UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________ to _____________
Commission file number 1-10804
X.L. AMERICA, INC. EMPLOYEE SAVINGS PLAN
(Full title of the plan)
Seaview House, 70 Seaview Avenue
Stamford, Connecticut 06902
(Address of the plan)
XL Capital Ltd
XL House, One Bermudiana Road, Hamilton HM11, Bermuda
(Name of issuer of the securities held pursuant to the plan
and the address of its principal executive office)
X.L. America, Inc. Employee Savings Plan
TABLE OF CONTENTS
Financial Statements and Schedule: Page No.
Report of Independent Accountants 3
Statement of Net Assets Available for Benefits- 4
As of December 31, 2002 and 2001
Statement of Changes in Net Assets Available for Benefits- 5
For the Year Ended December 31, 2002
Notes to Financial Statements 6
Schedule of Assets Held at Year End as of December 31, 2002 12
Signatures 13
Exhibit Index 14
Other Schedules required by the Department of Labor regulations for reporting
and disclosure under the Employee Retirement Income Security Act of 1974
("ERISA") have been omitted because they are not applicable.
2
PricewaterhouseCoopers LLP
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York NY 10036
Telephone (646) 471 4000
Facsimile (646) 471 4100
Report of Independent Accountants
To the Participants and Administrator of X.L. America, Inc. Employee Savings
Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of X.L. America, Inc. Employee Savings Plan (the "Plan") as of December 31, 2002
and 2001, and the changes in net assets available for benefits for the year
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets (Held
at End of Year) is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. This
supplemental schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
PricewaterhouseCoopers LLP
June 26, 2003
3
X.L. America, Inc. Employee Savings Plan
Statement of Net Assets Available for Benefits
As of December 31, 2002 and 2001
2002 2001
-------------- ---------------
ASSETS:
Investments (see Note 4):
Common Collective Trusts $15,207,063 $9,154,814
Mutual Funds 18,889,289 16,981,222
XL Capital Ltd Class A Ordinary Shares 5,079,715 6,702,128
Cash 461,775 555,140
Participant loans 715,554 670,843
---------------- ----------------
Total investments 40,353,396 34,064,147
Receivables:
Employer contribution 104,723 -
Participant contributions 96,158 -
---------------- ----------------
Total receivables 200,881 -
---------------- ----------------
Net assets available for benefits $40,554,277 $34,064,147
================ ================
The accompanying notes are an integral part of these financial statements.
4
X.L. America, Inc. Employee Savings Plan
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2002
Additions to net assets attributed to:
Investment income:
Dividends $ 751,587
Interest 55,931
Net depreciation in fair value of investments
(see Note 4) (8,119,956)
------------
(7,312,438)
Contributions:
Participants 5,084,290
Employer 4,914,927
Transfer in to Plan (see Note 1) 5,706,651
------------
15,705,868
------------
Total additions 8,393,430
------------
Deductions from net assets attributed to:
Benefits paid to Participants (1,903,300)
------------
Total deductions (1,903,300)
------------
Net increase in assets available for benefits 6,490,130
Net assets available for plan benefits:
Beginning of year 34,064,147
------------
End of year $ 40,554,277
=============
The accompanying notes are an integral part of these financial statements.
5
X.L. America, Inc. Employee Savings Plan
Notes to Financial Statements
As of for the year ended December 31, 2002
1. Description of Plan
The following description of the X.L. America, Inc. Employee Savings Plan
(the "Plan") provides general information. Participants should refer to the
Summary Plan Description for a more complete description of the Plan's
provisions.
General
The Plan is a defined contribution plan covering employees of X.L. America,
Inc., its subsidiaries and affiliates (collectively referred to as the
"Company"), who are scheduled to work a minimum of 20 hours per week.
INVESCO Retirement, Inc. is the Plan record keeper. AMVESCAP National Trust
Company ("AMVESCAP", formerly Institutional Trust Company) is the Trustee
of the Plan. The Plan is subject to the provision of the Employee
Retirement Income Security Act of 1974 ("ERISA").
