This is the text of a press release from XL Capital:

HAMILTON, Bermuda, July 28 /PRNewswire-FirstCall/ -- XL Capital Ltd (NYSE: XL) ("XL" or the "Company") today reported net income available to ordinary shareholders for the quarter ended June 30, 2004, of $363.6 million, or $2.62 per ordinary share, compared with $347.7 million, or $2.51 per ordinary share, for the quarter ended June 30, 2003.

Annualized net income return on ordinary shareholders' equity for the quarter was 21.7% compared

with 20.8% for the year ago quarter.

'Net income excluding net realized gains and losses on investments and net

realized and unrealized gains and losses on credit and investment derivative

instruments, net of tax', for the quarter increased 15% to $308.9 million, or

$2.23 per ordinary share, compared with $268.6 million, or $1.94 per ordinary

share, for the year ago quarter. Annualized return on ordinary shareholders'

equity on the same basis was 18.4% compared with 16.1% for the year ago

quarter. See below for a reconciliation of 'net income excluding net realized

gains and losses on investments and net realized and unrealized gains and

losses on credit and investment derivative instruments, net of tax' to net

income available to ordinary shareholders.

"XL delivered its second highest level of quarterly net income ever this

quarter, after our record performance in the first quarter. These results

underscore the increasing value of our global diversified platform,

significantly expanded product capabilities and focus on improving penetration

of existing customer relationships," said Brian O'Hara, President and Chief

Executive Officer of XL.

"The combined ratio for our general operations in the quarter was 87.6%,

reflecting the strength of our underwriting discipline and continued solid

market fundamentals, despite increasing competition in certain product lines."

"Our Life and Annuity operations continue to gain critical mass. During

the quarter we completed a single premium annuity reinsurance transaction,

representing $898 million in up-front premium, with a major UK life insurance

company. This was the fourth transaction with up-front premium in excess of

$500 million that we have completed since entering the business in 1999."

"We continue to deliver strong returns to shareholders, with net income

return on ordinary shareholders' equity for the quarter of 21.7%, and 18.4%

excluding net realized gains and losses on investments and net realized and

unrealized gains and losses on credit and investment derivative instruments,

net of tax," said Mr. O'Hara.

For the six months ended June 30, 2004, net income available to ordinary

shareholders increased 39% over the year ago period to a record $815.8

million, or $5.88 per ordinary share. 'Net income excluding net realized gains

and losses on investments and net realized and unrealized gains and losses on

credit and investment derivative instruments, net of tax' for the same period

increased 23% to $637.7 million or $4.60 per ordinary share.

Second Quarter 2004 Highlights (versus second quarter of 2003, unless

noted):

* Net premiums written from general operations increased 24% to

$1.7 billion

* Combined ratio from general operations improved 4.6 points to 87.6%

* Net investment income increased 23% to $235.2 million

* Cash flow from operations of $1.4 billion, or $1.9 billion including

structured and spread transactions

* Total net invested assets of $28.5 billion, up 12% from

December 31, 2003

* Total assets of $45.5 billion, up 12% from December 31, 2003

* Book value per ordinary share was $47.40, up from $46.74 at

December 31, 2003

SEGMENT HIGHLIGHTS:

Insurance Operations

Underwriting profit for the quarter was $109.8 million, an increase of 41%

over the second quarter of 2003. Net premium written increased 36% to

$1.2 billion, driven primarily by higher new business volumes, commutations on

certain reinsurance treaties, greater retentions on new and existing product

lines and the impact of favorable foreign exchange movements. The combined

ratio improved 2.3 points compared with the 2003 second quarter to 89.7%,

driven by a 2.4 point improvement in the acquisition expense ratio, due

primarily to changes in product mix. The loss ratio in the quarter of 63.8%

was essentially flat versus the 2003 second quarter. During the quarter, the

Company announced two important new initiatives within this segment: the

launching of its whole account commercial property initiative with capacity of

up to $500 million and the commencement of primary directors' and officers'

liability coverage in Europe.

Reinsurance Operations

General Operations -- Underwriting profit from General Operations for the

quarter was $108.9 million, an increase of 71% from the second quarter of

2003. Net premium written increased 3% from the 2003 second quarter to

$537 million driven primarily by the impact of favorable foreign exchange

movement. A low level of large losses in the quarter compared with the year

ago period contributed to a 9.6 point improvement in the loss ratio to 53.3%,

among the lowest loss ratios in XL's history. The acquisition and operating

expense ratios increased modestly and the combined ratio was 84.4%.

Life and Annuity Operations -- Income from Life and Annuity Operations for

the quarter was $19.5 million, an increase of 68% from the second quarter of

2003. Net premiums written increased $917 million to $968 million, largely

reflecting the closing of a large, single premium annuity reinsurance

transaction, which contributed up-front premium of $898 million.

