Net cash provided by investing activities was $268.7 million in the nine months ended September 30, 2011 compared to net cash provided of $623.7 million for the same period in 2010. The 2011 cash inflow was mainly associated with the normal purchase and sale of portfolio investments.
Financing Cash Flows
Cash flows related to financing activities include ordinary and preferred share related transactions, the payment of dividends, the issue or repayment of preferred ordinary shares and deposit liability transactions.
On November 2, 2010, the Company announced that its Board of Directors approved a share buyback program, authorizing the Company to purchase up to $1.0 billion of its ordinary shares. During 2010, the Company purchased and canceled 6.9 million ordinary shares under this program for $144.0 million. During the first half of 2011, the Company purchased and canceled 11.6 million ordinary shares under this program for $257.9 million. During the third quarter of 2011, the Company purchased and canceled 15.1 million ordinary shares under this program for $307.7 million. All share buybacks were carried out by way of redemption in accordance with Irish law and the Company’s constitutional documents. All shares so redeemed were canceled upon redemption. At September 30, 2011, $290.4 million remained available to be used for purchases under this program and no further buybacks have been made in the subsequent period to November 3, 2011.
On September 30, 2011, XL-Cayman completed the sale of $400 million aggregate principal amount of 5.75% Senior Notes due 2021 at the issue price of 100% of the principal amount. The 5.75% Senior Notes are fully and unconditionally guaranteed by XL-Ireland. The 5.75% Senior Notes bear interest at a rate of 5.75% per annum, payable semiannually, beginning on April 1, 2012, and mature on October 1, 2021. XL-Cayman may redeem the 5.75% Senior Notes, in whole or part, from time to time in accordance with the terms of the indenture pursuant to which the 5.75% Senior Notes were issued. XL-Cayman received net proceeds of approximately $396.4 million from the offering, which will be used to partially repay the $600 million par value 6.5% Guaranteed Senior Notes due January 2012 which were issued by XLCFE.
During the nine months ended September 30, 2011, net cash flows used in financing activities were $500.0 million compared to net cash outflows of $1.1 billion for the same period in 2010. The 2011 net cash outflows related primarily to the buybacks of the Company’s ordinary shares, as outlined above, the repurchase of all outstanding Redeemable Series C preference ordinary shares, the payment of common and preferred dividends and the repayment of deposit liabilities partially offset by the proceeds of issuance of the 5.75 Senior Notes, as outlined above. The 2010 net cash outflows related primarily to the settlement of $450 million of outstanding funding agreement liabilities, the repurchase of a portion of the Redeemable Series C preference ordinary shares, buybacks of the Company’s ordinary shares as outlined above, repayment of other deposit liabilities and the payment of ordinary and preferred dividends. For more information on the buybacks of the Company’s shares, please see Item 1, Note 8 to the Unaudited Consolidated Financial Statements, “Share Capital.”
In addition, the Company maintains letter of credit facilities which provide liquidity. Details of these facilities are described below in “Capital Resources.”
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Capital Resources
At September 30, 2011 and December 31, 2010, the Company had total shareholders’ equity of $10.9 billion and $10.6 billion, respectively. In addition to ordinary share capital, the Company depends on external sources of financing to support its underwriting activities in the form of:
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| a. | debt; |
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| b. | preference shares; |
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| c. | contingent capital; and |
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| d. | letter of credit facilities and other sources of collateral. |
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| In particular, the Company requires, among other things: |
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| ▪ | sufficient capital to maintain its financial strength and credit ratings, as issued by several ratings agencies, at levels considered necessary by management to enable the Company’s key operating subsidiaries to compete; |
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| ▪ | sufficient capital to enable its regulated subsidiaries to meet the regulatory capital levels required in the U.S., the U.K., Bermuda, Ireland, Switzerland and other key markets; |
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| ▪ | letters of credit and other forms of collateral that are required to be posted or deposited, as the case may be, by the Company’s operating subsidiaries that are “non-admitted” under U.S. state insurance regulations in order for the U.S. cedant to receive statutory credit for reinsurance. The Company also uses letters of credit to support its operations at Lloyd’s; and |
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| ▪ | revolving credit to meet short-term liquidity needs. |
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| The following risks are associated with the Company’s requirement to renew its credit facilities: |
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| ▪ | the credit available from banks may be reduced, resulting in the Company’s need to pledge its investment portfolio to customers, in lieu of providing letters of credit. This could result in a lower investment yield; |
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| ▪ | the Company may be downgraded by one or more rating agencies, which could materially and negatively impact the Company’s business, financial condition, results of operations and/or liquidity; and; |
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| ▪ | the volume of business that the Company’s subsidiaries that are not admitted in the U.S. are able to transact could be reduced if the Company is unable to renew its letter of credit facilities at appropriate amounts. |
Continued consolidation within the banking industry may result in the aggregate amount of credit provided to the Company being reduced. The Company attempts to mitigate this risk by identifying and/or selecting additional banks that can participate in the credit facilities upon renewal.
The following table summarizes the components of the Company’s current capital resources at September 30, 2011 and December 31, 2010:
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(U.S. dollars in thousands) | | (Unaudited)
September 30,
2011 | |
December 31,
2010
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Redeemable Series C preference ordinary shares | | $ | — | | $ | 71,900 | |
Series E preference ordinary shares | | | 999,500 | | | 1,000,000 | |
Ordinary share capital | | | 9,942,486 | | | 9,613,049 | |
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Total ordinary and non-controlling interests capital | | $ | 10,941,986 | | $ | 10,684,949 | |
Notes payable and debt | | | 2,268,884 | | | 2,446,735 | |
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Total capital | | $ | 13,210,870 | | $ | 13,131,684 | |
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Ordinary Share Capital
The following table reconciles the opening and closing ordinary share equity positions for the nine months ended September 30, 2011 and the year ended December 31, 2010:
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(U.S. dollars in thousands) | | (Unaudited)
September 30,
2011 | | December 31,
2010 | |
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Ordinary share equity – beginning of period | | $ | 9,613,049 | | $ | 8,432,417 | |
Net income (loss) attributable to XL Group plc | | | 40,777 | | | 603,550 | |
Share buybacks | | | (566,940 | ) | | (521,920 | ) |
Share issues | | | 573,767 | | | 1,109 | |
Common share dividends | | | (104,020 | ) | | (134,238 | ) |
Preferred share dividends | | | — | | | (34,694 | ) |
Gain on redemption of Series C preference ordinary shares | | | — | | | 16,616 | |
Change in accumulated other comprehensive income | | | 355,408 | | | 1,243,262 | |
Impact of adoption of new authoritative embedded derivative guidance, net of tax | | | — | | | (31,917 | ) |
Share based compensation and other | | | 30,445 | | | 38,864 | |
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Ordinary share equity – end of period | | $ | 9,942,486 | | $ | 9,613,049 | |
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Debt
The following table presents the Company’s debt under outstanding securities and lenders’ commitments at September 30, 2011:
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| | | | | | | | | | | Payments Due by Period | |
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Notes Payable and Debt
(U.S. dollars in thousands) | | Commitment/
Debt | | In Use/
Outstanding | | Year of
Expiry | | Less than
1 Year | | 1 to 3
Years | | 3 to 5
Years | | After 5
Years | |
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5-year revolver | | $ | 750,000 | | $ | — | | | 2012 | | $ | — | | $ | — | | $ | — | | $ | — | |
6.50% Guaranteed Senior Notes | | | 600,000 | | | 599,906 | | | 2012 | | | 600,000 | | | — | | | — | | | — | |
5.25% Senior Notes | | | 600,000 | | | 598,073 | | | 2014 | | | — | | | 600,000 | | | — | | | — | |
5.75% Senior Notes | | | 400,000 | | | 396,400 | | | 2021 | | | — | | | — | | | — | | | 400,000 | |
6.375% Senior Notes | | | 350,000 | | | 350,000 | | | 2024 | | | — | | | — | | | — | | | 350,000 | |
6.25% Senior Notes | | | 325,000 | | | 324,505 | | | 2027 | | | — | | | — | | | — | | | 325,000 | |
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| | $ | 3,025,000 | | $ | 2,268,884 | | | | | $ | 600,000 | | $ | 600,000 | | $ | — | | $ | 1,075,000 | |
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Adjustment to carrying value – impact of fair value hedges | | | | | | 12,451 | | | | | | | | | | | | | | | | |
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Carrying value | | | | | $ | 2,281,335 | | | | | | | | | | | | | | | | |
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“In Use/Outstanding” data represent September 30, 2011 accreted values. “Payments Due by Period” data represent ultimate redemption values.
