Hamilton, Bermuda-based insurer XL Capital Ltd. reported a loss in net income of over $1 billion in line with its previously announced move to write-down charges of $1.5 billion for its holdings in credit market insurers.

The write-down primarily covers the company's investment in Security Capital Assurance, a financial guaranty insurer and reinsurer (see NU Online News, Jan. 24). XL owned SCA until an initial public offering in 2006. XL has a 46 percent investment in SCA, which accounted for a $524 million write-down in the value of the holding.

Without the write-down, XL said it would have shown a fourth-quarter profit of over $400 million.

Fourth-quarter net income dropped $1.54 billion to a loss of $1.06 billion, or a loss of $6.01 a share. Revenues dropped $594 million to $1.9 billion.

For the year, net income compared to 2006 fell by 76 percent, or $1.33 billion, to $430 million, or $2.01 a share. Revenues were off 7 percent, or $697.5 million, to $9.14 billion.

The company's combined ratio in the quarter was 93.3, a 4.4-point deterioration. For the year, the combined ratio improved 0.7 points to 88.8.

In its financial report released today, XL said SCA has not released its earning results for the fourth quarter and year. The company said that if SCA's shareholder equity is "materially lower than $117 million, then the company may record an additional charge of up to $117 million in its year end audit."

During a conference call today Henry C.V. Keeling, executive vice president and chief operating officer, said despite ratings downgrades and the turmoil created by the subprime market crisis, the company has not lost the support of the insurance brokerage community and is recording retention rates in the high 80-to-90 percent range on professional, property and casualty businesses.

Discussing the company's professional liability exposure related to subprime issues, he said XL has received 26 claims or notice of potential claims in 2007 and three such claims so far this year.

The majority of these, Mr. Keeling said, are on directors and officers liability policies, nine of which are primary policies and 17 are excess. Total limits are approximately $300 million with Side-A coverage (a policy covering directors and officers not indemnified under the corporation's policy) at $87 million.

Historically, he added, losses on such D&O notices have been significantly less than the claims made. He said the reinsurance side exposure is significantly less. He added that the turmoil in the subprime market would likely present opportunities for the insurer in the future.

(This story was updated Feb. 8 at 12:25 p.m.)

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XL Reports $1B Net Income Loss

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