be enhanced or diminished by the Company’s total return to shareholders (change in common stock price plus cash dividends paid) over a three-year period compared to its key competitors. 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 and deferred cash grants. The Committee approves guidelines for these 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 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. Long-term incentive compensation seeks to align management with the interests of the Company’s shareholders. The majority of the long-term variable compensation for the most senior executive leaders of the Company is in stock options where compensation received is dependent 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.

2003 Compensation Review

The Company’s underlying results in 2003 demonstrated the successful efforts of the last two years to aggressively seek business that can be underwritten and priced at very profitable levels. Operating earnings and returns on equity for more than two-thirds of the Company’s business units exceeded their performance objectives for the year, several by wide margins.

However, the Company, in the aggregate, did not meet its internal operating earnings and return on equity goals for 2003 because of the net increase in reserves required for prior years’ business in certain lines. Because of the impact of reserve increases for prior years’ business on 2003 results, Mr. O’Hara recommended, and the Committee agreed, that he receive no annual bonus or restricted stock grants for 2003.

As a result of the disparity between current and prior year results and to preserve the Pay for Performance Principle, the Committee requested that a corporate bonus pool be derived from the results of each of the Company’s business units as compared to their operating earnings and return on equity objectives for the year. The result was an annual incentive pool modestly above target levels for all business units combined. The Committee also agreed with Management’s recommendation that individuals involved in acquiring or managing the business that led to the increase in reserves for prior year’s business be held accountable. Accordingly, Messrs. O’Hara, Brown, Keeling and Lusardi received no cash bonus for 2003 and the bonus pool available for the remainder of the senior management team was below target. In the aggregate, the total bonus paid-out for 2003 was below target and was approved by the Committee. In addition, the Committee believed that management demonstrated solid performance in actions taken and results achieved that are aimed at enhancing shareholder value. Therefore, long-term incentive compensation awards were approved for top performing and high potential executives. These took the form of stock options, restricted stock grants and deferred cash grants, with stock options being the predominant award for the most senior executive leaders of the Company. Senior executives and other senior officers receive a higher proportion of restricted stock with performance vesting than time vesting requirements.

Chief Executive Officer and Chairman’s Compensation

The Committee and The Board of Directors continue to believe that Mr. O’Hara’s leadership is strong, effective and appropriate. The Company’s focused growth was significant in 2003 and its position in key markets was strengthened. The profitability of the current-year business reflects the strong underwriting culture driven by Mr. O’Hara. The reserve issues associated with prior year’s business were addressed in a manner designed to minimize distraction to current execution and strengthen management in the effected business segments. As noted previously, Mr. O’Hara received no annual bonus or restricted stock grants for 2003, and the evaluation of Mr. O’Hara’s salary level was also deferred to a later date. The Committee believes that the Company is well-positioned, financially strong and focused on enhancing shareholder value. Consequently, the Board awarded Mr. O’Hara a stock option grant with a strike price set at the highest closing price achieved in 2003, $88.00, a 14% premium relative to the market price at the time of the grant.

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The compensation for the Chairman of the Board of Directors continues to reflect the significant time, commitment and contribution he makes to the Company. Mr. Esposito provides excellent overall leadership to the Board, especially with regard to corporate governance issues. In addition, Mr. Esposito provides valuable contributions to Management, particularly regarding financial areas and, at the request of the Board, the Chairman provides management development contributions to selected areas of the Company. As with Mr. O’Hara and others involved in acquiring or managing the business that led to the increase in reserves for prior year’s business, the Committee agreed that Mr. Esposito not receive an annual bonus for 2003. While no restricted stock grants were made to Mr. Esposito, in recognition for his continuing contributions to enhancing shareholder value, the Board awarded Mr. Esposito a stock option award with a strike price set at the highest closing price achieved in 2003, $88.00, a 14% premium relative to the market price at the time of the grant.

 

Compensation Committee Dale R. Comey, Chairman Robert R. Glauber John Loudon 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 ten-year period on the Shares (assuming reinvestment of dividends) from July 1991 through December 2003 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 Index. This graph assumes the investment of $100 in July 1991. The Shares were listed on the NYSE on July 19, 1991.

 

* The performance shown above is not necessarily indicative of future price performance.

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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. The Audit Committee comprises five independent Directors 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 auditors, 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 & Ethics or to set or determine the adequacy of the Company’s reserves.

