Exhibit 99.1
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
IMMEDIATE
Contact: Gavin R. Arton Roger R. Scotton
Investor Relations Media Contact
(441) 294-7104 (441) 294-7165
XL CAPITAL LTD COMPLETES PREVIOUSLY ANNOUNCED CLAIMS AUDIT REVIEW AND
YEAR END RESERVE REVIEW
Announces Fourth Quarter Charge of $647 Million After Tax
Company to Raise at Least $750 Million of New Capital
Hamilton, Bermuda (January 13, 2004): -- XL Capital Ltd (NYSE: XL) ("XL" or the
"Company") announced today that it has completed its previously announced claims
audit and regularly scheduled year end reserve reviews. As a result, the Company
expects that its fourth quarter 2003 results will be adversely affected by a
pre-tax reserve charge of $694 million, or $647 million after tax, $4.73 per
ordinary share after tax, in the fourth quarter of 2003. Fourth quarter 2003
results are expected to be announced on February 10, 2004.
The majority of the charge, $663 million pre-tax, primarily related to adverse
development in the Company's North American reinsurance operations for casualty
business written during the 1997 through 2001 underwriting years.
XL's President and Chief Executive Officer, Brian M. O'Hara stated, "The review
that we have undertaken included an extraordinary claims audit review of our
North American reinsurance operations going well beyond our long established
processes. This was driven by
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an acceleration in claims in the third quarter relating to business underwritten
during the 1997 to 2001 years. This trend continued in the fourth quarter, in
response to which we have changed the actuarial development patterns that
normally would have applied to the expected loss development of this business."
The key components of the extraordinary claims audit process include:
o A special Claims Audit Review (CAR) Task Force was established under Mr.
O'Hara's leadership and included senior management, actuarial and claims
operations, global services, treasury, legal and financial reporting
resources;
o External resources utilized included project consultants, an international
actuarial firm and various third party claims auditors;
o The CAR objectives focused on claims arising from specific treaties
covering defined business lines at certain cedents, in order to determine
if claims had been adequately reserved, processed and reported;
o In order to make the review as comprehensive as possible, the period under
review was extended through 2001;
o The CAR selection process was based upon several criteria designed to
promote an appropriate degree of audit coverage where 17 separate cedent
audit selections were made representing 28 separate contracts, each with
over $1 million of cumulative premium and representing approximately 85% of
the total premium in the problem classes being reviewed and 90% of the
September 30, 2003 year to date loss for those underwriting years;
o A small number of cedents accounted for almost 78% of the Additional Case
Reserves ("ACR") in the more problematic business lines (D&O and Medical
Malpractice), where these cedents had considerable exposure to claims
severity; and
o The CAR process produced $124 million in ACR. It also identified other
potential additional exposures which, along with information gathered from
the ACR process, were incorporated into the actuarial loss development
factors in calculating incurred but not reported reserves ("IBNR"). IBNR
was increased by $539 million which is included in the fourth quarter
charge.
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"While we are extremely disappointed by the continued adverse development of
losses at XL Reinsurance America Inc. and the financial impact on 2003 results,
I firmly believe that we have now put this issue behind us so that we do not
expect any adverse affect on our financial results in 2004 and beyond," Mr.
O'Hara stated.
The Company also completed its regularly scheduled year end reserve review
resulting in a further net increase to its pre-tax property and casualty
reserves of approximately $31 million in the fourth quarter. The additional
increase had three primary components: 1) an increase of $62 million in reserves
in XL's reinsurance segment for losses in the Bermuda and London operations; and
2) an increase of $150 million of reserves in its insurance segment primarily
related to Bermuda-based professional and liability lines in accident years 1996
through 2001; which were partially offset by 3) the net reduction of $181
million from the Company's reserves in the reinsurance segment relating to the
September 11, 2001 event, primarily due to the high degree of participation by
claimants in the statutory Victim Compensation Fund in respect of which the
deadline for filing claims was December 22, 2003.
Mr. O'Hara also noted, "In order to sustain the appropriate levels of capital
for our business, we expect to raise additional capital of at least $750 million
in the first half of 2004, principally in the form of mandatory convertible
securities."
Further details will be discussed in detail on a webcast conference call
scheduled for 9:00 a.m. EST on Wednesday, January 14, 2004 at www.xlcapital.com.
This call will be archived on XL's website from approximately 1:00 p.m. EST on
January 14, 2004 through midnight EST on February 13, 2004. A telephone replay
of the conference call will be available beginning at 1:00 p.m. EST on January
14, 2004 until 8:00 p.m. EST on January 21, 2004 by dialing (201) 612-7415
(account number: 7716 and conference I.D. number: 89172).
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.
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As of September 30, 2003, XL Capital Ltd had consolidated assets of
approximately $39.6 billion and consolidated shareholders' equity of
approximately $7.4 billion. More information about XL Capital Ltd is available
at www.xlcapital.com.
SUMMARY OF RESERVE CHARGE
Claims Audit Review - XL Reinsurance America Inc (XLRA) $ 663 m
2003 Year End Reserve Review (excluding XLRA):
Reinsurance (excluding September 11 event) $ 62 m
Insurance 150 m
Reinsurance - September 11 event (181) m
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$ 31 m
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Total Reserve Charge - pre-tax $ 694 m
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Total Reserve Charge - after tax $647 m
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SUMMARY OF CAR COMPONENTS
Additional Claim Reserves $ 124 m
Incurred but not reported reserves 539 m
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Total Claims Audit Review - pre-tax $ 663 m
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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) greater frequency or severity of claims and loss
activity, including in respect of XL's North American reinsurance operations,
than XL's underwriting, reserving or investment practices anticipate based on
historical experience or industry data; (b) XL's additional capital requirements
may differ from XL's current expectations due to rating, regulatory or other
reasons; (c) 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; (d) changes in general economic conditions, including foreign currency
exchange rates, inflation and other factors; and (e) 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 or revise publicly any forward-looking statement, whether as a result of
new information, future developments or otherwise.
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