XL Group plc Announces Fourth Quarter and Full Year 2012 Results

       XL Group plc Announces Fourth Quarter and Full Year 2012 Results

- Operating net income(1) of $38.9 million, or $0.13 per share, for the
quarter and $614.1 million, or $1.98 per share, for the full year, largely
impacted by significant catastrophe losses in the quarter

- Net income of $81.4 million, or $0.27 per share, for the quarter and $651.1
million, or $2.10 income per share, for the full year

- Annualized operating return on ordinary shareholders’ equity(2) of 1.5% for
the quarter and 6.2% for the full year

- Natural catastrophe pre-tax losses net of reinsurance and reinstatement
premiums of $351.8 million recorded for the quarter and $464.3 million for the
full year

- Fully diluted tangible book value per ordinary share(3) of $33.35 at
December 31, 2012, an increase of $5.04, or 17.8%, from December 31, 2011

- Share buybacks totaled 2.1 million shares for $51.7 million during the
quarter and 18.3 million shares for $401.7 million for the full year. An
additional $98.3 million was purchased in early 2013

PR Newswire

DUBLIN, Ireland, Feb. 7, 2013

DUBLIN, Ireland, Feb. 7, 2013 /PRNewswire/ -- XL Group plc (“XL” or the
“Company”) (NYSE: XL) today reported its fourth quarter and full year 2012
results.

Commenting on the Company’s performance, Chief Executive Officer Mike McGavick
said:

“We are pleased to announce fourth quarter and full year results that clearly
demonstrate XL’s progress, particularly in our delivery of solid earnings and
growth in book value. Despite the meaningful impact of Storm Sandy, the broad
and painful effects of which we are all aware, XL produced both net and
operating income in the quarter and once again demonstrated our dedication to
disciplined underwriting and enterprise risk management. The full year
results also illustrated the steady improvement of our Insurance segment and
the continuing solid performance of our Reinsurance segment. We are committed
to maintaining this progress.”

Highlights - Three Months and Year Ended December 31
(U.S. dollars in thousands, except per share amounts)
                            Three Months Ended     Year Ended
                            December 31,           December 31,
                            (Unaudited)              (Unaudited)
                            2012      2011         2012           2011
Net income (loss)
attributable to ordinary
shareholders                $ 81,448  $ (515,537)  $ 651,134      $ (474,760)
Per ordinary share - fully
diluted                     $ 0.27    $ (1.62)     $ 2.10         $ (1.52)
Operating net income (loss)
(Note 1)                    $ 38,888  $ (79,625)   $ 614,102      $ 89,464
Per ordinary share - fully
diluted                     $ 0.13    $ (0.25)     $ 1.98         $ 0.28

  oOperating net income for the quarter of $38.9 million, compared to
    operating net loss of $79.6 million in the prior year quarter, primarily
    due to improved underwriting results in the current quarter,
    notwithstanding higher levels of catastrophe losses, combined with higher
    than normal tax expenses in the prior year quarter.
  oNet income for the quarter of $81.4 million, compared to net loss of
    $515.5 million in the prior year quarter, primarily due to a non-cash
    charge for the partial impairment of goodwill in the prior year quarter,
    combined with improved underwriting results in the current quarter and net
    realized gains on investments and derivatives in the current quarter
    compared to losses during the prior year quarter.
  oNet investment income for the quarter was $245.0 million, compared to
    $270.9 million in the prior year quarter and $239.5 million for the third
    quarter of 2012. The decline against the prior year quarter was primarily
    due to lower yields as a result of lower reinvestment rates.
  oNet income from investment fund and investment manager operating
    affiliates was $31.5 million in the quarter, compared to losses of $23.9
    million in the prior year quarter due to more benign markets this quarter
    compared to a challenging market downturn in the prior year quarter.
  oNet realized investment gains for the quarter of $11.2 million, compared
    to losses of $50.0 million in the prior year quarter. 
  oFully diluted book value per ordinary share increased by $0.54 from the
    prior quarter driven by net income combined with an increase in net
    unrealized gains on investments and the benefit of share buybacks.
  oDuring the quarter, the Company purchased 2.1  million shares for $51.7 
    million at an average price of $24.78 per share, which was accretive to
    fully diluted book value per ordinary share by $0.07. During the year, the
    Company purchased 18.3 million shares for $401.7 million at an average
    price of $21.99 per share, which was accretive to fully diluted book value
    per ordinary share by $0.70. At December 31, 2012, $348.4 million of
    shares remained available for purchase under the Company’s previously
    announced $750 million share buyback program. Between January 1, 2013 and
    February 7, 2013, the Company purchased 3.8 million shares for $98.3
    million at an average price of $25.94 per share. At February 7, 2013,
    $250.0 million of shares remained available for purchase under the
    Company’s previously announced $750 million share buyback program.

