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XL CAPITAL LTD
XL House
One Bermudiana Road
P. O. Box HM 2245
Hamilton HM JX
Bermuda
Phone: (441) 292-8515
Fax: (441) 292-5280
NEWS RELEASE
Contact: Gavin R. Arton Roger R. Scotton
Investor Relations Media Contact
(441) 294-7104 (441) 294-7165
XL CAPITAL LTD REPORTS THIRD QUARTER 2003 RESULTS
NET INCOME $99.0 MILLION, OR $0.71 PER ORDINARY SHARE
HAMILTON, BERMUDA, October 29, 2003 -- XL Capital Ltd ("XL" or the "Company")
(NYSE: XL) today reported net income available to ordinary shareholders for the
quarter ended September 30, 2003 of $99.0 million, or $0.71 per ordinary share.
This result includes the impact of a previously announced $184 million pre-tax
($160 million after-tax) charge for adverse development primarily due to newly
reported casualty reinsurance claims for the 1997 to 2000 underwriting years.
Net income for the prior year was $184.1 million, or $1.34 per ordinary share,
in the third quarter of 2002. `Net income excluding net realized gains and
losses on investments and net realized and unrealized gains and losses on credit
and investment derivative instruments, net of tax' for the third quarter of 2003
was $124.1 million, or $0.90 per ordinary share, compared with $216.6 million,
or $1.58 per ordinary share, for the quarter ended September 30, 2002. `Net
income excluding net realized gains and losses on investments and net realized
and unrealized gains and losses on credit and investment derivative instruments,
net of tax' is a non-GAAP measure. See below for a reconciliation of this
measure to net income available to ordinary shareholders.
Commenting on the third quarter 2003 results, Brian M. O'Hara, President and
Chief Executive Officer of XL, stated, "We had strong current underwriting year
results in all three of our business segments, despite the previously announced
$184 million pre tax charge we took in our North
American casualty reinsurance operations in the quarter. Absent this charge, our
combined ratio was 87%, which demonstrates the quality underwriting currently
being carried out in today's favorable market environment."
For the nine months ended September 30, 2003, net income available to ordinary
shareholders was $686.5 million, or $4.97 per ordinary share, compared with
$181.8 million, or $1.32 per ordinary share, in the nine months ended September
30, 2002 which included $200 million related to the development of September
11th event and $239.1 million in net realized losses on investments. `Net income
excluding net realized gains and losses on investments and net realized and
unrealized gains and losses on credit and investment derivative instruments, net
of tax' for the nine months ended September 30, 2003 was $642.9 million, or
$4.65 per ordinary share, compared with $450.6 million, or $3.28 per ordinary
share, for the nine months ended September 30, 2002. See below for the
reconciliation of `net income excluding net realized gains and losses on
investments and net realized and unrealized gains and losses on credit and
investment derivative instruments, net of tax' to net income available to
ordinary shareholders.
Total assets as of September 30, 2003 were $39.6 billion compared with $35.6
billion as of December 31, 2002. Book value per ordinary share as at September
30, 2003 was $50.15 compared with $44.48 as at December 31, 2002.
