-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IlnTZHcUaLAJN7PzwB+fL/z7g7Rg2sKM267FBjgGoSXHzMijMWz59ItuvJanOS3V 3CZdBbIvflqQAYkJPzhEVA== 0000950130-96-002559.txt : 19960715 0000950130-96-002559.hdr.sgml : 19960715 ACCESSION NUMBER: 0000950130-96-002559 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960712 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXEL LTD CENTRAL INDEX KEY: 0000875159 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 980058718 FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10804 FILM NUMBER: 96593798 BUSINESS ADDRESS: STREET 1: CUMBERLAND HOUSE STREET 2: 1 VICTORIA ST CITY: HAMILTON HM11 BERMUD STATE: D2 BUSINESS PHONE: 4412928515 MAIL ADDRESS: STREET 1: CAHILL GORDON & REINDEL(IMMANUEL KOHN) STREET 2: 80 PINE STREET CITY: NEW YORKI STATE: NY ZIP: 10005 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996 Commission File Number 1-10804 EXEL LIMITED - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Cayman Islands 98-0058718 - --------------------------------- ---------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) Cumberland House, 1 Victoria Street, Hamilton, Bermuda HM 11 - ------------------------------------------------------------ (Address of principal executive offices and zip code) Registrant's telephone number, including area code (441) 292-8515 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- -------- The number of registrant's Ordinary Shares ($0.01 par value) outstanding as of June 28, 1996 was 44,965,251 excluding 10,623,900 shares held in treasury. EXEL LIMITED INDEX TO FORM 10-Q Part I. FINANCIAL INFORMATION -----------------------------
Page No. -------- Item 1. Financial Statements: Consolidated Balance Sheets May 31, 1996 (unaudited) and November 30, 1995 3 Consolidated Statements of Income Three Months Ended May 31, 1996 and 1995 (unaudited) and Six Months Ended May 31, 1996 and 1995 (unaudited) 5 Consolidated Statements of Cash Flows Six Months Ended May 31, 1996 and 1995 (unaudited) 6 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10
Part II. OTHER INFORMATION --------------------------
Item 4. Submission of Matters to a Vote of Shareholders 23 Item 6. Exhibits and Reports on Form 8-K 25 Signatures 28
EXEL LIMITED CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except per share amounts)
May 31, November 30, 1996 1995 ----------- ------------ (Unaudited) ASSETS Investments: Fixed maturities, at market value (amortized cost : 1996 - $2,709,013; 1995 - $2,343,143)..................... $2,623,193 $2,434,470 Equity securities, at market value (cost: 1996 - $558,134; 1995 - $652,847 716,648 838,132 Short-term investments, at market value (amortized cost: 1996 - $84,942; 1995 - $82,696)........................ 84,984 82,693 ----------- ------------ Total Investments 3,424,825 3,355,295 Cash and cash equivalents............... 200,124 673,433 Investment in affiliate (cost: 1996 - $373,597; 1995 - $347,826) 367,497 351,669 Accrued investment income............... 51,542 53,149 Deferred acquisition costs.............. 32,671 40,954 Prepaid reinsurance premiums............ 38,541 2,438 Premiums receivable..................... 361,554 234,028 Reinsurance balances receivable......... 29,286 1,002 Other assets............................ 22,027 12,938 ----------- ------------ Total Assets........................... $4,528,067 $4,724,906 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Unpaid losses and loss expenses........ $1,954,581 $1,920,500 Unearned premium....................... 620,708 539,296 Premium received in advance............ 27,358 4,880 Accounts payable and accrued liabilities........................... 36,537 17,806 Payable for investments purchased...... 8,716 236,291 ------------ ------------ Total Liabilities...................... $2,647,900 $2,718,773 ------------ ------------
May 31, November 30, 1996 1995 ----------- ------------- (Unaudited) Contingencies Shareholders' Equity: Ordinary shares (par value $0.01: authorized, 999,990,000 shares; issued and outstanding, 45,060,251 shares (excluding 10,528,900 shares held in treasury)at May 31, 1996 and 47,275,395 shares (excluding 8,000,000 shares held in treasury)at November 30, 1995........ 451 473 Contributed surplus........................... 287,663 295,209 Net unrealized appreciation of investments.................................. 72,243 283,289 Deferred compensation......................... (4,413) (1,657) Retained earnings............................. 1,524,223 1,428,819 ------------ ------------ Total shareholders' equity............... 1,880,167 $2,006,133 ------------ ------------ Total liabilities and shareholders' equity..................... $4,528,067 $4,724,906 =========== ============
See accompanying notes to Consolidated Financial Statements. EXEL LIMITED CONSOLIDATED STATEMENTS OF INCOME (U.S. dollars in thousands, except per share amounts)
