8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 6, 2007

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XL CAPITAL LTD

(Exact name of registrant as specified in its charter)

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Cayman Islands	1-10809	98-0191089
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

XL House, One Bermudiana Road, Hamilton, Bermuda HM 11

(Address of principal executive offices)

Registrant’s telephone number, including area code: (441) 292 8515

Not Applicable

(Former name or former address, if changed since last report)

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

The following information is being furnished under Item 2.02, “Results of Operations and Financial Condition.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On February 6, 2007, XL Capital Ltd issued the press release attached as Exhibit 99.1 and incorporated by reference herein announcing the results for the fourth quarter and year ended December 31, 2006.

Item 9.01. Financial Statements and Exhibits.

(d)  Exhibits. The following exhibits are filed herewith:

Exhibit No.	Description
99.1	Press Release (“XL CAPITAL REPORTS FOURTH QUARTER 2006 NET INCOME OF $471.1 MILLION, OR $2.62 PER ORDINARY SHARE”) dated February 6, 2007.

SIGNATURES

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

Date:February 7, 2007

XL CAPITAL LTD
(Registrant)
By:	/s/ Kirstin Romann Gould
	Name:  Kirstin Romann Gould
	Title:    Secretary

EX-99.1

Exhibit 99.1

        

XL Capital Ltd

XL House

One Bermudiana Road

P. O. Box HM 2245

Hamilton HM JX

Bermuda

Phone: (441) 292-8515

Fax: (441) 292-5280

Contact:	David Radulski	Carol A. Parker Trott
	Investor Relations	Media Relations
	(441) 294-7460	(441) 294-7165

XL CAPITAL REPORTS RECORD FOURTH QUARTER 2006 NET INCOME OF

$471.1 MILLION, OR $2.62 PER ORDINARY SHARE

Full Year 2006 Record Net Income of $1,722.4 million, or $9.60 per ordinary share

Fourth Quarter and Full Year 2006 Highlights

·            “Net income excluding net realized gains and losses”¹was a record $513.8 million, or $2.86 per ordinary share for the quarter, resulting in a record “net income excluding net realized gains and losses”1for the year of $1,763.3 million, or $9.83 per ordinary share

·            Combined ratio from general operations was 87.5% for the quarter and 88.5% for the full year

·            Total net investment income for the quarter increased to $522.5 million

·            Net income from investment and operating affiliates was $154.5 million for the quarter

·            Book value per ordinary share increased 19.9% for the year to $53.12

·            Return on ordinary shareholders’ equity, based on “net income excluding net realized gains and losses”1, was 22.1% for the quarter (annualized) and 20.1% for the year

HAMILTON, BERMUDA, February 6, 2007 -- XL Capital Ltd (“XL” or the “Company”) (NYSE: XL) today reported net income available to ordinary shareholders for the quarter ended December 31, 2006 of $471.1 million, or $2.62 per ordinary share, compared with a net loss of $821.9 million, or a net loss of $5.51 per ordinary share, for the quarter ended December 31, 2005. “Net income excluding net realized gains and losses”1 for the fourth quarter of 2006 was $513.8 million, or $2.86 per ordinary share, compared with a “net loss excluding net realized gains and losses” of $868.2 million, or a net loss of $5.82 per ordinary share, for the

1  Defined as net income/loss excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax, herein referred to as “net income/loss excluding net realized gains and losses”. “Net income/loss excluding net realized gains and losses” is a non-GAAP measure. See the schedule entitled “Reconciliation” at the end of this release for a reconciliation of net income/loss excluding net realized gains and losses to net income available to ordinarshareholders.

prior year period. Included in both net income and “net income excluding net realized gains and losses” for the quarter ended December 31, 2005, was a net loss after tax of $808.9 million related to the Winterthur International independent actuarial decision (the “Winterthur Decision”) and a net loss after tax of $390.7 million related to Hurricane Wilma and adverse development on the third quarter 2005 natural catastrophes.