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Summary unaudited consolidated financial data for the quarter and nine months
ended September 30, 2003 and 2002, respectively, are set forth below (in
millions, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- --------------------------
(Unaudited) (Unaudited)
2003 2002 2003 2002
---- ---- ---- ----
Gross premiums written $2,289.2 $2,647.7 $7,473.6 $6,990.7
Net premiums written 1,717.8 2,116.1 5,778.8 5,413.6
Net premiums earned - General operations 1,663.7 1,344.7 4,565.1 3,391.9
Net premiums earned - Life and annuity operations 86.4 786.4 249.7 836.1
Net premiums earned - Financial operations 35.3 16.9 98.1 42.3
Net income $109.1 $186.5 $716.7 $184.2
Preference dividend (10.1) (2.4) (30.2) (2.4)
-------------------------------------------------------------
Net income available to ordinary shareholders $99.0 $184.1 $686.5 $181.8
=============================================================
PER ORDINARY SHARE RESULTS:
Net income available to ordinary shareholders $0.71 $1.34 $4.97 $1.32
=============================================================
Gross premiums written for general operations in the third quarter of 2003 were
$2.1 billion compared with $1.8 billion in the third quarter of 2002. Net
premiums written increased to $1.5 billion from $1.3 billion and net premiums
earned rose to $1.7 billion from $1.3 billion in the respective quarters of 2003
and 2002. For the nine months ended September 30, 2003, gross premiums written
for general operations were $7.0 billion compared with $6.0 billion in the year
ago period. Net premiums written for the first nine months of 2003 were $5.3
billion compared with $4.5 billion a year ago. Net premiums earned were $4.6
billion for the first nine months of 2003 as compared with $3.4 billion for the
first nine months of 2002.
Gross premiums written for life and annuity operations in the third quarter of
2003 were $89.0 million compared with $793.1 million in the third quarter of
2002, which included a large life reinsurance contract that contributed
approximately $760 million in premiums. Net premiums written for life and
annuity operations in the third quarter of 2003 were $84.3 million compared with
$787.5 million in the third quarter of 2002 and net premiums earned were $86.4
million in the third quarter of 2003 compared with $786.4 million in the third
quarter of 2002. For the nine months ended September 30, 2003, gross premiums
written for life operations were $276.2 million compared with $851.6 million in
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the year ago period. Net premiums written were $245.3 million in the first nine
months of 2003 compared with $836.0 million in the first nine months of 2002.
Net premiums earned were $249.7 million and $836.1 million in the respective
nine month periods of 2003 and 2002.
Gross premiums written for financial operations in the third quarter of 2003
were $91.6 million compared with $42.9 million in the third quarter of 2002. Net
premiums written for financial operations in the third quarter of 2003 were
$89.6 million compared with $26.2 million in the third quarter of 2002 and net
premiums earned were $35.3 million in the third quarter of 2003 compared with
$16.9 million in the third quarter of 2002. For the first nine months of 2003
gross premiums written for financial operations were $242.7 million compared
with $145.0 million in the year ago period. Net premiums written for financial
operations were $238.0 million in the first nine months of 2003 compared with
$123.3 million in 2002 and net premiums earned were $98.1 million and $42.3
million in the respective nine month periods of 2003 and 2002.
Net investment income from general operations was $142.2 million in the third
quarter of 2003, compared with $153.3 million in 2002's third quarter. Net
investment income from life and annuity and financial operations was $48.6
million in the third quarter of 2003 compared with $34.1 million for the quarter
ended September 30, 2002. For the first nine months of 2003 net investment
income from general operations was $436.3 million compared with $454.2 million
in the year ago period. Net investment income from life and annuity and
financial operations was $137.0 million in the first nine months of 2003
compared with $79.0 million for the first nine months of 2002.
The Company's equity in the net income of its investment affiliates for the
third quarter of 2003 was $26.2 million versus a loss of $2.0 million in the
third quarter of 2002. The Company's equity in net income of its insurance and
financial affiliates was $12.1 million in the third quarter of 2003 versus a
loss of $0.4 million in the third quarter of 2002. The Company's equity in the
net income of its investment affiliates for the first nine months of 2003 was
$87.3 million versus $38.1 million in the first nine months of 2002. The
Company's equity in net loss of its insurance and financial affiliates was $12.5
million in the first nine months of 2003 versus net income of $0.1 million in
the first nine months of 2002.