In addition, see Item 1, Note 15, “Notes Payable and Debt and Financing Arrangements,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for further information.
At September 30, 2011, banks and investors provided the Company and its subsidiaries with $3.0 billion of debt capacity, of which $2.3 billion was utilized by the Company. These facilities consist of:
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| ▪ | a revolving credit facility of $750 million. |
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| ▪ | senior unsecured notes of approximately $2.3 billion. These notes require the Company to pay a fixed rate of interest during their terms. At September 30, 2011, there were five outstanding issues of senior unsecured notes: |
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| | ▪ | $600 million senior notes due January 2012, with a fixed coupon of 6.5%. The security is publicly traded. The notes were issued at 99.469% and gross proceeds were $596.8 million. Related expenses of the offering amounted to $7.9 million. |
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| | ▪ | $600 million senior notes due September 2014, with a fixed coupon of 5.25%. The security is publicly traded. The notes were issued in two tranches of $300 million aggregate principal amount each – one tranche at 99.432% and the other at 98.419%. Aggregate gross proceeds were $593.6 million. Related expenses of the offering amounted to $4 million. |
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| | ▪ | $400 million senior notes due October 2021, with a fixed coupon of 5.75%. The security is publicly traded. The notes were issued at 100.0% and gross proceeds were $396.4 million. Related expenses of the offering amounted to $3.6 million. |
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| | ▪ | $350 million senior notes due November 2024, with a fixed coupon of 6.375%. The security is publicly traded. The notes were issued at 100.0% and gross proceeds were $350 million. Related expenses of the offering amounted to $2 million. |
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| | ▪ | $325 million of senior notes due May 2027, with a fixed coupon of 6.25%. The security is publicly traded. The notes were issued at 99.805% and gross proceeds were $324.4 million. Related expenses of the offering amounted to $2.5 million. |
Preferred Shares and Non-controlling Interest in Equity of Consolidated Subsidiaries
Neither the Redeemable Series C preference ordinary shares nor the Series E preference ordinary shares were transferred from XL-Cayman to XL-Ireland in the Redomestication. Accordingly, subsequent to July 1, 2010, these instruments represent non-controlling interests in the consolidated financial statements of the Company and have been reclassified to non-controlling interest in equity of consolidated subsidiaries. See Note 1, “Basis of Preparation and Consolidation” to the Unaudited Consolidated Financial Statements for further information. During the third quarter of 2011, all Redeemable Series C preference ordinary shares were purchased and canceled. See “Key Focuses of Management – Capital Management” herein. At September 30, 2011, the face value of the outstanding Series E preference ordinary shares was $999.5 million.
In August 2011, in accordance with the terms of the 10.75% Units, XL-Cayman purchased and retired all of the 8.25% Senior Notes for $575 million in a remarketing. These notes comprised a part of the 10.75% Units. The proceeds from the remarketing were used to satisfy the purchase price for XL-Ireland’s ordinary shares issued to holders of the 10.75% Units pursuant to the forward purchase contracts comprising a part of the 10.75% Units. Each forward purchase contract provided for the issuance of 1.3242 ordinary shares of XL-Ireland at a price of $25 per share. The settlement of the forward purchase contracts resulted in XL-Ireland’s issuance of an aggregate of 30,456,600 ordinary shares for an aggregate purchase price of $575 million. As a result of the settlement of the forward purchase contracts, the 10.75% Units ceased to exist and are no longer traded on the NYSE.
On October 15, 2011, XL-Cayman issued $350,000,000 of its Series D Preferred Shares for consideration of cash and liquid investments which were held in a trust account that was part of the Stoneheath facility. Holders of the Stoneheath Securities will receive one Series D Preferred Share in exchange for each Stoneheath Security. This distribution will occur on November 16, 2011. See “Contingent Capital” below.
In August 2011, XL-Cayman completed a cash tender offer for its outstanding Redeemable Series C preference ordinary shares that resulted in 2,811,000 Redeemable Series C preference ordinary shares with a liquidation value of $25.00 being repurchased and canceled by XL-Cayman for approximately $71.0 million including accrued and unpaid dividends and professional fees. Subsequent to the expiration of the tender offer, and on the same terms as the offer, XL-Cayman repurchased and canceled the remaining outstanding Redeemable Series C preference ordinary shares with a liquidation value of $25.00 for approximately $0.9 million plus accrued and unpaid dividends. As of September 30, 2011, no Redeemable Series C preference ordinary shares were outstanding.
On February 16, 2011, the Company repurchased 30,000 of the outstanding Redeemable Series C preference ordinary shares with a liquidation preference value of $0.75 million for $0.65 million. In addition, the Company repurchased 500 of the outstanding Series E preference ordinary shares with a liquidation preference value of $0.50 million for $0.47 million. As a result of these repurchases, the Company recorded a reduction in Non-controlling interests of approximately $0.13 million in the first quarter of 2011.
On February 12, 2010, the Company repurchased and canceled approximately 4.4 million Redeemable Series C preference ordinary shares with a liquidation preference value of $110.8 million for approximately $94.2 million, which was a portion of its outstanding Redeemable Series C preference ordinary shares. As a result, a book value gain of approximately $16.6 million to ordinary shareholders was recorded in the first quarter of 2010.
Contingent Capital
At September 30, 2011, the Company had one contingent capital transaction where the outstanding put option has not been exercised. No up-front proceeds were received by the Company under this transaction. In the event that the associated irrevocable put option agreement is exercised, proceeds previously raised from investors from the issuance of pass-through trust securities would be received in return for the issuance by XL-Cayman of preferred shares. See below for further details on this transaction.
On December 5, 2006, the Company and certain operating subsidiaries (“Ceding Insurers”) entered into a securities issuance agreement (the “Securities Issuance Agreement”), and certain of the Company’s foreign insurance and reinsurance subsidiaries (“Ceding Insurers”) entered into an excess of loss reinsurance agreement (the “Reinsurance Agreement”), with Stoneheath. The net
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effect of these agreements to the Company is the creation of a contingent put option to issue $350.0 million of preference ordinary shares in the aggregate of XL-Cayman. The agreements provide the Company with a Reinsurance Collateral Account in support of certain covered perils named in the Reinsurance Agreement. The covered perils include United States wind, European wind, California earthquake and terrorism worldwide. After an initial three-month period, the covered perils as well as the attachment points and aggregate retention amounts could be changed by the Ceding Insurers in their sole discretion, which could have resulted in a material increase or decrease in the likelihood of payment under the Reinsurance Agreement. On each date on which a Ceding Insurer withdrew funds from the Reinsurance Collateral Account, the Company would have been required to issue and deliver to Stoneheath an amount of Series D Preferred Shares having an aggregate liquidation preference that is equal to the amount of funds so withdrawn from the Collateral Account. The Company is obligated to reimburse Stoneheath for certain fees and ordinary expenses. The initial term of the Reinsurance Agreement was for the period from the December 5, 2006 through June 30, 2007, with four annual mandatory extensions through June 30, 2011 (unless coverage is exhausted thereunder prior to such date). At the Ceding Insurers’ option, the Reinsurance Agreement was extended to December 31, 2011.
