================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
July 25, 2001
Date of Report (Date of earliest event reported)
XL CAPITAL LTD
(Exact name of registrant as specified in its charter)
Cayman Islands 1-10809 98-0191089
(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification No.)
XL House, One Bermudiana Road, Hamilton, Bermuda HM11
(Address of principal executive offices)
(441) 292-8515
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
================================================================================
Item 2. Acquisition or Disposition of Assets.
XL Capital Ltd (the "Registrant" or "XL") announced on July 25, 2001 that
it completed its acquisition (the "Winterthur International Acquisition") of
certain of the operations of Winterthur International ("Winterthur
International") from Winterthur Swiss Insurance Company ("Winterthur Swiss"), an
indirect subsidiary of the Credit Suisse Group. While the Winterthur
International Acquisition closed on July 25, 2001 (the "Closing"), the
Winterthur International Acquisition will be given effect as if it closed on
July 1, 2001. The Registrant's press release dated July 25, 2001 regarding the
Winterthur International Acquisition was previously filed as Exhibit 99 to the
Registrant's Form 8-K filed on July 27, 2001.
The Second Amended and Restated Agreement for the Sale and Purchase of
Winterthur International (the "SPA"), dated as of February 15, 2001, is attached
herewith as Exhibit 99 (a) and is incorporated by reference in its entirety. The
purchase price for certain of the Winterthur International operations of
approximately $405 million (based upon the Winterthur International audited
financial statements as at and for the year ended December 31, 2000 referred to
below) was paid at the Closing. The purchase price, however, is subject to final
determination based upon audited financial statements of Winterthur
International as at and for the period ending June 30, 2001. These June 30, 2001
financial statements are subject to review and agreement by the Registrant. This
final determination is not anticipated to be completed until fiscal 2002, at
which time any final adjustment payment will be made by either the Registrant or
Winterthur Swiss, to the other.
The SPA and related closing documentation contain certain indemnities and
warranties from Winterthur Swiss for the benefit of the Registrant. The
Registrant also has contractual post-closing protection with respect to adverse
development of the reserves (including unearned premium reserve) with respect to
Winterthur International business written prior to July 1, 2001. This protection
is based upon actual net loss experience and development over a three year post
closing seasoning period. An actuary appointed by Winterthur Swiss and an
actuary appointed by the Registrant will determine the appropriate net reserves
for the business based upon experience during the seasoning period. Winterthur
Swiss will reimburse XL for adverse reserve development based upon this
procedure, with XL sharing in any adverse development through a small deductible
and a 10% sharing; provided that in no event would the Registrant bear more than
U.S. $61.0 million of adverse reserve development. In the event of a positive
reserve development during the seasoning period, Winterthur Swiss would share in
a portion thereof.
Certain Winterthur International businesses were not purchased (and were
either transferred to Winterthur Swiss or reinsured by Winterthur Swiss prior to
closing and, in any case, any related losses are covered by a Winterthur Swiss
indemnification). These excluded items principally are: (i) asbestos, (ii)
certain insurance liabilities in respect of 1985 and prior years, (iii) certain
captive management business, (iv) certain alternative risk business and (v) life
insurance.
-2-
Following the Closing, Winterthur Swiss and its affiliates will continue to
provide over a two-year period certain administrative and other support services
to the Winterthur International operations, which services shall be generally
provided on a basis consistent with that which was previously provided within
the Winterthur Swiss group.
As required by the SEC Rules governing this Current Report on Form 8-K,
Exhibit 99(b) contains audited financial statements of the Winterthur
International insurance operations as at and for the year ended December 31,
2000 prepared in accordance with generally accepted accounting principles in the
United States. These financial statements were delivered to the Registrant by
Winterthur Swiss pursuant to the SPA. These financial statements were audited by
KPMG Audit plc (whose opinion is included as Exhibit 99(c) hereto) and have not
been independently reviewed by the Registrant, PricewaterhouseCoopers LLP, the
Registrant's auditors, or any other party on behalf of the Registrant. Reference
is made to Winterthur International's audited financial statements and the
footnotes therein, including note 1, as to the basis upon which these financial
statements were prepared. These financial statements are not the basis upon
which the final purchase price will be determined and are not indicative of
future performance of the Winterthur International operations. They should be
reviewed with caution and undue reliance should not be placed upon them or any
of the financial or other information contained in them.
