XL Capital takes US$1.05-billion third-quarter hit

As the result of an intense hurricane season, XL Capital Ltd has reported a net loss of US$1.05 billion to ordinary shareholders for the third quarter ending September 30, 2005.The disastrous third quarter means a net loss of $470.4 million for XL over the first nine months of 2005. In comparison, the company reported a profit of $838.2 over the same nine-month period in 2004. XL’s combined ratio from general operations was 182.2% — or 88.7% if the impact of the hurricane-related third-quarter catastrophes is excluded.The third-quarter net losses included previously announced pre-tax net losses from Hurricane Katrina of $1.15 billion, Hurricane Rita of $263.6 million and other natural catastrophes of $89.7 million. After taking into account net reinstatement premiums and tax effects, the net income impact of these third quarter catastrophes was $1.47 billion, the company announced in a press release.Commenting on these results, Brian M. O’Hara, XL Capital’s president and CEO, said: “The third quarter’s insured market catastrophe losses, which we estimate at $60 billion to $72 billion, were greater than our industry has seen in any previous calendar year. Our loss estimation process has embraced the extraordinary breadth, magnitude and complexity of these events.”XL Capital announced a strategic initiative intended to augment its underwriting capacity. XL says it has agreed in principle to enter into a quota share reinsurance treaty with a newly formed reinsurance company. “This [new] company will be funded with $500 million to $1 billion of dedicated capital from its parent holding company, which, in turn, will be owned by a group of institutional investors,” says O’Hara. “The lead investor in this company is expected to be investment funds managed by an alternative asset manager with which XL has had a long-standing relationship.”XL will not be an equity investor in this new company. Under this agreement, XL expects to cede to this company specified portions of XL’s property catastrophe and retrocessional lines of business. We believe that this treaty will reinforce XL’s leadership position in these lines of business, reduce our volatility, provide incremental earnings, and therefore maximize our shareholders’ risk adjusted return.”