HAMILTON, BERMUDA - July 31, 2003
Record Net Income $347.7 million, or $2.51 per ordinary share
HAMILTON, BERMUDA, July 31, 2003 -- XL Capital Ltd (“XL” or the“Company”) (NYSE: XL) today reported netincome available to ordinary shareholders for the quarterended June 30, 2003 of $347.7 million, or $2.51 perordinary share, compared with a net loss of $91.7 million,or $0.68 per ordinary share, in the second quarter of2002. ‘Net income excluding net realized gainsand losses on investments and net realized and unrealizedgains and losses on credit and investment derivativeinstruments, net of tax’ for the second quarterof 2003 was $268.6 million, or $1.94 per ordinary share,compared with $26.4 million, or $0.19 per ordinary share,for the quarter ended June 30, 2002. ‘Net incomeexcluding net realized gains and losses on investmentsand net realized and unrealized gains and losses oncredit and investment derivative instruments, net oftax’ is a non-GAAP measure. See below for a reconciliationof this measure to net income available to ordinaryshareholders.
Commenting on the second quarter 2003 results, Brian M. O'Hara, Presidentand Chief Executive Officer of XL, stated: "We had a strong quarter with netincome, total assets and shareholders' equity reaching record levels. Cashflow from operations was a robust $952 million for the second quarter. Addingthe $669 million in XL Life and Annuity transactions this quarter increasedcash flow to $1.6 billion. Net premiums earned from general operationsincreased by more than 40% compared with the second quarter a year ago and weachieved satisfactory combined ratios of 92.2% in the second quarter and 89.2%for the six months ended June 30, 2003."
"We are strategically positioned in all of the business lines and regionswhere we want to be and continue to capitalize on the current strong marketconditions in our areas of focus," stated Mr. O'Hara. "We are particularlywell-placed in those lines of business which are still seeing the largest rateincreases, notably professional lines and casualty worldwide which currentlycomprise nearly half of our general operations' portfolio. The Company's lifeand annuity businesses and our financial operations also performed well andboth areas are gaining momentum."
Mr. O'Hara also commented: "We were also pleased with our total investmentearnings, comprising both investment income and our equity in the earnings ofour investment affiliates, of $224.9 million in the quarter endedJune 30, 2003, as compared with $182.7 million in the prior year's quarter."
For the six months ended June 30, 2003, net income available to ordinaryshareholders was $587.5 million, or $4.25 per ordinary share, compared with anet loss of $2.3 million, or $0.02 per ordinary share, in the six months endedJune 30, 2002. 'Net income excluding net realized gains and losses oninvestments and net realized and unrealized gains and losses on credit andinvestment derivative instruments, net of tax' for the six months ended June30, 2003 was $518.7 million, or $3.76 per ordinary share, compared with$234.0 million, or $1.70 per ordinary share, for the six months endedJune 30, 2002. See below for the reconciliation of 'net income excluding netrealized gains and losses on investments and net realized and unrealized gainsand losses on credit and investment derivative instruments, net of tax' to netincome available to ordinary shareholders.
Total assets as of June 30, 2003 were $39.2 billion compared with$35.6 billion as of December 31, 2002. Book value per ordinary share as atJune 30, 2003 increased to $51.40 compared with $44.48 as atDecember 31, 2002.
Summary unaudited consolidated financial data for the quarter and sixmonths ended June 30, 2003 and 2002, respectively, are set forth below (inmillions, except per share amounts):
Three months ended Six months ended June 30 June 30 (Unaudited) (Unaudited) 2003 2002 2003 2002 Gross premiums written $ 2,037.2 $ 1,538.3 $ 5,184.3 $ 4,342.9 Net premiums written 1,571.9 1,138.7 4,061.0 3,297.5 Net premiums earned 1,575.8 1,057.5 3,127.4 2,122.3 Net income (loss) $ 357.7 $ (91.7) $ 607.7 $ (2.3) Preference dividend (10.0) (--) (20.2) (--) Net income available to ordinary shareholders $ 347.7 $ (91.7) $ 587.5 $ (2.3) Per ordinary share results: Net income (loss) available to ordinary shareholders (a) $ 2.51 $ (0.68) $ 4.25 $ (0.02) Weighted average ordinary shares outstanding: Basic 136,791 135,662 136,527 135,431 Diluted 138,634 138,231 138,084 137,743 Note: (a) Average stock options outstanding have been excluded where anti- dilutive to earnings per ordinary share. Consequently, where there is a net loss, basic weighted average ordinary shares outstanding is used to calculate net loss per ordinary share.Effective this quarter the presentation of the Company's results have beenreported in general operations, life and annuity operations and financialoperations in order to provide additional information relating to XL'sfinancial products and services segment. Prior periods have been reclassifiedto reflect this expanded presentation.