The combined ratio for the Company's general insurance and reinsurance
operations was 98.0% in the third quarter of 2003, versus 90.9% in the third
quarter of 2002. The loss ratios were 70.3% and 61.6% in the quarters ended
September 30, 2003 and 2002, with corresponding expense ratios of 27.7% and
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29.3% for the same quarters, respectively. The combined ratio for the Company's
general insurance and reinsurance operations was 92.4% in the first nine months
of 2003, versus 96.9% in the first nine months of 2002. The loss ratios were
65.1% and 67.5% in the nine months ended September 30, 2003 and 2002, with
corresponding expense ratios of 27.3% and 29.4% for the same periods,
respectively. In the quarter and nine months ended September 30, 2003, the
Company's results were impacted by adverse development for North American
casualty reinsurance losses. In the nine months ended September 30, 2002, the
Company's results were impacted by adverse development for the September 11
event. The combined ratio excluding the third quarter 2003 casualty losses for
the quarter was 86.9% and for the nine months ending September 2003 was 87.7%.
For the nine months ending September 2002 excluding the September 11th event
loss the combined ratio was 91%.
A live on-line web cast of XL's call with analysts and investors to review the
third quarter 2003 results will be held at 10 a.m. Eastern Time on October 30,
2003 at WWW.XLCAPITAL.COM. An unaudited financial information supplement
relating to the Company's 2003 and 2002 quarterly and full year results is
available on its website: WWW.XLCAPITAL.COM (under "Investor Relations -
Financial Information").
XL Capital Ltd, through its operating subsidiaries, is a leading provider of
insurance and reinsurance coverages and financial products and services to
industrial, commercial and professional service firms, insurance companies and
other enterprises on a worldwide basis.
# # #
THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE INHERENT
RISKS AND UNCERTAINTIES. STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING
STATEMENTS ABOUT XL'S BELIEFS, PLANS OR EXPECTATIONS, ARE FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS ARE BASED ON CURRENT PLANS, ESTIMATES, AND
EXPECTATIONS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN SUCH
FORWARD-LOOKING STATEMENTS AND THEREFORE YOU SHOULD NOT PLACE UNDUE RELIANCE ON
THEM. A NON-EXCLUSIVE LIST OF THE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS
INCLUDES THE FOLLOWING: (A) THE RESULTS OF THE RESERVE REVIEW AND CLAIMS AUDITS
PREVIOUSLY ANNOUNCED BY XL AND SCHEDULED TO BE COMPLETED IN THE FOURTH QUARTER
OF 2003 (B) RATE INCREASES AND IMPROVEMENTS IN TERMS AND CONDITIONS MAY NOT BE
AS LARGE OR SUSTAINABLE AS XL IS CURRENTLY PROJECTING; (C) GREATER FREQUENCY OR
SEVERITY OF CLAIMS AND LOSS ACTIVITY, INCLUDING AS A RESULT OF NATURAL OR
MAN-MADE CATASTROPHIC EVENTS, THAN XL'S UNDERWRITING, RESERVING OR INVESTMENT
PRACTICES ANTICIPATE BASED ON HISTORICAL EXPERIENCE OR INDUSTRY DATA; (D)
DEVELOPMENTS IN THE WORLD'S FINANCIAL AND CAPITAL MARKETS WHICH ADVERSELY AFFECT
THE PERFORMANCE OF XL'S INVESTMENTS AND XL'S ACCESS TO SUCH MARKETS; (E) CHANGES
IN GENERAL ECONOMIC CONDITIONS, INCLUDING FOREIGN CURRENCY EXCHANGE RATES,
INFLATION AND OTHER FACTORS; AND (F) THE OTHER FACTORS SET FORTH IN XL'S MOST
RECENT REPORT ON FORM 10-K, FORM 10-Q AND XL'S OTHER DOCUMENTS ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION. XL UNDERTAKES NO OBLIGATION TO UPDATE
PUBLICLY OR REVISE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE DEVELOPMENTS OR OTHERWISE.
