XL Capital Ltd Reports Second Quarter 2003 Results

HAMILTON, BERMUDA - July 31, 2003

Record Net Income $347.7 million, or $2.51 per ordinary share

HAMILTON, BERMUDA, July 31, 2003 -- XL Capital Ltd (“XL” or the“Company”) (NYSE: XL) today reported netincome available to ordinary shareholders for the quarterended June 30, 2003 of $347.7 million, or $2.51 perordinary share, compared with a net loss of $91.7 million,or $0.68 per ordinary share, in the second quarter of2002. ‘Net income excluding net realized gainsand losses on investments and net realized and unrealizedgains and losses on credit and investment derivativeinstruments, net of tax’ for the second quarterof 2003 was $268.6 million, or $1.94 per ordinary share,compared with $26.4 million, or $0.19 per ordinary share,for the quarter ended June 30, 2002. ‘Net incomeexcluding net realized gains and losses on investmentsand net realized and unrealized gains and losses oncredit and investment derivative instruments, net oftax’ is a non-GAAP measure. See below for a reconciliationof this measure to net income available to ordinaryshareholders.

Commenting on the second quarter 2003 results, Brian M. O'Hara, Presidentand Chief Executive Officer of XL, stated: "We had a strong quarter with netincome, total assets and shareholders' equity reaching record levels. Cashflow from operations was a robust $952 million for the second quarter. Addingthe $669 million in XL Life and Annuity transactions this quarter increasedcash flow to $1.6 billion. Net premiums earned from general operationsincreased by more than 40% compared with the second quarter a year ago and weachieved satisfactory combined ratios of 92.2% in the second quarter and 89.2%for the six months ended June 30, 2003."

"We are strategically positioned in all of the business lines and regionswhere we want to be and continue to capitalize on the current strong marketconditions in our areas of focus," stated Mr. O'Hara. "We are particularlywell-placed in those lines of business which are still seeing the largest rateincreases, notably professional lines and casualty worldwide which currentlycomprise nearly half of our general operations' portfolio. The Company's lifeand annuity businesses and our financial operations also performed well andboth areas are gaining momentum."

Mr. O'Hara also commented: "We were also pleased with our total investmentearnings, comprising both investment income and our equity in the earnings ofour investment affiliates, of $224.9 million in the quarter endedJune 30, 2003, as compared with $182.7 million in the prior year's quarter."

For the six months ended June 30, 2003, net income available to ordinaryshareholders was $587.5 million, or $4.25 per ordinary share, compared with anet loss of $2.3 million, or $0.02 per ordinary share, in the six months endedJune 30, 2002. 'Net income excluding net realized gains and losses oninvestments and net realized and unrealized gains and losses on credit andinvestment derivative instruments, net of tax' for the six months ended June30, 2003 was $518.7 million, or $3.76 per ordinary share, compared with$234.0 million, or $1.70 per ordinary share, for the six months endedJune 30, 2002. See below for the reconciliation of 'net income excluding netrealized gains and losses on investments and net realized and unrealized gainsand losses on credit and investment derivative instruments, net of tax' to netincome available to ordinary shareholders.

Total assets as of June 30, 2003 were $39.2 billion compared with$35.6 billion as of December 31, 2002. Book value per ordinary share as atJune 30, 2003 increased to $51.40 compared with $44.48 as atDecember 31, 2002.

Summary unaudited consolidated financial data for the quarter and sixmonths ended June 30, 2003 and 2002, respectively, are set forth below (inmillions, except per share amounts):

                              Three months ended            Six months ended                                   June 30 June 30                                (Unaudited)                    (Unaudited)                              2003          2002         2003           2002    Gross premiums     written              $ 2,037.2     $ 1,538.3     $ 5,184.3     $ 4,342.9    Net premiums written    1,571.9       1,138.7       4,061.0       3,297.5    Net premiums earned     1,575.8       1,057.5       3,127.4       2,122.3    Net income (loss)       $ 357.7      $ (91.7)       $ 607.7       $ (2.3)    Preference dividend       (10.0)         (--)        (20.2)          (--)    Net income available to     ordinary shareholders  $ 347.7      $ (91.7)       $ 587.5       $ (2.3)    Per ordinary     share results:    Net income (loss)     available to ordinary     shareholders (a)        $ 2.51      $ (0.68)        $ 4.25      $ (0.02)    Weighted average     ordinary shares     outstanding:    Basic                   136,791       135,662       136,527       135,431    Diluted                 138,634       138,231       138,084       137,743    Note:    (a) Average stock options outstanding have been excluded where anti-        dilutive to earnings per ordinary share. Consequently, where there is        a net loss, basic weighted average ordinary shares outstanding is used        to calculate net loss per ordinary share.

