Bermuda’s storm battered XL Capital Ltd. is taking a big step in its efforts to restore its somewhat diminished capitalization. According to A.M. Best, the insurer recorded $1.5 billion loss in the third quarter, and will take another $830 million hit in the fourth quarter, due to the adverse decision of the independent actuary in its dispute with Credit Suisse over Winterthur (See IJ Website Nov. 25). (See also following article).
XL has therefore launched a plan to sell approximately $2.15 billion worth of ordinary shares to help replace the $2.33 billion hole. It’s also planning to raise an additional $650 million through a sale of equity units and debt, and has announced “management’s intention to recommend reduction in ordinary share dividends to its Board of Directors.”
Wilma’s late appearance didn’t help XL’s finances. The Company said that based on “current loss reports and estimates, it expects that pre-tax net losses arising from Hurricane Wilma will be approximately $225 million. These losses are expected to be $90 million and $135 million from the Company’s insurance and reinsurance segments, respectively. After taking into account net reinstatement premiums and tax effects, the Company estimates net losses due to this catastrophe will be approximately $210 million and will adversely affect XL’s fourth quarter and full year results.”
The share sale, plus any over allotments for options taken up by the underwriters, is being made pursuant to the Company’s newly filed shelf registration statement. In addition, XL said it “plans to raise approximately $650 million in capital from an offering of equity security units (the ‘Equity Security Units’) consisting of (i) forward purchase contracts to purchase, and XL to issue, its ordinary shares and (ii) debt securities (the ‘Equity Security Unit Offering’ and, together with the Ordinary Share Offering.”
XL said it will use the “net proceeds from the Offerings for general corporate purposes, including, without limitation, the replenishment of the capital base of certain of the Company’s subsidiaries following: its third quarter 2005 catastrophe losses, estimated losses related to Hurricane Wilma and the recent draft report issued by the independent actuary in connection with the Company’s post-closing seasoning reserve process with Winterthur Swiss Insurance Company.”
The joint book-running managers for the Offerings are Goldman, Sachs & Co. and Citigroup Corporate & Investment Banking. Full details of the Offerings, including a description of the Ordinary Shares and the Equity Security Units and certain risk factors related to the Company and these securities, will be contained in prospectus supplements and available through the underwriters.
President and CEO Brian O’Hara commented: “This action is being recommended as part of the Company’s previously announced capital planning initiatives to maintain XL’s sound financial footing and to take full advantage of current property and casualty market conditions. Notwithstanding the proposed dividend reduction, we view XL’s dividend payout to be at or above our peer group.”
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