P&C Operations - Three Months and Year Ended December 31
(U.S. dollars in thousands)
                       Three Months Ended        Year Ended
                       December 31,              December 31,
                       (Unaudited)                 (Unaudited)
                       2012         2011         2012            2011
Gross premiums written $ 1,518,464  $ 1,260,560  $ 7,175,130     $ 6,898,284
Net premiums written     1,338,251    1,120,341    5,957,021       5,433,388
Net premiums earned      1,538,559    1,386,759    5,765,982       5,327,112
Underwriting profit
(loss)                   (90,677)     (114,138)    216,138         (397,353)
Loss ratio               77.4%        76.3%        65.3%           76.6%
Underwriting expense
ratio                    28.5%        31.9%        31.0%           30.9%
Combined ratio           105.9%       108.2%       96.3%           107.5%

  oP&C gross premiums written (“GPW”) in the fourth quarter increased 20.5%
    compared to the prior year quarter. The Insurance segment GPW increased
    17.8% from the prior year quarter, as a result of new business initiatives
    and increased policy retentions primarily in North American and
    International Property and Casualty. The increase in GPW for the
    Reinsurance segment of 50.1% was primarily from catastrophe related
    reinstatement premiums in Bermuda and International, which were higher
    than in the prior year quarter due to Storm Sandy. A new North American
    Property crop program, improved renewals and new Accident & Health
    business also contributed to the increase.
  oP&C net premiums earned (“NPE”) in the fourth quarter of $1.5 billion were
    comprised of $1.0 billion from the Insurance segment and $492.9 million
    from the Reinsurance segment. Compared to the prior year quarter,
    Insurance NPE increased by 10.0% primarily due to increased premiums in
    Professional lines as well as certain North American Casualty programs and
    Construction. Reinsurance NPE increased by 12.9% primarily due to
    increases in Bermuda Property Catastrophe reinstatement premiums, as well
    as increased premiums in International Marine and Casualty.
  oThe P&C loss ratio in the fourth quarter was 1.1 percentage points higher
    than the prior year quarter. Included in the P&C loss ratio was favorable
    prior year development of $97.8 million compared to $67.8 million in the
    prior year quarter. The P&C loss ratio was also impacted by natural
    catastrophe pre-tax losses of $351.8 million, net of reinsurance and
    reinstatement premiums. In the prior year quarter, natural catastrophe
    pre-tax losses totaled $194.9 million, net of reinsurance and
    reinstatement premiums. Excluding prior year development and natural
    catastrophe pre-tax losses net of reinsurance and reinstatement premiums,
    the fourth quarter P&C loss ratio was 6.5 percentage points lower than the
    prior year quarter.
  oOperating expenses were lower than the prior year quarter largely due to
    the timing of costs associated with infrastructure and organizational
    initiatives, partially offset by slightly increased compensation costs due
    to added headcount as a result of business expansion. Expenses were also
    lower than the third quarter 2012 largely due to the variable compensation
    impacts of catastrophe activity in the fourth quarter.
  oThe P&C combined ratio excluding prior year development and the impact of
    natural catastrophe losses for the quarter was 89.3%, compared to 99.1%
    for the prior year quarter. The Insurance segment combined ratio on this
    basis was 96.5% for the quarter, compared to 105.1% for the prior year
    quarter, while the Reinsurance segment combined ratio on this basis was
    72.9%, compared to 85.6% for the prior year quarter.