Three Months Six Months Ended Ended May 31, May 31, 1996 1995 1996 1995 ----------- ----------- ---------- ---------- (Unaudited) Revenues: Net premiums earned.................... $131,952 $135,145 $262,210 $265,891 Net investment income.................. 50,249 56,797 98,022 106,967 Net realized gains on sale of investments.......................... 16,202 14,890 152,261 8,016 Equity in net earnings of affiliate.... 14,282 15,545 30,395 20,598 ---------- --------- ---------- -------- Total revenues 212,685 222,377 542,888 401,472 ---------- --------- ---------- -------- Expenses: Losses and loss expenses............... 103,556 106,362 207,762 208,641 Acquisition costs...................... 9,012 14,002 17,584 26,594 Administration expenses................ 10,636 6,950 19,735 13,995 ---------- --------- ---------- -------- Total expenses 123,204 127,314 245,081 249,230 ---------- --------- ---------- -------- Income before income tax expense........ 89,481 95,063 297,807 152,242 Income tax expense...................... 495 532 1,732 829 ---------- --------- ---------- -------- Net income.............................. $ 88,986 $ 94,531 $296,075 $151,413 ========== ========= ========== ======== Weighted average number of ordinary shares and ordinary share equivalents outstanding............................ 46,773 53,773 47,261 53,788 Net income per ordinary share and ordinary share equivalent............................. $1.90 $1.76 $6.26 $2.81 Dividends declared per share............ $0.50 $0.33 $0.90 $0.66
See accompanying notes to Consolidated Financial Statements. EXEL LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands)
Six Months Ended May 31, 1996 1995 ---- ---- (Unaudited) Cash flows from operating activities Net income............................. $ 296,075 $ 151,413 Adjustments to reconcile net income to net cash provided by operating activities: Net realized gains on sale of (152,261) (8,016) investments........................... Unrealized gains on foreign exchange... 0 (4,219) Amortization of premium on fixed....... maturities............................ 3,573 2,642 Amortization of deferred compensation.. 628 605 Equity in earnings of affiliate net of dividends received and consolidation adjustments........................... (24,151) (18,059) Unpaid losses and loss expenses........ 34,081 76,621 Unearned premiums...................... 81,412 (16,408) Premiums received in advance........... 22,478 20,822 Deferred acquisition costs............. 8,283 414 Prepaid reinsurance premiums........... (36,103) 0 Premiums receivable.................... (127,526) 7,287 Reinsurance balances receivable........ (28,284) 0 Accrued investment income.............. 1,607 (3,285) Accounts payable and accrued liabilities........................... 18,731 (617) ----------- ---------- Total adjustments..................... (197,532) 57,787 ----------- ---------- Net cash provided by operating activities 98,543 209,200 ----------- ---------- Cash flows provided by (used in) investing activities: Proceeds from sale of fixed maturities and short-term investments............ 2,872,664 1,665,392 Proceeds from redemption of fixed maturities and short-term investments. 79,000 69,000
Six Months Ended May 31, 1996 1995 ---- ---- (Unaudited) Proceeds from sale of equity securities 402,107 108,898 Purchases of fixed maturities and short-term investments................. (3,497,370) (1,906,840) Purchases of equity securities......... (208,691) (140,025) Deferred gains (losses) on forward hedge contracts........................... 2,770 (545) Investment in affiliate................ (1,620) - Other assets........................... (9,089) (2,598) ------------ ------------- Net cash used in investing activities............................ (360,229) (206,718) ------------- -------------- Cash flow (used in) provided by financing activities: Dividends paid......................... (42,006) (35,305) Issuance of shares..................... 126 126 Proceeds from exercise of options...... 4,562 1,268 Repurchase of treasury shares.......... (174,305) (9,599) ------------- -------------- Net cash used in financing activities... (211,623) (43,510) ------------- -------------- Decrease in cash and cash equivalents............................ (473,309) (41,028) ------------- -------------- Cash and cash equivalents - beginning of period.............................. $ 673,433 $ 456,176 ------------- ------------- Cash and cash equivalents - end of period.............................. $ 200,124 $ 415,148 ============= ============== Taxes paid............................. $ 1,571 $ 1,056 ============= ==============
