Product Family

Nine months 2005 Net Loss of $470.4 million, or $3.39 per ordinary share Strong underlying fundamentals overshadowed by third quarter catastrophes (versus third quarter of 2004): -- Combined ratio from general operations was 182.2%, or 88.7% excluding the impact of third quarter catastrophes. -- Contribution from financial operations was $51.3 million. -- Net investment income from general operations increased 17% to $184.1 million. -- Net income from investment affiliates was $56.7 million, compared with $5.2 million. -- Cash flow from operations was $551.7 million, or $837.9 million including structured and spread transactions.

HAMILTON, Bermuda, Oct. 31 /PRNewswire/-- XL Capital Ltd("XL" or the "Company") (NYSE: XL) today reported a net loss to ordinaryshareholders for the quarter ended September 30, 2005 of $1,049.2 million, ora loss of $7.53 per ordinary share, compared with net income of $22.5 million,or $0.16 per ordinary share, for the quarter ended September 30, 2004. Netloss for the quarter ended September 30, 2005 included previously announcedpre-tax net losses from Hurricane Katrina of $1,158.8 million, Hurricane Ritaof $263.6 million and other natural catastrophes of $89.7 million. Aftertaking into account net reinstatement premiums and tax effects, the net incomeimpact of these third quarter catastrophes was $1,474.4 million. Net incomefor the quarter ended September 30, 2004 included net losses of$420.2 million, net of tax, from catastrophes. See attached table for furtherdetails.

"Net loss excluding net realized gains and losses"(1) for the quarter was$1,115.0 million, or $8.01 per ordinary share, compared with a loss of$31.2 million, or $0.23 per ordinary share, for the year ago quarter. Seebelow for a reconciliation of "net loss excluding net realized gains andlosses"(1) to net loss available to ordinary shareholders.

Commenting on these results, President and Chief Executive OfficerBrian M. O'Hara said: "The third quarter's insured market catastrophe losses,which we estimate at $60 billion to $72 billion, were greater than ourindustry has seen in any previous calendar year. Our loss estimation processhas embraced the extraordinary breadth, magnitude and complexity of theseevents."

"First and foremost we would like to re-emphasize our commitment tomaintain our financial strength and leadership position in catastrophe exposedlines of business," he continued. "In the wake of these catastrophes, weexpect to see significant opportunities across the board, especially in theselines, for the 2006 renewal season".

"In addition, we are pleased to announce a strategic initiative that willaugment our underwriting capacity to take advantage of these opportunities. XLhas agreed in principle to enter into a quota share reinsurance treaty with anewly formed reinsurance company. This company will be funded with$500 million to $1 billion of dedicated capital from its parent holdingcompany, which, in turn, will be owned by a group of institutional investors.The lead investor in this company is expected to be investment funds managedby an alternative asset manager with which XL has had a long-standingrelationship. XL will not be an equity investor in this new company. Underthis agreement, XL expects to cede to this company specified portions of XL'sproperty catastrophe and retrocessional lines of business. We believe thatthis treaty will reinforce XL's leadership position in these lines ofbusiness, reduce our volatility, provide incremental earnings, and thereforemaximize our shareholders' risk adjusted return."

For the nine months ended September 30, 2005, net loss to ordinaryshareholders was $470.4 million, or a loss of $3.39 per ordinary share,compared with net income of $838.2 million or $6.05 per ordinary share for thenine months of 2004. "Net loss excluding net realized gains and losses"(1)for the first nine months ended September 30, 2005 was $667.2 million or aloss of $4.81 per ordinary share as compared with "net income excluding netrealized gains and losses"(1) of $621.3 million or $4.49 per ordinary sharefor the first nine months of 2004.

Total net invested assets were $37.2 billion, up 15% fromDecember 31, 2004, and total assets were $54.9 billion, up 11% fromDecember 31, 2004.

Segment Highlights:

Insurance Operations

Underwriting loss for the quarter ended September 30, 2005 was$625.7 million as compared with a loss of $85.9 million in the quarter endedSeptember 30, 2004. These results included the net impact of third quartercatastrophes of $751.0 million and $200.0 million, respectively. See attachedtable for further details.