(1) Defined as net income (loss) attributable to ordinary shareholders
excluding (1) net realized gains and losses on investments, net of tax, (2)
net realized and unrealized gains and losses on derivatives, net of tax, (3)
its share of items (1) and (2) for XL’s insurance company affiliates for the
periods presented, (4) goodwill impairment charges, net of tax, (5) the gains
recognized on the repurchase of XLIT Ltd.’s preference ordinary shares and (6)
foreign exchange gains or losses, net of tax. “Operating net income” and
“return on ordinary shareholders’ equity” based on operating net income are
“non-GAAP financial measures.” See the schedule entitled “Reconciliation” at
the end of this release for a reconciliation of “operating net income” to net
income (loss) attributable to ordinary shareholders and the calculation of
“return on ordinary shareholders’ equity” based on operating net income to
average ordinary shareholders’ equity.

(2) Ordinary shareholders’ equity is defined as total shareholders’ equity
less non-controlling interest in equity of consolidated subsidiaries.

(3) Book value per share, fully diluted book value per ordinary share and
fully diluted tangible book value per ordinary share are non-GAAP financial
measures. Fully diluted book value per share represents book value per
ordinary share (total shareholders’ equity less non-controlling interest in
equity of consolidated subsidiaries, divided by the number of outstanding
ordinary shares at any period end) combined with the dilutive impact of
potential future share issues at any period end. Fully diluted tangible book
value per ordinary share is calculated in the same manner as fully diluted
book value per ordinary share except that goodwill and intangible assets are
removed from ordinary shareholders’ equity. XL believes that fully diluted
tangible book value per ordinary share is a financial measure important to
investors and other interested parties who benefit from having a consistent
basis for comparison with other companies within the industry. However, this
measure may not be comparable to similarly titled measures used by companies
either outside or inside of the insurance industry.

Further details of the results for the quarter may be found in the Company’s
Financial Supplement,  which is dated February 7, 2013 and is available from
the Investor Relations section of the XL website.

A conference call to discuss the Company’s results will be held at 5 p.m.
Eastern Time on Thursday, February 7, 2013. The conference call can be
accessed through a listen-only dial-in number or through a live webcast. To
listen to the conference call, please dial (210) 795-0624 or (866) 617-1526:
Passcode: “XL GLOBAL”. The webcast will be available atwww.xlgroup.com and
will be archived on XL’s website from approximately 9:00 p.m. Eastern Time on
February 7, 2013, through midnight Eastern Time on March 7, 2013. A telephone
replay of the conference call will also be available beginning at
approximately 9:00 p.m. Eastern Time on February 7, 2013, until midnight
Eastern Time on March 7, 2013, by dialing (203) 369-3290 or (800) 568-4204.

About XL Group plc

XL Group plc, through its subsidiaries, is a global insurance and reinsurance
company providing property, casualty and specialty products to industrial,
commercial and professional firms, insurance companies and other enterprises
throughout the world. XL is the company clients look to for answers to their
most complex risks and to help move their world forward. Its principal offices
are located at No.1 Hatch Street Upper, 4th Floor, Dublin 2, Ireland. To learn
more, visit www.xlgroup.com.

