EXEL LTD - 10-K Annual Report

Back to GetFilings.com

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997
COMMISSION FILE NUMBER 1-10804

----------------

EXEL LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

CAYMAN ISLANDS 98-0058718
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

CUMBERLAND HOUSE, 1 VICTORIA STREET, HM 11
HAMILTON, BERMUDA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)

(441) 292-8515
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

----------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------

Ordinary Shares, Par Value $0.01 per Share New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

The aggregate market value of the shares of all classes of voting stock of
the registrant held by non-affiliates of the registrant on February 5, 1998
was approximately $5.1 billion computed upon the basis of the closing sales
price of the Ordinary Shares on that date. For purposes of this computation,
shares held by directors and officers of the registrant have been excluded.
Such exclusion is not intended, nor shall it be deemed, to be an admission
that such persons are affiliates of the registrant.

As of February 5, 1998 there were outstanding 84,546,800 Ordinary Shares
(excluding 27,594,800 shares held in treasury), $0.01 par value, of the
registrant.

DOCUMENTS INCORPORATED BY REFERENCE

THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A RELATING TO THE ANNUAL
MEETING OF SHAREHOLDERS SCHEDULED TO BE HELD ON MARCH 31, 1998 IS INCORPORATED
BY REFERENCE IN PART III OF THIS FORM 10-K.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

EXEL LIMITED

TABLE OF CONTENTS

PAGE
----

PART I

Item 1. Business....................................................... 1
Item 2. Properties..................................................... 13
Item 3. Legal Proceedings.............................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............ 13

PART II

Market for the Registrant's Common Stock and Related
Item 5. Stockholder Matters............................................ 15
Item 6. Selected Financial Data........................................ 16
Management's Discussion and Analysis of Financial Condition and
Item 7. Results of Operations.......................................... 17
Item 8. Financial Statements and Supplementary Data.................... 27
Changes in and Disagreements with Accountants on Accounting and
Item 9. Financial Disclosure........................................... 49

PART III

Item 10. Directors and Executive Officers of the Registrant............. 49
Item 11. Executive Compensation......................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management. 49
Item 13. Certain Relationships and Related Transactions................. 49

PART IV

Exhibits, Financial Statement Schedules, and Reports on Form 8-
Item 14. K.............................................................. 49

PART I

ITEM 1. BUSINESS

Introduction

EXEL Limited, a Cayman Islands corporation (the "Company"), and its wholly-
owned subsidiary X.L. Insurance Company, Ltd., a Bermuda corporation ("X.L."),
were incorporated in 1986. These entities were formed in response to a
shortage of high excess liability underwriting capacity in the insurance
industry at that time. In 1990, X.L. Europe Insurance ("X.L.E."), a subsidiary
of X.L., was organized in the Republic of Ireland to serve the European
Community. On November 1, 1995, X.L. Reinsurance Company, Ltd. ("XLRe") was
incorporated under the laws of Bermuda as a wholly-owned subsidiary of X.L.
and commenced operations effective December 1, 1995. On June 12, 1997, the
Company , through a subsidiary, acquired control of GCR Holdings Limited
("GCRH"), a Cayman Islands company, and its wholly-owned operating subsidiary,
Global Capital Reinsurance Company Limited, a Bermuda company ("GCR"). XLRe
and GCR were amalgamated under the laws of Bermuda effective November 4, 1997,
and the amalgamated entity was renamed X.L. Global Reinsurance Company, Ltd.
("XLGRe"). On October 27, 1997, XLGRe and Risk Capital Reinsurance Company
("RCRe"), a wholly-owned subsidiary of Risk Capital Holdings, Inc. ("RCHI"),
formed Latin American Reinsurance Company, Ltd. ("LARe") under the laws of
Bermuda. RCHI is an affiliate of X.L. LARe was capitalized with $100 million,
of which XLGRe and RCRe contributed approximately 75% and 25% respectively.
LARe will provide multi-line reinsurance to the Latin American market,
emphasizing short-tail, multi-peril property reinsurance and, to a limited
extent, casualty, marine, aviation and other lines of reinsurance.

The Company, through its subsidiaries, provides excess liability insurance
coverage to industrial, commercial and other enterprises, directors and
officers of such enterprises, professional firms, high excess property
coverage, and the assumption of reinsurance contracts on a worldwide basis.
X.L. reinsures X.L.E. for a minimum of 75% of each risk written.

Four principal types of excess liability coverage are provided in the areas
of third party general liability, employment practices liability, directors
and officers liability and professional liability (the latter primarily for
law firms, insurance companies and insurance brokers). General liability
coverage is generally offered up to a maximum limit of $150 million per
occurrence (and annual aggregate) in excess of a minimum attachment point
generally of $25 million for United States risks and in excess of a minimum
attachment point of $15 million for non-United States risks. Employment
practices liability coverage is offered up to a maximum of $100 million in
excess of a minimum attachment point of $1 million per occurrence (and annual
aggregate). Directors and officers liability coverage is currently offered up
to a maximum of $25 million in excess of not less than $20 million of
underlying insurance coverage for United States risks, and up to $50 million
for individual director indemnification and excluding corporate reimbursement
in excess of $20 million, (or up to $15 million of coverage in excess of $15
million of underlying coverage for non-United States risks), and professional
liability coverage currently is offered with limits no greater than the
attachment point up to a maximum of $50 million, subject to a minimum
attachment point of $25 million or $20 million for law firms.

Property coverage is currently offered up to $100 million of capacity per
occurrence plus $10 million annual aggregate for high frequency/severity
earthquake. The minimum attachment is generally $25 million for
industrial/commercial accounts and $100 million for oil/petrochemical
accounts.

During February 1996, X.L. Risk Solutions and CIGNA Risk Solutions were
announced as a coordinated initiative between X.L. and CIGNA Property &
Casualty ("CIGNA"). The product provides combined capacity for traditional
casualty and property coverages provided by X.L. or CIGNA. Available capacity
by line of coverage is $60 million to $200 million depending upon the lines
selected. Attachment levels may in certain situations be provided below
traditional stated levels subject to additional underwriting requirements.

XLGRe provides large net line capacity for specialized programs to insurance
and reinsurance companies. X.L. reinsures XLGRe for 75% of each risk written.
In general, XLGRe provides third-party liability cover up to $100 million,
directors and officers liability and professional liability up to $75 million
per claim, high excess

1

property reinsurance up to $50 million per occurrence and financial
reinsurance, credit enhancement and other collateralized and financial
transactions. Following the Company's acquisition of GCRH and the amalgamation
of XLRe and GCR, XLGRe also provides property catastrophe and other short-tail
property reinsurance on a worldwide basis. In general, XLGRe limits its
property catastrophe exposure under any single contract, or under all
contracts with a single client, to $25 million per catastrophe event, with the
majority of contracts written with limits of $5 million or less. XLGRe
provides cover primarily on either an excess of loss or quota share basis.

BUSINESS STRATEGY

The Company's strategy is to be the premier provider of strategic financial
risk solutions to specific global markets by applying intellectual and
financial capital to assure its customers' economic vitality and enhance their
competitive positions. Management believes that pursuing this strategy will
improve the Company's ability to differentiate itself from its competitors,
diversify its mix of business and revenue stream, reduce its dependence on
existing core business lines which are cyclical and build shareholder value.

The Company's strategy calls for its subsidiaries to go beyond offering
traditional insurance and reinsurance products to designing risk transfer
programs that address specific customer needs with respect to a broad range of
risks. These include certain types of financial risks and other non-
traditional insurance risks which the Company believes can be properly
analyzed and underwritten. As part of this approach, the Company's strategy
contemplates providing income statement and balance sheet protection to its
customers, involving in some instances structured portfolio transfers. The
Company also believes there will be opportunities to build investment features
into its risk transfer products. The Company intends to retain its traditional
focus on high severity, low frequency risks.

In order to pursue its strategy effectively, the Company may need to secure
access to skills and capabilities in areas which historically have not been
found in the insurance and reinsurance industry. Accordingly, successful
implementation of the Company's strategy is expected to involve not only
maximizing its financial strength but attracting and retaining highly skilled
and motivated employees. It may also require entering into coordinated
initiatives, joint ventures or strategic alliances with one or more partners,
making investments in and, where appropriate, acquiring other businesses of
strategic value to the Company and its subsidiaries.

GENERAL LIABILITY

General liability policies offered by the Company's insurance subsidiaries
cover occurrences causing unexpected and unintended personal injury and/or
property damage (as well as advertising liability) to third parties arising
from events or conditions which commence at or subsequent to an inception date
(or retroactive date, if applicable, but not prior to January 1, 1986) and
prior to the expiration of the policy, provided proper notice is given to X.L.
or X.L.E. during the term of the policy or the discovery period. With respect
to the use of products, the coverage applies where unexpected and unintended
personal injury or property damage to a third party caused, allegedly caused
or deemed to have been caused by the use of a product takes place during the
term of the policy. Where certain injury, damage or liability to third parties
is expected or intended by the insured, the policy provides coverage for
injury, damage or liability when the actual injury, damage or liability
incurred is fundamentally different in nature or vastly greater in order of
magnitude than expected. All claims for integrated occurrences are added
together and treated as one occurrence (and thereby limiting such losses to
one policy limit) with respect to the policy in effect when the occurrence or
claim is first reported regardless of the length of the period over which such
losses or liabilities occur, although special notice requirements are imposed
with respect to such losses. The general liability policies generally do not
"drop down" to provide coverage below the per-occurrence attachment point even
in the event of exhausted underlying insurance policy aggregates.

Coverage includes product liability, claims resulting from abrupt pollution,
punitive damages (for unexpected or unintended damage/injury) and payment of
legal fees, as well as a broad range of catastrophic exposures such as
explosions, fires, utility blackouts and other catastrophic events not
excluded from coverage. Coverage generally excludes gradual pollution (other
than gradual pollution resulting from a products liability

2

claim), property damage arising out of most professional services, commercial
airline risks, certain marine exposures, and liability for injury or damage
caused by, among other things, asbestos, tobacco, intra-uterine devices,
silicone implants and nuclear risks. Unlike traditional insurance policy
forms, disputes under the policies are required to be settled by arbitration
in London. Under the policy arbitration clause, each party selects one
arbitrator and the two arbitrators so selected choose a third arbitrator. The
English Arbitration Act of 1950, as amended and supplemented, governs the
arbitration under X.L. policies (with International Chamber of Commerce rules
governing X.L.E. policies).

Rather than issuing separate annual policies, a perpetual policy is issued
(which is subject to an annual underwriting review) with an annual aggregate
limit (subject to reinstatement). The policy remains in effect until canceled
or not continued. The terms, conditions, exclusions, deductibles and limit
applicable to an occurrence are determined by the policy in effect at the time
notice thereof is first given. Because the inception date (or, if applicable,
the retroactive date) remains unchanged, the exposure of a claim to X.L. or
X.L.E. under each policy usually increases each additional year that the
policy is in force. The exposure to unreported claims thus rolls forward each
year, which is provided for by the establishment of significant incurred but
not reported ("IBNR") reserves. Each year's coverage, however, is subject to
an aggregate limit, and the limits of any given year are not available for
occurrences first reported in a subsequent year notwithstanding that the
injury or damage took place in that year. Premiums are adjusted annually. A
single event or set of circumstances may constitute an insured occurrence
under policies of different policyholders, resulting in multiple claims
exposure with respect thereto. Such events or circumstances could have a
material adverse effect on the results of the Company.

The policy permits cancellation by X.L. or X.L.E. with refund of the
unearned premium at any time, except in the case of discovery period coverage,
upon 90 days' prior written notice to the policyholder. The policy permits
cancellation by a policyholder at any time with a pro-rata refund of premium.
If the basic coverage of the policy is canceled or discontinued, the insured
is given the option of purchasing discovery coverage (in respect of
occurrences taking place subsequent to the inception/retroactive date and
prior to cancellation or discontinuance of basic coverage) on an ongoing basis
for as long as is desired by the policyholder (with no maximum duration) for
predetermined annual premiums.

As contrasted with the standard policy form, which provides for annual
determination of premiums and limits, the Company offers to certain of its
policyholders endorsements providing coverage generally for two additional
annual periods (aggregating a total of three years), with either an annual
aggregate or term limit and with the provision for reinstatement of the limit
selected. Premiums are generally prepaid in whole or in part for the period of
the contract. Such endorsements limit the circumstances under which either the
policyholder or the Company may cancel and provide that the otherwise
predetermined premium for the three-year period may be adjusted in certain
specified circumstances. It is contemplated that policyholders may be given
the opportunity to roll the three-year term forward year-by-year based on
premiums and other terms and conditions to be negotiated each year.

The Company also offers an alternate rating methodology to be used with
multi-year general liability policies. These policies are written on a form
affording the same scope of coverage as the general liability form described
above, but the policies have several different features. Generally, these
policies have a three to five-year term (which may be extended by mutual
agreement year-by-year on a rolling basis), and provide that a portion of the
aggregate limit may apply, depending upon the terms of the policy, to the
entire term, but such aggregate limit, or a portion thereof, will be subject
to one or more mandatory reinstatements if it is eroded by paid and/or
reserved losses beyond a certain point or to reinstatement at the option of
the policyholder. The annual premiums generally are higher than those charged
for the standard single-year policies for the same layers, and the mandatory
reinstatement premiums generally exceed the annual premiums. If, however, loss
experience is favorable, the insured would be permitted to recapture a portion
of the amount by which premiums exceed losses. Such recapture may be
contingent upon commutation of the Company's liability for further loss
payments. These multi-year policies may be written with attachment points
below $25 million per occurrence but not less than $10 million per occurrence,
and the limits thereof may be incremental to the otherwise applicable $150
million maximum limit.

3

DIRECTORS AND OFFICERS LIABILITY

Directors and Officers coverage is written on a claims-made basis, and the
policy generally adopts the terms, conditions and exclusions in the primary or
other underlying policy. Each insured is rated separately. In contrast to the
general liability policy, the directors and officers policy is for a
designated period. Also, unlike the general liability policy, the directors
and officers policy "drops down" upon erosion or exhaustion of underlying
aggregates by multiple claims. The policy can be canceled by X.L. or X.L.E.
upon typically 90 days' notice (with X.L. or X.L.E. retaining a pro rata
proportion of the premium) or by the policyholder at any time with the Company
retaining a short rate proportion (i.e., more than pro rata) of the premium.
As with the general liability form, disputes are required to be settled by
arbitration in London. Under the policy arbitration clause, each party selects
one arbitrator and the two arbitrators so selected choose a third arbitrator.

If X.L. or X.L.E. cancels or refuses to renew the policy, the policyholder
is given the option of purchasing discovery coverage for a specified period of
time (generally one to three years) at a predetermined premium.

