Last week, XL Capital (XL) announced estimates for losses from two catastrophes — the earthquake in Chile and the European Windstorm Xynthia, both of which occurred during Feb 2010.

The company estimated that pretax losses from Chilean earthquake will range from $140 million to $205 million, net of reinsurance and reinstatement premium. Out of the total estimate, $75 million to $85 million pertains to insurance and $65 million to $120 million pertains to reinsurance. Losses expected from Xynthia ranges from $20 million to $25 million. XL Capital has substantial exposure to losses resulting from natural and man-made disasters and other catastrophic events.

XL Capital’s 2009 net losses decreased $794.1 million over 2008, primarily due to lower levels of large property risk and catastrophe losses as compared to 2008. In 2008, the company incurred losses, net of reinsurance recoveries and reinstatement premiums, of $22.5 million and $210.0 million related to Hurricanes Gustav and Ike, respectively.

Overall, in 2009 and 2007, XL Capital experienced a lower number of natural catastrophes as compared to 2008. In 2009, natural catastrophes included Hailstorm Wolfgang, a Japanese earthquake, Windstorm Klaus, Typhoon Ketsana, Asian earthquake and tsunami and Australian wildfires. In 2007, six hurricanes formed in the Atlantic region including two Category 5 hurricanes, while other natural catastrophes in 2007 included European windstorms Kyrill and Per/Hanno, California wildfires, floods in the U.K. and Mexico, the Peruvian earthquake and five hurricanes in the Eastern Pacific region.

The occurrence of claims from catastrophic events is likely to result in volatility in XL Capital’s first quarter 2010 earnings. This risk is exacerbated due to accounting principles and rules that do not permit insurers as well as reinsurers to reserve for such catastrophic events until they occur.

The Chilean earthquake, the fifth strongest earthquake ever recorded, has the potential to generate the second-largest insured earthquake loss, after the 1994 Northridge earthquake that occurred in Southern California.

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