On October 15, 2011, the Company announced that the Stoneheath facility would be terminated and, as a result, XL-Cayman would issue Series D Preferred Shares. Under the terms of the Securities Issuance Agreement, XL-Cayman is required upon the occurrence of certain conditions to issue and deliver to Stoneheath for distribution to the holders of the Stoneheath Securities, Series D Preferred Shares having an aggregate liquidation preference equal to the remaining assets in the Reinsurance Collateral Account in exchange for a distribution of such assets from the Reinsurance Collateral Account to XL-Cayman. One such condition, the termination of an asset swap agreement covering the assets held under the Reinsurance Collateral Account, occurred in accordance with the terms of the swap agreement because Stoneheath did not seek to extend or replace it prior to its termination date. As a result, Stoneheath was required to redeem the Stoneheath Securities and distribute the Series D Preferred Shares it received from XL-Cayman in exchange for the $350 million in assets from the Reinsurance Collateral Account. Stoneheath Re has issued the required redemption notice, effective October 15, 2011, and November 16, 2011 has been set as the redemption date.
Letter of Credit Facilities and Other Sources of Collateral
At September 30, 2011, the Company had six letter of credit facilities in place with total availability of $5.0 billion, of which $2.0 billion was utilized.
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Other Commercial
Commitments
(U.S. dollars in thousands) | | | | | | | | | | | Amount of Commitment
Expiration per period | |
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| Commitment | | In Use | | Year of
Expiry | | Less than
1 Year | | 1 to 3
Years | | 3 to 5
Years | | After 5
Years | |
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Letter of Credit Facility | | $ | 250,000 | | | 115,562 | | Continuous | | | — | | | — | | | — | | | — | |
Letter of Credit Facility (1) | | | 3,000,000 | | | 1,477,827 | | 2012 | | | 3,000,000 | | | — | | | — | | | — | |
Letter of Credit Facility (2) | | | 1,000,000 | | | — | | 2014 | | | — | | | 1,000,000 | | | — | | | — | |
Letter of Credit Facility | | | 21 | | | 21 | | Continuous | | | — | | | — | | | — | | | — | |
Letter of Credit Facility | | | 75 | | | 75 | | Continuous | | | — | | | — | | | — | | | — | |
Letter of Credit Facility | | | 750,000 | | | 401,757 | | Continuous | | | — | | | — | | | — | | | — | |
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Six letter of credit facilities | | $ | 5,000,096 | | $ | 1,995,242 | | | | | $ | 3,000,000 | | $ | 1,000,000 | | $ | — | | $ | — | |
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(1) | This letter of credit facility includes $750 million that is also included in the “5-year revolver” listed under Notes Payable and Debt. |
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(2) | The Company has the option to increase the size of this facility by an additional $500 million. |
On March 25, 2011, the Company and certain of its subsidiaries entered into a secured credit agreement (the “2011 Credit Agreement”) that currently provides for issuance of letters of credit up to $1 billion. Concurrent with the effectiveness of the 2011 Credit Agreement, the commitments of the lenders under the existing five-year credit agreement dated June 21, 2007 were reduced from $4 billion to $3 billion. The commitments under the 2011 Credit Agreement will expire on, and the credit facility is available on a continuous basis until the earlier of (i) March 25, 2014 and (ii) the date of termination in whole of the commitments upon an optional termination or reduction of the commitments by the account parties or upon an event of default.
In the event that such credit support is insufficient, the Company could be required to provide alternative security to cedants. This could take the form of insurance trusts supported by the Company’s investment portfolio or funds withheld (amounts retained by ceding companies to collateralize loss or premium reserves) using the Company’s cash resources or combinations thereof. The face amount of letters of credit required is driven by, among other things, loss development of existing reserves, the payment pattern of such reserves, the expansion of business written by the Company and the loss experience of such business. In addition to letters of credit, the Company has established insurance trusts in the United States that provide cedants with statutory credit for reinsurance under state insurance regulation in the United States.
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The Company reviews current and projected collateral requirements on a regular basis, as well as new sources of collateral. Management’s objective is to maintain an excess amount of collateral sources over expected uses. The Company also reviews its liquidity needs on a regular basis.
Since August 2009, a director of the Company, Eugene McQuade, has served as the CEO of Citibank, N.A (“Citibank”). Citibank and its affiliates were during 2010 and continue to be lenders and letter of credit issuers under certain of the Company’s credit facilities. As of December 31, 2010, these affiliates had commitments of $1.18 billion, of which $ 1.18 billion were outstanding under the credit agreements, and had issued $0.591 million of outstanding but undrawn letters of credit on behalf of the Company. The Company paid approximately $3.2 million in commitment and letter of credit fees during 2010. In addition, affiliates of Citibank provided the Company with standard cash management and foreign exchange services during 2010, for which the Company paid approximately $0.6 million and $0.2 million, respectively.
The Company believes that all of the transactional services provided to the Company by Citibank and its affiliates described above were entered into on an arms’ length basis. As such, Citibank and its affiliates receive the same type of information regarding the Company as the Company provides to its other lenders and letter of credit issuers in connection with the establishment and maintenance of the facilities, and do not receive any additional information about the Company that is strategic in nature.
Other
For information regarding cross-default and certain other provisions in the Company’s debt and convertible securities documents, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cross-Default and Other Provisions in Debt Instruments,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and the Company’s Current Report on Form 8-K filed on March 28, 2011.
See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” below.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. Any prospectus, prospectus supplement, the Company’s Annual Report to ordinary shareholders, any proxy statement, any other Form 10-K, Form 10-Q or Form 8-K of the Company or any other written or oral statements made by or on behalf of the Company may include forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. Such statements include forward-looking statements both with respect to the Company in general, and to the insurance and reinsurance sectors in particular (both as to underwriting and investment matters). Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,” “will,” “may” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the PSLRA or otherwise.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. The Company believes that these factors include, but are not limited to, the following: (i) changes in the size of the Company’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; (ii) trends in rates for property and casualty insurance and reinsurance; (iii) the timely and full recoverability of reinsurance placed by the Company with third parties, or other amounts due to the Company; (iv) changes in ratings, rating agency policies or practices; (v) changes in the projected amount of ceded reinsurance recoverables and the ratings and creditworthiness of reinsurers; (vi) the timing of claims payments being faster or the receipt of reinsurance recoverables being slower than anticipated by the Company; (vii) the Company’s ability to successfully implement its business strategy especially during the “soft” market cycle; (viii) increased competition on the basis of pricing, capacity, coverage terms or other factors, which could harm the Company’s ability to maintain or increase its business volumes or profitability; (ix) greater frequency or severity of claims and loss activity than the Company’s underwriting, reserving or investment practices anticipate based on historical experience or industry data; (x) the effects of inflation on the Company’s business, including on pricing and reserving; (xi) developments, including uncertainties related to the depth and duration of the current recession, and future volatility, in the world’s credit, financial and capital markets that adversely affect the performance and valuation of the Company’s investments or access to such markets; (xii) the impact of the downgrade, or a possible future downgrade, of U.S. securities by credit rating agencies, and the resulting effect on the value of securities (i) in our investment portfolio and (ii) posted as collateral by and to us; (xiii) the potential impact on the Company from government-mandated insurance coverage for acts of terrorism; (xiv) the potential for changes to methodologies, estimations and assumptions that underlie the valuation of the Company’s financial instruments that could result in changes to investment valuations; (xv) changes to the Company’s assessment as to whether it is more likely than not that the Company will be required to sell, or has the intent to sell, available for sale debt securities before their anticipated recovery; (xvi) availability of borrowings and letters of credit under the Company’s credit facilities; (xvii) the ability of the Company’s subsidiaries to pay dividends to XL Group plc; (xviii) the potential effect of regulatory developments in the jurisdictions in which the Company operates, including those which could impact the financial markets or increase the Company’s business costs and required capital levels; (xix) changes in regulation or laws applicable to XL Group plc or its subsidiaries, brokers or customers; (xx) acceptance of the Company’s products and services, including new
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products and services; (xxi) changes in the availability, cost or quality of reinsurance; (xxii) changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers; (xxiii) loss of key personnel; (xxiv) changes in accounting policies or practices or the application thereof; (xxv) legislative or regulatory developments including, but not limited to, changes in regulatory capital balances that must be maintained by the Company’s operating subsidiaries and governmental actions for the purpose of stabilizing the financial markets; (xxvi) the effects of mergers, acquisitions and divestitures; (xxvii) developments related to bankruptcies of companies insofar as they affect property and casualty insurance and reinsurance coverages or claims that the Company may have as a counterparty; (xxviii) changes in general economic conditions, including changes in interest rates, credit spreads, foreign currency exchange rates and other factors; (xxix) changes in applicable tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof; (xxx) the effects of business disruption or economic contraction due to war, terrorism or other hostilities; and (xxxi) the other factors set forth in Item 1A, “Risk Factors,” of the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, Part II, Item 1A, “Risk Factors,” in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 and the Company’s other documents on file with the SEC. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein or elsewhere. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by the federal securities laws.
