Exhibit 99(d)
PRO FORMA CONDENSED BALANCE SHEET
As at December 31, 2000
Expressed in thousands of U.S dollars
(Unaudited)
Winterthur
XL Capital International Pro forma Pro forma
(Historical) (Historical) Adjustments Note 3 Combined
Assets
Total investments and cash (note 4) $ 10,432,017 $1,471,684 $ - $ 11,903,701
Investments in affiliates 792,723 - - 792,723
Other investments 177,651 10,283 881 A 188,815
Unpaid losses and loss expenses
recoverable 1,339,767 1,284,838 (44,070) C 2,580,535
Deferred acquisition costs 309,268 24,909 - 334,177
Other insurance and reinsurance balances
receivable 1,707,514 1,280,385 - 2,987,899
Intangible assets and goodwill 1,591,108 - 28,390 F 1,619,498
(13,337) D
(23,098) E
Other assets 591,904 320,164 12,294 B 887,927
----------------- ----------------- ---------------- ---------------
Total assets $ 16,941,952 $4,392,263 $ (38,940) $ 21,295,275
----------------- ----------------- ---------------- ---------------
Liabilities
Unpaid losses and loss expenses $ 5,672,062 $2,380,568 $ (96,889) C $7,955,741
Deposit liabilities and policy benefit
reserves 1,209,926 154,764 - 1,364,690
Unearned premiums 1,741,393 436,117 - 2,177,510
Notes payable and debt 450,032 - 405,593 G 855,625
Other insurance and reinsurance balances
payable 441,900 661,333 - 1,103,233
Net payable for investments purchased 1,372,476 - - 1,372,476
Other liabilities and minority interest 480,495 389,337 22,500 H 892,332
----------------- ----------------- ---------------- ---------------
Total liabilities $11,368,284 $4,022,119 $ 331,204 $ 15,721,607
----------------- ----------------- ---------------- ---------------
Shareholders' equity / Net assets 5,573,668 370,144 (370,144) 5,573,668
----------------- ----------------- ---------------- ---------------
Total liabilities and shareholders' equity $ 16,941,952 $4,392,263 $ (38,940) $ 21,295,275
----------------- ----------------- ---------------- ---------------
This unaudited condensed pro forma financial information should be read in
conjunction with the following explanatory notes.
PRO FORMA CONDENSED STATEMENT OF INCOME
For the year ended December 31, 2000
Expressed in thousands of U.S dollars, except per share amounts
(Unaudited)
Winterthur
XL Capital International Pro forma Pro forma
(Historical) (Historical) Adjustments Note 3 Combined
Revenues
Net premiums earned $ 2,035,240 $533,627 $ - $ 2,568,867
Net investment income 542,500 69,986 - 612,486
Net realized gains on investments 50,571 11,017 - 61,588
Equity in net income of affiliates 74,355 - - 74,355
Fee income and other 14,793 12,185 - 26,978
---------------- ----------------- ---------------- --------------
Total revenues $ 2,717,459 $626,815 $ - $ 3,344,274
---------------- ----------------- ---------------- --------------
Expenses
Net losses and loss expenses incurred $ 1,432,559 $453,683 $ 11,073 I $ 1,897,315
Acquisition and operating expenses 802,688 205,632 (700) J 1,007,620
Exchange gains (59,621) (30,583) - (90,204)
Interest expense 32,147 - 10,647 K 42,794
Amortization of intangible assets 58,597 37,861 - 96,458
---------------- ----------------- ---------------- --------------
Total expenses $ 2,266,370 $666,593 $ 21,020 $ 2 ,953,983
---------------- ----------------- ---------------- --------------
Income before minority interest and income 451,089 (39,778) (21,020) 390,291
tax
Minority interest and income tax
(benefit) (55,263) (4,550) (3,631) L (63,444)
---------------- ----------------- ---------------- --------------
Net income $ 506,352 $ (35,228) $ (17,389) $ 453,735
---------------- ----------------- ---------------- --------------
Net income per share
Basic $ 4.07 $ 3.64
Fully diluted $ 4.03 $ 3.61
Weighted average number of shares
Basic 124,503 124,503
Fully diluted 125,697 125,697
This unaudited condensed pro forma financial information should be read in
conjunction with the following explanatory notes.
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NOTES TO THE UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Expressed in thousands of U.S dollars
(Unaudited)
1. Basis of presentation
The unaudited pro forma condensed financial information is based upon the
historical financial statements of XL Capital Ltd ("XL Capital") included in its
annual report on Form 10-K for the year ended December 31, 2000 and the
historical financial statements of Winterthur International as at and for the
year ended December 31, 2000 included under exhibit 99(b) of this Form 8-K.
The unaudited pro forma condensed income statement has been prepared to
reflect the acquisition of Winterthur International as if the acquisition had
occurred as of January 1, 2000. The unaudited pro forma condensed balance sheet
has been prepared as if the acquisition had occurred as at December 31, 2000.
The combination of XL Capital Ltd and Winterthur International is being
accounted for under purchase accounting rules, in accordance with generally
accepted accounting principles in the United States, whereby the total purchase
price is allocated to the fair values of the assets and liabilities acquired,
and the excess of the total purchase price over the fair values is recorded as
goodwill. The fair values ascribed to the individual assets and liabilities are
based upon management estimates and appraisals. The pro forma adjustments have
been made solely for the purposes of developing such pro forma information. The
final allocation may be different from these estimates and there can be no
assurances that such differences, if any, will not be material. On July 20, 2001
the Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS No.
