The Company's and X.L.'s principal executive offices are at Cumberland House, Hamilton, Bermuda, XLRe's offices are in Windsor Place, Hamilton, Bermuda and X.L.E.'s offices are in La Touche House, International Financial Centre, Dublin, the Republic of Ireland. The Company continues to assess its need for office space on an ongoing basis.
- -------- (1) Net income per share is based on the weighted average number of ordinary shares and ordinary share equivalents outstanding for each period using the modified treasury stock method. (2) All share and per share information has been retroactively restated to give effect to a one for one stock dividend paid to shareholders of record on July 26, 1996. (3) The 1996 amount represents four regular quarterly dividends, one at $0.20 per share and three at $0.25 per share. The 1995 amount represents four regular quarterly dividends, three at $0.17 per share and one at $0.20 per share. The 1994 amount represents four regular quarterly dividends, three at $0.15 per share and one at $0.17 per share. The 1993 amount represents four regular quarterly dividends, three at $0.13 per share and one at $0.15 per share. The 1992 amount represents three regular dividends of $0.12 per share.
The following is a discussion of the Company's results of operations and financial condition. This discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto presented under
On November 1, 1995, XLRe was incorporated under the laws of Bermuda as a wholly-owned subsidiary of X.L. and subsequently commenced operations effective December 1, 1995.
Third party liability coverage, generally up to a maximum of $150 million per occurrence and annual aggregate in excess of a minimum attachment point of $25 million and $15 million per occurrence, for United States and non- United States risks, respectively.
X.L. and X.L.E. provide coverage for high excess property insurance currently offered up to $100 million of capacity per occurrence and $10 million annual aggregate for high frequency/severity earthquake. The minimum attachment is generally $25 million for industrial/commercial accounts and $100 million for oil/petrochemical accounts.
XLRe provides large net line capacity for specialized programs to insurance/reinsurance companies, predominately in the United States and Bermuda, and to a lesser extent, other geographic regions around the world. Each contract is underwritten utilizing actuarial models to develop expected outcomes and to determine the amount of capital necessary to support the transaction. In general the cover provided by XLRe is either on an excess of loss or quota share basis within the following guidelines :
The functional and reporting currency of the Company and its subsidiaries is U.S. Dollars. Unhedged monetary assets and liabilities in foreign currencies are translated at the exchange rate in effect at the balance sheet date with the resulting foreign exchange gains and losses recognized in income. Foreign exchange on hedged assets and liabilities and forward foreign exchange contracts hedging said assets and liabilities are deferred and included in shareholders' equity. Realized gains and losses on the maturity of these forward contracts are deferred and included in shareholders' equity until the corresponding asset is sold or liability settled. Revenue and expense transactions are translated at the average exchange rates prevailing during the year.
The Company owns 22.1% of the issued shares of RCHI. Outstanding share warrants if exercised would dilute the Company's ownership to 17.6%. RCHI commenced operations on November 6, 1995.
The Company recognizes as a component of loss reserves, the loss experience accounts of insureds for policies written under the applicable multi-year alternate rating methodology. Such experience accounts are a percentage of premiums net of related losses paid. Interest is earned on liable amounts and charged to investment income. In the event the insured cancels the policy, the return of the experience account is treated as a commutation if previously notified of a loss, or as a return premium if there has been no loss notification.
The following represents an analysis of realized and the change in unrealized gains (losses) on investments (U.S. dollars in thousands):
Losses and loss expenses incurred for prior years during 1996, 1995 and 1994 are not attributable to any single event or group of related events, but the development of losses at a higher rate than the expected loss emergence pattern.
Following is a summary of outstanding options (number of shares in thousands):
EXEL's Articles of Association restrict the voting power of any person to less than 10% of total voting power.
The Company is contingently liable with respect to reinsurance ceded to the extent that any reinsurance company fails to meet its obligation to the Company.
In 1995, four regular quarterly dividends were paid, three of $0.17 per share to shareholders of record at February 2, April 17 and July 7, and one of $0.20 per share to shareholders of record at October 12.
In 1994, four regular quarterly dividends were paid, three of $0.15 per share to shareholders of record at January 27, April 8 and July 8, and one of $0.17 per share to shareholders of record at October 13.
Bermuda presently imposes no income, withholding or capital gains taxes. As a result, X.L., X.L.I. and XLRe are exempted until March 2016 from any such taxes pursuant to the Bermuda Exempted Undertakings Tax Protection Act 1966, and Amended Act 1987.
Net unrealized foreign currency (losses) gains of nil, ($3.1) million and $4.1 million are included in net investment income for the years ended November 30, 1996, 1995 and 1994, respectively.
Under The Insurance Act, 1978, amendments thereto and related regulations of Bermuda (the "Act"), X.L. and XLRe are required to prepare statutory financial statements and to file in Bermuda a statutory financial return. The Act also requires these companies to maintain certain measures of solvency and liquidity during the year.
X.L.'s statutory capital and surplus and the minimum required by the Act were as follows (U.S. dollars in thousands):
Net income of X.L. calculated under Bermuda statutory accounting regulations was $380.5 million, $628.9 million and $183.3 million for the years ended November 30, 1996, 1995 and 1994, respectively. The principal differences between statutory capital and surplus and net income of X.L. and shareholders' equity and net income of EXEL relate to deferred acquisition costs and the accounting for the investments of X.L. in its subsidiaries.
X.L.E. is permitted to cover risks throughout the European Community (subject to certain restrictions) pursuant to the "Third Directive" relating to non-life insurance. Its head office is in the Republic of Ireland and it is subject to regulation under Irish regulatory authority. The principal legislation and regulations governing the insurance activities of Irish insurance companies are the Insurance Acts 1909 to 1990 (the "Irish Acts") and a comprehensive network of regulations and statutory provisions empowering the making of regulations of which the most relevant are the European Communities (Non-Life Insurance) Regulations, 1976, the European Communities (Non-Life Insurance Accounts) Regulations, 1995, the European Communities (Non-Life Insurance) Framework Regulations, 1994 and related administrative rules (the "Irish Regulations").
The Company received dividends from its affiliate of $13.0 and $7.4 million for the years ended November 30, 1996 and 1995, respectively.
We have audited the accompanying consolidated balance sheets of EXEL Limited as of November 30, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended November 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of EXEL Limited as of November 30, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, 1996 in conformity with accounting principles generally accepted in the United States of America.