The Company establishes reserves to provide for estimated claims, the general expenses of administering the claims adjustment process and losses incurred but not reported. These reserves are calculated using actuarial and other reserving techniques to project the estimated ultimate net liability for losses and loss expenses. The Company’s reserving practices and the establishment of any particular reserve reflects management’s judgment concerning sound financial practice and do not represent any admission of liability with respect to any claims made against the Company.
Unpaid losses and loss expenses totaled $20.3 billion and $20.6 billion at March 31, 2012 and December 31, 2011, respectively. The table below represents a reconciliation of the Company’s P&C unpaid losses and loss expenses for the three months ended March 31, 2012:
While the Company reviews the adequacy of established reserves for unpaid losses and loss expenses regularly, no assurance can be given that actual claims made and payments related thereto will not be in excess of the amounts reserved. In the future, if such reserves develop adversely, such deficiency would have a negative impact on future results of operations. For further discussion, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates – 1) Unpaid Loss and Loss Expenses and Unpaid Loss and Loss Expenses Recoverable” and Item 8, Note 10, “Losses and Loss Expenses,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
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 the Company’s insureds. Accordingly, the losses and loss expense reserves on the balance sheet represent the Company’s total unpaid gross losses. Unpaid losses and loss expense recoverable relates to estimated reinsurance recoveries on the unpaid loss and loss expense reserves.
Unpaid losses and loss expense recoverables were $3.4 billion and $3.7 billion at March 31, 2012 and December 31, 2011, respectively. At March 31, 2012 and December 31, 2011, reinsurance balances receivable were $0.3 billion and $0.2 billion, respectively. The table below presents the Company’s net paid and unpaid losses and loss expenses recoverable and reinsurance balances receivable at March 31, 2012 and December 31, 2011.
LIQUIDITY AND CAPITAL RESOURCES
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 is collectively available from 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 cancelation 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 constitute an event of default under the Company’s three largest credit facilities and may trigger such collateral requirements. 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. See Item 1A, “Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Holding Company Liquidity
As holding companies, XL-Ireland and XL-Cayman have no operations of their own and their assets consist primarily of investments in subsidiaries. Accordingly, XL-Ireland’s and XL-Cayman’s future cash flows largely depend on the availability of dividends or other statutorily permissible payments from subsidiaries. The ability to pay such dividends is limited by the applicable laws and regulations of the various countries and states in which these subsidiaries operate, including, among others, the Cayman Islands, Bermuda, the United States, New York, Ireland, Switzerland and the U.K. See Item 8, Note 23, “Statutory Financial Data,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further discussion and details regarding the dividend capacity of the Company’s major operating subsidiaries. See also Item 1A, “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,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. 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 and XL-Cayman.
Under Irish law, share premium was required to be converted to “distributable reserves” for the Company to have the ability to pay cash dividends and redeem and buyback shares following the Redomestication. On July 23, 2010, the Irish High Court approved XL-Ireland’s conversion of share premium to $5.0 billion of distributable reserves, subject to the completion of certain formalities under Irish Company law. These formalities were completed in early August 2010. At March 31, 2012, XL-Ireland had $4.0 billion in distributable reserves.
During 2009, management changed the internal ownership structure of certain of the Company’s operating subsidiaries in Bermuda and Ireland in order to more efficiently utilize capital and to improve overall liquidity. In connection with these changes, certain dividends were paid to XL-Cayman by operating subsidiaries. At March 31, 2012, XL-Ireland and XL-Cayman held cash and investments, net of liabilities associated with cash sweeping arrangements, of $9.4 million and $1.1 billion, respectively, compared to $1.6 million and $2.0 billion, respectively, at December 31, 2011.
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XL-Ireland’s principal uses of liquidity are ordinary share related transactions including dividend payments to holders of its ordinary shareholders as well as share buybacks, capital investments in its subsidiaries and certain corporate operating expenses.
XL-Cayman’s principal uses of liquidity are preference share related transactions including dividend payments to its preference shareholders as well as preference share buybacks from time to time, interest and principal payments on debt and certain corporate operating expenses.
All outstanding debt of the Company at March 31, 2012 and December 31, 2011 was issued by XL-Cayman except for the $600 million XLCFE Notes which were issued by XL Capital Finance (Europe) plc (“XLCFE”) and were repaid at maturity on January 15, 2012. Both XL-Cayman and XLCFE are wholly-owned subsidiaries of XL-Ireland. XL-Cayman’s outstanding debt is fully and unconditionally guaranteed by XL-Ireland. The Company’s ability to obtain funds from its subsidiaries to satisfy any of its obligations under guarantees 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. At December 31, 2011, required statutory capital and surplus for the principal operating subsidiaries of the Company was $6.7 billion.
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 Unaudited Consolidated Statements of Cash Flows in Item 1, Financial Statements included herein.
Sources of Liquidity for the Company
At March 31, 2012, the consolidated Company had cash and cash equivalents of approximately $2.5 billion as compared to approximately $3.8 billion at December 31, 2011. 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. 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 three months ended March 31, 2012, net cash flows provided by operating activities were $153.4 million compared to net cash flows provided by operating activities of $63.3 million for the same period in 2011. The operating cash increase was primarily due to the net income in the three months ended March 31, 2012 compared to a loss in the same period of 2011 and from a reduction in unpaid losses and loss expenses due to the natural catastrophe reserves established in the three months ended March 31, 2011 which were paid out during that year.
