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 THIRD QUARTER 2004 NET INCOME OF
$22.5 MILLION, OR $0.16 PER ORDINARY SHARE
HAMILTON, BERMUDA, November 1, 2004 -- XL Capital Ltd ("XL" or the "Company")
(NYSE: XL) today reported net income available to ordinary shareholders for the
quarter ended September 30, 2004 of $22.5 million, or $0.16 per ordinary share,
compared with $99.0 million, or $0.71 per ordinary share, for the quarter ended
September 30, 2003. Results for the 2004 third quarter include the impact of a
net $420.1 million after-tax charge related to hurricane activity during the
quarter.
'Net loss 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 was $15.4 million, or a loss of $0.11
per ordinary share, compared with net income of $124.1 million, or $0.90 per
ordinary share, for the year ago quarter. See below for a reconciliation of 'net
income (loss) 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.
For the nine months ended September 30, 2004, net income available to ordinary
shareholders increased 22% over the year ago period to a record $838.2 million,
or $6.05 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 nine month period was
$622.3 million, or $4.49 per ordinary share, a decrease of 3% compared with the
year ago period. Annualized return on ordinary shareholders' equity on the same
basis was 12.5%, compared with 13.3% for the nine months to September 30, 2003.
"In a quarter that witnessed unprecedented natural catastrophe activity, XL
delivered solid underlying results," commented Brian O'Hara, President and Chief
Executive Officer of XL. "The combined ratio from our general operations,
excluding hurricane-related losses, was 86.7% reflecting the strength of our
underwriting discipline and the continued generally healthy market conditions.
The combination of our global presence, diversified product expertise and
ratings strength allows us to continue to see attractive market opportunities,
although we have selectively reduced writings in certain lines where price
competition has become aggressive."
"Cash flow from operations, net invested assets and net investment income all
recorded solid increases over year ago levels. Our affiliate investments also
delivered particularly strong results in the quarter, benefiting from the IPO's
of Admiral Group and Primus Guaranty and the sale of our 30% stake in Pareto
Partners. These events, combined, contributed income of $100.9 million after-tax
in the quarter."
Third Quarter 2004 Highlights (versus third quarter of 2003, unless noted):
o Net premiums written from general operations decreased 9% to $1.4
billion
o Combined ratio from general operations was 110.6%. Excluding
hurricane-related losses, the combined ratio was 86.7%
o Net investment income increased 33% to $253.1 million
o Cash flow from operations was $1.1 billion, or $1.4 billion including
structured and spread transactions
o Total net invested assets were $30.3 billion, up 19% from December 31,
2003
o Total assets of $46.8 billion, increased 15% from December 31, 2003
o Book value per ordinary share of $49.45, increased 6% from $46.74 at
December 31, 2003
SEGMENT HIGHLIGHTS:
Insurance Operations
Underwriting loss for the quarter was $83.7 million, compared with underwriting
profit of $119.6 million in the prior year quarter. Net premium written
increased 3% compared with the 2003 third quarter to $897.9 million, as the
impacts of price decreases, the non-renewal of certain portfolios and ceded
reinstatement premiums related to hurricane losses in the quarter, were offset
by new business and favorable foreign exchange movement. The loss ratio
increased 21.8 points, compared with the 2003 third quarter, to 83.2%, with
hurricane-related net losses of $188.0 million contributing 18.3 points and
prior period net reserve strengthening, relating primarily to European excess
professional lines, contributing $89.0 million or 8.3 points. The underwriting
expense ratio of 27.3% was essentially flat compared with the same period last
year.
Reinsurance Operations
General Operations - Underwriting loss for the quarter was $78.3 million
compared with a loss of $74.5 million in the 2003 third quarter. The prior year
quarter included a $184 million pre-tax charge for adverse development primarily
related to North American casualty reinsurance business written in the 1997-2001
period. Net premium written decreased 24% to $511.4 million compared with the
2003 third quarter, driven primarily by the timing of renewals of several large
policies and the non-renewal of certain programs in Latin America. The loss
ratio of 83.7% in the quarter included $258.7 million, or 31.6 points of
hurricane-related losses. Excluding the impact of these hurricanes, the loss
ratio was 52.1%, the lowest level recorded in this segment in XL's history. The
underwriting expense ratio decreased slightly compared with the year ago period
to 27.0% from 27.9%.
Life and Annuity Operations - Income from Life and Annuity operations for the
quarter more than doubled compared with the 2003 third quarter to $14.1 million.