Effective this quarter the presentation of the Company's results have beenreported in general operations, life and annuity operations and financialoperations in order to provide additional information relating to XL'sfinancial products and services segment. Prior periods have been reclassifiedto reflect this expanded presentation.

Gross premiums written for general operations in the second quarter of2003 were $1.9 billion compared with $1.4 billion in the second quarter of2002. Net premiums written increased to $1.4 billion from $1.0 billion and netpremiums earned rose to $1.5 billion from $1.0 billion in the respectivequarters of 2003 and 2002. For the six months ended June 30, 2003, grosspremiums written for general operations were $4.8 billion compared with$4.2 billion in the year ago period. Net premiums written for the first sixmonths of 2002 were $3.8 billion compared with $3.2 billion a year- ago. Netpremiums earned were $2.9 billion for the first six months of 2003 as comparedwith $2.0 billion for the first six months of 2002.

Gross premiums written for life and annuity operations in the secondquarter of 2003 were $75.9 million compared with $20.0 million in the secondquarter of 2002. Net premiums written for life and annuity operations in thesecond quarter of 2003 were $63.7 million compared with $11.5 million in thesecond quarter of 2002 and net premiums earned were $70.5 million in thesecond quarter of 2003 compared with $10.5 million in the second quarter of2002. For the six months ended June 30, 2003, gross premiums written for lifeoperations were $187.2 million compared with $58.5 million in the year agoperiod. Net premiums written were $161.0 million in the first six months of2003 compared with $48.5 million in the first six months of 2002. Net premiumsearned were $163.3 million and $49.7 million in the respective six monthperiods of 2003 and 2002.

Gross premiums written for financial operations in the second quarter of2003 were $106.3 million compared with $75.8 million in the second quarter of2002. Net premiums written for financial operations in the second quarter of2003 were $104.5 million compared with $73.4 million in the second quarter of2002 and net premiums earned were $35.8 million in the second quarter of 2003compared with $10.8 million in the second quarter of 2002. For the first sixmonths of 2003 gross premiums written for financial operations were$151.0 million compared with $102.1 million in the year ago period. Netpremiums written for financial operations were $148.5 million in the first sixmonths of 2003 compared with $97.1 million in 2002 and net premiums earnedwere $62.8 million and $25.4 million in the respective six month periods of2003 and 2002.

Net investment income from general operations was $145.1 million in thesecond quarter of 2003, compared with $151.6 million in 2002's second quarter.Net investment income from life and annuity and financial operations was$45.5 million in the second quarter of 2003 compared with $23.2 million forthe quarter ended June 30, 2002. For the first six months of 2003 netinvestment income from general operations was $294.1 million in compared with$300.9 million in the year ago period. Net investment income from life andannuity and financial operations was $88.4 million in the first six months of2003 compared with $45.0 million for the first six months of 2002.

The Company's equity in the net income of its investment affiliates forthe second quarter of 2003 was $34.3 million versus $7.9 million in the secondquarter of 2002. The Company's equity in net income of its insurance andfinancial affiliates was $16.5 million in the second quarter of 2003 versusnet income of $0.4 million in the second quarter of 2002. The Company's equityin the net income of its investment affiliates for the first six months of2003 was $61.1 million versus $40.1 million in the first six months of 2002.The Company's equity in net loss of its insurance and financial affiliates was$24.6 million in the first six months of 2003 versus net income of$0.4 million in the first six months of 2002.

The combined ratio for the Company's general insurance and reinsuranceoperations was 92.2% in the second quarter of 2003, versus 109.2% in thesecond quarter of 2002. The loss ratios were 63.2% and 79.3% in the quartersended June 30, 2003 and 2002, with corresponding expense ratios of 29.0% and29.9% for the same quarters, respectively. The combined ratio for theCompany's general insurance and reinsurance operations was 89.2% in the firstsix months of 2003, versus 100.8% in the first six months of 2002. The lossratios were 62.1% and 71.4% in the six months ended June 30, 2003 and 2002,with corresponding expense ratios of 27.1% and 29.4% for the same periods,respectively. In the second quarter and six months ended June 30, 2002, theCompany's results were impacted by increased reserves for the September 11event.

