Share Capital

(a) Authorized and Issued

The authorized share capital of XL-Ireland is $9,999,900 and €40,000, divided into: (i) 500,000,000 ordinary shares, par value $0.01 each, (ii) 499,990,000 undesignated shares, par value $0.01, each and (iii) 40,000 subscriber shares, par value €1 each. Holders of ordinary shares are entitled to one vote for each share.

Ordinary Shares

The following table is a summary of ordinary shares issued and outstanding:



(in thousands)	2014		2013
Balance – beginning of year	278,253		298,682
Exercise of options	424		927
Net issuance of restricted shares	1,246		1,240
Share buybacks (1)	(24,740	)	(22,596	)
Balance – end of year	255,183		278,253

____________


(1)	Includes share buybacks associated with authorized share buyback programs as well as purchases related to satisfying tax withholding obligations of employees in connection with the vesting of restricted shares granted under the Company’s equity compensation programs.

Ordinary Share Buybacks

On February 22, 2013, XL-Ireland announced that its Board of Directors approved a new share buyback program, authorizing the purchase of up to $850 million of its ordinary shares (the “Share Buyback Program”). This authorization replaced the previous Program.

At December 31, 2013, $275.0 million remained available for purchase under the Share Buyback Program. On February 21, 2014, XL-Ireland announced that its Board of Directors approved an increase to the Share Buyback Program, authorizing the purchase of up to $1.0 billion of our ordinary shares. This authorization includes the approximately $200.0 million that remained under the Share Buyback Program prior to the increase.

During the year ended December 31, 2014, the Company purchased and canceled 24.7 million shares for $800.0 million at an average price of $32.40 per share. At December 31, 2014, $267.6 million remained available for purchase under the February 2014 Program.

All share buybacks were carried out by way of redemption in accordance with Irish law and the Company's constitutional documents. All shares so redeemed were canceled upon redemption.

(b) Non-controlling Interest in Equity of Consolidated Subsidiaries

All of the preferred shares discussed in this section were issued by XL-Cayman and do not represent share capital of XL-Ireland. XL-Ireland has no preferred shares outstanding and has never issued any preferred shares.

Series D Preference Ordinary Shares

On October 15, 2011, XL-Cayman issued $350 million Series D Preference Ordinary Shares. Dividends on the Series D Preference Ordinary Shares are declared and paid quarterly at a floating rate of three-month LIBOR plus 3.120% on the liquidation preference. XL-Cayman used the consideration it received as partial funding for the repayment at maturity of the outstanding $600 million XLCFE Notes that were issued by XLCFE, with the balance available for general corporate purposes.

Series E Preference Ordinary Shares

On March 15, 2007, XL-Cayman issued 1.0 million Fixed/Floating Series E Perpetual Non-Cumulative preference ordinary shares, par value $0.01 each, with liquidation preference value of $1,000 per share (the “Series E preference ordinary shares”). XL-Cayman received net proceeds of approximately $983.8 million from the offering. The Series E preference ordinary shares are perpetual securities with no fixed maturity date and are not convertible. Dividends on the Series E preference ordinary shares are declared and paid semi-annually at a rate of $32.50 per share.

The Company’s performance incentive programs provide for grants of stock options, restricted stock, restricted stock units, performance units and stock appreciation rights. Share-based compensation granted by the Company generally contains a vesting period of three or four years, and certain awards also contain performance conditions. The Company records compensation expense related to each award over its vesting period, incorporating the best estimate of the expected outcome of performance conditions where applicable. Compensation expense is generally recorded on a straight line basis over the vesting period of an award.