This press release contains forward-looking statements. 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, all of which involve risk and
uncertainty. Statements that include the words “expect,” “intend,” “plan,”
“believe,” “project,” “anticipate,” “will,” “may” or similar statements of a
future or forward-looking nature identify forward-looking statements. Actual
results may differ materially from those included 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 (a)
changes in the size of XL’s claims relating to natural or man-made catastrophe
losses due to the preliminary nature of some reports and estimates of loss and
damage to date; (b) trends in rates for property and casualty insurance and
reinsurance; (c) the timely and full recoverability of reinsurance placed by
XL with third parties, or other amounts due to XL; (d) changes in ratings,
rating agency policies or practices; (e) changes in the projected amount of
ceded reinsurance recoverables; (f) XL’s ability to successfully implement its
business strategy especially during a “soft” market cycle; (g) 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; (h) changes in general economic conditions, including the
effects of inflation and changes in interest rates, credit spreads, foreign
currency exchange rates and future volatility in the world’s credit, financial
and capital markets that adversely affect the performance and valuation of
XL’s investments or access to such markets; (i) developments, including
uncertainties related to: the future of the Euro-zone, the ability of
Euro-zone countries to service existing debt obligations and the strength of
the Euro as a currency; and to the financial condition of counterparties,
reinsurers and other companies that are at risk of bankruptcy; (j) the impact
of downgrades of U.S. securities by credit rating agencies or the European
sovereign debt crisis, and the resulting effect on the value of securities (x)
in our investment portfolio and (y) posted as collateral by and to us; (k) the
potential for changes to methodologies, estimations and assumptions that
underlie the valuation of XL’s financial instruments that could result in
changes to investment valuations; (l) changes to XL’s assessment as to whether
it is more likely than not that it will be required to sell, or has the intent
to sell, available-for-sale debt securities before their anticipated recovery;
(m) the ability of XL’s subsidiaries to pay dividends to XL Group plc and XLIT
Ltd.; (n) the potential effect of regulatory developments in the jurisdictions
in which XL operates, including those that could impact the financial markets
or increase XL’s business costs and required capital levels; (o) changes in
applicable tax laws, tax treaties or tax regulations or the interpretation or
enforcement thereof; and (p) the other factors set forth in XL’s 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 publicly or revise
any forward-looking statement, whether as a result of new information, future
developments or otherwise.

XL intends to use its website as a means of disclosing material non-public
information and for complying with its disclosure obligations under Regulation
FD. Such disclosures will be included on the website in the Investor Relations
section. Accordingly, investors should monitor such portions of XL's website,
in addition to following its press releases, SEC filings and public conference
calls and webcasts.

XL Group plc
SUMMARY CONSOLIDATED FINANCIAL DATA
Income statement data:
(U.S. dollars in
thousands)
                         Three Months Ended        Year Ended
                         December 31,              December 31,
                         (Unaudited)                 (Unaudited)
                         2012         2011         2012           2011
Revenues:
Gross premiums written:
     - P&C operations    $ 1,518,464  $ 1,260,560  $ 7,175,130    $ 6,898,284
     - Life operations     88,754       96,051       355,754        394,555
Net premiums written:
     - P&C operations    $ 1,338,251  $ 1,120,341  $ 5,957,021    $ 5,433,388
     - Life operations     80,826       89,727       324,432        362,362
Net premiums earned:
     - P&C operations    $ 1,538,559  $ 1,386,759  $ 5,765,982    $ 5,327,112
     - Life operations     80,829       90,323       324,459        363,018
Net investment income    $ 244,995    $ 270,895    $ 1,012,348    $ 1,137,769
Net realized gains
(losses) on investments    11,181       (50,024)     14,098         (188,359)
Net realized and
unrealized gains
(losses) on derivative
instruments                2,565        23,561       5,221          (10,738)
Net income (loss) from
investment fund
affiliates                 19,949       (4,024)      58,504         26,253
Fee income and other       15,747       11,254       49,868         41,748
Total revenues           $ 1,913,825  $ 1,728,744  $ 7,230,480    $ 6,696,803
Expenses:
Net losses and loss
expenses incurred - P&C
operations               $ 1,190,986  $ 1,057,883  $ 3,765,482    $ 4,078,391
Claims and policy
benefits - Life
operations                 114,302      124,878      486,198        535,074
Acquisition costs          234,057      215,269      913,492        826,411
Operating expenses         286,742      308,968      1,173,951      1,083,917
Foreign exchange (gains)
losses                     (2,886)      (2,231)      10,546         (40,640)
Interest expense           37,641       47,435       172,205        205,592
Impairment of goodwill     -            429,020      -              429,020
Total expenses           $ 1,860,842  $ 2,181,222  $ 6,521,874    $ 7,117,765
Income (loss) before
income tax and income
(loss) from operating
affiliates               $ 52,983     $ (452,478)  $ 708,606      $ (420,962)
Income (loss) from
operating affiliates       14,079       (18,653)     55,810         76,786
Provision (benefit) for
income tax                 (17,785)     42,960       34,028         59,707
Net income (loss)        $ 84,847     $ (514,091)  $ 730,388      $ (403,883)
Non-controlling
interests                  (3,399)      (1,446)      (79,254)       (70,877)
Net income (loss)
attributable to XL Group
plc and ordinary
shareholders             $ 81,448     $ (515,537)  $ 651,134      $ (474,760)