Investing Cash Flows
Generally, positive cash flow from operations and financing activities is invested in the Company’s investment portfolio, including affiliates or acquisition of subsidiaries.
Net cash used in investing activities was $762.1 million in the three months ended March 31, 2012 compared to net cash provided of $500.1 million for the same period in 2011. These cash flows were mainly associated with the normal purchase and sale of portfolio investments.
Certain of the Company’s invested assets are held in trust and pledged in support of insurance and reinsurance liabilities. Such pledges are largely required 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. Also, certain deposit liabilities and annuity contracts require the use of pledged assets. As further outlined in Item 1, Note 5, “Investments — Pledged Assets,” to the Unaudited Consolidated Financial Statements included herein, certain assets of the investment portfolio are collateralized for the Company’s
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letter of credit facilities. At March 31, 2012 and December 31, 2011, the Company had $17.6 billion and $17.2 billion in pledged assets, respectively.
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. During the three months ended March 31, 2012, net cash flows used in financing activities were $735.2 million. Net cash outflows related primarily to the buybacks of the Company’s ordinary shares and repayment of debt as described below.
On February 27, 2012, the Company announced that its Board of Directors approved a share buyback program, authorizing the Company to purchase up to $750 million of its ordinary shares. This authorization replaced the approximately $190 million remaining under the share buyback program that was authorized in November 2010 as described in further detail in Item 8, Note 18, “Share Capital,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. During the three months ended March 31, 2012, the Company purchased and canceled 4.7 million ordinary shares under the new program for $100.0 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 March 31, 2012, $650.0 million remained available for purchase under the new program.
On January 15, 2012, the $600 million principal amount outstanding on the XLCFE Notes, which were issued by XLCFE, was repaid at maturity. For further detail see Item 1, Note 8, “Notes Payable and Debt Financing Arrangements,” to the Unaudited Consolidated Financial Statements included herein.
In addition, the Company maintains credit facilities which provide liquidity. Details of these facilities are described below in “Capital Resources.”
Capital Resources
At March 31, 2012 and December 31, 2011, the Company had total shareholders’ equity of $11.1 billion and $10.8 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:
| | |
| a. | debt; |
| | |
| b. | preference shares; |
| | |
| c. | letter of credit facilities and other sources of collateral; and |
| | |
| d. | revolving credit facilities. |
| | |
| In particular, the Company requires, among other things: |
| | |
| ▪ | 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; |
| | |
| ▪ | sufficient capital to enable its regulated subsidiaries to meet the regulatory capital levels required in the United States, the U.K., Bermuda, Ireland, Switzerland and other key markets; |
| | |
| ▪ | 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 |
| | |
| ▪ | revolving credit to meet short-term liquidity needs. |
| | |
| The following risks are associated with the Company’s requirement to renew its credit facilities: |
| | |
| ▪ | the credit available from banks may be reduced resulting in the Company’s need to pledge its investment portfolio to customers. This could result in a lower investment yield; |
| | |
| ▪ | 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; |
| | |
| ▪ | the volume of business that the Company’s subsidiaries that are not admitted in the United States are able to transact could be reduced if the Company is unable to renew its letter of credit facilities at an appropriate amount. |
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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. See Item 1A, “Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
The following table summarizes the components of the Company’s current capital resources at March 31, 2012 and December 31, 2011:
| | | | | | | | |
(U.S. dollars in thousands) | | March 31,
2012 | | | December 31,
2011 | |
| | | | | | |
Series D preference ordinary shares | | $ | 345,000 | | | $ | 345,000 | |
Series E preference ordinary shares | | | 999,500 | | | | 999,500 | |
Ordinary share capital | | | 9,710,022 | | | | 9,411,658 | |
| | | | | | | | |
Total ordinary and non-controlling interests capital | | $ | 11,054,522 | | | $ | 10,756,158 | |
Notes payable and debt | | | 1,665,048 | | | | 2,264,618 | |
| | | | | | | | |
Total capital | | $ | 12,719,570 | | | $ | 13,020,776 | |
| | | | | | | | |
Ordinary Share Capital
The following table reconciles the opening and closing ordinary share capital positions at March 31, 2012 and December 31, 2011:
| | | | | | | | |
(U.S. dollars in thousands) | | March 31,
2012 | | | December 31,
2011 | |
| | | | | | |
Ordinary shareholders’ equity – beginning of period | | $ | 9,411,658 | | | $ | 9,597,473 | |
Net income (loss) attributable to XL Group plc | | | 176,628 | | | | (474,760 | ) |
Share buybacks | | | (100,490 | ) | | | (667,022 | ) |
Share issues | | | 15 | | | | 573,015 | |
Ordinary share dividends | | | (34,830 | ) | | | (138,978 | ) |
Change in accumulated other comprehensive income | | | 248,452 | | | | 482,269 | |
Share based compensation and other | | | 8,589 | | | | 39,661 | |
| | | | | | | | |
Ordinary shareholders’ equity – end of period | | $ | 9,710,022 | | | $ | 9,411,658 | |
| | | | | | | | |
Debt
The following tables present the Company’s debt under outstanding securities and lenders’ commitments at March 31, 2012:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Payments Due by Period | |
| | | | | | | | | | | | | | | |
(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 | |
| | | | | | | | | | | | | | | | | | | | | |
4-year revolver | | $ | 1,000,000 | | | $ | - | | | | 2015 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
5.25% Senior Notes | | | 600,000 | | | | 597,732 | | | | 2014 | | | | - | | | | 600,000 | | | | - | | | | - | |
5.75% Senior Notes | | | 400,000 | | | | 396,066 | | | | 2021 | | | | - | | | | - | | | | - | | | | 400,000 | |
6.375% Senior Notes | | | 350,000 | | | | 348,619 | | | | 2024 | | | | - | | | | - | | | | - | | | | 350,000 | |
6.25% Senior Notes | | | 325,000 | | | | 322,631 | | | | 2027 | | | | - | | | | - | | | | - | | | | 325,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 2,675,000 | | | $ | 1,665,048 | | | | | | | $ | - | | | $ | 600,000 | | | $ | - | | | $ | 1,075,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjustment to carrying value - impact of fair value hedges | | | $ | 9,605 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | $ | 1,674,653 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
“In Use” and “Outstanding” data represent March 31, 2012 accreted values. “Payments Due by Period” data represent ultimate redemption values.