Third quarter 2005 as compared with third quarter 2004 results excludingthe impact of catastrophes in both quarters:

    -- Gross premiums written were down slightly, due to competitive market       pressure in most lines of business partially offset by growth in excess       casualty lines.    -- Net premiums written were $916.0 million, up 1.9%, due primarily to       increased net retentions.    -- Net premiums earned decreased, reflecting the earned impact of       decreasing premium rates over the last twelve months.    -- The combined ratio was 88.5%, a 3.5 point improvement, largely due to       lower acquisition expenses from reduced brokerage costs and a lower       loss ratio.  The loss ratio was 63.6%, an improvement of 1.4 points,       due mainly to prior year net reserve strengthening in 2004.

Reinsurance Operations

General Operations - Underwriting loss for the quarter endedSeptember 30, 2005 was $738.2 million as compared with a loss of $76.6 millionin the quarter ended September 30, 2004. These results included the net impactof third quarter catastrophes of $802.3 million and $245.9 million,respectively. See attached table for further details.

Third quarter 2005 as compared with third quarter 2004 results excludingthe impact of catastrophes in both quarters:

    -- Gross and net premiums written were up 13.9% and 11.5%, respectively       driven primarily by timing differences, reported last quarter, on       assumed and ceded premiums related to two large contracts.    -- Net premiums earned were down 10.6% representing lower net premiums       written over the last twenty four months.    -- The combined ratio was 89.1% as compared with 79.5%, due mainly to a       higher loss ratio. The loss ratio increased primarily due to the impact       of relatively lower premium rates together with other non       catastrophe losses.

Life and Annuity Operations -- Gross premiums written increased 3.8% as aresult of continued growth in the term assurance business. Net income was$11.2 million, an increase of $6.9 million from the third quarter of 2004.

Financial Products and Services Operations

Total contribution and underwriting income for the segment were$51.3 million and $1.7 million, respectively, in the third quarter 2005 ascompared with a $0.3 million contribution and $29.6 million underwriting lossin the third quarter of 2004. Underwriting profit in the third quarter of 2005included a $21.4 million net loss from Hurricane Katrina that arose from theXL Financial Solutions business. Total contribution in the third quarter of2005 was driven largely by favorable performance in the quarter in XLFinancial Solutions' structured finance business and the year over yearincrease in net invested assets related to municipal GIC and funding agreementissuances.

Corporate Items

Net investment income from general operations increased 17% over the thirdquarter of 2004 to $184.1 million principally due to a higher investment baseand yields. Net income from investment affiliates increased to $56.7 millionas compared with $5.2 million in the third quarter of 2004, due primarily tostrong performance in the alternative fund affiliates.Net realized gains on investments were $53.2 million in the quarter, comparedwith $57.0 million in the prior year period. Net unrealized gains oninvestments, net of tax, were $551.6 million at September 30, 2005 comparedwith $819.2 million at June 30, 2005 primarily reflecting the increase inoverall interest rates in the quarter.

Total operating expenses in the quarter were $262.3 million compared with$271.9 million in the third quarter of 2004.The third quarter of 2005 and 2004 effective tax rates reflect the limiteddeductibility of the catastrophe losses.

The Company will host a conference call to discuss its third quarter 2005results on November 1, 2005 at 10:00 a.m. Eastern time. The conference callcan be accessed through a listen-only dial-in number or through a livewebcast. To listen to the conference call, please dial(201) 689-8320 password XL1101. The webcast will be available on XL's websitelocated at http://www.xlgroup.com and will be archived on XL's website fromapproximately 1:00 p.m. Eastern time on November 1, 2005 through midnightEastern time on November 30, 2005. A slide presentation accompanying theCompany's discussion of its third quarter 2005 results will also be availableon the Company's Web site located at http://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 p.m. Eastern time November 1, 2005 until approximately8:00 p.m. Eastern time on November 8, 2005 by dialing (201) 612-7415 (accountnumber: 290 and conference I.D. number: 156740). An unaudited financialsupplement relating to the Company's third quarter 2005 results is availableon its website located at http://www.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, 2005, XL Capital GroupLtd had consolidated assets of approximately $54.9 billion and consolidatedshareholders' equity of approximately $7.0 billion. More information about XLCapital Ltd is available at http://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 the hurricane lossesdescribed above due to the preliminary nature of some of the reports andestimates of loss and damage to date, (b) the timely and full recoverabilityof reinsurance placed by XL with third parties, or other amounts due to XL,including, without limitation, amounts due to XL from Winterthur SwissInsurance Company (i) in connection with the independent actuarial process or(ii) under other contractual arrangements; (c) greater frequency or severityof claims and loss activity than XL's underwriting, reserving or investmentpractices anticipate based on historical experience or industry data;(d) trends in rates for property and casualty insurance and reinsurance;(e) developments in the world's financial and capital markets that adverselyaffect the performance of XL's investments or access to such markets;(f) changes in general economic conditions, including foreign currencyexchange rates, inflation and other factors; and (g) the other factors setforth in XL's most recent reports on Form 10-K, Form 10-Q, and other documentson file with the Securities and Exchange Commission, as well as management'sresponse to any of the aforementioned factors. XL undertakes no obligation toupdate or revise publicly any forward-looking statement, whether as a resultof new information, future developments or otherwise.

