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XL Capital Ltd Reports Fourth Quarter And Full Year 2003 Results
Hamilton, Bermuda - February 10, 2004Fourth Quarter 2003 Net Loss $314.8 million, or $2.29 per ordinary shareFull year 2003 Net Income $371.7 million, or $2.69 per ordinary share
HAMILTON, Bermuda, Feb 10, 2004 /PRNewswire-FirstCall via COMTEX/ -- XL Capital Ltd(NYSE: XL) ("XL" or the "Company") today reported a net loss available toordinary shareholders for the quarter ended December 31, 2003, of $314.8million, or a loss of $2.29 per ordinary share. This result includes theimpact of the previously announced $694.1 million pre tax ($647.1 millionafter tax) fourth quarter charge summarized in the attached table. Net incomefor the fourth quarter of 2002 was $214.1 million, or income of $1.56 perordinary share.
For the year ended December 31, 2003, net income available to ordinaryshareholders was $371.7 million, or income of $2.69 per ordinary share,compared with net income of $396.0 million, or income of $2.88 per ordinaryshare, for the year ended December 31, 2002.
'Net loss excluding net realized gains and losses on investments and netrealized and unrealized gains and losses on credit and investment derivativeinstruments, net of tax' for the fourth quarter of 2003 was $349.3 million, ora loss of $2.54 per ordinary share, compared with income of $250.2 million, or$1.82 per ordinary share, for the quarter ended December 31, 2002.
'Net income excluding net realized gains and losses on investments and netrealized and unrealized gains and losses on credit and investment derivativeinstruments, net of tax' for the year ended December 31, 2003 was $293.6million or income of $2.12 per share, compared with income of $700.8 million,or $5.10 per ordinary share, for the year ended December 31, 2002.
'Net income or loss excluding net realized and unrealized gains and losseson credit and investment derivative instruments, net of tax' is a non-GAAPmeasure. A reconciliation of this measure to net income or loss available toordinary shareholders is provided on the attached table entitled"Reconciliation".
Operating Highlights for Full Year 2003 Compared to Full Year 2002: -- Net premiums earned from general operations increased by 24%. -- Total net invested assets increased 26% to $25 billion. -- Investment income increased 6% to $780 million. -- Earnings in investment affiliates increased by 107% to $134 million. -- Cash flow from operations was a record $3.4 billion. -- Total assets increased 14% to $41 billion. -- Book value increased 5% to $46.74 per ordinary share.
Commenting on the fourth quarter 2003 results, Brian M. O'Hara, Presidentand Chief Executive Officer of XL, stated: "The positive underlying dynamicsin our fourth quarter reflect the continuing favorable underwriting marketconditions and XL's strong position in our chosen markets. We are producingsolid growth and strong underlying profitability. I am confident that therealignment of our management team in both our insurance and reinsuranceoperations should enhance our execution of the encouraging businessopportunities at hand."
Total assets as of December 31, 2003, were $40.8 billion compared with$35.6 billion as of December 31, 2002. Book value per ordinary share as atDecember 31, 2003, increased to $46.74 from $44.48 as at December 31, 2002.
A live on-line web cast of XL's call with analysts and investors to reviewthe fourth quarter and full year 2003 results will be held at 10:00 a.m.Eastern Time on February 11, 2004, at www.xlgroup.com. A telephone replay ofthe conference call will be available beginning at 1:00 p.m. Eastern Time onFebruary 11, until 8:00 p.m. Eastern Time on February 18, 2004 by dialing(201) 612-7415 (account number: 7716 and conference I.D. number: 91322). Anunaudited financial information supplement relating to the Company's 2003 and2002 quarterly and full year results, as well as the slides that willaccompany XL's call, are available on its website: www.xlgroup.com.
XL Capital Ltd, through its operating subsidiaries, is a leading providerof insurance and reinsurance coverages and financial products and services toindustrial, commercial and professional service firms, insurance companies andother enterprises on a worldwide basis.
This presentation contains forward-looking statements that involveinherent 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 insuch forward-looking statements and therefore you should not place unduereliance on them. A non-exclusive list of the important factors that couldcause actual results to differ materially from those in such forward-lookingstatements includes the following: (a) rate increases and improvements interms and conditions may not be as large or sustainable as XL is currentlyprojecting; (b) greater frequency or severity of claims and loss activity thanXL's underwriting, reserving or investment practices anticipate based onhistorical experience or industry data; (c) developments in the world'sfinancial and capital markets which adversely affect the performance of XL'sinvestments or access to such markets; (d) changes in general economicconditions, including foreign currency exchange rates, inflation and otherfactors; and (e) the other factors set forth in XL's most recent reports onForm 10-K, Form 10-Q and other documents on file with the Securities andExchange Commission. XL undertakes no obligation to update or revise publiclyany forward-looking statement, whether as a result of new information, futuredevelopments or otherwise.