In addition, see Item 1, Note 13, “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, 2011 for further information.
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At March 31, 2012, banks and investors provided the Company and its subsidiaries with $2.7 billion of debt capacity, of which $1.7 billion was utilized by the Company. These facilities consist of:
| | |
• | a revolving credit facility of $1.0 billion. |
| | |
• | senior unsecured notes of approximately $1.7 billion. These notes require the Company to pay a fixed rate of interest during their terms. At March 31, 2012, there were four outstanding issues of senior unsecured notes: |
| | |
| • | $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. |
| | |
| • | $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 $395.9 million. Related expenses of the offering amounted to $4.1 million. |
| | |
| • | $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. |
| | |
| • | $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 Item 8, Note 1, “General,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information. During the third quarter of 2011, all Redeemable Series C preference ordinary shares were purchased and canceled. At March 31, 2012, the face value of the outstanding Series E preference ordinary shares was $999.5 million.
On October 15, 2011, XL-Cayman issued 350,000 non-cumulative Series D Preference Ordinary Shares for $350 million of cash and liquid investments that were held in a trust account that was part of the Stoneheath facility. Holders of the Stoneheath Securities received one Series D Preference Ordinary Share in exchange for each Stoneheath Security. See “Contingent Capital” below.
On December 5, 2011, the Company repurchased 5,000 of the outstanding Series D Preference Ordinary Shares with a liquidation preference value of $5.0 million for $3.7 million, including accrued dividends. As a result of these repurchases, the Company recorded a gain of approximately $1.3 million through Non-controlling interests in the Consolidated Statement of Income in the fourth quarter of 2011. At December 31, 2011, the face value of the outstanding Series D Preference Ordinary Shares was $345.0 million.
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Letter of Credit Facilities and other sources of collateral
At March 31, 2012, the Company had five letter of credit (“LOC”) facilities in place with total availability of $4.0 billion, of which $1.8 billion was utilized.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Amount of Commitment Expiration by Period | |
| | | | | | | | | | | | | | | |
(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 | |
| | | | | | | | | | | | | | | | | | | | | |
LOC Facility (1) | | $ | 1,000,000 | | | $ | 815,795 | | | $ | 2014 | | | $ | - | | | $ | 815,795 | | | $ | - | | | $ | - | |
LOC Facility (2) (3) | | | 1,350,000 | | | | 116,664 | | | | 2015 | | | | - | | | | - | | | | 116,664 | | | | - | |
LOCFacility (3) | | | 650,000 | | | | 377,761 | | | | 2015 | | | | - | | | | - | | | | 377,761 | | | | - | |
LOC Facility | | | 750,000 | | | | 347,708 | | | | Continuous | | | | - | | | | - | | | | - | | | | 347,708 | |
LOC Facility | | | 250,000 | | | | 116,323 | | | | Continuous | | | | - | | | | - | | | | - | | | | 116,323 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Five LOC facilities | | $ | 4,000,000 | | | $ | 1,774,251 | | | | | | | $ | - | | | $ | 815,795 | | | $ | 494,425 | | | $ | 464,031 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
(1) | The Company has the option to increase the size of the March 2011 Credit Agreement by an additional $500 million. |
(2) | This letter of credit facility includes $1.0 billion that is also included in the “4-year revolver” listed under Notes Payable and Debt. |
(3) | The Company has the option to increase the size of the facilities under the December 2011 Credit Agreements by an additional $500 million across both such facilities. |
In 2011, the Company and certain of its subsidiaries (i) entered into three new credit agreements, which provided for an aggregate amount of outstanding letters of credit and revolving credit loans up to $3 billion, subject to certain options to increase the size of the facilities, and (ii) terminated the five-year credit agreement dated June 21, 2007 (the “2007 Credit Agreement”), which had provided for an aggregate amount of outstanding letters of credit and revolving credit loans up to $4 billion.
On March 25, 2011, the Company and certain of its subsidiaries entered into a secured credit agreement (the “March 2011 Credit Agreement”) that currently provides for issuance of letters of credit up to $1 billion with the option to increase the size of the facility by an additional $500 million. Concurrent with the effectiveness of the 2011 Credit Agreement, the commitments of the lenders under the 2007 Credit Agreement were reduced from $4 billion to $3 billion. The commitments under the March 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.
On December 9, 2011, the Company and certain of its subsidiaries entered into (i) a new secured credit agreement (the “December 2011 Secured Credit Agreement”) and (ii) a new unsecured credit agreement (the “December 2011 Unsecured Credit Agreement” and together with the December 2011 Secured Credit Agreement, the “December 2011 Credit Agreements”). In connection with the December 2011 Credit Agreements, the 2007 Credit Agreement was terminated. The March 2011 Credit Agreement continues in force, but was amended to conform certain of its terms to those of the December 2011 Secured Credit Agreement.
