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  • Book value per ordinary share increased by 26% to $23.84 at September 30, 2009
  • P&C operations combined ratio of 93.2%
  • Total shareholders' equity of $9.2 billion, up from $7.5 billion
  • Operating income of $306.4 million, or $0.89 per ordinary share
  • Net loss of $11.4 million, or $0.03 per ordinary share, primarily due to $310.8 million of after-tax net realized losses on investments
  • HAMILTON, Bermuda, October 28, 2009 - XL Capital Ltd ("XL" or the "Company")(NYSE:XL) today reported its thirdquarter 2009results.

    Commenting on the Company's performance, Chief Executive Officer, Mike McGavick, said:

    "Solid underwriting and careful expense management, combined with our prudent reserving practices, provided a healthy combined ratio of 93.2% from P&C operations. For the quarter, we have recorded a 26% increase in book value per ordinary share to $23.84 and a 30% increase in tangible book value per ordinary share to $21.36. Total shareholders' equity increased from $7.5 billion to $9.2 billion in the quarter.

    "These are encouraging numbers but clearly there are areas for continued improvement. For instance, gross premiums written for our P&C operations were 16.6% lower than the prior year quarter. Although on target with our current guidance for the year, continuing this recovery means we must remain vigilant in the face of challenging pricing conditions.

    "Pressures from the current economic environment and where we are in the underwriting cycle have not deterred us from seeking the right price regardless of the impact on top line. We will continue to do so.

    "The other area for improvement remains the investment portfolio. While XL had strong operating income in the quarter of $306.4 million, or $0.89 per ordinary share, that strong operating performance was offset by our recognition of $310.8 million in after-tax net realized losses related principally to other than temporary impairments. Although this charge resulted in a net loss available to ordinary shareholders of $11.4 million or $0.03 per ordinary share, we remain committed to an investment portfolio more properly suited to a P&C company, and have made significant strides over the past year to de-risk our portfolio in pursuit of that goal.

    "On the positive side, our portfolio marks improved by $1.4 billion during the third quarter, and 54% of the $34.0 billion portfolio was in cash, government, government-related or government-supported securities at the end of the third quarter. Given the increased stability in the capital markets, we have selectively redeployed some of our cash and proceeds from sales and maturities into high quality assets, achieving new money yields of 3.9%.

    He concluded: "Overall we are pleased with the third quarter. Our operating results indicate what our clients and brokers have already clearly concluded - XL is delivering for our customers and, on an operating basis, for shareholders. As we approach the January renewal season, XL is fully focused on serving the needs of our customers, delivering value to our shareholders and emerging as the best P&C (re)insurer wherever we choose to compete."

        2009 Second Quarter Summary Financial Results    Three Months Ended June 30    (US Dollars in thousands except per share amounts)                                                 (Per Share-Diluted)                        2009     2008      Change   2009    2008    Change    Net income       ($11,402) ($1,649,024)   NM   ($0.03)  ($6.04)    NM    Operating income  306,409    107,765     184%   0.89     0.39      128%

    The Company incurred a net loss available to ordinary shareholders for the third quarter of $11.4 million, or $0.03 per ordinary share, compared to a net loss available to ordinary shareholders of $1,649.0 million, or $6.04 per ordinary share for the third quarter of 2008. Operating income was $306.4 million, or $0.89 per ordinary share, compared to $107.8 million, or $0.39 per ordinary share in the third quarter of 2008.

    The significant improvement in the net loss available to ordinary shareholders from the prior year quarter is primarily due to a charge of $1.4 billion in the prior year quarter related to the transaction closed on August 5, 2008 with Syncora Holdings Ltd. (formerly Security Capital Assurance Ltd) and certain of its subsidiaries. Also contributing to the improvement was an increase in operating income of $198.6 million primarily due to an increase of $183.7 million from the underwriting contribution of XL's P&C operations and an increase of $97.2 million in the net income from investment affiliates. These were partially offset by a decrease in investment income of $109.1 million compared to the third quarter of 2008.

