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XL Capital Ltd Reports Fourth Quarter And Full Year 2003 Results

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Fourth Quarter 2003 Net Loss $314.8 million, or $2.29 per ordinary share Full year 2003 Net Income $371.7 million, or $2.69 per ordinary share

HAMILTON, Bermuda, Feb 10, 2004 /PRNewswire-FirstCall via COMTEX/ -- XL Capital Ltd (NYSE: XL) ("XL" or the "Company") today reported a net loss available to ordinary shareholders for the quarter ended December 31, 2003, of $314.8 million, or a loss of $2.29 per ordinary share. This result includes the impact of the previously announced $694.1 million pre tax ($647.1 million after tax) fourth quarter charge summarized in the attached table. Net income for the fourth quarter of 2002 was $214.1 million, or income of $1.56 per ordinary share.

For the year ended December 31, 2003, net income available to ordinary shareholders was $371.7 million, or income of $2.69 per ordinary share, compared with net income of $396.0 million, or income of $2.88 per ordinary share, for the year ended December 31, 2002.

'Net loss excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit and investment derivative instruments, net of tax' for the fourth quarter of 2003 was $349.3 million, or a loss of $2.54 per ordinary share, compared with income of $250.2 million, or $1.82 per ordinary share, for the quarter ended December 31, 2002.

'Net income excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit and investment derivative instruments, net of tax' for the year ended December 31, 2003 was $293.6 million or income of $2.12 per share, compared with income of $700.8 million, or $5.10 per ordinary share, for the year ended December 31, 2002.

'Net income or loss excluding net realized and unrealized gains and losses on credit and investment derivative instruments, net of tax' is a non-GAAP measure. A reconciliation of this measure to net income or loss available to ordinary shareholders is provided on the attached table entitled "Reconciliation".


    Operating Highlights for Full Year 2003 Compared to Full Year 2002:
    -- Net premiums earned from general operations increased by 24%.
    -- Total net invested assets increased 26% to $25 billion.
    -- Investment income increased 6% to $780 million.
    -- Earnings in investment affiliates increased by 107% to $134 million.
    -- Cash flow from operations was a record $3.4 billion.
    -- Total assets increased 14% to $41 billion.
    -- Book value increased 5% to $46.74 per ordinary share.
	

Commenting on the fourth quarter 2003 results, Brian M. O'Hara, President and Chief Executive Officer of XL, stated: "The positive underlying dynamics in our fourth quarter reflect the continuing favorable underwriting market conditions and XL's strong position in our chosen markets. We are producing solid growth and strong underlying profitability. I am confident that the realignment of our management team in both our insurance and reinsurance operations should enhance our execution of the encouraging business opportunities at hand."

Total assets as of December 31, 2003, were $40.8 billion compared with $35.6 billion as of December 31, 2002. Book value per ordinary share as at December 31, 2003, increased to $46.74 from $44.48 as at December 31, 2002.

A live on-line web cast of XL's call with analysts and investors to review the fourth quarter and full year 2003 results will be held at 10:00 a.m. Eastern Time on February 11, 2004, at www.xlgroup.com. A telephone replay of the conference call will be available beginning at 1:00 p.m. Eastern Time on February 11, until 8:00 p.m. Eastern Time on February 18, 2004 by dialing (201) 612-7415 (account number: 7716 and conference I.D. number: 91322). An unaudited financial information supplement relating to the Company's 2003 and 2002 quarterly and full year results, as well as the slides that will accompany XL's call, are available on its website: www.xlgroup.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.

This presentation contains forward-looking statements that involve inherent risks and uncertainties. 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 projected 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) rate increases and improvements in terms and conditions may not be as large or sustainable as XL is currently projecting; (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) developments in the world's financial and capital markets which adversely affect the performance of XL's investments or access to such markets; (d) changes in general economic conditions, including foreign currency exchange rates, inflation and other factors; and (e) 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. XL undertakes no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future developments or otherwise.


