<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 AUGUST 31, 1997
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
September 23, 1997 was 84,408,677 excluding 27,574,800 shares held in treasury.
<PAGE>
2
EXEL LIMITED
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets
August 31, 1997 (unaudited) and
November 30, 1996 3
Consolidated Statements of Income
Three Months Ended August 31, 1997
and 1996 (unaudited) and Nine Months
Ended August 31, 1997 and 1996 (unaudited) 5
Consolidated Statements of Cash Flows
Nine Months Ended August 31, 1997
and 1996 (unaudited) 6
Notes to Unaudited Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 11
Part II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
</TABLE>
<PAGE>
3
EXEL LIMITED
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
August 31, November 30,
1997 1996
------------- ------------
<S> <C> <C>
(Unaudited)
ASSETS
Investments:
Fixed maturities, at market value
(amortized cost : 1997 - $2,638,211;
1996 - $2,812,415)............................... $2,735,685 $2,844,877
Equity securities, at market value
(cost: 1997 - $721,892; 1996 - $595,149)......... 862,439 812,050
Short-term investments, at market
value (amortized cost: 1997 - $279,244;
1996 - $115,791)................................. 280,468 115,999
---------- ----------
Total Investments 3,878,592 3,772,926
Cash and cash equivalents......................... 499,131 252,734
Investment in affiliate
(cost: 1997 - $309,536; 1996 - $280,748).......... 471,694 414,891
Other investments................................. 26,776 23,803
Accrued investment income......................... 47,302 55,729
Deferred acquisition costs........................ 31,492 30,383
Prepaid reinsurance premiums...................... 78,139 63,467
Premiums receivable............................... 289,834 345,082
Reinsurance balances receivable................... 93,354 46,444
Intangible assets................................. 263,071 -
Other assets...................................... 26,305 26,079
---------- ----------
Total Assets $5,705,690 $5,031,538
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss expenses.................. $2,271,378 $2,099,096
Unearned premium................................. 623,220 679,535
Premium received in advance...................... 48,907 24,256
Loans payable.................................... 171,000 11,000
Accounts payable and accrued liabilities......... 35,201 28,171
Reinsurance premiums payable..................... 41,149 31,347
Payable for investments purchased................ 145,444 42,095
---------- ----------
Total Liabilities................................ $3,336,299 $2,915,500
---------- ----------
</TABLE>
<PAGE>
4
<TABLE>
<CAPTION>
August 31, November 30,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Contingencies
Shareholders' Equity:
Ordinary shares (par value $0.01:
authorized, 999,990,000 shares;
issued and outstanding, 84,408,677 shares
(excluding 27,574,800 shares held in
treasury) at August 31, 1997 and 87,170,644
shares (excluding 24,205,100 shares held in
treasury) at November 30, 1996................... 844 872
Contributed surplus.............................. 289,623 282,980
Net unrealized appreciation of investments....... 195,803 256,430
Deferred compensation............................ (12,166) (4,169)
Retained earnings................................ 1,895,287 1,579,925
---------- ----------
Total shareholders' equity................... $2,369,391 $2,116,038
---------- ----------
Total liabilities and
shareholders' equity......................... $5,705,690 $5,031,538
========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE>
5
EXEL LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
August 31, August 31,
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net premiums earned................... $138,034 $124,537 $387,688 $386,747
Net investment income................. 56,109 50,310 161,826 148,332
Net realized gains (losses) on sale
of investments...................... 116,400 (4,603) 275,326 147,658
Equity in net earnings of affiliate.. 16,219 13,081 45,113 43,476
------------------------------------------
Total revenues 326,762 183,325 869,953 726,213
------------------------------------------
Expenses:
Losses and loss expenses............... 85,022 97,905 261,299 305,667
Acquisition costs...................... 13,508 9,053 34,207 26,637
Administration expenses................ 13,706 11,429 36,998 31,164
Interest expense....................... 4,414 -- 4,784 --
Amortization of intangible assets...... 2,674 -- 2,674 --
------------------------------------------
Total expenses 119,324 118,387 339,962 363,468
------------------------------------------
Income before income tax expense........ 207,438 64,938 529,991 362,745
Income tax expense...................... 878 393 3,733 2,125
------------------------------------------
Net income.............................. $206,560 $ 64,545 $526,258 $360,620
==========================================
Weighted average number of
ordinary shares and
ordinary share equivalents
outstanding............................ 85,680 89,842 86,473 92,935
Net income per ordinary
share and ordinary share
equivalent............................. $ 2.41 $ 0.72 $ 6.09 $ 3.88
Dividends declared per share............ $ 0.32 $ 0.25 $ 0.94 $ 0.70
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE>
6
EXEL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income........................................... $ 526,258 $ 360,620
Adjustments to reconcile net income
to net cash provided by operating activities:
Net realized gains on sale of investments............ (275,326) (147,658)
Amortization of (discounts) premium on fixed
maturities.......................................... (830) 5,571
Amortization of deferred compensation................ 2,392 1,097
Equity in earnings of affiliate net of
dividends received and consolidation
adjustments......................................... (24,691) (33,702)
Amortization of intangible assets.................... 2,674 -
Unpaid losses and loss expenses...................... 137,689 65,080
Unearned premiums.................................... (122,275) 128,137
Premiums received in advance......................... 24,651 21,152
Deferred acquisition costs........................... 8,072 7,873
Prepaid reinsurance premiums......................... (14,672) (54,726)
Premiums receivable.................................. 118,925 (110,737)
Reinsurance balances receivable...................... (46,910) (42,440)
