<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, 1998
Commission File Number 1-10804
EXEL LIMITED
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
_____Cayman Islands______ ______98-0191089____
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C>
[X] YES [ ] NO
- ---------------------------------------- ---------------------------------------------
</TABLE>
The number of registrant's Ordinary Shares ($0.01 par value) outstanding as of
September 30, 1998 was 110,015,535 excluding 308,200 shares held in treasury.
<PAGE>
2
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
August 31, 1998 (unaudited) and November 30, 1997 3
Consolidated Statements of Income
Three Months Ended August 31, 1998 and 1997
(unaudited) and Nine Months Ended August 31, 1998
and 1997 (unaudited) 5
Consolidated Statements of Cash Flows
Nine Months Ended August 31, 1998 and 1997 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Shareholders 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
<PAGE>
3
EXEL LIMITED
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
August 31, 1998 November 30, 1997
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market value
(amortized cost: 1998 - $4,713,217;
1997 - $3,144,642) $4,660,383 $3,196,872
Equity securities, at market value
(cost: 1998 - $1,097,686; 1997 - $729,888) 1,112,022 837,827
Short-term investments, at market value
(amortized cost: 1998 - $321,410; 1997 - $220,138) 320,570 219,969
---------- ----------
Total Investments $6,092,975 $4,254,668
Cash and cash equivalents 550,084 394,599
Investment in affiliates
(cost: 1998 - $149,106; 1997 - $336,680) 163,395 517,396
Other investments 47,310 27,244
Accrued investment income 62,823 48,576
Deferred acquisition costs 109,853 22,272
Prepaid reinsurance premiums 148,379 108,916
Premiums receivable 835,174 254,238
Reinsurance balances receivable 283,909 156,025
Intangible Assets 1,527,873 267,695
Other assets 123,705 36,833
---------- ----------
Total Assets $9,945,480 $6,088,462
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities and Minority Interest:
Unpaid losses and loss expenses $3,044,304 $2,342,254
Unearned premiums 1,120,119 566,911
Premium received in advance 47,117 40,706
Loans payable 371,324 141,000
Accounts payable and accrued liabilities 116,704 40,923
Reinsurance premiums payable 106,033 69,305
Payable for investments purchased 612,415 382,345
Minority interest 27,156 25,888
---------- ----------
Total Liabilities and Minority Interest $5,445,172 $3,609,332
---------- ----------
</TABLE>
<PAGE>
4
<TABLE>
<CAPTION>
August 31, 1998 November 30, 1997
<S> <C> <C>
(Unaudited)
Contingencies
Shareholders' Equity:
Ordinary shares (par value $0.01):
authorized, 999,990,000 shares; issued and outstanding,
110,009,400 shares at August 31, 1998
and 84,407,638 shares (excluding 27,594,800 shares
held in treasury) at November 30, 1997 1,100 844
Contributed surplus 2,271,444 290,085
Net unrealized (depreciation) appreciation of investments (15,432) 188,444
Deferred compensation (15,225) (11,362)
Retained earnings 2,258,421 2,011,119
---------- ----------
Total shareholders' equity $4,500,308 $2,479,130
---------- ----------
Total liabilities and shareholders' equity $9,945,480 $6,088,462
========== ==========
</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 Ended Nine Months Ended
August 31 August 31
1998 1997 1998 1997
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net premiums earned $155,514 $138,034 $433,183 $387,688
Net investment income 70,983 56,109 188,963 161,826
Net realized gains (losses) on sale of investments (2,837) 116,400 134,655 275,326
Equity in net earnings of affiliates 14,604 16,219 49,539 45,113
Fee and other income 2,132 - 6,277 -
-------- -------- -------- --------
Total revenues $240,396 $326,762 $812,617 $869,953
-------- -------- -------- --------
Expenses:
Losses and loss expenses 91,182 85,022 256,425 261,299
Acquisition costs 18,289 13,508 52,933 34,207
Administration expenses 35,680 13,706 68,664 36,998
Interest expense 2,495 4,414 6,145 4,784
Amortization of intangible assets 6,129 2,674 12,806 2,674
-------- -------- -------- --------
Total expenses $153,775 $119,324 $396,973 $339,962
-------- -------- -------- --------
Income before income tax
expenses and minority interest 86,621 207,438 415,644 529,991
Minority Interest (273) - 1,131 -
Income tax expense 1,064 878 2,711 3,733
-------- -------- -------- --------
Net income $ 85,830 $206,560 $411,802 $526,258
======== ======== ======== ========
Weighted average number of ordinary shares and
ordinary share equivalents outstanding
- Basic 91,337 84,378 86,868 85,356
- Diluted 94,191 85,583 88,491 86,436
Net income per ordinary share
and ordinary share equivalent
- Basic $0.94 $2.45 $4.74 $6.17
- Diluted $0.91 $2.41 $4.65 $6.09
Dividends declared per share $0.40 $0.32 $1.20 $0.94
</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,
1998 1997
----------- -----------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities
Net income for the period before minority interest $ 412,933 $ 526,258
Adjustments to reconcile net income
to net cash provided by operating activities:
Net realized gains on sale of investments (134,655) (275,326)
Amortization of premium on fixed maturities (4,820) (830)
Amortization of deferred compensation 3,382 2,392
Amortization of intangible assets 12,806 2,674
Equity in earnings of affiliates net of dividends
received and consolidation adjustments (24,143) (24,691)
Unpaid losses and loss expenses 101,640 137,689
Unearned premiums 92,461 (122,275)
Premiums received in advance 6,411 24,651
Deferred acquisition costs (15,720) 8,072
Prepaid reinsurance premiums (4,021) (14,672)
Premiums receivable (124,283) 118,925
Reinsurance balances receivable (39,865) (46,910)
Reinsurance premiums payable (14,497) 9,802
Accrued investment income 7,567 12,003
