The Company rents space for its principal executive offices under leases which expire up to June 2009. Total rent expense for the years ended November 30, 1998, 1997 and 1996 were approximately $3.7 million, $2.1 million and $1.8 million, respectively. Future minimum rental commitments under existing leases are expected to be approximately $4.0 million annually. In 1997, the Company acquired commercial real estate in Bermuda for the purpose of securing long- term office space to meet its anticipated needs. The Company is in the process of developing this property and constructing its worldwide headquarters. The total cost of this development, including the land, is expected to be approximately $110.0 million, of which $23.7 million has been spent to date. It is estimated that the headquarters project will be completed early in 2001.
The Company, through XLMORe, is a leading reinsurer writing property catastrophe, property excess of loss, property pro rata, marine and energy, aviation and satellite and various other reinsurance to insurers on a worldwide basis. XLMORe maintains branch offices in London and Singapore as well as a European contact office in Munich, Germany. The London branch underwrites marine and energy and aviation risks on a worldwide basis. The Singapore branch underwrites general reinsurance, treaty and facultative business.
Intangible assets comprises of goodwill arising primarily from the purchase of Mid Ocean. The purchase price amounted to $ 2.2 billion of which $900 million represented the fair value of its net assets not already owned by the Company with the balance of $1.3 billion representing goodwill which is being amortized over 40 years. The balance of the goodwill mostly relates to the GCR acquisition. This component of goodwill is being amortized over 20 years.
In addition, the Company also enters into foreign exchange contracts to buy and sell foreign currencies in the course of trading its non-U.S. dollar investments. These contracts are not designated as specific hedges for financial reporting purposes, and generally have maturities of two weeks or less. As such, any realized or unrealized gains or losses are recorded in income in the period in which they occur. At November 30, 1998, the Company had a $2.4 million of such contracts outstanding, and had recognized a total of $0.4 million in realized and unrealized losses for the year.
Under current Cayman Islands law, XL will not be obliged to pay any taxes in the Cayman Islands on its income or gains until May 2006 pursuant to the provisions of the Tax Concessions Law, as amended.
The Company is subject to regulation in Australia, Singapore and Germany as a result of its representative offices and branches in such jurisdictions.
FASB also issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective for all fiscal quarters of fiscal years beginning after June 15, 1999. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge. The accounting for changes in fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. The Company has not yet assessed the affect of the adoption of this accounting standard on its consolidated financial statement disclosures.
On February 16, 1999 the Company announced that it had signed a definitive merger agreement with NAC Re Corporation ("NAC Re"). Under the terms of the agreement, shareholders of NAC Re will receive 0.915 Class A XL shares for each NAC Re share in a tax-free exchange of shares that will be accounted for as a pooling of interests under U.S. generally accepted accounting principles ("GAAP"). The transaction is subject to the approval of the NAC Re stockholders, expiration of the applicable waiting period under the Hart- Scott-Rodino Antitrust Improvements Act, receipt of insurance, regulatory approvals and other customary closing conditions. There can be no assurance that the transaction will be completed or that the terms of the transaction will not be modified prior to completion.
As a result of the combination, the Company assumed assets of $2.6 billion, of which invested assets were $1.8 billion, and liabilities if $1.2 billion, including loss reserves of $595 million.