PROFESSIONAL LIABILITY

Professional liability risks are written either on a follow-form basis
(i.e., the policy generally adopts the terms, conditions and exclusions of the
underlying policy, which usually is a "claims-made" policy) or on a form which
is structured similarly to the general liability form in that it is extended
from year to year (with annual underwriting reviews) and rolls coverage
forward to the year when X.L. or X.L.E. receives notice. The policy covers
"wrongful acts" (instead of occurrences), subject to customary exclusions, and
covers punitive damages arising therefrom. As with the other policy forms,
disputes are required to be settled by arbitration in London. In contrast to
the general liability policy, the discovery period is of finite duration
(generally one to three years). Whether the policy is written on a claims made
"stand alone" basis (i.e., it does not follow the warranties, terms,
conditions or exclusions of underlying policies), it does "drop down" upon
erosion or exhaustion of the aggregate limits of underlying policies by
multiple wrongful acts in the case of law firms and certain other insureds
(i.e., in these instances the attachment point applies on an aggregate rather
than a per wrongful act basis). The underlying policies of an insured seeking
professional liability coverage are reviewed and evaluated as part of the
underwriting process.

EMPLOYMENT PRACTICES LIABILITY

In 1996, X.L. introduced coverage for employment practices liability.
Employment practices liability risks are written on a claims made and reported
policy. The policy is written on an annual basis and covers claims brought by
an employee against an insured for certain covered employment practices. As
with other X.L. products, the employment practices liability policy has X.L.'s
standard arbitration clause which requires disputes to be settled by
arbitration in London.

PROPERTY EXCESS OF LOSS

Property policies are primarily underwritten on an excess of loss occurrence
form (except earthquake and flood when provided) utilizing engineering
reports, statement of values, prior loss history, annual report and other
publically available information. Earthquake and flood coverage are written on
an excess of loss attachment basis which may be eroded in a given policy year
by accumulated losses from separate occurrences as customary in the industry.
When written as such, earthquake and flood have annual aggregate limits. All
classes of business are considered. The minimum attachment points are
generally $25 million for industrial/commercial accounts and $100 million for
oil/petrochemical accounts.

Coverage can be provided worldwide on an all-risk or named peril basis of
direct physical loss or damage with options for time element (e.g., business
interruption, extra expense, rental value, etc.), earthquake, flood, and
boiler and machinery coverage. Policies can be written on a modified follow
form or X.L. form. Typical exclusions include but are not limited to war risk,
nuclear, pollution, and others customary in property policy

4

coverage. Unlike traditional property policies, disputes under X.L. policies
are required to be settled by arbitration in London with each party selecting
one arbitrator and the two arbitrators so selected choosing a third
arbitrator.

X.L.'s and X.L.E.'s maximum net capacity for any one insured is $100 million
per occurrence with $10 million annual aggregate for high frequency/severity
earthquake (California, Japan, etc.) when provided. Earthquake and coastal
wind exposures are carefully identified and monitored (policy limit
accumulations) by subzones worldwide in order to limit exposure to an
excessive concentration of catastrophic loss.

The policy is generally written on a multi-year basis with annual
underwriting review. However, it may be canceled on a pro-rata basis at any
time in the mid-term of an annual period with a written notice to the named
insured, or retroactively to anniversary if premium is not paid within 5 days
of anniversary.

X.L. RISK SOLUTIONS

X.L. Risk Solutions is a coordinated initiative with CIGNA Risk Solutions
offering multi-year, combined line coverages for traditional casualty
coverages, including general, directors and officers and professional
liability, and property coverage plus blended finite coverage for risks which
traditionally have had difficulty placing cover. The target market is large
and medium size companies that are trying to simplify and streamline the risk
transfer process. CIGNA provides services and fronting policies to meet U.S.
regulatory requirements and X.L. provides an excess policy for the balance of
capacity and coverages required. Programs are typically custom designed to
meet specific needs with each customer.

POLITICAL RISK INSURANCE

In March 1997, X.L. became a founding shareholder in Sovereign Risk
Insurance Ltd. ("Sovereign"), a Bermuda based managing general agency formed
to underwrite selected political risk insurance coverages, including
expropriation, currency inconvertibility and certain other types of political
risk associated with cross-border investment. Sovereign was formed as a joint
venture among X.L., A.C.E. Insurance Company, Ltd. ("ACE") and RCRe. Policies
written by Sovereign are subscribed 50% by each of X.L. and ACE, with RCRe
participating in up to 10% of each risk written on a quota share basis.
Sovereign's per-country aggregate limit is $100 million, except with respect
to Argentina, Brazil, China and Indonesia which have an aggregate limit of
$250 million each, and its per risk limit is $50 million.

REINSURANCE ASSUMED

During 1995 X.L. and X.L.E. assumed reinsurance contracts for specific
risks. As of December 1, 1995, these risks were continued as and if
appropriate in XLGRe.

XLGRe provides large net line capacity for specialized programs to insurance
and reinsurance companies. X.L. reinsures XLGRe for 75% of each risk written.
XLGRe in general provides third party liability cover up to $100 million,
directors and officers liability and professional liability up to $75 million
per claim. Financial reinsurance, credit enhancement and other collateralized
and financial transactions may involve larger nominal limits, but XLGRe's net
risk exposure is maintained within ranges set by management through the use of
reinsurance or capital market products. XLGRe also provides reinsurance with
respect to certain marine, aviation, satellite and political risks.

Property reinsurance is written on both an excess and quota share basis,
with the majority being catastrophe-related business written on an excess of
loss basis. Limits vary by program but range from under $5 million up to $25
million, with the majority of limits being under $5 million. Risks are
evaluated using computer driven modelling techniques combined with qualitative
underwriting techniques. Risk is diversified by type of reinsurance,
geographic coverage and by varying the level of attachment. Aggregate loss
exposure is managed by means of geographic zone limits.

5

REINSURANCE

Effective December 1, 1995, X.L. entered into a quota share reinsurance
policy with five U.S. reinsurers and one non-U.S. reinsurer covering general
liability risks only. Effective December 1, 1996, two additional U.S.
reinsurers were added to this program, of which one is RCRe. Under the terms
of the policy, X.L. will cede 20% of risks with total limits up to $100
million and 25% of risks with total limits in excess of $100 million. The
maximum amount recoverable from the reinsurers will be the ceded percentage of
the original policy limit on a per occurrence basis, with an annual aggregate
of 225% of the total premium ceded. No single reinsurer participates in excess
of 23% of the quota share. With the exception of RCRe, all the reinsurers are
rated, of which the lowest as rated by Standard & Poors ("S&P") is BBB.

Effective September 1, 1997, X.L. and X.L.E. entered into an excess of loss
casualty catastrophe contract covering general liability risks. Under the
terms of this policy, X.L. and X.L.E. are reinsured for $80 million ultimate
net loss each occurrence excess of a per occurrence retention, subject to an
annual aggregate retention. The maximum amount recoverable from the reinsurers
will be an annual aggregate of $250 million. For the year ended November 30,
1997, 92.5% of this reinsurance has been placed with seventeen reinsurers, all
of which are rated. With the exception of two reinsurers, the lowest as rated
by S&P is A-. The other two reinsurers are rated BBB and BB by S&P,
representing 3.5% participation on this program.

Property quota share reinsurance of 25% (subject to catastrophe occurrence
limit restrictions) of the X.L. property policy limit is purchased from three
Bermuda-based property reinsurers, two U.S. reinsurers and one non-U.S.
reinsurer. Mid Ocean Reinsurance Company, Limited, a wholly-owned subsidiary
of Mid Ocean Limited ("MOCL"), has a 30% participation on this program. The
Company owns 29.1% of the issued and outstanding voting shares of MOCL. All
property reinsurers are rated with a minimum S&P rating of A.

X.L. reinsures one third of the first $75 million in limits of employment
practices liability to a U.S. insurer and the remaining excess layer of $25
million to a Bermuda-based insurer.

A quota share arrangement exists between X.L. and CIGNA based on pre-agreed
percentages by line of coverage for blended covers written through X.L. Risk
Solutions and CIGNA Risk Solutions. These percentages vary from 12.5% to 90%,
but do not exceed X.L.'s normal capacity on individual lines of cover. X.L.
may underwrite an account 100% without CIGNA participation.

COMPETITION

The property-casualty insurance and reinsurance industry is highly
competitive, particularly in the case of large risk accounts in the United
States and Europe, which represent the vast majority of the Company's customer
base. The markets for the Company's insurance and reinsurance products are
characterized by strong, and at times intense, price competition driven
largely by the substantial amount of excess capacity and relatively
inexpensive reinsurance currently present in the industry. The Company
believes that such competitive forces will be present in the industry for at
least the short to medium term.

Whereas only a small number of insurers used to compete with the Company's
property-casualty lines of business at the attachments and limits offered by
it, the Company currently estimates there to be approximately 12 competitors
worldwide with respect to such business. Similarly, the Company believes there
to be a large number of reinsurers which compete with its property
catastrophe-specialty reinsurance business. Many of the Company's competitors
possess significantly greater financial and other resources than the Company.
The Company generally competes on the basis of price, financial strength,
coverage terms, claims paying reputation and customer service.

Notwithstanding the foregoing, the Company believes it is one of the leading
excess general liability insurers at its attachment point and limit levels for
major corporations domiciled in the U.S. The Company's principal competitors
with respect to excess general liability are other Bermuda-based insurers,
industry mutuals

6

which limit coverages to their industry, Lloyds of London and several large
European insurers and reinsurers. There is no one or small group of dominant
insurers in the property and directors and officers and professional excess
liability insurance areas; the Company believes it is a significant competitor
at its attachment point and limit levels in these lines.

RATING METHODOLOGY

X.L. and X.L.E. write liability and property coverage for a wide array of
industry groups, including chemical, industrial, pharmaceutical, property
owners, landlords and tenants, utilities, auto, consumer, rail, oil and
construction with respect to third-party general liability and first-party
property; industrial/manufacturing, utilities, chemical/pharmaceutical and
financial advisors with respect to directors and officers liability; and
lawyers, insurance brokers and insurance companies for professional liability.
Although rates are influenced by a number of factors, including competition,
the Company's rating methodology seeks to set rates individually for each
insured in accordance with claims potential as measured by past experience and
future expectations, the attachment point and amount of underlying insurance,
the nature and scope of insured operations (including the industry group in
which the insured operates), exposures to loss, and other specific risk
factors relevant in the judgment of the underwriters and insurance market
conditions. Underwriters separately evaluate each industry category (and sub-
groups within each category) and premiums are set and adjusted for an insured
based in large part on the industry group in which the insured is placed and
the insured's risk relative to the other risks in the insured's industry
group. Each industry group is reviewed annually to take into account
outstanding case losses and new loss incident reports within each group. Rates
may vary significantly according to the industry group of the insured as well
as within the group.

UNDERWRITING AND MARKETING

Underwriting activities are conducted only through the offices of the
Company's subsidiaries in Bermuda and the Republic of Ireland. A marketing
office has recently been opened in Sydney, Australia. In addition, a London
contact office has been established for the purpose of servicing XLGRe.
Accordingly, the Company and its subsidiaries do not maintain an office,
solicit or advertise in the U.S. and are not admitted as insurers in the U.S.
On November 6, 1997, the Company entered into a definitive agreement to
purchase all of the outstanding shares of Folksamerica General Reinsurance
Company ("Folksamerica General"), which has property and casualty licences in
approximately 20 states and reinsurance licenses in approximately 14 states.
The closing of this transaction is subject to receipt of certain regulatory
approvals and satisfaction of certain other conditions precedent.

All insureds are referred to the Company's subsidiaries through
approximately 50 non-U.S. insurance brokers who receive from the insured a
brokerage commission equal to a percentage of gross premiums. Neither X.L. nor
X.L.E. nor XLGRe is committed to accept any business from any particular
broker, and brokers do not have the authority to bind either X.L., X.L.E. or
XLGRe. All policy applications are subject to approval and acceptance by the
Company's subsidiaries. During 1997 Marsh & McLennan Incorporated acquired J&H
Intermediaries Limited to form J&H Marsh McLennan Global Broking Limited ("J&H
Marsh"). In addition, AON Intermediaries Limited acquired Alexander Howden
Group Limited. Since the Company's inception, J&H Marsh or affiliated
companies have placed a significant amount of insurance business with the
Company's subsidiaries. In fiscal 1995, 1996 and 1997, approximately 50%, 52%
and 52%, respectively, of the Company's consolidated gross premiums were
placed by J&H Marsh or its predecessors and approximately 17% and 19%,
respectively, were placed by AON or its predecessors in fiscal 1996 and 1997,
respectively . No other broker accounted for more than 10% of gross premiums
written in any fiscal year during such period.

UNPAID LOSSES AND LOSS EXPENSES

Significant periods of time may lapse between the occurrence of an insured
loss, the reporting of the loss to X.L., X.L.E., or XLGRe and their payment of
that loss. To recognize liabilities for unpaid losses, the Company establishes
reserves, which are balance sheet liabilities representing estimates of future
amounts needed to pay

7

claims and related expenses with respect to insured events which have been
reported to the Company. The Company's reserving practices and the
establishment of any particular reserve reflect management's judgement
concerning sound financial practice and do not represent any admission of
liability with respect to any claims made against the Company's subsidiaries.

After a claim is reported to X.L., X.L.E. or XLGRe, its claims personnel
determine whether to establish a "case reserve" for the estimated amount of
the ultimate settlement, if any. The estimate reflects the judgment of claims
personnel, based on general corporate reserving practices and on the
experience and knowledge of such personnel regarding the nature and value of
the specific type of claim and, where appropriate, advice of counsel.
Periodically, adjustments to the case reserves may be made as additional
information regarding the claims becomes known and/or partial payments are
made. Case reserves generally are established by the Company from previously
established IBNR reserves. Reserves are also established to provide for the
estimated expense of settling claims, including legal and other fees and the
general expenses of administering the claims adjustment process ("loss
expense").

The IBNR reserves for fiscal years prior to 1996 was estimated utilizing the
Bornhuetter-Ferguson ("B-F") actuarial method modified for actual loss
experience. The B-F method is a generally accepted actuarial technique for
estimating loss reserve levels where an insurer does not have sufficient
relevant historical loss experience to employ other methods. The position has
been reviewed and the IBNR reserves are now estimated by using several
actuarial reserving techniques. The vast majority of the Company's IBNR
derives from general liability, professional liability and property coverages
written by X.L. and X.L.E. This IBNR is calculated in two steps. First, case
reserve development is calculated with the use of the loss development factor
("LDF") method. Second, "pure" IBNR is estimated with a frequency/severity
approach. Since X.L. and X.L.E.'s coverage is usually triggered when a notice
is submitted by the insured, "pure" IBNR losses exist only when claims with a
loss notice develop into their layers of coverage. The method calculates the
ultimate number of claims (i.e. frequency) via the B-F technique. The severity
component ( average claim size) is developed via a single parameter Pareto
loss distribution, adjusted for X.L. and X.L.E.'s average attachment points
and limits.

A minority of the Company's IBNR derives from contracts which are very
specific and unique to each situation. Because each contract will exhibit
different reporting, frequency and profitability characteristics, they are
reserved for separately via the expected loss ratio ("ELR") method. The loss
ratio used is specific to each contract and is generally based on cash flow
and profitability considerations.