    Net investment income for the quarter was $327.1 million compared to $436.3 million in the prior year quarter. Net investment income from P&C operations, excluding investment income from structured products, decreased 27.7% from the prior year quarter to $211.8 million. This decrease was primarily due to lower investment yields, driven by both the impact of lower US LIBOR rates on floating rate structured credit assets, and higher allocations to lower yielding US Treasuries, Agencies and cash as a result of continued de-risking activities.

    Pre-tax net realized investment losses for the quarter were $325.5 million compared to a loss of $292.9 million in the third quarter of 2008. The loss for the third quarter of 2009 included other than temporary impairments, net of non-credit impairments, totaling $321.7 million, and realized losses on securities sales of $3.8 million. The other than temporary impairments in the quarter arose primarily from impairments of corporate securities, principally certain European medium term notes, combined with below investment grade structured securities.

    The annualized return on ordinary shareholders' equity, based on operating income, was 16.7% for the quarter as compared to 5.8% in the prior year quarter.

    For the first nine months of 2009, the Company produced net income of $246.9 million or $0.73 per ordinary share, compared to a net loss of $1.2 billion or $5.70 loss per ordinary share, for the prior year period. Operating income was $681.5 million or $2.00 per ordinary share, compared to $650.8 million or $3.09 per ordinary share in the prior year period. The annualized return on ordinary shareholders' equity, based on operating income, was 13.7% for the first nine months of 2009 compared to 10.8% in the prior year period.

        P&C Operations    Three Months Ended September 30    (US Dollars in thousands except per share amounts)                                     2009        2008    Gross Premiums Written     $1,584,209  $1,899,975    Net Premiums Written        1,195,119   1,257,914    Net Premiums Earned         1,293,879   1,525,023    Underwriting Income            88,279     (95,392)    Loss Ratio                       63.2%       79.3%    Expense Ratio                    30.0%       27.0%    Combined Ratio                   93.2%       106.3%

    • P&C gross and net premiums written declined from the prior year quarter primarily due to planned reductions in long-term agreements, strengthening of the US dollar compared to the third quarter of 2008, lower insured values reflecting macroeconomic conditions and planned reductions in several targeted areas. Also impacting the decline was XL's focus on rate achievement in a competitive environment.
    • P&C net premiums earned included $905.4 million from the Insurance segment and $388.5 million from the Reinsurance segment.
    • The loss ratio for the quarter was 63.2% compared to 79.3% for the third quarter of 2008. Included in the current quarter loss ratio was prior year favorable development of $74.3 million compared to $92.8 million in the third quarter of 2008.
    • The third quarter 2009 loss ratio had catastrophe losses, net of reinsurance recoveries and reinstatement premiums, of $30.8 million compared to the $208.5 million in the third quarter of 2008, which included Hurricanes Gustav and Ike
    • The expense ratio during the quarter included charges of approximately $7.6 million related to the Company's previously announced cost reduction efforts, of which $6.5 million and $1.1 million related to the Insurance and Reinsurance segments, respectively. In the prior year quarter there was also a restructuring charge of $17.3 million. The third quarter 2009 expense ratio also included increased acquisition costs primarily as a result of changes in the mix of business and higher profit-related commissions.
    • The P&C combined ratio for the quarter was 93.2% compared to 106.3% for the quarter ended September 30, 2008. Excluding the charges for the cost reduction initiatives, the current quarter combined ratio would have been 92.6%.

    Capital Position

    Book value per ordinary share was $23.84 as compared to $18.89 at June 30, 2009.

    Net unrealized losses on investments, net of tax, were $1.5 billion at September 30, 2009 compared with net unrealized losses, net of tax of $3.2 billion at June 30, 2009. The decrease in net unrealized losses for the quarter in the Company's P&C operations was substantially due to the tightening of credit spreads on both corporate and structured credit assets, and from the impact of decreases in US Government interest rates. The decrease in net unrealized losses in the Company's Life operations was a result of tightening credit spreads in Sterling and Euro corporate securities, particularly hybrid corporate financials, and the effect of decreases in interest rates.