Accounts payable and accrued liabilities (931) (9,264)
----------- -----------
Total adjustments (138,668) (177,760)
----------- -----------
Net cash provided by operating activities 274,265 348,498
----------- -----------
Cash flows provided by (used in) investing activities:
Proceeds from sale of fixed maturities and short-term
investments 8,744,147 7,961,487
Proceeds from redemption of fixed maturities and short-term
investments 412,625 79,220
Proceeds from sale of equity securities 647,073 967,410
Purchases of fixed maturities and short-term investments (9,082,789) (7,543,708)
Purchases of equity securities (705,063) (836,513)
Deferred losses on forward hedge contracts (3,656) 2,067
Investment in affiliates (27,221) (18,397)
Purchase of GCR Holdings Limited - (656,282)
Cash received in purchase of Mid Ocean Limited 137,483 -
Other investments (4,105) 622
Other assets (30,904) (3,337)
----------- -----------
Net cash provided by (used in) investing activities 87,590 (47,431)
----------- -----------
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
Nine Months Ended August 31,
1998 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash flow used in financing activities:
Dividends paid (101,469) (81,587)
Issuance of shares 501 355
Proceeds from exercise of options 5,906 5,793
Repurchase of treasury shares (331,308) (139,231)
Proceeds from loans 570,000 460,000
Repayment of loans (350,000) (300,000)
--------- ---------
Net cash used in financing activities (206,370) (54,670)
--------- ---------
Increase in cash and cash equivalents 155,485 246,397
Cash and cash equivalents - beginning of period $ 394,599 $ 252,734
--------- ---------
Cash and cash equivalents - end of period $ 550,084 $ 499,131
--------- =========
Taxes paid $ 4,127 $ 2,589
========= =========
</TABLE>
See accompanying notes to Consolidated Financial Statements
<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, 1997 consolidated 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, 1997, and footnotes thereto, included in the Company's Annual
Report on Form 10-K (No. 1-10804) for the year ended November 30, 1997, as filed
February 25, 1998, and amended by its Form 10-K/A filed on June 26, 1998.
All per share amounts are based on the weighted average number of shares
calculated in accordance with SFAS No. 128. This statement replaces APB Opinion
No. 15 for computing earnings per share by replacing primary earnings per share
with basic earnings per share and by altering the calculation of diluted
earnings per share which replaces fully diluted earnings per share. Prior period
per share amounts have been restated to reflect this.
2. BUSINESS COMBINATION
At a class meeting held on August 3, 1998, the shareholders of the Company
approved a Scheme of Arrangement (the "EXEL Arrangement") pursuant to section 85
of the Companies Law (1995 Revision) of the Cayman Islands under which EXEL
became a wholly-owned subsidiary of EXEL Merger Company, which has since been
renamed "EXEL Limited" ("New EXEL"), an exempted limited liability company
incorporated under the laws of the Cayman Islands. At separate class meetings
held on the same date, the shareholders of Mid Ocean Limited ("Mid Ocean")
approved a similar Scheme of Arrangement (the "Mid Ocean Arrangement" and,
together with the EXEL Arrangement, the "Arrangements") pursuant to section 85
of the Companies Law (1995 Revision) of the Cayman Islands under which Mid Ocean
became a wholly-owned subsidiary of New EXEL. Under the terms of the EXEL
Arrangement and, subject to the cash election rights described below, each
outstanding share of the Company was allotted and issued one share in New EXEL.
Under the terms of the Mid Ocean Arrangement and, subject to the cash election
rights described below, each outstanding share of the Mid Ocean was allotted
and issued 1.0215 shares in New EXEL. Under the Arrangements, shareholders of
EXEL and Mid Ocean had the opportunity to elect to receive cash in lieu of
shares in New EXEL up to a maximum of $300 million in the aggregate. As this
election was oversubscribed, $204 million was made available to shareholders of
EXEL and $96 million was allotted to shareholders of Mid Ocean.
The Arrangements have been accounted for as a purchase under U.S. generally
accepted accounting principles and, as such, the consolidated financial
statements include the financial statements of Mid Ocean effective August 1,
1998, which has been deemed the closing date of the transactions for accounting
purposes. The purchase price amounted to $2.2 billion of which $0.9 billion
represented the fair value of Mid Ocean's net assets not already owned by the
Company with the balance of $1.3 billion representing goodwill which is being
amortized over 40 years.
<PAGE>
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations for the Three Months Ended August 31, 1998
----------------------------------------------------------------
Compared to the Three Months Ended August 31, 1997
--------------------------------------------------
The following table presents an analysis of the Company's revenues for the
periods indicated (U.S. dollars in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended
August 31,
(unaudited)
1998 1997 % Change
-------------- ------------- -------------
<S> <C> <C> <C>
Net earned premiums $155,514 $138,034 12.7%
Net investment income 70,983 56,109 26.5%
Realized (losses) gains (2,837) 116,400 N/M
Equity in net earnings of affiliates 14,604 16,219 (11.2%)
Fee and other income 2,132 - N/M
</TABLE>
The quarter ended 1998 includes Mid Ocean Limited's ("Mid Ocean") equitized
earnings through July 31, and thereafter accounts for Mid Ocean's results on a
consolidated basis. In addition, the comparative quarter for 1997 only includes
two and a half months of the company formerly known as Global Capital
Reinsurance Company Limited (which was amalgamated in June 1997 with X.L.
