10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2012
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ______

Commission file number 1-10804

XL GROUP

Public Limited Company

(Exact name of registrant as specified in its charter)

Ireland	98-0665416
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

No. 1 Hatch Street Upper, 4^th Floor, Dublin 2, Ireland
(Address of principal executive offices and zip code)
+353 (1) 405-2033
(Registrant’s telephone number, including area code)

          Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

          As of November 6, 2012, there were 300,605,273 outstanding Ordinary Shares, $0.01 par value per share, of the registrant.

XL GROUP PLC

INDEX TO FORM 10-Q

		Page No.
	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Consolidated Balance Sheets at September 30, 2012 and December 31, 2011	1
	Unaudited Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2012 and 2011	2
	Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011	3
	Unaudited Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2012 and 2011	4
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80
Item 4.	Controls and Procedures	88
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	89
Item 1A.	Risk Factors	90
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 6.	Exhibits	91
	Signatures	92

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

XL GROUP PLC

UNAUDITED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share data)	September 30, 2012		December 31, 2011
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost: 2012: $26,150,520; 2011: $25,771,715)	$	27,426,293	$	26,190,025
Equity securities, at fair value (cost: 2012: $554,962; 2011: $480,685)		565,927		468,197
Short-term investments, at fair value (amortized cost: 2012: $323,039; 2011: $359,378)		323,705		359,063
Total investments available for sale	$	28,315,925	$	27,017,285
Fixed maturities, held to maturity at amortized cost (fair value: 2012: $3,222,900; 2011:$2,895,688)		2,805,796		2,668,978
Investments in affiliates		1,027,122		1,052,729
Other investments		1,215,556		985,262
Total investments	$	33,364,399	$	31,724,254
Cash and cash equivalents		3,197,305		3,825,125
Accrued investment income		365,516		331,758
Deferred acquisition costs		720,847		647,113
Ceded unearned premiums		721,465		596,895
Premiums receivable		2,791,807		2,411,611
Reinsurance balances receivable		225,251		220,017
Unpaid losses and loss expenses recoverable		3,319,266		3,654,948
Receivable from investments sold		45,328		59,727
Goodwill and other intangible assets		407,221		407,321
Deferred tax asset		132,931		115,601
Other assets		688,992		670,895
Total assets	$	45,980,328	$	44,665,265
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Unpaid losses and loss expenses	$	20,074,668	$	20,613,901
Deposit liabilities		1,561,076		1,608,108
Future policy benefit reserves		4,848,734		4,845,394
Unearned premiums		4,081,557		3,555,310
Notes payable and debt		1,673,350		2,275,327
Reinsurance balances payable		508,177		90,552
Payable for investments purchased		281,630		58,494
Deferred tax liability		192,419		91,104
Other liabilities		1,001,298		770,945
Total liabilities	$	34,222,909	$	33,909,135
Commitments and Contingencies
Shareholders’ Equity:
Ordinary shares, 999,990,000 authorized, par value $0.01; issued and outstanding: (2012: 300,580,557; 2011: 315,645,796)	$	3,006	$	3,156
Additional paid in capital		8,630,377		8,938,679
Accumulated other comprehensive income		1,423,448		583,064
Retained earnings (deficit)		354,206		(113,241	)
Shareholders’ equity attributable to XL Group plc	$	10,411,037	$	9,411,658
Non-controlling interest in equity of consolidated subsidiaries		1,346,382		1,344,472
Total shareholders’ equity	$	11,757,419	$	10,756,130
Total liabilities and shareholders’ equity	$	45,980,328	$	44,665,265

See accompanying Notes to Unaudited Consolidated Financial Statements

1

XL GROUP PLC

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended September 30,						Nine Months Ended September 30,
(U.S. dollars in thousands, except per share data)	2012			2011			2012			2011
Revenues:
Net premiums earned	$	1,548,040		$	1,453,326		$	4,471,053		$	4,213,048
Net investment income		239,480			290,106			767,353			866,874
Realized investment gains (losses):
Net realized gains (losses) on investments sold		7,136			4,461			64,704			(6,899	)
Other-than-temporary impairments on investments		(10,295	)		(67,513	)		(45,028	)		(141,321	)
Other-than-temporary impairments on investments transferred to (from) other comprehensive income		(2,334	)		698			(16,759	)		9,885
Total net realized gains (losses) on investments	$	(5,493	)	$	(62,354	)	$	2,917		$	(138,335	)
Net realized and unrealized gains (losses) on derivative instruments		6,254			(26,916	)		2,656			(34,299	)
Income (loss) from investment fund affiliates		16,050			(7,123	)		38,555			30,277
Fee income and other		13,153			10,980			34,121			30,494
Total revenues	$	1,817,484		$	1,658,019		$	5,316,655		$	4,968,059
Expenses:
Net losses and loss expenses incurred	$	894,076		$	988,059		$	2,574,496		$	3,020,508
Claims and policy benefits		119,439			139,549			371,896			410,196
Acquisition costs		236,347			207,553			679,435			611,142
Operating expenses		305,746			247,815			887,209			774,949
Exchange (gains) losses		18,690			(39,425	)		13,432			(38,409	)
Interest expense		37,906			48,911			134,564			158,157
Total expenses	$	1,612,204		$	1,592,462		$	4,661,032		$	4,936,543
Income (loss) before income tax and income (loss) from operating affiliates	$	205,280		$	65,557		$	655,623		$	31,516
Income (loss) from operating affiliates		2,917			35,552			41,731			95,439
Provision (benefit) for income tax		451			24,718			51,813			16,747
Net income (loss)	$	207,746		$	76,391		$	645,541		$	110,208
Non-controlling interests		(35,844	)		(33,993	)		(75,855	)		(69,431	)
Net income (loss) attributable to XL Group plc and ordinary shareholders	$	171,902		$	42,398		$	569,686		$	40,777
Weighted average ordinary shares and ordinary share equivalents outstanding – basic		304,199			311,714			309,675			310,793
Weighted average ordinary shares and ordinary share equivalents outstanding – diluted		307,764			313,848			312,602			314,842
Earnings (loss) per ordinary share and ordinary share equivalent – basic	$	0.57		$	0.14		$	1.84		$	0.13
Earnings (loss) per ordinary share and ordinary share equivalent –diluted	$	0.56		$	0.14		$	1.82		$	0.13

See accompanying Notes to Unaudited Consolidated Financial Statements

2

XL GROUP PLC

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended September 30,						Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			2012			2011
Net income (loss) attributable to XL Group plc	$	171,902		$	42,398		$	569,686		$	40,777
Change in net unrealized gains (losses) on investments, net of tax		456,642			110,124			778,299			291,330
Change in net unrealized gains (losses) on affiliate and other investments, net of tax		14,615			2,954			30,998			35,620
Change in OTTI losses recognized in other comprehensive income, net of tax		25,936			3,995			52,353			28,119
Change in underfunded pension liability		(2,026	)		1,684			(2,033	)		1,287
Change in value of cash flow hedge		110			110			330			330
Foreign currency translation adjustments		17,411			(85,635	)		(19,563	)		(1,278	)
Comprehensive income (loss)	$	684,590		$	75,630		$	1,410,070		$	396,185

See accompanying Notes to Unaudited Consolidated Financial Statements

3

XL GROUP PLC

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011
Ordinary Shares:
Balance - beginning of year	$	3,156		$	3,165
Issuance of ordinary shares		9			307
Buybacks of ordinary shares		(162	)		(267	)
Exercise of stock options		3			1
Balance - end of period	$	3,006		$	3,206
Additional Paid in Capital:
Balance - beginning of year	$	8,938,679		$	8,993,016
Issuance of ordinary shares		1,380			573,460
Buybacks of ordinary shares		(350,996	)		(566,673	)
Exercise of stock options, net of tax		4,784			1,195
Share based compensation expense		36,530			29,261
Balance - end of period	$	8,630,377		$	9,030,259
Accumulated Other Comprehensive Income (Loss):
Balance - beginning of year	$	583,064		$	100,795
Change in net unrealized gains (losses) on investments, net of tax		778,299			291,330
Change in net unrealized gains (losses) on affiliate and other investments, net of tax		30,998			35,620
Change in OTTI losses recognized in other comprehensive income, net of tax		52,353			28,119
Change in underfunded pension liability		(2,033	)		1,287
Change in value of cash flow hedge		330			330
Foreign currency translation adjustments		(19,563	)		(1,278	)
Balance - end of period	$	1,423,448		$	456,203
Retained Earnings (Deficit):
Balance - beginning of year	$	(113,241	)	$	500,497
Net income (loss) attributable to XL Group plc		569,686			40,777
Dividends on ordinary shares		(102,239	)		(104,020	)
Balance - end of period	$	354,206		$	437,254
Non-controlling Interest in Equity of Consolidated Subsidiaries:
Balance - beginning of year	$	1,344,472		$	1,002,296
Non-controlling interests - contribution		1,500			—
Non-controlling interests		(63	)		4
Non-controlling interest share in change in accumulated other comprehensive income (loss)		473			(16	)
Purchase of Series E preference ordinary shares		—			(500	)
Balance - end of period	$	1,346,382		$	1,001,784
Total Shareholders’ Equity	$	11,757,419		$	10,928,706

See accompanying Notes to Unaudited Consolidated Financial Statements

4

XL GROUP PLC

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

			Nine Months Ended
			September 30,
(U.S. dollars in thousands)			2012		2011
Cash flows provided by (used in) operating activities:
	Net income (loss)		$	645,541	$	110,208
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Net realized (gains) losses on investments			(2,917)		138,335
	Net realized and unrealized (gains) losses on derivative instruments			(2,656)		34,299
	Amortization of premiums (discounts) on fixed maturities			119,819		83,252
	(Income) loss from investment and operating affiliates			(80,286)		(125,716)
	Share based compensation			41,827		32,043
	Depreciation			41,735		36,544
	Accretion of deposit liabilities			65,585		63,492
	Unpaid losses and loss expenses			(609,175)		185,023
	Future policy benefit reserves			(132,834)		(101,047)
	Unearned premiums			524,341		615,699
	Premiums receivable			(380,164)		(448,133)
	Unpaid losses and loss expenses recoverable			354,698		(24,758)
	Ceded unearned premiums			(121,791)		(233,148)
	Reinsurance balances receivable			(5,146)		(9,422)
	Deferred acquisition costs			(47,629)		(92,859)
	Reinsurance balances payable			413,658		412,103
	Deferred tax asset - net			24,058		(47,803)
	Derivatives			49,567		(30,032)
	Other assets			(51,039)		(67,851)
	Other liabilities			108,067		(105,212)
	Other			(61,079)		(59,500)
		Total adjustments	$	248,639	$	255,309
Net cash provided by (used in) operating activities			$	894,180	$	365,517
Cash flows provided by (used in) investing activities:
	Proceeds from sale of fixed maturities and short-term investments		$	2,456,889	$	3,233,941
	Proceeds from redemption of fixed maturities and short-term investments			3,212,626		2,700,412
	Proceeds from sale of equity securities			212,034		189,818
	Purchases of fixed maturities and short-term investments			(5,874,664)		(5,411,886)
	Purchases of equity securities			(289,553)		(571,031)
	Net dispositions of investment affiliates			58,415		166,950
	Other investments, net			(113,538)		(39,502)
Net cash provided by (used in) investing activities			$	(337,791)	$	268,702
Cash flows provided by (used in) financing activities:
	Proceeds from issuance of ordinary shares and exercise of stock options		$	4,651	$	1,196
	Buybacks of ordinary shares			(351,158)		(566,940)
	Repurchase of Redeemable Series C preference ordinary shares			-		(71,801)
	Repurchase of Series E preference ordinary shares			-		(465)
	Dividends paid on ordinary shares			(101,753)		(103,331)
	Distributions to non-controlling interests			(43,283)		(38,580)
	Proceeds from issuance of debt			-		396,400
	Contribution from non-controlling interest			1,500		-
	Repayment of debt			(600,000)		-
	Deposit liabilities			(114,376)		(116,472)
Net cash provided by (used in) financing activities			$	(1,204,419)	$	(499,993)
Effects of exchange rate changes on foreign currency cash				20,210		19,189
Increase (decrease) in cash and cash equivalents			$	(627,820)	$	153,415
Cash and cash equivalents - beginning of period				3,825,125		3,022,868
Cash and cash equivalents - end of period			$	3,197,305	$	3,176,283

See accompanying Notes to Unaudited Consolidated Financial Statements

5

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Preparation and Consolidation

          Unless the context otherwise indicates, references herein to the “Company” include XL Group plc and its consolidated subsidiaries.

          These unaudited consolidated financial statements include the accounts of the Company and all of its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. In the opinion of management, these unaudited financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of financial position and results of operations at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. All inter-company accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates. For further information, see Item 8, Note 2(a), “Significant Accounting Policies – Basis of Preparation and Consolidation,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

          To facilitate period-to-period comparisons, certain reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation.

2. Significant Accounting Policies

Recent Accounting Pronouncements

          In October 2010, the FASB issued an accounting standards update to address disparities in practice regarding the interpretation of which costs relating to the acquisition of new and renewal insurance contracts qualify for deferral. The provisions of the guidance specify that only costs that are related directly to the successful acquisition of new and renewal insurance contracts may be capitalized. These include incremental direct costs of contract acquisition and certain other costs related directly to underwriting activities. Incremental direct costs of contract acquisition are those that result directly from and are essential to a contract transaction, and would not have been incurred by the insurance entity had the transaction not occurred. Administrative costs, rent, depreciation, occupancy, equipment and all other general overhead costs are considered indirect costs and should be charged to expense as incurred. On January 1, 2012, the Company adopted this guidance on a retrospective basis for all fiscal years presented, and interim periods within those years. The impact of adoption was a reduction in deferred acquisition costs of approximately $21 million, a reduction in deferred tax liabilities of approximately $7 million, and a corresponding reduction in opening retained earnings of approximately $14 million within the Company’s December 31, 2011 balance sheet. The adoption of this guidance did not have an impact on the Company’s consolidated statements of income or comprehensive income.

          In May 2011, the FASB issued an accounting standards update to amend existing requirements for fair value measurements and disclosures. The guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair value hierarchy, requiring quantitative and qualitative information to be disclosed related to: (1) the valuation processes used, (2) the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, and (3) use of a nonfinancial asset in a way that differs from the asset’s highest and best use. The guidance requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value, but whose fair value must be disclosed. It also clarifies and expands upon existing requirements for fair value measurements of financial assets and liabilities, as well as instruments classified in shareholders’ equity. The Company has adopted this guidance from January 1, 2012; however, it impacted disclosure only and did not have an impact on the Company’s financial condition or results of operations. See Note 3, “Fair Value Measurements,” for these updated disclosures.

6

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2. Significant Accounting Policies

Recent Accounting Pronouncements

          In June 2011, the FASB issued an accounting standards update concerning the presentation of comprehensive income in financial statements. This guidance allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This guidance eliminates the option to present the components of other comprehensive income only as part of the statement of changes in shareholders’ equity. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. However, a separate accounting standards update issued in December 2011deferred indefinitely a provision within the original standard requiring entities to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted the guidance from January 1, 2012; however, it did not have an impact on the Company’s disclosure, financial condition or results of operations or cash flows.

          In September 2011, the FASB issued an accounting standards update to simplify how entities test goodwill for impairment, by allowing an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying amount, as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required in FASB Accounting Standards Codification Topic 350. After assessing the circumstances that should be considered in making the qualitative assessment, if an entity determines that the fair value of a reporting unit as compared to its carrying value meets the threshold, then performing the two-step impairment step is unnecessary. In other circumstances, performance of the two-step test is required. The guidance also eliminates the option for an entity to carry forward its detailed calculation of a reporting unit’s fair value in certain situations. The amendments do not change the current guidance for testing other indefinite-lived intangible assets for impairment. The Company adopted this guidance from January 1, 2012. It did not have an impact on the Company’s consolidated financial condition or results of operations or cash flows.

          In December 2011, the FASB issued new guidance requiring additional disclosures about financial instruments and derivative instruments that are either: (1) offset for balance sheet presentation purposes or (2) subject to an enforceable master netting arrangement or similar arrangement, regardless of whether they are offset for balance sheet presentation purposes. This guidance will be effective on January 1, 2013, with retrospective presentation of the new disclosures required. As this new guidance is disclosure-related only and does not amend the existing balance sheet offsetting guidance, the adoption of this guidance will not impact the Company’s financial condition or results of operations or cash flows.

3. Fair Value Measurements

          Fair value is defined as the amount that would be received for the sale of an asset or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

          The fair values for available for sale investments are generally sourced from third parties. The fair value of fixed income securities is based upon quoted market values where available, “evaluated bid” prices provided by third party pricing services (“pricing services”) where quoted market values are not available, or by reference to broker quotes where pricing services do not provide coverage for a particular security. While the Company receives values for the majority of the investment securities it holds from pricing services, it is ultimately management’s responsibility to determine whether the values received and recorded in the financial statements are representative of appropriate fair value measurements.

7

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Fair Value Measurements

          The Company performs regular reviews of the prices received from its third party valuation sources to assess if the prices represent a reasonable estimate of the fair value. This process is completed by investment and accounting personnel who are independent of those responsible for obtaining the valuations. The approaches taken by the Company include, but are not limited to, annual reviews of the controls of the external parties responsible for sourcing valuations, which are subjected to automated tolerance checks, quarterly reviews of the valuation sources and dates, and monthly reconciliations between the valuations provided by our external parties and valuations provided by our third party investment managers at a portfolio level.

          Where broker quotes are the primary source of the valuations, sufficient information regarding the specific inputs utilized by the brokers is generally not available to support a Level 2 classification. The Company obtains the majority of broker quoted values from third party investment managers who perform independent verifications of these valuations using pricing matrices based upon information gathered by market traders. In addition, for the majority of these securities, the Company compares the broker quotes to independent valuations obtained from third party pricing vendors, which may also consist of broker quotes, to assess if the prices received represent a reasonable estimate of the fair value.

          For further information, see Item 8, Note 2, “Significant Accounting Policies,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

(a) Fair Value Summary

          The following tables set forth the Company’s assets and liabilities that were accounted for at fair value at September 30, 2012 and December 31, 2011 by level within the fair value hierarchy:

September 30, 2012 (U.S. dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Collateral and Counterparty Netting		Balance at September 30, 2012
Assets
U.S. Government and Government - Related/Supported	$	—	$	2,135,368	$	—	$	—	$	2,135,368
Corporate (1) (2)		—		9,978,002		29,135		—		10,007,137
Residential mortgage-backed securities – Agency (“RMBS - Agency”)		—		5,343,046		33,857		—		5,376,903
Residential mortgage-backed securities – Non-Agency (“RMBS - Non-Agency”)		—		628,486		7,839		—		636,325
Commercial mortgage-backed securities (“CMBS”)		—		1,001,040		33,369		—		1,034,409
Collateralized debt obligations (“CDO”)		—		7,773		674,793		—		682,566
Other asset-backed securities (2)		—		1,441,381		17,163		—		1,458,544
U.S. States and political subdivisions of the States		—		1,820,105		—		—		1,820,105
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		—		4,274,936		—		—		4,274,936
Total fixed maturities, at fair value	$	—	$	26,630,137	$	796,156	$	—	$	27,426,293
Equity securities, at fair value (3)		230,539		335,388		—		—		565,927
Short-term investments, at fair value (1)(4)		—		323,705		—		—		323,705
Total investments available for sale	$	230,539	$	27,289,230	$	796,156	$	—	$	28,315,925
Cash equivalents (5)		2,037,971		321,646		—		—		2,359,617
Other investments (6)		—		783,813		119,975		—		903,788
Other assets (7)		—		10,611		—		41,540		52,151
Total assets accounted for at fair value	$	2,268,510	$	28,405,300	$	916,131	$	41,540	$	31,631,481
Liabilities
Financial instruments sold, but not yet purchased (8)	$	—	$	30,944	$	—	$	—	$	30,944
Other liabilities (7)		—		82,009		35,062		—		117,071
Total liabilities accounted for at fair value	$	—	$	112,953	$	35,062	$	—	$	148,015

8

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Fair Value Measurements

December 31, 2011 (U.S. dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Collateral and Counterparty Netting			Balance at December 31, 2011
Assets
U.S. Government and Government - Related/Supported	$	—	$	1,990,983	$	—	$	—		$	1,990,983
Corporate (1) (2)		—		10,084,804		23,818		—			10,108,622
RMBS – Agency		—		5,347,365		32,041		—			5,379,406
RMBS – Non-Agency		—		641,815		—		—			641,815
CMBS		—		974,835		—		—			974,835
CDO		—		7,751		650,851		—			658,602
Other asset-backed securities (2)		—		1,323,697		16,552		—			1,340,249
U.S. States and political subdivisions of the States		—		1,797,378		—		—			1,797,378
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		—		3,298,135		—		—			3,298,135
Total fixed maturities, at fair value (2)	$	—	$	25,466,763	$	723,262	$	—		$	26,190,025
Equity securities, at fair value (3)		239,175		229,022		—		—			468,197
Short-term investments, at fair value (1)(4)		—		359,063		—		—			359,063
Total investments available for sale	$	239,175	$	26,054,848	$	723,262	$	—		$	27,017,285
Cash equivalents (5)		1,686,101		1,068,264		—		—			2,754,365
Other investments (6)		—		547,598		113,959		—			661,557
Other assets (7)		—		143,622		—		(77,888	)		65,734
Total assets accounted for at fair value	$	1,925,276	$	27,814,332	$	837,221	$	(77,888	)	$	30,498,941
Liabilities
Financial instruments sold, but not yet purchased (8)	$	—	$	20,844	$	—	$	—		$	20,844
Other liabilities (7)		—		16,871		42,644		(809	)		58,706
Total liabilities accounted for at fair value	$	—	$	37,715	$	42,644	$	(809	)	$	79,550

(1)	Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, had a fair value of $192.3 million and $266.0 million and an amortized cost of $199.8 million and $297.7 million at September 30, 2012 and December 31, 2011, respectively. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.
(2)	The Company invests in covered bonds issued by financial institutions (“Covered Bonds”). Covered Bonds are senior secured debt instruments issued by financial institutions and backed by over-collateralized pools of public sector or mortgage loans. At September 30, 2012, Covered Bonds within Total fixed maturities with a fair value of $599.9 million are included within Other asset-backed securities to align the Company’s classification to market indices. At December 31, 2011, Covered Bonds within Total fixed maturities with a fair value of $353.9 million were reclassified from Corporate to Other asset-backed securities to conform to current period presentation.
(3)	Included within Equity securities are investments in fixed income funds with a fair value of $99.3 million and $91.6 million at September 30, 2012 and December 31, 2011, respectively.
(4)	Short-term investments consist primarily of Corporate securities and U.S. Government and Government-Related/Supported securities.
(5)	Cash equivalents balances subject to fair value measurement include certificates of deposit and money market funds. Operating cash balances are not subject to fair value measurement guidance.
(6)	The Other investments balance excludes certain structured transactions including certain investments in project finance transactions, a payment obligation and liquidity financing provided to a structured credit vehicle as a part of a third party medium term note facility. These investments, which totaled $311.8 million at September 30, 2012 and $323.7 million at December 31, 2011, are carried at amortized cost. For further details regarding the nature of Other investments and related features see Item 8, Note 7, “Other Investments,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011
(7)	Other assets and other liabilities include derivative instruments. The derivative balances included in each category are reported on a gross basis by level with a netting adjustment presented separately in the Collateral and Counterparty Netting column. The Company often enters into different types of derivative contracts with a single counterparty and these contracts are covered under a netting agreement. In addition, at September 30, 2012 the Company paid net cash collateral related to these derivative positions of $41.5 million. The assets related to the net collateral paid have been recorded as Other assets within the balance sheet. At December 31, 2011, the Company held net cash collateral of $77.1 million. The collateral balance is included within Cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative asset within the balance sheet as appropriate under the netting agreement. The fair values of the individual derivative contracts are reported gross in their respective levels based on the fair value hierarchy.
(8)	Financial instruments sold, but not yet purchased, represent “short sales” and are included within “Payable for investments purchased” on the balance sheet.

9

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Fair Value Measurements

(b) Level 3 Assets and Liabilities

          The tables below present additional information about assets and liabilities measured at fair value on a recurring basis and for which Level 3 inputs were utilized to determine fair value. The tables present a reconciliation of the beginning and ending balances for the three and nine months ended September 30, 2012 and 2011 for all financial assets and liabilities measured at fair value using significant unobservable inputs (Level 3) at September 30, 2012 and 2011, respectively. The tables do not include gains or losses that were reported in Level 3 in prior periods for assets that were transferred out of Level 3 prior to September 30, 2012 and 2011. Gains and losses for assets and liabilities classified within Level 3 in the table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, it should be noted that the following tables do not take into consideration the effect of offsetting Level 1 and 2 financial instruments entered into by the Company that are either economically hedged by certain exposures to the Level 3 positions or that hedge the exposures in Level 3 positions.

          In general, Level 3 assets include securities for which values were obtained from brokers where either significant inputs were utilized in determining the values that were difficult to corroborate with observable market data, or sufficient information regarding the specific inputs utilized by the broker was not available to support a Level 2 classification. Transfers into or out of Level 3 primarily arise as a result of the valuations utilized by the Company changing between either those provided by independent pricing services that do not contain significant observable inputs, or other valuations sourced from brokers that are considered Level 3.

          There were no significant transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 2012 and 2011.

10

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Fair Value Measurements

	Level 3 Assets and Liabilities - Three Months Ended September 30, 2012
(U.S. dollars in thousands)	Corporate			RMBS - Agency			RMBS - Non Agency			CMBS			CDO
Balance, beginning of period	$	33,511		$	52,588		$	1,596		$	—		$	642,179
Realized gains (losses)		20			4			(22	)		—			913
Movement in unrealized gains (losses)		673			106			(424	)		—			35,886
Purchases and issuances		—			34			6,821			33,369			—
Sales and settlements		(555	)		(4,645	)		(59	)		—			(5,347	)
Transfers into Level 3		—			—			—			—			1,162
Transfers out of Level 3		(4,514	)		(14,230	)		(73	)		—			—
Fixed maturities to short-term investments classification change		—			—			—			—			—
Balance, end of period	$	29,135		$	33,857		$	7,839		$	33,369		$	674,793
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	674		$	110		$	(447	)	$	—		$	35,806
	Level 3 Assets and Liabilities - Three Months Ended September 30, 2012
(U.S. dollars in thousands)	Other asset- backed securities			Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported			Short-term investments			Other investments			Derivative Contracts - Net
Balance, beginning of period	$	25,248		$	—		$	—		$	117,765		$	(35,947	)
Realized gains (losses)		7,017			—			—			343			—
Movement in unrealized gains (losses)		(6,552	)		—			—			1,686			885
Purchases and issuances		8,753			—			—			982			—
Sales and settlements		(16,141	)		—			—			(807	)		—
Transfers into Level 3		—			—			—			6			—
Transfers out of Level 3		(1,162	)		—			—			—			—
Fixed maturities to short-term investments classification change		—			—			—			—			—
Balance, end of period	$	17,163		$	—		$	—		$	119,975		$	(35,062	)
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	456		$	—		$	—		$	1,334		$	885

11

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Fair Value Measurements

	Level 3 Assets and Liabilities - Three Months Ended September 30, 2011
(U.S. dollars in thousands)	Corporate			RMBS - Agency			RMBS - Non Agency			CMBS			CDO
Balance, beginning of period	$	4,786		$	15,385		$	3,194		$	4,563		$	727,239
Realized gains (losses)		23			(81	)		(328	)		(501	)		(2,662	)
Movement in unrealized gains (losses)		(22	)		52			76			564			(46,520	)
Purchases and issuances		—			33			—			—			—
Sales and settlements		—			(206	)		(143	)		(232	)		(12,215	)
Transfers into Level 3		—			—			—			—			—
Transfers out of Level 3		—			—			—			—			—
Fixed maturities to short-term investments classification change		—			—			—			—			—
Balance, end of period	$	4,787		$	15,183		$	2,799		$	4,394		$	665,842
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	1		$	(29	)	$	(252	)	$	63		$	(49,432	)
	Level 3 Assets and Liabilities - Three Months Ended September 30, 2011
(U.S. dollars in thousands)	Other asset- backed securities			Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported			Short-term investments			Other investments			Derivative Contracts - Net
Balance, beginning of period	$	17,048		$	—		$	—		$	114,540		$	(49,645	)
Realized gains (losses)		(238	)		—			—			(244	)		—
Movement in unrealized gains (losses)		302			—			—			2,642			(2,344	)
Purchases and issuances		—			—			—			1,667			—
Sales and settlements		—			—			—			(4,243	)		—
Transfers into Level 3		—			—			—			—			—
Transfers out of Level 3		—			—			—			—			—
Fixed maturities to short-term investments classification change		—			—			—			—			—
Balance, end of period	$	17,112		$	—		$	—		$	114,362		$	(51,989	)
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	64		$	—		$	—		$	2,398		$	(2,344	)

12

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Fair Value Measurements

	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2012
(U.S. dollars in thousands)	Corporate			RMBS - Agency			RMBS - Non Agency		CMBS			CDO
Balance, beginning of period	$	23,818		$	32,041		$	—	$	—		$	650,851
Realized gains (losses)		4			(23	)		—		—			(523	)
Movement in unrealized gains (losses)		346			58			—		—			75,489
Purchases and issuances		8,949			103			6,821		33,369			—
Sales and settlements		(181	)		(6,233	)		—		—			(51,024	)
Transfers into Level 3		838			15,254			1,018		—			—
Transfers out of Level 3		(4,639	)		(7,343	)		—		—			—
Fixed maturities to short-term investments classification change		—			—			—		—			—
Balance, end of period	$	29,135		$	33,857		$	7,839	$	33,369		$	674,793
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	351		$	35		$	—	$	—		$	71,738
	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2012
(U.S. dollars in thousands)	Other asset- backed securities			Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported			Short-term investments		Other investments			Derivative Contracts - Net
Balance, beginning of period	$	16,552		$	—		$	—	$	113,959		$	(42,644	)
Realized gains (losses)		6,748			—			—		2,782			—
Movement in unrealized gains (losses)		(2,873	)		—			—		6,206			7,582
Purchases and issuances		8,753			—			—		4,664			—
Sales and settlements		(15,867	)		—			—		(7,327	)		—
Transfers into Level 3		3,850			—			—		6			—
Transfers out of Level 3		—			—			—		(315	)		—
Fixed maturities to short-term investments classification change		—			—			—		—			—
Balance, end of period	$	17,163		$	—		$	—	$	119,975		$	(35,062	)
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	3,652		$	—		$	—	$	2,385		$	7,582

13

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Fair Value Measurements

	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2011
(U.S. dollars in thousands)	Corporate			RMBS - Agency			RMBS - Non Agency			CMBS			CDO
Balance, beginning of period	$	36,866		$	30,255		$	4,964		$	1,623		$	721,572
Realized gains (losses)		(257	)		(81	)		(329	)		(1,179	)		(3,733	)
Movement in unrealized gains (losses)		173			2			61			1,078			(10,104	)
Purchases and issuances		6,878			33			—			3,155			2,379
Sales and settlements		(10,049	)		(492	)		(517	)		(283	)		(46,158	)
Transfers into Level 3		—			—			—			—			1,886
Transfers out of Level 3		(28,824	)		(14,534	)		(1,380	)		—			—
Fixed maturities to short-term investments classification change		—			—			—			—			—
Balance, end of period	$	4,787		$	15,183		$	2,799		$	4,394		$	665,842
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	(52	)	$	(79	)	$	(268	)	$	(855	)	$	(15,656	)
	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2011
(U.S. dollars in thousands)	Other asset- backed securities			Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported			Short-term investments			Other investments			Derivative Contracts - Net
Balance, beginning of period	$	24,650		$	3,667		$	—		$	133,717		$	(39,195	)
Realized gains (losses)		(555	)		—			—			11,911			—
Movement in unrealized gains (losses)		7,162			—			—			10,134			(12,620	)
Purchases and issuances		—			—			—			9,782			—
Sales and settlements		(9,114	)		—			—			(51,182	)		(174	)
Transfers into Level 3		—			—			—			—			—
Transfers out of Level 3		(5,031	)		(3,667	)		—			—			—
Fixed maturities to short-term investments classification change		—			—			—			—			—
Balance, end of period	$	17,112		$	—		$	—		$	114,362		$	(51,989	)
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	6,287		$	—		$	—		$	19,735		$	(12,620	)

14

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Fair Value Measurements

(c) Fixed maturities and short-term investments

          The Company’s Level 3 assets consist primarily of CDOs, for which non-binding broker quotes are the primary source of the valuations. Sufficient information regarding the specific inputs utilized by the brokers was not available to support a Level 2 classification. The Company obtains the majority of broker quotes for these CDOs from third party investment managers who perform independent verifications of these valuations using pricing matrices based upon information gathered by market traders. In addition, for the majority of these securities, the Company compares the broker quotes to independent valuations obtained from third party pricing vendors, which may also consist of broker quotes, to assess if the prices received represent a reasonable estimate of the fair value. Although the Company does not have access to the specific unobservable inputs that may have been used in the fair value measurements of the CDO securities provided by brokers, we would expect that the significant inputs considered are prepayment rates, probability of default, loss severity in the event of default, recovery rates, liquidity premium and reinvestment rates. Significant increases (decreases) in any of those inputs in isolation could result in a significantly different fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

          The remainder of the Level 3 assets relate to primarily to private equity investments and certain derivative positions as described below.

(d) Other investments

          Included within the Other investments component of the Company’s Level 3 valuations are private investments and alternative fund investments where the Company is not deemed to have significant influence over the investee. The fair value of these investments is based upon net asset values received from the investment manager or general partner of the respective entity. The nature of the underlying investments held by the investee that form the basis of the net asset value include assets such as private business ventures and are such that significant Level 3 inputs are utilized in the determination of the individual underlying holding values and, accordingly, the fair value of the Company’s investment in each entity is classified within Level 3. The Company has not adjusted the net asset values received; however, management incorporates factors such as the most recent financial information received, annual audited financial statements and the values at which capital transactions with the investee take place when applying judgment regarding whether any adjustments should be made to the net asset value in recording the fair value of each position. Investments in alternative funds included in Other investments utilize strategies including arbitrage, directional, event driven and multi-style. These funds potentially have lockup and gate provisions which may limit redemption liquidity. For further details regarding the nature of Other investments and related features see Item 8, Note 7, “Other Investments,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

(e) Derivative instruments

          Derivative instruments recorded within Other liabilities and classified within Level 3 include credit derivatives sold providing protection on senior tranches of structured finance transactions where the value is obtained directly from the investment bank counterparty and sufficient information regarding the inputs utilized in such valuation was not obtained to support a Level 2 classification and guaranteed minimum income benefits (“GMIB”) embedded within one reinsurance contract. The majority of inputs utilized in the valuations of these types of derivative contracts are considered Level 1 or Level 2; however, each valuation includes at least one Level 3 input that was significant to the valuation and, accordingly, the values are disclosed within Level 3.

15

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. Fair Value Measurements

(f) Financial Instruments Not Carried at Fair Value

          Authoritative guidance over disclosures about the fair value of financial instruments requires additional disclosure of fair value information for financial instruments not carried at fair value in both interim and annual reporting periods. Certain financial instruments, particularly insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents, accrued investment income, net receivable from investments sold, other assets, net payable for investments purchased, other liabilities and other financial instruments not included below approximated their fair values. The following table includes financial instruments for which the carrying value differs from the estimated fair values at September 30, 2012 and December 31, 2011. All of these fair values estimates are considered Level 2 fair value measurements. The fair values for fixed maturities held to maturity are provided by third party pricing vendors and significant valuation inputs for all other items included were based upon market data obtained from sources independent of the Company, and are subject to the same control environment previously described.

	September 30, 2012				December 31, 2011
(U.S. dollars in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Fixed maturities, held to maturity	$	2,805,796	$	3,222,900	$	2,668,978	$	2,895,688
Other investments - structured transactions		311,767		287,136		323,705		297,124
Financial Assets	$	3,117,563	$	3,510,036	$	2,992,683	$	3,192,812
Deposit liabilities	$	1,561,076	$	1,885,194	$	1,608,108	$	1,809,812
Notes payable and debt		1,673,350		1,866,084		2,275,327		2,340,148
Financial Liabilities	$	3,234,426	$	3,751,278	$	3,883,435	$	4,149,960

          The Company historically participated in structured transactions. Remaining structured transactions include cash loans supporting project finance transactions, providing liquidity facility financing to structured project deals and an investment in a payment obligation with an insurance company. These transactions are carried at amortized cost. The fair value of these investments held by the Company is determined through use of internal models utilizing reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.

          Deposit liabilities include obligations under structured insurance and reinsurance transactions. For purposes of fair value disclosures, the Company determined the estimated fair value of the deposit liabilities by assuming a discount rate equal to the appropriate U.S. Treasury rate plus 102.3 basis points at September 30, 2012 and the appropriate U.S. Treasury rate plus 161.8 basis points at December 31, 2011. The discount rate incorporates the Company’s own credit risk into the determination of estimated fair value.

          The fair values of the Company’s notes payable and debt outstanding were determined based on quoted market prices.

          There are no significant concentrations of credit risk within the Company’s financial instruments as defined in the authoritative guidance over disclosures of fair value of financial instruments not carried at fair value, which excludes certain financial instruments, particularly insurance contracts.

16

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Segment Information

          The Company is organized into three operating segments: Insurance, Reinsurance and Life operations. The Company’s general investment and financing operations are reflected in Corporate.

          The Company evaluates the performance of both the Insurance and Reinsurance segments based on underwriting profit while the Life operations segment performance is based on contribution. Other items of revenue and expenditure of the Company are not evaluated at the segment level. In addition, the Company does not allocate investment assets by segment for its Property and Casualty (“P&C”) operations. Investment assets related to the Company’s Life operations and certain structured products included in the Insurance and Reinsurance segments and Corporate are held in separately identified portfolios. As such, net investment income from these assets is included in the contribution from the applicable segment.

Three Months Ended September 30, 2012 (U.S. dollars in thousands, except ratios)	Insurance			Reinsurance			Total P&C			Life Operations			Total
Gross premiums written	$	1,158,683		$	417,548		$	1,576,231		$	87,413		$	1,663,644
Net premiums written		905,054			403,210			1,308,264			79,487			1,387,751
Net premiums earned		985,623			482,930			1,468,553			79,487			1,548,040
Net losses and loss expenses		(623,543	)		(270,533	)		(894,076	)		(119,439	)		(1,013,515	)
Acquisition costs		(128,514	)		(97,739	)		(226,253	)		(10,094	)		(236,347	)
Operating expenses (1)		(186,794	)		(47,227	)		(234,021	)		(2,352	)		(236,373	)
Underwriting profit (loss)	$	46,772		$	67,431		$	114,203		$	(52,398	)	$	61,805
Net investment income								148,482			73,479			221,961
Net results from structured products (2)		3,087			2,614			5,701			—			5,701
Net fee income and other (3)		591			657			1,248			240			1,488
Net realized gains (losses) on investments								2,257			(7,750	)		(5,493	)
Contribution from P&C and Life Operations							$	271,891		$	13,571		$	285,462
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments														6,254
Net income (loss) from investment fund affiliates and operating affiliates (4)														18,967
Exchange gains (losses)														(18,690	)
Corporate operating expenses														(57,604	)
Interest expense (5)														(26,192	)
Non-controlling interests														(35,844	)
Income tax														(451	)
Net income (loss) attributable to XL Group plc													$	171,902
Ratios – P&C operations: (6)
Loss and loss expense ratio		63.3	%		56.0	%		60.9	%
Underwriting expense ratio		32.0	%		30.0	%		31.3	%
Combined ratio		95.3	%		86.0	%		92.2	%

(1)	Operating expenses exclude Corporate operating expenses, shown separately.
(2)	The net results from P&C structured products include net investment income and interest expense of $17.4 million and $11.7 million, respectively.
(3)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business.
(4)	The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.
(5)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.
(6)	Ratios are based on net premiums earned from P&C operations.

17

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Segment Information

Three Months Ended September 30, 2011 (U.S. dollars in thousands, except ratios)	Insurance			Reinsurance			Total P&C			Life Operations			Total
Gross premiums written	$	1,156,901		$	619,260		$	1,776,161		$	100,564		$	1,876,725
Net premiums written		872,757			419,949			1,292,706			90,769			1,383,475
Net premiums earned		930,067			432,465			1,362,532			90,794			1,453,326
Net losses and loss expenses		(767,091	)		(220,968	)		(988,059	)		(139,549	)		(1,127,608	)
Acquisition costs		(118,521	)		(79,839	)		(198,360	)		(9,193	)		(207,553	)
Operating expenses (1)		(158,134	)		(40,179	)		(198,313	)		(2,352	)		(200,665	)
Underwriting profit (loss)	$	(113,679	)	$	91,479		$	(22,200	)	$	(60,300	)	$	(82,500	)
Net investment income								190,886			80,349			271,235
Net results from structured products (2)		2,457			3,388			5,845			—			5,845
Net fee income and other (3)		(3,484	)		1,120			(2,364	)		41			(2,323	)
Net realized gains (losses) on investments								(39,047	)		(23,307	)		(62,354	)
Contribution from P&C and Life Operations							$	133,120		$	(3,217	)	$	129,903
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments														(26,916	)
Net income (loss) from investment fund affiliates and operating affiliates (4)														28,429
Exchange gains (losses)														39,425
Corporate operating expenses														(33,847	)
Interest expense (5)														(35,885	)
Non-controlling interests														(33,993	)
Income tax														(24,718	)
Net income (loss) attributable to XL Group plc													$	42,398
Ratios – P&C operations: (6)
Loss and loss expense ratio		82.5	%		51.1	%		72.5	%
Underwriting expense ratio		29.7	%		27.7	%		29.1	%
Combined ratio		112.2	%		78.8	%		101.6	%

(1)	Operating expenses exclude Corporate operating expenses, shown separately.
(2)	The net results from P&C structured products include net investment income and interest expense of $18.9 million and $13.0 million, respectively.
(3)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business and expenses related to the cost of an endorsement facility with National Indemnity Company.
(4)	The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.
(5)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.
(6)	Ratios are based on net premiums earned from P&C operations.

18

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Segment Information

Nine Months Ended September 30, 2012 (U.S. dollars in thousands, except ratios)	Insurance			Reinsurance			Total P&C			Life Operations			Total
Gross premiums written	$	3,806,351		$	1,850,315		$	5,656,666		$	267,000		$	5,923,666
Net premiums written		2,885,847			1,732,923			4,618,770			243,606			4,862,376
Net premiums earned		2,878,973			1,348,450			4,227,423			243,630			4,471,053
Net losses and loss expenses		(1,890,512	)		(683,984	)		(2,574,496	)		(371,896	)		(2,946,392	)
Acquisition costs		(380,054	)		(273,706	)		(653,760	)		(25,675	)		(679,435	)
Operating expenses (1)		(564,387	)		(127,965	)		(692,352	)		(7,788	)		(700,140	)
Underwriting profit (loss)	$	44,020		$	262,795		$	306,815		$	(161,729	)	$	145,086
Net investment income								492,031			223,150			715,181
Net results from structured products (2)		14,953			(17,801	)		(2,848	)		—			(2,848	)
Net fee income and other (3)		(3,276	)		1,980			(1,296	)		330			(966	)
Net realized gains (losses) on investments								25,070			(22,153	)		2,917
Contribution from P&C and Life Operations							$	819,772		$	39,598		$	859,370
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments														2,656
Net income (loss) from investment fund affiliates and operating affiliates (4)														80,286
Exchange gains (losses)														(13,432	)
Corporate operating expenses														(151,925	)
Interest expense (5)														(79,601	)
Non-controlling interests														(75,855	)
Income tax														(51,813	)
Net income (loss) attributable to XL Group plc													$	569,686
Ratios – P&C operations: (6)
Loss and loss expense ratio		65.7	%		50.7	%		60.9	%
Underwriting expense ratio		32.8	%		29.8	%		31.8	%
Combined ratio		98.5	%		80.5	%		92.7	%

(1)	Operating expenses exclude Corporate operating expenses, shown separately.
(2)	The net results from P&C structured products include net investment income and interest expense of $52.2 million and $55.0 million, respectively.
(3)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business.
(4)	The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.
(5)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.
(6)	Ratios are based on net premiums earned from P&C operations.

19

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Segment Information

Nine Months Ended September 30, 2011 (U.S. dollars in thousands, except ratios)	Insurance			Reinsurance			Total P&C			Life Operations			Total
Gross premiums written	$	3,669,280		$	1,968,444		$	5,637,724		$	298,504		$	5,936,228
Net premiums written		2,684,938			1,628,109			4,313,047			272,635			4,585,682
Net premiums earned		2,713,430			1,226,923			3,940,353			272,695			4,213,048
Net losses and loss expenses		(2,163,786	)		(856,722	)		(3,020,508	)		(410,196	)		(3,430,704	)
Acquisition costs		(340,048	)		(244,813	)		(584,861	)		(26,281	)		(611,142	)
Operating expenses (1)		(488,837	)		(129,362	)		(618,199	)		(7,241	)		(625,440	)
Underwriting profit (loss)	$	(279,241	)	$	(3,974	)	$	(283,215	)	$	(171,023	)	$	(454,238	)
Net investment income								570,504			239,382			809,886
Net results from structured products (2)		8,407			9,828			18,235			—			18,235
Net fee income and other (3)		(12,614	)		2,505			(10,109	)		178			(9,931	)
Net realized gains (losses) on investments								(76,181	)		(62,154	)		(138,335	)
Contribution from P&C and Life Operations							$	219,234		$	6,383		$	225,617
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments														(34,299	)
Net income (loss) from investment fund affiliates and operating affiliates (4)														125,716
Exchange gains (losses)														38,409
Corporate operating expenses														(109,105	)
Interest expense (5)														(119,383	)
Non-controlling interests														(69,431	)
Income tax														(16,747	)
Net income (loss) attributable to XL Group plc													$	40,777
Ratios – P&C operations: (6)
Loss and loss expense ratio		79.7	%		69.8	%		76.7	%
Underwriting expense ratio		30.6	%		30.5	%		30.5	%
Combined ratio		110.3	%		100.3	%		107.2	%

(1)	Operating expenses exclude Corporate operating expenses, shown separately.
(2)	The net results from P&C structured products include net investment income and interest expense of $57.0 million and $38.8 million, respectively.
(3)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business and expenses related to the cost of an endorsement facility with National Indemnity Company.
(4)	The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.
(5)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.
(6)	Ratios are based on net premiums earned from P&C operations.

20

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Segment Information

          The following tables summarize the Company’s net premiums earned by line of business:

Three Months Ended September 30, 2012 (U.S. dollars in thousands)	Insurance		Reinsurance		Life Operations		Total
P&C Operations:
Casualty - professional lines	$	345,722	$	47,874	$	—	$	393,596
Casualty - other lines		181,265		81,798		—		263,063
Property catastrophe		—		113,167		—		113,167
Other property		140,858		170,856		—		311,714
Marine, energy, aviation and satellite		130,497		33,091		—		163,588
Other specialty lines (1)		185,622		—		—		185,622
Other (2)		1,659		36,144		—		37,803
Total P&C Operations	$	985,623	$	482,930	$	—	$	1,468,553
Life Operations:
Annuity	$	—	$	—	$	31,960	$	31,960
Other Life		—		—		47,527		47,527
Total Life Operations	$	—	$	—	$	79,487	$	79,487
Total	$	985,623	$	482,930	$	79,487	$	1,548,040
Three Months Ended September 30, 2011 (U.S. dollars in thousands)
P&C Operations:
Casualty - professional lines	$	319,101	$	51,945	$	—	$	371,046
Casualty - other lines		172,684		64,274		—		236,958
Property catastrophe		—		97,158		—		97,158
Other property		120,394		161,585		—		281,979
Marine, energy, aviation and satellite		138,290		32,162		—		170,452
Other specialty lines (1)		178,706		—		—		178,706
Other (2)		892		25,341		—		26,233
Total P&C Operations	$	930,067	$	432,465	$	—	$	1,362,532
Life Operations:
Annuity	$	—	$	—	$	33,342	$	33,342
Other Life		—		—		57,452		57,452
Total Life Operations	$	—	$	—	$	90,794	$	90,794
Total	$	930,067	$	432,465	$	90,794	$	1,453,326

(1)	Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, fine art and specie, middle markets, political risk and trade credit, product recall, surety, inland marine and surplus lines.
(2)	Other includes whole account contracts, structured indemnity, internal reinsurance and other lines.

21

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Segment Information

Nine Months Ended September 30, 2012 (U.S. dollars in thousands)	Insurance		Reinsurance		Life Operations		Total
P&C Operations:
Casualty - professional lines	$	1,000,417	$	156,082	$	—	$	1,156,499
Casualty - other lines		516,185		231,879		—		748,064
Property catastrophe		—		329,313		—		329,313
Other property		399,170		451,625		—		850,795
Marine, energy, aviation and satellite		394,578		104,462		—		499,040
Other specialty lines (1)		559,826		—		—		559,826
Other (2)		8,797		75,089		—		83,886
Total P&C Operations	$	2,878,973	$	1,348,450	$	—	$	4,227,423
Life Operations:
Annuity	$	—	$	—	$	94,660	$	94,660
Other Life		—		—		148,970		148,970
Total Life Operations	$	—	$	—	$	243,630	$	243,630
Total	$	2,878,973	$	1,348,450	$	243,630	$	4,471,053
Nine Months Ended September 30, 2011 (U.S. dollars in thousands)
P&C Operations:
Casualty - professional lines	$	957,399	$	157,576	$	—	$	1,114,975
Casualty - other lines		501,634		184,238		—		685,872
Property catastrophe		—		286,085		—		286,085
Other property		344,403		433,083		—		777,486
Marine, energy, aviation and satellite		392,183		101,026		—		493,209
Other specialty lines (1)		512,399		—		—		512,399
Other (2)		5,412		64,915		—		70,327
Total P&C Operations	$	2,713,430	$	1,226,923	$	—	$	3,940,353
Life Operations:
Annuity	$	—	$	—	$	100,232	$	100,232
Other Life		—		—		172,463		172,463
Total Life Operations	$	—	$	—	$	272,695	$	272,695
Total	$	2,713,430	$	1,226,923	$	272,695	$	4,213,048

(1)	Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, fine art and specie, middle markets, political risk and trade credit, product recall, surety, inland marine and surplus lines.
(2)	Other includes whole account contracts, structured indemnity, internal reinsurance and other lines.

22

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Investments

(a) Fixed Maturities, Short-Term Investments and Equity Securities

          Amortized Cost and Fair Value Summary

          The cost (amortized cost for fixed maturities and short-term investments), fair value, gross unrealized gains and gross unrealized (losses), including, other-than-temporary impairments (“OTTI”) recorded in accumulated other comprehensive income (“AOCI”) of the Company’s available for sale (“AFS”) and held to maturity (“HTM”) investments at September 30, 2012 and December 31, 2011 were as follows:

			Included in AOCI
					Gross Unrealized Losses
September 30, 2012 (U.S. dollars in thousands)	Cost or Amortized Cost		Gross Unrealized Gains		Related to Changes in Estimated Fair Value			Non-credit Related OTTI			Fair Value
Fixed maturities - AFS
U.S. Government and Government-Related/Supported (1)	$	1,996,119	$	142,683	$	(3,434	)	$	—		$	2,135,368
Corporate (2) (3) (4)		9,392,587		738,040		(109,187	)		(14,303	)		10,007,137
RMBS – Agency		5,126,903		252,738		(2,738	)		—			5,376,903
RMBS – Non-Agency		705,785		38,297		(2,716	)		(105,041	)		636,325
CMBS		963,365		75,031		(1,123	)		(2,864	)		1,034,409
CDO		791,737		9,735		(114,017	)		(4,889	)		682,566
Other asset-backed securities (2)		1,421,005		57,025		(12,573	)		(6,913	)		1,458,544
U.S. States and political subdivisions of the States		1,665,392		156,366		(1,653	)		—			1,820,105
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		4,087,627		196,732		(9,423	)		—			4,274,936
Total fixed maturities - AFS	$	26,150,520	$	1,666,647	$	(256,864	)	$	(134,010	)	$	27,426,293
Total short-term investments (1)	$	323,039	$	1,124	$	(458	)	$	—		$	323,705
Total equity securities	$	554,962	$	16,218	$	(5,253	)	$	—		$	565,927
Total investments - AFS	$	27,028,521	$	1,683,989	$	(262,575	)	$	(134,010	)	$	28,315,925
Fixed maturities - HTM
U.S. Government and Government-Related/Supported (1)	$	10,845	$	1,859	$	—		$	—		$	12,704
Corporate (2)		1,430,220		192,803		(2,932	)		—			1,620,091
RMBS – Non-Agency		83,896		9,582		—			—			93,478
CMBS		12,917		2,109		—			—			15,026
Other asset-backed securities (2)		224,508		29,218		(295	)		—			253,431
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		1,043,410		187,562		(2,802	)		—			1,228,170
Total investments - HTM	$	2,805,796	$	423,133	$	(6,029	)	$	—		$	3,222,900

(1)	U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments includes government-related securities with an amortized cost of $2,182.5 million and fair value of $2,258.6 million and U.S. Agencies with an amortized cost of $453.8 million and fair value of $499.5 million.
(2)	At September 30, 2012, Covered Bonds within Fixed maturities – AFS with an amortized cost of $561.5 million and a fair value of $599.9 million and Covered Bonds within Fixed maturities – HTM with an amortized cost of $8.4 million and a fair value of $8.3 million have been included within Other asset-backed securities to align the Company’s classification to market indices. Covered Bonds were included in Corporate prior to January 1, 2012.
(3)	Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes have a fair value of $192.3 million and an amortized cost of $199.8 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.
(4)	Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities have a fair value of $348.8 million and an amortized cost of $402.1 million at September 30, 2012.

23

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Investments

			Included in AOCI
					Gross Unrealized Losses
December 31, 2011 (U.S. dollars in thousands)	Cost or Amortized Cost		Gross Unrealized Gains		Related to Changes in Estimated Fair Value			Non-credit Related OTTI			Fair Value
Fixed maturities - AFS
U.S. Government and Government-Related/Supported (1)	$	1,864,354	$	130,874	$	(4,245	)	$	—		$	1,990,983
Corporate (2) (3) (4)		9,866,677		527,192		(233,581	)		(51,666	)		10,108,622
RMBS – Agency		5,189,473		193,782		(3,849	)		—			5,379,406
RMBS – Non-Agency		851,557		19,667		(112,867	)		(116,542	)		641,815
CMBS		927,684		56,704		(2,405	)		(7,148	)		974,835
CDO		843,553		6,624		(186,578	)		(4,997	)		658,602
Other asset-backed securities (2)		1,341,309		30,731		(25,486	)		(6,305	)		1,340,249
U.S. States and political subdivisions of the States		1,698,573		101,025		(2,220	)		—			1,797,378
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		3,188,535		127,439		(17,839	)		—			3,298,135
Total fixed maturities - AFS	$	25,771,715	$	1,194,038	$	(589,070	)	$	(186,658	)	$	26,190,025
Total short-term investments (1)	$	359,378	$	519	$	(834	)	$	—		$	359,063
Total equity securities	$	480,685	$	27,947	$	(40,435	)	$	—		$	468,197
Total investments - AFS	$	26,611,778	$	1,222,504	$	(630,339	)	$	(186,658	)	$	27,017,285
Fixed maturities - HTM
U.S. Government and Government-Related/Supported (2)	$	10,399	$	1,510	$	—		$	—		$	11,909
Corporate (2)		1,290,209		91,313		(14,433	)		—			1,367,089
RMBS – Non-Agency		80,955		6,520		(32	)		—			87,443
Other asset-backed securities (2)		288,741		20,875		(320	)		—			309,296
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		998,674		127,227		(5,950	)		—			1,119,951
Total investments - HTM	$	2,668,978	$	247,445	$	(20,735	)	$	—		$	2,895,688

(1)	U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments includes government-related securities with an amortized cost of $1,878.3 million and fair value of $1,915.6 million and U.S. Agencies with an amortized cost of $494.0 million and fair value of $541.2 million.
(2)	Covered Bonds within Fixed maturities – AFS with an amortized cost of $345.4 million and a fair value of $353.9 million and Covered Bonds within Fixed maturities – HTM with an amortized cost of $8.1 million and a fair value of $7.7 million at December 31, 2011 have been reclassified from Corporate to Other asset-backed securities to align the Company’s classification to market indices and conform to current period presentation.
(3)	Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes have a fair value of $266.0 million and an amortized cost of $297.7 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.
(4)	Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities have a fair value of $386.1 million and an amortized cost of $494.9 million at December 31, 2011.

          At September 30, 2012 and December 31, 2011, approximately 2.7% and 2.4%, respectively, of the Company’s fixed income investment portfolio at fair value was invested in securities that were below investment grade or not rated. Approximately 36.2% and 31.4% of the gross unrealized losses in the Company’s fixed income securities portfolio at September 30, 2012 and December 31, 2011, respectively, related to securities that were below investment grade or not rated.

24

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Investments

          Classification of Fixed Income Securities

          During the third quarter of 2011, the Company changed the manner in which it classifies fixed income securities between Fixed maturities and Short-term investments on the balance sheet and the related note disclosure. Short-term investments under the Company’s previous classification comprised investments with a remaining maturity of less than one year from the reporting date. Under this prior presentation, longer term securities were reclassified from Fixed maturities to Short-term investments as they neared maturity. Under the Company’s new classification, Short-term investments include investments due to mature within one year from the date of purchase and are valued using the same external factors and in the same manner as Fixed maturities. No reclassifications will be made between Fixed maturities and Short-term investments subsequent to the initial date of purchase.

          This change in classification did not have an impact on the total value of investments available for sale on the balance sheet, nor did it impact the consolidated statements of income, comprehensive income, shareholders’ equity or cash flows. The only impact, other than the changes in the balance sheet line items, are changes required within the detailed tables included within this note as well as Note 3, “Fair Value Measurements,” to allocate securities previously classified as Short-term investments under the former practice into the appropriate categories of Fixed maturities within each table to conform to the new accounting presentation for current and comparative periods.

          During 2009 and 2010, the Company elected to hold certain fixed income securities to maturity. Consistent with this intention, the Company reclassified these securities from AFS to HTM in the consolidated financial statements. As a result of this classification, these fixed income securities are reflected in the HTM portfolio and recorded at amortized cost in the consolidated balance sheets and not fair value. Additional subsequent securities purchased that have already been designated as HTM are included as part of the HTM portfolio. The HTM portfolio is comprised of long duration Euro and U.K. sterling securities. The Company believes this HTM strategy is achievable due to the relatively stable and predictable cash flows of the Company’s long-term liabilities within its Life operations, along with its ability to substitute other assets at a future date in the event that liquidity was required due to changes in expected cash flows or other transactions entered into related to the long-term liabilities supported by the HTM portfolio. At September 30, 2012, 96.5% of the HTM securities were rated A or higher. The unrealized appreciation at the dates of these reclassifications continues to be reported as a separate component of shareholders’ equity and is being amortized over the remaining lives of the securities as an adjustment to yield in a manner consistent with the amortization of any premium or discount. At the time of the reclassifications, the unrealized U.S. dollar equivalent appreciation related to securities reclassified was $131.5 million in total, with $107.0 million and $108.4 million unamortized at September 30, 2012 and December 31, 2011, respectively.

          Covered Bonds were included within Corporate securities prior to January 1, 2012. They are now classified as Other asset-backed securities to align the Company’s classification to market indices. At December 31, 2011, Covered Bonds with a fair value of $353.9 million have been reclassified from Corporate to Other asset-backed securities to conform to current period presentation.

          Contractual Maturities Summary

          The contractual maturities of AFS and HTM fixed income securities at September 30, 2012 and December 31, 2011 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

25

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Investments

	September 30,2012 (1)				December 31, 2011 (1)
(U.S. dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Fixed maturities - AFS
Due less than one year	$	2,165,727	$	2,176,654	$	2,004,395	$	2,020,361
Due after 1 through 5 years		8,413,665		8,787,679		7,736,717		7,909,354
Due after 5 through 10 years		4,252,492		4,609,302		3,619,141		3,777,073
Due after 10 years		2,309,841		2,663,911		3,257,886		3,488,330
	$	17,141,725	$	18,237,546	$	16,618,139	$	17,195,118
RMBS – Agency		5,126,903		5,376,903		5,189,473		5,379,406
RMBS – Non-Agency		705,785		636,325		851,557		641,815
CMBS		963,365		1,034,409		927,684		974,835
CDO		791,737		682,566		843,553		658,602
Other asset-backed securities		1,421,005		1,458,544		1,341,309		1,340,249
Total mortgage and asset-backed securities	$	9,008,795	$	9,188,747	$	9,153,576	$	8,994,907
Total fixed maturities - AFS	$	26,150,520	$	27,426,293	$	25,771,715	$	26,190,025
Fixed maturities - HTM
Due less than one year	$	25,392	$	25,615	$	11,796	$	11,768
Due after 1 through 5 years		171,077		180,080		122,091		123,871
Due after 5 through 10 years		407,520		447,813		393,865		402,424
Due after 10 years		1,880,486		2,207,457		1,771,530		1,960,886
	$	2,484,475	$	2,860,965	$	2,299,282	$	2,498,949
RMBS – Non-Agency		83,896		93,478		80,955		87,443
CMBS		12,917		15,026		—		—
Other asset-backed securities		224,508		253,431		288,741		309,296
Total mortgage and asset-backed securities	$	321,321	$	361,935	$	369,696	$	396,739
Total fixed maturities - HTM	$	2,805,796	$	3,222,900	$	2,668,978	$	2,895,688

(1) Included in the table above are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions, at their fair value of $348.8 million and $386.1 million at September 30, 2012 and December 31, 2011, respectively. These securities are reflected in the table based on their call date and have net unrealized losses of $53.3 million and $108.8 million at September 30, 2012 and December 31, 2011, respectively.