Financial Products and Services Operations

Total income contribution in the quarter more than doubled over the second

quarter of 2003 to $37.8 million, comprised of $33.0 million from Financial

Operations and $4.8 million from Life and Annuity activities. The majority of

this increase resulted from a positive $47.7 million change in fair value of

derivative form transactions, comprised of both increased premium and positive

price and credit changes, which more than offset a $9.1 million decrease in

underwriting profit and a $15.3 million reduction in equity in net income of

financial affiliates. The decrease in equity in net income of financial

affiliates was driven primarily by the Company's Primus Guaranty Ltd

affiliate, reflecting a negative change in the market value of its credit

default swap portfolio in the quarter as compared to a positive change in the

year ago quarter.

Corporate Items

Net investment income for the quarter increased 23% over the 2003 second

quarter to $235.2 million, principally reflecting 25% year-over-year growth in

invested assets. Equity in earnings of investment affiliates was

$26.7 million, down 22% from the 2003 second quarter and down $43.6 million

from the very strong results in the first quarter of 2004.

Net realized gains on investments were $8.8 million in the quarter

compared with $93.7 million in the second quarter of 2003. The reduction in

realized gains was driven primarily by lower realized gains on US dollar fixed

income securities. Net unrealized gains on investments, net of tax were

$158.6 million at June 30, 2004, compared with $743.8 million at

March 31, 2004. The reduction in net unrealized gains was driven primarily by

an increase in US dollar, UK Sterling and Euro interest rates during the

quarter.

Total operating expenses in the quarter were $247.7 million, up 28% from

the prior year quarter. The increase was driven primarily by costs associated

with complying with Sarbanes-Oxley requirements, new business initiatives, the

continuing build-out of the Company's global operations, as well as the

unfavorable impact of foreign exchange movement. Compared with the first

quarter of this year, expenses grew 1% in the quarter.

XL CAPITAL LTD

SUMMARY CONSOLIDATED FINANCIAL DATA

(U.S. dollars in thousands)

Three Months Ended Six Months Ended

Income Statement Data: June 30 June 30

(Unaudited) (Unaudited)

2004 2003 2004 2003

Revenues:

Gross premiums written --

general operations $2,150,846 $1,855,038 $5,551,528 $4,846,087

-- life and annuity

operations 993,035 75,889 1,108,920 187,213

-- financial operations 74,788 106,266 131,677 151,032

Net premiums written --

general operations 1,738,728 1,403,713 4,523,489 3,751,488

-- life and annuity

operations 993,169 63,703 1,109,053 161,016

-- financial operations 71,850 104,466 124,184 148,462

Net premiums earned --

general operations 1,830,225 1,469,520 3,405,150 2,901,407

-- life and annuity

operations 994,048 70,482 1,110,980 163,253

-- financial operations 34,024 35,807 66,612 62,780

Net investment income 235,177 190,551 463,523 382,455

Net realized gains on

investments 8,763 93,687 124,100 89,024

Net realized and

unrealized gains (losses)

on derivative instruments 42,140 (12,257) 53,737 2,236

Equity in net income of

investment affiliates 26,733 34,306 97,109 61,104

Fee and other income 8,152 9,792 15,059 22,069

$3,179,262 $1,891,888 $5,336,270 $3,684,328

Expenses:

Net losses and loss

expenses incurred $1,099,910 $937,575 $2,063,854 $1,822,829

Claims and policy benefit

reserves 1,006,509 83,225 1,140,572 202,783

Acquisition costs 347,408 298,550 624,678 538,862

Operating expenses 247,716 193,908 493,016 384,427

Exchange losses (gains) 15,913 (23,352) 5,189 (26,054)

Interest expense 54,961 46,282 95,018 92,422

Amortization of

intangible assets 3,257 375 6,514 750

$2,775,674 $1,536,563 $4,428,841 $3,016,019

Net income before

minority interest, income

tax expense and equity in

net (income) loss of

insurance and insurance

and financial affiliates $403,588 $355,325 $907,429 $668,309

Minority interest 2,284 3,166 6,944 5,028

Income tax 31,176 11,009 66,533 31,039

Equity in net (income)

loss of insurance and

financial affiliates (3,556) (16,522) (1,981) 24,565

Net income from operations $373,684 $357,672 $835,933 $607,677

Preference dividend (10,080) (10,013) (20,160) (20,161)

Net income available to

ordinary shareholders $363,604 $347,659 $815,773 $587,516

XL CAPITAL LTD

SUMMARY CONSOLIDATED FINANCIAL DATA

(Shares in thousands, except per share amounts)

Three Months Ended Six Months Ended

Income Statement Data (continued) : June 30 June 30

(Unaudited) (Unaudited)

2004 2003 2004 2003

Weighted average number of ordinary

shares and ordinary

share equivalents : 137,655 136,791 137,568 136,527

Basic

Diluted 138,741 138,634 138,648 138,084

Per Share Data:

Net income available to

ordinary shareholders $2.62 $2.51 $5.88 $4.25

Ratios -- General Insurance and

reinsurance operations

Loss ratio 59.7% 63.2% 60.3% 62.1%

Expense ratio 27.9% 29.0% 27.8% 27.2%

Combined ratio 87.6% 92.2% 88.2% 89.2%

XL CAPITAL LTD

SUMMARY CONSOLIDATED FINANCIAL DATA

(In thousands, except per share amounts)

