Secretary of the Company; and Clive R. Tobin to serve as Executive Vice President and Chief Executive of Insurance Operations of the Company.

     Each employment agreement provides for (i) a specified base salary, which is initially as set forth in the Executive Compensation Summary Compensation Table and is subject to annual review and may be increased by the Compensation Committee, (ii) an annual bonus pursuant to the Company’s incentive compensation plan as determined by the Compensation Committee, (iii) reimbursement for or payment of certain travel and other expenses and (iv) the right to participate in such other employee or fringe benefit programs for senior executives as are in effect from time to time. The original term of each executive’s employment is scheduled to expire on January 1, 2006 and will continue to be automatically extended for successive one year periods unless the Company or the executive provides written notice that the term is not to be extended at least six months prior to the then scheduled expiration date. Each executive has agreed to certain confidentiality, non-competition and non-solicitation provisions.

     Each employment agreement further provides that, in the event of the termination of the executive’s employment prior to the expiration date of the employment agreement (after giving effect to any extensions thereof) by reason of death or disability, the executive (or in the case of death, the executive’s spouse or estate) shall be entitled to receive the executive’s then current base salary through the end of the six month period after the month in which the executive’s employment is terminated, and the executive (or the executive’s estate) shall be entitled to any annual bonus awarded but not yet paid and a pro rata bonus for the year of termination in an amount determined by the Compensation Committee (but not less than a pro rata portion of the executive’s average annual bonus for the immediately preceding three years). The executive (or the executive’s estate) shall also be entitled to the executive’s vested accrued benefits under any employee benefit programs, continued rights with regard to any stock options or other rights with respect to equity securities of the Company held by the executive in accordance with the terms of the plans under which such options or other rights were issued, and continued medical benefit plan coverage for the executive and the executive’s dependents for a period of six months.

     In the event of termination of the executive’s employment by the Company without Cause (as defined in the employment agreement) or by the executive if the executive is assigned duties inconsistent with his position (but such assignment does not constitute “Good Reason” as defined in the employment agreement), the executive shall be entitled to the executive’s then current base salary through the date on which termination occurs, a cash lump sum payment equal to the sum of (x) two times the executive’s then current base salary and (y) one times the higher of the targeted annual bonus for the year of such termination or the average of the executive’s annual bonus for the three years immediately preceding the year of termination, and any annual bonus awarded but not yet paid. The executive shall also be entitled to the executive’s vested accrued benefits under any employee benefit programs, continued rights with regard to any stock options or other rights with respect to equity securities of the Company held by the executive in accordance with the terms of the plans under which such options or other rights were issued and continued medical benefit plan coverage for the executive and the executive’s dependents for a period of 24 months.

     Notwithstanding the foregoing, in the event of termination of the executive’s employment (x) by the Company without Cause within the 24-month period following a Change in Control (as defined in the employment agreement) (the “Post-Change Period”), (y) by the executive for Good Reason during the Post-Change Period or (z) by the Company within one year prior to a Change in Control and it is reasonably demonstrated that such termination arose in connection with or anticipation of the Change in Control, then the executive shall be entitled to (i) the executive’s then current base salary through the date on which termination occurs; (ii) a cash lump sum payment equal to the sum of (x) two times the executive’s then current base salary and (y) two times the average of the executive’s annual bonus for the three years immediately preceding the year in which the Change in Control occurs, provided such bonus shall be at least equal to the targeted annual bonus for the year of such termination; and (iii) an amount equal to the higher of (x) the executive’s annual bonus actually awarded in the year immediately preceding the year in which the Change in Control occurs or (y) the targeted annual bonus that would have been awarded to the executive for the year of such termination, pro rated by a fraction based on the number of months or fraction thereof in which the executive was employed by the Company in the year of termination. The executive shall also be entitled to continued medical benefit plan coverage for the executive and the executive’s dependents for a period of 24 months and to accelerated vesting of the executive’s rights (i) under any retirement plans; and (ii) with regard to any stock options or other rights with respect to equity securities of the Company held by the executive, which options or other rights shall be exercisable for the shorter of three years or the original term of the security. In addition, the executive shall be entitled to gross-up payments in the event excise taxes on the executive’s payments or benefits are imposed under Section 280G of the United States Internal Revenue Code.

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     In the event of termination of the executive’s employment by the Company with Cause or other voluntary termination by the executive, the executive shall be entitled to the executive’s then current base salary through the date on which termination occurs and continued rights with regard to any stock options or other rights with respect to equity securities of the Company held by the executive in accordance with the terms of the plans under which such options or equity securities were issued. The executive shall also be entitled to the executive’s vested accrued benefits under any employee benefit programs in the case of voluntary termination and, if such programs expressly provide for such benefits, in the case of termination by the Company with Cause.

     Each of Mr. de St. Paer’s and the other employment agreements described above also provides for indemnification of the executive by the Company to the maximum extent permitted by applicable law and the Company’s charter documents and requires the Company to maintain directors’ and officers’ liability coverage in an amount equal to at least $75,000,000 for each such executive.

     All grants of restricted shares and share options under the Company’s incentive compensation plans automatically vest upon a Change in Control (as defined in such plans).