          OTTI Considerations

          Under final authoritative accounting guidance, a debt security for which amortized cost exceeds fair value is deemed to be other-than-temporarily impaired if it meets either of the following conditions: (a) the Company intends to sell, or it is more likely than not that the Company will be required to sell, the security before a recovery in value, or (b) the Company does not expect to recover the entire amortized cost basis of the security. Other than in a situation in which the Company has the intent to sell a debt security or more likely than not will be required to sell a debt security, the amount of the OTTI related to a credit loss on the security is recognized in earnings, and the amount of the OTTI related to other factors (e.g., interest rates, market conditions, etc.) is recorded as a component of OCI. The net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment (“NPV”). The remaining difference between the security’s NPV and its fair value is recognized in OCI. Subsequent changes in the fair value of these securities are included in OCI unless a further impairment is deemed to have occurred.

          In the scenario where the Company has the intent to sell a security in which its amortized cost exceeds its fair value, or it is more likely than not it will be required to sell such a security, the entire difference between the security’s amortized cost and its fair value is recognized in earnings.

          The determination of credit losses is based on detailed analyses of underlying cash flows. Such analyses require the use of certain assumptions to develop the estimated performance of underlying collateral. Key assumptions used include, but are not limited to, items such as RMBS default rates based on collateral duration in arrears, severity of losses on default by collateral class, collateral reinvestment rates and expected future general corporate default rates.

26

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Investments

          Factors considered for all securities on a quarterly basis in determining that a gross unrealized loss is not other-than-temporarily impaired include management’s consideration of current and near term liquidity needs and other available sources of funds, an evaluation of the factors and time necessary for recovery and an assessment of whether the Company has the intention to sell or considers it more likely than not that it will be forced to sell a security.

          Pledged Assets

          Certain of the Company’s invested assets are held in trust and pledged in support of insurance and reinsurance liabilities as well as credit facilities. Such pledges are largely required by the Company’s operating subsidiaries that are “non-admitted” under U.S. state insurance regulations, in order for the U.S. cedant to receive statutory credit for reinsurance. Also, certain deposit liabilities and annuity contracts require the use of pledged assets. At September 30, 2012 and December 31, 2011, the Company had $17.5 billion and $17.2 billion in pledged assets, respectively.

(b) Gross Unrealized Losses

          The following is an analysis of how long the AFS and HTM securities at September 30, 2012 and December 31, 2011 had been in a continual unrealized loss position:

	Less than 12 months					Equal to or greater than 12 months
September 30, 2012 (U.S. dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturities and short-term investments - AFS
U.S. Government and Government-Related/Supported	$	248,665	$	(2,246	)	$	25,692	$	(1,478	)
Corporate (1) (2) (3)		178,324		(4,239	)		821,415		(119,408	)
RMBS – Agency		145,444		(1,698	)		14,888		(1,040	)
RMBS – Non-Agency		10,119		(200	)		466,064		(107,557	)
CMBS		90,884		(485	)		24,571		(3,502	)
CDO		13,919		(2,242	)		655,280		(116,664	)
Other asset-backed securities (3)		64,400		(192	)		105,520		(19,294	)
U.S. States and political subdivisions of the States		13,136		(137	)		13,788		(1,516	)
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		281,234		(1,146	)		191,321		(8,288	)
Total fixed maturities and short-term investments - AFS	$	1,046,125	$	(12,585	)	$	2,318,539	$	(378,747	)
Total equity securities (4)	$	272,543	$	(5,253	)	$	—	$	—
Fixed maturities -HTM
Corporate (3)	$	890	$	(31	)	$	41,547	$	(2,901	)
Other asset-backed securities (3)		1,236		(151	)		8,273		(144	)
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		—		—			9,483		(2,802	)
Total fixed maturities - HTM	$	2,126	$	(182	)	$	59,303	$	(5,847	)

(1)	Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, have a fair value of $192.3 million and an amortized cost of $199.8 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.
(2)	Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities, which are in a gross unrealized loss position, have a fair value of $348.8 million and an amortized cost of $402.1 million at September 30, 2012.
(3)	Covered Bonds within Fixed maturities and short-term investments – AFS with a fair value of $599.9 million and Covered Bonds within Fixed Maturities – HTM with a fair value of $8.3 million have been included within Other asset-backed securities to align the Company’s classification to market indices. Covered Bonds were included in Corporate prior to January 1, 2012.
(4)	Included within equity securities are investments in fixed income funds with a fair value of $99.3 million and an amortized cost of $100.0 million at September 30, 2012.

27

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Investments

	Less than 12 months					Equal to or greater than 12 months
December 31, 2011 (U.S. dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturities and short-term investments - AFS
U.S. Government and Government-Related/Supported	$	289,260	$	(332	)	$	43,622	$	(3,984	)
Corporate (1) (2) (3)		1,078,664		(42,151	)		1,185,535		(243,683	)
RMBS – Agency		310,318		(849	)		36,960		(3,000	)
RMBS – Non-Agency		106,294		(31,714	)		449,138		(197,695	)
CMBS		69,109		(2,716	)		39,444		(6,837	)
CDO		3,357		(2,261	)		636,362		(189,456	)
Other asset-backed securities (3)		227,098		(3,324	)		161,312		(28,467	)
U.S. States and political subdivisions of the States		25,309		(199	)		27,646		(2,021	)
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		265,766		(4,707	)		202,890		(13,166	)
Total fixed maturities and short-term investments - AFS	$	2,375,175	$	(88,253	)	$	2,782,909	$	(688,309	)
Total equity securities (4)	$	361,585	$	(40,435	)	$	—	$	—
Fixed maturities -HTM
Corporate (3)	$	147,836	$	(7,770	)	$	62,343	$	(6,663	)
RMBS – Non-Agency		9,372		(32	)		—		—
Other asset-backed securities (3)		7,743		(314	)		1,106		(6	)
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		79,242		(1,206	)		18,330		(4,744	)
Total fixed maturities - HTM	$	244,193	$	(9,322	)	$	81,779	$	(11,413	)

(1)	Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, have a fair value of $266.0 million and an amortized cost of $297.7 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.
(2)	Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities, which are in a gross unrealized loss position, have a fair value of $386.1 million and an amortized cost of $494.9 million at December 31, 2011.
(3)	Covered Bonds within Fixed maturities and short-term investments – AFS with a fair value of $353.9 million and Covered Bonds within Fixed Maturities – HTM with a fair value of $7.7 million have been included within Other asset-backed securities to align the Company’s classification to market indices and to conform to current period presentation. Covered Bonds were included in Corporate prior to January 1, 2012.
(4)	Included within equity securities are investments in fixed income funds with a fair value of $91.6 million and an amortized cost of $100.0 million at December 31, 2011.

          The Company had gross unrealized losses totaling $396.6 million on 1,072 securities out of a total of 7,215 held at September 30, 2012 in its AFS portfolio and $6.0 million on 9 securities out of a total of 207 held in its HTM portfolio, which it considers to be temporarily impaired or with respect to which reflects non-credit losses on OTTI. Individual security positions comprising this balance have been evaluated by management to determine the severity of these impairments and whether they should be considered other-than-temporary. Management believes it is more likely than not that the issuer will be able to fund sufficient principal and interest payments to support the current amortized cost.

          Management, in its assessment of whether securities in a gross unrealized loss position are temporarily impaired, as described above, considers the significance of the impairments. At September 30, 2012, the Company had structured credit securities with gross unrealized losses of $37.0 million, which had a fair value of $12.0 million, and a cumulative fair value decline of greater than 50% of amortized cost. All of these securities are mortgage and asset-backed securities. These greater than 50% impaired securities include gross unrealized losses of $21.6 million on non-Agency RMBS, $14.8 million on Core CDOs and $0.6 million of CMBS holdings.

28

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Investments

(c) Net Realized Gains (Losses)

          The following represents an analysis of net realized gains (losses) on investments:

Net Realized Gains (Losses) on Investments	Three Months Ended September 30,						Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			2012			2011
Gross realized gains	$	33,136		$	55,625		$	153,757		$	143,804
Gross realized losses on investments sold		(26,000	)		(51,164	)		(89,053	)		(150,703	)
OTTI on investments, net of amounts transferred to other comprehensive income		(12,629	)		(66,815	)		(61,787	)		(131,436	)
Net realized gains (losses) on investments	$	(5,493	)	$	(62,354	)	$	2,917		$	(138,335	)

          The significant components of the net impairment charges of $12.6 million for the three months ended September 30, 2012 were:

§	$5.6 million for structured securities where the Company determined that the likely recovery on these securities was below the carrying value and, accordingly, recorded an impairment of the securities to the discounted value of the cash flows expected to be received on these securities.
§	$2.2 million related to medium term notes backed primarily by European investment grade credit. On certain notes, management concluded that expected future returns on the underlying assets were not sufficient to support the previously reported amortized cost.
§	$2.7 million related to private investments.

          The following table sets forth the amount of credit loss impairments on fixed income securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts.

Credit Loss Impairments	Three Months Ended September 30,						Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			2012			2011
Opening balance	$	299,720		$	315,844		$	333,379		$	426,372
Credit loss impairment recognized in the current period on securities not previously impaired		2,805			10,478			8,683			26,384
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(33,114	)		(14,611	)		(87,092	)		(173,056	)
Credit loss impairments previously recognized on securities impaired to fair value during the period		—			—			(12,891	)		—
Additional credit loss impairments recognized in the current period on securities previously impaired		4,834			35,574			41,716			74,372
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		(2,773	)		(4,010	)		(12,323	)		(10,797	)
Balance at September 30,	$	271,472		$	343,275		$	271,472		$	343,275

During the three months ended September 30, 2012 and 2011, the $33.1 million and $14.6 million, respectively, of credit loss impairments previously recognized on securities that matured, or were paid down, prepaid or sold, includes $11.6 million and $7.5 million, respectively, of non-Agency RMBS.

During the nine months ended September 30, 2012 and 2011, the $87.1 million and $173.1 million, respectively, of credit loss impairments previously recognized on securities that matured, or were paid down, prepaid or sold, includes $38.3 million and $114.9 million, respectively, of non-Agency RMBS.

29

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Investments

(d) Other Investments

          Structured Transactions - Project Finance Loans

          The Company historically participated in structured transactions in project finance related areas under which the Company provided a cash loan supporting project finance transactions. These transactions are accounted for in accordance with guidance governing accounting by certain entities (including entities with trade receivables) that lend to or finance the activities of others under which the loans are considered held for investment as the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff. Accordingly, these funded loan participations are reported in the balance sheet at outstanding principal adjusted for any allowance for loan losses as considered necessary by management.

          The following table shows a summary of the structured project finance loans at September 30, 2012 and December 31, 2011:

Project Finance Loans (U.S. dollars in thousands)	September 30, 2012			December 31, 2011
Aggregate loan value	$	36,960		$	49,650
Aggregate loan net carrying value	$	31,377		$	40,483
Opening allowance for loan losses	$	(9,167	)	$	(9,167	)
Amounts charged off during the period		3,584			—
Closing allowance for loan losses	$	(5,583	)	$	(9,167	)
Number of individual loan participations		4			6
Number of individual loan participations relating to the allowance for loan losses		1			2
Weighted average contractual term to maturity		0.9 years			2.1 years
Weighted average credit rating		BB			BB-
Range of individual credit ratings		BB+ to BB-			BB+ to CCC

          Surveillance procedures are conducted over each structured project finance loan on an ongoing basis with current expectations of future collections of contractual interest and principal used to determine whether any allowance for loan losses may be required at each period end. If it is determined that a future credit loss on a specific contract is reasonably possible and an amount can be estimated, an allowance is recorded. The contractual receivable is only charged off when the final outcome is known and the Company has exhausted all commercial efforts to try and collect any outstanding balances.

          During the nine months ended September 30, 2012 and the year ended December 31, 2011, management conducted separate reviews of each loan participation and determined loss allowance estimates, as shown in the table above, using a recovery value concept. Management considers recovery value to be the percentage of all future contractual interest and principal that the Company expects to receive from the borrower through any combination of regular debt service, other payments, salvage and recovery. The allowances for loan losses are made when it is probable that a loss will be incurred based upon current information received from the borrower.

          Investment Fund Consolidation

          During May 2012, the Company invested $25.0 million to obtain an approximately 94% interest in Five Oaks Investment Corp. (“Five Oaks”), a newly formed private investment company. Five Oaks is a mortgage real estate investment trust that follows an investment strategy balancing a leveraged portfolio of Agency RMBS with an unlevered or moderately levered portfolio of non-Agency RMBS. Five Oaks enters into repurchase agreements to acquire investment leverage up to a maximum of $79.5 million. At September 30, 2012, the Company has consolidated Five Oaks resulting in the recording within its balance sheet of: RMBS securities at their fair value of $103.3 million (amortized cost: $95.4 million) within Fixed maturities, $6.8 million of Cash and cash equivalents, $76.8 million of liabilities related to obligations under repurchase agreements within Other liabilities, and $1.9 million of Non-controlling interest in equity of consolidated subsidiaries. $91.1 million of securities held by Five Oaks and consolidated by XL are pledged as collateral under the repurchase agreements. The repurchase agreements do not provide the counterparties any recourse to assets of XL aside from its investment in Five Oaks. Amounts recorded within the Company’s consolidated statement of income related to Five Oaks were immaterial during the three and nine months ended September 30, 2012. In addition, the Company has purchased an equity interest in Oak Circle Capital Partners (“Oak Circle”), the investment management company that provides portfolio management and other administrative services to Five Oaks. XL’s investment in Oak Circle has been accounted for using the equity method consistent with other investment manager affiliate positions held by the Company.

30

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Derivative Instruments

          The Company enters into derivative instruments for both risk management and investment purposes. The Company is exposed to potential loss from various market risks, and manages its market risks based on guidelines established by management and the Risk and Finance Committee of the Board of Directors of XL Group plc. The Company recognizes all derivatives as either assets or liabilities in the balance sheet and measures those instruments at fair value, with the changes in fair value of derivatives shown in the consolidated statement of income as “net realized and unrealized gains and losses on derivative instruments” unless the derivatives are designated as hedging instruments. The accounting for derivatives that are designated as hedging instruments is described in Item 8, Note 2(h), “Significant Accounting Policies – Derivative Instruments,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

          The following table summarizes information about the location and gross amounts of derivative fair values contained in the consolidated balance sheet at September 30, 2012 and December 31, 2011:

	September 30, 2012									December 31, 2011
(U.S. dollars in thousands)	Asset Derivative Notional Amount		Asset Derivative Fair Value (1)		Liability Derivative Notional Amount		Liability Derivative Fair Value (1)			Asset Derivative Notional Amount		Asset Derivative Fair Value (1)		Liability Derivative Notional Amount		Liability Derivative Fair Value (1)
Derivatives designed as hedging instruments:
Interest rate contracts (2)	$	—	$	—	$	—	$	—		$	156,271	$	109,761	$	—	$	—
Foreign exchange contracts		532,583		8,173		2,237,428		(78,246	)		2,033,428		25,387		457,892		(4,518	)
Total derivatives designed as hedging instruments	$	532,583	$	8,173	$	2,237,428	$	(78,246	)	$	2,189,699	$	135,148	$	457,892	$	(4,518	)
Derivatives not designed as hedging instruments:
Investment Related Derivatives:
Interest rate exposure	$	83,265	$	2,402	$	26,878	$	(292	)	$	70,978	$	1,946	$	55,033	$	(43	)
Foreign exchange exposure		77,366		484		19,902		(710	)		232,422		3,759		384,592		(11,737	)
Credit exposure		62,000		906		397,574		(15,627	)		172,500		5,271		449,513		(13,986	)
Financial market exposure		72,707		787		17,528		(191	)		23,874		615		14,321		—
Financial Operations Derivatives: (3) Credit exposure (2)		—		—		58,149		(3,626	)		—		—		81,678		(10,288	)
Other Non-Investment Derivatives:
Guaranteed minimum income benefit contract		—		—		67,528		(20,519	)		—		—		78,777		(22,490	)
Modified coinsurance funds withheld contract		77,023		—		—		—			77,200		—		—		—
Total derivatives not designed as hedging instruments	$	372,361	$	4,579	$	587,559	$	(40,965	)	$	576,974	$	11,591	$	1,063,914	$	(58,544	)

(1)	Derivative instruments in an asset or liability position are included within Other assets or Other liabilities, respectively, in the balance sheet on a net basis where the Company has both a legal right of offset and the intentions to settle the contracts on a net basis.
(2)	At September 30, 2012 the Company paid net cash collateral related to these derivative positions of $41.5 million. The assets related to the net collateral paid have been recorded as Other assets within the balance sheet. At December 31, 2011, the Company held net cash collateral of $77.1 million. The collateral balance is included within Cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative asset within the balance sheet as appropriate under the netting agreement.
(3)	Financial operations derivatives represent interests in variable interest entities as described in Note 10, “Variable Interest Entities.”

31

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Derivative Instruments

(a) Derivative Instruments Designated as Fair Value Hedges

          The Company designates certain of its derivative instruments as fair value hedges or cash flow hedges and formally and contemporaneously documents all relationships between the hedging instruments and hedged items and links the hedging derivative to specific assets and liabilities. The Company assesses the effectiveness of the hedge both at inception and on an on-going basis, and determines whether the hedge is highly effective in offsetting changes in fair value or cash flows of the linked hedged item.

          The Company may hedge portions of its liabilities against changes in the applicable designated benchmark interest rate. Interest rate swaps are also used to hedge the changes in fair value of certain fixed rate liabilities and fixed income securities due to changes in the designated benchmark interest rate. In addition, the Company utilizes foreign exchange contracts to hedge the fair value of certain fixed income securities as well as to hedge certain net investments in foreign operations.

          The following table provides the total impact on earnings relating to derivative instruments formally designated as fair value hedges along with the impacts of the related hedged items for the three and nine months ended September 30, 2012 and 2011:

	Hedged Items - Amount of Gain/(Loss) Recognized in Income Attributable to Risk
	Gain/(Loss) Recognized in Income on Derivative			Deposit Liabilities			Fixed Maturity Investments			Ineffective Portion of Hedging Relationship - Gain/(Loss)
Derivatives Designated as Fair Value Hedges:
Three Months Ended September 30, 2012 (U.S. dollars in thousands)
Interest rate exposure	$	—
Foreign exchange exposure		(22,323	)
Total	$	(22,323	)	$	—		$	22,126		$	(197	)
Three Months Ended September 30, 2011
(U.S. dollars in thousands)
Interest rate exposure	$	20,514
Foreign exchange exposure		18,219
Total	$	38,733		$	(21,659	)	$	(18,116	)	$	(1,042	)
Nine Months Ended September 30, 2012
(U.S. dollars in thousands)
Interest rate exposure	$	1,813
Foreign exchange exposure		(30,126	)
Total	$	(28,313	)	$	(6,182	)	$	29,665		$	(4,830	)
Nine Months Ended September 30, 2011
(U.S. dollars in thousands)
Interest rate exposure	$	25,366
Foreign exchange exposure		(3,084	)
Total	$	22,282		$	(25,950	)	$	2,890		$	(778	)

          The gains (losses) recorded on both the derivatives instruments and specific items designated as being hedged as part of the fair value hedging relationships outlined above are recorded through Net realized and unrealized gains (losses) on derivative instruments in the income statement along with any associated ineffectiveness in the relationships. In addition, the periodic coupon settlements relating to the interest rate swaps are recorded as adjustments to net investment income for the hedges of fixed maturity investments and as adjustments to interest expense for the hedges of deposit liabilities and notes payable and debt.

          The periodic coupon settlements also resulted in decreases to Interest expense of nil and $4.9 million for the three and nine months ended September 30, 2012, respectively, and decreases to Interest expense of $2.6 million and $7.7 million for the three and nine months ended September 30, 2011, respectively.

32

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Derivative Instruments

Settlement of Fair Value Hedges

          During the year ended December 31, 2010, the Company settled the interest rate contracts designated as fair value hedges of certain of the Company’s notes payable and debt and also settled three interest rate contracts designated as fair value hedges of certain of the Company’s deposit liability contracts. The cumulative increase recorded to the carrying value of the hedged notes payable and debt of $21.6 million, and the deposit liability contracts of $149.5 million, representing the effective portion of the hedging relationship, is amortized through interest expense over the remaining terms of the debt and deposit liability contracts.

          In July 2012, the Company settled two interest rate contracts designated as fair value hedges of certain of the Company’s deposit liability contracts. At settlement, the cumulative increase recorded to the carrying value of the hedged deposit liability contracts was $83.7 million. This amount will be amortized, through interest expense, over the remaining terms of the deposit liability contracts. At settlement, the weighted average term remaining to maturity for these contracts was 16.1 years.

          A summary of the fair value hedges that have been settled and their results during the nine months ended September 30, 2012 and 2011 is shown below:

Settlement of Fair Value Hedges - Summary	Fair Value Hedges - Notes Payable and Debt September 30,				Fair Value Hedges - Deposit Liabilities September 30,
(U.S. dollars in thousands, except years)	2012		2011		2012		2011
Cumulative reduction to interest expense	$	13,973	$	9,173	$	17,060	$	7,511
Remaining balance	$	7,651	$	12,451	$	216,135	$	141,974
Weighted average years remaining to maturity		2.0		2.8		25.9		34.3

(b) Derivative Instruments Designated as Hedges of the Net Investment in a Foreign Operation

          The Company utilizes foreign exchange contracts to hedge the fair value of certain net investments in foreign operations. During the nine months ended September 30, 2012 and 2011, the Company entered into foreign exchange contracts that were formally designated as hedges of investments in foreign subsidiaries, the majority of which have functional currencies of either U.K. sterling or the Euro. There was no ineffectiveness in these transactions.

          The following table provides the weighted average U.S. dollar equivalent of foreign denominated net assets that were hedged and the resultant gain (loss) that was recorded in the cumulative translation adjustment account within AOCI for the three and nine months ended September 30, 2012 and 2011.

Derivative Instruments Designated as Hedges of theNet Investment in a Foreign Operation - Summary	Three Months Ended September 30,					Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011		2012			2011
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	1,920,421		$	1,972,176	$	1,892,964		$	1,686,045
Derivative gains (losses) (1)	$	(40,784	)	$	75,083	$	(21,879	)	$	5,876

(1) Derivative gains (losses) from derivative instruments designated as hedges of the net investment in a foreign operation are recorded in the cumulative translation adjustment account within AOCI for each period.

33

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Derivative Instruments

(c) Derivative Instruments Not Formally Designated As Hedging Instruments

          The following table provides the total impact on earnings relating to derivative instruments not formally designated as hedging instruments under authoritative accounting guidance and from the ineffective portion of fair value hedges. The impacts are all recorded through Net realized and unrealized gains (losses) on derivatives in the income statement for the three and nine months ended September 30, 2012 and 2011:

Net Realized and Unrealized Gains (Losses) on Derivative Instruments	Three Months Ended September 30,						Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			2012			2011
Investment Related Derivatives:
Interest rate exposure	$	243		$	2,559		$	860		$	(1,720	)
Foreign exchange exposure		1,218			(23,214	)		1,547			(5,763	)
Credit exposure		(2,281	)		5,207			343			(8,452	)
Financial market exposure		2,337			(7,304	)		312			(6,339	)
Financial Operations Derivatives:
Credit exposure		—			25			143			331
Other Non-Investment Derivatives:
Contingent credit facility		—			(2,075	)		—			(6,158	)
Guaranteed minimum income benefit contract		885			(2,038	)		1,971			(860	)
Modified coinsurance funds withheld contract		4,049			966			2,310			(4,560	)
Total derivatives not designated as hedging instruments	$	6,451		$	(25,874	)	$	7,486		$	(33,521	)
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges		(197	)		(1,042	)		(4,830	)		(778	)
Net realized and unrealized gains (losses) on derivative instruments	$	6,254		$	(26,916	)	$	2,656		$	(34,299	)

          The Company’s objectives in using these derivatives are explained below.

(d)(i) Investment Related Derivatives

          The Company, either directly or through its investment managers, may use derivative instruments within its investment portfolio, including interest rate swaps, inflation swaps, credit derivatives (single name and index credit default swaps), options, forward contracts and financial futures (foreign exchange, bond and stock index futures), primarily as a means of economically hedging exposures to interest rate, credit spread, equity price changes and foreign currency risk or, in limited instances, for investment purposes. The Company is exposed to credit risk in the event of non-performance by the counterparties under any swap contracts, although the Company generally seeks to use credit support arrangements with counterparties to help manage this risk.

          Investment Related Derivatives – Interest Rate Exposure

          The Company utilizes risk management and overlay strategies that incorporate the use of derivative financial instruments, primarily to manage its fixed income portfolio duration and exposure to interest rate risks associated with primarily those assets and liabilities related to certain legacy other financial lines and structured indemnity transactions. The Company uses interest rate swaps to convert certain liabilities from a fixed rate to a variable rate of interest and may also use them to convert a variable rate of interest from one basis to another.

          Investment Related Derivatives – Foreign Exchange Exposure

          The Company has exposure to foreign currency exchange rate fluctuations through its operations and in its investment portfolio. The Company uses foreign exchange contracts to manage its exposure to the effects of fluctuating foreign currencies on the value of certain of its foreign currency fixed maturities primarily within its Life operations portfolio. These contracts are not designated as specific hedges for financial reporting purposes and, therefore, realized and unrealized gains and losses on these contracts are recorded in income in the period in which they occur. These contracts generally have maturities of twelve months or less.

          In addition, certain of the Company’s investment managers may, subject to investment guidelines, enter into forward contracts where potential gains may exist.

34

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Derivative Instruments

          Investment Related Derivatives – Credit Exposure

          Credit derivatives may be purchased within the Company’s investment portfolio in the form of single name and basket credit default swaps, which are used to mitigate credit exposure through a reduction in credit spread duration (i.e., macro credit strategies rather than single-name credit hedging) or exposure to selected issuers, including issuers that are not held in the underlying bond portfolio.

          Investment Related Derivatives – Financial Market Exposure

          Stock index futures may be purchased within the Company’s investment portfolio in order to create synthetic equity exposure and to add value to the portfolio with overlay strategies where market inefficiencies are believed to exist. From time to time, the Company may enter into other financial market exposure derivative contracts on various indices including, but not limited to, inflation and commodity contracts.

(d)(ii) Financial Operations Derivatives – Credit Exposure

          At September 30, 2012 and December 31, 2011, the Company held two credit derivative exposures that were written as part of the Company’s previous financial lines business and are outside of the Company’s investment portfolio: one is a European project finance loan participation; the other provides credit protection on the senior tranches of a structured finance transaction. An aggregate summary of these credit derivative exposures at September 30, 2012 and December 31, 2011 is as follows:

Financial Operations Derivatives - Credit Exposure Summary: (U.S. dollars in thousands, except term to maturity)	September 30, 2012		December 31, 2011
Principal outstanding	$	55,484	$	78,425
Interest outstanding		2,665		3,253
Aggregate outstanding exposure	$	58,149	$	81,678
Total liability recorded	$	3,626	$	10,288
Weighted average contractual term to maturity		4.5 years		5.0 years
Underlying obligations credit rating		BBB-		BB

          The European project finance loan participation benefits from an 80% deficiency guarantee from the German state and federal governments. The credit protection related to the structured finance transaction is a credit default swap that was executed in 2000. The underlying collateral is predominantly securitized pools of leveraged loans and bonds. Management continues to monitor the underlying performance.

          At September 30, 2012 and December 31, 2011, there were no reported events of default on these obligations. Credit derivatives are recorded at fair value based upon prices received from the investment bank counterparties and corroborated by using models developed by the Company. Although the Company does not have access to the specific unobservable inputs that may have been used in the value provided by the counterparties, it expects that the significant inputs considered would include changes in interest rates, future default rates, credit spreads, changes in credit quality, future expected recovery rates and other market factors. The change resulting from movements in credit and credit quality spreads is unrealized as the credit derivatives are not traded to realize this resultant value.

(d)(iii) Other Non-Investment Derivatives

          The Company also has derivatives embedded in certain reinsurance contracts. For a particular life reinsurance contract, the Company pays the ceding company a fixed amount equal to the estimated present value of the excess of guaranteed benefit over the account balance upon the policyholder’s election to take the income benefit. The fair value of this derivative is determined based on the present value of expected cash flows. In addition, the Company has modified coinsurance and funds withheld reinsurance agreements that provide for a return based on a portfolio of fixed income securities. As such, the agreements contain embedded derivatives. The embedded derivative is bifurcated from the funds withheld balance and recorded at fair value with changes in fair value recognized in earnings through Net realized and unrealized gains and losses on derivative instruments.

35

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Derivative Instruments

(e) Contingent Credit Features

          Certain derivatives agreements entered into by the Company or its subsidiaries contain rating downgrade provisions that permit early termination of the agreement by the counterparty if collateral is not posted following failure to maintain certain credit ratings from one or more of the principal credit rating agencies. If the Company were required to early terminate such agreements due to a rating downgrade, it could potentially be in a net liability position at the time of settlement. The aggregate fair value of all derivatives agreements containing such rating downgrade provisions that were in a liability position and the collateral posted under any of these agreements as of September 30, 2012 and December 31, 2011 were as follows:

Contingent Credit Features - Summary: (U.S. dollars in thousands)	September 30, 2012		December 31, 2011
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	10,152	$	15,763
Collateral posted to counterparty	$	—	$	809

7. Share Capital

(a) Authorized and Issued

          Ordinary Share Buybacks

          On February 27, 2012, the Company announced that its Board of Directors approved a share buyback program, authorizing the Company to purchase up to $750 million of its ordinary shares. This authorization replaced the approximately $190 million remaining under the share buyback program that was authorized in November 2010 as described in further detail in Item 8, Note 18, “Share Capital,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. During the three months ended September 30, 2012, the Company purchased and canceled 5.3 million ordinary shares under the program for $125.0 million. During the nine months ended September 30, 2012, the Company purchased and canceled 16.2 million ordinary shares under the program for $350.0 million. 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. At September 30, 2012, $400.0 million remained available for purchase under the program.

(b) Stock Plans

          The Company’s performance incentive programs provide for grants of stock options, restricted stock, restricted stock units and 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. See Item 8, Note 18, “Share Capital,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information on the Company’s performance incentive programs and associated accounting.

          During the nine months ended September 30, 2012, the Company granted approximately 1.2 million stock options with a weighted-average grant date fair value of $7.65 per option. The fair value of the options issued was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:

Dividend yield	1.90	%
Risk free interest rate	1.15	%
Volatility	46.0	%
Expected lives	6.0	years

          During the nine months ended September 30, 2012, the Company granted approximately 0.3 million restricted stock awards to certain employees and directors of the Company and its subsidiaries with an aggregate grant date fair value of approximately $6.8 million. The award recipients generally have the rights and privileges of a shareholder as to the restricted stock, including the right to receive dividends and the right to vote such restricted stock. The recipients are not entitled to receive delivery of a stock certificate prior to vesting nor may any restricted stock be sold, transferred, pledged, or otherwise disposed of prior to the satisfaction of all vesting requirements.

36

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7. Share Capital

          During the nine months ended September 30, 2012, the Company granted approximately 1.3 million restricted stock units to certain employees of the Company and its subsidiaries with an aggregate grant date fair value of approximately $26.6 million. 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.

          During the nine months ended September 30, 2012, the Company granted approximately 1.5 million performance units (representing a potential maximum share payout of approximately 3.0 million ordinary shares) to certain employees with an aggregate grant date fair value of approximately $29.5 million. The performance units vest after three years, subject to the achievement of stated performance metrics, and entitle the holder to ordinary shares of the Company. 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 vest date. Performance targets are based on relative and absolute financial performance metrics.

8. Notes Payable and Debt and Financing Arrangements

(a) Notes Payable and Debt

          All outstanding debt of the Company at September 30, 2012 and December 31, 2011 was issued by XLIT Ltd. (“XL-Cayman”) except for the $600 million par value 6.5% Guaranteed Senior Notes (the “XLCFE Notes”), which were issued by XL Capital Finance (Europe) plc (“XLCFE”) and were repaid at maturity on January 15, 2012. Both XL-Cayman and XLCFE are 100% owned subsidiaries of XL Group plc. The XLCFE Notes were fully and unconditionally guaranteed by XL Company Switzerland GmbH. XL-Cayman’s outstanding debt is fully and unconditionally guaranteed by XL Group plc. The Company’s ability to obtain funds from its subsidiaries to satisfy any of its obligations under guarantees is subject to certain contractual restrictions, applicable laws and statutory requirements of the various countries in which the Company operates, including, among others, Bermuda, the United States, Ireland, Switzerland and the U.K. Aggregated required statutory capital and surplus for the principal operating subsidiaries of the Company was $6.7 billion at December 31, 2011.

          The Company was in compliance with all covenants by significant margins at September 30, 2012, and the Company currently remains in compliance.

(b) Letter of Credit Facilities and Other Sources of Collateral

          The Company has several letter of credit facilities provided on a syndicated and bilateral basis from commercial banks. These facilities are utilized primarily to support non-admitted insurance and reinsurance operations in the U.S. and capital requirements at Lloyd’s. The Company’s letter of credit facilities and revolving credit facilities at September 30, 2012 and December 31, 2011 were as follows:

Letter of Credit Summary: (U.S. dollars in thousands except percentages)	September 30, 2012 (1)			December 31, 2011 (1)
Revolving credit facility (2)	$	1,000,000		$	1,000,000
Available letter of credit facilities - commitments (3)	$	4,000,000		$	4,000,000
Available letter of credit facilities - in use	$	1,790,505		$	1,871,192
Collateralized by certain assets of the Company’s investment portfolio		93.5	%		93.8	%

(1)	At September 30, 2012 and December 31, 2011, there were five available letter of credit facilities.
(2)	At September 30, 2012 and December 31, 2011, the revolving credit facility was unutilized.
(3)	The Company has the option to increase the size of the March 2011 Credit Agreement by an additional $500 million and the size of the facilities under the December 2011 Credit Agreements by an additional $500 million across both such facilities.

37

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9. Related Party Transactions

          At September 30, 2012, the Company owned minority stakes in four independent investment management companies (“Investment Manager Affiliates”) that are actively managing client capital and seeking growth opportunities. The Company seeks to develop relationships with specialty investment management organizations, generally acquiring an equity interest in the business. The Company also invests in certain of the funds and limited partnerships and other legal entities managed by these affiliates and through these funds and partnerships pays management and performance fees to the Company’s Investment Manager Affiliates.

          In the normal course of business, the Company enters into certain quota share reinsurance contracts with a subsidiary of one of its other strategic affiliates, ARX Holding Corporation. During the three and nine months ended September 30, 2012 and 2011, these contracts resulted in reported net premiums written, net reported claims and reported acquisition costs as summarized below. Management believes that these transactions are conducted at market rates consistent with negotiated arms-length contracts.

ARX Holding Corporation (U.S. dollars in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Reported net premiums written	$	27,480	$	22,854	$	53,676	$	45,626
Net losses incurred		10,730		11,318		26,553		24,580
Reported acquisition costs		8,945		6,743		21,558		17,810

10. Variable Interest Entities

          At times, the Company has utilized variable interest entities (“VIEs”) both indirectly and directly in the ordinary course of the Company’s business.

           The Company invests in CDOs and other investment vehicles that are issued through VIEs as part of the Company’s investment portfolio. The activities of these VIEs are generally limited to holding the underlying collateral used to service investments therein. The Company’s involvement in these entities is passive in nature and we are not the arranger of these entities. In addition, the Company has not been involved in establishing these entities and is not the primary beneficiary of these VIEs as contemplated in current authoritative accounting guidance.

          The Company has a limited number of remaining outstanding credit enhancement exposures, including written financial guarantee and credit default swap contracts. The obligations related to these transactions are often securitized through VIEs. The Company is not the primary beneficiary of these VIEs as contemplated in current authoritative accounting guidance on the basis that management does not believe that the Company has the power to direct the activities, such as asset selection and collateral management, which most significantly impact each entity’s economic performance. For further details on the nature of the obligations and the size of the Company’s maximum exposure, see Note 6, “Derivative Instruments,” and Note 12 (a), “Commitments and Contingencies – Financial Guarantee Exposures.”

38

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11. Computation of Earnings Per Ordinary Share and Ordinary Share Equivalent

	Three Months Ended				Nine Months Ended
(U.S. dollars in thousands, except per share amounts)	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Basic earnings per ordinary share & ordinary share equivalents outstanding:
Net income (loss) attributable to ordinary shareholders	$	171,902	$	42,398	$	569,686	$	40,777
Weighted average ordinary shares outstanding - basic		304,199		311,714		309,675		310,793
Basic earnings per ordinary share & ordinary share equivalents outstanding	$	0.57	$	0.14	$	1.84	$	0.13
Diluted earnings per ordinary share & ordinary share equivalents outstanding:
Net income (loss) attributable to ordinary shareholders	$	171,902	$	42,398	$	569,686	$	40,777
Weighted average ordinary shares outstanding - basic		304,199		311,714		309,675		310,793
Impact of share based compensation and certain conversion features		3,565		2,134		2,927		4,049
Weighted average ordinary shares outstanding - diluted		307,764		313,848		312,602		314,842
Diluted earnings per ordinary share & ordinary share equivalents outstanding	$	0.56	$	0.14	$	1.82	$	0.13
Dividends per ordinary share	$	0.11	$	0.11	$	0.33	$	0.33

          For the three months ended September 30, 2012 and 2011, and for nine months ended September 30, 2012 and 2011, ordinary shares available for issuance under share based compensation plans of 8.6 million and 10.0 million, and 8.8 million and 10.0 million, respectively, were not included in the calculation of diluted earnings per share because the assumed exercise or issuance of such shares would be anti-dilutive.

12. Commitments and Contingencies

(a) Financial Guarantee Exposures

Financial Guarantee Exposure Summary (U.S. dollars in thousands except number of contracts and term to maturity)	September 30, 2012		December 31, 2011
Opening number of financial guarantee contracts		4		37
Number of financial guarantee contracts matured, prepaid or commuted during the period		—		(33	)
Closing number of financial guarantee contracts		4		4
Principal outstanding	$	115,464	$	115,464
Interest outstanding	$	—	$	—
Aggregate exposure outstanding	$	115,464	$	115,464
Total gross claim liability recorded	$	1,399	$	1,399
Total unearned premiums and fees recorded	$	316	$	425
Weighted average contractual term to maturity in years		25.7		26.7

          The Company’s outstanding financial guarantee contracts at September 30, 2012 provide credit support for a variety of collateral types with the exposures comprised of (i) a $108.3 million notional financial guarantee on three notes backed by zero coupon long dated bonds and bank perpetual securities, including some issued by European financials; and (ii) a $7.2 million notional financial guarantee relating to future scheduled repayments on a government-subsidized housing project. At September 30, 2012, there were no reported events of default on these obligations.

          Surveillance procedures to track and monitor credit deteriorations in the insured financial obligations are performed by the primary obligors for each transaction on the Company’s behalf. Information regarding the performance status and updated exposure values is provided to the Company on a quarterly basis and evaluated by management in recording claims reserves.

39

XL GROUP PLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12. Commitments and Contingencies

(b) Claims and Other Litigation

          The Company and its subsidiaries are subject to litigation and arbitration in the normal course of business. These lawsuits and arbitrations principally involve claims on policies of insurance and contracts of reinsurance and are typical for the Company and for the property and casualty insurance and reinsurance industry in general. Such legal proceedings are considered in connection with the Company’s loss and loss expense reserves. Reserves in varying amounts may or may not be established in respect of particular claims proceedings based on many factors, including the legal merits thereof. In addition to litigation relating to insurance and reinsurance claims, the Company and its subsidiaries are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance or reinsurance policies. These types of actions typically involve, among other things, allegations of underwriting errors or misconduct, employment disputes, actions brought by or on behalf of shareholders or disputes arising from business ventures. The status of these legal actions is actively monitored by management.

          Legal actions are subject to inherent uncertainties, and future events could change management’s assessment of the probability or estimated amount of potential losses from pending or threatened legal actions. Based on available information, it is the opinion of management that the ultimate resolution of pending or threatened legal actions, both individually and in the aggregate, will not result in losses having a material effect on the Company’s financial position or liquidity at September 30, 2012.

          If management believes that, based on available information, it is at least reasonably possible that a material loss (or additional material loss in excess of any accrual) will be incurred in connection with any legal actions or claims, the Company discloses an estimate of the possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an estimate can be made, or discloses that an estimate cannot be made. Based on the Company’s assessment at September 30, 2012, no such disclosures are considered necessary.

13. Subsequent Event

          In late October 2012, Post-Tropical Cyclone Sandy made landfall in the United States. Given its recent occurrence and the limited information available, it is too early for the Company to arrive at a reasonable estimate of the amount of any possible losses from this event. The impact of this event will be reflected in our fourth quarter 2012 results.

40

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

          On July 1, 2010, XL Group plc, an Irish public limited company (“XL-Ireland”), and XL Group Ltd. (now known as XLIT Ltd.), a Cayman Islands exempted company (“XL-Cayman”), completed a redomestication transaction in which all of the ordinary shares of XL-Cayman were exchanged for all of the ordinary shares of XL-Ireland (the “Redomestication”). As a result, XL-Cayman became a wholly owned subsidiary of XL-Ireland. Prior to July 1, 2010, unless the context otherwise indicates, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to the “Company” are to XL-Cayman and its consolidated subsidiaries. On and subsequent to July 1, 2010, unless the context otherwise indicates, references herein to the “Company” are to XL-Ireland and its consolidated subsidiaries.

          The following is a discussion of the Company’s financial condition and liquidity and results of operations. Certain aspects of the Company’s business have loss experience characterized as low frequency and high severity. This may result in volatility in both the Company’s and an individual segment’s results of operations and financial condition.

          This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements that involve inherent risks and uncertainties. Statements that are not historical facts, including statements about the Company’s beliefs and expectations, are forward-looking statements. These statements are based upon current plans, estimates and expectations. Actual results may differ materially from those projected in such forward-looking statements, and therefore undue reliance should not be placed on them. See “Cautionary Note Regarding Forward-Looking Statements” for a list of additional factors that could cause actual results to differ materially from those contained in any forward-looking statement, as well as Item 1, “Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

          This discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited Consolidated Financial Statements and Notes thereto, presented under Item 7 and Item 8, respectively, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

EXECUTIVE OVERVIEW

          See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. That discussion is updated with the disclosures set forth below.

RESULTS OF OPERATIONS AND KEY FINANCIAL MEASURES

Results of Operations

          The following table presents an analysis of the Company’s net income available to ordinary shareholders and other financial measures (described below) for the three and nine months ended September 30, 2012 and 2011:

(U.S. dollars in thousands, except share and per share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Net income (loss) attributable to ordinary shareholders	$	171,902	$	42,398	$	569,686	$	40,777
Earnings (loss) per ordinary share – basic	$	0.57	$	0.14	$	1.84	$	0.13
Earnings (loss) per ordinary share – diluted	$	0.56	$	0.14	$	1.82	$	0.13
Weighted average number of ordinary shares and ordinary share equivalents – basic		304,199		311,714		309,675		310,793
Weighted average number of ordinary shares and ordinary share equivalents – diluted		307,764		313,848		312,602		314,842

41

Key Financial Measures

          The following are some of the financial measures management considers important in evaluating the Company’s operating performance in the Company’s P&C operations:

(U.S. dollars in thousands, except ratios)	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Underwriting profit (loss) - P&C operations	$	114,203		$	(22,200	)	$	306,815		$	(283,215	)
Combined ratio - P&C operations		92.2	%		101.6	%		92.7	%		107.2	%
Net investment income - P&C operations (1)	$	166,001		$	209,757		$	544,203		$	627,492
Annualized return on average ordinary shareholders’ equity (2)		6.8	%		1.7	%		7.7	%		0.6	%
							September 30, 2012
(U.S. dollars)	September 30, 2012			December 31, 2011			Change Three Months			Change Nine Months
Book value per ordinary share (3)	$	34.63		$	29.81		$	2.36		$	4.82
Fully diluted book value per ordinary share (4)	$	34.16		$	29.59		$	2.20		$	4.57

(1)	Net investment income relating to P&C operations includes the net investment income related to the net results from structured products.
(2)	Annualized return on average ordinary shareholders’ equity (“ROE”) is a non-GAAP financial measure and is calculated by dividing the net income (loss) for the year by the average of the opening and closing ordinary shareholders’ equity. See “Annualized Return on Ordinary Shareholders’ Equity Calculation” at the end of this Item 2 for a reconciliation of ROE to average ordinary shareholders’ equity.
(3)	Book value per ordinary share, a non-GAAP financial measure, is calculated by dividing ordinary shareholders’ equity (total shareholders’ equity less non-controlling interest in equity of consolidated subsidiaries) by the number of outstanding ordinary shares at the applicable period end. Book value per ordinary share is affected primarily by the Company’s net income (loss), by any changes in the net unrealized gains and losses on its investment portfolio, by currency translation adjustments and also by the impact of any share buyback or issuance activity. Ordinary shareholders’ equity was $10.4 billion and $9.4 billion and the number of ordinary shares outstanding was 300.6 million and 315.7 million at September 30, 2012 and December 31, 2011, respectively. Ordinary shares outstanding include all ordinary shares legally issued and outstanding (as disclosed on the face of the balance sheet) as well as all director share units outstanding.
(4)	Fully diluted book value per ordinary share, a non-GAAP financial measure, represents book value per ordinary share combined with the dilutive impact of potential future share issuances at period end. The Company believes that book value per share and fully diluted book value per ordinary share are financial measures important to investors and other interested parties. However, these measures may not be comparable to similarly titled measures used by companies either outside or inside of the insurance industry.

          Underwriting profit – property and casualty (“P&C”) operations

          One way that the Company evaluates the performance of its insurance and reinsurance operations is by underwriting profit or loss. The Company does not measure performance based on the amount of gross premiums written. Underwriting profit or loss is calculated from premiums earned less net losses incurred and expenses related to underwriting activities. The Company’s underwriting profit for the three and nine months ended September 30, 2012 was consistent with the combined ratio discussed below.

          Combined ratio – P&C operations

          The combined ratio for P&C operations is used by the Company and many other insurance and reinsurance companies as another measure of underwriting profitability. The combined ratio is calculated from the net losses incurred and underwriting expenses as a ratio of the net premiums earned for the Company’s insurance and reinsurance operations. A combined ratio of less than 100% indicates an underwriting profit and greater than 100% reflects an underwriting loss. The Company’s combined ratio for the three and nine months ended September 30, 2012 is lower than for the same periods in the previous year, as a result of a decrease in the loss and loss expense ratio partially offset by a marginal increase in the underwriting expense ratio. The loss and loss expense ratio, which is the ratio of losses and loss expenses incurred to net premiums earned, has decreased as a result of overall lower levels of catastrophe losses and other large loss events for the three and nine months ended September 30, 2012 as compared to the same periods of 2011. The increased underwriting expense ratio, which is the ratio of the sum of acquisition expenses and operating expenses to the net premiums earned, is reflective of the additional costs incurred from strategic initiatives and compensation costs.

          Net investment income – P&C operations

          Net investment income related to P&C operations is an important measure that affects the Company’s overall profitability. The largest liability of the Company relates to its unpaid loss reserves, and the Company’s investment portfolio provides liquidity for claims settlements of these reserves as they become due. As a result, a significant part of the investment portfolio is invested in fixed income securities. Net investment income is influenced by a number of factors, including the amounts and timing of inward and outward cash flows, the level of interest rates and credit spreads and changes in overall asset allocation.

42

          Annualized return on average ordinary shareholders’ equity (“ROE”)

          ROE is another non-GAAP financial measure that management considers important in evaluating the Company’s operating performance. ROE is calculated by dividing the net income attributable to ordinary shareholders for any period by the average of the opening and closing ordinary shareholders’ equity. The Company establishes minimum target ROEs for its total operations, segments and lines of business. If the Company’s minimum ROE targets over the longer term are not met with respect to any line of business, the Company seeks to modify and/or exit this line. In addition, among other factors, the Company’s compensation of its senior officers is dependent on the achievement of the Company’s performance goals to enhance ordinary shareholder value as measured by ROE (adjusted for certain items considered to be “non-operating” in nature). For the nine months ended September 30, 2012, annualized ROE was 7.7%, which is 7.1 percentage points higher than the same period in the prior year, due primarily to the lower net income attributable to ordinary shareholders in the prior period as a result of natural catastrophe losses. See “Annualized Return on Ordinary Shareholders’ Equity Calculation” herein for the calculation of annualized ROE to average ordinary shareholders’ equity.

          Book value per ordinary share

          Management also views the change in the Company’s book value per ordinary share as an additional measure of the Company’s performance. Book value per ordinary share, a non-GAAP financial measure, is calculated by dividing ordinary shareholders’ equity (total shareholders’ equity less non-controlling interest in equity of consolidated subsidiaries) by the number of outstanding ordinary shares at the applicable period end. Book value per ordinary share is affected primarily by the Company’s net income (loss), by any changes in the net unrealized gains and losses on its investment portfolio, by currency translation adjustments and by the impact of any share buyback or issuance activity. Ordinary shareholders’ equity was $10.4 billion and $9.4 billion and the number of ordinary shares outstanding was 300.6 million and 315.7 million at September 30, 2012 and December 31, 2011, respectively. Ordinary shares outstanding include all ordinary shares legally issued and outstanding (as disclosed on the face of the balance sheet) as well as all director share units outstanding.

          Book value per ordinary share increased by $2.36 in the three months ended September 30, 2012 and by $4.82 in the nine months ended September 30, 2012. These increases were due to the net income in both periods, an increase in net unrealized gains on investments and the benefit of share buyback activity. In the three months ended September 30, 2011 book value per share decreased by $0.53 as compared to the comparable period of 2010, primarily due to the issuance of ordinary shares in connection with the settlement of the forward purchase contracts associated with the 10.75% Units, partially offset by the benefit of share buyback activity, the net income attributable to ordinary shareholders and an increase in net unrealized gains on available for sale investments. In the nine months ended September 30, 2011 book value per share increased by $0.64 mainly due to the net income attributable to ordinary shareholders, an increase in net unrealized gains on available for sale investments, and the benefit of share buyback activity, partially offset by the settlement of the forward purchase contracts associated with the 10.75% Units.

          Fully diluted book value per ordinary share

          Fully diluted book value per ordinary share, a non-GAAP financial measure, represents book value per ordinary share combined with the dilutive impact of potential future share issuances at period end. In the three and nine months ended September 30, 2012, fully diluted book value per ordinary share increased by $2.20 and $4.57, respectively, as a result of the factors contributing to the increase in book value per share noted above. In the three months ended September 30, 2011 fully diluted book value per ordinary share decreased by $0.07 and in the nine months ended September 30, 2011, fully diluted book value per ordinary share increased by $1.02 as compared to the same periods in the prior year, as a result of the factors contributing to the three month decrease and nine month increase in book value per share noted above.

43

SIGNIFICANT ITEMS AFFECTING THE RESULTS OF OPERATIONS

          The Company’s net income and other financial measures as shown above for the three and nine months ended September 30, 2012 have been affected by, among other things, the following significant items:

          1)        the impact of significant large loss events;

          2)        market movement impacts on the Company’s investment portfolio; and

          3)        continuing competitive factors impacting the underwriting environment.

1) The impact of significant large loss events

          The Company had a P&C underwriting profit of $114.2 million and $306.8 million for the three and nine months ended September 30, 2012, respectively, compared to P&C underwriting losses of $22.2 and $283.2 million for the same periods of 2011, respectively. The increase in underwriting profit in the three and nine months ended September 30, 2012 was primarily due to lower levels of natural catastrophe losses and lower non-catastrophe large loss activity in energy, property and marine business units as explained further below.

          Natural Catastrophe Losses

          For the three months ended September 30, 2012, natural catastrophe losses net of reinsurance recoveries and reinstatement premiums were $32.0 million, compared to $110.6 million in the same period of 2011.

          For the nine months ended September 30, 2012, natural catastrophe losses net of reinsurance recoveries and reinstatement premiums were $112.5 million, compared to $566.3 million in the same period of 2011. Natural catastrophe losses in the nine months ended September 30, 2011 included the March 11, 2011 earthquake and tsunami in Japan, the earthquake that struck Christchurch, New Zealand on February 22, 2011, the 2011 flooding events in Australia, the severe weather occurrences, including tornado activity, in the United States over the periods April 22 - 28 and May 20 - 23, 2011 and the Atlantic Hurricanes (Hurricane Irene and Tropical Storm Lee).

          Large Loss Events

          In the nine months ended September 30, 2012, the results from operations were impacted by significant losses from large non-catastrophe loss events in both the Insurance and Reinsurance segments. In 2012, the impact was mainly related to a single large marine loss during the first quarter. Management’s preliminary loss estimate for this large marine loss at September 30, 2012, net of reinsurance recoveries and reinstatement premiums, was $46.6 million, of which $24.3 million was attributable to the Insurance segment and $22.3 million to the Reinsurance segment. In addition, the results from operations during the nine months ended September 30, 2012 were affected by crop losses attributable to the severe drought conditions in the U.S. in 2012. Management’s preliminary loss estimate for these drought and crop losses net of reinsurance recoveries and reinstatement premiums was $26.1 million, all attributable to the Company’s Reinsurance segment.

          See “Income Statement Analysis,” herein for further information regarding these large loss events within each of the Company’s operating segments.

          Subsequent Event

          In late October 2012, Post-Tropical Cyclone Sandy made landfall in the United States. Given its recent occurrence and the limited information available, it is too early for the Company to arrive at a reasonable estimate of the amount of any possible losses from this event. The impact of this event will be reflected in our fourth quarter 2012 results.

44

2) Market movement impacts on the Company’s investment portfolio

          During the three months ended September 30, 2012, credit spreads tightened combined with decreasing interest rates. The net impact of the market conditions on the Company’s investment portfolio for the three months was favorable and resulted in an increase of $512.0 million in net unrealized gains on available for sale investments as compared to June 30, 2012. This represents an approximately 1.1% appreciation in average assets for the three months ended September 30, 2012.

          The following table provides further detail regarding the movements in relevant credit markets, as well as in government interest rates using selected market indices:

	Interest Rate Movement for the three months ended September 30, 2012 (1) (‘+’/‘-’ represents increases / decreases in interest rates)	Credit Spread Movement for the three months ended September 30, 2012 (2) (‘+’/‘-’ represents widening / tightening of credit spreads)
United States	-9 basis points (5 year Treasury)	-48 basis points (US Corporate A rated)
		-56 basis points (US Mortgage Master Index)
		-51 basis points (US CMBS, AAA rated)
United Kingdom	-1 basis points (10 year Gilt)	-41 basis points (UK Corporate, AA rated)
Euro-zone	-10 basis points (5 year Bund)	-54 basis points (Europe Corporate, A rated)

(1)	Source: Bloomberg Finance L.P.
(2)	Source: Merrill Lynch Global Indices.

          Net realized losses on investments in the three months ended September 30, 2012 totaled $5.5 million, including net realized losses of approximately $12.6 million related to OTTI charges on certain of the Company’s fixed income investments. For further analysis of this, see “Results of Operations” below.

          During the nine months ended September 30, 2012, credit spreads tightened combined with decreasing interest rates. The net impact of the market conditions on the Company’s investment portfolio for the nine-month period was favorable and resulted in an increase of $881.9 million in net unrealized gains on available for sale investments as compared to December 31, 2011. This represents an approximately 2.0% appreciation in average assets for the nine months ended September 30, 2012.

          The following table provides further detail regarding the movements in relevant credit markets, as well as in government interest rates using selected market indices:

	Interest Rate Movement for the nine months ended September 30, 2012 (1) (‘+’/‘-’ represents increases / decreases in interest rates)	Credit Spread Movement for the nine months ended September 30, 2012 (2) (‘+’/‘-’ represents widening / tightening of credit spreads)
United States	-21 basis points (5 year Treasury)	-100 basis points (US Corporate A rated)
		-63 basis points (US Mortgage Master Index)
		-109 basis points (US CMBS, AAA rated)
United Kingdom	-25 basis points (10 year Gilt)	-58 basis points (UK Corporate, AA rated)
Euro-zone	-25 basis points (5 year Bund)	-139 basis points (Europe Corporate, A rated)

(1)	Source: Bloomberg Finance L.P.
(2)	Source: Merrill Lynch Global Indices.

          Net realized gains on investments in the nine months ended September 30, 2012 totaled $2.9 million, including net realized losses of approximately $61.8 million related to OTTI charges on certain of the Company’s fixed income investments. For further analysis of this, see “Results of Operations” below.

3) Continuing competitive factors impacting the underwriting environment

          Insurance

          The trading environment for the core lines of insurance business written by the Company remains competitive, although the gradual rate improvement which began in the second half of 2011 has been sustained through the first nine months of 2012. Gross premiums written in the Insurance segment increased in the three months ended September 30, 2012 as compared to the same period in 2011 by 2.5% after adjusting for changes in foreign exchange rates. This premium increase was partly driven by improved pricing and also from new business in NAPC construction and surplus lines, U.S. D&O, as well as growth in the new political risk and trade credit business.

          Improved pricing contributed to the premium growth in the third quarter with an overall 3.3% rate increase. Rate improvement occurred in nearly all of the segment’s businesses. NAPC rates improved by almost 8% led by double digit increases in excess casualty and surplus lines businesses, Professional increased by over 2% driven by U.S. D&O, architects & engineers and miscellaneous professional liability, and Specialty pricing increased by low single digits. Only IPC was flat to slightly down, driven by competitive conditions in both its property and casualty businesses.

          Reinsurance

          Gross premiums written in the Reinsurance segment decreased in the three months ended September 30, 2012 as compared to the same period in 2011 by 30.8% after adjusting for changes in foreign exchange rates. This premium decrease was predominantly driven by changes in the structure of a U.S. agricultural program, which renewed as a reinsurance treaty rather than a primary facility with significant ceded premiums. Normalizing for foreign exchange movements and excluding the U.S. agricultural program premiums for both years, gross premiums written increased by 1.6% due to premium increases in the Bermuda and International business groups, partially offset by selected cancelations in the U.S. and Latin America portfolios due to the re-underwriting actions in these regions.

          Both the primary and reinsurance markets remain highly competitive with substantial capacity available in both traditional and non-traditional forms. In general, July 1 renewals saw pricing in line with management’s expectations, except for the U.S. catastrophe book where the level of risk adjusted improvement was lower than expected due to a relatively benign hurricane season. However, given the likely industry losses relating to Post-Tropical Cyclone Sandy in the United States at the end of October 2012, it is possible that year-end pricing will be impacted.

          There can be no assurance, however, that such (re)insurance rate conditions or growth opportunities will be sustained or further materialize, or lead to improvements in our books of business. See “Cautionary Note Regarding Forward-Looking Statements.” The Company continues its disciplined underwriting approach to grow on a very selective basis and exit lines where margins are unacceptable.

45

OTHER KEY FOCUSES OF MANAGEMENT

          The Company remains focused on, among other things, managing its capital and enhancing its enterprise risk management capabilities. Details of these and other initiatives are outlined below.

Capital Management

          Fundamental to supporting the Company’s business model is its ability to underwrite business, which is largely dependent upon the quality of its claims paying and financial strength ratings as evaluated by independent rating agencies. As a result, in the event that the Company is downgraded, its ability to write business, as well as its financial condition and/or results of operations, could be adversely affected.

          Buybacks of Ordinary Shares

          On February 27, 2012, the Company announced that its Board of Directors approved a share buyback program, authorizing the Company to purchase up to $750 million of its ordinary shares. This authorization replaced the approximately $190 million remaining under the share buyback program that was authorized in November 2010 as described in further detail in Item 8, Note 18, “Share Capital,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. During the three months ended September 30, 2012, the Company purchased and canceled 5.3 million ordinary shares under the program for $125.0 million. During the nine months ended September 30, 2012, the Company purchased and canceled 16.2 million ordinary shares under the program for $350.0 million. 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. At September 30, 2012, $400.0 million remained available for purchase under the program.

          Repayment of the 6.5% Guaranteed Senior Notes due January 2012 (the “XLCFE Notes”)

          On January 15, 2012, the $600 million principal amount outstanding on the XLCFE Notes, which were issued by XL Capital Finance (Europe) plc (“XLCFE”), was repaid at maturity. For further detail, see Item 1, Note 8, “Notes Payable and Debt Financing Arrangements,” to the Unaudited Consolidated Financial Statements included herein.

Risk Management

          The Company’s risk management and risk appetite framework is detailed in Item 1, “Business - Enterprise Risk Management,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The table below shows the Company’s estimated per event net 1% and 0.4% exceedance probability exposures for certain peak natural catastrophe peril regions. These estimates assume that amounts due from reinsurance and retrocession purchases are 100% collectible. There may be credit or other disputes associated with these potential receivables. Finally, the probable maximum losses in the table below were derived by application of a vendor model that was released during the first quarter of 2011 and, accordingly, could be more unreliable than the model that was used historically.

			1-in-100 Event					1-in-250 Event
(U.S. dollars in millions) Geographical Zone	Peril	Measurement Date of In-Force Exposures (1)	Probable Maximum Loss (2)		Percentage of Tangible Shareholders’ Equity at September 30, 2012			Probable Maximum Loss (2)		Percentage of Tangible Shareholders’ Equity at September 30, 2012
North America	Earthquake	July 1, 2012	$	808		7.1	%	$	1,333		11.7	%
North Atlantic	Windstorm	July 1, 2012		1,286		11.3	%		1,706		15.0	%
U.S.	Windstorm	July 1, 2012		1,270		11.2	%		1,687		14.9	%
Europe	Windstorm	July 1, 2012		509		4.5	%		716		6.3	%
Japan	Earthquake	July 1, 2012		283		2.5	%		353		3.1	%
Japan	Windstorm	July 1, 2012		196		1.7	%		265		2.3	%

(1)	Detailed analyses of aggregated in-force exposures and maximum loss levels are done periodically. The measurement dates represent the date of the last completed detailed analysis by geographical zone.
(2)	Probable maximum losses, which include secondary uncertainty that incorporates variability around the expected probable maximum loss for each event, do not represent the Company’s maximum potential exposures and are pre-tax.

