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XL Capital Ltd Reports Record First Quarter 2004 Results
Hamilton, Bermuda - May 03, 2004First Quarter 2004 Net Income $452.2 million, or $3.25 per ordinary share up from $239.9 million, or $1.74 per ordinary share in First Quarter 2003.
HAMILTON, BERMUDA, May 3, 2004 -- XL Capital Ltd (“XL”or the “Company”) (NYSE: XL) today reportedrecord net income available to ordinary shareholdersfor the quarter ended March 31, 2004 of $452.2 million,or $3.25 per ordinary share, compared with $239.9 million,or $1.74 per ordinary share, for the quarterended March 31, 2003.
Net income excluding net realized gains and losseson investments and net realized and unrealized gainsand losses on credit and investment derivative instruments,net of tax, for the first quarter of 2004 was a record$328.8 million, or $2.36 per ordinary share, comparedwith $250.2 million, or $1.82 per ordinary share, forthe quarter ended March 31, 2003.
First Quarter Operating Highlights 2004 vs.2003:
- • Net premiums written from general operations increased 19% to $2.8 billion
- • Combined ratio from general operations was a satisfactory 88.8%
- • Net investment income up 19% to $228 million
- • Earnings from equity in investment affiliates up 163% to $70 million
- • Cash flow from operations $527 million, or $752 million, including structured and spread transactions
- • Total net invested assets exceeded $27 billion, up 30%
- • Total assets increased 18% to a record $44 billion
- • Book value up $2.84 from December 31, 2003 to $49.58
- • Return on ordinary shareholders’ equity at 19.8%
Commenting on the first quarter 2004 results, BrianM. O’Hara, President and Chief Executive Officerof XL, stated: “I am pleased to announce recordfirst quarter results with all segments of our businessbeing profitable and contributing to this impressiveperformance.”
“Our general operations continue to experienceoverall premium growth and remain very profitable asevidenced by our 88.8% combined ratio in the first quarterof 2004, despite increasing competition. We also enjoyedthe benefits of our diversification strategy with verygood results from our investments in affiliates as wellas solid contributions from our Financial Products andServices segment and our Life and Annuity Reinsuranceactivities,” Mr. O’Hara noted.
Total assets as of March 31, 2004 were a record $44.2billion compared with $40.8 billion as of December 31,2003. Book value per ordinary share as at March 31,2004 increased by 6.1% to $49.58 from $46.74 as at December31, 2003.
A live on-line web cast of XL’s call with analystsand investors to review the first quarter 2004 resultswill be held at 10:00 a.m. Eastern Time on May 4, 2004at www.xlgroup.com. A telephone replay of the conferencecall will be available beginning at 1:00 p.m. EasternTime on May 4, until 8:00 p.m. Eastern Time on May 11,2004 by dialing (201) 612-7415 (account number: 7716and conference I.D. number: 100381). An unaudited financialinformation supplement relating to the Company’s2004 first quarter results is available on its website:www.xlgroup.com
XL Capital Ltd, through its operating subsidiaries,is a leading provider of insurance and reinsurance coveragesand financial products and services to industrial, commercialand professional service firms, insurance companiesand other enterprises on a worldwide basis.
This presentation contains forward-looking statementsthat involve inherent risks and uncertainties. Statementsthat are not historical facts, including statementsabout XL’s beliefs, plans or expectations, areforward-looking statements. These statements are basedon current plans, estimates, and expectations. Actualresults may differ materially from those projected insuch forward-looking statements and therefore you shouldnot place undue reliance on them. A non-exclusive listof the important factors that could cause actual resultsto differ materially from those in such forward-lookingstatements includes the following: (a) rate increasesand improvements in terms and conditions may not beas large or sustainable as XL is currently projecting;(b) greater frequency or severity of claims and lossactivity than XL’s underwriting, reserving orinvestment practices anticipate based on historicalexperience or industry data; (c) developments in theworld’s financial and capital markets which adverselyaffect the performance of XL’s investments oraccess to such markets; (d) changes in general economicconditions, including foreign currency exchange rates,inflation and other factors; and (e) the other factorsset forth in XL’s most recent reports on Form10-K, Form 10-Q, and other documents on file with theSecurities and Exchange Commission. XL undertakes noobligation to update or revise publicly any forward-lookingstatement, whether as a result of new information, futuredevelopments or otherwise.