As required by the SEC Rules governing this Current Report on Form 8-K,
Exhibit 99(d) includes the unaudited pro forma condensed financial information
for the Registrant for the year ended December 31, 2000, as if the Winterthur
International Acquisition had occurred on January 1, 2000 for income statement
purposes and at December 31, 2000 for balance sheet purposes. The acquisition
will be accounted for by the purchase method of accounting and, therefore, the
assets and liabilities of Winterthur International will be recorded at their
estimated fair values at July 1, 2001. The unaudited pro forma financial
information is provided for informational purposes only. The unaudited pro forma
financial information should be read in conjunction with Registrant's Annual
Report on Form 10-K for the year ended December 31, 2000 and the audited
financial statements of Winterthur International as at and for year ended
December 31, 2000.
The pro forma financial information has been derived from the Winterthur
International financial statements described above as well as the Registrant's
December 31, 2000 financial statements. The pro forma financial information is
based upon currently available information and certain assumptions that
Registrant's management currently believes are reasonable. The pro forma
adjustments are further described in the footnotes to the pro forma financial
information. The allocation of the purchase price, including approximately $28.4
million allocated to goodwill, insurance licenses and other intangible assets in
the pro forma information is based upon preliminary estimates, which will be
revised at a later date and such revisions could be material. The pro forma
financial information necessarily does not give effect to any changes in
underwriting practices instituted by Winterthur International after December 31,
2000 and before Closing, or to any changes in underwriting, reinsurance,
investment policies or other practices that are being instituted or may be
instituted by the Registrant post-Closing. They also do not give effect to any
integration of the Winterthur International
-3-
operations with certain insurance operations of the Registrant. The pro forma
condensed financial information does not purport to represent what the
Registrant's results of operations or financial condition would actually have
been had the transaction occurred on such date or to project the Registrant's
results of operations or financial condition for any future period or date. As
indicated above, the actual purchase price will be based on the June 30, 2001
audited financial statements of Winterthur International, and the Winterthur
International Acquisition will be included in the Registrant's actual results of
operations from July 1, 2001 (not from January 1, 2001). As a result of the
above, the pro forma financial information should also be reviewed with caution
and undue reliance should not be placed on such information.
This Current Report on Form 8-K and its exhibits contain forward-looking
information as to which there are numerous risks and uncertainties that could
cause actual results to differ materially from the forward-looking information
made herein. Such statements are based on current plans, estimates and
expectations and, accordingly, involve inherent risks and uncertainties
including, but not limited to, business, financial and integration risks
associated with the Winterthur International Acquisition. Forward-looking
statements, including those concerning the potential benefits of the Winterthur
International Acquisition, the outlook for the insurance and reinsurance
markets, prospects for rate or price increases, premium growth, future earnings
and reserves, are particularly sensitive to factors such as the levels of
competition in the industry, the frequency and severity of claims and losses,
conditions in the world's financial and capital markets affecting the
Registrant's investment performance, changes in the economic, regulatory or tax
environment in which the Registrant operates and other factors identified in the
Registrant's most recent annual report on Form 10-K, quarterly report on Form
10-Q and other documents on file with the Securities and Exchange Commission
that could cause actual results to differ materially from those contained in
forward-looking statements. The Registrant does not undertake any duty to update
publicly any forward-looking statements contained herein in light of new
information or future developments.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of the Business Acquired. The audited financial
statements of Winterthur International as at and for the year ended
December 31, 2000 are enclosed as Exhibit 99(b).
(b) Pro Forma Financial Information. The unaudited pro forma condensed
financial information as at and for the year ended December 31, 2000
are enclosed herein as Exhibit 99(d).
(c) Exhibits. The following exhibits are filed herewith:
Exhibit No. Description
99(a) Second Amended and Restated Agreement for the Sale and Purchase
of Winterthur International, dated as of February
-4-
15, 2001.
99(b) The audited financial statements of Winterthur International as
at and for the year ended December 31, 2000.
99(c) Consent of KPMG Audit plc.
99(d) The unaudited pro forma condensed financial information as at
and for year ended December 31, 2000.
99(e) Press Release dated August 6, 2001.
-5-
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 hereunto duly authorized.
Dated: August 9, 2001
XL CAPITAL LTD
By: /s/ Paul S. Giordano
------------------------------------------
Name: Paul S. Giordano
Title: Executive Vice President and
General Counsel and Secretary