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XL CAPITAL LTD
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands of U.S. dollars, except share and per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(Unaudited) (Unaudited)
2003 2002 (a) 2003 2002 (a)
---- -------- ---- --------
INCOME STATEMENT DATA:
REVENUES:
Gross premiums written - general, life and annuity and
financial operations $2,289,241 $2,647,732 $7,473,573 $6,990,665
Net premiums written - general, life and annuity and financial
operations 1,717,784 2,116,133 5,778,750 5,413,646
Net premiums earned - general operations $1,663,713 $1,344,681 $4,565,120 $3,391,880
Net premiums earned - life and annuity operations 86,428 786,383 249,681 836,073
Net premiums earned - financial operations 35,307 16,917 98,087 42,284
Net investment income - general operations 142,166 153,270 436,255 454,177
Net investment income - life and annuity operations 43,136 26,263 120,829 58,606
Net investment income - financial operations 5,461 7,782 16,134 20,402
Net realized (losses) gains on investments (8,693) (23,086) 80,331 (239,108)
Net realized and unrealized (losses) gains on derivative instruments (28,346) 9,484 (26,110) (5,126)
Equity in net income (loss) of investment affiliates 26,240 (1,976) 87,344 38,140
Fee and other income 3,920 10,082 25,989 38,490
----------- ----------- ----------- -----------
$1,969,332 $2,329,800 $5,653,660 $4,635,818
----------- ----------- ----------- -----------
EXPENSES:
Net losses and loss expenses incurred - general operations $1,169,664 $828,199 $2,970,210 $2,289,568
Claims and policy benefit reserves - life and annuity operations 99,954 803,741 302,737 870,320
Net losses and loss expenses incurred - financial operations 3,894 6,006 26,177 9,032
Acquisition costs and operating expenses 537,224 440,929 1,460,513 1,126,972
Exchange gains (4,076) (15,382) (30,130) (46,952)
Interest expense 49,671 51,815 142,093 133,576
Amortization of intangible assets 375 875 1,125 1,500
----------- ----------- ----------- -----------
$1,856,706 $2,116,183 $4,872,725 $4,384,016
----------- ----------- ----------- -----------
Income before minority interest, income tax expense and equity in
net (income) loss of insurance and financial affiliates $112,626 $213,617 $780,935 $251,802
Minority interest 763 2,494 5,791 6,528
Income tax expense 14,890 24,286 45,929 61,140
Equity in net (income) loss of insurance and financial affiliates (12,078) 401 12,487 (47)
----------- ----------- ----------- -----------
Net income $109,051 $186,436 $716,728 $184,181
Preference dividend (10,080) (2,369) (30,241) (2,369)
----------- ----------- ----------- -----------
NET INCOME AVAILABLE TO ORDINARY SHAREHOLDERS $98,971 $184,067 $686,487 $181,812
----------- ----------- ----------- -----------
Weighted average number of ordinary shares and
ordinary share equivalents: Basic 136,826 135,790 136,744 135,551
: Diluted 138,423 137,349 138,170 137,291
PER SHARE DATA:
Net income available to ordinary shareholders $0.71 $1.34 $4.97 $1.32
=========== =========== =========== ===========
NOTE:
a) Certain reclassifications, which have no effect on net income, have been made
to prior period results to conform to current presentation.
