HAMILTON, Bermuda, Feb. 9 /PRNewswire-FirstCall/ -- -- P&C
operations combined ratio of 96.4% for the quarter and 93.6% for
the year -- Book value per ordinary share of $24.60 at December 31,
2009, an increase of 3% in the quarter and 59% for the full year --
Operating income(1) of $235.8 million, or $0.69 per ordinary share,
for the quarter and $917.3 million, or $2.69 per ordinary share,
for the full year -- Net loss of $40.3 million, or $0.12 per
ordinary share, for the quarter, primarily due to $254.8 million of
after-tax net realized losses on investments -- Net income of
$206.6 million, or $0.61 per ordinary share, for the full year --
Full year return on equity based on operating income(1) of 13.5% XL
Capital Ltd ("XL" or the "Company") (NYSE:XL) today reported its
fourth quarter and full year 2009 results. Commenting on the
Company's performance, Chief Executive Officer Mike McGavick said:
"Our results for the quarter and the full year clearly illustrate
XL's re-emergence as a leading P&C company. Our top line in the
fourth quarter of 2009 was within 3 points of the same quarter a
year ago. Our P&C combined ratio was a healthy 96.4% for the
quarter and 93.6% for the full year. Taken together, these metrics
demonstrate that we were able to achieve a turnaround while
maintaining our underwriting discipline and historically prudent
reserving standards. And we did so even in the continued soft
market. "Successfully meeting the challenge to reduce expenses was
one of the primary reasons we were able to achieve these strong
results. Our cost-saving initiatives have allowed us to stem the
tide of the difficult financial times and are intended to put XL in
a competitively advantageous position. "One of our key initiatives
throughout the year has been to reposition the investment portfolio
to one more typical of a P&C company, and to reduce its
inherent volatility. "During the quarter, we saw market prices
approach intrinsic values for certain asset classes as a result of
a technical driven spread rally but where the holdings were still
exposed to weak fundamentals. We seized this opportunity to further
de-risk our investment portfolio by selling $1.2 billion of such
assets. The repositioning of our P&C portfolio is now 80%
complete, and further reductions in legacy positions are more
likely to occur over time from natural cash flows. Our attention
has now turned to the optimal realignment of the portfolio rather
than pure de-risking actions. "Our strong operating income for the
quarter of $235.8 million, or $0.69 per ordinary share, was offset
by total after-tax net realized losses on investments in the fourth
quarter of $254.8 million, which was the principal driver of the
net loss attributable to ordinary shareholders of $40.3 million or
$0.12 per ordinary share. "Book value grew for the third straight
quarter, as we recorded a 3% increase in book value per ordinary
share to $24.60 and a 4% increase in tangible book value per
ordinary share to $22.13 in the fourth quarter. Total shareholders'
equity increased from $9.2 billion to $9.4 billion in the quarter.
"We are tremendously proud of the turnaround XL made in 2009. Our
full year net income attributable to ordinary shareholders was
$206.6 million compared to a loss of $2.6 billion in 2008. We
generated an operating return on equity for the year of 13.5%. Our
tangible book value per ordinary share grew by 72% in 2009. All of
this was achieved in the depths of a soft market." Mr. McGavick
concluded: "No one can state with certainty when or how the
underwriting cycle will turn, but we believe we have taken the
steps necessary to position XL well, both in the face of current
challenges and for when market conditions improve." Three and
twelve months ended December 31 (US dollars in thousands except per
share amounts) Three months ended Twelve months ended December 31
December 31 2009 2008 2009 2008 Net (loss) income attributable to
ordinary shareholders ($40,319) ($1,433,158) $206,607 ($2,632,458)
Per ordinary share (diluted) ($0.12) ($4.33) $0.61 ($10.94)
Operating income(1) $235,756 $189,510 $917,255 $840,347 Per
ordinary share (diluted) $0.69 $0.57 $2.69 $3.49 The Company
incurred a net loss attributable to ordinary shareholders for the
fourth quarter of $40.3 million, or $0.12 per ordinary share,
compared to a net loss attributable to ordinary shareholders of
$1,433.2 million, or $4.33 loss per ordinary share for the fourth
quarter of 2008. Operating income was $235.8 million, or $0.69 per
ordinary share, compared to $189.5 million, or $0.57 per ordinary
share in the fourth quarter of 2008. The significant improvement in
the net loss attributable to ordinary shareholders from the prior
year quarter was primarily due to a $990.0 million non-cash charge
for the partial impairment of goodwill taken in the fourth quarter
of 2008. Also contributing to the improvement was an increase in
operating income of $46.2 million primarily due to an increase of
$240.6 million in the net income from investment affiliates,
partially offset by a decrease in the underwriting contribution of
XL's P&C operations of $116.5 million and a decrease in
investment income of $76.8 million compared to the fourth quarter
of 2008. Net investment income for the quarter was $316.4 million
compared to $393.1 million in the prior year quarter. Net
investment income on the P&C and Corporate portfolio decreased
24% from the prior year quarter to $233.1 million. This decrease
was primarily due to lower investment yields, driven by both the
impact of lower US LIBOR rates on floating rate structured credit
assets, and higher allocations to lower yielding US Treasuries,
agencies and cash as a result of continued de-risking activities.