Annualized Return on Ordinary Shareholders’ Equity Calculation
The following is a reconciliation of the Company’s annualized return on ordinary shareholders’ equity for the three and nine months ended September 30, 2011 and 2010:
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(U.S. dollars and shares in thousands, except percentages)
(Unaudited) | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
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| | 2011 | | 2010 | | 2011 | | 2010 | |
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Opening shareholders’ equity | | $ | 10,627,731 | | $ | 10,507,232 | | $ | 10,613,049 | | $ | 9,432,417 | |
Less: Non-controlling interest in equity of consolidated subsidiaries | | | (1,001,781 | ) | | (2,228 | ) | | (1,002,296 | ) | | (2,305 | ) |
Less: Series E preference ordinary shares | | | — | | | (1,000,000 | ) | | — | | | (1,000,000 | ) |
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Opening ordinary shareholders’ equity | | $ | 9,625,950 | | $ | 9,505,004 | | $ | 9,610,753 | | $ | 8,430,112 | |
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Closing shareholders’ equity | | | 10,941,986 | | | 10,869,610 | | | 10,941,986 | | | 10,869,610 | |
Less: Non-controlling interest in equity of consolidated subsidiaries | | | (1,001,784 | ) | | (1,002,223 | ) | | (1,001,784 | ) | | (1,002,223 | ) |
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Closing ordinary shareholders’ equity | | $ | 9,940,202 | | $ | 9,867,387 | | $ | 9,940,202 | | $ | 9,867,387 | |
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Average ordinary shareholders’ equity | | | 9,783,076 | | | 9,686,195 | | | 9,775,477 | | | 9,148,749 | |
Net income (loss) attributable to ordinary shareholders | | | 42,398 | | | 77,543 | | | 40,777 | | | 397,350 | |
Annualized net income (loss) attributable to ordinary shareholders | | | 169,592 | | | 310,172 | | | 54,369 | | | 529,800 | |
Annualized return on ordinary shareholders’ equity – Net income attributable to ordinary shareholders | | | 1.7 | % | | 3.2 | % | | 0.6 | % | | 5.8 | % |
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ITEM 3. | | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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Except as described below, there have been no material changes in the Company’s market risk exposures or how those exposures are managed since December 31, 2010. The following discussion should be read in conjunction with “Quantitative and Qualitative Disclosures about Market Risk,” presented under Item 7A of the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
The Company has established risk governance processes by which oversight and decision-making authorities with respect to risks are granted to individuals and strategies within the enterprise. The Company’s governance framework establishes accountabilities for tasks and outcomes as well as escalation criteria. Governance processes are designed to ensure that transactions and activities, individually and in the aggregate, are carried out in accordance with the Company’s risk policies, philosophies, appetites, limits and risk concentrations, and in a manner consistent with expectations of excellence of integrity, accountability and client service.
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. The Company is principally exposed to the following market risks: interest rate risk, foreign currency exchange rate risk, equity price risk, credit risk, and other related market risks.
The majority of the Company’s market risk arises from its investment portfolio, which consists of fixed income securities, alternative investments, public equities, private investments, derivatives, other investments, and cash, denominated in both U.S. and foreign currencies, which are sensitive to changes in interest rates, credit spreads, equity prices, foreign currency exchange rates and other related market risks. The Company’s fixed income and equity securities are generally classified as available for sale, and, as such, changes in interest rates, credit spreads on corporate and structured credit, equity prices, foreign currency exchange rates or other related market instruments will have an immediate effect on comprehensive income and shareholders’ equity but will not ordinarily have an immediate effect on net income. Nevertheless, changes in interest rates, credit spreads, equity prices and other related market instruments affect consolidated net income when, and if, a security is sold or impaired.
On a limited basis, the Company enters into derivatives and other financial instruments primarily for risk management purposes. The Company uses derivatives to hedge foreign exchange and interest rate risk related to its consolidated net exposures. From time to time, the Company also uses investment derivative instruments such as futures, options, interest rate swaps, credit default swaps and foreign currency forward contracts to manage the duration of its investment portfolio and foreign currency exposures and also to obtain exposure to a particular financial market. Historically, the Company entered into credit derivatives outside of the investment portfolio in conjunction with the Company’s previous financial lines businesses. The Company attempts to manage the risks associated with derivative use with guidelines established by senior management. Derivative instruments are carried at fair value with the resulting changes in fair value recognized in income in the period in which they occur. For further information, see Item 1, Note 7, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements.
This risk management discussion and the estimated amounts generated from the sensitivity and value at risk (“VaR”) analyses for the investment portfolio presented in this document are forward-looking statements of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from these estimated results due to, among other things, actual developments in the global financial markets and changes in the composition of the Company’s investment portfolio. The results of analysis used by the Company to assess and mitigate risk should not be considered projections of future events of losses. See generally “Cautionary Note Regarding Forward-Looking Statements,” in Item 2.
Interest Rate Risk
The Company’s fixed income portfolio is exposed to interest rate risk. Interest rate risk is the price sensitivity of a fixed income security to changes in interest rates. The Company generally manages interest rate risk within the context of its overall asset liability management strategy by setting duration targets for its investment portfolio in line with the estimated duration of its liabilities, thus mitigating the overall economic effect of interest rate risk and within the constraints of the Company’s risk appetite. Nevertheless, the Company remains exposed to interest rate risk with respect to the Company’s overall net asset position and more generally from an accounting standpoint since the assets are marked to market, thus subject to market conditions, while liabilities are accrued at a static rate.
In addition, while the Company’s debt is not carried at fair value and not adjusted for market changes, changes in market interest rates could have an impact on debt values at the time of refinancing.
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Foreign Currency Exchange Rate Risk
Many of the Company’s non-U.S. subsidiaries maintain both assets and liabilities in local currencies; therefore, foreign exchange risk is generally limited to net assets denominated in foreign currencies.
Foreign currency exchange rate gains and losses in the Company’s Statement of Income arise for accounting purposes when net assets or liabilities are denominated in foreign currencies that differ from the functional currency of those subsidiaries. While unrealized foreign exchange gains and losses on underwriting balances are reported in earnings, the offsetting unrealized gains and losses on invested assets are recorded as a separate component of shareholders’ equity, to the extent that the asset currency does not match that entity’s functional currency. This results in an accounting mismatch that will result in foreign exchange gains or losses in the consolidated statements of income depending on the movement in certain currencies. In order to improve administrative efficiencies as well as to address this accounting imbalance, the Company formed several branches with Euro and U.K. sterling functional currencies. Management continues to focus on attempting to limit this type of exposure in the future.
Foreign currency exchange rate risk in general is reviewed as part of the Company’s risk management process. Within its asset liability framework for the investment portfolio, the Company pursues a general policy of holding the assets and liabilities in the same currency and, as such, the Company is typically not exposed to the risks associated with foreign exchange movements within its investment portfolio as currency impacts on the assets are generally matched by corresponding impacts on the related liabilities. Foreign exchange contracts within the investment portfolio are utilized to manage individual portfolio foreign exchange exposures, subject to investment management service providers’ guidelines established by management. These contracts are generally not designated as specific hedges for financial reporting purposes and, therefore, realized and unrealized gains and losses on these contracts are recorded in income in the period in which they occur. These contracts generally have maturities of three months or less. The Company also attempts to manage the foreign exchange volatility arising on certain transactions denominated in foreign currencies. These include, but are not limited to, premiums receivable, reinsurance contracts, claims payable and investments in subsidiaries.