For the twelve months ended <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />December 31, 2006, net income available to ordinary shareholders was $1,722.4 million, or $9.60 per ordinary share, compared with a net loss of $1,292.3 million, or a loss of $9.14 per ordinary share, for the twelve months of 2005. “Net income excluding net realized gains and losses” for the same period was $1,763.3 million, or $9.83 per ordinary share, as compared with a “net loss excluding net realized gains and losses” of $1,535.4 million, or a loss of $10.86 per ordinary share, for the twelve months ended December 31, 2005. The twelve months of 2005 included a net loss after tax of $1,865.1 million for the third and fourth quarter 2005 natural catastrophes and a net loss after tax of $808.9 million associated with the Winterthur Decision. 

At December 31, 2006, net book value per ordinary share was $53.12 as compared with $44.31 at December 31, 2005.

Commenting on these results, President and Chief Executive Officer Brian M. O’Hara said: “I am very pleased to report that we have had excellent performance from each of our businesses and our investment operations. They have all contributed to record net income for both the quarter and the full year.  Our operating return on equity was 20.1% for the year which was the main driver behind the 19.9% increase in book value for 2006. As XL enters its third decade, I believe our strengths in underwriting, risk management, investment and capital management will allow us to build on this momentum for the benefit of our shareholders”.

SEGMENT HIGHLIGHTS – FOURTH QUARTER 2006 VERSUS FOURTH QUARTER 2005

Insurance General Operations

Underwriting profit for the quarter ended December 31, 2006 was $34.6 million compared with a loss of $1,092.8 million in the prior year period. The quarter ended December 31, 2005 included the pre-tax charge related to the Winterthur Decision of $834.2 million and the pre-tax net impact of the 2005 natural catastrophes of $285.1 million. See attached table for further details. In addition, the current quarter included a foreign exchange loss of $39.4 million as compared to a loss of $2.4 million in the prior year quarter.

Fourth quarter 2006 as compared to fourth quarter 2005 (excluding the impact of the natural catastrophes and Winterthur Decision in the fourth quarter 2005):

·      Gross premiums written decreased 1.1% primarily as a result of corporate risk management initiatives and fewer long term agreements.  Net premiums written increased by 6.6% primarily due to changes in reinsurance structure and retention in certain lines of business as well as timing of reinsurance cessions.

·      Net premiums earned decreased 1.5% reflecting lower net premiums written in prior periods.

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·      The loss ratio was 62.0% as compared with 73.8%. The current quarter included favorable net prior year development of $20.1 million as opposed to adverse net prior year development of $137.9 million in the prior year quarter.·      The underwriting expense ratio was 31.1% as compared with 23.8% due mainly to an increase in performance-based compensation costs in contrast to a reduction in such costs in the prior year quarter.

Reinsurance General Operations

Underwriting profit for the quarter ended December 31, 2006, was $158.4 million compared with an underwriting loss of $32.3 million for the prior year period which included the pre-tax net impact of catastrophes of $140.9 million. See attached table for further details. In addition, the current quarter included a foreign exchange gain of $23.0 million as opposed to a loss of $2.4 million in the prior year quarter.

Fourth quarter 2006 as compared to fourth quarter 2005 (excluding the impact of the catastrophes in the fourth quarter 2005):

·      Gross and net premiums written decreased 21.2% and 32.9% respectively, primarily due to the timing of certain premium renewals, premium adjustments and corporate risk management initiatives.

·      Net premiums earned decreased 11.2% reflecting the effects of lower net premiums written over the previous twenty four months.

·      The loss ratio was 46.5% compared with 56.6% in the prior year period driven primarily by favorable net prior year development of $87.2 million in the current quarter as compared with $21.0 million in the prior year quarter.

·      The underwriting expense ratio increased to 31.3% in the current quarter from 26.9% in the prior year quarter due mainly to an increase in performance-based compensation costs in contrast to a reduction in such costs in the prior year quarter.

Life Operations

Gross premiums written were $200.8 million for the current quarter, an increase of 39.5% from the prior year quarter primarily due to a single premium annuity contract of $79 million written in the current quarter. Net income from life operations was $18.8 million as compared with $9.8 million in the prior year quarter reflecting growth in the underlying business.