    Further details of the results for the quarter and of the Company's fixed income investment portfolio may be found in the Company's Financial Supplement and Fixed Income Portfolio Data Supplement, respectively. These documents are both dated October 28, 2009 and are available from the Investor Relations section of the XL Capital Group website.

    The Company will host a conference call to discuss its Third Quarter results on Wednesday, October 28, 2009 at 5:00 p.m. Eastern time. The conference call can be accessed through a listen-only dial-in number or through a live webcast. To listen to the conference call, please dial (866) 617-1526 or (210) 795-0624, passcode: 'xl global'. The webcast will be available at www.xlgroup.com and will be archived on XL's website from approximately 8:00 p.m. Eastern Time on October 28, 2009, through midnight Eastern Time on November 27, 2009. A telephone replay of the conference call will also be available beginning at 8:00 p.m. Eastern Time on October 28, 2009, until midnight Eastern Time on November 27, 2009, by dialing (800) 337-5619 or (402) 220-9652, passcode: 'xl global'.

    This press release contains forward-looking statements. 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, all of which involve risk and uncertainty. Actual results may differ materially from those included in such forward-looking statements and therefore you should not place undue reliance on them. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes (a) changes in ratings, rating agency policies or practices; (b) greater frequency or severity of claims and loss activity than XL's underwriting, reserving or investment practices anticipate based on historical experience or industry data; (c) trends in rates for property and casualty insurance and reinsurance; (d) other changes in general economic conditions, including the effects of inflation and changes in interest rates, credit spreads, foreign currency exchange rates and other factors; (e) developments, including uncertainties related to the depth and duration of the current recession, and future volatility in the world's credit, financial and capital markets that adversely affect the performance and valuation of XL's investments or access to such markets; (f) the potential for changes to methodologies, estimations and assumptions that underlie the valuation of the Company's financial instruments that could result in changes to investment valuations; (g) changes to the Company's assumptions as to whether it has the ability and intent to hold available-for-sale securities to recovery; (h) the potential effects of domestic and foreign regulatory developments, including those which could impact the financial markets or increase XL's business costs and required capital levels; (i) the ability of XL's subsidiaries to pay dividends to the Company; (j) changes in the size of XL's claims relating to natural catastrophe losses due to the preliminary nature of some reports and estimates of loss and damage to date; and (k) the other factors set forth in XL's reports on Form 10-K, Form 10-Q, and other documents on file with the Securities and Exchange Commission, as well as management's response to any of the aforementioned factors. XL undertakes no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future developments or otherwise..