Reinsurance Company, Ltd. to form X.L. Global Reinsurance Company, Ltd.).
<PAGE>
10
The following table reflects the business segmentation of the underwriting
revenues for the periods indicated (U.S. dollars in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended August 31,
Gross Net Net
Premiums Written Premiums Written Premiums Earned
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
(unaudited)
Insurance Operations
General liability $ 55,589 $ 68,965 $ 45,131 $ 52,261 $ 47,098 $ 58,031
Other liability 96,729 37,950 94,146 33,466 25,531 23,185
Property 17,506 12,055 10,714 8,816 4,958 5,717
Specialty 5,432 - 4,889 - 1,145 -
Reinsurance Operations
Property Catastrophe 13,138 170 6,150 (440) 29,907 18,332
Other Property 554 1,852 (132) 1,851 5,421 4,948
Marine & Energy 4,647 1,291 3,879 1,291 8,846 5,998
Aviation & Satellite 4,684 10,768 4,684 10,768 7,933 9,325
Specialty liability & other 33,957 1,409 33,957 1,410 23,858 12,498
Lloyds' Syndicates 11,573 - 5,106 - 817 -
-------- -------- -------- -------- -------- --------
243,809 134,460 208,524 109,423 155,514 138,034
Multi-year premiums (12,905) 44,157 (10,564) 45,423 - 2,168
-------- -------- -------- -------- -------- --------
Annualized premiums $230,904 $178,617 $197,960 $154,846 $155,514 $140,202
-------- -------- -------- -------- -------- --------
</TABLE>
In general liability, the Company continues to experience high levels of
competition, particularly on a price basis, although business retention has
remained in excess of 80%. The Company's response has been to move to higher
attachment levels which results in lower premiums as the Company moves further
away from the risk. As at August 31, 1998, the average limits for general
liability was $83.4 million in excess of a $126.2 million attachment point as
compared to an average limit of $83.2 million in excess of a $93.5 million
attachment point for the comparable date in 1997.
Other liability, which primarily includes professional product lines,
increased significantly primarily as a result of several tailored multi-year
programs written in the quarter. These transactions tend to be complicated in
nature and often take a significant period of time to structure, thus premiums
written in any given quarter may not be representative of future quarters and/or
may be irregular in nature.
Specialty liability premiums includes primarily political risk insurance
underwritten by an affiliated company, Sovereign Risk Insurance Limited, which
did not exist for the comparable quarter in 1997.
The reinsurance operations were impacted by the acquisition of Mid Ocean
and GCR Holdings Limited ("GCR") and their wholly owned reinsurance subsidiaries
in the third fiscal quarter of 1998 and 1997, respectively, thus making
quarterly comparisons not particularly relevant. Property catastrophe premiums
reflect business written primarily by X.L. Global Re prior to its amalgamation
with Mid Ocean, while specialty liability reinsurance related primarily to
tailored programs written by X.L. Insurance Company, Ltd.
Premiums written by the Lloyd's syndicates relate solely to the Company's
interest in Venton Insurance Limited ("Venton"). The Company's interest in the
Brockbank Group plc ("Brockbank"), which manages several Lloyd's syndicates and
was acquired as part of the Mid Ocean transaction, is not reflected in these
results. Brockbank reports on a calendar quarter basis, two months in arrears of
the Company's reporting calendar. The sale of Venton is expected to be completed
in the fourth quarter of 1998. Accordingly, future earnings from the Lloyd's
segment will be totally attributable to Brockbank.
<PAGE>
11
<TABLE>
<CAPTION>
For the Three Months Ended
August 31,
(unaudited)
1998 1997 % Change
---------- ---------- -----------
<S> <C> <C> <C>
Net investment income $70,983 $ 56,109 26.5%
Realized (losses) gains (2,837) 116,400 N/M
</TABLE>
The growth in net investment income reflects the increase in the Company's
investable assets over the previous year, due primarily to the acquisition of
Mid Ocean during the third quarter of 1998 and the Company's positive
operational cash flow.
The change in realized gains in the third quarter of 1998 primarily reflects
the general decline of the stock market in August. Of the loss, $28 million was
realized from the mark to market of the Company's synthetic equity index
portfolio partially offset by $25 million in net gains realized from equity and
fixed income securities. This portfolio is discussed further under "Financial
Condition and Liquidity--Non Hedging Financial Instruments".
<TABLE>
<CAPTION>
For the Three Months Ended
August 31,
(unaudited)
1998 1997 % Change
---------- ---------- -----------
<S> <C> <C> <C>
Equity in net earnings of affiliates $14,604 $16,219 (11.2%)
Fee and other income 2,132 -- N/M
</TABLE>
Equity earnings in affiliates is represented largely by Mid Ocean. The
third quarter of 1998 is the last reported quarter that the Company will be
showing equitized earnings for Mid Ocean. Subsequent earnings will be wholly
consolidated. Mid Ocean had higher comparative net earnings in the third quarter
of 1997.
Fee and other income reflects the Company's increased efforts to create
innovative underwriting solutions with the Company being partially compensated
for the deal origination and design.
The following table represents an analysis of the Company's loss and loss
expense ratio, its underwriting expense ratio and combined ratio.