46

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

          See the discussion of the Company’s Critical Accounting Policies and Estimates in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

VARIABLE INTEREST ENTITIES AND OTHER OFF-BALANCE SHEET ARRANGEMENTS

          For further information, see the discussion of the Company’s variable interest entities and other off-balance sheet arrangements in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Variable Interest Entities (“VIEs”) and Other Off-Balance Sheet Arrangements,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and Item 1, Note 10, “Variable Interest Entities,” to the Unaudited Consolidated Financial Statements included herein.

SEGMENTS

          The Company is organized into three operating segments: Insurance, Reinsurance and Life operations. The Company’s general investment and financing operations are reflected in Corporate.

          The Company evaluates the performance of both the Insurance and Reinsurance segments based on underwriting profit and the performance of the Life operations segment based on its contribution to net income. Other items of revenue and expenditure of the Company are not evaluated at the segment level for reporting purposes. In addition, the Company does not allocate investment assets by segment for its P&C operations. Investment assets related to the Company’s Life operations and certain structured products included in the Insurance and Reinsurance segments are held in separately identified portfolios. As such, net investment income from these assets is included in the contribution from the applicable segment. See Item 1, Note 4, “Segment Information,” to the Unaudited Consolidated Financial Statements included herein for a reconciliation of segment data to the Company’s Unaudited Consolidated Financial Statements.

47

INCOME STATEMENT ANALYSIS

Segment Results for the three months ended September 30, 2012 compared to the three months ended September 30, 2011

Insurance

          The Company’s Insurance segment provides commercial property, casualty and specialty insurance products on a global basis. Products generally provide tailored coverages for complex corporate risks and include the following lines of business: property, casualty, professional liability, environmental liability, aviation and satellite, marine and offshore energy, equine, fine art and specie, excess and surplus lines, political risk and trade credit, product recall, surety and other insurance coverages including those mentioned above, through the Company’s program business. The Company focuses on those lines of business within its Insurance operations that are believed to provide the best return on capital over time. These lines of business are divided into the following business groups: North America Property and Casualty (“NAPC”), International Property and Casualty (“IPC”), Global Professional Lines (“Professional”) and Global Specialty (“Specialty”).

          The following table summarizes the underwriting profit (loss) for the Insurance segment:

	Three Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			% change
Gross premiums written	$	1,158,683		$	1,156,901			0.2	%
Net premiums written		905,054			872,757			3.7	%
Net premiums earned		985,623			930,067			6.0	%
Net losses and loss expenses		(623,543	)		(767,091	)		(18.7	)%
Acquisition costs		(128,514	)		(118,521	)		8.4	%
Operating expenses		(186,794	)		(158,134	)		18.1	%
Underwriting profit (loss)	$	46,772		$	(113,679	)		NM	*
Net results – structured products		3,087			2,457			25.6	%
Net fee income and other		591			(3,484	)		NM	*

          Gross premiums written marginally increased in the three months ended September 30, 2012 as compared to the same period of 2011 by 0.2% and, when evaluated in local currency, increased by 2.5%. The NAPC and Professional business groups both experienced an increase in gross premiums written while premiums declined in the IPC and Specialty business groups. For NAPC, the growth in premium was largely driven by new business growth across most lines, improved retentions in both property and environmental and improved pricing in all lines, partially offset by lower multi-year transactions in excess casualty and the non-renewal of certain under-priced business. In Professional, new business, primarily in the U.S. professional business, and favorable amendments to prior year premium estimates and retention contributed to the increased premiums. The decline in IPC premiums was from lower retention, lower new business and lower multi-year transactions as well as the unfavorable impact of foreign exchange rates. The lower retention and new business relates to property accounts that did not meet the Company’s underwriting requirements. In Specialty, there was a decrease in gross premiums written due lower new business in product recall and a decrease in retentions in marine lines due to the Company’s re-underwriting actions for businesses not meeting underwriting requirements, partially offset by premium growth from the new political risk business.

          Net premiums written increased by 3.7% in the three months ended September 30, 2012 as compared to the same period of 2011. The increase resulted from the gross written premium increases outlined above together with a decrease in ceded written premiums. The decrease in ceded premiums relates to decreased utilization of facultative reinsurance, primarily in IPC, changes to the structure and cost of certain Professional and Specialty reinsurance treaties and from reduced ceded reinstatement premiums, partially offset by a new retrocession cover in NAPC.

          Net premiums earned increased by 6.0% in the three months ended September 30, 2012 as compared to the same period of 2011. The increase primarily resulted from higher net written premiums earned in NAPC and Professional partially offset by the decrease in Specialty property premiums as outlined above.

48

          The following table presents the ratios for the Insurance segment:

	Three Months Ended September 30,
	2012			2011
Loss and loss expense ratio		63.3	%		82.5	%
Acquisition expense ratio		13.0	%		12.7	%
Operating expense ratio		19.0	%		17.0	%
Underwriting expense ratio		32.0	%		29.7	%
Combined ratio		95.3	%		112.2	%

          The loss and loss expense ratio includes net losses incurred for both the current quarter and any favorable or adverse prior year development of loss and loss expense reserves held at the beginning of the year. The following table summarizes the net (favorable) adverse prior year development relating to the Insurance segment for the three months ended September 30, 2012 as compared to the same period of 2011:

	Three Months Ended September 30,
(U.S. dollars in millions, except ratios)	2012			2011
Property	$	(10.2	)	$	12.8
Casualty		2.7			5.1
Professional		(0.2	)		2.6
Specialty and other		6.9			0.9
Total	$	(0.8	)	$	21.4
Loss and loss expense ratio excluding prior year development		63.3	%		80.2	%

          Excluding prior year development, the loss ratio for the three months ended September 30, 2012 decreased by 16.9 loss percentage points as compared to the same period in 2011 predominantly due to higher levels of catastrophe losses occurring in the third quarter of 2011. Losses net of reinsurance recoveries and reinstatement premiums related to natural catastrophe events for the three months ended September 30, 2012 were $70.6 million lower than the same period of 2011. For further details on catastrophe losses in 2011, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations, Significant Items Affecting the Results of Operations – 1) The impact of significant large natural catastrophe activity,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Excluding favorable prior year development, net catastrophe losses and related reinstatement premiums in both quarters, the loss ratio for the three months ended September 30, 2012 decreased by 9.6 points to 62.6%, mainly due to significant large loss activity in the property lines of the IPC business group in the third quarter of 2011 and better property loss experience in the NAPC business group in the third quarter of 2012.

          Explanations of significant components of the net favorable prior year reserve development of $0.8 million, as shown in the table above, for the three months ended September 30, 2012 is as follows:

• For property lines, net prior year development was $10.2 million favorable. This was driven by releases of $2.4 million, $3.3 million and $4.0 million for the non-catastrophe exposures in the general property, energy and construction books, respectively, due to better than expected reported loss development mainly in the 2011 accident year.

• For specialty and other lines, the unfavorable movement of $6.9 million was driven by adverse development of $5.0 million in the run-off mortgages book.

          The increase in the underwriting expense ratio for the three months ended September 30, 2012 as compared to the same period of 2011 was due to an increase in the operating expense ratio of 2.0 points combined with an increase in the acquisition expense ratio of 0.3 points. The increase in the operating expense ratio was due to higher compensation expenses due to different bonus accrual assumptions in the three months ended September 30, 2012 as compared to the same period of 2011. The increase in the acquisition expense ratio was mainly due to lower ceding commission income in IPC and through lower ceding commission income and changes in the mix of business in Professional.

          Fee income and other improved in the three months ended September 30, 2012 as compared to the same period of 2011 mainly as a result of higher income related to the Company’s loss prevention consulting services as well as lower expenses in professional lines related to the cost of an endorsement facility with National Indemnity Company, which was incurred in 2011. For further information about this facility, see Item 8, Note 7, “Other Investments,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

49

          Net results from structured insurance products include certain structured indemnity contracts that are accounted for as deposit contracts. Net results from these contracts improved in the three months ended September 30, 2012 as compared to the same period of 2011 due to higher net investment income from a larger invested portfolio.

Reinsurance

          The Company’s Reinsurance segment provides casualty, property risk, property catastrophe, marine, aviation and other specialty reinsurance on a global basis with business being written on both a proportional and non-proportional treaty basis and also on a facultative basis. The reinsurance operations are structured into geographical business groups: North America, Bermuda, International (Europe and Asia Pacific) and Latin America.

          The following table summarizes the underwriting profit (loss) for the Reinsurance segment:

	Three Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			% change
Gross premiums written	$	417,548		$	619,260			(32.6	)%
Net premiums written		403,210			419,949			(4.0	)%
Net premiums earned		482,930			432,465			11.7	%
Net losses and loss expenses		(270,533	)		(220,968	)		22.4	%
Acquisition costs		(97,739	)		(79,839	)		22.4	%
Operating expenses		(47,227	)		(40,179	)		17.5	%
Underwriting profit (loss)	$	67,431		$	91,479			(26.3	)%
Net results – structured products		2,614			3,388			(22.8	)%
Fee income and other		657			1,120			(41.3	)%

          Gross premiums written decreased in the three months ended September 30, 2012 as compared to the same period of 2011 by 32.6% and, when evaluated in local currency, decreased by 30.8%. The premium decrease was predominantly from the North America business groups, and to a lesser extent from the Latin America business group. The gross premiums written decline from the North America business group was primarily as a result of changes in the structure of a U.S. agricultural program which renewed as reinsurance rather than as primary business, the net impact of which to gross premiums written was a decrease of $196.5 million. Premiums from the Latin America business group declined compared to the prior year quarter due to the non-renewal of certain property treaties in Argentina and surety treaties in Columbia, Chile and Argentina as a result of the re-underwriting of the business. Offsetting these declines were premium increases from the Bermuda and International business groups due to revised premium estimates for policies written in prior periods.

          Net premiums written decreased by 4.0% in the three months ended September 30, 2012 as compared to the same period of 2011. The decrease resulted from the gross written premium decreases outlined above offset by a reduction in ceded written premiums from the change in structure of the U.S. agricultural program which resulted in a $13.2 million net impact on written premiums.

          Net premiums earned increased by 11.7% in the three months ended September 30, 2012 as compared to the same period of 2011. The increase is a reflection of the overall growth in net premiums written in recent quarters particularly from the Bermuda and International business groups.

          The following table presents the ratios for the Reinsurance segment:

	Three Months Ended September 30,
	2012			2011
Loss and loss expense ratio		56.0	%		51.1	%
Acquisition expense ratio		20.2	%		18.5	%
Operating expense ratio		9.8	%		9.2	%
Underwriting expense ratio		30.0	%		27.7	%
Combined ratio		86.0	%		78.8	%

50

          The loss and loss expense ratio includes net losses incurred for both the current year and any favorable or adverse prior year development of loss and loss expense reserves held at the beginning of the year. The following table summarizes the net (favorable) adverse prior year development relating to the Reinsurance segment for the three months ended September 30, 2012 and 2011:

	Three Months Ended September 30,
(U.S. dollars in millions, except ratios)	2012			2011
Property and other short-tail lines	$	(21.8	)	$	1.9
Casualty and other		(13.9	)		(41.7	)
Total	$	(35.7	)	$	(39.8	)
Loss and loss expense ratio excluding prior year development		63.4	%		60.3	%

          Excluding prior year development, the loss ratio for the three months ended September 30, 2012 increased by 3.1 loss percentage points as compared to the same period of 2011 despite lower levels of catastrophe losses occurring in the third quarter of 2012. Losses net of reinsurance recoveries and reinstatement premiums related to natural catastrophe events for the three months ended September 30, 2012 decreased by $8.0 million compared to the same period of 2011. Excluding favorable prior year development, net catastrophe losses and related reinstatement premiums in both quarters, the loss ratio for the three months ended September 30, 2012 increased by 5.8 points to 57.9% due mainly to crop losses as a result of the severe drought conditions in the U.S. in 2012.

          Net favorable prior year reserve development of $35.7 million for the three months ended September 30, 2012 was mainly attributable to the following:

• Net favorable prior year development of $21.8 million for the short-tailed lines and details of these by specific lines are as follows:

• For property catastrophe lines, net prior year development was $9.0 million favorable mainly driven by lower than expected incurred losses for the 2011 catastrophe losses on the Bermuda book.

• For property other lines, net prior year development was $4.2 million favorable mainly due to favorable claim development on the 2005 and 2011 catastrophe losses.

• For marine and aviation lines, net prior year development was $8.6 million favorable due to $4.3 million favorable development on large losses together with favorable attritional development on the International book.

• Net favorable prior year development of $13.9 million for the long-tailed lines and details of these by specific lines are as follows:

• For casualty lines, net prior year development was $4.4 million favorable arising mainly out of the Europe Casualty book due to a $2.4 million reduction on large losses and more favorable than expected development on attritional losses.

• For other lines, net prior year development was $9.5 million favorable of which $6.4 million comes from Surety lines in Brazil on the 2005 and 2006 underwriting years.

          The increase in the underwriting expense ratio for the three months ended September 30, 2012 as compared to the same period of 2011 was due to an increase in both the operating expense and acquisition ratios of 0.6 points and 1.7 points, respectively. The increase in the operating expense ratio was due to higher compensation expenses due to a change in bonus accrual assumptions as compared to the same period of 2011. The increase in the acquisition expense ratio was largely from fronting fees received on a U.S. agricultural program, which due to the change in structure, did not occur in the three months ended September 30, 2012. In addition, there was a reduction in profit and sliding scale commissions in the Latin America business group because of loss activity in Brazil for the three months ended September 30, 2011 which did not occur in the same period of 2012.

          Net results from structured reinsurance products include certain structured indemnity contracts that are accounted for as deposit contracts. Net results from these contracts have decreased in the three months ended September 30, 2012 as compared to the same period of 2011. The decrease is due to lower net investment income, primarily from a reduction in investment yields.

51

Life Operations

          The following table summarizes the contribution from the Life operations segment, which has been in run-off since 2009. Prior to the decision to run-off the business, products offered included a broad range of underlying lines of life reinsurance business, including term assurances, group life, critical illness cover, immediate annuities and disability income. In addition, prior to selling the renewal rights to the Continental European Business, the products offered included short-term life, accident and health business. The segment also covers a range of geographic markets, with an emphasis on the U.K., United States, Ireland and Continental Europe.

	Three Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			% change
Gross premiums written	$	87,413		$	100,564			(13.1	)%
Net premiums written		79,487			90,769			(12.4	)%
Net premiums earned		79,487			90,794			(12.5	)%
Claims and policy benefits		(119,439	)		(139,549	)		(14.4	)%
Acquisition costs		(10,094	)		(9,193	)		9.8	%
Operating expenses		(2,352	)		(2,352	)		0.0	%
Net investment income		73,479			80,349			(8.6	)%
Net fee income and other		240			41			NM	*
Realized gains (losses) on investments		(7,750	)		(23,307	)		(66.7	)%
Contribution from Life operations	$	13,571		$	(3,217	)		NM	*

* NM - Not Meaningful

          The following table is an analysis of the Life operations’ gross premiums written, net premiums written and net premiums earned for the three months ended September 30, 2012 and 2011:

	Three Months Ended September 30, 2012						Three Months Ended September 30, 2011
(U.S. dollars in thousands)	GrossPremiumsWritten		Net Premiums Written		Net Premiums Earned		Gross Premiums Written		Net Premiums Written		Net Premiums Earned
Other Life	$	48,364	$	47,527	$	47,527	$	59,815	$	57,428	$	57,452
Annuity		39,049		31,960		31,960		40,749		33,341		33,342
Total	$	87,413	$	79,487	$	79,487	$	100,564	$	90,769	$	90,794

          Gross premiums written decreased by 13.1% in the three months ended September 30, 2012 as compared to the same period of 2011, across the lines of business. The decrease was in line with the run-off expectations combined with favorable foreign exchange movements. Ceded premiums written marginally decreased largely due to timing differences.

          Net premiums earned decreased by 12.4% in the three months ended September 30, 2012 as compared to the same period of 2011. This decrease was consistent with the decrease in gross premiums written as described above.

          Claims and policy benefit reserves decreased by 14.4% in the three months ended September 30, 2012 as compared to the same period of 2011, as a result of the factors noted above affecting gross and net premiums written, the impact of foreign exchange movements, prior year reserve development on certain product lines and claims volatility.

          Acquisition costs increased by 9.8% in the three months ended September 30, 2012 as compared to the same period of 2011, mainly due to the impact of profit commission adjustments for prior underwriting years.

          Operating expenses were flat for the three months ended September 30, 2012 as compared to the same period in the prior year.

          Net investment income is included in the calculation of contribution from Life operations, as it relates to income earned on portfolios of separately identified and managed life investment assets and other allocated assets. Net investment income decreased by 8.6% in the three months ended September 30, 2012 as compared to the same period of 2011 due to unfavorable foreign exchange movements and cash outflows from the invested portfolio, reflecting the run-off nature of the Life operations business.

52

Investment Activities

          The following table illustrates the change in net investment income from P&C operations, net income from investment fund affiliates, net realized gains (losses) on investments and net realized and unrealized gains (losses) on investment derivative instruments for the three months ended September 30, 2012 and 2011:

	Three Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			% change
Net investment income - P&C operations (1)	$	166,001		$	209,757			(20.9	)%
Net income (loss) from investment fund affiliates (2)		16,050			(7,123	)		NM	*
Net realized gains (losses) on investments		(5,493	)		(62,354	)		(91.2	)%
Net realized and unrealized gains (losses) on investment and other derivative instruments (3)		6,254			(26,916	)		NM	*

(1)	Net investment income relating to P&C operations includes the net investment income related to the net results from structured products.
(2)	The Company generally records the income related to alternative fund affiliates on a one-month lag and the private investment fund affiliates on a three-month lag based upon the availability of the information provided by the investees.
(3)	For a summary of realized and unrealized gains and losses on all derivative instruments, see Item 1, Note 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included herein.
*	NM - Not Meaningful

          Net investment income related to P&C business decreased in the three months ended September 30, 2012 as compared to the same period of 2011 due primarily to a reduction in investment yields as well as an accumulation of cash over the prior year quarter given uncertainty in Europe and a negative adjustment related to inflation protected holdings.

          Net income from investment fund affiliates increased in the three months ended September 30, 2012 as compared to the same period of 2011. This was driven by positive results from alternative and private fund affiliates in the current quarter as compared to negative results for alternative funds, partially offset by modest positive returns from private funds, in the same period of 2011.

          The Company manages its fixed income portfolio in accordance with investment guidelines approved by the Risk and Finance Committee of the Board of Directors of XL-Ireland. The following is a summary of the investment portfolio returns for the three months ended September 30, 2012 and 2011 of the fixed income and non-fixed income portfolios:

	Three Months Ended September 30,
	2012 (1)			2011 (1)
Total Return on Investments		2.5	%		1.7	%
P&C fixed income portfolio		2.0	%		1.0	%
Life fixed income portfolio		4.6	%		4.2	%
Other Portfolios (2)
Alternative portfolio (3)		1.4	%		(1.3	)%
Equity portfolio		7.1	%		(17.4	)%
High-Yield fixed income portfolio		2.5	%		(3.4	)%

(1)	Portfolio returns are calculated by dividing the sum of gross investment income or net income from investment affiliates, realized gains (losses) and unrealized gains (losses) by the average market value of each portfolio. The performance of investment portfolios is measured on a local currency basis and is not annualized. For aggregate performance calculation, respective local currency balances are translated to U.S. dollars at quarter end rates to calculate composite portfolio results.
(2)	Performance on Other Portfolios is included in the Total Return on Investments.
(3)	Performance on the alternative portfolio reflects the three months ended August 31, 2012 and 2011, respectively.

Net Realized Gains and Losses on Investments and Other-than-Temporary Declines in the Value of Investments

          Net realized losses on investments of $5.5 million in the three months ended September 30, 2012 included net realized losses of approximately $12.6 million related to the write-down of certain of the Company’s AFS investments.

53

          The significant components of the net impairment charges of $12.6 million for the three months ended September 30, 2012 were:

§	$5.6 million for structured securities where the Company determined that the likely recovery on these securities was below the carrying value and, accordingly, recorded an impairment of the securities to the discounted value of the cash flows expected to be received on these securities.
§	$2.2 million related to medium term notes backed primarily by European investment grade credit. On certain notes, management concluded that expected future returns on the underlying assets were not sufficient to support the previously reported amortized cost.
§	$2.7 million related to private investments.

          Net realized losses on investments during the three months ended September 30, 2011 included net realized losses of $66.8 million related to the write-down of certain of the Company’s fixed income, equity and other investments with respect to which the Company determined that there was an other-than-temporary decline in the value of those investments as well as net realized gains of $4.5 million from sales of investments.

Net Realized and Unrealized Gains and Losses on Derivatives

          Net realized and unrealized losses on derivatives of $6.3 million in the three months ended September 30, 2012 resulted from the Company’s investment strategy to manage interest rate risk, foreign exchange risk and credit risk, and to replicate permitted investments. For a further discussion see Item 1, Note 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included herein.

Other Revenues and Expenses

          The following table sets forth other revenues and expenses of the Company for the three months ended September 30, 2012 and 2011:

	Three Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			% change
Net income (loss) from operating affiliates (1)	$	2,917		$	35,552			(91.8	)%
Exchange gains (losses)		(18,690	)		39,425			NM	*
Corporate operating expenses		(57,604	)		(33,847	)		70.2	%
Interest expense (2)		(26,192	)		(35,885	)		(27.0	)%
Income tax expense		(451	)		(24,718	)		(98.2	)%

(1)	The Company generally records the income related to certain operating affiliates on a three-month lag based upon the availability of the information provided by the investees.
(2)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.
*	NM - Not Meaningful

          The following table sets forth the net income (loss) from operating affiliates for the three months ended September 30, 2012 and 2011:

	Three Months Ended September 30,
(U.S. dollars in thousands)	2012			2011		% change
Net income (loss) from investment manager affiliates	$	(7,409	)	$	30,288		NM	*
Net income (loss) from strategic operating affiliates		10,326			5,264		96.2	%
Total	$	2,917		$	35,552		(91.8	)%

          Investment manager affiliates generated a loss in the three months ended September 30, 2012 due to incentive fee reversals. The income in the three months ended September 30, 2011 arose principally from the sale of the Company’s ownership stake in Finisterre.

          Strategic operating affiliate income increased in the three months ended September 30, 2012 as compared to the three months of 2011 due to higher current period income related to an insurance affiliate that writes direct U.S. homeowners insurance.

54

Foreign exchange losses in the three months ended September 30, 2012 were a result of an overall weakening of the value of the U.S. dollar against the Company’s major currency exposures, principally the Euro and U.K. sterling. Foreign exchange gains in the three months ended September 30, 2011 were a result of an overall strengthening of the value of the U.S. dollar against certain European currencies, including the U.K. sterling, the Swiss franc and the Euro, as well as the Canadian dollar.

          Corporate operating expenses increased in the three months ended September 30, 2012 as compared to the same period in the prior year primarily as a result of performance based compensation costs and certain strategic corporate initiatives taking place in 2012.

          Interest expense decreased in the three months ended September 30, 2012 as compared to the same period in the prior year as a result of the overall reduction in the Company’s debt following the repayment at maturity on January 15, 2012 of $600 million principal amount outstanding 6.5% XLCFE Notes and the purchase and retirement of the $575 million principal amount outstanding 8.25% Senior Notes in August 2011, partially offset by the issuance of $400 million principal amount outstanding 5.75% Senior Notes in September 2011. For further information about these debt financing transactions, see Item 8, Note 13, “Notes Payable and Debt Financing Arrangements,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

          A tax charge of $0.5 million was incurred in the three months ended September 30, 2012 that included a benefit of $6.6 million arising on the conclusion of a U.S. federal income tax audit and a further benefit of $5.5 million following the issuance of an IRS directive in July 2012 regarding certain worthlessness deductions that may be claimed in respect of credit-related impairments of eligible securities. The Company recognized a tax charge of $24.7 million in the three months ended September 30, 2011. Excluding the 2012 benefits, the decrease in the Company’s income tax expense in the three months ended September 30, 2012 compared to the same quarter in 2011 reflects the Company’s expected full year effective tax rate applicable in each of the years.

Segment Results for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011

Insurance

          The following table summarizes the underwriting profit (loss) for the Insurance segment:

	Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			% change
Gross premiums written	$	3,806,351		$	3,669,280			3.7	%
Net premiums written		2,885,847			2,684,938			7.5	%
Net premiums earned		2,878,973			2,713,430			6.1	%
Net losses and loss expenses		(1,890,512	)		(2,163,786	)		(12.6	)%
Acquisition costs		(380,054	)		(340,048	)		11.8	%
Operating expenses		(564,387	)		(488,837	)		15.5	%
Underwriting profit (loss)	$	44,020		$	(279,241	)		NM	*
Net results – structured products		14,953			8,407			77.9	%
Net fee income and other		(3,276	)		(12,614	)		(74.0	)%

* NM - Not Meaningful

          Gross premiums written increased in the nine months ended September 30, 2012 as compared to the same period of 2011 by 3.7% and, when evaluated in local currency, increased by 5.8%. This increase was experienced across the business groups predominantly from new business and improved pricing, partially offset by the unfavorable impact of foreign exchange rates. For NAPC, the growth in premium was largely driven by new business growth across most lines, improved retention for construction, property and primary casualty, and improved pricing in all lines over the prior year, partially offset by lower multi-year transactions in property and excess casualty. In Professional, improved pricing and new premiums primarily from the U.S. professional business and favorable amendments to prior year premium estimates contributed to increased premiums but were partially offset by the non-renewal of certain under-priced business. In Specialty, there was premium growth from the new political risk business and new business and favorable amendments to prior year premium estimates in marine cargo lines, partially offset by lower retention levels and adverse amendments to prior year premium estimates in aerospace. Finally, there was a decline in gross premiums written in IPC from lower retention and reduced new business in property and primary casualty. The lower retention and reduced new business relates to property accounts that did not meet the Company’s underwriting requirements. Partially offsetting these declines was improved retention levels and growth over the prior year in middle market lines.

          Net premiums written increased by 7.5% in the nine months ended September 30, 2012 as compared to the same period of 2011. The increase resulted from the gross written premium increases outlined above together with a decrease in ceded written premiums. The decrease in ceded premiums relates to decreased utilization of facultative reinsurance, primarily in IPC, following the cancelation of a large general property program, lower cessions as a result of lower retention levels in IPC property, as outlined above, lower multi-year transactions and the favorable impact of foreign exchange rates, partially offset by changes in the structure and costs of certain property and casualty reinsurance treaties and a new retrocession cover in NAPC.

55

          Net premiums earned increased by 6.1% in the nine months ended September 30, 2012 as compared to the same period of 2011. The increase primarily resulted from higher net written premiums earned in NAPC, Professional and Specialty, and the favorable amendments to certain prior year premium estimates partially offset by marine reinstatement premiums.

          The following table presents the ratios for the Insurance segment:

	Nine Months Ended September 30,
	2012			2011
Loss and loss expense ratio		65.7	%		79.7	%
Acquisition expense ratio		13.2	%		12.5	%
Operating expense ratio		19.6	%		18.1	%
Underwriting expense ratio		32.8	%		30.6	%
Combined ratio		98.5	%		110.3	%

          The loss and loss expense ratio includes net losses incurred for both the current period and any favorable or adverse prior year development of loss and loss expense reserves held at the beginning of the year. The following table summarizes the net (favorable) adverse prior year development relating to the Insurance segment for the nine months ended September 30, 2012 as compared to the same period of 2011:

	Nine Months Ended September 30,
(U.S. dollars in millions, except ratios)	2012			2011
Property	$	(27.2	)	$	(10.9	)
Casualty		(59.2	)		17.1
Professional		(52.8	)		(72.6	)
Specialty and other		41.6			17.4
Total	$	(97.6	)	$	(49.0	)
Loss and loss expense ratio excluding prior year development		69.1	%		81.5	%

          Excluding prior year development, the loss ratio for the nine months ended September 30, 2012 decreased by 12.4 loss percentage points as compared to the same period in 2011 predominantly due to lower levels of catastrophe losses occurring in 2012. Losses net of reinsurance recoveries and reinstatement premiums related to natural catastrophe events were $147 million lower for the nine months ended September 30, 2012 as compared to the same period of 2011. For further details on catastrophe losses in 2011, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Significant Items Affecting the Results of Operations – 1) The impact of significant large natural catastrophe activity,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Excluding favorable prior year development, net catastrophe losses and related reinstatement premiums in both periods, the loss ratio for the nine months ended September 30, 2012 decreased by 6.9 points to 66.5%, due to significant large loss activity in the IPC and NAPC energy and property units in 2011 partially offset by a large marine loss in the first quarter of 2012.

          Net favorable prior year reserve development of $97.6 million for the nine months ended September 30, 2012 was mainly attributable to the following:

• For property lines, net prior year development was $27.2 million favorable. The main drivers were releases of $19.7 million and $5.6 million for the non-catastrophe exposures in the general property and energy books, respectively, due to better than expected loss development mainly in the 2011 accident year. This favorable experience was partially offset by adverse development of $3.2 million in the construction book also primarily attributable to the 2011 accident year and again for the non-catastrophe exposures. The other main driver was releases in the catastrophe exposures totaling $2.8 million overall with $6.6 million arising from the 2010 accident year partially offset by a strengthening of $3.3 million in the 2011 accident year.

• For casualty lines, net prior year development was $59.2 million favorable. The principal drivers were releases of $34.9 million and $37.1 million in the primary and excess casualty lines, respectively, partially offset by strengthening of $9.6 million in U.S. middle markets. The $34.9 million release in primary casualty was driven by better than expected reported loss experience in the 2002 to 2007 accident years as well as the 2010 and 2011 accident years. The $37.1 million release in the excess casualty lines was due primarily to better than expected reported loss experience in the more mature accident years. The $9.6 million strengthening in U.S. middle markets was due to worse than expected reported loss experience.

56

•	For professional lines, net prior year development was $52.8 million favorable. The main driver was releases in reserves for clash losses (which cover a number of substantially similar claims against multiple policyholders) in the U.S. and Bermuda core professional businesses totaling $50.4 million, comprised of a release of $4.5 million for the 2006 and prior report years to reflect favorable reported loss experience across these years, and a release of $45.9 million for report year 2010 to reflect the limited clash events in the U.S. and Bermuda core professional businesses for this year.
	In terms of non-clash losses in the professional lines, the prior year reserve development was small in total but there were some fairly significant offsetting movements. $24.5 million and $18.1 million were released from the U.S. and Bermuda core professional businesses, respectively, due to better than expected reported loss development while the International core professional business was strengthened $37.2 million due to unfavorable reported loss development. The Design portfolio covering architects and engineers professional liability was strengthened by $4.8 million driven by worse than expected reported loss experience in the Canadian book.
•	For specialty and other lines, net prior year development was $41.6 million unfavorable. The principal driver was adverse non-catastrophe loss emergence which led to strengthening of $30.0 million in the excess and surplus lines, $14.7 million in marine, $17.5 million in a discontinued specialty program, $10.9 million in NAPC Programs and $4.4 million in environmental. These increases were partially offset by a release of $25.3 million in aerospace and a release of $8.9 million for the catastrophe exposures in marine.

          The increase in the underwriting expense ratio for the nine months ended September 30, 2012 as compared to the same period of 2011 was due to an increase in the operating expense ratio of 1.5 points combined with an increase in the acquisition expense ratio of 0.7 points. The increase in the operating expense ratio was due to higher compensation expenses due to different bonus accrual assumptions and severance costs in the nine months ended September 30, 2012 as compared to the same period of 2011. The increase in the acquisition expense ratio was largely from the impact of reinstatement premiums and other earned premium adjustments on the ratio, lower ceding income in IPC, NAPC and Professional and a change in the mix of business in Professional.

          Fee income and other improved in the nine months ended September 30, 2012 as compared to the same period of 2011 mainly as a result of higher income related to the Company’s loss prevention consulting services as well as lower expenses in professional lines related to the cost of an endorsement facility with National Indemnity Company, which was incurred in 2011. For further information about this facility, see Item 8, Note 7, “Other Investments,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

          Net results from structured insurance products include certain structured indemnity contracts that are accounted for as deposit contracts. Net results from these contracts have improved in the nine months ended September 30, 2012 as compared to the same period of 2011 due to a lower interest expense as a result of an accretion rate adjustment recorded in the second quarter of 2012 based on changes in expected cash flows and payout patterns on certain structured indemnity contracts.

Reinsurance

          The following table summarizes the underwriting profit (loss) for the Reinsurance segment:

	Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			% change
Gross premiums written	$	1,850,315		$	1,968,444			(6.0	)%
Net premiums written		1,732,923			1,628,109			6.4	%
Net premiums earned		1,348,450			1,226,923			9.9	%
Net losses and loss expenses		(683,984	)		(856,722	)		(20.2	)%
Acquisition costs		(273,706	)		(244,813	)		11.8	%
Operating expenses		(127,965	)		(129,362	)		(1.1	)%
Underwriting profit (loss)	$	262,795		$	(3,974	)		NM	*
Net results – structured products		(17,801	)		9,828			NM	*
Fee income and other		1,980			2,505			(21.0	)%

* NM - Not Meaningful

          Gross premiums written decreased in the nine months ended September 30, 2012 as compared to the same period of 2011 by 6.0% and, when evaluated in local currency, decreased by 4.4%. The decrease in premium was predominantly from the North America business group and the Latin America business group. The North America business group experienced a decrease in gross premiums written, primarily as a result of changes in the structure of a U.S. agricultural program that renewed as reinsurance rather than as primary business, as well as a reduction in volume, shares and price for certain renewed property quota share and property excess of loss contracts, partially offset by new business. Premiums from the Latin America business group declined compared to the same period of the prior year due to the non-renewal of certain significant property and surety treaties as a result of the re-underwriting of the business within this region. For the International business group there was an increase in premiums, attributable to casualty lines through new writings and higher renewals; increased property catastrophe shares and rates in Continental Europe; and new business and increased shares in Asia Pacific property proportional lines of business. For the Bermuda business group, there was premium growth from renewals through price, share, line and capacity increases. These were partially offset by the absence of property catastrophe reinstatement premiums in the Bermuda and International business units, which were written and earned in the same period of 2011 in connection with natural catastrophe losses from the Japan earthquake and tsunami.

57

          Net premiums written increased by 6.4% in the nine months ended September 30, 2012 as compared to the same period of 2011. The increase resulted from the International and Bermuda groups gross written premium increases outlined above coupled with a reduction in ceded written premiums. The decrease in ceded written premiums was mainly the result of the change in the U.S. agricultural program from the North America business, partially offset by increased ceded reinstatement premiums in the International business group related to the 2011 Thailand flood loss.

          Net premiums earned increased by 9.9% in the nine months ended September 30, 2012 as compared to the same period of 2011. The increase is a reflection of the overall growth in net premiums written in recent quarters, partially offset by an increase, in 2011, of catastrophe loss related reinstatement premiums which were earned immediately.

          The following table presents the ratios for the Reinsurance segment:

	Nine Months Ended September 30,
	2012			2011
Loss and loss expense ratio		50.7	%		69.8	%
Acquisition expense ratio		20.3	%		20.0	%
Operating expense ratio		9.5	%		10.5	%
Underwriting expense ratio		29.8	%		30.5	%
Combined ratio		80.5	%		100.3	%

          The loss and loss expense ratio includes net losses incurred for both the current period and any favorable or adverse prior year development of loss and loss expense reserves held at the beginning of the year. The following table summarizes the net (favorable) adverse prior year development relating to the Reinsurance segment for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30,
(U.S. dollars in millions, except ratios)	2012			2011
Property and other short-tail lines	$	(62.4	)	$	(54.1	)
Casualty and other		(58.1	)		(114.0	)
Total	$	(120.5	)	$	(168.1	)
Loss and loss expense ratio excluding prior year development		59.7	%		83.5	%

          Excluding prior year development, the loss ratio for the nine months ended September 30, 2012 decreased by 23.8 loss percentage points as compared to the same period of 2011 predominantly due to lower levels of catastrophe losses occurring in 2012. Losses net of reinsurance recoveries and reinstatement premiums related to natural catastrophe events were $306.7 million lower for the nine months ended September 30, 2012 as compared to the same period of 2011. For further details on catastrophe losses in 2011 see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Significant Items Affecting the Results of Operations – 1) The impact of significant large natural catastrophe activity,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Excluding favorable prior year development, net catastrophe losses and related reinstatement premiums in both periods, the loss ratio for the nine months ended September 30, 2012 increased by 2.1 points to 56.8%, due mainly to crop losses as a result of the severe drought conditions in the U.S. in 2012.

          Net favorable prior year reserve development of $120.5 million for the nine months ended September 30, 2012 was mainly attributable to the following:

• Net favorable prior year development of $62.4 million for the short-tailed lines and details of these by specific lines are as follows:

• For property catastrophe lines, net prior year development during the year-to-date was $9.4 million favorable mainly driven by lower than expected incurred losses for the 2011 catastrophe losses on the Bermuda book.

• For property other lines, net prior year development during the year-to-date was $26.6 million favorable mainly due to favorable attritional claim development on the International, North America and Bermuda books offset by some unfavorable attritional claim development on the Latin America book. Total development on large losses is a favorable $2.5 million.

58

• For marine and aviation lines, net prior year development was $26.5 million favorable due mainly to favorable attritional development of $15.0 million on the International book together with a $9.8 million release on prior year large losses.

• Net favorable prior year development of $58.1 million for the long-tailed lines and details of these by specific lines are as follows:

• For casualty lines, net prior year development was $39.7 million favorable arising mainly out of the North America book due to more favorable than expected development on the 2003 and 2004 underwriting years.

• For other lines, net prior year development was $18.4 million favorable mainly driven by an $8.8 million release on the structured indemnity book and a $6.4 million release on the surety lines in Brazil on the 2005 and 2006 underwriting years.

          The decrease in the underwriting expense ratio for the nine months ended September 30, 2012 as compared to the same period of 2011 was due to a reduction in both the operating expense ratio of 1.0 points partially offset by an increase in the acquisition expense ratio of 0.3 points. The decrease in the operating expense ratio was due to operating expenses remaining largely flat, while net earned premiums increased compared to the same period of 2011. The acquisition expense ratio was largely in line with the same period of 2011, with a slight increase from Latin America due to a favorable movement on sliding scale commissions in the prior year.

          Net results from structured reinsurance products include certain structured indemnity contracts that are accounted for as deposit contracts. Net results from these contracts have decreased in the nine months ended September 30, 2012 as compared to the same period of 2011 due to higher interest expense. The higher interest expense was due to an accretion rate adjustment recorded in the second quarter based on changes in expected cash flows and payout patterns on one of the larger structured indemnity contracts and from lower net investment income in the nine months ended September 30, 2012 reflecting lower investment yields and the run-off nature of this line of business.

Life Operations

          The following table summarizes the contribution from the Life operations segment, which has been in run-off since 2009:

	Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			% change
Gross premiums written	$	267,000		$	298,504			(10.6	)%
Net premiums written		243,606			272,635			(10.6	)%
Net premiums earned		243,630			272,695			(10.7	)%
Claims and policy benefits		(371,896	)		(410,196	)		(9.3	)%
Acquisition costs		(25,675	)		(26,281	)		(2.3	)%
Operating expenses		(7,788	)		(7,241	)		7.6	%
Net investment income		223,150			239,382			(6.8	)%
Net fee income and other		330			178			85.4	%
Realized gains (losses) on investments		(22,153	)		(62,154	)		(64.4	)%
Contribution from Life operations	$	39,598		$	6,383			NM	*

* NM - Not Meaningful

          The following table is an analysis of the Life operations’ gross premiums written, net premiums written and net premiums earned for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30, 2012						Nine Months Ended September 30, 2011
(U.S. dollars in thousands)	Gross Premiums Written		Net Premiums Written		Net Premiums Earned		Gross Premiums Written		Net Premiums Written		Net Premiums Earned
Other Life	$	151,132	$	148,945	$	148,970	$	175,842	$	172,403	$	172,463
Annuity		115,868		94,661		94,660		122,662		100,232		100,232
Total	$	267,000	$	243,606	$	243,630	$	298,504	$	272,635	$	272,695

59

          Gross premiums written decreased in the nine months ended September 30, 2012 as compared to the same period of 2011 by 10.6%, driven predominantly by the Other Life business. The decrease was in line with the run-off expectations combined with unfavorable foreign exchange movements. Ceded premiums written marginally decreased largely due to timing differences.

          Net premiums earned decreased in the nine months ended September 30, 2012 as compared to the same period of 2011 by 10.6%. This decrease was consistent with the decrease in gross premiums written as described above.

          Claims and policy benefit reserves decreased by 9.3% in the nine months ended September 30, 2012 as compared to the same period of 2011, as a result of the factors noted above affecting gross and net premiums written, partially offset by adverse reserve development.

          Acquisition costs decreased in the nine months ended September 30, 2012 as compared to the same period of 2011 by 2.3%, mainly due to the natural run-off of the business and lower letters of credit costs, which more than offset an increase in profit commissions in the current quarter.

          Operating expenses increased by 7.6% in the nine months ended September 30, 2012 as compared to the same period in the prior year due to certain accrual adjustments in the prior year that lowered the expenses in that period.

          Net investment income is included in the calculation of contribution from Life operations, as it relates to income earned on portfolios of separately identified and managed life investment assets and other allocated assets. Net investment income decreased by 6.8% in the nine months ended September 30, 2012 as compared to the same period of 2011 due to unfavorable foreign exchange movements, lower investment yields and a lower invested asset base, reflecting the run-off nature of the Life operations business.

Investment Activities

          The following table illustrates the change in net investment income from P&C operations, net income from investment fund affiliates, net realized (losses) gains on investments and net realized and unrealized gains (losses) on investment derivative instruments for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30,
(U.S. dollars in thousands)	2012		2011			% change
Net investment income - P&C operations (1)	$	544,203	$	627,492			(13.3	)%
Net income (loss) from investment fund affiliates (2)		38,555		30,277			27.3	%
Net realized gains (losses) on investments		2,917		(138,335	)		NM	*
Net realized and unrealized gains (losses) on investment and other derivative instruments (3)		2,656		(34,299	)		NM	*

(1)	Net investment income relating to P&C operations includes the net investment income related to the net results from structured products.
(2)	The Company generally records the income related to alternative fund affiliates on a one-month lag and the private investment fund affiliates on a three-month lag based upon the availability of the information provided by the investees.
(3)	For a summary of realized and unrealized gains and losses on all derivative instruments, see Item 1, Note 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included herein.
*	NM - Not Meaningful

          Net investment income related to P&C business decreased in the nine months ended September 30, 2012 as compared to the same period of 2011 due primarily to a reduction in investment yields as well as an accumulation of cash over the prior year given uncertainty in Europe and a negative adjustment related to inflation protected holdings.

          Net income from investment fund affiliates increased in the nine months ended September 30, 2012 as compared to the same period of 2011. Alternative fund affiliate results were significantly higher in the nine months ended September 30, 2012 relative to the same period of 2011, while results from private fund affiliates, while positive, were lower than the same period of 2011.

60

          The Company manages its fixed income portfolio in accordance with investment guidelines approved by the Risk and Finance Committee of the Board of Directors of XL-Ireland. The following is a summary of the investment portfolio returns for the nine months ended September 30, 2012 and 2011 of the fixed income and non-fixed income portfolios:

	Nine Months Ended September 30,
	2012 (1)			2011 (1)
Total Return on Investments		5.6	%		4.1	%
P&C fixed income portfolio		4.7	%		3.6	%
Life fixed income portfolio		9.2	%		6.3	%
Other Portfolios (2)
Alternative portfolio (3)		3.3	%		3.0	%
Equity portfolio		11.7	%		(12.9	)%
High-Yield fixed income portfolio		6.9	%		(0.4	)%

(1)	Portfolio returns are calculated by dividing the sum of gross investment income or net income from investment affiliates, realized gains (losses) and unrealized gains (losses) by the average market value of each portfolio. The performance of investment portfolios is measured on a local currency basis and is not annualized. For aggregate performance calculation, respective local currency balances are translated to U.S. dollars at quarter end rates to calculate composite portfolio results.
(2)	Performance on Other Portfolios is included in the Total Return on Investments.
(3)	Performance on the alternative portfolio reflects the nine months ended August 31, 2012 and 2011, respectively.

Net Realized Gains and Losses on Investments and Other-than-Temporary Declines in the Value of Investments

          Net realized gains on investments of $2.9 million in the nine months ended September 30, 2012 included net realized losses of approximately $61.8 million related to the write-down of certain of the Company’s AFS investments as well as losses arising on targeted sales of European financial exposures. In addition, included in the net realized gains noted above are net realized gains of $57.6 million due primarily to gains from a repositioning of the Agency RMBS portfolio and net realized gains of $33.8 million on sales of equity securities.

          The significant components of the net impairment charges of $61.8 million for the nine months ended September 30, 2012 were:

§	$36.9 million for structured securities where the Company determined that the likely recovery on these securities was below the carrying value and, accordingly, recorded an impairment of the securities to the discounted value of the cash flows expected to be received on these securities.
§	$15.4 million related to medium term notes backed primarily by European investment grade credit. On certain notes, management concluded that expected future returns on the underlying assets were not sufficient to support the previously reported amortized cost. The Company also adjusted the estimated remaining holding period of certain notes resulting in a shorter reinvestment spectrum.
§	$3.4 million related to certain equities as the holdings were in a loss position for more than 11 months.
§	$2.7 million related to private investments.
§	$2.2 million related to currency losses primarily arising on U.K. sterling denominated securities held in U.S. dollar portfolios.
§	$1.2 million for corporate securities, excluding medium term notes, principally on hybrid securities which had not been called on the first call date.

          Net realized losses on investments during the nine months ended September 30, 2011 included net realized losses of $131.4 million related to the write-down of certain of the Company’s fixed income, equity and other investments with respect to which the Company determined that there was an other-than-temporary decline in the value of those investments as well as $6.9 million of net realized losses from sales of investments principally on European financials and non-Agency RMBS partially offset by gains on Agency RMBS.

Net Realized and Unrealized Gains and Losses on Derivatives

          Net realized and unrealized gains on derivatives of $2.7 million in the nine months ended September 30, 2012 resulted from the Company’s investment strategy to manage interest rate risk, foreign exchange risk and credit risk, and to replicate permitted investments. For a further discussion, see Item 1, Note 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included herein.

61

Other Revenues and Expenses

          The following table sets forth other revenues and expenses of the Company for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30,
(U.S. dollars in thousands)	2012			2011			% change
Net income (loss) from operating affiliates (1)	$	41,731		$	95,439			(56.3	)%
Exchange gains (losses)		(13,432	)		38,409			NM	*
Corporate operating expenses		(151,925	)		(109,105	)		39.2	%
Interest expense (2)		(79,601	)		(119,383	)		(33.3	)%
Income tax expense		(51,813	)		(16,747	)		NM	*

(1)	The Company generally records the income related to certain operating affiliates on a three-month lag based upon the availability of the information provided by the investees.
(2)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.
*	NM – Not meaningful

The following table sets forth the net income (loss) from operating affiliates for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30,
(U.S. dollars in thousands)	2012		2011			% change
Net income (loss) from financial operating affiliates	$	—	$	(1,018	)		(100.0	)%
Net income (loss) from investment manager affiliates		17,203		76,799			(77.6	)%
Net income (loss) from strategic operating affiliates		24,528		19,658			24.8	%
Total	$	41,731	$	95,439			(56.3	)%

          The financial operating affiliate loss in the nine months ended September 30, 2011 is wholly attributable to a write down in the value of one investment following a restructuring.

          Investment manager affiliate income decreased significantly in the nine months ended September 30, 2012 as compared to the same period of the prior year. The prior year results included the positive impact of the sale of the Company’s ownership stake in Finisterre, especially strong performance by the investment manager affiliates (including Finisterre prior to the closing of the sale transaction) and the achievement of results that surpassed certain performance fee hurdles by various funds under management in the second quarter of 2011, as compared to solid results for the investment manager affiliates in the nine months ended September 30, 2012.

          Strategic operating affiliate income increased in the nine months ended September 30, 2012 as compared to the same period in the prior year primarily due to higher income related to an insurance affiliate that writes direct U.S. homeowners insurance.

          Foreign exchange losses in the nine months ended September 30, 2012 were a result of an overall weakening of the value of the U.S. dollar against the Company’s major currency exposures, which include the U.K. sterling, the Euro and the Swiss franc. In the nine months ended September 30, 2011, the foreign exchange gains were due to a stronger U.S. dollar against Australian and Canadian dollars but weaker against the Swiss franc and the Euro.

          Corporate operating expenses increased in the nine months ended September 30, 2012 as compared to the same period in the prior year primarily as a result of performance based compensation costs and certain strategic corporate initiatives taking place in 2012.

          Interest expense decreased in the nine months ended September 30, 2012 as compared to the same period in the prior year as a result of the overall reduction in the Company’s debt following the repayment at maturity on January 15, 2012 of $600 million 6.5% XLCFE Notes, the purchase and retirement of the $575 million 8.25% Senior Notes in August 2011, partially offset by the issuance of $400 million 5.75% Senior Notes in September 2011. For further information about these debt financing transactions see Item 8, Note 13, “Notes Payable and Debt Financing Arrangements,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

          A tax charge of $51.8 million was incurred in the nine months ended September 30, 2012 and a tax charge of $16.7 million was incurred in the nine months September 30, 2011. The increase in the tax charge arose principally from higher income in taxable jurisdictions in the nine months ended September 30, 2012 than in the previous year.

62

BALANCE SHEET ANALYSIS

Investments

          The primary objectives of the investment strategy are to support the liabilities arising from the operations of the Company, generate stable investment income and build book value for the Company over the longer term. The strategy strives to balance investment returns against market and credit risk. The Company’s overall investment portfolio is structured to take into account a number of variables including local regulatory requirements, business needs, collateral management and risk tolerance.

          At September 30, 2012 and December 31, 2011, total investments, cash and cash equivalents, accrued investment income and net receivable/(payable) for investments sold/(purchased) were approximately $37 billion and $36 billion, respectively. The following table summarizes the composition of the Company’s invested assets at September 30, 2012 and December 31, 2011:

	September 30, 2012						December 31, 2011
(U.S. dollars in thousands)	Carrying Value (1)			Percent of Total			Carrying Value (1)		Percent of Total
Cash and cash equivalents	$	3,197,305			8.7	%	$	3,825,125		10.7	%
Net receivable/ (payable) for investments sold/ (purchased)		(236,302	)		(0.6	)%		1,233		0.0	%
Accrued investment income		365,516			1.0	%		331,758		0.9	%
Short-term investments		323,705			0.9	%		359,063		1.0	%
Fixed maturities - AFS:
U.S. Government and Government-Related/Supported (2)		2,135,368			5.8	%		1,990,983		5.5	%
Corporate - Financials (3) (4) (5)		2,944,630			8.0	%		3,038,398		8.5	%
Corporate - Non Financials (4)		7,062,507			19.2	%		7,070,224		19.7	%
RMBS – Agency		5,376,903			14.7	%		5,379,406		15.0	%
RMBS – Non-Agency		636,325			1.7	%		641,815		1.8	%
CMBS		1,034,409			2.8	%		974,835		2.8	%
CDO		682,566			1.9	%		658,602		1.8	%
Other asset-backed securities (5)		1,458,544			4.0	%		1,340,249		3.7	%
U.S. States and political subdivisions of the States		1,820,105			5.0	%		1,797,378		5.0	%
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (2)		4,274,936			11.7	%		3,298,135		9.2	%
Total fixed maturities - AFS	$	27,426,293			74.8	%	$	26,190,025		73.0	%
Fixed maturities - HTM:
U.S. Government and Government-Related/Supported (2)		10,845			0.0	%		10,399		0.0	%
Corporate - Financials (3) (4) (5)		267,069			0.7	%		305,122		0.9	%
Corporate - Non Financials (4)		1,163,151			3.2	%		985,087		2.7	%
RMBS – Non-Agency		83,896			0.2	%		80,955		0.2	%
CMBS		12,917			0.0	%		—		0.0	%
Other asset-backed securities (5)		224,508			0.6	%		288,741		0.8	%
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (2)		1,043,410			2.8	%		998,674		2.8	%
Total fixed maturities - HTM	$	2,805,796			7.5	%	$	2,668,978		7.4	%
Equity securities (6)		565,927			1.5	%		468,197		1.3	%
Investments in affiliates		1,027,122			2.8	%		1,052,729		2.9	%
Other investments		1,215,556			3.4	%		985,262		2.8	%
Total investments and cash and cash equivalents	$	36,690,918			100.0	%	$	35,882,370		100.0	%

(1)	Carrying values represents the fair value for available for sale fixed maturities and amortized cost for held to maturity securities.
(2)	U.S. Government and Government-Related/Supported and Non U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported include government-related securities with an amortized cost of $2,182.5 million and $1,878.3 million and fair value of $2,258.6 million and $1,915.6 million at September 30, 2012 and December 31, 2011, respectively, and U.S. Agencies with an amortized cost of $453.8 million and $494.0 million and fair value of $499.5 million and $541.2 million at September 30, 2012 and December 31, 2011, respectively.
(3)	Included in Corporate - Financials are gross unrealized losses of $56.1 million and $108.8 million on Tier One and Upper Tier Two securities of financial institutions (“Hybrids”) with fair value of $348.8 million and $386.1 million at September 30, 2012 and December 31, 2011, respectively, as well as gross unrealized losses of $19.8 million and $70.1 million on subordinated debt (including lower Tier Two securities) with a fair value of $656.7 million and $701.3 million at September 30, 2012 and December 31, 2011, respectively.
(4)	Included within Corporate are certain floating rate medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes have a fair value of $192.3 million and $266.0 million and an amortized cost of $199.8 million and $297.7 million at September 30, 2012 and December 31, 2011, respectively. These securities have been allocated ratings of the underlying pool of securities. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.
(5)	At September 30, 2012, Covered Bonds within Fixed maturities – AFS with a carrying value of $599.9 million and Covered Bonds within Fixed maturities – HTM with a carrying value of $8.3 million have been included within Other asset-backed securities to align the Company’s classification to market indices. Covered Bonds were included in Corporate prior to January 1, 2012. At December 31, 2011, Covered Bonds within Fixed maturities – AFS with a carrying value of $353.9 million and Covered Bonds within Fixed maturities – HTM with a carrying value of $7.7 million have been reclassified from Corporate to Other asset-backed securities to conform to the current period presentation.
(6)	Included within equity securities are investments in fixed income funds of $99.3 million and $91.6 million at September 30, 2012 and December 31, 2011, respectively.

63

          The Company reviews its corporate debt investments on a regular basis to consider its concentration, credit quality and compliance with established guidelines. At both September 30, 2012 and December 31, 2011, the average credit quality of the Company’s total fixed income portfolio (including fixed maturities, short-term investments, cash and cash equivalents and net receivable/(payable) for investment sold/(purchased)) was “Aa2/AA”. Included in the table below are the credit ratings of the fixed income portfolio excluding operating cash at September 30, 2012 and December 31, 2011:

	September 30, 2012					December 31, 2011
Investments by Credit Rating (1) (2) (U.S. dollars in millions)	Carrying Value		Percent of Total			Carrying Value		Percent of Total
AAA	$	17,065		51.5	%	$	16,276		51.1	%
AA		5,091		15.4	%		5,266		16.6	%
A		6,980		21.1	%		7,098		22.3	%
BBB		3,083		9.3	%		2,418		7.6	%
BB and below		849		2.6	%		718		2.3	%
Not rated		18		0.1	%		39		0.1	%
Total	$	33,086		100.0	%	$	31,815		100.0	%

(1)

At September 30, 2012 and December 31, 2011, $192.3 million and $266.0 million or 0.6% and 0.8% of the portfolio, respectively, represents medium term notes rated at the average credit rating of the underlying asset pools backing the notes.

(2)

The credit rating for each asset reflected above was principally determined based on the weighted average rating of the individual securities from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings (when available). U.S. Agency debt and related mortgage backed securities, whether with implicit or explicit government support, reflect the credit quality rating of the U.S. government for the purpose of these calculations.

Gross and Net Unrealized Gains and Losses on Investments

          The Company had gross unrealized losses totaling $396.6 million on 1,072 securities out of a total of 7,215 held at September 30, 2012 in its AFS portfolio and $6.0 million on 9 securities out of a total of 207 held in its HTM portfolio, which it considers to be temporarily impaired or with respect to which it reflects non-credit losses on OTTI. Individual security positions comprising this balance have been evaluated by management, in conjunction with its investment managers, to determine the severity of these impairments and whether they should be considered other-than-temporary.

          Gross unrealized losses can be attributed to the following significant drivers:

•	gross unrealized losses of $118.9 million related to the P&C portfolios of Core CDO holdings (defined by the Company as investments in non-subprime CDOs), which consisted primarily of collateralized loan obligations (“CLOs”) and had a fair value of $682.6 million at September 30, 2012.
•	gross unrealized losses of $107.8 million related to the Non-Agency RMBS portfolio (which consists of the Company’s holdings of sub-prime Non-Agency RMBS, second liens, ABS CDOs with sub-prime collateral, Alt-A and Prime RMBS), which had a fair value of $720.2 million at September 30, 2012. The Company has incurred realized losses, consisting of charges for OTTI and realized losses from sales, of approximately $1.4 billion since the beginning of 2007 through September 30, 2012 on these asset classes.
•	gross unrealized losses of $105.5 million related to the Company’s Life operations investment portfolio, which had a fair value of $6.5 billion at September 30, 2012. Of these gross unrealized losses, $65.8 million related to $3.7 billion of exposures to corporate financial institutions, including $284.7 million related to Tier One and Upper Tier Two securities.
	At September 30, 2012, this portfolio had an average interest rate duration of 8.7 years, primarily denominated in U.K. sterling and Euros. As a result of the long duration, significant gross losses have arisen as the fair values of these securities are more sensitive to prevailing government interest rates and credit spreads. This portfolio is generally matched to corresponding long duration liabilities. A hypothetical parallel increase in interest rates and credit spreads of 50 and 25 basis points, respectively, would increase the unrealized losses related to this portfolio at September 30, 2012 by approximately $297.1 million and $115.2 million, respectively, on both the AFS and HTM Life operations investments portfolios.

64

Given the long-term nature of the Life operations investments portfolio, the level of credit spreads on financial institutions at September 30, 2012 relative to historical averages within the U.K. and Euro-zone, and the Company’s liquidity needs at September 30, 2012, the Company believes that these assets will continue to be held until such time as they mature, or credit spreads on financial institutions revert to levels more consistent with historical averages.

•

gross unrealized losses of $60.9 million related to the corporate holdings within the Company’s non-life fixed income portfolios, which had a fair value of $7.8 billion at September 30, 2012. Of the gross unrealized losses, $29.9 million relate to financial institutions. In addition, $10.2 million relate to medium term notes primarily supported by pools of European investment grade credit with varying degrees of leverage. These had a fair value of $192.3 million at September 30, 2012. Management believes that expected cash flows from these bonds over the expected holding period will be sufficient to support the remaining reported amortized cost.

          The following is the maturity profile of the available for sale fixed income securities that were in a continual gross unrealized loss position at September 30, 2012:

	September 30, 2012
	Amount of Unrealized Loss			Fair Value of Securities in an Unrealized Loss Position
(U.S. dollars in thousands)
Security Type and Length of Time in a Continual Unrealized Loss Position
Fixed Maturities and Short-Term Investments
Less than 6 months	$	(6,091	)	$	892,535
At least 6 months but less than 12 months		(6,494	)		153,590
At least 12 months but less than 2 years		(27,976	)		275,676
2 years and over		(350,771	)		2,042,863
Total	$	(391,332	)	$	3,364,664
Equities
Less than 6 months	$	(139	)	$	2,884
At least 6 months but less than 12 months		(5,114	)		269,659
Total	$	(5,253	)	$	272,543

          The following is the maturity profile of the AFS fixed income securities that were in a continual gross unrealized loss position at September 30, 2012:

	September 30, 2012
	Amount of Unrealized Loss			Fair Value of Securities in an Unrealized Loss Position
(U.S. dollars in thousands)
Maturity profile in years of AFS fixed income securities in a gross unrealized loss position
Less than 1 year remaining	$	(14,923	)	$	350,319
At least 1 year but less than 5 years remaining (1)		(55,465	)		874,881
At least 5 years but less than 10 years remaining (1)		(28,958	)		286,135
At least 10 years but less than 20 years remaining (1)		(28,481	)		160,842
At least 20 years or more remaining (1)		(10,631	)		101,398
RMBS - Agency		(2,738	)		160,332
RMBS - Non-Agency		(107,757	)		476,183
CMBS		(3,987	)		115,455
CDO		(118,906	)		669,199
Other asset-backed securities		(19,486	)		169,920
Total	$	(391,332	)	$	3,364,664

(1) Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments senior to the common and preferred equities of the financial institutions, are allocated based on the call date and medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage are allocated on contractual maturity.

65

          The following is the maturity profile of the HTM fixed income securities that were in a gross unrealized loss position at September 30, 2012:

	September 30, 2012
	Amount of Unrealized Loss			Fair Value of Securities in an Unrealized Loss Position
(U.S. dollars in thousands)
Maturity profile in years of HTM fixed income securities in a gross unrealized loss position
At least 5 years but less than 10 years remaining	$	(72	)	$	2,347
At least 10 years but less than 20 years remaining		(1,507	)		29,071
At least 20 years or more remaining		(4,155	)		20,502
Other asset-backed securities		(295	)		9,509
Total	$	(6,029	)	$	61,429

          Factors considered in determining that additional OTTI charges were not warranted include management’s consideration of current and near term liquidity needs along with other available sources, and in certain instances an evaluation of the factors and time necessary for recovery. For further information, see Item 1, Note 5, “Investments,” to the Unaudited Consolidated Financial Statements included herein.

          As noted in Item 8, Note 2, “Significant Accounting Policies,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, the determination of the amount of OTTI varies by investment type and is based upon management’s periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management considers a wide range of factors about the securities and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Management updates its evaluations regularly and reflects additional impairments in net income as determinations are made. Management’s determination of the amount of the impairment taken on investments is highly subjective and could adversely impact the Company’s results of operations. There can be no assurance that management has accurately assessed the level of OTTI taken and reflected in the Company’s financial statements. Furthermore, additional impairments may need to be taken in the future. Historical trends may not be indicative of future impairments.