First Amendment to the Employment Agreement of Paul S. Giordano

     On September 13, 2005, the Company and Paul S. Giordano entered into the First Amendment (the “Amendment”) to the employment agreement between the Mr. Giordano and the Company, as mentioned above (the “Employment Agreement”).

     The Amendment provides for the payment to Mr. Giordano of a monthly housing allowance beginning effective July 1, 2005 and continuing for a period of three years thereafter. The amount is $15,000 per month for the first year, $10,000 per month for the second year and $5,000 per month for the third year. If Mr. Giordano’s employment is terminated by the Company without cause, due to the disability of Mr. Giordano, by Mr. Giordano for good reason (as defined in the Employment Agreement) following a change in control of the Company or by Mr. Giordano following the assignment to him of duties that are materially inconsistent with his position or following another material breach by the Company of the provisions of the Employment Agreement set forth in Section 8(b)(iv) thereof, Mr. Giordano will receive a lump sum payment equal to the amount of any remaining housing allowance payments scheduled to be paid for the twenty-four months following such termination of employment. In the event Mr. Giordano’s employment terminates due to his death, the spouse or estate of Mr. Giordano will continue to receive monthly housing allowance payments through the end of the three year housing payment period or until the principal residence of Mr. Giordano is sold, whichever is earlier.

     The Amendment also provides that the Company will reimburse Mr. Giordano, on an after-tax basis, for any loss incurred by him on a sale of his principal residence which occurs prior to June 30, 2010 and prior to his termination of employment. For this purpose, any loss will be measured by the excess of the purchase price paid by Mr. Giordano for the principal residence over the higher of the sale price received by Mr. Giordano or the average of two independent appraisals of the fair market value of the principal residence as of the date of execution of the applicable purchase and sale agreement. In the event Mr. Giordano’s employment is terminated by the Company without cause, due to the disability of Mr. Giordano, by Mr. Giordano for good reason (as defined in the Employment Agreement) following a change in control of the Company or by Mr. Giordano following the assignment to him of duties that are materially inconsistent with his position or following another material breach by the Company of the provisions of the Employment Agreement set forth in Section 8(b)(iv) thereof, the period during which he will be protected against loss will not end until the earlier of twenty-four months following such termination of employment or June 30, 2010. In the event Mr. Giordano’s employment terminates due to his death, the period of loss protection will continue through June 30, 2010, and any reimbursement for loss will be paid to Mr. Giordano’s spouse or estate. The cost of any appraisals required will be paid by the Company.

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REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

     The Compensation Committee is comprised of three independent directors appointed by the Board to evaluate and approve senior executive compensation and compensation and benefit policies, plans and programs of the Company. The Committee Charter is reviewed annually and submitted to the Board of Directors for approval.

     The Committee’s objective is to ensure (1) that the Company has compensation and benefit programs that will attract and retain superior talent and (2) that total compensation levels, especially for senior executives, are dependent significantly upon the achievement of the Company’s performance goals to enhance Shareholder value. In this regard, the Company’s Compensation Philosophy, Principles, Standards and Practice is reviewed annually by the Committee and approved by the Board. In addition to receiving recommendations from management, the Committee retains independent compensation consultants as needed for the review of the strength of the Company’s compensation program relative to the marketplace in general and to the principal competitors in the Company’s various businesses.

Global Incentive Compensation Plan

     The Company’s basic compensation philosophy is to establish salary levels that are at the median in comparison to its key competitors for the various markets it operates in globally. In addition, the Company has implemented a Global Incentive Compensation Plan that provides variable compensation dependent upon the performance of the Company, its business units and the individual employee. It is the intent of this plan, particularly for senior executives, that performance-based variable compensation be a significant portion of the employee’s total compensation opportunity and that it provide above market total compensation for successful performance.

     Annual incentive compensation is a key component of the Company’s pay for performance philosophy. As a result of the Company’s increasing diversity of business operations, the Committee utilizes a number of assessments to ensure that annual incentive compensation appropriately reflects operational business unit, corporate functional and overall company-wide performance. The intent is to ensure that annual incentive awards are equitable and responsive to the pay for performance philosophy. The Committee reviews the Company’s performance in the aggregate relative to its corporate goals for the year and the comparison of the Company’s performance to those achieved by a group of key competitors. In addition, the Committee reviews the performance of each of the Company’s business units relative to their goals for the year. In both cases, operating earnings and return on equity are the prevalent measures, but growth in book value and the Company’s total return to shareholders (i.e. change in common stock price plus cash dividends paid) are evaluated at the company-wide level. Under the plan, the Compensation Committee can modify the result up to 25% based on other performance measures it deems appropriate for the year.

