Reinsurance
Product Family
Claims
Risk Consulting
Media Center
Get In Touch

First Nine Months of 2007 Net Income of $1.42 billion, or $7.89 per ordinary share

Third Quarter Highlights

  • •  "Net income excluding net realized gains and losses"(1) was a record $562.8 million, or $3.13 per ordinary share
  • •  Total net investment income increased 9.6% to $568.0 million
  • •  Combined ratio from P&C operations was 85.3%
  • •  Return on ordinary shareholders' equity, based on "net income excluding net realized gains and losses"(1), was 22.3% for the quarter (annualized)
  • •  Diluted book value per ordinary share increased to $56.29 from $54.74 at June 30, 2007

HAMILTON, Bermuda, Oct. 23 XL Capital Ltd ("XL"or the "Company") today reported net income available to ordinaryshareholders for the quarter ended September 30, 2007 of $328.0 million, or$1.82 per ordinary share, compared with net income of $415.8 million, or $2.32per ordinary share, for the quarter ended September 30, 2006. Included in netincome for the quarter ended September 30, 2007 are net realized losses oninvestments of $160.2 million and net realized and unrealized losses onderivative instruments of $58.2 million.

"Net income excluding net realized gains and losses"(1) for the thirdquarter of 2007 was a record $562.8 million, or $3.13 per ordinary share,compared with $468.7 million, or $2.61 per ordinary share, for the prior yearperiod. As this is the first full quarter in which the Company has accountedfor Security Capital Assurance Ltd ("SCA") as an affiliate, the Company hasamended its definition of "Net income excluding net realized gains andlosses". The definition now excludes the Company's share of net realizedgains and losses on investments, net realized and unrealized losses on credit,structured financial and investment derivatives, net of tax, for SCA and theCompany's other insurance company operating affiliates. "Net income excludingnet realized gains and losses" in prior periods has been amended to conformwith the current period presentation. There was no effect on net income as aresult of these changes.

For the first nine months of 2007, net income available to ordinaryshareholders was a record $1.42 billion, or $7.89 per ordinary share, comparedwith $1.25 billion, or $6.98 per ordinary share, in the first nine months of2006. "Net income excluding net realized gains and losses" for the same periodwas a record $1.63 billion, or $9.03 per ordinary share, as compared with$1.25 billion, or $6.95 per ordinary share, in the first nine months of 2006.

Return on ordinary shareholders' equity, based on net income was 13.0% and19.2% for the three and nine months ended September 30, 2007, respectively.Return on ordinary shareholders' equity, based on net income excluding netrealized gains and losses was 22.3% and 22.0% for the three and nine monthsended September 30, 2007, respectively.

Commenting on the current quarter results, President and Chief ExecutiveOfficer Brian M. O'Hara said: "I am proud to report that XL has againdelivered to shareholders record operating results for both the quarter andyear to date. All of our segments contributed to these excellent results. Ourinvestment operations, in the face of challenging market conditions, generatedsolid net investment income and returns from investment fund affiliates."

At September 30, 2007, diluted book value per ordinary share was $56.29,as compared to $54.74 as at June 30, 2007. Basic book value per ordinaryshare was $56.45 at September 30, 2007 as compared to $55.01 as at June 30,2007.

SEGMENT HIGHLIGHTS - THIRD QUARTER 2007 VERSUS THIRD QUARTER 2006

Insurance

Underwriting profit for the quarter ended September 30, 2007 was$129.7 million compared with $110.7 million in the prior year period. Thisincrease was due mainly to net favorable prior year development of$60.7 million, as compared to net favorable prior year development of$9.5 million in the prior year period. The increase was partially offset bylower net premiums earned of $1.01 billion compared to $1.02 billion in theprior year period.

    -- Gross premiums written decreased 9.4% primarily due to competitive       market conditions across most lines in the current quarter as well as       continued corporate risk management initiatives.    -- Net premiums written increased by 5.1% through changes in program       structures and favorable pricing conditions on reinsurance purchased.    -- Net premiums earned decreased marginally as a result of the earned       impact of lower levels of gross premiums written in previous quarters.    -- The combined ratio was 87.4% compared with 89.6% for the prior year       period. The loss ratio excluding the impact of net prior year       development for the current and prior year quarter was 68.7% and 63.9%,       respectively.

