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XL Capital Ltd Reports Fourth Quarter and Full Year 2002 Results Announces Expensing of Stock Options Granted In 2003



Fourth Quarter Net Income $214.1 Million, or $1.56 Per Ordinary Share
Fourth Quarter Net Operating Income $250.2 Million, or $1.82 Per Ordinary Share

HAMILTON, BERMUDA, February 11, 2003 --XL Capital Ltd ('XL' or the 'Company') (NYSE: XL - News) today reported net income available to ordinary shareholders for the quarter ended December 31, 2002 of $214.1 million, or net income of $1.56 per ordinary share, compared with a net loss of $83.6 million, or a net loss of $0.64 per ordinary share, in the fourth quarter of 2001. Net operating income for the fourth quarter of 2002 was $250.2 million, or $1.82 per ordinary share, compared with a net operating loss of $2.6 million, or a loss of $0.02 per ordinary share, for the quarter ended December 31, 2001 (see below for reconciliation to net income).

For the year ended December 31, 2002, net income available to ordinary shareholders was $396.0 million, or $2.88 per ordinary share, compared with a net loss of $576.1 million, or a loss of $4.55 per ordinary share, for the year ended December 31, 2001. Net operating income for 2002 was $700.8 million, or $5.10 per ordinary share, compared with a net operating loss of $472.6 million, or a loss of $3.73 per ordinary share, for the year ended December 31, 2001.

Commenting on the fourth quarter 2002 results, Brian M. O'Hara, President and Chief Executive Officer of XL, stated: "We had a very good quarter with strong underwriting results, delivering an operating return on common equity of 17% and increasing our book value per ordinary share to $44.48. This was achieved while strengthening reserves during the quarter for prior years."

"The reserve strengthening primarily occurred in our U.S. casualty reinsurance business, reflecting deterioration in the underwriting results for the 1997 to 2000 accident years. This reserve increase of $215 million pre-tax, including $30 million for pre-1986 asbestos exposures, was largely offset by overall favorable 1995 and prior years' loss development in other lines of business. The increase in the provision for asbestos exposures nearly doubles our reserves in this area, but this remains a minor exposure for XL," said Mr. O'Hara.

Mr. O'Hara further stated, "The markets in which we operate are robust. Prices are still rising in most lines, and we are continuing to improve terms and conditions. XL's fundamental strength represented by our capital and people, position us well in all of our key markets for strong earnings growth in 2003."

Mr. O'Hara also stated, "Today we are announcing that all XL employee stock options granted in 2003 and beyond will be expensed over their vesting periods. Our decision to expense stock options reflects XL's commitment to transparency in financial reporting and good corporate governance. Our projections for 2003, including stock option expenses, remain in line with prior earnings guidance."

Total assets as of December 31, 2002 were $35.6 billion compared with $28.0 billion as of December 31, 2001. Fully diluted book value per ordinary share as at December 31, 2002 increased to $44.48 compared with $40.35 as at December 31, 2001.

Summary unaudited consolidated financial data for the quarters and years ended December 31, for 2002 and 2001, respectively, are set forth below (in millions, except per share amounts):


                                  Three months ended          Year ended
                                     December 31             December 31
                                     (Unaudited)             (Unaudited)
                                  2002          2001      2002         2001

    Gross premiums written      $1,995.5      $2,076.2  $8,986.2     $5,421.3
    Net premiums written         1,559.4       1,472.5   6,973.0      3,566.0
    Net premiums earned          1,719.6       1,533.4   5,989.8      3,463.1

    Net income (loss)             $221.4        $(83.6)   $405.6      $(576.1)
    Preference dividend             (7.3)           --      (9.6)          --
    Net income (loss) available
     to ordinary shareholders     $214.1       $ (83.6)   $396.0     $ (576.1)

    Per ordinary share results:
      Net income (loss)
       available to ordinary
       shareholders  (a)           $1.56        $(0.64)    $2.88       $(4.55)

    Weighted average
     ordinary shares
     outstanding:
      Basic                        135.9         130.6     135.6        126.7
      Diluted                      137.6         133.2     137.4        128.7

    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 is used
        to calculate net loss per share.

Results for all periods subsequent to July 1, 2001 include the results of Winterthur International, which was acquired with effect from July 1, 2001. The results also include the consolidation of Le Mans Re, which is accounted for as a subsidiary with effect from January 1, 2002. In the three months and year ended December 31, 2001, the Company's share of the net income of Le Mans Re was included in equity in net income of insurance and operating affiliates. The foregoing affects period-to-period comparisons.

Gross premiums written for general operations in the fourth quarter of 2002 were $1.8 billion compared with $1.4 billion in the fourth quarter of 2001. Net premiums written increased to $1.4 billion from $823.2 million and net earned premiums rose to $1.5 billion from $884.1 million in the respective quarters of 2002 and 2001.

