Statutory Financial Data

The Company's ability to pay dividends or return capital from shareholders' equity is limited by applicable laws and regulations of the various jurisdictions in which the Company's principal operating subsidiaries operate, certain additional required regulatory approvals and financial covenants contained in the Company's credit facilities and other debt documents. The payment of dividends to XL Group and XLIT, the Company's holding companies, and by the Company's principal operating subsidiaries is regulated under the laws of various jurisdictions including Bermuda, the U.K., Ireland and Switzerland and certain insurance statutes of various U.S. states in which the principal operating subsidiaries are domiciled and the other jurisdictions where the Company has regulated subsidiaries. The Bermuda Monetary Authority (the "BMA") is the group supervisor of XL Group. The BMA's group rules require an assessment of group capital and solvency and XL Group is required to meet the BMA's group capital requirements.

Statutory capital and surplus for the principal operating subsidiaries of the Company for the years ended December 31, 2017 and 2016 are summarized below:



(U.S. dollars in thousands)	Bermuda (1)				U.S. (2)				U.K., Europe and Other
(U.S. dollars in thousands)	2017		2016		2017		2016		2017		2016
Required statutory capital and surplus	$	6,431,266	$	6,351,874	$	821,442	$	822,651	$	4,551,068	$	4,320,140
Actual statutory capital and surplus (3)	$	11,454,639	$	12,333,870	$	2,347,380	$	2,362,827	$	5,711,162	$	5,201,602

____________


(1)	Required statutory capital and surplus at December 31, 2017 represents 100% Bermuda Solvency Capital Requirement ("BSCR") level for the top Bermuda operating subsidiary, XL Bermuda Ltd, calculated on a consolidated basis (and therefore includes a BSCR requirement for all regions).


(2)	Required statutory capital and surplus represents 100% Risk-Based Capital level for principal U.S. operating subsidiaries.


(3)	Statutory assets in Bermuda include investments in other U.S. and international subsidiaries reported separately herein.

Statutory net income (loss) for the principal operating subsidiaries of the Company for the years ended December 31, 2017, 2016 and 2015 is summarized below:



(U.S. dollars in thousands)	2017			2016		2015
Bermuda	$	(309,220	)	$	724,711	$	1,513,924
U.S.	$	(76,788	)	$	96,481	$	17,574
U.K., Europe and Other	$	(335,422	)	$	366,708	$	(125,758	)

The difference between statutory financial statements and statements prepared in accordance with GAAP varies by jurisdiction, however, the primary difference is that statutory financial statements do not reflect deferred policy acquisition costs, deferred income tax net assets, intangible assets, or unrealized appreciation on investments, but they do reflect any unauthorized/authorized reinsurance charges.

Certain restrictions on the payment of dividends from retained earnings by the Company's principal operating subsidiaries are further detailed below.

Management has evaluated the group and principal operating subsidiaries' ability to maintain adequate levels of statutory capital, liquidity and rating agency capital and believes they will be able to do so. In performing this analysis, management has considered the most recent statutory capital position of each of the principal operating subsidiaries as well as the group overall, through its holding companies as a result of BMA group regulation. In addition, management has evaluated the ability of the holding companies to allocate capital and liquidity around the group as and when needed.

Bermuda Operations

In early July 2008, the Insurance Amendment Act of 2008 was passed, which introduced a number of changes to the Bermuda Insurance Act 1978, such as allowing the BMA to prescribe standards for an enhanced capital requirement and a capital and solvency return with which insurers and reinsurers must comply. The BSCR employs a standard mathematical model that can relate more accurately the risks undertaken by (re)insurers to the capital that is dedicated to their business. Insurers and reinsurers may adopt the BSCR model or, where an insurer or reinsurer believes that its own internal model better reflects the inherent risk of its business, an in-house model approved by the BMA. Class 4 (re)insurers, such as the Company, were required to implement the new capital requirements under the BSCR model beginning with fiscal years ending on or after December 31, 2009. The Company's capital requirements for its Bermuda principal operating subsidiaries, XL Bermuda Ltd and Catlin-Bermuda, under the BSCR are highlighted in the aggregate in the table above. In addition to the BSCR based requirements, the BMA also prescribes minimum liquidity standards that must be met.

Under the Insurance Act 1978, amendments thereto and related regulations of Bermuda, Class 4 (re)insurers are prohibited from declaring or paying dividends of more than 25% of each of their prior year's statutory capital and surplus unless they file with the BMA an affidavit stating that the dividend has not caused the Class 4 (re)insurer to fail to meet its relevant margins. At December 31, 2017 and 2016, the maximum dividend that our Bermuda Class 4 (re)insurers could pay, without a signed affidavit, having met minimum levels of statutory capital and surplus and liquidity requirements, was approximately $3.1 billion and $3.2 billion, respectively. No Class 4 (re)insurer may reduce its total statutory capital by 15% or more unless it has received the prior approval of the BMA, and it must also submit an affidavit stating that the proposed reduction will not cause it to fail to meet its minimum solvency margin or minimum liquidity ratio.