The Company believes it applies the most appropriate actuarial methods for
estimating reserves for the types of liability that the Company retains. X.L.
and X.L.E.'s loss experience is typified by very low frequency and very high
severity events. The ultimate claims experience of X.L., X.L.E. and XLGRe is
subject to a greater level of uncertainty than may be the case with
traditional insurance companies, and there can be no assurance that losses and
loss expenses will not exceed the total reserves.

Several aspects of the operations of X.L. and X.L.E. complicate the
actuarial reserving techniques for loss reserves as compared to a more
conventional insurance company. Among these aspects are the differences in the
policy forms from more traditional forms, the lack of complete historical loss
data for losses of the same type intended to be covered by the policies and
the expectation that losses in excess of the attachment level of the Company's
policies will be characterized by low frequency and high severity, limiting
the utility of claims experience of other insurers for similar claims.
Accordingly, the ultimate claims experience of X.L. and X.L.E. cannot be as
reliably predicted as may be the case with traditional insurance companies,
and there can be no assurance that losses and loss expenses will not exceed
the total reserves.

Losses and loss expenses are charged to income as incurred. The reserve for
unpaid losses and loss expenses represents the accumulation of case reserves,
loss expense reserves and IBNR. During the loss settlement period, which can
be many years in duration, additional facts regarding individual claims and
trends usually will become known. As these become apparent, it often may
become necessary to refine and adjust the reserves upward or downward from
time to time. The final liability nonetheless may be significantly less than
or greater than the prior estimates.

8

Conditions and trends that have affected development of liability in the
past may not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on the
tables below.

The "Analysis of Consolidated Loss and Loss Expense Reserve Development" set
forth below, presents the development of balance sheet unpaid loss and loss
expense reserves for the fiscal years 1986 through 1997.

ANALYSIS OF CONSOLIDATED LOSS AND LOSS EXPENSE RESERVE DEVELOPMENT

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------- -------- -------- -------- -------- -------- ---------- ---------- ---------- ----------
(IN THOUSANDS)

Net liability for
unpaid losses
and loss
expenses........ $25,847 $173,542 $381,106 $616,611 $799,222 $957,344 $1,169,003 $1,359,701 $1,665,434 $1,919,498
Paid (cumulative)
as of:
One year later.. -- 142 517 98,519 141,863 103,970 163,086 138,702 188,370 299,465
Two years later. 88 404 23,285 240,207 169,656 266,191 296,213 326,610 487,264 531,694
Three years
later.......... 141 869 76,844 267,777 235,095 340,551 482,251 619,186 718,785
Four years
later.......... 145 902 87,639 296,095 258,589 432,506 688,064 806,140
Five years
later.......... 145 903 107,863 302,028 260,385 610,936 878,832
Six years later. 145 903 107,863 303,791 341,337 714,764
Seven years
later.......... 145 903 107,863 384,717 357,051
Eight years
later.......... 145 903 107,863 385,951
Nine years
later.......... 145 903 107,916
Ten years later. 145 953
Eleven years
later.......... 145
Liability re-
estimated as of:
End of year..... $25,847 $173,542 $381,106 $616,611 $799,222 $957,344 $1,169,003 $1,359,701 $1,665,434 $1,919,498
One year later.. 23,558 193,989 383,949 654,931 808,642 973,711 1,203,360 1,435,500 1,667,334 1,964,402
Two years later. 34,050 191,815 348,152 654,160 700,733 929,176 1,282,051 1,441,018 1,628,191 1,663,842
Three years
later.......... 31,278 152,944 329,403 587,758 557,782 876,071 1,270,410 1,485,101 1,465,632
Four years
later.......... 24,446 135,943 279,106 447,360 531,264 878,597 1,359,848 1,365,998
Five years
later.......... 20,264 101,274 159,117 434,326 465,605 967,410 1,325,166
Six years later. 14,613 903 107,863 444,213 479,940 959,363
Seven years
later.......... 145 903 107,863 452,662 475,136
Eight years
later.......... 145 903 107,863 459,023
Nine years
later.......... 145 903 108,063
Ten years later. 145 1,103
Eleven years
later.......... 145
Redundancy
(deficiency).... 25,702 172,639 273,043 157,588 324,086 (2,019) (156,163) (6,297) 199,802 255,656
Gross liability
end of period... 1,920,500
Reinsurance
recoverable end
of period....... (1,002)
----------
Net liability end
of period....... 1,919,498
==========

1996 1997
----------- -----------

Net liability for
unpaid losses
and loss
expenses........ $2,052,652 $2,186,229
Paid (cumulative)
as of:
One year later.. 233,162
Two years later.
Three years
later..........
Four years
later..........
Five years
later..........
Six years later.
Seven years
later..........
Eight years
later..........
Nine years
later..........
Ten years later.
Eleven years
later..........
Liability re-
estimated as of:
End of year..... $2,052,652 $2,186,229
One year later.. 1,774,745
Two years later.
Three years
later..........
Four years
later..........
Five years
later..........
Six years later.
Seven years
later..........
Eight years
later..........
Nine years
later..........
Ten years later.
Eleven years
later..........
Redundancy
(deficiency).... 277,907
Gross liability
end of period... 2,099,096 2,342,254
Reinsurance
recoverable end
of period....... (46,444) (156,025)
----------- -----------
Net liability end
of period....... 2,052,652 2,186,229
=========== ===========

9

The following table presents a reconciliation of beginning and ending
reserve balances for the periods indicated on a net basis:

RECONCILIATION OF UNPAID LOSSES AND LOSS EXPENSES

YEAR ENDED NOVEMBER 30,
---------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)

Unpaid losses and loss expenses at beginning
of period.................................. $2,052,652 $1,919,498 $1,665,434
Losses and loss expenses incurred in respect
of losses occurring in:
Current year.............................. 644,108 390,892 440,394
Prior years............................... (278,783) 14,465 528
---------- ---------- ----------
Total................................... 365,325 405,357 440,922
---------- ---------- ----------
Net interest effect on experience reserves.. 886 1,752 1,646
Portfolio transfer.......................... 34,593 28,687 --
Losses and loss expenses paid in respect of
losses occurring in:
Current year.............................. 34,055 3,177 134
Prior years............................... 233,172 299,465 188,370
---------- ---------- ----------
Total................................... 267,227 302,642 188,504
---------- ---------- ----------
Unpaid losses and loss expenses at end of
period..................................... $2,186,229 $2,052,652 $1,919,498
========== ========== ==========

The computation of the Company's reserves for Bermuda statutory purposes is
the same as for the purposes of generally accepted accounting principles in
the United States ("GAAP").

Case reserves as a component of total reserves in 1997 increased to $801
million from $787 million after the payment of $262 million in losses. The
increase is in part due to three new reserves totaling $145 million in 1997
that are integrated to a common casualty event. In addition there were three
new reserves in 1996 from unrelated causes totaling $85 million. The balance
of the change is not attributable to any single or group of related events,
but to normal attrition as losses have developed over time into the Company's
layers of exposure, consistent with the nature of excess casualty insurance.

The changes in reserves between years are in mostly due to the reserving
methodology. One of the major driving factors in estimating IBNR is the
estimated frequency of loss. Since the nature of the Company's casualty book
is low frequency high severity, the emergence or non emergence of a few losses
relative to historical development can have a significant impact on increases
or reductions in reserves between individual years. This is readily apparent
in 1997, where incurred losses amounted to $644 million. The claims frequency
for this year is higher than the historical frequency due to the emergence of
the three integrated casualty claims, resulting in increased levels of IBNR.
It should also be noted that if in the subsequent development of the 1997
year, actual losses may prove to be lower than the derived frequency, it will
result in a reduction in these reserves. Another contributing factor to the
high incurred losses for this year, were treaty losses realized on the
reinsurance book of business of $36 million.

Total reserves increased in 1996 by $23 million reflecting the unrelated
indemnity reserves of $85 million mentioned previously. This change reflects
an increase to the expected frequency. Reserves of $138 million, $43 million,
$84 million, $27 million, $3 million and $11 million were reduced for the
years from 1995, 1994, 1993, 1992, 1991 and 1990, respectively. The 1995 year
reflects the elimination of one indemnity reserve (due to the cancellation of
a general liability policy) in a year where the claim frequency is already
low. As previously mentioned, changes in frequencies will have a significant
effect. The 1993 year also reflects the "release" of an indemnity reserves,
which has been reclassified to 1994, resulting in an effect similar to 1995.
The other years reflect frequency emergence patterns lower than historical
expectations.

10

Due to the nature of the Company's policy form and the level of coverage
provided, with limits generally up to $150 million, adjustments to reserves
for individual years can be irregular and significant. Such adjustments are
part of the normal course of business for the Company. Conditions and trends
that have affected development of liability in the past may not necessarily
occur in the future. Accordingly, it is inappropriate to extrapolate future
redundancies or deficiencies based upon historical experience.

CLAIMS ADMINISTRATION

All claims management activities are conducted at the offices of the
Company's subsidiaries in Bermuda and the Republic of Ireland. Claims
management includes the review of initial loss reports, creation of claims
files, administration of claims data base, generation of appropriate response
to claims reports including identification and handling of coverage issues,
determination of whether further investigation is required and, where
appropriate, retention of claims counsel, establishment of case reserves,
payment of claims, and notification to reinsurers.

INVESTMENTS

X.L. Investments Ltd., a Bermuda corporation ("X.L.I."), is a wholly-owned
subsidiary of X.L. The Finance Committee of the Board of EXEL and management
oversee investment strategy, establish guidelines for the various investment
managers and implement investment decisions with the assistance of such
managers. The current investment strategy seeks to maximize investment income
through a high-quality, diversified portfolio whilst focusing on preserving
principal and maintaining liquidity. In this regard, at November 30, 1997, the
Company's fixed income investment portfolio includes U.S. and non-U.S.
sovereign government obligations, corporate bonds and other securities, 58% of
which were rated Aa or AA or better by a nationally recognized rating agency.
Under current investment guidelines, up to 30% of the Company's investment
portfolio may be invested in equity securities. Applicable insurance laws and
regulations do not restrict the Company's investments except that certain
types of investments (such as unquoted equity securities, investments in
affiliates, real estate and collateral loans) may not qualify as a "relevant
asset" for purposes of satisfying Bermuda statutory financial requirements. At
each of November 30, 1997, 1996 and 1995, 19%, 14% and 13% of the Company's
investments in fixed maturity and short-term investments and 42%, 45% and 33%
of the Company's investments in equity securities were represented by
securities of non-U.S issuers. The Company did not have an aggregate
investment in a single entity (other than the U.S. government) in excess of
10% of shareholders' equity at November 30, 1997, 1996 or 1995.

X.L. Investments (Barbados) Inc. ("X.L.I.B."), a Barbados corporation and
wholly-owned subsidiary of X.L.I., maintains portfolios of equity securities
with the assistance of investment managers.

The following table reflects investment results for the Company for each of
the five years in the period ended November 30, 1997:

NET-PRE PRE-TAX
TAX REALIZED ANNUALIZED
AVERAGE INVESTMENT GAINS EFFECTIVE
YEAR ENDED NOVEMBER 30, INVESTMENTS(1) INCOME(2) (LOSSES) YIELD
----------------------- -------------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)

1997...................... $4,125,244 $216,552 $335,939 5.25%
1996...................... 3,888,001 198,598 206,212 5.11
1995...................... 3,559,454 200,145 49,774 5.62
1994...................... 3,267,286 182,262 (95,197) 5.58
1993...................... 3,035,556 163,816 160,885 5.40

- --------
(1) Average of the beginning and ending amounts of investments and cash and
cash equivalents net of pending trades for the period. Investment
securities are carried at market value.
(2) After investment expenses, excluding realized net capital gains (losses).

11

REGULATION

Bermuda

The Insurance Act 1978 of Bermuda, amendments thereto and related
regulations (the "Act"), regulates the business of X.L. and XLGRe. The Act
imposes on Bermuda insurance companies solvency and liquidity standards and
auditing and reporting requirements and grants to the Minister of Finance
powers to supervise, investigate and intervene in the affairs of insurance
companies.

REPUBLIC OF IRELAND

X.L.E. is permitted to cover risks throughout the European Community
(subject to certain restrictions) pursuant to the "Third Directive" relating
to non-life insurance. Its operations, however, are largely restricted to the
Republic of Ireland and are subject to regulation under Irish regulatory
authority. The principal legislation and regulations governing the insurance
activities of Irish insurance companies are the Insurance Acts 1909 to 1989
(the "Irish Acts") and a comprehensive network of regulations and statutory
provisions empowering the making of regulations of which the most relevant are
the European Community's (Non-Life Insurance Accounts) Regulations, 1976 and
the European Community's (Non-Life Insurance Accounts) Regulations, 1977 and
related administrative rules (the "Irish Regulations").

X.L.E.'s insurance activities are subject to extensive regulation in the
Republic of Ireland, principally under the Irish Acts and Irish Regulations,
which impose on insurers headquartered in the Republic of Ireland minimum
solvency and reserve standards and auditing and reporting requirements and
grant to the Minister for Enterprise and Employment (the "Irish Minister")
wide powers to supervise, investigate and intervene in the affairs of such
insurers. The Irish Minister's powers and functions are exercised through the
Department of Enterprise and Employment.

United States and other

The insurance laws of each state of the United States and of many foreign
countries regulate the sale of insurance within their jurisdictions by alien
insurers, such as X.L. The Company believes it is not in violation of the
insurance laws of any state in the U.S. or any foreign country. From time to
time various proposals for federal legislation within the United States have
been circulated which could require the Company to, among other things,
register as a surplus lines insurer. The Company believes that generally it
could meet and comply with the requirements to be registered as a surplus
lines insurer and such compliance would not have a material impact on the
ability of the Company to conduct its business. There can be no assurance,
however, that the activities of the Company will not be challenged in the
future or that the Company will be able to successfully defend against such
challenges or that legislation will not be enacted that will affect the
Company's ability to conduct its business.

TAX MATTERS

The Company is a Cayman Islands corporation and has never paid United States
corporate income taxes (other than withholding taxes on dividend income) on
the basis that it is not engaged in a trade or business in the United States;
however, because definitive identification of the activities which constitute
being engaged in trade or business in the United States is not provided by the
U.S. Internal Revenue Code of 1986, regulations or court decisions, there can
be no assurance that the U.S. Internal Revenue Service will not contend that
the Company or its subsidiaries are engaged in trade or business in the United
States. If the Company or its subsidiaries were considered to be engaged in
trade or business in the United States (and, if the Company or its
subsidiaries were to qualify for the benefits under the income tax treaty
between the United States and Bermuda, such businesses were attributable to a
"permanent establishment" in the United States), the Company or its
subsidiaries could be subject to U.S. tax at regular corporate tax rates on
its taxable income that is effectively connected with such U.S. trade or
business plus an additional 30% "branch profits" tax on such income remaining
after the regular tax, in which case there could be a material adverse effect
on the Company's shareholders' equity and earnings.

