year.

Insurance giant XL Capital Ltd. took strong action yesterday and cut their lines of business that were experiencing losses.

It was the first time the 15-year-old company cut jobs, but while describing the move as "painful'', company president and CEO, Brian O'Hara, stressed that it was necessary to improve shareholder profits.

The company predicted that the changes will result in savings of $35 million a year, phased in during 2001 and fully reflected in 2002. In total 120 people worldwide were made redundant. The number represents seven percent of the entire work force employed by XL.

The Bermuda office while not immune to the cuts was not hit severely. The local office is 75 percent Bermudian with 257 employees. Six of them lost their jobs and of those, only three were Bermudian.

Operations most affected included the former Intercargo, Lloyds and NAC Re.

The downsizing will cost the company between $100 and $125 million in the fourth quarter as costs associated with the realignment of operations, exit from certain unprofitable lines of business and severance charges are met.

Businesses that were axed included the Schaumberg, Illinois-based transportation and marine cargo and onshore energy at Lloyd's. NAC Re will abandon the pooled aviation and medical stop reinsurance business.

More than $200 million of the annual gross premium written is associated with all of the exited businesses. In addition, XL plans to combine the management of its Lloyd's operations to achieve greater operational efficiency.

Soft pricing in the industry has seen XL profits decrease significantly over the past three years. But despite an expected change in the cycle which would see rates increase, Mr. O'Hara said the changes were necessary.

"We had to make an announcement that was a painful one in that we are laying off people worldwide,'' he said.

"We would not be taking this kind of action, which is unprecedented in our history, we've never had to let anybody go,'' he added. "But we do this because of very difficult conditions in the past few years.

"We are determined to return to profitability and give some prospects to our shareholders.'' The income statement of XL Capital Ltd. at year-end 1999 was clearly a cause for concern as shareholder earnings dropped to $3.69. At year-end 1998 shareholder earnings were $5.86 and at year-end in 1997 they were $7.95.

Second quarter results of the company released this August indicated a positive change of conditions and pointed to the expected hardening of prices.

Mr. O'Hara said at the time that he was pleased with the "improvements in market conditions and pricing in nearly all areas of (XL's) insurance and reinsurance business''.

XL seeks to cut expenses Net income for the second quarter ended June 30 2000 rose by nearly 140 percent to $142.5 million or $1.13 per share.

In the second quarter of 1999 net income stood at $62.7 million or .48 per share.

1999 was the worst year for XL profits. The company while bringing in almost half a million dollars more business than in 1998, experienced record losses coupled with greatly increased operating expenses.

Net income for the year dropped to $470,509 from $656,330 in 1998.

XL has made several acquisitions and mergers in recent years. The moves were in line with the company's aim to expand into areas which would help increase profitability.

In March 1998 the company announced plans to merge with Mid Ocean Ltd. in a deal worth $2.1 billion. In July of that year it announced the purchase of Bermuda-based Reeve Court Insurance for $100 million and the purchase of 25 percent of US-based Tri City Brokerage Inc.

In September 1998 the announcement came of the formation of Airline Risk Consortium with Ace Ltd. and Overseas Partners Re.

A joint venture with Financial Security Assurance Holdings Ltd. was announced in November 1998 and a decision to but Intercargo Corp for $88 million in December.

In February 1999 XL bought NAC Re for $1 billion in stock.

After all this movement analysts say XL was due for a realignment.

Yesterday's action according to a company release represented the "second phase of the realignment of (XL's) business focus''.

In addition to job cuts the company revealed that it will be re-branding several of its operating units to reflect the connection to XL.

The company's principal reinsurance operations will operate under the common name XL Re, while other major product lines such as The Brockbank Group plc and Brockbank Insurance Services, will operate as XL Brockbank and XL Aerospace respectively.

CHART Brian O'Hara