Reinsurance
Product Family

Highlights

  • •  Record net income excluding net realized gains and losses(1) of $405.5 million, resulting in earnings of $2.26 per ordinary share
  • •  Combined ratio was 89.6%
  • •  Net investment income increased 50% to $463.7 million
  • •  Record net income from investment affiliates was $106.4 million
  • •  Contribution from financial operations was $64.5 million
  • •  Cash flow from operations was $555.0 million
  • •  Annualized return on ordinary shareholders' equity, based on net income excluding net realized gains and losses, was 20.4%

HAMILTON, Bermuda, April 25, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- XL Capital Ltd(NYSE: XL) ("XL" or the "Company") today reported net income available toordinary shareholders for the quarter ended March 31, 2006 of $458.5 million,or $2.56 per ordinary share, compared with net income of $442.9 million, or$3.18 per ordinary share, for the quarter ended March 31, 2005. Net incomeexcluding net realized gains and losses(1) for the first quarter of 2006 was$405.5 million, or $2.26 per ordinary share, compared with $346.5 million, or$2.49 per ordinary share, for the prior year period.

Commenting on these results, President and Chief Executive Officer BrianM. O'Hara said: "As we enter our twentieth year, I am pleased to report recordearnings for the quarter with solid results in each of our business segments,as well as very strong investment returns. Our lower P&C net premiums writtenis principally reflective of our previously announced corporate-wide riskmanagement initiatives to maximize risk-adjusted returns and the concentrationin the first quarter of European renewals that were impacted by lower propertyrates and foreign exchange movements. I believe we will see continuing robustP&C market conditions and returns as renewals proceed through the remainder ofthe year."

FIRST QUARTER 2006 SEGMENT HIGHLIGHTS (comparisons are to the prior yearquarter, unless otherwise noted):

Insurance General Operations

Underwriting profit for the quarter ended March 31, 2006 was $64.7 millioncompared with $82.0 million in the prior year period.

    -- Gross and net premiums written decreased 7.1% and 9.9%, respectively as       a result of a decrease in European property rates, unfavorable foreign       exchange movements, lower multi-year premiums and ongoing risk       management initiatives.    -- Net premiums earned decreased 4.7% primarily due to the lower net       premium written.    -- The combined ratio was 91.5% in both quarters.

Reinsurance General Operations

Underwriting profit for the quarter ended March 31, 2006 was $84.9 millioncompared with $93.4 million for the prior year period.

    -- Gross and net premiums written were down 12.5% and 17.8%, respectively       primarily due to ongoing risk management initiatives and selective       treaty cancellations.    -- Net premiums earned were down 7.1% reflecting the effects of lower net       premiums written over the previous twenty four months.    -- The combined ratio was 86.6% compared with 86.9% in the prior year       period.

Reinsurance Life and Annuity Operations

Gross premiums written were $99.6 million, up 9.5%. Net income was$14.1 million, an increase from $5.0 million in the prior year period in partdue to higher net investment income from an increase in the asset base.

Financial Products and Services Operations

Total contribution for the segment was $64.5 million, a decrease of$13.2 million from the prior year period. Strong performances in net premiumsearned, net spread income on structured products, and a net gain onderivatives were offset by a loss reserve on a structured finance transactionand a decrease in fee and other income. The $18.9 million net gain onderivatives was largely the result of realized gains in the weather and energyportfolio.

Investment Operations

Net investment income from general operations increased 52.6% from theprior year period to $262.4 million due to a higher investment asset base anda rise in average yields. Net income from investment affiliates was$106.4 million in the first quarter of 2006 compared with $70.5 million in thefirst quarter of 2005 due to strong performance on the alternative and privateequity portfolios.

Net realized gains on investments were $22.8 million in the quarter,compared with $60.7 million in the prior year period. Net unrealized gains oninvestments, net of tax, were $103.7 million at March 31, 2006 compared with$502.9 million at December 31, 2005. This reduction of $399.2 millionprimarily reflected a rise in U.S., United Kingdom and Euro-Zone interestrates during the quarter.

