Share Capital

(a) Authorized and Issued

As a result of the Redomestication discussed in Note 1(a), "Significant Accounting Policies - Basis of Preparation and Consolidation," prior to July 25, 2016, share information relates to the ordinary shares of XL-Ireland and its consolidated subsidiaries. On and subsequent to July 25, 2016, share information relates to the common shares of XL Group and its consolidated subsidiaries.

The authorized share capital of XL Group is $9,999,900, divided into: (i) 500,000,000 common shares, par value $0.01 per share and (ii) 499,990,000 shares, par value $0.01 per share. Holders of common shares are entitled to one vote for each share.

In connection with the Catlin Acquisition described in Note 2(f), "Acquisitions and Disposals - Catlin Acquisition," the Company issued 49.9 million ordinary shares of XL-Ireland to Catlin shareholders, which had an aggregate value as of the Acquisition Date of $1.85 billion.

Common Shares

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



(in thousands)	2017		2016		2015
Balance – beginning of year	266,889		294,745		255,183
Exercise of options	1,827		802		480
Net issuance of restricted shares	1,138		1,598		1,581
Share buybacks (1)	(13,820	)	(30,256	)	(12,434	)
Issuance of shares	—		—		49,935
Balance – end of year	256,034		266,889		294,745

____________


(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.

Buyback of Ordinary and Common Shares

On May 13, 2016, XL-Ireland announced that its Board of Directors approved a share buyback program that authorizes the purchase of up to $1.0 billion of XL-Ireland shares (the "May 2016 Program"). As a result of the Redomestication, XL Group assumed the May 2016 Program. Prior to the cancellation and replacement of this program as noted below, during the year ended December 31, 2017, the Company purchased and canceled 2.6 million XL Group shares under the May 2016 Program for $100.0 million.

On February 17, 2017, XL Group announced that its Board of Directors approved a new share buyback program, authorizing the purchase of up to $1.0 billion of XL Group shares (the "February 2017 Program"). This authorization also canceled approximately $349.0 million remaining under the May 2016 Program. During the year ended December 31, 2017, the Company purchased and canceled 11.2 million shares under the February 2017 Program for $470.9 million. At December 31, 2017, $529.1 million remained available for purchase under the February 2017 Program.

Other share buybacks, primarily for purposes of settling employee withholding taxes incurred in connection with the vesting of share-based compensation awards, amounted to $0.7 million for the year ended December 31, 2017. In total, the Company purchased and canceled 13.8 million XL Group shares, for $571.6 million during the year ended December 31, 2017.

All share buybacks were carried out in accordance with applicable law, including prior to July 25, 2016 by way of redemption in accordance with Irish law. All shares so redeemed were canceled upon redemption.

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

The Series D Preference Ordinary Shares and Series E Preference Ordinary Shares discussed in this section were issued by XLIT and do not represent share capital of XL Group. XL Group has no preferred shares outstanding and has never issued any preferred shares.

Series D Preference Ordinary Shares

On October 15, 2011, XLIT 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.

On July 7, 2017, the Company repurchased through a tender offer and canceled 27,205 of the outstanding Series D Preference Ordinary Shares of XLIT ("Series D Preference Shares") with a net carrying value of $27.1 million for $25.8 million, inclusive of transaction costs and other consideration. Additionally, on August 23, 2017, the Company repurchased through private placement an additional 30,652 of the outstanding Series D Preference Shares with a net carrying value of $30.6 million for $29.5 million, inclusive of transaction costs and other consideration. As a result of these repurchases, the Company recorded a gain of $2.4 million through "Non-controlling interests" in the Consolidated Statements of Income.

Series E Preference Ordinary Shares

On March 15, 2007, XLIT 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"). The Series E Preference Ordinary Shares are perpetual securities with no fixed maturity date. Dividends on the Series E Preference Ordinary Shares are declared and paid semi-annually at a rate of $32.50 per share.

Until April 15, 2017 (the "Series E Fixed Rate Period"), dividends on the Series E Preference Ordinary Shares were payable semi-annually on a non-cumulative basis, when, as and if declared by the board of directors on April 15 and October 15 of each year at a fixed rate equal to 6.500% per annum on the liquidation preference ("Series E Fixed Rate"). From and after April 15, 2017 (the "Series E Floating Rate Period"), dividends on the Series E Preference Ordinary Shares have been payable quarterly on a non-cumulative basis, when, as and if declared by the board of directors, on January 15, April 15, July 15 and October 15 of each year at a floating rate equal to three-month LIBOR plus 2.4575% (the "Series E Floating Rate").