    (1) Defined as net income (loss) available to ordinary shareholders excluding net realized gains and losses on investments, goodwill impairment charges, net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax, for the Company and its share of these items for the Company's insurance company affiliates for the periods presented and charges in respect of guarantees relating to subsidiaries of Syncora Holdings Ltd. ("Syncora"), as well as the gain recognized on the repurchase of the Company's Series C preference ordinary shares. "Operating income" and "annualized return on ordinary shareholders' equity based on operating income" are non-GAAP measures. See the schedule entitled "Reconciliation" at the end of this release for a reconciliation of "operating income" to net income (loss) 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)                                  2009        2008         2009        2008    Revenues:    Gross premiums written:       - P&C operations     $1,584,209   $1,899,975  $4,963,627   $6,387,100       - Life operations       156,870      156,148     442,693      552,357    Net premiums written :       - P&C operations      1,195,119    1,257,914   3,778,708    4,753,934       - Life operations       146,941      145,741     409,200      520,887    Net premiums earned :       - P&C operations      1,293,879    1,525,023   3,897,315    4,586,590       - Life operations       151,840      169,608     429,625      502,125    Net investment income      327,145      436,281   1,003,459    1,375,862    Net realized (losses)     gains on investments     (325,520)    (292,903)   (657,887)    (393,114)    Net realized and     unrealized (losses)     gains on derivative     instruments                (9,133)     (58,454)     (9,571)      (5,648)    Net income (loss) from     investment affiliates      42,288      (54,886)     52,481      (63,522)    Fee income and other         5,331       19,132      27,285       40,219           Total revenues   $1,485,830   $1,743,801  $4,742,707   $6,042,512    Expenses:    Net losses and loss     expenses incurred        $818,238   $1,209,565  $2,388,149   $3,149,043    Claims and policy     benefits                  185,067      199,861     517,614      605,885    Acquisition costs          212,846      216,879     654,337      729,413    Operating expenses         230,908      319,432     763,514      881,554    Exchange (gains) losses    (16,843)    (139,467)    103,754      (63,786)    Extinguishment of debt           -       22,527           -       22,527    Interest expense            53,469       78,000     169,008      267,553    Amortization of     intangible assets             465        1,386       1,394        2,226           Total expenses   $1,484,150   $1,908,183  $4,597,770   $5,594,415    Net income (loss)     before non-controlling     interest, income tax     and net income from     operating affiliates       $1,680    $(164,382)   $144,937     $448,097    Non-controlling interest     in net loss of subsidiary      (7)           -         (47)           -    Income tax                   3,616       47,843      65,614      129,750    Net loss (income) from     operating affiliates      (23,027)   1,404,299     (30,366)   1,452,647    Net income (loss)          $21,098  $(1,616,524)   $109,736  $(1,134,300)    Preference share     dividends                 (32,500)     (32,500)    (74,626)     (65,000)    Gain on repurchase of     Series C preference     ordinary shares                 -            -     211,816            -    Net (loss) income     available to     ordinary shareholders    $(11,402) $(1,649,024)   $246,926  $(1,199,300)                       SUMMARY CONSOLIDATED FINANCIAL DATA              (U.S. dollars in thousands, except per share amounts)    Balance Sheet Data:                           As at             As at                                               September 30      December 31,                                                   2009              2008                                               (Unaudited)         (Note 1)    Total investments available for sale       $30,010,739       $27,464,510    Cash and cash equivalents                    3,906,277         4,353,826    Investments in affiliates                    1,193,917         1,552,789    Unpaid losses and loss expenses     recoverable                                 3,827,343         3,997,722    Total assets                                47,221,241        45,622,278    Unpaid losses and loss expenses             21,202,343        21,650,315    Deposit liabilities                          2,442,800         2,710,987    Future policy benefit reserves               5,754,176         5,452,865    Unearned premiums                            4,185,151         4,217,931    Notes payable and debt                       2,452,373         3,189,734    Redeemable series C preference     ordinary shares                               182,673           500,000    Total shareholders' equity                   9,173,517         6,116,831    Diluted book value per ordinary share           $23.84            $15.46    Basic book value per ordinary share             $23.88            $15.46    Note 1: Certain items have been reclassified to conform with the currentperiod presentation                                XL Capital Ltd                                RECONCILIATION

    The following is a reconciliation of the Company's (i) net income (loss)available to ordinary shareholders to operating income (loss) (Note 1) and(ii) annualized return on ordinary shareholders' equity (based on operatingincome (loss)) to average ordinary shareholders' equity for the three monthsended September 30, 2009 and 2008.

                 (U.S. dollars in thousands except per share amounts)                                                 Three Months Ended                                                     September 30                                                      (Unaudited)                                                 2009             2008                                                                (Note 3)    Net (loss) income available to      ordinary shareholders                   $(11,402)      $(1,649,024)    Net realized losses on investments,      net of tax                               310,815           286,421    Net realized and unrealized losses      (gains) on investment derivatives,      net of tax                                 3,762            56,334    Net realized and unrealized losses      (gains) on credit and structured      financial derivatives, net of tax          5,541                77    Net realized and unrealized (gains)      losses on investments and derivatives      of the Company's insurance company      affiliates                                (2,307)           (1,775)    Charge in respect of guarantees issued      to subsidiaries of Syncora                     -         1,415,732    Operating income (Note 1)                 $306,409          $107,765    Per ordinary share results: (Note 2)    Net (loss) income attributable      to ordinary shareholders                  $(0.03)           $(6.04)    Operating Income (Note 1)                    $0.89             $0.39    Weighted average ordinary shares      outstanding:    Basic                                  342,118,289       273,083,538    Diluted                                342,620,454       273,083,538    Return on Ordinary Shareholders'      Equity:    Average ordinary shareholders'      equity                                $7,321,000        $7,464,868    Operating income (Note 1)                 $306,409          $107,765    Annualized operating income (Note 1)    $1,225,636          $431,060    Annualized Return on Ordinary     Shareholders' Equity -     Operating income (Note 1)                    16.7%              5.8%

