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First nine months 2006 Net Income of $1,251.4 million, or $6.98 per ordinary share

Third Quarter Highlights

  • • "Net income excluding net realized gains and losses"(1) was a record $468.2 million, or $2.61 per ordinary share
  • • Combined ratio from general operations was 86.8%
  • • Total net investment income increased 41.3% to $518.3 million
  • • Book value per ordinary share increased 12.1% to $49.90
  • • Cash flow from operations was $800.2 million
  • • Annualized return on ordinary shareholders' equity, based on "net income excluding net realized gains and losses"(1), was 22.0%

HAMILTON, Bermuda, Oct. 24 /PRNewswire-FirstCall/ -- XL Capital Ltd(NYSE: XL) ("XL" or the "Company") today reported net income available toordinary shareholders for the quarter ended September 30, 2006 of$415.8 million, or $2.32 per ordinary share, compared with a net loss of$1,049.2 million, or a net loss of $7.53 per ordinary share, for the quarterended September 30, 2005. "Net income excluding net realized gains and losses"(1) for the third quarter of 2006 was $468.2 million, or $2.61 per ordinaryshare, compared with a net loss of $1,115.0 million, or a net loss of $8.01per ordinary share, for the prior year period. Included in both net income and"net income excluding net realized gains and losses" for the quarter endedSeptember 30, 2005 was a net loss after tax of $1,474.4 million related toHurricanes Katrina, Rita and other natural catastrophes.

Commenting on the current quarter results, President and Chief ExecutiveOfficer Brian M. O'Hara said: "I am pleased to report that each of our fivebusiness segments, along with investment operations, contributed to anotherrecord quarter for XL Capital Group. Our book value rose by over 12% this quarter,and our return on equity of 22% was exceptional, demonstrating the success ofXL's risk management, underwriting and investment disciplines. I believe ourinitial public offering of SCA should put them on a very solid foundation forfuture growth and profitability. As we enter the fourth quarter of XL'stwentieth year, we remain committed to disciplined execution and maintainingthe momentum we have built for the benefit of our shareholders."

For the first nine months of 2006, net income available to ordinaryshareholders was $1,251.4 million, or $6.98 per ordinary share, compared witha net loss of $470.4 million, or a loss of $3.39 per ordinary share, in thefirst nine months of 2005. "Net income excluding net realized gains andlosses" for the same period was $1,249.5 million, or $6.97 per ordinary share,as compared with a net loss of $667.2 million, or a loss of $4.81 per ordinaryshare, in the first nine months of 2005.

SEGMENT HIGHLIGHTS - THIRD QUARTER 2006 VERSUS THIRD QUARTER 2005

Insurance General Operations

Underwriting profit for the quarter ended September 30, 2006 was$85.6 million compared with a loss of $625.7 million in the prior year periodwhich included the net impact of third quarter catastrophes of $751.0 million.See attached table for further details. In addition, the current quarterincluded a foreign exchange loss of $23.7 million as opposed to a gain of$8.1 million in the prior year quarter.

Third quarter 2006 as compared to third quarter 2005 excluding the impactof the catastrophes in the third quarter 2005:

    * Gross premiums written decreased 2.9% primarily as a result of      competitive market conditions for certain casualty lines and corporate      risk management initiatives. Net premiums written decreased by 14.0%      primarily due to higher ceded reinsurance costs in certain property      lines.    * Net premiums earned reflect minimal change over the prior year quarter      despite lower net premiums written due mainly to the earned impact of      certain reinsurance costs in the prior year quarter.    * The combined ratio was 89.5% as compared with 88.5% due primarily to a      higher operating expense ratio.   

Reinsurance General Operations

Underwriting profit for the quarter ended September 30, 2006 was$119.6 million compared with an underwriting loss of $738.2 million for theprior year period which included the net impact of third quarter catastrophesof $802.3 million. See attached table for further details. In addition, thecurrent quarter included a foreign exchange gain of $2.4 million as opposed toa loss of $12.4 million in the prior year quarter.

