HAMILTON, Bermuda, Oct. 28, 2009 (PRNewswire-FirstCall) -- XL Capital Ltd ("XL" or the "Company") (NYSE: XL) today reported its third quarter 2009 results.

Commenting on the Company's performance, Chief Executive Officer, Mike McGavick, said:

"Solid underwriting and careful expense management, combined with our prudent reserving practices, provided a healthy combined ratio of 93.2% from P&C operations. For the quarter, we have recorded a 26% increase in book value per ordinary share to $23.84 and a 30% increase in tangible book value per ordinary share to $21.36. Total shareholders' equity increased from $7.5 billion to $9.2 billion in the quarter.

"These are encouraging numbers but clearly there are areas for continued improvement. For instance, gross premiums written for our P&C operations were 16.6% lower than the prior year quarter. Although on target with our current guidance for the year, continuing this recovery means we must remain vigilant in the face of challenging pricing conditions.

"Pressures from the current economic environment and where we are in the underwriting cycle have not deterred us from seeking the right price regardless of the impact on top line. We will continue to do so.

"The other area for improvement remains the investment portfolio. While XL had strong operating income in the quarter of $306.4 million, or $0.89 per ordinary share, that strong operating performance was offset by our recognition of $310.8 million in after-tax net realized losses related principally to other than temporary impairments. Although this charge resulted in a net loss available to ordinary shareholders of $11.4 million or $0.03 per ordinary share, we remain committed to an investment portfolio more properly suited to a P&C company, and have made significant strides over the past year to de-risk our portfolio in pursuit of that goal.

"On the positive side, our portfolio marks improved by $1.4 billion during the third quarter, and 54% of the $34.0 billion portfolio was in cash, government, government-related or government-supported securities at the end of the third quarter. Given the increased stability in the capital markets, we have selectively redeployed some of our cash and proceeds from sales and maturities into high quality assets, achieving new money yields of 3.9%.

He concluded: "Overall we are pleased with the third quarter. Our operating results indicate what our clients and brokers have already clearly concluded -- XL is delivering for our customers and, on an operating basis, for shareholders. As we approach the January renewal season, XL is fully focused on serving the needs of our customers, delivering value to our shareholders and emerging as the best P&C (re)insurer wherever we choose to compete."

    Three Months Ended September 30
(US Dollars in thousands except per share amounts)
(Per Share - Diluted)
2009         2008    Change   2009     2008   Change
Net loss available
to ordinary
shareholders       ($11,402)  ($1,649,024)   NM    ($0.03)  ($6.04)   NM
Operating income(1) 306,409       107,765   184%     0.89     0.39   128%

The Company incurred a net loss available to ordinary shareholders for the third quarter of $11.4 million, or $0.03 per ordinary share, compared to a net loss available to ordinary shareholders of $1,649.0 million, or $6.04 per ordinary share for the third quarter of 2008. Operating income was $306.4 million, or $0.89 per ordinary share, compared to $107.8 million, or $0.39 per ordinary share in the third quarter of 2008.

The significant improvement in the net loss available to ordinary shareholders from the prior year quarter is primarily due to a charge of $1.4 billion in the prior year quarter related to the transaction closed on August 5, 2008 with Syncora Holdings Ltd. (formerly Security Capital Assurance Ltd) and certain of its subsidiaries. Also contributing to the improvement was an increase in operating income of $198.6 million primarily due to an increase of $183.7 million from the underwriting contribution of XL's P&C operations and an increase of $97.2 million in the net income from investment affiliates. These were partially offset by a decrease in investment income of $109.1 million compared to the third quarter of 2008.

Net investment income for the quarter was $327.1 million compared to $436.3 million in the prior year quarter. Net investment income from P&C operations, excluding investment income from structured products, decreased 27.7% from the prior year quarter to $211.8 million. This decrease was primarily due to lower investment yields, driven by both the impact of lower US LIBOR rates on floating rate structured credit assets, and higher allocations to lower yielding US Treasuries, Agencies and cash as a result of continued de-risking activities.