The principal currencies creating foreign exchange risk for the Company are the U.K. sterling, the Euro, the Swiss franc and the Canadian dollar. The following tables provide more information on the Company’s exposure to foreign exchange rate risk at September 30, 2011 and December 31, 2010:
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September 30, 2011
(Foreign Currency in millions) | | | Euro | | | U.K. Sterling | | | Swiss Franc | | | Canadian
Dollar | |
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Net exposure to key foreign currencies | | | | 86.1 | | | | | (6.0 | ) | | | | 166.8 | | | | | 236.0 | | |
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December 31, 2010
(Foreign Currency in millions) | | | Euro | | | U.K. Sterling | | | Swiss Franc | | | Canadian
Dollar | |
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Net exposure to key foreign currencies | | | | 90.3 | | | | | 2.1 | | | | | 268.4 | | | | | 247.8 | | |
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Credit Risk
The Company is exposed to direct credit risk within its investment portfolio as well as through general counterparties, including customers and reinsurers. Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. The Company manages credit risk through established investment credit policies that address the quality of obligors and counterparties, industry limits, and diversification requirements. The Company’s exposure to market credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads.
Certain of the Company’s underwriting activities expose it to indirect credit risk in that profitability of certain strategies can correlate with credit events at the issuer level, industry level or country level. The Company manages these risks through established underwriting policies that operate in accordance with established limit and escalation frameworks.
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Credit Risk – Investment Portfolio
Credit risk is the exposure to adverse changes in the creditworthiness of individual investment holdings, issuers, groups of issuers, industries and countries. A widening of credit spreads will increase the net unrealized loss position, will increase losses associated with credit based non-qualifying derivatives where the Company assumes credit exposure, and, if issuer credit spreads increase significantly or for an extended period of time, would likely result in higher other-than-temporary impairments. All else held equal, credit spread tightening will reduce net investment income associated with new purchases of fixed maturities. In addition, market volatility can make it difficult to value certain of the Company’s securities if trading becomes less frequent. As such, valuations may include assumptions or estimates that may have significant period to period changes that could have a material adverse effect on the Company’s consolidated results of operations or financial condition.
The table below shows the Company’s aggregate fixed income portfolio by credit rating in percentage terms of the Company’s aggregate fixed income exposure (including fixed maturities, short-term investments, cash and cash equivalents and payable for investments purchased) at September 30, 2011.
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| | Percentage of
Aggregate Fixed
Income Portfolio | |
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AAA | | | 52.4 | % |
AA | | | 16.7 | % |
A | | | 21.3 | % |
BBB | | | 6.9 | % |
BB & below | | | 2.7 | % |
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Total (1) | | | 100.0 | % |
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(1) | Included in the above are $429.2 million or 1.3% of the portfolio that represents medium term notes rated at the average credit rating of the underlying asset pools backing the notes. |
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(2) | The credit rating for each asset reflected above was principally determined based on the weighted average rating of the individual securities from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. For U.S. Treasuries, Agencies and Federal Deposit Insurance Corporation Guaranteed securities, the average rating remains AAA as only one of the three major rating agencies downgraded the U.S. from AAA to AA+ during the quarter. |
At September 30, 2011, the average credit quality of the Company’s aggregate fixed income investment portfolio was “AA,” excluding operating cash.
The Company is closely monitoring its corporate financial bond holdings given the events of the past four years. The table below summarizes the Company’s significant exposures (defined as bonds issued by financial institutions with an amortized cost in excess of $50.0 million) to corporate bonds of financial issuers held within its available for sale and HTM investment portfolio at September 30, 2011, representing both amortized cost and net unrealized gains (losses):
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(U.S. dollars in millions) | | | | | | | |
Issuer (by Global Ultimate Parent) | | Amortized Cost
September 30, 2011
(1) | | Unrealized Gain/
(Loss)
September 30, 2011 | |
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Rabobank Nederland NV | | $ | 186.1 | | $ | (0.2 | ) |
Lloyds Banking Group plc | | | 150.2 | | | 1.4 | |
The Goldman Sachs Group, Inc. | | | 144.0 | | | (7.0 | ) |
HSBC Holdings plc | | | 132.4 | | | (8.4 | ) |
JPMorgan Chase & Co. | | | 126.9 | | | (5.3 | ) |
Bank of America Corporation | | | 117.3 | | | (13.3 | ) |
National Australia Bank Limited | | | 116.2 | | | (4.7 | ) |
Morgan Stanley | | | 111.1 | | | (2.9 | ) |
The Bank Of Nova Scotia | | | 104.5 | | | 3.1 | |
Citigroup Inc. | | | 103.7 | | | (5.8 | ) |
H M Government Cabinet Office (RBS Group plc) | | | 101.5 | | | 4.0 | |
Barclays plc | | | 98.7 | | | (29.7 | ) |
Wells Fargo & Company | | | 94.2 | | | 1.4 | |
Australia and New Zealand Banking Group Limited | | | 91.9 | | | (0.4 | ) |
Westpac Banking Corporation | | | 85.3 | | | 1.6 | |
Credit Suisse Group AG | | | 83.3 | | | (1.7 | ) |
Canadian Imperial Bank Of Commerce | | | 80.8 | | | 2.3 | |
BNP Paribas | | | 76.3 | | | (7.1 | ) |
UBS AG | | | 74.2 | | | (2.2 | ) |
Standard Chartered plc | | | 73.5 | | | (3.5 | ) |
The Bank Of New York Mellon Corporation | | | 69.0 | | | 1.6 | |
Nationwide Building Society | | | 68.4 | | | (8.0 | ) |
Nordea Bank AB | | | 67.7 | | | (1.9 | ) |
Aviva plc | | | 66.4 | | | (19.3 | ) |
BPCE | | | 65.0 | | | (3.8 | ) |
U.S. Bancorp | | | 64.3 | | | 1.0 | |
Commonwealth Bank Of Australia | | | 58.9 | | | (1.2 | ) |
Bank of Montreal | | | 58.5 | | | 2.5 | |
Legal & General Group plc | | | 56.0 | | | (9.4 | ) |
Svenska Handelsbanken AB | | | 53.5 | | | (2.3 | ) |
MetLife, Inc. | | | 51.6 | | | 2.6 | |
H M Government Cabinet Office (Northern Rock Plc) | | | 51.1 | | | 0.4 | |
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(1) | Government-guaranteed paper has been excluded from the above figures. Included within all financial bond exposures are covered bonds with a fair value of $389.1 million and amortized cost of $377.5 million. |
Within the Company’s corporate financial bond holdings, the Company is further monitoring its exposures to hybrid securities, representing Tier One and Upper Tier Two securities of various financial institutions. The following table summarizes the top ten exposures to hybrid securities, listed by amortized cost and including unrealized (losses):
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(U.S. dollars in millions) | | | | | | | | | | | | | |
Issuer (by Global Ultimate Parent) | | Tier One
Amortized Cost
September 30, 2011 | | Upper Tier Two
Amortized Cost
September 30, 2011 | | Total
Amortized Cost
September 30, 2011 | | Net Unrealized
(Loss)
September 30, 2011 | |
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Barclays, Plc | | $ | 33.4 | | $ | 51.2 | | $ | 84.6 | | $ | (24.0 | ) |
Danske Bank A/S | | | 26.4 | | | 19.8 | | | 46.2 | | | (10.0 | ) |
Aviva PLC | | | 5.7 | | | 40.0 | | | 45.7 | | | (15.6 | ) |
Zurich Financial Services AG | | | — | | | 25.8 | | | 25.8 | | | (6.2 | ) |
Nationwide Building Society | | | 25.0 | | | — | | | 25.0 | | | (8.7 | ) |
Legal & General Group PLC | | | — | | | 24.8 | | | 24.8 | | | (7.2 | ) |
Standard Life PLC | | | — | | | 21.5 | | | 21.5 | | | (6.0 | ) |
Mitsubishi UFJ Financial Group, Inc. | | | 20.9 | | | — | | | 20.9 | | | (1.8 | ) |
RSA Insurance Group PLC | | | — | | | 20.8 | | | 20.8 | | | (3.8 | ) |
The British United Provident Association Limited | | | — | | | 20.3 | | | 20.3 | | | (6.1 | ) |
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Total | | $ | 111.4 | | $ | 224.2 | | $ | 335.6 | | $ | (89.4 | ) |
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At September 30, 2011, the top 10 corporate bond holdings listed below represent the direct exposure to the corporations listed below, including their subsidiaries, and excludes any securitized, credit enhanced and collateralized asset or mortgage-backed securities, cash and cash equivalents, pooled notes and any OTC derivative counterparty exposure, if applicable.