Net premiums written increased 20% to $72.7 million, due primarily to further
premium generated by several term assurance treaties entered into in the fourth
quarter of 2003. Net investment income increased 61% to $57.2 million driven by
a 56% increase in net invested assets to $4.1 billion related to several large
annuity contracts written since the third quarter of last year.
Financial Products and Services Operations
Financial Operations - Contribution in the quarter was a loss of $6.7 million, a
decrease of $19.9 million compared with the 2003 third quarter. Net premiums
written decreased 41% compared with the 2003 third quarter driven primarily by a
lower level of large, upfront premium transactions written compared with the
prior year quarter and generally more competitive market conditions. During the
quarter, the Company recorded a loss on an insured project financing structure
which added $41.7 million to net losses and $23.3 million to net premiums
earned.
Life and Annuity Operations - Income in the quarter decreased $8.0 million
compared with the prior year quarter to a loss of $4.8 million, as higher claims
and policy benefits costs more than offset higher net investment income less
related interest expense. The total average balance of funding agreements and
municipal reinvestment contracts increased $1.7 billion compared with the 2003
third quarter to $3.1 billion.
Corporate Items
Net investment income for the quarter increased 33% over the 2003 third quarter
to $253.1 million driven primarily by 28% year-over-year growth in invested
assets. Net income from investment affiliates increased $21.0 million over the
prior year quarter to $47.3 million, with continuing good performance in the
financial results of investment managers where the Company holds minority
interests, combined with a $35.4 million gain related to the sale of the
Company's 30% stake in Pareto Partners, offsetting generally weaker performance
from our affiliate funds investments.
Net realized gains on investments were $57.0 million in the quarter compared
with losses of $8.7 million in the third quarter of 2003. Net unrealized gains
on investments, net of tax, were $488.6 million at September 30, 2004 compared
with $158.6 million at June 30, 2004.
Total operating expenses in the quarter were $271.9 million, up 27% from the
prior year quarter. This increase was driven primarily by costs associated with
new business initiatives, the continuing build-out of the Company's operations
globally, work related to complying with Sarbanes-Oxley requirements, and the
impact of foreign exchange movement.
# # #
The Company will host a conference call to discuss its third quarter 2004
results on Tuesday, November 2 at 10:00 Eastern Time. A live webcast of this
call will be available at www.xlcapital.com and will be archived on XL's website
from approximately 1:00 p.m. Eastern Time on November 2, 2004 through midnight
Eastern Time on December 2, 2004. A telephone replay of the conference call will
be available beginning at 1:00 p.m. Eastern Time on November 2, 2004 until 8:00
p.m. Eastern Time on November 9, 2004 by dialing (201) 612-7415 (account number:
7716 and conference I.D. number: 118726). An unaudited financial supplement
relating to the Company's 2004 third quarter results is available on its website
at 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.
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) the size of XL's claims relating to the hurricane
losses described above may change due to the preliminary nature of some of the
reports and estimates of loss and damage to date; (b) 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;
(c) developments in the world's financial and capital markets which adversely
affect the performance of XL's investments or
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 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.
XL CAPITAL LTD
SUMMARY CONSOLIDATED FINANCIAL DATA
(U.S. dollars in thousands)
Three Months Ended Nine Months Ended
Income Statement Data: Sept 30 Sept 30
(Unaudited) (Unaudited)
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Gross premiums written - general operations $2,014,643 $2,108,611 $7,566,171 $6,954,698
- life and annuity operations 97,884 88,988 1,206,804 276,201
- financial operations 59,605 91,642 191,282 242,674
Net premiums written - general operations 1,409,287 1,543,903 5,932,776 5,295,391
- life and annuity operations 97,160 84,296 1,206,213 245,312
- financial operations 52,748 89,585 176,932 238,047
Net premiums earned - general operations 1,867,284 1,663,713 5,272,434 4,565,120
- life and annuity operations 97,378 86,428 1,208,358 249,681
- financial operations 56,471 35,307 123,083 98,087
Net investment income 253,076 190,763 716,599 573,218
Net realized gains (losses) on investments 57,015 (8,693) 181,115 80,331
