Lehman/A.M. Best Co. 2nd Annual Conference

"What we've built is fortunately coinciding very well with what's happening in the market." Nicholas Brown President & Chief Executive Officer XL America

XL Global Finds Gold in Specialty Lines

A focus on specialty lines is key to the success of XL Global Insurance Inc., the insurance arm of Bermuda-based XL Capital Ltd., the insurance unit's chief said.

Speaking at the 2nd Annual Insurance Conference, hosted by A.M. Best Co. and Lehman Bros., Nicholas M. Brown Jr., XL Global's president and chief executive officer, said the company's specialty insurance operations are dovetailing nicely, with a general hardening trend in worldwide commercial property/casualty rates.

"For us, in all the markets we are in, we are seeing double-digit price increases," Brown said. "What we've built is fortunately coinciding very well with what's happening in the market."

The one exception to that strong price growth is environmental liability. "We are concerned about that, because it is very important to us," he said.

Specific areas of price improvement include property catastrophe reinsurance, with price increase of 10% to 15% in the United States, and April renewals in Japan averaging 20% to 35%; other property insurance and reinsurance, with increases of 25% or more; excess casualty insurance, up 5% to 8%; casualty treaty insurance, up 20% or more; and casualty facultative insurance, up 25% or more.

"The improvements in excess casualty insurance and casualty treaty insurance are especially satisfying, since they are fairly new," Brown said. "Casualty treaty was somewhat reluctant to turn, but it has now."

Brown said XL Global is determined to remain a specialty insurer, a strategy that allows the company to leverage its expertise in well-chosen markets. "We want to keep building on where we are," he said. "We like our businesses."

The company's quarterly gross premiums written topped $1 billion for the first time in the first quarter 2001, and gross premiums written for 2000 (insurance operations only) grew to $1.6 billion from $1 billion in 1999.

XL Global's product mix is spread over a number of specialties, including risk management, environmental, space and aviation, warranty and programs, professional liability, marine and energy, Lloyd's, war and political risk, and surety, among others.

Brown displayed pie charts to compare what he calls XL Global's "dramatically counterweighted" market presence, compared with the worldwide property/casualty industry. His charts showed that, while specialty lines represent less than one-eighth of the worldwide market in 2000--worth $800 billion--XL Global's specialty lines represented about 80% of its $1.6 billion business.

In the worldwide market, personal lines are by far the largest segment, taking up more than one-half of the total, followed by the middle market and small commercial. XL Global has no presence in personal lines, said Brown, and very little in the middle market and small commercial. XL Global's second-largest segment is risk management--the smallest in the worldwide market.

"Being counterweighted like that says a lot about where our success is coming from," Brown said.

He added that XL Global is gearing up a small-commercial effort that will be "technology driven," or Internet based, which he expects to "generate significant revenue" for the company in 2002 or 2003.

While XL Global's overall growth in 2000 was positive, some areas were a disappointment, Brown said. Gross premiums written in North America grew to $792 million in 2000 from $64 million a year earlier, while operations in Europe dropped to $84 million from $103 million, and those at XL Brockbank--one of two Lloyd's operations XL Global has--fell to $477 million from $574 million.

"Obviously, in Europe, the markets are not what we want them to be," Brown said. But XL Global's pending acquisition of Winterthur International, which he said may close by the third quarter, will give XL Global a much stronger European presence. "Winterthur gives us a true European base," he said, adding that of Winterthur's 1,100 employees, fewer than 100 are based in the United States.

(By David Pilla, associate editor, BestWeek: David.Pilla@ambest.com)