Xl Capital Reports Second Quarter 2007 Net Income Of $544.5 Million, Or $3.00 Per Ordinary Share

Hamilton, Bermuda: July 24, 2007 -- XL Capital Ltd ("XL" or the "Company") (NYSE: XL, BSX: XL.BH) today reported net income available to ordinary shareholders for the quarter ended June 30, 2007 of $544.5 million, or $3.00 per ordinary share, compared with net income of $377.1 million, or $2.10 per ordinary share, for the quarter ended June 30, 2006. "Net income excluding net realized gains and losses"1 for the second quarter of 2007 was $516.2 million, or $2.84 per ordinary share, compared with $375.8 million, or $2.10 per ordinary share, for the prior year period.  These results include pre-tax net losses of approximately $30 million related to the June U.K. floods and the Australian storms.

Included in net realized gains and losses on investments for the quarter ended June 30, 2007 is a gain of $81.3 million related to the previously announced sale of 16.6% of Security Capital Assurance Ltd ("SCA") common shares.  After the sale, the Company owns approximately 46% of SCA common shares.

Commenting on the current quarter results, President and Chief Executive Officer Brian M. O'Hara said: "XL's six consecutive quarters of excellent earnings demonstrate the advantages of our unique dual platform. Our continuous improvement in risk management, commitment to disciplined growth, along with our sharpened strategic focus, have all contributed to the achievement of record results, and as we have demonstrated in this quarter, provide a solid platform for delivering shareholder value."

For the first half of 2007, net income available to ordinary shareholders was a record $1.09 billion, or $6.06 per ordinary share, compared with $835.6 million, or $4.64 per ordinary share, in the first half of 2006. "Net income excluding net realized gains and losses" for the same period was $1.06 billion, or $5.87 per ordinary share, as compared with $781.4 million, or $4.34 per ordinary share, in the first half of 2006.

At June 30, 2007, fully diluted book value per ordinary share was $54.74, as compared to $54.85 as at March 31, 2007.  Offsetting net income for the quarter was a decrease in net unrealized gains/losses on investments of $615.5 million, due to the rise in interest rates.   Basic book value per ordinary share was $55.01 at June 30, 2007 as compared to $54.95 and $53.12 as at March 31, 2007 and December 31, 2006, respectively.

Segment results reflect the Company's previously announced realignment of its operating segments.  As a result, information related to prior periods has been re-presented to conform to the current period presentation.  There was no effect on net income as a result of these changes.

SEGMENT HIGHLIGHTS - SECOND QUARTER 2007 VERSUS SECOND QUARTER 2006

Insurance

Underwriting profit for the quarter ended June 30, 2007 was $102.2 million compared with $63.8 million in the prior year period.  This increase was due mainly to net favorable prior year development of $43.7 million, as compared to net adverse development of $4.8 million in the prior year.

·         Gross premiums written increased 2.1% primarily as a result of favorable foreign exchange movements and new business operations.  

·         Net premiums written decreased by 1.7% mainly due to the effect of commutations of ceded treaties in the prior year quarter.

·         Net premiums earned increased marginally as a result of the above factors.

·         The combined ratio was 90.6% compared with 94.7% for the prior year period. The loss ratio excluding the impact of net prior year development for the current and prior year quarter was 66.8% and 67.9%, respectively.

Reinsurance

Underwriting profit for the quarter ended June 30, 2007 was $129.8 million compared with $81.8 million for the prior year period.  The increase is principally due to net favorable prior year development of $80.4 million, compared to net adverse development of $3.0 million in the prior year period. The current quarter net favorable prior year development of $80.4 million includes $48.5 million related to property and other short-tail lines and $31.9 million related to casualty and other lines.

·         Gross premiums written decreased by 13.1% due primarily to continued increased retentions by cedants and reduced share participations on certain casualty lines as well as the impact of positive premium adjustments in the prior year quarter.

·         Net premiums earned decreased 11.3% reflecting the effects of lower net premiums written in the current and prior periods.

·         The combined ratio was 78.4% compared with 87.7% in the prior year period.  The loss ratio excluding the impact of the net prior year development for the current and prior year quarter was 60.3% and 59.0%, respectively.

Life Operations

Gross premiums written were $235.0 million compared with $194.7 million in the prior year quarter, reflecting continued growth in the underlying business and favorable foreign exchange movements.  Net income was $24.7 million as compared with $27.7 million in the second quarter last year.

Financial Operations

SCA's results for the quarter ended June 30, 2007 are consolidated for the period through the effective date of the sale.  Comparative results for the quarter ended June 30, 2006 are for the full quarter.  XL's share of SCA's results from the date of sale to June 30, 2007 are included in net income from operating affiliates.

Net income for the segment before equity minority interest was $23.5 million compared with $38.3 million in the prior year quarter. The current quarter included an equity minority interest charge of $9.1 million.

Investment Operations

Net investment income from P&C operations, excluding investment income from Structured Products, increased 23.6% from the prior year period to $323.0 million due to a continued rise in average yields.  Net income from investment affiliates was $67.0 million in the second quarter of 2007 compared with $28.8 million in the second quarter of 2006.  Net income from investment manager affiliates increased to $43.9 million as compared to $28.3 million for the prior year period.

Total net realized gains on investments were $18.3 million in the quarter, or a loss of $63.0 million excluding the gain on sale of SCA shares, compared with net realized losses of $23.6 million in the prior year period.  Net unrealized losses on investments, net of tax, were $309.9 million at June 30, 2007 compared with net unrealized gains of $305.6 million and $410.5 million at March 31, 2007 and December 31, 2006, respectively. This decrease of $615.5 million for the quarter and $720.4 million for the six months ended June 30, 2007, was substantially due to the rise in U.S., U.K. and Euro-Zone interest rates during these periods.

Other Items

Total operating expenses were $306.6 million in the quarter, up from $279.5 million in the prior year period.  The increase was due mainly to an increase in compensation costs related to both business development initiatives and performance-based programs and the impact of foreign exchange.

During the quarter, the Company repurchased 7.7 million ordinary shares at an average price of $77.92 per share.  Year to date, the Company repurchased 10.9 million ordinary shares at an average price of $75.56 per share. The Company has approximately $177.1 million remaining from its previously authorized share repurchase program.

On May 15, 2007, the Company settled the purchase contract component of its Equity Security Units originally issued on March 23, 2004, and also bought back all of its 2.53% Senior Notes due 2009 that formed a part thereof.  The settlement of the purchase contracts resulted in the issuance of approximately 10.8 million of the Company's ordinary shares.

On May 7, 2007, the Company issued $325 million of 6.25% Senior Notes.