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  • • P&C operations combined ratio of 94.9%
  • • Operating income(1) attributable to ordinary shareholders of $175.0 million, or $0.52 per share
  • • Net income attributable to ordinary shareholders of $77.5 million, or $0.23 per share
  • • Fully diluted book value per ordinary share(2) of $29.56 at September 30, 2010, an increase of 7% in the quarter and 20% from December 31, 2009
  • • Completes $375.4 million in share buybacks since June 30, 2010 and announces new $1 billion authorization

HAMILTON, Bermuda Nov. 2, 2010 - XL Group plc ("XL" or the "Company") (NYSE: XL) today reported its results for the third quarter of 2010.

Commenting on the Company's performance, Chief Executive Officer Mike McGavick said:

"We have delivered another quarter of solid operating results in a market that continues to be challenging." P&C operations delivered a healthy combined ratio of 94.9% which includes 6.5 points of favorable prior year development. The current accident year combined ratio for the P&C operations of 101.4% in the quarter included $66.2 million of natural catastrophe losses, net of reinstatement premiums. The underlying combined ratio which excludes prior year development and natural catastrophes was 96.2%, virtually unchanged from the prior year. Mike McGavick added, "This demonstrates our underwriting discipline in a challenging market. However, despite this solid underwriting discipline, we continue to feel the impact that the prolonged soft market has on earnings."

"Our operating income was $242.6 million in the second quarter, compared to $291.4 million in the same quarter last year. Included in operating income was a net charge of $23.5 million for the previously announced termination of the EIB guarantees. This termination continues our progress in eliminating distractions from our core P&C focus.

Third Quarter HighlightsOperating income was $175.0 million in the third quarter, or $0.52 per ordinary share, compared to $292.6 million in the same quarter last year. Although it is considered to be a relatively light quarter for natural catastrophe losses, there was an above average level of large property and excess casualty loss activity impacting the quarter. The pre-tax impact of natural catastrophe losses, net of reinstatement premiums, in the current quarter was approximately $66.2 million compared to $30.8 million in the prior year quarter. Other large property and excess casualty losses incurred during the current quarter had a pre-tax impact of approximately $35.8 million. Income from affiliates decreased $48.2 million from the prior year quarter, primarily reflecting lower income from investment affiliates. Additionally, investment results from structured products decreased $20.5 million compared to the prior year quarter.

Fully diluted book value per ordinary share continued to grow, with an increase of 7% from the prior quarter, driven by a combination of investment portfolio gains, net income and foreign currency translation gains. Fully diluted tangible book value per ordinary share also increased 7% during the quarter to $27.04. Total shareholders' equity was $10.9 billion at September 30, 2010, an increase of 3% in the quarter and 15% since the end of 2009. Share buybacks of $268.7 million in the quarter were accretive to book value per ordinary share by $0.41. Since September 30, 2010, the Company purchased an additional 4.9 million ordinary shares. In total, 18.8 million shares were purchased at an average price of $19.95 per share for a total of $375.4 million, the full amount remaining from the previously authorized program. The Company's current capital strength and commitment to capital management is further demonstrated by the $1 billion share buyback program approved by the Company's Board of Directors at its recent meeting.

 

Three and nine months ended September 30

(US dollars in thousands except per share amounts)

Three months ended

Nine months ended

September 30

September 30

2010

2009

2010

2009

Net income attributable to ordinary shareholders

$ 77,543

$ (11,402)

$ 397,350

$ 246,926

Per ordinary share (diluted)

$ 0.23

$ (0.03)

$ 1.16

$ 0.73

Operating income (1)

$ 175,030

$ 292,641

$ 567,216

$ 774,879

Per ordinary share (diluted)

$ 0.52

$ 0.85

$ 1.66

$ 2.26

 

The Company's net income attributable to ordinary shareholders for the third quarter of $77.5 million, or $0.23 per ordinary share, compared to a net loss of $11.4 million, or a loss of $0.03 per ordinary share for the third quarter of 2009. Included in net income attributable to ordinary shareholders for the quarter were after-tax realized losses on investments of $71.9 million compared to $310.8 million for the quarter ended September 30, 2009, and after-tax foreign exchange losses of $37.9 million compared to after-tax foreign exchange gains of $13.8 million in the prior year quarter.

Operating income was $175.0 million, or $0.52 per ordinary share, compared to $292.6 million, or $0.85 per ordinary share, in the third quarter of 2009. This decrease was primarily due to a reduction in income from investment affiliates for the quarter of $39.2 million and lower net investment income, as well as a decrease in underwriting income from the insurance segment. This was offset in part by higher underwriting income from the reinsurance segment.

Net investment income for the quarter was $296.7 million compared to $327.1 million in the prior year quarter. The decline was due to lower US interest rates on the P&C portfolio and changes on foreign exchange rates on the Life portfolio.

Net investment results from structured products for the quarter was a loss of $5.2 million compared to a gain of $15.3 million in the prior year quarter. The reduction of $20.5 million includes a charge of $13.5 million in the current quarter arising from the reassessment of cash flows on a single contract and lower year on year investment income.

Net realized losses on investments for the quarter were $68.8 million pre-tax compared to $325.5 million in the prior year quarter. Net realized investment losses in the third quarter of 2010 included other-than-temporary impairments of $38.0 million and realized losses on sales of investments of $30.8 million, compared to other-than-temporary impairments of $321.7 million and realized losses on sales of investments of $3.8 million in the quarter ended September 30, 2009.

The annualized return on ordinary shareholders' equity, based on operating income, was 7.2% for the quarter as compared to 16.0% in the prior year quarter. The decrease in annualized operating return on equity was primarily due to the increase in total shareholders' equity of $1.7 billion, or 18.5%, since September 30, 2009.

With effect from January 1, 2010, the Company changed its definition of operating income to exclude after-tax foreign exchange gains and losses. The results from prior periods have been represented to conform to the current period's presentation.

 

P&C operations

Three and nine months ended September 30

(US dollars in thousands)

Three months ended

Nine months ended

September 30

September 30

2010

2009

2010

2009

Gross premiums written

$ 1,525,511

$ 1,584,209

$ 4,954,904

$ 4,963,627

Net premiums written

1,166,072

1,195,119

3,877,201

3,778,708

Net premiums earned

1,268,741

1,293,879

3,748,655

3,897,315

Underwriting income

64,666

88,279

152,729

281,570

Loss ratio

64.0%

63.2%