See accompanying notes to Consolidated Financial Statements. EXEL LIMITED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of EXEL Limited (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these unaudited financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position and results of operations as of the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. The November 30, 1995 balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. For further information, refer to the consolidated financial statements for the fiscal year ended November 30, 1995, and footnotes thereto, included in the Company's Annual Report on Form 10-K (No. 1-10804). NOTE B - INVESTMENT IN AFFILIATE Summarized condensed financial information of Mid Ocean Limited, a 28% owned affiliate, which is accounted for by the equity method, is as follows (U.S. dollars in thousands):
Three months Ended Six Months Ended April 30, April 30, Income Statement Data 1996 1995 1996 1995 ---- ---- ---- ---- (Unaudited) Net premiums earned $102,274 $ 98,869 $204,379 $ 189,180 Net investment income 19,911 18,747 38,957 36,047 Net realized gains (losses) on sale of investments (1,986) 5,891 7,196 (16,924) Net income $ 50,972 $ 55,579 $108,787 $ 73,643 ======== ========== ======== ========== Company's share of net income $ 14,282 $ 15,545 $ 30,395 $ 20,598 ======== ========== ======== ========== April 30, October 31, Balance Sheet Data 1996 1995 ---------- ------------ (Unaudited) Cash, investments and accrued interest $1,379,604 $1,275,588 Other assets 525,288 379,920 ----------- ----------- Total assets $1,904,892 $1,655,508 =========== =========== Reserves for losses and loss expenses $ 373,630 $ 338,990 Reserves for unearned premiums 384,958 200,859 Other liabilities and minority interest 126,859 133,072 Shareholders' equity 1,019,445 982,587 ---------- ----------- Total liabilities and shareholders' equity $1,904,892 $1,655,508 ----------- ----------- Company's share of shareholders' equity $ 285,801 $ 273,867 =========== ===========
During the six months ended April 30, 1996 and 1995 the Company received dividends from its affiliate of $5.1 million, and $2.5 million, respectively. EXEL LIMITED ------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- RESULTS OF OPERATIONS AND FINANCIAL CONDITION --------------------------------------------- Results of Operations for the Three Months Ended May 31, 1996 ------------------------------------------------------------ Compared to the Three Months Ended May 31, 1995 ----------------------------------------------- The following table presents an analysis of the Company's underwriting revenues for the periods indicated:
Three Months Ended May 31, 1996 1995 % Change -------- -------- -------- (unaudited) Gross premiums written $160,169 $112,011 43.0% Net premiums written 143,810 111,410 29.1 Net premiums earned 131,952 135,145 (2.4)
The increase in gross premiums written in 1996 was predominantly due to the growth in specialty reinsurance assumed (SRA), written primarily by the Company's newly formed subsidiary, X.L. Reinsurance Company, Ltd. (XLRe). These premiums are generally multi-year premiums reflecting net future year premiums of $30.9 million of the total $54.7 million recognized in the quarter. Gross premiums written adjusted for this multi-year effect was $105.5 million compared to adjusted premiums for the 1995 quarter of $109.8 million, a decrease of 3.9%. The following table presents the split of gross premiums written by X.L. Insurance Company, Ltd. (X.L.), X.L. Europe Insurance (X.L.E.)and XLRe and reflects the growth in SRA for the periods indicated, adjusted for the effects of multi-year premiums:
Three Months Ended May 31, 1996 1995 X.L. X.L.E. XLRe Total X.L. X.L.E. Total -------- -------- -------- -------- ------- ------- ------- (Unaudited) General liability $52,941 $12,535 - $ 65,476 $68,081 $16,950 $ 85,031 Directors and officers liability 5,368 1,069 - 6,437 6,167 1,002 7,169 Professional liability 7,354 2,417 - 9,771 8,166 2,229 10,395 Property 3,221 (38) - 3,183 5,289 147 5,436 Risk solutions 1,900 - - 1,900 - - - Speciality reinsurance assumed - 2,723 15,978 18,701 - 1,731 1,731 -------- -------- ------- ------- ------- ------- ------- Annualized premiums 70,784 18,706 15,978 105,468 87,703 22,059 109,762 Multi-year premiums 14,062 9,703 30,936 54,701 971 1,279 2,250 -------- -------- ------- ------- ------- ------- ------- Gross premiums written $84,846 $28,409 $46,914 $160,169 $88,674 $23,338 $112,012 ======== ======== ======== ======== ======= ======= ========
