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XL Re Enters Into Quota Share Agreement With Newly-Formed Cyrus Re II Limited

HAMILTON, Bermuda - January 7, 2008 -- XL Capital Ltd’s (NYSE: XL) ("XL") reinsurance operations (“XL Re”) announced today that certain of XL’s operating companies (“Ceding Companies”) have entered into a quota share reinsurance treaty (the “Treaty”) with a newly-formed Bermuda reinsurance company, Cyrus Reinsurance II Limited ("Cyrus Re II").
Greg Hendrick, President and Chief Underwriting Officer at XL Re Ltd, said: “We are very pleased by the successful completion of Cyrus Re II at a time when many sidecars are terminating. While smaller than its predecessor Cyrus Re, the Treaty with Cyrus Re II is an important part of XL Re’s catastrophe risk management strategy.”
Matthew Botein, Managing Director at Highfields Capital Management LP, the lead investor in Cyrus Re II’s parent, added: “Investors in Cyrus Re Limited are pleased by the orderly completion of the 2006 and 2007 collateralized quota share with XL Re and with the strong performance of the book of business underwritten by XL Re over that period. We believe that the successful funding of Cyrus Re II during the current difficult credit market is a testament to the vigor of XL Re’s underwriting and analytics and to the strength of its global franchise.”
Pursuant to the terms of the Treaty, Cyrus Re II will assume a 10% cession of certain lines of property catastrophe reinsurance and retrocession business underwritten by the Ceding Companies for the 2008 underwriting year. In connection with such cessions, the Ceding Companies will pay Cyrus Re II reinsurance premium less a ceding commission, which includes a reimbursement of direct acquisition expenses incurred by the Ceding Companies as well as a commission to the Ceding Companies for generating the business. The Treaty also provides for a profit commission payable to the Ceding Companies.
Cyrus Re II has contributed approximately $136 million into a trust for the benefit of the Ceding Companies to support the 2008 coverage to be ceded by them to Cyrus Re II. Total capitalization of Cyrus Re II was determined based on the 1,000 year modeled aggregate expected loss to Cyrus Re II in respect of the business to be ceded for this period. Deutsche Bank was sole arranger for the syndication of secured term loans, the proceeds of which were used to fund a portion of the capitalization of Cyrus Re II.
Highfields Capital Management LP ("Highfields") is a value-oriented investment firm which invests in a wide variety of industries and security types in both the U.S. and international markets. XL holds a significant minority economic interest in Highfields. Highfields manages certain private investment funds which hold in the aggregate approximately 50% of the equity interest in the parent of Cyrus Re II. While XL's subsidiaries are investors in certain of these funds, they did not participate in the investment in Cyrus Re II's parent. These subsidiaries will, however, indirectly benefit from any management and performance fees earned by Highfields on the investments made by its managed funds in Cyrus Re II's parent and any other fees earned by Highfields as a result of the Treaty, as it does on other investments by these funds. XL is also a minority co-investor, along with the principals and owners of Highfields in another investment management firm that manages money for XL and that has other clients which invested in Cyrus Re II's parent. XL's funds managed by this management firm were not invested in Cyrus Re II's parent, but XL will in the ordinary course share in any management fees earned by this management firm as a result of investments by its other clients in such parent.
"XL Re" is the global brand used by XL Capital Ltd's reinsurance operations. The XL Re companies have more than 500 employees in 14 countries. More information about the XL Re companies is available at Through its operating subsidiaries, XL Capital Group is a leading provider of global insurance and reinsurance coverages to industrial, commercial and professional service firms, insurance companies, and other enterprises on a worldwide basis. More information about XL Capital Ltd is available at

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