XL's $1.3B Loss Disappoints Analysts

XL Capitalmade a US$1.29 billion net loss last year, compared with a US$1.13 billion profit in 2004. This was worse than some equity analysts expected. But the large losses will not affect the company's financial strength rating from rating agencyStandard and Poor's.

The company's combined ratio for last year jumped to 132.9% from 95.9% in 2004. In the fourth quarter of 2005 alone, XL made a US$821.9 million net loss, compared with a net income of US$288 million for the same period the year before.

XL was heavily exposed to U.S. hurricane losses. The company incurred losses from Hurricane Katrina of US$1.2 billion, Hurricane Rita of US$263.6 million and Hurricane Wilma of US$247.1 million. In addition, XL incurred a net loss of US$834.2 million in the fourth quarter of last year because it lost a dispute withWinterthur Insurance, the insurance unit of Swiss bankCredit Suisse. The dispute centred on XL's acquisition of温特图尔国际in 2001.

Mohammed Ashab, an analyst at S&P, says XL's capital-raising initiatives have staved off the threat of further downgrades. XL raised gross proceeds of US$3.2 billion from an issue of ordinary shares and equity securities on Dec. 8.

"XL has shown its financial flexibility since we met in December," says Ashab. "It has raised considerable funds in the capital markets to shore up its capital base from the 2005 storms and the loss from the Winterthur decision. The level of losses and planned capital raise have already been factored into its rating and we will not be taking any rating action at this time."

However, stock analysts were not as positive about XL's results. In a report,Adam Klauber, an analyst atCochran Caronia Waller Securities, said that the fourth quarter of 2005 had been worse than he had expected for XL.

Jay Cohen, an analyst atMerrill Lynch, was also surprised at the level of losses. In a report, he said XL's operating loss was worse than Merrill's estimate. He attributed the difference to XL's US$210.8 million increase to its estimate of third-quarter catastrophe losses.