Corporate Items

Total operating expenses were $261.6 million in the quarter, up from$247.2 million in the prior year period. Cash flow from operations was$555.0 million, up from $270.6 million in the prior year period.

The Company will host a conference call to discuss its first quarter 2006results on Wednesday, April 26, 2006 at 10:00 a.m. Eastern time. Theconference call can be accessed through a listen-only dial-in number orthrough a live webcast. To listen to the conference call, please dial(706) 679-0474, password 042606. The webcast will be available on XL'swebsite located at www.xlgroup.com and will be archived on this site fromapproximately 1:00 p.m. Eastern time on April 26, 2006 through midnightEastern time on May 26, 2006. A slide presentation accompanying the Company'sdiscussion of its first quarter results will also be available on theCompany's website located at www.xlgroup.com beginning approximately 15minutes before the commencement of the conference call.

A telephone replay of the conference call will be available beginning atapproximately 11:00 a.m. Eastern time on April 26, 2006 until 11:00 p.m.Eastern time on May 26, 2006 by dialing (800) 642-1687 or (706) 645-9291,Conference ID #7311747. An unaudited financial supplement relating to theCompany's first quarter 2006 results is available on its website located atwww.xlgroup.com.

XL Capital Ltd, through its operating subsidiaries, is a leading providerof insurance and reinsurance coverages and financial products and services toindustrial, commercial and professional service firms, insurance companies andother enterprises on a worldwide basis. As of March 31, 2006, XL Capital Ltdhad consolidated assets of approximately $58.8 billion and consolidatedshareholders' equity of approximately $8.5 billion. More information about XLCapital Ltd is available at www.xlgroup.com.

This press release contains forward-looking statements. Statements thatare not historical facts, including statements about XL's beliefs, plans orexpectations, are forward-looking statements. These statements are based oncurrent plans, estimates, and expectations. Actual results may differmaterially from those included in such forward-looking statements andtherefore you should not place undue reliance on them. A non-exclusive list ofthe important factors that could cause actual results to differ materiallyfrom those in such forward-looking statements includes the following:(a) changes in the size of XL's claims relating to hurricane and othercatastrophe losses in 2005; (b) greater frequency or severity of claims andloss activity than XL's underwriting, reserving or investment practicesanticipate based on historical experience or industry data; (c) trends inrates for property and casualty insurance and reinsurance; (d) developmentsin the world's financial and capital markets that adversely affect theperformance of XL's investments or access to such markets; (e) changes ingeneral economic conditions, including foreign currency exchange rates,inflation and other factors; and (f) the other factors set forth in XL's mostrecent reports on Form 10-K, Form 10-Q, and other documents on file with theSecurities and Exchange Commission, as well as management's response to any ofthe aforementioned factors. XL undertakes no obligation to update or revisepublicly any forward-looking statement, whether as a result of newinformation, future developments or otherwise.

(1) Defined as "net income excluding net realized gains and losses oninvestments and net realized and unrealized gains and losses oncredit, structured financial and investment derivatives, net of tax"herein referred to as "net income excluding net realized gains andlosses". Net income excluding net realized gains and losses is anon-GAAP measure. See the schedule entitled "Reconciliation" at theend of this release for a reconciliation of net income/loss excludingnet realized gains and losses to net income available to ordinaryshareholders.