                                XL Capital Ltd
                     SUMMARY CONSOLIDATED FINANCIAL DATA
                   (In thousands, except per share amounts)

                                        Three Months Ended
    Income Statement Data:                  December 31
                                            (Unaudited)
                                     2003                    2002
    Revenues:
    Gross premiums written
    -_ general operations      $1,669,382              $1,719,911
    -_ life and annuity
      operations                  491,888                 220,678
    -_ financial operations        71,242                  54,912

    Net premiums written
    -_ general operations       1,256,889               1,317,281
    -_ life and annuity
      operations                  494,557                 187,604
    -_ financial operations        61,193                  54,493

    Net premiums earned
    -_ general operations       1,515,913               1,507,193
    -_ life and annuity
      operations                  498,814                 186,919
    -_ financial operations        41,535                  25,461
    Net investment income         206,340                 201,350
    Net realized gains
      (losses) on investments      39,864                  24,948
    Net realized and unrealized
      losses on derivative
    Instruments                   (1,432)                (46,635)
    Equity in net income
      of investment affiliates     46,558                  26,522
    Fee and other income           15,756                  16,473
                               $2,363,348              $1,942,231

    Expenses:
    Net losses and loss
      expenses incurred        $1,614,219              $1,028,715
    Claims and policy
      benefit reserves            516,157                 199,136
    Acquisition costs             304,411                 322,829
    Operating expenses            200,088                 179,933
    Exchange gains                (8,489)                (33,342)
    Interest expense               57,314                  34,510
    Amortization of
      intangible assets             3,512                   4,687
                               $2,687,212              $1,736,468

    (Loss) income before
      minority interest,
      income tax expense and
      equity in net (income)
      loss of insurance and
      financial affiliates     $(323,864)                $205,763

    Minority interest               3,473                   6,843
    Income tax (benefit)
      expense                    (15,880)                (38,493)
    Equity in net (income)
      loss of insurance and
      financial affiliates        (6,708)                  16,023

    Net (loss) income          $(304,749)                $221,390
    Preference dividend          (10,080)                 (7,251)
    Net (loss) income available
      to ordinary shareholders $(314,829)                $214,139

    Weighted average number of
     ordinary shares and
     ordinary share equivalents
    Basic                         137,275                 135,887
    Diluted                       138,594                 137,582

    Per Share Data: (b)            $(2.29)                  $1.56

    Ratios - General Insurance
     and reinsurance operations
     Loss Ratio                     106.0%                   69.0%
     Expense Ratio                   27.2%                   28.3%

     Combined Ratio                 133.2%                   97.3%



                                             Year Ended
    Income Statement Data:                  December 31
                                            (Unaudited)
                                     2003                    2002
    Revenues:
    Gross premiums written
    -_ general operations      $8,624,080              $7,714,005
    -_ life and annuity
      operations                  768,089               1,072,248
    -_ financial operations       313,916                 199,913

    Net premiums written
    -_ general operations       6,552,280               5,771,626
    -_ life and annuity
      operations                  739,869               1,023,604
    -_ financial operations       299,240                 177,794

    Net premiums earned
    -_ general operations       6,081,033               4,899,073
    -_ life and annuity
      operations                  748,495               1,022,992
    -_ financial operations       139,622                  67,745
    Net investment income         779,558                 734,535
    Net realized gains
      (losses) on investments     120,195               (214,160)
    Net realized and unrealized
      losses on derivative
      Instruments                (27,542)                (51,761)
    Equity in net income
      of investment affiliates    133,902                  64,662
    Fee and other income           41,745                  54,963
                               $8,017,008              $6,578,049

    Expenses:
    Net losses and loss
      expenses incurred        $4,610,606              $3,327,315
    Claims and policy
      benefit reserves            818,894               1,069,456
    Acquisition costs           1,167,186                 955,331
    Operating expenses            797,826                 674,403
    Exchange gains               (38,619)                (80,294)
    Interest expense              199,407                 168,086
    Amortization of
      intangible assets             4,637                   6,187
                               $7,559,937              $6,120,484

    (Loss) income before
      minority interest,
      income tax expense and
      equity in net (income)
      loss of insurance and
      financial affiliates       $457,071                $457,565

    Minority interest               9,264                  13,371
    Income tax (benefit)
      expense                      30,049                  22,647
    Equity in net (income)
      loss of insurance and
      financial affiliates          5,779                  15,976

    Net (loss) income            $411,979                $405,571
    Preference dividend          (40,321)                 (9,620)
    Net (loss) income available
      to ordinary shareholders   $371,658                $395,951

    Weighted average number of
     ordinary shares and
     ordinary share equivalents
    Basic                         136,906                 135,636
    Diluted                       138,187                 137,388

    Per Share Data: (b)             $2.69                   $2.88

    Ratios - General Insurance
     and reinsurance operations
     Loss Ratio                      75.3%                   68.0%
     Expense Ratio                   27.3%                   29.0%

     Combined Ratio                 102.6%                   97.0%

Note:

a) Certain reclassifications, which have no effect on net income, have been made in the presentation of prior period results to conform to current presentation.

b) Average stock options outstanding have been excluded where anti- dilutive to earnings per share. Consequently where there is a net loss, basic weighted average ordinary shares outstanding are used to calculate net loss per share.


