Staff eliminations and business cutbacks are efforts to prevent XL entering a downward spiral

Despite difficult investment losses in 2008 and significant cut backs, XL Capital intends to remain in ‘practically all’ lines of commercial insurance.

In an interview with StrategicRISK, CEO Mike McGavick laid out his strategy for the year ahead. ‘[Last year’s] results reflect forays into financial guarantee business and a investment portfolio that is not well designed and we have work to do to fix that,’ he said.

XL’s plans include ‘a meaningful reduction in gross written premium for 2009,’ but McGavick said he expects the Group ‘to be present in practically all’ commercial insurance lines.

The Group will be cutting back on certain lines that do not meet ‘long term hurdle rates’ and in response to its lower rating, which makes it harder for the insurer to compete for long-tail business.

McGavick said that low prices would also force the insurer to focus on short tail business where there is ‘better opportunity for adequate rates’. XL is exiting facultative casualty reinsurance in the US altogether.

For the year 2008 XL made a net loss of $2.63bn and several rating agencies downgraded the Group (it is currently rated 'A' with a stable outlook by A.M. Best and 'A' with a negative outlook by S&P). Those rating changes could start a downward spiral by removing client confidence in the Group’s financial stability and giving it less flexibility into the commercial lines it chooses to focus on.

So far clients have withdrawn from the Group’s excess casualty business, written out of the US and Bermuda, and the US public D&O book.

XL also plans to eliminate approximately 10% of its global workforce this year.

But rather than seeing an exodus of staff and business, McGavick said retention levels on the whole remained good. Last year’s client retention rates were 83% compared with 86% the year before, he said, adding: ‘[Employee] turnover ratio on a voluntary basis in the last year was slightly better than the prior year.’