Pre-tax net realized investment losses for the quarter were $263.6
million compared to a loss of $568.9 million in the fourth quarter
of 2008. The loss for the fourth quarter of 2009 comprises
other-than-temporary impairments, net of non-credit impairments,
totaling $120.8 million, and realized losses on securities sold of
$142.8 million. The other-than-temporary impairments in the quarter
arose primarily on below investment grade structured securities.
Realized losses on securities sold resulted from sales of $1.2
billion of securities, including CMBS, prime RMBS, corporate and
hybrid securities, partially offset by gains from sale of $2.2
billion of lower yielding government and corporate holdings. The
operating expenses for the quarter included charges of
approximately $21.8 million related to the Company's previously
announced cost reduction efforts, compared to $8.7 million for the
same period in 2008. These restructuring charges totaled $81.5
million for the full year 2009, compared to $50.8 million for the
full year 2008. The annualized return on ordinary shareholders'
equity, based on operating income, was 11.4% for the quarter as
compared to 12.4% in the prior year quarter. For the year, the
Company produced net income of $206.6 million, or $0.61 per
ordinary share, compared to a net loss of $2.6 billion, or $10.94
per ordinary share, for the prior year period. Included in the
prior year was a loss of $1.4 billion related to the transaction
closed on August 5, 2008 with Syncora and certain of its
subsidiaries. Our underlying effective tax rate for the year was
14.5% compared to a third quarter estimate of 12%. This primarily
resulted from changes in the proportion of profits generated in
some of the jurisdictions in which the Company conducts business.
Operating income was $917.3 million or $2.69 per ordinary share,
compared to $840.3 million or $3.49 per ordinary share in the prior
year period. The full year return on ordinary shareholders' equity,
based on operating income, was 13.5% compared to 12.0% in 2008.
P&C operations Three and twelve months ended December 31 (US
dollars in thousands) Three months ended Twelve months ended
December 31 December 31 2009 2008 2009 2008 Gross premiums written
$1,147,684 $1,182,291 $6,111,311 $7,569,391 Net premiums written
965,004 984,359 4,743,712 5,738,293 Net premiums earned 1,254,424
1,403,661 5,151,739 5,990,251 Underwriting income 45,736 162,197
327,306 303,017 Loss ratio 62.2% 58.0% 61.5% 66.2% Expense ratio
34.2% 30.4% 32.1% 28.7% Combined ratio 96.4% 88.4% 93.6% 94.9% --
P&C gross and net premiums written for both the three months
and twelve months ended December 31, 2009 declined from the prior
year primarily due to planned reductions in several targeted areas,
termination of certain programs and general macroeconomic
conditions impacting insured values and retention. Also impacting
the decline was the Company's focus on rate discipline in a
competitive environment. -- P&C net premiums earned included
$862.8 million from the Insurance segment and $391.6 million from
the Reinsurance segment for the fourth quarter 2009, and $3.6
billion and $1.6 billion for the full year, respectively. -- The
loss ratio for the quarter was 62.2% compared to 58.0% for the
fourth quarter of 2008, with full year loss ratios of 61.5% and
66.2%, respectively. Included in the current quarter loss ratio was
prior year favorable development of $30.8 million compared to
$268.3 million in the fourth quarter of 2008. Included in the full
year loss ratio was prior year favorable development of $284.7
million compared to $610.7 million for the full year 2008. The
effect of this reduction in favorable prior year development was
offset by significantly lower current year loss experience in 2009
compared to the fourth quarter and full year of 2008, particularly
in the property line of business. -- The fourth quarter 2009 loss
ratio included favorable development related to current year
catastrophes (net of reinsurance recoveries and reinstatement
premiums) of $5.5 million compared to the $7.8 million unfavorable
development in the fourth quarter of 2008, which included
development on Hurricanes Gustav and Ike. Full year net losses due
to catastrophes (net of reinsurance recoveries and reinstatement
premiums) were $52.3 million and $376.0 million for 2009 and 2008,
respectively. -- The expense ratio for the quarter included charges
of approximately $16.8 million related to the Company's previously
announced cost reduction efforts, of which $15.2 million and $1.6
million related to the Insurance and Reinsurance segments,
respectively. These restructuring charges totaled $67.5 million for
the full year 2009, of which $57.0 million and $10.5 million
related to the Insurance and Reinsurance segments, respectively.