Eligibility
All employees as defined in the Plan document are eligible to participate
in the Plan on the first day of employment. Employees participating in the
Plan ("Participants") must select investment choices on the basis of their
individual goals and objectives. Participants may invest in one or more
investments, each offering different opportunities and elements of risk.
As of January 1, 2002, Participants are no longer permitted to invest in XL
Capital Ltd Class A Ordinary Shares.
Plan Mergers
Effective January 1, 2002, the Plan was amended to allow the following
subsidiaries of the Company to become participating employers: Brockbank
Insurance Services, Inc., XL Financial Administrative Services Inc., and XL
Insurance America, Inc. (formerly Winterthur International America
Insurance Company).
The above amendment resulted in the Plan receiving assets of $5,706,651
from the following plans:
Brockbank Insurance Services, Inc. Profit Sharing Plan $ 472,993
Brockbank Insurance Services, Inc. Money Purchase Plan 372,882
X.L. America, Inc. 401(k) Savings and Profit Sharing Plan 2,450,358
General Casualty 401(k) Plan 2,410,418
-----------
Total $ 5,706,651
===========
All of the assets merged and transferred became assets of the Plan and are
in compliance with the requirements of Section 414(l) of the Internal
Revenue Code ("IRC").
Contributions
Contributions are deposited directly into the investment funds as
designated by the Participants. Contributions to the Plan consist of
employee and Company ("Employer") contributions as described below:
6
X.L. America, Inc. Employee Savings Plan
Notes to Financial Statements
As of for the year ended December 31, 2002
Participant Contributions
Each year, Participants may contribute up to 15% of pretax annual
compensation, as defined in the Plan, subject to certain limitations. A
Participant may also elect to make supplemental contributions up to 10% of
after-tax annual compensation. The combination of pretax and after-tax
Participant contributions to the Plan may not exceed 15% of their annual
compensation.
Employer Contributions
The Company contributes 140% of the first 5% of pretax Participant
contributions to the Plan. After-tax contributions are not eligible for
Employer matching contributions. Employer matching contributions are funded
to the Plan semi-monthly. At the discretion of the Company, an additional
discretionary matching contribution may be made up to 100% of the first 3%
of the annual compensation to match contributions made by the Participants
in the Plan. (See Note 9, Subsequent Events).
Participant Accounts
Each Participant's account is credited with the Participant's contribution
and allocations of the Company's contribution and earnings thereon.
Investment options chosen by each Participant govern the allocation and
distribution of investment income and realized gains or losses. Any
dividends and capital gains are deposited to the Trust and reinvested in
the appropriate Participant accounts. The benefit to which a Participant is
entitled is the benefit that can be provided from the Participant's vested
account.
Vesting
Participants are fully vested immediately in their contributions plus
actual earnings thereon. Vesting in the Employer contribution portion of
their accounts is based on years of service with the Company. Participants
vest 25 percent per year of service and are 100 percent vested after four
years of service. Participants become 100% vested in the Employer
contributions upon disability, death, or retirement.
The Employer contributions and investment returns thereon are not taxed to
the employee until the employee receives a distribution from the Plan.
Participant Loans
Participants may borrow from their vested account a minimum of $1,000 up to
a maximum equal to the lesser of $50,000 or 50% of their account balance.
The $50,000 maximum will be reduced, however, by the highest outstanding
loan balance during the prior 12 months. General-purpose loans must be
repaid within five years. Loans used to acquire a primary residence must be
repaid within 15 years. Participants may have only one loan outstanding at
a time.
Loan balances outstanding are recorded as an asset in a separate loan
account. Payments of principal and interest are made by payroll deductions
of an amount sufficient to amortize the loan over the repayment period.
Assets in the loan account are evidenced by promissory notes secured by a
security interest in the Participant's account. Loan interest rates are
established based on the prime rate plus one percentage point on the first
day of the month in which the loan is made. Principal and interest received
on Participants' loans is reinvested in accordance with Participant
investment instructions.
7
X.L. America, Inc. Employee Savings Plan
Notes to Financial Statements
As of for the year ended December 31, 2002
Upon termination of employment, the Participant has three months to pay off
the unpaid balance on the loan; otherwise it is offset from the
distribution to the Participant, as required by ERISA, and is taxable to
the Participant.