          Levels of write down or OTTI are also impacted by the Company’s assessment of the intent to sell securities that have declined in value prior to recovery. If, due to changes in circumstances, the Company determines to reposition or realign portions of the portfolio and the Company determines not to hold certain securities in an unrealized loss position to recovery, the Company will incur OTTI charges, which could be significant.

          Gross Unrealized Gains and Losses

          Management, in its assessment of whether securities in a gross unrealized loss position are temporarily impaired, considers the significance of the impairments. These securities include gross unrealized losses of $107.8 million on non-Agency RMBS, $118.9 million on Core CDOs and $4.0 million on CMBS holdings. At September 30, 2012, the Company had structured credit securities with gross unrealized losses of $37.0 million, which had a fair value of $12.0 million and a cumulative fair value decline of greater than 50% of amortized costs. All of these are mortgage-and asset-backed securities. The Company has evaluated each of these securities in conjunction with its investment manager service providers and believes it is more likely than not that the issuer will be able to fund sufficient principal and interest payments to support the current amortized cost.

          Net Unrealized Gains and Losses – Corporate Financial Sector Securities

          At September 30, 2012, approximately $1.2 billion of the Company’s $3.2 billion in corporate financial sector securities was held in the portfolios supporting the Company’s Life operations portfolios representing 65.0% of the gross unrealized losses on this asset class. The assets associated with that business are more heavily weighted towards longer term securities from financial institutions, including a significant portion of the Company’s Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments senior to the common and preferred equity of the financial institutions. Financials held in Life operations portfolios accounted for $22.5 million of the Company’s net unrealized loss at September 30, 2012. At September 30, 2012, approximately 45.3% of the overall sensitivity to interest rate risk and 36.6% of the overall sensitivity to credit risk was related to the Life operations portfolios, despite these portfolios accounting for only 20.3% of the fixed income portfolio.

66

          Net Unrealized Gains and Losses – Structured Securities

          The following table details the current exposures to structured credit portfolios excluding Agency RMBS within the Company’s fixed income portfolio as well as the current net unrealized (loss) gain position at September 30, 2012 and December 31, 2011:

	September 30, 2012								December 31, 2011
(U.S. dollars in thousands)	CarryingValue		Percent of Fixed Income Portfolio			Net Unrealized Gain (Loss)			Carrying Value		Percent of Fixed Income Portfolio			Net Unrealized Gain (Loss)
RMBS - Non-Agency:
Sub-prime first lien mortgages	$	293,709		1.0	%	$	(64,510	)	$	295,498		1.0	%	$	(136,981	)
Alt-A mortgages		138,418		0.5	%		(4,793	)		114,506		0.4	%		(39,659	)
Second lien mortgages (including sub-prime second lien mortgages)		26,944		0.1	%		105			26,461		0.1	%		(6,076	)
Prime RMBS		142,582		0.5	%		(620	)		158,264		0.5	%		(26,328	)
Other assets		118,568		0.4	%		358			128,041		0.4	%		5,790
Total exposure to Non-Agency RMBS	$	720,221		2.5	%	$	(69,460	)	$	722,770		2.4	%	$	(203,254	)
CMBS		1,047,326		3.5	%		71,044			974,835		3.3	%		47,152
Core CDOs (1)		682,566		2.3	%		(109,171	)		662,949		2.3	%		(185,611	)
Other Structured		1,683,052		5.6	%		37,539			1,635,162		5.6	%		7,732
Total Non-Agency Structured Securities	$	4,133,165		13.9	%	$	(70,048	)	$	3,995,716		13.6	%	$	(333,981	)

(1) The Company defines Core CDOs as investments in non-subprime collateralized debt obligations, which primarily consisted of CLOs.

          At September 30, 2012, the Company’s sub-prime, Alt-A and CDO exposures had adequate underlying asset characteristics and the Company believed at such date that the current amortized cost levels were at or below the discounted cash flow value of the holdings, based on an analysis of subordination levels relative to current expectations of prepayment rates, probability of default and loss severity in the event of default. Approximately $38.8 million of the Company’s Non-Agency RMBS were downgraded during the three months ended September 30, 2012. However, 40.6% of the Company’s holdings in Non-Agency RMBS remain rated investment grade at September 30, 2012.

          Refer to “Significant Items Affecting the Results of Operations” above for further discussion surrounding the impact of credit market movements on the Company’s investment portfolio.

European Sovereign Debt Crisis

          The ongoing global financial crisis has led to the deterioration of economies globally, as sovereign governments have reacted to the crisis by further increasing public expenditures in order to provide stimulus and security, which has created significant budgetary shortfalls. Several key nations within the European Union – particularly Greece, Italy, Ireland, Portugal and Spain (“GIIPS”) – have suffered a high level of fiscal distress and economic vulnerability due to overreliance on external credit sources and imprudent borrowing and other monetary practices. This has raised doubts within the global financial community as to whether these sovereign nations will remain able to service their own debt obligations both at a national and local level and as to whether the Euro will remain the currency for the European Union.

          The Company’s primary exposure to this European sovereign debt crisis is from direct investment in fixed maturity securities issued by GIIPS national and local governments, as well as from fixed maturity securities issued by certain financial and non-financial corporate entities operating within GIIPS. The Company continues to monitor its financial exposure to this crisis, and continually assesses the impact of a potential default by any of GIIPS on their respective debt issuances, including the associated impact on non-sovereign entities in these five nations in the event of such a default. With regard to non-sovereign securities, the Company considers a security to be at risk if the security issuer’s main operations are physically located within GIIPS, as opposed to where the issuer is legally domiciled.

          The Company currently has no unfunded investment exposures or commitments to either sovereign or non-sovereign entities within these EU nations. The Company does invest in various alternative and private investment funds that from time to time may invest in securities or investments related to these five EU nations. Currently, these are not material exposures.

67

          The following is an analysis of the Company’s AFS and HTM fixed maturity investment exposures related to this GIIPS crisis at September 30, 2012 and December 31, 2011 and the contractual maturities of these securities. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2012				December 31, 2011
(U.S. dollars in thousands)	Amortized Cost		Carrying Value		Amortized Cost		Carrying Value
Fixed maturities GIIPS - AFS
Government and government related – National Governments	$	5,431	$	4,854	$	6,601	$	5,927
Government and government related – Local Governments		5,594		5,594		—		—
Corporate investments – Financial Institutions		372		368		6,001		4,626
Corporate investments – Non-Financial Institutions		57,277		54,014		138,834		131,890
Structured Credit (1)		8,216		9,885		22,172		19,417
Total fixed maturities GIIPS - AFS	$	76,890	$	74,715	$	173,608	$	161,860
Due less than one year	$	4,810	$	4,822	$	13,824	$	14,028
Due after 1 through 5 years		17,984		17,269		32,992		31,050
Due after 5 through 10 years		20,425		19,797		72,988		70,651
Due after 10 years		33,671		32,827		53,804		46,131
	$	76,890	$	74,715	$	173,608	$	161,860
Fixed maturities GIIPS - HTM
Government and government related – National Governments	$	12,285	$	9,483	$	11,738	$	8,739
Government and government related – Local Governments		—		—		9,360		7,649
Corporate investments – Non-Financial Institutions		59,725		57,309		72,782		65,380
Structured Credit (1)		—		—		—		—
Total fixed maturities GIIPS - HTM	$	72,010	$	66,792	$	93,880	$	81,768
Due less than one year	$	—	$	—	$	6,264	$	6,233
Due after 1 through 5 years		4,326		4,336		4,199		4,110
Due after 5 through 10 years		12,450		12,883		20,705		18,260
Due after 10 years		55,234		49,573		62,712		53,165
Total	$	72,010	$	66,792	$	93,880	$	81,768

(1) During 2012, Covered Bonds have been included within Other asset-backed securities under Structured Credit to align the Company’s classification to market indices. Prior periods have been reclassified to conform to current period presentation.

          The following table details the gross and net unrealized (loss) gain position at September 30, 2012 relating to GIIPS:

	September 30, 2012
(U.S. dollars in thousands)	Greece			Italy			Ireland			Portugal		Spain			TOTAL
Gross Unrealized (Losses) - GIIPS
Government and government related – National Governments	$	—		$	(3,379	)	$	—		$	—	$	—		$	(3,379	)
Government and government related – Local Governments		—			—			—			—		—			—
Corporate investments – Financial Institutions		—			—			(4	)		—		—			(4	)
Corporate investments – Non-Financial Institutions		(39	)		(4,005	)		—			—		(2,547	)		(6,591	)
Structured Credit (1)		—			—			(46	)		—		—			(46	)
Total gross unrealized gains (losses) relating to GIIPS	$	(39	)	$	(7,384	)	$	(50	)	$	—	$	(2,547	)	$	(10,020	)
Net Unrealized Gains (Losses) - GIIPS
Government and government related – National Governments	$	—		$	(577	)	$	—		$	—	$	—		$	(577	)
Government and government related – Local Governments		—			—			—			—		—			—
Corporate investments – Financial Institutions		—			—			(4	)		—		—			(4	)
Corporate investments – Non-Financial Institutions		239			(2,098	)		—			—		(1,404	)		(3,263	)
Structured Credit (1)		—			—			1,669			—		—			1,669
Total net unrealized gains (losses) relating to GIIPS	$	239		$	(2,675	)	$	1,665		$	—	$	(1,404	)	$	(2,175	)

(1) Covered Bonds have been included within Other asset-backed securities under Structured Credit to align the Company’s classification to market indices. Prior periods have been reclassified to conform to current period presentation.

68

          In addition to the direct investment portfolio considerations discussed above, as an international (re)insurance company, European credit exposures may exist for the Company within unpaid losses and loss expenses recoverable and reinsurance balances receivable. For further details on these balances including the names of the Company’s most significant reinsurance counterparties, see Item 8, Note 9, “Reinsurance,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Other sources of potential exposure to European credit issues may exist within certain lines of insurance or reinsurance business written (including but not limited to lines such as surety, business interruption, and political risk), or within underlying investments held in securitized financial instruments or in structured transactions in which the Company has an interest. Management considers these potential exposures as part of its ongoing enterprise risk management processes.

Fair Value Measurements of Assets and Liabilities

          As described in Item 1, Note 3, “Fair Value Measurements,” to the Unaudited Consolidated Financial Statements included herein, effective January 1, 2008, the Company adopted the authoritative guidance on fair value measurements and, accordingly, has provided required disclosures by level within the fair value hierarchy of the Company’s assets and liabilities that are carried at fair value. As defined in the hierarchy, those assets and liabilities categorized as Level 3 have valuations determined using unobservable inputs. Unobservable inputs may include the entity’s own assumptions about market participant assumptions, applied to a modeled valuation, however, this is not the case with respect to the Company’s Level 3 assets and liabilities. The vast majority of the assets and liabilities classified as Level 3 are made up of those securities for which the values were obtained from brokers where either significant inputs were utilized in determining the value that were difficult to corroborate with observable market data, or sufficient information regarding the specific inputs utilized by the broker was not obtained to support a Level 2 classification or the Company utilized internal valuation models.

          Controls over Valuation of Financial Instruments

          The Company performs regular reviews of the prices received from its third party valuation sources to assess if the prices represent a reasonable estimate of the fair value. This process is completed by investment and accounting personnel who are independent of those responsible for obtaining the valuations. The approaches taken by the Company include, but are not limited to, annual reviews of the controls of the external parties responsible for sourcing valuations which are subjected to automated tolerance checks, quarterly reviews of the valuation sources and dates, and monthly reconciliations between the valuations provided by our external parties and valuations provided by our third party investment managers at a portfolio level.

          In addition, the Company assesses the effectiveness of valuation controls performed by external parties responsible for sourcing appropriate valuations from third parties on the Company’s behalf. The approaches taken by these external parties to gain comfort include, but are not limited to, comparing valuations between external sources, completing recurring reviews of third party pricing services’ methodologies and reviewing controls of the third party service providers to support the completeness and accuracy of the prices received. Where broker quotes are the primary source of the valuations, sufficient information regarding the specific inputs utilized by the brokers is generally not available to support a Level 2 classification. The Company obtains the majority of broker quoted values from third party investment managers who perform independent verifications of these valuations using pricing matrices based upon information gathered by market traders. In addition, for the majority of these securities, the Company compares the broker quotes to independent valuations obtained from third party pricing vendors, which may also consist of broker quotes, to assess if the prices received represent a reasonable estimate of the fair value.

          Valuation Methodology of Level 3 Assets and Liabilities

          Refer to Item 1, Note 3, “Fair Value Measurements,” of the Unaudited Consolidated Financial Statements included herein, for a description of the valuation methodology utilized to value Level 3 assets and liabilities, how the valuation methodology is validated as well as further details associated with various assets classified as Level 3. At September 30, 2012, the Company did not have any liabilities that were carried at fair value based on Level 3 inputs other than derivative instruments in a liability position at September 30, 2012.

69

          Fair Value of Level 3 Assets and Liabilities

          At September 30, 2012, the fair value of Level 3 assets and liabilities as a percentage of the Company’s total assets and liabilities that are carried at fair value was as follows:

(U.S. dollars in thousands)	Total Assets and Liabilities Carried at Fair Value at September 30, 2012		Fair Value of Level 3 Assets and Liabilities		Level 3 Assets and Liabilities as a Percentage of Total Assets and Liabilities Carried at Fair Value, by Class
Assets
Fixed maturities, at fair value
U.S. Government and Government Agency-Related/Supported	$	2,135,368	$	—		0.0	%
Corporate (1)		10,007,137		29,135		0.3	%
RMBS – Agency		5,376,903		33,857		0.6	%
RMBS – Non-Agency		636,325		7,839		1.2	%
CMBS		1,034,409		33,369		3.2	%
CDO		682,566		674,793		98.9	%
Other asset-backed securities (1)		1,458,544		17,163		1.2	%
U.S. States and political subdivisions of the States		1,820,105		—		0.0	%
Non-U.S. Sovereign Government, Supranational and Government-Related		4,274,936		—		0.0	%
Total Fixed maturities, at fair value	$	27,426,293	$	796,156		2.9	%
Equity securities, at fair value		565,927		—		0.0	%
Short-term investments, at fair value		323,705		—		0.0	%
Total investments available for sale	$	28,315,925	$	796,156		2.8	%
Cash equivalents (2)		2,359,617		—		0.0	%
Other investments (3)		903,788		119,975		13.3	%
Other assets (4)		52,151		—		0.0	%
Total assets carried at fair value	$	31,631,481	$	916,131		2.9	%
Liabilities
Financial instruments sold, but not yet purchased (5)	$	30,944	$	—		0.0	%
Other liabilities (6)		117,071		35,062		29.9	%
Total liabilities carried at fair value	$	148,015	$	35,062		23.7	%

(1)	During 2012, Covered Bonds previously included as Corporate securities are now classified as Other asset-backed securities to align the Company’s classification to market indices. At September 30, 2012, these securities had a fair value of $599.9 million.
(2)	Cash equivalents balances subject to fair value measurements include certificates of deposit and money market funds.
(3)	The Other investments balance excludes certain structured transactions including certain investments in project finance transactions and a payment obligation (for further information, see Item 8, Note 7, “Other Investments,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011) that has provided liquidity financing to a structured credit vehicle as a part of a third party medium term note facility. These Other investments are carried at amortized cost that totaled $311.8 million at September 30, 2012 and $323.7 million at December 31, 2011.
(4)	Other assets include derivative instruments, reported on a gross basis.
(5)	Financial instruments sold, but not yet purchased are included within “Payable for investments purchased” on the balance sheet.
(6)	Other liabilities include derivative instruments, reported on a gross basis.

          At September 30, 2012, the Company’s Level 3 assets represented approximately 2.9% of assets that are measured at fair value and less than 2% of total assets. The Company’s Level 3 liabilities represented approximately 23.7% of liabilities that are measured at fair value and less than 1% of total liabilities at September 30, 2012.

          Changes in the Fair Value of Level 3 Assets and Liabilities

          See Item 1, Note 3, “Fair Value Measurements,” to the Unaudited Consolidated Financial Statements included herein, for an analysis of the change in fair value of Level 3 Assets and Liabilities.

70

Unpaid Losses and Loss Expenses

          The Company establishes reserves to provide for estimated claims, the general expenses of administering the claims adjustment process and losses incurred but not reported. These reserves are calculated using actuarial and other reserving techniques to project the estimated ultimate net liability for losses and loss expenses. The Company’s reserving practices and the establishment of any particular reserve reflects management’s judgment concerning sound financial practice and do not represent any admission of liability with respect to any claims made against the Company.

          Unpaid losses and loss expenses totaled $20.1 billion and $20.6 billion at September 30, 2012 and December 31, 2011, respectively. The table below represents a reconciliation of the Company’s P&C unpaid losses and loss expenses for the nine months ended September 30, 2012:

(U.S. dollars in thousands)	Gross unpaid losses and loss expenses			Unpaid losses and loss expenses recoverable			Net unpaid losses and loss expenses
Balance at December 31, 2011	$	20,613,901		$	(3,629,928	)	$	16,983,973
Losses and loss expenses incurred		2,994,257			(419,761	)		2,574,496
Losses and loss expenses paid/recovered		(3,631,839	)		766,224			(2,865,615	)
Foreign exchange and other		98,349			(15,846	)		82,503
Balance at September 30, 2012	$	20,074,668		$	(3,299,311	)	$	16,775,357

          While the Company reviews the adequacy of established reserves for unpaid losses and loss expenses regularly, no assurance can be given that actual claims made and payments related thereto will not be in excess of the amounts reserved. In the future, if such reserves develop adversely, such deficiency would have a negative impact on future results of operations. For further discussion, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates – 1) Unpaid Loss and Loss Expenses and Unpaid Loss and Loss Expenses Recoverable,” and Item 8, Note 10, “Losses and Loss Expenses,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Unpaid Losses and Loss Expenses Recoverable and Reinsurance Balances Receivable

          In the normal course of business, the Company seeks to reduce the potential amount of loss arising from claims events by reinsuring certain levels of risk assumed in various areas of exposure with other insurers or reinsurers. While reinsurance agreements are designed to limit the Company’s losses from large exposures and permit recovery of a portion of direct unpaid losses, reinsurance does not relieve the Company of its ultimate liability to the Company’s insureds. Accordingly, the losses and loss expense reserves on the balance sheet represent the Company’s total unpaid gross losses. Unpaid losses and loss expense recoverable relates to estimated reinsurance recoveries on the unpaid loss and loss expense reserves.

          Unpaid losses and loss expense recoverables were $3.3 billion and $3.7 billion at September 30, 2012 and December 31, 2011, respectively. At both September 30, 2012 and December 31, 2011, reinsurance balances receivable were $0.2 billion. The table below presents the Company’s net paid and unpaid losses and loss expenses recoverable and reinsurance balances receivable as follows:

	September 30, 2012			December 31, 2011
Reinsurance balances receivable	$	263,951		$	263,877
Reinsurance recoverable on future policy benefits		19,955			25,020
Reinsurance recoverable on unpaid losses and loss expenses		3,360,935			3,685,260
Bad debt reserve on unpaid losses and loss expenses recoverable and reinsurance balances receivable		(100,324	)		(99,192	)
Net paid and unpaid losses and loss expenses recoverable and reinsurance balances receivable	$	3,544,517		$	3,874,965

71

LIQUIDITY AND CAPITAL RESOURCES

          Liquidity is a measure of the Company’s ability to generate sufficient cash flows to meet the short and long-term cash requirements of the Company’s business operations. As a global insurance and reinsurance company, one of the Company’s principal responsibilities to its clients is to ensure that the Company has ready access to funds with which to settle large unforeseen claims. The Company would generally expect that positive cash flow from operations (underwriting activities and investment income) will be sufficient to cover cash outflows under most future loss scenarios. However, there is a possibility that unforeseen demands could be placed on the Company due to extraordinary events and, as such, the Company’s liquidity needs may change. Such events include, among other things, several significant catastrophes occurring in a relatively short period of time resulting in material incurred losses; rating agency downgrades of the Company’s core insurance and reinsurance subsidiaries that would require posting of collateral in connection with the Company’s letter of credit and revolving credit facilities, return of unearned premiums and/or the settlement of derivative transactions and large scale uncollectible reinsurance recoverables on paid losses (as a result of coverage disputes, reinsurers’ credit problems or decreases in the value of collateral supporting reinsurance recoverables). Any one or a combination of such events may cause a liquidity strain for the Company. In addition, a liquidity strain could also occur in an illiquid market, such as that which was experienced in 2008. Investments that may be used to meet liquidity needs in the event of a liquidity strain may not be liquid, given inactive markets, or may have to be sold at a significant loss as a result of depressed prices. Because each subsidiary focuses on a more limited number of specific product lines than is collectively available from the consolidated group of companies, the mix of business tends to be less diverse at the subsidiary level. As a result, the probability of a liquidity strain, as described above, may be greater for individual subsidiaries than when liquidity is assessed on a consolidated basis. If such a liquidity strain were to occur in a subsidiary, XL-Ireland may be required to contribute capital to the particular subsidiary and/or curtail dividends from the subsidiary to support holding company operations, which may be difficult given that XL-Ireland is a holding company and has limited liquidity.

          A downgrade below “A–” of the Company’s principal insurance and reinsurance subsidiaries by either S&P or A.M. Best, which is two notches below the current S&P financial strength rating of “A” (Stable) and the A.M. Best financial strength rating of “A” (Stable) of these subsidiaries, may trigger cancelation provisions in a significant amount of the Company’s assumed reinsurance agreements and may potentially require the Company to return unearned premiums to cedants. In addition, due to collateral posting requirements under the Company’s letter of credit and revolving credit facilities, such a downgrade may require the posting of cash collateral in support of certain “in use” portions of these facilities. Specifically, a downgrade below “A–” by A.M. Best would constitute an event of default under the Company’s three largest credit facilities and may trigger such collateral requirements. In certain limited instances, such downgrades may require the Company to return cash or assets to counterparties or to settle derivative and/or other transactions with the respective counterparties. See Item 1A, “Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Holding Company Liquidity

          As holding companies, XL-Ireland and XL-Cayman have no operations of their own and their assets consist primarily of investments in subsidiaries. XL-Ireland’s principal uses of liquidity are ordinary share-related transactions, including dividend payments to holders of its ordinary shares as well as share buybacks, capital investments in its subsidiaries and certain corporate operating expenses. XL-Cayman’s principal uses of liquidity are preference share related transactions, including dividend payments to its preference shareholders as well as preference share buybacks from time to time, interest and principal payments on debt and certain corporate operating expenses.

          As holding companies, XL-Ireland’s and XL-Cayman’s future cash flows largely depend on the availability of dividends or other statutorily permissible payments from subsidiaries. The ability to pay such dividends 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 letters of credit and revolving credit facilities. The payment of dividends to the holding companies 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 states in the United States in which the principal operating subsidiaries are licensed to transact business and the other jurisdictions where the Company has regulated subsidiaries. See Item 8, Note 23, “Statutory Financial Data,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further discussion and details regarding the dividend capacity of the Company’s major operating subsidiaries. See also Item 1A, “Risk Factors – Our holding company structure and certain regulatory and other constraints affect our ability to pay dividends, make payments on our debt securities and make other payments,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The ability to pay such dividends is also limited by the regulations of the Society of Lloyd’s and certain contractual provisions. No assurance can be given that the Company’s subsidiaries will pay dividends in the future to XL-Ireland and XL-Cayman.

          Under Irish law, share premium was required to be converted to “distributable reserves” for the Company to have the ability to pay cash dividends and redeem and buyback shares following the Redomestication. On July 23, 2010, the Irish High Court approved XL-Ireland’s conversion of share premium to $5.0 billion of distributable reserves, subject to the completion of certain formalities under Irish Company law. These formalities were completed in early August 2010. At September 30, 2012, XL-Ireland had $3.7 billion in distributable reserves.

72

          During 2009, management changed the internal ownership structure of certain of the Company’s operating subsidiaries in Bermuda and Ireland in order to more efficiently utilize capital and to improve overall liquidity. In connection with these changes, certain dividends were paid to XL-Cayman by operating subsidiaries.

          At September 30, 2012, XL-Ireland and XL-Cayman held cash and investments, net of liabilities associated with cash sweeping arrangements, of $1.0 million and $1.1 billion, respectively, compared to $1.6 million and $2.0 billion, respectively, at December 31, 2011.

          All outstanding debt of the Company at September 30, 2012 and December 31, 2011 was issued by XL-Cayman except for the $600 million XLCFE Notes which were issued by XL Capital Finance (Europe) plc (“XLCFE”) and were repaid at maturity on January 15, 2012. Both XL-Cayman and XLCFE are wholly-owned subsidiaries of XL-Ireland. XL-Cayman’s outstanding debt is fully and unconditionally guaranteed by XL-Ireland. The Company’s ability to obtain funds from its subsidiaries to satisfy any of its obligations under guarantees is subject to certain contractual restrictions, applicable laws and statutory requirements of the various countries in which the Company operates, including, among others, Bermuda, the United States, Ireland, Switzerland and the U.K. At December 31, 2011, required statutory capital and surplus for the principal operating subsidiaries of the Company was $6.7 billion.

          XL-Ireland and its subsidiaries provide no guarantees or other commitments (express or implied) of financial support to the Company’s subsidiaries or affiliates, except for such guarantees or commitments that are in writing.

          See also the Unaudited Consolidated Statements of Cash Flows in Item 1, Financial Statements included herein.

Sources of Liquidity for the Company

          At September 30, 2012, the consolidated Company had cash and cash equivalents of approximately $3.2 billion as compared to approximately $3.8 billion at December 31, 2011. There are three main sources of cash flows for the Company – those provided by operations, investing activities and financing activities.

          Operating Cash Flows

          Historically, cash receipts from operations, consisting of premiums and investment income, generally have provided sufficient funds to pay losses as well as operating expenses of the Company’s subsidiaries and to fund dividends to XL-Ireland. Cash receipts from operations is generally derived from the receipt of investment income on the Company’s investment portfolio as well as the net receipt of premiums less claims and expenses related to the Company’s underwriting activities in its P&C operations as well as its Life operations segment. The Company’s operating subsidiaries provide liquidity in that premiums are generally received months or even years before losses are paid under the policies related to such premiums. Premiums and acquisition expenses are settled based on terms of trade as stipulated by an underwriting contract, and generally are received within the first year of inception of a policy when the premium is written, but can be up to three years on certain reinsurance business assumed. Operating expenses are generally paid within a year of being incurred. Claims, especially for casualty business, may take a much longer time before they are reported and ultimately settled, requiring the establishment of reserves for unpaid losses and loss expenses. Therefore, the amount of claims paid in any one year is not necessarily related to the amount of net losses incurred, as reported in the consolidated statement of income.

          During the nine months ended September 30, 2012, net cash flows provided by operating activities were $894.2 million compared to net cash flows provided by operating activities of $365.5 million for the same period in 2011. The operating cash increase was primarily due to the increase in net income in the nine months ended September 30, 2012 compared to the same period in the prior year.

          Investing Cash Flows

          Generally, positive cash flow from operations and financing activities is invested in the Company’s investment portfolio, including affiliates or the acquisition of subsidiaries.

          Net cash used in investing activities was $337.8 million in the nine months ended September 30, 2012 compared to net cash provided of $268.7 million for the same period in 2011. These cash flows were associated with the normal purchase and sale of portfolio investments.

          Certain of the Company’s invested assets are held in trust and pledged in support of insurance and reinsurance liabilities as well as credit facilities. Such pledges are largely required by the Company’s operating subsidiaries that are “non-admitted” under U.S. state insurance regulations, in order for the U.S. cedant to receive statutory credit for reinsurance. Also, certain deposit liabilities and annuity contracts require the use of pledged assets. As further outlined in Item 1, Note 5, “Investments — Pledged Assets,” to the Unaudited Consolidated Financial Statements included herein, certain assets of the investment portfolio are collateralized for the Company’s letter of credit facilities. At September 30, 2012 and December 31, 2011, the Company had $17.5 billion and $17.2 billion in pledged assets, respectively.

73

          Financing Cash Flows

          Cash flows related to financing activities include ordinary and preferred share related transactions, the payment of dividends, the issue or repayment of preference ordinary shares and deposit liability transactions. During the nine months ended September 30, 2012, net cash flows used in financing activities were $1,204.4 million. Net cash outflows related primarily to the buybacks of the Company’s ordinary shares and repayment of debt as described below.

          On February 27, 2012, the Company announced that its Board of Directors approved a share buyback program, authorizing the Company to purchase up to $750 million of its ordinary shares. This authorization replaced the approximately $190 million remaining under the share buyback program that was authorized in November 2010 as described in further detail in Item 8, Note 18, “Share Capital,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. During the three months ended September 30, 2012, the Company purchased and canceled 5.3 million ordinary shares under the program for $125.0 million. During the nine months ended September 30, 2012, the Company purchased and canceled 16.2 million ordinary shares under the program for $350.0 million. 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. At September 30, 2012, $400.0 million remained available for purchase under the program.

          On January 15, 2012, the $600 million principal amount outstanding on the XLCFE Notes, which were issued by XLCFE, was repaid at maturity. For further detail, see Item 1, Note 8, “Notes Payable and Debt Financing Arrangements,” to the Unaudited Consolidated Financial Statements included herein.

          In addition, the Company maintains credit facilities that provide liquidity. Details of these facilities are described below in “Capital Resources.”

Capital Resources

          At September 30, 2012 and December 31, 2011, the Company had total shareholders’ equity of $11.8 billion and $10.8 billion, respectively. In addition to ordinary share capital, the Company depends on external sources of financing to support its underwriting activities in the form of:

a.	debt;
b.	preference shares;
c.	letter of credit facilities and other sources of collateral; and
d.	revolving credit facilities.
In particular, the Company requires, among other things:
§	sufficient capital to maintain its financial strength and credit ratings, as issued by several ratings agencies, at levels considered necessary by management to enable the Company’s key operating subsidiaries to compete;
§	sufficient capital to enable its regulated subsidiaries to meet the regulatory capital levels required in the United States, the U.K., Bermuda, Ireland, Switzerland and other key markets;
§	letters of credit and other forms of collateral that are required to be posted or deposited, as the case may be, by the Company’s operating subsidiaries that are “non-admitted” under U.S. state insurance regulations in order for the U.S. cedant to receive statutory credit for reinsurance. The Company also uses letters of credit to support its operations at Lloyd’s; and
§	revolving credit to meet short-term liquidity needs.
The following risks are associated with the Company’s requirement to renew its credit facilities:
§	the credit available from banks may be reduced resulting in the Company’s need to pledge its investment portfolio to customers. This could result in a lower investment yield;
§	the Company may be downgraded by one or more rating agencies, which could materially and negatively impact the Company’s business, financial condition, results of operations and/or liquidity; and
§	the volume of business that the Company’s subsidiaries that are not admitted in the United States are able to transact could be reduced if the Company is unable to renew its letter of credit facilities at an appropriate amount.

74

          Consolidation within the banking industry may result in the aggregate amount of credit provided to the Company being reduced. The Company attempts to mitigate this risk by identifying and/or selecting additional banks that can participate in the credit facilities upon renewal. See Item 1A, “Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

          The following table summarizes the components of the Company’s current capital resources as follows:

(U.S. dollars in thousands)	September 30, 2012		December 31, 2011
Series D preference ordinary shares	$	345,000	$	345,000
Series E preference ordinary shares		999,500		999,500
Ordinary share capital		10,411,037		9,411,658
Total ordinary and non-controlling interests capital	$	11,755,537	$	10,756,158
Notes payable and debt		1,665,699		2,264,618
Total capital	$	13,421,236	$	13,020,776

          Ordinary Share Capital

          The following table reconciles the opening and closing ordinary share capital positions as follows:

(U.S. dollars in thousands)	September 30, 2012			December 31, 2011
Ordinary shareholders’ equity – beginning of period	$	9,411,658		$	9,597,473
Net income (loss) attributable to XL Group plc		569,686			(474,760	)
Share buybacks		(351,158	)		(667,022	)
Share issues		6,176			573,015
Ordinary share dividends		(102,239	)		(138,978	)
Change in accumulated other comprehensive income		840,384			482,269
Share based compensation and other		36,530			39,661
Ordinary shareholders’ equity – end of period	$	10,411,037		$	9,411,658

          Debt

          The following tables present the Company’s debt under outstanding securities and lenders’ commitments at September 30, 2012:

							Payments Due by Period
(U.S. dollars in thousands)	Commitment/ Debt		In Use/ Outstanding		Year of Expiry		Less than 1 Year		1 to 3 Years		3 to 5 Years		After 5 Years
4-year revolver	$	1,000,000	$	—		2015	$	—	$	—	$	—	$	—
5.25% Senior Notes		600,000		598,193		2014		—		600,000		—		—
5.75% Senior Notes		400,000		396,123		2021		—		—		—		400,000
6.375% Senior Notes		350,000		348,674		2024		—		—		—		350,000
6.25% Senior Notes		325,000		322,709		2027		—		—		—		325,000
	$	2,675,000	$	1,665,699			$	—	$	600,000	$	—	$	1,075,000
Adjustment to carrying value - impact of fair value hedges			$	7,651
Total			$	1,673,350

           “In Use/Outstanding” data represent September 30, 2012 accreted values. “Payments Due by Period” data represent ultimate redemption values.

          In addition, see Item 1, Note 13, “Notes Payable and Debt and Financing Arrangements,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information.

75

          At September 30, 2012, banks and investors provided the Company and its subsidiaries with $2.7 billion of debt capacity, of which $1.7 billion was utilized by the Company. These facilities consist of:

• a revolving credit facility of $1.0 billion.

• senior unsecured notes of approximately $1.7 billion. These notes require the Company to pay a fixed rate of interest during their terms. At September 30, 2012, there were four outstanding issues of senior unsecured notes:

• $600 million senior notes due September 2014, with a fixed coupon of 5.25%. The security is publicly traded. The notes were issued in two tranches of $300 million aggregate principal amount each – one tranche at 99.432% and the other at 98.419% with aggregate net proceeds of $590.9 million. Related expenses of the offering amounted to $2.7 million.

• $400 million senior notes due October 2021, with a fixed coupon of 5.75%. The security is publicly traded. The notes were issued at 100.0% and net proceeds were $395.7 million. Related expenses of the offering amounted to $4.3 million.

• $350 million senior notes due November 2024, with a fixed coupon of 6.375%. The security is publicly traded. The notes were issued at 100.0% and net proceeds were $347.8 million. Related expenses of the offering amounted to $2.2 million.

• $325 million of senior notes due May 2027, with a fixed coupon of 6.25%. The security is publicly traded. The notes were issued at 99.805% and net proceeds were $321.9 million. Related expenses of the offering amounted to $2.5 million.

          Preferred Shares and Non-controlling Interest in Equity of Consolidated Subsidiaries

          Neither the Redeemable Series C preference ordinary shares nor the Series E preference ordinary shares were transferred from XL-Cayman to XL-Ireland in the Redomestication. Accordingly, subsequent to July 1, 2010, these instruments represent non-controlling interests in the consolidated financial statements of the Company and have been reclassified to non-controlling interest in equity of consolidated subsidiaries. See Item 8, Note 1, “General,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information. During the third quarter of 2011, all Redeemable Series C preference ordinary shares were purchased and canceled. At September 30, 2012, the face value of the outstanding Series E preference ordinary shares was $999.5 million.

          On October 15, 2011, XL-Cayman issued 350,000 non-cumulative Series D Preference Ordinary Shares for $350 million of cash and liquid investments that were held in a trust account that was part of the Stoneheath facility. Holders of the Stoneheath Securities received one Series D Preference Ordinary Share in exchange for each Stoneheath Security. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contingent Capital” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information.

          On December 5, 2011, the Company repurchased 5,000 of the outstanding Series D Preference Ordinary Shares with a liquidation preference value of $5.0 million for $3.7 million, including accrued dividends. As a result of these repurchases, the Company recorded a gain of approximately $1.3 million through Non-controlling interests in the Consolidated Statement of Income in the fourth quarter of 2011. At both September 30, 2012 and December 31, 2011, the face value of the outstanding Series D Preference Ordinary Shares was $345.0 million.

          Letter of Credit Facilities and other sources of collateral

          At September 30, 2012, the Company had five letter of credit (“LOC”) facilities in place with total availability of $4.0 billion, of which $1.8 billion was utilized.

							Amount of Commitment Expiration by Period
(U.S. dollars in thousands)	Commitment/ Debt		In Use/ Outstanding		Year of Expiry		Less than 1 Year		1 to 3 Years		3 to 5 Years		After 5 Years
LOC Facility (1)	$	1,000,000	$	850,497	$	2014	$	—	$	850,497	$	—	$	—
LOC Facility (2) (3)		1,350,000		116,664		2015		—		—		116,664		—
LOC Facility (3)		650,000		369,230		2015		—		—		369,230		—
LOC Facility		750,000		332,719		Continuous		—		—		—		332,719
LOC Facility		250,000		121,395		Continuous		—		—		—		121,395
Five LOC facilities	$	4,000,000	$	1,790,505			$	—	$	850,497	$	485,894	$	454,114

(1)	The Company has the option to increase the size of the March 2011 Credit Agreement by an additional $500 million.
(2)	This letter of credit facility includes $1.0 billion that is also included in the “4-year revolver” listed under Debt.
(3)	The Company has the option to increase the size of the facilities under the December 2011 Credit Agreements by an additional $500 million across both such facilities.

76

          In 2011, the Company and certain of its subsidiaries (i) entered into three new credit agreements, which provided for an aggregate amount of outstanding letters of credit and revolving credit loans up to $3 billion, subject to certain options to increase the size of the facilities, and (ii) terminated the five-year credit agreement dated June 21, 2007 (the “2007 Credit Agreement”), which had provided for an aggregate amount of outstanding letters of credit and revolving credit loans up to $4 billion.

          On March 25, 2011, the Company and certain of its subsidiaries entered into a secured credit agreement (the “March 2011 Credit Agreement”) that currently provides for the issuance of letters of credit in an aggregate amount of up to $1 billion with the option to increase the size of the facility by an additional $500 million. Concurrent with the effectiveness of the March 2011 Credit Agreement, the commitments of the lenders under the 2007 Credit Agreement were reduced from $4 billion to $3 billion. The commitments under the March 2011 Credit Agreement will expire on, and the credit facility is available on a continuous basis until, the earlier of (i) March 25, 2014 and (ii) the date of termination in whole of the commitments upon an optional termination or reduction of the commitments by the account parties or upon an event of default.

          On December 9, 2011, the Company and certain of its subsidiaries entered into (i) a new secured credit agreement (the “December 2011 Secured Credit Agreement”) and (ii) a new unsecured credit agreement (the “December 2011 Unsecured Credit Agreement” and together with the December 2011 Secured Credit Agreement, the “December 2011 Credit Agreements”). In connection with the December 2011 Credit Agreements, the 2007 Credit Agreement was terminated. The March 2011 Credit Agreement continues in force, but was amended to conform certain of its terms to those of the December 2011 Secured Credit Agreement.

          The 2007 Credit Agreement had provided for letters of credit and for revolving credit loans of up to $750 million with the aggregate amount of outstanding letters of credit and revolving credit loans thereunder not to exceed $3 billion. At the time at which it was terminated and the December 2011 Credit Agreements became effective, there were no outstanding revolving credit loans under the 2007 Credit Agreement. A portion of the letters of credit outstanding under the 2007 Credit Agreement at the time of its termination were continued under the March 2011 Credit Agreement and the remainder were continued under the December 2011 Credit Agreements.

          The December 2011 Secured Credit Agreement provides for the issuance of letters of credit in an aggregate amount of up to $650 million. The December 2011 Unsecured Credit Agreement is a $1.35 billion facility that provides for the issuance of letters of credit and revolving credit loans in an aggregate amount up to $1 billion. The Company has the option to increase the maximum amount of letters of credit available by an additional $500 million across the facilities under the December 2011 Credit Agreements.

          The commitments under each December 2011 Credit Agreement expire on, and such credit facilities are available until, the earlier of (i) December 9, 2015 and (ii) the date of termination in whole of the commitments upon an optional termination or reduction of the commitments by the account parties or upon an event of default.

          The availability of letters of credit under the December 2011 Secured Credit Agreement and the March 2011 Credit Agreements is subject to a borrowing base requirement, determined on the basis of specified percentages of the face value of eligible categories of assets varying by type of collateral. In the event that such credit support is insufficient, the Company could be required to provide alternative security to cedants. This could take the form of insurance trusts supported by the Company’s investment portfolio or funds withheld (amounts retained by ceding companies to collateralize loss or premium reserves) using the Company’s cash resources or combinations thereof. The face amount of letters of credit required is driven by, among other things, loss development of existing reserves, the payment pattern of such reserves, the expansion of business written by the Company and the loss experience of such business. In addition to letters of credit, the Company has established insurance trusts in the United States that provide cedants with statutory credit for reinsurance under state insurance regulation in the United States.

          The Company reviews current and projected collateral requirements on a regular basis, as well as new sources of collateral. Management’s objective is to maintain an excess amount of collateral sources over expected uses. The Company also reviews its liquidity needs on a regular basis.

          In October 2011, the $75,000 letter of credit facility that was supporting a subsidiary of the Company was terminated.

          Other

          For information regarding cross-default and certain other provisions in the Company’s debt and convertible securities documents, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cross-Default and Other Provisions in Debt Instruments,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and the Company’s Current Report on Form 8-K filed on March 28, 2011.

          See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” below.

77

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

          The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. Any prospectus, prospectus supplement, the Company’s Annual Report to ordinary shareholders, any proxy statement, any Form 10-K, Form 10-Q or Form 8-K of the Company or any other written or oral statements made by or on behalf of the Company may include forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. Such statements include forward-looking statements both with respect to the Company in general, and to the insurance and reinsurance sectors in particular (both as to underwriting and investment matters). Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,” “will,” “may” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the PSLRA or otherwise.

          All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. The Company believes that these factors include, but are not limited to, the following: (i) changes in the size of the Company’s claims relating to natural or man-made catastrophe losses due to the preliminary nature of some reports and estimates of loss and damage to date; (ii) trends in rates for property and casualty insurance and reinsurance; (iii) the timely and full recoverability of reinsurance placed by the Company with third parties, or other amounts due to the Company; (iv) changes in ratings or rating agency policies or practices; (v) changes in the projected amount of ceded reinsurance recoverables and the ratings and creditworthiness of reinsurers; (vi) the timing of claims payments being faster or the receipt of reinsurance recoverables being slower than anticipated by the Company; (vii) the Company’s ability to successfully implement its business strategy especially during a “soft” market cycle; (viii) increased competition on the basis of pricing, capacity, coverage terms or other factors, which could harm the Company’s ability to maintain or increase its business volumes or profitability; (ix) greater frequency or severity of claims and loss activity than the Company’s underwriting, reserving or investment practices anticipate based on historical experience or industry data; (x) changes in general economic conditions, including the effects of inflation on the Company’s business, including on pricing and reserving, and changes in interest rates, credit spreads, foreign currency exchange rates and future volatility in the world’s credit, financial and capital markets that adversely affect the performance and valuation of the Company’s investments or access to such markets; (xi) developments, including uncertainties related to: the future of the Euro-zone, the ability of Euro-zone countries to service existing debt obligations and the strength of the Euro as a currency; and to the financial condition of counterparties, reinsurers and other companies that are at risk of bankruptcy; (xii) the potential impact on the Company from government-mandated insurance coverage for acts of terrorism; (xiii) 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; (xiv) changes to the Company’s assessment as to whether it is more likely than not that the Company will be required to sell, or has the intent to sell, available for sale debt securities before their anticipated recovery; (xv) the availability of borrowings and letters of credit under the Company’s credit facilities; (xvi) the ability of the Company’s subsidiaries to pay dividends to XL Group plc and XLIT Ltd.; (xvii) the potential effect of regulatory developments in the jurisdictions in which the Company operates, including those which could impact the financial markets or increase the Company’s business costs and required capital levels; (xviii) changes in regulations or laws applicable to XL Group plc or its subsidiaries, brokers or customers; (xix) acceptance of the Company’s products and services, including new products and services; (xx) changes in the availability, cost or quality of reinsurance; (xxi) changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers; (xxii) loss of key personnel; (xxiii) changes in accounting policies or practices or the application thereof; (xxiv) legislative or regulatory developments including, but not limited to, changes in regulatory capital balances that must be maintained by the Company’s operating subsidiaries and governmental actions for the purpose of stabilizing the financial markets; (xxv) the effects of mergers, acquisitions and divestitures; (xvi) developments related to bankruptcies of companies insofar as they affect property and casualty insurance and reinsurance coverages or claims that the Company may have as a counterparty; (xxvii) changes in applicable tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof; (xxviii) the effects of business disruption or economic contraction due to war, terrorism or other hostilities; (xxix) the Company’s ability to realize the expected benefits from the redomestication; and (xxx) the other factors set forth in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and the Company’s other documents on file with the SEC. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein or elsewhere. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by the federal securities laws.

78

ANNUALIZED RETURN ON ORDINARY SHAREHOLDERS’ EQUITY CALCULATION

          The following is a reconciliation of the Company’s annualized return on ordinary shareholders’ equity for the three and nine months ended September 30, 2012 and 2011 to annualized net income (loss) attributable to ordinary shareholders:

	Three Months Ended September 30,						Nine Months Ended September 30,
(U.S. dollars in thousands, except percentages)	2012			2011			2012			2011
Opening shareholders’ equity	$	11,213,802		$	10,614,451		$	10,756,130		$	10,599,769
Less: Non-controlling interest in equity of consolidated subsidiaries		(1,345,993	)		(1,001,781	)		(1,344,472	)		(1,002,296	)
Opening ordinary shareholders’ equity	$	9,867,809		$	9,612,670		$	9,411,658		$	9,597,473
Closing shareholders’ equity		11,757,419			10,928,706			11,757,419			10,928,706
Less: Non-controlling interest in equity of consolidated subsidiaries		(1,346,382	)		(1,001,784	)		(1,346,382	)		(1,001,784	)
Closing ordinary shareholders’ equity	$	10,411,037		$	9,926,922		$	10,411,037		$	9,926,922
Average ordinary shareholders’ equity		10,139,423			9,769,796			9,911,348			9,762,197
Net income (loss) attributable to ordinary shareholders		171,902			42,398			569,686			40,777
Annualized net income (loss) attributable to ordinary shareholders		687,608			169,592			759,581			54,369
Annualized return on ordinary shareholders’ equity - Net income (loss) attributable to ordinary shareholders		6.8	%		1.7	%		7.7	%		0.6	%

79

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

          The following discussion should be read in conjunction with “Quantitative and Qualitative Disclosures about Market Risk,” presented under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

          Market risk represents the potential for loss due to adverse changes in the fair value of financial and other instruments. The Company is principally exposed to the following market risks: interest rate risk, foreign currency exchange rate risk, equity price risk, credit risk, and other related market risks.

          The majority of the Company’s market risk arises from its investment portfolio which consists of fixed income securities, alternative investments, public equities, private investments, derivatives, other investments, and cash, denominated in both U.S. and foreign currencies, which are sensitive to changes in interest rates, credit spreads, equity prices, foreign currency exchange rates and other related market risks. The Company’s fixed income and equity securities are generally classified as available for sale, and, as such, changes in interest rates, credit spreads on corporate and structured credit, equity prices, foreign currency exchange rates or other related market instruments will have an immediate effect on comprehensive income and shareholders’ equity but will not ordinarily have an immediate effect on net income. Nevertheless, changes in interest rates, credit spreads, equity prices and other related market instruments affect consolidated net income when, and if, a security is sold or impaired.

          The Company may enter into derivatives and other financial instruments primarily for risk management purposes. For example, the Company may use derivatives to hedge foreign exchange and interest rate risk related to its consolidated net exposures. From time to time, the Company may also use instruments such as futures, options, interest rate swaps, credit default swaps and foreign currency forward contracts to manage the risk of interest rate changes, credit deterioration, foreign currency exposures, and other market related exposures as well as to obtain exposure to a particular financial market. Historically, the Company entered into credit derivatives outside of the investment portfolio in conjunction with the legacy financial guarantee and financial products operations. The Company attempts to manage the risks associated with derivative use with guidelines established by senior management. Derivative instruments are carried at fair value with the resulting changes in fair value recognized in income in the period in which they occur. For further information, see Item 1, Note 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included herein.

          This risk management discussion and the estimated amounts generated from the sensitivity and VaR analyses presented in this document are forward-looking statements of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from these estimated results due to, among other things, actual developments in the global financial markets and changes in the composition of the Company’s investment portfolio. The results of analysis used by the Company to assess and mitigate risk should not be considered projections of future events of losses. See Item 2, “Cautionary Note Regarding Forward-Looking Statements.”

Interest Rate Risk

          Interest rate risk is the price sensitivity of a fixed income security to changes in interest rates. The Company’s fixed income portfolio is exposed to interest rate risk. The Company’s liabilities are accrued at a static rate from an accounting standpoint. However, management considers the liabilities to have an economic exposure to interest rate risk and manages the net economic exposure to interest rate risk considering both assets and liabilities. Interest rate risk is managed within the context of the Company’s Strategic Asset Allocation (“SAA”) process by specifying SAA benchmarks relative to the estimated duration of its liabilities and managing the fixed income portfolio relative to the benchmarks such that the overall economic effect of interest rate risk is within management’s risk tolerance. Nevertheless, the Company remains exposed to interest rate risk with respect to the Company’s overall net asset position and more generally from an accounting standpoint since the assets are marked to market, while liabilities are accrued at a static rate.

          In addition, while the Company’s debt is not carried at fair value and not adjusted for market changes, changes in market interest rates could have an impact on debt values at the time of any refinancing.

80

Foreign Currency Exchange Rate Risk

          Many of the Company’s non-U.S. subsidiaries maintain both assets and liabilities in local currencies; therefore, foreign exchange risk is generally limited to net assets denominated in foreign currencies.

          Foreign currency exchange rate gains and losses in the Company’s Statement of Income arise for accounting purposes when net assets or liabilities are denominated in foreign currencies that differ from the functional currency of those subsidiaries. While unrealized foreign exchange gains and losses on underwriting balances are reported in earnings, the offsetting unrealized gains and losses on invested assets are recorded as a separate component of shareholders’ equity, to the extent that the asset currency does not match that entity’s functional currency. This results in an accounting mismatch that will result in foreign exchange gains or losses in the consolidated statements of income depending on the movement in certain currencies. The Company has formed several branches with Euro and U.K. sterling functional currencies and continues to focus on attempting to limit exposure to foreign exchange risk.

          Foreign currency exchange rate risk in general is reviewed as part of the Company’s risk management framework. Within its asset liability framework for the investment portfolio, the Company pursues a general policy of holding the assets and liabilities in the same currency and, as such, the Company is not generally exposed to the risks associated with foreign exchange movements within its investment portfolio as currency impacts on the assets are generally matched by corresponding impacts on the related liabilities. However, locally-required capital levels are invested in local currencies in order to satisfy regulatory requirements and to support local insurance operations and are not matched by related liabilities. Foreign exchange contracts within the investment portfolio may be utilized to manage individual portfolio foreign exchange exposures, subject to investment management service providers’ guidelines established by management. Where these contracts are not designated as specific hedges for financial reporting purposes, realized and unrealized gains and losses are recorded in income in the period in which they occur. These contracts generally have maturities of three months or less. The Company may also attempt to manage the foreign exchange volatility arising on certain transactions denominated in foreign currencies. These include, but are not limited to, premium receivable, reinsurance contracts, claims payable and investments in subsidiaries.

          The principal currencies creating foreign exchange risk for the Company are the U.K. sterling, the Euro, the Swiss franc and the Canadian dollar. The following table provides more information on the Company’s net exposures to its principal foreign currencies at September 30, 2012 and December 31, 2011:

(Foreign Currency in Millions)	September 30, 2012		December 31, 2011
Euro		145.7		52.0
U.K. Sterling		228.3		35.1
Swiss Franc		126.4		153.7
Canadian Dollar		186.6		222.5

Credit Risk

          Credit risk relates to the uncertainty of an obligor’s continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. The Company is exposed to direct credit risk within its investment portfolio as well as through general counterparties, including customers and reinsurers. The Company manages credit risk within its investment portfolio through its SAA framework and its established investment credit policies, which address quality of obligors and counterparties, industry limits, and diversification requirements. The Company’s exposure to market credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads.

          Certain of the Company’s underwriting activities expose it to indirect credit risk in that profitability of certain strategies can correlate with credit events at the issuer level, industry level or country level. The Company manages these risks through established underwriting policies that operate in accordance with established limit and escalation frameworks.

          The Company has an established credit risk governance process delegated to the Credit Sub-Committee of the Enterprise Risk Management Committee. The governance process is designed to ensure that transactions and activities, individually and in the aggregate, are carried out within management’s risk tolerances.

          Credit Risk – Investment Portfolio

          Credit risk in the investment portfolio is the exposure to adverse changes in the creditworthiness of individual investment holdings, issuers, groups of issuers, industries and countries. A widening of credit spreads will increase the net unrealized loss position, will increase losses associated with credit-based derivatives where the Company assumes credit exposure, and, if issuer credit spreads increase significantly for an extended period of time and, in a period of increasing defaults, would also likely result in higher OTTI charges. All else held equal, credit spread tightening will reduce net investment income associated with new purchases of fixed maturities. In addition, market volatility can make it difficult to value certain of the Company’s securities if trading becomes less frequent. As such, valuations may include assumptions or estimates that may have significant period to period changes that could have a material adverse effect on the Company’s consolidated results of operations or financial condition. The credit spread duration in the Company’s fixed income portfolio, excluding the impact of the HTM election, was 3.6 years at September 30, 2012.

81

          The Company manages credit risk in the investment portfolio, including fixed income, alternative and short-term investment, through the credit research performed primarily by the investment management service providers. The management of credit risk in the investment portfolio is also fully integrated in the Company’s credit risk management governance framework and the management of credit exposures and concentrations within the investment portfolio is carried out in accordance with the Company’s risk policies, philosophies, appetites, limits and risk concentrations delegated to the investment portfolio. In the investment portfolio, the Company reviews on a regular basis its asset concentration, credit quality and adherence to the Company’s credit limit guidelines. Any issuer over its credit limits, experiencing financial difficulties, material credit quality deterioration or potentially subject to forthcoming credit quality deterioration is placed on a watch list for closer monitoring. Where appropriate, exposures are reduced or prevented from increasing.

          The table below shows the Company’s aggregate fixed income portfolio by credit rating in percentage terms of the Company’s aggregate fixed income exposure (including fixed maturities, short-term investments, cash equivalents and net payable for investments purchased) at September 30, 2012.

	Percentage of Aggregated Fixed Income Portfolio (1)(2)
AAA		51.5	%
AA		15.4	%
A		21.1	%
BBB		9.3	%
BB or Below		2.6	%
NR		0.1	%
Total		100.0	%

(1)

Included in the above are $192.3 million or 0.6% of the portfolio that represents medium term notes rated at the average credit rating of the underlying asset pools backing the notes.

(2)

The credit ratings above were principally determined based on the weighted average rating of the individual securities from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings (where available). U.S. Agency debt and related mortgage backed securities, whether with implicit or explicit government support, reflects the credit quality rating of the U.S. government for the purpose of these calculations.

          At September 30, 2012, the average credit quality of the Company’s aggregate fixed income investment portfolio was “Aa2/AA”. The calculation of average credit quality excludes operating cash. The Company’s $9.4 billion portfolio of government and government related, agency, sovereign and cash holdings was rated “AAA” at September 30, 2012. The Company’s $11.4 billion portfolio of corporates was rated “A.” The Company’s $9.5 billion structured credit portfolio was “AA+” rated.

82

          The Company is closely monitoring its corporate financial bond holdings given the events of the past four years. The table below summarizes the Company’s significant exposures (defined as bonds issued by financial institutions with an amortized cost in excess of $50.0 million) to corporate bonds of financial issuers including Covered Bonds held within its AFS and HTM investment portfolio at September 30, 2012, representing both amortized cost and net unrealized gains (losses):

	September 30, 2012
(U.S. dollars in millions) Issuer (by Global Ultimate Parent) (1)	Weighted Average Credit Quality (2)	Amortized Cost		Unrealized Gain/ (Loss)
Lloyds Banking Group plc	AA	$	163.6	$	6.8
National Australia Bank Limited	AA-		141.9		5.0
Rabobank Nederland NV	AA		140.1		5.0
The Goldman Sachs Group, Inc.	BBB+		129.0		8.2
JPMorgan Chase & Co.	A-		121.5		(1.4	)
Citigroup Inc.	BBB+		117.2		4.6
UBS AG	A+		115.0		2.4
Morgan Stanley	A-		108.9		2.1
Bank of America Corporation	BBB+		107.7		2.5
The Bank of Nova Scotia	AA		106.3		4.3
Wells Fargo & Company	A+		96.7		5.8
Westpac Banking Corporation	AA-		93.1		5.8
HSBC Holdings plc	A		86.9		(3.0	)
Credit Suisse Group AG	A+		85.0		2.4
Commonwealth Bank of Australia	AA-		82.0		4.5
Canadian Imperial Bank of Commerce	AA+		74.2		3.4
Nordea Bank AB	AA		72.3		2.5
Standard Chartered plc	A		72.1		1.5
Royal Bank of Canada	AA-		70.6		2.2
Bank of Montreal	AA		66.4		3.1
The Bank of New York Mellon Corporation	AA-		65.2		2.9
Australia and New Zealand Banking Group Limited	A+		61.6		1.9
U.S. Bancorp	A+		56.0		3.0
BNP Paribas	A+		53.6		1.8
Government of Netherlands (ABN AMRO)	AAA+		53.1		6.6
Barclays plc	BBB-		52.1		(10.3	)
Legal & General Group PLC	BBB+		50.4		(2.7	)

(1)

Includes Covered Bonds.

(2)

The credit rating for each asset reflected above was principally determined based on the weighted average rating of the individual securities from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. U.S. Agency debt and related mortgage backed securities, whether with implicit or explicit government support, reflects the credit quality rating of the U.S. government for the purpose of these calculations.

          Within the Company’s corporate financial bond holdings, the Company is further monitoring its exposures to hybrid securities, representing Tier One and Upper Tier Two securities of various financial institutions. The following table summarizes the top ten exposures to hybrid securities, listed by amortized cost representing both amortized cost and unrealized (losses):

	September 30, 2012
(U.S. dollars in millions) Issuer (by Global Ultimate Parent)	Tier OneAmortized Cost		Upper Tier Two Amortized Cost		Total Amortized Cost		Net Unrealized (Loss)
Barclays, Plc	$	4.8	$	44.5	$	49.3	$	(10.5	)
JPMorgan Chas & Co.		30.2		—		30.2		(8.2	)
Zurich Financial Services AG		—		26.8		26.8		(0.9	)
Nationwide Building Society		25.6		—		25.6		(5.3	)
HSBC Holdings PLC		23.0		—		23.0		(2.3	)
Standard Life Plc		—		22.2		22.2		(2.0	)
RSA Insurance Group Plc		—		21.4		21.4		(1.4	)
The British United Provident Association Limited		—		20.9		20.9		(2.8	)
National Australia Bank Limited		20.9		—		20.9		(1.4	)
Aviva PLC		5.6		13.5		19.1		(4.0	)
Total	$	110.1	$	149.3	$	259.4	$	(38.8	)

83

          At September 30, 2012, the top 10 corporate financial holdings, which exclude government guaranteed and government sponsored enterprises, represented approximately 3.9% of the aggregate fixed income portfolio and approximately 11.3% of all corporate holdings. The top 10 corporate bond holdings listed below represent the direct exposure to the corporations listed below, including their subsidiaries, and excludes any securitized, credit enhanced and collateralized asset or mortgage-backed securities, cash and cash equivalents, pooled notes and any over-the-counter (“OTC”) derivative counterparty exposures, if applicable, but does include Covered Bonds.

Top 10 Corporate Financial Holdings (1)	Percentage of Aggregate Fixed Income Portfolio
Lloyds Banking Group PLC	0.5%
National Australia Bank Limited	0.5%
Rabobank Nederland NV	0.4%
The Goldman Sachs Group, Inc	0.4%
Citigroup Inc.	0.4%
JPMorgan Chase & Co.	0.4%
UBS AG	0.4%
Morgan Stanley	0.3%
Bank of America Corporation	0.3%
The Bank of Nova Scotia	0.3%

(1) Corporate issuers include Covered Bonds.

          At September 30, 2012, the top 5 corporate sector exposures listed below represented 26.9% of the aggregate fixed income investment portfolio and 79.7% of all corporate holdings.

(U.S. dollars in millions) Top 5 Sector Exposures	Carrying Value		Percentage of Aggregate Fixed Income Portfolio
Financials (1)	$	3,212.2		9.5	%
Consumer, Non-Cyclical		2,278.2		6.7	%
Utilities		1,533.1		4.5	%
Communications		1,050.9		3.1	%
Industrial		1,037.8		3.1	%
Total	$	9,112.2		26.9	%

(1) Government-guaranteed securities and Covered Bonds have been excluded from the above figures.

          Within the Company’s fixed income portfolios, the Company is further monitoring its exposures to holdings representing risk in certain Euro-zone countries (Greece, Italy, Ireland, Portugal and Spain). In particular, the carrying value of the Company’s holdings are: government holdings of $19.9 million, corporate holdings of $111.7 million (financials $0.4 million, non-financials $111.3 million) and structured credit holdings totaling $9.9 million in GIIPS. The non-financial corporate holdings primarily consist of securities issued by multinational companies with low reliance on local economics and systemically important industries such as utilities and telecoms. For further detail on the Company’s exposure to the Euro-zone sovereign debt crisis, please refer to Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – European Sovereign Debt Crisis.”

          The Company also has exposure to credit risk associated with its mortgage-backed and asset-backed securities. The table below shows the breakdown of the $9.5 billion structured credit portfolio, of which 80.1% is AAA rated:

(U.S. dollars in millions)	Carrying Value		Percentage of Structured Portfolio
Agency RMBS	$	5,376.9		56.5	%
Other ABS (1)		1,683.1		17.7	%
CMBS		1,047.3		11.0	%
Non-Agency RMBS		720.2		7.6	%
Core CDO (non-ABS CDOs and CLOs)		682.6		7.2	%
Total	$	9,510.1		100.0	%

(1) Includes Covered Bonds.

