XL Puts Enron Loss Exposure at $75 Million; S&P Affirms ‘A+ Ratings

Bermuda’s XL Capital Ltd. announced that its estimated net aggregate insurance and reinsurance underwriting exposures in connection with the bankruptcy of Enron could total approximately $75 million before taxes. Standard & Poor’s took the estimates into account, but nonetheless reaffirmed its single-’A+’ rating on XL and its major subsidiaries, removed them from CreditWatch, and said the outlook is “stable.”

Xl had earlier stated that it has no exposure to Enron’s commercial paper (See IJ Website Dec. 6), but has calculated that it has potential exposure through its surety underwriting of approximately $45 million. It also stated that it wasn’t “yet in a position to estimate what level of losses will result from its exposure to Enron.” XL warned that certain circumstances may impact these estimates and the amount and timing of actual losses,” including the extent to which claims emerge, coverage determinations and developments in the Enron bankruptcy proceedings.”

S&P had placed XL on CreditWatch following its announcement that it would incur estimated losses of $680 million (net after-tax) relating to the (WTC) disaster. It was concerned about the potential impact of these losses on XL’s capital adequacy.

The reaffirmation of the ratings comes after Xl “disclosed a thorough ground-up analysis of its loss estimate, which alleviated most concerns about the group’s capital adequacy and prospective operating performance,” said S&P’s announcement. It also noted that the company “has successfully raised aggregate net proceeds of $812 million in common equity via a secondary offering, and known potential exposures to Enron (albeit modest) should not materially affect the company’s earnings.”

Major factors in assessing XL included its extremely strong capital adequacy, diversified earnings stream, very strong market position, especially after acquiring Winterthur International’s operations, and its ongoing organizational development.

S& P concluded that, “Due to already improving market conditions following the WTC disaster, XLC is well-positioned to capitalize on rate increases and the need for capacity as of Jan. 1, 2002 renewals. XLC’s underwriting conservatism and prudent risk selection should complement pricing and operational initiatives started in 2000, positively affecting XLC’s earnings performance into 2004. For 2002, XLC’s capital adequacy is expected to remain at 175% or above, and ROR will be about 15.0% with a combined ratio of about 98.0%.”