12

As described above, on November 6, 1997, the Company entered into a
definitive agreement to purchase all of the outstanding shares of Folksamerica
General, a New York corporation which is subject to applicable U.S. federal,
state and local corporate income taxes. Folksamerica General will continue to
be subject to such corporate income taxes following the closing of the
transaction, which remains subject to the receipt of the required regulatory
approvals and certain other conditions precedent.

EMPLOYEES

At November 30, 1997, the Company and its subsidiaries employed a total of
184 employees, of which 149 were located in Bermuda and 35 in the Republic of
Ireland. None of the these employees are represented by a labour union and the
Company believes that its employee relations are excellent.

ITEM 2. PROPERTIES

The Company's and X.L.'s principal executive offices are at Cumberland
House, Hamilton, Bermuda, XLGRe's offices are in Windsor Place, Hamilton,
Bermuda and X.L.E.'s offices are in La Touche House, International Financial
Centre, Dublin, the Republic of Ireland. In 1997, the Company acquired
commercial real estate in Hamilton, Bermuda, for the purpose of securing long-
term office space to meet its anticipated needs.

ITEM 3. LEGAL PROCEEDINGS

The Company, through its insurance subsidiaries, in common with the
insurance industry in general, is subject to litigation in the normal course
of its business. Although most of its policies provide for resolution of
disputes by arbitration in London, X.L. has been sued several times in United
States courts and is defending each suit vigorously, both on procedural
grounds and the merits. As of November 30, 1997, the Company was not a party
to any material litigation other than as routinely encountered in claims
activity, none of which is expected by management to have a material adverse
effect on the Company's financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of stockholders during the fourth
quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE COMPANY

The table below sets forth the names, ages and titles of the persons who
were the executive officers of the Company for the year ended November 30,
1997.

NAME AGE POSITION
---- --- --------

Brian M. O'Hara......... 49 President, Chief Executive Officer and Director
of the Company and Chairman and Chief Executive
Officer of X.L.
Robert J. Cooney........ 43 Executive Vice President of the Company and
President and Chief Operating Officer of X.L.
Brian G. Walford........ 44 Executive Vice President, Chief Financial Officer
and Secretary of the Company and Executive Vice
President of X.L.
K. Bruce Connell........ 45 Executive Vice President and President and Chief
Operating Officer of XLGRe.
Christopher V. Greetham. 53 Senior Vice President and Chief Investment
Officer of the Company.
Paul S. Giordano........ 35 Senior Vice President and General Counsel of the
Company, X.L. and XLGRe.

Brian M. O'Hara has been President and Chief Executive Officer of the
Company since 1994 and a Director of the Company since 1986, having previously
served as Vice Chairman of the Company from 1987. He has been Chairman and
Chief Executive Officer of X.L. since December 1995, having previously served
as Chairman, President and Chief Executive Officer from 1994, President and
Chief Executive Officer from 1992, and as President and Chief Operating
Officer from 1986.

13

Robert J. Cooney has been Executive Vice President of the Company since
March 1995 and President and Chief Operating Officer of X.L. since December
1995, having previously served as Executive Vice President and Chief
Underwriting Officer of X.L. from 1992, and as a Senior Vice President from
1987.

Brian G. Walford has been Executive Vice President of the Company and X.L.
since 1991 and Chief Financial Officer of the Company since 1990. Mr. Walford
has been Secretary of the Company since 1991 and X.L. since 1990. Mr. Walford
previously served as Chief Financial Officer of X.L. from 1990 to 1996 and as
Senior Vice President of the Company and X.L. from 1988 to 1991. Mr. Walford
retired from the Company and X.L. on December 31, 1997.

K. Bruce Connell has been Executive Vice President of the Company and
President and Chief Operating Officer of XLGRe since October 1997, having
previously served as Executive Vice President and President of XLGRe since
December 1995, and as Senior Vice President of X.L. from 1990 to 1995.

Christopher V. Greetham has been Senior Vice President and Chief Investment
Officer of the Company since 1996. Prior to joining the Company, Mr. Greetham
served as Senior Vice President and Chief Financial Officer of OIL Insurance
Ltd. from 1982 to 1996 and as Vice President of Bankers Trust Company from
1975 to 1982.

Paul S. Giordano has been Senior Vice President and General Counsel of the
Company, X.L. and XLGRe since January 1997. From 1990 to 1996, Mr. Giordano
was associated with major law firms in New York and London prior to joining
the Company.

14

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

(a) The Company's Common Stock, $0.01 par value, is listed on the New York
Stock Exchange under the symbol XL.

The following table sets forth the high and low closing sales prices per
share of the Company's Ordinary Shares per fiscal quarter, as reported on the
New York Stock Exchange Composite Tape, adjusted for the one for one stock
dividend on July 26, 1996.

HIGH LOW
------- -------

1996:
1st Quarter............................................. $35.938 $29.813
2nd Quarter............................................. 36.375 34.125
3rd Quarter............................................. 36.688 33.063
4th Quarter............................................. 40.125 31.875
1997:
1st Quarter............................................. $45.000 $36.500
2nd Quarter............................................. 44.500 39.000
3rd Quarter............................................. 57.500 44.500
4th Quarter............................................. 64.000 55.063

Each Ordinary Share has one vote, except that if, and so long as, the
Controlled Shares of any person constitute ten percent (10%) or more of the
issued Ordinary Shares, the voting rights with respect to the Controlled
Shares owned by such person shall be limited, in the aggregate, to a voting
power of approximately 10%, pursuant to a formula specified in the Articles of
Association. "Controlled Shares" shall include, among other things, all
Ordinary Shares for which such person is deemed to beneficially own directly,
indirectly or constructively (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934).

(b) The approximate number of record holders of Ordinary Shares as of
November 30, 1997 was 209.

(c) Company paid four regular quarterly dividends, three of $0.32 per share
to all shareholders of record on February 6, 1997, April 22, 1997 and July 11,
1997 and one of $0.40 per share to all shareholders of record on September 25,
1997.

The declaration and payment of future dividends by the Company will be at
the discretion of the Board of Directors and will depend upon many factors,
including the Company's earnings, financial condition, business needs, capital
and surplus requirements of the Company's operating subsidiaries and
regulatory considerations.

The Company is a holding company whose principal source of income is
dividends from X.L. The payment of dividends by X.L. is subject to restriction
under Bermuda insurance and corporate law and regulations. At November 30,
1997 X.L. could legally have paid dividends in the amount of approximately
$1.5 billion at such date.

(d) Rights to purchase Ordinary Shares were distributed as a dividend at the
rate of one Right for each EXEL Ordinary Share held of record as of the close
of business on January 15, 1996. Each Right entitles holders of EXEL Ordinary
Shares to buy one Ordinary Share at an exercise price of U.S. $125.00. The
Rights would be exercisable, and would detach from the Ordinary Shares, only
if a person or group were to acquire 20 per cent or more of EXEL's outstanding
Ordinary Shares, or were to announce a tender or exchange offer that, if
consummated, would result in a person or group beneficially owning 20 per cent
or more of EXEL's Ordinary Shares. Upon a person or group without prior
approval of the Board acquiring 20 per cent or more of EXEL's Ordinary Shares,
each Right would entitle the holder (other than such an acquiring person or
group) to purchase EXEL Ordinary Shares (or, in certain circumstances,
Ordinary Shares of the acquiring person) with a value of twice the Rights
exercise price upon payment of the Rights exercise price. EXEL will be
entitled to redeem the Rights at U.S. $0.01 per Right at any time until the
close of business on the tenth day after the Rights become exercisable. The
Rights will expire at the close of business on August 31, 2005.

15

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data below should be read in conjunction
with the consolidated financial statements and the notes thereto presented
under Item 8.

1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE
AMOUNTS AND RATIOS)

Income Statement Data:
Gross premiums
written.............. $ 441,290 $ 729,446 $ 698,020 $ 638,294 $ 564,376
Net premiums written.. 316,626 597,102 694,337 627,987 530,885
Net premiums earned... 540,653 517,892 558,049 521,177 456,815
Net investment income. 216,552 198,598 200,145 182,262 163,816
Realized gains
(losses)............. 335,939 206,212 49,774 (95,197) 160,885
Equity in net income
of affiliate......... 65,882 59,249 51,074 25,028 18,221
Losses and loss
expenses............. 365,325 405,357 440,922 407,172 353,256
Acquisition costs and
administration
expenses............. 98,665 79,476 83,602 81,219 66,396
Interest expense...... 7,176 -- -- -- --
Amortization of
intangible assets.... 5,844 -- -- -- --
Income before minority
interest and
income tax expense... 682,016 497,118 334,518 144,879 380,085
Net income............ 676,961 494,313 332,798 143,954 379,216
Net income per share
(1)(2)............... $ 7.84 $ 5.39 $ 3.22 $ 1.32 $ 3.41
Weighted average
shares
outstanding (2)...... 86,373 91,731 103,438 108,676 111,226
Cash dividends per
share (2)............ $ 1.36 $ 0.95 $ 0.71 $ 0.62 $ 0.54
Balance Sheet Data:
Total investments..... $4,254,668 $3,772,976 $3,355,295 $2,943,712 $3,040,012
Cash and cash
equivalents.......... 394,599 252,734 673,433 456,176 264,484
Investment in
affiliates........... 517,396 414,891 351,669 230,852 195,485
Total assets.......... 6,088,462 5,031,538 4,721,466 3,853,152 3,626,996
Unpaid losses and loss
expenses............. 2,342,254 2,099,096 1,920,500 1,665,434 1,359,701
Shareholders' equity.. 2,479,130 2,116,038 2,006,133 1,684,393 1,843,094
Book value per share
(2).................. $ 29.37 $ 24.27 $ 21.22 $ 15.73 $ 16.86
Fully diluted book
value per share (2).. $ 29.33 $ 24.21 $ 21.11 $ 15.73 $ 16.81
Operating Ratios:
Loss and loss expense
ratio................ 67.6% 78.3% 79.0% 78.1% 77.3%
Underwriting expense
ratio................ 18.2 15.3 15.0 15.6 14.6
Combined ratio........ 85.8 93.6 94.0 93.7 91.9

- --------
(1) Net income per share is based on the weighted average number of ordinary
shares and ordinary share equivalents outstanding for each period using
the modified treasury stock method.
(2) All share and per share information has been retroactively restated to
give effect to a one for one stock dividend paid to shareholders of record
on July 26, 1996.

16

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

The following is a discussion of the Company's results of operations and
financial condition. This discussion and analysis should be read in
conjunction with the consolidated financial statements and the notes thereto
presented under Item 8.

RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

Table I presents an analysis of the Company's underwriting revenues for the
periods indicated:

Table I

YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
CHANGE CHANGE CHANGE
FROM FROM FROM
AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR
-------- ---------- -------- ---------- -------- ----------
(U.S. DOLLARS IN THOUSANDS)

Gross premiums written.. $441,290 (39.5)% $729,446 4.5% $698,020 9.4%
Net premiums written.... 316,626 (47.0) 597,102 (14.0) 694,337 10.6
Net premiums earned..... 540,653 4.4 517,892 (7.2) 558,049 7.1

Changes in the levels of gross premiums written between years is affected in
part by the level of multi-year premiums written. Gross premiums on multi-year
contracts are written at the time the contract is incepted. In order to
reflect the equivalent of an annual contract to provide a true year-to-year
comparison, premiums written for future years net of premiums written in prior
years that relate to the current year are identified. The multi-year effect is
reflected in Tables II and III. Gross premiums written were also impacted by
several Speciality Reinsurance Assumed ("SRA") contracts being rewritten,
which affected both the multi-year and annual premiums. This effect is
reflected in Table III. In addition, during the fourth quarter of 1997 and
1995, a mandatory reinstatement premium was written, triggered by a loss in
excess of a specified threshold, resulting in a retrospective portion of $11.0
million and $7.3 million, respectively, determined in accordance with the
"with or without method" as required by EITF 93-6 and 93-14. After adjusting
for the aforementioned items, gross premiums written (decreased) increased
(3.4%), 0.9% and 8.5% for the 1997, 1996 and 1995 fiscal years, respectively.

Net premiums written were likewise impacted by the above mentioned
adjustments. In addition net premiums written in 1997 and 1996 were affected
by the general liability quota share reinsurance policy which came into effect
on December 1, 1995. This reinsurance policy covers general liability risks,
with certain exclusions. X.L. and X.L.E. cede 20% of these risks with a total
limit of up to $100 million and 25% with a total limit in excess of $100
million. The Company has also purchased, with effect from September 1, 1997, a
general liability excess of loss reinsurance program . The adjustments noted
in Table III resulted in a decrease of 7.0% and 0.3% in 1997 and 1996,
respectively, from the prior year. The relative further decrease is reflective
of the growth in the product lines of X.L. Risk Solutions and employment
practices liability. As each of these lines are reinsured: growth will
increase the amount of premiums ceded.

The increase in net earned premiums in 1997 reflects the acquisition of GCRH
and its subsidiary, GCR. Most of the business GCR wrote occurred in the first
half of the year. As a consequence, GCR contributed premiums written of only
$12.9 million since the date of acquisition, June 12, 1997. Unearned premiums
were $66.0 million as of this date, resulting in GCR contributing $39.5
million in net earned premium. This has been offset by the decline in the
Company's general liability business and the placement of the excess of loss
reinsurance program. Net premiums earned will also likely continue to grow
temporarily, even when gross premiums written have started to decline, as the
growth in net premiums earned generally lags behind the growth in net premiums
written.

17

The decline in net premiums earned in 1996 is due to the effect of the
general liability quota share policy. Following the adjustment of the
previously mentioned items as noted in Table III, net premiums earned
increased 4.4%, 3.0% and 4.8% in 1997, 1996 and 1995, respectively.