XL Group plc
SUMMARY CONSOLIDATED FINANCIAL DATA
Selected balance sheet data:
(U.S. dollars in thousands,
except per share amounts)            At                       At
                                     December 31,             December 31,
                                     2012                     2011 (Note 1)
                                     (Unaudited)
Total investments available for
sale                            $    28,818,982          $    27,017,285
Total fixed maturities, held to
maturity                             2,814,447                2,668,978
Cash and cash equivalents            2,618,378                3,825,125
Investments in affiliates            1,126,875                1,052,729
Unpaid losses and loss expenses
recoverable                          3,382,101                3,654,948
Goodwill and other intangible
assets                               408,527                  407,321
Total assets (Note 2)                45,387,779               44,665,265
Unpaid losses and loss expenses      20,484,121               20,613,901
Deposit liabilities                  1,551,398                1,608,108
Future policy benefit reserves       4,812,045                4,845,394
Unearned premium                     3,755,920                3,555,310
Notes payable and debt               1,672,778                2,275,327
Total shareholders' equity
(Note 2)                             11,856,397               10,756,130
Ordinary shareholders' equity
(Note 2)                             10,510,072               9,411,658
Ordinary shares outstanding
(Note 3)                             298,732,832              315,710,253
Basic book value per ordinary
share (Notes 2 and 4)           $    35.18               $    29.81
Fully diluted book value per
ordinary share (Notes 2 and 4)  $    34.70               $    29.59
Fully diluted tangible book
value per ordinary share (Notes
2 and 4)                        $    33.35               $    28.31
Note 1: Certain items have been reclassified to conform to the current period
presentation.
Note 2: On January 1, 2012, for all fiscal years and interim periods
presented, XL adopted a FASB accounting standards update to address
disparities in practice regarding the interpretation of which costs relating
to the acquisition of new and renewal insurance contracts qualify for
deferral. This guidance was adopted on a retrospective basis. The impact of
adoption of this guidance was a reduction in deferred acquisition costs of
approximately $21 million, a reduction in deferred tax liabilities of
approximately $7 million, and a corresponding reduction in opening retained
earnings of approximately $14 million from the amounts presented in XL's
December 31, 2011 balance sheet. The adoption of this guidance did not have
an impact on XL's consolidated statements of income or comprehensive income.
Note 3: Ordinary shares outstanding include all ordinary shares legally
issued and outstanding (as disclosed on the face of the balance sheet) as
well as all director share units outstanding.
Note 4: Book value per share, fully diluted book value per ordinary share and
fully diluted tangible book value per ordinary share are non-GAAP financial
measures. Fully diluted book value per share represents book value per
ordinary share (total shareholders' equity less non-controlling interest in
equity of consolidated subsidiaries, divided by the number of outstanding
ordinary shares at any period end) combined with the dilutive impact of
potential future share issues at any period end. Fully diluted tangible book
value per ordinary share is calculated in the same manner as fully diluted
book value per ordinary share except that goodwill and intangible assets are
removed from ordinary shareholders' equity.