                                XL Capital Ltd                     SUMMARY CONSOLIDATED FINANCIAL DATA                         (U.S. Dollars in thousands)    Income Statement     Data:                    Three Months Ended       Nine Months Ended                                (September 30            (September 30                                (Unaudited)               (Unaudited)                             2005         2004        2005           2004                                        (Note 1)                   (Note 1)    Revenues:    Gross premiums     written:       - general         operations       $ 2,184,571  $ 2,006,523  $ 7,477,187   $7,570,127       - life and annuity         operations            96,870       93,326    2,130,627    1,171,509       - financial operations  99,437       77,393      262,834      247,904    Net premiums written:       - general operations 1,411,482    1,400,514    5,719,206    5,937,033       - life and annuity         operations            87,762       92,928    2,102,026    1,169,985       - financial operations  95,557       70,862      248,572      234,188    Net premiums earned:       - general operations 1,655,329    1,862,748    5,149,159    5,282,209       - life and annuity         operations            87,964       93,111    2,102,650    1,171,849       - financial operations  56,761       70,383      160,448      175,101    Net investment income     366,692      268,045    1,042,298      747,538    Net realized gains     on investments            53,223       57,015      203,949      181,115    Net realized and     unrealized gains     (losses) on     derivatives               17,982      (3,827)       15,219       34,814    Net income from     investment affiliates     56,735        5,218      116,473       76,680    Fee income and other        1,621       10,811       15,733       25,870    Total revenues        $ 2,296,307  $ 2,363,504  $ 8,805,929   $7,695,176    Expenses:    Net losses and loss     expenses incurred    $ 2,590,969  $ 1,629,938  $ 4,995,737   $3,714,036    Claims and policy     benefits                 142,957      128,004    2,289,248    1,253,411    Acquisition costs         296,018      341,010      901,400      965,688    Operating expenses        262,315      271,852      758,421      764,869    Exchange losses (gains)     5,159     (27,837)        5,388     (22,648)    Interest expense           89,748       83,048      275,800      192,418    Amortization of     intangible assets          2,668        3,256        8,504        9,770    Total expenses        $ 3,389,834  $ 2,429,271  $ 9,234,498   $6,877,544    Net (loss) income     before minority interest,     income tax and net     income from     operating     affiliates          $(1,093,527)    $(65,767)   $(428,569)    $ 817,632    Minority interest     in net income of     subsidiary                2,411        1,097        6,765        8,041    Income tax               (47,338)       13,975       47,312       82,126    Net (income) from     operating affiliates     (9,479)    (113,391)     (42,525)    (141,019)    Net (loss) income    $(1,039,121)      $32,552   $(440,121)    $ 868,484    Preference share     dividends               (10,080)     (10,081)     (30,240)     (30,240)    Net (loss) income     available to ordinary     shareholders        $(1,049,201)     $22,471    $(470,361)    $838,244

Note 1: Certain amounts in prior periods have been reclassified to conformwith the current year presentation.

                                XL Capital Ltd                     SUMMARY CONSOLIDATED FINANCIAL DATA               (Shares in thousands, except per share amounts)    Income Statement Data     (continued):           Three Months Ended        Nine Months Ended                              September 30              September 30                           2005         2004         2005         2004                                      (Note 1)                  (Note 1)    Weighted average     number of ordinary     shares and ordinary     share equivalents :        Basic:             139,266      138,043      138,823      137,800        Diluted:           139,266      138,932      138,823      138,511    Per Share Data:    Net (loss) income     available to ordinary     shareholders          ($7.53)        $0.16      ($3.39)        $6.05    Ratios -           - General     insurance and     reinsurance     operations    Loss ratio              154.6%        83.4%        95.9%        68.5%    Expense ratio            27.6%        27.3%        26.3%        27.4%    Combined ratio          182.2%       110.7%       122.2%        95.9%