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XL Capital Ltd SUMMARY CONSOLIDATED FINANCIAL DATA (In thousands, except per share amounts) Three Months Ended Income Statement Data: March 31 (Unaudited) 2004 2003 Revenues: Gross premiums written --general operations $3,400,682 $2,991,049 --life and annuity operations 115,885 111,324 --financial operations 56,889 44,766 Net premiums written --general operations 2,784,761 2,347,775 --life and annuity operations 115,884 97,313 --financial operations 52,334 43,996 Net premiums earned --general operations 1,574,925 1,431,887 --life and annuity operations 116,932 92,771 --financial operations 32,588 26,973 Net investment income 228,346 191,904 Net realized gains (losses) on investments 115,337 (4,663) Net realized and unrealized gains on derivative instruments 11,597 14,493 Equity in net income of investment affiliates 70,376 26,798 Fee and other income 6,907 12,277 $2,157,008 $1,792,440 Expenses: Net losses and loss expenses incurred $963,944 $885,254 Claims and policy benefit reserves 134,063 119,558 Acquisition costs 277,270 240,312 Operating expenses 245,300 190,519 Exchange gains (10,724) (2,702) Interest expense 40,057 46,140 Amortization of intangible assets 3,257 375 $1,653,167 $1,479,456 Income before minority interest, income tax expense and equity in net (income) loss of insurance and financial affiliates $503,841 $312,984 Minority interest 4,660 1,862 Income tax expense 35,357 20,030 Equity in net loss of insurance and financial affiliates 1,575 41,087 Net income $462,249 $250,005 Preference dividend (10,080) (10,148) Net income available to ordinary shareholders $452,169 $239,857 Weighted average number of ordinary shares and ordinary share equivalents :Basic 137,624 136,216 :Diluted 139,044 137,631 Per Share Data: Net income available to ordinary shareholders $3.25 $1.74 Ratios -- General insurance and reinsurance operations Loss ratio 61.1% 60.9% Expense ratio 27.7% 25.2% Combined ratio 88.8% 86.1% XL Capital Ltd SUMMARY CONSOLIDATED FINANCIAL DATA (In thousands, except per share amounts) As at March 31, As at Dec. 31, 2004 2003 (Unaudited) (Unaudited) Balance Sheet Data: Total investments available for sale $22,161,915 $20,775,256 Net payable for investments purchased 86,577 96,571 Cash and cash equivalents 2,646,857 2,403,121 Investments in affiliates 2,035,727 1,903,341 Total assets 44,170,320 40,764,215 Unpaid losses and loss expenses 16,718,056 16,558,788 Deposit liabilities and policy benefit reserves 7,641,086 7,284,179 Notes payable and debt 2,736,867 1,905,483 Total shareholders' equity 7,362,727 6,936,915 Book value per ordinary share $49.58 $46.74
XL Capital Ltd RECONCILIATION
The following is a reconciliation of the Company’s(i) net income to ‘net income excluding net realizedgains and losses on investments and net realized andunrealized gains and losses on credit and investmentderivative instruments, net of tax’ (which isa non-GAAP measure, the “Exclusions”) and(ii) annualized return on shareholders’ equity(based on net income minus the Exclusions) to averageordinary shareholders’ equity for the three monthsended March 31, 2004 and 2003 (in millions, except pershare amounts):
Three Months Ended March 31 (Unaudited) 2004 2003 Net income available to ordinary shareholders $452.2 $239.9 Net realized (gains) losses on investments, net of tax (107.6) 14.4 Net realized and unrealized gains on investment derivatives, net of tax (2.9) (4.7) Net realized and unrealized (gains) losses on credit derivatives, net of tax (12.9) 0.6 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 $328.8 $250.2 Per ordinary share results: Net income available to ordinary shareholders $3.25 $1.74 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 $2.36 $1.82 Weighted average ordinary shares outstanding :Basic 137.6 136.2 :Diluted 139.0 137.6 Return on ordinary shareholders' equity: Average ordinary shareholders' equity (excludes preference shares of $517.5) $6,632.3 $6,173.4 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 328.8 250.2 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 1,315.3 1,000.6 Annualized Return on Ordinary Shareholders' Equity -- (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) 19.8% 16.2%
Comment on Regulation G
This press release contains the presentation of (i)‘net income excluding net realized gains and losseson investments and net realized and unrealized gainsand losses on credit and investment derivatives, netof tax’ and (ii) annualized return on ordinaryshareholders’ equity (based on net income minusthe Exclusions) to average ordinary shareholders’equity. These items are “non-GAAP financial measures”as defined in Regulation G. The reconciliation of suchmeasures to the most directly comparable GAAP financialmeasures in accordance with Regulation G is includedabove.
