XL Profit Falls On Casualty Re Charge

XL Profit Falls On Casualty Re Charge

NU Online News Service, Oct. 30, 3:50 p.m. EST?Bermuda-based XL Capital Ltd. said a $160 million after-tax charge for its North American casualty reinsurance operations had impacted third-quarter results, leaving a net profit of $99 million?a 41.5 percent decline from $184.1 million reported for the period last year.

The previously announced $160 million charge was primarily for newly reported casualty reinsurance claims from the 1997-to-2000 underwriting years. In today's conference call with analysts, XL management emphasized that, without the charge, the company is reporting strong underwriting results.

Brian O'Hara, chief executive officer at XL, began the conference call by saying, "Without the third-quarter charge we announced on Oct. 17, we would have met our original expectation.

"I mention this not to excuse our third-quarter performance," he commented, "but merely to answer up front a question that we suspect is on some of your minds. It's been only 10 days since we spoke to you about this charge. Since then we have taken several steps to assure that this issue is effectively addressed and does not affect earnings in 2004 or beyond."

The company posted $2.1 billion in gross premiums written for its general operations, higher than $1.8 billion recorded one year ago. Net premiums written improved to $1.5 billion from $1.3 billion during the year-ago period, while net premiums earned rose to $1.7 billion from $1.3 billion posted a year ago.

"Even including the loss in the North American reinsurance book, results were still positive," Mr. O'Hara told analysts.

He pointed out that income excluding gains and losses on investments--previously referred to as operating income--was $124 million for the quarter. And the combined ratio for general insurance and reinsurance operations was 98 percent including the charge, 86.9 percent excluding it.

"Our insurance operations continue to generate strong results. Net written premium achieved a double-digit growth over last year's third quarter and trends are still strong," Mr. O'Hara noted.

"In our reinsurance general operations, net written and earned premiums were up over 30 percent in the quarter. Although the segment was adversely affected by the charge in the quarter, it reported a combined ratio of 111 percent."

Net premiums earned in financial operations more than doubled from the prior year's quarter, benefiting from continued growth in financial guarantee business. And total investment income jumped 17 percent from last year's third quarter to $217 million, Mr. O'Hara said.

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