Reinsurance premium payable.......................... 9,802 29,239
Accrued investment income............................ 12,003 (762)
Accounts payable and accrued liabilities............. (9,264) 6,976
------------- --------------
Total adjustments................................... (177,760) (124,900)
------------- --------------
Net cash provided by operating activities 348,498 235,720
------------- --------------
Cash flows provided by (used in)
investing activities:
Proceeds from sale of fixed maturities
and short-term investments.......................... 7,961,487 3,541,887
Proceeds from redemption of fixed
maturities and short-term investments............... 79,220 98,000
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Proceeds from sale of equity securities........... 967,410 468,860
Purchases of fixed maturities and
short-term investments........................... (7,543,708) (4,089,078)
Purchases of equity securities.................... (836,513) (291,446)
Deferred gains on forward hedge
contracts........................................ 2,067 1,230
Investment in affiliates.......................... (18,397) (1,620)
Purchase of GCR Holdings Limited.................. (656,282) -
Other Investments................................. 622 (12,036)
Other assets...................................... (3,337) (6,207)
----------- -----------
Net cash used in investing activities............. (47,431) (290,410)
----------- -----------
Cash flow (used in) provided by financing
activities:
Dividends paid.................................... (81,587) (64,333)
Issuance of shares................................ 355 126
Proceeds from exercise of options................. 5,793 5,216
Repurchase of treasury shares..................... (139,231) (271,262)
Proceeds from issuance of short-term debt......... 460,000 -
Payment on short-term debt........................ (300,000) -
----------- -----------
Net cash used in financing activities.............. (54,670) (330,253)
----------- -----------
Increase (decrease) in cash and cash
equivalents....................................... 246,397 (384,943)
----------- -----------
Cash and cash equivalents - beginning
of period......................................... $ 252,734 $ 673,433
----------- -----------
Cash and cash equivalents - end
of period......................................... 499,131 288,490
=========== ===========
Taxes paid........................................ $ 2,589 $ 1,571
=========== ===========
See accompanying notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
8
EXEL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of EXEL
Limited (together with its subsidiaries, "the Company") have been prepared in
accordance with U.S. 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 U.S. 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, 1996 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, 1996,
and footnotes thereto, included in the Company's Annual Report on Form 10-K
(No. 1-10804).
All share amounts have been adjusted for the July 1996 one-for-one stock
dividend paid on the company's ordinary shares.
<PAGE>
9
2. INVESTMENT IN AFFILIATE
Summarized condensed financial information of Mid Ocean Limited (MOCL), a 25.6%
owned affiliate, which is accounted for by the equity method, is as follows
(U.S. dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
Income Statement Data 1997 1996 1997 1996
-------- ---------- -------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Net premiums earned $128,047 $ 114,102 $366,895 $ 318,481
Net investment income 27,024 21,052 76,200 60,009
Net realized gains (losses)
on sale of investments 5,124 (8,396) 4,395 (1,200)
Net income 65,512 $ 46,217 180,430 $ 155,004
==============================================
Company's share of net income $ 16,768 $ 13,081 $ 46,168 $ 43,476
==============================================
</TABLE>
<TABLE>
<CAPTION>
July 31, October 31,
Balance Sheet Data 1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash, investments and accrued
interest $1,744,952 $1,539,259
Other assets 590,246 483,440
---------- ----------
Total assets $2,335,198 $2,022,699
========== ==========
Reserves for losses and
loss expenses $ 489,456 $ 422,251
Reserves for unearned premiums 393,733 287,494
Other liabilities and minority
interest 168,088 195,755
Shareholders' equity 1,283,921 1,117,199
---------- ----------
Total liabilities
and shareholders' equity $2,335,198 $2,022,699
========== ==========
Company's share of
shareholders' equity $ 328,620 $ 314,256
========== ==========
</TABLE>
The Company received dividends from its affiliate of $7.3 million, and $4.0
million during the quarters ended August 31,1997 and 1996 and $21.8 million and
$9.0 million for each of the nine month periods then ended.
<PAGE>
10
3. ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings per Share", effective for fiscal years ending after December 15, 1997.
Earlier application is not permitted. This statement simplifies the standards in
APB-15 for computing earnings per share by replacing primary earnings per share
and by altering the calculation of diluted earnings per share, which replaces
fully diluted earnings per share.
FASB issued SFAS No. 129, "Disclosure of Information about Capital
Structure", effective for fiscal years ending after December 15, 1997. This
statement consolidates existing disclosure requirements and eliminates the
exemption for non public entities from certain disclosure.
FASB issued SFAS No. 130, "Reporting Comprehensive Income", effective for
fiscal years ending after December 15, 1997. This statement requires that
changes in shareholders' funds not relating to net income be fully analyzed. The
Company already complies with these requirements.
FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", effective for fiscal years ending after December 15, 1997.
This statement requires the disclosure of financial and descriptive information
about reportable operating segments. This requirement will expand the Company's
level of disclosure.
Apart from SFAS No. 131, these new standards are expected to have a
minimal impact on the Company.
4. LOANS PAYABLE
The Company's $200 million revolving line of credit with Mellon Bank was
replaced on June 11, 1997, by two revolving lines of credit, each for $250
million, one for 364 days, the other for 5 years. These facilities are provided
by a syndicate of banks led by Mellon Bank and carry facility fees of 0.05% and
0.065% respectively.
