XL Posts $314.8 Million Loss After Hefty Charge

By Michael Ha

NU Online News Service, Feb. 12, 2:23 p.m. EST?

By comparison, during the 2002 fourth quarter, XL recorded a$214.1 million profit.

XL's 2003 fourth-quarter net premiums written from generaloperations came in at $1.257 billion, down from $1.317 billionduring the 2002 fourth quarter, while the quarterly net investmentincome rose slightly, to $206.34 million from $201.35 million oneyear ago.

For full-year 2003, the Bermuda-based XL reported $371.7 millionin net profit, down a bit from net income of $396 million reportedfor 2002.

Last month, XL announced it was taking a $694.1 million pre-tax,$647 million after-tax, charge for its 2003 fourth quarter. Thecompany said the charge, which follows previously announcedclaims-audit and regularly scheduled year-end reserve reviews, willlargely cover reinsurance losses in its North American operationsinvolving contracts sold by NAC Re Corp., a reinsurer that XLbought in 1999.

XL had already added some $160 million after tax to its NorthAmerican operations' reserves during the 2003 third quarter toaccount for higher-than-expected losses, mostly from new casualtyclaims for 1997-to-2000 underwriting years. Since then, the companyhas been examining further whether it has fully adequate reservesto address these losses.

However, in this week's fourth-quarter earnings release, XLnoted that it achieved several operational improvements for itsfull-year 2003. The company pointed out that net premiums earnedfrom its general operations rose by 24 percent compared to 2002,while investment income jumped 6 percent to $780 million.Additionally, cash flow from operations was a record $3.4 billion,and total assets increased 14 percent to $41 billion, the companysaid.

XL Chief Executive Brian O'Hara said "the positive underlyingdynamics" in its latest financial figures reflect the favorableunderwriting market conditions as well as XL's strong position inits chosen markets. "We are producing solid growth and strongunderlying profitability," Mr. O'Hara said.

XL Capital, through its subsidiaries, offers liability insuranceand reinsurance worldwide, specializing in low-frequency,high-severity risks from riots to natural disasters. The companyalso manages five Lloyd's of London syndicates. XL coverageincludes general/executive liability, property and political riskinsurance, while its reinsurance covers property, aviation, energy,nuclear accident and professional indemnity.