Gross premiums written for life operations in the fourth quarter of 2002 were $220.7 million compared with $649.3 million in the fourth quarter of 2001. Net premiums written for life operations in the fourth quarter of 2002 were $187.6 million compared with $649.3 in the fourth quarter of 2002 million and net earned premiums were $186.9 million in the fourth quarter of 2002 compared with $649.3 million in the fourth quarter of 2001.

For the year ended December 31, 2002, gross premiums written for general operations were $7.9 billion compared with $4.7 billion a year ago. Net premiums written for general operations for the year ended December 31, 2002 were $5.9 billion compared with $2.9 billion a year ago. Net earned premiums for general operations were $5.0 billion in 2002 compared with $2.8 billion in 2001.

Gross premiums written for life operations for the year ended December 31, 2002 were $1.1 billion compared with $695.6 million a year ago. Net premiums written for life operations for the year were $1.0 billion and $695.6 million, respectively, for 2002 and 2001. Net premiums earned for life operations were $1.0 billion in 2002 compared with $695.6 million in 2001.

Net investment income from general operations was $168.5 million in the fourth quarter of 2002, compared with $164.0 million in 2001's fourth quarter. Net investment income from general operations was $643.1 million for the year ended December 31, 2002 compared with $610.5 million in 2001.

Net investment income from life operations was $32.8 million in the fourth quarter of 2002 and $91.5 million for the year. In 2001, there was no investment income from life operations.

The Company's equity in the net income of its investment affiliates for the fourth quarter of 2002 was $26.5 million versus $16.2 million in the fourth quarter of 2001. The Company's equity in the net income of its investment affiliates for the year ended December 31, 2002 was $64.7 million versus $80.6 million in 2001.

The Company's equity in net losses of its insurance and operating affiliates was $16.0 million in the fourth quarter of 2002 versus net losses of $6.1 million in the fourth quarter of 2001. The Company's equity in the net losses of its insurance and other operating affiliates was $16.0 million for the year ended December 31, 2002 versus net losses of $5.3 million in 2001.

The combined ratio for the Company's general insurance and reinsurance operations was 97.3% in the fourth quarter of 2002, versus 127.8% in the fourth quarter of 2001. The loss ratios were 69.0% and 94.8% in the quarters ended December 31, 2002 and 2001, with corresponding expense ratios of 28.3% and 33.0% for the same quarters, respectively. The combined ratio for the Company's general insurance and reinsurance operations was 97.0% for the year ended December 31, 2002 compared with 139.7% in 2001. The loss ratios were 68.0% and 105.8% in the years ended December 31, 2002 and 2001, respectively, with corresponding expense ratios of 29.0% and 33.9% for the same periods.

A live on-line web cast of XL's call with analysts and investors to review the fourth quarter and full year 2002 results will be held at 9:00 a.m. Eastern Time on February 12, 2003 at www.xlgroup.com. An unaudited financial information supplement relating to the Company's 2002 and 2001 quarterly and full year results is 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 press release 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, including as a result of natural or man-made catastrophic events, 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 and XL's 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 report on Form 10-K, Form 10-Q and XL's other documents on file with the Securities and Exchange Commission. XL undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.


                                XL Capital Ltd
                     SUMMARY CONSOLIDATED FINANCIAL DATA
           (In thousands of U.S. dollars, except per share amounts)

                              Three Months Ended            Year Ended
                                 December 31               December 31
                                 (Unaudited)                (Unaudited)
                               2002        2001 (a)       2002        2001 (a)
    Income Statement Data:

    Revenues:
      Gross premiums
       written - general
       and life operations   $1,995,501  $2,076,187    $8,986,166  $5,421,262
      Net premiums
       written - general
       and life operations    1,559,378   1,472,522     6,973,024   3,565,966

      Net premiums
       earned - general
       operations            $1,532,654    $884,052    $4,966,818  $2,767,533
      Net premiums
       earned - life
       operations               186,919     649,348     1,022,992     695,595
      Net investment
       income - general
       operations               168,505     164,033       643,084     610,528
      Net investment
       income - life
       operations                32,845       --           91,451       --
      Net realized
       gains (losses)
       on investments            24,948     (63,593)     (214,160)    (93,237)
      Net realized
       and unrealized
       (losses) gains
       on derivative
       instruments              (46,635)    (10,027)      (51,761)     11,768
      Equity in net
       income of
       investment
       affiliates                26,522      16,234        64,662      80,580
      Fee and other income       16,473      17,128        54,963      18,247
                             $1,942,231  $1,657,175    $6,578,049  $4,091,014