As at August 31, 1997 the outstanding balance was $170 million and is
repayable within the next twelve months. The weighted average interest rate on
borrowings to date was 6.178%.
<PAGE>
11
EXEL LIMITED
------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
Results of Operations for the Three Months Ended August 31,1997
---------------------------------------------------------------
Compared to the Three Months Ended August 31, 1996
--------------------------------------------------
The following table presents a summary analysis of the Company's
underwriting revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1997 1996 % Change
---- ---- --------
Table I (unaudited)
- -------
<S> <C> <C> <C>
Gross premiums written $134,460 189,488 (29.0%)
Net premiums written 109,423 152,635 (28.3%)
Net premiums earned 138,034 124,537 10.8%
</TABLE>
The decrease in gross premiums written in the third quarters of 1997 and
1996 was impacted by specialty reinsurance assumed ("SRA") contracts written in
the third quarter of 1996 and 1995, being rewritten, resulting in the return of
$23.4 million and $59.3 million in premium of which $19.5 million and $48.5
million was unearned, respectively. Further discussion is provided on this
matter following Table II.
Gross premiums written were also affected by the level of multi-year
policies written or as in the above case, cancelled in any given year. If gross
premiums were adjusted for this multi-year effect, in addition to the above
mentioned SRA items, gross premiums written would have been $178.6 million and
$175.0 million respectively.
A discussion of the decrease in net premiums written and net premiums
earned can be found following Table III.
<PAGE>
12
Table II presented below, reflects the split of gross premiums written by
X.L. Insurance Company, Ltd. (X.L.), X.L. Europe Insurance (X.L.E.) and X.L.
Global Reinsurance Company, Ltd. (XLGRe - the merged operations of X.L.
Reinsurance Company, Limited and Global Capital Reinsurance Limited) by line of
business and after multi-year adjustments.
Table II
- --------
<TABLE>
<CAPTION>
Three Months Ended August 31,
1997 1996
X.L. X.L.E. XLGRe Total X.L. X.L.E. XLGRe Total
-----------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
General
liability $ 60,121 $ 7,172 $ - $ 67,293 $102,425 $10,879 - $113,304
Directors
and officers
liability 5,142 110 - 5,252 6,128 219 - 6,347
Professional
liability 17,175 3,120 - 20,295 20,874 1,766 - 22,640
Employment
practices
liability 5,717 - - 5,717 1,534 - - 1,534
Property 8,298 1,179 - 9,477 12,854 718 - 13,572
X.L. Risk
solutions 8,347 - - 8,347 2,472 - - 2,472
Reinsurance
assumed
21,687 474 41,600 63,761 3,115 2,157 7,435 12,707
-----------------------------------------------------------------------------------
Annualized
premiums 126,487 12,055 41,600 180,142 149,402 15,739 7,435 172,576
Multi-year
premiums (15,892) (1,450) (28,340) (45,682) 2,774 3,630 10,508 16,912
-----------------------------------------------------------------------------------
Gross premiums
written
$110,595 $10,605 $ 13,260 $134,460 $152,176 $19,369 $17,943 $189,488
===================================================================================
</TABLE>
The increase in gross written premiums on an annual basis is largely due
to reinsurance assumed. This growth is reflective of the increase in treaty
reinsurance and other specialty covers assumed by XLGRe. This growth has been
offset by decreases in all other product lines with the exception of X.L. Risk
Solutions and employment practices liability (EPL).
<PAGE>
13
As disclosed in previous filings, some SRA policies can have significant
premiums due to the nature of the risks and the multi-year coverage. These
policies are loss sensitive, providing large penalty premiums in the event of
losses, and the return of significant levels of premiums where little or no
losses are incurred by the end of the policy term. As mentioned earlier, return
premiums of $23.4 million and $59.3 million were recorded in the 1997 and 1996
quarters, of which $3.9 million and $10.8 million had been earned, respectively.
The net expense in the respective quarters was offset by the release of the same
amount accrued in experience reserves. Because of the now apparent intent of
these reinsureds to cancel and rewrite their contracts after one year when they
are loss free, only the first year of the go forward contracts net of experience
contributions have been recorded, resulting in gross premiums written of $5.4
million and $3.4 million, respectively.
SRA premiums assumed by X.L.E. relate in part to reinsurance protection to
a Bermuda insurer which provides certificates of responsibility to ship owners
for compliance with the U.S. Oil Pollution Act of 1990. Premiums from this
program have decreased largely due to a restructuring of the facility to an
excess of loss basis from a quota share basis.
X.L. Risk Solutions was introduced late in the second quarter of 1996. X.L.
Risk Solutions is a coordinated initiative with CIGNA Risk Solutions, between a
subsidiary of the Company and CIGNA Property and Casualty ("CIGNA"). It provides
combined limits of capacity for two or more of the Company's stand alone product
lines over three or more years.
EPL was also a new product line introduced in 1996. Accordingly, both lines
reflect the immaturity of their introduction.
Decreases in the other product lines reflect the impact of competitive
pressures from the U.S. domestic market and Lloyds of London resulting in a
combined retention rate for these lines of 74%. Average attachments on premiums
written for the casualty product lines increased from $63.7 million to $89.5
million and limits decreased marginally from $71.0 million to $69.9 million for
the quarters ended August 31, 1996 and 1997, respectively.