84

          Credit Risk – Other

          Credit derivatives are purchased within the Company’s investment portfolio, have been sold through a limited number of contracts written as part of the Company’s previous XL financial lines business, and were previously entered into through the Company’s prior reinsurance agreements with Syncora. From time to time, the Company may purchase credit default swaps to hedge an existing position or concentration of holdings. The credit derivatives are recorded at fair value. For further details with respect to the Company’s exposure to Credit derivatives, see Item 1, Note 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included herein.

          The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, alternatives and other investment funds and other institutions. Many of these transactions expose the Company to credit risk in the event of default of the Company’s counterparty. In addition, with respect to secured transactions, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be sold or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure that is due. The Company also has exposure to financial institutions in the form of unsecured debt instruments, derivative transactions, revolving credit facility and letter of credit commitments and equity investments. There can be no assurance that any such losses or impairments to the carrying value of these assets would not materially and adversely affect the Company’s business and results of operations.

          With regard to unpaid losses and loss expenses recoverable and reinsurance balances receivable, the Company has credit risk should any of its reinsurers be unable or unwilling to settle amounts due to the Company; however, these exposures are not marked to market. For further information relating to reinsurer credit risk, see Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Unpaid Losses and Loss Expenses Recoverable and Reinsurance Balances Receivable.”

          The Company is exposed to credit risk in the event of non-performance by the other parties to its derivative instruments in general; however, the Company does not anticipate non-performance. The difference between the notional principal amounts and the associated market value is the Company’s maximum credit exposure.

Equity Price Risk

          Equity price risk is the potential loss arising from changes in the market value of equities. The Company’s equity investment portfolio is exposed to equity price risk. At September 30, 2012, the Company’s equity portfolio was approximately $466.6 million as compared to $376.6 million at December 31, 2011. This excludes fixed income fund investments of $99.3 million and $91.6 million at September 30, 2012 and December 31, 2011, respectively, that generally do not have the risk characteristics of equity investments but are treated as equity investments under U.S. GAAP. At September 30, 2012 and December 31, 2011, the Company’s direct allocation to equity securities was 1.4% and 1.1%, respectively, of the total investment portfolio (including cash and cash equivalents, accrued investment income and net payable for investments purchased.) The Company also estimates the equity risk embedded in certain alternative and private investments. Such estimates are derived from market exposures provided to the Company by certain individual fund investments and/or internal statistical analyses.

Other Market Risks

          The Company’s private investment portfolio is invested in limited partnerships and other entities that are not publicly traded. In addition to normal market risks, these positions may also be exposed to liquidity risk, risks related to distressed investments, and risks specific to startup or small companies. At September 30, 2012, the Company’s exposure to private investments, excluding unfunded commitments, was $300.0 million, representing 0.9% of the fixed income portfolio (including cash and cash equivalents, accrued investment income and net payable for investments purchased) compared to $288.4 million at December 31, 2011.

          The Company’s alternative investment portfolio, which is exposed to equity and credit risk as well as certain other market risks, had a total exposure of $1,240.0 million representing approximately 3.7% of the investment portfolio (including cash and cash equivalents, accrued investment income and net payable for investments purchased) at September 30, 2012, as compared to December 31, 2011, when the Company had a total exposure of $1,027.2 million representing approximately 3.1% of the fixed income investment portfolio.

          At September 30, 2012, bond and stock index futures outstanding had a net long position of $66.2 million as compared to a net long position of $12.6 million at December 31, 2011. The Company may reduce its exposure to these futures through offsetting transactions, including options and forwards.

          As noted above, the Company also invests in certain derivative positions that can be impacted by market value movements. For further details on derivative instruments, see Item 1, Note 6, “Derivative Instruments,” to the Unaudited Consolidated Financial Statements included herein.

85

Sensitivity and Value-at-Risk Analysis

          The table below summarizes the Company’s assessment of the estimated impact on the value of the Company’s investment portfolio at September 30, 2012 associated with an immediate and hypothetical: +100bps increase in interest rates, a -10% decline in equity markets, a +100bps widening in spreads and a +10% widening in spreads. The table also reports the 95%, 1-year VaRs for the Company’s investment portfolios at September 30, 2012, excluding foreign exchange.

          The interest rate, spread risk, and VaR referenced in the table below include the impact of market movements on the Company’s held to maturity fixed maturities from the Company’s Life investment portfolios. While the market value of these holdings is sensitive to prevailing interest rates and credit spreads, the Company’s book value is not impacted as these holdings are carried at amortized cost. At September 30, 2012, if the Company were to exclude these impacts in order to present the impact of these risks to the Company’s book value, the interest rate risk would be reduced by approximately $326.8 million, absolute spread risk would be reduced by approximately $224.0 million, relative spread risk would be reduced by approximately $27.1 million, and VaR would be reduced by approximately $359.0 million.

          The table below excludes the impact of foreign exchange rate risk on the Company’s investment portfolio. The Company’s investment strategy incorporates asset-liability management, and, accordingly, any foreign exchange movements impact the assets and liabilities equally. See “Foreign Currency Exchange Rate Risk,” for further details. The Company considers that the investment portfolio VaR estimated results as well as the P&C and Life investment portfolios VaR estimated results excluding foreign exchange rate risk are the more relevant and appropriate metrics to consider when assessing the actual risk of the investment portfolio.

          The estimated results below also do not include any risk contributions from our various operating affiliates (strategic, investment manager or financial operating affiliates) or certain other investments that are carried at amortized cost.

(U.S. dollars in millions)	Interest Rate Risk (1)			Equity Risk (2)			Absolute Spread Risk (3)			Relative Spread Risk (4)			VaR (5), (6)
Total Investment Portfolio (7)	$	(1,292.6	)	$	(104.0	)	$	(1,296.3	)	$	(164.3	)	$	996.0
A. P&C Investment Portfolio	$	(715.4	)	$	(104.0	)	$	(799.0	)	$	(72.3	)	$	480.9
(I) P&C Fixed Income Portfolio		(715.4	)		—			(799.0	)		(72.3	)		511.5
(a) Cash & Short Term Investments		(7.6	)		—			(4.4	)		—			2.9
(b) Total Government Related		(299.8	)		—			(210.3	)		(9.3	)		176.0
(c) Total Corporate Credit		(269.7	)		—			(301.6	)		(33.8	)		201.5
(d) Total Structured Credit		(138.3	)		—			(282.7	)		(29.1	)		177.0
(II) P&C Non-Fixed Income Portfolio		—			(104.0	)		—			—			139.3
(e) Equity Portfolio		—			(49.1	)		—			—			74.9
(f) Alternative Portfolio		—			(22.3	)		—			—			62.3
(g) Private Investments		—			(32.6	)		—			—			56.0
(h) Other		—			—			—			—			2.9
B. Life Investment Portfolio	$	(569.7	)	$	—		$	(460.5	)	$	(87.9	)	$	578.0
(III) Life Fixed Income Portfolio		(569.7	)		—			(460.5	)		(87.9	)		578.0
(i) Cash & Short Term Investments		—			—			—			—			0.1
(j) Total Government Related		(234.3	)		—			(90.0	)		(5.8	)		258.5
(k) Total Corporate Credit		(273.4	)		—			(298.6	)		(65.4	)		269.4
(l) Total Structured Credit		(62.0	)		—			(71.9	)		(16.8	)		65.4
(IV) Life Non-Fixed Income Portfolio		—			—			—			—			—

(1)	The estimated impact on the fair value of the Company’s fixed income portfolio of an immediate hypothetical +100 bps adverse parallel shift in global bond curves.
(2)	The estimated impact on the fair value of the Company’s investment portfolio of an immediate hypothetical -10% change in the value of equity exposures in the Company’s equity portfolio, certain equity-sensitive alternative investments and private equity investments. This includes the Company’s estimate of equity risk embedded in the alternatives and private investment portfolio with such estimates utilizing market exposures provided to the Company by certain individual fund investments, internal statistical analyses, and/or various assumptions regarding illiquidity and concentrations.
(3)	The estimated impact on the fair value of the Company’s fixed income portfolio of an immediate hypothetical +100 basis point increase in all global government related, corporate and structured credit spreads to which the Company’s fixed income portfolio is exposed. This excludes exposure to credit spreads in the Company’s alternative investments, private investments and counterparty exposure.
(4)	The estimated impact on the fair value of the Company’s fixed income portfolio of an immediate hypothetical +10% increase in all global government related, corporate and structured credit spreads to which the Company’s fixed income portfolio is exposed. This excludes exposure to credit spreads in the Company’s alternative investments, private investments and counterparty exposure.
(5)	The VaR results are based on a 95% confidence interval, with a one-year holding period, excluding foreign exchange rate risk. The Company’s investment portfolio VaR at September 30, 2012 is not necessarily indicative of future VaR levels as these are based on statistical estimates of possible price changes and, therefore, exclude other sources of investment return such as coupon and dividend income.

(6)

The VaR results are the standalone VaRs, based on the prescribed methodology, for each component of the Company’s Total Investment Portfolio. The standalone VaRs of the individual components are non-additive, with the difference between the summation of the individual component VaRs and their respective aggregations being due to diversification benefits across the individual components. In the case of the VaR results for the Company’s Total Investment Portfolio, the results also include the impact associated with the Company’s Business and Other Investments.

(7)

The Company’s Total Investment Portfolio comprises the Company’s P&C Investment Portfolio and Life Investment Portfolio as well as the Company’s Business and Other Investments that do not form part of the Company’s P&C Investment Portfolio or Life Investment Portfolio. The individual results reported in the above table for the Company’s Total Investment Portfolio therefore represent the aggregate impact on the Company’s P&C Investment Portfolio, Life Investment Portfolio and the majority of the Company’s Other Investments.

86

Stress Testing

          VaR does not provide the means to estimate the magnitude of the loss in the 5% of occurrences when the Company expects the VaR level to be exceeded. To complement the VaR analysis based on normal market environments, the Company considers the impact on the investment portfolio in several different stress scenarios to analyze the effect of unusual market conditions. The Company establishes certain stress scenarios that are applied to the actual investment portfolio. As these stress scenarios and estimated gains and losses are based on scenarios established by the Company, they will not necessarily reflect future stress events or gains and losses from such events. The results of the stress scenarios are reviewed on a regular basis to ensure they are appropriate, based on current shareholders’ equity, market conditions and the Company’s total risk tolerance. It is important to note that when assessing the risk of the Company’s investment portfolio, the Company does not take into account either the value or risk associated with the liabilities arising from the Company’s operations.

87

ITEM 4. CONTROLS AND PROCEDURES

          Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

          The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of disclosure controls and procedures pursuant to Rules 13a-15 or 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurance that all material information relating to the Company required to be included in this report has been made known to them in a timely fashion.

          Changes in Internal Control Over Financial Reporting

          There have been no changes in internal control over financial reporting identified in connection with the Company’s evaluation required pursuant to Rules 13a-15 or 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

88

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

          The Company is subject to legal proceedings and claims, as described in its Annual Report on Form 10-K for the year ended December 31, 2011. Material developments to such proceedings during the three months ended September 30, 2012 are described below.

          In August 2005, plaintiffs in a proposed class action (the “Class Action”) that was consolidated into a multidistrict litigation in the United States District Court for the District of New Jersey, captioned In re Brokerage Antitrust Litigation, MDL No. 1663, Civil Action No. 04-5184 (the “MDL”), filed a consolidated amended complaint (the “Amended Complaint”), which named as new defendants approximately 30 entities, including Greenwich Insurance Company, Indian Harbor Insurance Company and XL-Cayman (the “XL Defendants”). In the MDL, the Class Action plaintiffs asserted various claims purportedly on behalf of a class of commercial insureds against approximately 113 insurance companies and insurance brokers through which the named plaintiffs allegedly purchased insurance. The Amended Complaint alleged that the defendant insurance companies and insurance brokers conspired to manipulate bidding practices for insurance policies in certain insurance lines and failed to disclose certain commission arrangements and asserted statutory claims under the Sherman Act, various state antitrust laws and the Racketeer Influenced and Corrupt Organizations Act (“RICO”), as well as common law claims alleging breach of fiduciary duty, aiding and abetting a breach of fiduciary duty and unjust enrichment. By Opinion and Order dated August 31, 2007, the District Court dismissed the Sherman Act claims with prejudice and, by Opinion and Order dated September 28, 2007, the District Court dismissed the RICO claims with prejudice. The plaintiffs then appealed both Orders to the U.S. Court of Appeals for the Third Circuit. On August 16, 2010, the Third Circuit affirmed in large part the District Court’s dismissal. The Third Circuit reversed the dismissal of certain Sherman Act and RICO claims alleged against several defendants including the XL Defendants but remanded those claims to the District Court for further consideration of their adequacy. In light of its reversal and remand of certain of the federal claims, the Third Circuit also reversed the District Court’s dismissal (based on the District Court’s declining to exercise supplemental jurisdiction) of the state-law claims against all defendants. On October 1, 2010, the remaining defendants, including the XL Defendants, filed motions to dismiss the remanded federal claims and the state-law claims. The motions were fully briefed in November 2010. In May 2011, a majority of the remaining defendants, including the XL Defendants, executed a formal Settlement Agreement with the Class Action plaintiffs to settle the Class Action and dismiss all claims with prejudice. The settlement was approved by the District Court by Order dated March 30, 2012. The XL Defendants’ portion of the defendants’ aggregate settlement payment is $6.75 million. Certain objectors have filed appeals from the District Court’s March 30, 2012 Order approving the settlement.

          Various XL entities have been named as defendants in three of the many tag-along actions that were consolidated into the MDL for pretrial purposes. The complaints in these tag-along actions make allegations similar to those made in the Amended Complaint but do not purport to be class actions. On April 4, 2006, a tag-along complaint was filed in the U.S. District Court for the Northern District of Georgia on behalf of New Cingular Wireless Headquarters LLC and several other corporations and remains pending against approximately 100 defendants, including Greenwich Insurance Company, XL Specialty Insurance Company, XL Insurance America, Inc., XL Insurance Company Limited and XL-Cayman. On or about May 21, 2007, a tag-along complaint was filed in the U.S. District Court for the District of New Jersey on behalf of Henley Management Company, Big Bear Properties, Inc., Northbrook Properties, Inc., RCK Properties, Inc., Kitchens, Inc., Aberfeldy LP and Payroll and Insurance Group, Inc. against multiple defendants, including “XL Winterthur International.” On October 12, 2007, a complaint in a third tag-along action was filed in the U.S. District Court for the Northern District of Georgia by Sears, Roebuck & Co., Sears Holdings Corporation, Kmart Corporation and Lands’ End Inc. against many named defendants including X.L. America, Inc., XL Insurance America, Inc., XL Specialty Insurance Company and XL Insurance (Bermuda) Ltd. On October 17, 2011, the District Court lifted the stay of the tag-along actions, including the three in which the XL entities are named defendants. On April 30, 2012, the District Court set a pre-trial litigation schedule governing the tag-along actions. The parties are currently engaged in discovery, and it is anticipated that the defendants will file and brief over the next few months various threshold motions directed to plaintiffs’ complaints.

          The Company and its subsidiaries are subject to litigation and arbitration in the normal course of its business. These lawsuits and arbitrations principally involve claims on policies of insurance and contracts of reinsurance and are typical for the Company and for the property and casualty insurance and reinsurance industry in general. Such legal proceedings are considered in connection with the Company’s loss and loss expense reserves. Reserves in varying amounts may or may not be established in respect of particular claims proceedings based on many factors, including the legal merits thereof. In addition to litigation relating to insurance and reinsurance claims, the Company and its subsidiaries are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance or reinsurance policies. These types of actions typically involve, among other things, allegations of underwriting errors or misconduct, employment disputes, actions brought by or on behalf of shareholders or disputes arising from business ventures. The status of these legal actions is actively monitored by management.

          Legal actions are subject to inherent uncertainties, and future events could change management’s assessment of the probability or estimated amount of potential losses from pending or threatened legal actions. Based on available information, it is the opinion of management that the ultimate resolution of pending or threatened legal actions, both individually and in the aggregate, will not result in losses in amounts exceeding recognized reserves having a material adverse effect on the Company’s position or liquidity at September 30, 2012.

89

ITEM 1A. RISK FACTORS

          Refer to Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

           (c) Purchases of Equity Securities by the Issuer and Affiliate Purchasers

          The following table provides information about purchases by the Company during the three months ended September 30, 2012 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

	Total Number of Shares Purchased		Average Price Paid per Share		Total Numberof Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2)
July 1, 2012 to July 31, 2012		2,494	$	21.04		—	$	525.0 million
August 1, 2012 to August 31, 2012		2,768,659		23.17		2,767,739		460.9 million
September 1, 2012 to September 30, 2012		2,565,988		23.72		2,565,988		400.0 million
Total		5,337,141	$	23.43		5,333,727	$	400.0 million

(1)

Shares purchased in connection with the vesting of restricted shares granted under the Company’s restricted stock plan do not represent shares purchased as part of publicly announced plans or programs. All such purchases were made in connection with satisfying tax withholding obligations of those employees. These shares were not purchased as part of the Company’s share buyback programs noted below.

(2)

On February 27, 2012, the Company announced that its Board of Directors approved a share buyback program, authorizing the Company to purchase up to $750 million of its ordinary shares. This authorization replaced the approximately $190 million remaining under the share buyback program that was authorized in November 2010 as described in further detail in Item 8, Note 18, “Share Capital,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. During the three months ended September 30, 2012, the Company purchased and canceled 5.3 million ordinary shares under the program for $125.0 million. During the nine months ended September 30, 2012, the Company purchased and canceled 16.2 million ordinary shares under the program for $350.0 million. 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. At September 30, 2012, $400.0 million remained available for purchase under the program.

90

ITEM 6.	EXHIBITS
The following exhibits are filed as exhibits to this Quarterly Report:
12*	Statements regarding computation of ratios
31*	Rule 13a-14(a)/15d-14(a) Certifications
32*	Section 1350 Certification
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

*          Filed herewith.

91

SIGNATURES

          Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 7, 2012
	XL Group plc
	(Registrant)
	/s/ MICHAEL S. MCGAVICK
	Name: Michael S. McGavick
	Title: Chief Executive Officer and Director
	XL Group plc
Date: November 7, 2012
	/s/ PETER R. PORRINO
	Name: Peter R. Porrino
	Title: Executive Vice President and Chief Financial Officer
	XL Group plc

92

EX-12

Exhibit 12

XL GROUP PLC

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERENCE DIVIDENDS

(U.S. dollars in thousands, except ratios)	Nine Months Ended 2012			Nine Months Ended 2011
Earnings:
Pre-tax income (loss) from continuing operations	$	617,068		$	1,239
Fixed charges		218,286			235,256
Distributed income of equity investees		71,165			144,158
Subtotal		906,519			380,653
Less: Non-controlling interests		(62	)		(130	)
Preference share dividends		75,917			69,561
Total earnings (loss)	$	830,664		$	311,222
Fixed charges:
Interest costs	$	79,685		$	119,057
Accretion of deposit liabilities		54,879			39,100
Rental expense at 30% (1)		7,805			7,538
Total fixed charges		142,369			165,695
Preference share dividends		75,917			69,561
Total fixed charges and preference dividends	$	218,286		$	235,256
Ratio of earnings to fixed charges		5.8			1.9
Ratio of earnings to combined fixed charges and preference dividends		3.8			1.3
Deficiency - fixed charges only	$	N/A		$	N/A
Deficiency - fixed charges and preference dividends	$	N/A		$	N/A

(1) 30% represents a reasonable approximation of the interest factor.

93

EX-31

Exhibit 31

Certification of Chief Executive Officer
XL Group plc
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Chapter 98, Title 15 U.S.C. 7241)

I, Michael S. McGavick, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of XL Group plc;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 7, 2012
	/s/ MICHAEL S. MCGAVICK
	Michael S. McGavick
	Chief Executive Officer

94

Certification of Chief Financial Officer
XL Group plc
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Chapter 98, Title 15 U.S.C. 7241)

I, Peter R. Porrino, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of XL Group plc;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 7, 2012
	/s/ PETER R. PORRINO
	Peter R. Porrino
	Executive Vice President and
	Chief Financial Officer

95

EX-32

Exhibit 32

Certification Accompanying Form 10-Q Report of XL Group plc
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 U.S.C. 1350(a) and (b))

          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 U.S.C. 1350(a) and (b)), each of the undersigned hereby certifies that, to his knowledge, the Quarterly Report on Form 10-Q for the period ended September 30, 2012 of XL Group plc (the “Company”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 7, 2012

/s/ MICHAEL S. MCGAVICK

MICHAEL S. McGAVICK

CHIEF EXECUTIVE OFFICER

XL GROUP PLC

Dated: November 7, 2012

/s/ PETER R. PORRINO

PETER R. PORRINO

EXECUTIVE VICE PRESIDENT,

CHIEF FINANCIAL OFFICER

XL GROUP PLC

          A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to XL Group plc and will be retained by XL Group plc and furnished to the Securities and Exchange Commission or its staff upon request.

96

XML

Investments (Details) - Cost (amortized cost for fixed maturities and short-term investments), fair value, gross unrealized gains, gross unrealized (losses), and OTTI recorded in AOCI (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	$ 26,150,520	$ 25,771,715
Gross unrealized gains of Fixed maturities	1,666,647	1,194,038
Gross Unrealized Losses Related to Changes in Fair Value	(256,864)	(589,070)
Gross Unrealized Losses Non-credit Related OTTI	(134,010)	(186,658)
Fixed maturities, at fair value	27,426,293	26,190,025
Short Term Investments
Cost or Amortized cost of Short-term investments	323,039	359,378
Short Term Investments Gross Unrealized Gains	1,124	519
Short Term Investments Related To Changes In Fair Value	(458)	(834)
Fair value of Short-term investments	323,705	359,063
Equity securities
Cost of equity securities	554,962	480,685
Gross unrealized gains of Equity securities	16,218	27,947
Related changes in estimated fair value of Equity securities	(5,253)	(40,435)
Equity securities, at fair value	565,927	468,197
Total investments - AFS
Cost or Amortized cost of total investments - AFS	27,028,521	26,611,778
Gross unrealized gains of AFS securities	1,683,989	1,222,504
Related changes in estimated fair value of securities - AFS	(262,575)	(630,339)
OTTI included in other comprehensive income (loss) of securities - AFS	(134,010)	(186,658)
Fair value of securities - AFS	28,315,925	27,017,285
HTM securities
Cost or Amortized Cost	2,805,796	2,668,978
Gross Unrealized Gains	423,133	247,445
Gross Unrealized Losses Related Changes In Estimated Fair Value	(6,029)	(20,735)
Fair Value	3,222,900	2,895,688
US Government And Government Related [Member]
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	1,996,119	1,864,354
Gross unrealized gains of Fixed maturities	142,683	130,874
Gross Unrealized Losses Related to Changes in Fair Value	(3,434)	(4,245)
Gross Unrealized Losses Non-credit Related OTTI	0	0
Fixed maturities, at fair value	2,135,368	1,990,983
HTM securities
Cost or Amortized Cost	10,845	10,399
Gross Unrealized Gains	1,859	1,510
Gross Unrealized Losses Related Changes In Estimated Fair Value	0	0
Fair Value	12,704	11,909
Corporate
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	9,392,587	9,866,677
Gross unrealized gains of Fixed maturities	738,040	527,192
Gross Unrealized Losses Related to Changes in Fair Value	(109,187)	(233,581)
Gross Unrealized Losses Non-credit Related OTTI	(14,303)	(51,666)
Fixed maturities, at fair value	10,007,137	10,108,622
HTM securities
Cost or Amortized Cost	1,430,220	1,290,209
Gross Unrealized Gains	192,803	91,313
Gross Unrealized Losses Related Changes In Estimated Fair Value	(2,932)	(14,433)
Fair Value	1,620,091	1,367,089
RMBS - Agency
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	5,126,903	5,189,473
Gross unrealized gains of Fixed maturities	252,738	193,782
Gross Unrealized Losses Related to Changes in Fair Value	(2,738)	(3,849)
Gross Unrealized Losses Non-credit Related OTTI	0	0
Fixed maturities, at fair value	5,376,903	5,379,406
RMBS - Non-Agency
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	705,785	851,557
Gross unrealized gains of Fixed maturities	38,297	19,667
Gross Unrealized Losses Related to Changes in Fair Value	(2,716)	(112,867)
Gross Unrealized Losses Non-credit Related OTTI	(105,041)	(116,542)
Fixed maturities, at fair value	636,325	641,815
HTM securities
Cost or Amortized Cost	83,896	80,955
Gross Unrealized Gains	9,582	6,520
Gross Unrealized Losses Related Changes In Estimated Fair Value	0	(32)
Fair Value	93,478	87,443
CMBS
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	963,365	927,684
Gross unrealized gains of Fixed maturities	75,031	56,704
Gross Unrealized Losses Related to Changes in Fair Value	(1,123)	(2,405)
Gross Unrealized Losses Non-credit Related OTTI	(2,864)	(7,148)
Fixed maturities, at fair value	1,034,409	974,835
HTM securities
Cost or Amortized Cost	12,917
Gross Unrealized Gains	2,109
Gross Unrealized Losses Related Changes In Estimated Fair Value	0
Fair Value	15,026
CDO
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	791,737	843,553
Gross unrealized gains of Fixed maturities	9,735	6,624
Gross Unrealized Losses Related to Changes in Fair Value	(114,017)	(186,578)
Gross Unrealized Losses Non-credit Related OTTI	(4,889)	(4,997)
Fixed maturities, at fair value	682,566	658,602
Other asset-backed securities
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	1,421,005	1,341,309
Gross unrealized gains of Fixed maturities	57,025	30,731
Gross Unrealized Losses Related to Changes in Fair Value	(12,573)	(25,486)
Gross Unrealized Losses Non-credit Related OTTI	(6,913)	(6,305)
Fixed maturities, at fair value	1,458,544	1,340,249
HTM securities
Cost or Amortized Cost	224,508	288,741
Gross Unrealized Gains	29,218	20,875
Gross Unrealized Losses Related Changes In Estimated Fair Value	(295)	(320)
Fair Value	253,431	309,296
U.S. States and political subdivisions of the States [Member]
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	1,665,392	1,698,573
Gross unrealized gains of Fixed maturities	156,366	101,025
Gross Unrealized Losses Related to Changes in Fair Value	(1,653)	(2,220)
Gross Unrealized Losses Non-credit Related OTTI	0	0
Fixed maturities, at fair value	1,820,105	1,797,378
Non-U.S. Sovereign Government, Provincial, Supranational, and Government-Related/Supported [Member]
Fixed maturities - AFS
Cost or Amortized cost of Fixed maturities	4,087,627	3,188,535
Gross unrealized gains of Fixed maturities	196,732	127,439
Gross Unrealized Losses Related to Changes in Fair Value	(9,423)	(17,839)
Gross Unrealized Losses Non-credit Related OTTI	0	0
Fixed maturities, at fair value	4,274,936	3,298,135
HTM securities
Cost or Amortized Cost	1,043,410	998,674
Gross Unrealized Gains	187,562	127,227
Gross Unrealized Losses Related Changes In Estimated Fair Value	(2,802)	(5,950)
Fair Value	$ 1,228,170	$ 1,119,951

XML

Share Capital (Details) - Authorized and issued (USD $) In Millions, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Equity Class Of Treasury Stock [Line Items]
Treasury Stock Value Retired Par Value Method		$ 350.0
Treasury Stock, Shares, Retired (in Shares)		16.2
Common Class A [Member] | 2010 Repurchase Authorization [Member]
Equity Class Of Treasury Stock [Line Items]
Stock Repurchase Program Authorized Amount		190.0
Common Class A [Member] | 2012 Repurchase Authorization [Member]
Equity Class Of Treasury Stock [Line Items]
Stock Repurchase Program Authorized Amount		750.0
Stock Repurchase Program Remaining Authorized Repurchase Amount		400.0
Treasury Stock Value Retired Par Value Method	$ 125.0
Treasury Stock, Shares, Retired (in Shares)	5.3

XML

Derivative Instruments (Details) - Hedged items - amount of gain/(loss) recognized in income attributable to risk (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Derivative Instruments Gain Loss [Line Items]
Ineffective portion of hedging relationship - gain/(loss)	$ (197)	$ (1,042)	$ (4,830)	$ (778)
Designated as Hedging Instrument [Member] | Fair Value Hedging Member | Net realized and unrealized gains (losses) on derivative instruments [Member]
Derivative Instruments Gain Loss [Line Items]
Gain/(loss) recognized in income on derivative	(22,323)	38,733	(28,313)	22,282
Designated as Hedging Instrument [Member] | Fair Value Hedging Member | Net realized and unrealized gains (losses) on derivative instruments [Member] | Deposit Liabilities [Member]
Derivative Instruments Gain Loss [Line Items]
Gain/(loss) recognized in income on derivative	0	(21,659)	(6,182)	(25,950)
Designated as Hedging Instrument [Member] | Fair Value Hedging Member | Net realized and unrealized gains (losses) on derivative instruments [Member] | Fixed Maturity Investments [Member]
Derivative Instruments Gain Loss [Line Items]
Gain/(loss) recognized in income on derivative	22,126	(18,116)	29,665	2,890
Designated as Hedging Instrument [Member] | Fair Value Hedging Member | Net realized and unrealized gains (losses) on derivative instruments [Member] | Interest Rate Exposure [Member] | Gain Loss Recognized In Income On Derivative [Member]
Derivative Instruments Gain Loss [Line Items]
Gain/(loss) recognized in income on derivative	0	20,514	1,813	25,366
Designated as Hedging Instrument [Member] | Fair Value Hedging Member | Net realized and unrealized gains (losses) on derivative instruments [Member] | Foreign Exchange Exposure [Member] | Gain Loss Recognized In Income On Derivative [Member]
Derivative Instruments Gain Loss [Line Items]
Gain/(loss) recognized in income on derivative	$ (22,323)	$ 18,219	$ (30,126)	$ (3,084)

XML

Share Capital (Details) - Stock plans (USD $) In Millions, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Minimum
Other details:
Vesting period required	3 years
Maximum
Other details:
Vesting period required	4 years
Stock options
Weighted average assumptions and option awards:
Dividend yield	1.90%
Risk free interest rate	1.15%
Volatility	46.00%
Expected lives	6 years
Options, grants in period (shares)	1.2
Weighted average grant date fair value (per share)	7.65
Restricted stock awards
Other details:
Granted (in Shares)	0.3
Aggregate grant date fair value	6.8
Restricted stock units
Other details:
Granted (in Shares)	1.3
Aggregate grant date fair value	26.6
Vesting period required	3 years
Performance units
Other details:
Granted (in Shares)	1.5
Aggregate grant date fair value	29.5
Vesting period required	3 years
Performance Units Maximum Potential Payout	3.0
Performance units | Minimum
Other details:
Performance Units Final Payout Percentage Of Grant Amount	0.00%
Performance units | Maximum
Other details:
Performance Units Final Payout Percentage Of Grant Amount	200.00%

XML

Derivative Instruments (Details) - Narrative (USD $) In Millions, unless otherwise specified	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Jul. 31, 2012 contracts	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2010 contracts	Dec. 31, 2011
Derivative [Line Items]
Derivative, Collateral, Obligation to Return Cash							$ 77.1
Derivative Cash Collateral Paid		41.5		41.5
Periodic coupon settlement reduction to interest expense		0	2.6	4.9	7.7
Derivatives Number of Instruments Settled	2					3
Notes Payable And Debt [Member]
Derivative [Line Items]
Cumulative increase to carrying value		21.6		21.6
Deposit Liabilities [Member]
Derivative [Line Items]
Cumulative increase to carrying value	83.7	$ 149.5		$ 149.5
Weighted average years to maturity	16 years 1 month 6 days

XML

Fair Value Measurements (Details) - Additional information about assets and liabilities measured at fair value on a recurring basis (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2012	Jun. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Derivative Contracts - Net
Fair Value Liabilities Measured On Recurring Basis Unobservable Input Reconciliation Calculation Roll Forward
Balance, beginning of period	$ 35,947		$ 49,645	$ 42,644	$ 39,195
Realized gains (losses)	0			0	0
Movement in unrealized gains (losses)	(885)		2,344	(7,582)	12,620
Purchases and issuances	0		0	0	0
Sales and settlements	0			0	174
Transfers into Level 3	0			0	0
Transfers out of Level 3	0			0	0
Balance, end of period	35,062		51,989	35,062	51,989
Movement in total gains (losses) above relating to instruments still held at the reporting date	885		(2,344)	7,582	(12,620)
Corporate
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation Calculation Roll Forward
Balance, beginning of period	33,511		4,786	23,818	36,866
Realized gains (losses)	20		23	4	(257)
Movement in unrealized gains (losses)	673		(22)	346	173
Purchases and issuances	0		0	8,949	6,878
Sales and settlements	(555)		0	(181)	(10,049)
Transfers into Level 3	0		0	838	0
Transfers out of Level 3	(4,514)		0	(4,639)	(28,824)
Fixed maturities to short term investments classification change				0
Balance, end of period	29,135		4,787	29,135	4,787
Movement in total gains (losses) above relating to instruments still held at the reporting date	674		1	351	(52)
RMBS - Agency
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation Calculation Roll Forward
Balance, beginning of period	52,588		15,385	32,041	30,255
Realized gains (losses)	4		(81)	(23)	(81)
Movement in unrealized gains (losses)	106		52	58	2
Purchases and issuances	34		33	103	33
Sales and settlements	(4,645)		(206)	(6,233)	(492)
Transfers into Level 3	0		0	15,254	0
Transfers out of Level 3	(14,230)		0	(7,343)	(14,534)
Fixed maturities to short term investments classification change				0
Balance, end of period	33,857		15,183	33,857	15,183
Movement in total gains (losses) above relating to instruments still held at the reporting date	110		(29)	35	(79)
RMBS - Non-Agency
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation Calculation Roll Forward
Balance, beginning of period	1,596		3,194	0	4,964
Realized gains (losses)	(22)		(328)	0	(329)
Movement in unrealized gains (losses)	(424)		76	0	61
Purchases and issuances	6,821		0	6,821	0
Sales and settlements	(59)		(143)	0	(517)
Transfers into Level 3	0		0	1,018	0
Transfers out of Level 3	(73)		0	0	(1,380)
Fixed maturities to short term investments classification change				0
Balance, end of period	7,839		2,799	7,839	2,799
Movement in total gains (losses) above relating to instruments still held at the reporting date	(447)		(252)	0	(268)
CMBS
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation Calculation Roll Forward
Balance, beginning of period			4,563	0	1,623
Realized gains (losses)	0		(501)	0	(1,179)
Movement in unrealized gains (losses)	0		564	0	1,078
Purchases and issuances	33,369		0	33,369	3,155
Sales and settlements	0		(232)	0	(283)
Transfers into Level 3	0		0	0	0
Transfers out of Level 3	0		0	0	0
Fixed maturities to short term investments classification change				0
Balance, end of period	33,369		4,394	33,369	4,394
Movement in total gains (losses) above relating to instruments still held at the reporting date	0	0	63	0	(855)
CDO
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation Calculation Roll Forward
Balance, beginning of period	642,179		727,239	650,851	721,572
Realized gains (losses)	913		(2,662)	(523)	(3,733)
Movement in unrealized gains (losses)	35,886		(46,520)	75,489	(10,104)
Purchases and issuances	0		0	0	2,379
Sales and settlements	(5,347)		(12,215)	(51,024)	(46,158)
Transfers into Level 3	1,162		0	0	1,886
Transfers out of Level 3	0		0	0	0
Fixed maturities to short term investments classification change				0
Balance, end of period	674,793		665,842	674,793	665,842
Movement in total gains (losses) above relating to instruments still held at the reporting date	35,806		(49,432)	71,738	(15,656)
Other asset-backed securities
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation Calculation Roll Forward
Balance, beginning of period	25,248		17,048	16,552	24,650
Realized gains (losses)	7,017		(238)	6,748	(555)
Movement in unrealized gains (losses)	(6,552)		302	(2,873)	7,162
Purchases and issuances	8,753		0	8,753	0
Sales and settlements	(16,141)		0	(15,867)	(9,114)
Transfers into Level 3	0		0	3,850	0
Transfers out of Level 3	(1,162)		0	0	(5,031)
Fixed maturities to short term investments classification change				0
Balance, end of period	17,163		17,112	17,163	17,112
Movement in total gains (losses) above relating to instruments still held at the reporting date	456		64	3,652	6,287
Non-U.S. Sovereign Government, Provincial, Supranational, and Government-Related/Supported
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation Calculation Roll Forward
Balance, beginning of period					3,667
Realized gains (losses)					0
Movement in unrealized gains (losses)					0
Purchases and issuances					0
Sales and settlements					0
Transfers into Level 3					0
Transfers out of Level 3					(3,667)
Balance, end of period			0		0
Movement in total gains (losses) above relating to instruments still held at the reporting date					0
Other investments
Fair Value Assets Measured On Recurring Basis Unobservable Input Reconciliation Calculation Roll Forward
Balance, beginning of period	117,765		114,540	113,959	133,717
Realized gains (losses)	343		(244)	2,782	11,911
Movement in unrealized gains (losses)	1,686		2,642	6,206	10,134
Purchases and issuances	982		1,667	4,664	9,782
Sales and settlements	(807)		(4,243)	(7,327)	(51,182)
Transfers into Level 3	6		0	6	0
Transfers out of Level 3	0		0	(315)	0
Fixed maturities to short term investments classification change				0
Balance, end of period	119,975		114,362	119,975	114,362
Movement in total gains (losses) above relating to instruments still held at the reporting date	$ 1,334		$ 2,398	$ 2,385	$ 19,735

XML

Notes Payable and Debt and Financing Arrangements (Details) - Letter of credit summary (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012 LOCs	Dec. 31, 2011
Line of Credit Facility [Line Items]
Available letter of credit facilities - in use	$ 1,790,505	$ 1,871,192
Collateralized by certain assets of the Company's investment portfolio	93.50%	93.80%
Number of letter of credit facilities available	5
Letter of Credit [Member]
Line of Credit Facility [Line Items]
Available credit facilities - commitments	4,000,000	4,000,000
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Available credit facilities - commitments	$ 1,000,000	$ 1,000,000

XML

Share Capital (Tables)

9 Months Ended

Sep. 30, 2012

Stockholders Equity Note Abstract

Schedule Of Share Based Payment Award Stock Options Valuation Assumptions Table Text Block

Dividend yield	1.90	%
Risk free interest rate	1.15	%
Volatility	46.0	%
Expected lives	6.0	years

XML

Derivative Instruments (Details) - Schedule of derivative instruments designated as hedges of the net investment in a foreign operation (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
Derivatives Disclosure [Abstract]
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$ 1,920,421		$ 1,972,176		$ 1,892,964		$ 1,686,045
Derivative gains (losses)	$ (40,784)	[1]	$ 75,083	[1]	$ (21,879)	[1]	$ 5,876	[1]

[1] Derivative gains (losses) from derivative instruments designated as hedges of the net investment in a foreign operation are recorded in the cumulative translation adjustment account within AOCI for each period.

XML

Investments (Details) - Analysis of net realized gains (losses) and the change in unrealized (losses) gains on investments (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net realized gains (losses):
Gross realized gains	$ 33,136	$ 55,625	$ 153,757	$ 143,804
Gross realized losses on investments sold	(26,000)	(51,164)	(89,053)	(150,703)
OTTI on investments, net of amounts transferred to other comprehensive income	(12,629)	(66,815)	(61,787)	(131,436)
Total net realized gains (losses) on investments	$ (5,493)	$ (62,354)	$ 2,917	$ (138,335)

XML

Segment Information (Details) - Net premiums earned by line of business (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
P&C Operations:
P&C Operations	$ 1,468,553		$ 1,362,532		$ 4,227,423		$ 3,940,353
Life Operations:
Life Operations	79,487		90,794		243,630		272,695
Total	1,548,040		1,453,326		4,471,053		4,213,048
Life Operations Segment [Member]
Life Operations:
Life Operations	79,487		90,794		243,630		272,695
Total	79,487		90,794		243,630		272,695
Total P And C Segment [Member]
Life Operations:
Total	1,468,553		1,362,532		4,227,423		3,940,353
Insurance Segment [Member]
P&C Operations:
P&C Operations	985,623		930,067		2,878,973		2,713,430
Life Operations:
Total	985,623		930,067		2,878,973		2,713,430
Reinsurance Segment [Member]
P&C Operations:
P&C Operations	482,930		432,465		1,348,450		1,226,923
Life Operations:
Total	482,930		432,465		1,348,450		1,226,923
Casualty Professional Lines [Member] | Total P And C Segment [Member]
P&C Operations:
P&C Operations	393,596		371,046		1,156,499		1,114,975
Casualty Professional Lines [Member] | Insurance Segment [Member]
P&C Operations:
P&C Operations	345,722		319,101		1,000,417		957,399
Casualty Professional Lines [Member] | Reinsurance Segment [Member]
P&C Operations:
P&C Operations	47,874		51,945		156,082		157,576
Casualty Other Lines [Member] | Total P And C Segment [Member]
P&C Operations:
P&C Operations	263,063		236,958		748,064		685,872
Casualty Other Lines [Member] | Insurance Segment [Member]
P&C Operations:
P&C Operations	181,265		172,684		516,185		501,634
Casualty Other Lines [Member] | Reinsurance Segment [Member]
P&C Operations:
P&C Operations	81,798		64,274		231,879		184,238
Property Catastrophe [Member] | Total P And C Segment [Member]
P&C Operations:
P&C Operations	113,167		97,158		329,313		286,085
Property Catastrophe [Member] | Insurance Segment [Member]
P&C Operations:
P&C Operations	0		0		0		0
Property Catastrophe [Member] | Reinsurance Segment [Member]
P&C Operations:
P&C Operations	113,167		97,158		329,313		286,085
Other Property [Member] | Total P And C Segment [Member]
P&C Operations:
P&C Operations	311,714		281,979		850,795		777,486
Other Property [Member] | Insurance Segment [Member]
P&C Operations:
P&C Operations	140,858		120,394		399,170		344,403
Other Property [Member] | Reinsurance Segment [Member]
P&C Operations:
P&C Operations	170,856		161,585		451,625		433,083
Marine Energy Aviation And Satellite [Member] | Total P And C Segment [Member]
P&C Operations:
P&C Operations	163,588		170,452		499,040		493,209
Marine Energy Aviation And Satellite [Member] | Insurance Segment [Member]
P&C Operations:
P&C Operations	130,497		138,290		394,578		392,183
Marine Energy Aviation And Satellite [Member] | Reinsurance Segment [Member]
P&C Operations:
P&C Operations	33,091		32,162		104,462		101,026
Other Specialty Lines [Member] | Total P And C Segment [Member]
P&C Operations:
P&C Operations	185,622	[1]	178,706	[1]	559,826	[1]	512,399	[1]
Other Specialty Lines [Member] | Insurance Segment [Member]
P&C Operations:
P&C Operations	185,622	[1]	178,706	[1]	559,826	[1]	512,399	[1]
Other Specialty Lines [Member] | Reinsurance Segment [Member]
P&C Operations:
P&C Operations	0	[1]	0	[1]	0	[1]	0	[1]
Other Lines [Member] | Total P And C Segment [Member]
P&C Operations:
P&C Operations	37,803	[2]	26,233	[2]	83,886	[2]	70,327	[2]
Other Lines [Member] | Insurance Segment [Member]
P&C Operations:
P&C Operations	1,659	[2]	892	[2]	8,797	[2]	5,412	[2]
Other Lines [Member] | Reinsurance Segment [Member]
P&C Operations:
P&C Operations	36,144	[2]	25,341	[2]	75,089	[2]	64,915	[2]
Annuity [Member]
Life Operations:
Life Operations	31,960		33,342		94,660		100,232
Annuity [Member] | Life Operations Segment [Member]
Life Operations:
Life Operations	31,960		33,342		94,660		100,232
Other Life [Member]
Life Operations:
Life Operations	47,527		57,452		148,970		172,463
Other Life [Member] | Life Operations Segment [Member]
Life Operations:
Life Operations	$ 47,527		$ 57,452		$ 148,970		$ 172,463

[1] Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, specie, middle markets and excess and surplus lines.

[2] Other includes credit and surety, whole account contracts, structured indemnity and other lines.

XML

Derivative Instruments (Details) - Summary of financial operations derivatives credit exposure (USD $) In Thousands, unless otherwise specified			12 Months Ended			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2010	Dec. 31, 2011 Credit Exposure [Member] Standard Poors BB Rating Member	Sep. 30, 2012 Credit Exposure [Member] Standard Poors BB Rating Member contracts	Sep. 30, 2012 Credit Exposure [Member] Standard Poors BB Rating Member Structured Finance [Member] contracts	Sep. 30, 2012 Credit Exposure [Member] Standard Poors BB Rating Member Project Finance Loan Participation [Member] contracts	Sep. 30, 2012 Credit Exposure [Member] Standard Poors BBB Minus Rating
Credit Derivatives [Line Items]
Principal outstanding			$ 78,425				$ 55,484
Interest outstanding			3,253				2,665
Aggregate outstanding exposure			81,678				58,149
Total liability recorded	$ 10,152	$ 15,763	$ 10,288				$ 3,626
Weighted average years to maturity			5 years				4 years 6 months 0 days
Number of derivatives held and other disclosures:
Number of instruments held				2	1	1
Deficiency guarantee from German state and federal governments (percentage)						80.00%

XML

Commitments and Contingencies (Details) - Financial and other guarantee exposures (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012 contracts	Dec. 31, 2011 contracts
Financial Guarantee Member
Guarantor Obligations [Line Items]
Number of financial guarantee contracts at beginning of period	4	37
Number of financial guarantee contracts matured, prepaid or commuted during the period	0	(33)
Number of financial guarantee contracts at end of period	4	4
Principal outstanding	$ 115,464	$ 115,464
Interest outstanding	0	0
Aggregate outstanding exposure	115,464	115,464
Total gross claim liability recorded	1,399	1,399
Total unearned premiums and fees recorded	316	425
Weighted average contractual term to maturity	25 years 8 months 12 days	26 years 8 months 12 days
Financial Guarantee Related to Securities Including Some Issued By European Financials [Member]
Guarantor Obligations [Line Items]
Number of financial guarantee contracts at end of period	3
Aggregate outstanding exposure	108,300
Financial Guarantee Related to Future Scheduled Repayments On Government Subsidized Housing Project [Member]
Guarantor Obligations [Line Items]
Aggregate outstanding exposure	$ 7,200

XML

Derivative Instruments (Details) - Gross amounts of derivative fair values contained in the consolidated balance sheet (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Designated as Hedging Instrument [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	$ 532,583		$ 2,189,699
Asset derivative fair value	8,173	[1]	135,148	[1]
Liability derivative notional amount	2,237,428		457,892
Liability derivative fair value	(78,246)	[1]	(4,518)	[1]
Designated as Hedging Instrument [Member] | Interest Rate Contract [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	0	[2]	156,271	[2]
Asset derivative fair value	0	[1],[2]	109,761	[1],[2]
Liability derivative notional amount	0	[2]	0	[2]
Liability derivative fair value	0	[1],[2]	0	[1],[2]
Designated as Hedging Instrument [Member] | Foreign Exchange Contract [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	532,583		2,033,428
Asset derivative fair value	8,173	[1]	25,387	[1]
Liability derivative notional amount	2,237,428		457,892
Liability derivative fair value	(78,246)	[1]	(4,518)	[1]
Not Designated as Hedging Instrument [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	372,361		576,974
Asset derivative fair value	4,579	[1]	11,591	[1]
Liability derivative notional amount	587,559		1,063,914
Liability derivative fair value	(40,965)	[1]	(58,544)	[1]
Not Designated as Hedging Instrument [Member] | Interest Rate Contract [Member] | Investment Related Derivatives [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	83,265		70,978
Asset derivative fair value	2,402	[1]	1,946	[1]
Liability derivative notional amount	26,878		55,033
Liability derivative fair value	(292)	[1]	(43)	[1]
Not Designated as Hedging Instrument [Member] | Foreign Exchange Contract [Member] | Investment Related Derivatives [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	77,366		232,422
Asset derivative fair value	484	[1]	3,759	[1]
Liability derivative notional amount	19,902		384,592
Liability derivative fair value	(710)	[1]	(11,737)	[1]
Not Designated as Hedging Instrument [Member] | Credit Exposure [Member] | Investment Related Derivatives [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	62,000		172,500
Asset derivative fair value	906	[1]	5,271	[1]
Liability derivative notional amount	397,574		449,513
Liability derivative fair value	(15,627)	[1]	(13,986)	[1]
Not Designated as Hedging Instrument [Member] | Credit Exposure [Member] | Financial Operations Derivatives [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	0	[2],[3]	0	[2],[3]
Asset derivative fair value	0	[1],[2],[3]	0	[1],[2],[3]
Liability derivative notional amount	58,149	[2],[3]	81,678	[2],[3]
Liability derivative fair value	(3,626)	[1],[2],[3]	(10,288)	[1],[2],[3]
Not Designated as Hedging Instrument [Member] | Financial Market Exposure [Member] | Investment Related Derivatives [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	72,707		23,874
Asset derivative fair value	787	[1]	615	[1]
Liability derivative notional amount	17,528		14,321
Liability derivative fair value	(191)	[1]	0	[1]
Not Designated as Hedging Instrument [Member] | Guaranteed Minimum Income Benefit Contract [Member] | Other Non Investment Derivatives [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	0		0
Asset derivative fair value	0	[1]	0	[1]
Liability derivative notional amount	67,528		78,777
Liability derivative fair value	(20,519)	[1]	(22,490)	[1]
Not Designated as Hedging Instrument [Member] | Modified Coinsurance Funds Withheld Contract [Member] | Other Non Investment Derivatives [Member]
Derivatives Fair Value [Line Items]
Asset derivative notional amount	77,023		77,200
Asset derivative fair value	0	[1]	0	[1]
Liability derivative notional amount	0		0
Liability derivative fair value	$ 0	[1]	$ 0	[1]

[1] Derivative instruments in an asset or liability position are included within Other assets or Other liabilities, respectively, in the balance sheet.

[2] The Company held net cash collateral related to these derivative positions that is included within Cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative asset within the balance sheet as appropriate under the netting agreement.

[3] Financial operations derivatives represent interests in variable interest entities as described in Note 10, "Variable Interest Entities".

XML

Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Accounting Policies Abstract

Recent accounting pronouncements

2. Significant Accounting Policies

Recent Accounting Pronouncements

In October 2010, the FASB issued an accounting standards update to address disparities in practice regarding the interpretation of which costs relating to the acquisition of new and renewal insurance contracts qualify for deferral. The provisions of the guidance specify that only costs that are related directly to the successful acquisition of new and renewal insurance contracts may be capitalized. These include incremental direct costs of contract acquisition and certain other costs related directly to underwriting activities. Incremental direct costs of contract acquisition are those that result directly from and are essential to a contract transaction, and would not have been incurred by the insurance entity had the transaction not occurred. Administrative costs, rent, depreciation, occupancy, equipment and all other general overhead costs are considered indirect costs and should be charged to expense as incurred. On January 1, 2012, the Company adopted this guidance on a retrospective basis for all fiscal years presented, and interim periods within those years.The impact of adoption was a reduction in deferred acquisition costs of approximately $21 million, a reduction in deferred tax liabilities of approximately $7 million, and a corresponding reduction in opening retained earnings of approximately $14 million within the Company's December 31, 2011 balance sheet. The adoption of this guidance did not have an impact on the Company's consolidated statements of income or comprehensive income.

In May 2011, the FASB issued an accounting standards update to amend existing requirements for fair value measurements and disclosures. The guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair value hierarchy, requiring quantitative and qualitative information to be disclosed related to: (1) the valuation processes used, (2) the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, and (3) use of a nonfinancial asset in a way that differs from the asset's highest and best use. The guidance requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value, but whose fair value must be disclosed. It also clarifies and expands upon existing requirements for fair value measurements of financial assets and liabilities, as well as instruments classified in shareholders' equity. The Company has adopted this guidance from January 1, 2012; however, it impacted disclosure only and did not have an impact on the Company's financial condition or results of operations.See Note 3,“Fair Value Measurements,” for these updated disclosures.

 In June 2011, the FASB issued an accounting standards update concerning the presentation of comprehensive income in financial statements. This guidance allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This guidance eliminates the option to present the components of other comprehensive income only as part of the statement of changes in shareholders' equity. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. However, a separate accounting standards update issued in December 2011deferred indefinitely a provision within the original standardrequiring entities to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted the guidance from January 1, 2012;however, it did not have an impacton the Company's disclosure, financial condition or results of operations or cash flows.

In September 2011, the FASB issued an accounting standards update to simplify how entities test goodwill for impairment, by allowing an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying amount, as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required in FASB Accounting Standards Codification Topic 350. After assessing the circumstances that should be considered in making the qualitative assessment, if an entity determines that the fair value of a reporting unit as compared to its carrying value meets the threshold, then performing the two-step impairment step is unnecessary. In other circumstances, performance of the two-step test is required. The guidance also eliminates the option for an entity to carry forward its detailed calculation of a reporting unit's fair value in certain situations. The amendments do not change the current guidance for testing other indefinite-lived intangible assets for impairment. The Company adopted this guidance from January 1, 2012. It did not have an impact on the Company's consolidated financial condition or results of operations or cash flows.

In December 2011, the FASB issued new guidance requiring additional disclosures about financial instruments and derivative instruments that are either: (1) offset for balance sheet presentation purposes or (2) subject to an enforceable master netting arrangement or similar arrangement, regardless of whether they are offset for balance sheet presentation purposes. This guidance will be effective on January 1, 2013, with retrospective presentation of the new disclosures required. As this new guidance is disclosure-related only and does not amend the existing balance sheet offsetting guidance, the adoption of this guidance will not impact the Company's financial condition or results of operations or cash flows.

.

XML

Investments (Details) - Credit loss impairments on fixed income securities (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
OTTI related to credit losses recognized in earnings
Balance, beginning of period	$ 299,720	$ 315,844	$ 333,379	$ 426,372
Credit loss impairment recognized in the current period on securities not previously impaired	2,805	10,478	8,683	26,384
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	(33,114)	(14,611)	(87,092)	(173,056)
Credit loss impairments previously recognized on securities impaired to fair value during the period	0	0	(12,891)	0
Additional credit loss impairments recognized in the current period on securities previously impaired	4,834	35,574	41,716	74,372
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(2,773)	(4,010)	(12,323)	(10,797)
Balance, end of period	$ 271,472	$ 343,275	$ 271,472	$ 343,275

XML

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2012

Commitments And Contingencies Disclosure Abstract

Summary Of Financial And Other Guarantee Exposures [Table Text Block]

Financial Guarantee Exposure Summary	September 30,		December 31,
(U.S. dollars in thousands except number of contracts and term to maturity)	2012		2011
Opening number of financial guarantee contracts		4		37
Number of financial guarantee contracts matured, prepaid or commuted during the period		-		(33)
Closing number of financial guarantee contracts		4		4
Principal outstanding	$	115,464	$	115,464
Interest outstanding	$	-	$	-
Aggregate exposure outstanding	$	115,464	$	115,464
Total gross claim liability recorded	$	1,399	$	1,399
Total unearned premiums and fees recorded	$	316	$	425
Weighted average contractual term to maturity in years		25.7		26.7

XML

Computation of Earnings Per Ordinary Share and Ordinary Share Equivalent (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share Abstract

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

(U.S. dollars in thousands, except per share amounts)		Three Months Ended				Nine Months Ended
Basic earnings per ordinary share &		September 30,		September 30,		September 30,		September 30,
ordinary share equivalents outstanding:		2012		2011		2012		2011
	Net income (loss) attributable to ordinary shareholders	$	171,902	$	42,398	$	569,686	$	40,777
	Weighted average ordinary shares outstanding - basic		304,199		311,714		309,675		310,793
	Basic earnings per ordinary share & ordinary share equivalents outstanding	$	0.57	$	0.14	$	1.84	$	0.13
Diluted earnings per ordinary share &
ordinary share equivalents outstanding:
	Net income (loss) attributable to ordinary shareholders	$	171,902	$	42,398	$	569,686	$	40,777
	Weighted average ordinary shares outstanding - basic		304,199		311,714		309,675		310,793
	Impact of share based compensation and certain conversion features		3,565		2,134		2,927		4,049
	Weighted average ordinary shares outstanding - diluted		307,764		313,848		312,602		314,842
	Diluted earnings per ordinary share & ordinary share equivalents outstanding	$	0.56	$	0.14	$	1.82	$	0.13
Dividends per ordinary share		$	0.11	$	0.11	$	0.33	$	0.33

XML

Notes Payable and Debt and Financing Arrangements (Details) - Narrative (USD $)	9 Months Ended
	Sep. 30, 2012
Debt Instrument [Line Items]
Aggregated required statutory capital and surplus for principal operating subsidiaries	$ 6,700,000,000
Percentage ownership of XLIT Ltd. and XL Capital Finance (Europe) plc	100.00%
March 2011 Credit Agreement [Member]
Debt Instrument [Line Items]
Line Of Credit Facility Optional Increased Capacity	500,000,000
December 2011 Credit Agreements [Member]
Debt Instrument [Line Items]
Line Of Credit Facility Optional Increased Capacity	500,000,000
Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument Repurchased Face Amount	$ 600,000,000
Debt Instrument Interest Rate Stated Percentage	6.50%

XML

Investments (Details) - Structured transactions - project finance loans (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012 loans	Dec. 31, 2011 loans
Project Finance Loans:
Aggregate loan value	$ 36,960	$ 49,650
Aggregate loan net carrying amount	31,377	40,483
Allowance for loan losses rollforward:
Opening allowance for loan losses	9,167	9,167
Amounts charged off during the period	3,584	0
Closing allowance for loan losses	$ 5,583	$ 9,167
Other details:
Number of individual loan participations	4	6
Number of individual loan participations relating to the allowance for loan losses	1	2
Weighted average contractual term to maturity	0 years 10 months 24 days	2 years 1 month 6 days
Weighted average credit rating	BB	BB-
Range of individual credit ratings	BB+ to BB-	BB+ to CCC

XML

Significant Accounting Policies (Details) (Accounting Standards Update 2010-26 [Member], USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Accounting Standards Update 2010-26 [Member]
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Deferred tax liability, cumulative adjustment effect	$ 7.0
Deferred acquisition costs, cumulative adjustment effect	21.0
Net assets, cumulative adjustment effect	$ 14.0

XML

Fair Value Measurements (Details) - Narrative (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Available for sale fixed income securities, Fair Value	$ 27,426,293,000	$ 26,190,025,000
Available for sale fixed income securities, Amortized Cost	26,150,520,000	25,771,715,000
Fair value of securities - AFS	28,315,925,000	27,017,285,000
Available-for-sale Securities, Amortized Cost Basis	27,028,521,000	26,611,778,000
Derivative, Collateral, Obligation to Return Cash		77,100,000
Other investments - structured transactions	311,767,000	323,705,000
Spread on US Treasury rate for determining discount rate for fair value of deposit liabilities	1.023%	1.618%
Corporate [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Available for sale fixed income securities, Fair Value	10,007,137,000	10,108,622,000
Available for sale fixed income securities, Amortized Cost	9,392,587,000	9,866,677,000
Medium-term Notes [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Available for sale fixed income securities, Fair Value	192,300,000	266,000,000
Available for sale fixed income securities, Amortized Cost	199,800,000	297,700,000
Other asset-backed securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Available for sale fixed income securities, Fair Value	1,458,544,000	1,340,249,000
Available for sale fixed income securities, Amortized Cost	1,421,005,000	1,341,309,000
Covered Bonds [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Available for sale fixed income securities, Fair Value	599,900,000	353,900,000
Available for sale fixed income securities, Amortized Cost	561,500,000	345,400,000
Fixed Income Funds Member
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of securities - AFS	99,300,000	91,600,000
Available-for-sale Securities, Amortized Cost Basis	$ 100,000,000	$ 100,000,000

XML

Basis of Preparation and Consolidation

9 Months Ended

Sep. 30, 2012

Organization Consolidation And Presentation Of Financial Statements Abstract

Basis of preparation and consolidation

1. Basis of Preparation and Consolidation

Unless the context otherwise indicates, references herein to the “Company” include XL Group plc and its consolidated subsidiaries.

These unaudited consolidated financial statements include the accounts of the Company and all of its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. In the opinion of management, these unaudited financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of financial position and results of operations at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. All inter-company accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.For further information, see Item 8, Note 2(a), “Significant Accounting Policies – Basis of Preparation and Consolidation,” to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

To facilitate period-to-period comparisons, certain reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation.