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Financial Operations

·    Financial lines

Total contribution from the segment was $17.2 million for the current quarter as compared with $36.1 million in the prior year quarter. Net losses included $20.2 million related primarily to incurred credit losses on certain structured financing policies retained within the financial lines segment following the initial public offering of Security Capital Assurance Ltd (“SCA”). Higher net spread income on structured products and net investment income were offset by lower income from structured derivatives.

·   SCA

Net income for the segment was $23.0 million for the current quarter compared with $33.6 million in the prior year quarter. The current quarter included a 37% equity minority interest charge of $12.8 million. Higher gross and net premiums written versus the prior year quarter were due primarily to an increase in the volume and mix of upfront business while net premiums earned decreased 9.1% primarily due to a reduction in premium refundings. Higher net investment income was partially offset by an increase in operating expenses.

Investment Operations

Net investment income from general operations was $285.2 million in the quarter, an increase of 22.4% from the prior year quarter, or 37.3% excluding $25.3 million in interest received last year related to the Winterthur Decision. This increase was due primarily to a continued rise in average yields and a higher investment asset base.

Net income from investment affiliates was $94.4 million in the fourth quarter of 2006 compared with $38.4 million in the fourth quarter of 2005 due to strong returns in the alternative portfolio and continued contribution from private investments. In addition, net income from operating affiliates was $60.1 million in the fourth quarter of 2006 as compared with $24.9 million in the fourth quarter of 2005, the increase being primarily due to a successful liquidity event of one of the investment manager affiliates.

Net realized losses on investments were $63.0 million in the quarter, compared with net realized gains of $37.9 million in the prior year quarter.  Net unrealized gains on investments, net of tax, were $410.5 million and $394.5 million, at December 31, 2006 and September 30, 2006, respectively.

Other Items

Total operating expenses were $365.4 million in the quarter, up from $223.6 million in the prior year quarter. The increase was due mainly to an increase in performance-based compensation in contrast to a reduction in such costs in the prior year quarter. 

#    #    #

The Company will host a conference call to discuss its fourth quarter and full year 2006 results on Wednesday, February 7, 2007 at 10:00 a.m. Eastern time. The conference call can be accessed through a

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listen-only dial-in number or through a live webcast.  To listen to the conference call, please dial (877) 422-4657 or (706) 679-0474, Conference ID# 5665106.  The webcast will be available on XL’s website located at www.xlcapital.com and will be archived on this site from approximately 1:00 p.m. Eastern time on February 7, 2007 through midnight Eastern time on March 7, 2007.  A slide presentation accompanying the Company’s discussion of its fourth quarter and full year 2006 results will also be available on the Company’s website located at www.xlcapital.com beginning approximately 15 minutes before the commencement of the conference call.

A telephone replay of the conference call will be available beginning at approximately 1:00 p.m. Eastern time on February 7, 2007 until midnight Eastern time on February 28, 2007 by dialing (800) 642-1687 or (706) 645-9291, Conference ID # 5665106.  An unaudited financial supplement relating to the Company’s fourth quarter and full year 2006 results is available on its website located at www.xlcapital.com.

XL Capital Ltd, through its operating subsidiaries, is a leading provider of insurance and reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis.  As of December 31, 2006, XL Capital Ltd had consolidated assets of approximately $59.3 billion and consolidated shareholders’ equity of $10.1 billion. More information about XL Capital Ltd is available at www.xlcapital.com.

This press release contains forward-looking statements. Statements that are not historical facts, including statements about XL’s beliefs, plans or expectations, are forward-looking statements. These statements are based on current plans, estimates, and expectations. Actual results may differ materially from those included in such forward-looking statements and therefore you should not place undue reliance on them. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: (a) changes in the size of XL’s claims relating to hurricane and other catastrophe losses in 2005; (b) greater frequency or severity of claims and loss activity than XL’s underwriting, reserving or investment practices anticipate based on historical experience or industry data; (c) trends in rates for property and casualty insurance and reinsurance;  (d) developments in the world’s financial and capital markets that adversely affect the performance of XL’s investments or access to such markets; (e) changes in general economic conditions, including foreign currency exchange rates, inflation and other factors; and (f) the other factors set forth in XL’s most recent reports on Form 10-K, Form 10-Q, and other documents on file with the Securities and Exchange Commission, as well as management’s response to any of the aforementioned factors.  XL undertakes no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future developments or otherwise.