Net realized and unrealized (losses) gains on
derivative instruments (19,587) (28,346) 34,150 (26,110)
Net income from investment affiliates 47,283 26,240 144,392 87,344
Fee and other income 10,811 3,920 25,870 25,989
----------- ----------- ---------- ----------
$2,369,731 $1,969,332 $7,706,001 $5,653,660
----------- ----------- ---------- ----------
Expenses:
Net losses and loss expenses incurred $1,609,126 $1,173,558 $3,672,980 $2,996,387
Claims and policy benefit reserves 127,947 99,954 1,268,519 302,737
Acquisition costs 341,010 323,913 965,688 862,775
Operating expenses 271,852 213,311 764,868 597,738
Exchange (gains) losses (27,837) (4,076) (22,648) (30,130)
Interest expense 71,712 49,671 166,730 142,093
Amortization of intangible assets 3,256 375 9,770 1,125
----------- ----------- ---------- ----------
$2,397,066 $1,856,706 $6,825,907 $4,872,725
----------- ----------- ---------- ----------
Net (loss) income before minority interest,
income expense and net (income) loss from insurance
and financial affiliates ($27,335) $112,626 $880,094 $780,935
Minority interest 1,097 763 8,041 5,791
Income tax 10,342 14,890 76,875 45,929
Net (income) loss from insurance and financial
affiliates (71,326) (12,078) (73,307) 12,487
----------- ----------- ---------- ----------
Net income from operations $32,552 $109,051 $868,485 $716,728
Preference dividend (10,081) (10,080) (30,241) (30,241)
----------- ----------- ---------- ----------
Net income available to ordinary shareholders $22,471 $98,971 $838,244 $686,487
----------- ----------- ---------- ----------
XL CAPITAL LTD
SUMMARY CONSOLIDATED FINANCIAL DATA
(Shares in thousands, except per share amounts)
3 Months Ended 9 Months Ended
Income Statement Data (continued): Sept 30 Sept 30
(Unaudited) (Unaudited)
2004 2003 2004 2003
---- ---- ---- ----
Weighted average number of ordinary shares and
ordinary share equivalents : Basic 138,043 136,826 137,800 136,744
Diluted 138,932 138,423 138,511 138,170
Per Share Data :
Net income available to ordinary shareholders $0.16 $0.71 $6.05 $4.97
-------- -------- -------- --------
Ratios - General Insurance and reinsurance operations
Loss ratio 83.4% 70.3% 68.5% 65.1%
Expense ratio 27.2% 27.7% 27.6% 27.3%
-------- -------- -------- --------
Combined ratio 110.6% 98.0% 96.1% 92.4%
-------- -------- -------- --------
XL CAPITAL LTD
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
Balance Sheet Data: As at September 30, As at December 31,
2004 2003
(Unaudited) (Unaudited)
----------------------- -----------------------
Total investments available for sale $25,707,023 $20,775,256
Net payable for investments purchased 244,051 96,571
Cash and cash equivalents 2,267,198 2,403,121
Investments in affiliates 1,987,544 1,903,341
Total assets 46,822,950 40,764,215
Unpaid losses and loss expenses 18,252,435 16,558,788
Deposit liabilities and policy benefit reserves 9,208,047 7,284,179
Notes payable and debt 2,730,990 1,905,483
Total shareholders' equity 7,371,719 6,936,915
Book value per ordinary share $49.45 $46.74
XL CAPITAL LTD
RECONCILIATION
The following is a reconciliation of the Company's (i) net income to 'net (loss)
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 nine months ended
September 30, 2004 and 2003 (in millions, except per share amounts):
Three Months Ended Nine Months Ended
Sept 30 Sept 30
(Unaudited) (Unaudited)
2004 2003 2004 2003
---- ---- ---- ----
Net income available to ordinary shareholders $ 22.5 $ 99.0 $ 838.2 $ 686.5
Net realized (gains) losses on investments, net of tax (56.5) 7.3 (177.8) (74.8)
Net realized and unrealized gains on investment
derivatives, net of tax 16.6 16.0 (1.0) 7.5
Net realized and unrealized (gains) losses on
credit derivatives, net of tax 2.0 1.8 (37.1) 23.7
---------- --------- ---------- ---------
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 $ (15.4) $ 124.1 $ 622.3 $ 642.9
========== ========= ========== =========
Per ordinary share results:
Net income available to ordinary shareholders $ 0.16 $ 0.71 $ 6.05 $ 4.97
Net (loss) 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 $ (0.11) $ 0.90 $ 4.49 $ 4.65
Weighted average ordinary shares outstanding:
Basic 138.0 136.8 137.8 136.7
Diluted 138.9 138.4 138.5 138.2
Return on Ordinary Shareholders' Equity:
Average ordinary shareholders' equity $ 6,706.6 $ 6,965.8 $ 6,636.8 $ 6,467.9
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 $ (15.4) $ 124.1 $ 622.3 $ 642.9
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 $ (61.6) $ 496.4 $ 829.7 $ 857.2
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 NM 7.1% 12.5% 13.3%
---------- --------- ---------- ---------
Comment on Regulation G
This press release contains the presentation of (i) 'net (loss) 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 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.