Balance Sheet Data: As at June 30, As at Dec. 31,

2004 2003

(Unaudited) (Unaudited)

Total investments available for sale $23,599,996 $20,775,257

Net payable for investments purchased 312,680 96,571

Cash and cash equivalents 2,744,878 2,403,121

Investments in affiliates 1,898,462 1,903,341

Total assets 45,460,035 40,764,215

Unpaid losses and loss expenses 17,076,770 16,558,788

Deposit liabilities and policy

benefit reserves 8,874,039 7,284,179

Notes payable and debt 2,743,368 1,905,483

Total shareholders' equity 7,076,572 6,936,915

Book value per ordinary share $47.40 $46.74

XL CAPITAL LTD

RECONCILIATION

The following is a reconciliation of the Company's (i) net income to 'net

income excluding net realized gains and losses on investments and net realized

and unrealized gains and losses on credit and investment derivative

instruments, net of tax' (which is a non-GAAP measure, the "Exclusions") and

(ii) annualized return on shareholders' equity (based on net income minus the

Exclusions) to average ordinary shareholders' equity for the three and six

months ended June 30, 2004, and 2003 (in millions, except per share amounts):

Three Months Ended Six Months Ended

June 30 June 30

(Unaudited) (Unaudited)

2004 2003 2004 2003

Net income available to

ordinary shareholders $363.6 $347.7 $815.8 $587.5

Net realized (gains) losses on

investments, net of tax (13.7) (96.5) (121.3) (82.2)

Net realized and unrealized gains

on investment derivatives,

net of tax (14.8) (3.9) (17.7) (8.5)

Net realized and unrealized

(gains) losses on credit

derivatives, net of tax (26.2) 21.3 (39.1) 21.9

Net income excluding net realized

gains and losses on investments

and net realized and unrealized

gains and losses on credit and

investment derivative

instruments, net of tax $308.9 $268.6 $637.7 $518.7

Per ordinary share results:

Net income available to

ordinary shareholders $2.62 $2.51 $5.88 $4.25

Net income excluding net realized

gains and losses on investments

and net realized and unrealized

gains and losses on credit and

investment derivative

instruments, net of tax $2.23 $1.94 $4.60 $3.76

Weighted average ordinary

shares outstanding:

Basic 137.7 136.8 137.6 136.5

Diluted 138.7 138.6 138.6 138.1

Return on Ordinary Shareholders'

Equity:

Average ordinary

shareholders'equity $6,702.1 $6,671.3 $6,489.2 $6,550.0

Net income excluding net realized

gains and losses on investments

and net unrealized gains and

losses on credit and investment

derivative instruments,

net of tax $308.9 $268.6 $637.7 $518.7

Annualized net income excluding

net realized gains and losses on

investments and net realized and

unrealized gains and losses on

credit and investment derivative

instruments, net of tax $1,235.6 $1,074.4 $1,275.4 $1,037.4

Annualized Return on Ordinary

Shareholders' Equity - Net income

excluding net realized gains and

losses on investments and net

unrealized gains and losses on

credit and investment derivative

instruments, net of tax 18.4% 16.1% 19.7% 15.8%

Comment on Regulation G

This press release contains the presentation of (i) 'net income excluding

net realized gains and losses on investments and net realized and unrealized

gains and losses on credit and investment derivatives, net of tax' and (ii)

annualized return on ordinary shareholders' equity (based on net income minus

the Exclusions) to average 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 above.

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 presentation

includes the use of 'net income excluding net realized gains and losses on

investments and net realized and unrealized gains and losses on credit and

investment derivatives, net of tax'. Investment derivatives include all

derivatives entered into by XL other than weather and energy and credit

derivatives (discussed further below).

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 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 is largely opportunistic and are a function of

economic and interest rate conditions. In addition, with respect to credit

derivatives, because XL generally holds its financial guarantee 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 in the financial guarantee business) as the changes in fair

value each quarter are not indicative of underlying business performance of

XL's financial guarantee operations. Unlike these credit derivatives, XL's

weather and energy derivatives are actively traded (i.e., they are not held to

maturity) and are, therefore, not excluded from net income as any gains or

losses from this business are considered by management when evaluating and

managing the underlying business.

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 net income (loss) exclusive of the items mentioned

above 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

who 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.

Return on average ordinary shareholder's equity ("ROE"), excluding net

realized gains and losses on investments and net realized and unrealized gains

and losses on credit and investment derivative instruments, net of tax (the

"Exclusions"), is a widely used measure of any company's profitability.

Annualized return on average ordinary shareholders' equity (minus the

Exclusions) is calculated by dividing annualized net income minus the

Exclusions for any period by the average of the opening and closing ordinary

shareholder's equity. The Company establishes target ROE's for its total

operations, segments and lines of business. If the Company's ROE return

targets are not met with respect to any line of business over time, the

Company seeks to re-evaluate these lines. In addition, the Company's

compensation of its senior officers is significantly dependant on the

achievement of the Company's performance goals to enhance shareholder value,

which include ROE.