     Long-term incentive compensation under the plan includes stock option awards, restricted stock grants, deferred cash grants and cash-based long-term incentive plan (“LTIP”) awards for senior management. LTIP awards are designed to reward performance intended to create shareholder value over extended periods of time and will be potentially significant if performance goals are achieved. LTIP is used in conjunction with stock-based long-term variable compensation to incent, reward and retain high performing senior executives. The Committee approves guidelines for long-term incentives that are based on competitive practices and, with regard to stock options and restricted stock grants, stock dilution considerations. In accordance with the amended 1991 Performance Incentive Program approved by shareholders in 2003, a minimum of 50% of all shares granted will be performance vested shares that will require a minimum return on equity attainment prior to vesting. Any time-vested restricted stock grants and all stock option awards vest equally over a four-year period. The majority of the long-term variable compensation for the most senior executive leaders of the Company is in stock options and/or LTIP awards where compensation received is dependant on enhancing shareholder value. The Committee has adopted share ownership guidelines for senior officers to encourage them to establish and maintain ownership of the Company’s shares. Restricted stock and deferred cash grants are a more significant portion of long-term incentive compensation for other top–performing or high-potential executives. Stock options and restricted stock grants may also be utilized in connection with new hires, personnel retention following mergers or acquisitions or in other special circumstances.

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2005 Compensation Review

     As a result of catastrophe losses, prior year reserve strengthening and the resolution of the Winterthur International (WI) independent actuarial process, the Company recorded a significant net loss for the year. Accordingly, overall Company-wide results and the performance of business units affected by the above mentioned events resulted in negligible contributions to the annual bonus pool for 2005. The contributions to the 2005 bonus pool were driven by operating business units that performed well in comparison to their objectives for the year and the assessment of performance for corporate support functions. It was noted that business units that accounted for 49% of allocated capital achieved operating income return on equity performance of approximately 29% in 2005.

     The Committee approved a bonus pool for 2005 which was 32% below target for the Company and 34% below the bonus pool approved for 2004. Awards to business units and individuals varied from 0% of target to in excess of 175% of target.

     The Committee reviewed and approved long-term incentive compensation awards for top-performing and high potential executives. These awards included deferred cash grants, restricted stock grants, stock options and, this year, a significant LTIP award to the Executive Management Board of the Company and identified executive leaders in the Executive Management Group of the Company. The LTIP award is a three-year performance based plan tied to operating earnings and returns on equity for the years 2006, 2007 and 2008 combined. In addition, a significant percentage of restricted stock grants are performance vested shares. It was noted that performance vested restricted stock grants awarded in 2004 and 2005, scheduled to vest in 2006, will not vest this year because the minimum return on equity required for vesting was not achieved in 2005.

     The Committee believes that the compensation program for 2006 is appropriately performance based and provides strong incentives to enhance shareholder value.

Chief Executive Officer and Chairman’s Compensation

     As a result of the Company’s results in 2005, the entire Board has been involved in reviewing the performance of the Chief Executive Officer. The catastrophe events and the charge related to the conclusion of the independent actuarial process with Winterthur Swiss Insurance Company overshadowed the solid performance in many areas of the Company. The Committee and the Board continue to believe Mr. O’Hara’s leadership strengths are appropriate and proved effective in constructively reacting to the events of 2005. The Committee did not recommend a cash bonus, restricted stock grants or stock option awards for Mr. O’Hara. Mr. O’Hara was granted an LTIP award of $2.5 million that, in conjunction with prior restricted stock grants and stock option awards, strongly aligns Mr. O’Hara’s compensation with the enhancement of shareholder value.

     The Committee believes that the Chairman provides excellent overall leadership to the Board, especially with respect to issues of corporate governance. Mr. Esposito continues to initiate actions that enhance the Company’s financial and internal controls. As with Mr. O’Hara, the Committee did not recommend a cash bonus or restricted stock grants for Mr. Esposito. However, the Committee recommended, and the Board approved, a 60,000 share stock option award to Mr. Esposito which aligns the majority of his potential total compensation with the creation of shareholder value.

	Compensation Committee
	Dale R. Comey, Chairman
	Eugene M. McQuade
	John W. Weiser

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PERFORMANCE GRAPH

     Set forth below is a line graph comparing the yearly dollar change in the cumulative total Shareholder return over a five-year period on the Shares from December 31, 2000 through December 31, 2005 as compared to the cumulative total return of the Standard & Poor’s 500 Stock Index and the cumulative total return of the Standard & Poor’s Property & Casualty Insurance Index. This graph assumes the investment of $100 in December 31, 2000, with all dividends reinvested.

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AUDIT COMMITTEE REPORT

     The primary purpose of the Audit Committee is to assist the Board’s oversight of the integrity of the Company’s financial statements, including its system of internal controls, the Independent Auditor’s qualifications, independence and performance, the performance of the Company’s internal audit function and the Company’s compliance with legal and regulatory requirements. The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the Independent Auditor for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. During 2005, Messrs. Thornton, Comey, McQuade, Rance, Senter and Dr. Thrower served on the Audit Committee. The Audit Committee currently comprises seven independent Directors, including Mr. Mauriello, who was elected by the Board as a member of the Audit Committee on February 24, 2006 and operates under a written charter, which is attached as Appendix B hereto. It is not the responsibility of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. This is the responsibility of management and the Independent Auditor, as appropriate. It is also not the responsibility of the Audit Committee to assure compliance with laws and regulations and the Company’s Code of Business Conduct and Ethics and Code of Ethics for XL Senior Financial Officers or to set or determine the adequacy of the Company’s reserves.

