Exhibit 99.1
[XL CAPITAL LOGO OMITTED]
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: Scott C. Hoy Roger R. Scotton
Investor Relations Media Contact
(441) 294-7201 (441) 294-7165
XL CAPITAL LTD REPORTS SECOND QUARTER 2004 NET INCOME OF
$363.6 MILLION, OR $2.62 PER ORDINARY SHARE
Record First-Half 2004 Net Income of $815.8 million,
or $5.88 per ordinary share
HAMILTON, BERMUDA, July 28, 2004 -- XL Capital Ltd ("XL" or the "Company")
(NYSE: XL) today reported net income available to ordinary shareholders for the
quarter ended June 30, 2004 of $363.6 million, or $2.62 per ordinary share,
compared with $347.7 million, or $2.51 per ordinary share, for the quarter ended
June 30, 2003. Annualized net income return on ordinary shareholders' equity for
the quarter was 21.7% compared with 20.8% for the year ago quarter.
'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 quarter increased 15% to $308.9 million, or
$2.23 per ordinary share, compared with $268.6 million, or $1.94 per ordinary
share, for the year ago quarter. Annualized return on ordinary shareholders'
equity on the same basis was 18.4% compared with 16.1% for the year ago quarter.
See below for a 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.
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"XL delivered its second highest level of quarterly net income ever this
quarter, after our record performance in the first quarter. These results
underscore the increasing value of our global diversified platform,
significantly expanded product capabilities and focus on improving penetration
of existing customer relationships," said Brian O'Hara, President and Chief
Executive Officer of XL.
"The combined ratio for our general operations in the quarter was 87.6%,
reflecting the strength of our underwriting discipline and continued solid
market fundamentals, despite increasing competition in certain product lines."
"Our Life and Annuity operations continue to gain critical mass. During the
quarter we completed a single premium annuity reinsurance transaction,
representing $898 million in up-front premium, with a major UK life insurance
company. This was the fourth transaction with up-front premium in excess of $500
million that we have completed since entering the business in 1999."
"We continue to deliver strong returns to shareholders, with net income return
on ordinary shareholders' equity for the quarter of 21.7%, and 18.4% 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,"
said Mr. O'Hara.
For the six months ended June 30, 2004, net income available to ordinary
shareholders increased 39% over the year ago period to a record $815.8 million,
or $5.88 per ordinary share. '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 same period increased 23%
to $637.7 million or $4.60 per ordinary share.
Second Quarter 2004 Highlights (versus second quarter of 2003, unless noted):
o Net premiums written from general operations increased 24% to $1.7
billion
o Combined ratio from general operations improved 4.6 points to 87.6%
o Net investment income increased 23% to $235.2 million
o Cash flow from operations of $1.4 billion, or $1.9 billion including
structured and spread transactions
o Total net invested assets of $28.5 billion, up 12% from December 31,
2003
o Total assets of $45.5 billion, up 12% from December 31, 2003
o Book value per ordinary share was $47.40, up from $46.74 at December
31, 2003
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SEGMENT HIGHLIGHTS:
Insurance Operations
Underwriting profit for the quarter was $109.8 million, an increase of 41% over
the second quarter of 2003. Net premium written increased 36% to $1.2 billion,
driven primarily by higher new business volumes, commutations on certain
reinsurance treaties, greater retentions on new and existing product lines and
the impact of favorable foreign exchange movements. The combined ratio improved
2.3 points compared with the 2003 second quarter to 89.7%, driven by a 2.4 point
improvement in the acquisition expense ratio, due primarily to changes in
product mix. The loss ratio in the quarter of 63.8% was essentially flat versus
the 2003 second quarter. During the quarter, the Company announced two important
new initiatives within this segment: the launching of its whole account
commercial property initiative with capacity of up to $500 million and the
commencement of primary directors' and officers' liability coverage in Europe.
Reinsurance Operations
General Operations - Underwriting profit from General Operations for the quarter
was $108.9 million, an increase of 71% from the second quarter of 2003. Net
premium written increased 3% from the 2003 second quarter to $537 million driven
primarily by the impact of favorable foreign exchange movement. A low level of
large losses in the quarter compared with the year ago period contributed to a
9.6 point improvement in the loss ratio to 53.3%, among the lowest loss ratios
in XL's history. The acquisition and operating expense ratios increased modestly
and the combined ratio was 84.4%.
Life and Annuity Operations - Income from Life and Annuity Operations for the
quarter was $19.5 million, an increase of 68% from the second quarter of 2003.
Net premiums written increased $917 million to $968 million, largely reflecting
the closing of a large, single premium annuity reinsurance transaction which
contributed up-front premium of $898 million.
Financial Products and Services Operations
Total income contribution in the quarter more than doubled over the second
quarter of 2003 to $37.8 million, comprised of $33.0 million from Financial
Operations and $4.8 million from Life and Annuity activities. The majority of
this increase resulted from a positive $47.7 million change in fair value of
derivative form transactions, comprised of both increased premium and positive
price and credit changes, which more than offset a $9.1 million decrease in
underwriting profit and a $15.3 million reduction in equity in net income of
financial affiliates. The decrease in equity in net income of financial
affiliates was driven primarily by the Company's Primus Guaranty Ltd affiliate,
reflecting a
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negative change in the market value of its credit default swap portfolio in the
quarter as compared to a positive change in the year ago quarter.