A live on-line web cast of XL's call with analysts and investors to reviewthe second quarter 2003 results will be held at 10 a.m. Eastern Time on August1, 2003 at www.xlgroup.com. An unaudited financial information supplementrelating to the Company's 2003 and 2002 quarterly and full year results isavailable on its website: www.xlgroup.com (under "Investor Relations --Financial Information").

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.

This press release contains forward-looking statements that involveinherent risks and uncertainties. Statements that are not historical facts,including statements about XL's beliefs, plans or expectations, are forward-looking statements. These statements are based on current plans, estimates,and expectations. Actual results may differ materially from those projected insuch forward-looking statements and therefore you should not place unduereliance on them. A non-exclusive list of the important factors that couldcause actual results to differ materially from those in such forward-lookingstatements includes the following: (a) rate increases and improvements interms and conditions may not be as large or sustainable as XL is currentlyprojecting; (b) greater frequency or severity of claims and loss activity,including as a result of natural or man-made catastrophic events, than XL'sunderwriting, reserving or investment practices anticipate based on historicalexperience or industry data; (c) developments in the world's financial andcapital markets which adversely affect the performance of XL's investments andXL's access to such markets; (d) changes in general economic conditions,including foreign currency exchange rates, inflation and other factors; and(e) the other factors set forth in XL's most recent report on Form 10-K, Form10-Q/A and XL's other documents on file with the Securities and ExchangeCommission. XL undertakes no obligation to update publicly or revise anyforward-looking statement, whether as a result of new information, futuredevelopments or otherwise.

 XL Capital Ltd                     SUMMARY CONSOLIDATED FINANCIAL DATA      (In thousands of U.S. dollars, except share and per share amounts)                             Three Months Ended         Six Months Ended                                   June 30 June 30                                 (Unaudited)              (Unaudited)                            2003         2002(a)      2003         2002(a)    Income Statement Data:    Revenues:      Gross premiums       written --general,       life and annuity       and financial       operations        $2,037,193 $1,538,257 $5,184,332 $4,342,933     Net premiums      written -- general,      life and annuity      and financial      operations          1,571,882     1,138,660   4,060,966     3,297,513     Net premiums earned      -- general     operations          $1,469,520 $1,036,231 $2,901,407 $2,047,199     Net premiums earned      -- life and annuity      operations             70,482        10,497     163,253        49,690     Net premiums earned      -- financial      operations             35,807        10,813      62,780        25,367     Net investment income      -- general operations 145,088       151,553     294,089       300,907     Net investment income      -- life and annuity      operations             40,234        16,825      77,693        32,343     Net investment income      -- financial operations 5,229         6,365      10,673        12,620     Net realized gains      (losses) on      investments            93,687      (110,002)     89,024      (216,022)     Net realized and      unrealized (losses)      gains on derivative      instruments           (12,257)       (5,134)      2,236       (14,610)     Equity in net income      of investment      affiliates             34,306         7,931      61,104        40,116     Fee and other income     9,792        20,459      22,069        28,408                         $1,891,888 $1,145,538 $3,684,328 $2,306,018    Expenses:     Net losses and loss      expenses incurred      -- general     operations            $928,755 $822,151 $1,800,546 $1,461,369     Claims and policy      benefit reserves --      life and annuity      operations             83,225        18,816     202,783        66,579     Net losses and loss      expenses incurred --      financial operations    8,820           (54)     22,283         3,026     Acquisition costs and      operating expenses    492,458       355,166     923,289       686,043     Exchange gains         (23,352)      (23,206)    (26,054)      (31,570)     Interest expense        46,282        40,139      92,422        81,761     Amortization of      intangible assets         375            11         750           625                         $1,536,563 $1,213,023 $3,016,019 $2,267,833     Income (loss)      before minority      interest, income      tax expense and      equity in net loss      of insurance and      financial      affiliates           $355,325     $ (67,485)  $ 668,309 $38,185     Minority interest        3,166         1,779       5,028         4,034     Income tax charge       11,009        22,900      31,039        36,854     Equity in net (income)      loss of insurance and      financial affiliates  (16,522)         (416)     24,565          (448)     Net income (loss)    $357,672     $ (91,748)  $ 607,677      $ (2,255)     Preference dividend    (10,013)           --     (20,161)           --     Net income (loss)      available to ordinary      shareholders         $347,659     $ (91,748)  $ 587,516      $ (2,255)     Weighted average      number of ordinary      shares and ordinary      share equivalents       : Basic              136,791       135,662     136,527       135,431       : Diluted            138,634       138,231     138,084       137,743    Per Share Data: (b)     Net income (loss)      available to ordinary      shareholders           $ 2.51        $(0.68)      $4.25        $(0.02)    Note:    (a) Certain reclassifications, which have no effect on net income, have        been made to prior period results to conform to current presentation.    (b) Average stock options outstanding have been excluded where anti-        dilutive to earnings per share. Consequently, where there is a net        loss, basic weighted average ordinary shares outstanding is used to        calculate net loss per share.                                 XL Capital Ltd                     SUMMARY CONSOLIDATED FINANCIAL DATA           (In thousands of U.S. dollars, except per share amounts)                                  (Unaudited)                            As at June 30,        As at December 31,                                 2003                    2002    Balance Sheet Data:    Total investments     available for sale       $17,946,914 $16,022,522    Segregated assets             341,645                  37,211    Net payable for     investments purchased        710,120               1,546,276    Cash and cash equivalents   3,007,127               3,557,815    Investments in affiliates   1,809,643               1,750,005    Intangible assets           1,655,352               1,653,700    Total assets               39,167,529              35,647,369    Unpaid losses and     loss expenses             14,748,208              13,202,736    Deposit liabilities     and policy benefit     reserves                   5,438,842               4,852,785    Segregated liabilities        341,645                  37,211    Notes payable and debt      1,890,398               1,877,957    Total Shareholders'     equity                     7,565,320               6,569,589    Book value per     ordinary share                $51.40 $44.48 XL Capital Ltd                                RECONCILIATION