Gross premiums written for general operations in the second quarter of2003 were $1.9 billion compared with $1.4 billion in the second quarter of2002. Net premiums written increased to $1.4 billion from $1.0 billion and netpremiums earned rose to $1.5 billion from $1.0 billion in the respectivequarters of 2003 and 2002. For the six months ended June 30, 2003, grosspremiums written for general operations were $4.8 billion compared with$4.2 billion in the year ago period. Net premiums written for the first sixmonths of 2002 were $3.8 billion compared with $3.2 billion a year- ago. Netpremiums earned were $2.9 billion for the first six months of 2003 as comparedwith $2.0 billion for the first six months of 2002.
Gross premiums written for life and annuity operations in the secondquarter of 2003 were $75.9 million compared with $20.0 million in the secondquarter of 2002. Net premiums written for life and annuity operations in thesecond quarter of 2003 were $63.7 million compared with $11.5 million in thesecond quarter of 2002 and net premiums earned were $70.5 million in thesecond quarter of 2003 compared with $10.5 million in the second quarter of2002. For the six months ended June 30, 2003, gross premiums written for lifeoperations were $187.2 million compared with $58.5 million in the year agoperiod. Net premiums written were $161.0 million in the first six months of2003 compared with $48.5 million in the first six months of 2002. Net premiumsearned were $163.3 million and $49.7 million in the respective six monthperiods of 2003 and 2002.
Gross premiums written for financial operations in the second quarter of2003 were $106.3 million compared with $75.8 million in the second quarter of2002. Net premiums written for financial operations in the second quarter of2003 were $104.5 million compared with $73.4 million in the second quarter of2002 and net premiums earned were $35.8 million in the second quarter of 2003compared with $10.8 million in the second quarter of 2002. For the first sixmonths of 2003 gross premiums written for financial operations were$151.0 million compared with $102.1 million in the year ago period. Netpremiums written for financial operations were $148.5 million in the first sixmonths of 2003 compared with $97.1 million in 2002 and net premiums earnedwere $62.8 million and $25.4 million in the respective six month periods of2003 and 2002.
Net investment income from general operations was $145.1 million in thesecond quarter of 2003, compared with $151.6 million in 2002's second quarter.Net investment income from life and annuity and financial operations was$45.5 million in the second quarter of 2003 compared with $23.2 million forthe quarter ended June 30, 2002. For the first six months of 2003 netinvestment income from general operations was $294.1 million in compared with$300.9 million in the year ago period. Net investment income from life andannuity and financial operations was $88.4 million in the first six months of2003 compared with $45.0 million for the first six months of 2002.
The Company's equity in the net income of its investment affiliates forthe second quarter of 2003 was $34.3 million versus $7.9 million in the secondquarter of 2002. The Company's equity in net income of its insurance andfinancial affiliates was $16.5 million in the second quarter of 2003 versusnet income of $0.4 million in the second quarter of 2002. The Company's equityin the net income of its investment affiliates for the first six months of2003 was $61.1 million versus $40.1 million in the first six months of 2002.The Company's equity in net loss of its insurance and financial affiliates was$24.6 million in the first six months of 2003 versus net income of$0.4 million in the first six months of 2002.