There were restructuring charges of $4.0 million in the prior year
quarter and $31.2 million in the full year 2008 impacting the
expense ratio. -- Both the fourth quarter and full year 2009
expense ratios also included increased acquisition costs primarily
as a result of higher profit-related commissions. -- The P&C
combined ratio for the quarter was 96.4% compared to 88.4% for the
fourth quarter of 2008. The full year combined ratio was 93.6% and
94.9% for 2009 and 2008, respectively. Excluding the charges for
the cost reduction initiatives, the P&C combined ratios would
have been 95.1% and 92.3% for the current quarter and full year,
respectively, compared to 88.1% and 94.4% for the same periods in
2008, respectively. Capital Position Book value per ordinary share
was $24.60 at December 31, 2009 as compared to $15.46 at December
31, 2008. Net unrealized losses on investments, net of tax, were
$1.2 billion at December 31, 2009 compared with net unrealized
losses, net of tax, of $1.5 billion at September 30, 2009. The
decrease in net unrealized losses for the quarter in the Company's
P&C operations was substantially due to realized losses during
the quarter, combined with favorable mark-to-market movements
arising from tightening spreads, offset by rising interest rates.
The decrease in net unrealized losses in the Company's Life
operations was a result of realized losses during the quarter,
offset by negative mark-to-market as a result of rising U.K.
interest rates partially offset by tightening spreads. In addition,
as a means of reducing U.S. GAAP book value volatility arising from
the Company's run-off Life operations, the Company designated
$546.1 million of Euro-denominated long-duration government
securities as held-to-maturity during the quarter, which results in
these securities being carried at amortized cost. At the end of the
year, 56% of our $33.9 billion fixed income portfolio remained in
cash, government, government-related or government-supported
securities. Further details of the results for the quarter and of
the Company's fixed income investment portfolio may be found in the
Company's Financial Supplement and Fixed Income Portfolio Data
Supplement, respectively. These documents are both dated February
9, 2010 and are available from the Investor Relations section of
the XL Capital website. The Company will host a conference call to
discuss its fourth quarter and full year 2009 results on Tuesday,
February 9, 2010 at 5:00 p.m. Eastern Time. 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 (866)
617-1526 or (210) 795-0624, passcode: 'xl global'. The webcast will
be available at http://www.xlcapital.com/ and will be archived on
XL's website from approximately 8:00 p.m. Eastern Time on February
9, 2010, through midnight Eastern Time on March 9, 2010. A
telephone replay of the conference call will also be available
beginning at 8:00 p.m. Eastern Time on February 9, 2010, until
midnight Eastern Time on March 9, 2010, by dialing (866) 426-1596
or (203) 369-0883. This press release contains forward-looking
statements. 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, all of which involve risk and
uncertainty. Actual results may differ materially from those
included in such forward-looking statements and therefore you
should not place undue reliance on them. A non-exclusive list of
the important factors that could cause actual results to differ
materially from those in such forward-looking statements includes
(a) changes in ratings, rating agency policies or practices; (b)
greater frequency or severity of claims and loss activity than XL's
underwriting, reserving or investment practices anticipate based on
historical experience or industry data; (c) trends in rates for
property and casualty insurance and reinsurance; (d) other changes
in general economic conditions, including the effects of inflation
and changes in interest rates, credit spreads, foreign currency
exchange rates and other factors; (e) developments, including
uncertainties related to the depth and duration of the current
recession, and future volatility in the world's credit, financial
and capital markets that adversely affect the performance and
valuation of XL's investments or access to such markets; (f) the
