XL Capital Ltd, in a preliminary third quarter 2008 announcement, said it expects a net loss to ordinary shareholders of between $1.65 billion and $1.67 billion, compared to net income of $328 million for the period last year.
The company also reported the chairman of its board of directors, Brian M. O'Hara, involuntarily sold approximately 80 percent of his XL common shares on Oct. 9 "in order to meet a margin loan call."
Mr. O'Hara said the sale "in no way reflects a lack of confidence in XL's current and future prospects."
Explaining the sale, he said, "I regret that last Thursday I was forced to sell approximately 80 percent of my XL shares. I had pledged those shares as collateral to secure a personal loan used to fund purchases of XL shares in order to avoid the expiration of certain options. The forced sale was due to the precipitous drop in XL's share price last week."
Of XL's announced third quarter losses, $1.4 billion involved a charge related to an Aug. 5 transaction with bond insurer and former subsidiary Syncora Holdings Ltd. XL Capital CEO Michael S. McGavick said the company has now eliminated the vast majority of its exposures to Syncora.
XL Capital also said $222.8 million of its losses related to Hurricanes Gustav and Ike.
Net income excluding net realized gains and losses is estimated to be approximately $107.8 million, or 40 cents a share, according to the company. This compares with $562.8 million, or $3.13 per ordinary share, in the prior year quarter.
For its insurance operations, XL said its combined ratio was 107.9, deterioration from 87.5 in 2007.
Speaking to the reason behind the early release of third quarter information, Mr. McGavick, in a conference call, said it had to do with rumors that had affected XL's business partners and share price.
"Last week, we saw some significant and very wrong rumors with respect to our situation," he said, citing, for example, "rumors that were many multiples of what we took in OTTI [other than temporary impairment charges]."
"Given the jitteriness in the market last week, it was a bad time to have a set of rumors like that out there," said Mr. McGavick, who said XL was releasing figures early to set the record straight and correct "a very significant disconnect…."
"We hope that … putting true data out in the market, including the very broad disclosures [about XL's] investment portfolio, will go a very long way to curing that disconnect," Mr. McGavick said.
XL's stock was up about five points in midday trading.
Speaking to the expected third quarter results, Mr. McGavick said in a statement, "The third quarter has seen real progress in relation to the strategic objectives set out earlier in the year. We eliminated the vast majority of our exposures to Syncora.
"We have also made demonstrable progress in de-risking the firm, both in our investment portfolios and by demonstrating our attention to managing our traditional property and casualty exposures well, as we believe our third quarter hurricane losses show."
He added, "While it was a tough quarter by any measure, we are very pleased with the resilience of the XL franchise. Especially noteworthy was the fact that our clients, brokers and people pulled with us through the uncertainty of the Syncora situation, enabling us to have positive sales momentum in the quarter, and positioning us well for the critical January 1 renewal period."
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