EX-99.8 9 c24198_ex998.txt FINANCIAL STATEMENTS XL FINANCIAL ASSURANCE LTD. (Incorporated in Bermuda) Condensed Financial Statements (Unaudited) FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 (expressed in U.S. dollars) XL FINANCIAL ASSURANCE LTD. Balance Sheet (Unaudited) AS AT MARCH 31, 2002 AND DECEMBER 31, 2001 AND 2000 -------------------------------------------------------------------------------- (expressed in U.S. dollars)
2002 2001 $ $ ---------------------------------------- ASSETS: Investments : Fixed maturities, at fair value (amortized cost: 2002 - $431,802,493; 2001 - $418,904,214) 428,769,725 420,914,072 Short-term investments, at fair value (amortized cost: 2002 - $19,265,859; 2001 - $18,780,468) 19,258,828 18,768,561 ---------------------------------------- Total investments available for sale 448,028,553 439,682,633 Cash and cash equivalents 64,643,346 50,242,839 Accrued investment income 3,343,171 3,088,280 Reinsurance balances receivable 10,212,331 22,170,762 Deferred acquisition costs 16,432,776 15,184,237 Prepaid reinsurance premiums 13,822,201 10,965,592 Unpaid losses & loss expenses recoverable 1,160,099 593,725 Amounts due from parent and affiliates 9,482,050 1,523,216 Other assets 107,427 87,275 ---------------------------------------- TOTAL ASSETS 567,231,954 543,538,559 ---------------------------------------- LIABILITIES, REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY LIABILITIES: Accounts payable and accrued liabilities 1,377,146 1,767,661 Derivative liabilities 11,415,962 17,939,200 Deferred premium revenue 91,573,655 83,755,805 Unpaid losses and loss expenses 14,884,551 11,831,159 Reinsurance premiums payable 2,818,916 4,863,196 Net payable for investments purchased 132,794,690 122,314,835 Dividend payable on preferred shares 2,412,542 1,931,720 ---------------------------------------- TOTAL LIABILITIES 257,277,462 244,403,576 ---------------------------------------- REDEEMABLE PREFERRED SHARES: Redeemable preferred shares (par value of $120 per share; 10,000 shares authorized; 363 issued and outstanding as at March 31, 2002 and December 31, 2001, respectively) 43,560 43,560 Additional paid-in capital 38,956,440 38,956,440 ---------------------------------------- TOTAL REDEEMABLE PREFERRED SHARES 39,000,000 39,000,000 ---------------------------------------- SHAREHOLDERS' EQUITY: Common shares (par value of $120 per share; 10,000 shares authorized; 2,057 issued and outstanding as at March 31, 2002 and December 31, 2001, respectively) 246,840 246,840 Additional paid-in capital 220,653,160 220,653,160 Accumulated other comprehensive (loss) income (3,039,799) 1,997,951 Retained earnings 53,094,291 37,237,032 ---------------------------------------- TOTAL SHAREHOLDERS' EQUITY 270,954,492 260,134,983 ---------------------------------------- TOTAL LIABILITIES, REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY 567,231,954 543,538,559 ---------------------------------------- The accompanying notes are an integral part of these condensed financial statements.