U.S. Operations

The Company has two lead property and casualty subsidiaries in the U.S., XLRA and Catlin Specialty Insurance Company ("CSIC"), which are domiciled in the States of New York and Delaware, respectively. Both XLRA and CSIC are the lead companies in their respective insurance pools. Including the pool leaders, these insurance pools include seven and three P&C companies, respectively. The Company also has another property and casualty subsidiary, T.H.E. Insurance Company ("THE"), a Louisiana-domiciled insurer which was acquired as part of the transaction described in Note 2(d), "Acquisitions and Disposals - Allied Acquisition, and exists outside of the existing pools at December 31, 2017.

Unless permitted by the New York Superintendent of Financial Services, XLRA cannot declare or distribute any dividend to shareholders during any twelve month period that exceeds the lesser of 10 percent of XLRA's statutory policyholders' surplus or 100 percent of its "adjusted net investment income," as defined. The New York State insurance laws also provide that any distribution that is a dividend may only be paid out of statutory earned surplus. At December 31, 2017 and 2016, XLRA had negative statutory earned surplus of $138.9 million and an earned surplus of $66.9 million, respectively. At December 31, 2017, XLRA's statutory policyholders' surplus was $2.1 billion, and no dividends can be declared and paid in 2018 without prior regulatory approval. At December 31, 2017 and 2016, five and one, respectively, of the seven P&C members of the XLRA insurance pool had a negative statutory earned surplus.

Unless permitted by the Insurance Commissioner of the State of Delaware, CSIC cannot declare or distribute any dividend to shareholders during any twelve month period that exceeds the greater of 10 percent of statutory policyholders' surplus or 100 percent of net income excluding realized gains. The Delaware State insurance laws also provide that any distribution that is a dividend may only be paid out of statutory earned surplus. At December 31, 2017 and 2016, CSIC had a negative statutory earned surplus of $10.1 million and an earned surplus of $3.4 million, respectively. At December 31, 2017, CSIC's statutory policyholders' surplus was $243.6 million, and no dividends can be declared and paid in 2018 without prior regulatory approval. At December 31, 2017, all three of the P&C members of the CSIC insurance pool had a negative statutory earned surplus.

Unless permitted by the Insurance Commissioner of the State of Louisiana, THE cannot declare or distribute any dividend to shareholders during any twelve month period that exceeds the greater of 10 percent of statutory policyholders' surplus or 100 percent of net income excluding realized gains. At December 31, 2017, THE's statutory policyholders' surplus was $53.3 million, and no dividends can be declared and paid in 2018 without regulatory approval.

International Operations

The Company's international principal operating subsidiaries prepare statutory financial statements based on local laws and regulations. Some jurisdictions impose enhanced regulatory requirements on insurance companies while other jurisdictions impose fewer requirements. In some countries, such subsidiaries must obtain licenses issued by governmental authorities to conduct local insurance business. These licenses may be subject to minimum reserves and minimum capital and solvency tests. Jurisdictions may impose fines, censure, and/or impose criminal sanctions for violation of regulatory requirements. The majority of the actual statutory capital outside of the U.S. and Bermuda is held in the U.K. ($1.2 billion at December 31, 2017), Switzerland ($1.6 billion at December 31, 2017) and Ireland ($1.0 billion at December 31, 2017). The Company also has approximately $1.9 billion of capital available, which is sufficient to meet Funds at Lloyd's requirements.

Other Restrictions

XL Group and XLIT have no operations of their own and their assets consist primarily of investments in subsidiaries. Accordingly, XL Group's and XLIT's future cash flows largely depend on the availability of dividends or other permissible payments from subsidiaries as noted above.

XL Group is subject to certain legal constraints that affect its ability to pay dividends on or redeem or buyback its common shares. Under Bermuda law, XL Group may not declare or pay a dividend or make a distribution out of contributed surplus if there are reasonable grounds for believing that: (a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of the company's assets would thereby be less than its liabilities. At December 31, 2017, XL Group had $7.8 billion in contributed surplus. The ability to declare and pay dividends may also be restricted by the group-wide capital and solvency provisions imposed by the BMA described earlier.

In addition, XLIT is subject to certain constraints that affect its ability to pay dividends on its preferred shares. Under Cayman Islands law, XLIT may not declare or pay a dividend if there are reasonable grounds for believing that XLIT is, or would after the payment be, unable to pay its liabilities as they become due in the ordinary course of business. Also, the terms of XLIT's preferred shares prohibit declaring or paying dividends on the common shares unless full dividends have been declared and paid on the outstanding preferred shares. Full dividends have been declared and paid on the outstanding preferred shares at December 31, 2017.

At December 31, 2017, XL Group and XLIT held cash and investments, net of liabilities associated with cash sweeping arrangements, of $4.0 million and $0.7 billion respectively, compared to $1.0 million and $0.7 billion, respectively, at December 31, 2016.

The ability to declare and pay dividends may also be restricted by financial covenants in the Company's credit facilities and other debt documents. The Company was in compliance with all covenants at December 31, 2017, and the Company remains in compliance as of the date of this Form 10-K.