In connection with, and effective upon, the completion of the Redomestication, XL-Ireland assumed the existing liabilities, obligations and duties of XL-Cayman under the NAC Re Corp. 1989 Stock Option Plan (the “1989 Plan”), the XL Group plc Amended and Restated 1991 Performance Incentive Program (the “1991 Program”), the XL Group plc Amended and Restated 1999 Performance Incentive Program for Employees (the “1999 Program”), the XL Group plc Directors Stock & Option Plan (the “Directors Plan”), the XL Group plc 2009 Cash Long-Term Incentive Program (the “2009 Program”), the XL Group plc Supplemental Deferred Compensation Plan (the “DC Plan,” and together with the 1989 Plan, 1991 Program, the 1999 Program, the Directors Plan and the 2009 Program, the “Programs”). Furthermore, in connection with, and effective upon, the completion of the Redomestication, the Programs were amended by XL-Cayman, among other things, to (i) provide that XL-Ireland and its Board of Directors will succeed to all powers, authorities and obligations of XL-Cayman and its Board of Directors under each Program, (ii) provide that the securities to be issued pursuant to each Program will consist of ordinary shares of XL-Ireland and (iii) otherwise to reflect the completion of the Redomestication.

(d) Options

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:



	2014		2013		2012
Dividend yield	2.00	%	2.00	%	1.90	%
Risk free interest rate	1.81	%	1.14	%	1.15	%
Volatility	34.0	%	37.0	%	46.0	%
Expected lives	6.0 years		6.0 years		6.0 years

The risk free interest rate is based on U.S. Treasury rates. The expected lives are estimated using the historical exercise behavior of grant recipients. The expected volatility is determined based upon a combination of the historical volatility of the Company’s stock and the implied volatility derived from publicly traded options.

The following is a summary of the activity in the stock option plans for the indicated years ended December 31:



(In thousands except for weighted average grant date fair value)	2014			2013		2012
Options granted to purchase ordinary shares under directors and employees incentive compensation plans - in thousands	1,025			1,047		1,209
Weighted average grant date fair value	$	8.60		$	8.34	$	7.65
Total intrinsic value of stock options exercised	$	7,499		$	16,076	$	3,357
Options exercised during the year - in thousands	424			927		383
Compensation expense related to stock option plans	$	9,961		$	8,294	$	7,716
Estimated tax benefit (charge) related to stock option plans	$	(2	)	$	50	$	26

The following is a summary of the stock options outstanding at December 31, 2014, and related activity for the year then ended:



	Number of Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding – beginning of year	11,123		$	36.91	4.8 years	$	74,927
Granted	1,025		30.42
Exercised	(424	)	15.04
Canceled/Expired	(1,199	)	78.46
Outstanding – end of year	10,525		$	32.42	4.8 years	$	86,690
Options exercisable	8,400		$	33.53	3.9 years	$	73,153
Available for grant (1)	10,316

(1) Available for grant includes shares that may be granted as either stock options, restricted stock, restricted stock units or performance units.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the 2014 fiscal year and the exercise price, multiplied by the number of in-the-money-options) that would have been received by the option holders had all option holders exercised their options on December 31, 2014. Total unrecognized stock-based compensation expense related to non-vested stock options was approximately $10.4 million at December 31, 2014, which related to approximately 2.1 million options and is expected to be recognized over a weighted-average period of 1.3 years. The exercise price of the Company’s outstanding options granted is the market price of the Company’s ordinary shares on the grant date, except that during 2004, 295,000 options were granted with an exercise price of $88.00 when the market price was $77.10.

(e) Restricted Stock, Restricted Stock Units and Performance Units

Restricted Stock

Restricted stock awards issued under the 1991 Performance Incentive Program and the Directors Stock and Option Plan vest as set forth in the applicable award agreements. Each restricted stock award represents the Company’s obligation to deliver to the holder one ordinary share. The employees and directors who are granted a restricted stock award shall have all the rights of a shareholder, including the right to vote and receive dividends, but the shares are subject to certain restrictions prior to vesting relating to, among other things, forfeiture in the event of termination of employment and transferability.