                                 XL Capital Ltd                       SUMMARY CONSOLIDATED FINANCIAL DATA                           (U.S. dollars in thousands)                                                        Three Months Ended    Income Statement Data:                                   March 31                                                            (Unaudited)                                                      2006              2005    Revenues:    Gross premiums written:                 - general operations            $3,041,378        $3,371,977                 - life and annuity operations       99,642            91,009                 - financial operations             101,493            60,947    Net premiums written:                - general operations              2,442,164         2,848,020                - life and annuity operations        90,468            81,256                - financial operations               96,306            52,629    Net premiums earned:                 - general operations             1,666,424         1,766,269                 - life and annuity operations       90,665            81,471                 - financial operations              61,460            51,695    Net investment income                           463,742           308,205    Net realized gains on investments                22,765            60,671    Net realized and unrealized gains on     derivatives                                     48,851            45,178    Net income from investment affiliates           106,393            70,512    Fee and other income                             12,962            17,160                      Total revenues             $2,473,262        $2,401,161    Expenses:    Net losses and loss expenses incurred        $1,097,124        $1,143,061    Claims and policy benefits                      142,880           125,627    Acquisition costs                               267,087           294,394    Operating expenses                              261,561           247,156    Exchange losses                                  30,749            10,922    Interest expense                                127,869            88,286    Amortization of intangible assets                 1,095             2,793                      Total expenses             $1,928,365        $1,912,239    Net income before minority interest,     income tax and net income     from operating affiliates                     $544,897          $488,922    Minority interest in net income     of subsidiary                                    2,258             2,275    Income tax                                       66,636            52,874    Net loss (income) from     operating affiliates                             7,420           (19,252)    Net income                                     $468,583          $453,025    Preference share dividends                      (10,080)          (10,080)    Net income available to     ordinary shareholders                         $458,503          $442,945    Weighted average number     of ordinary shares and     ordinary share equivalents :                                  Basic             178,424           138,035                                  Diluted           179,158           139,147    Per Share Data:    Net income available to     ordinary shareholders                            $2.56             $3.18    Ratios Â? General insurance and     reinsurance operations    Loss ratio                                         63.9%             64.3%    Expense ratio                                      25.7%             25.4%    Combined ratio                                     89.6%             89.7%                                 XL Capital Ltd                       SUMMARY CONSOLIDATED FINANCIAL DATA              (U.S. dollars in thousands, except per share amounts)    Balance Sheet Data:                         As at              As at                                           March 31, 2006    December 31, 2005                                             (Unaudited)    Total investments available for sale      $36,771,993          $35,724,439    Net payable for investments purchased         269,167              639,034    Cash and cash equivalents                   2,262,824            3,693,475    Investments in affiliates                   1,887,228            2,046,721    Unpaid losses and loss     expenses recoverable                       6,322,630            6,441,522    Total assets                               58,755,819           58,454,901    Unpaid losses and loss expenses            23,733,585           23,767,672    Deposit liabilities                         7,987,272            8,240,987    Future policy benefit reserves              5,674,221            5,606,461    Unearned premiums                           6,392,319            5,388,996    Notes payable and debt                      3,367,646            3,412,698    Total shareholders' equity                  8,490,580            8,471,811    Book value per ordinary share                  $44.23               $44.31
XL Capital LtdRECONCILIATION

The following is a reconciliation of the Company's (i) net income (loss)available to ordinary shareholders to 'net income (loss) excluding netrealized gains and losses on investments and net realized and unrealized gainsand losses on credit, structured financial and investment derivatives, net oftax' (which is a non-GAAP measure, the "Exclusions") and (ii) annualizedreturn on ordinary shareholders' equity (based on net income (loss) minus theExclusions) to average ordinary shareholders' equity for the three monthsended March 31, 2006 and 2005 (U.S. dollars in millions, except per shareamounts):

                                                Three Months Ended                                                      March 31                                                    (Unaudited)                                               2006               2005    Net  income available to     ordinary shareholders                   $458.5             $442.9    Net realized (gains) on     investments, net of tax                  (25.3)             (57.7)    Net realized and unrealized     losses (gains) on investment     derivatives, net of tax                  (29.6)             (28.8)    Net realized and unrealized     losses (gains) on credit and     structured financial     derivatives, net of tax                    1.9               (9.9)    Net income excluding net realized     gains and losses (Note 1)               $405.5             $346.5    Per ordinary share results:    Net  income available to     ordinary shareholders                    $2.56              $3.18    Net income excluding net realized     gains and losses (Note 1)                $2.26              $2.49    Weighted average ordinary     shares outstanding:    Basic                                   178,424            138,035    Diluted                                 179,158            139,147    Return on Ordinary     Shareholders' Equity:    Average ordinary     shareholders' equity                  $7,963.7           $7,259.4    Net income excluding net realized     gains and losses (Note 1)               $405.5             $346.5    Annualized net income excluding net     realized gains and losses (Note 1)    $1,622.1           $1,386.0    Annualized Return on Ordinary     Shareholders' Equity - Net income     excluding net realized gains and     losses (Note 1)                           20.4%              19.1%    Note 1: Defined as "net income excluding net realized gains and losses on            investments and net realized and unrealized gains and losses            on credit, structured financial and investment derivatives,            net of tax".
Comment on Regulation G