The 2007 Credit Agreement had provided for letters of credit and for revolving credit loans of up to $750 million with the aggregate amount of outstanding letters of credit and revolving credit loans thereunder not to exceed $3 billion. At the time at which it was terminated and the December 2011 Credit Agreements became effective, there were no outstanding revolving credit loans under the 2007 Credit Agreement. A portion of the letters of credit outstanding under the 2007 Credit Agreement at the time of its termination were continued under the March 2011 Credit Agreement and the remainder were continued under the December 2011 Credit Agreements.
The December 2011 Secured Credit Agreement provides for issuance of letters of credit up to $650 million. The December 2011 Unsecured Credit Agreement is a $1.35 billion facility that provides for issuance of letters of credit and up to $1 billion of revolving credit loans. The Company has the option to increase the maximum amount of letters of credit available by an additional $500 million across the facilities under the December 2011 Credit Agreements.
The commitments under each December 2011 Credit Agreement expire on, and such credit facilities are available until, the earlier of (i) December 9, 2015 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.
The availability of letters of credit under the December 2011 Secured Credit Agreement and the March 2011 Credit Agreements is subject to a borrowing base requirement, determined on the basis of specified percentages of the face value of eligible categories of assets varying by type of collateral. 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
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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.
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.
In October 2011, the $75,000 letter of credit facility that was supporting a subsidiary of the Company terminated.
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,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 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.
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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 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 a “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) changes in general economic conditions, including the effects of inflation on the Company’s business, including on pricing and reserving, and changes in interest rates, credit spreads, foreign currency exchange rates and future volatility in the world’s credit, financial and capital markets that adversely affect the performance and valuation of the Company’s investments or access to such markets; (xi) developments, including uncertainties related to the ability of Euro-zone countries to service existing debt obligations and the strength of the Euro as a currency and to the financial condition of counterparties, reinsurers and other companies that are at risk of bankruptcy; (xii) the potential impact on the Company from government-mandated insurance coverage for acts of terrorism; (xiii) 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; (xiv) 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; (xv) the availability of borrowings and letters of credit under the Company’s credit facilities; (xvi) the ability of the Company’s subsidiaries to pay dividends to XL Group plc and XLIT Ltd.; (xvii) 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; (xviii) changes in regulations or laws applicable to XL Group plc or its subsidiaries, brokers or customers; (xix) acceptance of the Company’s products and services, including new products and services; (xx) changes in the availability, cost or quality of reinsurance; (xxi) changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers; (xxii) loss of key personnel; (xxiii) changes in accounting policies or practices or the application thereof; (xxiv) 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; (xxv) the effects of mergers, acquisitions and divestitures; (xvi) 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; (xxvii) changes in applicable tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof; (xxviii) the effects of business disruption or economic contraction due to war, terrorism or other hostilities; (xxix) the Company’s ability to realize the expected benefits from the redomestication; and (xxx) the other factors set forth in Item 1A, “Risk Factors,” 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.
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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 months ended March 31, 2012 and 2011 to annualized net income (loss) attributable to ordinary shareholders:
| | | | | | | | |
| | Three Months Ended
March 31, | |
(U.S. dollars in thousands, except percentages) | | 2012 | | | 2011 | |
| | | | | | |
Opening shareholders’ equity | | $ | 10,756,130 | | | $ | 10,599,769 | |
Less: Non-controlling interest in equity of consolidated subsidiaries | | | (1,344,472 | ) | | | (1,002,296 | ) |
| | | | | | | | |
Opening ordinary shareholders’ equity | | $ | 9,411,658 | | | $ | 9,597,473 | |
| | | | | | | | |
Closing shareholders’ equity | | | 11,054,489 | | | | 10,255,716 | |
Less: Non-controlling interest in equity of consolidated subsidiaries | | | (1,344,467 | ) | | | (1,001,798 | ) |
| | | | | | | | |
Closing ordinary shareholders’ equity | | $ | 9,710,022 | | | $ | 9,253,918 | |
| | | | | | | | |
Average ordinary shareholders’ equity | | | 9,560,840 | | | | 9,425,695 | |
| | | | | | | | |
Net income (loss) attributable to ordinary shareholders | | | 176,628 | | | | (227,284 | ) |
Annualized net income (loss) attributable to ordinary shareholders | | | 706,512 | | | | (909,136 | ) |
| | | | | | | | |
| | | | | | | | |
Annualized return on ordinary shareholders’ equity - Net income (loss) attributable to ordinary shareholders | | | 7.4 | % | | | (9.6 | )% |
| | | | | | | | |
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| | |
| | | |
ITEM 3. | | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
| | | |
General
The following discussion should be read in conjunction with “Quantitative and Qualitative Disclosures about Market Risk,” presented under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Market risk represents the potential for loss due to adverse changes in the fair value of financial and other 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.
The Company may enter into derivatives and other financial instruments primarily for risk management purposes. For example, the Company may use derivatives to hedge foreign exchange and interest rate risk related to its consolidated net exposures. From time to time, the Company may also use instruments such as futures, options, interest rate swaps, credit default swaps and foreign currency forward contracts to manage the risk of interest rate changes, credit deterioration, foreign currency exposures, and other market related exposures as well as to obtain exposure to a particular financial market. Historically, the Company entered into credit derivatives outside of the investment portfolio in conjunction with the legacy financial guarantee and financial products operations. 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 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included herein.