SRA policyholders are few in number with substantial multi-year premiums. These policies characteristically allow for the return of significant levels of premiums in the event no losses are incurred by the end of the policy term. Premiums assumed in the second quarter are not indicative of future periods. SRA premiums assumed by X.L.E. relates solely to reinsurance protection provided to a Bermuda insurer who provides certificates of financial responsibility to ship owners for compliance with the U.S. Oil Pollution Act of 1990. X.L., in conjunction with CIGNA Property and Casualty, has now written one policy of its recently announced product lines; Risk Solutions. The Company's traditional product lines, general, directors and officers, and professional liability continue to feel the impact of the tremendous competitive pressures from the U.S. domestic insurance market. These pressures are clearly reflected in an increase in the average attachment point from $71.4 million to $78.2 million and a decrease in the business retention rate from 87.2% to 86.7% for the Company's traditional product lines, for the three months ended May 31, 1995 and May 31, 1996 respectively. The following table presents certain underwriting information with respect to the business written by the Company for the periods indicated:
Gross Net Net ----- --- --- Premiums Written Premiums written Premiums earned ---------------- ----------------- --------------- Three Months Ended May 31 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- (Unaudited) General liability $ 82,498 $ 86,931 $ 69,242 $ 86,931 $ 81,038 $106,414 Directors and officers liability 7,277 7,169 7,277 7,169 6,257 7,098 Professional liability 9,772 10,395 9,772 10,395 13,818 13,668 Property 5,285 5,786 3,757 5,184 5,084 3,231 Risk solutions 5,700 - 4,125 - 117 - Speciality reinsurance assumed 49,637 1,730 49,637 1,730 25,638 4,734 ----------- ------------ ------------ ---------- ----------- ---------- 160,169 112,011 143,810 111,409 131,952 135,145 Adjustment for multi- year premium (54,701) (2,250) (54,701) (2,250) - - Reinsurance ceded - - 13,256 - 16,453 - ----------- ------------ ------------ ---------- ----------- ---------- Adjusted premiums $105,468 $109,761 $102,365 $109,159 $148,405 $135,145 =========== ============ ============ ========== =========== ==========
Net premiums written for the quarter ended May 31, 1996 was affected by a quota share reinsurance policy entered into for most general liability risks written on a guaranteed cost form, with certain exclusions, effective December 1, 1995. X.L. cedes 20% of these risks with total limits up to $100 million and 25% with total limits in excess of $100 million. Net premiums written adjusted for the general liability quota share and multi-year premiums, would have decreased 6.2%. Net earned premiums were impacted by the growth in SRA premiums less the expense of premiums ceded under the new quota share arrangement. If the general liability quota share program was excluded, net earned premiums would have increased by 9.8%. The following table presents an analysis of the Company's revenues from its portfolio of investments and its investment in affiliate:
Three Months Ended May 31, 1996 1995 % Change ------- ------- -------- (unaudited) Net investment income $50,249 $56,797 (11.5%) Net realized gains 16,202 14,890 8.8 Equity in net earnings of affiliate 14,282 15,545 (8.1)
Net investment income for the second quarter in 1995 included unrealized currency gains of $3.1 million compared to $Nil for the comparative quarter in 1996, resulting in an adjusted decline of 6%. The decrease in investment income was caused by several factors. The U.S. bond market had remained strong for most of the second quarter of 1996 keeping yields low, unlike the comparable 1995 quarter which was weaker resulting in higher yields. The equity component of the total investment portfolio also increased to 19.8% from 15.9% as at May 31, 1995. Equity in net earnings of affiliate decreased principally due to the Company's equity share of realized losses of $2.0 million versus realized gains of $5.9 million in the comparative quarter in 1995. The following table sets forth the Company's combined ratios and the components thereof for the periods indicated using U.S. generally accepted accounting principles:
Three Months Ended May 31, 1996 1995 ---- ---- (unaudited) Loss and loss expense ratio 78.5% 78.7% Underwriting expense ratio 14.9% 15.5% Combined ratio 93.4% 94.2%
The underwriting expense ratio decreased in the second quarter of 1996 compared to the same period of 1995 due to commissions earned on the new quota share reinsurance program. Excluding this reinsurance arrangement, the underwriting expense ratio for the said 1996 period would have been 16.0%. Net income was $89.0 million or $1.90 per share and $94.5 million or $1.76 per share for the quarters ended May 31, 1996 and May 31, 1995, respectively, representing an increase of 8.0% per share. The increase in per share amounts is largely attributable to the buy back of Company shares resulting in weighted average shares outstanding of 46.8 million compared to 53.8 million for the respective quarters. Results of Operations for the Six Months Ended May 31,1996 ---------------------------------------------------------- Compared to the Six Months Ended May 31, 1995 --------------------------------------------- The following table presents an analysis of the Company's underwriting revenues for the periods indicated:
