Riskiest investments stripped out of loss-making portfolio

XL Capital has managed to turn it 2008 net loss of more than $2.6bn into a small $207m profit.

XL has stripped its investment portfolio of the riskiest of the mortgage-backed investments that caused it so much trouble. Its combined ratio was 93.6% for the year down from 94.9%.

Financial highlights (2008 in brackets)

  • Gross premiums written $6.1bn ($7.6bn)
  • Net premiums written $4.7bn ($5.7bn)
  • Net premiums earned $5.2bn ($6.0bn)
  • Underwriting income $327m ($303m)
  • Combined ratio 93.6% (94.9%)
  • Net profit/loss to ordinary shareholders $207m (-$2,632m)
  • Operating income $917m ($840m)
  • Insurance net premiums earned $3.6bn full year and $862.8m for Q4
  • Reinsurance net premiums earned $1.6bn full year and $391.6m for Q4

Chief executive officer Mike McGavick said: ”Our results for the quarter and the full year clearly illustrate XL’s re-emergence as a leading P&C company. Our top line in the fourth quarter of 2009 was within 3 points of the same quarter a year ago.

“Our P&C combined ratio was a healthy 96.4% for the quarter and 93.6% for the full year.

“Taken together, these metrics demonstrate that we were able to achieve a turnaround while maintaining our underwriting discipline and historically prudent reserving standards. And we did so even in the continued soft market.

Reducing volatility

“One of our key initiatives throughout the year has been to reposition the investment portfolio to one more typical of a P&C company, and to reduce its inherent volatility.

“The repositioning of our P&C portfolio is now 80% complete, and further reductions in legacy positions are more likely to occur over time from natural cash flows.

“Our attention has now turned to the optimal realignment of the portfolio rather than pure derisking actions.

Proud of turnaround

“We are tremendously proud of the turnaround XL made in 2009. Our full year net income attributable to ordinary shareholders was $206.6m compared to a loss of $2.6bn in 2008. We generated an operating return on equity for the year of 13.5%.

“No one can state with certainty when or how the underwriting cycle will turn, but we believe we have taken the steps necessary to position XL well, both in the face of current challenges and for when market conditions improve.”