Payment of Benefits
Withdrawals
Participants may withdraw supplemental after-tax contributions and related
investment earnings prior to the age of 59 1/2. Participants are limited to
two withdrawals in a calendar year. After the age of 59 1/2, all vested
accounts may be withdrawn at any time upon request. Participants are able
to withdraw after-tax, pre-tax, and rollover contributions for financial
hardship withdrawals. Participants' pre-tax contributions will be suspended
for six months following a financial hardship withdrawal. Any amounts
withdrawn will be made in cash.
Terminations
A separated Participant whose vested account balance does not exceed $5,000
receives a lump sum distribution of their vested balance as soon as
administratively practical. If the vested account balance exceeds $5,000
the separated Participant may elect to receive either a lump sum as soon as
administratively practical or remain in the Plan.
Forfeitures
A Participant whose employment terminates forfeits the amount of his or her
unvested account balance. The Plan administrator allocates forfeitures in
the Plan year in which the forfeiture occurs and reduces the Plan's
ordinary and necessary administrative expenses that would ordinarily be
paid by the Company.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared on an accrual
basis.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles ("GAAP") requires Company management to make
estimates and assumptions that affect the reported amounts in the financial
statements and the accompanying notes. Actual results could differ from
those estimates.
Valuation of Investments and Income Recognition
The Plan's investments are stated at fair value. The XL Capital Ltd Class A
Ordinary Shares are valued at fair value at year-end as determined by
quoted market prices. Shares of registered investment companies (mutual
funds) are valued at net asset value ("NAV"). Shares of common collective
trust funds are valued at NAV as determined by annual audited financial
statements of the trusts. Participants' outstanding loans are recorded at
their unpaid principal amount.
The net depreciation/appreciation in the fair value of investments consists
of the net realized gains and losses on the disposal of investments and the
unrealized
8
X.L. America, Inc. Employee Savings Plan
Notes to Financial Statements
As of for the year ended December 31, 2002
appreciation/depreciation of the market value for the investments remaining
in the Plan. Realized gains and losses are calculated using the historical
cost of the asset. Historical cost is the original cost of an asset.
Purchases and sales of securities are recorded on a trade-date basis.
Investment earnings are allocated upon receipt to each Participant's
account. Dividends are recognized and accrued on the ex-dividend date.
Contributions
Participant and Employer contributions are recorded in the period in which
the payroll deductions are made from Plan Participants. Any discretionary
matching contributions are recorded by the Plan in the year in which the
discretionary match is declared. (See Note 9, Subsequent Events.)
Payment of Benefits
Benefit payments comprise termination or hardship distributions, in-service
distributions, loan distributions and retirement benefit payments. Benefits
are recorded when paid.
Fees and Expenses
All administrative fees and expenses are paid by the Company except for
investment, management, and fund level operating expenses.
3. Risk and Uncertainties
The Plan provides for various investment options, which may invest in any
combination of stock, fixed income securities, mutual funds, and other
investment securities. Investment securities are exposed to various risks,
such as interest rate, market and credit. Due to the level of risk
associated with certain investment securities and the level of uncertainty
related to changes in the value of investment securities, it is possible
that changes in risks in the near term would materially affect
Participants' account balances and the amounts reported in the Statement of
Net Assets Available for Plan Benefits and the Statement of Changes in Net
Assets Available for Plan Benefits.