XML

Fair Value Measurements (Details) - Schedule of assets and liabilities that were accounted for at fair value (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
ASSETS
Fixed maturities, at fair value	$ 27,426,293		$ 26,190,025
Equity securities, at fair value	565,927		468,197
Short-term investments, at fair value	323,705		359,063
Total investments available for sale	28,315,925		27,017,285
U.S. Government and Government - Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	2,135,368		1,990,983
Corporate [Member]
ASSETS
Fixed maturities, at fair value	10,007,137		10,108,622
Residential mortgage-backed securities - Agency ("RMBS - Agency") [Member]
ASSETS
Fixed maturities, at fair value	5,376,903		5,379,406
Residential mortgage-backed securities - Non-Agency ("RMBS - Non-Agency") [Member]
ASSETS
Fixed maturities, at fair value	636,325		641,815
Commercial mortgage-backed securities ("CMBS") [Member]
ASSETS
Fixed maturities, at fair value	1,034,409		974,835
Collateralized debt obligations ("CDO") [Member]
ASSETS
Fixed maturities, at fair value	682,566		658,602
Other asset-backed securities [Member]
ASSETS
Fixed maturities, at fair value	1,458,544		1,340,249
U.S. States and political subdivisions of the States [Member]
ASSETS
Fixed maturities, at fair value	1,820,105		1,797,378
Non-U.S. Sovereign Government, Provincial, Supranational, and Government-Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	4,274,936		3,298,135
Recurring
ASSETS
Fixed maturities, at fair value	27,426,293		26,190,025	[1]
Equity securities, at fair value	565,927	[2]	468,197	[2]
Short-term investments, at fair value	323,705	[3],[4]	359,063	[3],[4]
Total investments available for sale	28,315,925		27,017,285
Cash equivalents	2,359,617	[5]	2,754,365	[5]
Other investments	903,788	[6]	661,557	[6]
Other assets	52,151	[7]	65,734	[7]
Total assets accounted for at fair value	31,631,481		30,498,941
Liabilities:
Financial instruments sold, but not yet purchased	30,944	[8]	20,844	[8]
Other liabilities	117,071	[7]	58,706	[7]
Total liabilities accounted for at fair value	148,015		79,550
Recurring | U.S. Government and Government - Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	2,135,368		1,990,983
Recurring | Corporate [Member]
ASSETS
Fixed maturities, at fair value	10,007,137	[1],[3]	10,108,622	[1],[3]
Recurring | Residential mortgage-backed securities - Agency ("RMBS - Agency") [Member]
ASSETS
Fixed maturities, at fair value	5,376,903		5,379,406
Recurring | Residential mortgage-backed securities - Non-Agency ("RMBS - Non-Agency") [Member]
ASSETS
Fixed maturities, at fair value	636,325		641,815
Recurring | Commercial mortgage-backed securities ("CMBS") [Member]
ASSETS
Fixed maturities, at fair value	1,034,409		974,835
Recurring | Collateralized debt obligations ("CDO") [Member]
ASSETS
Fixed maturities, at fair value	682,566		658,602
Recurring | Other asset-backed securities [Member]
ASSETS
Fixed maturities, at fair value	1,458,544	[1]	1,340,249	[1]
Recurring | U.S. States and political subdivisions of the States [Member]
ASSETS
Fixed maturities, at fair value	1,820,105		1,797,378
Recurring | Non-U.S. Sovereign Government, Provincial, Supranational, and Government-Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	4,274,936		3,298,135
Recurring | Quoted prices in active markets for identical assets (Level 1)
ASSETS
Fixed maturities, at fair value	0		0	[1]
Equity securities, at fair value	230,539	[2]	239,175	[2]
Short-term investments, at fair value	0	[3],[4]	0	[3],[4]
Total investments available for sale	230,539		239,175
Cash equivalents	2,037,971	[5]	1,686,101	[5]
Other investments	0	[6]	0	[6]
Other assets	0	[7]	0	[7]
Total assets accounted for at fair value	2,268,510		1,925,276
Liabilities:
Financial instruments sold, but not yet purchased	0	[8]	0	[8]
Other liabilities	0	[7]	0	[7]
Total liabilities accounted for at fair value	0		0
Recurring | Quoted prices in active markets for identical assets (Level 1) | U.S. Government and Government - Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Quoted prices in active markets for identical assets (Level 1) | Corporate [Member]
ASSETS
Fixed maturities, at fair value	0	[1],[3]	0	[1],[3]
Recurring | Quoted prices in active markets for identical assets (Level 1) | Residential mortgage-backed securities - Agency ("RMBS - Agency") [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Quoted prices in active markets for identical assets (Level 1) | Residential mortgage-backed securities - Non-Agency ("RMBS - Non-Agency") [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Quoted prices in active markets for identical assets (Level 1) | Commercial mortgage-backed securities ("CMBS") [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Quoted prices in active markets for identical assets (Level 1) | Collateralized debt obligations ("CDO") [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Quoted prices in active markets for identical assets (Level 1) | Other asset-backed securities [Member]
ASSETS
Fixed maturities, at fair value	0	[1]	0	[1]
Recurring | Quoted prices in active markets for identical assets (Level 1) | U.S. States and political subdivisions of the States [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Quoted prices in active markets for identical assets (Level 1) | Non-U.S. Sovereign Government, Provincial, Supranational, and Government-Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Significant other observable inputs (Level 2)
ASSETS
Fixed maturities, at fair value	26,630,137		25,466,763	[1]
Equity securities, at fair value	335,388	[2]	229,022	[2]
Short-term investments, at fair value	323,705	[3],[4]	359,063	[3],[4]
Total investments available for sale	27,289,230		26,054,848
Cash equivalents	321,646	[5]	1,068,264	[5]
Other investments	783,813	[6]	547,598	[6]
Other assets	10,611	[7]	143,622	[7]
Total assets accounted for at fair value	28,405,300		27,814,332
Liabilities:
Financial instruments sold, but not yet purchased	30,944	[8]	20,844	[8]
Other liabilities	82,009	[7]	16,871	[7]
Total liabilities accounted for at fair value	112,953		37,715
Recurring | Significant other observable inputs (Level 2) | U.S. Government and Government - Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	2,135,368		1,990,983
Recurring | Significant other observable inputs (Level 2) | Corporate [Member]
ASSETS
Fixed maturities, at fair value	9,978,002	[1],[3]	10,084,804	[1],[3]
Recurring | Significant other observable inputs (Level 2) | Residential mortgage-backed securities - Agency ("RMBS - Agency") [Member]
ASSETS
Fixed maturities, at fair value	5,343,046		5,347,365
Recurring | Significant other observable inputs (Level 2) | Residential mortgage-backed securities - Non-Agency ("RMBS - Non-Agency") [Member]
ASSETS
Fixed maturities, at fair value	628,486		641,815
Recurring | Significant other observable inputs (Level 2) | Commercial mortgage-backed securities ("CMBS") [Member]
ASSETS
Fixed maturities, at fair value	1,001,040		974,835
Recurring | Significant other observable inputs (Level 2) | Collateralized debt obligations ("CDO") [Member]
ASSETS
Fixed maturities, at fair value	7,773		7,751
Recurring | Significant other observable inputs (Level 2) | Other asset-backed securities [Member]
ASSETS
Fixed maturities, at fair value	1,441,381	[1]	1,323,697	[1]
Recurring | Significant other observable inputs (Level 2) | U.S. States and political subdivisions of the States [Member]
ASSETS
Fixed maturities, at fair value	1,820,105		1,797,378
Recurring | Significant other observable inputs (Level 2) | Non-U.S. Sovereign Government, Provincial, Supranational, and Government-Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	4,274,936		3,298,135
Recurring | Significant other unobservable inputs (Level 3)
ASSETS
Fixed maturities, at fair value	796,156		723,262	[1]
Equity securities, at fair value	0	[2]	0	[2]
Short-term investments, at fair value	0	[3],[4]	0	[3],[4]
Total investments available for sale	796,156		723,262
Cash equivalents	0	[5]	0	[5]
Other investments	119,975	[6]	113,959	[6]
Other assets	0	[7]	0	[7]
Total assets accounted for at fair value	916,131		837,221
Liabilities:
Financial instruments sold, but not yet purchased	0	[8]	0	[8]
Other liabilities	35,062	[7]	42,644	[7]
Total liabilities accounted for at fair value	35,062		42,644
Recurring | Significant other unobservable inputs (Level 3) | U.S. Government and Government - Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Significant other unobservable inputs (Level 3) | Corporate [Member]
ASSETS
Fixed maturities, at fair value	29,135	[1],[3]	23,818	[1],[3]
Recurring | Significant other unobservable inputs (Level 3) | Residential mortgage-backed securities - Agency ("RMBS - Agency") [Member]
ASSETS
Fixed maturities, at fair value	33,857		32,041
Recurring | Significant other unobservable inputs (Level 3) | Residential mortgage-backed securities - Non-Agency ("RMBS - Non-Agency") [Member]
ASSETS
Fixed maturities, at fair value	7,839		0
Recurring | Significant other unobservable inputs (Level 3) | Commercial mortgage-backed securities ("CMBS") [Member]
ASSETS
Fixed maturities, at fair value	33,369		0
Recurring | Significant other unobservable inputs (Level 3) | Collateralized debt obligations ("CDO") [Member]
ASSETS
Fixed maturities, at fair value	674,793		650,851
Recurring | Significant other unobservable inputs (Level 3) | Other asset-backed securities [Member]
ASSETS
Fixed maturities, at fair value	17,163	[1]	16,552	[1]
Recurring | Significant other unobservable inputs (Level 3) | U.S. States and political subdivisions of the States [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Significant other unobservable inputs (Level 3) | Non-U.S. Sovereign Government, Provincial, Supranational, and Government-Related/Supported [Member]
ASSETS
Fixed maturities, at fair value	0		0
Recurring | Collateral and counterparty netting
ASSETS
Other assets	41,540	[7]	(77,888)	[7]
Total assets accounted for at fair value	41,540		(77,888)
Liabilities:
Other liabilities	0	[7]	(809)	[7]
Total liabilities accounted for at fair value	$ 0		$ (809)

[1] The Company invests in covered bonds issued by financial institutions ("Covered Bonds"). Covered Bonds are senior secured debt instruments issued by financial institutions and backed by over-collateralized pools of public sector or mortgage loans. Covered Bonds are included within Other asset-backed securities to align the Company's classification to market indices.

[2] Certain investments in fixed income funds are included within equity securities.

[3] Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage.

[4] Short-term investments consist primarily of Corporate securities and U.S. Government and Government-Related/Supported securities.

[5] Cash equivalents balances subject to fair value measurement include certificates of deposit and money market funds. Operating cash balances are not subject to fair value measurement guidance.

[6] The Other investments balance excludes certain structured transactions including certain investments in project finance transactions, a payment obligation and liquidity financing provided to a structured credit vehicle as part of a third party medium term note facility. These investments are carried at amortized cost.

[7] Other assets and other liabilities include derivative instruments. The derivative balances included in each category above are reported on a gross basis by level with a netting adjustment presented separately in the "Collateral and Counterpary Netting" column. The Company often enters into different types of derivative contracts with a single counterparty and these contracts are covered under a netting agreement.. Net cash collateral related to derivative positions is included within cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative positions within the balance sheet as appropriate under the netting agreement. The fair values of the individual derivative contracts are reported gross in their respective levels based on the fair value hierarchy.

[8] Financial instruments sold, but not yet purchased, represent "short sales" and are included within "Payable for investments purchased" on the balance sheet.

XML

Investments (Details) - Contractual maturities of available for sale securities and held to maturity income securities (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
AFS securities
Due less than one year, amortized cost	$ 2,165,727	$ 2,004,395
Due less than one year, fair value	2,176,654	2,020,361
Due after 1 through 5 years, amortized cost	8,413,665	7,736,717
Due after 1 through 5 years, fair value	8,787,679	7,909,354
Due after 5 through 10 years, amortized cost	4,252,492	3,619,141
Due after 5 through 10 years, fair value	4,609,302	3,777,073
Due after 10 years, amortized cost	2,309,841	3,257,886
Due after 10 years, fair value	2,663,911	3,488,330
Subtotal - amortized cost	17,141,725	16,618,139
Subtotal - fair value	18,237,546	17,195,118
Mortgage and asset-backed securities - amortized cost	9,008,795	9,153,576
Mortgage and asset-backed securities - fair value	9,188,747	8,994,907
Amortized cost of Fixed maturities	26,150,520	25,771,715
Fixed maturities, at fair value	27,426,293	26,190,025
Fixed maturities - HTM
Due less than one year, amortized cost	25,392	11,796
Due less than one year, fair value	25,615	11,768
Due after 1 through 5 years, amortized cost	171,077	122,091
Due after 1 through 5 years, fair value	180,080	123,871
Due after 5 through 10 years, amortized cost	407,520	393,865
Due after 5 through 10 years, fair value	447,813	402,424
Due after 10 years, amortized cost	1,880,486	1,771,530
Due after 10 years, fair value	2,207,457	1,960,886
Subtotal - amortized cost	2,484,475	2,299,282
Subtotal - fair value	2,860,965	2,498,949
Mortage and asset-backed securities - amortized cost	321,321	369,696
Mortgage and asset-backed securities - fair value	361,935	396,739
Amortized Cost	2,805,796	2,668,978
Fair Value	3,222,900	2,895,688
RMBS - Agency
AFS securities
Mortgage and asset-backed securities - amortized cost	5,126,903	5,189,473
Mortgage and asset-backed securities - fair value	5,376,903	5,379,406
Fixed maturities, at fair value	5,376,903	5,379,406
RMBS - Non-Agency
AFS securities
Mortgage and asset-backed securities - amortized cost	705,785	851,557
Mortgage and asset-backed securities - fair value	636,325	641,815
Fixed maturities, at fair value	636,325	641,815
Fixed maturities - HTM
Mortage and asset-backed securities - amortized cost	83,896	80,955
Mortgage and asset-backed securities - fair value	93,478	87,443
Amortized Cost	83,896	80,955
Fair Value	93,478	87,443
CMBS
AFS securities
Mortgage and asset-backed securities - amortized cost	963,365	927,684
Mortgage and asset-backed securities - fair value	1,034,409	974,835
Fixed maturities, at fair value	1,034,409	974,835
Fixed maturities - HTM
Mortage and asset-backed securities - amortized cost	12,917	0
Mortgage and asset-backed securities - fair value	15,026	0
Amortized Cost	12,917
Fair Value	15,026
CDO
AFS securities
Mortgage and asset-backed securities - amortized cost	791,737	843,553
Mortgage and asset-backed securities - fair value	682,566	658,602
Fixed maturities, at fair value	682,566	658,602
Other asset-backed securities
AFS securities
Mortgage and asset-backed securities - amortized cost	1,421,005	1,341,309
Mortgage and asset-backed securities - fair value	1,458,544	1,340,249
Fixed maturities, at fair value	1,458,544	1,340,249
Fixed maturities - HTM
Mortage and asset-backed securities - amortized cost	224,508	288,741
Mortgage and asset-backed securities - fair value	253,431	309,296
Amortized Cost	224,508	288,741
Fair Value	$ 253,431	$ 309,296

XML

Derivative Instruments (Details) - Summary of contingent credit features (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2010
Derivatives Disclosure [Abstract]
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$ 10,152	$ 15,763
Collateral posted to counterparty	$ 0	$ 809

XML

UNAUDITED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Investments:
Fixed maturities, at fair value (amortized cost: 2012, $26,150,520; 2011, $25,771,715)	$ 27,426,293	$ 26,190,025
Equity securities, at fair value (cost: 2012, $554,962; 2010, $480,685)	565,927	468,197
Short-term investments, at fair value (amortized cost: 2012, $323,039; 2011, $359,378)	323,705	359,063
Total investments available for sale	28,315,925	27,017,285
Fixed maturities, held to maturity at amortized cost (fair value: 2012, $3,222,900; 2011, $2,895,688)	2,805,796	2,668,978
Investments in affiliates	1,027,122	1,052,729
Other investments	1,215,556	985,262
Total investments	33,364,399	31,724,254
Cash and cash equivalents	3,197,305	3,825,125
Accrued investment income	365,516	331,758
Deferred acquisition costs	720,847	647,113
Ceded unearned premiums	721,465	596,895
Premiums receivable	2,791,807	2,411,611
Reinsurance balances receivable	225,251	220,017
Unpaid losses and loss expenses recoverable	3,319,266	3,654,948
Receivable from investments sold	45,328	59,727
Goodwill and other intangible assets	407,221	407,321
Deferred tax asset	132,931	115,601
Other assets	688,992	670,895
Total assets	45,980,328	44,665,265
Liabilities:
Unpaid losses and loss expenses	20,074,668	20,613,901
Deposit liabilities	1,561,076	1,608,108
Future policy benefit reserves	4,848,734	4,845,394
Unearned premiums	4,081,557	3,555,310
Notes payable and debt	1,673,350	2,275,327
Reinsurance balances payable	508,177	90,552
Payable for investments purchased	281,630	58,494
Deferred tax liability	192,419	91,104
Other liabilities	1,001,298	770,945
Total liabilities	34,222,909	33,909,135
Commitments and Contingencies
Shareholders' Equity:
Ordinary shares, 999,990,000 authorized, par value $0.01; issued and outstanding: (2012, 300,580,557; 2011, 315,645,796)	3,006	3,156
Additional paid in capital	8,630,377	8,938,679
Accumulated other comprehensive income	1,423,448	583,064
Retained earnings (deficit)	354,206	(113,241)
Shareholders' equity attributable to XL Group plc	10,411,037	9,411,658
Non-controlling interest in equity of consolidated subsidiaries	1,346,382	1,344,472
Total shareholders' equity	11,757,419	10,756,130
Total liabilities and shareholders' equity	$ 45,980,328	$ 44,665,265

XML

Investments (Details) - Investment Fund Consolidation (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Dec. 31, 2010
Investment Fund Consolidation [Line Items]
Fixed maturities, at fair value	$ 27,426,293,000	$ 26,190,025,000
Cost or Amortized cost of Fixed maturities	26,150,520,000	25,771,715,000
Cash and cash equivalents	3,197,305,000	3,825,125,000	3,176,283,000	3,022,868,000
Other liabilities	1,001,298,000	770,945,000
Non-controlling interest in equity of consolidated subsidiaries	1,346,382,000	1,344,472,000
Five Oaks Investment Corp [Member]
Investment Fund Consolidation [Line Items]
Investment amount	25,000,000
Percentage ownership	94.00%
Cash and cash equivalents	6,800,000
Other liabilities	76,800,000
Non-controlling interest in equity of consolidated subsidiaries	1,900,000
Securities pledged as collateral	91,100,000
Five Oaks Investment Corp [Member] | Maximum
Investment Fund Consolidation [Line Items]
Investment Fund Maximum Leverage Permitted	79,500,000
Five Oaks Investment Corp [Member] | Residential Mortgage Backed Securities Member
Investment Fund Consolidation [Line Items]
Fixed maturities, at fair value	103,300,000
Cost or Amortized cost of Fixed maturities	$ 95,400,000

XML

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $) In Thousands	Total	Ordinary Shares	Additional Paid in Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings (Deficit)	Non-controlling Interest in Equity of Consolidated Subsidiaries
Balance at Dec. 31, 2010		$ 3,165	$ 8,993,016	$ 100,795	$ 500,497	$ 1,002,296
Issuance of ordinary shares		307	573,460
Buybacks of ordinary shares		(267)	(566,673)
Exercise of stock options		1	1,195
Share based compensation expense			29,261
Change in net unrealized gains (losses) on investments, net of tax				291,330
Change in net unrealized gains (losses) on affiliate and other investments, net of tax	35,620			35,620
Change in OTTI losses recognized in other comprehensive income, net of tax				28,119
Change in underfunded pension liability	1,287			1,287
Change in value of cash flow hedge	330			330
Foreign currency translation adjustments	(1,278)			(1,278)
Net income (loss) attributable to XL Group plc	40,777				40,777
Dividends on ordinary shares					(104,020)
Non-controlling interests - contribution						0
Non-controlling interests						4
Non-controlling interest share in change in accumulated other comprehensive income (loss)						(16)
Purchase of Series E preference ordinary shares						(500)
Balance at Sep. 30, 2011	10,928,706	3,206	9,030,259	456,203	437,254	1,001,784
Balance at Dec. 31, 2011	10,756,130	3,156	8,938,679	583,064	(113,241)	1,344,472
Issuance of ordinary shares		9	1,380
Buybacks of ordinary shares		(162)	(350,996)
Exercise of stock options		3	4,784
Share based compensation expense			36,530
Change in net unrealized gains (losses) on investments, net of tax				778,299
Change in net unrealized gains (losses) on affiliate and other investments, net of tax	30,998			30,998
Change in OTTI losses recognized in other comprehensive income, net of tax				52,353
Change in underfunded pension liability	(2,033)			(2,033)
Change in value of cash flow hedge	330			330
Foreign currency translation adjustments	(19,563)			(19,563)
Net income (loss) attributable to XL Group plc	569,686				569,686
Dividends on ordinary shares					(102,239)
Non-controlling interests - contribution						1,500
Non-controlling interests						(63)
Non-controlling interest share in change in accumulated other comprehensive income (loss)						473
Purchase of Series E preference ordinary shares						0
Balance at Sep. 30, 2012	$ 11,757,419	$ 3,006	$ 8,630,377	$ 1,423,448	$ 354,206	$ 1,346,382

XML

Computation of Earnings Per Ordinary Share and Ordinary Share Equivalent (Details) - Narrative (Stock Compensation Plan Member) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock Compensation Plan Member
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	8.6	10.0	8.8	10.0

XML

Segment Information (Details) - Narrative (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012 segments		Sep. 30, 2011
Segment Reporting Information [Line Items]
Number of Operating Segments					3
Net results from structured products	$ 5,701	[1]	$ 5,845	[1]	$ (2,848)	[1]	$ 18,235	[1]
Alternative Funds [Member]
Segment Reporting Information [Line Items]
Investment income, time lag for reporting	1 month				1 month
Private Investment And Operating Fund Affiliates [Member]
Segment Reporting Information [Line Items]
Investment income, time lag for reporting	3 months				3 months
Total P And C Segment [Member]
Segment Reporting Information [Line Items]
Net results from structured products	5,701	[1]	5,845	[1]	(2,848)	[1]	18,235	[1]
Total P And C Segment [Member] | Net Investment Income [Member]
Segment Reporting Information [Line Items]
Net results from structured products	17,400		18,900		52,200	[1]	57,000
Total P And C Segment [Member] | Interest Expense [Member]
Segment Reporting Information [Line Items]
Net results from structured products	$ (11,700)		$ (13,000)		$ (55,000)		$ (38,800)

[1] The net results from P&C structured products include net investment income and interest expense.

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2012

Segment Reporting Abstract

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Three Months Ended September 30, 2012							Life
(U.S. dollars in thousands, except ratios)	Insurance		Reinsurance		Total P&C		Operations		Total
Gross premiums written	$	1,158,683	$	417,548	$	1,576,231	$	87,413	$	1,663,644
Net premiums written		905,054		403,210		1,308,264		79,487		1,387,751
Net premiums earned		985,623		482,930		1,468,553		79,487		1,548,040
Net losses and loss expenses		(623,543)		(270,533)		(894,076)		(119,439)		(1,013,515)
Acquisition costs		(128,514)		(97,739)		(226,253)		(10,094)		(236,347)
Operating expenses (1)		(186,794)		(47,227)		(234,021)		(2,352)		(236,373)
Underwriting profit (loss)	$	46,772	$	67,431	$	114,203	$	(52,398)	$	61,805
Net investment income						148,482		73,479		221,961
Net results from structured products (2)		3,087		2,614		5,701		-		5,701
Net fee income and other (3)		591		657		1,248		240		1,488
Net realized gains (losses) on investments						2,257		(7,750)		(5,493)
Contribution from P&C and Life Operations					$	271,891	$	13,571	$	285,462
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments										6,254
Net income (loss) from investment fund affiliates and operating affiliates (4)										18,967
Exchange gains (losses)										(18,690)
Corporate operating expenses										(57,604)
Interest expense (5)										(26,192)
Non-controlling interests										(35,844)
Income tax										(451)
Net income (loss) attributable to XL Group plc									$	171,902
Ratios – P&C operations: (6)
Loss and loss expense ratio		63.3%		56.0%		60.9%
Underwriting expense ratio		32.0%		30.0%		31.3%
Combined ratio		95.3%		86.0%		92.2%

_______________

(1)       Operating expenses exclude Corporate operating expenses, shown separately.

(2)       The net results from P&C structured products include net investment income and interest expense of $17.4 million and $11.7 million, respectively.

(3)       Net fee income and other includes operating expenses from the Company's loss prevention consulting services business.

(4)       The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

(5)       Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.

(6)       Ratios are based on net premiums earned from P&C operations.

Three Months Ended September 30, 2011							Life
(U.S. dollars in thousands, except ratios)	Insurance		Reinsurance		Total P&C		Operations		Total
Gross premiums written	$	1,156,901	$	619,260	$	1,776,161	$	100,564	$	1,876,725
Net premiums written		872,757		419,949		1,292,706		90,769		1,383,475
Net premiums earned		930,067		432,465		1,362,532		90,794		1,453,326
Net losses and loss expenses		(767,091)		(220,968)		(988,059)		(139,549)		(1,127,608)
Acquisition costs		(118,521)		(79,839)		(198,360)		(9,193)		(207,553)
Operating expenses (1)		(158,134)		(40,179)		(198,313)		(2,352)		(200,665)
Underwriting profit (loss)	$	(113,679)	$	91,479	$	(22,200)	$	(60,300)	$	(82,500)
Net investment income						190,886		80,349		271,235
Net results from structured products (2)		2,457		3,388		5,845		-		5,845
Net fee income and other (3)		(3,484)		1,120		(2,364)		41		(2,323)
Net realized gains (losses) on investments						(39,047)		(23,307)		(62,354)
Contribution from P&C and Life Operations					$	133,120	$	(3,217)	$	129,903
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments										(26,916)
Net income (loss) from investment fund affiliates and operating affiliates (4)										28,429
Exchange gains (losses)										39,425
Corporate operating expenses										(33,847)
Interest expense (5)										(35,885)
Non-controlling interests										(33,993)
Income tax										(24,718)
Net income (loss) attributable to XL Group plc									$	42,398
Ratios – P&C operations: (6)
Loss and loss expense ratio		82.5%		51.1%		72.5%
Underwriting expense ratio		29.7%		27.7%		29.1%
Combined ratio		112.2%		78.8%		101.6%

_______________

(1)       Operating expenses exclude Corporate operating expenses, shown separately.

(2)       The net results from P&C structured products include net investment income and interest expense of $18.9 million and $13.0 million, respectively.

(3)       Net fee income and other includes operating expenses from the Company's loss prevention consulting services business and expenses related to the cost of an endorsement facility with National Indemnity Company.

(4)       The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

(5)       Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.

(6)       Ratios are based on net premiums earned from P&C operations.

Nine Months Ended September 30, 2012							Life
(U.S. dollars in thousands, except ratios)	Insurance		Reinsurance		Total P&C		Operations		Total
Gross premiums written	$	3,806,351	$	1,850,315	$	5,656,666	$	267,000	$	5,923,666
Net premiums written		2,885,847		1,732,923		4,618,770		243,606		4,862,376
Net premiums earned		2,878,973		1,348,450		4,227,423		243,630		4,471,053
Net losses and loss expenses		(1,890,512)		(683,984)		(2,574,496)		(371,896)		(2,946,392)
Acquisition costs		(380,054)		(273,706)		(653,760)		(25,675)		(679,435)
Operating expenses (1)		(564,387)		(127,965)		(692,352)		(7,788)		(700,140)
Underwriting profit (loss)	$	44,020	$	262,795	$	306,815	$	(161,729)	$	145,086
Net investment income						492,031		223,150		715,181
Net results from structured products (2)		14,953		(17,801)		(2,848)		-		(2,848)
Net fee income and other (3)		(3,276)		1,980		(1,296)		330		(966)
Net realized gains (losses) on investments						25,070		(22,153)		2,917
Contribution from P&C and Life Operations					$	819,772	$	39,598	$	859,370
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments										2,656
Net income (loss) from investment fund affiliates and operating affiliates (4)										80,286
Exchange gains (losses)										(13,432)
Corporate operating expenses										(151,925)
Interest expense (5)										(79,601)
Non-controlling interests										(75,855)
Income tax										(51,813)
Net income (loss) attributable to XL Group plc									$	569,686
Ratios – P&C operations: (6)
Loss and loss expense ratio		65.7%		50.7%		60.9%
Underwriting expense ratio		32.8%		29.8%		31.8%
Combined ratio		98.5%		80.5%		92.7%

_______________

(1)       Operating expenses exclude Corporate operating expenses, shown separately.

(2)       The net results from P&C structured products include net investment income and interest expense of $52.2 million and $55.0 million, respectively.

(3)       Net fee income and other includes operating expenses from the Company's loss prevention consulting services business.

(4)       The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

(5)       Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.

(6)       Ratios are based on net premiums earned from P&C operations.

Nine Months Ended September 30, 2011							Life
(U.S. dollars in thousands, except ratios)	Insurance		Reinsurance		Total P&C		Operations		Total
Gross premiums written	$	3,669,280	$	1,968,444	$	5,637,724	$	298,504	$	5,936,228
Net premiums written		2,684,938		1,628,109		4,313,047		272,635		4,585,682
Net premiums earned		2,713,430		1,226,923		3,940,353		272,695		4,213,048
Net losses and loss expenses		(2,163,786)		(856,722)		(3,020,508)		(410,196)		(3,430,704)
Acquisition costs		(340,048)		(244,813)		(584,861)		(26,281)		(611,142)
Operating expenses (1)		(488,837)		(129,362)		(618,199)		(7,241)		(625,440)
Underwriting profit (loss)	$	(279,241)	$	(3,974)	$	(283,215)	$	(171,023)	$	(454,238)
Net investment income						570,504		239,382		809,886
Net results from structured products (2)		8,407		9,828		18,235		-		18,235
Net fee income and other (3)		(12,614)		2,505		(10,109)		178		(9,931)
Net realized gains (losses) on investments						(76,181)		(62,154)		(138,335)
Contribution from P&C and Life Operations					$	219,234	$	6,383	$	225,617
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments										(34,299)
Net income (loss) from investment fund affiliates and operating affiliates (4)										125,716
Exchange gains (losses)										38,409
Corporate operating expenses										(109,105)
Interest expense (5)										(119,383)
Non-controlling interests										(69,431)
Income tax										(16,747)
Net income (loss) attributable to XL Group plc									$	40,777
Ratios – P&C operations: (6)
Loss and loss expense ratio		79.7%		69.8%		76.7%
Underwriting expense ratio		30.6%		30.5%		30.5%
Combined ratio		110.3%		100.3%		107.2%

_______________

(1)       Operating expenses exclude Corporate operating expenses, shown separately.

(2)       The net results from P&C structured products include net investment income and interest expense of $57.0 million and $38.8 million, respectively.

(3)       Net fee income and other includes operating expenses from the Company's loss prevention consulting services business and expenses related to the cost of an endorsement facility with National Indemnity Company.

(4)       The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

(5)       Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.

(6)       Ratios are based on net premiums earned from P&C operations.

Schedule Of Net Premiums Earned By Line Of Business [Text Block]

Three Months Ended September 30, 2012						Life
(U.S. dollars in thousands)		Insurance		Reinsurance		Operations		Total
P&C Operations:
	Casualty - professional lines	$	345,722	$	47,874	$	-	$	393,596
	Casualty - other lines		181,265		81,798		-		263,063
	Property catastrophe		-		113,167		-		113,167
	Other property		140,858		170,856		-		311,714
	Marine, energy, aviation and satellite		130,497		33,091		-		163,588
	Other specialty lines (1)		185,622		-		-		185,622
	Other (2)		1,659		36,144		-		37,803
Total P&C Operations		$	985,623	$	482,930	$	-	$	1,468,553
Life Operations:
	Annuity	$	-	$	-	$	31,960	$	31,960
	Other Life		-		-		47,527		47,527
Total Life Operations		$	-	$	-	$	79,487	$	79,487
Total		$	985,623	$	482,930	$	79,487	$	1,548,040
Three Months Ended September 30, 2011
(U.S. dollars in thousands)
P&C Operations:
	Casualty - professional lines	$	319,101	$	51,945	$	-	$	371,046
	Casualty - other lines		172,684		64,274		-		236,958
	Property catastrophe		-		97,158		-		97,158
	Other property		120,394		161,585		-		281,979
	Marine, energy, aviation and satellite		138,290		32,162		-		170,452
	Other specialty lines (1)		178,706		-		-		178,706
	Other (2)		892		25,341		-		26,233
Total P&C Operations		$	930,067	$	432,465	$	-	$	1,362,532
Life Operations:
	Annuity	$	-	$	-	$	33,342	$	33,342
	Other Life		-		-		57,452		57,452
Total Life Operations		$	-	$	-	$	90,794	$	90,794
Total		$	930,067	$	432,465	$	90,794	$	1,453,326

_______________

(1)       Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, fine art and specie, middle markets, political risk and trade credit, product recall, surety, inland marine and surplus lines.

(2)       Other includes whole account contracts, structured indemnity, internal reinsurance and other lines.

Nine Months Ended September 30, 2012						Life
(U.S. dollars in thousands)		Insurance		Reinsurance		Operations		Total
P&C Operations:
	Casualty - professional lines	$	1,000,417	$	156,082	$	-	$	1,156,499
	Casualty - other lines		516,185		231,879		-		748,064
	Property catastrophe		-		329,313		-		329,313
	Other property		399,170		451,625		-		850,795
	Marine, energy, aviation and satellite		394,578		104,462		-		499,040
	Other specialty lines (1)		559,826		-		-		559,826
	Other (2)		8,797		75,089		-		83,886
Total P&C Operations		$	2,878,973	$	1,348,450	$	-	$	4,227,423
Life Operations:
	Annuity	$	-	$	-	$	94,660	$	94,660
	Other Life		-		-		148,970		148,970
Total Life Operations		$	-	$	-	$	243,630	$	243,630
Total		$	2,878,973	$	1,348,450	$	243,630	$	4,471,053
Nine Months Ended September 30, 2011
(U.S. dollars in thousands)
P&C Operations:
	Casualty - professional lines	$	957,399	$	157,576	$	-	$	1,114,975
	Casualty - other lines		501,634		184,238		-		685,872
	Property catastrophe		-		286,085		-		286,085
	Other property		344,403		433,083		-		777,486
	Marine, energy, aviation and satellite		392,183		101,026		-		493,209
	Other specialty lines (1)		512,399		-		-		512,399
	Other (2)		5,412		64,915		-		70,327
Total P&C Operations		$	2,713,430	$	1,226,923	$	-	$	3,940,353
Life Operations:
	Annuity	$	-	$	-	$	100,232	$	100,232
	Other Life		-		-		172,463		172,463
Total Life Operations		$	-	$	-	$	272,695	$	272,695
Total		$	2,713,430	$	1,226,923	$	272,695	$	4,213,048

_______________

(1)       Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, fine art and specie, middle markets, political risk and trade credit, product recall, surety, inland marine and surplus lines.

(2)       Other includes whole account contracts, structured indemnity, internal reinsurance and other lines.

XML

Segment Information (Details) - Statement of earnings by segment (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
Segment Reporting Information [Line Items]
Gross premiums written	$ 1,663,644		$ 1,876,725		$ 5,923,666		$ 5,936,228
Net premiums written	1,387,751		1,383,475		4,862,376		4,585,682
Net premiums earned	1,548,040		1,453,326		4,471,053		4,213,048
Net losses and loss expenses	(1,013,515)		(1,127,608)		(2,946,392)		(3,430,704)
Acquisition costs	(236,347)		(207,553)		(679,435)		(611,142)
Operating expenses	(236,373)	[1]	(200,665)	[1]	(700,140)	[1]	(625,440)	[1]
Underwriting profit (loss)	61,805		(82,500)		145,086		(454,238)
Net investment income	221,961		271,235		715,181		809,886
Net results from structured products	5,701	[2]	5,845	[2]	(2,848)	[2]	18,235	[2]
Net fee income and other	1,488	[3]	(2,323)	[4]	(966)	[3]	(9,931)	[4]
Net realized gains (losses) on investments	(5,493)		(62,354)		2,917		(138,335)
Contribution from P&C and life operations	285,462		129,903		859,370		225,617
Corporate & other:
Net realized & unrealized (gains) losses on derivative instruments	6,254		(26,916)		2,656		(34,299)
Net income (loss) from investment fund affiliates and operating affiliates	18,967	[5]	28,429	[5]	80,286	[5]	125,716	[5]
Exchange gains (losses)	(18,690)		39,425		(13,432)		38,409
Corporate operating expenses	(57,604)		(33,847)		(151,925)		(109,105)
Interest expense	(26,192)	[6]	(35,885)	[6]	(79,601)	[6]	(119,383)	[6]
Non-controlling interests	(35,844)		(33,993)		(75,855)		(69,431)
Income tax	(451)		(24,718)		(51,813)		(16,747)
Net income (loss) attributable to XL Group plc and ordinary shareholders	171,902		42,398		569,686		40,777
Total P And C Segment [Member]
Segment Reporting Information [Line Items]
Gross premiums written	1,576,231		1,776,161		5,656,666		5,637,724
Net premiums written	1,308,264		1,292,706		4,618,770		4,313,047
Net premiums earned	1,468,553		1,362,532		4,227,423		3,940,353
Net losses and loss expenses	(894,076)		(988,059)		(2,574,496)		(3,020,508)
Acquisition costs	(226,253)		(198,360)		(653,760)		(584,861)
Operating expenses	(234,021)	[1]	(198,313)	[1]	(692,352)	[1]	(618,199)	[1]
Underwriting profit (loss)	114,203		(22,200)		306,815		(283,215)
Net investment income	148,482		190,886		492,031		570,504
Net results from structured products	5,701	[2]	5,845	[2]	(2,848)	[2]	18,235	[2]
Net fee income and other	1,248	[3]	(2,364)	[4]	(1,296)	[3]	(10,109)	[4]
Net realized gains (losses) on investments	2,257		(39,047)		25,070		(76,181)
Contribution from P&C and life operations	271,891		133,120		819,772		219,234
Ratios - P&C operations: (6)
Loss and loss expense ratio	60.90%	[7]	72.50%	[7]	60.90%	[7]	76.70%	[7]
Underwriting expense ratio	31.30%	[7]	29.10%	[7]	31.80%	[7]	30.50%	[7]
Combined ratio	92.20%	[7]	101.60%	[7]	92.70%	[7]	107.20%	[7]
Insurance Segment [Member]
Segment Reporting Information [Line Items]
Gross premiums written	1,158,683		1,156,901		3,806,351		3,669,280
Net premiums written	905,054		872,757		2,885,847		2,684,938
Net premiums earned	985,623		930,067		2,878,973		2,713,430
Net losses and loss expenses	(623,543)		(767,091)		(1,890,512)		(2,163,786)
Acquisition costs	(128,514)		(118,521)		(380,054)		(340,048)
Operating expenses	(186,794)	[1]	(158,134)	[1]	(564,387)	[1]	(488,837)	[1]
Underwriting profit (loss)	46,772		(113,679)		44,020		(279,241)
Net results from structured products	3,087	[2]	2,457	[2]	14,953	[2]	8,407	[2]
Net fee income and other	591	[3]	(3,484)	[4]	(3,276)	[3]	(12,614)	[4]
Ratios - P&C operations: (6)
Loss and loss expense ratio	63.30%	[7]	82.50%	[7]	65.70%	[7]	79.70%	[7]
Underwriting expense ratio	32.00%	[7]	29.70%	[7]	32.80%	[7]	30.60%	[7]
Combined ratio	95.30%	[7]	112.20%	[7]	98.50%	[7]	110.30%	[7]
Reinsurance Segment [Member]
Segment Reporting Information [Line Items]
Gross premiums written	417,548		619,260		1,850,315		1,968,444
Net premiums written	403,210		419,949		1,732,923		1,628,109
Net premiums earned	482,930		432,465		1,348,450		1,226,923
Net losses and loss expenses	(270,533)		(220,968)		(683,984)		(856,722)
Acquisition costs	(97,739)		(79,839)		(273,706)		(244,813)
Operating expenses	(47,227)	[1]	(40,179)	[1]	(127,965)	[1]	(129,362)	[1]
Underwriting profit (loss)	67,431		91,479		262,795		(3,974)
Net results from structured products	2,614	[2]	3,388	[2]	(17,801)	[2]	9,828	[2]
Net fee income and other	657	[3]	1,120	[4]	1,980	[3]	2,505	[4]
Ratios - P&C operations: (6)
Loss and loss expense ratio	56.00%	[7]	51.10%	[7]	50.70%	[7]	69.80%	[7]
Underwriting expense ratio	30.00%	[7]	27.70%	[7]	29.80%	[7]	30.50%	[7]
Combined ratio	86.00%	[7]	78.80%	[7]	80.50%	[7]	100.30%	[7]
Life Operations Segment [Member]
Segment Reporting Information [Line Items]
Gross premiums written	87,413		100,564		267,000		298,504
Net premiums written	79,487		90,769		243,606		272,635
Net premiums earned	79,487		90,794		243,630		272,695
Net losses and loss expenses	(119,439)		(139,549)		(371,896)		(410,196)
Acquisition costs	(10,094)		(9,193)		(25,675)		(26,281)
Operating expenses	(2,352)	[1]	(2,352)	[1]	(7,788)	[1]	(7,241)	[1]
Underwriting profit (loss)	(52,398)		(60,300)		(161,729)		(171,023)
Net investment income	73,479		80,349		223,150		239,382
Net fee income and other	240	[3]	41	[4]	330	[3]	178	[4]
Net realized gains (losses) on investments	(7,750)		(23,307)		(22,153)		(62,154)
Contribution from P&C and life operations	$ 13,571		$ (3,217)		$ 39,598		$ 6,383

[1] Operating expenses exclude Corporate operating expenses, shown separately.

[2] The net results from P&C structured products include net investment income and interest expense.

[3] Net fee income and other includes operating expenses from the Company's loss prevention consulting services business.

[4] Net fee income and other includes operating expenses from the Company's loss prevention consulting services business and expenses related to the cost of an endorsement facility with National Indemnity Company.

[5] The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

[6] Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.

[7] Ratios are based on net premiums earned from P&C operations.

XML

Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Derivatives Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

		September 30, 2012								December 31, 2011
(U.S. dollars in thousands)			Asset Derivative Notional Amount		Asset Derivative Fair Value (1)		Liability Derivative Notional Amount		Liability Derivative Fair Value (1)		Asset Derivative Notional Amount		Asset Derivative Fair Value (1)		Liability Derivative Notional Amount		Liability Derivative Fair Value (1)
Derivatives designed as hedging instruments:
	Interest rate contracts (2)	$	-	$	-	$	-	$	-	$	156,271	$	109,761	$	-	$	-
	Foreign exchange contracts		532,583		8,173		2,237,428		(78,246)		2,033,428		25,387		457,892		(4,518)
Total derivatives designed as hedging instruments		$	532,583	$	8,173	$	2,237,428	$	(78,246)	$	2,189,699	$	135,148	$	457,892	$	(4,518)
Derivatives not designed as hedging instruments:
Investment Related Derivatives:
	Interest rate exposure	$	83,265	$	2,402	$	26,878	$	(292)	$	70,978	$	1,946	$	55,033	$	(43)
	Foreign exchange exposure		77,366		484		19,902		(710)		232,422		3,759		384,592		(11,737)
	Credit exposure		62,000		906		397,574		(15,627)		172,500		5,271		449,513		(13,986)
	Financial market exposure		72,707		787		17,528		(191)		23,874		615		14,321		-
Financial Operations Derivatives: (3)
	Credit exposure (2)		-		-		58,149		(3,626)		-		-		81,678		(10,288)
Other Non-Investment Derivatives:
	Guaranteed minimum income benefit contract		-		-		67,528		(20,519)		-		-		78,777		(22,490)
	Modified coinsurance funds withheld contract		77,023		-		-		-		77,200		-		-		-
Total derivatives not designed as hedging instruments		$	372,361	$	4,579	$	587,559	$	(40,965)	$	576,974	$	11,591	$	1,063,914	$	(58,544)

_______________

(1)       Derivative instruments in an asset or liability position are included within Other assets or Other liabilities, respectively, in the balance sheet on a net basis where the Company has both a legal right of offset and the intentions to settle the contracts on a net basis.

(2)       At September 30, 2012 the Company paid net cash collateral related to these derivative positions of $41.5 million. The assets related to the net collateral paid have been recorded as Other assets within the balance sheet. AtDecember 31, 2011, the Company held net cash collateral of $77.1 million. The collateral balance is included within Cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative asset within the balance sheet as appropriate under the netting agreement.

(3)       Financial operations derivatives represent interests in variable interest entities as described in Note 10, “Variable Interest Entities.”

Gain (loss) recognized in income attributable to risk, hedged items [Text Block]

	Hedged Items - Amount of Gain/(Loss)
	Recognized in Income Attributable to Risk
							Ineffective
	Gain/(Loss)						Portion of
Derivatives Designated as Fair Value Hedges:	Recognized						Hedging
Three Months Ended September 30, 2012	in Income on		Deposit		Fixed Maturity		Relationship -
(U.S. dollars in thousands)	Derivative		Liabilities		Investments		Gain/(Loss)
Interest rate exposure	$	-
Foreign exchange exposure		(22,323)
Total	$	(22,323)	$	-	$	22,126	$	(197)
Three Months Ended September 30, 2011
(U.S. dollars in thousands)
Interest rate exposure	$	20,514
Foreign exchange exposure		18,219
Total	$	38,733	$	(21,659)	$	(18,116)	$	(1,042)
Nine Months Ended September 30, 2012
(U.S. dollars in thousands)
Interest rate exposure	$	1,813
Foreign exchange exposure		(30,126)
Total	$	(28,313)	$	(6,182)	$	29,665	$	(4,830)
Nine Months Ended September 30, 2011
(U.S. dollars in thousands)
Interest rate exposure	$	25,366
Foreign exchange exposure		(3,084)
Total	$	22,282	$	(25,950)	$	2,890	$	(778)

Schedule Of Settlement of Fair Values Hedges [Table Text Block]

	Fair Value Hedges - Notes				Fair Value Hedges - Deposit
	Payable and Debt				Liabilities
Settlement of Fair Value Hedges - Summary	September 30,				September 30,
(U.S. dollars in thousands, except years)	2012		2011			2012	2011
Cumulative reduction to interest expense	$	13,973	$	9,173	$	17,060	$	7,511
Remaining balance	$	7,651	$	12,451	$	216,135	$	141,974
Weighted average years remaining to maturity		2.0		2.8		25.9		34.3

Schedule of Derivative Instruments Designated as Hedges of the Net Investment in a Foreign Operation [Table Text Block]

Derivative Instruments Designated as Hedges of the	Three Months Ended				Nine Months Ended
Net Investment in a Foreign Operation - Summary	September 30,				September 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	1,920,421	$	1,972,176	$	1,892,964	$	1,686,045
Derivative gains (losses) (1)	$	(40,784)	$	75,083	$	(21,879)	$	5,876

_______________

(1)       Derivative gains (losses) from derivative instruments designated as hedges of the net investment in a foreign operation are recorded in the cumulative translation adjustment account within AOCI for each period.

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance (Not Formally Designated as Hedges) [Text Block]

Net Realized and Unrealized Gains (Losses)		Three Months Ended				Nine Months Ended
on Derivative Instruments		September 30,				September 30,
(U.S. dollars in thousands)		2012		2011		2012		2011
Investment Related Derivatives:
	Interest rate exposure	$	243	$	2,559	$	860	$	(1,720)
	Foreign exchange exposure		1,218		(23,214)		1,547		(5,763)
	Credit exposure		(2,281)		5,207		343		(8,452)
	Financial market exposure		2,337		(7,304)		312		(6,339)
Financial Operations Derivatives:
	Credit exposure		-		25		143		331
Other Non-Investment Derivatives:
	Contingent credit facility		-		(2,075)		-		(6,158)
	Guaranteed minimum income benefit contract		885		(2,038)		1,971		(860)
	Modified coinsurance funds withheld contract		4,049		966		2,310		(4,560)
Total derivatives not designated as hedging instruments		$	6,451	$	(25,874)	$	7,486	$	(33,521)
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges			(197)		(1,042)		(4,830)		(778)
Net realized and unrealized gains (losses) on derivative instruments		$	6,254	$	(26,916)	$	2,656	$	(34,299)

Schedule Of Financial Operations Derivatives Credit Exposure [Table Text Block]

Financial Operations Derivatives - Credit Exposure Summary:	September 30,		December 31,
(U.S. dollars in thousands, except term to maturity)	2012		2011
Principal outstanding	$	55,484	$	78,425
Interest outstanding		2,665		3,253
Aggregate outstanding exposure	$	58,149	$	81,678
Total liability recorded	$	3,626	$	10,288
Weighted average contractual term to maturity		4.5 years		5.0 years
Underlying obligations credit rating		BBB-		BB

Summary of Contingent Credit Features [Table Text Block

Contingent Credit Features - Summary:	September 30,		December 31,
(U.S. dollars in thousands)	2012		2011
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	10,152	$	15,763
Collateral posted to counterparty	$	-	$	809

XML

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011
Cash flows provided by (used in) operating activities:
Net income (loss)	$ 645,541		$ 110,208
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net realized (gains) losses on investments	(2,917)		138,335
Net realized & unrealized (gains) losses on derivative instruments	(2,656)		34,299
Amortization of premiums (discounts) on fixed maturities	119,819		83,252
(Income) loss from investment and operating affiliates	(80,286)	[1]	(125,716)	[1]
Share based compensation	41,827		32,043
Depreciation	41,735		36,544
Accretion of deposit liabilities	65,585		63,492
Unpaid losses and loss expenses	(602,151)		185,023
Future policy benefit reserves	(132,834)		(101,047)
Unearned premiums	526,414		615,699
Premiums receivable	(380,650)		(448,133)
Unpaid losses and loss expenses recoverable	353,935		(24,758)
Ceded unearned premiums	(122,203)		(233,148)
Reinsurance balances receivable	(5,372)		(9,422)
Deferred acquisition costs	(47,885)		(92,859)
Reinsurance balances payable	413,843		412,103
Deferred tax asset - net	23,950		(47,803)
Derivatives	49,567		(30,032)
Other assets	(51,005)		(67,851)
Other liabilities	108,069		(105,212)
Other	(54,858)		(59,500)
Total adjustments	261,927		255,309
Net cash provided by (used in) operating activities	907,468		365,517
Cash flows provided by (used in) investing activities:
Proceeds from sale of fixed maturities and short-term investments	2,458,414		3,233,941
Proceeds from redemption of fixed maturities and short-term investments	3,212,990		2,700,412
Proceeds from sale of equity securities	212,034		189,818
Purchases of fixed maturities and short term investments	(5,888,913)		(5,411,886)
Purchases of equity securities	(289,553)		(571,031)
Net dispositions of investment affiliates	58,415		166,950
Other investments, net	(113,538)		(39,502)
Net cash provided by (used in) investing activities	(350,151)		268,702
Cash flows provided by (used in) financing activities:
Proceeds from issuance of ordinary shares and exercise of stock options	4,651		1,196
Buybacks of ordinary shares	(351,158)		(566,940)
Repurchase of Redeemable Series C preference ordinary shares	0		(71,801)
Repurchase of Series E preference ordinary shares	0		(465)
Dividends paid on ordinary shares	(101,753)		(103,331)
Distributions to non-controlling interests	(43,283)		(38,580)
Proceeds from issuance of debt	0		396,400
Contribution from non-controlling interest	1,500		0
Repayment of debt	(600,000)		0
Deposit liabilities	(114,376)		(116,472)
Net cash provided by (used in) financing activities	(1,204,419)		(499,993)
Effects of exchange rate changes on foreign currency cash	19,282		19,189
Increase (decrease) in cash and cash equivalents	(627,820)		153,415
Cash and cash equivalents beginning of year	3,825,125		3,022,868
Cash and cash equivalents end of year	$ 3,197,305		$ 3,176,283

[1] The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

XML

UNAUDITED CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Amortized cost of fixed maturities	$ 26,150,520	$ 25,771,715
Cost of equity securities	554,962	480,685
Amortized cost of short-term investments	323,039	359,378
Fair value of held to maturity securities	$ 3,222,900	$ 2,895,688
Ordinary shares, shares authorized (in shares)	999,990,000	999,990,000
Ordinary shares, par value (in dollars per share)	$ 0.01	$ 0.01
Ordinary shares, shares issued (in shares)	300,580,557	315,645,796
Ordinary shares, shares outstanding (in shares)	300,580,557	315,645,796

XML

Variable Interest Entities

9 Months Ended

Sep. 30, 2012

Variable Interest Entities Disclosure [Abstract]

Variable Interest Entities [Text Block]

10. Variable Interest Entities

At times, the Company has utilized variable interest entities (“VIEs”) both indirectly and directly in the ordinary course of the Company's business.

The Company invests in CDOs and other investment vehicles that are issued through VIEs as part of the Company's investment portfolio. The activities of these VIEs are generally limited to holding the underlying collateral used to service investments therein. The Company's involvement in these entities is passive in nature and we are not the arranger of these entities. In addition, the Company has not been involved in establishing these entities and is not the primary beneficiary of these VIEs as contemplated in current authoritative accounting guidance.

The Company has a limited number of remaining outstanding credit enhancement exposures, including written financial guarantee and credit default swap contracts. The obligations related to these transactions are often securitized through VIEs. The Company is not the primary beneficiary of these VIEs as contemplated in current authoritative accounting guidance on the basis that management does not believe that the Company has the power to direct the activities, such as asset selection and collateral management, which most significantly impact each entity's economic performance. For further details on the nature of the obligations and the size of the Company's maximum exposure, see Note 6, “Derivative Instruments,” and Note 12(a), “Commitments and Contingencies – Financial Guarantee Exposures.”

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 06, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	XL GROUP PLC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		0
Amendment Flag	false
Entity Central Index Key	0000875159
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Well-known Seasoned Issuer	Yes
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

XML

Computation of Earnings Per Ordinary Share and Ordinary Share Equivalent

9 Months Ended

Sep. 30, 2012

Earnings Per Share Abstract

Earnings Per Share [Text Block]

11. Computation of Earnings Per Ordinary Share and Ordinary Share Equivalent

(U.S. dollars in thousands, except per share amounts)		Three Months Ended				Nine Months Ended
Basic earnings per ordinary share &		September 30,		September 30,		September 30,		September 30,
ordinary share equivalents outstanding:		2012		2011		2012		2011
	Net income (loss) attributable to ordinary shareholders	$	171,902	$	42,398	$	569,686	$	40,777
	Weighted average ordinary shares outstanding - basic		304,199		311,714		309,675		310,793
	Basic earnings per ordinary share & ordinary share equivalents outstanding	$	0.57	$	0.14	$	1.84	$	0.13
Diluted earnings per ordinary share &
ordinary share equivalents outstanding:
	Net income (loss) attributable to ordinary shareholders	$	171,902	$	42,398	$	569,686	$	40,777
	Weighted average ordinary shares outstanding - basic		304,199		311,714		309,675		310,793
	Impact of share based compensation and certain conversion features		3,565		2,134		2,927		4,049
	Weighted average ordinary shares outstanding - diluted		307,764		313,848		312,602		314,842
	Diluted earnings per ordinary share & ordinary share equivalents outstanding	$	0.56	$	0.14	$	1.82	$	0.13
Dividends per ordinary share		$	0.11	$	0.11	$	0.33	$	0.33

For the three months ended September 30, 2012 and 2011, and for nine months ended September 30, 2012and 2011, ordinary shares available for issuance under share based compensation plans of 8.6 million and 10.0 million, and 8.8 million and 10.0 million, respectively, were not included in the calculation of diluted earnings per share because the assumed exercise or issuance of such shares would be anti-dilutive.

XML

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues:
Net premiums earned	$ 1,548,040	$ 1,453,326	$ 4,471,053	$ 4,213,048
Net investment income	239,480	290,106	767,353	866,874
Realized investment gains (losses):
Net realized gains (losses) on investments sold	7,136	4,461	64,704	(6,899)
Other-than-temporary impairments on investments	(10,295)	(67,513)	(45,028)	(141,321)
Other-than-temporary impairments on investments transferred to (from) other comprehensive income	(2,334)	698	(16,759)	9,885
Total net realized gains (losses) on investments	(5,493)	(62,354)	2,917	(138,335)
Net realized & unrealized (gains) losses on derivative instruments	6,254	(26,916)	2,656	(34,299)
Income (loss) from investment fund affiliates	16,050	(7,123)	38,555	30,277
Fee income and other	13,153	10,980	34,121	30,494
Total revenues	1,817,484	1,658,019	5,316,655	4,968,059
Expenses:
Net losses and loss expenses incurred	894,076	988,059	2,574,496	3,020,508
Claims and policy benefits	119,439	139,549	371,896	410,196
Acquisition costs	236,347	207,553	679,435	611,142
Operating expenses	305,746	247,815	887,209	774,949
Foreign exchange (gains) losses	18,690	(39,425)	13,432	(38,409)
Interest expense	37,906	48,911	134,564	158,157
Total expenses	1,612,204	1,592,462	4,661,032	4,936,543
Income (loss) before income tax and income (loss) from operating affiliates	205,280	65,557	655,623	31,516
Income (loss) from operating affiliates	2,917	35,552	41,731	95,439
Provision (benefit) for income tax	451	24,718	51,813	16,747
Net income (loss)	207,746	76,391	645,541	110,208
Non-controlling interests	(35,844)	(33,993)	(75,855)	(69,431)
Net income (loss) attributable to XL Group plc and ordinary shareholders	$ 171,902	$ 42,398	$ 569,686	$ 40,777
Weighted average ordinary shares and ordinary share equivalents outstanding - basic (in shares)	304,199	311,714	309,675	310,793
Weighted average ordinary shares and ordinary share equivalents outstanding - diluted (in shares)	307,764	313,848	312,602	314,842
Earnings (loss) per ordinary share and ordinary share equivalent - basic (in dollars per share)	$ 0.57	$ 0.14	$ 1.84	$ 0.13
Earnings (loss) per ordinary share and ordinary share equivalent - diluted (in dollars per share)	$ 0.56	$ 0.14	$ 1.82	$ 0.13

XML

Investments

9 Months Ended

Sep. 30, 2012

Investments [Abstract]

Investments disclosure

5. Investments

(a) Fixed Maturities, Short-Term Investments and Equity Securities

Amortized Cost and Fair Value Summary

The cost (amortized cost for fixed maturities and short-term investments), fair value, gross unrealized gains and gross unrealized (losses), including, other-than-temporary impairments (“OTTI”) recorded in accumulated other comprehensive income (“AOCI”) of the Company's available for sale (“AFS”) and held to maturity (“HTM”) investments at September 30, 2012 and December 31, 2011 were as follows:

				Included in AOCI
						Gross Unrealized Losses
							Related to
		Cost or		Gross			Changes in		Non-credit
September 30, 2012		Amortized		Unrealized			Estimated		Related
(U.S. dollars in thousands)		Cost		Gains			Fair Value		OTTI		Fair Value
Fixed maturities - AFS
	U.S. Government and Government- Related/Supported (1)	$	1,996,119	$	142,683		$	(3,434)	$	-	$	2,135,368
	Corporate (2) (3) (4)		9,392,587		738,040			(109,187)		(14,303)		10,007,137
	RMBS – Agency		5,126,903		252,738			(2,738)		-		5,376,903
	RMBS – Non-Agency		705,785		38,297			(2,716)		(105,041)		636,325
	CMBS		963,365		75,031			(1,123)		(2,864)		1,034,409
	CDO		791,737		9,735			(114,017)		(4,889)		682,566
	Other asset-backed securities (2)		1,421,005		57,025			(12,573)		(6,913)		1,458,544
	U.S. States and political subdivisions of the States		1,665,392		156,366			(1,653)		-		1,820,105
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		4,087,627		196,732			(9,423)		-		4,274,936
	Total fixed maturities - AFS	$	26,150,520	$	1,666,647		$	(256,864)	$	(134,010)	$	27,426,293
	Total short-term investments (1)	$	323,039	$	1,124		$	(458)	$	-	$	323,705
	Total equity securities	$	554,962	$	16,218		$	(5,253)	$	-	$	565,927
Total investments - AFS		$	27,028,521	$	1,683,989		$	(262,575)	$	(134,010)	$	28,315,925
Fixed maturities - HTM
	U.S. Government and Government- Related/Supported (1)	$	10,845	$	1,859		$	-	$	-	$	12,704
	Corporate (2)		1,430,220		192,803			(2,932)		-		1,620,091
	RMBS – Non-Agency		83,896		9,582			-		-		93,478
	CMBS		12,917		2,109			-		-		15,026
	Other asset-backed securities (2)		224,508		29,218			(295)		-		253,431
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		1,043,410		187,562			(2,802)		-		1,228,170
Total investments - HTM		$	2,805,796	$	423,133		$	(6,029)	$	-	$	3,222,900

_______________

(1)       U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments includes government-related securities with an amortized cost of $2,182.5 million and fair value of $2,258.6million and U.S. Agencies with an amortized cost of $453.8million and fair value of $499.5 million.

(2)       At September 30, 2012, Covered Bonds within Fixed maturities – AFS with an amortized cost of $561.5million and a fair value of $599.9million and Covered Bonds within Fixed maturities – HTM with an amortized cost of $8.4million and a fair value of $8.3million have been included within Other asset-backed securities to align the Company's classification to market indices. Covered Bonds were included in Corporate prior to January 1, 2012.

(3)       Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes have a fair value of $192.3million and an amortized cost of $199.8million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(4)       Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities have a fair value of $348.8million and an amortized cost of $402.1million at September 30, 2012.

				Included in AOCI
						Gross Unrealized Losses
							Related to
		Cost or		Gross			Changes in		Non-credit
December 31, 2011		Amortized		Unrealized			Estimated		Related
(U.S. dollars in thousands)		Cost		Gains			Fair Value		OTTI		Fair Value
Fixed maturities - AFS
	U.S. Government and Government- Related/Supported (1)	$	1,864,354	$	130,874		$	(4,245)	$	-	$	1,990,983
	Corporate (2) (3) (4)		9,866,677		527,192			(233,581)		(51,666)		10,108,622
	RMBS – Agency		5,189,473		193,782			(3,849)		-		5,379,406
	RMBS – Non-Agency		851,557		19,667			(112,867)		(116,542)		641,815
	CMBS		927,684		56,704			(2,405)		(7,148)		974,835
	CDO		843,553		6,624			(186,578)		(4,997)		658,602
	Other asset-backed securities (2)		1,341,309		30,731			(25,486)		(6,305)		1,340,249
	U.S. States and political subdivisions of the States		1,698,573		101,025			(2,220)		-		1,797,378
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		3,188,535		127,439			(17,839)		-		3,298,135
	Total fixed maturities - AFS	$	25,771,715	$	1,194,038		$	(589,070)	$	(186,658)	$	26,190,025
	Total short-term investments (1)	$	359,378	$	519		$	(834)	$	-	$	359,063
	Total equity securities	$	480,685	$	27,947		$	(40,435)	$	-	$	468,197
Total investments - AFS		$	26,611,778	$	1,222,504		$	(630,339)	$	(186,658)	$	27,017,285
Fixed maturities - HTM
	U.S. Government and Government- Related/Supported (2)	$	10,399	$	1,510		$	-	$	-	$	11,909
	Corporate (2)		1,290,209		91,313			(14,433)		-		1,367,089
	RMBS – Non-Agency		80,955		6,520			(32)		-		87,443
	Other asset-backed securities (2)		288,741		20,875			(320)		-		309,296
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		998,674		127,227			(5,950)		-		1,119,951
Total investments - HTM		$	2,668,978	$	247,445		$	(20,735)	$	-	$	2,895,688

_______________

(1)       U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments includes government-related securities with an amortized cost of $1,878.3 million and fair value of $1,915.6 million and U.S. Agencies with an amortized cost of $494.0 million and fair value of $541.2 million.