potential for changes to methodologies, estimations and assumptions
that underlie the valuation of the Company's financial instruments
that could result in changes to investment valuations; (g) changes
to the Company's assessment as to whether it is more likely than
not that the Company will be required to sell, or has the intent to
sell, available-for-sale debt securities before their anticipated
recovery; (h) the potential effects of domestic and foreign
regulatory developments, including those which could impact the
financial markets or increase XL's business costs and required
capital levels; (i) the ability of XL's subsidiaries to pay
dividends to the Company; (j) changes in the size of XL's claims
relating to natural catastrophe losses due to the preliminary
nature of some reports and estimates of loss and damage to date;
(k) changes in applicable tax laws, tax treaties or tax regulations
or the interpretation or enforcement thereof; (l) XL's ability to
obtain approval of the Company's ordinary shareholders and the
Grand Court of the Cayman Islands for, and to satisfy the other
conditions to, XL's previously announced proposed redomestication
to Ireland from the Cayman Islands within the expected time frame
or at all; (m) XL's ability to realize the expected benefits from
the redomestication; (n) the occurrence of difficulties in
connection with the redomestication; (o) any unanticipated costs in
connection with the redomestication; and (p) the other factors set
forth in XL's reports on Form 10-K, Form 10-Q, and other documents
on file with the Securities and Exchange Commission. XL undertakes
no obligation to update or revise publicly any forward-looking
statement, whether as a result of new information, future
developments or otherwise. (1) Defined as net income (loss)
attributable to ordinary shareholders excluding net realized gains
and losses on investments, goodwill impairment charges, net
realized and unrealized gains and losses on credit, structured
financial and investment derivatives, net of tax, for the Company
and its share of these items for the Company's insurance company
affiliates for the periods presented and charges in respect of
guarantees relating to subsidiaries of Syncora Holdings Ltd.
(formerly Security Capital Assurance Ltd., "Syncora"), as well as
the gain recognized on the repurchase of the Company's Series C
preference ordinary shares. "Operating income" and "annualized
return on ordinary shareholders' equity based on operating income"
are non-GAAP measures. See the schedule entitled "Reconciliation"
at the end of this release for a reconciliation of "operating
income" to net income (loss) attributable to ordinary shareholders.
XL CAPITAL LTD SUMMARY CONSOLIDATED FINANCIAL DATA (U.S. dollars in
thousands) Three months ended Twelve months ended Income statement
data: December 31 December 31 (Unaudited) (Unaudited) 2009 2008
2009 2008 ---- ---- ---- ---- Revenues: Gross premiums written: -
P&C operations $1,147,684 $1,182,291 $6,111,311 $7,569,391 -
Life operations 133,469 138,558 576,162 690,915 Net premiums
written: - P&C operations 965,004 984,359 4,743,712 5,738,293 -
Life operations 123,652 128,957 532,852 649,844 Net premiums
earned: - P&C operations 1,254,424 1,403,661 5,151,739
5,990,251 - Life operations 125,476 147,726 555,101 649,851 Net
investment income 316,364 393,115 1,319,823 1,768,977 Net realized
(losses) gains on investments (263,550) (568,940) (921,437)
(962,054) Net realized and unrealized (losses) gains on derivative
instruments (24,076) (67,720) (33,647) (73,368) Net income (loss)
from investment affiliates 26,386 (214,174) 78,867 (277,696) Fee
income and other 12,700 11,939 43,201 52,158 ------ ------ ------
------ Total revenues $1,447,724 $1,105,607 $6,193,647 $7,148,119
---------- ---------- ---------- ---------- Expenses: Net losses
and loss expenses incurred $780,688 $813,855 $3,168,837 $3,962,898
Claims and policy benefits 159,948 163,119 677,562 769,004
Acquisition costs 199,221 215,047 853,558 944,460 Operating
expenses 289,093 280,380 1,055,823 1,161,934 Exchange (gains)
losses (18,941) (120,668) 84,813 (184,454) Extinguishment of debt -
- - 22,527 Interest expense 47,496 84,247 216,504 351,800
Impairment of goodwill - 989,971 - 989,971 Amortization of