XL Group plc
RECONCILIATION

The following is a reconciliation of XL's net income (loss) attributable to
ordinary shareholders to operating net income (loss) (Note 1) and also
includes the calculation of annualized return on ordinary shareholders' equity
(based on operating net income (loss)) for the three and twelve months ended
December 31, 2012 and 2011.

(U.S. dollars in
thousands except
per share amounts) Three Months Ended            Year Ended
                   December 31,                  December 31,
                   (Unaudited)                     (Unaudited)
                   2012           2011 (Note 2)  2012           2011 (Note 2)
Net income (loss)
attributable to
ordinary
shareholders       $ 81,448       $ (515,537)    $ 651,134      $ (474,760)
Impairment of
goodwill, net of
tax                  -              417,566        -              417,566
Net realized
(gains) losses on
investments, net
of tax               (34,926)       46,077         (38,235)       178,432
Net realized and
unrealized (gains)
losses on
derivatives, net
of tax               (2,565)        (26,564)       (5,216)        3,914
Net realized and
unrealized (gains)
losses on
investments and
derivatives
related to the
Company's
insurance company
affiliates           (259)          (279)          (301)          (322)
Foreign exchange
(gains) losses,
net of tax           (4,810)        462            6,720          (34,016)
Gain on repurchase
of non-controlling
interest
preference
ordinary shares      -              (1,350)        -              (1,350)
Operating net
income (loss):
(Note 1)           $ 38,888       $ (79,625)     $ 614,102      $ 89,464
Per ordinary share
results: (Note 3)
Net income (loss)
attributable to
ordinary
shareholders       $ 0.27         $ (1.62)       $ 2.10         $ (1.52)
Operating net
income (loss)
(Note 1)           $ 0.13         $ (0.25)       $ 1.98         $ 0.28
Weighted average
ordinary shares
outstanding:
Basic                300,512,874    319,136,299    307,371,726    312,896,165
Diluted - Net
income               304,490,554    319,136,299    310,282,466    312,896,165
Diluted -
Operating net
income               304,490,554    319,136,299    310,282,466    316,318,339
Return on ordinary
shareholders'
equity:
Closing ordinary
shareholders'
equity (Notes 4
and 5)             $ 10,510,072   $ 9,411,658    $ 10,510,072   $ 9,411,658
Average ordinary
shareholders'
equity (Notes 4
and 5)             $ 10,460,555   $ 9,669,290    $ 9,960,865    $ 9,504,565
Operating net
income (loss)
(Note 1)           $ 38,888       $ (79,625)     $ 614,102      $ 89,464
Annualized
operating net
income (Note 1)    $ 155,552      $ (318,500)    $ 614,102      $ 89,464
Annualized return
on ordinary
shareholders'
equity - operating
net income (loss)
(Notes 1, 4 and 5)   1.5%           -3.3%          6.2%           0.9%
Note 1: Defined as net income (loss) attributable to ordinary shareholders
excluding (1) net realized gains and losses on investments, net of tax, (2)
net realized and unrealized gains and losses on derivatives, net of tax, (3)
its share of items (1) and (2) for XL's insurance company affiliates for the
periods presented, (4) goodwill impairment charges, net of tax, (5) the gains
recognized on the repurchase of XLIT Ltd.'s preference ordinary shares and
(6) foreign exchange gains or losses, net of tax. "Operating net income" and
"return on ordinary shareholders' equity" based on operating net income are
"non-GAAP financial measures."
Note 2: Certain amounts have been reclassified to conform to the current
period presentation.
Note 3: Diluted weighted average number of ordinary shares outstanding is
used to calculate per share data except where it is anti-dilutive to earnings
per share or where there is a net loss. When it is anti-dilutive or when a
net loss occurs, basic weighted average ordinary shares outstanding is
utilized in the calculation of net loss per share and net operating loss per
share.
Note 4: Ordinary shareholders' equity is defined as total shareholders'
equity less non-controlling interest in equity of consolidated subsidiaries.
Note 5: On January 1, 2012, for all fiscal years and interim periods
presented, XL adopted a FASB accounting standards update to address
disparities in practice regarding the interpretation of which costs relating
to the acquisition of new and renewal insurance contracts qualify for
deferral. This guidance was adopted on a retrospective basis. The impact of
adoption of this guidance was a reduction in deferred acquisition costs of
approximately $21 million, a reduction in deferred tax liabilities of
approximately $7 million, and a corresponding reduction in opening retained
earnings of approximately $14 million from the amounts presented in XL's
December 31, 2011 balance sheet. The adoption of this guidance did not have
an impact on XL's consolidated statements of income or comprehensive income.