Reinsurance

Underwriting profit for the quarter ended September 30, 2007 was$107.2 million compared with $117.0 million for the prior year period. Thedecrease is principally due to lower premiums written and earned during thequarter in comparison to the prior year period. This decrease was partiallyoffset by higher favorable net prior year development of $83.3 million ascompared with $24.3 million in the prior year quarter.

    -- Gross premiums written decreased by 17.7% due primarily to certain       premium adjustments in the prior year quarter, partially offset by       timing differences.  Excluding these items, gross premiums written       decreased 8.7%.  The decline in gross premiums written was due to       increased retentions by cedants and competitive market conditions.    -- Net premiums earned decreased 13.9% reflecting the effects of lower net       premiums written throughout the year.    -- The combined ratio was 81.3% compared with 82.5% in the prior year       period.  The loss ratio excluding the impact of net prior year       development for the current and prior year quarter was 64.6% and 60.2%,       respectively.

Life Operations

Gross premiums written were $140.7 million compared with $113.4 million inthe prior year quarter, principally due to growth in the core portfolio ofregular premium business and favorable foreign exchange impacts. Net incomewas $27.0 million as compared with $17.8 million in the third quarter lastyear.

Investment Operations

Net investment income from P&C operations, excluding investment incomefrom Structured Products, increased 15.0% from the prior year period to$325.5 million primarily due to higher investment yields. Net income frominvestment affiliates was $69.4 million in the third quarter of 2007 comparedwith $39.4 million in the third quarter of 2006. Net income from investmentmanager affiliates increased to $23.2 million as compared to $9.1 million forthe prior year period.

Total net realized losses on investments were $160.2 million in thequarter compared with net realized losses of $52.7 million in the prior yearperiod. This includes charges for other-than-temporary impairment of$110.9 million primarily related to the deterioration in the credit markets.Most of these losses were borne by our Other Financial Lines operations,representing our muni-GIC and funding agreement businesses which areinherently more exposed to events in the credit markets. Net realized losseson derivatives were $58.2 million compared to a gain in the prior year periodof $0.6 million. Net unrealized losses on investments, net of tax, were$452.2 million at September 30, 2007 compared with net unrealized losses of$309.9 million and net unrealized gains of $410.4 million at June 30, 2007 andDecember 31, 2006, respectively. The increase in net unrealized losses of$142.3 million for the quarter and $862.6 million for the nine months endedSeptember 30, 2007, was substantially due to widening credit spreads oncorporate and structured credit investments, partially offset by the effect ofdeclining U.S., U.K. and Euro-zone government interest rates. The Company hasalso posted on its web-site Structured Credit data to provide detail on itsexposures as at September 30, 2007.

Other Items

During the quarter, the Company repurchased 2.3 million ordinary shares atan average price of $76.66 per share. Year to date, the Company hasrepurchased 13.2 million ordinary shares at an average price of $75.76 pershare. As at September 30, 2007, there were 179.7 million ordinary sharesissued and outstanding. The Company redeemed its Series A preference shareson August 14, 2007 and declared its first dividend on the Series E preferenceshares of $38.64 per share or $38.6 million payable October 15, 2007.

Total operating expenses were $270.5 million, a decrease from$276.4 million in the quarter ended September 30, 2006. The decrease is due tooperating expenses of SCA included in the prior year quarter, partially offsetby higher compensation costs for business development and performance-basedprograms, and the impact of foreign exchange.

Foreign exchange gains were $26.2 million compared with a loss of$21.9 million in the prior year quarter.

The Company will host a conference call to discuss its third quarter 2007results on Wednesday, October 24, 2007 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(877) 422-4657 or (706) 679-0474, Conference ID# 15842595. The webcast willbe available on XL's website located at www.xlgroup.com and will be archivedon this site from approximately 1:00 p.m. Eastern Time on October 24, 2007through midnight Eastern Time on November 26, 2007. A slide presentationaccompanying the Company's discussion of its third quarter results will alsobe available on the Company's website located at www.xlgroup.com beginningapproximately 15 minutes before the commencement of the conference call.