                                XL Capital Ltd
                     SUMMARY CONSOLIDATED FINANCIAL DATA
                   (In thousands, except per share amounts)

                                            As at Dec. 31,   As at Dec. 31,
                                                      2003             2002
                                               (Unaudited)      (Unaudited)

    Balance Sheet Data:

    Total investments available for sale      $ 20,775,256     $ 16,059,733

    Net payable for investments purchased           96,571        1,546,276

    Cash and cash equivalents                    2,403,121        3,557,815

    Investments in affiliates                    1,903,341        1,750,005

    Total assets                                40,764,215       35,647,369

    Unpaid losses and loss expenses             16,558,788       13,202,736

    Deposit liabilities and policy
     benefit reserves                            7,284,179        4,889,996

    Notes payable and debt                       1,905,483        1,877,957

    Total shareholders' equity                   6,936,915        6,569,589

    Book value per ordinary share                  $ 46.74          $ 44.48



                                XL Capital Ltd
                                RECONCILIATION
								

The following is a reconciliation of the Company's net income (loss) to 'net income (loss) excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit and investment derivative instruments, net of tax' (which is a non-GAAP measure) for the three and twelve months ended December 31, 2003 and 2002 (in millions, except per share amounts):


                                         Three months ended     Year ended
                                             December 31       December 31
                                             (Unaudited)       (Unaudited)
                                             2003     2002     2003     2002


    Net (loss) income available to
     ordinary shareholders                 ($314.8)  $214.1   $371.7   $396.0

    Net realized (gains) losses on
     investments, net of tax                 (30.3)    (9.2)  (105.2)   236.5
    Net realized and unrealized (gains)
     losses on investment
     derivatives, net of tax                  (7.1)     9.7      0.5     22.2
    Net realized and unrealized losses on
     credit derivatives, net of tax            2.9     35.6     26.6     46.1

  Net income (loss) excluding net
     realized gains and losses on
     investments and net realized
     and unrealized gains and losses
     on credit and investment
     derivative instruments,
     net of tax                            ($349.3)  $250.2   $293.6   $700.8

    Per ordinary share results:

    Net income (loss) available to
     ordinary shareholders (a)              ($2.29)   $1.56    $2.69    $2.88

    Net income (loss) excluding net
     realized gains and losses on
     investments and net realized and
     unrealized gains and losses
     on credit and investment
     derivative instruments,
     net of tax (a)                          ($2.54)   $1.82    $2.12    $5.10

    Weighted average ordinary shares
      outstanding:
     Basic                                   137.3    135.9    136.9    135.6
     Diluted                                 138.6    137.6    138.2    137.4

Note:

(a) Average stock options outstanding have been excluded where anti- dilutive to earnings per share. Consequently, where there is a net loss, basic weighted average ordinary shares outstanding are used to calculate net loss per share.


                                XL Capital Ltd

             SUMMARY OF 2003 PREVIOUSLY ANNOUNCED RESERVE CHARGES
                                (In millions)

                                               Three months    Year ended
                                                  ended        Dec 31, 2003
                                               Dec 31, 2003    (Unaudited)
                                               (Unaudited)

    XL Reinsurance America Inc (XLRA)
    North American casualty reinsurance
      losses:
        Additional claim reserves                     $124           $308
        Incurred but not reported reserves             539            569
    Total                                             $663           $877

    2003 Year End Reserve Review (excluding XLRA):     $62            $62
        Reinsurance - excluding September
          11 event
        Insurance                                      150            150
        Reinsurance - September 11 event              (181)          (181)

    Total                                              $31            $31

    Total Reserve Charge - Pre-tax                    $694           $908

    Total Reserve Charge - After-tax                  $647           $837

Comment on Regulation G

This press release contains the presentation of 'net income excluding net realized gains and losses on investments and net realized and unrealized gains and losses on credit and investment derivatives, net of tax'. This presentation is a "non-GAAP financial measure" as defined in Regulation G. The reconciliation of such measure to net income (the most directly comparable GAAP financial measure) 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 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 createunistic and are a function of economic and interest rate conditions. In addition, with respect to credit derivatives, because XL generally holds its financial guarantee 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 guarantee 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 who 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.

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