    Note 1: Operating income is defined as net income (loss) available toordinary shareholders excluding net realized gains and losses on investments,goodwill impairment charges, net realized and unrealized gains and losses oncredit, structured financial and investment derivatives, net of tax for theCompany and its share of these items for the Company's insurance companyaffiliates for the periods presented and charges in respect of guaranteesrelating to subsidiaries of Syncora, as well as the gain recognized on therepurchase of the Company's Series C preference ordinary shares. Operatingincome and annualized return on ordinary shareholders' equity based onoperating income are non-GAAP measures. See comments on regulation G.

    Note 2: Diluted weighted average number of ordinary shares outstandingare used to calculate per share data except where they are anti-dilutive toearnings per share or where there is a net loss. When they are anti-dilutiveor when a net loss occurs, basic weighted average ordinary shares outstandingare utilized in the calculation of net loss per share and net operating lossper share.

        Note 3: Certain amounts have been reclassified to conform with the currentperiod presentation.                                XL Capital Ltd                                RECONCILIATION

    The following is a reconciliation of the Company's (i) net income (loss)available to ordinary shareholders to operating income (loss) (Note 1) and(ii) annualized return on ordinary shareholders' equity (based on operatingincome (loss)) to average ordinary shareholders' equity for the nine monthsended September 30, 2009 and 2008.

                 (U.S. dollars in thousands except per share amounts)                                                  Nine Months Ended                                                     September 30                                                     (Unaudited)                                                2009              2008                                                               (Note 4)    Net income (loss) available to      ordinary shareholders                  $246,926       $(1,199,300)    Net realized losses on      investments, net of tax                 636,538           382,208    Net realized and unrealized      losses (gains) on investment      derivatives, net of tax                   5,112            16,519    Net realized and unrealized      losses (gains) on credit and      structured financial      derivatives, net of tax                   7,055               135    Net realized and unrealized      (gains) losses on investments      and derivatives of the Company's      insurance company affiliates             (2,316)           (2,511)    Gain on repurchase of Series C      preference ordinary shares             (211,816)                -    Charge in respect of guarantees      issued to subsidiaries of Syncora             -         1,453,786    Operating income (Note 1)                $681,499          $650,837    Per ordinary share results: (Notes 2     and 3)      Net income (loss) attributable to       ordinary shareholders                    $0.73            $(5.70)      Operating Income (Note 1)                 $2.00             $3.09    Weighted average ordinary shares      outstanding:      Basic                               339,094,588       210,386,823      Diluted - Net income                339,348,679       210,386,823      Diluted - Operating income          342,371,381       210,386,823    Return on Ordinary Shareholders'      Equity:      Average ordinary shareholders'       equity                              $6,643,194        $8,054,343    Operating income (Note 1)                $681,499          $650,837    Annualized operating income (Note 1)     $908,665          $867,783    Annualized Return on Ordinary     Shareholders' Equity -     Operating income (Note 1)                   13.7%             10.8%

    Note 1: Operating income is defined as net income (loss) available toordinary shareholders excluding net realized gains and losses on investments,goodwill impairment charges, net realized and unrealized gains and losses oncredit, structured financial and investment derivatives, net of tax for theCompany and its share of these items for the Company's insurance companyaffiliates for the periods presented and charges in respect of guaranteesrelating to subsidiaries of Syncora, as well as the gain recognized on therepurchase of the Company's Series C preference ordinary shares. Operatingincome and annualized return on ordinary shareholders' equity based onoperating income are non-GAAP measures. See comments on regulation G.