The following is a reconciliation of the Company's net income (loss) to'net income excluding net realized gains and losses on investments and netrealized and unrealized gains and losses on credit and investment derivativeinstruments, net of tax' for the three and six months ended June 30, 2003 and2002 (in millions except per share amounts):

                                  XL Capital Group                     SUMMARY CONSOLIDATED FINANCIAL DATA           (In thousands of U.S. Dollars, except per share amounts)                                 (Unaudited)                             Three months ended          Six Months Ended                                   June 30 June 30                                 (Unaudited)              (Unaudited)                              2003         2002          2003         2002    Net income (loss)     available to    ordinary shareholders   $347.7      $ (91.7)      $ 587.5       $ (2.3)    Net realized (gains)     and losses on    investments, net      of tax                (96.5)         110.0       (82.2)         217.8    Net realized and     unrealized (gains)      losses on investment      derivatives,     net of tax              (3.9)         (2.0)        (8.5)           9.7    Net realized and     unrealized losses     (gains) on credit     derivatives,     net of tax               21.3          10.1         21.9           8.8    Net income excluding     net realized gains     and losses on investments     and net realized and     unrealized gains and     losses on credit and     investment derivative     instruments,     net of tax            $ 268.6         $26.4       $518.7        $234.0    Per ordinary share results:    Net income (loss)     available to     ordinary shareholders   $2.51       $(0.68)        $4.25       $(0.02)    Net income excluding net     realized gains and     losses on investments     and net realized and     unrealized gains and     losses on credit and     investment derivative     instruments, net of tax $1.94 $0.19 $3.76 $1.70    Weighted average     ordinary shares    outstanding:     Basic                   136.8         135.7        136.5         135.4    Diluted                  138.6         138.2        138.1         137.4    

Comment on Regulation GThis press release contains the presentation of 'net income excluding netrealized gains and losses on investments and net realized and unrealized gainsand losses on credit and investment derivatives, net of tax'. Thispresentation is a "non-GAAP financial measure" as defined in Regulation G. Thereconciliation of such measure to net income (the most directly comparableGAAP financial measure) in accordance with Regulation G is included 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 users ofXL'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, capital gains arelargely opportunistic and are a function of economic and interest rateconditions. In addition, with respect to credit derivatives, because XLgenerally holds its financial guarantee contracts written in credit defaultderivative form to maturity, the net effects of the changes in fair value ofthese credit derivatives are excluded (similar with other companies in thefinancial guarantee business) as the changes in fair value each quarter arenot indicative of underlying business performance of XL's financial guaranteeoperations. Unlike these credit derivatives, XL's weather and energyderivatives are actively traded (i.e, they are not held to maturity) and are,therefore, not excluded from net income as any gains or losses from thisbusiness are considered by management when evaluating and managing theunderlying business.

In summary, XL evaluates the performance of and manages its business toproduce an underwriting profit. In addition to presenting net income, XLbelieves that showing net income exclusive of the items mentioned aboveenables investors and other users of XL's financial information to analyzeXL'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 makes it much more difficult for users of XL'sfinancial information to evaluate XL's underlying business. Also, as statedabove, XL believes that the equity analysts and certain rating agencies whofollow 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.