142"). Since the transaction closed after June 30, 2001, goodwill amortization
has not been recorded in the pro forma adjustments in accordance with SFAS No.
142.
The pro forma financial information does not purport to be indicative of
the results of operations that would have occurred had the transaction been
consummated on the assumed dates, nor is the information intended to be a
projection for any future period.
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2. Allocation of Purchase Price consideration
The allocation of the purchase price is as follows :
Book value of net assets based upon the audited financial statements
of Winterthur
International as at and for the year ended December 31, 2000 $ 370,144
Increase in fair value of real estate held for investment 881
Increase in fair value of other fixed assets 12,294
Decrease in fair value of net unpaid losses and loss expenses and
unearned premium reserves 52,819
Elimination of deferred tax asset included in book value (13,337)
Recognition of net deferred tax liability resulting from
acquisition (23,098)
-----------
Fair value of tangible net assets acquired $ 399,703
Goodwill, insurance licenses and other intangibles relating to
the acquisition 28,390
-----------
$ 428,093
Purchase price $ 405,593
Other costs of acquisition 22,500
-----------
$ 428,093
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3. Pro forma Financial Information
The following adjustments have been made to present the financial information
for the combined entities on a pro forma basis :
(a) Restatement of Winterthur International real estate held for
investment to fair value.
(b) Restatement of other fixed assets to fair value.
(c) Management has estimated the fair value adjustment of approximately
$52.8 million on net loss reserves and net unearned premium reserves
of Winterthur International as at December 31, 2000. The gross loss
reserves and the associated reinsurance recoverable amounts are
approximately $96.9 million and $44.1 million, respectively.
Management estimates that approximately 65% or $34.6 million of the
fair value adjustment will be charged to earnings over the next five
years.
The fair value adjustment estimate consists of two components; 1)
discounting the net loss reserves and unearned premium reserves to
present value using a risk free rate of return, net of deferred taxes,
and 2) developing an expense, profit and risk margin for the acquired
reserves based on managements' estimate of current market pricing and
the terms in the Sale and Purchase Agreement.
The expected payment patterns for the gross loss reserves and the
associated reinsurance recoverable amounts are derived by developing
separate payment patterns for the gross loss reserves using historical
Winterthur International data by line of business and for the
associated reinsurance recoverable amounts by lagging the gross payout
patterns. In addition, management has estimated a 5% risk and profit
margin within these reserves. This margin is based on current pricing
quotes expected from a prospective reinsurer or other third party
assuming the same risk and takes into account the reserve seasoning
protection provided by the seller to the Registrant. Determination of
a fair value for the net unearned premium reserve follows a similar
approach to that applied to the loss reserves but with some minor
adjustments.
(d) Elimination of deferred tax assets included in book value.
(e) Establishment of net deferred tax liability.
(f) The recognition of the fair value of goodwill, insurance licenses and
other intangibles on acquisition, being the excess of the purchase
price over the fair value of the net tangible assets of Winterthur
International as shown in note 2. The allocation of this amount
between goodwill, insurance licenses and other intangible assets will
be performed by the Registrant shortly after the acquisition date,
based upon independent appraisals. No estimate is currently available.
(g) XL Capital raised $600 million of zero coupon convertible debt in June
2001 used in part to finance the acquisition of Winterthur
International. For the purposes of this pro forma information, it has
been assumed that debt was raised to finance the
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purchase price in the amount of $405,593 (excluding estimated
acquisition related costs of $22,500) under the same terms and
conditions as the issue of the convertible debt and that there was no
dilution effect on the weighted average number of shares outstanding
for the year ended December 31, 2000.
(h) Recording of the liability for certain legal, audit, consulting and
other costs in connection with the acquisition.
(i) Amortization of the fair value adjustment to the net loss reserves and
unearned premium reserves for the year ended December 31, 2000 as
described in note 3(c).
(j) Adjustment to depreciation charge for the year ended December 31, 2000
relating to the fair value adjustment of the fixed assets as described
in note 3(b).
(k) Interest expense on the convertible debt of $405,593 as described in
note 3(g) above.
(l) Current year tax effect of pro forma adjustments to the income
statement for the year ended December 31, 2000.
4. The Sale and Purchase Agreement defines certain portfolios of business of
Winterthur International which are included in this transaction as well as
certain lines of business which are excluded from this transaction. The net
reserves and liabilities relating to these portfolios and excluded lines of
business are included in the relevant balance sheet captions in this pro
forma financial information, consistent with the audited financial
statements of Winterthur International as at and for the year ended
December 31, 2000. Included in investment assets and cash of Winterthur
International, for the purposes of this pro forma information is a net
amount of $345,023 representing an amount equivalent to those net reserves
and liabilities.
5. Future cost savings and non-recurring exit costs relating to duplicate
business areas are not anticipated to be significant and have therefore
been excluded from the pro forma adjustments. The pro forma adjustments
also do not give effect to any integration of the Winterthur International
operations with certain operations of the Registrant or for the
Registrant's share of any adverse or positive reserve development that may
occur during the seasoning period.
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