XL Capital Ltd SUMMARY CONSOLIDATED FINANCIAL DATA (In thousands, except per share amounts) Three Months Ended Income Statement Data: December 31 (Unaudited) 2003 2002 Revenues: Gross premiums written -_ general operations $1,669,382 $1,719,911 -_ life and annuity operations 491,888 220,678 -_ financial operations 71,242 54,912 Net premiums written -_ general operations 1,256,889 1,317,281 -_ life and annuity operations 494,557 187,604 -_ financial operations 61,193 54,493 Net premiums earned -_ general operations 1,515,913 1,507,193 -_ life and annuity operations 498,814 186,919 -_ financial operations 41,535 25,461 Net investment income 206,340 201,350 Net realized gains (losses) on investments 39,864 24,948 Net realized and unrealized losses on derivative Instruments (1,432) (46,635) Equity in net income of investment affiliates 46,558 26,522 Fee and other income 15,756 16,473 $2,363,348 $1,942,231 Expenses: Net losses and loss expenses incurred $1,614,219 $1,028,715 Claims and policy benefit reserves 516,157 199,136 Acquisition costs 304,411 322,829 Operating expenses 200,088 179,933 Exchange gains (8,489) (33,342) Interest expense 57,314 34,510 Amortization of intangible assets 3,512 4,687 $2,687,212 $1,736,468 (Loss) income before minority interest, income tax expense and equity in net (income) loss of insurance and financial affiliates $(323,864) $205,763 Minority interest 3,473 6,843 Income tax (benefit) expense (15,880) (38,493) Equity in net (income) loss of insurance and financial affiliates (6,708) 16,023 Net (loss) income $(304,749) $221,390 Preference dividend (10,080) (7,251) Net (loss) income available to ordinary shareholders $(314,829) $214,139 Weighted average number of ordinary shares and ordinary share equivalents Basic 137,275 135,887 Diluted 138,594 137,582 Per Share Data: (b) $(2.29) $1.56 Ratios - General Insurance and reinsurance operations Loss Ratio 106.0% 69.0% Expense Ratio 27.2% 28.3% Combined Ratio 133.2% 97.3% Year Ended Income Statement Data: December 31 (Unaudited) 2003 2002 Revenues: Gross premiums written -_ general operations $8,624,080 $7,714,005 -_ life and annuity operations 768,089 1,072,248 -_ financial operations 313,916 199,913 Net premiums written -_ general operations 6,552,280 5,771,626 -_ life and annuity operations 739,869 1,023,604 -_ financial operations 299,240 177,794 Net premiums earned -_ general operations 6,081,033 4,899,073 -_ life and annuity operations 748,495 1,022,992 -_ financial operations 139,622 67,745 Net investment income 779,558 734,535 Net realized gains (losses) on investments 120,195 (214,160) Net realized and unrealized losses on derivative Instruments (27,542) (51,761) Equity in net income of investment affiliates 133,902 64,662 Fee and other income 41,745 54,963 $8,017,008 $6,578,049 Expenses: Net losses and loss expenses incurred $4,610,606 $3,327,315 Claims and policy benefit reserves 818,894 1,069,456 Acquisition costs 1,167,186 955,331 Operating expenses 797,826 674,403 Exchange gains (38,619) (80,294) Interest expense 199,407 168,086 Amortization of intangible assets 4,637 6,187 $7,559,937 $6,120,484 (Loss) income before minority interest, income tax expense and equity in net (income) loss of insurance and financial affiliates $457,071 $457,565 Minority interest 9,264 13,371 Income tax (benefit) expense 30,049 22,647 Equity in net (income) loss of insurance and financial affiliates 5,779 15,976 Net (loss) income $411,979 $405,571 Preference dividend (40,321) (9,620) Net (loss) income available to ordinary shareholders $371,658 $395,951 Weighted average number of ordinary shares and ordinary share equivalents Basic 136,906 135,636 Diluted 138,187 137,388 Per Share Data: (b) $2.69 $2.88 Ratios - General Insurance and reinsurance operations Loss Ratio 75.3% 68.0% Expense Ratio 27.3% 29.0% Combined Ratio 102.6% 97.0%
a) Certain reclassifications, which have no effect on net income, havebeen made in the presentation of prior period results to conform to currentpresentation.
b) Average stock options outstanding have been excluded where anti-dilutive to earnings per share. Consequently where there is a net loss, basicweighted average ordinary shares outstanding are used to calculate net lossper share.