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XL CAPITAL LTD

SUMMARY CONSOLIDATED FINANCIAL DATA

(U.S. dollars in thousands)

	Three Months Ended						Twelve Months Ended
Income Statement Data:	December 31						December 31
(Unaudited)							(Unaudited)
		2006			2005			2006			2005
Revenues:
Gross premiums written :
- general operations	$	1,610,207		$	1,719,650		$	8,654,878		$	9,196,837
- life operations		200,796			143,893			597,025			2,274,520
- financial operations		188,767			115,306			534,344			378,140
Net premiums written :
- general operations		1,276,646			1,304,095			6,546,349			7,024,111
- life operations		190,798			134,877			558,548			2,236,903
- financial operations		170,722			107,873			512,550			356,445
Net premiums earned :
- general operations		1,625,281			1,724,479			6,691,908			6,873,638
- life operations		191,018			135,071			559,395			2,237,721
- financial operations		95,106			93,688			318,215			254,136
Net investment income		522,539			432,741			1,978,184			1,475,039
Net realized (losses) gains on investments		(62,963	)		37,933			(116,458	)		241,882
Net realized and unrealized gains on derivatives		22,483			13,639			101,183			28,858
Net income from investment affiliates		94,424			38,371			269,036			154,844
Fee and other income		8,646			3,564			31,732			19,297
Total revenues	$	2,496,444		$	2,479,486		$	9,833,195		$	11,285,415
Expenses:
Net losses and loss expenses incurred	$	981,786		$	2,469,264		$	4,238,638		$	7,465,001
Claims and policy benefits		238,450			190,116			769,811			2,479,364
Acquisition costs		278,570			293,944			1,102,046			1,195,344
Operating expenses		365,489			223,638			1,182,939			982,059
Exchange losses		13,988			5,566			89,373			10,954
Interest expense		139,386			128,049			552,275			403,849
Amortization of intangible assets		420			2,248			2,355			10,752
Total expenses	$	2,018,089		$	3,312,825		$	7,937,437		$	12,547,323
Net income (loss) before minority interest, income tax and net income from operating affiliates	$	478,355		$	(833,339	)	$	1,895,758		$	(1,261,908	)
Minority interest in net income of subsidiary		14,403			1,445			25,016			8,210
Income tax		42,917			1,972			219,645			49,284
Net (income) from operating affiliates		(60,110	)		(24,901	)		(111,670	)		(67,426	)
Net income (loss)	$	481,145		$	(811,855	)	$	1,762,767		$	(1,251,976	)
Preference share dividends		(10,081	)		(10,082	)		(40,322	)		(40,322	)
Net income (loss) available to ordinary shareholders	$	471,064		$	(821,937	)	$	1,722,445		$	(1,292,298	)

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XL CAPITAL LTD

SUMMARY CONSOLIDATED FINANCIAL DATA

(Shares in thousands, except per share amounts)

	Three Months Ended					Twelve Months Ended
Income Statement Data (continued) :	December 31					December 31
	(Unaudited)					(Unaudited)
		2006		2005			2006		2005
Weighted average number of ordinary shares and ordinary share equivalents :
Basic		179,099		149,177			178,793		141,406
Diluted		179,832		149,177			179,450		141,406
Per Share Data :
Net income (loss) available to ordinary shareholders	$	2.62		($5.51	)	$	9.60		($9.14	)
Ratios - General insurance and reinsurance operations :
Loss ratio		56.3	%	140.3	%		60.7	%	107.1	%
Expense ratio		31.2	%	24.8	%		27.8	%	25.8	%
Combined ratio		87.5	%	165.1	%		88.5	%	132.9	%

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XL CAPITAL LTD

SUMMARY CONSOLIDATED FINANCIAL DATA

(U.S. dollars in thousands, except per share amounts)