<PAGE>
14
Table III presents certain underwriting information with respect to the
business written by the Company for the periods indicated (U.S. dollars in
thousands):
<TABLE>
<CAPTION>
Gross Net Net
----- --- ---
Table III Premiums Written Premiums written Premiums earned
- --------- ---------------- ---------------- ---------------
Three Months Ended August 31
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
General liability $ 68,965 $134,051 $ 52,261 $108,944 $ 58,031 $ 86,768
Directors and officers
liability 6,353 7,180 6,353 7,180 5,201 5,754
Professional liability 16,898 24,100 16,898 24,100 13,644 14,483
Employment practices
liability 5,717 1,534 3,582 931 1,518 121
Property 12,055 21,420 8,816 16,039 5,717 5,321
Risk solutions 8,982 16,058 6,633 10,296 2,822 61
Reinsurance assumed 15,490 (14,855) 14,880 (14,855) 51,101 12,029
----------------------------------------------------------------------
134,460 189,488 109,423 152,635 138,034 124,537
Multi year premiums 45,682 (16,912) 46,948 (6,669) - -
Annual adjustments for
SRA contracts (1,525) 2,425 (1,525) 2,425 2,168 3,019
----------------------------------------------------------------------
Adjusted premiums $178,617 $175,001 $154,846 $148,391 $140,202 $127,556
======================================================================
</TABLE>
The increase in net premiums written after these adjustments reflects the
shrinkage of the general liability product line, as evidenced by the annual
premiums in Table II. As the premiums ceded under said line decrease, and the
reinsurance premiums assumed increases, which is not retroceded, net premiums
written will increase.
Net premiums written in the third quarter were affected by the SRA
anomalies and multi-year adjustments.
The increase in net earned premiums is reflective of the reasons impacting
both gross and net premiums written as discussed previously.
<PAGE>
15
Table IV presents an analysis of the Company's revenues from its portfolio
of investments and its investment in affiliates (U.S. dollars in thousands):
<TABLE>
<CAPTION>
Table IV Three Months Ended
-------- August 31,
1997 1996 % Change
---- ---- --------
(unaudited)
<S> <C> <C> <C>
Net investment income $ 56,109 $50,310 11.5%
Net realized gains (losses) 116,400 (4,603) N/M
Equity in net earnings
of affiliate 16,219 13,081 24.0%
</TABLE>
Net investment income has increased principally due to a larger asset base
over the same quarter last year.
The increase in realized gains resulted from the equity managers capturing
gains as the stock market surged to record levels during the quarter.
Equity in net earnings of affiliates increased due to Mid Ocean Limited
reporting a 41.8% increase in net income in their third quarter of 1997 compared
to the same period in 1996. The Company's relative share however, was lower due
to its ownership declining from 28.2% to 25.6%
<PAGE>
16
Table V sets forth the Company's combined ratios and the components thereof
for the periods indicated using U.S. generally accepted accounting principles
(U.S. dollars in thousands):
<TABLE>
<CAPTION>
Table V
-------
Three Months Ended
August 31,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Loss and loss expense ratio 61.6% 78.6%
Underwriting expense ratio 19.7% 16.4%
Combined ratio 81.3% 95.0%
</TABLE>
The decrease in the loss ratio is largely a result of the nature of the
reinsurance assumed business, of which a significant component has been short
tail. While this business is currently lowering the loss ratio, any losses
incurred relative to same could have a negative effect on the Company's
operating results due to the absence of reserves in respect thereof.
During the fourth quarter of 1996, X.L. acquired the assets of the American
Excess Insurance Association ("AEIA"). X.L. is subject to a fee based upon the
level of the AEIA book that binds with X.L. This fee will be expensed over five
years. After adjusting for the aforementioned item, the expense ratio would have
been 18.7%. In addition acquisition costs are 1.5% higher reflecting the
competitive pressures of the market and the nature of the treaty reinsurance
business.
Net income was $206.6 million or $2.41 per share and $64.5 million or $0.72
per share for the quarters ended August 31, 1997 and 1996, respectively,
representing an increase of 234.7% per share. The increase in per share amounts
is primarily due to realized investment gains of $116.4 million compared to
losses of $4.6 million for the respective quarters.
<PAGE>
17
Results of Operations for the Nine Months Ended August 31, 1997
---------------------------------------------------------------
Compared to the Nine Months Ended August 31, 1996
-------------------------------------------------
The following table presents a summary analysis of the Company's
underwriting revenues for the periods indicated (US dollar in thousands):
<TABLE>
<CAPTION>
Table I Nine Months Ended
------- August 31,
1997 1996 % Change
---- ---- --------
(unaudited)
<S> <C> <C> <C>
Gross premiums written $320,076 $568,787 (43.7%)
Net premiums written 250,742 460,158 (45.5%)
Net premiums earned 387,688 386,747 0.2%
</TABLE>
The decrease in gross premiums written in the first nine months of 1997 and
1996 was impacted by several SRA contracts written in the first nine months of
1996 and 1995 being rewritten, resulting in the return of $112.4 million and
$59.3 million in premium, respectively. Of these amounts $94.1 million and $48.5
million were unearned. In addition, in the first quarter of 1996, another SRA
contract was written retroactively from June 1, 1995 resulting in a premium of
$22.5 million over three years.
Gross premiums written are also affected by the level of multi-year
policies written or as in the above case, cancelled in any given year. If gross
premiums were adjusted for this multi-year effect and the above mentioned SRA
items were also excluded, gross premiums written would have been $432.9 million
and $431.2 million, respectively.