A summary of the restricted stock awards issued under the 1991 Performance Incentive Program and the Directors Stock and Option Plan for the indicated years ended December 31 is as follows:



(In thousands except for weighted average grant date fair value)	2014		2013		2012
Restricted ordinary shares granted	46		181		325
Weighted average grant date fair value	$	31.86	$	29.44	$	20.92
Aggregate grant date fair value	$	1,463	$	5,325	$	6,811
Compensation expense related to restricted stock awards	$	5,239	$	4,419	$	5,399
Estimated tax benefit related to restricted stock awards	$	1,233	$	1,047	$	1,113

Total unrecognized stock based compensation expense related to non-vested restricted stock awards was approximately $2.5 million at December 31, 2014, which is related to approximately 0.4 million restricted stock awards and is expected to be recognized over one year.

Non-vested restricted stock awards at December 31, 2014 and for the year then ended were as follows:



(In thousands except for weighted average grant date fair value)	Number of Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2013	593		$	33.92
Granted	46		$	31.86
Vested	(201	)	$	27.79
Forfeited	(5	)	$	44.01
Unvested at December 31, 2014	433		$	36.41

Restricted Stock Units

Each restricted stock unit represents the Company’s obligation to deliver to the holder one ordinary share upon satisfaction of the three-year vesting term. Restricted stock units are granted at the closing market price on the day of grant and entitle the holder to receive dividends declared and paid in the form of additional ordinary shares contingent upon vesting.

A summary of the restricted stock units issued to officers of the Company and its subsidiaries for the indicated years ended December 31 is as follows:



(In thousands)	2014		2013		2012
Restricted stock units granted	1,867		1,803		1,312
Aggregate grant date fair value	$	57,134	$	51,829	$	27,194
Compensation expense related to restricted stock units	$	41,879	$	32,874	$	24,451
Estimated tax benefit related to restricted stock units	$	11,607	$	8,813	$	6,501

Total unrecognized stock-based compensation expense related to non-vested restricted stock units was approximately $60.1 million at December 31, 2014, which is related to approximately 3.2 million restricted stock units and is expected to be recognized over 1.4 years.

Non-vested restricted stock units at December 31, 2014 and for the year then ended were as follows:



(In thousands except for weighted average grant date fair value)	Number of Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2013	2,931		$	25.77
Granted	1,867		$	30.60
Vested	(1,388	)	$	24.80
Forfeited	(162	)	$	28.05
Unvested at December 31, 2014	3,248		$	28.93

Performance Units

The performance units vest after three years and entitle the holder to shares of the Company’s stock. There are no dividend rights associated with the performance units. Each grant of performance units has a target number of shares, with final payouts ranging from 0% to 200% of the grant amount depending upon a combination of corporate and business segment performance along with each employee’s continued service through the vesting date. Performance targets are based on relative and absolute financial performance metrics. A summary of the performance units issued to certain employees of the Company for the indicated years ended December 31 is as follows:



(In thousands)	2014		2013			2012
Performance units granted	572		656			1,527
Potential maximum share payout	1,144		1,312			3,054
Aggregate grant date fair value	$	16,345	$	17,753		$	29,537
Compensation expense related to performance units	$	24,089	$	1,041		$	9,919
Estimated tax benefit (charge) related to performance units	$	4,250	$	(176	)	$	1,943

Total unrecognized stock-based compensation expense related to non-vested performance units was approximately $27.8 million at December 31, 2014, which is related to approximately 2.5 million performance units and is expected to be recognized over 1.8 years. Non-vested restricted performance units as of December 31, 2014 were as follows:



(In thousands except for weighted average grant date fair value)	Number of Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2013	1,687		$	22.99
Granted	572		$	28.57
Vested	(340	)	$	22.06
Forfeited	(100	)	$	25.98
Performance driven addition (reduction)	721		$	26.46
Unvested at December 31, 2014	2,540		$	25.24

(f) Voting

XL-Ireland’s Articles of Association restrict the voting power of any person to less than approximately 10% of the total voting power.