Balance Sheet Data

		As at December 31, 2006		As at December 31, 2005
Total investments available for sale	$	39,350,983	$	35,724,439
Cash and cash equivalents		2,223,748		3,693,475
Investments in affiliates		2,308,781		2,046,721
Unpaid losses and loss expenses recoverable		5,027,772		6,441,522
Total assets		59,308,870		58,454,901
Unpaid losses and loss expenses		23,080,142		23,767,672
Deposit liabilities		7,857,827		8,240,987
Future policy benefit reserves		6,290,936		5,606,461
Unearned premiums		5,652,897		5,388,996
Notes payable and debt		3,368,376		3,412,698
Minority interest in equity of consolidated subsidiaries		562,121		54,389
Total shareholders’ equity		10,131,166		8,471,811
Book value per ordinary share	$	53.12	$	44.31

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XL CAPITAL LTD

SUMMARY FINANCIAL IMPACT OF 2005 NATURAL CATASTROPHES AND THE CHARGE RELATED TO THE WINTERTHUR INDEPENDENT ACTUARIAL DECISION IN FOURTH QUARTER 2005

(U.S. dollars in millions)

Three months ended December 31, 2005

		Gross Loss		Reinsurance recoveries			Net loss			Reinstatement premium			Net impact pre tax
Insurance
Hurricane Katrina	$	243.7	$	149.6		$	94.1		$	(4.3	)	$	98.4
Hurricane Rita		236.8		161.8			75.0			(2.1	)		77.1
Hurricane Wilma		172.7		64.3			108.4			(1.2	)		109.6
Winterthur charge		--		(834.2	)		834.2			-			834.2
	$	653.2	$	(458.5	)	$	1,111.7		$	(7.6	)	$	1,119.3
Reinsurance
Hurricane Katrina	$	48.0	$	55.5		$	(7.5	)	$	4.8		$	(12.3	)
Hurricane Rita		33.9		14.6			19.3			4.9			14.4
Hurricane Wilma		214.4		75.7			138.7			6.2			132.5
Other catastrophes (Note 1)		6.3		-			6.3			-			6.3
	$	302.6	$	145.8		$	156.8		$	15.9		$	140.9
Financial lines
Hurricane Katrina	$	23.6	$	-		$	23.6		$	23.6		$	-
TOTAL - Pre tax
Hurricane Katrina	$	315.3	$	205.1		$	110.2		$	24.1		$	86.1
Hurricane Rita		270.7		176.4			94.3			2.8			91.5
Hurricane Wilma		387.1		140.0			247.1			5.0			242.1
Winterthur charge		-		(834.2	)		834.2			-			834.2
Other catastrophes (Note 1)		6.3		-			6.3			-			6.3
	$	979.4	$	(312.7	)	$	1,292.1		$	31.9		$	1,260.2
Net investment income												$	25.3
Tax impact													35.3
TOTAL - Post tax												$	1,199.6

Notes

1.     Includes European floods

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XL CAPITAL LTD

SUMMARY FINANCIAL IMPACT OF 2005 NATURAL CATASTROPHES AND THE CHARGE RELATED TO THE WINTERTHUR INDEPENDENT ACTUARIAL DECISION IN FOURTH QUARTER 2005

(U.S. dollars in millions)