(2)       Covered Bonds within Fixed maturities – AFS with an amortized cost of $345.4million and a fair value of $353.9million and Covered Bonds within Fixed maturities – HTM with an amortized cost of $8.1million and a fair value of $7.7million at December 31, 2011 have been reclassified from Corporate to Other asset-backed securities to align the Company's classification to market indices and conform to current period presentation.

(3)       Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes have a fair value of $266.0 million and an amortized cost of $297.7 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(4)       Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities have a fair value of $386.1 million and an amortized cost of $494.9 million at December 31, 2011.

At September 30, 2012 and December 31, 2011, approximately 2.7% and 2.4%, respectively, of the Company's fixed income investment portfolio at fair value was invested in securities that were below investment grade or not rated. Approximately 36.2% and 31.4% of the gross unrealized losses in the Company's fixed income securities portfolio at September 30, 2012 and December 31, 2011, respectively, related to securities that were below investment grade or not rated.

Classification of Fixed Income Securities

During the third quarter of 2011, the Company changed the manner in which it classifies fixed income securities between Fixed maturities and Short-term investments on the balance sheet and the related note disclosure. Short-term investments under the Company's previous classification comprised investments with a remaining maturity of less than one year from the reporting date. Under this prior presentation, longer term securities were reclassified from Fixed maturities to Short-term investments as they neared maturity. Under the Company's new classification, Short-term investments include investments due to mature within one year from the date of purchase and are valued using the same external factors and in the same manner as Fixed maturities. No reclassifications will be made between Fixed maturities and Short-term investments subsequent to the initial date of purchase.

This change in classification did not have an impact on the total value of investments available for sale on the balance sheet, nor did it impact the consolidated statements of income, comprehensive income, shareholders' equity or cash flows. The only impact, other than the changes in the balance sheet line items, are changes required within the detailed tables included within this note as well as Note 3, “Fair Value Measurements,” to allocate securities previously classified as Short-term investments under the former practice into the appropriate categories of Fixed maturities within each table to conform to the new accounting presentation for current and comparative periods.

During 2009 and 2010, the Company elected to hold certain fixed income securities to maturity. Consistent with this intention, the Company reclassified these securities from AFS to HTM in the consolidated financial statements. As a result of this classification, these fixed income securities are reflected in the HTM portfolio and recorded at amortized cost in the consolidated balance sheets and not fair value. Additional subsequent securities purchased that have already been designated as HTM are included as part of the HTM portfolio. The HTM portfolio is comprised of long duration Euro and U.K. sterling securities. The Company believes this HTM strategy is achievable due to the relatively stable and predictable cash flows of the Company's long-term liabilities within its Life operations, along with its ability to substitute other assets at a future date in the event that liquidity was required due to changes in expected cash flows or other transactions entered into related to the long-term liabilities supported by the HTM portfolio. At September 30, 2012, 96.5% of the HTM securities were rated A or higher. The unrealized appreciation at the dates of these reclassifications continues to be reported as a separate component of shareholders' equity and is being amortized over the remaining lives of the securities as an adjustment to yield in a manner consistent with the amortization of any premium or discount. At the time of the reclassifications, the unrealized U.S. dollar equivalent appreciation related to securities reclassified was $131.5 million in total, with $107.0 million and $108.4 million unamortized at September 30, 2012 and December 31, 2011, respectively.

Covered Bonds were included within Corporate securities prior to January 1, 2012. They are now classified as Other asset-backed securities to align the Company's classification to market indices. At December 31, 2011, Covered Bonds with a fair value of $353.9 million have been reclassified from Corporate to Other asset-backed securities to conform to current period presentation.

Contractual Maturities Summary

The contractual maturities of AFS and HTM fixed income securities at September 30, 2012 and December 31, 2011 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		September 30,2012 (1)				December 31,2011 (1)
		Amortized		Fair		Amortized		Fair
(U.S. dollars in thousands)		Cost		Value		Cost		Value
Fixed maturities - AFS
Due less than one year		$	2,165,727	$	2,176,654	$	2,004,395	$	2,020,361
Due after 1 through 5 years			8,413,665		8,787,679		7,736,717		7,909,354
Due after 5 through 10 years			4,252,492		4,609,302		3,619,141		3,777,073
Due after 10 years			2,309,841		2,663,911		3,257,886		3,488,330
		$	17,141,725	$	18,237,546	$	16,618,139	$	17,195,118
RMBS – Agency			5,126,903		5,376,903		5,189,473		5,379,406
RMBS – Non-Agency			705,785		636,325		851,557		641,815
CMBS			963,365		1,034,409		927,684		974,835
CDO			791,737		682,566		843,553		658,602
Other asset-backed securities			1,421,005		1,458,544		1,341,309		1,340,249
Total mortgage and asset-backed securities		$	9,008,795	$	9,188,747	$	9,153,576	$	8,994,907
	Total fixed maturities - AFS	$	26,150,520	$	27,426,293	$	25,771,715	$	26,190,025
Fixed maturities - HTM
Due less than one year		$	25,392	$	25,615	$	11,796	$	11,768
Due after 1 through 5 years			171,077		180,080		122,091		123,871
Due after 5 through 10 years			407,520		447,813		393,865		402,424
Due after 10 years			1,880,486		2,207,457		1,771,530		1,960,886
		$	2,484,475	$	2,860,965	$	2,299,282	$	2,498,949
RMBS – Non-Agency			83,896		93,478		80,955		87,443
CMBS			12,917		15,026		-		-
Other asset-backed securities			224,508		253,431		288,741		309,296
Total mortgage and asset-backed securities		$	321,321	$	361,935	$	369,696	$	396,739
	Total fixed maturities - HTM	$	2,805,796	$	3,222,900	$	2,668,978	$	2,895,688

_______________

(1)       Included in the table above are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions, at their fair value of $348.8 million and $386.1 million at September 30, 2012 and December 31, 2011, respectively. These securities are reflected in the table based on their call date and have net unrealized losses of $53.3 million and $108.8 million at September 30, 2012 and December 31, 2011, respectively.

OTTI Considerations

Under final authoritative accounting guidance, a debt security for which amortized cost exceeds fair value is deemed to be other-than-temporarily impaired if it meets either of the following conditions: (a) the Company intends to sell, or it is more likely than not that the Company will be required to sell, the security before a recovery in value, or (b) the Company does not expect to recover the entire amortized cost basis of the security. Other than in a situation in which the Company has the intent to sell a debt security or more likely than not will be required to sell a debt security, the amount of the OTTI related to a credit loss on the security is recognized in earnings, and the amount of the OTTI related to other factors (e.g., interest rates, market conditions, etc.) is recorded as a component of OCI. The net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment (“NPV”). The remaining difference between the security's NPV and its fair value is recognized in OCI. Subsequent changes in the fair value of these securities are included in OCI unless a further impairment is deemed to have occurred.

In the scenario where the Company has the intent to sell a security in which its amortized cost exceeds its fair value, or it is more likely than not it will be required to sell such a security, the entire difference between the security's amortized cost and its fair value is recognized in earnings.

The determination of credit losses is based on detailed analyses of underlying cash flows. Such analyses require the use of certain assumptions to develop the estimated performance of underlying collateral. Key assumptions used include, but are not limited to, items such as RMBS default rates based on collateral duration in arrears, severity of losses on default by collateral class, collateral reinvestment rates and expected future general corporate default rates.

Factors considered for all securities on a quarterly basis in determining that a gross unrealized loss is not other-than-temporarily impaired include management's consideration of current and near term liquidity needs and other available sources of funds, an evaluation of the factors and time necessary for recovery and an assessment of whether the Company has the intention to sell or considers it more likely than not that it will be forced to sell a security.

Pledged Assets

Certain of the Company's invested assets are held in trust and pledged in support of insurance and reinsurance liabilities as well as credit facilities. Such pledges are largely required by the Company's operating subsidiaries that are “non-admitted” under U.S. state insurance regulations, in order for the U.S. cedant to receive statutory credit for reinsurance. Also, certain deposit liabilities and annuity contracts require the use of pledged assets. At September 30, 2012 and December 31, 2011, the Company had $17.5 billion and $17.2 billion in pledged assets, respectively.

(b) Gross Unrealized Losses

The following is an analysis of how long the AFS and HTM securities at September 30, 2012 and December 31, 2011 had been in a continual unrealized loss position:

						Equal to or greater
		Less than 12 months				than 12 months
				Gross				Gross
September 30, 2012		Fair		Unrealized		Fair		Unrealized
(U.S. dollars in thousands)		Value		Losses		Value		Losses
Fixed maturities and short-term investments - AFS
	U.S. Government and Government-Related/Supported	$	248,665	$	(2,246)	$	25,692	$	(1,478)
	Corporate (1) (2) (3)		178,324		(4,239)		821,415		(119,408)
	RMBS – Agency		145,444		(1,698)		14,888		(1,040)
	RMBS – Non-Agency		10,119		(200)		466,064		(107,557)
	CMBS		90,884		(485)		24,571		(3,502)
	CDO		13,919		(2,242)		655,280		(116,664)
	Other asset-backed securities (3)		64,400		(192)		105,520		(19,294)
	U.S. States and political subdivisions of the States		13,136		(137)		13,788		(1,516)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		281,234		(1,146)		191,321		(8,288)
Total fixed maturities and short-term investments - AFS		$	1,046,125	$	(12,585)	$	2,318,539	$	(378,747)
Total equity securities (4)		$	272,543	$	(5,253)	$	-	$	-
Fixed maturities -HTM
	Corporate (3)	$	890	$	(31)	$	41,547	$	(2,901)
	Other asset-backed securities (3)		1,236		(151)		8,273		(144)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		-		-		9,483		(2,802)
Total fixed maturities - HTM		$	2,126	$	(182)	$	59,303	$	(5,847)

_______________

(1)Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, have a fair value of $192.3 million and an amortized cost of $199.8million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(2)Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities, which are in a gross unrealized loss position, have a fair value of $348.8 million and an amortized cost of $402.1 million at September 30, 2012.

(3)       Covered Bonds within Fixed maturities and short-term investments – AFS with a fair value of $599.9 million and Covered Bonds within Fixed Maturities – HTM with a fair value of $8.3million have been included within Other asset-backed securities to align the Company's classification to market indices.Covered Bonds were included in Corporate prior to January 1, 2012.

(4)       Included within equity securities are investments in fixed income funds with a fair value of $99.3 million and an amortized cost of $100.0 million at September 30, 2012.

						Equal to or greater
		Less than 12 months				than 12 months
				Gross				Gross
December 31, 2011		Fair		Unrealized		Fair		Unrealized
(U.S. dollars in thousands)		Value		Losses		Value		Losses
Fixed maturities and short-term investments - AFS
	U.S. Government and Government-Related/Supported	$	289,260	$	(332)	$	43,622	$	(3,984)
	Corporate (1) (2) (3)		1,078,664		(42,151)		1,185,535		(243,683)
	RMBS – Agency		310,318		(849)		36,960		(3,000)
	RMBS – Non-Agency		106,294		(31,714)		449,138		(197,695)
	CMBS		69,109		(2,716)		39,444		(6,837)
	CDO		3,357		(2,261)		636,362		(189,456)
	Other asset-backed securities (3)		227,098		(3,324)		161,312		(28,467)
	U.S. States and political subdivisions of the States		25,309		(199)		27,646		(2,021)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		265,766		(4,707)		202,890		(13,166)
Total fixed maturities and short-term investments - AFS		$	2,375,175	$	(88,253)	$	2,782,909	$	(688,309)
Total equity securities (4)		$	361,585	$	(40,435)	$	-	$	-
Fixed maturities -HTM
	Corporate (3)	$	147,836	$	(7,770)	$	62,343	$	(6,663)
	RMBS – Non-Agency		9,372		(32)		-		-
	Other asset-backed securities (3)		7,743		(314)		1,106		(6)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		79,242		(1,206)		18,330		(4,744)
Total fixed maturities - HTM		$	244,193	$	(9,322)	$	81,779	$	(11,413)

_______________

(1)       Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, have a fair value of $266.0 million and an amortized cost of $297.7 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(2)Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities, which are in a gross unrealized loss position, have a fair value of $386.1 million and an amortized cost of $494.9 million at December 31, 2011.

(3)       Covered Bonds within Fixed maturities and short-term investments – AFS with a fair value of $353.9 million and Covered Bonds within Fixed Maturities – HTM with a fair value of $7.7million have been included within Other asset-backed securities to align the Company's classification to market indices and to conform to current period presentation. Covered Bonds were included in Corporate prior to January 1, 2012.

(4)       Included within equity securities are investments in fixed income funds with a fair value of $91.6 million and an amortized cost of $100.0 million at December 31, 2011.

The Company had gross unrealized losses totaling $396.6 million on 1,072 securities out of a total of 7,215 held at September 30, 2012 in its AFS portfolio and $6.0 million on 9 securities out of a total of 207 held in its HTM portfolio, which it considers to be temporarily impaired or with respect to which reflects non-credit losses on OTTI. Individual security positions comprising this balance have been evaluated by management to determine the severity of these impairments and whether they should be considered other-than-temporary. Management believes it is more likely than not that the issuer will be able to fund sufficient principal and interest payments to support the current amortized cost.

Management, in its assessment of whether securities in a gross unrealized loss position are temporarily impaired, as described above, considers the significance of the impairments. At September 30, 2012, the Company had structured credit securities with gross unrealized losses of $37.0 million, which had a fair value of $12.0 million, and a cumulative fair value decline of greater than 50% of amortized cost. All of these securities are mortgage and asset-backed securities. These greater than 50% impaired securities include gross unrealized losses of $21.6 million on non-Agency RMBS, $14.8 million on Core CDOs and $0.6 million of CMBS holdings.

(c) Net Realized Gains (Losses)

The following represents an analysis of net realized gains (losses) on investments:

	Three Months Ended				Nine Months Ended
Net Realized Gains (Losses) on Investments	September 30,				September 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Gross realized gains	$	33,136	$	55,625	$	153,757	$	143,804
Gross realized losses on investments sold		(26,000)		(51,164)		(89,053)		(150,703)
OTTI on investments, net of amounts transferred to other comprehensive income		(12,629)		(66,815)		(61,787)		(131,436)
Net realized gains (losses) on investments	$	(5,493)	$	(62,354)	$	2,917	$	(138,335)

The significant components of the net impairment charges of $12.6 million for the three months ended September 30, 2012 were:

▪       $5.6 million for structured securities where the Company determined that the likely recovery on these securities was below the carrying value and, accordingly, recorded an impairment of the securities to the discounted value of the cash flows expected to be received on these securities.

▪       $2.2 million related to medium term notes backed primarily by European investment grade credit. On certain notes, management concluded that expected future returns on the underlying assets were not sufficient to support the previously reported amortized cost.

▪       $2.7 million related to private investments.

The following table sets forth the amount of credit loss impairments on fixed income securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts.

	Three Months Ended				Nine Months Ended
Credit Loss Impairments	September 30,				September 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Opening balance	$	299,720	$	315,844	$	333,379	$	426,372
Credit loss impairment recognized in the current period on securities not previously impaired		2,805		10,478		8,683		26,384
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(33,114)		(14,611)		(87,092)		(173,056)
Credit loss impairments previously recognized on securities impaired to fair value during the period		-		-		(12,891)		-
Additional credit loss impairments recognized in the current period on securities previously impaired		4,834		35,574		41,716		74,372
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		(2,773)		(4,010)		(12,323)		(10,797)
Balance at September 30,	$	271,472	$	343,275	$	271,472	$	343,275

During the three months ended September 30, 2012 and 2011, the $33.1 million and $14.6 million, respectively, of credit loss impairments previously recognized on securities that matured, or were paid down, prepaid or sold, includes $11.6 million and $7.5 million, respectively, of non-Agency RMBS.

During the nine months ended September 30, 2012 and 2011, the $87.1 million and $173.1 million, respectively, of credit loss impairments previously recognized on securities that matured, or were paid down, prepaid or sold, includes $38.3 million and $114.9 million, respectively, of non-Agency RMBS.

(d) Other Investments

Structured Transactions - Project Finance Loans

The Company historically participated in structured transactions in project finance related areas under which the Company provided a cash loan supporting project finance transactions. These transactions are accounted for in accordance with guidance governing accounting by certain entities (including entities with trade receivables) that lend to or finance the activities of others under which the loans are considered held for investment as the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff. Accordingly, these funded loan participations are reported in the balance sheet at outstanding principal adjusted for any allowance for loan losses as considered necessary by management.

The following table shows a summary of the structured project finance loans at September 30, 2012 and December 31, 2011:

Project Finance Loans	September 30,		December 31,
(U.S. dollars in thousands)	2012		2011
Aggregate loan value	$	36,960	$	49,650
Aggregate loan net carrying value	$	31,377	$	40,483
Opening allowance for loan losses	$	(9,167)	$	(9,167)
Amounts charged off during the period		3,584		-
Closing allowance for loan losses	$	(5,583)	$	(9,167)
Number of individual loan participations		4		6
Number of individual loan participations relating to the allowance for loan losses		1		2
Weighted average contractual term to maturity		0.9 years		2.1 years
Weighted average credit rating		BB		BB-
Range of individual credit ratings		BB+ to BB-		BB+ to CCC

Surveillance procedures are conducted over each structured project finance loan on an ongoing basis with current expectations of future collections of contractual interest and principal used to determine whether any allowance for loan losses may be required at each period end. If it is determined that a future credit loss on a specific contract is reasonably possible and an amount can be estimated, an allowance is recorded. The contractual receivable is only charged off when the final outcome is known and the Company has exhausted all commercial efforts to try and collect any outstanding balances.

During the nine months ended September 30, 2012 and the year ended December 31, 2011, management conducted separate reviews of each loan participation and determined loss allowance estimates, as shown in the table above, using a recovery value concept. Management considers recovery value to be the percentage of all future contractual interest and principal that the Company expects to receive from the borrower through any combination of regular debt service, other payments, salvage and recovery. The allowances for loan losses are made when it is probable that a loss will be incurred based upon current information received from the borrower.

Investment Fund Consolidation

During May 2012, the Company invested $25.0 million to obtain an approximately 94% interest in Five Oaks Investment Corp. (“Five Oaks”), a newly formed private investment company. Five Oaks is a mortgage real estate investment trust that is expected to follow an investment strategy balancing a leveraged portfolio of Agency RMBS with an unlevered or moderately levered portfolio of non-Agency RMBS. Five Oaks may enter into repurchase agreements to acquire investment leverage up to a maximum of $79.5 million. At September 30, 2012, the Company has consolidated Five Oaks resulting in the recording within its balance sheet of: RMBS securities at their fair value of $103.3 million (amortized cost: $95.4 million) within Fixed maturities, $6.8 million of Cash and cash equivalents, $76.8 million of liabilities related to obligations under repurchase agreements within Other liabilities, and $1.9 million of Non-controlling interest in equity of consolidated subsidiaries. $91.1million of securities held by Five Oaks and consolidated by XL are pledged as collateral under the repurchase agreements. The repurchase agreements do not provide the counterparties any recourse to assets of XL aside from its investment in Five Oaks. Amounts recorded within the Company's consolidated statement of income related to Five Oaks were immaterial during the three and nine months endedSeptember 30, 2012. In addition, the Company has purchased an equity interest in Oak Circle Capital Partners (“Oak Circle”), the investment management company that provides portfolio management and other administrative services to Five Oaks. XL's investment in Oak Circle has been accounted for using the equity method consistent with other investment manager affiliate positions held by the Company.

XML

Segment Information

9 Months Ended

Sep. 30, 2012

Segment Reporting Abstract

Segment Reporting Disclosure [Text Block]

4. Segment Information

The Company is organized into three operating segments: Insurance, Reinsurance and Life operations. The Company's general investment and financing operations are reflected in Corporate.

The Company evaluates the performance of both the Insurance and Reinsurance segments based on underwriting profit while the Life operations segment performance is based on contribution. Other items of revenue and expenditure of the Company are not evaluated at the segment level. In addition, the Company does not allocate investment assets by segment for its Property and Casualty (“P&C”) operations. Investment assets related to the Company's Life operations and certain structured products included in the Insurance and Reinsurance segments and Corporate are held in separately identified portfolios. As such, net investment income from these assets is included in the contribution from the applicable segment.

Three Months Ended September 30, 2012							Life
(U.S. dollars in thousands, except ratios)	Insurance		Reinsurance		Total P&C		Operations		Total
Gross premiums written	$	1,158,683	$	417,548	$	1,576,231	$	87,413	$	1,663,644
Net premiums written		905,054		403,210		1,308,264		79,487		1,387,751
Net premiums earned		985,623		482,930		1,468,553		79,487		1,548,040
Net losses and loss expenses		(623,543)		(270,533)		(894,076)		(119,439)		(1,013,515)
Acquisition costs		(128,514)		(97,739)		(226,253)		(10,094)		(236,347)
Operating expenses (1)		(186,794)		(47,227)		(234,021)		(2,352)		(236,373)
Underwriting profit (loss)	$	46,772	$	67,431	$	114,203	$	(52,398)	$	61,805
Net investment income						148,482		73,479		221,961
Net results from structured products (2)		3,087		2,614		5,701		-		5,701
Net fee income and other (3)		591		657		1,248		240		1,488
Net realized gains (losses) on investments						2,257		(7,750)		(5,493)
Contribution from P&C and Life Operations					$	271,891	$	13,571	$	285,462
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments										6,254
Net income (loss) from investment fund affiliates and operating affiliates (4)										18,967
Exchange gains (losses)										(18,690)
Corporate operating expenses										(57,604)
Interest expense (5)										(26,192)
Non-controlling interests										(35,844)
Income tax										(451)
Net income (loss) attributable to XL Group plc									$	171,902
Ratios – P&C operations: (6)
Loss and loss expense ratio		63.3%		56.0%		60.9%
Underwriting expense ratio		32.0%		30.0%		31.3%
Combined ratio		95.3%		86.0%		92.2%

_______________

(1)       Operating expenses exclude Corporate operating expenses, shown separately.

(2)       The net results from P&C structured products include net investment income and interest expense of $17.4 million and $11.7 million, respectively.

(3)       Net fee income and other includes operating expenses from the Company's loss prevention consulting services business.

(4)       The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

(5)       Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.

(6)       Ratios are based on net premiums earned from P&C operations.

Three Months Ended September 30, 2011							Life
(U.S. dollars in thousands, except ratios)	Insurance		Reinsurance		Total P&C		Operations		Total
Gross premiums written	$	1,156,901	$	619,260	$	1,776,161	$	100,564	$	1,876,725
Net premiums written		872,757		419,949		1,292,706		90,769		1,383,475
Net premiums earned		930,067		432,465		1,362,532		90,794		1,453,326
Net losses and loss expenses		(767,091)		(220,968)		(988,059)		(139,549)		(1,127,608)
Acquisition costs		(118,521)		(79,839)		(198,360)		(9,193)		(207,553)
Operating expenses (1)		(158,134)		(40,179)		(198,313)		(2,352)		(200,665)
Underwriting profit (loss)	$	(113,679)	$	91,479	$	(22,200)	$	(60,300)	$	(82,500)
Net investment income						190,886		80,349		271,235
Net results from structured products (2)		2,457		3,388		5,845		-		5,845
Net fee income and other (3)		(3,484)		1,120		(2,364)		41		(2,323)
Net realized gains (losses) on investments						(39,047)		(23,307)		(62,354)
Contribution from P&C and Life Operations					$	133,120	$	(3,217)	$	129,903
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments										(26,916)
Net income (loss) from investment fund affiliates and operating affiliates (4)										28,429
Exchange gains (losses)										39,425
Corporate operating expenses										(33,847)
Interest expense (5)										(35,885)
Non-controlling interests										(33,993)
Income tax										(24,718)
Net income (loss) attributable to XL Group plc									$	42,398
Ratios – P&C operations: (6)
Loss and loss expense ratio		82.5%		51.1%		72.5%
Underwriting expense ratio		29.7%		27.7%		29.1%
Combined ratio		112.2%		78.8%		101.6%

_______________

(1)       Operating expenses exclude Corporate operating expenses, shown separately.

(2)       The net results from P&C structured products include net investment income and interest expense of $18.9 million and $13.0 million, respectively.

(3)       Net fee income and other includes operating expenses from the Company's loss prevention consulting services business and expenses related to the cost of an endorsement facility with National Indemnity Company.

(4)       The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

(5)       Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.

(6)       Ratios are based on net premiums earned from P&C operations.

Nine Months Ended September 30, 2012							Life
(U.S. dollars in thousands, except ratios)	Insurance		Reinsurance		Total P&C		Operations		Total
Gross premiums written	$	3,806,351	$	1,850,315	$	5,656,666	$	267,000	$	5,923,666
Net premiums written		2,885,847		1,732,923		4,618,770		243,606		4,862,376
Net premiums earned		2,878,973		1,348,450		4,227,423		243,630		4,471,053
Net losses and loss expenses		(1,890,512)		(683,984)		(2,574,496)		(371,896)		(2,946,392)
Acquisition costs		(380,054)		(273,706)		(653,760)		(25,675)		(679,435)
Operating expenses (1)		(564,387)		(127,965)		(692,352)		(7,788)		(700,140)
Underwriting profit (loss)	$	44,020	$	262,795	$	306,815	$	(161,729)	$	145,086
Net investment income						492,031		223,150		715,181
Net results from structured products (2)		14,953		(17,801)		(2,848)		-		(2,848)
Net fee income and other (3)		(3,276)		1,980		(1,296)		330		(966)
Net realized gains (losses) on investments						25,070		(22,153)		2,917
Contribution from P&C and Life Operations					$	819,772	$	39,598	$	859,370
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments										2,656
Net income (loss) from investment fund affiliates and operating affiliates (4)										80,286
Exchange gains (losses)										(13,432)
Corporate operating expenses										(151,925)
Interest expense (5)										(79,601)
Non-controlling interests										(75,855)
Income tax										(51,813)
Net income (loss) attributable to XL Group plc									$	569,686
Ratios – P&C operations: (6)
Loss and loss expense ratio		65.7%		50.7%		60.9%
Underwriting expense ratio		32.8%		29.8%		31.8%
Combined ratio		98.5%		80.5%		92.7%

_______________

(1)       Operating expenses exclude Corporate operating expenses, shown separately.

(2)       The net results from P&C structured products include net investment income and interest expense of $52.2 million and $55.0 million, respectively.

(3)       Net fee income and other includes operating expenses from the Company's loss prevention consulting services business.

(4)       The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

(5)       Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.

(6)       Ratios are based on net premiums earned from P&C operations.

Nine Months Ended September 30, 2011							Life
(U.S. dollars in thousands, except ratios)	Insurance		Reinsurance		Total P&C		Operations		Total
Gross premiums written	$	3,669,280	$	1,968,444	$	5,637,724	$	298,504	$	5,936,228
Net premiums written		2,684,938		1,628,109		4,313,047		272,635		4,585,682
Net premiums earned		2,713,430		1,226,923		3,940,353		272,695		4,213,048
Net losses and loss expenses		(2,163,786)		(856,722)		(3,020,508)		(410,196)		(3,430,704)
Acquisition costs		(340,048)		(244,813)		(584,861)		(26,281)		(611,142)
Operating expenses (1)		(488,837)		(129,362)		(618,199)		(7,241)		(625,440)
Underwriting profit (loss)	$	(279,241)	$	(3,974)	$	(283,215)	$	(171,023)	$	(454,238)
Net investment income						570,504		239,382		809,886
Net results from structured products (2)		8,407		9,828		18,235		-		18,235
Net fee income and other (3)		(12,614)		2,505		(10,109)		178		(9,931)
Net realized gains (losses) on investments						(76,181)		(62,154)		(138,335)
Contribution from P&C and Life Operations					$	219,234	$	6,383	$	225,617
Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments										(34,299)
Net income (loss) from investment fund affiliates and operating affiliates (4)										125,716
Exchange gains (losses)										38,409
Corporate operating expenses										(109,105)
Interest expense (5)										(119,383)
Non-controlling interests										(69,431)
Income tax										(16,747)
Net income (loss) attributable to XL Group plc									$	40,777
Ratios – P&C operations: (6)
Loss and loss expense ratio		79.7%		69.8%		76.7%
Underwriting expense ratio		30.6%		30.5%		30.5%
Combined ratio		110.3%		100.3%		107.2%

_______________

(1)       Operating expenses exclude Corporate operating expenses, shown separately.

(2)       The net results from P&C structured products include net investment income and interest expense of $57.0 million and $38.8 million, respectively.

(3)       Net fee income and other includes operating expenses from the Company's loss prevention consulting services business and expenses related to the cost of an endorsement facility with National Indemnity Company.

(4)       The Company records the income related to the alternative funds and to the private investment and operating fund affiliates on a one-month and three-month lag, respectively.

(5)       Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance and Reinsurance segments.

(6)       Ratios are based on net premiums earned from P&C operations.

The following tables summarize the Company's net premiums earned by line of business:

Three Months Ended September 30, 2012						Life
(U.S. dollars in thousands)		Insurance		Reinsurance		Operations		Total
P&C Operations:
	Casualty - professional lines	$	345,722	$	47,874	$	-	$	393,596
	Casualty - other lines		181,265		81,798		-		263,063
	Property catastrophe		-		113,167		-		113,167
	Other property		140,858		170,856		-		311,714
	Marine, energy, aviation and satellite		130,497		33,091		-		163,588
	Other specialty lines (1)		185,622		-		-		185,622
	Other (2)		1,659		36,144		-		37,803
Total P&C Operations		$	985,623	$	482,930	$	-	$	1,468,553
Life Operations:
	Annuity	$	-	$	-	$	31,960	$	31,960
	Other Life		-		-		47,527		47,527
Total Life Operations		$	-	$	-	$	79,487	$	79,487
Total		$	985,623	$	482,930	$	79,487	$	1,548,040
Three Months Ended September 30, 2011
(U.S. dollars in thousands)
P&C Operations:
	Casualty - professional lines	$	319,101	$	51,945	$	-	$	371,046
	Casualty - other lines		172,684		64,274		-		236,958
	Property catastrophe		-		97,158		-		97,158
	Other property		120,394		161,585		-		281,979
	Marine, energy, aviation and satellite		138,290		32,162		-		170,452
	Other specialty lines (1)		178,706		-		-		178,706
	Other (2)		892		25,341		-		26,233
Total P&C Operations		$	930,067	$	432,465	$	-	$	1,362,532
Life Operations:
	Annuity	$	-	$	-	$	33,342	$	33,342
	Other Life		-		-		57,452		57,452
Total Life Operations		$	-	$	-	$	90,794	$	90,794
Total		$	930,067	$	432,465	$	90,794	$	1,453,326

_______________

(1)       Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, fine art and specie, middle markets, political risk and trade credit, product recall, surety, inland marine and surplus lines.

(2)       Other includes whole account contracts, structured indemnity, internal reinsurance and other lines.

Nine Months Ended September 30, 2012						Life
(U.S. dollars in thousands)		Insurance		Reinsurance		Operations		Total
P&C Operations:
	Casualty - professional lines	$	1,000,417	$	156,082	$	-	$	1,156,499
	Casualty - other lines		516,185		231,879		-		748,064
	Property catastrophe		-		329,313		-		329,313
	Other property		399,170		451,625		-		850,795
	Marine, energy, aviation and satellite		394,578		104,462		-		499,040
	Other specialty lines (1)		559,826		-		-		559,826
	Other (2)		8,797		75,089		-		83,886
Total P&C Operations		$	2,878,973	$	1,348,450	$	-	$	4,227,423
Life Operations:
	Annuity	$	-	$	-	$	94,660	$	94,660
	Other Life		-		-		148,970		148,970
Total Life Operations		$	-	$	-	$	243,630	$	243,630
Total		$	2,878,973	$	1,348,450	$	243,630	$	4,471,053
Nine Months Ended September 30, 2011
(U.S. dollars in thousands)
P&C Operations:
	Casualty - professional lines	$	957,399	$	157,576	$	-	$	1,114,975
	Casualty - other lines		501,634		184,238		-		685,872
	Property catastrophe		-		286,085		-		286,085
	Other property		344,403		433,083		-		777,486
	Marine, energy, aviation and satellite		392,183		101,026		-		493,209
	Other specialty lines (1)		512,399		-		-		512,399
	Other (2)		5,412		64,915		-		70,327
Total P&C Operations		$	2,713,430	$	1,226,923	$	-	$	3,940,353
Life Operations:
	Annuity	$	-	$	-	$	100,232	$	100,232
	Other Life		-		-		172,463		172,463
Total Life Operations		$	-	$	-	$	272,695	$	272,695
Total		$	2,713,430	$	1,226,923	$	272,695	$	4,213,048

_______________

(1)       Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, fine art and specie, middle markets, political risk and trade credit, product recall, surety, inland marine and surplus lines.

(2)       Other includes whole account contracts, structured indemnity, internal reinsurance and other lines.

XML

Investments (Tables)

9 Months Ended

Sep. 30, 2012

Investments [Abstract]

Available For Sale Securities And Held To Maturity Securities [Table Text Block]

				Included in AOCI
						Gross Unrealized Losses
							Related to
		Cost or		Gross			Changes in		Non-credit
September 30, 2012		Amortized		Unrealized			Estimated		Related
(U.S. dollars in thousands)		Cost		Gains			Fair Value		OTTI		Fair Value
Fixed maturities - AFS
	U.S. Government and Government- Related/Supported (1)	$	1,996,119	$	142,683		$	(3,434)	$	-	$	2,135,368
	Corporate (2) (3) (4)		9,392,587		738,040			(109,187)		(14,303)		10,007,137
	RMBS – Agency		5,126,903		252,738			(2,738)		-		5,376,903
	RMBS – Non-Agency		705,785		38,297			(2,716)		(105,041)		636,325
	CMBS		963,365		75,031			(1,123)		(2,864)		1,034,409
	CDO		791,737		9,735			(114,017)		(4,889)		682,566
	Other asset-backed securities (2)		1,421,005		57,025			(12,573)		(6,913)		1,458,544
	U.S. States and political subdivisions of the States		1,665,392		156,366			(1,653)		-		1,820,105
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		4,087,627		196,732			(9,423)		-		4,274,936
	Total fixed maturities - AFS	$	26,150,520	$	1,666,647		$	(256,864)	$	(134,010)	$	27,426,293
	Total short-term investments (1)	$	323,039	$	1,124		$	(458)	$	-	$	323,705
	Total equity securities	$	554,962	$	16,218		$	(5,253)	$	-	$	565,927
Total investments - AFS		$	27,028,521	$	1,683,989		$	(262,575)	$	(134,010)	$	28,315,925
Fixed maturities - HTM
	U.S. Government and Government- Related/Supported (1)	$	10,845	$	1,859		$	-	$	-	$	12,704
	Corporate (2)		1,430,220		192,803			(2,932)		-		1,620,091
	RMBS – Non-Agency		83,896		9,582			-		-		93,478
	CMBS		12,917		2,109			-		-		15,026
	Other asset-backed securities (2)		224,508		29,218			(295)		-		253,431
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		1,043,410		187,562			(2,802)		-		1,228,170
Total investments - HTM		$	2,805,796	$	423,133		$	(6,029)	$	-	$	3,222,900

_______________

(1)       U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments includes government-related securities with an amortized cost of $2,182.5 million and fair value of $2,258.6million and U.S. Agencies with an amortized cost of $453.8million and fair value of $499.5 million.

(2)       At September 30, 2012, Covered Bonds within Fixed maturities – AFS with an amortized cost of $561.5million and a fair value of $599.9million and Covered Bonds within Fixed maturities – HTM with an amortized cost of $8.4million and a fair value of $8.3million have been included within Other asset-backed securities to align the Company's classification to market indices. Covered Bonds were included in Corporate prior to January 1, 2012.

(3)       Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes have a fair value of $192.3million and an amortized cost of $199.8million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(4)       Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities have a fair value of $348.8million and an amortized cost of $402.1million at September 30, 2012.

				Included in AOCI
						Gross Unrealized Losses
							Related to
		Cost or		Gross			Changes in		Non-credit
December 31, 2011		Amortized		Unrealized			Estimated		Related
(U.S. dollars in thousands)		Cost		Gains			Fair Value		OTTI		Fair Value
Fixed maturities - AFS
	U.S. Government and Government- Related/Supported (1)	$	1,864,354	$	130,874		$	(4,245)	$	-	$	1,990,983
	Corporate (2) (3) (4)		9,866,677		527,192			(233,581)		(51,666)		10,108,622
	RMBS – Agency		5,189,473		193,782			(3,849)		-		5,379,406
	RMBS – Non-Agency		851,557		19,667			(112,867)		(116,542)		641,815
	CMBS		927,684		56,704			(2,405)		(7,148)		974,835
	CDO		843,553		6,624			(186,578)		(4,997)		658,602
	Other asset-backed securities (2)		1,341,309		30,731			(25,486)		(6,305)		1,340,249
	U.S. States and political subdivisions of the States		1,698,573		101,025			(2,220)		-		1,797,378
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		3,188,535		127,439			(17,839)		-		3,298,135
	Total fixed maturities - AFS	$	25,771,715	$	1,194,038		$	(589,070)	$	(186,658)	$	26,190,025
	Total short-term investments (1)	$	359,378	$	519		$	(834)	$	-	$	359,063
	Total equity securities	$	480,685	$	27,947		$	(40,435)	$	-	$	468,197
Total investments - AFS		$	26,611,778	$	1,222,504		$	(630,339)	$	(186,658)	$	27,017,285
Fixed maturities - HTM
	U.S. Government and Government- Related/Supported (2)	$	10,399	$	1,510		$	-	$	-	$	11,909
	Corporate (2)		1,290,209		91,313			(14,433)		-		1,367,089
	RMBS – Non-Agency		80,955		6,520			(32)		-		87,443
	Other asset-backed securities (2)		288,741		20,875			(320)		-		309,296
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		998,674		127,227			(5,950)		-		1,119,951
Total investments - HTM		$	2,668,978	$	247,445		$	(20,735)	$	-	$	2,895,688

_______________

(1)       U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments includes government-related securities with an amortized cost of $1,878.3 million and fair value of $1,915.6 million and U.S. Agencies with an amortized cost of $494.0 million and fair value of $541.2 million.

(2)       Covered Bonds within Fixed maturities – AFS with an amortized cost of $345.4million and a fair value of $353.9million and Covered Bonds within Fixed maturities – HTM with an amortized cost of $8.1million and a fair value of $7.7million at December 31, 2011 have been reclassified from Corporate to Other asset-backed securities to align the Company's classification to market indices and conform to current period presentation.

(3)       Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes have a fair value of $266.0 million and an amortized cost of $297.7 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(4)       Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities have a fair value of $386.1 million and an amortized cost of $494.9 million at December 31, 2011.

Contractual Maturities Of Available For Sale Securities And Held To Maturity Income Securities [Table Text Block]

		September 30,2012 (1)				December 31,2011 (1)
		Amortized		Fair		Amortized		Fair
(U.S. dollars in thousands)		Cost		Value		Cost		Value
Fixed maturities - AFS
Due less than one year		$	2,165,727	$	2,176,654	$	2,004,395	$	2,020,361
Due after 1 through 5 years			8,413,665		8,787,679		7,736,717		7,909,354
Due after 5 through 10 years			4,252,492		4,609,302		3,619,141		3,777,073
Due after 10 years			2,309,841		2,663,911		3,257,886		3,488,330
		$	17,141,725	$	18,237,546	$	16,618,139	$	17,195,118
RMBS – Agency			5,126,903		5,376,903		5,189,473		5,379,406
RMBS – Non-Agency			705,785		636,325		851,557		641,815
CMBS			963,365		1,034,409		927,684		974,835
CDO			791,737		682,566		843,553		658,602
Other asset-backed securities			1,421,005		1,458,544		1,341,309		1,340,249
Total mortgage and asset-backed securities		$	9,008,795	$	9,188,747	$	9,153,576	$	8,994,907
	Total fixed maturities - AFS	$	26,150,520	$	27,426,293	$	25,771,715	$	26,190,025
Fixed maturities - HTM
Due less than one year		$	25,392	$	25,615	$	11,796	$	11,768
Due after 1 through 5 years			171,077		180,080		122,091		123,871
Due after 5 through 10 years			407,520		447,813		393,865		402,424
Due after 10 years			1,880,486		2,207,457		1,771,530		1,960,886
		$	2,484,475	$	2,860,965	$	2,299,282	$	2,498,949
RMBS – Non-Agency			83,896		93,478		80,955		87,443
CMBS			12,917		15,026		-		-
Other asset-backed securities			224,508		253,431		288,741		309,296
Total mortgage and asset-backed securities		$	321,321	$	361,935	$	369,696	$	396,739
	Total fixed maturities - HTM	$	2,805,796	$	3,222,900	$	2,668,978	$	2,895,688

_______________

(1)       Included in the table above are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions, at their fair value of $348.8 million and $386.1 million at September 30, 2012 and December 31, 2011, respectively. These securities are reflected in the table based on their call date and have net unrealized losses of $53.3 million and $108.8 million at September 30, 2012 and December 31, 2011, respectively.

Schedule of Unrealized Loss on Investments [Table Text Block]

						Equal to or greater
		Less than 12 months				than 12 months
				Gross				Gross
September 30, 2012		Fair		Unrealized		Fair		Unrealized
(U.S. dollars in thousands)		Value		Losses		Value		Losses
Fixed maturities and short-term investments - AFS
	U.S. Government and Government-Related/Supported	$	248,665	$	(2,246)	$	25,692	$	(1,478)
	Corporate (1) (2) (3)		178,324		(4,239)		821,415		(119,408)
	RMBS – Agency		145,444		(1,698)		14,888		(1,040)
	RMBS – Non-Agency		10,119		(200)		466,064		(107,557)
	CMBS		90,884		(485)		24,571		(3,502)
	CDO		13,919		(2,242)		655,280		(116,664)
	Other asset-backed securities (3)		64,400		(192)		105,520		(19,294)
	U.S. States and political subdivisions of the States		13,136		(137)		13,788		(1,516)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		281,234		(1,146)		191,321		(8,288)
Total fixed maturities and short-term investments - AFS		$	1,046,125	$	(12,585)	$	2,318,539	$	(378,747)
Total equity securities (4)		$	272,543	$	(5,253)	$	-	$	-
Fixed maturities -HTM
	Corporate (3)	$	890	$	(31)	$	41,547	$	(2,901)
	Other asset-backed securities (3)		1,236		(151)		8,273		(144)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		-		-		9,483		(2,802)
Total fixed maturities - HTM		$	2,126	$	(182)	$	59,303	$	(5,847)

_______________

(1)Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, have a fair value of $192.3 million and an amortized cost of $199.8million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(2)Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities, which are in a gross unrealized loss position, have a fair value of $348.8 million and an amortized cost of $402.1 million at September 30, 2012.

(3)       Covered Bonds within Fixed maturities and short-term investments – AFS with a fair value of $599.9 million and Covered Bonds within Fixed Maturities – HTM with a fair value of $8.3million have been included within Other asset-backed securities to align the Company's classification to market indices.Covered Bonds were included in Corporate prior to January 1, 2012.

(4)       Included within equity securities are investments in fixed income funds with a fair value of $99.3 million and an amortized cost of $100.0 million at September 30, 2012.

						Equal to or greater
		Less than 12 months				than 12 months
				Gross				Gross
December 31, 2011		Fair		Unrealized		Fair		Unrealized
(U.S. dollars in thousands)		Value		Losses		Value		Losses
Fixed maturities and short-term investments - AFS
	U.S. Government and Government-Related/Supported	$	289,260	$	(332)	$	43,622	$	(3,984)
	Corporate (1) (2) (3)		1,078,664		(42,151)		1,185,535		(243,683)
	RMBS – Agency		310,318		(849)		36,960		(3,000)
	RMBS – Non-Agency		106,294		(31,714)		449,138		(197,695)
	CMBS		69,109		(2,716)		39,444		(6,837)
	CDO		3,357		(2,261)		636,362		(189,456)
	Other asset-backed securities (3)		227,098		(3,324)		161,312		(28,467)
	U.S. States and political subdivisions of the States		25,309		(199)		27,646		(2,021)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		265,766		(4,707)		202,890		(13,166)
Total fixed maturities and short-term investments - AFS		$	2,375,175	$	(88,253)	$	2,782,909	$	(688,309)
Total equity securities (4)		$	361,585	$	(40,435)	$	-	$	-
Fixed maturities -HTM
	Corporate (3)	$	147,836	$	(7,770)	$	62,343	$	(6,663)
	RMBS – Non-Agency		9,372		(32)		-		-
	Other asset-backed securities (3)		7,743		(314)		1,106		(6)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		79,242		(1,206)		18,330		(4,744)
Total fixed maturities - HTM		$	244,193	$	(9,322)	$	81,779	$	(11,413)

_______________

(1)       Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, have a fair value of $266.0 million and an amortized cost of $297.7 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(2)Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities, which are in a gross unrealized loss position, have a fair value of $386.1 million and an amortized cost of $494.9 million at December 31, 2011.

(3)       Covered Bonds within Fixed maturities and short-term investments – AFS with a fair value of $353.9 million and Covered Bonds within Fixed Maturities – HTM with a fair value of $7.7million have been included within Other asset-backed securities to align the Company's classification to market indices and to conform to current period presentation. Covered Bonds were included in Corporate prior to January 1, 2012.

(4)       Included within equity securities are investments in fixed income funds with a fair value of $91.6 million and an amortized cost of $100.0 million at December 31, 2011.

Realized Gain (Loss) on Investments [Table Text Block]

	Three Months Ended				Nine Months Ended
Net Realized Gains (Losses) on Investments	September 30,				September 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Gross realized gains	$	33,136	$	55,625	$	153,757	$	143,804
Gross realized losses on investments sold		(26,000)		(51,164)		(89,053)		(150,703)
OTTI on investments, net of amounts transferred to other comprehensive income		(12,629)		(66,815)		(61,787)		(131,436)
Net realized gains (losses) on investments	$	(5,493)	$	(62,354)	$	2,917	$	(138,335)

Other than Temporary Impairment, Credit Losses Recognized in Earnings [Table Text Block]

	Three Months Ended				Nine Months Ended
Credit Loss Impairments	September 30,				September 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Opening balance	$	299,720	$	315,844	$	333,379	$	426,372
Credit loss impairment recognized in the current period on securities not previously impaired		2,805		10,478		8,683		26,384
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(33,114)		(14,611)		(87,092)		(173,056)
Credit loss impairments previously recognized on securities impaired to fair value during the period		-		-		(12,891)		-
Additional credit loss impairments recognized in the current period on securities previously impaired		4,834		35,574		41,716		74,372
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		(2,773)		(4,010)		(12,323)		(10,797)
Balance at September 30,	$	271,472	$	343,275	$	271,472	$	343,275

Schedule of Other Investments [Table Text Block]

Project Finance Loans	September 30,		December 31,
(U.S. dollars in thousands)	2012		2011
Aggregate loan value	$	36,960	$	49,650
Aggregate loan net carrying value	$	31,377	$	40,483
Opening allowance for loan losses	$	(9,167)	$	(9,167)
Amounts charged off during the period		3,584		-
Closing allowance for loan losses	$	(5,583)	$	(9,167)
Number of individual loan participations		4		6
Number of individual loan participations relating to the allowance for loan losses		1		2
Weighted average contractual term to maturity		0.9 years		2.1 years
Weighted average credit rating		BB		BB-
Range of individual credit ratings		BB+ to BB-		BB+ to CCC

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments And Contingencies Disclosure Abstract

Commitments and Contingencies Disclosure [Text Block]

12. Commitments and Contingencies

(a) Financial Guarantee Exposures

Financial Guarantee Exposure Summary	September 30,		December 31,
(U.S. dollars in thousands except number of contracts and term to maturity)	2012		2011
Opening number of financial guarantee contracts		4		37
Number of financial guarantee contracts matured, prepaid or commuted during the period		-		(33)
Closing number of financial guarantee contracts		4		4
Principal outstanding	$	115,464	$	115,464
Interest outstanding	$	-	$	-
Aggregate exposure outstanding	$	115,464	$	115,464
Total gross claim liability recorded	$	1,399	$	1,399
Total unearned premiums and fees recorded	$	316	$	425
Weighted average contractual term to maturity in years		25.7		26.7

The Company's outstanding financial guarantee contracts at September 30, 2012 provide credit support for a variety of collateral types with the exposures comprised of (i) a $108.3 million notional financial guarantee on three notes backed by zero coupon long dated bonds and bank perpetual securities, including some issued by European financials; and (ii) a $7.2 million notional financial guarantee relating to future scheduled repayments on a government-subsidized housing project. At September 30, 2012, there were no reported events of default on these obligations.

Surveillance procedures to track and monitor credit deteriorations in the insured financial obligations are performed by the primary obligors for each transaction on the Company's behalf. Information regarding the performance status and updated exposure values is provided to the Company on a quarterly basis and evaluated by management in recording claims reserves.

(b) Claims and Other Litigation

The Company and its subsidiaries are subject to litigation and arbitration in the normal course of business. These lawsuits and arbitrations principally involve claims on policies of insurance and contracts of reinsurance and are typical for the Company and for the property and casualty insurance and reinsurance industry in general. Such legal proceedings are considered in connection with the Company's loss and loss expense reserves. Reserves in varying amounts may or may not be established in respect of particular claims proceedings based on many factors, including the legal merits thereof. In addition to litigation relating to insurance and reinsurance claims, the Company and its subsidiaries are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance or reinsurance policies. These types of actions typically involve, among other things, allegations of underwriting errors or misconduct, employment disputes, actions brought by or on behalf of shareholders or disputes arising from business ventures. The status of these legal actions is actively monitored by management.

Legal actions are subject to inherent uncertainties, and future events could change management's assessment of the probability or estimated amount of potential losses from pending or threatened legal actions. Based on available information, it is the opinion of management that the ultimate resolution of pending or threatened legal actions, both individually and in the aggregate, will not result in losses having a material effect on the Company's financial position or liquidity at September 30, 2012.

If management believes that, based on available information, it is at least reasonably possible that a material loss (or additional material loss in excess of any accrual) will be incurred in connection with any legal actions or claims, the Company discloses an estimate of the possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an estimate can be made, or discloses that an estimate cannot be made. Based on the Company's assessment at September 30, 2012, no such disclosures are considered necessary.

XML

Notes Payable and Debt and Financing Arrangements

9 Months Ended

Sep. 30, 2012

Debt Disclosure Abstract

Debt Disclosure [Text Block]

8. Notes Payable and Debt and Financing Arrangements

(a) Notes Payable and Debt

All outstanding debt of the Company at September 30, 2012 and December 31, 2011 was issued by XLIT Ltd. (“XL-Cayman”) except for the $600 million par value 6.5% Guaranteed Senior Notes (the “XLCFE Notes”), which were issued by XL Capital Finance (Europe) plc (“XLCFE”) and were repaid at maturity on January 15, 2012. Both XL-Cayman and XLCFE are 100% owned subsidiaries of XL Group plc. The XLCFE Notes were fully and unconditionally guaranteed by XL Company Switzerland GmbH. XL-Cayman's outstanding debt is fully and unconditionally guaranteed by XL Group plc. The Company's ability to obtain funds from its subsidiaries to satisfy any of its obligations under guarantees is subject to certain contractual restrictions, applicable laws and statutory requirements of the various countries in which the Company operates, including, among others, Bermuda, the United States, Ireland, Switzerland and the U.K. Aggregated required statutory capital and surplus for the principal operating subsidiaries of the Company was $6.7 billion at December 31, 2011.

The Company was in compliance with all covenants by significant margins at September 30, 2012, and the Company currently remains in compliance.

(b) Letter of Credit Facilities and Other Sources of Collateral

The Company has several letter of credit facilities provided on a syndicated and bilateral basis from commercial banks. These facilities are utilized primarily to support non-admitted insurance and reinsurance operations in the U.S. and capital requirements at Lloyd's. The Company's letter of credit facilities and revolving credit facilities at September 30, 2012 and December 31, 2011 were as follows:

Letter of Credit Summary:	September 30,		December 31,
(U.S. dollars in thousands except percentages)	2012 (1)		2011 (1)
Revolving credit facility (2)	$	1,000,000	$	1,000,000
Available letter of credit facilities - commitments (3)	$	4,000,000	$	4,000,000
Available letter of credit facilities - in use	$	1,790,505	$	1,871,192
Collateralized by certain assets of the Company's investment portfolio		93.5%		93.8%

_______________

(1)       At September 30, 2012 and December 31, 2011,there were five available letter of credit facilities.

(2)       At September 30, 2012 and December 31, 2011, the revolving credit facility was unutilized.

(3)       The Company has the option to increase the size of the March 2011 Credit Agreement by an additional $500 million and the size of the facilities under the December 2011 Credit Agreements by an additional $500 million across both such facilities.

XML

Computation of Earnings Per Ordinary Share and Ordinary Share Equivalent (Details) - Computation of basic and diluted earnings per share (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Basic earnings per ordinary share and ordinary share equivalents:
Net income (loss) attributable to ordinary shareholders	$ 171,902	$ 42,398	$ 569,686	$ 40,777
Weighted average ordinary shares outstanding	304,199	311,714	309,675	310,793
Basic earnings per ordinary share & ordinary share equivalents outstanding (in Dollars per share)	$ 0.57	$ 0.14	$ 1.84	$ 0.13
Diluted earnings per ordinary share and ordinary share equivalents:
Net income (loss) attributable to ordinary shareholders	$ 171,902	$ 42,398	$ 569,686	$ 40,777
Weighted average ordinary shares outstanding - basic	304,199	311,714	309,675	310,793
Impact of share based compensation and certain conversion features	3,565	2,134	2,927	4,049
Weighted average ordinary shares outstanding - diluted	307,764	313,848	312,602	314,842
Diluted earnings per ordinary share & ordinary share equivalents outstanding (in Dollars per share)	$ 0.56	$ 0.14	$ 1.82	$ 0.13
Dividends per ordinary share (in Dollars per share)	$ 0.11	$ 0.11	$ 0.33	$ 0.33

XML

Derivative Instruments

9 Months Ended

Sep. 30, 2012

Derivatives Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

6. Derivative Instruments

The Company enters into derivative instruments for both risk management and investment purposes. The Company is exposed to potential loss from various market risks, and manages its market risks based on guidelines established by management and the Risk and Finance Committee of the Board of Directors of XL Group plc. The Company recognizes all derivatives as either assets or liabilities in the balance sheet and measures those instruments at fair value, with the changes in fair value of derivatives shown in the consolidated statement of income as “net realized and unrealized gains and losses on derivative instruments” unless the derivatives are designated as hedging instruments. The accounting for derivatives that are designated as hedging instruments is described in Item 8, Note 2(h), “Significant Accounting Policies – Derivative Instruments,” to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

The following table summarizes information about the location and gross amounts of derivative fair values contained in the consolidated balance sheet at September 30, 2012 and December 31, 2011:

		September 30, 2012								December 31, 2011
(U.S. dollars in thousands)			Asset Derivative Notional Amount		Asset Derivative Fair Value (1)		Liability Derivative Notional Amount		Liability Derivative Fair Value (1)		Asset Derivative Notional Amount		Asset Derivative Fair Value (1)		Liability Derivative Notional Amount		Liability Derivative Fair Value (1)
Derivatives designed as hedging instruments:
	Interest rate contracts (2)	$	-	$	-	$	-	$	-	$	156,271	$	109,761	$	-	$	-
	Foreign exchange contracts		532,583		8,173		2,237,428		(78,246)		2,033,428		25,387		457,892		(4,518)
Total derivatives designed as hedging instruments		$	532,583	$	8,173	$	2,237,428	$	(78,246)	$	2,189,699	$	135,148	$	457,892	$	(4,518)
Derivatives not designed as hedging instruments:
Investment Related Derivatives:
	Interest rate exposure	$	83,265	$	2,402	$	26,878	$	(292)	$	70,978	$	1,946	$	55,033	$	(43)
	Foreign exchange exposure		77,366		484		19,902		(710)		232,422		3,759		384,592		(11,737)
	Credit exposure		62,000		906		397,574		(15,627)		172,500		5,271		449,513		(13,986)
	Financial market exposure		72,707		787		17,528		(191)		23,874		615		14,321		-
Financial Operations Derivatives: (3)
	Credit exposure (2)		-		-		58,149		(3,626)		-		-		81,678		(10,288)
Other Non-Investment Derivatives:
	Guaranteed minimum income benefit contract		-		-		67,528		(20,519)		-		-		78,777		(22,490)
	Modified coinsurance funds withheld contract		77,023		-		-		-		77,200		-		-		-
Total derivatives not designed as hedging instruments		$	372,361	$	4,579	$	587,559	$	(40,965)	$	576,974	$	11,591	$	1,063,914	$	(58,544)

_______________

(1)       Derivative instruments in an asset or liability position are included within Other assets or Other liabilities, respectively, in the balance sheet on a net basis where the Company has both a legal right of offset and the intentions to settle the contracts on a net basis.

(2)       At September 30, 2012 the Company paid net cash collateral related to these derivative positions of $41.5 million. The assets related to the net collateral paid have been recorded as Other assets within the balance sheet. AtDecember 31, 2011, the Company held net cash collateral of $77.1 million. The collateral balance is included within Cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative asset within the balance sheet as appropriate under the netting agreement.

(3)       Financial operations derivatives represent interests in variable interest entities as described in Note 10, “Variable Interest Entities.”

(a) Derivative Instruments Designated as Fair Value Hedges

The Company designates certain of its derivative instruments as fair value hedges or cash flow hedges and formally and contemporaneously documents all relationships between the hedging instruments and hedged items and links the hedging derivative to specific assets and liabilities. The Company assesses the effectiveness of the hedge both at inception and on an on-going basis, and determines whether the hedge is highly effective in offsetting changes in fair value or cash flows of the linked hedged item.

The Company may hedge portions of its liabilities against changes in the applicable designated benchmark interest rate. Interest rate swaps are also used to hedge the changes in fair value of certain fixed rate liabilities and fixed income securities due to changes in the designated benchmark interest rate. In addition, the Company utilizes foreign exchange contracts to hedge the fair value of certain fixed income securities as well as to hedge certain net investments in foreign operations.

The following table provides the total impact on earnings relating to derivative instruments formally designated as fair value hedges along with the impacts of the related hedged items for the three and nine months ended September 30, 2012 and 2011:

	Hedged Items - Amount of Gain/(Loss)
	Recognized in Income Attributable to Risk
							Ineffective
	Gain/(Loss)						Portion of
Derivatives Designated as Fair Value Hedges:	Recognized						Hedging
Three Months Ended September 30, 2012	in Income on		Deposit		Fixed Maturity		Relationship -
(U.S. dollars in thousands)	Derivative		Liabilities		Investments		Gain/(Loss)
Interest rate exposure	$	-
Foreign exchange exposure		(22,323)
Total	$	(22,323)	$	-	$	22,126	$	(197)
Three Months Ended September 30, 2011
(U.S. dollars in thousands)
Interest rate exposure	$	20,514
Foreign exchange exposure		18,219
Total	$	38,733	$	(21,659)	$	(18,116)	$	(1,042)
Nine Months Ended September 30, 2012
(U.S. dollars in thousands)
Interest rate exposure	$	1,813
Foreign exchange exposure		(30,126)
Total	$	(28,313)	$	(6,182)	$	29,665	$	(4,830)
Nine Months Ended September 30, 2011
(U.S. dollars in thousands)
Interest rate exposure	$	25,366
Foreign exchange exposure		(3,084)
Total	$	22,282	$	(25,950)	$	2,890	$	(778)

The gains (losses) recorded on both the derivatives instruments and specific items designated as being hedged as part of the fair value hedging relationships outlined above are recorded through Net realized and unrealized gains (losses) on derivative instruments in the income statement along with any associated ineffectiveness in the relationships. In addition, the periodic coupon settlements relating to the interest rate swaps are recorded as adjustments to net investment income for the hedges of fixed maturity investments and as adjustments to interest expense for the hedges of deposit liabilities and notes payable and debt.

The periodic coupon settlements also resulted in decreases to Interest expense of nil and $4.9 million for the three and nine months ended September 30, 2012, respectively, and decreases to Interest expense of $2.6 million and $7.7 million for the three and nine months ended September 30, 2011, respectively.

Settlement of Fair Value Hedges

During the year ended December 31, 2010, the Company settled the interest rate contracts designated as fair value hedges of certain of the Company's notes payable and debt and also settled three interest rate contracts designated as fair value hedges of certain of the Company's deposit liability contracts. The cumulative increase recorded to the carrying value of the hedged notes payable and debt of $21.6 million, and the deposit liability contracts of $149.5 million, representing the effective portion of the hedging relationship, is amortized through interest expense over the remaining terms of the debt and deposit liability contracts.

In July 2012, the Company settled two interest rate contracts designated as fair value hedges of certain of the Company's deposit liability contracts. At settlement, the cumulative increase recorded to the carrying value of the hedged deposit liability contracts was $83.7 million. This amount will be amortized, through interest expense, over the remaining terms of the deposit liability contracts. At settlement, the weighted average term remaining to maturity for these contracts was 16.1 years.

A summary of the fair value hedges that have been settled and their results during the nine months ended September 30, 2012 and 2011is shown below:

	Fair Value Hedges - Notes				Fair Value Hedges - Deposit
	Payable and Debt				Liabilities
Settlement of Fair Value Hedges - Summary	September 30,				September 30,
(U.S. dollars in thousands, except years)	2012		2011			2012	2011
Cumulative reduction to interest expense	$	13,973	$	9,173	$	17,060	$	7,511
Remaining balance	$	7,651	$	12,451	$	216,135	$	141,974
Weighted average years remaining to maturity		2.0		2.8		25.9		34.3

(b) Derivative Instruments Designated as Hedges of the Net Investment in a Foreign Operation

The Company utilizes foreign exchange contracts to hedge the fair value of certain net investments in foreign operations. During the nine months ended September 30, 2012 and 2011, the Company entered into foreign exchange contracts that were formally designated as hedges of investments in foreign subsidiaries, the majority of which have functional currencies of either U.K. sterling or the Euro. There was no ineffectiveness in these transactions.