On July 7, 2017, the Company repurchased through a tender offer and canceled 329,722 of the outstanding Series E Preference Ordinary Shares with a net carrying value of $324.4 million for $310.6 million, inclusive of transaction costs and other consideration. As a result of these repurchases, the Company recorded a gain of $13.7 million through "Non-controlling interests" in the Consolidated Statements of Income.

Non-controlling Preferred Shares

As a result of the Catlin Acquisition, the company assumed the obligation of the 0.6 million non-cumulative perpetual preferred shares issued by Catlin-Bermuda, par value of $0.01 per share, with liquidation preference of $1,000 per share, plus declared and unpaid dividends ("CICL Prefs"). Dividends are payable quarterly at a rate equal to 2.975 percent plus the three-month LIBOR rate of the liquidation preference.

On July 7, 2017, the Company repurchased through a tender offer 46,635 of the outstanding CICL Prefs with a net carrying value of $43.7 million for $45.6 million, inclusive of transaction costs and other consideration. The preference shares were canceled on July 19, 2017. As a result of these repurchases, the Company recorded a loss of $1.9 million through "Non-controlling interests" in the Consolidated Statements of Income.

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.

The Company currently maintains the following performance incentive programs: the XL Group Ltd Amended and Restated 1991 Performance Incentive Program (the "1991 Program"), the XL Group Ltd Directors Stock & Option Plan (the "Directors Plan", and together with the 1991 Program, the "Programs"). The Programs provide that the securities to be issued pursuant to each Program are of XL Group.

(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:



	2017		2016		2015
Dividend yield	2.00	%	2.00	%	2.00	%
Risk free interest rate	1.96	%	1.37	%	1.70	%
Volatility	19.5	%	21.7	%	21.6	%
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, 2017, 2016 and 2015:



(In thousands, except for weighted average grant date fair value)	2017		2016		2015
Options granted to purchase common shares under the Programs	934		2,200		1,974
Weighted average grant date fair value	$	6.74	$	5.99	$	6.51
Total intrinsic value of stock options exercised	$	25,042	$	19,471	$	8,546
Options exercised during the year	1,827		810		480
Compensation expense related to stock option plans	$	12,398	$	11,065	$	8,961
Estimated tax benefit (charge) related to stock option plans	$	55	$	355	$	—

The following is a summary of the stock options outstanding at December 31, 2017, 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	11,861		$	30.07	5.5 years	$	86,558
Granted	934		40.49
Exercised	(1,827	)	27.63
Canceled/Expired	(197	)	45.97
Outstanding – end of year	10,771		$	31.09	5.5 years	$	52,298
Options exercisable	7,879		$	29.07	4.5 years	$	51,536
Available for grant (1)	5,285

____________


(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 2017 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, 2017. Total unrecognized stock-based compensation expense related to non-vested stock options was approximately $9.8 million at December 31, 2017, which related to approximately 2.9 million options and is expected to be recognized over a weighted-average period of 1.1 years.

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

Restricted Stock

Restricted stock awards issued under the Programs vest as set forth in the applicable award agreements. Each restricted stock award represents the Company's obligation to deliver to the holder one XL Group share. The employees and directors who are granted a restricted stock award 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 Programs for the indicated years ended December 31, 2017, 2016 and 2015 is as follows:



(In thousands except for weighted average grant date fair value)	2017		2016		2015
Restricted ordinary shares granted	36		48		44
Weighted average grant date fair value	$	43.18	$	34.05	$	37.11
Aggregate grant date fair value	$	1,575	$	1,650	$	1,613
Compensation expense related to restricted stock awards	$	1,575	$	2,078	$	3,889
Estimated tax benefit related to restricted stock awards	$	—	$	129	$	709

Total unrecognized stock based compensation expense related to non-vested restricted stock awards was nil at December 31, 2017, which is related to approximately 0.1 million restricted stock awards.