XL FINANCIAL ASSURANCE LTD. Statement of Income and Comprehensive Income (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 -------------------------------------------------------------------------------- (expressed in U.S. dollars)
2002 2001 $ $ -------------------------------------- REVENUES : Net premiums earned 9,879,673 5,557,230 Net investment income 4,656,352 4,785,643 Net realized gains on investments 1,796,590 5,366,301 Net realized and unrealized gains (losses) on derivative instruments 6,523,238 (354,520) -------------------------------------- Total revenues 22,855,853 15,354,654 -------------------------------------- EXPENSES : Losses and loss expenses 2,487,018 219,151 Acquisition costs 2,269,227 722,452 Operating expenses 1,761,527 1,143,154 -------------------------------------- Total expenses 6,517,772 2,084,757 -------------------------------------- Net income before cumulative effect of accounting change 16,338,081 13,269,897 Cumulative effect of accounting change - (1,349,998) -------------------------------------- Net income before dividends on preferred shares 16,338,081 11,919,899 Dividends on preferred shares (480,822) (480,822) -------------------------------------- NET INCOME FOR COMMON SHAREHOLDERS 15,857,259 11,439,077 -------------------------------------- COMPREHENSIVE INCOME Net income for common shareholders 15,857,259 11,439,077 Unrealized gains (losses) (3,241,160) 4,382,826 Less: reclassification for gains realized in income 1,796,590 5,366,301 -------------------------------------- Change in net unrealized depreciation of investments (5,037,750) (983,475) -------------------------------------- COMPREHENSIVE INCOME 10,819,509 10,455,602 -------------------------------------- The accompanying notes are an integral part of these condensed financial statements.
XL FINANCIAL ASSURANCE LTD. Statements of Changes in Shareholders' Equity (Unaudited) FOR THE PERIOD ENDED MARCH 31, 2002 AND FOR THE YEAR ENDED DECEMBER 31, 2001 -------------------------------------------------------------------------------- (expressed in U.S. dollars)
ADDITIONAL PAID-IN CAPITAL - ACCUMULATED OTHER COMMON COMMON COMPREHENSIVE RETAINED SHARES SHAREHOLDERS INCOME (LOSS) EARNINGS TOTAL $ $ $ $ $ ------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 2001 246,840 220,653,160 3,931,665 17,603,489 242,435,154 Net income for common 19,633,543 19,633,543 shareholders for the year Other comprehensive loss (1,933,714) (1,933,714) ------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2001 246,840 220,653,160 1,997,951 37,237,032 260,134,983 Net income for common 15,857,259 15,857,259 shareholders for the period Other comprehensive loss (5,037,750) (5,037,750) ------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 2002 246,840 220,653,160 (3,039,799) 53,094,291 270,954,492 ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these condensed financial statements.
XL FINANCIAL ASSURANCE LTD. Statements of Cash Flows (Unaudited) FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 -------------------------------------------------------------------------------- (expressed in U.S. dollars)
2002 2001 $ $ ----------------------------------- CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net income for the period 16,338,081 13,269,897 Adjustments to reconcile net income to net cash provided by operating activities Realized (gains) losses on investments (1,796,590) (5,366,301) Net realized and unrealized losses (gains) on derivative instruments (6,523,238) 354,520 Amortization of discount on fixed maturities (319,429) (231,174) Accrued investment income (254,891) 740,584 Reinsurance premiums receivable 11,958,431 (8,172,979) Deferred acquisition costs (1,248,539) (997,858) Prepaid reinsurance premiums (2,856,609) 127,500 Unpaid losses & loss expenses recoverable (566,374) - Amounts due from parent and affiliates - 12,944 Accounts payable and accrued liabilities (390,515) 172,538 Reinsurance premiums payable (2,044,280) (125,000) Deferred premium revenue 7,817,850 5,238,145 Unpaid losses and loss expenses 3,053,392 219,151 Other assets and liabilities (20,152) 2,245 ----------------------------------- Total adjustments 6,809,056 (8,025,685) ----------------------------------- Net cash provided by operating activities 23,147,137 5,244,212 ----------------------------------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES : Proceeds from sale of fixed maturities and short-term investments 568,669,424 606,071,404 Proceeds from redemption of fixed maturities and short-term 15,511,517 3,155,506 investments Purchase of fixed maturities and short-term investments (584,968,737) (604,443,559) ----------------------------------- Net cash provided by (used in) investing activities (787,796) 4,783,351 ----------------------------------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES Amounts due from parent and affiliates (7,958,834) - ----------------------------------- Net cash provided by (used in) financing activities (7,958,834) - ----------------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 14,400,507 10,027,563 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 50,242,839 17,154,237 ----------------------------------- CASH AND CASH EQUIVALENTS - END OF PERIOD 64,643,346 27,181,800 ----------------------------------- The accompanying notes are an integral part of these condensed financial statements.