Six Months Ended May 31, 1996 1995 % Change ---- ---- -------- (unaudited) Gross premiums written $379,299 $250,124 51.6% Net premiums written 307,523 249,482 23.3 Net premiums earned 262,210 265,891 (1.4)
The increase in gross premiums written in 1996 was predominately due to the growth in SRA premiums, written primarily by XLRe. These premiums are generally multi-year premiums, reflecting net future year premiums of $100.5 million of the total $95.9 million recognized in the period. Gross premiums written adjusted for this multi-year effect was $283.4 million compared to adjusted premiums for the 1995 period of $262.2 million, an increase of 8.1%. The following table presents the split of gross premiums written by X.L., X.L.E and XLRe for the periods indicated, adjusted for the effects of multi-year premiums:
Six Months Ended May 31, 1996 1995 X.L. X.L.E. XLRe Total X.L. X.L.E. Total ------------ -------- ---------- --------- --------- --------- ---------- (Unaudited) General liability $136,242 $33,180 $ - $169,422 $167,049 $40,853 $207,902 Directors and officers liability 9,881 1,523 - 11,404 10,047 1,819 11,866 Professional liability 11,158 3,409 - 14,567 12,639 3,879 16,518 Property 7,008 (38) - 6,970 5,518 147 5,665 Risk solutions 1,900 - - 1,900 - - - Speciality reinsurance assumed 10,150 12,446 56,540 79,136 6,375 13,877 20,252 ------------ -------- ---------- --------- --------- --------- ---------- Annualized premiums 176,339 50,520 56,540 283,399 201,628 60,575 262,203 Multi-year premiums (14,338) 9,780 100,458 95,900 (13,588) 1,510 (12,078) ------------ -------- ---------- --------- --------- --------- ---------- Gross premiums written $162,001 $60,300 $156,998 $379,299 $188,040 $62,085 $250,125 ============ ======== ========== ========= ========= ========= ==========
XLRe is the primary writer of SRA. The SRA premiums written by X.L. represent the culmination of specific deals where the negotiations commenced prior to the incorporation of XLRe. SRA policyholders are few in number with substantial multi-year premiums. These policies characteristically allow for the return of significant levels of premiums in the event no losses are incurred by the end of the policy term. Premiums assumed in the first six months are not indicative of future periods. SRA premiums assumed by X.L.E. relates solely to reinsurance protection provided to a Bermuda insurer who provides certificates of financial responsibility to ship owners for compliance with the U.S. Oil Pollution Act of 1990. The decline in premiums over the comparative quarter in 1995 reflects the development of the market where capacity was previously unavailable. It is expected additional premiums will be assumed on this program throughout the fiscal year, although at a level markedly lower than the first six months. The Company's property and newly announced Risk Solutions lines were the only other areas of growth. The Company's traditional product lines, general, directors and officers, and professional liability continue to feel the impact of the tremendous competitive pressures from the U.S. domestic insurance market. These pressures are clearly reflected in an increase in the average attachment point from $72.3 million to $78.2 million and a decrease in the business retention rate from 88.6% to 86.2% for the Company's traditional product lines, for the six months ended May 31, 1995 and 1996, respectively. The following table presents certain underwriting information with respect to the business written by the Company for the periods indicated :
Gross Net Net ----- --- --- Premiums Written Premiums Written Premiums Earned ---------------- ----------------- --------------- Six Months Ended May 31 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- (Unaudited) General liability $186,839 $194,824 $119,410 $194,824 $163,205 $211,734 Directors and officers liability 12,244 11,866 12,244 11,866 12,532 14,259 Professional liability 15,327 17,168 15,327 17,168 27,189 26,756 Property 11,095 6,015 8,323 5,373 9,981 5,500 Risk solutions 5,700 - 4,125 - 117 - Speciality reinsurance assumed 148,094 20,251 148,094 20,251 49,186 7,642 ------------ ------------ --------------- ------------ ------------ ---------- 379,299 250,124 307,523 249,482 262,210 265,891 Adjustment for multi- year premium (95,900) 12,078 (95,900) 12,078 - - Reinsurance ceded - - 67,429 - 33,415 - ----------- ------------ --------------- ------------ ------------ ----------- Adjusted premiums $283,399 $262,202 $279,052 $261,560 $295,625 $265,891 =========== ============ =============== ============ ============ ===========
