XL Expects Negative Q2 Results Following Reserve Strengthening

Bermuda’s XL Capital Ltd. has announced today that its second quarter 2005 results will be adversely impacted by an increase in net reserves in its North American reinsurance operations of $191 million pre-tax.

“The after tax charge is $183 million or $1.31 per ordinary share,” said the company. “This increase resulted from XL’s scheduled semi-annual reserve review, which is substantially complete. However, there is an ongoing review relating to policy benefit reserves with respect to certain novated blocks of U.S.-based-term life mortality reinsurance business, which XL expects to complete by the time of issuing its earnings release on July 27, 2005.”

XL provided figures and percentages of the various reserve increases It noted: “Approximately 90 percent of the Workers’ Compensation reserve increase is related to an XL Reinsurance America Inc. (“XLRA”) working layer program written across multiple underwriting years with a single cedent. This program was not renewed at the end of 2001. Other than this program, XLRA has not written significant working layer Workers’ Compensation business.

“The reserve increase related to the 1997-2001 underwriting years, excluding Workers’ Compensation, was principally driven by recently reported claims in Umbrella Liability, Errors & Omissions and Directors & Officers lines of business in those underwriting years. The professional lines claims activity arises largely from a limited number of cedents. This reserve increase was partially offset by favorable development in the 1997-2001 underwriting years in the Medical Malpractice business line.

“The reserve increase related to the pre-1997 underwriting years, excluding Workers’ Compensation, was primarily driven by a small number of increased reported claims in the Other Liability and Errors & Omissions lines of business in those underwriting years.

“The reserve increase related to the post-2001 underwriting years, was primarily due to certain large individual claims affecting a number of lines including; Surety, Umbrella Liability and Errors & Omissions.”

CEO and President Brian M. O’Hara commented: “This reserve strengthening is extremely disappointing. With respect to the reserve increase in Workers’ Compensation, I do not believe this represents a broader issue for this line of business for XL given the unique nature of the program with the single cedent. Putting this reserve strengthening in the context of XL’s overall financial strength, the reserve addition for non-Workers’ Compensation lines represents only 1 percent, and the Workers’ Compensation addition represents 0.5 percent, of XL’s net loss reserves, respectively, as at March 31, 2005. In addition, in my judgement, the recent claims reporting activity reflects cedents having to recognize losses on their books with greater transparency and timeliness. Finally, I believe that we are benefiting from the changes we implemented in the North American reinsurance book since 2003, with respect to cedent communication and an increased number of on site claims audits.”

He added that “the post-2001 underwriting year reserve additions do not alter XL’s view of the continuing strong profitability in these lines of business in these years.”

XL said it would “post additional information on the Company’s Investor Relations section of the website located at http://www.xlcapital.com/ and will hold a conference call on Friday, July 8, 2005, at 8:00 a.m. Eastern Daylight Time to discuss the North American reinsurance operations reserve increases in more detail. The listen-only dial-in number is (201) 689-8320 password XL708. The replay number is (201) 612-7415 account number 290 and conference ID number 160191 which will be available beginning at approximately 10:00 a.m. Eastern Daylight Time on July 8, 2005, until approximately 8:00 p.m. on July 15, 2005.

XL intends to release its second quarter 2005 financial results after the close of regular market hours of The New York Stock Exchange, Inc. on Wednesday, July 27, 2005. A conference call to discuss the Company’s results will be held on July 28, 2005, at 10:00 a.m. Eastern Daylight Time.