Corporate Items
Net investment income for the quarter increased 23% over the 2003 second quarter
to $235.2 million, principally reflecting 25% year-over-year growth in invested
assets. Equity in earnings of investment affiliates was $26.7 million, down 22%
from the 2003 second quarter and down $43.6 million from the very strong results
in the first quarter of 2004.
Net realized gains on investments were $8.8 million in the quarter compared with
$93.7 million in the second quarter of 2003. The reduction in realized gains was
driven primarily by lower realized gains on US dollar fixed income securities.
Net unrealized gains on investments, net of tax were $158.6 million at June 30,
2004, compared with $743.8 million at March 31, 2004. The reduction in net
unrealized gains was driven primarily by an increase in US dollar, UK Sterling
and Euro interest rates during the quarter.
Total operating expenses in the quarter were $247.7 million, up 28% from the
prior year quarter. The increase was driven primarily by costs associated with
complying with Sarbanes-Oxley requirements, new business initiatives, the
continuing build-out of the Company's global operations, as well as the
unfavorable impact of foreign exchange movement. Compared with the first quarter
of this year, expenses grew 1% in the quarter.
# # #
A live on-line web cast of XL's call with analysts and investors to review the
second quarter 2004 results will be held at 10:00 a.m. Eastern Time on July 29,
2004 at www.xlcapital.com. A telephone replay of the conference call will be
available beginning at 1:00 p.m. Eastern Time on July 29, 2004 until 8:00 p.m.
Eastern Time on August 5, 2004 by dialing (201) 612-7415 (account number: 7716
and conference I.D. number: 109136). An unaudited financial supplement relating
to the Company's 2004 second quarter results is available on its website:
www.xlcapital.com.
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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This presentation 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 than XL's underwriting, reserving or investment practices anticipate
based on historical experience or industry data; (b) developments in the world's
financial and capital markets which adversely affect the performance of XL's
investments or access to such markets; (c) changes in general economic
conditions, including foreign currency exchange rates, inflation and other
factors; and (d) the other factors set forth in XL's most recent reports on Form
10-K, Form 10-Q, and 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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XL CAPITAL LTD
SUMMARY CONSOLIDATED FINANCIAL DATA
(U.S. dollars in thousands)
Three Months Ended Six Months Ended
Income Statement Data: June 30 June 30
(Unaudited) (Unaudited)
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Gross premiums written - general operations $2,150,846 $1,855,038 $5,551,528 $4,846,087
- life and annuity operations 993,035 75,889 1,108,920 187,213
- financial operation 74,788 106,266 131,677 151,032
Net premiums written - general operations 1,738,728 1,403,713 4,523,489 3,751,488
- life and annuity operations 993,169 63,703 1,109,053 161,016
- financial operations 71,850 104,466 124,184 148,462
Net premiums earned - general operations 1,830,225 1,469,520 3,405,150 2,901,407
- life and annuity operations 994,048 70,482 1,110,980 163,253
- financial operations 34,024 35,807 66,612 62,780
Net investment income 235,177 190,551 463,523 382,455
Net realized gains on investments 8,763 93,687 124,100 89,024
Net realized and unrealized gains (losses) on
derivative instruments 42,140 (12,257) 53,737 2,236
Equity in net income of investment affiliates 26,733 34,306 97,109 61,104
Fee and other income 8,152 9,792 15,059 22,069
----------- ----------- ----------- -----------
$3,179,262 $1,891,888 $5,336,270 $3,684,328
----------- ----------- ----------- -----------
Expenses:
Net losses and loss expenses incurred $1,099,910 $937,575 $2,063,854 $1,822,829
Claims and policy benefit reserves 1,006,509 83,225 1,140,572 202,783
Acquisition costs 347,408 298,550 624,678 538,862
Operating expenses 247,716 193,908 493,016 384,427
Exchange losses (gains) 15,913 (23,352) 5,189 (26,054)
Interest expense 54,961 46,282 95,018 92,422
Amortization of intangible assets 3,257 375 6,514 750
----------- ----------- ----------- -----------
$2,775,674 $1,536,563 $4,428,841 $3,016,019
----------- ----------- ----------- -----------
Net income before minority interest, income tax
expense and equity in net (income) loss of
insurance and insurance and financial
affiliates $403,588 $355,325 $907,429 $668,309
Minority interest 2,284 3,166 6,944 5,028
Income tax 31,176 11,009 66,533 31,039
Equity in net (income) loss of insurance and financial
affiliates (3,556) (16,522) (1,981) 24,565
----------- ----------- ----------- -----------
Net income from operations $373,684 $357,672 $835,933 $607,677
Preference dividend (10,080) (10,013) (20,160) (20,161)
----------- ----------- ----------- -----------
Net income available to ordinary shareholders $363,604 $347,659 $815,773 $587,516
----------- ----------- ----------- -----------
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XL CAPITAL LTD
SUMMARY CONSOLIDATED FINANCIAL DATA
(Shares in thousands, except per share amounts)
Three Months Ended Six Months Ended
Income Statement Data (continued) : June 30 June 30