4. Investments
The following investments represent 5 percent or more of the fair value of
the Plan's net assets as of December 31:
2002 2001
---------------------- -------------------------
Invesco Stable Value Fund $11,079,221 27% $ 6,761,523 20%
Invesco Dynamics Fund 4,064,655 10% 5,776,275 17%
Invesco Balanced Fund 3,752,290 9% 2,684,294 8%
IRT 500 Index Fund 4,127,842 10% 2,393,291 7%
AIM Small Cap Growth Fund 2,414,722 6% 1,334,762 4%
AIM Basic Value Fund 4,629,005 11% 4,247,170 12%
XL Capital Ltd Class A Ordinary Shares 5,079,715 13% 6,702,128 20%
During 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) depreciated
in value in the aggregate by $8,119,956 as follows:
9
X.L. America, Inc. Employee Savings Plan
Notes to Financial Statements
As of for the year ended December 31, 2002
XL Capital Ltd Class A Ordinary Shares ($782,221)
Invesco Dynamics Fund (1,995,278)
Invesco Select Income Fund (34,190)
Invesco Growth Fund (698,073)
Invesco Technology Fund (449,558)
Invesco Balanced Fund (728,965)
IRT 500 Index Fund (1,078,595)
AIM Small Cap Growth Fund (768,549)
AIM Basic Value Fund (1,298,061)
Janus Overseas Fund (286,794)
Invesco Stable Value Fund 328
------------------
Net depreciation in fair value of investments ($8,119,956)
==================
5. Related-Party Transactions
Certain Plan investments are common collective trusts managed by INVESCO
Funds Group, Inc., a subsidiary of AMVESCAP. AMVESCAP is the Trustee as
defined by the Plan and therefore, these transactions qualify as
party-in-interest transactions. Fees paid by the Plan for the investment
management services related to the Invesco Common Collective Trusts
amounted to $56,750 for the year ended December 31, 2002. XL Capital Ltd
Class A Ordinary Shares are considered a party-in-interest.
6. Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, Participants would become 100% vested in their Employer
contributions.
7. Tax Status
The Internal Revenue Service ("IRS") has determined and informed the
Company by a letter dated August 28, 1987, stating that the Plan and
related trust are designed in accordance with applicable sections of the
IRC and therefore is exempt from taxation. The Plan adopted the AMVESCAP
(formally INVESCO) sponsored prototype plan as of January 1, 2002. The
prototype plan received an approval letter dated August 30, 2001 that it is
designed in accordance with IRC section 401 and is therefore also exempt
from taxation. The Plan has been amended since receiving the determination
letter. However, Company management believes that the Plan is designed and
is currently being operated in compliance with the applicable requirements
of the IRC and is tax exempt.
8. Reconciliation of Financial Statement to Form 5500
The following is a reconciliation of net assets available for benefits per
the financial statements at December 31, 2002 to Form 5500.
10
X.L. America, Inc. Employee Savings Plan
Notes to Financial Statements
As of for the year ended December 31, 2002
Net assets available for benefits per the financial statements $40,554,277
Less: Amounts allocated to withdrawing participants 78,093
-----------
Net assets available for benefits per the Form 5500 $40,476,184
===========
The following is a reconciliation of benefits paid to Participants per the
financial statements for the year ended December 31, 2002, to Form 5500.
Benefits paid to Participants per the financial statements $ 1,903,300
Add: Amounts allocated to withdrawing Participants
at December 31, 2002 78,093
-----------
Benefits paid to Participants per Form 5500 $ 1,981,393
===========
Amounts allocated to withdrawing Participants are recorded on the Form 5500
for benefit claims that have been processed and approved for payment prior
to December 31, 2002, but not yet paid as of that date.
9. Subsequent Events - (Unaudited)
On March 6, 2003, the Company's Board of Directors approved a discretionary
Company match equal to 100% of the first 3% of the annual compensation to
match contributions made by the Participants as of December 31, 2002,
resulting in additional Employer contributions to the Plan of $1,791,303 to
be recorded and paid in 2003.
Effective April 1, 2003, the Plan was amended to include XL Specialty
Insurance Company as a participating employer in the Plan. It was further
resolved that upon receipt of a favorable determination letter from the
Internal Revenue Service under the Employee Plans Compliance Resolution
System, the XL Specialty Insurance Company 401(k) Plan shall be merged with
and into the Plan.
Effective April 1, 2003, the Plan was amended to include XL Capital Ltd as
a participating employer in the Plan and merge the assets of the XL Capital
Ltd US Qualified (401 (k)) Plan of $3,913,354 into the Plan.
Effective April 1, 2003, the Plan was amended to include ECS, Inc. as a
participating employer in the Plan and merge the assets of the ECS, Inc.
Retirement Savings Plan of $20,184,706 into the Plan.