     The Audit Committee has reviewed and discussed the Company’s system of internal controls over financial reporting. Based on the Audit Committee’s review of the audited financial statements and management’s assessment of the effectiveness of the Company’s system of internal controls over financial reporting, its discussions with management regarding the audited financial statements, its receipt of written disclosures and the letter from the Independent Auditor required by Independence Standards Board Standard No. 1, its discussions with the Independent Auditor regarding such auditor’s independence, the audited financial statements, the matters required to be discussed by the Statement on Auditing Standards 61, the Independent Auditor’s opinion on the effectiveness of the Company’s system of internal controls over financial reporting and on management’s assessment of the effectiveness of the Company’s system of internal controls over financial reporting, and other matters the Audit Committee deemed relevant and appropriate, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements for the fiscal year ended December 31, 2005 be included in the Company’s Annual Report on Form 10-K for such fiscal year.

	Audit Committee
	John T. Thornton, Chairman
	Dale R. Comey
	Joseph Mauriello
	Eugene M. McQuade
	Cyril Rance
	Alan Z. Senter
	Ellen E. Thrower

Audit Fees

     The aggregate fees billed by PricewaterhouseCoopers LLP for audit services for the years ended December 31, 2005 and 2004 were approximately $14.5 million and $17.6 million, respectively. Audit fees are for professional services rendered primarily in connection with the audit and quarterly review of the consolidated financial statements and other attestation services that comprised the audits for insurance statutory and regulatory purposes in the various jurisdictions in which the Company operates and the provision of certain opinions relating to the Company’s filings with the SEC (including opinions delivered to securities underwriters in connection with various equity and debt offerings during fiscal years 2004 and 2005). The audit fees with respect to the years ended December 31, 2005 and 2004 also included the fees billed by PricewaterhouseCoopers LLP for the audit services related to the Company’s internal control over financial reporting pursuant to section 404 of the Sarbanes-Oxley Act of 2002.

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Audit-Related Fees

     The aggregate fees billed by PricewaterhouseCoopers LLP for audit-related professional services for the years ended December 31, 2005 and 2004 were approximately $123,610 and $2.0 million, respectively. Audit-related fees were (i) in 2005 primarily related to assurance and related services rendered primarily in connection with accounting consultations and (ii) in 2004 primarily related to audits in connection with acquisitions and potential acquisitions, reviews of the Company’s system of internal controls over financial reporting and attestation services that are not required by statute or regulation.

Tax Fees

     The aggregate fees billed by PricewaterhouseCoopers LLP for tax services for the fiscal years ended December 31, 2005 and 2004 were approximately $104,661 and $99,000, respectively. These fees are for professional services rendered for tax compliance.

All Other Fees

     The aggregate fees billed by PricewaterhouseCoopers LLP for products and services rendered to the Company, other than the services described above under “Audit Fees”, “Audit-Related Fees” and “Tax Fees”, for the fiscal years ended December 31, 2005 and 2004 were approximately $45,052 and $2.7 million, respectively. The aggregate fees billed by PricewaterhouseCoopers LLP for such products and services rendered to the Company (i) in 2005 primarily related to online access to human resource advisory services and licenses acquired for technical accounting reference tools and (ii) in 2004 primarily related to the post-closing seasoning process in connection with the Company’s acquisition of certain operations of Winterthur International (“Winterthur International”) from Winterthur Swiss Insurance Company in 2001.

General

     The Audit Committee has adopted procedures for pre-approving all audit and permissible non-audit services provided by the Independent Auditor. The Audit Committee will annually review and pre-approve the audit, review, attestation and permitted non-audit services to be provided during the next audit cycle by the Independent Auditor. To the extent practicable, the Audit Committee or the Chairman of the Audit Committee will also review and approve a budget for such services. Services proposed to be provided by the Independent Auditor that have not been pre-approved during the annual review and the fees for such proposed services must be pre-approved by the Audit Committee or the Chairman of the Audit Committee. Additionally, fees for previously approved services that are expected to exceed the previously approved budget must also be pre-approved by the Audit Committee or the Chairman of the Audit Committee. All requests or applications for the Independent Auditor to provide services to the Company shall be submitted to the Audit Committee or the Chairman of the Audit Committee.

     The Audit Committee considered whether the provision of non-audit services performed by the Independent Auditor is compatible with maintaining PricewaterhouseCoopers LLP’s independence during 2004 and 2005. The Audit Committee concluded in 2005 that the provision of these services was compatible with the maintenance of PricewaterhouseCoopers LLP’s independence in the performance of its auditing functions during 2005. In reaching its conclusions in 2004, the Audit Committee took into consideration the fact that the major proportion of these services were either (i) specifically related to the acquisition of Winterthur International and the post-seasoning process in relation thereto or (ii) primarily a continuation of projects commenced in 2001 and were completed in 2004.