Based on the Audit Committee’s review of the audited financial statements, its discussions with management regarding the audited financial statements, its receipt of written disclosures and the letter from independent auditors 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 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, 2003 be included in the Company’s Annual Report on Form 10-K for such fiscal year.

 

Audit Committee John T. Thornton, Chairman Paul Jeanbart 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, 2003 and 2002 were approximately $11.9 million and $8.6 million, respectively. Audit fees consist primarily of 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 year 2002 and 2003).

Audit Related Fees

The aggregate fees billed by PricewaterhouseCoopers LLP for audit related professional services for the years ended December 31, 2003 and 2002 were approximately $1.1 million and $680,000, respectively. Audit-related fees consisted primarily of assurance and related services related to accounting consultations and audits in connection with acquisitions and potential acquisitions, internal control reviews 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, 2003 and 2002 were approximately $58,000 and $321,000, respectively. These fees related to 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

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ended December 31, 2003 and 2002 were approximately $4.3 million and $14 million, respectively. “All Other Fees” in 2002 included $6.2 million of financial information systems and design projects performed by the former PricewaterhouseCoopers LLP consulting practice (PricewaterhouseCoopers LLP sold their consulting practice in September 2002). The remaining fees with respect to both 2003 and 2002 related to merger and integration related services in connection with the Company’s Winterthur International operations acquired by the Company in 2001, as well as human resource advisory services (both projects commenced in 2001 and will be completed in 2004).

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, attest 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.

General

The Audit Committee considered whether the provision of non-audit services performed by the independent auditors is compatible with maintaining PricewaterhouseCoopers LLP’s independence. In reaching its conclusions, the Audit Committee took into consideration the fact that the major proportion of these services were either (i) specifically related to the acquisition of the Winterthur International operations or (ii) primarily a continuation of projects commenced in 2001 and will be completed in 2004.

II. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

The Audit Committee of the Board of Directors is required by law and applicable New York Stock Exchange rules to be directly responsible for the appointment, compensation and retention of the Company’s independent auditors. The Audit Committee has appointed PricewaterhouseCoopers LLP as the independent auditor for the year ending December 31, 2004. 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 auditors to audit the Company’s consolidated financial statements for the year ending December 31, 2004. The persons designated as proxies will vote FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors, 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 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 2005 ANNUAL GENERAL MEETING

Shareholder proposals intended for inclusion in the Proxy Statement for the 2005 Annual General Meeting of Shareholders should be sent to the Company’s Secretary at XL House, One Bermudiana Road, Hamilton, HM 11, Bermuda and must be received by November 26, 2004. In addition, if a holder of the Company’s Shares intends to present a proposal at the 2005 Annual General Meeting other than pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 and if the proposal is not received by the Company’s Secretary by February 11, 2005, then the proxies

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designated by the Board of Directors of the Company for the 2004 Annual General Meeting of Shareholders may vote in their discretion on any such proposal any Shares for which they have been appointed proxies without mention of such matter in the Proxy Statement for such meeting or on the proxy card for such meeting.

Any Shareholder entitled to vote at a meeting may nominate persons for election as Directors if written notice of such intent is delivered or mailed, postage prepaid and received by the Secretary at the principal executive offices of the Company not less than 5 days or more than 21 days before the date appointed for such meeting. The shareholder 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 of the Securities Exchange Act of 1934, including the proposed nominee’s written consent to serve if elected. The 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. The nomination of any person not made in compliance with the foregoing procedures shall be disregarded.

IV. OTHER MATTERS

While management knows of no other issues, 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 without receiving additional compensation. 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 of that firm. Upon request, the Company will also reimburse brokers and others holding stock in their names, or in the names of nominees, for forwarding proxy materials to their principals.

The Company will furnish, without charge, to any Shareholder a copy of its Annual Report on Form 10-K that it files with the Securities and Exchange Commission. A copy of this report for the fiscal year ended December 31, 2003 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.

A director will be deemed to be independent unless, within the preceding three years (which period shall be one year until November 4, 2004):

Employment Relationships

•		such director was employed by the Company or any of the Company’s subsidiaries, other than as interim Chairman or Chief Executive Officer;
•		any immediate family member of such director was an executive officer of the Company or any of the Company’s subsidiaries;
•		such director was affiliated with or employed by a present or former internal or external auditor of the Company or any of its subsidiaries; or
•		an immediate family member of such director was affiliated with or employed in a professional capacity by a present or former internal or external auditor of the Company or any of its subsidiaries.