A telephone replay of the conference call will be available beginning atapproximately 1:00 pm. Eastern Time on October 24, 2007 until midnight EasternTime on November 14, 2007 by dialing (800) 642-1687 or (706) 645-9291,Conference ID #15842595. An unaudited financial supplement relating to theCompany's third quarter 2007 results is available on its website located atwww.xlgroup.com.

XL Capital Ltd, through its operating subsidiaries, is a leading providerof global insurance and reinsurance coverages to industrial, commercial andprofessional service firms, insurance companies and other enterprises on aworldwide basis. As of September 30, 2007, XL Capital Ltd had consolidatedassets of $60.9 billion and consolidated shareholders' equity of$11.4 billion. More information about XL Capital Ltd is available atwww.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) greater frequency or severity of claims and loss activity than XL'sunderwriting, reserving or investment practices anticipate based on historicalexperience or industry data; (b) trends in rates for property and casualtyinsurance and reinsurance; (c) developments in the world's financial andcapital markets that adversely affect the performance of XL's investments oraccess to such markets; (d) changes in general economic conditions, includingforeign currency exchange rates, inflation and other factors; and (e) theother factors set forth in XL's most recent reports on Form 10-K, Form 10-Q,and other documents on file with the Securities and Exchange Commission, aswell as management's response to any of the aforementioned factors. XLundertakes no obligation to update or revise publicly any forward-lookingstatement, whether as a result of new information, future developments orotherwise.

(1) Defined as net income excluding net realized gains and losses oninvestments, net realized and unrealized gains and losses on credit,structured financial and investment derivatives, net of tax, for the Companyand its share of these items for Security Capital Assurance Ltd ("SCA") andthe Company's other insurance company operating affiliates, herein referred toas "net income excluding net realized gains and losses". "Net income excludingnet realized gains and losses" is a non-GAAP measure. See the scheduleentitled "Reconciliation" at the end of this release for a reconciliation ofnet income/loss excluding net realized gains and losses to net incomeavailable to ordinary shareholders.