GENERAL OPERATIONS		Three months ended December 31, 2006		Three months ended December 31, 2005
		Total			As reported			Catastrophes and Winterthur charge			Excluding Catastrophes and Winterthur charge
INSURANCE
Gross premiums written	$	1,348.4		$	1,364.3		$	1.2		$	1,363.1
Net premiums written		1,096.9			1,021.1			(7.6	)		1,028.7
Net premiums earned		1,025.1			1.032.8			(7.6	)		1,040.4
Fee and other income		4.0			2.9			-			2.9
Net losses and loss expenses		635.8			1,879.3			1,111.7			767.6
Acquisition costs		129.5			128.7			-			128.7
Operating expenses		189.8			118.1			-			118.1
Exchange losses (gains)		39.4			2.4			-			2.4
Underwriting profit (loss)	$	34.6		$	(1,092.8	)	$	(1,119.3	)	$	26.5
Loss ratio		62.0	%		182.0	%					73.8	%
Combined ratio		93.1	%		206.0	%					97.5	%
REINSURANCE
Gross premiums written	$	261.8		$	355.3		$	23.0		$	332.3
Net premiums written		179.8			283.8			15.9			267.9
Net premiums earned		600.1			691.7			15.9			675.8
Fee and other income		2.4			-			-			-
Net losses and loss expenses		279.2			539.6			156.8			382.8
Acquisition costs		124.4			148.0			-			148.0
Operating expenses		63.5			34.0			-			34.0
Exchange (gains) losses		(23.0	)		2.4			-			2.4
Underwriting profit (loss)	$	158.4		$	(32.3	)	$	(140.9	)	$	108.6
Loss ratio		46.5	%		78.0	%					56.6	%
Combined ratio		77.8	%		104.3	%					83.6	%
TOTAL
Gross premiums written	$	1,610.2		$	1,719.6		$	24.2		$	1,695.4
Net premiums written		1,276.7			1,304.9			8.3			1,296.6
Net premiums earned		1,625.2			1,724.5			8.3			1,716.2
Fee and other income		6.4			2.9			-			2.9
Net losses and loss expenses		915.0			2,418.9			1,268.5			1,150.4
Acquisition costs		253.9			276.7			-			276.7
Operating expenses		253.3			152.1			-			152.1
Exchange losses (gains)		16.4			4.8			-			4.8
Underwriting profit (loss)	$	193.0		$	(1,125.1	)	$	(1,260.2	)	$	135.1
Loss ratio		56.3	%		140.3	%					67.0	%
Combined ratio		87.5	%		165.1	%					92.0	%

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XL CAPITAL LTD

SUMMARY FINANCIAL IMPACT OF 2005 NATURAL CATASTROPHES AND THE CHARGE RELATED TO THE WINTERTHUR INDEPENDENT ACTUARIAL DECISION IN YEAR ENDED DECEMBER 31, 2005

(U.S. dollars in millions)

Twelve months ended December 31, 2005

		Gross Loss		Reinsurance recoveries			Net loss		Reinstatement premium			Net impact pre tax
Insurance
Hurricane Katrina	$	1,339.7	$	748.6		$	591.1	$	(74.6	)	$	665.7
Hurricane Rita		521.9		312.9			209.0		(13.3	)		222.3
Hurricane Wilma		172.7		64.3			108.4		(1.2	)		109.6
Winterthur charge		-		(834.2	)		834.2		-			834.2
Other catastrophes (Note 1)		40.2		1.7			38.5		-			38.5
	$	2,074.5	$	293.3		$	1,781.2	$	(89.1	)	$	1,870.3
Reinsurance
Hurricane Katrina	$	1,128.0	$	495.2		$	632.8	$	16.3		$	616.5
Hurricane Rita		232.4		83.5			148.9		8.8			140.1
Hurricane Wilma		214.4		75.7			138.7		6.2			132.5
Other catastrophes (Note 1)		57.5		-			57.5		3.4			54.1
	$	1,632.3	$	654.4		$	977.9	$	34.7		$	943.2
Financial lines
Hurricane Katrina	$	45.0	$	-		$	45.0	$	23.6		$	21.4
TOTAL - Pre tax
Hurricane Katrina	$	2,512.7	$	1,243.8		$	1,268.9	$	(34.7	)	$	1,303.6
Hurricane Rita		754.3		396.4			357.9		(4.5	)		362.4
Hurricane Wilma		387.1		140.0			247.1		5.0			242.1
Winterthur charge		-		(834.2	)		834.2		-			834.2
Other catastrophes (Note 1)		97.7		1.7			96.0		3.4			92.6
	$	3,751.8	$	947.7		$	2,804.1	$	(30.8	)	$	2,834.9
Net investment income											$	25.3
Tax impact												135.6
TOTAL - Post tax											$	2,674.0

Notes

1.     Includes Hurricanes Dennis, Emily, Ophelia, European and Mumbai Floods and Typhoon Mawar.

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XL CAPITAL LTD

SUMMARY FINANCIAL IMPACT OF 2005 NATURAL CATASTROPHES AND THE CHARGE RELATED TO THE WINTERTHUR INDEPENDENT ACTUARIAL DECISION IN THE YEAR ENDED DECEMBER 31, 2005