The combined ratio for the Company's general insurance and reinsuranceoperations was 92.2% in the second quarter of 2003, versus 109.2% in thesecond quarter of 2002. The loss ratios were 63.2% and 79.3% in the quartersended June 30, 2003 and 2002, with corresponding expense ratios of 29.0% and29.9% for the same quarters, respectively. The combined ratio for theCompany's general insurance and reinsurance operations was 89.2% in the firstsix months of 2003, versus 100.8% in the first six months of 2002. The lossratios were 62.1% and 71.4% in the six months ended June 30, 2003 and 2002,with corresponding expense ratios of 27.1% and 29.4% for the same periods,respectively. In the second quarter and six months ended June 30, 2002, theCompany's results were impacted by increased reserves for the September 11event.
A live on-line web cast of XL's call with analysts and investors to reviewthe second quarter 2003 results will be held at 10 a.m. Eastern Time on August1, 2003 at www.xlgroup.com. An unaudited financial information supplementrelating to the Company's 2003 and 2002 quarterly and full year results isavailable on its website: www.xlgroup.com (under "Investor Relations --Financial Information").
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 press release 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,including as a result of natural or man-made catastrophic events, than XL'sunderwriting, reserving or investment practices anticipate based on historicalexperience or industry data; (c) developments in the world's financial andcapital markets which adversely affect the performance of XL's investments andXL'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, Form10-Q/A and XL's other documents on file with the Securities and ExchangeCommission. XL undertakes no obligation to update publicly or revise anyforward-looking statement, whether as a result of new information, futuredevelopments or otherwise.
XL Capital Ltd SUMMARY CONSOLIDATED FINANCIAL DATA (In thousands of U.S. dollars, except share and per share amounts) Three Months Ended Six Months Ended June 30 June 30 (Unaudited) (Unaudited) 2003 2002(a) 2003 2002(a) Income Statement Data: Revenues: Gross premiums written --general, life and annuity and financial operations $2,037,193 $1,538,257 $5,184,332 $4,342,933 Net premiums written -- general, life and annuity and financial operations 1,571,882 1,138,660 4,060,966 3,297,513 Net premiums earned -- general operations $1,469,520 $1,036,231 $2,901,407 $2,047,199 Net premiums earned -- life and annuity operations 70,482 10,497 163,253 49,690 Net premiums earned -- financial operations 35,807 10,813 62,780 25,367 Net investment income -- general operations 145,088 151,553 294,089 300,907 Net investment income -- life and annuity operations 40,234 16,825 77,693 32,343 Net investment income -- financial operations 5,229 6,365 10,673 12,620 Net realized gains (losses) on investments 93,687 (110,002) 89,024 (216,022) Net realized and unrealized (losses) gains on derivative instruments (12,257) (5,134) 2,236 (14,610) Equity in net income of investment affiliates 34,306 7,931 61,104 40,116 Fee and other income 9,792 20,459 22,069 28,408 $1,891,888 $1,145,538 $3,684,328 $2,306,018 Expenses: Net losses and loss expenses incurred -- general operations $928,755 $822,151 $1,800,546 $1,461,369 Claims and policy benefit reserves -- life and annuity operations 83,225 18,816 202,783 66,579 Net losses and loss expenses incurred -- financial operations 8,820 (54) 22,283 3,026 Acquisition costs and operating expenses 492,458 355,166 923,289 686,043 Exchange gains (23,352) (23,206) (26,054) (31,570) Interest expense 46,282 40,139 92,422 81,761 Amortization of intangible assets 375 11 750 625 $1,536,563 $1,213,023 $3,016,019 $2,267,833 Income (loss) before minority interest, income tax expense and equity in net loss of insurance and financial affiliates $355,325 $ (67,485) $ 668,309 $38,185 Minority interest 3,166 1,779 5,028 4,034 Income tax charge 11,009 22,900 31,039 36,854 Equity in net (income) loss of insurance and financial affiliates (16,522) (416) 24,565 (448) Net income (loss) $357,672 $ (91,748) $ 607,677 $ (2,255) Preference dividend (10,013) -- (20,161) -- Net income (loss) available to ordinary shareholders $347,659 $ (91,748) $ 587,516 $ (2,255) Weighted average number of ordinary shares and ordinary share equivalents : Basic 136,791 135,662 136,527 135,431 : Diluted 138,634 138,231 138,084 137,743 Per