<TABLE>
<CAPTION>
Three Months Ended August 31,
(unaudited)
1998 1997
<S> <C> <C>
Loss and loss expense ratio 58.6% 61.6%
Underwriting expense ratio 23.5% 19.7%
Combined ratio 82.1% 81.3%
</TABLE>
The decrease in the loss ratio primarily reflects the diversification of
the Company's business over the past year to include a lower proportion of
liability business which tends to be long-tail in nature. Loss ratios for this
longer tail business can be higher but usually pay out claims over several
years. The Company experienced lower losses in shorter tail lines resulting in
an overall lower loss ratio. The decrease in the proportion of longer tail
business will cause overall Company loss ratios to decrease in periods of low
catastrophic activity. It should also be noted that the converse may also occur.
The underwriting expense ratio excludes any interest charges associated
with the Company's debt, the amortization of goodwill and one time charges
incurred during the quarter associated with the realignment of the Company's
reinsurance operations which are discussed further below.
<PAGE>
12
The increase in the expense ratio is consistent with the Company's mix of
business moving towards more reinsurance. This business typically has higher
costs associated with the acquisition of the business as compared to insurance.
<TABLE>
<CAPTION>
Three Months Ended August 31,
(unaudited)
1998 1997
<S> <C> <C>
Net income $ 85,830 $206,560
Net income per share and share equivalent (diluted) $ 0.91 $ 2.41
Net income excluding realized investment (losses) gains, the
amortization of intangible assets and one time alignment charges $112,256 $ 92,834
Net income per share on an adjusted basis $ 1.19 $ 1.08
</TABLE>
The decrease in net income is primarily due to the Company realizing
investment losses of $2.8 million compared to gains of $116.4 million for the
quarters ended August 31, 1998 and 1997, respectively, as well as amortization
of intangible assets which amounted to $6.1 million in the 1998 quarter as
compared to $2.7 million in the 1997 quarter. In addition, the Company incurred
one time charges of $17.5 million during the quarter associated with the
realignment of the Company's reinsurance operations. This included the
conversion of the Company's reinsurance systems to that of Mid Ocean, the write
off of leasehold improvements due to the closure of the Company's reinsurance
offices and the severance of some of the Company's employees.
The Company and Mid Ocean had a one month difference in fiscal years and to
bring the two in line, net income for the third quarter includes one month of
the consolidated results of Mid Ocean excluding any contribution from Brockbank.
In addition, a full quarter of equitized earnings of Mid Ocean was included.
Although an additional month's results were included in the quarter, there was
no impact on per share earnings due to the dilutive effect of the additional
Company shares issued when Mid Ocean was acquired.
<PAGE>
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations for the Nine Months Ended August 31, 1998
---------------------------------------------------------------
Compared to the Nine Months Ended August 31, 1997
-------------------------------------------------
The following table presents an analysis of the Company's revenues for the
periods indicated (U.S. dollars in thousands):
<TABLE>
<CAPTION>
For the Nine Months Ended
August 31,
(unaudited)
1998 1997 % Change
-------- -------- --------
<S> <C> <C> <C>
Net earned premiums $433,183 $387,688 11.2%
Net investment income 188,963 161,826 16.8%
Realized (losses) gains 134,655 275,326 N/M
Equity in net earnings of affiliates 49,539 45,113 9.8%
Fee and other income 6,277 - N/M
</TABLE>
The nine months ended 1998 includes Mid Ocean's equitized earnings through
July 31 and thereafter accounts for Mid Ocean's results on a consolidated basis
(excluding Brockbank). In addition, the comparative period for 1997 only
includes two and a half months of the company formerly known as Global Capital
Reinsurance Company Limited (which was amalgamated in June 1997 with X.L.
Reinsurance Company, Ltd. to form X.L. Global Reinsurance Company, Ltd.).
<PAGE>
14
The following table reflects the business segmentation of the underwriting
revenues for the periods indicated (U.S. Dollars in thousands):
<TABLE>
<CAPTION>
For the Nine Months Ended August 31
Gross Net Net
Premiums Written Premiums Written Premiums Earned
1998 1997 1998 1997 1998 1997
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Insurance Operations
General liability $161,756 $204,962 $127,901 $151,086 $142,215 $204,658
Other liability 126,105 84,042 120,648 76,263 69,251 65,685
Property 29,217 31,133 20,799 24,064 18,182 16,060
Specialty 20,990 - 18,838 - 2,373 -
Reinsurance Operations
Property Catastrophe 83,069 (77,948) 72,324 (78,558) 86,504 18,406
Other Property 34,850 17,106 28,108 17,106 13,078 9,520
Marine & Energy 17,641 15,683 16,912 15,683 12,345 14,805
Aviation & Satellite 41,449 24,499 41,449 24,499 28,839 23,462
Specialty liability & other 70,943 20,599 70,943 20,599 59,334 35,092
Lloyds' Syndicates 24,983 - 7,212 - 1,062 -
-------- -------- -------- -------- -------- --------
611,003 320,076 525,134 250,742 433,183 387,688
Multi-year premiums (30,695) 112,854 (29,521) 131,068 - 7,361
-------- -------- -------- -------- -------- --------
Annualized premiums $580,308 $432,930 $495,613 $381,810 $433,183 $395,049
======== ======== ======== ======== ======== ========
</TABLE>
In general liability, the Company continues to experience high levels of
competition, particularly on a price basis, although business retention has
remained in excess of 80%. The Company's response has been to move to higher
attachment levels which results in lower premiums as the Company moves further
away from the risk. As at August 31, 1998, the average limits for general
liability was $83.4 million in excess of $126.2 million attachment point as
compared to an average limit of $83.2 million in excess of a $93.5 million
attachment point for the comparable date in 1997.