intangible assets 442 742 1,836 2,968 --- --- ----- ----- Total
expenses $1,457,947 $2,426,693 $6,058,933 $8,021,108 ----------
---------- ---------- ---------- Net income (loss) before
non-controlling interest, income tax and net income from operating
affiliates $(10,223) $(1,321,086) $134,714 $(872,989) Income tax
54,693 92,828 120,307 222,578 Net (income) loss from operating
affiliates (30,114) 5,599 (60,480) 1,458,246 ------- ----- -------
--------- Net income (loss) $(34,802) $(1,419,513) $74,887
$(2,553,813) Non-controlling interest in net loss of subsidiary
(57) - (104) - --- - ---- - Net income (loss) attributable to XL
Capital Ltd $(34,745) $(1,419,513) $74,991 $(2,553,813) Preference
share dividends (5,574) (13,645) (80,200) (78,645) Gain on
repurchase of Series C preference ordinary shares - - 211,816 - - -
------- - Net income (loss) attributable to ordinary shareholders
$(40,319) $(1,433,158) $206,607 $(2,632,458) -------- -----------
-------- ----------- XL CAPITAL LTD SUMMARY CONSOLIDATED FINANCIAL
DATA (U.S. dollars in thousands, except per share amounts) Selected
balance sheet data: As at As at December 31, 2009 December 31, 2008
(Unaudited) (Note 1) ----------- -------- Total investments
available for sale $29,307,171 $27,464,510 Total fixed maturities,
held to maturity 546,067 - Cash and cash equivalents 3,643,697
4,353,826 Investments in affiliates 1,185,604 1,552,789 Unpaid
losses and loss expenses recoverable 3,584,028 3,997,722 Total
assets 45,579,675 45,648,814 Unpaid losses and loss expenses
20,823,524 21,650,315 Deposit liabilities 2,208,699 2,710,987
Future policy benefit reserves 5,490,119 5,452,865 Unearned
premiums 3,651,310 4,217,931 Notes payable and debt 2,451,417
3,189,734 Redeemable series C preference ordinary shares 182,673
500,000 Total shareholders' equity 9,432,417 6,116,831 Diluted book
value per ordinary share $24.60 $15.46 Basic book value per
ordinary share $24.64 $15.46 Note 1: Certain items have been
reclassified to conform with the current period presentation XL
CAPITAL LTD RECONCILIATION The following is a reconciliation of the
Company's (i) net income (loss) attributable to ordinary
shareholders to operating income (loss) (Note 1) and (ii)
annualized return on ordinary shareholders' equity (based on
operating income (loss)) to average ordinary shareholders' equity
for the three months ended December 31, 2009 and 2008. (U.S.
dollars in thousands except per share amounts) Three months ended
December 31 (Unaudited) 2009 2008 ---- ---- (Note 3) Net (loss)
income attributable to ordinary shareholders $(40,319) $(1,433,158)
Net realized losses on investments, net of tax 254,768 565,864
Impairment of goodwill - 989,971 Net realized and unrealized losses
(gains) on investment derivatives, net of tax 16,150 68,574 Net
realized and unrealized losses (gains) on credit and structured
financial derivatives, net of tax 6,390 (43) Net realized and
unrealized (gains) losses on investments and derivatives of the
Company's insurance company affiliates (1,233) (1,698) --------
-------- Operating income (Note 1) $235,756 $189,510 ========
======== Per ordinary share results: (Note 2) Net (loss) income
attributable to ordinary shareholders $(0.12) $(4.33) Operating
income (Note 1) $0.69 $0.57 Weighted average ordinary shares
outstanding: Basic 342,123,122 330,810,110 Diluted 342,689,503
330,810,110 Return on ordinary shareholders' equity: Average
ordinary shareholders' equity $8,300,634 $6,137,888 Operating
income (Note 1) $235,756 $189,510 Annualized operating income (Note
1) $943,024 $758,040 Annualized return on ordinary shareholders'
equity - operating income (Note 1) 11.4% 12.4% ==== ==== Note 1:
Operating income is defined as net income (loss) attributable to
ordinary shareholders excluding net realized gains and losses on
investments, goodwill impairment charges, net realized and
unrealized gains and losses on credit, structured financial and
investment derivatives, net of tax for the Company and its share of
these items for the Company's insurance company affiliates for the
periods presented and charges in respect of guarantees relating to
subsidiaries of Syncora, as well as the gain recognized on the
repurchase of the Company's Series C preference ordinary shares.