Net premiums written for the six months ended May 31, 1996 was affected by a quota share reinsurance policy entered into for most general liability risks written on a guaranteed cost form, with certain exclusions, effective December 1, 1995. X.L. cedes 20% of these risks with total limits up to $100 million and 25% with total limits in excess of $100 million. Of the $67.4 million of the premiums ceded under this program, $35.5 million related to the cession of the Company's unearned premiums at December 1, 1995 to provide reinsurance coverage protection on in force policies from this date. Net premiums written adjusted for the general liability quota share and multi-year premiums, would have increased 6.7%. Net earned premiums were impacted by the growth in SRA premiums less the expense of premiums ceded under the new quota share arrangement. If the general liability quota share program was excluded, net earned premiums would have increased by 11.2% The following table presents an analysis of the Company's revenues from its portfolio of investments and its investment in affiliate:
Six Months Ended May 31, 1996 1995 % Change ------- ------- -------- (unaudited) Net investment income $ 98,022 $106,967 (8.4%) Net realized gains (losses) 152,261 8,016 N/M Equity in net earnings of affiliate 30,395 20,598 47.6
Net investment income for the first six months in 1995 included unrealized currency gains of $4.2 million compared to $Nil for the comparative period in 1996, resulting in an adjusted decline of 4.6%. The decrease in investment income was caused by several factors. The U.S. bond market had remained strong for most of the first half of 1996 keeping yields low, unlike the comparable 1995 period which was weaker resulting in higher yields. The equity component of the total investment portfolio also increased to 19.8% from 15.9% as at May 31, 1995. In addition, the Company has liquidated two fixed maturity portfolio and one equity portfolio due to similarities in strategies between managers, creating an influx of cash and the realization of significant gains. From the realized proceeds, $250 million was used to capitalize XLRe. Equity in net earnings of affiliate increased principally due to the Company's equity share of realized gains of $2.0 million versus realized losses of $4.7 million. The following table sets forth the Company's combined ratios and the components thereof for the periods indicated using U.S. generally accepted accounting principles: Six Months Ended May 31, 1996 1995 ---- ---- (unaudited) Loss and loss expense ratio 79.3% 78.5% Underwriting expense ratio 14.2% 15.3% Combined ratio 93.5% 93.8% The increase in the loss and loss expense ratio reflects an increase in the rate at which incurred but not reported reserves are established on the Company's casualty lines of business, which commenced during the fourth quarter of 1995. The underwriting expense ratio decreased in the first six months of 1996 compared to the same period of 1995 due to commissions earned on the new quota share reinsurance program. Excluding this reinsurance arrangement, the underwriting expense ratio for the said 1996 period would have been 15.4%. Net income was $296.1 million or $6.26 per share and $151.4 million or $2.81 per share for the six months ended May 31, 1996 and 1995, respectively, representing an increase of 123% per share. The increase in per share amounts is largely attributable to realized investment gains of $152.3 million compared to $8.0 million and a decrease in the weighted average shares outstanding from $53.8 million to $47.3 million. Financial Condition and Liquidity --------------------------------- As a holding company, the Company's assets consist primarily of its investments in the stock of its subsidiaries and the Company's future cash flows depend on the availability of dividends or other statutorily permissible payments from its subsidiaries. In order to pay dividends, the amount of which is limited to accumulated net realized profits, the Company's principal subsidiary, X.L., must maintain certain minimum levels of statutory capital and surplus, solvency and liquidity pursuant to Bermuda statutes and regulations. At May 31, 1996, X.L. could have paid dividends in the amount of approximately $950 million. Neither the Company nor any of its subsidiaries other than X.L. had any other restrictions preventing them from paying dividends. No assurance, however, can be given that the Company or its subsidiaries will not be prevented from paying dividends in the future. The Company's shareholders' equity at May 31, 1996 was $1.9 billion, of which $1.5 billion was retained earnings. At May 31, 1996, total investments and cash net of the payable for investments purchased were $3.6 billion compared to $3.8 billion at November 30, 1995. The Company purchased a further 2.5 million of its outstanding shares during the six months ended May 31, 1996, at a cost of $174.3 million, increasing its treasury holding to 10.5 