Other liability, which primarily includes professional product lines,
increased significantly primarily as a result of several tailored multi-year
programs written in 1998. These transactions tend to be complicated in nature
and often take a significant period of time to structure, thus premiums written
in any given quarter may not be representative of future periods and/or may be
irregular in nature.
Specialty liability premiums includes primary political risk insurance
underwritten by an affiliated company, Sovereign Risk Insurance Limited, which
did not exist for the comparable period in 1997.
The reinsurance operations were impacted by the acquisition of Mid Ocean
and GCR and their wholly owned reinsurance subsidiaries in the third fiscal
quarter of 1998 and 1997, respectively, thus making comparison not particularly
relevant. Property catastrophe premiums reflect business written primarily by
X.L. Global Re prior to its amalgamation with Mid Ocean, while specialty
liability reinsurance related primarily to tailored programs written by X.L.
Insurance Company, Ltd. Gross premiums written and net premiums earned for this
line were negative in 1997 as a result of several multi-year loss sensitive
policies with significant premiums which were reversed when it became apparent
that the intent of reinsureds was to cancel and rewrite these contracts after
one year when they are loss free.
Premiums written by the Lloyd's syndicates relate solely to the
Company's interest in Venton. The Company's interest in Brockbank, which manages
several Lloyd's syndicates and was acquired as part of the Mid Ocean
transaction, is not reflected in these results. Brockbank reports on a calendar
quarter basis, two months in arrears of the Company's reporting calendar. The
sale of Venton is expected to be completed in the fourth quarter of 1998.
Accordingly, future earnings from the Lloyd's segment will be totally
attributable to Brockbank.
<PAGE>
15
<TABLE>
<CAPTION>
For the Nine Months Ended
August 31,
(unaudited)
1998 1997 % Change
------------ ------------ ------------
<S> <C> <C> <C>
Net investment income $188,963 $161,826 16.8%
Realized (losses) gains 134,655 275,326 N/M
</TABLE>
The growth in net investment income reflects the increase in the Company's
investable assets over the previous year, due primarily to the acquisition of
Mid Ocean during the third quarter of 1998 and the Company's positive
operational cash flow.
The investment portfolio was significantly restructured during the nine
month period ended August 31, 1997 resulting in the realization of investment
gains. The nine month period ended August 31, 1998 saw the investment markets
reach record highs and then decline during July and August. The consequence of
these changes saw the Company's investment managers capture gains in the earlier
part of the period offset to a limited degree by some losses realized in the
latter part of the period.
<TABLE>
<CAPTION>
For the Nine Months Ended
August 31,
(unaudited)
1998 1997 % Change
------------ ------------ ------------
<S> <C> <C> <C>
Equity in net earnings of
affiliates $49,539 $45,113 9.8%
Fee and other income 6,277 - N/M
</TABLE>
Equity earnings in affiliates is represented largely by Mid Ocean. The
third quarter of 1998 is the last reported quarter that the Company will be
showing equitized earnings for Mid Ocean. Subsequent earnings will be wholly
consolidated.
Fee and other income reflects the Company's increased efforts to create
innovative underwriting solutions with the Company being partially compensated
for the deal origination and design. Also included in this item are some income
distributions from the Company's other investments in limited partnerships.
<PAGE>
16
The following table represents an analysis of the Company's loss and loss
expense ratio, its underwriting expense ratio and combined ratio.
<TABLE>
<CAPTION>
Nine Months Ended August 31,
(unaudited)
1998 1997
<S> <C> <C>
Loss and loss expense ratio 59.2% 67.4%
Underwriting expense ratio 24.0% 18.4%
Combined ratio 83.2% 85.8%
</TABLE>
The decrease in the loss ratio primarily reflects the diversification of
the Company's business over the past year to include a lower proportion of
liability business which tends to be long-tail in nature. Loss ratios for this
longer tail business can be higher but usually pay out claims over several
years. The Company experienced lower losses in shorter tail lines resulting in
an overall lower loss ratio. The decrease in the proportion of longer tail
business will cause overall Company loss ratios to decrease in periods of low
catastrophic activity. It should also be noted that the converse may also
occur.
The underwriting expense ratio excludes any interest charges associated
with the Company's debt, the amortization of goodwill and one time charges
incurred during the period associated with the realignment of the Company's
reinsurance operations which are discussed below.
The increase in the expense ratio is consistent with the Company's mix of
business moving towards more reinsurance. This business typically has higher
costs associated with the acquisition of the business as compared to insurance.
<TABLE>
<CAPTION>
Nine Months Ended August 31,
(unaudited)
1998 1997
<S> <C> <C>
Net income $411,802 $526,258
Net income per share and share equivalent (diluted) $ 4.65 $ 6.09
Net income excluding realized investment (losses)
gains, the amortization of intangible assets and
one time alignment charges $307,413 $253,606
Net income per share on an adjusted basis $ 3.47 $ 2.93
</TABLE>
The decrease in net income is primarily due to the Company realizing
investment gains of $134.7 million compared to $275.3 million for the nine month
periods ended August 31, 1998 and 1997, respectively, as well as amortization of
intangible assets which amounted to $12.8 million in the 1998 period as compared
to $2.7 million in the 1997 period. In addition, the Company incurred one time
charges of $17.5 million during the period associated with the realignment of
the Company's reinsurance operations. This included the conversion of the
Company's reinsurance systems to that of Mid Ocean, the write off of leasehold
improvements due to the closure of the Company's reinsurance offices and the
severance of some of the Company's employees.
