The selected consolidated financial data below includes the results of NAC for all years presented and is based upon the Company's new fiscal year end of December 31. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto presented under Item 8.
XL Mid Ocean Reinsurance is organized under the laws of Bermuda. On August 7, 1998, XL Mid Ocean Re was formed through the merger of XL Global Reinsurance and Mid Ocean Re. XL Global Re was formed in November 1997 through the merger of XL Reinsurance and Global Capital Reinsurance following EXEL's acquisition of GCR Holdings Limited, a Cayman Islands holding company, on June 12, 1997. XL Reinsurance commenced operations on December 1, 1995 to write specialty reinsurance business. Mid Ocean Re and Global Capital Re were organized in 1992 and 1993, respectively, initially to write property catastrophe reinsurance following severe hurricanes which struck the southeastern United States in the late 1980's and early 1990's.
The Brockbank Group was acquired through the merger with Mid Ocean. Brockbank is a company organized under the laws of the United Kingdom and is a leading Lloyd's managing agency which provides underwriting and similar services to five Lloyd's syndicates. Two of these syndicates are dedicated corporate syndicates whose capital is provided solely by the Company and its subsidiaries. Mid Ocean acquired 51% of Brockbank in December 1995 and the remaining 49% in August 1997. The two corporate syndicates, which commenced operations on January 1, 1996, underwrite property, marine and energy, aviation, satellite, professional indemnity, U.K. motor and other specialty lines of insurance and reinsurance to a global client base. As a managing agency, Brockbank receives fees
The Company accounts for stock compensation plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, compensation expense for stock option
(1) After giving effect to the exchange of 0.915 Company shares for each NAC Share.
In 1999, the Company acquired Intercargo, which through its subsidiaries, underwrites specialty insurance products for companies engaged in international trade, including U.S. Customs bonds and marine cargo insurance.
7. LOSSES AND LOSS EXPENSES (CONTINUED) The following table represents an analysis of paid and unpaid losses and loss expenses and a reconciliation of the beginning and ending unpaid loss and loss expenses for the years indicated:
A 20% quota share reinsurance policy exists with several U.S. reinsurers covering general liability insurance risks only. The maximum amount recoverable from the reinsurers is the ceded percentage of the original policy limit on a per occurrence basis, with an annual aggregate of 300% of the total premium ceded.
Unrealized foreign exchange gains or losses on foreign exchange contracts hedging foreign currency fixed maturity investments are deferred and included in shareholders' equity. As at December 31, 1999 and 1998, unrealized losses amounted to $2.0 million and $1.3 million, respectively, and were offset by corresponding increases in the U.S. dollar value of the investments. Realized gains and losses on the maturity of these contracts are also deferred and included in shareholders' equity until the corresponding investment is sold. As at December 31, 1999 and 1998, realized losses amounted to $0.5 million and $0.7 million, respectively.
The Company also invests in a synthetic equity portfolio of S&P Index futures with an exposure approximately equal in amount to the market value of underlying assets held in this fund. As at December 31, 1999, the portfolio held $121.9 million (1998: $148.2 million) in exposure to S&P 500 Index futures and underlying assets of $122.0 million (1998: $149.6 million). The value of the futures is updated daily with the change recorded in income as a realized gain or loss. For the years ended December 31, 1999 and 1998, net realized gains from index futures totaled $11.3 million and $23.2 million, respectively.
Brockbank, NAC Re International and XL Mid Ocean Re's London branch office are subject to United Kingdom corporation taxes. Other branches of the Company are subject to relevant local taxes.
The tax charge (benefit) in each of the three years ended December 31, 1999 is comprised of amounts from the various taxable jurisdictions in which the Company operates. For all countries other than the U.S., there generally is no significant difference between the effective tax rate and the statutory rate in that jurisdiction. For U.S. operating income (loss), the effective rate differs from the statutory rate of 35% due primarily to tax-exempt investment income in all years and merger related costs in 1999.