11
X.L. America, Inc. Employee Savings Plan
Schedule H, Line 4(I) -Schedule of Assets (Held at End of Year)
December 31, 2002
Description of Investment,
Including Maturity Date
Identity of Issue, Borrower, Rate of Interest, Par or
Lessor or Similar Party Maturity Value Cost Fair Value
---------------------------------------------------- -------------------------------------- ----------------- -----------------
* Invesco Stable Value Trust Common Collective Trust $11,077,110 $11,079,221
* IRT 500 Index Trust Common Collective Trust 5,298,122 4,127,842
* Invesco Dynamics Mutual Fund 7,124,042 4,064,655
* Invesco Select Income Mutual Fund 1,211,831 1,136,629
* Invesco Growth Mutual Fund 2,694,011 1,177,884
* Invesco Technology II Mutual Fund 1,470,583 658,828
* Invesco Balanced Mutual Fund 4,550,836 3,752,290
AIM Small Cap Growth Mutual Fund 3,432,573 2,414,722
AIM Basic Value Mutual Fund 6,030,236 4,629,005
Janus Overseas Mutual Fund 1,674,108 1,055,276
* XL Capital Ltd Class A Ordinary Shares Ordinary Shares 4,218,744 5,079,715
Cash Money Market Fund 461,775
* Participant Loans Participant Loan Fund 715,554
Maturing in or during
2003 - 2014
5.25% - 10.5%
-----------------
Total Assets Held for Investment $ 40,353,396
=================
* Party-in-interest
12
X.L. America, Inc. Employee Savings Plan
December 31, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Plan Administrator has duly caused this annual report to be signed on its behalf
by the undersigned hereunto duly authorized.
X.L. America, Inc. EMPLOYEE SAVINGS PLAN
(Name of Plan)
X.L. America, Inc., Plan Administrator
DATE: June 27, 2003 By: /s/ Janet Kyle
--------------------- -------------------------------------
Janet Kyle
Senior Vice President
(Name and title of signing official)
13
XL CAPITAL LTD
Annual Report on Form 11-K
For the Fiscal Year Ended
December 31, 2002
EXHIBIT INDEX
Page Number in
Exhibit No. Sequential Numbering
System
--------------- -----------------------
23.1 Consent of Independent Accountants 15
99.1 Certification pursuant to Section 16
906 of the Sarbanes-Oxley Act of
2002
14
EXHIBIT 23.1
PricewaterhouseCoopers LLP
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York NY 10036
Telephone (646) 471 4000
Facsimile (646) 471 4100
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-81451) of XL Capital Ltd of our report dated
June 26, 2003 relating to the financial statements of X.L. America, Inc.
Employee Savings Plan, which appears in this Form 11-K.
PricewaterhouseCoopers LLP
June 26, 2003
15
EXHIBIT 99.1
CERTIFICATION
ACCOMPANYING FORM 11-K REPORT
for the
X.L. AMERICA, INC. EMPLOYEE SAVINGS PLAN
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63,
Title 18 U.S.C.ss.ss.1350(a) and (b))
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63,
Title 18 U.S.C. ss.ss.1350(a) and (b)), each of the undersigned hereby
certifies, in his capacity as an officer of X.L. America, Inc., the plan
administrator of the X.L. America, Inc. Employee Savings Plan (the "Plan"), that
the Annual Report for the Plan on Form 11-K for the period ended December 31,
2002 fully complies with the requirements of Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 and that the information contained in such
Report fairly presents, in all material respects, the net assets available for
benefits and changes in net assets available for benefits of the Plan.
X.L. AMERICA, INC., as
plan administrator of the Plan
(equivalent to the chief executive
officer and chief financial
officer of the Plan)
Date: June 27, 2003 By: /s/ Nicholas M. Brown, Jr.
-------------------------------------
Nicholas M. Brown, Jr.
President and Chief Executive Officer
of X.L. America, Inc.
Date: June 27, 2003 By: /s/ Richard H. Miller
-------------------------------------
Richard H. Miller
Executive Vice President, Chief
Financial Officer and Treasurer
of X.L. America, Inc.
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to X.L. America, Inc., as plan
administrator of the Plan, and will be retained by X.L. America, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
16