This risk management discussion and the estimated amounts generated from the sensitivity and VaR analyses 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 Item 2, “Cautionary Note Regarding Forward-Looking Statements.”
Interest Rate Risk
Interest rate risk is the price sensitivity of a fixed income security to changes in interest rates. The Company’s fixed income portfolio is exposed to interest rate risk. The Company’s liabilities are accrued at a static rate from an accounting standpoint. However, management considers the liabilities to have an economic exposure to interest rate risk and manages the net economic exposure to interest rate risk considering both assets and liabilities. Interest rate risk is managed within the context of its SAA process by specifying SAA Benchmarks relative to the estimated duration of its liabilities and managing the fixed income portfolio relative to the Benchmarks such that the overall economic effect of interest rate risk is within management’s risk tolerance. 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, 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 any 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. The Company has formed several branches with Euro and U.K. sterling functional currencies and continues to focus on attempting to limit exposure to foreign exchange risk.
Foreign currency exchange rate risk in general is reviewed as part of the Company’s risk management framework. 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 not generally 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. However, locally-required capital levels are invested in local currencies in order to satisfy regulatory requirements and to support local insurance operations and are not matched by related liabilities. Foreign exchange contracts within the investment portfolio may be utilized to manage individual portfolio foreign exchange exposures, subject to investment management service providers’ guidelines established by management. Where these contracts are not designated as specific hedges for financial reporting purposes, realized and unrealized gains and losses are recorded in income in the period in which they occur. These contracts generally have maturities of three months or less. The Company may also attempt to manage the foreign exchange volatility arising on certain transactions denominated in foreign currencies. These include, but are not limited to, premium 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 table provides more information on the Company’s net exposures to its principal foreign currencies at March 31, 2012 and December 31, 2011:
| | | | | | | | |
(Foreign Currency in Millions) | | March 31,
2012 | | | December 31,
2011 | |
| | | | | | |
Euro | | | 2.4 | | | | 52.0 | |
U.K. Sterling | | | 180.1 | | | | 35.1 | |
Swiss Franc | | | 151.0 | | | | 153.7 | |
Canadian Dollar | | | 193.5 | | | | 222.5 | |
Credit Risk
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 is exposed to direct credit risk within its investment portfolio as well as through general counterparties, including customers and reinsurers. The Company manages credit risk within its investment portfolio through its Strategic Asset Allocation framework and its established investment credit policies, which address 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 which operate in accordance with established limit and escalation frameworks.
The Company has an established credit risk governance process delegated to the Credit Sub-Committee of the Enterprise Risk Management Committee. The governance process is designed to ensure that transactions and activities, individually and in the aggregate, are carried out within management’s risk tolerances.
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Credit Risk – Investment Portfolio
Credit risk in the investment portfolio 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 for an extended period of time and in a period of increasing defaults, would also 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 credit spread duration in the Company’s fixed income portfolio, excluding the impact of the HTM election, was 3.9 years at December 31, 2011.
The Company manages credit risk in the investment portfolio, including fixed income, alternative and short-term investment, through the credit research performed primarily by the investment management service providers. The management of credit risk in the investment portfolio is also fully integrated in the Company’s credit risk management governance framework and the management of credit exposures and concentrations within the investment portfolio is carried out in accordance with the Company’s risk policies, philosophies, appetites, limits and risk concentrations delegated to the investment portfolio. In the investment portfolio, the Company reviews on a regular basis its asset concentration, credit quality and adherence to the Company’s credit limit guidelines. Any issuer over its credit limits, experiencing financial difficulties, material credit quality deterioration or potentially subject to forthcoming credit quality deterioration is placed on a watch list for closer monitoring. Where appropriate, exposures are reduced or prevented from increasing.
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 net payable for investments purchased) at March 31, 2012.
| | | | |
| | Percentage of
Aggregated Fixed
Income Portfolio (1)(2) | |
| | | |
AAA | | | 50.0 | % |
AA | | | 15.9 | % |
A | | | 22.5 | % |
BBB | | | 8.8 | % |
BB or Below | | | 2.7 | % |
NR | | | 0.1 | % |
| | | | |
Total | | | 100.0 | % |
| | |
| | |
(1) | Included in the above are $198.7 million or 0.6% of the portfolio that represents medium term notes rated at the average credit rating of the underlying asset pools backing the notes. |
(2) | The credit ratings above were principally determined based on the weighted average rating of the individual securities from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings (where available). U.S. Agency debt and related mortgage backed securities, whether with implicit or explicit government support, reflect the credit quality rating of the U.S. government for the purpose of these calculations. |
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At March 31, 2012, the average credit quality of the Company’s aggregate fixed income investment portfolio was “Aa2/AA”. The calculation of average credit quality excludes operating cash. The Company’s $9.4 billion portfolio of government and government related, agency, sovereign and cash holdings were rated “AAA” at March 31, 2012. The Company’s $11.8 billion portfolio of corporates is rated “A.” The Company’s $9.4 billion structured credit portfolio is “AA+” rated.