The Company and Mid Ocean had a one month difference in fiscal years and to
bring the two in line, net income for the nine months ended August 31, 1998
includes one month of the consolidated results of Mid Ocean excluding any
contribution from Brockbank. In addition, three full quarters of equitized
earnings of Mid Ocean have been included. Although an additional month's results
were included in the period, there was no impact on per share earnings due to
the dilutive effect of the additional Company shares issued when Mid Ocean was
acquired.
<PAGE>
17
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 principal subsidiaries, X.L.
Insurance Company, Ltd. ("X.L.") and X.L. Mid Ocean Reinsurance Company, Ltd.
("X.L. Mid Ocean"), must maintain certain minimum levels of statutory capital
and surplus, solvency and liquidity pursuant to Bermuda statutes and
regulations. At August 31, 1998, X.L. and X.L. Mid Ocean could have paid
dividends in the amount of approximately $3.2 billion. Neither the Company nor
any of its material subsidiaries other than X.L. and X.L. Mid Ocean 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,
1998 was $4.5 billion, of which $2.3 billion was retained earnings.
At August 31, 1998, total investments and cash net of the unsettled investments
trades were $6.0 billion, compared to $4.3 billion at November 30, 1997. The
Company's fixed income investments (including short-term investments and cash
equivalents) at August 31, 1998 represented approximately 82% of invested assets
and were managed by several outside investment management firms with different
strategies. Approximately 86% of fixed income securities are of investment
grade, and approximately 63.1% 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 $(62.3) million at August 31,
1998, compared to $12.3 million at November 30, 1997.
In fiscal 1997 and in fiscal 1998 through August 31, the total amount of losses
paid by the Company was $267.2 million and $199.3 million, respectively.
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. The Company's reserving
practices and the establishment of any particular reserve reflect management's
judgement concerning sound financial practice and does not represent any
admission of liability with respect to any claims made against the Company's
subsidiaries. No assurance can be given that actual claims made and payments
related thereto will not be in excess of the amounts reserved.
Corporate
On June 11, 1997, the Company obtained two revolving lines of credit in the
amount of $250 million each, one for 364 days and the other for 5 years. The
one year facility has been extended for another year. These facilities are
provided by a syndicate of banks to facilitate strategic acquisitions and to
supplement operational cash flow. The weighted average interest rate on the
funds borrowed during the period was 5.833%. The balance of the loans
outstanding under the facilities as at August 31, 1998 was composed of
predominantly three amounts: $250 million which was extended for an additional
month at its due date on October 14, 1998 and two amounts of $50 million each
which were extended for an additional month at their due dates on October 13,
1998. These borrowings were used to fund the cash elections made available to
shareholders of EXEL and shareholders of Mid Ocean pursuant to the terms of the
Arrangements, and to fund the Company's U.S. operations.
On March 13, 1998 the Board of Directors of the Company authorized the
repurchase of $500 million of its shares. In addition to the $300 million cash
election option related to the combination with Mid Ocean, the Company
repurchased 423,636 shares during the first nine months of 1998 at a cost of
$31.3 million.
On February 27, 1998 the Company obtained a $500 million letter of credit
facility from a syndicate of banks, which is secured against the Company's
investment portfolio. This facility is used to collateralize reinsureds'
technical reserves with the Company. The Company has letters of credit
outstanding at August 31, 1998 in the amounts of $191.0 million and
(Pounds)11.2 million.
<PAGE>
18
Year 2000 Considerations
In 1997, the Company initiated a project to address Year 2000 issues with
respect to the Company's computer software and information technology systems as
well as its non-information technology systems. The project has two distinct
areas of focus assessment of the Year 2000 compliance of the Company's
software, systems and technology platforms, and the evaluation of the Year 2000
preparedness of significant third parties with whom the Company conducts
business, including vendors and customers.
The Company has substantially completed its assessment of Company software and
systems and has adopted a plan to implement compliant components, targeted to be
substantially complete by June 1999. The Company estimates that through August
31, 1998 the remediation and validation efforts are approximately 50% complete,
with the costs through such date aggregating approximately $3 million. Future
costs of remediation are not expected to have a material impact on the Company's
financial position, results of operation or cash flows, although no assurance
can be given in this regard.
The Company recognizes the potential impact of Year 2000 issues from its service
providers and customers. The Company is currently communicating with its
significant service providers to assess their readiness and will address
compliance risks with each new significant vendor. In addition, the Company's
potential exposure to its customers' Year 2000 issues is being reviewed. Formal
contingency plans will not be formulated until the Company has identified
specific areas where there is a substantial risk of Year 2000 problems
occurring, and no such areas are identified as of this date.
Financial Risk Management
This risk management discussion and the estimated amounts generated from the
sensitivity analyses are forward-looking statements of market risk assuming
certain adverse market conditions occur. Actual results in the future may differ
materially from these projected results due to actual developments in the global
financial markets. The analysis used by the Company to assess and mitigate risk
should not be considered projections of future events of losses.
The Company's investment portfolio consists of fixed income and equity
securities, denominated in both U.S. and non-U.S. dollars. Accordingly, earnings
will be affected by changes in interest rates, equity prices and foreign
currency exchange rates.