This press release contains the presentation of (i) 'net (loss) incomeexcluding net realized gains and losses on investments and net realized andunrealized gains and losses on credit, structured financial and investmentderivatives, net of tax' and (ii) annualized return on ordinary shareholders'equity (based on net income minus the Exclusions) to average ordinaryshareholders' equity. These items are "non-GAAP financial measures" asdefined in Regulation G. The reconciliation of such measures to the mostdirectly comparable GAAP financial measures in accordance with Regulation G isincluded above.

XL presents its operations in the way it believes will be most meaningfuland useful to investors, analysts, rating agencies and others who use XL'sfinancial information in evaluating XL's performance. This presentationincludes the use of 'net income excluding net realized gains and losses oninvestments and net realized and unrealized gains and losses on credit andinvestment derivatives, net of tax'. Investment derivatives include allderivatives entered into by XL other than weather and energy and creditderivatives (discussed further below).

Although the investment of premiums to generate income (or loss) andrealized capital gains (or losses) is an integral part of XL's operations, thedetermination to realize capital gains (or losses) is independent of theunderwriting process. In addition, under applicable GAAP accountingrequirements, losses can be created as the result of other than temporarydeclines in value without actual realization. In this regard, certain usersof XL's financial information, including certain rating agencies, evaluateearnings before tax and capital gains to understand the profitability of therecurring sources of income without the effects of these two variables.Furthermore, these users believe that, for many companies, the timing of therealization of capital gains is largely opportunistic and are a function ofeconomic and interest rate conditions. In addition, with respect to creditderivatives, because XL generally holds its financial guarantee contractswritten in credit default derivative form to maturity, the net effects of thechanges in fair value of these credit derivatives are excluded (similar withother companies in the financial guarantee business) as the changes in fairvalue each quarter are not indicative of underlying business performance ofXL's financial guarantee operations. Unlike these credit derivatives, XL'sweather and energy derivatives are actively traded (i.e., they are not held tomaturity) and are, therefore, not excluded from net income as any gains orlosses from this business are considered by management when evaluating andmanaging the underlying business.

In summary, XL evaluates the performance of and manages its business toproduce an underwriting profit. In addition to presenting net income (loss),XL believes that showing net income (loss) exclusive of the items mentionedabove enables investors and other users of XL's financial information toanalyze XL's performance in a manner similar to how management of XL analyzesperformance. In this regard, XL believes that providing only a GAAPpresentation of net income (loss) makes it much more difficult for users ofXL's financial information to evaluate XL's underlying business. Also, asstated above, XL believes that the equity analysts and certain rating agencieswho follow XL (and the insurance industry as a whole) exclude these items fromtheir analyses for the same reasons and they request that XL provide this non-GAAP financial information on a regular basis.

Return on average ordinary shareholder's equity ("ROE"), excluding netrealized gains and losses on investments and net realized and unrealized gainsand losses on credit and investment derivative instruments, net of tax (the"Exclusions"), is a widely used measure of any company's profitability.Annualized return on average ordinary shareholders' equity (minus theExclusions) is calculated by dividing annualized net income minus theExclusions for any period by the average of the opening and closing ordinaryshareholder's equity. The Company establishes target ROE's for its totaloperations, segments and lines of business. If the Company's ROE returntargets are not met with respect to any line of business over time, theCompany seeks to re-evaluate these lines. In addition, the Company'scompensation of its senior officers is significantly dependant on theachievement of the Company's performance goals to enhance shareholder valuewhich include ROE.