Comment on Regulation G

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 press release
contains the presentation of (i) operating net income (loss) (“Operating Net
Income”), which is defined as net income (loss) attributable to ordinary
shareholders excluding: (1) net realized gains and losses on investments, net
of tax, (2) net realized and unrealized gains and losses on derivatives, net
of tax, (3) its share of items (1) and (2) for XL’s insurance company
affiliates for the periods presented, (4) goodwill impairment charges, net of
tax, (5) the gains recognized on the repurchase of XLIT Ltd.’s preference
ordinary shares and (6) foreign exchange gains or losses, net of tax; (ii)
annualized return on ordinary shareholders’ equity (“ROE”) based on operating
net income (loss) (“Operating ROE”); and (iii) book value per ordinary share
(ordinary shareholders’ equity divided by the number of shares outstanding at
the period end date), fully diluted book value per ordinary share (book value
per share combined with the dilutive impact of potential future share issues
at any period end), and fully diluted tangible book value per ordinary share
(calculated in the same manner as fully diluted book value per ordinary share
except that goodwill and intangible assets are removed from ordinary
shareholders’ equity). These items are “non-GAAP financial measures” as
defined in Regulation G. The reconciliation of such measures to the most
directly comparable GAAP financial measures in accordance with Regulation G is
included in this press release.

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 created as the result of other than temporary
declines in value and from goodwill impairment charges without actual
realization. In this regard, certain users of XL’s financial information,
including certain rating agencies, evaluate earnings before tax and capital
gains to understand the profitability of the recurring sources of income
without the effects of these two variables. Furthermore, these users believe
that, for many companies, the timing of the realization of capital gains and
the recognition of goodwill impairment charges are largely a function of
economic and interest rate conditions.

Net realized and unrealized (gains) losses on derivatives, net of tax include
all derivatives entered into by XL other than certain credit derivatives.
With respect to credit derivatives, because XL and its insurance company
operating affiliates generally hold financial guaranty 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’ treatment of such contracts) as the changes in fair value each
quarter are not indicative of underlying business performance.

The gains recognized on the repurchase of XLIT Ltd.’s preference ordinary
shares are excluded as these transactions were capital in nature and outside
the scope of XL’s underlying business.

Foreign exchange gains and losses in the income statement are only one element
of the overall impact of foreign exchange fluctuations on XL’s financial
position and are not representative of any economic gain or loss made by XL.
Accordingly, it is not a relevant indicator of financial performance and it
is excluded.

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 operating net income (loss) 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 that 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.

Operating ROE is a widely used measure of any company’s profitability that is
calculated by dividing annualized Operating Net Income for any period by the
average of the opening and closing ordinary shareholders’ equity. XL
establishes target Operating ROEs for its total operations, segments and lines
of business. If XL’s Operating ROE targets are not met with respect to any
line of business over time, XL seeks to re-evaluate these lines.

Contact:  David Radulski     Carol Parker Trott
           Investor Relations Media Relations
           (203) 964-3470     (441) 294-7290

SOURCE XL Group plc

Website: http://www.xlgroup.com
 
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