Third quarter 2006 as compared to third quarter 2005 excluding the impactof the catastrophes in the third quarter 2005:

    * Gross premiums written increased 2.5% primarily due to certain premium      adjustments in the current quarter. Excluding these adjustments, gross      premiums written is down approximately 15% due mainly to corporate risk      management initiatives, the loss of one account as a result of a client      merger and also selected cancellations in the casualty portfolio due to      competitive market conditions.    * Net premiums written decreased 11.7% or 15.3% excluding the effects of      the above premium adjustments, in line with the decrease in gross      premiums written.    * Net premiums earned decreased 2.7% or 4.9% excluding the effects of the      above premium adjustments, reflecting the effects of lower net premiums      written over the previous twenty four months.    * The combined ratio was 82.8% compared with 89.2% in the prior year      period driven primarily by an improved current year loss ratio and a      lower acquisition expense ratio.

Life Operations

Gross premiums written were $107.4 million, an increase of 10.9% from theprior year quarter reflecting growth in the underlying business. Net incomewas $15.2 million as compared with $11.2 million in the prior year quarter duemainly to higher net premiums earned.

Financial Operations

* Financial lines

Total contribution for the segment was $27.8 million compared with$24.0 million in the prior year quarter. The prior year quarter included netlosses from Hurricane Katrina of $21.4 million. Gross and net premiums writtenin the current quarter were negatively impacted by the transfer of certainbusiness to Security Capital Assurance Ltd ("SCA"). The net spread income onstructured products decreased compared to the prior year quarter primarily dueto a lower interest expense in the prior year quarter related to a change inthe timing of estimated cash flows.

* SCA

Net income for the segment was $20.6 million compared with $27.1 millionin the prior year quarter. The current quarter included a minority interestcharge of 37% of two months net income of SCA from the date of SCA's initialpublic offering. Net premiums earned increased 13.6% primarily due to growthin their in force book of business. Higher net investment income was partiallyoffset by an increase in operating and tax expenses.

Investment Operations

Net investment income from general operations increased 53.7% from theprior year quarter to $282.9 million due primarily to a continued rise inaverage yields and a higher investment asset base. Net income from investmentaffiliates was $39.4 million in the third quarter of 2006 compared with $56.7million in the third quarter of 2005.

Net realized losses on investments were $52.7 million in the quarter,compared with net realized gains of $53.2 million in the prior year quarter.Net unrealized gains on investments, net of tax, were $394.5 million atSeptember 30, 2006 compared with net unrealized losses of $253.6 million atJune 30, 2006. This increase of $648.1 million for the quarter ended September30, 2006, was primarily due to the decline in U.S., United Kingdom and Euro-Zone interest rates.

Other Items

Total operating expenses were $276.4 million in the quarter, up from$262.3 million in the prior year quarter. Cash flow from operations was$800.2 million, as compared with $551.7 million in the prior year quarter.