Non-vested restricted stock awards at December 31, 2017 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, 2016	191		$	43.72
Granted	36		$	43.18
Vested	(81	)	$	53.25
Unvested at December 31, 2017	146		$	38.38

Restricted Stock Units

Each restricted stock unit represents the Company's obligation to deliver to the holder one XL Group 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 XL Group 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, 2017, 2016 and 2015 is as follows:



(In thousands)	2017		2016		2015
Restricted stock units granted	1,074		1,117		1,534
Aggregate grant date fair value	$	43,506	$	38,681	$	55,540
Compensation expense related to restricted stock units	$	38,778	$	46,209	$	48,937
Estimated tax benefit related to restricted stock units	$	7,016	$	12,701	$	13,271

Total unrecognized stock-based compensation expense related to non-vested restricted stock units was $48.5 million at December 31, 2017, which is related to approximately 2.1 million restricted stock units and is expected to be recognized over 1.5 years.

Non-vested restricted stock units at December 31, 2017 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, 2016	2,491		$	34.30
Granted	1,074		$	40.49
Vested	(1,310	)	$	33.64
Forfeited	(141	)	$	36.83
Unvested at December 31, 2017	2,114		$	37.74

Performance Units

The performance units issued in 2017 vest after approximately three years, subject to the achievement of stated market metrics, and entitle the holder to XL Group shares. Each grant of performance units has a target number of XL Group shares, with final payouts ranging from 0% to 200% of the grant amount depending upon the achievement of stated market metrics along with each employee's continued service through the vesting date. Performance units issued prior to 2017 have a similar vesting schedule and a similar target of shares, but vesting and payout are dependent upon the achievement of stated relative and absolute financial performance metrics along with each employee's continued service through the vesting date. Furthermore, performance units granted in 2017 were 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 XL Group shares contingent upon vesting. A summary of the performance units issued to certain employees of the Company for the years ended December 31, 2017, 2016 and 2015 is as follows:



(In thousands)	2017		2016		2015
Performance units granted	607		738		781
Potential maximum share payout	1,214		1,477		1,563
Aggregate grant date fair value	$	24,579	$	25,578	$	28,082
Compensation expense related to performance units	$	11,447	$	21,647	$	12,942
Estimated tax benefit (charge) related to performance units	$	921	$	3,152	$	1,459

Total unrecognized stock-based compensation expense related to non-vested performance units was approximately $20.1 million at December 31, 2017, which is related to approximately 0.9 million performance units and is expected to be recognized over 1.8 years. Non-vested restricted performance units as of December 31, 2017 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, 2016	1,368		$	32.83
Granted	607		$	40.49
Vested	(281	)	$	28.56
Forfeited	(104	)	$	37.92
Performance driven addition (reduction)	(707	)	$	34.37
Unvested at December 31, 2017	883		$	37.61

(f) Restricted Cash Units

During the year ended December 31, 2017, the Company granted approximately 0.6 million liability-classed stock units to certain employees with an aggregate grant date fair value of approximately $22.7 million. Each liability-classed restricted stock unit represents the Company's obligation to deliver to the holder a cash payment equivalent to the value of one common share. The grants may vest either in three equal installments upon the first, second and third anniversaries of the date of grant; or in two equal installments upon the first and second anniversaries of the date of grant. Liability-classed restricted stock units are granted at the closing market price on the day of grant and entitle the holder to receive dividends declared and are paid in cash contingent upon vesting.



(In thousands)	2017		2016		2015
Restricted cash units granted	561		1,826		2,559
Aggregate grant date fair value	$	22,708	$	63,261	$	94,525
Compensation expense related to restricted cash units	$	45,859	$	39,433	$	19,834
Estimated tax benefit related to restricted cash units	$	7,853	$	8,543	$	4,374

Total unrecognized stock-based compensation expense related to non-vested restricted cash units was approximately $42.9 million at December 31, 2017, which is related to approximately 2.1 million restricted cash units and is expected to be recognized over 1.3 years. Non-vested restricted cash units as of December 31, 2017 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, 2016	2,573		$	35.41
Granted	561		$	40.45
Vested	(804	)	$	35.38
Forfeited	(182	)	$	35.98
Unvested at December 31, 2017	2,148		$	36.70

(g) Voting

XL Group's Bye-laws restrict the voting power of any person to less than approximately 10% of the total voting power.