875159--3/1/2010--XL_CAPITAL

related topics

{regulation, change, law}

{tax, income, asset}

{interest, director, officer}

{loss, insurance, financial}

{provision, law, control}

{financial, litigation, operation}

{stock, price, share}

{operation, natural, condition}

{product, liability, claim}

{investment, property, distribution}

{competitive, industry, competition}

{capital, credit, financial}

{loan, real, estate}

{condition, economic, financial}

{operation, international, foreign}

{acquisition, growth, future}

{personnel, key, retain}

{debt, indebtedness, cash}

{system, service, information}

Risks Related to the Company A downgrade or potential downgrade in our financial strength and credit ratings by one or more rating agencies could materially and negatively impact our business, financial condition, results of operations and/or cash flows. We may require additional capital in the future, which may not be available to us on satisfactory terms, on a timely basis or at all. Our holding company structure and certain regulatory and other constraints affect our ability to pay dividends, make payments on our debt securities and make other payments. We are exposed to significant capital markets risk related to changes in interest rates, credit spreads, equity prices and foreign exchange rates as well as other investment risks, which may adversely affect our results of operations, financial condition or cash flows. Certain of our investments may be illiquid and are in asset classes that have been experiencing significant market valuation fluctuations. There can be no assurance as to the effect that governmental and regulatory actions will have on financial markets generally or on us in particular. If actual claims exceed our loss reserves, our financial results and cash flows could be adversely affected. The effects of emerging claim and coverage issues on our business are uncertain. The occurrence of disasters could adversely affect our financial condition. The failure of any of the underwriting risk management strategies that we employ could have a material adverse effect on our financial condition, results of operations and/or liquidity. The loss of one or more key executives or the inability to attract, motivate and retain qualified personnel could adversely affect our ability to conduct business. A decrease in the fair values of our reporting units may result in future goodwill impairments. Lawsuits, including putative class action lawsuits, have been filed against us by policyholders and security holders the ultimate outcome of which could have a material adverse effect on our consolidated financial condition, future operating results and/or liquidity There is a possibility that the Master Agreement and the related commutations and releases could be challenged or that we could be subject to litigation as a result of the Master Agreement. Any such challenge could have a material adverse effect on our financial condition, results of operations, liquidity or the market price of our securities. We may be unable to purchase reinsurance and, even if we are able to successfully purchase reinsurance, we are subject to the possibility of uncollectability. The impairment of other financial institutions also could adversely affect us. Operational risks, including human or systems failures, are inherent in our business. Since we depend on a few brokers for a large portion of our revenues, loss of business provided by any one of them could adversely affect us. Our reliance on brokers subjects us to credit risk. Risks Related to the Insurance and Reinsurance Industries The insurance and reinsurance industries are historically cyclical and we may experience periods with excess underwriting capacity and unfavorable premium rates. Competition in the insurance and reinsurance industries could reduce our operating margins. Unanticipated losses from terrorism and uncertainty surrounding the future of the TRIPRA could have a material adverse effect on our financial condition, results of operations and cash flows. Potential government intervention in our industry as a result of recent events and instability in the marketplace for insurance products could hinder our flexibility and negatively affect the business opportunities that may be available to us in the market. Consolidation in the insurance industry could adversely impact us. The regulatory regimes under which we operate, and potential changes thereto, could have a material adverse effect on our business. If our Bermuda operating subsidiaries become subject to insurance statutes and regulations in jurisdictions other than Bermuda or if there is a change in Bermuda law or regulations or the application of Bermuda law or regulations, there could be a significant and negative impact on our business. Changes in current accounting practices and future pronouncements may materially impact our reported financial results. We and our non-U.S. insurance subsidiaries may become subject to U.S. tax, which may have a material adverse effect on our results of operations and your investment. Changes in U.S. tax law might adversely affect an investment in our shares. There is U.S. income tax risk associated with reinsurance between U.S. insurance companies and their Bermuda affiliates. The Organisation for Economic Co-operation and Development is considering measures that might change the manner in which we are taxed. If an investor acquires 10% or more of our ordinary shares, it may be subject to taxation under the controlled foreign corporation (the CFC ) rules. U.S. Persons who hold shares will be subject to adverse tax consequences if we are considered to be a Passive Foreign Investment Company (a PFIC ) for U.S. federal income tax purposes. There are U.S. income tax risks associated with the related person insurance income of our non-U.S. insurance subsidiaries. We and our Bermuda insurance subsidiaries may become subject to taxes in Bermuda after March 28, 2016, which may have a material adverse effect on our financial condition, results of operations and your investment. We may become subject to taxes in the Cayman Islands after June 2, 2018, which may have a material adverse effect on our results of operations and your investment. Risks Related to our Ordinary Shares Provisions in our Articles of Association may reduce the voting rights of our ordinary shares. Provisions in our Articles of Association may restrict the ownership and transfer of our ordinary shares. Certain provisions in our charter documents could, among other things, impede an attempt to replace our directors or to effect a change of control, which could diminish the value of our ordinary shares. It may be difficult to enforce judgments against XL Capital Ltd or its directors and executive officers. U.S. persons who own our ordinary shares may have more difficulty protecting their interests than U.S. persons who are shareholders of a U.S. corporation. Risks Related to the Redomestication For purposes of the following risk factors, Redomestication refers collectively to the proposed redomestication transaction. As described in greater detail in the Redomestication Proxy Statement, Your rights as an ordinary shareholder will change as a result of the Ordinary Share Exchange due to differences between Irish law and Cayman Islands law. Legislative or regulatory action could materially and adversely affect us after the Redomestication or eliminate or reduce some of the anticipated benefits of the Redomestication. The Transaction may not allow us to maintain a competitive worldwide effective corporate tax rate. If the Redomestication becomes effective but our ordinary shareholders do not approve the Distributable Reserves Proposal, or if the Irish High Court does not approve the creation of distributable reserves in XL-Ireland, XL-Ireland will not be able to pay dividends or redeem or buy back shares following the Redomestication unless and until we generate earnings after the Effective Time, and only to the extent of such earnings. As a result of different shareholder voting requirements in Ireland relative to the Cayman Islands, we will have less flexibility with respect to certain aspects of capital management. As a result of different shareholder voting requirements in Ireland relative to the Cayman Islands, we will have less flexibility with respect to our ability to amend our constituent documents and to take other actions requiring a special resolution of our shareholders than we now have. We may be required to pay additional amounts in respect of dividends on our preference shares or interest payments on our debt after completion of the Redomestication. If the Cayman Court does not sanction the scheme of arrangement, XL-Cayman will not have the ability to effect the Redomestication. After the Redomestication, attempted takeovers of XL will be subject to the Irish Takeover Rules and subject to review by the Irish Takeover Panel. After the Redomestication, a future transfer of your XL-Ireland ordinary shares, other than one effected by means of the transfer of book entry interests in DTC, may be subject to Irish stamp duty. After the Redomestication, dividends you receive may be subject to Irish dividend withholding tax and Irish income tax. The Redomestication will result in additional direct and indirect costs, even if it is not consummated. The market for the XL-Ireland ordinary shares may differ from the market for the XL-Cayman ordinary shares.

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875159--3/1/2010--XL_CAPITAL_LTD