Compensation Relationships

•		such director received more than $100,000 in any such year 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
•		an immediate family member of such director received more than $100,000 in any such year in direct compensation from the Company or any of its subsidiaries as a director or executive employee 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

•		such director was, and is currently, an executive officer or employee of another company that made payments to, or received payments from, the Company or any of its subsidiaries for property or services in an amount which, in any single fiscal year, exceeded the greater of $1 million or 2% of such other company’s consolidated gross revenues; or
•		an immediate family member of such director was, and is currently, an executive officer of another company that made payments to, or received payments from, the Company or any of its subsidiaries for property or services in an amount which, in any single fiscal year, exceeded the greater of $1 million or 2% of such other company’s consolidated gross revenues.

Charitable Relationships

•

such director was an executive officer of a charitable 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 charitable 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

•

such director was employed as an executive officer of another company where any of the Company’s or its subsidiaries’ present executives at the time served on that company’s compensation committee; or

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•

an immediate family member of such director was employed as an executive officer of another company where any of the Company’s or its subsidiaries’ present executives at the time 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 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 members” 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 persons (other than a domestic employee) who share such director’s home. These standards shall be interpreted in a manner consistent with the New York Stock Exchange Corporate Governance rules.

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APPENDIX B

XL CAPITAL LTD

AUDIT COMMITTEE CHARTER

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.

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 as such qualification is interpreted by the Board in its business judgment (or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee) and at least one of whom shall have accounting or related financial management expertise as such qualification is interpreted by the Board in its business judgment and qualify as an “audit committee 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 be directly responsible for the appointment, compensation, retention 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 preparing or issuing an audit report or performing other audit, review or attest services for the Company. 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.

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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 (1) compensation to the independent auditor for the purpose of preparing or issuing an audit report or performing other audit, review or other services for the Company, (2) compensation to any advisors employed by the Audit Committee and (3) ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.

The Audit Committee shall make regular reports to the Board which shall include, but not be limited to, a review of any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditor, or the performance of the internal audit function. The Audit Committee shall review and reassess 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.

The Audit Committee shall:

Financial Statements, Earnings Releases and Related Disclosure Matters

1.		Discuss with management and the independent auditor the Company’s annual audited financial statements, including 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.		Discuss with management and the independent auditor the Company’s quarterly financial statements, including disclosures made in management’s discussion and analysis, prior to the filing of its Quarterly Reports on Form 10-Q, as well as 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 special audit 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 “pro-forma” or “adjusted” non-GAAP information, 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 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.
8.		Discuss with management, the independent auditor and any external actuary retained by the Company the reserving methodologies and processes of the Company and the Company’s reserves, together with internal or external reports or studies.
9.		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

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		work, any restrictions on the scope of activities or access to requested information, any significant disagreements with management, any accounting adjustments noted or proposed by the independent auditor but not adopted by the Company, and any management or internal control letter issued or proposed to be issued by the independent auditor.
10.		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

11.		Review and evaluate the lead partner of the independent auditor team, taking into account the opinions of management and the Company’s internal auditor.
12.		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) to assess the auditor’s independence, 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, taking into account the opinions of management and the Company’s 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.
13.		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) and consider whether it is appropriate or necessary, in order to assure continuing independence, to rotate the Company’s independent auditor on a regular basis.
14.		Set policies for the Company’s hiring of employees or former employees of the independent auditor.
15.		Discuss with the independent auditor those issues and matters of audit quality and consistency addressed with the national office of the independent auditor.
16.		Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.

Internal Audit

17.		Review the appointment and replacement of the senior internal auditing executive.
18.		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 disclosure controls and procedures and internal control over financial reporting.
19.		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.

Internal Control Over Financial Reporting

20.		Discuss with management, the independent auditor and the senior internal auditing executive the design and effectiveness of the Company’s internal control over financial reporting.
21.		Discuss with management, the independent auditor and the senior internal auditing executive (a) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial data, and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
22.		Discuss with management, the independent auditor and the senior internal auditing executive the internal control report of management required to be included in the Company’s Annual Report on Form 10-K.