(Unaudited) (Unaudited)
2004 2003 2004 2003
---- ---- ---- ----
Weighted average number of ordinary shares and
ordinary shares and ordinary share equivalents: Basic 137,655 136,791 137,568 136,527
Diluted 138,741 138,634 138,648 138,084
Per Share Data :
Net income available to ordinary shareholders $2.62 $2.51 $5.88 $4.25
-------- -------- -------- --------
Ratios - General insurance and reinsurance operations:
Loss ratio 59.7% 63.2% 60.3% 62.1%
Expense ratio 27.9% 29.0% 27.9% 27.1%
-------- -------- -------- --------
Combined ratio 87.6% 92.2% 88.2% 89.2%
-------- -------- -------- --------
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XL CAPITAL LTD
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
Balance Sheet Data: As at June 30, As at December 31,
2004 2003
(Unaudited) (Unaudited)
---------------- -------------------
Total investments available for sale $23,599,996 $20,775,257
Net payable for investments purchased 312,680 96,571
Cash and cash equivalents 2,744,878 2,403,121
Investments in affiliates 1,898,462 1,903,341
Total assets 45,460,035 40,764,215
Unpaid losses and loss expenses 17,076,770 16,558,788
Deposit liabilities and policy benefit
reserves 8,874,039 7,284,179
Notes payable and debt 2,743,368 1,905,483
Total shareholders' equity 7,076,572 6,936,915
Book value per ordinary share $47.40 $46.74
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XL CAPITAL LTD
RECONCILIATION
The following is a reconciliation of the Company's (i) 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' (which is a non-GAAP measure, the "Exclusions") and (ii) annualized
return on shareholders' equity (based on net income minus the Exclusions) to
average ordinary shareholders' equity for the three and six months ended June
30, 2004 and 2003 (in millions, except per share amounts):
Three Months Ended Six Months Ended
June 30 June 30
(Unaudited) (Unaudited)
2004 2003 2004 2003
---- ---- ---- ----
Net income available to ordinary shareholders $ 363.6 $ 347.7 $ 815.8 $ 587.5
Net realized gains on investments, net of tax (13.7) (96.5) (121.3) (82.2)
Net realized and unrealized gains on investment derivatives,
net of tax (14.7) (3.9) (17.7) (8.5)
Net realized and unrealized (gains) losses on credit derivatives,
net of tax (26.3) 21.3 (39.1) 21.9
------------------------------------------------------
Net income excluding net realized gains and losses on investments
and net realized and unrealized gains losses on credit and
investment derivative instruments, net of tax $ 308.9 $ 268.6 $ 637.7 $ 518.7
======================================================
Per ordinary share results:
Net income available to ordinary shareholders $ 2.62 $ 2.51 $ 5.88 $ 4.25
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 $ 2.23 $1.94 $ 4.60 $ 3.76
Weighted average ordinary shares outstanding:
Basic 137.7 136.8 137.6 136.5
Diluted 138.7 138.6 138.6 138.1
Return on Ordinary Shareholders' Equity:
Average ordinary shareholders' equity $ 6,702.1 $ 6,671.3 $ 6,489.2 $ 6,550.0
Net income excluding net realized gains and losses on investments
and net unrealized gains and losses on credit and investment
derivative instruments, net of tax $ 308.9 $ 268.6 $ 637.7 $ 518.7
Annualized 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 $ 1,235.6 $ 1,074.4 $ 1,275.4 $ 1,037.5
Annualized Return on Ordinary Shareholders' Equity - Net income
excluding net realized gains and losses on investments and net
unrealized gains and losses on credit and investment derivative
instruments, net of tax 18.4% 16.1% 19.7% 15.8%
======================================================
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Comment on Regulation G
This press release contains the presentation of (i) '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' and (ii) annualized
return on ordinary shareholders' equity (based on net income minus the
Exclusions) to average ordinary shareholders' equity. These items are "non-GAAP
financial measures" as defined in Regulation G. The reconciliation of such
measures to the most directly comparable GAAP financial measures 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 (loss), XL believes
that showing net income (loss) 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
(loss) 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
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their analyses for the same reasons and they request that XL provide this
non-GAAP financial information on a regular basis.
Return on average ordinary shareholder's equity ("ROE"), 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 (the "Exclusions"),
is a widely used measure of any company's profitability. Annualized return on
average ordinary shareholders' equity (minus the Exclusions) is calculated by
dividing annualized net income minus the Exclusions for any period by the
average of the opening and closing ordinary shareholder's equity. The Company
establishes target ROE's for its total operations, segments and lines of
business. If the Company's ROE return targets are not met with respect to any
line of business over time, the Company seeks to re-evaluate these lines. In
addition, the Company's compensation of its senior officers is significantly
dependant on the achievement of the Company's performance goals to enhance
shareholder value which include ROE.
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