6
XL CAPITAL LTD
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
AS AT SEPTEMBER 30, AS AT DECEMBER 31,
2003 2002
------------------- ------------------
BALANCE SHEET DATA:
Total investments available for sale $19,410,426 $16,059,733
Net payable for investments purchased 112,219 1,546,276
Cash and cash equivalents 2,059,609 3,557,815
Investments in affiliates 1,855,989 1,750,005
Intangible assets 1,677,726 1,653,700
Total assets 39,586,850 35,647,369
Unpaid losses and loss expenses 15,161,820 13,202,736
Deposit liabilities and policy benefit reserves 6,160,554 4,889,996
Notes payable and debt 1,898,959 1,877,957
Total shareholders' equity 7,401,210 6,569,589
Book value per ordinary share $50.15 $44.48
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XL CAPITAL LTD
RECONCILIATION
The following is a reconciliation of the Company's net income to `net income
excluding net realized gains and losses on investments and net realized and
unrealized gains and losses on credit and investment derivative instruments, net
of tax' for the three and nine months ended September 30, 2003 and 2002 (in
millions except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(Unaudited) (Unaudited)
2003 2002 2003 2002
---- ---- ---- ----
Net income available to ordinary shareholders $99.0 $184.1 $686.5 $181.8
Net realized losses (gains) on
investments, net of tax 7.3 28.0 (74.8) 245.8
Net realized and unrealized losses on investment
derivatives, net of tax 16.1 2.7 7.5 12.5
Net realized and unrealized losses on credit derivatives,
net of tax 1.7 1.8 23.7 10.5
------------------------------------------------------------
Net income excluding net realized gains and losses on
investments and net realized and unrealized gains and
losses on credit and investment derivative instruments,
net of tax $124.1 $216.6 $642.9 $450.6
------------------------------------------------------------
PER ORDINARY SHARE RESULTS:
Net income available to ordinary shareholders $0.71 $1.34 $4.97 $1.32
============================================================
Net income excluding net realized gains and losses on
investments and net realized and unrealized gains and
losses on credit and investment derivative instruments,
net of tax $0.90 $1.58 $4.65 $3.28
============================================================
WEIGHTED AVERAGE ORDINARY SHARES
OUTSTANDING:
Basic 136.8 135.8 136.7 135.6
Diluted 138.4 137.3 138.2 137.3
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COMMENT ON REGULATION G
This press release contains the presentation of `net income excluding net
realized gains and losses on investments and net realized and unrealized gains
and losses on credit and investment derivatives, net of tax'. This presentation
is a "non-GAAP financial measure" as defined in Regulation G. The reconciliation
of such measure to net income (the most directly comparable GAAP financial
measure) in accordance with Regulation G is included above.
XL presents its operations in the way it believes will be most meaningful and
useful to investors, analysts, rating agencies and others who use XL's financial
information in evaluating XL's performance. This presentation includes the use
of `net income excluding net realized gains and losses on investments and net
realized and unrealized gains and losses on credit and investment derivatives,
net of tax'. Investment derivatives include all derivatives entered into by XL
other than weather and energy and credit derivatives (discussed further below).
Although the investment of premiums to generate income (or loss) and realized
capital gains (or losses) is an integral part of XL's operations, the
determination to realize capital gains (or losses) is independent of the
underwriting process. In addition, under applicable GAAP accounting
requirements, losses can be created as the result of other than temporary
declines in value without actual realization. In this regard, certain users of
XL's financial information, including certain rating agencies, evaluate earnings
before tax and capital gains to understand the profitability of the recurring
sources of income without the effects of these two variables. Furthermore, these
users believe that, for many companies, the timing of the realization of capital
gains is largely opportunistic and are a function of economic and interest rate
conditions. In addition, with respect to credit derivatives, because XL
generally holds its financial guarantee contracts written in credit default
derivative form to maturity, the net effects of the changes in fair value of
these credit derivatives are excluded (similar with other companies in the
financial guarantee business) as the changes in fair value each quarter are not
indicative of underlying business performance of XL's financial guarantee
operations. Unlike these credit derivatives, XL's weather and energy derivatives
are actively traded (i.e, they are not held to maturity) and are, therefore, not
excluded from net income as any gains or losses from this business are
considered by management when evaluating and managing the underlying business.
In summary, XL evaluates the performance of and manages its business to produce
an underwriting profit. In addition to presenting net income, XL believes that
showing net income exclusive of the items mentioned above enables investors and
other users of XL's financial information to analyze XL's performance in a
manner similar to how management of XL analyzes performance. In this regard, XL
believes that providing only a GAAP presentation of net income makes it much
more difficult for users of XL's financial information to evaluate XL's
underlying business. Also, as stated above, XL believes that the equity analysts
and certain rating agencies who follow XL (and the insurance industry as a
whole) exclude these items from their analyses for the same reasons and they
request that XL provide this non-GAAP financial information on a regular basis.
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