The Company will host a conference call to discuss its third quarter 2006results on Wednesday, October 25, 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(877) 422-4657 or (706) 679-0474, Conference ID# 7503058. The webcast will beavailable on XL's website located at www.xlgroup.com and will be archived onthis site from approximately 1:00 p.m. Eastern time on October 25, 2006through midnight Eastern time on November 25, 2006. 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 25, 2006 until 1:00 p.m.Eastern time on November 15, 2006 by dialing (800) 642-1687 or (706) 645-9291,Conference ID # 7503058. An unaudited financial supplement relating to theCompany's third 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 September 30, 2006, XL Capital GroupLtd had consolidated assets of approximately $59.8 billion and consolidatedshareholders' equity of $9.5 billion. More information about XL Capital Ltd isavailable 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 other catastrophelosses in 2005; (b) greater frequency or severity of claims and loss activitythan XL's underwriting, reserving or investment practices anticipate based onhistorical experience or industry data; (c) trends in rates for property andcasualty insurance and reinsurance; (d) developments in the world's financialand capital markets that adversely affect the performance of XL's investmentsor access to such markets; (e) changes in general economic conditions,including foreign currency exchange rates, inflation and other factors; and(f) the other factors set forth in XL's most recent reports on Form 10-K, Form10-Q, and other documents on file with the Securities and Exchange Commission,as well 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/loss excluding net realized gains and losses oninvestments and net realized and unrealized gains and losses on credit,structured financial and investment derivatives, net of tax, herein referredto as "net income/loss excluding net realized gains and losses". "Netincome/loss excluding net realized gains and losses" is a non-GAAP measure.See the schedule entitled "Reconciliation" at the end of this release for areconciliation of net income/loss excluding net realized gains and losses tonet income available 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)                                    2006         2005        2006        2005    Revenues:    Gross premiums written:        - general operations  $2,048,856   $2,184,571  $7,044,671  $7,477,187          - life  operations     107,413       96,870     396,229   2,130,627      - financial operations      91,514       99,437     345,577     262,834    Net premiums written:        - general operations   1,280,610    1,411,482   5,269,703   5,719,206           - life operations      97,604       87,762     367,750   2,102,026      - financial operations      97,302       95,557     341,828     248,572    Net premiums earned:        - general operations   1,699,197    1,655,329   5,066,627   5,149,159          - life  operations      97,818       87,964     368,377   2,102,650      - financial operations      58,049       56,761     223,199     160,448    Net investment income        518,281      366,692   1,455,645   1,042,298    Net realized (losses)     gains on investments        (52,656)      53,223     (53,495)    203,949    Net realized and     unrealized gains on     derivatives                     611       17,982      78,700      15,219    Net income  from     investment affiliates        39,370       56,735     174,612     116,473    Fee and other income           3,494        1,621      23,086      15,733              Total revenues  $2,364,164   $2,296,307  $7,336,751  $8,805,929    Expenses:    Net losses and loss     expenses incurred        $1,040,167   $2,590,969  $3,256,852  $4,995,737    Claims and policy     benefits                    156,028      142,957     531,361   2,289,248    Acquisition costs            260,877      296,018     823,476     901,400    Operating expenses           276,425      262,315     817,450     758,421    Exchange losses               21,943        5,159      75,385       5,388    Interest expense             150,388       89,748     412,889     275,800    Amortization of     intangible assets               420        2,668       1,935       8,504              Total expenses  $1,906,248   $3,389,834  $5,919,348  $9,234,498    Net income (loss) before     minority interest,     income tax     and net income from      operating affiliates      $457,916  $(1,093,527) $1,417,403   $(428,569)    Minority interest in net     income of subsidiary          8,355        2,411      10,613       6,765    Income tax                    43,655      (47,338)    176,728      47,312    Net (income) from     operating affiliates        (19,964)      (9,479)    (51,560)    (42,525)    Net income (loss)           $425,870  $(1,039,121) $1,281,622   $(440,121)    Preference share     dividends                   (10,081)     (10,080)    (30,241)    (30,240)    Net income (loss)     available to ordinary     shareholders               $415,789  $(1,049,201) $1,251,381   $(470,361)                                  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)                                              2006     2005     2006     2005       Weighted average number of       ordinary shares and ordinary       share equivalents:                               Basic       178,818  139,266  178,662  138,823                             Diluted       179,439  139,266  179,298  138,823       Per Share Data:       Net income (loss) available to        ordinary shareholders                $2.32   ($7.53)   $6.98   ($3.39)       Ratios -              - General insurance and        reinsurance operations:       Loss ratio                            60.4%   154.6%    62.1%    95.9%       Expense ratio                         26.4%    27.6%    26.7%    26.3%       Combined ratio                        86.8%   182.2%    88.8%   122.2%                                 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, 