    Note 2: Diluted weighted average number of ordinary shares outstandingare used to calculate per share data except where they are anti-dilutive toearnings per share or where there is a net loss. When they are anti-dilutiveor when a net loss occurs, basic weighted average ordinary shares outstandingare utilized in the calculation of net loss per share and net operating lossper share.

    Note 3: Diluted weighted average ordinary shares outstanding for year todate ended September 30, 2009 include the impact of the Company's 2005 EquitySecurity units ("ESU") on an "if converted" basis for the period January 1,2009 to February 17, 2009 when they were converted into class A ordinaryshares. Net income and Operating income per share for year to date endedSeptember 30, 2009 have been adjusted to exclude $4,829 of ESU interest fromJanuary 1, 2009 to February 17, 2009.

    Note 4: Certain amounts have been reclassified to conform with the currentperiod presentation.

    Comment on Regulation G

    This press release contains the presentation of (i) operating income (loss), which is defined as net income (loss) excluding net realized gains and losses on investments, goodwill impairment charges, net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax, for the Company and its share of these items for the Company's insurance company affiliates for the periods presented and charges in respect of guarantees relating to subsidiaries of Syncora, as well as the gain recognized on the repurchase of the Company's Series C preference ordinary shares and (ii) annualized return on ordinary shareholders' equity (based on operating income (loss)). These items are "non-GAAP financial measures" as defined in Regulation G. The reconciliation of such measures to the most directly comparable GAAP financial measures in accordance with Regulation G is included above.XL presents its operations in the way it believes will be most meaningful and useful to investors, analysts, rating agencies and others who use XL's financial information in evaluating XL's performance. This presentation includes the use of "operating income (loss)" and annualized return on ordinary shareholders' equity based on operating income (loss). Investment derivatives include all derivatives entered into by XL other than weather and energy and credit derivatives (discussed further below).Although the investment of premiums to generate income (or loss) and realized capital gains (or losses) is an integral part of XL's operations and the Company's insurance company operating affiliates, the determination to realize capital gains (or losses) is independent of the underwriting process. In addition, under applicable GAAP accounting requirements, losses can be created as the result of other than temporary declines in value and from goodwill impairment charges without actual realization. In this regard, certain users of XL's financial information, including certain rating agencies, evaluate earnings before tax and capital gains to understand the profitability of the recurring sources of income without the effects of these two variables. Furthermore, these users believe that, for many companies, the timing of the realization of capital gains and the recognition of goodwill impairment charges are largely opportunistic and are a function of economic and interest rate conditions.In addition, with respect to credit derivatives, because XL and its insurance company operating affiliates generally hold financial guaranty contracts written in credit default derivative form to maturity, the net effects of the changes in fair value of these credit derivatives are excluded (similar with other companies' treatment of such contracts) as the changes in fair value each quarter are not indicative of underlying business performance. Unlike these credit derivatives, XL's weather and energy derivatives 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 this business are considered by management when evaluating and managing the underlying business.Charges in respect of guarantees issued by XL Insurance (Bermuda) Ltd, in respect of subsidiaries of Syncora, as well as the gain recognized on the repurchase of the Company's Series C preference ordinary shares, are excluded as these transactions were capital in nature and outside the scope of the Company's underlying business.In summary, XL evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income (loss), XL believes that showing operating income (loss) enables investors and other users of XL's financial information to analyze XL's performance in a manner similar to how management of XL analyzes performance. In this regard, XL believes that providing only a GAAP presentation of net income (loss) makes it much more difficult for users of XL's financial information to evaluate XL's underlying business. Also, as stated above, XL believes that the equity analysts and certain rating agencies that follow XL (and the insurance industry as a whole) exclude these items from their 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 net realized gains and losses on investments, goodwill impairment charges and net realized and unrealized gains and losses on credit and investment derivative instruments, net of tax, for the Company and its share of these items for Syncora and the Company's other insu