(U.S. dollars in millions)

GENERAL OPERATIONS		Twelve months ended December 31, 2006		Twelve months ended December 31, 2005
		Total			As reported			Catastrophes and Winterthur charge			Excluding Catastrophes and Winterthur charge
INSURANCE
Gross premiums written	$	5,570.1		$	5,785.8		$	-		$	5,785.8
Net premiums written		4,145.2			4,248.1			(89.1	)		4,337.2
Net premiums earned		4,100.6			4,102.7			(89.1	)		4,191.8
Fee and other income		21.3			4.2			-			4.2
Net losses and loss expenses		2,634.2			4,595.6			1,781.2			2,814.4
Acquisition costs		486.9			505.6			-			505.6
Operating expenses		638.8			517.8			-			517.8
Exchange losses (gains)		140.1			(25.5	)		-			(25.5	)
Underwriting profit (loss)	$	221.9		$	(1,486.6	)	$	(1,870.3	)	$	383.7
Loss ratio		64.2	%		112.0	%					67.1	%
Combined ratio		91.7	%		137.0	%					91.6	%
REINSURANCE
Gross premiums written	$	3,084.7		$	3,411.1		$	135.3		$	3,275.8
Net premiums written		2,401.1			2,766.0			34.7			2,741.3
Net premiums earned		2,591.3			2,770.9			34.7			2,736.2
Fee and other income		3.0			(0.3	)		-			(0.3	)
Net losses and loss expenses		1,426.8			2,763.4			977.9			1,785.5
Acquisition costs		537.4			600.6			-			600.6
Operating expenses		196.5			155.1			-			155.1
Exchange (gains) losses		(43.1	)		33.1			-			33.1
Underwriting profit (loss)	$	476.7		$	(781.6	)	$	(943.2	)	$	161.6
Loss ratio		55.1	%		99.7	%					65.3	%
Combined ratio		83.4	%		127.0	%					92.9	%
TOTAL
Gross premiums written	$	8,654.8		$	9,196.9		$	135.3		$	9,061.6
Net premiums written		6,546.3			7,024.1			(54.4	)		7,078.5
Net premiums earned		6,691.9			6,873.6			(54.4	)		6,928.0
Fee and other income		24.3			3.9			-			3.9
Net losses and loss expenses		4,061.0			7,359.0			2,759.1			4,599.9
Acquisition costs		1,024.3			1,106.2			-			1,106.2
Operating expenses		835.3			672.9			-			672.9
Exchange losses (gains)		97.0			7.6			-			7.6
Underwriting profit (loss)	$	698.6		$	(2,268.2	)	$	(2,813.5	)	$	545.3
Loss ratio		60.7	%		107.1	%					66.4	%
Combined ratio		88.5	%		132.9	%					92.1	%

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XL CAPITAL LTD

RECONCILIATION

The following is a reconciliation of the Company’s (i) net income (loss) available to ordinary shareholders to ‘net income (loss) excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax’ (which is a non-GAAP measure, the “Exclusions”) and (ii) annualized return on ordinary shareholders’ equity (based on net income (loss) minus the Exclusions) to average ordinary shareholders’ equity for the three and twelve months ended December 31, 2006 and 2005.

	Three Months Ended December 31 (Unaudited)						Twelve Months Ended December 31 (Unaudited)
		2006			2005			2006			2005
Net income (loss) available to ordinary shareholders	$	471.1		$	(821.9	)	$	1,722.4		$	(1,292.3	)
Net realized losses (gains) on investments, net of tax		61.8			(34.9	)		113.4			(232.7	)
Net realized and unrealized (gains) losses on investment derivatives, net of tax		(18.7	)		(4.7	)		(71.6	)		17.3
Net realized and unrealized (gains) losses on credit and structured financial derivatives, net of tax		(0.4	)		(6.7	)		(0.9	)		(27.7	)
Net income (loss) excluding net realized gains and losses (Note 1)	$	513.8		$	(868.2	)	$	1,763.3		$	(1,535.4	)
Per ordinary share results:
Net income (loss) available to ordinary shareholders	$	2.62		$	(5.51	)	$	9.60		$	(9.14	)
Net income (loss) excluding net realized gains and losses (Note 1)	$	2.86		$	(5.82	)	$	9.83		$	(10.86	)
Weighted average ordinary shares outstanding:
Basic		179,099			149,177			178,793			141,406
Diluted		179,832			149,177			179,450			141,406
Return on Ordinary Shareholders’ Equity:
Average ordinary shareholders’ equity	$	9,310.1		$	7,238.1		$	8,784.0		$	7,587.8
Net income (loss) excluding net realized gains and losses (Note 1)	$	513.8		$	(868.2	)	$	1,763.3		$	(1,535.4	)
Annualized Return on Ordinary Shareholders’ Equity - Net income excluding net realized gains and losses (Note 1)		22.1	%		NM			20.1	%		NM