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 including Covered Bonds held within its AFS and HTM investment portfolio at March 31, 2012, representing both amortized cost and net unrealized gains (losses):
| | | | | | | | | | | | |
| | March 31, 2012 | |
| | | |
(U.S. dollars in millions)
Issuer (by Global Ultimate Parent) (1) | | Weighted
Average
Credit Quality (2) | | | Amortized Cost | | | Unrealized Gain/
(Loss) | |
| | | | | | | | | | |
Rabobank Nederland NV | | $ | AA+ | | | $ | 172.5 | | | $ | 1.0 | |
Lloyds Banking Group plc | | | AA+ | | | | 149.4 | | | | 3.1 | |
The Goldman Sachs Group, Inc. | | | A | | | | 130.8 | | | | - | |
Bank of America Corporation | | | A- | | | | 128.8 | | | | (2.3 | ) |
National Australia Bank Limited | | | AA- | | | | 125.8 | | | | (1.0 | ) |
HSBC Holdings plc | | | A+ | | | | 122.0 | | | | (5.9 | ) |
JPMorgan Chase & Co. | | | A+ | | | | 119.3 | | | | (3.4 | ) |
Citigroup Inc. | | | A- | | | | 105.8 | | | | (0.1 | ) |
The Bank of Nova Scotia | | | AA+ | | | | 102.6 | | | | 3.6 | |
Morgan Stanley | | | A | | | | 98.2 | | | | 0.3 | |
Wells Fargo & Company | | | A+ | | | | 90.7 | | | | 3.3 | |
Australia and New Zealand Banking Group Limited | | | AA- | | | | 87.7 | | | | 0.3 | |
Westpac Banking Corporation | | | AA- | | | | 87.0 | | | | 3.3 | |
Canadian Imperial Bank of Commerce | | | AA+ | | | | 80.3 | | | | 2.7 | |
Credit Suisse Group AG | | | AA- | | | | 77.9 | | | | 0.8 | |
UBS AG | | | A+ | | | | 77.2 | | | | (0.4 | ) |
Nordea Bank AB | | | AA- | | | | 74.9 | | | | 0.4 | |
Standard Chartered plc | | | A+ | | | | 74.0 | | | | - | |
Commonwealth Bank of Australia | | | AA- | | | | 72.3 | | | | 0.9 | |
BNP Paribas | | | AA- | | | | 69.3 | | | | 0.1 | |
Royal Bank of Canada | | | AA | | | | 68.6 | | | | 1.7 | |
The Bank of New York Mellon Corporation | | | AA- | | | | 67.7 | | | | 2.1 | |
Barclays plc | | | BBB+ | | | | 66.2 | | | | (15.6 | ) |
Bank of Montreal | | | AA+ | | | | 62.6 | | | | 2.5 | |
Svenska Handelsbanken AB | | | A+ | | | | 59.5 | | | | 0.1 | |
Nationwide Building Society | | | AA- | | | | 58.0 | | | | (6.3 | ) |
Legal & General Group PLC | | | A- | | | | 56.7 | | | | (4.9 | ) |
U.S. Bancorp | | | A+ | | | | 56.5 | | | | 1.8 | |
Government of Netherland (ABN AMRO) | | | AAA+ | | | | 54.8 | | | | 5.2 | |
HM Government Cabinet Office (Northern Rock PLC) | | | AAA+ | | | | 50.3 | | | | 2.3 | |
| | |
| | |
(1) | Includes Covered Bonds. |
(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. U.S. Agency debt, whether with implicit or explicit government support, reflect the credit quality rating of the U.S. government for the purpose of these calculations. |
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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 representing both amortized cost and unrealized (losses):
| | | | | | | | | | | | | | | | |
| | March 31, 2012 | |
| | | |
(U.S. dollars in millions)
Issuer (by Global Ultimate Parent) | | Tier One
Amortized Cost | | | Upper Tier Two
Amortized Cost | | | Total
Amortized Cost | | | Net Unrealized
(Loss) | |
| | | | | | | | | | | | |
Barclays, Plc | | $ | 11.6 | | | $ | 51.9 | | | $ | 63.5 | | | $ | (15.6 | ) |
JP Morgan Chase & Co | | | 30.5 | | | | - | | | | 30.5 | | | | (8.2 | ) |
Zurich Financial Services AG | | | 1.0 | | | | 26.3 | | | | 27.3 | | | | (2.1 | ) |
HSBC Holdings PLC | | | 27.2 | | | | - | | | | 27.2 | | | | (3.7 | ) |
Aviva PLC. | | | 5.5 | | | | 20.2 | | | | 25.7 | | | | (6.8 | ) |
Legal & General Group Plc | | | - | | | | 25.3 | | | | 25.3 | | �� | | (4.2 | ) |
Nationwide Building Society | | | 25.3 | | | | - | | | | 25.3 | | | | (6.6 | ) |
Standard Life Plc | | | 21.9 | | | | - | | | | 21.9 | | | | (3.3 | ) |
RSA Insurance Group Plc | | | - | | | | 21.1 | | | | 21.1 | | | | (2.0 | ) |
Mitsubishi UFJ Financial Group, Inc. | | | 21.0 | | | | - | | | | 21.0 | | | | (0.3 | ) |
| | | | | | | | | | | | | | | | |
Total | | $ | 144.0 | | | $ | 144.8 | | | $ | 288.8 | | | $ | (52.8 | ) |
| | | | | | | | | | | | | | | | |
At March 31, 2012, the top 10 corporate holdings, which exclude government guaranteed and government sponsored enterprises, represented approximately 5.0% of the aggregate fixed income portfolio and approximately 13.2% of all corporate holdings. 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 over-the-counter (“OTC”) derivative counterparty exposures, if applicable but does include Covered Bonds.