A discussion of the decrease in net premiums written and net premiums
earned can be found following Table III.
<PAGE>
18
The following table presents the split of gross premiums written by X.L.,
X.L.E and XLGRe by line of business, for the periods indicated, adjusted for the
effects of multi-year premiums (US dollars in thousands):
Table II
- --------
<TABLE>
<CAPTION>
Nine Months Ended August 31,
1997 1996
---- ----
X.L. X.L.E. XLGRe Total X.L. X.L.E. XLGRe Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Unaudited)
General
liability $175,104 $33,573 - $ 208,677 $238,667 $44,059 - $282,726
Directors
and officers
liability 12,124 1,420 - 13,544 16,009 1,742 - 17,751
Professional
liability 29,262 6,578 - 35,840 32,032 5,175 - 37,207
Employment
practices
liability 10,446 - - 10,446 1,534 - - 1,534
Property 18,342 2,957 - 21,299 19,862 680 - 20,542
X.L. Risk
solutions 14,923 - - 14,923 4,372 - - 4,372
Reinsurance
assumed 30,655 6,272 84,422 121,349 13,265 14,603 63,975 91,843
-----------------------------------------------------------------------------------------
Annualized
premiums 290,856 50,800 84,422 426,078 325,741 66,259 63,975 455,975
Multi-year
premiums (690) (3,833) (101,479) (106,002) (11,564) 13,410 110,966 112,812
-----------------------------------------------------------------------------------------
Gross premiums
written $290,166 $46,967 $ (17,057) 320,076 $314,177 $79,669 $174,941 $568,787
=========================================================================================
</TABLE>
The decrease in gross written premiums on an annual basis is due to the
continuing competitive pressures felt by the Company's property and traditional
casualty product lines.
As mentioned earlier during the first nine months of 1997 and 1996 several
SRA contracts were rewritten resulting in the return of $112.4 million and $59.3
million in premium of which $18.3 million and $10.8 million had been earned,
respectively. The net expense of the $18.3 million and $10.8 million was offset
by the release of the same amount accrued in experience reserves. For reasons
previously discussed, only the first year of the go forward contract net of
experience contributions has been recorded, resulting in gross premiums written
of $11.5 million and $3.4 million, respectively.
<PAGE>
19
During the first quarter of 1996 X.L. wrote an SRA policy retroactively
from June 1, 1995 resulting in an adjusted premium of $15.3 million and a future
year premium of $7.3 million. The corresponding annual premium in the first nine
months of 1997 was $7.3 million.
Reinsurance premiums assumed by X.L.E. relate in part to reinsurance
protection to a Bermuda insurer which provides certificates of responsibility to
ship owners for compliance with the U.S. Oil Pollution Act of 1990. Premiums
from this program have decreased largely due to a restructuring of the facility
to an excess of loss basis from a quota share basis.
Reinsurance premium assumed represents the most significant area of growth
for the Company. This is reflective of the increase in treaty reinsurance and
other specialty covers assumed by XLGRe.
Employment practices liability represents the only other area of growth in
the first nine months.
The decline in the other product lines reflects the impact of competitive
pressures from the U.S. domestic market and Lloyds of London resulting in a
combined retention rate for these lines of 80.9%. Average attachments on
premiums written for the casualty product lines increased from $77.1 million to
$98.1 million and limits increased from $65.8 million to $71.2 million for the
nine months ended August 31, 1996 and 1997 respectively.
<PAGE>
20
Table III presents certain underwriting information with respect to the
business written by the Company for the periods indicated (US dollars in
thousands):
<TABLE>
<CAPTION>
Gross Net Net
----- --- ---
Table III Premiums Written Premiums Written Premiums Earned
- --------- ---------------- ---------------- ---------------
Nine Months Ended August 31
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
General liability $204,962 $ 320,890 $151,086 $228,354 $204,658 $249,973
Directors and officers
liability 15,201 19,424 15,201 19,424 16,154 18,286
Professional liability 35,994 39,427 35,994 39,427 39,086 41,672
Employment practices
liability 10,446 1,534 6,501 931 3,519 121
Property 31,133 32,515 24,064 24,362 16,060 15,302
Risk solutions 22,401 21,758 18,567 14,421 6,926 178
Reinsurance assumed (61) 133,239 (671) 133,239 101,285 61,215
--------------------------------------------------------------------
320,076 568,787 250,742 460,158 387,688 386,747
Multi-year premium 106,002 (112,812) 124,216 (98,083) - -
Annual adjustments for
SRA contracts 6,852 (24,772) 6,852 (24,772) 7,361 (14,146)
Reinsurance general
liability quota share
of unearned premium - - - 35,544 - -
--------------------------------------------------------------------
Adjusted premiums $432,930 $ 431,203 $381,810 $372,847 $395,049 $372,601
====================================================================
</TABLE>
Net premiums written were affected by the SRA anomalies and multi-year
adjustments. In addition, the first nine months of 1996 reflects the cession of
part of the general liability unearned premium reserve of $35.5 million on
December 1, 1995, the commencement of the general liability quota share treaty.
The increase in net premiums written after these adjustments, relative to the
comparatively flat growth of gross premiums written, reflects the decrease of
the general liability premiums, and accordingly the premiums ceded.
Net earned premiums were also impacted by the SRA volatility. As disclosed
above, if these SRA premiums had been excluded, net earned premiums would have
been $395.0 million and $372.6 million for 1997 and 1996, respectively.