XL FINANCIAL ASSURANCE LTD. Notes to Condensed Financial Statements (Unaudited) FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 -------------------------------------------------------------------------------- (expressed in U.S. dollars) 1. ORGANIZATION AND BUSINESS XL Financial Assurance Ltd. (the "Company") was incorporated with limited liability under the Bermuda Companies Act 1981 on October 14, 1998 and is registered as a Class 3 insurer under The Insurance Act 1978, amendments thereto and related regulations ("The Act"). At March 31, 2002 and 2001, the Company was approximately 85% owned by XL Insurance (Bermuda) Ltd (a wholly-owned subsidiary of XL Capital Ltd); 6% by FSA Insurance Company (a wholly-owned subsidiary of Financial Security Assurance Holdings Ltd) and 9% by Financial Security Assurance International Ltd. (owned 20% by XL Insurance (Bermuda) Ltd and 80% by FSA Insurance Company). The Company is an integral part of a joint venture agreement between XL Capital Ltd and Financial Security Assurance Holdings Ltd. The Company is primarily engaged in the business of providing reinsurance of financial guaranties on asset-backed and municipal obligations underwritten by XL Insurance (Bermuda) Ltd, FSA Insurance Company and XL Capital Assurance Inc. (a wholly-owned subsidiary of XL Capital Ltd) and other monoline and multiline insurance companies. This may be in the form of traditional financial guaranty insurance or via a credit default swap execution. The Company's underwriting policy is to provide reinsurance of asset-backed and municipal obligations that would be of a lower investment-grade quality without the benefit of the Company's reinsurance. The asset-backed obligations reinsured by the Company are generally issued in structured transactions and are backed by pools of assets such as residential mortgages loans, consumer or trade receivables, securities or other assets having ascertainable cash flows or market value. The municipal obligations reinsured by the Company consist primarily of general obligation bonds that are supported by the issuers' taxing power and of special revenue bonds and other special obligations of states and local governments that are supported by the issuers' ability to impose and collect fees and charges for public services or specific projects. Reinsurance written by the Company guarantees payment when due of scheduled payments on an issuers' obligation. In the case of a payment default on an insured obligation, the Company is generally required to pay the principal, interest or other such amounts due in accordance with the obligations' original payment schedule or, at its option, to pay such amounts on an accelerated basis. The Company conducts surveillance on its exposures to try and ensure early identification of any loss events. In addition, in the normal course of business, the Company seeks to reduce the loss that may arise from such events by reinsuring certain levels of risks in various areas of exposure with other insurance enterprises or reinsurers. 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PREPARATION The accompanying condensed financial statements have been prepared by the Company and are unaudited. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows at March 31, 2002 and for all periods presented, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These statements should be read in conjunction with the Company's December 31, 2001 financial statements and notes thereto. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the periods ended March 31, 2002 and 2001 are not necessarily indicative of the operating results for the full year. XL FINANCIAL ASSURANCE LTD. Notes to Condensed Financial Statements (Unaudited) FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 -------------------------------------------------------------------------------- (expressed in U.S. dollars) The preparation of condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Any such adjustments are reflected in income in the period in which the adjustments are made. The financial statement estimates subject to most uncertainty are estimates for loss reserves and calculation of the fair value of credit default swap instruments. Certain comparative figures have been reclassified to conform with the current year's presentation. 3. DERIVATIVE INSTRUMENTS The following table summarizes the change in fair value of the Company's credit default swaps recognized in income for the period ended March 31, 2002. Net premiums earned 1,669,107 Losses and loss expenses (417,277) Net realized and unrealized (losses) gains on derivative instruments 6,523,238 ---------------- Total fair value adjustment 7,775,068 ----------------