Table II presents the split of gross premiums written by X.L., X.L.E and
XLGRe by line of business and after multi-year adjustments for the fiscal
years indicated (U.S. dollars in thousands):

Table II

1997 1996 1995
------------------------------------- ---------------------------------- --------------------------
X.L. X.L.E. XLGRE TOTAL X.L. X.L.E. XLGRE TOTAL X.L. X.L.E. TOTAL
-------- ------- -------- -------- -------- ------- -------- -------- -------- -------- --------

General liability.. $241,351 $37,819 -- $279,170 322,986 51,044 -- $374,030 $366,714 $ 61,069 $427,783
Directors &
officers
liability......... 18,359 1,804 -- 20,163 20,819 2,099 -- 22,918 22,393 2,392 24,785
Professional
liability......... 42,690 11,683 -- 54,373 41,776 10,662 -- 52,438 42,430 10,825 53,255
Employment
practices
liability......... 12,106 -- -- 12,106 3,006 -- -- 3,006 -- -- --
Property........... 24,250 2,598 -- 26,848 25,472 810 -- 26,282 20,035 1,708 21,743
X.L. Risk
Solutions......... 19,946 -- -- 19,946 8,252 -- -- 8,252 -- -- --
Reinsurance
assumed........... 31,186 10,310 102,833 144,329 13,265 14,602 75,392 103,259 45,658 16,020 61,678
-------- ------- -------- -------- -------- ------- -------- -------- -------- -------- --------
Annualized premium. 389,888 64,214 102,833 556,935 435,576 79,217 75,392 590,185 497,230 92,014 589,244
Adjustment for
multi year
premiums.......... (5,181) (8,985) (101,479) (115,645) 14,993 13,096 111,172 139,261 99,188 9,588 108,776
-------- ------- -------- -------- -------- ------- -------- -------- -------- -------- --------
Gross premiums
written........... $384,707 $55,229 $ 1,354 $441,290 $450,569 $92,313 $186,564 $729,446 $596,418 $101,602 $698,020
======== ======= ======== ======== ======== ======= ======== ======== ======== ======== ========

Although total gross premiums written declined in 1997 compared to 1996,
gross premiums written from reinsurance assumed grew significantly during the
same period. The nature of the reinsurance assumed has diversified to include
more traditional forms of reinsurance, including property, marine and
aviation. Other areas of reinsurance include satellite and political risk
cover. The Company initially focused on boutique or speciality reinsurance
arrangements. These contracts are few in number, loss sensitive and multi-year
in nature. Significant premiums were initially paid on these contracts of
which a significant portion is returnable where the contract goes loss free.
This was the case when two of these contracts were written in 1996 and four in
1997. Table III is adjusted for these contracts, as if they were not written.

SRA premiums assumed by X.L.E. relate principally to a specialty program,
where reinsurance protection is provided to a Bermuda-based reinsurer who
provides certificates of financial responsibility to ship owners in order for
them to comply with the U.S. Oil Pollution Act of 1990. The decline in
premiums in 1996 reflects the availability of additional capacity from
alternate sources. This program continued to decline in 1997 largely due to a
restructuring of the facility to an excess of loss basis from a quota share
basis.

X.L. Risk Solutions was introduced late in the second quarter of 1996. X.L.
Risk Solutions is a coordinated initiative with CIGNA to provide combined
limits of capacity for two or more of X.L.'s stand alone product lines over
three or more years. In addition, X.L. provides combined property capacity
coverage with CIGNA in certain circumstances which is reflected in the
property line. It should be noted, while this combined capacity provides
growth to gross premiums written, the cession of CIGNA's share of limits will
reduce net premiums written and earned.

Employment practices liability was introduced during the 1996 fiscal year in
response to a perceived need for such coverage. While there has been growth in
1997, competitive pressures will likely slow the rate of growth in 1998.

General liability has experienced the greatest decline in premium levels
reflecting the impact of severe competitive pressures from the U.S. domestic
market, Lloyds of London, European carriers and other Bermuda- based suppliers
of general liability coverage in both terms and pricing. These pressures have
led to a decline in

18

policy retention from 87.9% to 80.1% for 1996 and 1997, respectively.
Excluding insureds acquired by existing insureds, this ratio increased to
89.7% and 81.8%, respectively. The retention ratio for 1995 was 89.7%. Average
attachments were $104.0 million, $78.7 million and $73.0 million and average
limits were $86.4 million, $80.2 million and $72.8 million for the years
ending November 30, 1997, 1996 and 1995, respectively, reflecting the
Company's strategy to increase attachments where possible when confronted with
significant price reductions unaccompanied by commensurate reductions in
exposure. Accordingly, the decrease in premiums has been a factor associated
with increased attachments and lost business which has not been replaced by
new business.

The traditional professional and directors and officers liability lines have
declined only modestly despite significantly increased levels of competition.

Table III presents certain underwriting information with respect to the
business written, reflecting comparative adjustment, by the Company for the
years indicated:

Table III

YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------------------------
GROSS PREMIUMS WRITTEN NET PREMIUMS WRITTEN NET PREMIUMS EARNED
---------------------------- ---------------------------- ----------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- -------- -------- -------- --------
(U.S. DOLLARS IN THOUSANDS)

General liability....... $252,790 $432,002 $446,730 $150,816 $319,745 $446,730 $263,543 $325,777 $427,944
Directors and officers
liability.............. 23,147 27,612 24,785 23,147 27,612 24,785 21,195 23,893 27,522
Professional liability.. 57,699 56,517 53,983 57,699 56,517 53,983 53,907 53,822 53,939
Employment practices
liability.............. 12,106 3,006 -- 7,514 1,849 -- 5,668 449 --
Property................ 38,261 40,691 18,293 29,367 30,678 14,610 21,264 20,622 13,760
X.L. Risk Solutions..... 34,369 24,757 -- 27,870 15,840 -- 10,594 2,263 --
Reinsurance assumed..... 22,918 144,861 154,229 20,213 144,861 154,229 164,482 91,066 34,884
-------- -------- -------- -------- -------- -------- -------- -------- --------
Per financial
statements............. 441,290 729,446 698,020 316,626 597,102 694,337 540,653 517,892 558,049
Adjustment for multi-
year premiums.......... 115,645 (139,261) (108,776) 122,762 (129,432) (108,776) -- -- --
Annual adjustment for
SRA contracts.......... 6,852 (24,772) (13,500) 6,852 (24,772) (13,500) 4,938 (21,012) (5,362)
Retrospective portion of
mandatory premium
reinstatement.......... (11,000) -- (7,253) (11,000) -- (7,253) (11,000) -- (7,253)
Reinsurance ceded
general liability quota
share.................. -- -- -- 65,908 112,257 -- 47,003 65,159 --
Reinsurance ceded
general liability
excess of loss......... -- -- -- 33,750 -- -- 5,625 -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Adjusted premiums....... $552,787 $565,413 $568,491 $534,898 $555,155 $564,808 $587,219 $562,039 $545,434
======== ======== ======== ======== ======== ======== ======== ======== ========

The following table presents an analysis of the Company's revenues from its
portfolio of investments and its investments in affiliates:

Table IV

YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
CHANGE CHANGE CHANGE
FROM FROM FROM
AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR
-------- ---------- -------- ---------- -------- ----------
(U.S. DOLLARS IN THOUSANDS)

Net investment income... $216,552 9.1% $198,598 (0.8)% $200,145 9.8%
Net realized gains...... 335,939 N.M. 206,212 N.M. 49,774 N.M.
Equity in net income of
affiliates............. 65,882 11.2% 59,249 16.0% 51,074 100.0%

19

Net investment income declined modestly in 1996 compared to 1995 due to the
portfolio being carried at lower average investment yields. In 1997, the
growth in investment income reflects both a higher investment average yield
and a larger asset base.

Significant gains were realized in 1996 due to the liquidation of two fixed
maturity portfolios and one equity portfolio due to similarities in
strategies, and as a result of the overall strengthening of the bond and
equity markets. Also, during the fourth quarter of 1996 the Company invested
in a synthetic equity portfolio holding S&P 500 Index futures, realizing $37.4
million in gains.

During 1997, both the fixed income and equity portfolios were restructured,
resulting in above normal turnover of the portfolio, and contributing to the
significant gains realized during the year. The equity markets strengthened
during the year with the equity markets reaching historic highs. The Company's
investment managers have taken advantage of these market conditions and locked
in gains where deemed appropriate. The synthetic equity portfolio reflected
these market conditions and realized $46 million in gains during 1997. A
further discussion of this porfolio is included under "--Financial Condition
and Liquidity."

Equity in net income from affiliates is mostly attributable to MOCL. Income
attributable to this investment was $62 million, $59 million and $51 million
in 1997, 1996 and 1995, respectively. The Company's share of MOCL's net income
included realized gains of $2.6 million, $0.6 million and $0.4 million,
respectively. The balance of equity in net income from affiliates in 1997 was
derived from RCHI and income distributed from the Company's investments in
partnerships.

Table V sets forth the Company's combined ratios, using generally accepted
accounting principles, and the components thereof for the periods indicated:

Table V

YEAR ENDED
NOVEMBER 30,
----------------
1997 1996 1995
---- ---- ----

Loss and loss expense ratio............................. 67.6% 78.3% 79.0%
Underwriting expense ratio.............................. 18.2 15.3 15.0
Combined ratio.......................................... 85.8 93.6 94.0

The decrease in the loss and loss expense ratio in 1996 relates primarily to
the additional premium earned on the SRA business. Reserves are established on
this business on a contract-by-contract basis. Most of this business assumed
by X.L. and XLGRe to date has been short tailed, and due to the level of
attachments involved, no IBNR has been established on several contracts. The
decreasing effect this business has on the loss and loss expense ratio has
been offset to some degree by losses incurred of $14.5 million relating to
prior years. Loss developments in 1991 and 1995 were largely offset by the
reduction of reserves provided by good loss experience in 1993 and 1994.

The further decrease in the loss ratio in 1997 reflects continued growth of
the Company's short tail reinsurance business relative to its direct casualty
lines. The growth in reinsurance premiums assumed was enhanced by the
acquisition of GCR. Most of this business is property catastrophe in nature,
which experienced relatively low loss activity in 1997 and resulted in
lowering the overall loss ratio. X.L.E. also reduced short tail reserves that
related to its specialty reinsurance program. It must be emphasized that, the
shortness of the tail dictates relatively quickly, the adequacy or redundancy
of the reserves, making losses for this type of business potentially volatile
in nature.

Overall losses incurred in 1997 were high as noted in the "Reconciliation of
Unpaid Losses and Loss Expenses", disclosed in note 6 of the Company's
financial statements. The high level of incurred losses is driven by the
Company's reserving model, which was modified in 1996. The model reacts to
loss experience relative to its loss history. The nature of the Company's
casualty losses are low frequency, high severity. Accordingly, one

20

or two losses outside of the expected frequency can have a significant impact
on any given year. During 1997, the Company established three new casualty
indemnity reserves totalling $145 million. Historically, such losses have not
emerged this quickly, resulting in the model projecting increased loss
activity. Should actual loss activity prove to be different than the model's
indicated outcome, these reserves will be adjusted accordingly. The 1997
losses were offset by the reduction in reserves by $279 million that related
to prior years, inclusive of the short tail reserves reduced by X.L.E. as
mentioned above. The most significant releases were from 1995 and 1993 of $138
million and $84 million, respectively. Actual loss frequency declined in these
years due to the elimination of one indemnity reserve in 1995 and the
reclassification of one reserve from 1993 to 1994. The change in frequency
relative to historical experience resulted in the reserving model reducing
these reserves.

The underwriting expense ratio increased in 1996 over 1995, principally due
to the growth of administration expenses as a percentage of earned premiums.
Administration expenses were 8.5% and 5.5% in 1996 and 1995, respectively.
This growth in expense ratio was moderated by the impact of the general
liability quota share commissions and the lower average acquisition costs on
premiums written by XLGRe. Administration expenses increased to 9.7% in 1997
as the Company's operations expanded to increase its range of capabilities and
the acquisition of GCR. Acquisition costs as a percentage of earned premiums
have also increased by 1.6%, reflecting the higher costs associated with
writing reinsurance treaty business. The expense ratio excludes interest
expense and the amortization of intangible assets.

Except for X.L.I.B. and X.L.E., which are subject to a maximum tax rate of
2.5% and 10%, respectively, the Company and its subsidiaries are not subject
to corporate income taxes in the jurisdictions (other than withholding taxes
based on dividend income) in which they operate. Income tax expense was $5.1
million in 1997, $2.8 million, in 1996 and $1.7 million in 1995.

Net income was $677.0 million, $494.3 million and $332.8 million, or $7.84,
$5.39 and $3.22 per share in 1997, 1996 and 1995, respectively, representing
increases per share compared to the preceding years of 45.5%, 67.4% and
143.9%, respectively. The increase in per share amounts in 1996 over 1995 is
attributable to realized gains of $206.2 million compared to $49.8 million and
a decrease in the weighted average shares outstanding from 103.4 million
shares to 91.7 million shares. The increase in per share amounts in 1997 over
1996 again reflects a growth in realized gains from $206.2 million to $335.9
million and a decrease in the weighted average shares outstanding from 91.7
million shares to 86.4 million.

FINANCIAL CONDITION AND LIQUIDITY

As a holding company, the Company's assets consist primarily of its
investments in the stock of its subsidiaries and the Company's future cash
flows depend on the availability of dividends or other statutorily permissible
payments from its subsidiaries. In order to pay dividends, the amount of which
is limited to accumulated net realized profits, X.L. must maintain certain
minimum levels of share capital, solvency and liquidity pursuant to Bermuda
statutes and regulations. At November 30, 1997, X.L. could have paid dividends
in the amount of approximately $1.5 billion. Neither the Company nor any of
its subsidiaries other than X.L. and XLGRe had any other restrictions
preventing them from paying dividends. No assurance, however, can be given
that the Company or its subsidiaries will not be prevented from paying
dividends in the future. The Company's shareholders' equity at November 30,
1997 was $2.5 billion, of which $2.0 billion was retained earnings.

At November 30, 1997, total investments and cash net of the payable for
investments purchased were $4.3 billion, compared to $4.0 billion at November
30, 1996. The increase is due to the reinvestment of investment income and
realized gains and the strengthening of the bond and equity markets; however,
as the Company's business matures over the next three to five years, it is
possible that claims payments may increase due to the increased exposure to
events which occurred in prior years but have not yet been reported or paid.
It is also possible that funds available for investment may be reduced as
compared to prior years due to such increased claims payments. The Company's
fixed income investments (including short-term investments and cash

21

equivalents) at November 30, 1997 represented approximately 80% of invested
assets and were managed by several outside investment managers with different
strategies. Of the fixed income securities, 85% are of investment grade, with
58% rated Aa or AA or better by a nationally recognized rating agency.

In fiscal 1995, 1996 and 1997, the total amount of losses paid by the
Company was, $188.5 million, $302.6 million and $267.2 million respectively.

Insurance practices and regulatory guidelines suggest that property and
casualty insurance companies maintain a ratio of net premiums written to
statutory capital and surplus of not greater than 3 to 1, with a lower ratio
considered to be more prudent for a company that insures the types of
exposures written by X.L. which maintained a ratio of 0.8 to 1 for the year
ended November 30, 1995, 0.5 to 1 for the year ended November 30, 1996, and
0.4 to 1 for the year ended November 30, 1997. This ratio has declined largely
due to the increased levels of reinsurance ceded and the decline in premiums
written during 1997. XLGRe had a ratio of 0.08 to 1 for the year ended
November 30, 1996 and 0.7 to 1 for the year ended November 30, 1997.

The Company establishes reserves to provide for the estimated expenses of
settling claims, the general expenses of administering the claims adjustment
process and for losses incurred but not reported. These reserves are
calculated by using actuarial and other reserving techniques to project the
estimated ultimate net liability for losses and loss expenses. No assurance
can be given that actual claims made and payments related thereto will not be
in excess of the amounts reserved.