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Top 10 Corporate Holdings (1) | | Percentage of Aggregate
Fixed Income Portfolio (2) | |
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Pfizer Inc. | | | 0.6 | % |
Wal-Mart Stores Inc. | | | 0.6 | % |
General Electric Company | | | 0.5 | % |
AT&T Inc. | | | 0.5 | % |
The Proctor & Gamble Company | | | 0.5 | % |
GlaxoSmithKline PLC | | | 0.4 | % |
BP P.L.C. | | | 0.4 | % |
PepsiCo, Inc. | | | 0.4 | % |
Novartis AG | | | 0.4 | % |
Verizon Communications, Inc. | | | 0.4 | % |
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(1) | Corporate issuers exclude government-backed, government-sponsored enterprises and cash and cash equivalents. |
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(2) | Government-guaranteed paper has been excluded from the above figures. |
At September 30, 2011, the top 5 corporate bond sector exposures listed below represented 28.1% of the aggregate fixed income investment portfolio and 76.8% of all corporate holdings.
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(U.S. dollars in millions) | | | | | | | |
Top 5 Sector Exposures | | Fair Value | | Percentage of
Aggregate
Fixed Income
Portfolio | |
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Financials (1) | | $ | 3,938.2 | | | 11.7 | % |
Consumer, Non-Cyclical | | | 2,260.8 | | | 6.7 | % |
Utilities | | | 1,401.2 | | | 4.2 | % |
Communications | | | 955.0 | | | 2.8 | % |
Energy | | | 914.1 | | | 2.7 | % |
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Total | | $ | 9,469.3 | | | 28.1 | % |
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(1) | Government-guaranteed paper has been excluded from the above figures. |
Within the Company’s fixed income portfolios, the Company is further monitoring its exposures to holdings representing risk in certain Eurozone countries (Portugal, Italy, Ireland, Greece and Spain). In particular, the Company has government holdings of $27.7 million, corporate holdings of $266.9 million (financials $55.6 million, non-financials $211.3 million) and structured credit holdings totaling $3.5 million in Portugal, Italy, Ireland, Greece and Spain. The non-financial corporate holdings primarily consist of multinationals with low reliance on local economics and systemically important industries such as utilities and telecoms.
The Company also has exposure to market movement related to credit risk associated with its mortgage-backed and asset-backed securities. The table below shows the breakdown of the $9.4 billion structured credit portfolio, of which 78.5% is AAA rated:
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(U.S. dollars in millions) | | Fair Value | | Percentage of
Structured Portfolio | |
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CMBS | | $ | 1,016.9 | | | 10.8 | % |
Non-Agency RMBS | | | 764.9 | | | 8.1 | % |
Core CDO (non-ABS CDOs and CLOs) | | | 671.9 | | | 7.2 | % |
Other ABS | | | 1,346.3 | | | 14.3 | % |
Agency RMBS | | | 5,600.5 | | | 59.6 | % |
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Total | | $ | 9,400.5 | | | 100.0 | % |
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Credit Risk – Other
Credit derivatives are purchased within the Company’s investment portfolio, have been sold through a limited number of contracts written as part of the Company’s previous financial lines businesses, and were previously entered into through the
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Company’s prior reinsurance agreements with Syncora, as described below. From time to time, the Company may purchase credit default swaps to hedge an existing position or concentration of holdings. The credit derivatives are recorded at fair value. For further details with respect to the Company’s exposure to credit derivatives see Item 1, Note 7, “Derivative Instruments,” to the Company’s Unaudited Consolidated Financial Statements herein.
The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, alternatives and other investment funds and other institutions. Many of these transactions expose the Company to credit risk in the event of default of the Company’s counterparty. In addition, with respect to secured transactions, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be sold or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure that is due. The Company also has exposure to financial institutions in the form of unsecured debt instruments, derivative transactions, revolving credit facility and letter of credit commitments and equity investments. There can be no assurance that any such losses or impairments to the carrying value of these assets would not materially and adversely affect the Company’s business and results of operations.
With regards to unpaid losses and loss expenses recoverable and reinsurance balances receivable, the Company has credit risk should any of its reinsurers be unable or unwilling to settle amounts due to the Company; however, these exposures are not marked to market. For further information relating to reinsurer credit risk, see Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Unpaid Losses and Loss Expenses Recoverable and Reinsurance Balances Receivable.”
The Company is exposed to credit risk in the event of non-performance by the other parties to its derivative instruments in general; however, the Company does not anticipate non-performance. The difference between the notional principal amounts and the associated market value is the Company’s maximum credit exposure.
Equity Price Risk
The Company’s equity investment portfolio as well as other investments, primarily representing certain derivatives and certain affiliate investments, are exposed to mark to market movements associated with equity price risk. Equity price risk is the potential loss arising from changes in the market value of equities. At September 30, 2011, the Company’s equity portfolio was approximately $318.1 million as compared to $84.8 million at December 31, 2010. This excludes fixed income fund investments that generally do not have the risk characteristics of equity investments. At September 30, 2011 and December 31, 2010, the Company’s direct allocation to equity securities was 0.9% and 0.3%, respectively, of the total investment portfolio (including cash and cash equivalents, accrued investment income and net receivable/(payable) for investments sold/(purchased)). The Company also estimates the equity risk embedded in certain alternative and private investments. Such estimates are derived from market exposures provided to the Company by certain individual fund investments and/or internal statistical analyses.
Other Market Risks
The Company’s private investment portfolio is invested in limited partnerships and other entities that are not publicly traded. In addition to normal market risks, these positions may also be exposed to liquidity risk, risks related to distressed investments and risks specific to startup or small companies. At September 30, 2011, the Company’s exposure to private investments was $301.1 million, as compared to $331.7 million at December 31, 2010.
The Company’s alternative investment portfolio, which is exposed to equity and credit risk as well as certain other market risks, had a total exposure of approximately $1.0 billion making up approximately 3.0% of the total investment portfolio (including cash and cash equivalents, accrued investment income and payable for investments purchased) at September 30, 2011, as compared to December 31, 2010, where the Company had a total exposure of $933.5 million representing approximately 2.8% of the total investment portfolio.
At September 30, 2011, bond and stock index futures outstanding had a net long position of $6.3 million as compared to a net long position of $14.1 million at December 31, 2010. The Company may reduce its exposure to these futures through offsetting transactions, including options and forwards.
As noted above, the Company also invests in certain derivative positions which can be impacted by market value movements. For further details on derivative instruments see Item 1, Note 7, “Derivative Instruments,” to the Company’s Unaudited Consolidated Financial Statements herein.
Sensitivity and Value-at-Risk Analysis
The table below summarizes the Company’s assessment of the estimated impact on the value of the Company’s investment portfolio at September 30, 2011 associated with an immediate and hypothetical: +100bps increase in interest rates, a -10% decline in equity markets, a +100bps widening in spreads and a +10% widening in spreads. The table also reports the 95%, 1-year VaRs for the Company’s investment portfolios at September 30, 2011, excluding foreign exchange.
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The interest rate, spread risk, and VaR referenced in the table below include the impact of market movements on the Company’s HTM fixed maturities from the Company’s Life investment portfolios. While the market value of these holdings is sensitive to prevailing interest rates and credit spreads, the Company’s book value is not impacted as these holdings are carried at amortized cost. At September 30, 2011, if the Company were to exclude these impacts of the Life investment portfolios, the table below would be adjusted to reflect the following reductions: the interest rate risk would be reduced by approximately $299.1 million, absolute spread risk would be reduced by approximately $200.6 million, relative spread risk would be reduced by approximately $27.5 million, and VaR would be reduced by approximately $472.2 million.