2006  December 31, 2005                                            (Unaudited)    Total investments available for sale     $38,712,251       $35,724,439    Cash and cash equivalents                  2,128,221         3,693,475    Investments in affiliates                  2,112,353         2,046,721    Unpaid losses and loss expenses     recoverable                               5,532,054         6,441,522    Total assets                              59,779,999        58,454,901    Unpaid losses and loss expenses           23,292,278        23,767,672    Deposit liabilities                        8,103,553         8,240,987    Future policy benefit reserves             6,075,259         5,606,461    Unearned premiums                          6,088,306         5,388,996    Notes payable and debt                     3,368,132         3,412,698    Minority interest in equity of     consolidated subsidiaries                   549,327            74,256    Total shareholders' equity                 9,523,975         8,471,811    Book value per ordinary share                 $49.90            $44.31                                 XL Capital Ltd.    SUMMARY FINANCIAL IMPACT OF NATURAL CATASTROPHES IN THE THIRD QUARTER 2005                            (U.S. dollars in millions)    Three months ended September 30, 2005                             Gross   Reinsurance  Net    Reinstatement Net                             Loss    recoveries   loss   premium       impact                                                                       pre tax    Insurance        Hurricane Katrina  $1,096.0    $598.9    $497.1  $(70.3)      $567.4           Hurricane Rita     285.1     151.1     134.0   (11.1)       145.1      Other catastrophes       (Note 1)                40.2       1.7      38.5     --          38.5                           $1,421.3    $751.7    $669.6  $(81.4)      $751.0    Reinsurance        Hurricane Katrina  $1,080.0    $439.7    $640.3   $11.5       $628.8           Hurricane Rita     198.5      68.9     129.6     3.9        125.7      Other catastrophes       (Note 1)                51.2       --       51.2     3.4         47.8                           $1,329.7    $508.6    $821.1   $18.8       $802.3    Financial lines        Hurricane Katrina     $21.4      $--      $21.4    $--         $21.4    TOTAL - Pre tax        Hurricane Katrina  $2,197.4  $1,038.6  $1,158.8  $(58.8)    $1,217.6           Hurricane Rita     483.6     220.0     263.6    (7.2)       270.8      Other catastrophes       (Note 1)                91.4       1.7      89.7     3.4         86.3                           $2,772.4  $1,260.3  $1,512.1  $(62.6)    $1,574.7                Tax impact                                            $100.3          TOTAL - Post tax                                          $1,474.4    Notes    1. Includes Hurricanes Dennis, Emily and Ophelia, European and Mumbai    floods and Typhoon Mawar                                 XL Capital Ltd.    SUMMARY FINANCIAL IMPACT OF NATURAL CATASTROPHES IN THE THIRD QUARTER 2005                            (U.S. dollars in millions)    GENERAL OPERATIONS Three months ended         Three months ended                       September 30, 2006         September 30, 2005                                         Including                 Excluding                                        Catastrophes Catastrophes Catastrophes                              Total    INSURANCE    Gross premiums written   $1,290.8       $1,329.3       $--      $1,329.3    Net premiums written        787.9          834.6      (81.4)       916.0    Net premiums earned       1,015.0          933.0      (81.4)     1,014.4    Fee and other income          2.8            0.3        --           0.3    Net losses and     loss expenses              639.1        1,314.4      669.6        644.8    Acquisition costs           116.1          119.1        --         119.1    Operating expenses          153.3          133.6        --         133.6    Exchange losses (gains)      23.7           (8.1)       --          (8.1)    Underwriting     profit (loss)              $85.6        $(625.7)   $(751.0)      $125.3    Loss ratio                  63.0%         140.9%                   63.6%    Combined ratio              89.5%         168.0%                   88.5%    REINSURANCE    Gross premiums written     $758.1         $855.3     $115.7       $739.6    Net premiums written        492.7          576.8       18.8        558.0    Net premiums earned         684.1          722.3       18.8        703.5    Fee and other income         (0.2)           0.1        --           0.1    Net losses and     loss expenses              387.9        1,245.3      821.1        424.2    Acquisition costs           130.4          161.4        --         161.4    Operating expenses           48.4           41.5        --          41.5    Exchange (gains) losses      (2.4)          12.4        --          12.4    Underwriting profit (loss) $119.6        $(738.2)   $(802.3)       $64.1    Loss ratio                  56.7%         172.4%                   60.3%    Combined ratio              82.8%         200.5%                   89.1%    TOTAL    Gross premiums written   $2,048.9       $2,184.6     $115.7     $2,068.9    Net premiums written      1,280.6        1,411.4      (62.6)     1,474.0    Net premiums earned       1,699.1        1,655.3      (62.6)     1,717.9    Fee and other income          2.6            0.4        --           0.4    Net losses and     loss expenses            1,027.0        2,559.7    1,490.7      1,069.0    Acquisition costs           246.5          280.5        --         280.5    Operating expenses          201.7          175.1        --         175.1    Exchange losses (gains)      21.3            4.3        --           4.3    Underwriting profit (loss) $205.2      $(1,363.9) $(1,553.3)      $189.4    Loss ratio                  60.4%         154.6%                   62.2%    Combined ratio              86.8%         182.2%                   88.7%

