XL Capital Ltd. will officially announce its third quarter results on Monday, Oct. 31, but it has already indicated in a preliminary announcement that it expects to report an impressive $1.47 billion in net losses for the period, and an overall net loss for 2005.
XL said it “expects that pre-tax net losses arising from Hurricanes Katrina and Rita will be approximately $1.16 billion and $263.6 million, respectively.” It also expects an additional $89.7 million in pre-tax net losses from other, previously announced, natural catastrophes. The total, after taking into account net reinstatement premiums and tax effects, “will be approximately $1.47 billion.”
Needless to say (but XL’s accountants said it anyway): “These losses will adversely affect XL’s third quarter and full year results.” Without the losses, XL said its earnings would have been more or less in line with estimates, but due to the effect of the catastrophes it now “expects an operating loss for full year 2005.”
Fitch Ratings reacted to the preliminary report by downgrading XL’s ratings and those of its P/C subsidiaries and reinsurance subsidiaries by one notch. “Ratings actions include downgrading XL’s long-term issuer rating to ‘A-‘ from ‘A’ and lowering the insurer financial strength rating of lead reinsurance companies XL Insurance (Bermuda) Ltd. and XL Re Ltd. to ‘AA-‘ from ‘AA’,” said Fitch. It noted, however that “the ratings of XL’s financial guaranty affiliates are not affected by these actions and are affirmed at ‘AAA’.” Fitch said the overall outlook remains stable.
Fitch said: “The rating actions are based primarily on longer term operating returns on capital and earnings volatility that was not consistent with the previous rating category. This volatility was primarily attributable to catastrophe losses and adverse loss reserve development through the past several years.”
XL explained that its loss estimates “are based upon a review of contracts it believes are exposed to these events, loss reports received from brokers and cedants, industry loss models, and management’s best judgment. The Company expects that the loss adjustment processes for Hurricanes Katrina and Rita will be protracted due to the unprecedented complexity and scale of the events. The Company’s loss estimates for Hurricanes Katrina and Rita are consistent with first-party market loss estimates of $50-55 billion and $6-9 billion, respectively. However, the Company’s loss estimates involve the exercise of considerable judgment and are accordingly subject to revision. Actual losses may differ materially from these estimates.”
President and CEO Brian M. O’Hara commented: “These hurricanes are market changing events for our industry. We believe that we are well-positioned to serve our customers and expect to be an active lead participant in the upcoming renewal season. XL will take the steps necessary to maintain its fundamental financial strength.”
The Company intends to release its full third quarter 2005 financial results after the close of regular stock market hours on Monday, October 31, 2005. A conference call to discuss the Company’s results will be held at 10:00 a.m. Eastern Time on Tuesday, November 1, 2005.
The conference call can be accessed through a listen-only dial-in number or through a live webcast. To listen to the conference call please dial 201-689- 8320, password XL1101. The webcast will be available at www.xlcapital.com and will be archived on XL’s Website from approximately 1:00 p.m. Eastern Time on November 1, 2005 through midnight Eastern Time on November 30, 2005. A telephone replay of the conference call will also be available beginning at 1:00 p.m. Eastern Time on November 1, 2005 until 8:00 p.m. Eastern Time on November 8, 2005 by dialing 201-612-7415 (account number: 290 and conference I.D. number: 171859).
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