                                XL Capital Ltd                     SUMMARY CONSOLIDATED FINANCIAL DATA                         (U.S. dollars in thousands)                                   Three Months Ended        Nine Months Ended    Income Statement Data:             September 30             September 30                                       (Unaudited)              (Unaudited)                                    2007         2006        2007         2006    Revenues:                                (Note 1)                 (Note 1)    Gross premiums written:            - P&C operations  $1,793,738   $2,048,842  $6,692,216  $7,034,357           - Life operations     140,694      113,371     588,930     479,813      - Financial operations           -       85,570     156,983     272,307     Net premiums written:            - P&C operations   1,256,118    1,271,732   5,158,658   5,247,069           - Life operations     129,353      103,306     556,778     450,465      - Financial operations           -      100,478     130,445     281,747    Net premiums earned:            - P&C operations   1,583,343    1,688,687   4,832,163   5,078,254           - Life operations     147,239      120,922     534,086     431,469      - Financial operations           -       45,455      85,682     148,480     Net investment income       567,987      518,281   1,688,294   1,455,645     Net realized (losses)      on investments            (160,208)     (52,656)   (132,620)    (53,495)     Net realized and      unrealized (losses) gains      on derivative instruments  (58,162)         611     (41,233)     78,700     Net income from      investment affiliates       69,435       39,370     255,414     174,612     Fee and other income          3,653        3,494      11,639      23,086             Total revenues   $2,153,287   $2,364,164  $7,233,425  $7,336,751     Expenses:     Net losses and loss      expenses incurred         $920,564   $1,025,740  $2,857,299  $3,229,249     Claims and policy benefits  195,440      170,455     662,883     558,964     Acquisition costs           253,077      260,877     811,049     823,476     Operating expenses          270,540      276,425     857,595     817,450     Exchange (gains) losses     (26,204)      21,943      19,965      75,385     Interest expense            151,018      150,388     458,504     412,889     Amortization of      intangible assets              420          420       1,260       1,935             Total expenses   $1,764,855   $1,906,248  $5,668,555  $5,919,348       Net income before        minority interest,        income tax and net        income from operating        affiliates              $388,432     $457,916  $1,564,870  $1,417,403     Minority interest in net      income of subsidiary             -        8,355      23,994      10,613     Income tax                   58,715       43,655     192,758     176,728     Net (income) from      operating affiliates       (41,919)     (19,964)   (140,640)    (51,560)     Net income                 $371,636     $425,870  $1,488,758  $1,281,622     Preference share dividends  (43,661)     (10,081)    (66,530)    (30,241)     Net income available      to ordinary shareholders  $327,975     $415,789  $1,422,228  $1,251,381     Note 1: Certain amounts in 2006 have been reclassified to conform with             the current period presentation                                XL Capital Ltd                     SUMMARY CONSOLIDATED FINANCIAL DATA               (Shares in thousands, except per share amounts)                                       Three Months Ended    Nine Months Ended    Income Statement Data (continued):    September 30          September 30                                          (Unaudited)           (Unaudited)                                         2007     2006       2007       2006                                                (Note 1)              (Note 1)    Weighted average number     of ordinary shares and     ordinary share equivalents:                       Basic          178,788  178,818    178,886    178,662                     Diluted          179,781  179,439    180,340    179,298    Per Share Data:    Net income available     to ordinary shareholders           $1.82    $2.32      $7.89      $6.98    Ratios - P&C operations:    Loss ratio                           58.1%    60.4%      59.1%      63.4%    Expense ratio                        27.2%    26.3%      28.1%      26.4%    Combined ratio                       85.3%    86.7%      87.2%      89.8%    Note 1: Certain amounts in 2006 have been reclassified to conform with the            current period presentation                                XL Capital Ltd                     SUMMARY CONSOLIDATED FINANCIAL DATA            (U.S. dollars in thousands, except per share amounts)    Balance Sheet Data:                As at                 As at                                 September 30, 2007     December 31, 2006                                    (Unaudited)                                                            (Note 1)    Total investments     available for sale                 $38,638,635           $39,350,983    Cash and cash equivalents             3,185,239             2,223,748    Investments in affiliates             3,429,614             2,308,781    Unpaid losses and loss     expenses recoverable                 4,840,071             5,027,772    Total assets                         60,888,314            59,308,870    Unpaid losses and loss expenses      23,014,994            22,895,021    Deposit liabilities                   8,682,988             7,857,827    Future policy benefit reserves        6,870,922             6,476,057    Unearned premiums                     5,371,645             5,652,897    Notes payable and debt                2,866,399             3,368,376    Total shareholders' equity           11,431,791            10,131,166    Diluted book value     per ordinary share                      $56.29                $53.01    Basic book value per ordinary share      $56.45                $53.12    Note 1: Certain amounts in 2006 have been reclassified to conform with    the current period presentation                                XL Capital Ltd                                RECONCILIATION

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' for the Company and its share of these items for SCA and the Company'sother insurance company operating affiliates (which is a non-GAAP measure, the"Exclusions") and (ii) annualized return on ordinary shareholders' equity(based on net income (loss) minus the Exclusions) to average ordinaryshareholders' equity for the three and nine months ended September 30, 2007and 2006 (U.S. dollars in millions, except per share amounts):