Pre-tax net realized investment losses for the quarter were $325.5 million compared to a loss of $292.9 million in the third quarter of 2008. The loss for the third quarter of 2009 included other than temporary impairments, net of non-credit impairments, totaling $321.7 million, and realized losses on securities sales of $3.8 million. The other than temporary impairments in the quarter arose primarily from impairments of corporate securities, principally certain European medium term notes, combined with below investment grade structured securities.

The annualized return on ordinary shareholders' equity, based on operating income, was 16.7% for the quarter as compared to 5.8% in the prior year quarter.

For the first nine months of 2009, the Company produced net income of $246.9 million or $0.73 per ordinary share, compared to a net loss of $1.2 billion or $5.70 loss per ordinary share, for the prior year period. Operating income was $681.5 million or $2.00 per ordinary share, compared to $650.8 million or $3.09 per ordinary share in the prior year period. The annualized return on ordinary shareholders' equity, based on operating income, was 13.7% for the first nine months of 2009 compared to 10.8% in the prior year period.

    P&C Operations
Three Months Ended September 30
(US Dollars in thousands)
2009               2008
Gross Premiums Written                  $1,584,209         $1,899,975
Net Premiums Written                     1,195,119          1,257,914
Net Premiums Earned                      1,293,879          1,525,023
Underwriting Income (Loss)                  88,279            (95,392)
Loss Ratio                                   63.2%              79.3%
Expense Ratio                                30.0%              27.0%
Combined Ratio                               93.2%             106.3%

-- P&C gross and net premiums written declined from the prior year quarter primarily due to planned reductions in long-term agreements, strengthening of the US dollar compared to the third quarter of 2008, lower insured values reflecting macroeconomic conditions and planned reductions in several targeted areas. Also impacting the decline was XL's focus on rate achievement in a competitive environment.

-- P&C net premiums earned included $905.4 million from the Insurance segment and $388.5 million from the Reinsurance segment.

-- The loss ratio for the quarter was 63.2% compared to 79.3% for the third quarter of 2008. Included in the current quarter loss ratio was prior year favorable development of $74.3 million compared to $92.8 million in the third quarter of 2008.

-- The third quarter 2009 loss ratio had catastrophe losses, net of reinsurance recoveries and reinstatement premiums, of $30.8 million compared to the $208.5 million in the third quarter of 2008, which included Hurricanes Gustav and Ike.

-- The expense ratio during the quarter included charges of approximately $7.6 million related to the Company's previously announced cost reduction efforts, of which $6.5 million and $1.1 million related to the Insurance and Reinsurance segments, respectively. In the prior year quarter there was also a restructuring charge of $17.3 million. The third quarter 2009 expense ratio also included increased acquisition costs primarily as a result of changes in the mix of business and higher profit-related commissions.

-- The P&C combined ratio for the quarter was 93.2% compared to 106.3% for the quarter ended September 30, 2008. Excluding the charges for the cost reduction initiatives, the current quarter combined ratio would have been 92.6%.

Capital Position

Book value per ordinary share was $23.84 as compared to $18.89 at June 30, 2009.

Net unrealized losses on investments, net of tax, were $1.5 billion at September 30, 2009 compared with net unrealized losses, net of tax of $3.2 billion at June 30, 2009. The decrease in net unrealized losses for the quarter in the Company's P&C operations was substantially due to the tightening of credit spreads on both corporate and structured credit assets, and from the impact of decreases in US Government interest rates. The decrease in net unrealized losses in the Company's Life operations was a result of tightening credit spreads in Sterling and Euro corporate securities, particularly hybrid corporate financials, and the effect of decreases in interest rates.

Further details of the results for the quarter and of the Company's fixed income investment portfolio may be found in the Company's Financial Supplement and Fixed Income Portfolio Data Supplement, respectively.