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II. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR

     The Audit Committee of the Board of Directors is required by law and applicable NYSE rules to be directly responsible for the appointment, compensation and retention of the Company’s Independent Auditor. The Audit Committee has appointed PricewaterhouseCoopers LLP as the Independent Auditor for the year ending December 31, 2006. While Shareholder ratification is not required by the Company’s Articles of Association or otherwise, the Board of Directors is submitting the appointment of PricewaterhouseCoopers LLP to the Shareholders for ratification as part of good corporate governance practices. If the Shareholders fail to ratify the appointment, the Audit Committee may, but is not required to, reconsider whether to retain PricewaterhouseCoopers LLP. Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent auditor at any time during the fiscal year if it determines that such a change would be in the best interest of the Company and its Shareholders.

     The Board of Directors recommends a vote FOR the proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s Independent Auditor to audit the Company’s consolidated financial statements for the year ending December 31, 2006. The persons designated as proxies will vote FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s Independent Auditor, unless otherwise directed. Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual General Meeting, with the opportunity to make a statement should they choose to do so and are expected to be available to respond to questions, as appropriate.

     Your Board of Directors recommends a vote FOR the proposal to ratify the appointment of PricewaterhouseCoopers LLP, New York, New York.

III. SHAREHOLDER PROPOSALS FOR 2007 ANNUAL GENERAL MEETING

     Shareholder proposals intended for inclusion in the Proxy Statement for the 2007 Annual General Meeting should be submitted in accordance with the procedures prescribed by Rule 14a-8 promulgated under the Exchange Act and sent to the Company’s Secretary at XL House, One Bermudiana Road, Hamilton HM 11, Bermuda. Such proposals must be received by November 24, 2006.

     In addition, a Shareholder may present a proposal at the 2007 Annual General Meeting other than pursuant to Rule 14a-8 promulgated under the Exchange Act. Any such proposal will not be included in the Proxy Statement for the 2007 Annual General Meeting and must be received by the Company’s Secretary at XL House, One Bermudiana Road, Hamilton, HM 11, Bermuda by February 7, 2007. If any such proposal is not so received, such proposal will be deemed untimely and, therefore, the persons appointed by the Board of Directors as its proxies will have the right to exercise discretionary voting authority with respect to such proposal.

     Pursuant to the Company’s Articles of Association, any Shareholder entitled to attend and vote at any Annual General Meeting may nominate persons for election as Directors if written notice of such Shareholder’s intent to nominate such persons is received by the Secretary at XL House, One Bermudiana Road, Hamilton, HM 11, Bermuda not less than five days or more than 21 days before the date appointed for such Annual General Meeting. Such notice must include the following information about the proposed nominee: (a) name, age and business and residence addresses, (b) principal occupation or employment, (c) class and number of Shares or securities of the Company beneficially owned; and (d) any other information required to be disclosed in solicitations of proxies pursuant to Regulation 14A promulgated under the Exchange Act, including the proposed nominee’s written consent to serve if elected. Such notice must also include information on the Shareholder making the nomination, including such Shareholder’s name and address as it appears on the Company’s books and the class and number of Shares of the Company beneficially owned by such Shareholder. The nomination of any person not made in compliance with the foregoing procedures shall be disregarded.

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IV. OTHER MATTERS

     While management knows of no other matters to be brought before the Annual General Meeting other than the approval of the minutes of the 2005 Annual General Meeting of Shareholders, if any other matters properly come before the meeting, it is the intention of the persons named in the accompanying proxy form to vote the proxy in accordance with their judgment on such matters.

Proxy Solicitation

     The Company will bear the cost of this solicitation of proxies. Proxies may be solicited by Directors, officers and employees of the Company and its subsidiaries, who will not receive additional compensation for such services. In addition to the foregoing, the Company has retained Georgeson & Company Inc. to assist in the solicitation of proxies for a fee of approximately $10,000 plus reasonable out-of-pocket expenses and disbursements. Upon request, the Company will also reimburse brokers and others holding Shares in their names, or in the names of nominees, for forwarding proxy materials to their customers.

     The Company will furnish, without charge, to any Shareholder a copy of its Annual Report on Form 10-K that it files with the SEC. A copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 may be obtained upon written request to the Company’s Secretary at XL House, One Bermudiana Road, Hamilton HM 11, Bermuda.

	As ordered,
	Brian M. O’Hara
	President and Chief Executive Officer

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APPENDIX A

XL CAPITAL LTD

DIRECTOR INDEPENDENCE STANDARDS

     The Board of Directors of XL Capital Ltd (the “Company”) has adopted the following standards to assist it in making determinations of independence in accordance with the NYSE Corporate Governance rules.

Employment Relationships

A director will be deemed to be independent unless, within the preceding three years:

		such director
			is or was an employee of the Company or any of the Company’s subsidiaries, other than an interim Chairman or Chief Executive Officer or other executive officer;
			is a current partner of the Company’s internal or external auditor;
			is a current employee of the Company’s internal or external auditor; or
			was (but is no longer) a partner or employee of the Company’s internal or external auditor who personally worked on the Company’s audit within that time.
		any immediate family member of such director
			is or was an executive officer of the Company or any of the Company’s subsidiaries;
			is a current partner of the Company’s internal or external auditor;
			is a current employee of the Company’s internal or external auditor who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or
			was (but is no longer) a partner or employee of the Company’s internal or external auditor who personally worked on the Company’s audit within that time.

