After reporting a 2005 fourth-quarter net loss of $821.9 million, management of XL Capital Ltd said today they expect good results this year and a hardening reinsurance market.
The Bermuda-based insurer and reinsurer said its fourth-quarter net loss amounted to of $5.51 per share, compared with net income of $288 million, or $2.07 per share, for the quarter ended Dec. 31, 2004. The loss was attributed to an arbitration decision and the 2005 hurricanes.
Net loss for the quarter ended December 31, 2005 included net losses of $834.2 million, pre and post tax, associated with an arbitration decision concerning its 2001 purchase of Winterthur International
XL had contended unsuccessfully that Credit Suisse, which sold it Winterthur property and casualty business owed it $1.45 billion to boost a reserve fund related to the purchase.
The company was also hurt by pre-tax net losses from Hurricane Wilma of $247.1 million and additional pre-tax net losses of $210.8 million related to the 2005 third quarter natural catastrophes.
For the twelve months ended Dec. 31, 2005, net loss to ordinary shareholders was $1.3 billion, or $9.14 per ordinary share, compared with net income of $1.12 billion or $8.13 per ordinary share for the 2004 period.
At Dec. 31, 2005, total net invested assets were $41.6 billion, up 28.4 percent from Dec. 31, 2004, and total assets were $58.4 billion, up 19 percent from December 31, 2004, the company said.
XL President and Chief Executive Officer Brian M. O'Hara said during an analysts' conference call today that results were a "great disappointment."
But he said the company, because it has global reach, a strong underwriting team and recently raised $3.2 billion in capital is poised to take advantage of opportunities in a market that will see improvements after a year of devastating catastrophe events.
The company noted that it expects to grow the operations it has in China and Brazil, and said it is reducing its catastrophe exposure in the Gulf of Mexico by 50 percent.
Mr. O'Hara said the company's return-on-equity target is 17 percent. He said the company has a solid balance sheet and is encouraged by improving markets and improving returns. The company estimated in 2006 combined ratios will be in the nineties for insurance and low eighties for reinsurance.
Regarding reinsurance company market conditions, Mr. O'Hara foresees a market that will have prices hardening in a "cascading process. It won't happen as a big bang."
The combined ratio from general operations was reported as 165.1, or 92 excluding the charge related to the Winterthur Decision and the 2005 third and fourth quarter natural catastrophes.
For the full year 2005 versus full year 2004 the company said contribution from financial operations were up 66 percent to $234.8 million.
Bear Stearns analyst David Small noted that hurricane losses were $22 million higher than initial company estimates in December.
He said this development would likely draw "further attention to the size of XL's third quarter catastrophe losses relative to its equity base and its peers as well as its recent history of adverse reserve development."
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