Note 1:  Defined as “net income excluding capital net realized gains and losses on investments and net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax”.

NM = Not Meaningful

Comment on Regulation G

This press release contains the presentation of (i) ‘net income (loss) excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax’ and (ii) annualized return on ordinary shareholders’ equity (based on net income (loss) minus the Exclusions) to average ordinary shareholders’ equity.  These items are “non-GAAP financial measures” as defined in Regulation G.  The reconciliation of such measures to the most directly comparable GAAP financial measures in accordance with Regulation G is included above.

XL presents its operations in the way it believes will be most meaningful and useful to investors, analysts, rating agencies and others who use XL’s financial information in evaluating XL’s performance.  This presentation includes the use of ‘net income excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit, structured financial and investment derivatives, net of tax’. Investment derivatives include all derivatives entered into by XL other than weather and energy and credit derivatives (discussed further below).

Although the investment of premiums to generate income (or loss) and realized capital gains (or losses) is an integral part of XL’s operations, the determination to realize capital gains (or losses) is independent of the underwriting process.  In addition, under applicable GAAP accounting requirements, losses can be created as the result of other than temporary declines in value without actual realization.  In this regard, certain users of XL’s financial information, including certain rating agencies, evaluate earnings before tax and capital gains to understand the profitability of the recurring sources of income without the effects of these two variables. Furthermore, these users believe that, for many companies, the timing of the realization of capital gains is largely opportunistic and are a function of economic and interest rate conditions.

In addition, with respect to credit derivatives, because XL generally holds its financial guaranty contracts written in credit default derivative form to maturity, the net effects of the changes in fair value of these credit derivatives are excluded (similar with other companies in the financial guarantee business) as the changes in fair value each quarter are not indicative of underlying business performance of XL’s financial guaranty operations. Unlike these credit derivatives, XL’s weather and energy derivatives are actively traded (i.e., they are not held to maturity) and are, therefore, not excluded from net income as any gains or losses from this business are considered by management when evaluating and managing the underlying business.

In summary, XL evaluates the performance of and manages its business to produce an underwriting profit. In addition to presenting net income (loss), XL believes that showing net income (loss) exclusive of the items mentioned above enables investors and other users of XL’s financial information to analyze XL’s performance in a manner similar to how management of XL analyzes performance. In this regard, XL believes that providing only a GAAP presentation of net income (loss) makes it much more difficult for users of XL’s financial information to evaluate XL’s underlying business. Also, as stated above, XL believes that the equity analysts and certain rating agencies that follow XL (and the insurance industry as a whole) exclude these items from their analyses for the same reasons and they request that XL provide this non-GAAP financial information on a regular basis.

Return on average ordinary shareholder’s equity (“ROE”) (minus the Exclusions) is a widely used measure of any company’s profitability. Annualized return on average ordinary shareholders’ equity (minus the Exclusions) is calculated by dividing annualized net income minus the Exclusions for any period by the average of the opening and closing ordinary shareholder’s equity. XL establishes target ROE’s for its total operations, segments and lines of business. If XL’s ROE return targets are not met with respect to any line of business over time, XL seeks to re-evaluate these lines. In addition, XL’s compensation of its senior officers is significantly dependant on the achievement of the Company’s performance goals to enhance shareholder value which include ROE.

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