Bermuda’s XL Capital Ltd. has experienced some major financial difficulties lately in its investment and financial reinsurance activities. As a result the Company announced today that it “expects to record net income for the full-year 2007 of $200 million to $400 million and a net loss in the fourth quarter of $1.0 billion to $1.2 billion.”
XL said it “expects to record the following items relating to credit market conditions in its financial statements for the quarter ended December 31, 2007:
— A charge of at least $550 million with respect to XL’s investment in Security Capital Assurance Ltd. (“SCA”) which was carried at $670 million at September 30, 2007.
— A loss reserve of $300 million with respect to an excess of loss reinsurance agreement with SCA. This agreement has a single aggregate limit of $500 million and this reserve represents a full limit loss discounted for the expected timing of payments.
— Loss reserves of $30 million with respect to facultative reinsurance agreements between subsidiaries of XL and subsidiaries of SCA, discounted for the expected timing of payments.
— A charge of approximately $150 million to reduce the carrying value to zero of one of XL’s publicly traded financial affiliates. This largely arises from expected mark-to-market adjustments related to this financial affiliate.
— Total net realized losses on investments of approximately $500 million, of which approximately $50 million arises from realized losses and the balance from an estimated charge for ‘other than temporary impairments’ related primarily to deterioration in structured credit assets.
However, the bulletin stated that “under XL’s guarantees issued to certain SCA subsidiaries and based on analysis performed by XL on the underlying SCA loss exposures together with the dual trigger aspect of these contracts, XL believes the probability of any loss under these guarantees is remote and accordingly, no loss reserves have been recorded.”
The Company has posted details of its exposures under these guarantees and under certain facultative reinsurance agreements as of September 30, 2007 on its web site at: www.xlcapital.com.
Excluding the investment write down, XL’s fourth quarter results would have produced net income in the range of $425 million to $475 million. However, when the above items are factored in, XL said it expects the impact “to be between $1.5 billion and $1.7 billion.” Book value is anticipated to be approximately $50 per ordinary share as of the end of December 2007, “reflecting the strength of XL’s insurance and reinsurance operations.”
XL will host a conference call to discuss thie announcement today, Thursday, January 24, 2008 at 8:30 a.m. Eastern time. 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 877-422-4657 or 706-679-0474, Conference ID# 32133938. The webcast will be available on XL’s web site and will be archived on this site from approximately 11:00 a.m. Eastern time on January 24, 2008 through midnight Eastern time on February 26, 2008.
A telephone replay of the conference call will be available beginning at approximately 11:00 am. Eastern time on January 24, 2008 until midnight Eastern Time on February 12, 2008 by dialing 800-642-1687 or 706-645-9291, Conference ID #32133938.
Source: XL Capital
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