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Compliance

23.		Obtain from the independent auditor assurance it has complied with the provisions of Section 10A(b) of the Securities Exchange Act of 1934.
24.		Obtain at least annually reports from the Company’s General Counsel and Compliance Director 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 & Ethics.
25.		Advise the Board at least annually 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 & Ethics.
26.		Review at least annually with the General Counsel and the Compliance Director compliance with the Company’s Code of Business Conduct & Ethics, as well as the administration, training, monitoring and auditing of the related Compliance Program.
27.		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.

Other Responsibilities

28.		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.
29.		Establish procedures for (a) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and (b) the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
30.		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 & 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.

 

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					2004 Annual General Meeting
					April 30, 2004
					Hamilton, Bermuda

THERE ARE THREE WAYS TO VOTE YOUR PROXY

TELEPHONE		INTERNET		MAIL
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 prerecorded instructions. Available until 5 p.m. Eastern Time on Thursday, April 29, 2004.		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 29, 2004.		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.

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

Please mark your
vote as indicated
in this example.

1.	To elect the following three Nominees as Class III Directors to hold office until 2007:
	(1)	John Loudon
	(2)	Robert S. Parker
	(3)	Alan Z. Senter

FOR all nominees	WITHHOLD
listed (except as	AUTHORITY	2. To ratify the appointment of PricewaterhouseCoopers
marked to the	to vote for all	LLP, New York, to act as the Independent Auditors of the
contrary)	nominees	Company for the fiscal year ending December 31, 2004.
		3. In their discretion, upon other matters that may properly come before the meeting or any adjournments thereof.

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

	DATE:_______________________________________________________, 2004
	___________________________________________
	___________________________________________
	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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PLEASE DETACH PROXY CARD HERE

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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, Paul S. Giordano to be its proxy and to vote for the undersigned on all matters arising at the meeting or any adjournment thereof and to represent the undersigned at the Annual General Meeting of Class A Ordinary Shareholders or any adjournments thereof of XL Capital Ltd to be held on April 30, 2004 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 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)

P R O X Y

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					2004 Annual General Meeting
					April 30, 2004
					Hamilton, Bermuda

 

 

Simply complete, sign and date
your Card and return it in the
postage-paid envelope.




PLEASE DETACH PROXY CARD HERE

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Please mark your
vote as indicated
in this example.

1.	To elect the following three Nominees as Class III Directors to hold office until 2007:
	(1)	John Loudon
	(2)	Robert S. Parker
	(3)	Alan Z. Senter

 

FOR all nominees	WITHHOLD
listed (except as	AUTHORITY	2. To ratify the appointment of PricewaterhouseCoopers
marked to the	to vote for all	LLP, New York, to act as the Independent Auditors of the
contrary)	nominees	Company for the fiscal year ending December 31, 2004.
		3. In their discretion, upon other matters that may properly come before the meeting or any adjournments thereof.

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

	DATE:_______________________________________________________, 2004
	___________________________________________
	___________________________________________
	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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PLEASE DETACH PROXY CARD HERE

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XL CAPITAL LTD

     VOTING INSTRUCTION FORM FOR SHARES OF XL CAPITAL LTD HELD BY PARTICIPANTS IN THE XL AMERICA EMPLOYEE SAVINGS PLAN

The Trustee for the above mentioned plan is hereby directed to vote, as indicated on the reverse side of this Voting Instruction Form (VIF), in person or by proxy, all of the Class A Ordinary Shares of XL Capital Ltd allocated to the undersigned’s account at the 2004 Annual Meeting of XL Capital Ltd to be held on Friday, April 30, 2004 and at any adjournment(s) thereof, in accordance with the instructions notice on the reverse side. Receipt of notice of the meeting and Proxy Statement is hereby acknowledged. The undersigned understands that this VIF, properly completed, must be received no later than 5:00 p.m., Eastern time, on April 29, 2004 in order for the shares to be voted in accordance with the instructions set forth on the reverse side. The undersigned also understands that, by signing, dating and returning this VIF, the Trustee or proxies will vote for each proposal for which voting instructions are not provided and in the discretion of the Trustee or proxies on all matters that may properly come before the Annual Meeting. The undersigned further understands that the Trustee intends to vote or grant proxies with respect to all uninstructed shares held under the Plan in the same proportion as the shares of all Plan participants who have timely delivered properly executed voting instructions, unless otherwise required by law.

UNDER THE TERMS OF THE PLAN, THE TRUSTEE WILL HOLD YOUR VOTING INSTRUCTION IN CONFIDENCE.

(Continued, and to be marked, dated and signed, on the other side)

 

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