<PAGE>
21
Table IV presents an analysis of the Company's revenues from its portfolio
of investments and its investment in affiliates (U.S. dollars in thousands):
<TABLE>
<CAPTION>
Table IV
-------- Nine Months Ended
August 31,
1997 1996 % Change
---- ---- ---------
(unaudited)
<S> <C> <C> <C>
Net investment income $161,826 $148,332 9.1%
Net realized gains 275,326 147,658 N/M
Equity in net earnings
of affiliate 45,113 43,476 3.8%
</TABLE>
Net investment income has increased principally due to a larger asset base
over the same period last year.
The significant gains realized in 1996 were the result of the liquidation
of two fixed maturity portfolios and one equity portfolio due to similarities in
strategies between managers. During the first nine months of 1997, the fixed
maturity and equity portfolios were extensively restructured, realizing
significant gains. Additional gains were also "locked in" by the equity managers
as the stock market reached all time highs. Total gains realized by the equity
managers during the nine month period ended August 31, 1997 was $261.7 million
of which $38.5 million were gains realized by a synthetic equity portfolio. A
further discussion of these derivatives is included under "Financial Condition
and Liquidity" section of the Management Discussion and Analysis.
The increase in equity earnings in affiliates reflects the high earnings of
Mid Ocean Limited ("MOCL") offset by a decrease in the Company's ownership from
approximately 28.0% in 1996 to 25.6% at the end of the first nine months of
1997, due to the exercise of options by MOCL's founding shareholders.
<PAGE>
22
Table V sets forth the Company's combined ratios and the components thereof
for the periods indicated using U.S. generally accepted accounting principles
(U.S. dollars in thousands):
<TABLE>
<CAPTION>
Table V
- -------
Nine Months Ended
August 31,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Loss and loss expense ratio 67.4% 79.0%
Underwriting expense ratio 18.4% 15.0%
Combined ratio 85.8% 94.0%
</TABLE>
The decrease in the loss and loss expense ratio reflects the shift in
business written from the longer tailed casualty book of business to the short
tailed business assumed through the SRA contracts and the treaty business. The
reserving methodology on the SRA business is applied on a contract by contract
basis. A significant component of this business has been short tail, and due to
the level of attachments involved, no incurred but not reported reserve has been
accrued on several contracts. While these contracts are currently lowering the
loss ratio, any losses incurred on these contracts could have a negative effect
on the Company's operating results due to the absence of reserves in respect
thereof. Similarly, losses on treaty reinsurance assumed can cause swings in
this ratio as the shortness of the tail dictates relatively quickly the adequacy
or redundancy of reserves.
During the fourth quarter of 1996, X.L. acquired the assets of the AEIA.
X.L. is subject to a fee based upon the level of the AEIA book that binds with
X.L. This fee will be expensed over five years. After adjusting for the
aforementioned items, the expense ratio would have been 17.3%. The expense ratio
was also affected by higher acquisition costs of 0.8% for the comparative
period, reflecting the competitive pressures of the market and the nature of the
treaty reinsurance business.
Net income was $526.3 million or $6.09 per share and $360.6 million or
$3.88 per share for the nine months ended August 31, 1997 and 1996,
respectively, representing an increase of 57.0% per share. The increase in per
share amounts is primarily due to realized investment gains of $275.3 million
compared to $147.7 million and a reduction in the weighted average shares
outstanding from 92.9 million to 86.5 million.
<PAGE>
23
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
are limited to accumulated net realized profits, the Company's subsidiaries,
X.L. and XLGRe, must maintain certain minimum levels of statutory capital and
surplus, solvency and liquidity pursuant to Bermuda statutes and regulations. At
August 31, 1997, X.L., the principal subsidiary, could have paid dividends in
the amount of approximately $1.5 billion. Neither the Company nor any of its
subsidiaries other than X.L. and XLGRe 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 August 31, 1997 was $2.4 billion, of which
$1.9 billion was retained earnings.
At August 31, 1997, total investments and cash net of the unsettled
investments trades were $4.2 billion, compared to $4.0 billion at November 30,
1996. The Company's fixed income investments (including short-term investments
and cash equivalents) at August 31, 1997 represented approximately 80% of
invested assets and were managed by several outside investment management firms
with different strategies. Substantially all fixed income securities are of
investment grade, and approximately 61.5% of the portfolio is in U.S. and non-
U.S. sovereign government obligations, corporate bonds and other securities
rated Aa or AA or better by a nationally recognized rating agency. Cash and cash
equivalents net of pending investment trades was $353.7 million at August 31,
1997, compared to $210.6 million at November 30, 1996.
In fiscal 1996 and in fiscal 1997 through August 31, the total amount of
losses paid by the Company was $302.6 million and $165.2 million, respectively.
<PAGE>
24
Financial Condition and Liquidity (Continued)
---------------------------------
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 0.4 to 1 (calculated on an annualized
basis) for the nine months ended August 31, 1997 and for the year ended November
30, 1996.
The Company 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. These reserves are calculated
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.
The Company commenced its initial share buy back program in September 1993
as authorized by the Board of Directors and obtained approval for subsequent
programs as each program was completed. As at August 31, 1997 the Company had
repurchased 27.6 million shares in total. During the nine months then ended, the
Company purchased 3.4 million shares at a cost of $139.1 million, which was
funded from operations. The Company has 2.4 million shares remaining in its
authorized buy back program.