Foreign Currency Risk Management
The Company attempts to hedge directly the foreign currency exposure of a
portion 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. Where an investment is sold, the related foreign exchange
sale contract is closed by entering into an offsetting purchase contract. At
August 31, 1998, the Company had, as hedges, foreign contracts for the sale of
$20.9 million and the purchase of $10.3 million of foreign currencies at fixed
rates, primarily Japanese Yen (93% of net contract value) and French Francs
(7%). The market value of non-U.S. dollar fixed maturities held by the Company
as at August 31, 1998 was $10.1 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, 1998, unrealized deferred gains amounted
to $0.2 million, and were offset by corresponding decreases in the U.S. dollar
value of the investments. Realized gains and losses on the maturity of these
contracts are also deferred and included in shareholders' equity until the
corresponding investment is sold. As at August 31, 1998, realized deferred gains
amounted to $6.6 million.
The Company uses foreign exchange contracts to manage the foreign exchange risk
of fluctuating foreign currencies on the value of its remaining non-U.S. dollar
fixed maturities and its non-U.S. dollar equity investments on an overlay basis.
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. In addition,
where the Company's investment managers are of the opinion that potential gains
exist in a particular currency, then a forward contract will not be entered
into. At August 31, 1998, the Company had forward contracts outstanding of
$258.6 million with unrealized gains of $6.4 million. Gains of $24.5 million
were realized during the nine month period. Based on the value of forward
contracts outstanding, a 10% appreciation or
<PAGE>
19
devaluation of the U.S. dollar as compared to the level of other currencies
under contract at August 31, 1998 would have resulted in approximately $26.7
million in unrealized gains and $19.0 million in losses, respectively.
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, 1998, the Company had an immaterial amount of such contracts
outstanding, and had recognized a total of $0.3 million in realized and
unrealized losses for the nine-month period. Based on this value, a 10%
appreciation or devaluation of the U.S. dollar as compared to the level of other
currencies under contract at August 31, 1998 would have had no material effect
on income.
Non Hedging Financial Instruments
The Company also invests in a synthetic equity portfolio of S&P Index futures
with an exposure approximately equal in amount to the market value of underlying
assets held in this fund. As at August 31, 1998, the portfolio held $160.0
million in exposure to S&P 500 Index futures together with fixed maturities,
short-term investments and cash amounting to $158.9 million. Based on this
value, by definition a 10% increase or decrease in the price of these futures
would have resulted in exposure of $176.0 million and $144.0 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, 1998,
net realized losses from index futures totaled $1.2 million.
Derivative investments are also utilized to add value to the portfolio where
market inefficiencies are believed to exist. At August 31, 1998, bond and stock
index futures outstanding were $101.7 million, with underlying investments
having a market value of $2.1 billion (all managers are prohibited by the
Company's investment guidelines from leveraging their positions). A 10%
appreciation or depreciation of these derivative instruments at this time would
have resulted in unrealized gains and losses of $10.2 million, respectively.
Current Outlook
The Company believes competition in the property casualty insurance and
reinsurance industry will continue to be strong and may intensify in 1998,
exerting pressure on rates in general and particularly in the Company's
traditional casualty product lines. Although the Company believes some
opportunities will exist in 1998 for growth in certain product lines, no
assurances can be made that growth in such other product lines will be
sufficient to offset the competitive pressures affecting the Company's
traditional product lines.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that may be considered to
be "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.
Such statements may include, without limitation, insofar as they may be
considered to be forward-looking statements, certain statements in (i)
"Management's Discussion and Analysis-Results of Operations for the Three Months
Ended August 31, 1998 Compared to the Three Months Ended August 31, 1997" and
"-Results of Operations for the Nine Months Ended August 31, 1998 Compared to
the Nine Months Ended August 31, 1997" concerning (A) certain relationships
among gross premiums written, net premiums written and net premiums earned and
(B) the potential material adverse affect on the Company's operating results and
financial condition stemming from the absence of reserves in respect of all or a
portion of its property reinsurance business assumed; (ii) "Management's
Discussion and Analysis Financial Risk Management", "- Foreign Currency Risk
Management" and "- Non Hedging Financial Instruments" concerning the potential
effects of certain events on the Company's portfolios of fixed income and equity
instruments, foreign currency exposure, derivatives positions and certain other
types of instruments (iii) Management's Discussion and Analysis-Current Outlook"
concerning the current outlook for rates and particular product lines; (iv) such
other statements contained in this Quarterly Report that may be
<PAGE>
20
considered to be forward-looking statements; and (v) variations of the foregoing
statements wherever they appear in this Quarterly Report.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in such
statements. The Company believes that these include the following non-exclusive
factors:
(i) the impact of changing market conditions on the Company's business
strategy;
(ii) the effects of increased competition on pricing, coverage terms,
retention of customers and ability to attract new customers;
(iii) greater severity or frequency of the types of large or catastrophic
losses which the Company's subsidiaries insure or reinsure;
(iv) faster loss development experience than that on which the Company's
underwriting, reserving and investment practices are based;
(v) developments in global financial markets which could adversely
affect the performance of the Company's investment portfolio;
(vi) regulatory or tax developments which could adversely affect the
Company's business;
(vii) risks associated with the introduction of new products and
services; and
(viii) the impact of mergers and acquisitions.
The facts set forth above should be considered in connection with any forward-
looking statement contained in this Quarterly Report. The important factors that
could affect such forward-looking statements are subject to change, and the
Company does not intend to update any forward-looking statement or the foregoing
list of important factors. By this cautionary note, the Company intends to avail
of the safe harbor from liability with respect of forward-looking statements
provided by Section 27A and Section 21E referred to above.