                                    Three Months Ended     Nine Months Ended                                       September 30          September 30                                       (Unaudited)           (Unaudited)                                     2007       2006       2007       2006                                              (Note 1)              (Note 1)    Net income available to     ordinary shareholders         $328.0     $415.8   $1,422.2   $1,251.4    Net realized losses (gains)     on investments, net of tax     153.1       50.6      118.6       51.5    Net realized and unrealized     (gains) losses on investment     derivatives, net of tax         55.9        2.4       31.6      (52.9)    Net realized and unrealized     (gains) losses on credit and     structured financial     derivatives, net of tax          4.1       (0.6)      28.4       (0.5)    Net realized and unrealized     (gains) losses on investments     and derivatives of SCA and the     Company's other insurance     company operating affiliates    21.7        0.5       28.3       (3.9)    Net income excluding net     realized gains and     losses (Note 2)               $562.8     $468.7   $1,629.1   $1,245.6    Per ordinary share results:    Net income available to     ordinary shareholders          $1.82      $2.32      $7.89      $6.98    Net income excluding     net realized gains     and losses (Note 2)            $3.13      $2.61      $9.03      $6.95    Weighted average ordinary     shares outstanding:    Basic                         178,788    178,818    178,886    178,662    Diluted                       179,781    179,439    180,340    179,298    Return on Ordinary     Shareholders' Equity:    Average ordinary     shareholders' equity       $10,074.4   $8,518.1   $9,878.9   $8,480.4    Net income excluding     net realized gains     and losses (Note 2)           $562.8     $468.7   $1,629.1   $1,245.6    Annualized net income     excluding net realized     gains and losses (Note 2)   $2,251.2   $1,874.8   $2,172.1   $1,660.8    Annualized Return on     Ordinary Shareholders'     Equity - Net income     excluding net realized     gains and losses (Note 2)       22.3%      22.0%      22.0%      19.6%    Note 1: Certain amounts in 2006 have been reclassified to conform with the            current period presentation    Note 2: Defined as "net income excluding net realized gains and losses on            investments, net realized and unrealized gains and losses on            credit, structured financial and investment derivatives, net of            tax of the Company and its share of these items for SCA and the            Company's other insurance company operating affiliates."

Comment on Regulation G

This press release contains the presentation of (i) net income (loss)excluding net realized gains and losses on investments, net realized andunrealized gains and losses on credit, structured financial and investmentderivatives, net of tax, for the Company and its share of these items for SCAand the Company's other insurance company operating affiliates (the"Exclusions") and (ii) annualized return on ordinary shareholders' equity(based on net income minus the Exclusions) to average ordinary shareholders'equity. These items are "non-GAAP financial measures" as defined inRegulation G. The reconciliation of such measures to the most directlycomparable GAAP financial measures in accordance with Regulation G is includedabove.

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, net realized and unrealized gains and losses on credit,structured financial and investment derivatives, net of tax for the Companyand its share of these items for SCA and the Company's other insurance companyoperating affiliates'. Investment derivatives include all derivatives enteredinto by XL other than weather and energy and credit derivatives (discussedfurther below).

Although the investment of premiums to generate income (or loss) andrealized capital gains (or losses) is an integral part of XL's operations, andof those of SCA and the Company's other insurance company operatingaffiliates, the determination to realize capital gains (or losses) isindependent of the underwriting process. In addition, under applicable GAAPaccounting requirements, losses can be created as the result of other-than-temporary declines in value without actual realization. In this regard,certain users of XL's financial information, including certain ratingagencies, evaluate earnings before tax and capital gains to understand theprofitability of the recurring sources of income without the effects of thesetwo variables. Furthermore, these users believe that, for many companies, thetiming of the realization of capital gains is largely opportunistic and are afunction of economic and interest rate conditions. In addition, with respectto credit derivatives, because XL and its insurance company operatingaffiliates generally hold financial guaranty contracts written in creditdefault derivative form to maturity, the net effects of the changes in fairvalue of these credit derivatives are excluded (similar with other companiesin the financial guarantee business) as the changes in fair value each quarterare not indicative of underlying business performance. Unlike these creditderivatives, XL's weather and energy derivatives are actively traded (i.e.,they are not held to maturity) and are, therefore, not excluded from netincome as any gains or losses from this business are considered by managementwhen evaluating and managing 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 agenciesthat follow XL (and the insurance industry as a whole) exclude these itemsfrom their analyses for the same reasons and they request that XL provide thisnon-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, forthe Company and its share of these items for SCA and the Company's otherinsurance company operating affiliates (the "Exclusions"), is a widely usedmeasure of any company's profitability. Annualized return on average ordinaryshareholders' equity (minus the Exclusions) is calculated by dividingannualized net income minus the Exclusions for any period by the average ofthe opening and closing ordinary shareholders' equity. The Company establishestarget ROE's for its total operations, segments and lines of business. If theCompany's ROE return targets are not met with respect to any line of businessover time, the Company seeks to re-evaluate these lines. In addition, theCompany's compensation of its senior officers is significantly dependant onthe achievement of the Company's performance goals to enhance shareholdervalue which include ROE.