Share Data: (b) Net income (loss) available to ordinary shareholders $ 2.51 $(0.68) $4.25 $(0.02) Note: (a) Certain reclassifications, which have no effect on net income, have been made to prior period results to conform to current presentation. (b) 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 is used to calculate net loss per share. XL Capital Ltd SUMMARY CONSOLIDATED FINANCIAL DATA (In thousands of U.S. dollars, except per share amounts) (Unaudited) As at June 30, As at December 31, 2003 2002 Balance Sheet Data: Total investments available for sale $17,946,914 $16,022,522 Segregated assets 341,645 37,211 Net payable for investments purchased 710,120 1,546,276 Cash and cash equivalents 3,007,127 3,557,815 Investments in affiliates 1,809,643 1,750,005 Intangible assets 1,655,352 1,653,700 Total assets 39,167,529 35,647,369 Unpaid losses and loss expenses 14,748,208 13,202,736 Deposit liabilities and policy benefit reserves 5,438,842 4,852,785 Segregated liabilities 341,645 37,211 Notes payable and debt 1,890,398 1,877,957 Total Shareholders' equity 7,565,320 6,569,589 Book value per ordinary share $51.40 $44.48 XL Capital Ltd RECONCILIATIONThe following is a reconciliation of the Company's net income (loss) to'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 three and six months ended June 30, 2003 and2002 (in millions except per share amounts):
XL Capital Group SUMMARY CONSOLIDATED FINANCIAL DATA (In thousands of U.S. Dollars, except per share amounts) (Unaudited) Three months ended Six Months Ended June 30 June 30 (Unaudited) (Unaudited) 2003 2002 2003 2002 Net income (loss) available to ordinary shareholders $347.7 $ (91.7) $ 587.5 $ (2.3) Net realized (gains) and losses on investments, net of tax (96.5) 110.0 (82.2) 217.8 Net realized and unrealized (gains) losses on investment derivatives, net of tax (3.9) (2.0) (8.5) 9.7 Net realized and unrealized losses (gains) on credit derivatives, net of tax 21.3 10.1 21.9 8.8 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 $ 268.6 $26.4 $518.7 $234.0 Per ordinary share results: Net income (loss) available to ordinary shareholders $2.51 $(0.68) $4.25 $(0.02) 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 $1.94 $0.19 $3.76 $1.70 Weighted average ordinary shares outstanding: Basic 136.8 135.7 136.5 135.4 Diluted 138.6 138.2 138.1 137.4 Comment on Regulation GThis 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. Thereconciliation 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, thedetermination to realize capital gains (or losses) is independent of theunderwriting process. In addition, under applicable GAAP accountingrequirements, losses can be created as the result of other than temporarydeclines in value without actual realization. In this regard, certain users ofXL's financial information, including certain rating agencies, evaluateearnings before tax and capital gains to understand the profitability of therecurring sources of income without the effects of these two variables.Furthermore, these users believe that, for many companies, capital gains arelargely opportunistic and are a function of economic and interest rateconditions. In addition, with respect to credit derivatives, because XLgenerally holds its financial guarantee contracts written in credit defaultderivative form to maturity, the net effects of the changes in fair value ofthese credit derivatives are excluded (similar with other companies in thefinancial guarantee business) as the changes in fair value each quarter arenot indicative of underlying business performance of XL's financial guaranteeoperations. Unlike these credit derivatives, XL's weather and energyderivatives 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 thisbusiness are considered by management when evaluating and managing theunderlying business.
In summary, XL evaluates the performance of and manages its business toproduce an underwriting profit. In addition to presenting net income, XLbelieves that showing net income exclusive of the items mentioned aboveenables investors and other users of XL's financial information to analyzeXL'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 makes it much more difficult for users of XL'sfinancial information to evaluate XL's underlying business. Also, as statedabove, XL believes that the equity analysts and certain rating agencies whofollow 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.
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