<PAGE>
21
EXEL LIMITED
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company, through its subsidiaries, in common with the insurance and
reinsurance industry in general, is subject to litigation in the normal course
of its business. Although most of its policies provide for resolution of
disputes by arbitration in London, X.L. has been sued several times in United
States courts and is defending each suit vigorously, both on procedural grounds
and the merits. As of August 31, 1998, the Company was not a party to any
material litigation other than as routinely encountered in claims activity.
EXEL, Mid Ocean and the directors of Mid Ocean have been named as defendants in
a purported class action lawsuit (the "Shareholder Action") filed in connection
with the proposed Arrangements in the Supreme Court, County of New York, State
of New York. Harbor Finance Partners v. Newhouse, et al., C.A. No. 1998/601266.
The Shareholder Action alleges that the defendants breached their fiduciary
duties to the Mid Ocean shareholders by failing to exercise independent business
judgment (due to their alleged conflict of interest) and by agreeing to sell Mid
Ocean at an unfair and inadequate price.
The Shareholder Action is brought on behalf of a purported class of persons
consisting of Mid Ocean shareholders other than the defendants. As relief, the
Shareholder Action seeks, among other things, a rescission of the Arrangements
and an award of compensatory damages in an unspecified amount, as well as costs
including fees for plaintiff's counsel and experts' fees and expenses. On June
18, 1998, the defendants filed a motion to dismiss the Shareholder action on the
grounds that the Shareholder Action (i) failed to state a claim upon which
relief may be granted under Cayman Islands law and (ii) was not brought in an
appropriate forum (forum non conveniens).
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
At a Class Meeting of Shareholders held on August 31, 1998 at the Princess
Hotel, Hamilton, Bermuda, the shareholders approved the following:
1. To approve the proposed Scheme of Arrangement pursuant to section 85 of the
Companies Law (1995 Revision) of the Cayman Islands between EXEL and its
shareholders under which EXEL will become a wholly owned subsidiary of EXEL
Merger Company Ltd., an exempted limited liability company incorporated
under the laws of the Cayman Islands.
Votes For Votes Against
---------- -------------
70,268,729 150,809
========== =======
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit 11 - Statement regarding Computation Per Share Earnings.
Reports on Form 8-K
Current Report on Form 8-K filed on July 29,1998, under Item 5 thereof. Current
Report on Form 8-K filed on August 3, 1998, under Item 5 thereof. Current Report
on Form 8-K filed on August 7, 1998, under Item 5 thereof. Current Report on
Form 8-K filed on August 19, 1998, under Item 5 thereof.
<PAGE>
22
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)
October 15, 1998 /s/ Brian M. O'Hara
----------------------------------------
Brian M. O'Hara
President and Chief Executive Officer
October 15, 1998 /s/ Robert R. Lusardi
----------------------------------------
Robert R. Lusardi
Executive Vice President
and Chief Financial Officer
<PAGE>
Exhibit 11
COMPUTATION OF EARNINGS PER ORDINARY SHARE
------------------------------------------
AND ORDINARY SHARE EQUIVALENT
-----------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31,
1998 1997 1998 1997
(Unaudited) (Unaudited)
(U.S. dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
(A) Earnings per ordinary share and ordinary
share equivalent--basic:
Weighted average ordinary shares and
ordinary share equivalents outstanding 91,337 84,378 86,868 85,356
======= ======== ======== ========
Net income $85,830 $206,560 $411,802 $526,258
======= ======== ======== ========
Earnings per ordinary share and ordinary
share equivalent $ 0.94 $ 2.45 $ 4.74 $ 6.17
======= ======== ======== ========
(B) Earnings per ordinary share and ordinary
share equivalent--assuming full dilution:
Weighted average ordinary shares
outstanding 92,287 84,085 86,714 85,177
Average stock options outstanding (net of
repurchased shares under the treasury
stock method) 1,904 1,498 1,777 1,259
------- -------- -------- --------
Weighted average ordinary shares and
ordinary share equivalents outstanding 94,191 85,583 88,491 86,436
======= ======== ======== ========
Net income $85,830 $206,560 $411,802 $526,258
======= ======== ======== ========
Earnings per ordinary share and ordinary
share equivalent $ 0.91 $ 2.41 $ 4.65 $ 6.09
======= ======== ======== ========
</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-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> AUG-31-1998
<DEBT-HELD-FOR-SALE> 4,980,953
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,112,022
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 6,092,975
<CASH> 550,084
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 109,853
<TOTAL-ASSETS> 9,945,480
<POLICY-LOSSES> 3,044,304
<UNEARNED-PREMIUMS> 1,120,119
<POLICY-OTHER> 47,117
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 371,324
<COMMON> 1,100
0
0
<OTHER-SE> 4,499,208
<TOTAL-LIABILITY-AND-EQUITY> 9,945,480
433,183
<INVESTMENT-INCOME> 188,963
<INVESTMENT-GAINS> 134,655
<OTHER-INCOME> 55,816
<BENEFITS> 256,425
<UNDERWRITING-AMORTIZATION> 52,933
<UNDERWRITING-OTHER> 87,615
<INCOME-PRETAX> 415,644
<INCOME-TAX> 2,711
<INCOME-CONTINUING> 411,802
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 411,802
<EPS-PRIMARY> 4.74
<EPS-DILUTED> 4.65
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