Note 1: Certain amounts in prior periods have been reclassified to conformwith the current year 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, 2005   December 31, 2004                                            (Unaudited)          (Note 1)    Total investments available for     sale                                   $32,429,517          $27,823,828    Net payable for investments     purchased                                  182,929              273,535    Cash and cash equivalents                 2,150,609            2,304,303    Investments in affiliates                 2,078,582            1,936,852    Unpaid losses and loss expenses           7,604,187            6,971,356    recoverable    Total assets                             54,860,110           49,245,469    Unpaid losses and loss expenses          22,664,845           19,837,669    Deposit liabilities and policy           13,329,834           10,309,782     benefit    reserves    Unearned premiums                         5,869,857            5,191,368    Notes payable and debt                    2,722,162            2,721,431    Total shareholders' equity                7,039,300            7,738,695    Book value per ordinary share                $46.41               $51.98

Note 1: Certain amounts in prior periods have been reclassified to conformwith the current year presentation.

                                  XL Capital Ltd      SUMMARY OF FINANCIAL IMPACT OF THIRD QUARTER NATURAL CATASTROPHES                          (U.S. dollars in millions)    Qtr ended     September     30, 2005       Gross    Reinsurance        Net  Reinstatement  Net Impact                     Loss     recoveries       loss     premium       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     products and     services    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    Qtr ended     September 30,     2004    Insurance     (Note 2)      $272.0        $84.0       $188.0     $(12.0)     $200.0    Reinsurance    (Note 2)       $284.2        $25.4       $258.8       $12.9     $245.9    TOTAL - Pre    tax            $556.2       $109.4       $446.8       $ 0.9     $445.9    Tax impact                                                       $25.7    TOTAL - Post tax                                                $420.2    

Notes 1. Includes Hurricanes Dennis, Emily and Ophelia, European and Mumbaifloods and Typhoon Mawar

    2. Includes Hurricanes Charley, Frances, Ivan and Jeanne.                                 XL Capital Ltd.        SUMMARY OF FINANCIAL IMPACT OF THIRD QUARTER NATURAL CATASTROPHES                           (U.S. dollars in millions)    GENERAL       Quarter ended September 30,    Quarter ended September 30,     OPERATIONS              2005                           2004                                                         (Note 1.)                 Including           Excluding  Including            Excluding                  Cats.       Cats.    Cats.      Cats.       Cats.   Cats.    INSURANCE    Gross    premiums     written     $1,329.3    $   --  $1,329.3   $1,342.7  $     --   $1,342.7    Net premiums     written        834.6     (81.4)    916.0      886.9     (12.0)    898.9    Net premiums     earned         933.0     (81.4)  1,014.4    1,062.8     (12.0)  1,074.8    Fee and    other     income           0.3        --       0.3        9.0        --       9.0    Net losses    and loss     expenses     1,314.4     669.6     644.8      886.7     188.0     698.7    Acquisition     costs          119.1        --     119.1      145.1        --     145.1    Operating     expenses       133.6        --     133.6      145.4        --     145.4    Exchange    (gains)     losses          (8.1)       --      (8.1)     (19.5)       --     (19.5)    Underwriting    (loss)     profit       $(625.7)  $(751.0)   $125.3     $(85.9)  $(200.0)   $114.1    Loss ratio     140.9 %              63.6 %     83.4 %              65.0 %    Combined     ratio         168.0 %              88.5 %    110.8 %              92.0 %    REINSURANCE    Gross    premiums     written       $855.3    $115.7    $739.6     $663.8     $14.5    $649.3    Net premiums     written        576.8      18.8     558.0      513.6      12.9     500.7    Net premiums     earned         722.3      18.8     703.5      799.9      12.9     787.0    Fee and    other     income           0.1        --       0.1       (0.1)       --      (0.1)    Net losses    and loss     expenses     1,245.3     821.1     424.2      666.2     258.8     407.4    Acquisition     costs          161.4        --     161.4      174.5        --     174.5    Operating     expenses        41.5        --      41.5       43.8        --      43.8    Exchange    (gains)     losses          12.4        --      12.4       (8.1)       --      (8.1)    Underwriting    (loss)     profit       $(738.2)  $(802.3)    $64.1     $(76.6)  $(245.9)   $169.3    Loss ratio     172.4 %              60.3 %     83.3 %              51.8 %    Combined     ratio         200.5 %              89.1 %    110.6 %              79.5 %    TOTAL    Gross    premiums     written     $2,184.6    $115.7  $2,068.9   $2,006.5     $14.5  $1,992.0    Net premiums     written      1,411.4     (62.6)  1,474.0    1,400.5       0.9   1,399.6    Net premiums     earned       1,655.3     (62.6)  1,717.9    1,862.7       0.9   1,861.8    Fee and    other     income           0.4        --       0.4        8.9        --       8.9    Net losses    and loss     expenses     2,559.7   1,490.7   1,069.0    1,552.9     446.8   1,106.1    Acquisition     costs          280.5        --     280.5      319.6        --     319.6    Operating     expenses       175.1        --     175.1      189.2        --     189.2    Exchange    (gains)     losses           4.3        --       4.3      (27.6)       --     (27.6)    Underwriting    (loss)     profit     $(1,363.9) $(1,553.3)  $189.4    $(162.5)  $(445.9)   $283.4    Loss ratio     154.6 %              62.2 %     83.4 %              59.4 %    Combined     ratio         182.2 %              88.7 %    110.7 %              86.7 %     Note 1: Certain amounts in prior periods have been reclassified to

