On August 30, 2007, the plaintiffs filed a Notice of Appeal from the Order and Judgment in favor of the defendants’ motion to dismiss. The appeal is now pending in the U.S. Court of Appeals for the Second Circuit.
According to an article dated August 31, 2007, on July 21, 2007, the U.S. District Court for the District of Connecticut dismissed an amended securities fraud class complaint, finding that the plaintiffs failed to allege scienter with particularity as required by the Private Securities Litigation Reform Act (PSLRA).
As summarized by the Company’s FORM 10-Q for the quarterly period ended March 31, 2007, on June 21, 2004, a consolidated and amended class action complaint (the “Amended Complaint”) was served on the Company and certain of its present and former directors and officers as defendants in a putative class action (Malin et al. v. XL Capital Ltd et al.) filed in United States District Court, District of Connecticut (the “Malin Action”). The Malin Action purports to be on behalf of purchasers of the Company’s common stock between November 1, 2001 and October 16, 2003, and alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder (the “Securities Laws”). The Amended Complaint alleged that the defendants violated the Securities Laws by, among other things, failing to disclose in various public and shareholder and investor reports and other communications the alleged inadequacy of the Company’s loss reserves for its NAC Re subsidiary (now known as XL Reinsurance America, Inc.) and that, as a consequence, the Company’s earnings and assets were materially overstated. On August 26, 2005, the Court dismissed the Amended Complaint owing to its failure adequately to allege “loss causation,” but provided leave for the plaintiffs to file a further amended complaint. The plaintiffs thereafter filed a second amended complaint (the “Second Amended Complaint”), which is similar to the Amended Complaint in its substantive allegations. On December 31, 2005, the defendants filed a motion to dismiss the Second Amended Complaint. The plaintiffs opposed the motion. In addition, the plaintiffs filed a motion to strike certain documents and exhibits that the XL defendants had proffered in support of the motion to dismiss. By Order dated December 15, 2006, the Judge granted in part and denied in part plaintiffs’ motion to strike and allowed limited discovery through March 2, 2007. The Judge denied defendants’ motion to dismiss without prejudice to its renewal at the conclusion of such discovery. On March 22, 2007, the Company filed a renewed motion to dismiss the Amended Complaint. Plaintiffs are required to serve their opposition to this motion by May 9, 2007.
The original Complaint alleges that XL Capital Ltd. and some of its executives violated Sections 10(b)and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. More
specifically, the Complaint alleges that defendants failed to disclose and
indicate (1) that XL Capital maintained inadequate loss reserves for its NAC Re
subsidiary; (2) that the Company did not, contrary to its express
representations, establish adequate loss reserves to cover claims by NAC Re
policy holders; (3) that reserve increases for NAC Re announced during the
Class Period were materially insufficient; and (4) as a consequence of the
understatement of loss reserves, XL Capital's earnings and assets were
materially overstated at all relevant times.
On October 17, 2003, XL Capital announced that third quarter results would be
lower than anticipated due to higher than expected losses in its North American
reinsurance operations primarily from new casualty claims for the 1997 to 2000
underwriting years. As a result of these losses, the Company expected its third
quarter 2003 net income to be reduced by approximately $184 million pre-tax or
$160 million after-tax, or approximately $1.16 per ordinary share, compared to
analysts' current expectations. On news of this, shares of XL Capital plunged
7.5% or $6.03 per share to close at $73.37 per share on October 17, 2003.