    Expenses:
      Net losses and
       loss expenses
       incurred - general
       operations            $1,028,715    $834,184    $3,327,315  $2,905,231
      Claims and policy
       benefit reserves -
       life operations          199,136     652,202     1,069,456     698,675
      Acquisition costs
       andoperating expenses    502,762     328,618     1,629,734   1,061,719
      Exchange (gains)
       and losses               (33,342)     (1,451)      (80,294)     12,184
      Interest expense           34,510      37,508       168,086     113,272
      Amortization of
       intangible assets          4,687      14,353         6,187      58,569
                             $1,736,468  $1,865,414    $6,120,484  $4,849,650

    Income (loss) before
     minority interest,
     income tax expense
     and equity in net
     loss of insurance
     and operating
     affiliates                $205,763   $(208,239)    $ 457,565   $(758,636)

    Minority interest             6,843       1,986        13,371       2,113
    Income tax (benefit)
     charge                     (38,493)   (132,710)       22,647    (189,914)
    Equity in net loss
     (income) of insurance
      & operating affiliates     16,023       6,123        15,976       5,300

    Net income (loss)          $221,390    $(83,638)     $405,571   $(576,135)
    Preference dividend          (7,251)         --        (9,620)         --
    Net income (loss)
     available to ordinary
     shareholders              $214,139    $(83,638)    $ 395,951   $(576,135)

    Weighted average number
     of ordinary shares and
     ordinary share
     equivalents:
      Basic                     135,887     130,625       135,636     126,676
      Diluted                   137,582     133,238       137,388     128,683

    Per Share Data: (b)
      Net income (loss)
       available to ordinary
       shareholders               $1.56      $(0.64)        $2.88      $(4.55)

    Note:
    (a)  Certain reclassifications, which have no effect on net income, have
         been made to 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 is used
         to calculate net loss per share.

                         SUPPLEMENTAL FINANCIAL DATA

The Company presents the fair value of all of its derivative transactions in one line item in the Company's statement of income presentation. In particular (i) the fair value adjustment for credit default swaps, (ii) the fair value adjustment for weather and energy risk management derivatives, and (iii) the fair value adjustment for investment derivatives, are now reported in the same line item in the income statement under "net realized and unrealized gains (losses) on derivative instruments. "This reclassification did not affect net income. Prior period comparative information has been reclassified. The following is a reconciliation of the Company's net operating income (loss), to net income (loss), for the three months and years ended December 31, 2002 and 2001 (in millions except per share amounts):


                                     Three months ended         Year ended
                                         December 31            December 31
                                         (Unaudited)            (Unaudited)
                                      2002        2001       2002        2001
    Net income (loss) available
     to ordinary shareholders        $214.1     $ (83.6)   $ 396.0    $(576.1)

    Net realized (gains)
     and losses on
     investments,
     net of tax                        (9.2)       71.2      236.5       98.8
    Net realized and unrealized
     losses (gains) on derivatives     46.6        10.0       51.7      (11.8)
    Net gains (losses) on weather
     & energy risk management
     derivatives                       (1.3)       (0.2)      16.6       16.5

    Net operating income (loss)      $250.2       $(2.6)    $700.8    $(472.6)

    Per ordinary share results:

      Net income (loss) available
       to ordinary shareholders       $1.56      $(0.64)     $2.88     $(4.55)

      Net operating income            $1.82      $(0.02)     $5.10     $(3.73)

    Weighted average ordinary
     shares outstanding:
      Basic                           135.9       130.6      135.6      126.7
      Diluted                         137.6       133.2      137.4      128.7

Net operating income is a non-GAAP measure. Net operating income is net income available to ordinary shareholders, excluding net realized gains and losses on investments and net realized and unrealized gains and losses on all derivatives (except for gains and losses on weather and energy risk management derivatives). These items are excluded because they are not considered by management to be relevant indicators of the trends in XL's business operations, but rather of the investment and credit markets in general. Management believes that the presentation of net operating income (loss) provides useful information regarding XL's results of operations because it is an important performance indicator followed by securities analysts who cover the Company.


                                XL Capital Ltd
                     SUMMARY CONSOLIDATED FINANCIAL DATA
           (In thousands of U.S. dollars, except per share amounts)

                                 (Unaudited)

                                    As at December 31,   As at December 31,
                                            2002                 2001
      Balance Sheet Data:

      Total investments
       available for sale                $16,059,733         $ 12,429,845
      Net payable for investments
       purchased                           1,546,276            1,247,027
      Cash and cash equivalents            3,557,815            1,863,861
      Investments in insurance and
       operating affiliates                1,750,005            1,037,344
      Intangible assets                    1,653,700            1,616,943
      Total assets                        35,648,558           27,963,075
      Unpaid losses and loss expenses     13,223,730           11,825,680
      Deposit liabilities and policy
       benefit reserves                    4,874,683            2,374,164
      Notes payable and debt               1,877,957            1,604,877
      Total Shareholders' equity           6,569,589            5,437,184
      Fully diluted book value
       per ordinary share                     $44.48               $40.35

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