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' (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 and ninemonths ended September 30, 2006 and 2005 (U.S. dollars in millions, except pershare amounts):

                                      Three Months Ended   Nine Months Ended                                         September 30         September 30                                          (Unaudited)         (Unaudited)                                        2006         2005    2006        2005    Net income (loss) available to     ordinary shareholders              $415.8  $(1,049.2) $1,251.4   $(470.4)    Net realized losses (gains) on     investments, net of tax              50.6      (53.8)     51.5    (197.7)    Net realized and unrealized     (gains) losses on investment     derivatives, net of tax               2.4      (14.4)    (52.9)     21.9    Net realized and unrealized     (gains) losses on credit and     structured financial     derivatives, net of tax              (0.6)       2.4      (0.5)    (21.0)    Net income (loss) excluding net     realized gains and losses (Note 1) $468.2  $(1,115.0) $1,249.5   $(667.2)    Per ordinary share results:    Net  income (loss) available to     ordinary shareholders               $2.32     $(7.53)    $6.98    $(3.39)    Net income (loss) excluding net     realized gains and losses (Note 1)  $2.61     $(8.01)    $6.97    $(4.81)    Weighted average ordinary shares     outstanding:    Basic                              178,818    139,266   178,662   138,823    Diluted                            179,439    139,266   179,298   138,823    Return on Ordinary Shareholders'     Equity:    Average ordinary shareholders'     equity                           $8,518.1   $7,188.0  $8,480.4  $6,871.5    Net income (loss) excluding net     realized gains and losses (Note 1) $468.2  $(1,115.0) $1,249.5   $(667.2)    Annualized net income excluding     net realized gains and losses     (Note 1)                         $1,872.6         NM  $1,666.0        NM    Annualized Return on Ordinary     Shareholders' Equity - Net     income excluding net realized     gains and losses (Note 1)           22.0%        N/A     19.6%       N/A    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".    N/M = Not Meaningful

Comment on Regulation G

This press release contains the presentation of (i) 'net income (loss)excluding 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 (loss) 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,structured financial and investment derivatives, net of tax'. Investmentderivatives include all derivatives entered into by XL other than weather andenergy and credit derivatives (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 credit derivatives, because XL generallyholds its financial guaranty contracts written in credit default derivativeform to maturity, the net effects of the changes in fair value of these creditderivatives are excluded (similar with other companies in the financialguarantee business) as the changes in fair value each quarter are notindicative of underlying business performance of XL's financial guarantyoperations. 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 (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") (minus theExclusions) 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. XL establishes target ROE's for its total operations,segments and lines of business. If XL's ROE return targets are not met withrespect to any line of business over time, XL seeks to re-evaluate theselines. In addition, XL's compensation of its senior officers is significantlydependant on the achievement of the Company's performance goals to enhanceshareholder value which include ROE.