The table below excludes the impact of foreign exchange rate risk on the investment portfolio. The investment portfolio is generally managed on an asset-liability matched basis, and, accordingly, foreign exchange movements typically impact the assets and liabilities equally. See “Foreign Currency Exchange Rate Risk” for further details. The Company considers that the investment portfolio VaR estimated results as well as P&C and Life investment portfolios VaR estimated results excluding foreign exchange rate risk are the more relevant and appropriate metrics to consider when assessing the actual risk of the portfolio.
The estimated results below also do not include any risk contributions from our various operating affiliates (strategic, investment manager or financial operating affiliates) or certain other investments that are carried at amortized cost.
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(U.S. dollars in thousands) | | Interest
Rate
Risk(1) | | Equity
Risk
(2) | | Absolute
Spread
Risk (3) | | Relative
Spread
Risk (4) | | VaR
(5)(6) | |
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Total Investment Portfolio (7) | | $ | (1,266.2 | ) | $ | (81.3 | ) | $ | (1,243.2 | ) | $ | (241.2 | ) | $ | 1,812.9 | |
A. P&C Investment Portfolio | | $ | (739.8 | ) | $ | (81.3 | ) | $ | (795.6 | ) | $ | (124.9 | ) | $ | 1,163.2 | |
(I) P&C Fixed Income Portfolio | | | (739.8 | ) | | — | | | (795.6 | ) | | (124.9 | ) | | 1,228.5 | |
(a) Cash & Short Term Investments | | | (12.3 | ) | | — | | | — | | | — | | | 22.5 | |
(b) Total Government-Related | | | (241.1 | ) | | — | | | (165.3 | ) | | (6.4 | ) | | 283.3 | |
(c) Total Corporate Credit | | | (314.9 | ) | | — | | | (351.1 | ) | | (62.2 | ) | | 497.4 | |
(d) Total Structured Credit | | | (171.6 | ) | | — | | | (272.3 | ) | | (56.1 | ) | | 546.0 | |
(II) P&C Non-Fixed Income Portfolio | | | — | | | (81.3 | ) | | — | | | — | | | 236.8 | |
(e) Equity Portfolio | | | — | | | (32.1 | ) | | — | | | — | | | 142.0 | |
(f) Alternative Portfolio | | | — | | | (18.3 | ) | | — | | | — | | | 82.0 | |
(g) Private Investments | | | — | | | (31.0 | ) | | — | | | — | | | 117.1 | |
B. Life Investment Portfolio | | $ | (518.1 | ) | $ | — | | $ | (410.1 | ) | $ | (113.3 | ) | $ | 771.3 | |
(III) Life Fixed Income Portfolio | | | (518.1 | ) | | — | | | (410.1 | ) | | (113.3 | ) | | 771.3 | |
(i) Cash & Short Term Investments | | | (0.1 | ) | | — | | | — | | | — | | | 0.4 | |
(j) Total Government-Related | | | (215.9 | ) | | — | | | (77.3 | ) | | (4.4 | ) | | 363.6 | |
(k) Total Corporate Credit | | | (251.3 | ) | | — | | | (273.5 | ) | | (87.8 | ) | | 414.2 | |
(l) Total Structured Credit | | | (50.9 | ) | | — | | | (59.2 | ) | | (21.1 | ) | | 82.0 | |
(IV) Life Non-Fixed Income Portfolio | | | — | | | — | | | — | | | — | | | — | |
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(1) | The estimated impact on the fair value of the Company’s fixed income portfolio of an immediate hypothetical +100 bps adverse parallel shift in global bond curves. |
(2) | The estimated impact on the fair value of the Company’s investment portfolio of an immediate hypothetical -10% change in the value of equity exposures in the Company’s equity portfolio, certain equity-sensitive alternative investments and private equity investments. This includes the Company’s estimate of equity risk embedded in the alternatives and private investment portfolio with such estimates utilizing market exposures provided to the Company by certain individual fund investments, internal statistical analyses, and/or various assumptions regarding illiquidity and concentrations. |
(3) | The estimated impact on the fair value of the Company’s fixed income portfolio of an immediate hypothetical +100 basis point increase in all global corporate and structured credit spreads to which the Company’s fixed income portfolio is exposed. This excludes exposure to credit spreads in the Company’s alternative investments, private investments and counterparty exposure. |
(4) | The estimated impact on the fair value of the Company’s fixed income portfolio of an immediate hypothetical +10% increase in all global corporate and structured credit spreads to which the Company’s fixed income portfolio is exposed. This excludes exposure to credit spreads in the Company’s alternative investments, private investments and counterparty exposure. |
(5) | The VaR results are based on a 95% confidence interval, with a one year holding period, excluding foreign exchange rate risk. The Company’s investment portfolio VaR at September 30, 2011 is not necessarily indicative of future VaR levels. |
(6) | The VaR results are the standalone VaRs, based on the prescribed methodology, for each component of the Company’s Total Investment Portfolio. The standalone VaRs of the individual components are non-additive, with the difference between the summation of the individual component VaRs and their respective aggregations being due to diversification benefits across the individual components. In the case of the VaR results for the Company’s Total Investment Portfolio, the results also include the impact associated with the Company’s Business and Other Investments. |
(7) | The Company’s Total Investment Portfolio comprises the Company’s P&C Investment Portfolio and Life Investment Portfolio as well as the Company’s Business and Other Investments that do not form part of the Company’s P&C Investment Portfolio or Life Investment Portfolio. The individual results reported in the above table for the Company’s Total Investment Portfolio therefore represent the aggregate impact on the Company’s P&C Investment Portfolio, Life Investment Portfolio and the majority of the Company’s Other Investments. |
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Stress Testing
VaR does not provide the means to estimate the magnitude of the loss in the 5% of occurrences when the Company expects the VaR level to be exceeded. To complement the VaR analysis based on normal market environments, the Company considers the impact on the investment portfolio in several different stress scenarios to analyze the effect of unusual market conditions. The Company establishes certain stress scenarios which are applied to the actual investment portfolio. As these stress scenarios and estimated gains and losses are based on scenarios established by the Company, they will not necessarily reflect future stress events or gains and losses from such events. The results of the stress scenarios are reviewed on a regular basis to ensure they are appropriate, based on current shareholders’ equity, market conditions and the Company’s total risk tolerance. It is important to note that when assessing the risk of the Company’s investment portfolio, the Company does not take into account either the value or risk associated with the liabilities arising from the Company’s operations.
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ITEM 4. | | CONTROLS AND PROCEDURES |
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Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that all material information relating to the Company required to be included in this report has been made known to them in a timely fashion.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting identified in connection with the Company’s evaluation required pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II–OTHER INFORMATION
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ITEM 1. | | LEGAL PROCEEDINGS |
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The Company is subject to legal proceedings and claims, as described in its Annual Report on Form 10-K for the year ended December 31, 2010. Material developments to such proceedings during the three months ended September 30, 2011 are described below.
In August 2005, plaintiffs in a proposed class action (the “Class Action”) that was consolidated into a multidistrict litigation in the United States District Court for the District of New Jersey, captioned In re Brokerage Antitrust Litigation, MDL No. 1663, Civil Action No. 04-5184 (the “MDL”), filed a consolidated amended complaint (the “Amended Complaint”), which named as new defendants approximately 30 entities, including Greenwich Insurance Company, Indian Harbor Insurance Company and XL-Cayman (the “XL Defendants”). In the MDL, the Class Action plaintiffs asserted various claims purportedly on behalf of a class of commercial insureds against approximately 113 insurance companies and insurance brokers through which the named plaintiffs allegedly purchased insurance. The Amended Complaint alleged that the defendant insurance companies and insurance brokers conspired to manipulate bidding practices for insurance policies in certain insurance lines and failed to disclose certain commission arrangements and asserted statutory claims under the Sherman Act, various state antitrust laws and the Racketeer Influenced and Corrupt Organizations Act (“RICO”), as well as common law claims alleging breach of fiduciary duty, aiding and abetting a breach of fiduciary duty and unjust enrichment. By Opinion and Order dated August 31, 2007, the District Court dismissed the Sherman Act claims with prejudice and, by Opinion and Order dated September 28, 2007, the District Court dismissed the RICO claims with prejudice. The plaintiffs then appealed both Orders to the U.S. Court of Appeals for the Third Circuit. On August 16, 2010, the Third Circuit affirmed in large part the District Court’s dismissal. The Third Circuit reversed the dismissal of certain Sherman Act and RICO claims alleged against several defendants including the XL Defendants but remanded those claims to the District Court for further consideration of their adequacy. In light of its reversal and remand of certain of the federal claims, the Third Circuit also reversed the District Court’s dismissal (based on the District Court’s declining to exercise supplemental jurisdiction) of the state-law claims against all defendants. On October 1, 2010, the remaining defendants, including the XL Defendants, filed motions to dismiss the remanded federal claims and the state-law claims. The motions were fully briefed in November 2010. In May 2011, a majority of the remaining defendants, including the XL Defendants, executed a formal Settlement Agreement with the Class Action plaintiffs to settle the Class Action and dismiss all claims with prejudice. The settlement was preliminarily approved by the District Court in June 2011 and a final fairness hearing was held on September 14, 2011; the District Court has not yet decided the Class Action plaintiffs’ motion for approval of the settlement. The XL Defendants’ portion of the defendants’ aggregate settlement payment is $6.75 million.
