<PAGE>
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.
<PAGE>
EXEL LIMITED
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
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
</TABLE>
Part II. OTHER INFORMATION
--------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Item 4. Submission of Matters to a Vote of Shareholders 23
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 28
</TABLE>
<PAGE>
EXEL LIMITED
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
----------- ------------
<S> <C> <C>
(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
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
----------- -------------
<S> <C> <C>
(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
=========== ============
</TABLE>
See accompanying notes to Consolidated
Financial Statements.
<PAGE>
EXEL LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
May 31, May 31,
1996 1995 1996 1995
----------- ----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
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
</TABLE>
See accompanying notes to Consolidated
Financial Statements.
<PAGE>
EXEL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
May 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
May 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
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
============= ==============
</TABLE>
See accompanying notes to Consolidated
Financial Statements.
<PAGE>
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).
<PAGE>
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):
<TABLE>
<CAPTION>
Three months Ended Six Months Ended
April 30, April 30,
Income Statement Data 1996 1995 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
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
======== ========== ======== ==========
<CAPTION>
April 30, October 31,
Balance Sheet Data 1996 1995
---------- ------------
(Unaudited)
<S> <C> <C>
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
=========== ===========
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1996 1995 % Change
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
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)
</TABLE>
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%.
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended May 31,
1996 1995
X.L. X.L.E. XLRe Total X.L. X.L.E. Total
-------- -------- -------- -------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ======= ======= ========
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Gross Net Net
----- --- ---
Premiums Written Premiums written Premiums earned
---------------- ----------------- ---------------
Three Months Ended May 31
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
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
=========== ============ ============ ========== =========== ==========
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1996 1995 % Change
------- ------- --------
(unaudited)
<S> <C> <C> <C>
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)
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Loss and loss expense ratio 78.5% 78.7%
Underwriting expense ratio 14.9% 15.5%
Combined ratio 93.4% 94.2%
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Six Months Ended
May 31,
1996 1995 % Change
---- ---- --------
(unaudited)
<S> <C> <C> <C>
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)
</TABLE>
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%.
<PAGE>
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:
<TABLE>
<CAPTION>
Six Months Ended May 31,
1996 1995
X.L. X.L.E. XLRe Total X.L. X.L.E. Total
------------ -------- ---------- --------- --------- --------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
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
============ ======== ========== ========= ========= ========= ==========
</TABLE>
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.
<PAGE>
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 :
<TABLE>
<CAPTION>
Gross Net Net
----- --- ---
Premiums Written Premiums Written Premiums Earned
---------------- ----------------- ---------------
Six Months Ended May 31
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
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
=========== ============ =============== ============ ============ ===========
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Six Months Ended
May 31,
1996 1995 % Change
------- ------- --------
(unaudited)
<S> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
* 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.
<PAGE>
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.
<PAGE>
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
<PAGE>
Exhibit 11
EXEL LIMITED
COMPUTATION OF EARNINGS PER ORDINARY SHARE AND
ORDINARY SHARE EQUIVALENT
(U.S. dollars in thousands except
per share amounts)
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
(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
=========== ========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
(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
=========== ========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAY-31-1996
<DEBT-HELD-FOR-SALE> 2,708,177
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 716,648
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,428,825
<CASH> 200,124
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 32,671
<TOTAL-ASSETS> 4,528,067
<POLICY-LOSSES> 1,954,581
<UNEARNED-PREMIUMS> 620,708
<POLICY-OTHER> 27,358
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 451
<OTHER-SE> 1,879,716
<TOTAL-LIABILITY-AND-EQUITY> 4,528,067
262,210
<INVESTMENT-INCOME> 98,022
<INVESTMENT-GAINS> 152,261
<OTHER-INCOME> 30,395
<BENEFITS> 207,762
<UNDERWRITING-AMORTIZATION> 17,584
<UNDERWRITING-OTHER> 19,735
<INCOME-PRETAX> 297,807
<INCOME-TAX> 1,732
<INCOME-CONTINUING> 296,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 296,075
<EPS-PRIMARY> 6.26
<EPS-DILUTED> 6.26
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