Compensation Relationships

A director will be deemed to be independent unless, within the preceding three years:

• such director has received during any twelve-month period more than $100,000 in direct compensation from the Company or any of its subsidiaries other than: (i) director and committee fees; (ii) pension or other forms of deferred compensation for prior service; provided, however, that such compensation is not contingent in any way on continued service; and (iii) compensation received for former service as an interim Chairman or Chief Executive Officer or other executive officer; or
• an immediate family member of such director has received during any twelve-month period more than $100,000 in direct compensation from the Company or any of its subsidiaries as a director or executive officer other than: (i) director and committee fees and (ii) pension or other forms of deferred compensation for prior service; provided, however, that such compensation is not contingent in any way on continued service.

Commercial Relationships

A director will be deemed to be independent unless:

• such director is a current employee of another company that has made payments to, or received payments from, the Company or any of its subsidiaries for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; or
• an immediate family member of such director is a current executive officer of another company that has made payments to, or received payments from, the Company or any of its subsidiaries for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.

A-1

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Charitable Relationships

     A director will be deemed to be independent unless, within the preceding three years such director was an executive officer of a tax-exempt organization that received contributions from the Company or any of its subsidiaries in an amount which, in any single fiscal year, exceeded the greater of $1 million or 2% of such tax-exempt organization’s consolidated gross revenues; unless the Board determines such relationships not to be material or otherwise consistent with a Director’s independence.

Interlocking Directorates

A director will be deemed to be independent unless, within the preceding three years:

• such director is or was employed as an executive officer of another company where any of the Company’s or its subsidiaries’ present executive officers at the same time serves or served on that company’s compensation committee; or
• an immediate family member of such director is or was employed as an executive officer of another company where any of the Company’s or its subsidiaries’ present executives at the same time serves or served on that company’s compensation committee.

Other Relationships

     For relationships not specifically mentioned above, the determination of whether a director has a material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company), and therefore would not be independent, will be made by the Board of Directors after taking into account all relevant facts and circumstances. For purposes of these standards, a director who is solely a director and/or a non-controlling shareholder of another company that has a relationship with the Company and/or is, directly or indirectly, a security holder of the Company will not be considered to have a material relationship based solely on such relationship that would impair such director’s independence.

     For purposes of the standards set forth above, “immediate family member” means any of such director’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law and brothers and sisters-in-law (other than those who are no longer family members as a result of legal separation or divorce, or those who have died or become incapacitated) and anyone (other than a domestic employee) who shares such director’s home. For purposes of the standards set forth above, “executive officer” means the Company’s president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Officers of the Company’s subsidiaries shall be deemed officers of the Company if they perform such policy-making functions for the Company.

     These standards shall be interpreted in a manner consistent with the New York Stock Exchange Corporate Governance Rules.

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APPENDIX B

AUDIT COMMITTEE CHARTER FOR XL CAPITAL LTD

Purpose

     The Audit Committee is appointed by the Board to assist the Board in monitoring (1) the integrity of the financial statements of the Company, including the Company’s system of internal controls, (2) the independent auditor’s qualifications and independence, (3) the performance of the Company’s internal audit function and independent auditors, and (4) the compliance by the Company with legal and regulatory requirements, including the Company’s Code of Business Conduct and Ethics and Compliance Program.

     The Audit Committee shall prepare the report required to be included in the Company’s annual proxy statement.

Committee Membership

     The Audit Committee shall consist of no fewer than three members, each of whom shall be financially literate and at least one of whom shall be a “financial expert” as defined in applicable laws, rules or regulations. The members of the Audit Committee shall meet the independence, experience and other requirements of the New York Stock Exchange and any other requirements set forth in applicable laws, rules and regulations. Audit Committee members shall not simultaneously serve on the audit committees of more than two other public companies.

     The members of the Audit Committee shall be appointed annually by the Board on the recommendation of the Nominating & Governance Committee. Audit Committee members may be replaced by the Board if necessary or appropriate.

Meetings

     The Audit Committee shall meet as often as it determines, but not less frequently than quarterly. The Audit Committee shall meet periodically with management (including the CEO and CFO where required by applicable law or otherwise as appropriate), the internal auditors and the independent auditor in separate executive sessions. The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or advisors to, the Committee.

Committee Authority and Responsibilities

     The Audit Committee shall have sole authority to appoint or replace the independent auditor, subject to required shareholder ratification. The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of or issuing an audit report or related work. The independent auditor shall report directly to the Audit Committee.

     The Audit Committee shall pre-approve all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor in accordance with applicable laws, rules and regulations.

     The Audit Committee may form and delegate authority to subcommittees comprising one or more members of the Audit Committee, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.

     The Audit Committee shall have the authority to retain independent legal, accounting, actuarial and other advisors, as it determines to be necessary to carry out its duties. The Company will provide for the appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any advisors employed by the Audit Committee.

     The Audit Committee shall make regular reports to the Board. The Audit Committee shall review and re-assess the adequacy of this Charter annually and recommend any proposed changes to the Nominating & Governance Committee and ultimately to the Board for approval. The Audit Committee shall annually review the Audit Committee’s own performance.