XL presents its operations in the way it believes willbe most meaningful and useful to investors, analysts,rating agencies and others who use XL’s financialinformation in evaluating XL’s performance. Thispresentation includes the use of ‘net income excludingnet realized gains and losses on investments and netrealized and unrealized gains and losses on credit andinvestment derivatives, net of tax’. Investmentderivatives include all derivatives entered into byXL 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) isan integral part of XL’s operations, the determinationto realize capital gains (or losses) is independentof the underwriting process. In addition, under applicableGAAP accounting requirements, losses can be createdas the result of other than temporary declines in valuewithout actual realization. In this regard, certainusers of XL’s financial information, includingcertain rating agencies, evaluate earnings before taxand capital gains to understand the profitability ofthe recurring sources of income without the effectsof these two variables. Furthermore, these users believethat, for many companies, the timing of the realizationof capital gains is largely opportunistic and are afunction of economic and interest rate conditions. Inaddition, with respect to credit derivatives, becauseXL generally holds its financial guarantee contractswritten in credit default derivative form to maturity,the net effects of the changes in fair value of thesecredit derivatives are excluded (similar with othercompanies in the financial guarantee business) as thechanges in fair value each quarter are not indicativeof underlying business performance of XL’s financialguarantee operations. Unlike these credit derivatives,XL’s weather and energy derivatives are activelytraded (i.e, they are not held to maturity) and are,therefore, not excluded from net income as any gainsor losses from this business are considered by managementwhen evaluating and managing the underlying business.
In summary, XL evaluates the performance of and managesits business to produce an underwriting profit. In additionto presenting net income (loss), XL believes that showingnet income (loss) exclusive of the items mentioned aboveenables investors and other users of XL’s financialinformation to analyze XL’s performance in a mannersimilar to how management of XL analyzes performance.In this regard, XL believes that providing only a GAAPpresentation of net income (loss) makes it much moredifficult for users of XL’s financial informationto evaluate XL’s underlying business. Also, asstated above, XL believes that the equity analysts andcertain rating agencies who follow XL (and the insuranceindustry as a whole) exclude these items from their analyses for the same reasons and they requestthat XL provide this non-GAAP financial informationon a regular basis.
Return on average ordinary shareholder's equity ("ROE"), excludingnet realized gains and losses on investments and netrealized and unrealized gains and losses on credit andinvestment 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 dividingannualized net income minus the Exclusions for any periodby the average of the opening and closing ordinary shareholder'sequity. The Company establishes target ROE's for itstotal operations, segments and lines of business. Ifthe Company's ROE return targets are not met with respectto any line of business over time, the Company seeksto re-evaluate these lines. In addition, the Company'scompensation of its senior officers is significantlydependant on the achievement of the Company's performancegoals to enhance shareholder value which include ROE.