| | | | |
Top 10 Corporate Holdings (1) | | Percentage of Aggregate
Fixed Income Portfolio | |
| | | | |
Wal-Mart Stores Inc. | | 0.6 | % | |
Pfizer Inc. | | 0.6 | % | |
Rabobank Nederland NV | | 0.5 | % | |
General Electric Company | | 0.5 | % | |
The Proctor & Gamble Company | | 0.5 | % | |
AT&T Inc. | | 0.5 | % | |
BP PLC | | 0.4 | % | |
Glaxosmithkline PLC | | 0.4 | % | |
The Goldman Sachs Group, Inc | | 0.4 | % | |
Pepsico, Inc | | 0.4 | % | |
| | |
| | |
|
(1) | Corporate issuers exclude government related/government guaranteed and supported enterprises and cash and cash equivalents. |
At March 31, 2012, the top 5 corporate sector exposures listed below represented 29.4% of the aggregate fixed income investment portfolio and 80.1% of all corporate holdings.
| | | | | | | | |
(U.S. dollars in millions)
Top 5 Sector Exposures | | Fair Value | | | Percentage of
Aggregate
Fixed Income
Portfolio | |
| | | | | | | |
Financials (1) | | $ | 3,444.7 | | | | 10.7 | % |
Consumer, Non-Cyclical | | | 2,328.0 | | | | 7.2 | % |
Utilities | | | 1,597.7 | | | | 5.0 | % |
Communications | | | 1,086.9 | | | | 3.4 | % |
Industrial | | | 997.4 | | | | 3.1 | % |
| | | | | | | | |
Total | | $ | 9,454.7 | | | | 29.4 | % |
| | | | | | | | |
| | |
| | |
|
(1) | Government-guaranteed paper and Covered Bonds have been excluded from the above figures. |
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Within the Company’s fixed income portfolios, the Company is further monitoring its exposures to holdings representing risk in certain Euro-zone countries (Greece, Italy, Ireland, Portugal and Spain). In particular, the Company has government holdings of $28.3 million, corporate holdings of $214.4 million (financials $6.2 million, non-financials $208.2 million) and structured credit holdings totaling $22.4 million in GIIPS. The non-financial corporate holdings primarily consist of securities issued by multinational companies with low reliance on local economics and systemically important industries such as utilities and telecoms. For further detail on the Company’s exposure to the Euro-zone sovereign debt crisis please refer to Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – European Sovereign Debt Crisis.”
The Company also has exposure 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 79.7% is AAA rated:
| | | | | | | | |
(U.S. dollars in millions) | | Fair Value | | | Percentage of
Structured Portfolio | |
| | | | | | |
CMBS | | $ | 957.1 | | | | 10.2 | % |
Non-Agency RMBS | | | 715.1 | | | | 7.6 | % |
Core CDO (non-ABS CDOs and CLOs) | | | 645.3 | | | | 6.9 | % |
Other ABS (1) | | | 1,649.6 | | | | 17.6 | % |
Agency RMBS | | | 5,394.2 | | | | 57.7 | % |
| | | | | | | | |
Total | | $ | 9,361.3 | | | | 100.0 | % |
| | | | | | | | |
| | |
| | |
|
(1) | Includes Covered Bonds. |
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 XL financial lines business, and were previously entered into through the Company’s prior reinsurance agreements with Syncora. 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 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included 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.
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Equity Price Risk
Equity price risk is the potential loss arising from changes in the market value of equities. The Company’s equity investment portfolio is exposed to equity price risk. At March 31, 2012, the Company’s equity portfolio was approximately $533.1 million as compared to $376.6 million at December 31, 2011. This excludes fixed income fund investments of $98.0 million that generally do not have the risk characteristics of equity investments but are treated as equity investments under GAAP. At March 31, 2012 and December 31, 2011, the Company’s direct allocation to equity securities was 1.5% and 1.1%, respectively, of the total investment portfolio (including cash and cash equivalents, accrued investment income and net payable for investments 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 March 31, 2012, the Company’s exposure to private investments, excluding unfunded commitments, was $305.7 million, representing 0.9% of the fixed income portfolio (including cash and cash equivalents, accrued investment income and net payable for investments purchased) compared to $288.4 million at December 31, 2011.
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 $1,175.5 million representing approximately 3.3% of the investment portfolio (including cash and cash equivalents, accrued investment income and net payable for investments purchased) at March 31, 2012, as compared to December 31, 2011, when the Company had a total exposure of $1,027.2 million representing approximately 3.1% of the investment portfolio.
At March 31, 2012, bond and stock index futures outstanding had a net long position of $46.4 million as compared to a net long position of $12.6 million at December 31, 2011. 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 that can be impacted by market value movements. For further details on derivative instruments see Item 1, Note 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included 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 March 31, 2012 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 March 31, 2012, excluding foreign exchange.
The interest rate, spread risk, and VaR referenced in the table below include the impact of market movements on the Company’s held to maturity 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 March 31, 2012, if the Company were to exclude these impacts in order to present the impact of these risks to the Company’s book value, the interest rate risk would be reduced by approximately $301.6 million, absolute spread risk would be reduced by approximately $203.3 million, relative spread risk would be reduced by approximately $27.4 million, and VaR would be reduced by approximately $374.0 million.