B-1

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The Audit Committee, to the extent it deems necessary or appropriate, shall:

Financial Statements, Earnings Releases and Related Disclosure Matters

     1. Meet to review and discuss with management and the independent auditor the Company’s annual audited financial statements, including specific disclosures made in management’s discussion and analysis, and recommend to the Board whether the audited financial statements should be included in the Company’s Annual Report on Form 10-K.

     2. Meet to review and discuss with management and the independent auditor the Company’s quarterly financial statements, including specific disclosures made in management’s discussion and analysis, prior to the filing of its Quarterly Reports on Form 10-Q, including the results of the independent auditor’s review of the quarterly financial statements.

     3. Discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including any significant changes in the Company’s selection or application of accounting principles, any major issues as to the adequacy of the Company’s internal controls, and any steps adopted in light of material control deficiencies.

     4. Receive, and take any required or appropriate action in relation to, all reports and other communications which the independent auditor is required to make to the Audit Committee, including timely reports concerning: -

	a)	all critical accounting policies and practices to be used;
	b)	all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and
	c)	other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.

     5. Discuss with management the Company’s earnings press releases, including the use of “proforma” or “adjusted” non- GAAP information, and financial information filed on Form 8-K, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be done generally by discussing the types of information to be disclosed and the type of presentation to be made.

     6. Discuss with management and the independent auditor the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Company’s financial statements.

     7. Discuss with management, the independent auditor and any external actuary retained by the Company the reserving methodology and process of the Company and the Company’s reserves, together with internal or external reports or studies.

     8. Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.

     9. Review disclosures by the Company’s CEO and CFO in connection with their certifications required under the rules of the New York Stock Exchange and other applicable laws, rules or regulations.

Relationship with Independent Auditor

    10. Review and evaluate the lead partner of the independent auditor team.

    11. Obtain and review a report from the independent auditor at least annually regarding (a) the independent auditor’s internal quality-control procedures, (b) any material issue raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (c) any steps taken to deal with any such issues, and (d) all relationships between the independent auditor and the Company. Evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence, and taking into account the opinions of management and the internal auditor. The Audit Committee shall present its conclusions with respect to the independent auditor to the Board and make any recommendations to the Board concerning such matters as the Audit Committee deems advisable.

B-2

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     12. Ensure the rotation of the lead (or coordinating) audit partner (having primary responsibility for the audit) and the audit partner responsible for reviewing the audit as required by applicable law (i.e., in each case, if such partner has performed audit services for the Company in each of the five previous fiscal years).

     13. Recommend to the Board policies for the Company’s hiring of employees or former employees of the independent auditor who participated in any capacity in the audit of the Company during the one-year period preceding the date of initiation of the audit.

     14. Discuss with the independent auditor issues on which they consulted with their national office for the Company and matters of audit quality and consistency.

     15. Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.

     16. Review any significant changes to the audit plan, the results of the audit, any significant difficulties encountered during the course of the audit, including any restrictions on the scope of the work or access to required information.

Internal Audit

     17. Review and approve the Mission Statement & Charter for the internal audit department.

     18. Review the appointment, performance, compensation and replacement of the senior internal auditing executive. The senior internal audit executive shall report directly to the Chairman of the Audit Committee and administratively to the President & CEO.

     19. Review the activities of the Company’s internal audit department, including the proposed annual audit plan, periodic progress reports on the status of the plan, and summaries of any significant issues raised during the performance of internal audits, including the resolution of recommendations made concerning the Company’s system of internal controls.

     20. Discuss with the independent auditor and management the internal audit department responsibilities, budget and staffing and any recommended changes in the planned scope of the internal audit function.

     21. Review the effectiveness of the internal audit department, including compliance with The Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing.

Compliance

     22. Obtain from the independent auditor assurance it has complied with the provisions of Section 10A (b) of the Securities Exchange Act of 1934.

     23. Obtain at least annually, or more frequently if appropriate, written reports from the Company’s General Counsel, Compliance Director and the regional compliance officers as to whether the Company and its subsidiary/foreign affiliated entities are in material compliance with applicable legal requirements and the Company’s Code of Business Conduct and Ethics and Compliance Program.

     24. Advise the Board at least annually, or more frequently if appropriate, with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Code of Business Conduct and Ethics.

     25. Review at least annually, or more frequently if appropriate, with the General Counsel, the Compliance Director and, as appropriate, the regional compliance officers compliance with the Company’s Code of Business Conduct and Ethics, as well as the implementation and effectiveness and the administration, training, monitoring and auditing of the related Compliance Program.

B-3

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     26. Discuss with the General Counsel, the Compliance Director, other members of management and the independent auditor, as appropriate, any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Company’s financial statements or accounting policies.

Risk Management and Internal Controls

     27. Discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. Other committees of the Board may also review such risk assessment and risk management policies.

     28. Discuss with the independent auditor, the senior internal auditing executive and others as appropriate the integrated review of emerging long-term risk trends and review and discuss action plans as appropriate.

     29. Discuss with management and the senior risk management executive the effectiveness of the Company’s enterprise risk management system.

     30. Receive periodic reports from the senior risk management executive on major risks and exposures and actions by management to mitigate risk.