conform with the current year 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' (which is a non-GAAP measure, the "Exclusions") and (ii) annualizedreturn on shareholders' equity (based on net income (loss) minus theExclusions) to average ordinary shareholders' equity for the three and ninemonths ended September 30, 2005 and 2004 ($ in millions, except per shareamounts):

                                Three Months Ended        Nine Months Ended                                   September 30              September 30                                   (Unaudited)               (Unaudited)                                 2005          2004        2005         2004                                            (Note 1)                 (Note 1)    Net (loss) income     available to    ordinary shareholders   $(1,049.2)        $22.5     $(470.4)      $838.2    Net realized (gains) on    investments, net of tax     (53.8)        (56.5)     (197.7)      (177.8)    Net realized and     unrealized losses    (gains) on investment     derivatives,    net of tax                  (14.4)         16.6        21.9         (1.0)    Net realized and     unrealized losses    (gains) on credit and     structured    financial derivatives,     net of tax                   2.4         (13.8)      (21.0)       (38.1)    Net (loss) income     excluding net    realized gains and     losses (Note 2)        $(1,115.0)       $(31.2)    $(667.2)      $621.3    Per ordinary share     results:    Net (loss) income     available to    ordinary shareholders      $(7.53)        $0.16      $(3.39)       $6.05    Net (loss) income     excluding net    realized gains and     losses (Note 2)           $(8.01)       $(0.23)     $(4.81)       $4.49    Weighted average     ordinary shares    outstanding:    Basic                     139,266       138,043     138,823      137,800    Diluted                   139,266       138,932     138,823      138,511    Return on Ordinary     Shareholders'    Equity:    Average ordinary     shareholders'    equity                   $7,188.0      $6,706.6    $6,871.5     $6,636.8    Net (loss) income     excluding net    realized gains and     losses (Note 2)        $(1,115.0)       $(31.2)    $(667.2)      $621.3    Annualized net (loss)     income    excluding net realized     gains and    losses (Note 1)                NM            NM          NM       $828.4    Annualized Return on     Ordinary    Shareholders' Equity -     Net income    excluding net realized     gains and    losses (Note 2)               N/A           N/A         N/A        12.5 %

Note 1: Certain amounts in prior periods have been reclassified to conformwith the current year presentation.

Note 2: Defined as "net income (loss) excluding net realized gains andlosses on investments and net realized and unrealized gains and losses oncredit, structured financial and investment derivatives, net of tax".

Comment on Regulation G

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

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

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

In summary, XL evaluates the performance of and manages its business toproduce an underwriting profit. In addition to presenting net income (loss),XL believes that showing net income (loss) exclusive of the items mentionedabove enables investors and other users of XL's financial information toanalyze XL's performance in a manner similar to how management of XL analyzesperformance. In this regard, XL believes that providing only a GAAPpresentation of net income (loss) makes it much more difficult for users ofXL's financial information to evaluate XL's underlying business. Also, asstated above, XL believes that the equity analysts and certain rating agencieswho follow XL (and the insurance industry as a whole) exclude these items fromtheir analyses for the same reasons and they request that XL provide 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(the "Exclusions"), is a widely used measure of any company's profitability.Annualized return on average ordinary shareholders' equity (minus theExclusions) is calculated by dividing annualized net income minus theExclusions for any period by the average of the opening and closing o