The following table provides the weighted average U.S. dollar equivalent of foreign denominated net assets that were hedged and the resultant gain (loss) that was recorded in the cumulative translation adjustment account within AOCI for the three and nine months ended September 30, 2012 and 2011.

Derivative Instruments Designated as Hedges of the	Three Months Ended				Nine Months Ended
Net Investment in a Foreign Operation - Summary	September 30,				September 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	1,920,421	$	1,972,176	$	1,892,964	$	1,686,045
Derivative gains (losses) (1)	$	(40,784)	$	75,083	$	(21,879)	$	5,876

_______________

(1)       Derivative gains (losses) from derivative instruments designated as hedges of the net investment in a foreign operation are recorded in the cumulative translation adjustment account within AOCI for each period.

(c) Derivative Instruments Not Formally Designated As Hedging Instruments

The following table provides the total impact on earnings relating to derivative instruments not formally designated as hedging instruments under authoritative accounting guidance and from the ineffective portion of fair value hedges. The impacts are all recorded through Net realized and unrealized gains (losses) on derivatives in the income statement for the three and nine months ended September 30, 2012 and 2011:

Net Realized and Unrealized Gains (Losses)		Three Months Ended				Nine Months Ended
on Derivative Instruments		September 30,				September 30,
(U.S. dollars in thousands)		2012		2011		2012		2011
Investment Related Derivatives:
	Interest rate exposure	$	243	$	2,559	$	860	$	(1,720)
	Foreign exchange exposure		1,218		(23,214)		1,547		(5,763)
	Credit exposure		(2,281)		5,207		343		(8,452)
	Financial market exposure		2,337		(7,304)		312		(6,339)
Financial Operations Derivatives:
	Credit exposure		-		25		143		331
Other Non-Investment Derivatives:
	Contingent credit facility		-		(2,075)		-		(6,158)
	Guaranteed minimum income benefit contract		885		(2,038)		1,971		(860)
	Modified coinsurance funds withheld contract		4,049		966		2,310		(4,560)
Total derivatives not designated as hedging instruments		$	6,451	$	(25,874)	$	7,486	$	(33,521)
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges			(197)		(1,042)		(4,830)		(778)
Net realized and unrealized gains (losses) on derivative instruments		$	6,254	$	(26,916)	$	2,656	$	(34,299)

The Company's objectives in using these derivatives are explained below.

(d)(i) Investment Related Derivatives

The Company, either directly or through its investment managers, may use derivative instruments within its investment portfolio, including interest rate swaps, inflation swaps, credit derivatives (single name and index credit default swaps), options, forward contracts and financial futures (foreign exchange, bond and stock index futures), primarily as a means of economically hedging exposures to interest rate, credit spread, equity price changes and foreign currency risk or, in limited instances, for investment purposes. The Company is exposed to credit risk in the event of non-performance by the counterparties under any swap contracts, although the Company generally seeks to use credit support arrangements with counterparties to help manage this risk.

Investment Related Derivatives – Interest Rate Exposure

The Company utilizes risk management and overlay strategies that incorporate the use of derivative financial instruments, primarily to manage its fixed income portfolio duration and exposure to interest rate risks associated with primarily those assets and liabilities related to certain legacy other financial lines and structured indemnity transactions. The Company uses interest rate swaps to convert certain liabilities from a fixed rate to a variable rate of interest and may also use them to convert a variable rate of interest from one basis to another.

Investment Related Derivatives – Foreign Exchange Exposure

The Company has exposure to foreign currency exchange rate fluctuations through its operations and in its investment portfolio.The Company uses foreign exchange contracts to manage its exposure to the effects of fluctuating foreign currencies on the value of certain of its foreign currency fixed maturities primarily within its Life operations portfolio. These contracts are not designated as specific hedges for financial reporting purposes and, therefore, realized and unrealized gains and losses on these contracts are recorded in income in the period in which they occur. These contracts generally have maturities of twelve months or less.

In addition, certain of the Company's investment managers may, subject to investment guidelines, enter into forward contracts where potential gains may exist.

Investment Related Derivatives – Credit Exposure

Credit derivatives may be purchased within the Company's investment portfolio in the form of single name and basket credit default swaps, which are used to mitigate credit exposure through a reduction in credit spread duration (i.e., macro credit strategies rather than single-name credit hedging) or exposure to selected issuers, including issuers that are not held in the underlying bond portfolio.

Investment Related Derivatives – Financial Market Exposure

Stock index futures may be purchased within the Company's investment portfolio in order to create synthetic equity exposure and to add value to the portfolio with overlay strategies where market inefficiencies are believed to exist. From time to time, the Company may enter into other financial market exposure derivative contracts on various indices including, but not limited to, inflation and commodity contracts.

(d)(ii) Financial Operations Derivatives – Credit Exposure

At September 30, 2012 and December 31, 2011, the Company held two credit derivative exposures that were written as part of the Company's previous financial lines business and are outside of the Company's investment portfolio: one is a European project finance loan participation; the otherprovides credit protection on the senior tranches of a structured finance transaction. An aggregate summary of these credit derivative exposures at September 30, 2012 and December 31, 2011 is as follows:

Financial Operations Derivatives - Credit Exposure Summary:	September 30,		December 31,
(U.S. dollars in thousands, except term to maturity)	2012		2011
Principal outstanding	$	55,484	$	78,425
Interest outstanding		2,665		3,253
Aggregate outstanding exposure	$	58,149	$	81,678
Total liability recorded	$	3,626	$	10,288
Weighted average contractual term to maturity		4.5 years		5.0 years
Underlying obligations credit rating		BBB-		BB

The European project finance loan participation benefits from an 80% deficiency guarantee from the German state and federal governments.The credit protection related to the structured finance transaction is a credit default swap that was executed in 2000. The underlying collateral is predominantly securitized pools of leveraged loans and bonds. Management continues to monitor the underlying performance.

At September 30, 2012 and December 31, 2011, there were no reported events of default on these obligations. Credit derivatives are recorded at fair value based upon prices received from the investment bank counterparties and corroborated by using models developed by the Company. Although the Company does not have access to the specific unobservable inputs that may have been used in the value provided by the counterparties, it expects that the significant inputs considered would include changes in interest rates, future default rates, credit spreads, changes in credit quality, future expected recovery rates and other market factors. The change resulting from movements in credit and credit quality spreads is unrealized as the credit derivatives are not traded to realize this resultant value.

(d)(iii) Other Non-Investment Derivatives

The Company also has derivatives embedded in certain reinsurance contracts. For a particular life reinsurance contract, the Company pays the ceding company a fixed amount equal to the estimated present value of the excess of guaranteed benefit over the account balance upon the policyholder's election to take the income benefit. The fair value of this derivative is determined based on the present value of expected cash flows. In addition, the Company has modified coinsurance and funds withheld reinsurance agreements that provide for a return based on a portfolio of fixed income securities. As such, the agreements contain embedded derivatives. The embedded derivative is bifurcated from the funds withheld balance and recorded at fair value with changes in fair value recognized in earnings through Net realized and unrealized gains and losses on derivative instruments.

(e) Contingent Credit Features

Certain derivatives agreements entered into by the Company or its subsidiaries contain rating downgrade provisions that permit early termination of the agreement by the counterparty if collateral is not posted following failure to maintain certain credit ratings from one or more of the principal credit rating agencies. If the Company were required to early terminate such agreements due to a rating downgrade, it could potentially be in a net liability position at the time of settlement. The aggregate fair value of all derivatives agreements containing such rating downgrade provisions that were in a liability position and the collateral posted under any of these agreements as of September 30, 2012 and December 31, 2011 were as follows:

Contingent Credit Features - Summary:	September 30,		December 31,
(U.S. dollars in thousands)	2012		2011
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	10,152	$	15,763
Collateral posted to counterparty	$	-	$	809

XML

Share Capital

9 Months Ended

Sep. 30, 2012

Stockholders Equity Note Abstract

Shareholders Equity And Share Based Payments Text Block

7. Share Capital

(a) Authorized and Issued

Ordinary Share Buybacks

On February 27, 2012, the Company announced that its Board of Directors approved a share buyback program, authorizing the Company to purchase up to $750 million of its ordinary shares. This authorization replaced the approximately $190 million remaining under the share buyback program that was authorized in November 2010 as described in further detail in Item 8, Note 18, “Share Capital,” to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. During the three months ended September 30, 2012, the Company purchased and canceled 5.3 million ordinary shares under the program for $125.0 million. During the nine months ended September 30, 2012, the Company purchased and canceled 16.2 million ordinary shares under the program for $350.0 million. 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. At September 30, 2012, $400.0 million remained available for purchase under the program.

(b) Stock Plans

The Company's performance incentive programs provide for grants of stock options, restricted stock, restricted stock units and 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. See Item 8, Note 18, “Share Capital,” to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 for further information on the Company's performance incentive programs and associated accounting.

During the nine months endedSeptember 30, 2012, the Company granted approximately 1.2 million stock options with a weighted-average grant date fair value of $7.65 per option. The fair value of the options issued was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:

Dividend yield	1.90	%
Risk free interest rate	1.15	%
Volatility	46.0	%
Expected lives	6.0	years

During the nine months endedSeptember 30, 2012, the Company granted approximately 0.3 million restricted stock awards to certain employees and directors of the Company and its subsidiaries with an aggregate grant date fair value of approximately $6.8 million. The award recipients generally have the rights and privileges of a shareholder as to the restricted stock, including the right to receive dividends and the right to vote such restricted stock.The recipients are not entitled to receive delivery of a stock certificate prior to vesting nor may any restricted stock be sold, transferred, pledged, or otherwise disposed of prior to the satisfaction of all vesting requirements.

During the nine months endedSeptember 30, 2012, the Company granted approximately 1.3 million restricted stock units to certain employees of the Company and its subsidiaries with an aggregate grant date fair value of approximately $26.6 million. 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.

During the nine months endedSeptember 30, 2012, the Company granted approximately 1.5 million performance units (representing a potential maximum share payout of approximately 3.0million ordinary shares) to certain employees with an aggregate grant date fair value of approximately $29.5 million. The performance units vest after three years, subject to the achievement of stated performance metrics, and entitle the holder to ordinary shares of the Company. 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 vest date. Performance targets are based on relative and absolute financial performance metrics.

XML

Related Party Transactions

9 Months Ended

Sep. 30, 2012

Related Party Transactions Abstract

Related Party Transactions Disclosure [Text Block]

9. Related Party Transactions

At September 30, 2012, the Company owned minority stakes in four independent investment management companies (“Investment Manager Affiliates”) that are actively managing client capital and seeking growth opportunities. The Company seeks to develop relationships with specialty investment management organizations, generally acquiring an equity interest in the business. The Company also invests in certain of the funds and limited partnerships and other legal entities managed by these affiliates and through these funds and partnerships pays management and performance fees to the Company's Investment Manager Affiliates.

In the normal course of business, the Company enters into certain quota share reinsurance contracts with a subsidiary of one of its other strategic affiliates, ARX Holding Corporation. During the three and nine months ended September 30, 2012 and 2011, these contracts resulted in reported net premiums written, net reported claims and reported acquisition costs as summarized below. Management believes that these transactions are conducted at market rates consistent with negotiated arms-length contracts.

	Three Months Ended				Nine Months Ended
ARX Holding Corporation	September 30,				September 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Reported net premiums written	$	27,480	$	22,854	$	53,676	$	45,626
Net losses incurred		10,730		11,318		26,553		24,580
Reported acquisition costs		8,945		6,743		21,558		17,810

XML

Fair Value Measurements (Details) - Financial instruments not carried at fair value (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fixed maturities, held to maturity	$ 2,805,796	$ 2,668,978
Other investments - structured transactions	311,767	323,705
Deposit Liabilities	1,561,076	1,608,108
Notes payable and debt	1,673,350	2,275,327
Carrying Value [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fixed maturities, held to maturity	2,805,796	2,668,978
Other investments - structured transactions	311,767	323,705
Financial Assets	3,117,563	2,992,683
Deposit Liabilities	1,561,076	1,608,108
Notes payable and debt	1,673,350	2,275,327
Financial Liabilities	3,234,426	3,883,435
Fair Value [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fixed maturities, held to maturity	3,222,900	2,895,688
Other investments - structured transactions	287,136	297,124
Financial Assets	3,510,036	3,192,812
Deposit Liabilities	1,885,194	1,809,812
Notes payable and debt	1,866,084	2,340,148
Financial Liabilities	$ 3,751,278	$ 4,149,960

XML

Derivative Instruments (Details) - Earnings relating to derivative instruments not formally designated as hedging instruments (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Derivative Instruments Gain Loss [Line Items]
Total derivatives not designated as hedging instruments	$ 6,451	$ (25,874)	$ 7,486	$ (33,521)
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges	(197)	(1,042)	(4,830)	(778)
Net realized and unrealized gains (losses) on derivative instruments	6,254	(26,916)	2,656	(34,299)
Investment Related Derivatives [Member]
Derivative Instruments Gain Loss [Line Items]
Interest rate exposure	243	2,559	860	(1,720)
Foreign exchange exposure	1,218	(23,214)	1,547	(5,763)
Credit exposure	(2,281)	5,207	343	(8,452)
Financial market exposure	2,337	(7,304)	312	(6,339)
Financial Operations Derivatives [Member]
Derivative Instruments Gain Loss [Line Items]
Credit exposure	0	25	143	331
Other Non Investment Derivatives [Member]
Derivative Instruments Gain Loss [Line Items]
Contingent capital facility	0	(2,075)	0	(6,158)
Guaranteed minimum income benefit contract	885	(2,038)	1,971	(860)
Modified coinsurance funds withheld contract	$ 4,049	$ 966	$ 2,310	$ (4,560)

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures Abstract

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Quoted Prices		Significant		Significant
	in Active		Other		Other		Collateral
	Markets for		Observable		Unobservable		and		Balance at
September 30, 2012	Identical Assets		Inputs		Inputs		Counterparty		September 30,
(U.S. dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Netting		2012
Assets
U.S. Government and Government - Related/Supported	$	-	$	2,135,368	$	-	$	-	$	2,135,368
Corporate (1) (2)		-		9,978,002		29,135		-		10,007,137
Residential mortgage-backed securities – Agency ("RMBS - Agency")		-		5,343,046		33,857		-		5,376,903
Residential mortgage-backed securities – Non-Agency ("RMBS - Non-Agency")		-		628,486		7,839		-		636,325
Commercial mortgage-backed securities ("CMBS")		-		1,001,040		33,369		-		1,034,409
Collateralized debt obligations ("CDO")		-		7,773		674,793		-		682,566
Other asset-backed securities (2)		-		1,441,381		17,163		-		1,458,544
U.S. States and political subdivisions of the States		-		1,820,105		-		-		1,820,105
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		-		4,274,936		-		-		4,274,936
Total fixed maturities, at fair value	$	-	$	26,630,137	$	796,156	$	-	$	27,426,293
Equity securities, at fair value (3)		230,539		335,388		-		-		565,927
Short-term investments, at fair value (1)(4)		-		323,705		-		-		323,705
Total investments available for sale	$	230,539	$	27,289,230	$	796,156	$	-	$	28,315,925
Cash equivalents (5)		2,037,971		321,646		-		-		2,359,617
Other investments (6)		-		783,813		119,975		-		903,788
Other assets (7)		-		10,611		-		41,540		52,151
Total assets accounted for at fair value	$	2,268,510	$	28,405,300	$	916,131	$	41,540	$	31,631,481
Liabilities
Financial instruments sold, but not yet purchased (8)	$	-	$	30,944	$	-	$	-	$	30,944
Other liabilities (7)		-		82,009		35,062		-		117,071
Total liabilities accounted for at fair value	$	-	$	112,953	$	35,062	$	-	$	148,015

	Quoted Prices		Significant		Significant
	in Active		Other		Other		Collateral
	Markets for		Observable		Unobservable		and		Balance at
December 31, 2011	Identical Assets		Inputs		Inputs		Counterparty		December 31,
(U.S. dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Netting		2011
Assets
U.S. Government and Government - Related/Supported	$	-	$	1,990,983	$	-	$	-	$	1,990,983
Corporate (1) (2)		-		10,084,804		23,818		-		10,108,622
RMBS – Agency		-		5,347,365		32,041		-		5,379,406
RMBS – Non-Agency		-		641,815		-		-		641,815
CMBS		-		974,835		-		-		974,835
CDO		-		7,751		650,851		-		658,602
Other asset-backed securities (2)		-		1,323,697		16,552		-		1,340,249
U.S. States and political subdivisions of the States		-		1,797,378		-		-		1,797,378
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		-		3,298,135		-		-		3,298,135
Total fixed maturities, at fair value (2)	$	-	$	25,466,763	$	723,262	$	-	$	26,190,025
Equity securities, at fair value (3)		239,175		229,022		-		-		468,197
Short-term investments, at fair value (1)(4)		-		359,063		-		-		359,063
Total investments available for sale	$	239,175	$	26,054,848	$	723,262	$	-	$	27,017,285
Cash equivalents (5)		1,686,101		1,068,264		-		-		2,754,365
Other investments (6)		-		547,598		113,959		-		661,557
Other assets (7)		-		143,622		-		(77,888)		65,734
Total assets accounted for at fair value	$	1,925,276	$	27,814,332	$	837,221	$	(77,888)	$	30,498,941
Liabilities
Financial instruments sold, but not yet purchased (8)	$	-	$	20,844	$	-	$	-	$	20,844
Other liabilities (7)		-		16,871		42,644		(809)		58,706
Total liabilities accounted for at fair value	$	-	$	37,715	$	42,644	$	(809)	$	79,550

_______________

(1)Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, had a fair value of $192.3 million and $266.0 million and an amortized cost of $199.8million and $297.7 million at September 30, 2012 and December 31, 2011, respectively. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(2)       The Company invests in covered bonds issued by financial institutions (“Covered Bonds”). Covered Bonds are senior secured debt instruments issued by financial institutions and backed by over-collateralized pools of public sector or mortgage loans.At September 30, 2012,Covered Bonds within Total fixed maturities with a fair value of $599.9 million areincluded within Other asset-backed securities to align the Company's classification to market indices. At December 31, 2011,Covered Bonds within Total fixed maturities with a fair value of $353.9 million were reclassified from Corporate to Other asset-backed securities to conform to current period presentation.

(3)       Included within Equity securities are investments in fixed income funds with a fair value of $99.3 million and $91.6 million at September 30, 2012 and December 31, 2011, respectively.

(4)       Short-term investments consist primarily of Corporate securities and U.S. Government and Government-Related/Supported securities.

(5)       Cash equivalents balances subject to fair value measurement include certificates of deposit and money market funds. Operating cash balances are not subject to fair value measurement guidance.

(6)The Other investments balance excludes certain structured transactions including certain investments in project finance transactions, a payment obligation and liquidity financing provided to a structured credit vehicle as a part of a third party medium term note facility. These investments, which totaled $311.8 million at September 30, 2012 and $323.7million at December 31, 2011,are carried at amortized cost.For further details regarding the nature of Other investments and related features see Item 8, Note 7, “Other Investments,” to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011

(7)Other assets and other liabilities include derivative instruments.The derivative balances included in each category are reported on a gross basis by level with a netting adjustment presented separately in the Collateral and Counterparty Netting column. The Company often enters into different types of derivative contracts with a single counterparty and these contracts are covered under a netting agreement. In addition, at September 30, 2012 the Company paid net cash collateral related to these derivative positions of $41.5 million. The assets related to the net collateral paid have been recorded as Other assets within the balance sheet. At December 31, 2011, the Company held net cash collateral of $77.1 million. The collateral balance is included within Cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative asset within the balance sheet as appropriate under the netting agreement. The fair values of the individual derivative contracts are reported gross in their respective levels based on the fair value hierarchy.

(8)       Financial instruments sold, but not yet purchased, represent “short sales” and are included within “Payable for investments purchased” on the balance sheet.

Fair Value, Assets And Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Text Block]

	Level 3 Assets and Liabilities - Three Months Ended September 30, 2012
(U.S. dollars in thousands)			Corporate		RMBS - Agency		RMBS - Non Agency		CMBS		CDO
Balance, beginning of period		$	33,511	$	52,588	$	1,596	$	-	$	642,179
Realized gains (losses)			20		4		(22)		-		913
Movement in unrealized gains (losses)			673		106		(424)		-		35,886
Purchases and issuances			-		34		6,821		33,369		-
Sales and settlements			(555)		(4,645)		(59)		-		(5,347)
Transfers into Level 3			-		-		-		-		1,162
Transfers out of Level 3			(4,514)		(14,230)		(73)		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	29,135	$	33,857	$	7,839	$	33,369	$	674,793
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	674	$	110	$	(447)	$	-	$	35,806
	Level 3 Assets and Liabilities - Three Months Ended September 30, 2012
(U.S. dollars in thousands)			Other asset-backed securities		Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported		Short-term investments		Other investments		Derivative Contracts - Net
Balance, beginning of period		$	25,248	$	-	$	-	$	117,765	$	(35,947)
Realized gains (losses)			7,017		-		-		343		-
Movement in unrealized gains (losses)			(6,552)		-		-		1,686		885
Purchases and issuances			8,753		-		-		982		-
Sales and settlements			(16,141)		-		-		(807)		-
Transfers into Level 3			-		-		-		6		-
Transfers out of Level 3			(1,162)		-		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	17,163	$	-	$	-	$	119,975	$	(35,062)
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	456	$	-	$	-	$	1,334	$	885

	Level 3 Assets and Liabilities - Three Months Ended September 30, 2011
(U.S. dollars in thousands)			Corporate		RMBS - Agency		RMBS - Non Agency		CMBS		CDO
Balance, beginning of period		$	4,786	$	15,385	$	3,194	$	4,563	$	727,239
Realized gains (losses)			23		(81)		(328)		(501)		(2,662)
Movement in unrealized gains (losses)			(22)		52		76		564		(46,520)
Purchases and issuances			-		33		-		-		-
Sales and settlements			-		(206)		(143)		(232)		(12,215)
Transfers into Level 3			-		-		-		-		-
Transfers out of Level 3			-		-		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	4,787	$	15,183	$	2,799	$	4,394	$	665,842
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	1	$	(29)	$	(252)	$	63	$	(49,432)
	Level 3 Assets and Liabilities - Three Months Ended September 30, 2011
(U.S. dollars in thousands)			Other asset-backed securities		Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported		Short-term investments		Other investments		Derivative Contracts - Net
Balance, beginning of period		$	17,048	$	-	$	-	$	114,540	$	(49,645)
Realized gains (losses)			(238)		-		-		(244)		-
Movement in unrealized gains (losses)			302		-		-		2,642		(2,344)
Purchases and issuances			-		-		-		1,667		-
Sales and settlements			-		-		-		(4,243)		-
Transfers into Level 3			-		-		-		-		-
Transfers out of Level 3			-		-		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	17,112	$	-	$	-	$	114,362	$	(51,989)
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	64	$	-	$	-	$	2,398	$	(2,344)

	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2012
(U.S. dollars in thousands)			Corporate		RMBS - Agency		RMBS - Non Agency		CMBS		CDO
Balance, beginning of period		$	23,818	$	32,041	$	-	$	-	$	650,851
Realized gains (losses)			4		(23)		-		-		(523)
Movement in unrealized gains (losses)			346		58		-		-		75,489
Purchases and issuances			8,949		103		6,821		33,369		-
Sales and settlements			(181)		(6,233)		-		-		(51,024)
Transfers into Level 3			838		15,254		1,018		-		-
Transfers out of Level 3			(4,639)		(7,343)		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	29,135	$	33,857	$	7,839	$	33,369	$	674,793
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	351	$	35	$	-	$	-	$	71,738
	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2012
(U.S. dollars in thousands)			Other asset-backed securities		Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported		Short-term investments		Other investments		Derivative Contracts - Net
Balance, beginning of period		$	16,552	$	-	$	-	$	113,959	$	(42,644)
Realized gains (losses)			6,748		-		-		2,782		-
Movement in unrealized gains (losses)			(2,873)		-		-		6,206		7,582
Purchases and issuances			8,753		-		-		4,664		-
Sales and settlements			(15,867)		-		-		(7,327)		-
Transfers into Level 3			3,850		-		-		6		-
Transfers out of Level 3			-		-		-		(315)		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	17,163	$	-	$	-	$	119,975	$	(35,062)
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	3,652	$	-	$	-	$	2,385	$	7,582

	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2011
(U.S. dollars in thousands)			Corporate		RMBS - Agency		RMBS - Non Agency		CMBS		CDO
Balance, beginning of period		$	36,866	$	30,255	$	4,964	$	1,623	$	721,572
Realized gains (losses)			(257)		(81)		(329)		(1,179)		(3,733)
Movement in unrealized gains (losses)			173		2		61		1,078		(10,104)
Purchases and issuances			6,878		33		-		3,155		2,379
Sales and settlements			(10,049)		(492)		(517)		(283)		(46,158)
Transfers into Level 3			-		-		-		-		1,886
Transfers out of Level 3			(28,824)		(14,534)		(1,380)		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	4,787	$	15,183	$	2,799	$	4,394	$	665,842
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	(52)	$	(79)	$	(268)	$	(855)	$	(15,656)
	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2011
(U.S. dollars in thousands)			Other asset-backed securities		Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported		Short-term investments		Other investments		Derivative Contracts - Net
Balance, beginning of period		$	24,650	$	3,667	$	-	$	133,717	$	(39,195)
Realized gains (losses)			(555)		-		-		11,911		-
Movement in unrealized gains (losses)			7,162		-		-		10,134		(12,620)
Purchases and issuances			-		-		-		9,782		-
Sales and settlements			(9,114)		-		-		(51,182)		(174)
Transfers into Level 3			-		-		-		-		-
Transfers out of Level 3			(5,031)		(3,667)		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	17,112	$	-	$	-	$	114,362	$	(51,989)
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	6,287	$	-	$	-	$	19,735	$	(12,620)

Schedule Of Financial Instruments Not Carried at Fair Value [Text Block]

		September 30, 2012				December 31, 2011
			Carrying		Fair		Carrying		Fair
(U.S. dollars in thousands)			Value		Value		Value		Value
	Fixed maturities, held to maturity	$	2,805,796	$	3,222,900	$	2,668,978	$	2,895,688
	Other investments - structured transactions.		311,767		287,136		323,705		297,124
Financial Assets		$	3,117,563	$	3,510,036	$	2,992,683	$	3,192,812
	Deposit liabilities	$	1,561,076	$	1,885,194	$	1,608,108	$	1,809,812
	Notes payable and debt		1,673,350		1,866,084		2,275,327		2,340,148
Financial Liabilities		$	3,234,426	$	3,751,278	$	3,883,435	$	4,149,960

XML

Notes Payable and Debt and Financing Arrangements (Tables)

9 Months Ended

Sep. 30, 2012

Debt Disclosure Abstract

Schedule of Line of Credit Facilities [Table Text Block]

Letter of Credit Summary:	September 30,		December 31,
(U.S. dollars in thousands except percentages)	2012 (1)		2011 (1)
Revolving credit facility (2)	$	1,000,000	$	1,000,000
Available letter of credit facilities - commitments (3)	$	4,000,000	$	4,000,000
Available letter of credit facilities - in use	$	1,790,505	$	1,871,192
Collateralized by certain assets of the Company's investment portfolio		93.5%		93.8%

_______________

(1)       At September 30, 2012 and December 31, 2011,there were five available letter of credit facilities.

(2)       At September 30, 2012 and December 31, 2011, the revolving credit facility was unutilized.

(3)       The Company has the option to increase the size of the March 2011 Credit Agreement by an additional $500 million and the size of the facilities under the December 2011 Credit Agreements by an additional $500 million across both such facilities.

XML

Derivative Instruments (Details) - Schedule of settlement of fair value hedges (USD $) In Thousands, unless otherwise specified	9 Months Ended		1 Months Ended	9 Months Ended
	Sep. 30, 2012 Notes Payable And Debt [Member] Fair Value Hedging Member	Sep. 30, 2011 Notes Payable And Debt [Member] Fair Value Hedging Member	Jul. 31, 2012 Deposit Liabilities [Member]	Sep. 30, 2012 Deposit Liabilities [Member] Fair Value Hedging Member	Sep. 30, 2011 Deposit Liabilities [Member] Fair Value Hedging Member
Derivative [Line Items]
Cumulative reduction to interest expense	$ 13,973	$ 9,173		$ 17,060	$ 7,511
Fair Value Hedge Remaining Balance	$ 7,651	$ 12,451		$ 216,135	$ 141,974
Weighted average years to maturity	2 years	2 years 9 months 18 days	16 years 1 month 6 days	25 years 10 months 24 days	34 years 3 months 18 days

XML

Investments (Details) - Analysis of continual unrealized loss position (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
HTM securities
Less than 12 months Fair Value	$ 2,126	$ 244,193
Less than 12 month Gross Unrealized Losses	(182)	(9,322)
Equal to or greater than 12 months Fair Value	59,303	81,779
Equal to or greater than 12 months Gross Unrealized Losses	(5,847)	(11,413)
Fixed Maturities And Short Term Investments Available For Sale [Member]
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	1,046,125	2,375,175
Less than 12 month Gross Unrealized Losses	(12,585)	(88,253)
Equal to or greater than 12 months Fair Value	2,318,539	2,782,909
Equal to or greater than 12 months Gross Unrealized Losses	(378,747)	(688,309)
U.S. Government and Government - Related/Supported [Member]
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	248,665	289,260
Less than 12 month Gross Unrealized Losses	(2,246)	(332)
Equal to or greater than 12 months Fair Value	25,692	43,622
Equal to or greater than 12 months Gross Unrealized Losses	(1,478)	(3,984)
Corporate
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	178,324	1,078,664
Less than 12 month Gross Unrealized Losses	(4,239)	(42,151)
Equal to or greater than 12 months Fair Value	821,415	1,185,535
Equal to or greater than 12 months Gross Unrealized Losses	(119,408)	(243,683)
HTM securities
Less than 12 months Fair Value	890	147,836
Less than 12 month Gross Unrealized Losses	(31)	(7,770)
Equal to or greater than 12 months Fair Value	41,547	62,343
Equal to or greater than 12 months Gross Unrealized Losses	(2,901)	(6,663)
RMBS - Agency
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	145,444	310,318
Less than 12 month Gross Unrealized Losses	(1,698)	(849)
Equal to or greater than 12 months Fair Value	14,888	36,960
Equal to or greater than 12 months Gross Unrealized Losses	(1,040)	(3,000)
RMBS - Non-Agency
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	10,119	106,294
Less than 12 month Gross Unrealized Losses	(200)	(31,714)
Equal to or greater than 12 months Fair Value	466,064	449,138
Equal to or greater than 12 months Gross Unrealized Losses	(107,557)	(197,695)
HTM securities
Less than 12 months Fair Value		9,372
Less than 12 month Gross Unrealized Losses		(32)
Equal to or greater than 12 months Fair Value		0
Equal to or greater than 12 months Gross Unrealized Losses		0
CMBS
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	90,884	69,109
Less than 12 month Gross Unrealized Losses	(485)	(2,716)
Equal to or greater than 12 months Fair Value	24,571	39,444
Equal to or greater than 12 months Gross Unrealized Losses	(3,502)	(6,837)
CDO
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	13,919	3,357
Less than 12 month Gross Unrealized Losses	(2,242)	(2,261)
Equal to or greater than 12 months Fair Value	655,280	636,362
Equal to or greater than 12 months Gross Unrealized Losses	(116,664)	(189,456)
Other asset-backed securities
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	64,400	227,098
Less than 12 month Gross Unrealized Losses	(192)	(3,324)
Equal to or greater than 12 months Fair Value	105,520	161,312
Equal to or greater than 12 months Gross Unrealized Losses	(19,294)	(28,467)
HTM securities
Less than 12 months Fair Value	1,236	7,743
Less than 12 month Gross Unrealized Losses	(151)	(314)
Equal to or greater than 12 months Fair Value	8,273	1,106
Equal to or greater than 12 months Gross Unrealized Losses	(144)	(6)
U.S. States and political subdivisions of the States [Member]
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	13,136	25,309
Less than 12 month Gross Unrealized Losses	(137)	(199)
Equal to or greater than 12 months Fair Value	13,788	27,646
Equal to or greater than 12 months Gross Unrealized Losses	(1,516)	(2,021)
Non-U.S. Sovereign Government, Provincial, Supranational, and Government-Related/Supported [Member]
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	281,234	265,766
Less than 12 month Gross Unrealized Losses	(1,146)	(4,707)
Equal to or greater than 12 months Fair Value	191,321	202,890
Equal to or greater than 12 months Gross Unrealized Losses	(8,288)	(13,166)
HTM securities
Less than 12 months Fair Value	0	79,242
Less than 12 month Gross Unrealized Losses	0	(1,206)
Equal to or greater than 12 months Fair Value	9,483	18,330
Equal to or greater than 12 months Gross Unrealized Losses	(2,802)	(4,744)
Equity Securities [Member]
Fixed maturities and short-term investments - AFS:
Less than 12 months Fair Value	272,543	361,585
Less than 12 month Gross Unrealized Losses	(5,253)	(40,435)
Equal to or greater than 12 months Fair Value	0	0
Equal to or greater than 12 months Gross Unrealized Losses	$ 0	$ 0

XML

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income (loss) attributable to XL Group plc	$ 171,902	$ 42,398	$ 569,686	$ 40,777
Change in net unrealized gains (losses) on investments, net of tax	456,642	110,124	778,299	291,330
Change in net unrealized gains (losses) on affiliate and other investments, net of tax	14,615	2,954	30,998	35,620
Change in OTTI losses recognized in other comprehensive income, net of tax	25,936	3,995	52,353	28,119
Change in underfunded pension liability	(2,026)	1,684	(2,033)	1,287
Change in value of cash flow hedge	110	110	330	330
Foreign currency translation adjustments	17,411	(85,635)	(19,563)	(1,278)
Comprehensive income (loss)	$ 684,590	$ 75,630	$ 1,410,070	$ 396,185

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures Abstract

Fair value disclosures

3. Fair Value Measurements

Fair value is defined as the amount that would be received for the sale of an asset or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the factors that market participants would use in valuing the asset or liability. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The fair values for available for sale investments are generally sourced from third parties. The fair value of fixed income securities is based upon quoted market values where available, “evaluated bid” prices provided by third party pricing services (“pricing services”) where quoted market values are not available, or by reference to broker quotes where pricing services do not provide coverage for a particular security. While the Company receives values for the majority of the investment securities it holds from pricing services, it is ultimately management's responsibility to determine whether the values received and recorded in the financial statements are representative of appropriate fair value measurements.

The Company performs regular reviews of the prices received from its third party valuation sources to assess if the prices represent a reasonable estimate of the fair value. This process is completed by investment and accounting personnel who are independent of those responsible for obtaining the valuations. The approaches taken by the Company include, but are not limited to, annual reviews of the controls of the external parties responsible for sourcing valuations, which are subjected to automated tolerance checks, quarterly reviews of the valuation sources and dates, and monthly reconciliations between the valuations provided by our external parties and valuations provided by our third party investment managers at a portfolio level.

Where broker quotes are the primary source of the valuations, sufficient information regarding the specific inputs utilized by the brokers is generally not available to support a Level 2 classification. The Company obtains the majority of broker quoted values from third party investment managers who perform independent verifications of these valuations using pricing matrices based upon information gathered by market traders. In addition, for the majority of these securities, the Company compares the broker quotes to independent valuations obtained from third party pricing vendors, which may also consist of broker quotes, to assess if the prices received represent a reasonable estimate of the fair value.

For further information, see Item 8, Note 2, “Significant Accounting Policies,” to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

(a) Fair Value Summary

The following tables set forth the Company's assets and liabilities that were accounted for at fair value at September 30, 2012 and December 31, 2011 by level within the fair value hierarchy:

	Quoted Prices		Significant		Significant
	in Active		Other		Other		Collateral
	Markets for		Observable		Unobservable		and		Balance at
September 30, 2012	Identical Assets		Inputs		Inputs		Counterparty		September 30,
(U.S. dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Netting		2012
Assets
U.S. Government and Government - Related/Supported	$	-	$	2,135,368	$	-	$	-	$	2,135,368
Corporate (1) (2)		-		9,978,002		29,135		-		10,007,137
Residential mortgage-backed securities – Agency ("RMBS - Agency")		-		5,343,046		33,857		-		5,376,903
Residential mortgage-backed securities – Non-Agency ("RMBS - Non-Agency")		-		628,486		7,839		-		636,325
Commercial mortgage-backed securities ("CMBS")		-		1,001,040		33,369		-		1,034,409
Collateralized debt obligations ("CDO")		-		7,773		674,793		-		682,566
Other asset-backed securities (2)		-		1,441,381		17,163		-		1,458,544
U.S. States and political subdivisions of the States		-		1,820,105		-		-		1,820,105
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		-		4,274,936		-		-		4,274,936
Total fixed maturities, at fair value	$	-	$	26,630,137	$	796,156	$	-	$	27,426,293
Equity securities, at fair value (3)		230,539		335,388		-		-		565,927
Short-term investments, at fair value (1)(4)		-		323,705		-		-		323,705
Total investments available for sale	$	230,539	$	27,289,230	$	796,156	$	-	$	28,315,925
Cash equivalents (5)		2,037,971		321,646		-		-		2,359,617
Other investments (6)		-		783,813		119,975		-		903,788
Other assets (7)		-		10,611		-		41,540		52,151
Total assets accounted for at fair value	$	2,268,510	$	28,405,300	$	916,131	$	41,540	$	31,631,481
Liabilities
Financial instruments sold, but not yet purchased (8)	$	-	$	30,944	$	-	$	-	$	30,944
Other liabilities (7)		-		82,009		35,062		-		117,071
Total liabilities accounted for at fair value	$	-	$	112,953	$	35,062	$	-	$	148,015

	Quoted Prices		Significant		Significant
	in Active		Other		Other		Collateral
	Markets for		Observable		Unobservable		and		Balance at
December 31, 2011	Identical Assets		Inputs		Inputs		Counterparty		December 31,
(U.S. dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Netting		2011
Assets
U.S. Government and Government - Related/Supported	$	-	$	1,990,983	$	-	$	-	$	1,990,983
Corporate (1) (2)		-		10,084,804		23,818		-		10,108,622
RMBS – Agency		-		5,347,365		32,041		-		5,379,406
RMBS – Non-Agency		-		641,815		-		-		641,815
CMBS		-		974,835		-		-		974,835
CDO		-		7,751		650,851		-		658,602
Other asset-backed securities (2)		-		1,323,697		16,552		-		1,340,249
U.S. States and political subdivisions of the States		-		1,797,378		-		-		1,797,378
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		-		3,298,135		-		-		3,298,135
Total fixed maturities, at fair value (2)	$	-	$	25,466,763	$	723,262	$	-	$	26,190,025
Equity securities, at fair value (3)		239,175		229,022		-		-		468,197
Short-term investments, at fair value (1)(4)		-		359,063		-		-		359,063
Total investments available for sale	$	239,175	$	26,054,848	$	723,262	$	-	$	27,017,285
Cash equivalents (5)		1,686,101		1,068,264		-		-		2,754,365
Other investments (6)		-		547,598		113,959		-		661,557
Other assets (7)		-		143,622		-		(77,888)		65,734
Total assets accounted for at fair value	$	1,925,276	$	27,814,332	$	837,221	$	(77,888)	$	30,498,941
Liabilities
Financial instruments sold, but not yet purchased (8)	$	-	$	20,844	$	-	$	-	$	20,844
Other liabilities (7)		-		16,871		42,644		(809)		58,706
Total liabilities accounted for at fair value	$	-	$	37,715	$	42,644	$	(809)	$	79,550

_______________

(1)Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, had a fair value of $192.3 million and $266.0 million and an amortized cost of $199.8million and $297.7 million at September 30, 2012 and December 31, 2011, respectively. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(2)       The Company invests in covered bonds issued by financial institutions (“Covered Bonds”). Covered Bonds are senior secured debt instruments issued by financial institutions and backed by over-collateralized pools of public sector or mortgage loans.At September 30, 2012,Covered Bonds within Total fixed maturities with a fair value of $599.9 million areincluded within Other asset-backed securities to align the Company's classification to market indices. At December 31, 2011,Covered Bonds within Total fixed maturities with a fair value of $353.9 million were reclassified from Corporate to Other asset-backed securities to conform to current period presentation.

(3)       Included within Equity securities are investments in fixed income funds with a fair value of $99.3 million and $91.6 million at September 30, 2012 and December 31, 2011, respectively.

(4)       Short-term investments consist primarily of Corporate securities and U.S. Government and Government-Related/Supported securities.

(5)       Cash equivalents balances subject to fair value measurement include certificates of deposit and money market funds. Operating cash balances are not subject to fair value measurement guidance.

(6)The Other investments balance excludes certain structured transactions including certain investments in project finance transactions, a payment obligation and liquidity financing provided to a structured credit vehicle as a part of a third party medium term note facility. These investments, which totaled $311.8 million at September 30, 2012 and $323.7million at December 31, 2011,are carried at amortized cost.For further details regarding the nature of Other investments and related features see Item 8, Note 7, “Other Investments,” to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011

(7)Other assets and other liabilities include derivative instruments.The derivative balances included in each category are reported on a gross basis by level with a netting adjustment presented separately in the Collateral and Counterparty Netting column. The Company often enters into different types of derivative contracts with a single counterparty and these contracts are covered under a netting agreement. In addition, at September 30, 2012 the Company paid net cash collateral related to these derivative positions of $41.5 million. The assets related to the net collateral paid have been recorded as Other assets within the balance sheet. At December 31, 2011, the Company held net cash collateral of $77.1 million. The collateral balance is included within Cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative asset within the balance sheet as appropriate under the netting agreement. The fair values of the individual derivative contracts are reported gross in their respective levels based on the fair value hierarchy.

(8)       Financial instruments sold, but not yet purchased, represent “short sales” and are included within “Payable for investments purchased” on the balance sheet.

(b) Level 3 Assets and Liabilities

The tables below present additional information about assets and liabilities measured at fair value on a recurring basis and for which Level 3 inputs were utilized to determine fair value. The tablespresent a reconciliation of the beginning and ending balances for the three and nine months ended September 30, 2012 and 2011 for all financial assets and liabilities measured at fair value using significant unobservable inputs (Level 3) at September 30, 2012 and 2011, respectively. The tables do not include gains or losses that were reported in Level 3 in prior periods for assets that were transferred out of Level 3 prior to September 30, 2012 and 2011. Gains and losses for assets and liabilities classified within Level 3 in the table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, it should be noted that the following tables do not take into consideration the effect of offsetting Level 1 and 2 financial instruments entered into by the Company that are either economically hedged by certain exposures to the Level 3 positions or that hedge the exposures in Level 3 positions.

In general, Level 3 assets include securities for which values were obtained from brokers where either significant inputs were utilized in determining the values that were difficult to corroborate with observable market data, or sufficient information regarding the specific inputs utilized by the broker was not available to support a Level 2 classification. Transfers into or out of Level 3 primarily arise as a result of the valuations utilized by the Company changing between either those provided by independent pricing services that do not contain significant observable inputs, or other valuations sourced from brokers that are considered Level 3.

There were no significant transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 2012 and 2011.

	Level 3 Assets and Liabilities - Three Months Ended September 30, 2012
(U.S. dollars in thousands)			Corporate		RMBS - Agency		RMBS - Non Agency		CMBS		CDO
Balance, beginning of period		$	33,511	$	52,588	$	1,596	$	-	$	642,179
Realized gains (losses)			20		4		(22)		-		913
Movement in unrealized gains (losses)			673		106		(424)		-		35,886
Purchases and issuances			-		34		6,821		33,369		-
Sales and settlements			(555)		(4,645)		(59)		-		(5,347)
Transfers into Level 3			-		-		-		-		1,162
Transfers out of Level 3			(4,514)		(14,230)		(73)		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	29,135	$	33,857	$	7,839	$	33,369	$	674,793
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	674	$	110	$	(447)	$	-	$	35,806
	Level 3 Assets and Liabilities - Three Months Ended September 30, 2012
(U.S. dollars in thousands)			Other asset-backed securities		Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported		Short-term investments		Other investments		Derivative Contracts - Net
Balance, beginning of period		$	25,248	$	-	$	-	$	117,765	$	(35,947)
Realized gains (losses)			7,017		-		-		343		-
Movement in unrealized gains (losses)			(6,552)		-		-		1,686		885
Purchases and issuances			8,753		-		-		982		-
Sales and settlements			(16,141)		-		-		(807)		-
Transfers into Level 3			-		-		-		6		-
Transfers out of Level 3			(1,162)		-		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	17,163	$	-	$	-	$	119,975	$	(35,062)
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	456	$	-	$	-	$	1,334	$	885

	Level 3 Assets and Liabilities - Three Months Ended September 30, 2011
(U.S. dollars in thousands)			Corporate		RMBS - Agency		RMBS - Non Agency		CMBS		CDO
Balance, beginning of period		$	4,786	$	15,385	$	3,194	$	4,563	$	727,239
Realized gains (losses)			23		(81)		(328)		(501)		(2,662)
Movement in unrealized gains (losses)			(22)		52		76		564		(46,520)
Purchases and issuances			-		33		-		-		-
Sales and settlements			-		(206)		(143)		(232)		(12,215)
Transfers into Level 3			-		-		-		-		-
Transfers out of Level 3			-		-		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	4,787	$	15,183	$	2,799	$	4,394	$	665,842
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	1	$	(29)	$	(252)	$	63	$	(49,432)
	Level 3 Assets and Liabilities - Three Months Ended September 30, 2011
(U.S. dollars in thousands)			Other asset-backed securities		Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported		Short-term investments		Other investments		Derivative Contracts - Net
Balance, beginning of period		$	17,048	$	-	$	-	$	114,540	$	(49,645)
Realized gains (losses)			(238)		-		-		(244)		-
Movement in unrealized gains (losses)			302		-		-		2,642		(2,344)
Purchases and issuances			-		-		-		1,667		-
Sales and settlements			-		-		-		(4,243)		-
Transfers into Level 3			-		-		-		-		-
Transfers out of Level 3			-		-		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	17,112	$	-	$	-	$	114,362	$	(51,989)
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	64	$	-	$	-	$	2,398	$	(2,344)

	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2012
(U.S. dollars in thousands)			Corporate		RMBS - Agency		RMBS - Non Agency		CMBS		CDO
Balance, beginning of period		$	23,818	$	32,041	$	-	$	-	$	650,851
Realized gains (losses)			4		(23)		-		-		(523)
Movement in unrealized gains (losses)			346		58		-		-		75,489
Purchases and issuances			8,949		103		6,821		33,369		-
Sales and settlements			(181)		(6,233)		-		-		(51,024)
Transfers into Level 3			838		15,254		1,018		-		-
Transfers out of Level 3			(4,639)		(7,343)		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	29,135	$	33,857	$	7,839	$	33,369	$	674,793
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	351	$	35	$	-	$	-	$	71,738
	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2012
(U.S. dollars in thousands)			Other asset-backed securities		Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported		Short-term investments		Other investments		Derivative Contracts - Net
Balance, beginning of period		$	16,552	$	-	$	-	$	113,959	$	(42,644)
Realized gains (losses)			6,748		-		-		2,782		-
Movement in unrealized gains (losses)			(2,873)		-		-		6,206		7,582
Purchases and issuances			8,753		-		-		4,664		-
Sales and settlements			(15,867)		-		-		(7,327)		-
Transfers into Level 3			3,850		-		-		6		-
Transfers out of Level 3			-		-		-		(315)		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	17,163	$	-	$	-	$	119,975	$	(35,062)
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	3,652	$	-	$	-	$	2,385	$	7,582

	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2011
(U.S. dollars in thousands)			Corporate		RMBS - Agency		RMBS - Non Agency		CMBS		CDO
Balance, beginning of period		$	36,866	$	30,255	$	4,964	$	1,623	$	721,572
Realized gains (losses)			(257)		(81)		(329)		(1,179)		(3,733)
Movement in unrealized gains (losses)			173		2		61		1,078		(10,104)
Purchases and issuances			6,878		33		-		3,155		2,379
Sales and settlements			(10,049)		(492)		(517)		(283)		(46,158)
Transfers into Level 3			-		-		-		-		1,886
Transfers out of Level 3			(28,824)		(14,534)		(1,380)		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	4,787	$	15,183	$	2,799	$	4,394	$	665,842
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	(52)	$	(79)	$	(268)	$	(855)	$	(15,656)
	Level 3 Assets and Liabilities - Nine Months Ended September 30, 2011
(U.S. dollars in thousands)			Other asset-backed securities		Non-US Sovereign Government, Provincial, Supranational and Government Related/Supported		Short-term investments		Other investments		Derivative Contracts - Net
Balance, beginning of period		$	24,650	$	3,667	$	-	$	133,717	$	(39,195)
Realized gains (losses)			(555)		-		-		11,911		-
Movement in unrealized gains (losses)			7,162		-		-		10,134		(12,620)
Purchases and issuances			-		-		-		9,782		-
Sales and settlements			(9,114)		-		-		(51,182)		(174)
Transfers into Level 3			-		-		-		-		-
Transfers out of Level 3			(5,031)		(3,667)		-		-		-
Fixed maturities to short-term investments classification change			-		-		-		-		-
Balance, end of period		$	17,112	$	-	$	-	$	114,362	$	(51,989)
Movement in total gains (losses) above relating to instruments still held at the reporting date		$	6,287	$	-	$	-	$	19,735	$	(12,620)

(c) Fixed maturities and short-term investments

The Company's Level 3 assets consist primarily of CDOs,for which non-binding broker quotesare the primary source of the valuations. Sufficient information regarding the specific inputs utilized by the brokers was not available to support a Level 2 classification. The Company obtains the majority of broker quotes for these CDOs from third party investment managers who perform independent verifications of these valuations using pricing matrices based upon information gathered by market traders. In addition, for the majority of these securities, the Company compares the broker quotes to independent valuations obtained from third party pricing vendors, which may also consist of broker quotes, to assess if the prices received represent a reasonable estimate of the fair value. Although the Company does not have access to the specific unobservable inputs that may have been used in the fair value measurements of the CDO securities provided by brokers, we would expect that the significant inputs considered are prepayment rates, probability of default, loss severity in the event of default, recovery rates, liquidity premium and reinvestment rates. Significant increases (decreases) in any of those inputs in isolation could result in a significantly different fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

The remainder of the Level 3 assets relate to primarily to private equity investments and certain derivative positions as described below.

(d) Other investments

Included within the Other investments component of the Company's Level 3 valuations are private investments and alternative fund investments where the Company is not deemed to have significant influence over the investee. The fair value of these investments is based upon net asset values received from the investment manager or general partner of the respective entity. The nature of the underlying investments held by the investee that form the basis of the net asset value include assets such as private business ventures and are such that significant Level 3 inputs are utilized in the determination of the individual underlying holding values and, accordingly, the fair value of the Company's investment in each entity is classified within Level 3. The Company has not adjusted the net asset values received; however, management incorporates factors such as the most recent financial information received, annual audited financial statements and the values at which capital transactions with the investee take place when applying judgment regarding whether any adjustments should be made to the net asset value in recording the fair value of each position. Investments in alternative funds included in Other investments utilize strategies including arbitrage, directional, event driven and multi-style. These funds potentially have lockup and gate provisions which may limit redemption liquidity. For further details regarding the nature of Other investments and related features see Item 8, Note 7, “Other Investments,” to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

(e) Derivative instruments

Derivative instruments recorded within Other liabilities and classified within Level 3 include credit derivatives sold providing protection on senior tranches of structured finance transactions where the value is obtained directly from the investment bank counterparty and sufficient information regarding the inputs utilized in such valuation was not obtained to support a Level 2 classification and guaranteed minimum income benefits (“GMIB”) embedded within one reinsurance contract. The majority of inputs utilized in the valuations of these types of derivative contracts are considered Level 1 or Level 2; however, each valuation includes at least one Level 3 input that was significant to the valuation and, accordingly, the values are disclosed within Level 3.

(f) Financial Instruments Not Carried at Fair Value

Authoritative guidance over disclosures about the fair value of financial instruments requires additional disclosure of fair value information for financial instruments not carried at fair value in both interim and annual reporting periods. Certain financial instruments, particularly insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents, accrued investment income, net receivable from investments sold, other assets, net payable for investments purchased, other liabilities and other financial instruments not included below approximated their fair values. The following table includes financial instruments for which the carrying value differs from the estimated fair values at September 30, 2012 and December 31, 2011. All of these fair values estimates are considered Level 2 fair value measurements.The fair values for fixed maturities held to maturity are provided by third party pricing vendors and significant valuation inputs for all other items included were based upon market data obtained from sources independent of the Company, and are subject to the same control environment previously described.

		September 30, 2012				December 31, 2011
			Carrying		Fair		Carrying		Fair
(U.S. dollars in thousands)			Value		Value		Value		Value
	Fixed maturities, held to maturity	$	2,805,796	$	3,222,900	$	2,668,978	$	2,895,688
	Other investments - structured transactions.		311,767		287,136		323,705		297,124
Financial Assets		$	3,117,563	$	3,510,036	$	2,992,683	$	3,192,812
	Deposit liabilities	$	1,561,076	$	1,885,194	$	1,608,108	$	1,809,812
	Notes payable and debt		1,673,350		1,866,084		2,275,327		2,340,148
Financial Liabilities		$	3,234,426	$	3,751,278	$	3,883,435	$	4,149,960

The Company historically participated in structured transactions. Remaining structured transactions include cash loans supporting project finance transactions, providing liquidity facility financing to structured project deals and an investment in a payment obligation with an insurance company. These transactions are carried at amortized cost. The fair value of these investments held by the Company is determined through use of internal models utilizing reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.

Deposit liabilities include obligations under structured insurance and reinsurance transactions. For purposes of fair value disclosures, the Company determined the estimated fair value of the deposit liabilities by assuming a discount rate equal to the appropriate U.S. Treasury rate plus 102.3 basis points at September 30, 2012 and the appropriate U.S. Treasury rate plus 161.8basis points at December 31, 2011. The discount rate incorporates the Company's own credit risk into the determination of estimated fair value.

The fair values of the Company's notes payable and debt outstanding were determined based on quoted market prices.

There are no significant concentrations of credit risk within the Company's financial instruments as defined in the authoritative guidance over disclosures of fair value of financial instruments not carried at fair value, which excludes certain financial instruments, particularly insurance contracts.

XML

Related Party Transactions (Details) - Schedule of related party transactions activity (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 investment_companies	Sep. 30, 2011
Related Party Transaction [Line Items]
Reported net premiums written	$ 1,387,751	$ 1,383,475	$ 4,862,376	$ 4,585,682
Net losses and loss expenses incurred	894,076	988,059	2,574,496	3,020,508
Reported acquisition costs	236,347	207,553	679,435	611,142
Number of investment management companies			4
Reinsurance Contracts Arx Holding Corporation [Member]
Related Party Transaction [Line Items]
Reported net premiums written	27,480	22,854	53,676	45,626
Net losses and loss expenses incurred	10,730	11,318	26,553	24,580
Reported acquisition costs	$ 8,945	$ 6,743	$ 21,558	$ 17,810

XML

Related Party Transactions (Tables)

9 Months Ended

Sep. 30, 2012

Related Party Transactions Abstract

Schedule of Related Party Transactions, Activity [Table Text Block]

	Three Months Ended				Nine Months Ended
ARX Holding Corporation	September 30,				September 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Reported net premiums written	$	27,480	$	22,854	$	53,676	$	45,626
Net losses incurred		10,730		11,318		26,553		24,580
Reported acquisition costs		8,945		6,743		21,558		17,810

XML

Investments (Details) - Narrative (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012 positions	Sep. 30, 2011	Sep. 30, 2012 positions	Sep. 30, 2011	Dec. 31, 2011
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Fixed maturities, at fair value	$ 27,426,293,000		$ 27,426,293,000		$ 26,190,025,000
Cost or Amortized cost of Fixed maturities	26,150,520,000		26,150,520,000		25,771,715,000
Fixed maturities, held to maturity	2,805,796,000		2,805,796,000		2,668,978,000
Held To Maturity Securities Fair Value	3,222,900,000		3,222,900,000		2,895,688,000
Fair value of securities - AFS	28,315,925,000		28,315,925,000		27,017,285,000
Available-for-sale Securities, Amortized Cost Basis	27,028,521,000		27,028,521,000		26,611,778,000
Percentage of fixed income portfolio invested in securities below investment grade	2.70%		2.70%		2.40%
Percentage of gross unrealized losses relating to securities below investment grade	36.20%		36.20%		31.40%
Percentage of HTM securities rated A or higher	96.50%		96.50%
Unrealized appreciation related to securities reclassified from AFS to HTM			131,500,000
Unamortized portion of appreciation related to securities reclassified	107,000,000		107,000,000		108,400,000
Pledged assets, amount	17,500,000,000		17,500,000,000		17,200,000,000
Unrealized losses on AFS portfolio	396,600,000		396,600,000
Total number of positions - AFS	7,215		7,215
AFS securities in unrealized loss position (number of positions)	1,072		1,072
Unrealized losses on HTM portfolio	6,000,000		6,000,000
Total number of positions - HTM	207		207
HTM securities in unrealized loss position (number of positions)	9		9
OTTI on investments, net of amounts transferred to other comprehensive income	12,629,000	66,815,000	61,787,000	131,436,000
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	33,114,000	14,611,000	87,092,000	173,056,000
Maximum
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Short term investments maturity horizon from reporting date			1 year
Government Related Securities [Member]
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Total fair value	2,258,600,000		2,258,600,000		1,915,600,000
Total cost or amortized cost	2,182,500,000		2,182,500,000		1,878,300,000
U.S. Agency Securities [Member]
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Total fair value	499,500,000		499,500,000		541,200,000
Total cost or amortized cost	453,800,000		453,800,000		494,000,000
Other asset-backed securities
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Fixed maturities, at fair value	1,458,544,000		1,458,544,000		1,340,249,000
Cost or Amortized cost of Fixed maturities	1,421,005,000		1,421,005,000		1,341,309,000
Fixed maturities, held to maturity	224,508,000		224,508,000		288,741,000
Held To Maturity Securities Fair Value	253,431,000		253,431,000		309,296,000
Covered Bonds [Member]
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Fixed maturities, at fair value	599,900,000		599,900,000		353,900,000
Cost or Amortized cost of Fixed maturities	561,500,000		561,500,000		345,400,000
Fixed maturities, held to maturity	8,400,000		8,400,000		8,100,000
Held To Maturity Securities Fair Value	8,300,000		8,300,000		7,700,000
Unrealized losses on HTM portfolio	8,300,000		8,300,000		7,700,000
Corporate
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Fixed maturities, at fair value	10,007,137,000		10,007,137,000		10,108,622,000
Cost or Amortized cost of Fixed maturities	9,392,587,000		9,392,587,000		9,866,677,000
Fixed maturities, held to maturity	1,430,220,000		1,430,220,000		1,290,209,000
Held To Maturity Securities Fair Value	1,620,091,000		1,620,091,000		1,367,089,000
Medium-term Notes [Member]
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Fixed maturities, at fair value	192,300,000		192,300,000		266,000,000
Cost or Amortized cost of Fixed maturities	199,800,000		199,800,000		297,700,000
OTTI on investments, net of amounts transferred to other comprehensive income	2,200,000
Medium-term Notes [Member] | P&C
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Unrealized loss			10,200,000
Tier One and Upper Tier Two Securities [Member]
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Fixed maturities, at fair value	348,800,000		348,800,000		386,100,000
Cost or Amortized cost of Fixed maturities	402,100,000		402,100,000		494,900,000
Unrealized losses on AFS portfolio	53,300,000		53,300,000		108,800,000
Covered bonds in fixed maturities and short-term investments [Member]
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Unrealized losses on AFS portfolio	599,900,000		599,900,000		353,900,000
Fixed Income Funds Member
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Fair value of securities - AFS	99,300,000		99,300,000		91,600,000
Available-for-sale Securities, Amortized Cost Basis	100,000,000		100,000,000		100,000,000
Structured Credit Securities [Member]
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Total fair value	12,000,000		12,000,000
OTTI on investments, net of amounts transferred to other comprehensive income	5,600,000
Structured Credit Securities [Member] | AFS
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Unrealized loss			37,000,000
RMBS - Non-Agency
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Fixed maturities, at fair value	636,325,000		636,325,000		641,815,000
Cost or Amortized cost of Fixed maturities	705,785,000		705,785,000		851,557,000
Fixed maturities, held to maturity	83,896,000		83,896,000		80,955,000
Held To Maturity Securities Fair Value	93,478,000		93,478,000		87,443,000
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	11,600,000	7,500,000	38,300,000	114,900,000
RMBS - Non-Agency | AFS
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Unrealized loss			21,600,000
CMBS
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Fixed maturities, at fair value	1,034,409,000		1,034,409,000		974,835,000
Cost or Amortized cost of Fixed maturities	963,365,000		963,365,000		927,684,000
Fixed maturities, held to maturity	12,917,000		12,917,000
Held To Maturity Securities Fair Value	15,026,000		15,026,000
Unrealized loss			600,000
Core CDO
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
Unrealized loss			14,800,000
Private Investments [Member]
Schedule Of Available For Sale And Held To Maturity Securities [Line Items]
OTTI on investments, net of amounts transferred to other comprehensive income	$ 2,700,000

XML

Subsequent Event

9 Months Ended

Sep. 30, 2012

Subsequent Events Abstract

Subsequent Events Text Block

13. Subsequent Event

In late October 2012, [superstorm Sandy] made landfall in the United States. Given its recent occurrence and the limited information available, it is too early for the Company to arrive at a reasonable estimate of the amount of any possible losses from this event. The impact of this event will be reflected in our fourth quarter 2012 results.