XL Capital Ltd SUMMARY CONSOLIDATED FINANCIAL DATA (In thousands, except per share amounts) As at Dec. 31, As at Dec. 31, 2003 2002 (Unaudited) (Unaudited) Balance Sheet Data: Total investments available for sale $ 20,775,256 $ 16,059,733 Net payable for investments purchased 96,571 1,546,276 Cash and cash equivalents 2,403,121 3,557,815 Investments in affiliates 1,903,341 1,750,005 Total assets 40,764,215 35,647,369 Unpaid losses and loss expenses 16,558,788 13,202,736 Deposit liabilities and policy benefit reserves 7,284,179 4,889,996 Notes payable and debt 1,905,483 1,877,957 Total shareholders' equity 6,936,915 6,569,589 Book value per ordinary share $ 46.74 $ 44.48 XL Capital Ltd RECONCILIATION
The following is a reconciliation of the Company's net income (loss) to'net income (loss) excluding net realized gains and losses on investments andnet realized and unrealized gains and losses on credit and investmentderivative instruments, net of tax' (which is a non-GAAP measure) for thethree and twelve months ended December 31, 2003 and 2002 (in millions, exceptper share amounts):
Three months ended Year ended December 31 December 31 (Unaudited) (Unaudited) 2003 2002 2003 2002 Net (loss) income available to ordinary shareholders ($314.8) $214.1 $371.7 $396.0 Net realized (gains) losses on investments, net of tax (30.3) (9.2) (105.2) 236.5 Net realized and unrealized (gains) losses on investment derivatives, net of tax (7.1) 9.7 0.5 22.2 Net realized and unrealized losses on credit derivatives, net of tax 2.9 35.6 26.6 46.1 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 ($349.3) $250.2 $293.6 $700.8 Per ordinary share results: Net income (loss) available to ordinary shareholders (a) ($2.29) $1.56 $2.69 $2.88 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 (a) ($2.54) $1.82 $2.12 $5.10 Weighted average ordinary shares outstanding: Basic 137.3 135.9 136.9 135.6 Diluted 138.6 137.6 138.2 137.4
(a) Average stock options outstanding have been excluded where anti-dilutive to earnings per share. Consequently, where there is a net loss,basic weighted average ordinary shares outstanding are used to calculate netloss per share.
XL Capital Ltd SUMMARY OF 2003 PREVIOUSLY ANNOUNCED RESERVE CHARGES (In millions) Three months Year ended ended Dec 31, 2003 Dec 31, 2003 (Unaudited) (Unaudited) XL Reinsurance America Inc (XLRA) North American casualty reinsurance losses: Additional claim reserves $124 $308 Incurred but not reported reserves 539 569 Total $663 $877 2003 Year End Reserve Review (excluding XLRA): $62 $62 Reinsurance - excluding September 11 event Insurance 150 150 Reinsurance - September 11 event (181) (181) Total $31 $31 Total Reserve Charge - Pre-tax $694 $908 Total Reserve Charge - After-tax $647 $837
Comment on Regulation G
This press release contains the presentation of 'net income excluding netrealized gains and losses on investments and net realized and unrealized gainsand losses on credit and investment derivatives, net of tax'. Thispresentation is a "non-GAAP financial measure" as defined in Regulation G.The reconciliation of such measure to net income (the most directly comparableGAAP financial measure) in accordance with Regulation G is included above.
XL presents its operations in the way it believes will be most meaningfuland useful to investors, analysts, rating agencies and others who use XL'sfinancial information in evaluating XL's performance. This presentationincludes the use of 'net income excluding net realized gains and losses oninvestments and net realized and unrealized gains and losses on credit andinvestment derivatives, net of tax'. Investment derivatives include allderivatives entered into by XL other than weather and energy and creditderivatives (discussed further below).
Although the investment of premiums to generate income (or loss) andrealized capital gains (or losses) is an integral part of XL's operations,the determination to realize capital gains (or losses) is independent of theunderwriting process. In addition, under applicable GAAP accountingrequirements, losses can be createunistic and are a function ofeconomic and interest rate conditions. In addition, with respect to creditderivatives, because XL generally holds its financial guarantee contractswritten in credit default derivative form to maturity, the net effects of thechanges in fair value of these credit derivatives are excluded (similar withother companies in the financial guarantee business) as the changes in fairvalue each quarter are not indicative of underlying business performance ofXL's financial guarantee operations. Unlike these credit derivatives, XL'sweather and energy derivatives are actively traded (i.e, they are not held tomaturity) and are, therefore, not excluded from net income as any gains orlosses from this business are considered by management when evaluating andmanaging the underlying business.
In summary, XL evaluates the performance of and manages its business toproduce an underwriting profit. In addition to presenting net income (loss),XL believes that showing net income (loss) exclusive of the items mentionedabove enables investors and other users of XL's financial information toanalyze XL's performance in a manner similar to how management of XL analyzesperformance. In this regard, XL believes that providing only a GAAPpresentation of net income (loss) makes it much more difficult for users ofXL's financial information to evaluate XL's underlying business. Also, asstated above, XL believes that the equity analysts and certain rating agencieswho follow XL (and the insurance industry as a whole) exclude these items fromtheir analyses for the same reasons and they request that XL provide this non-GAAP financial information on a regular basis.