XL Posts $442.9 Million Q1 Net

Bermuda’s other major insurer, XL Capital Ltd., joined ACE (See previous article) in reporting slightly lower profits for the first quarter of 2005, as it posted net income of $442.9 million or $3.18 per share, compared with $452.2 million, or $3.25 a share in Q1 2004.

Like, ACE, however, operating earnings (which exclude capital gains/losses) rose for the first quarter of 2005 to a record $346.5 million, or $2.49 per ordinary share, compared with $332.5 million, or $2.39 per ordinary share, for the year ago quarter.

Commenting on XL’s first quarter 2005 results, President and CEO Brian M. O’Hara stated: “I am pleased to report XL delivered one of its highest levels of net income ever this quarter and record net income excluding net realized gains and losses. These results are a testament to the strength of our diversified growth strategy, with solid underwriting profitability in our insurance and reinsurance general operations, complimented by strong performances in our financial products and investment affiliates businesses. Annualized return on shareholders’ equity, based on net income excluding net realized gains and losses, was a very satisfactory 19.1% and book value per ordinary share increased to $52.13, despite the increase in interest rates during the quarter.”

XL listed the following first quarter earnings highlights:
— Net premiums written from general operations increased 2 percent to $2.8 billion
— The combined ratio from general operations was 89.7 percent
— Losses from European storm Erwin were approximately $50 million, after-tax
— Net investment income from general operations increased 17 percent to $171.9 million
— Contribution from financial operations doubled to $77.7 million
— Net income from investment affiliates increased 11 percent to $70.5 million
— Cash flow from operations was $270.6 million, or $650.1 million including structured and spread transactions
— Annualized return on ordinary shareholders’ equity, based on net income excluding net realized gains and losses, was 19.1 percent
— Total net invested assets at March 31, 2005 were $32.8 billion, up 1 percent from December 31, 2004
— Total assets at March 31, 2005 were $50.9 billion, up 3 percent from December 31, 2004
— Book value per ordinary share was $52.13, compared with $51.98 at December 31, 2004

The earnings announcement noted that underwriting profit for the first quarter was $82 million compared with $89.9 million for the prior year period. Net premiums written were $1.28 billion decreased 1 percent, compared with the 2004 first quarter. The loss ratio of 67 percent increased 5.2 points from the prior year period and included losses of $6.6 million, pre-tax, from European storm Erwin, in addition to unfavorable prior year net loss development of $48 million, pre-tax, primarily in professional lines. The underwriting expense ratio of 24.5 percent decreased 3.5 points, compared with the prior year period, driven primarily by a 2.9 point decrease in the operating expense ratio, principally reflecting higher net premiums earned.

Discussing its general reinsurance operations XL noted that its underwriting profit for the quarter was $93.4 million, compared with $101.3 million for the prior year period. Net premiums written of $1.568 billion increased 4 percent, compared with the 2004 first quarter, driven primarily by a lower level of ceded premium. The loss ratio was 60 percent, compared with 60.9 percent in the prior year period, and included pre-tax losses of $45.3 million related to European storm Erwin, partially offset by favorable prior year net loss development of $18 million, pre-tax, primarily in property lines. The underwriting expense ratio increased marginally compared with the prior year period, to 26.9 percent.

In discussing its ongoing dispute with Credit Suisse over claims for payment adjustments related to the acquisition of Winterthur International in 2001, XL’s bulletin made the following statement: “XL recently met with the independent actuary and Winterthur Swiss Insurance Company (‘Winterthur Swiss’) with respect to the post-closing seasoning process relating to XL’s acquisition of Winterthur International from Winterthur Swiss in 2001. Based on these discussions, XL expects that the independent actuary’s report will be issued in the fourth quarter of this year. XL’s submission would result in a net payable to XL of approximately $1.45 billion in aggregate and Winterthur Swiss’ submission would result in a net payable to XL of approximately $541 million in aggregate. The independent valuation process is a ‘baseball-type’ process, whereby either XL’s submitted number or Winterthur Swiss’ submitted number will be the actual final seasoned amount, depending upon which number is closest to the number developed by the independent actuary.” If the baseball analogy is correct, that would make the arbitration the world’s first billion-dollar ballgame.

XL will host a conference call to discuss its first quarter 2005 results on Wednesday, April 27, 2005 at 10:00 am EDT. The conference call can be accessed through a listen-only dial-in number or through a live webcast. To listen to the conference call, please dial (201) 689-8320 password XL427. The webcast will be available on XL’s website at www.xlcapital.com and will be archived on XL’s website from approximately 1:00 p.m. EDT on April 27, 2005 through midnight EDT on May 27, 2005. A slide presentation accompanying the Company’s discussion of its first quarter 2005 results will also be available on the Company’s website at www.xlcapital.com beginning approximately 15 minutes before the commencement of the conference call. A telephone replay of the conference call will be available beginning at 1:00 p.m. EDT on April 27, 2005 until 8:00 p.m. EDT on May 4, 2005 by dialing (201) 612 7415 (account number: 290 and conference ID number: 145318).

The full text of XL’s Q1 earnings announcement and an unaudited financial supplement relating to the Company’s first quarter 2005 results is available on its website as noted above.