Inflation can have an effect on the Company in that inflationary factors can
increase damage awards and potentially result in more claims exceeding
applicable minimum attachment points. The Company's underwriting philosophy is
to adjust premiums in response to inflation, although this may not always be
possible due to competitive pressure. Inflationary factors are considered in
determining the premium level on multi-year policies at the time contracts are
written. In addition, the Company from time to time evaluates whether minimum
attachment points should be raised to take into account inflationary factors.

CORPORATE

The Company completed its fifth authorized stock repurchase program of 5
million shares on April 9, 1997 having purchased 2.8 million shares at a cost
of $115.0 million during fiscal 1997. On January 24, 1997, the Board of
Directors authorized the Company to repurchase a further 3 million shares as
circumstances warrant. As at November 30, 1997, the Company had purchased
595,000 shares at cost of $25.3 million under the existing program. There are
2.4 million shares remaining on this program.

The Company's $200 million revolving line of credit with Mellon Bank was
replaced on June 11, 1997, by two revolving lines of credit each for $250
million, one for 364 days and the other for 5 years. These facilities are
provided by a syndicate of banks led by Mellon Bank. The Company has made
several draw downs in connection with the purchase of GCR and to supplement
operational cash flow. GCRH was acquired at a total cost of $669 million, of
which $460 million was funded from the lines of credit. The amount of $300
million was repaid on July 11, 1997 through the liquidation of the GCR
investment portfolio. The weighted average interest rate on the funds borrowed
during the period was 6.058%. The loans are made up of three amounts: $80
million due June 12, 1998, and $40 million and $10 million which were repaid
on December 12, 1997.

On December 24, 1997, the Company received a firm commitment from a
syndicate of commercial banks led by Mellon Bank to replace its existing
unsecured letter of credit facility with a $500 million letter of credit
facility which will be secured against the Company's investment portfolio. The
Company has committed to unsecured letters of credit totalling $138.6 million
and (Pounds)10.2 million as at November 30, 1997.

The Company regularly evaluates the potential acquisition of, and
periodically holds discussions with, various potential acquisition candidates.
As a general rule, the Company publicly announces acquisitions only after a
definitive agreement has been reached unless otherwise required by law.

22

The Company is reviewing the effect that the Year 2000 will have on its
essential computer systems, especially those related to its ongoing operations
and its internal control systems, including the preparation of financial
information. The Company is developing plans to minimize any potential adverse
effect on its operations, systems or accounting records related to the Year
2000.

FINANCIAL RISK MANAGEMENT

This risk management discussion and the estimated amounts generated from the
sensitivity analyses are forward-looking statements of market risk assuming
certain adverse market conditions occur. Actual results in the future may
differ materially from these projected results due to actual developments in
the global financial markets. The analysis methods used by the Company to
assess and mitigate risk should not be considered projections of future events
of losses.

The Company's investment portfolio consists of fixed income and equity
securities, denominated in both U.S. and non-U.S. dollars. Accordingly,
earnings will be affected by changes in interest rates, equity prices and
foreign currency exchange rates.

An immediate 100 basis point adverse shift in the treasury yield curve would
result in a decrease in total return of 4.5% or $156 million of the Company's
fixed income portfolio. There would be no material impact on the Company's
short-term debt.

In evaluating the impact of price changes of the equity portfolio, including
the synthetic portion thereof, the annual volatility (standard deviation
adusted to an immeidate time horizon) of the S&P (Standard and Poors) Index and
the Morgan Stanley EAFE (European Australia Far East) Index were used as
proxies for the U.S. and non-U.S. securities, respectively. Based upon one
standard deviation, total return would be impacted by $12 million. A 5% change
in equity prices would effect total return by $51million.

Foreign Currency Risk Management

The Company attempts to hedge directly the foreign currency exposure of a
portion of its non-U.S. Dollar fixed maturity investments using forward foreign
exchange contracts that generally have maturities of three months or less, and
which are rolled over to provide continuing coverage for as long as the
investments are held. Where an investment is sold, the related foreign exchange
sale contract is closed by entering into an offsetting purchase contract. At
November 30, 1997 the Company had, as hedges, foreign exchange contracts for
the sale of $131.5 million and the purchase of $52.8 million of foreign
currencies at fixed rates, primarily Canadian Dollars (31% of net contract
value), German Marks (30%), Swedish Kroner (14%), Japanese Yen (12%), and
Finnish Markka (11%). The market value of non-U.S. Dollar fixed maturities held
by the Company as at November 30, 1997 was $79.7 million.

Unrealized foreign exchange gains or losses on foreign exchange contracts
hedging non-U.S. Dollar fixed maturity investments are deferred and included in
shareholders' equity. As at November 30, 1997, unrealized deferred gains
amounted to $2.7 million, and were offset by corresponding decreases in the
dollar value of the investments. Realized gains and losses on the maturity of
these contracts are also deferred and included in shareholders' equity until
the corresponding investment is sold. As at November 30, 1997, realized
deferred gains amounted to $10.3 million.

The Company uses foreign exchange contracts to manage the foreign exchange
risk of fluctuating foreign currencies on the value of its remaining non-U.S.
Dollar fixed maturities and its non-U.S. equity investments on an overlay
basis. These contracts are not designated as specific hedges and, therefore
realized and unrealized gains and losses recognized on them are recorded as a
component of net realized gains and losses in the period in which they occur.
In addition, where the Company's investment managers are of the opinion that
potential gains exist in a particular currency, then a forward contract will
not be entered into. At November 30, 1997 the Company had such forward
contracts outstanding of $400.2 million with unrealized gains of $16.0 million.
Gains

23

of $29.3 million were realized during the twelve-month period. Based on this
value, a 5% appreciation or devaluation of the U.S. Dollar as compared to the
level of other currencies under contract at November 30, 1997 would have
resulted in approximately $34.6 million in unrealized gains and $1.6 million in
losses.

In addition, the Company also enters into foreign exchange contracts to buy
and sell foreign currencies in the course of trading its non-U.S. Dollar
investments. These contracts are not designated as specific hedges, and
generally have maturities of two weeks or less. As such, any realized or
unrealized gains or losses are recorded in income in the period in which they
occur. At November 30, 1997, the Company had $6.6 million of such contracts
outstanding, and had recognized a total of $0.7 million in realized and
unrealized losses for the twelve month period. Based on this value, a 5%
appreciation or devaluation of the U.S. Dollar as compared to the level of
other currencies under contract at November 30, 1997 would have had no material
effect on income.

Speculative Financial Instruments

The Company also invests in a synthetic equity portfolio of S&P Index futures
with an exposure approximately equal in amount to the market value of
underlying assets held in this fund. As at November 30, 1997, the portfolio
held $188.8 million in exposure to S&P 500 Index futures together with fixed
maturities, short-term investments and cash amounting to $189.2 million. Based
on this value, a 5% increase or decrease in the price of these futures would
have resulted in exposure of $198.2 million and $179.4 million respectively.
The value of the futures is updated daily with the change recorded in income as
a realized gain or loss. For the year ended November 30, 1997, net realized
gains from index futures totalled $46.3 million as a result of the 28.5%
increase in the S&P Index during the twelve-month period.

Derivative investments are also utilized to add value to the portfolio where
market inefficiencies are believed to exist. At November 30, 1997, bond and
stock index futures outstanding were $302.4 million with underlying investments
having a market value of $2.0 billion (all managers are prohibited by the
Company's investment guidelines from leveraging their positions). A 5%
appreciation or depreciation of these derivative instruments at this time would
have resulted in unrealized gains and losses of $15.1 million, respectively.

ACCOUNTING STANDARDS

The Financial Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings per Share", effective for fiscal years ending after December 15,
1997. Earlier application is not permitted. This statement simplifies the
standards in APB-15 for computing earnings per share by replacing primary
earnings per share ("EPS") with basic earnings per share. Neither basic nor
diluted EPS as calculated in accordance with SFAS 128 would be materially
different from primary and fully diluted EPS as presented in these financial
statements and by altering the calculation of diluted earnings per share, which
replaces fully diluted earnings per share.

FASB also issued SFAS No. 129, "Disclosure of Information about Capital
Structure", effective for fiscal years ending after December 15, 1997. This
statement consolidates existing disclosure requirements and eliminates the
exemption for non-public entities for certain disclosure.

FASB issued Statement of Financial Accounting Standard No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", which the Company will be required to adopt
for Fiscal year 1998. This statement will require the Company to report in the
financial statements, in addition to net income, comprehensive income and its
components including, as applicable, foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain investments in
debt and equity securities. Upon adoption, the Company will also be required to
reclassify financial statements for earlier periods provided for comparative
purposes. The Company currently expects that the effect of adoption of SFAS 130
may be primarily from foreign currency translation adjustments and has not yet
determined the manner in which comprehensive income will be displayed.

24

FASB issued Statement of Financial Accounting Standards No. 131, ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related Information",
which the Company will be required to adopt for fiscal year 1998. This
statement established standards for reporting information about operating
segments in annual financial statements and requires selected information
about operation segments in interim financial reports issued to shareholders.
It also established standards for related disclosures about products and
services, geographic areas and major customers. Under SFAS 131, operating
segments are to be determined consistent with the way that management
organizes and evaluates financial information internally for making operating
decisions and assessing performance. The Company has not determined the impact
of the adoption of this new accounting standard on its consolidated financial
statement disclosures.

Apart from SFAS No. 131, these new standards are not expected to have a
material impact on the Company's financial statements and disclosures.

CURRENT OUTLOOK

The Company believes competition in the property casualty insurance and
reinsurance industry will continue to be strong and may intensify in 1998,
exerting pressure on rates in general and particularly in the Company's
traditional casualty product lines. Although the Company believes some
opportunities will exist in 1998 for growth in certain product lines, no
assurances can be made that growth in such other product lines will be
sufficient to offset the competitive pressures affecting the Company's
traditional product lines.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains statements that may be considered
to be "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements may include, without limitation,
insofar as they may be considered to be forward-looking statements, certain
statements in (i) "Business--Business Strategy" concerning the Company's
strategy; (ii) "Business--Competition" concerning certain trends in the
markets for the Company's products; (iii) "Business--Tax Matters" concerning
the possible material adverse effect on the Company's shareholders' equity and
earnings should the IRS successfully contend that either it or its
subsidiaries is engaged in trade or business in the United States without the
benefit of the U.S.-Bermuda tax treaty; (iv) "Management's Discussion and
Analysis--Results of Operations for the Years Ended November 30, 1997, 1996
and 1995" concerning (A) certain relationships among gross premiums written,
net premiums written and net premiums earned and (B) the prospects for growth
in X.L.'s employment practices liability insurance line in 1998; (v)
"Management's Discussion and Analysis--Financial Condition and Liquidity"
concerning the possibility that the Company's funds available for investment
may be reduced as compared to prior years if claim payments increase as the
Company's overall book of business continues to mature; (vi) "Management's
Discussion and Analysis--Financial Risk Management", "--Foreign Currency Risk
Management" and "--Speculative Financial Instruments" concerning the potential
effects of certain events on the Company's portfolios of fixed income and
equity instruments, foreign currency exposures and certain other types of
instruments; (vii) "Management's Discussion and Analysis--Accounting
Standards" concerning the possible effects of certain accounting standards on
the Company's accounting records, financial statements and other disclosures;
(viii) "Management's Discussion and Analysis--Current Outlook" concerning the
current outlook for rates and particular product lines; (ix) such other
statements contained in this Annual Report that may be considered to be
forward-looking statements; and (x) variations of the foregoing statements
wherever they appear in this Annual Report.

All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in such
statements. The Company believes that these include the following non-
exclusive factors:

(1) The Company's business strategy is based on current market conditions
as well as those which the Company anticipates will exist in the future.
Market conditions, which include the activities of other market

25

participants, are generally beyond the ability of the Company to control.
An inherent risk associated with any business strategy is that market
conditions will change in such a way as to render it ineffective, obsolete
or even counterproductive. Management believes that the property-casualty
insurance and reinsurance industry is dynamic and that the pace and extent
of changes in market conditions which could affect the Company's strategy
are likely to accelerate. Such changes may have a material adverse effect
on the Company's strategy, and hence its results of operations and
financial condition, in future periods.

(2) The property-casualty insurance and reinsurance industry is highly
competitive and could become even more competitive in the future. See
generally "Business--Competition". In particular, increased competition on
the basis of pricing and coverage terms could have a material adverse
effect on the Company's results of operations and financial condition in
future periods depending on the actions which it takes under such
circumstances in order to retain existing customers and attract new
business.

(3) As many of the risks which the Company's subsidiaries insure or
reinsure are large or catastrophic in nature, a major loss event or series
of major loss events can be expected to occur from time to time. The
Company is also exposed to the risk that, in certain circumstances, a set
of related casualty losses may be aggregated into a major loss event if
permitted by the terms of the relevant policy. Major loss events, which at
such high levels are inherently difficult to predict and quantify in
advance despite the Company's underwriting methodologies, may be greater in
severity and frequency than the Company anticipates. Accordingly, such
events may have a material adverse effect on the Company's results of
operations and financial condition in future periods.

(4) Many of the risks underwritten by the Company's subsidiaries are also
long-tail in nature, particularly those arising from its casualty lines of
business. Long-tail risks are those which may take many years for covered
occurrences to mature into payable claims. Losses may develop more quickly
than the Company anticipates, and historic loss development data on which
the Company's underwriting, reserving and investment practices are based
may not be a reliable indicator of loss development patterns in the future.
Accordingly, losses which develop faster than what the Company has
experienced in the past may have a material adverse effect on its results
of operations and financial condition in future periods.

(5) The performance of the Company's investment portfolio generally
depends on the performance fixed income and equity securities in selected
financial markets throughout the world, variations in interest and currency
exchange rates and other factors which are difficult to predict and beyond
the ability of the Company to control. Although the Company pursues
investment and risk management strategies with these factors in mind, it is
not possible to eliminate the risks associated with adverse developments in
any one or more of the foregoing. The Company's results of operations and
financial condition may be affected in future periods if any one or more of
the factors described above has a material adverse effect on the value of
its investment portfolio or the income derived therefrom.

(6) Regulation and taxation affecting insurance and reinsurance companies
has an effect on the Company's business. There could be a material adverse
effect on the Company's results of operations and financial condition if it
or its subsidiaries were to become subject to substantial regulation or
corporate income taxation, particularly from the United States, or if laws
were adopted to make it more difficult or costly for its customers to place
business with the Company's Bermuda-based subsidiaries.

(7) From time to time, the Company develops new risk transfer products
and related services which the Company believes can make a significant
contribution to its results of operations. There are many risks associated
with the introduction of new products and services, including
misperceptions concerning the demand therefor, changes in the market
conditions which may diminish the appeal of such products and services and
changes in the related accounting, regulatory or tax treatment, that may
cause the expected or desired contribution therefrom to be materially less
than initially contemplated.

(8) The Company may make acquisitions from time to time in furtherance of
its strategy. Acquisitions may have material effects on the Company's
results of operations, financial condition and shareholders' equity and
accordingly may cause actual results to differ from those described in a
forward-looking statement.