     31. Discuss the Company’s anti-fraud program with management, the senior internal auditing executive and the external auditors and review the implementation of controls to mitigate fraud risks.

     32. Discuss with management, the independent auditor and the senior internal auditing executive the design and effectiveness of the Company’s internal controls.

     33. Discuss with management, the independent auditor and the senior internal auditing executive (a) any significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and any material weaknesses to the Company’s internal controls, and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls.

     34. Discuss with management, the independent auditor and the senior internal auditing executive the internal control report required to be included in the Company’s Annual Report on Form 10-K.

Other Responsibilities

     35. Discuss with the Company’s General Counsel any legal matters that reasonably could have a material impact on the financial statements or the Company’s compliance policies.

     36. Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

     37. Discuss and provide input to the compensation committee as to management’s performance relating to internal audits performed by the Company’s internal audit department.

     38. Perform such other activities as the Committee or the Board of Directors may from time to time deem necessary or appropriate.

Interpretation

     For the avoidance of doubt, while the Audit Committee has the responsibilities and powers set forth in this Charter, nothing in this Charter should be interpreted as creating any duty or obligation on the part of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. Also, nothing herein should be construed as imposing on the Audit Committee responsibility to ensure compliance with laws and regulations and the Company’s Code of Business Conduct and Ethics, or to set or determine the adequacy of the Company’s reserves. All such matters are the responsibilities of management and the independent auditor, as appropriate.

B-4

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PLEASE DETACH PROXY CARD HERE

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P R O X Y

XL CAPITAL LTD THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned holder of Class A Ordinary Shares of XL Capital Ltd hereby appoints Brian M. O’Hara or, failing him, Kirstin Romann Gould to be its proxy and to vote for the undersigned on all matters arising at the Annual General Meeting of Holders of Class A Ordinary Shares of XL Capital Ltd or any adjournment thereof, and to represent the undersigned at such meeting or any adjournment thereof to be held on April 28, 2006 in Hamilton, Bermuda. THE SHARES REPRESENTED HEREBY WILL BE VOTED WITH THE INSTRUCTIONS CONTAINED HEREIN. IF NO INSTRUCTION IS GIVEN,THE SHARES WILL BE VOTED “FOR” ITEMS 1 AND 2 ON THE REVERSE HEREOF, ALL SAID ITEMS BEING FULLY DESCRIBED IN THE NOTICE OF SUCH MEETING, DATED AS OF MARCH 24, 2006, AND THE ACCOMPANYING PROXY STATEMENT, RECEIPT OF WHICH ARE ACKNOWLEDGED. THE UNDERSIGNED RATIFIES AND CONFIRMS ALL THAT SAID PROXIES OR THEIR SUBSTITUTES MAY LAWFULLY DO BY VIRTUE HEREOF. (Continued, and to be marked, dated and signed, on the other side)

                               
SEE REVERSE SIDE

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2006 Annual General Meeting April 28, 2006 Hamilton, Bermuda

THERE ARE THREE WAYS TO VOTE YOUR PROXY

 

TELEPHONE This method is available for residents of the U.S. and Canada. On a touch tone telephone, call TOLL FREE 1-800-786-5337, 24 hours a day, 7 days a week. You will be asked to enter ONLY the CONTROL NUMBER shown below. Have your Proxy Card ready, then follow the pre-recorded instructions. Available until 5 p.m. Eastern Time on Thursday, April  27,  2006.

INTERNET Visit the Internet website at http://proxy.georgeson.com. Enter the COMPANY NUMBER and CONTROL NUMBER shown below and follow the instructions on your screen. Available until 5 p.m. Eastern Time on Thursday, April 27, 2006.

MAIL Simply complete, sign and date your Proxy Card and return it in the postage-paid envelope. If you are delivering your proxy by telephone or the Internet, please do not mail your Proxy Card.

	COMPANY NUMBER		CONTROL NUMBER

TO DELIVER YOUR PROXY BY MAIL, PLEASE DETACH PROXY CARD HERE

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[X]	Please mark your vote as indicated in this example.

 

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THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 1 AND 2.

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1.    To elect the following three Nominees as Class II

2.

To ratify the appointment of PricewaterhouseCoopers LLP, New York, New York to act as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2006

FOR

AGAINST

ABSTAIN

Directors to hold office until 2009:

FOR all nominees

WITHHOLD

[  ]

[  ]

[  ]

listed (except as

AUTHORITY

marked to the

to vote for all

(1) Dale R. Comey

contrary)

nominees

(2) Brian M. O’Hara

(3) John T. Thornton

[  ]

[  ]

INSTRUCTION: To withhold authority to vote for any nominee listed, write that nominee’s name in the space provided below:

3.

In their discretion, upon other matters that may properly come before the meeting or any adjournments thereof.

FOR

AGAINST

ABSTAIN

[  ]

[  ]

[  ]

 

 

	Date ___________________________________________________, 2006
	SIGNATURE(S) IMPORTANT: Please sign exactly as your name(s) appear(s) hereon. If you are acting as attorney-in-fact, corporate officer, or in a fiduciary capacity, please indicate the capacity in which you are signing.

 

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