The table below excludes the impact of foreign exchange rate risk on the Company’s investment portfolio. The Company’s investment strategy incorporates asset-liability management, and, accordingly, any foreign exchange movements 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 the 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 investment 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 millions) | | Interest
Rate
Risk (1) | | | Equity
Risk
(2) | | | Absolute
Spread
Risk (3) | | | Relative
Spread
Risk (4) | | | VaR
(5), (6) | |
| | | | | | | | | | | | | | | |
Total Investment Portfolio (7) | | $ | (1,357.5 | ) | | $ | (112.4 | ) | | $ | (1,293.0 | ) | | $ | (209.7 | ) | | $ | 1,265.8 | |
A. P&C Investment Portfolio | | $ | (811.1 | ) | | $ | (112.4 | ) | | $ | (822.7 | ) | | $ | (107.6 | ) | | $ | 698.4 | |
(I) P&C Fixed Income Portfolio | | | (811.1 | ) | | | — | | | | (822.7 | ) | | | (107.6 | ) | | | 708.4 | |
(a) Cash & Short Term Investments | | | (7.8 | ) | | | — | | | | — | | | | — | | | | 3.3 | |
(b) Total Government Related | | | (298.6 | ) | | | — | | | | (200.5 | ) | | | (9.2 | ) | | | 249.7 | |
(c) Total Corporate Credit | | | (285.1 | ) | | | — | | | | (320.4 | ) | | | (44.2 | ) | | | 281.4 | |
(d) Total Structured Credit | | | (219.6 | ) | | | — | | | | (302.8 | ) | | | (54.2 | ) | | | 218.1 | |
(II) P&C Non-Fixed Income Portfolio | | | — | | | | (112.4 | ) | | | — | | | | — | | | | 195.5 | |
(e) Equity Portfolio | | | — | | | | (57.2 | ) | | | — | | | | — | | | | 120.9 | |
(f) Alternative Portfolio | | | — | | | | (24.3 | ) | | | — | | | | — | | | | 78.1 | |
(g) Private Investments | | | — | | | | (31.0 | ) | | | — | | | | — | | | | 57.0 | |
B. Life Investment Portfolio | | $ | (538.5 | ) | | $ | — | | | $ | (434.5 | ) | | $ | (98.7 | ) | | $ | 636.8 | |
(III) Life Fixed Income Portfolio | | | (538.5 | ) | | | — | | | | (434.5 | ) | | | (98.7 | ) | | | 636.8 | |
(i) Cash & Short Term Investments | | | — | | | | — | | | | — | | | | — | | | | 0.1 | |
(j) Total Government Related | | | (222.1 | ) | | | — | | | | (85.0 | ) | | | (6.3 | ) | | | 261.2 | |
(k) Total Corporate Credit | | | (261.8 | ) | | | — | | | | (286.3 | ) | | | (71.9 | ) | | | 320.7 | |
(l) Total Structured Credit | | | (54.7 | ) | | | — | | | | (63.2 | ) | | | (20.5 | ) | | | 73.1 | |
(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 government related 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 government related 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 March 31, 2012 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. |
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 |
| | | |
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 or 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 or 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 |
| | | |
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, 2011. Material developments to such proceedings during the three months ended March 31, 2012 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 approved by the District Court by Order dated March 30, 2012. The XL Defendants’ portion of the defendants’ aggregate settlement payment is $6.75 million. Certain objectors have filed appeals from the District Court’s March 30, 2012 Order approving the settlement.
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. 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. On April 30, 2012, the District Court set a pre-trial litigation schedule governing both the tag-along actions and the Class Action plaintiffs’ claims against the remaining non-settling defendants.
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 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
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not result in losses in amounts exceeding recognized reserves having a material adverse effect on the Company’s position or liquidity at March 31, 2012.
Refer to Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information.
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ITEM 2. | | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| | | |
(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 March 31, 2012 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:
| | | | | | | | | | | | | | | | |
| | Total Number
of Shares
Purchased | | | Average
Price Paid
per Share | | | Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs | | | Approximate
Value of Shares
that May Yet Be
Purchased
Under the Plans or
Programs (1) (2) | |
| | | | | | | | | | | | |
January | | | 4,135 | | | $ | 19.77 | | | | — | | | $ | 190.5 million | |
February | | | 15,858 | | | | 20.61 | | | | — | | | | 750.0 million | |
March | | | 4,730,334 | | | | 21.14 | | | | 4,730,334 | | | | 650.0 million | |
| | | | | | | | | | | | | | | | |
Total | | | 4,750,327 | | | $ | 21.13 | | | | 4,730,334 | | | $ | 650.0 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 programs noted below. |
(2) | On February 27, 2012, the Company announced that its Board of Directors approved a new share buyback program, authorizing the Company to purchase up to $750 million of its ordinary shares. This authorization replaced the approximately $190 million remaining under the share buyback program that was authorized in November 2010. During the three months ended March 31, 2012, the Company purchased and canceled 4.7 million ordinary shares under the new program for $100.0 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 March 31, 2012, $650.0 million remained available for purchase under the new program. |
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The following exhibits are filed as exhibits to this Quarterly Report: |
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12* | Statements regarding computation of ratios. |
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21* | List of subsidiaries of the Registrant. |
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23* | Consent of PricewaterhouseCoopers LLP. |
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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.
| |
Date: May 9, 2012 | |
| XL Group plc |
| (Registrant) |
| /s/ MICHAEL S. MCGAVICK |
| |
| Name: Michael S. McGavick |
| Title: Chief Executive Officer and Director |
| XL Group plc |
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Date: May 9, 2012 | |
| /s/ PETER R. PORRINO |
| |
| Name: Peter R. Porrino |
| Title: Executive Vice President and Chief Financial Officer |
| XL Group plc |
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