26

The factors set forth above should be considered in connection with any
forward-looking statement contained in this Annual Report. The important
factors that could affect such forward-looking statements are subject to
change, and the Company does not intend to update the foregoing list. By this
cautionary note, the Company intends to avail itself of the safe harbor from
liability with respect to forward-looking statements provided by Section 27A
and Section 21E referred to above.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES PAGE
- ------------------------------------------------------------ ----

Consolidated Balance Sheets as of November 30, 1997 and 1996.............. 28
Consolidated Statements of Income for the years ended November 30, 1997,
1996 and 1995............................................................ 29
Consolidated Statements of Shareholders' Equity for the years ended
November 30, 1997, 1996 and 1995......................................... 30
Consolidated Statements of Cash Flows for the years ended November 30,
1997, 1996 and 1995...................................................... 31
Notes to Consolidated Financial Statements for the years ended November
30, 1997, 1996 and 1995.................................................. 32
Independent Auditors' Report.............................................. 52

27

EXEL LIMITED

CONSOLIDATED BALANCE SHEETS AS AT NOVEMBER 30, 1997 AND 1996

(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

ASSETS 1997 1996
------ ---------- ----------

Investments:
Fixed maturities, at market value (amortized cost:
1997--$3,144,642; 1996--$2,812,415)................. $3,196,872 $2,844,877
Equity securities, at market value (cost: 1997--
$729,888; 1996--$595,149)........................... 837,827 812,050
Short-term investments, at market value (amortized
cost: 1997--$220,138; 1996--$115,791)............... 219,969 115,999
---------- ----------
Total investments.................................. 4,254,668 3,772,926
Cash and cash equivalents.............................. 394,599 252,734
Investment in affiliates (cost: 1997--$336,680; 1996--
$280,748)............................................. 517,396 414,891
Other investments...................................... 27,244 23,803
Accrued investment income.............................. 48,576 55,729
Deferred acquisition costs............................. 22,272 30,383
Prepaid reinsurance premiums........................... 108,916 63,467
Premiums receivable.................................... 254,238 345,082
Reinsurance balances receivable........................ 156,025 46,444
Intangible assets...................................... 267,695 --
Other assets........................................... 36,833 26,079
---------- ----------
Total assets....................................... $6,088,462 $5,031,538
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Liabilities:
Unpaid losses and loss expenses...................... $2,342,254 $2,099,096
Unearned premiums.................................... 566,911 679,535
Premiums received in advance......................... 40,706 24,256
Accounts payable and accrued liabilities............. 40,923 28,171
Reinsurance premiums payable......................... 69,305 31,347
Loans payable........................................ 141,000 11,000
Payable for investments purchased.................... 382,345 42,095
Minority interest.................................... 25,888 --
---------- ----------
Total liabilities.................................. $3,609,332 $2,915,500
========== ==========
Shareholders' Equity:
Ordinary shares (par value $0.01; authorized,
999,990,000 shares; issued and outstanding,
84,407,638 shares (excluding 27,594,800 shares held
in treasury) and 87,170,644 shares (excluding
24,205,100 shares held in treasury) at November 30,
1997 and 1996, respectively)........................ 844 872
Contributed surplus.................................. 290,085 282,980
Net unrealized appreciation on investments 188,444 256,430
Deferred compensation................................ (11,362) (4,169)
Retained earnings.................................... 2,011,119 1,579,925
---------- ----------
Total shareholders' equity......................... $2,479,130 $2,116,038
---------- ----------
Total liabilities and shareholders' equity......... $6,088,462 $5,031,538
========== ==========

See accompanying notes to Consolidated Financial Statements

28

EXEL LIMITED

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

(EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

1997 1996 1995
--------- -------- --------

Revenues:
Net premiums earned............................. $ 540,653 $517,892 $558,049
Net investment income........................... 216,552 198,598 200,145
Realized gains on sale of investments (Note 3).. 335,939 206,212 49,774
Equity in net income of affiliates.............. 65,882 59,249 51,074
--------- -------- --------
Total revenues................................ 1,159,026 981,951 859,042
--------- -------- --------
Expenses:
Losses and loss expenses........................ 365,325 405,357 440,922
Acquisition costs............................... 46,108 35,556 53,016
Administration expenses......................... 52,557 43,920 30,586
Interest expense................................ 7,176 -- --
Amortization of intangible assets............... 5,844 -- --
--------- -------- --------
Total expenses................................ 477,010 484,833 524,524
--------- -------- --------
Income before minority interest and income tax
expense.......................................... 682,016 497,118 334,518
Minority interest in net income of subsidiary..... (30) -- --
Income tax expense................................ 5,085 2,805 1,720
--------- -------- --------
Net income........................................ $ 676,961 $494,313 $332,798
========= ======== ========
Weighted average number of ordinary shares and
ordinary share equivalents outstanding........... 86,373 91,731 103,438
========= ======== ========
Net income per ordinary share and ordinary share
equivalent....................................... $ 7.84 $ 5.39 $ 3.22
========= ======== ========

See accompanying notes to Consolidated Financial Statements

29

EXEL LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

1997 1996 1995
---------- ---------- ----------

Ordinary Shares:
Balance-beginning of year................ $ 872 $ 473 $ 535
Issuance of shares (aggregate par value
less than $1 in 1995)................... 3 1 --
Stock dividend........................... -- 441 --
Exercise of stock options................ 3 4 1
Repurchase of treasury shares............ (34) (47) (63)
---------- ---------- ----------
Balance-end of year.................... 844 872 473
---------- ---------- ----------
Contributed Surplus:
Balance-beginning of year................ 282,980 295,209 328,374
Issuance of restricted shares............ 10,771 7,493 1,926
Exercise of stock options................ 6,277 6,045 4,603
Repurchase of treasury shares............ (9,943) (25,767) (39,694)
---------- ---------- ----------
Balance-end of year.................... 290,085 282,980 295,209
---------- ---------- ----------
Net Unrealized Appreciation (Depreciation)
on Investments:
Balance-beginning of year................ 256,430 283,289 (110,410)
Net change in investment portfolio....... (82,521) (26,621) 378,158
Net change in investment portfolio of
affiliate............................... 14,535 (238) 15,541
---------- ---------- ----------
Balance-end of year.................... 188,444 256,430 283,289
---------- ---------- ----------
Deferred Compensation:
Balance-beginning of year................ (4,169) (1,657) (837)
Issuance of restricted shares............ (10,387) (3,799) (1,800)
Amortization............................. 3,194 1,287 980
---------- ---------- ----------
Balance-end of year.................... (11,362) (4,169) (1,657)
---------- ---------- ----------
Retained Earnings:
Balance-beginning of year................ 1,579,925 1,428,819 1,466,731
Net income............................... 676,961 494,313 332,798
Cash dividends paid...................... (115,372) (86,586) (71,253)
Repurchase of treasury shares............ (130,395) (256,621) (299,457)
---------- ---------- ----------
Balance-end of year.................... 2,011,119 1,579,925 1,428,819
---------- ---------- ----------
Total shareholders' equity........... $2,479,130 $2,116,038 $2,006,133
========== ========== ==========

See accompanying notes to Consolidated Financial Statements

30

EXEL LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

1997 1996 1995
------------ ----------- -----------

Cash flows provided by operating
activities:
Net income........................ $ 676,961 $ 494,313 $ 332,798
Adjustments to reconcile net income to
net cash provided by operating
activities:
Net realized gains on sale of
investments (335,939) (206,212) (49,774)
Unrealized loss (gain) on foreign
exchange........................... -- -- 3,069
Amortization of (discounts) premium
on fixed maturities................ (2,163) 7,021 5,006
Equity in net income of affiliates
net of cash received............... (34,395) (44,329) (43,703)
Amortization of deferred
compensation....................... 3,194 1,287 980
Amortization of intangible assets... 5,844 -- --
Unpaid losses and loss expenses..... 208,565 178,596 255,066
Reinsurance balances receivable..... (109,581) (45,442) (1,002)
Unearned premiums................... (178,584) 140,239 138,726
Prepaid reinsurance premiums........ (45,449) (61,029) (2,438)
Premiums received in advance........ 16,450 19,376 (6,874)
Deferred acquisition costs.......... 17,292 10,571 (5,237)
Premiums receivable................. 154,521 (111,054) (116,312)
Reinsurance premiums payable........ 37,958 30,524 823
Accrued investment income........... 10,729 (2,580) 6,929
Accounts payable and accrued
liabilities........................ 2,839 11,188 5,108
------------ ----------- -----------
Total adjustments................. (248,719) (71,844) 190,367
------------ ----------- -----------
Net cash provided by operating
activities....................... 428,242 422,469 523,165
------------ ----------- -----------
Cash flow used in investing
activities:
Proceeds from sale of fixed
maturities and short-term
investments........................ 10,332,277 4,283,613 5,504,741
Proceeds from redemption of fixed
maturities and short-term
investments........................ 108,220 119,706 81,000
Proceeds from sale of equity
securities......................... 1,164,483 591,366 221,212
Purchases of fixed maturities and
short-term investments............. (10,078,481) (5,059,795) (5,276,683)
Purchases of equity securities...... (999,384) (374,565) (401,379)
Deferred gains on forward contracts. 7,049 418 40,233
Investments in affiliates........... (43,184) (19,131) (59,549)
Purchase of GCR Holdings Limited.... (660,137) -- --
Other investments................... 154 (13,736) (5,642)
Other assets........................ (24,185) (20,208) 1,605
------------ ----------- -----------
Net cash (used in) provided by
investing activities............. (193,188) (492,332) 105,538
------------ ----------- -----------
Cash flows used in financing
activities:
Issuance of restricted shares....... 387 695 126
Proceeds from exercise of share
options............................ 6,280 6,049 3,135
Repurchase of treasury shares....... (140,372) (282,435) (343,454)
Dividends paid...................... (115,372) (86,145) (71,253)
Proceeds from loans................. 620,000 11,000 --
Repayment of loans.................. (490,000) -- --
Minority Interest................... 25,888 -- --
------------ ----------- -----------
Net cash used in financing
activities....................... (93,189) (350,836) (411,446)
------------ ----------- -----------
Increase (decrease) in cash and cash
equivalents.......................... 141,865 (420,699) 217,257
Cash and cash equivalents--beginning
of year.............................. 252,734 673,433 456,176
------------ ----------- -----------
Cash and cash equivalents--end of
year................................. $ 394,599 $ 252,734 $ 673,433
============ =========== ===========
Taxes paid............................ $ 2,622 $ 1,571 $ 1,056
============ =========== ===========

See accompanying notes to Consolidated Financial Statements

31

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

(EXPRESSED IN U.S. DOLLARS)

1. GENERAL OPERATIONS

EXEL Limited ("EXEL" or the "Company") was incorporated with limited
liability under the Cayman Islands Companies Act on April 14, 1986 to own all
of the outstanding shares of, and to provide capital for, X.L. Insurance
Company, Ltd. (X.L.). On January 8, 1990, X.L. obtained a Certificate of
Continuance from the Bermuda Government, having originally been incorporated
with limited liability under the Barbados Companies Act 1982 on April 11,
1986.

X.L. provided the capital to incorporate X.L. Investments Ltd. (X.L.I.) on
November 16, 1987 under the laws of Bermuda. X.L.I. in turn provided the
capital to incorporate X.L. Investments (Barbados), Inc. (X.L.I.B.) on May 19,
1989 under the laws of Barbados.

In 1990, X.L. provided the capital to incorporate through two holding
companies, X.L.E., under the laws of the Republic of Ireland.

On November 1, 1995, X.L. Reinsurance Company, Ltd. (XLRe) was incorporated
under the laws of Bermuda as a wholly-owned subsidiary of X.L. and
subsequently commenced operations effective December 1, 1995. On June 12,
1997, the Company, through a subsidiary, acquired GCR Holdings Limited. The
net assets of this company's wholly-owned operating subsidiary, Global Capital
Reinsurance Company Limited (GCR) were combined with XLRe with effect from
this day. On November 4, 1997 XLRe was renamed X.L. Global Reinsurance
Company, Ltd. (XLGRe).

On October 27, 1997 XLRe and Risk Capital Reinsurance Company (RCRe), a
wholly-owned subsidiary of Risk Capital Holdings, Inc. (RCHI) formed Latin
American Reinsurance Company, Ltd. (LARe) under the laws of Bermuda. RCHI is
an affiliate of X.L. LARe was capitalized with $100 million, of which XLRe and
RCRe contributed approximately 75% and 25% respectively. LARe will provide
multi-line reinsurance to the Latin American market, emphasizing short-tail,
multi-peril property reinsurance and, to a limited extent, casualty, marine,
aviation and other lines of reinsurance. To date no contracts have been
written.

X.L. and X.L.E. provide on an occurrence-reported policy form:

Third party liability coverage up to a maximum of $150 million per
occurrence and annual aggregate in excess of a minimum attachment point of
$25 million and $15 million per occurrence, respectively.

X.L. and X.L.E. provide on a claims-made policy form:

Directors and Officers liability up to a maximum of $25 million in excess
of $20 million for United States risks and up to $50 million for individual
director indemnification and excluding corporate reimbursement in excess of
$20 million, or $15 million in excess of $15 million for non-United States
risks, or a limit of $25 million in excess of not less than $25 million.

Professional liability coverage, for certain categories of risk, up to a
maximum of $50 million with a minimum attachment point of $25 million, or
$20 million for law firms.

The general liability and the professional liability coverages are also
offered with the premiums calculated utilizing an alternate rating formula.
These policies have a minimum attachment point of $10 million with the maximum
limit not to exceed $150 million for general liability and $50 million for
professional liability.

X.L. provides on a claims-made and reported policy form employment practices
liability up to a maximum of $100 million with a minimum attachment of $1
million.

32

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

X.L. and X.L.E. provide coverage for high excess property insurance
currently offered up to $100 million of capacity per occurrence and $10
million annual aggregate for high frequency/severity earthquake. The minimum
attachment is generally $25 million for industrial/commercial accounts and
$100 million for oil/petrochemical accounts.

During February 1996, X.L. Risk Solutions and CIGNA Risk Solutions were
announced as a coordinated initiative between X.L. and CIGNA Property &
Casualty ("CIGNA"). The product provides combined capacity for traditional
casualty and property coverages provided by X.L. or CIGNA. Available capacity
by line of coverage is $60 million to $200 million depending upon the lines
selected. Attachment levels, may in certain situations be provided below
traditional stated levels subject to the underwriting requirements.

XLGRe provides large net line capacity for specialized programs to
insurance/reinsurance companies, predominately in the United States and
Bermuda, and to a lesser extent, other geographic regions around the world.
Each contract is underwritten utilizing actuarial models to develop expected
outcomes and to determine the amount of capital necessary to support the
transaction. In general the cover provided by XLGRe is either on an excess of
loss or quota share basis within the following guidelines:

. Third party liability coverage for up to $100 million.
. Directors and officers liability up to $75 million per claim.
. High excess property reinsurance for up to $50 million per occurrence.
. Financial reinsurance, credit enhancement, swaps and other collateralized
transactions for up to $100 million in limits.