million shares. The Company has 500,000 shares remaining in its authorized share repurchase program. The Company's fixed income investments (including short-term investments and cash and cash equivalents net of the payable for investments purchased) at May 31, 1996 represented approximately 80.2% of invested assets and were managed by several outside investment management firms and the Company's investment department with different strategies. All fixed income securities are of investment grade and include U.S. and non-U.S. sovereign government obligations and corporate and other securities. Of the Company's fixed income portfolio, 76% is rated Aa or AA or better by a nationally recognized rating agency or an investment manager. Cash and cash equivalents net of the payable for investments purchased was $191.4 million at May 31, 1996, compared to $437.3 million at November 30, 1995. In connection with the Company's investment in MOCL, the Company has confirmed to MOCL that, subject to certain conditions, it will not, prior to May 1998, without the consent of the Directors of MOCL, increase its ownership of MOCL shares if, as a result, it would own more than 30% of MOCL's outstanding voting shares or more than 25% of MOCL's shares on a fully diluted basis. In connection with the previously announced authorization by the Directors of MOCL for the repurchase of up to $75 million of MOCL shares, the Company has confirmed its intention to decrease proportionately the number of shares of MOCL owned by it so as to maintain its percentage ownership of MOCL at a level no greater than at present. In fiscal 1994, 1995 and in fiscal 1996 through May 31, the total amount of losses paid by the Company was $138.7 million, $188.5 million and $201.7 million, respectively. Insurance practices and regulatory guidelines suggest that property and casualty insurance companies maintain a ratio of net premiums written to statutory capital and surplus of not greater than 3 to 1, with a lower ratio considered to be more prudent for a company that insures the types of exposures written by X.L. X.L. maintained a ratio of less than 0.9 to 1 for the year ended November 30, 1995 and 0.3 to 1 (calculated on an annualized basis) for the six months ended May 31, 1996. The decrease is reflective of a decrease in gross premiums written on X.L.'s traditional lines coupled with the premiums ceded under the general liability quota share treaty which was effective December 1, 1995. X.L. establishes reserves to provide for the estimated expenses of settling claims, the general expenses of administering the claims adjustment process and for losses incurred but not reported. X.L. calculates such reserves by using actuarial and other reserving techniques to project the estimated ultimate net liability for losses and loss expenses. No assurance can be given that actual claims made and payments related thereto will not be in excess of the amounts reserved. Inflation can have an effect on the Company in that inflationary factors can increase damage awards and potentially result in more claims exceeding applicable minimum attachment points. The Company's underwriting philosophy is to adjust premiums in response to inflation, although this may not always be possible due to competitive pressures. Inflationary factors are considered in determining the premium level on multi-year policies at the time the contracts are written. In addition, the Company from time to time evaluates whether minimum attachment points should be raised to take into account inflationary factors; as of this date, no revisions to minimum attachment points have been implemented. Outlook ------- The Company believes competitive pressures will continue throughout fiscal 1996 and constrain growth in the Company's traditional product lines. However, the Company believes specific opportunities will exist through the further growth of the Company's property product line, the release of the new employment practices liability product, XLRe and the CIGNA Risk Solutions and X.L. Risk Solutions provided through a strategic alliance between X.L. and CIGNA Property & Casualty. EXEL LIMITED PART II - OTHER INFORMATION --------------------------- ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS - -------------------------------------------------------- At the Annual General Meeting of Shareholders held on March 29, 1996 at the Hyatt Regency Hotel, Grand Cayman, British West Indies, the shareholders approved the following : 1. To elect Class II Directors to hold office until 1998 : Votes Votes For* Against* --- ------- Robert Clements 40,929,281 122,910 Michael P. Esposito,Jr 40,928,266 122,925 Cyril Rance 40,927,717 123,474 Ellen E. Thrower 40,923,247 127,944 Messrs. Gould, Heap, London, Parker, Seneter, O'Hara, Thornton and Weiser continue in office. 