During the nine month period ended August 31, 1997 there were several draw
downs from the Company's revolving line of credit facility with Mellon Bank. The
first $30 million was drawn on April 14, 1997, repayable on October 14, 1997 and
another $30 million was drawn on May 5, 1997 repayable June 5, 1997. Each of
these amounts were rolled into a $460 million loan on June 12, 1997 which
facilitated the purchase of GCR Holdings Limited ("GCR") for which $656.3
million was paid during the period. The amount of $300 million was repaid on
July 11, 1997 through the liquidation of the GCR investment portfolio. Two
principal amounts of $40 million and one of $80 million are repayable September
12 and December 12, 1997 and July 12, 1998, respectively. The weighted average
interest rate on these borrowings was 6.178%.
<PAGE>
25
Derivative Financial Instruments
- --------------------------------
Foreign Currency Risk Management
--------------------------------
As part of its current investment strategy, the Company invests in non-U.S.
Dollar denominated fixed maturities and equities. The Company hedges the
majority of the foreign currency exposure of its non-U.S. Dollar fixed maturity
investments using forward foreign exchange contracts that generally have
maturities of three months or less, and which are rolled over to provide
continuing coverage for as long as the investments are held. When an investment
is sold, the related foreign exchange sale contract is closed by entering into
an offsetting purchase. At August 31, 1997 the Company had, as hedges, foreign
exchange contracts for the sale of $159.9 million and the purchase of $56.6
million of foreign currency at fixed rates, primarily Deustche Mark (26.63% of
net contract value), Finnish Markka (26.23%), Swedish Kroner (21.12%) and
Japanese Yen (18.12%). No other currency was greater than 10%. The market value
of non-U.S. Dollar fixed maturities held by the Company as at August 31, 1997
that were hedged by foreign exchange contracts was $112.3 million.
Unrealized foreign exchange gains or losses on foreign exchange contracts
hedging non-U.S. Dollar fixed maturity investments are deferred and included in
shareholders' equity. As at August 31, 1997, unrealized deferred gains amounted
to $1.9 million, and were offset by corresponding decreases in the 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 August 31, 1997, realized deferred gains amounted to
$5.3 million.
The Company uses foreign exchange contracts to manage the foreign exchange
risk of fluctuating foreign currencies on the value of its non-U.S. Dollar
equity investments. These contracts are not designated as specific hedges and,
therefore realized and unrealized gains and losses recognized on them are
recorded as a component of net realized gains and losses in the period in which
they occur. At August 31, 1997, the Company had such forward contracts
outstanding of $586.3 million, with unrealized gains of $11.3 million. Gains of
$22.6 million were realized during the nine month period then ended. Based on
the outstanding contracts' value, a 5% appreciation or devaluation of the U.S.
Dollar as compared to the level of other currencies under contract at August 31,
1997 would have resulted in approximately $2.6 million in unrealized gains or
$24.9 million in unrealized losses, respectively.
<PAGE>
26
Derivative Financial Instruments
- --------------------------------
Foreign Currency Risk Management (Continued)
--------------------------------
The Company also manages exchange risk for a portion of its non-U.S. Dollar
fixed maturity portfolio in a manner similar to that of its non-U.S. Dollar
equity portfolio. The Company had outstanding forward contracts for sale of
$450.3 million and for purchase of $328.2 million of foreign currencies at fixed
rates. A 5% appreciation or devaluation of the U.S. Dollar as compared to the
other currencies under contract at August 31, 1997 would have resulted in
unrealized gains of approximately $10.6 million and $624,000, respectively. The
market value of the non-U.S. Dollar fixed maturities held was $324.5 million.
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, 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 August 31, 1997, the Company had $2.6 million of such contracts
outstanding, and had realized losses of $1.2 million in the nine month period.
Based on this value, a 5% appreciation or devaluation of the U.S. Dollar as
compared to the level of other currencies under contract at August 31, 1997
would have had no material effect on income.
Speculative Financial Instruments
---------------------------------
In accordance with its current investment guidelines, the Company may
invest up to 30% of its investment portfolio in equity securities. During 1996
these guidelines were amended so that this exposure could be obtained by direct
holdings of publicly traded equities and by investing in a synthetic portfolio.
In this synthetic equity portfolio, S&P 500 Index futures are held with an
exposure approximately equal in amount to the market value of underlying assets
held in this portfolio. As at August 31, 1997, the portfolio held $201.4 million
in exposure to S&P 500 Index futures together with fixed maturities, short-term
investments and cash amounting to $206.8 million. Based on this value, a 5%
increase or decrease in the price of these futures would have resulted in
positions of $211.5 million and $191.3 million, respectively. The value of the
futures is updated daily with the change recorded in income as a realized gain
or loss. For the nine months ended August 31, 1997, net realized gains from
index futures totalled $38.4 million.
<PAGE>
27
Speculative Financial Instruments (Continued)
---------------------------------
Another investment manager utilizes both stock and bond futures in the
global market to take advantage of market inefficiencies between countries and
types of securities. All futures are collateralized by cash and cash
equivalents. The total stock and bond futures' exposure at August 31, 1997 for
this manager was $57.8 million with underlying investments having a value of
$56.3 million. A 5% appreciation or devaluation of these futures would have
resulted in unrealized gains of approximately $2.9 million and unrealized losses
of $2.9 million.