Various XL entities have been named as defendants in three of the many tag-along actions that have been consolidated into the MDL for pretrial purposes. The complaints in these tag-along actions make allegations similar to those made in the Amended Complaint but do not purport to be class actions. On April 4, 2006, a tag-along complaint was filed in the U.S. District Court for the Northern District of Georgia on behalf of New Cingular Wireless Headquarters LLC and several other corporations and remains pending against approximately 100 defendants, including Greenwich Insurance Company, XL Specialty Insurance Company, XL Insurance America, Inc., XL Insurance Company Limited and XL-Cayman. On or about May 21, 2007, a tag-along complaint was filed in the U.S. District Court for the District of New Jersey on behalf of Henley Management Company, Big Bear Properties, Inc., Northbrook Properties, Inc., RCK Properties, Inc., Kitchens, Inc., Aberfeldy LP and Payroll and Insurance Group, Inc. against multiple defendants, including “XL Winterthur International.” On October 12, 2007, a complaint in a third tag-along action was filed in the U.S. District Court for the Northern District of Georgia by Sears, Roebuck & Co., Sears Holdings Corporation, Kmart Corporation and Lands’ End Inc. against many named defendants including X.L. America, Inc., XL Insurance America, Inc., XL Specialty Insurance Company and XL Insurance (Bermuda) Ltd. At a teleconference hearing on October 17, 2011, the District Court lifted the stay of the tag-along actions, including the three in which the XL entities are named defendants, and directed the parties to submit a proposed Scheduling Order that will include, among other things, deadlines for amending the Complaints in the tag-along actions and filing motions to dismiss the existing or amended Complaints.
XL-Cayman and one of its subsidiaries, Syncora, four Syncora officers, and various underwriters of Syncora securities were named in a Consolidated Amended Complaint filed in August 2008 in the Southern District of New York purportedly on behalf of a class of shareholders of Syncora. On September 27, 2011, the court entered a judgment dismissing the action with prejudice in its entirety, and the time for seeking rehearing or for filing a notice of appeal has now run without plaintiffs taking any action.
The Company and its subsidiaries are subject to litigation and arbitration in the normal course of its business. These lawsuits and arbitrations principally involve claims on policies of insurance and contracts of reinsurance and are typical for the Company and for the property and casualty insurance and reinsurance industry in general. Such legal proceedings are considered in connection with the Company’s loss and loss expense reserves. Reserves in varying amounts may or may not be established in respect of particular claims proceedings based on many factors, including the legal merits thereof. In addition to litigation relating to insurance and reinsurance claims, the Company and its subsidiaries are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance or reinsurance policies. This category of business litigation typically
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involves, among other things, allegations of underwriting errors or misconduct, employment claims, regulatory activity, shareholder disputes or disputes arising from business ventures. The status of these legal actions is actively monitored by management.
Legal actions are subject to inherent uncertainties, and future events could change management’s assessment of the probability or estimated amount of potential losses from pending or threatened legal actions. Based on available information, it is the opinion of management that the ultimate resolution of pending or threatened legal actions, both individually and in the aggregate, will not result in losses having a material adverse effect on the Company’s position or liquidity at September 30, 2011.
For a discussion of the Company’s potential risks or uncertainties, please see “Risk Factors” in Part I, Item 1A of the Company’s 2010 Annual Report on Form 10-K and “Risk Factors in Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 filed with the Securities and Exchange Commission.
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ITEM 2. | | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
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(c) Purchases of Equity Securities by the Issuer and Affiliate Purchasers
The following table provides information about purchases by the Company during the three months ended September 30, 2011 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:
| | | | | | | | | | | | | |
Period | | Total Number
of Shares
Purchased (1) | | Average Price
Paid
per Share | | Total Number
of Shares
Purchased as
Part of
Publicly
Announced Plans
or Programs | | Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans
or Programs (2) | |
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July 1-31, 2011 | | | 6,674,036 | | $ | 21.57 | | | 6,674,036 | | $ | 454.1 million | |
August 1-31, 2011 | | | 6,871,298 | | | 19.17 | | | 6,870,120 | | | 322.4 million | |
September 1-30, 2011 | | | 1,588,106 | | | 20.14 | | | 1,588,106 | | | 290.4 million | |
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|
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|
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Total | | | 15,133,440 | | $ | 20.33 | | | 15,132,262 | | $ | 290.4 million | |
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(1) | Shares purchased in connection with the vesting of restricted shares granted under the Company’s restricted stock plan do not represent shares purchased as part of publicly announced plans or programs. All such purchases were made in connection with satisfying tax withholding obligations of those employees. These shares were not purchased as part of the Company’s share buyback program noted below. |
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(2) | On November 2, 2010, the Company announced that its Board of Directors approved a share buyback program, authorizing the Company to purchase up to $1.0 billion of its ordinary shares. During 2010, the Company purchased and canceled 6.9 million ordinary shares under this program for $144.0 million. During the first half of 2011, the Company purchased and canceled 11.6 million ordinary shares under this program for $257.9 million. During the third quarter of 2011, the Company purchased and canceled 15.1 million ordinary shares under this program for $307.7 million. All share buybacks were carried out by way of redemption in accordance with Irish law and the Company’s constitutional documents. All shares so redeemed were canceled upon redemption. At September 30, 2011, $290.4 million remained available to be used for purchases under this program and no further buybacks have been made in the subsequent period to November 1, 2011. |
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The following exhibits are filed as exhibits to this Quarterly Report: |
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4.1 | Indenture, dated September 30, 2011, among XL Group plc, XL Group Ltd. and Wells Fargo Bank, National Association, as Trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (No. 1-10804) filed on September 30, 2011. |
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4.2 | First Supplemental Indenture, dated September 30, 2011 to the Indenture dated September 30, 2011 among XL Group plc, XL Group Ltd. and Wells Fargo Bank, National Association, as Trustee, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (No. 1-10804) filed on September 30, 2011. |
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4.3 | Form of 5.75% Senior Note due 2021, incorporated by reference to exhibit 4.2 to the Company’s Current Report on Form 8-K (No. 1-10804) filed on September 30, 2011. |
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31* | Rule 13a-14(a)/15d-14(a) Certifications. |
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32* | Section 1350 Certification. |
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101.INS* | XBRL Instance Document** |
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101.SCH* | XBRL Taxonomy Extension Schema Document** |
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101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document** |
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101.LAB* | XBRL Taxonomy Extension Label Linkbase Document** |
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101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document** |
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101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document** |
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* | Filed herewith. |
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** | These interactive data files are furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: November 3, 2011 | |
| XL Group plc |
| (Registrant) |
| /s/ MICHAEL S. MCGAVICK |
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| Name: Michael S. McGavick |
| Title: Chief Executive Officer and Director |
| XL Group plc |
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Date: November 3, 2011 | |
| /s/ PETER R. PORRINO |
|
|
| Name: Peter R. Porrino |
| Title: Executive Vice President and Chief Financial Officer |
| XL Group plc |
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