2. To appoint Coopers & Lybrand, Bermuda as independent Auditors for the fiscal year ending November 30, 1996; Votes* ----- For - 41,009,286 Against - 33,508 Abstaining - 8,397 3. The Company's Stock Plan for non-employee directors ; Votes* ------ For - 36,812,860 Against - 3,460,182 Abstaining - 778,149 4. Amendment to EXEL Limited Directors Stock & Option Plan ; Votes* ------ For - 34,811,065 - Against - 5,459,475 - Abstaining - 780,651. * Before giving effect to the applicable provisions in the Company's Articles of Association which limit the voting rights with respect to the shares of any person or "group" of persons beneficially owning (within the meaing of Section 13(d) (3) of the Securities Exchange Act of 1934) 10% or more of the issued Ordinary Shares of the Company to a voting power of one share less than 10% pursuant to a formula specified in the Articles of Association. According to filings made with the Securities and Exchange Commission, two separate "group" of persons may each beneficially own in excess of 10% of the issued Ordinary Shares of the Company. If the voting power of such groups were limited pursuant to the formula specified power of such groups were limited pursuant to the formula specified in the Articles of Association, the matters voted on by shareholders as set forth above would still have been approved by the required vote of the shareholders as set forth above would still have been approved by the required vote of the shareholders. EXEL LIMITED PART II - OTHER INFORMATION --------------------------- ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ (a) Exhibit 11. Statement regarding Computation of Per Share Earnings. (b) There was no reports on Form 8-K filed during the three months ended May 31, 1996. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXEL LIMITED ______________________ (Registrant) June 28, 1996 /s/ Brian M. O'Hara _______________________ Brian M. O'Hara President and Chief Executive Officer June 28, 1996 /s/ Brian G. Walford _______________________ Brian G. Walford Executive Vice President and Chief Financial Officer EX-11 2 STATEMENT REGARDING COMPUTATION PER SHARE EARNINGS Exhibit 11 EXEL LIMITED COMPUTATION OF EARNINGS PER ORDINARY SHARE AND ORDINARY SHARE EQUIVALENT (U.S. dollars in thousands except per share amounts)
Three Months Ended Six Months Ended May 31, May 31, 1996 1995 1996 1995 (Unaudited) (Unaudited) (U.S. Dollars in thousands except per share amounts) (A) Earnings per ordinary share and ordinary share equivalent -- primary: Weighted average shares outstanding............ 46,177 53,490 46,681 53,499 Average stock options outstanding (net of repurchased shares under the treasury stock method).......... 596 283 580 289 ----------- ---------- ----------- ----------- Weighted average ordinary shares and ordinary share equivalents outstanding............ 46,773 53,773 47,261 53,788 ----------- ---------- ----------- ----------- Net income: Actual net income...... $ 88,986 $ 94,531 $ 296,075 $ 151,413 Assumed earnings on excess option proceeds - - - - ----------- ---------- ----------- ----------- Adjusted net income..... $ 88,986 $ 94,531 $ 296,075 $ 151,413 =========== ========== =========== =========== Earnings per ordinary share and ordinary share equivalent....... $ 1.90 $ 1.76 $ 6.26 $ 2.81 =========== ========== =========== ===========
Three Months Ended Six Months Ended May 31, May 31, 1996 1995 1996 1995 (Unaudited) (Unaudited) (U.S. Dollars in thousands except per share amounts) (B) Earnings per ordinary share and ordinary share equivalent -- assuming full dilution: Weighted average shares outstanding............ 46,177 53,490 46,681 53,499 Average stock options outstanding (net of repurchased shares under the treasury stock method).......... 596 359 600 366 ----------- ---------- ----------- ----------- Weighted average ordinary shares and ordinary share equivalents outstanding............ 46,773 53,849 47,281 53,865 ----------- ---------- ----------- ----------- Net income: Actual net income...... $ 88,986 $ 94,531 $ 296,075 $ 151,413 Assumed earnings on excess option proceeds - - - - ----------- ---------- ----------- ----------- Adjusted net income..... $ 88,986 $ 94,531 $ 296,075 $ 151,413 =========== ========== =========== =========== Earnings per ordinary share and ordinary share equivalent....... $ 1.90 $ 1.76 $ 6.26 $ 2.81 =========== ========== =========== ===========
EX-27 3 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM *THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN IT ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS NOV-30-1996 DEC-01-1995 MAY-31-1996 2,708,177 0 0 716,648 0 0 3,428,825 200,124 0 32,671 4,528,067 1,954,581 620,708 27,358 0 0 0 0 451 1,879,716 4,528,067 262,210 98,022 152,261 30,395 207,762 17,584 19,735 297,807 1,732 296,075 0 0 0 296,075 6.26 6.26 0 0 0 0 0 0 0
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