Operating income and annualized return on ordinary shareholders'
equity based on operating income are non-GAAP measures. See
comments on Regulation G. Note 2: Diluted weighted average number
of ordinary shares outstanding are used to calculate per share data
except where they are anti-dilutive to earnings per share or where
there is a net loss. When they are anti-dilutive or when a net loss
occurs, basic weighted average ordinary shares outstanding are
utilized in the calculation of net loss per share and net operating
loss per share. Note 3: Certain amounts have been reclassified to
conform with the current period presentation. XL CAPITAL LTD
RECONCILIATION The following is a reconciliation of the Company's
(i) net income (loss) attributable to ordinary shareholders to
operating income (loss) (Note 1) and (ii) annualized return on
ordinary shareholders' equity (based on operating income (loss)) to
average ordinary shareholders' equity for the twelve months ended
December 31, 2009 and 2008. (U.S. dollars in thousands except per
share amounts) Twelve months ended December 31 (Unaudited) 2009
2008 ---- ---- (Note 4) Net income (loss) attributable to ordinary
shareholders $206,607 $(2,632,458) Net realized losses on
investments, net of tax 891,306 948,072 Impairment of goodwill -
989,971 Net realized and unrealized losses (gains) on investment
derivatives, net of tax 21,262 85,093 Net realized and unrealized
losses (gains) on credit and structured financial derivatives, net
of tax 13,445 92 Net realized and unrealized (gains) losses on
investments and derivatives of the Company's insurance company
affiliates (3,549) (4,209) Gain on repurchase of Series C
preference ordinary shares (211,816) - Charge in respect of
guarantees issued to subsidiaries of Syncora - 1,453,786 --------
-------- Operating income (Note 1) $917,255 $840,347 ========
======== Per ordinary share results: (Notes 2 and 3) Net income
(loss) attributable to ordinary shareholders $0.61 $(10.94)
Operating income (Note 1) $2.69 $3.49 Weighted average ordinary
shares outstanding: Basic 340,611,573 240,657,158 Diluted
340,965,574 240,657,158 Return on ordinary shareholders' equity:
Average ordinary shareholders' equity $6,772,673 $7,031,688
Operating income (Note 1) $917,255 $840,347 Annualized return on
ordinary shareholders' equity - operating income (Note 1) 13.5%
12.0% ==== ==== Note 1: Operating income is defined as net income
(loss) attributable to ordinary shareholders excluding net realized
gains and losses on investments, goodwill impairment charges, net
realized and unrealized gains and losses on credit, structured
financial and investment derivatives, net of tax for the Company
and its share of these items for the Company's insurance company
affiliates for the periods presented and charges in respect of
guarantees relating to subsidiaries of Syncora, as well as the gain
recognized on the repurchase of the Company's Series C preference
ordinary shares. Operating income and annualized return on ordinary
shareholders' equity based on operating income are non-GAAP
measures. See comments on Regulation G. Note 2: Diluted weighted
average number of ordinary shares outstanding are used to calculate
per share data except where they are anti-dilutive to earnings per
share or where there is a net loss. When they are anti-dilutive or
when a net loss occurs, basic weighted average ordinary shares
outstanding are utilized in the calculation of net loss per share
and net operating loss per share. Note 3: Diluted weighted average
ordinary shares outstanding for year to date ended December 31,
2009 include the impact of the Company's 2005 Equity Security units
("ESU") on an "if converted" basis for the period January 1, 2009
to February 17, 2009 when they were converted into class A ordinary
shares. Net income and operating income per share for the year
ended December 31, 2009 have been adjusted to exclude $4,829 of ESU
interest from January 1, 2009 to February 17, 2009. Note 4: Certain
amounts have been reclassified to conform with the current period
presentation. Comment on Regulation G This press release contains
the presentation of (i) operating income (loss), which is defined
as net income (loss) attributable to ordinary shareholders
excluding net realized gains and losses on investments, goodwill
impairment charges, net realized and unrealized gains and losses on
credit, structured financial and investment derivatives, net of
tax, for the Company and its share of these items for the Company's
insurance company affiliates for the periods presented and charges
in respect of guarantees relating to subsidiaries of Syncora, as
well as the gain recognized on the repurchase of the Company's
Series C preference ordinary shares and (ii) annualized return on
ordinary shareholders' equity (based on operating income (loss)).