One of the Company's investment managers applies a global asset allocation
strategy, investing in both equity and fixed income securities as well as
tactical currency positioning. This manager had outstanding foreign exchange
contracts for sale of $20.8 million and for purchase of $21.3 million. A 5%
appreciation or devaluation of the U.S. dollar would have resulted in unrealized
losses of approximately $166,000 and $119,000, respectively.
With the introduction of the new fixed maturity and equity managers earlier
in 1997, certain managers may utilize derivative instruments to add value to the
investments they manage where they believe market inefficiencies exist. At
August 31, 1997 bond and stock index futures outstanding were $378.6 million
with underlying investments having a market value of $2.0 billion (All managers
are restricted from leveraging their derivative positions). A 5% appreciation or
devaluation of these derivative instruments at this time would have resulted in
unrealized gains of approximately $18.9 million and unrealized losses of $18.9
million.
Accounting Standards
- --------------------
The Financial Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings per Share", effective for fiscal years ending after December 15, 1997.
Earlier application is not permitted. This statement simplifies the standards in
APB-15 for computing earnings per share by replacing primary earnings per share
and by altering the calculation of diluted earnings per share, which replaces
fully diluted earnings per share.
<PAGE>
28
Accounting Standards (Continued)
- --------------------
FASB also issued SFAS No. 129, "Disclosure of Information about Capital
Structure", effective for fiscal years ending after December 15, 1997. This
statement consolidates existing disclosure requirements and eliminates the
exemption for non public entities from certain disclosure.
FASB issued SFAS No. 130, "Reporting Comprehensive Income", effective for
fiscal years ending after December 15, 1997. This statement requires that
changes in shareholders' funds not relating to net income be fully analyzed. The
Company already complies with these requirements.
FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", effective for fiscal years ending after December 15, 1997.
This statement requires the disclosure of financial and descriptive information
about reportable operating segments. This requirement will expand the Company's
level of disclosure.
Apart from SFAS No. 131, these new standards are expected to have a minimal
impact on the Company.
Current Outlook
- ---------------
The Company believes competitive pressures will continue throughout fiscal
1997 and constrain growth in the Company's traditional product lines. However,
the Company believes specific opportunities will exist in 1997 for growth in the
Company's X.L. Risk Solutions and employment practices liability product lines,
XLGRe's specialty reinsurance lines, further developments in non-U.S. business
and selected types of political risk insurance.
The Company undertakes no obligation to update publicly changes in its
beliefs expressed herein.
<PAGE>
29
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 were no reports on Form 8-K filed during the three months ended
August 31, 1997.
<PAGE>
30
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)
/s/ Brian M. O'Hara
October 13, 1997 -----------------------
Brian M. O'Hara
President and
Chief Executive Officer
/s/ Brian G. Walford
October 13, 1997 -----------------------
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 Nine Months Ended
August 31, August 31,
1997 1996 1997 1996
(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... 84,378 89,026 85,356 91,890
Average stock options
outstanding (net of
repurchased shares
under the treasury
stock method)....... 1,302 816 1,117 1,045
---------- ---------- ---------- ----------
Weighted average
ordinary shares and
ordinary share
equivalents
outstanding........ 85,680 89,842 86,473 92,935
---------- ---------- ---------- ----------
Net income:
Actual net income... $ 206,560 $ 64,545 $ 526,258 $ 360,620
Assumed earnings on
excess option - - - -
proceeds...........
---------- ---------- ---------- ----------
Adjusted net income ..... $ 206,560 $ 64,545 $ 526,258 $ 360,620
========== ========== ========== ==========
Earnings per ordinary
share and ordinary
share equivalent.... $ 2.41 $ 0.72 $ 6.09 $ 3.88
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31,
1997 1996 1997 1996
(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............... 84,378 89,026 85,356 91,890
Average stock options
outstanding (net of
repurchased shares
under the treasury
stock method)............. 1,368 816 1,445 1,045
---------- ---------- ---------- ----------
Weighted average
ordinary shares and
ordinary share equivalents
outstanding............... 85,746 89,842 86,801 92,935
---------- ---------- ---------- ----------
Net income:
Actual net income......... $ 206,560 $ 64,545 $ 526,258 $ 360,620
Assumed earnings on
excess option proceeds.... - - - -
----------- ----------- ----------- -----------
Adjusted net income......... $ 206,560 $ 64,545 $ 526,258 $ 360,620
=========== =========== =========== ===========
Earnings per ordinary
share and ordinary
share equivalent.......... $ 2.41 $ 0.72 $ 6.06 $ 3.88
=========== =========== =========== ===========
</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 its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> AUG-31-1997
<DEBT-HELD-FOR-SALE> 3,016,153
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 862,439
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,878,592
<CASH> 499,131
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 31,492
<TOTAL-ASSETS> 5,705,690
<POLICY-LOSSES> 2,271,378
<UNEARNED-PREMIUMS> 623,220
<POLICY-OTHER> 48,907
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 171,000
<COMMON> 844
0
0
<OTHER-SE> 2,368,547
<TOTAL-LIABILITY-AND-EQUITY> 5,705,690
387,688
<INVESTMENT-INCOME> 161,826
<INVESTMENT-GAINS> 275,326
<OTHER-INCOME> 45,113
<BENEFITS> 261,299
<UNDERWRITING-AMORTIZATION> 34,207
<UNDERWRITING-OTHER> 44,456
<INCOME-PRETAX> 529,991
<INCOME-TAX> 3,733
<INCOME-CONTINUING> 526,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 526,258
<EPS-PRIMARY> 6.09
<EPS-DILUTED> 6.06
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
