Certain amounts in the financial statements for prior years have been reclassified to conform with the 1998 presentation. All share amounts have been adjusted for the one-for-one stock dividend paid to shareholders of record July 26, 1996.
Basic earnings per share is based on weighted average common shares outstanding and excludes any dilutive effects of options and convertible securities. Diluted earnings per share assumes the conversion of dilutive convertible securities and the exercise of all dilutive stock options. See Note 18 for information with respect to the computation of earnings per share.
The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information", effective for fiscal years beginning after December 15, 1997. This Statement requires that companies report certain information about their operating segments in the interim and annual financial statements, including information about the products and services from which revenues are derived, the geographic areas of operation and information regarding major customers. The Statement defines operating segments based on internal management reporting and management's decisions about assessing performance and allocating resources. The Company has adopted this Statement. See Note 3 with respect to the Company's operating segments.
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.
(1) Operating expenses exclude one time charges of $17.5 million associated with the merger with Mid Ocean Limited.
The following table is an analysis of the Company's gross premiums written, net premiums written and earned by product:
The Company owned 27.9% of the issued shares of Risk Capital Holdings, Inc., ("RCHI") as at December 31, 1998 and 1997, respectively. Outstanding share warrants if exercised would dilute the Company's ownership to 22.1% as at December 31, 1998. RCHI commenced operations on November 6, 1995. RCHI provides reinsurance and other forms of capital for insurance companies with capital needs that cannot be met by reinsurance alone.
In June 1997, XLI acquired 21% of Venton from the Trident Partnership L.P., of which XL is a 10.7% limited partner. VHL manages three syndicates at Lloyd's of London which underwrite non-marine, marine and all main classes of business, respectively. On October 23, 1998, XL sold its investment in VHL to an unrelated third party for $41.4 million cash, realizing a net gain of $14.1 million.
As of December 31, 1998 and 1997, the Company had approximately 400 and 380 open claim files, respectively, for potential asbestos exposures and 760 and 840 open claim files, respectively, for potential environmental exposures. Approximately 51% and 49% of the open claim files for 1998 and 1997, respectively, are due to precautionary claim notices. Precautionary claim notices are submitted by the ceding companies in order to preserve their right to receive coverage under the reinsurance contract. Such notices do not contain an incurred loss amount to the Company.
The Company has three letter of credit facilities available, two from a syndicate of banks and one from a U.K. bank. These facilities are used to collateralize certain reinsured's premium and unpaid loss reserves with the Company and for Lloyd's capital requirements of the Company's corporate syndicates. The letters of credit outstanding at December 31, 1998 of $348.9 million were collateralized against the Company's investment portfolio.
Derivative investments are also utilized to add value to the portfolio where market inefficiencies are believed to exist. At December 31, 1998, bond and stock index futures outstanding were $235.6 million, with underlying investments having a market value of $2.1 billion. All managers are prohibited by the Company's investment guidelines from leveraging their positions.
sometime in 2001. Upon completion of the development, it is expected that the Company's rental commitments will be reduced.
Restricted stock awards issued under the 1991 Performance Incentive Program plan vest over a five year period from the date of grant. These shares contained certain restrictions, for said period, relating to among other things, forfeiture in the event of termination of employment and transferability. As the shares are issued, deferred compensation equivalent to the difference between the issue price and the estimated fair market value on the date of the grant is charged to shareholders' equity and subsequently amortized
Bermuda presently imposes no income, withholding or capital gains taxes and XL and its Bermuda subsidiaries are exempted until March 2016 from any such future taxes pursuant to the Bermuda Exempted Undertakings Tax Protection Act 1966, and Amended Act 1987.
In July 1999, the Company signed a joint venture agreement with Les Mutuelles du Mans Assurances Group to form a new French reinsurance company, Le Mans Re. The transaction is subject to satisfaction of certain conditions, including the receipt of regulatory approvals. The Company has acquired a 49% shareholding in the new company. The transaction was completed in November 1999.