These items are "non-GAAP financial measures" as defined in
Regulation G. The reconciliation of such measures to the most
directly comparable GAAP financial measures in accordance with
Regulation G is included above. XL presents its operations in the
way it believes will be most meaningful and useful to investors,
analysts, rating agencies and others who use XL's financial
information in evaluating XL's performance. This presentation
includes the use of "operating income (loss)" and "annualized
return on ordinary shareholders' equity" based on operating income
(loss). Investment derivatives include all derivatives entered into
by XL 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) is
an integral part of XL's operations and the Company's insurance
company operating affiliates, the determination to realize capital
gains (or losses) is independent of the underwriting process. In
addition, under applicable GAAP accounting requirements, losses can
be created as the result of other than temporary declines in value
and from goodwill impairment charges without actual realization. In
this regard, certain users of XL's financial information, including
certain rating agencies, evaluate earnings before tax and capital
gains to understand the profitability of the recurring sources of
income without the effects of these two variables. Furthermore,
these users believe that, for many companies, the timing of the
realization of capital gains and the recognition of goodwill
impairment charges are largely opportunistic and are a function of
economic and interest rate conditions. In addition, with respect to
credit derivatives, because XL and its insurance company operating
affiliates generally hold financial guaranty contracts written in
credit default derivative form to maturity, the net effects of the
changes in fair value of these credit derivatives are excluded
(similar with other companies' treatment of such contracts) as the
changes in fair value each quarter are not indicative of underlying
business performance. Unlike these credit derivatives, XL's weather
and energy derivatives 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 this business are considered by management
when evaluating and managing the underlying business. Charges in
respect of guarantees issued by XL Insurance (Bermuda) Ltd, in
respect of subsidiaries of Syncora, as well as the gain recognized
on the repurchase of the Company's Series C preference ordinary
shares, are excluded as these transactions were capital in nature
and outside the scope of the Company's underlying business. In
summary, XL evaluates the performance of and manages its business
to produce an underwriting profit. In addition to presenting net
income (loss), XL believes that showing operating income (loss)
enables investors and other users of XL's financial information to
analyze XL's performance in a manner similar to how management of
XL analyzes performance. In this regard, XL believes that providing
only a GAAP presentation of net income (loss) makes it much more
difficult for users of XL's financial information to evaluate XL's
underlying business. Also, as stated above, XL believes that the
equity analysts and certain rating agencies that follow XL (and the
insurance industry as a whole) exclude these items from their
analyses for the same reasons and they request that XL provide this
non-GAAP financial information on a regular basis. Return on
average ordinary shareholders' equity ("ROE") excluding net
realized gains and losses on investments, goodwill impairment
charges and net realized and unrealized gains and losses on credit
and investment derivative instruments, net of tax, for the Company
and its share of these items for Syncora and the Company's other
insurance company operating affiliates (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 dividing annualized net income (loss)
attributable to ordinary shareholders minus the Exclusions for any
period by the average of the opening and closing ordinary
shareholders' equity. The Company establishes target ROEs (minus
the Exclusions) for its total operations, segments and lines of
business. If the Company's ROE (minus the Exclusions) return
targets are not met with respect to any line of business over time,
the Company seeks to re-evaluate these lines. In addition, the
Company's compensation of its senior officers is dependant upon,
among other things, the achievement of the Company's performance
goals to enhance shareholder value which include ROE (minus the
Exclusions) and its P&C combined ratio. DATASOURCE: XL Capital
Ltd CONTACT: David R. Radulski, Investor Relations,
+1-441-294-7460, or Carol A. Parker Trott, Media Relations,
+1-441-294-7290 Web Site: http://www.xlcapital.com/
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