Presently, eighty percent of the portfolio consists of short-tail business
and is written on a guaranteed cost basis, loss sensitive rating approach or a
combination of both.

Property quota share reinsurance of 17.5% (subject to catastrophe occurrence
limit restrictions) of the X.L. property limits was purchased from two Bermuda
based property reinsurers, effective April 1, 1994. GCR was one of these
reinsurers. The quota share was increased to 25% of the X.L. property limits,
effective April 14, 1995, with the additional cover provided by Mid Ocean
Reinsurance Company, Ltd. ("MOR"), a wholly-owned subsidiary of MOCL. GCR
participation on this program was cancelled with effect from June 12, 1997 and
replaced with two U.S. reinsurers and one non-U.S. reinsurer, effective July
15, 1997. All property reinsurers are rated, of which the lowest as rated by
S&P is A-.

Effective December 1, 1995, X.L. entered into a quota share reinsurance
policy with five U.S. reinsurers and one non-U.S. reinsurer covering general
liability risks only. Effective December 1, 1996, two additional reinsurers
were added to the program, of which one is RCRe. Under the terms of the
policy, X.L. will cede 20% of risks with total limits up to $100 million and
25% of risks with total limits in excess of $100 million. The maximum amount
recoverable from the reinsurers will be the ceded percentage of the original
policy limit on a per occurrence basis, with an annual aggregate of 225% of
the total premium ceded. No single reinsurer participates in excess of 23% of
the quota share. With the exception of RCRe, all the reinsurers are rated, of
which the lowest as rated by S&P is BBB.

With respect to employment practices liability cover, X.L. reinsures on a
quota share basis one third of the first $75 million to a U.S. insurer and
cedes the remaining excess layer of $25 million to a Bermuda based insurer.
Both reinsurers are rated, of which the lowest as rated by A.M. Best is A.

A quota share arrangement exists between X.L. and CIGNA based on pre agreed
percentages by line of coverage for blended covers written through Risk
Solutions. These percentages vary from 12.5% to 90%, but do not exceed X.L.'s
normal capacity on individual lines of cover. X.L. may underwrite an account
100% without CIGNA participation.

33

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Effective September 1, 1997, X.L. and X.L.E. entered into an excess of loss
casualty catastrophe reinsurance contract covering all general liability
risks. Under the terms of this policy, X.L. and X.L.E. are reinsured for $80
million ultimate net loss each occurrence excess of a per occurrence
retention, subject to an annual aggregate retention. The maximum amount
recoverable from the reinsurers will be an annual aggregate of $250 million.
For the year ended November 30, 1997, 92.5% of this reinsurance has been
placed with seventeen reinsurers, all of which are rated. With the exception
of two reinsurers, the lowest as rated by S&P is A-. The other two reinsurers
are rated BBB and BB by S&P, representing 3.5% participation on this program.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

These consolidated financial statements include the accounts of the Company
and all of its subsidiaries and have been prepared in accordance with
accounting principles generally accepted in the United States of America. All
material intercompany accounts and transactions have been eliminated. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Certain amounts in the financial statements for prior years have been
reclassified to conform with the 1997 presentation. All share amounts have
been adjusted for the one-for-one stock dividend paid to shareholders of
record July 26, 1996.

(b) Premiums and Acquisition Costs

Premiums written are earned on a monthly pro-rata basis over the period the
coverage is provided. Unearned premiums represent the portion of premiums
written which is applicable to the unexpired terms of policies in force.
Premiums written under the multi-year alternate rating methodology may be
subject to a mandatory reinstatement premium in the event of a loss. An asset
is accrued to reflect the obligation of the insured's reinstatement premium
and the premium is earned in accordance with the "with or without" method;
that is, the pricing of the premium is evaluated in terms of a no loss
situation and the resultant premium is earned over the remaining term of the
policy. The balance of the reinstatement premium is earned to the extent of
the loss reaching the full policy limit; that is, in the event of a full limit
loss the balance of the reinstatement premium together with any unearned
premium of the underlying cover would be fully earned. Premiums written and
unearned premiums are presented after deductions for reinsurance ceded to
other insurance companies.

Acquisition costs which vary with and are primarily related to the
acquisition of policies, primarily commissions paid to insurance brokers, are
deferred and amortized over the period the premiums are earned. Future earned
premiums and the anticipated losses and other costs related to those premiums
are also considered in determining the level of acquisition costs to be
deferred.

(c) Investments

Investments are available for sale and are carried at market value. The net
unrealized appreciation or depreciation on investments is included as a
separate component of shareholders' equity.

Short-term investments comprise investments with a maturity equal to or
greater than 90 days but less than one year.

34

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

All investment transactions are recorded on a trade date basis. Realized
gains and losses on sale of investments are determined on the basis of average
cost or amortized cost. Investment income is recognized when earned and
includes the amortization of premium and discount on fixed maturities and
short-term investments.

Financial futures and forward currency contracts are marked to market, with
the corresponding realized or unrealized gain or loss included in income,
except in the instance of forward foreign currency contracts that are used to
hedge currency risks on specific investments. Gains and losses from these
contracts are deferred and included in shareholders' equity until the
corresponding asset is sold.

(d) Foreign Currency Translation

The functional and reporting currency of the Company and its subsidiaries is
U.S. Dollars. Unhedged monetary assets and liabilities in foreign currencies
are translated at the exchange rate in effect at the balance sheet date with
the resulting foreign exchange gains and losses recognized in income. Revenue
and expense transactions are translated at the average exchange rates
prevailing during the year.

(e) Investment in Affiliates

The Company accounts for its investments in affiliates on the equity basis.

(f) Other Investments

The Company accounts for its other investments on a cost basis. Assets are
written down to there realizable value where there is a permanent decrease in
value. Income is recorded when received.

(g) Amortization of Intangible Assets

Intangible assets recorded in connection with the Company's business
combinations are amortized on a straight-line basis over the expected life of
the related operations acquired or twenty years, whichever is less.

(h) Losses and Loss Expenses

Unpaid losses and loss expenses includes reserves for unpaid reported losses
and loss expenses and for losses incurred but not reported. The reserve for
unpaid reported losses and loss expenses has been established by management in
consultation with independent legal counsel and represents the estimated
ultimate cost of events or conditions that have been reported to or
specifically identified by the Company.

The Company recognizes as a component of loss reserves, the loss experience
accounts of insurers for policies written under the applicable multi-year
alternate rating methodology. Such experience accounts are a percentage of
premiums net of related losses paid. Interest is earned on liable amounts and
charged to investment income. In the event the insured cancels the policy, the
return of the experience account is treated as a commutation if previously
notified of a loss, or as a return premium if there has been no loss
notification.

The reserve for losses incurred but not reported has been estimated by
management in consultation with independent actuaries and is based on loss
development patterns determined by reference to the Company's underwriting
practices, the policy form and the experience of the relevant insurance
industries.

Management believes that the reserves for unpaid losses and loss expenses
are sufficient to pay any claims that may penetrate the minimum attachment
point. However, there can be no assurance that losses will not exceed the
Company's total reserves. The methodology of estimating the reserve is
periodically reviewed to ensure that

35

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the assumptions made continue to be appropriate and any adjustments resulting
therefrom are reflected in income of the year in which the adjustments are
made.

(i) Statements of Cash Flows

For purposes of the statements of cash flows, cash equivalents include fixed
interest deposits placed with a maturity of under 90 days when purchased.

(j) Income per Ordinary Share and Ordinary Share Equivalent

Income per ordinary share and ordinary share equivalent is based upon the
weighted average number of shares outstanding using the modified treasury
stock method for share options. There is no material difference between
primary and fully diluted net income per ordinary share and ordinary share
equivalent.

3. INVESTMENTS

Net investment income is derived from the following sources (U.S. dollars in
thousands):

YEAR ENDED NOVEMBER 30,
--------------------------
1997 1996 1995
-------- -------- --------

Fixed maturities, short-term investments and cash
and cash equivalents............................... $220,859 $200,711 $205,123
Equity securities................................... 14,516 11,752 10,001
-------- -------- --------
Total investment income........................... 235,375 212,463 215,124
Investment expenses............................... 18,823 13,865 14,979
-------- -------- --------
Net investment income............................. $216,552 $198,598 $200,145
======== ======== ========

The following represents an analysis of realized and the change in
unrealized gains (losses) on investments (U.S. dollars in thousands):

YEAR ENDED NOVEMBER 30,
----------------------------
1997 1996 1995
-------- -------- --------

Realized gains (losses):
Fixed maturities and short-term investments:
Gross realized gains........................... $177,331 $103,830 $176,518
Gross realized losses.......................... (168,048) (53,463) (145,737)
-------- -------- --------
Net realized gains........................... 9,283 50,367 30,781
Equity securities:
Net realized gains............................. 326,656 155,845 16,969
Net realized gain on sale of investment in
affiliates.................................... -- -- 2,024
-------- -------- --------
Net realized gains on investments................ 335,939 206,212 49,774
-------- -------- --------
Change in unrealized gains (losses):
Fixed maturities and short-term investments.... 19,391 (58,654) 183,627
Equity securities.............................. (108,961) 31,616 154,298
Deferred gains on forward contracts............ 7,049 418 40,233
Investment portfolio of affiliates............. 14,535 (239) 12,560
-------- -------- --------
Net change in unrealized gains (losses) on
investments..................................... (67,986) (26,859) 390,718
-------- -------- --------
Total realized and change in unrealized gains
on investments.............................. $267,953 $179,353 $440,492
======== ======== ========

36

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The cost (amortized cost for fixed maturities and short-term investments),
market value and related unrealized gains (losses) of investments are as
follows (U.S. dollars in thousands):

COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
NOVEMBER 30, 1997 COST GAINS LOSSES VALUE
----------------- ---------- ---------- ---------- ----------

Fixed maturities:
U.S. Government and Government
agency.......................... $1,055,581 $ 7,318 $ (612) $1,062,287
Corporate bonds.................. 1,545,473 52,504 (8,095) 1,589,882
Non-U.S. Sovereign Government
bonds........................... 543,588 12,112 (10,997) 544,703
---------- -------- -------- ----------
Total fixed maturities......... $3,144,642 $ 71,934 $(19,704) $3,196,872
========== ======== ======== ==========
Short-term investments:
U.S. Government and Government
agency.......................... $ 9,941 $ 4 $ -- $ 9,945
Corporate bonds.................. 197,770 209 (56) 197,923
Non-U.S. Sovereign Government
bonds........................... 12,427 -- (326) 12,101
---------- -------- -------- ----------
Total short-term investments... $ 220,138 $ 213 $ (382) $ 219,969
========== ======== ======== ==========
Equity securities:
Total equity securities........ $ 729,888 $154,177 $(46,238) $ 837,827
========== ======== ======== ==========

NOVEMBER 30, 1996
-----------------

Fixed maturities:
U.S. Government and Government
agency.......................... $1,031,963 $ 10,063 $ (8,566) $1,033,460
Corporate bonds.................. 1,340,845 33,303 (12,692) 1,361,456
Non-U.S. Sovereign Government
bonds........................... 439,607 15,352 (4,998) 449,961
---------- -------- -------- ----------
Total fixed maturities......... $2,812,415 $ 58,718 $(26,256) $2,844,877
========== ======== ======== ==========
Short-term investments:
U.S. Government and Government
agency.......................... $ 17,356 $ 29 $ -- $ 17,385
Corporate bonds.................. 98,435 207 (28) 98,614
Non-U.S. Sovereign Government
bonds........................... -- -- -- --
---------- -------- -------- ----------
Total short-term investments... $ 115,791 $ 236 $ (28) $ 115,999
========== ======== ======== ==========
Equity securities:
Total equity securities........ $ 595,149 $231,158 $(14,257) $ 812,050
========== ======== ======== ==========

The portfolio of fixed maturities as of November 30, 1997 and 1996 matures
as follows (U.S. dollars in thousands):

NOVEMBER 30, 1997 NOVEMBER 30,1996
--------------------- ---------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- ---------- ----------

Due after 1 through 5 years...... $ 966,598 $ 967,571 $ 945,746 $ 952,360
Due after 5 through 10 years..... 785,625 799,996 989,547 1,002,937
Due after 10 through 15 years.... 237,296 236,691 81,736 87,003
Due after 15 years............... 776,202 808,729 528,678 537,639
Mortgage-backed investments...... 378,921 383,885 266,708 264,938
---------- ---------- ---------- ----------
$3,144,642 $3,196,872 $2,812,415 $2,844,877
========== ========== ========== ==========

37

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. INVESTMENT IN AFFILIATES

The Company has investments in Mid Ocean Company Limited (MOCL), RCHI and
Venton Holdings Ltd. (VHL). The Company owns 29.1% and 29.9% of the issued
voting shares and 24.8% and 28.1% of the total issued shares of MOCL as at
November 30, 1997 and 1996, respectively. The Company, through its subsidiary
XLGRe, provides reinsurance cover to Mid Ocean Reinsurance Company Limited, on
an excess basis.

The Company owns 27.9% and 22.1% of the issued shares of RCHI as at November
30, 1997 and 1996, respectively. Outstanding share warrants if exercised would
dilute the Company's ownership to 22.8% and 17.6%. RCHI commenced operations
on November 6, 1995.

The Company owns 30% of Pareto Partners, a partnership engaged in the
business of providing investment advisory and discretionary management
services.

In June 1997, X.L. acquired 20% of VHL from the Trident Partnership L.P. of
which EXEL is a 7.5% limited partner. The cost of this investment was $34.5
million, $17.3 million of which was paid in cash with a commitment to fund the
balance as required. VHL manages three syndicates at Lloyd's of London which
underwrite non-marine, marine and all main classes of business, respectively.

5. OTHER INVESTMENTS

The Company has committed to invest in several limited partnerships as part
of its overall corporate strategy. The primary purpose of these partnerships
is to invest capital provided by the partners in various insurance and
reinsurance ventures. The Company had invested $27.2 million and $23.8 million
as at November 30, 1997 and 1996, respectively, with commitments to invest a
further $41.2 million and $44.9 million respectively, over the next eight
years. The Company received income from its investments of $4.3 million and
$Nil for the years ended November 30, 1997 and 1996, respectively. The Company
continually reviews the performance of the partnerships to ensure there is no
decrease in the values of its investments. The Company is a limited partner
and, as such, does not actively participate in the management of the
partnerships.

6. LOSSES AND LOSS EXPENSES

Unpaid losses and loss expenses net of reinsurance balances receivable
comprise (U.S. dollars in thousands):

YEAR ENDED NOVEMBER 30,
--------------------------------
1997 1996 1995
---------- ---------- ----------

Reserve for reported losses................ $ 800,815 $ 786,515 $ 811,327
Reserve for losses incurred but not
reported.................................. 1,366,126 1,248,759 1,098,575
Reserve for loss expenses.................. 19,288 17,378 9,596
---------- ---------- ----------
Unpaid losses and loss expenses............ $2,186,229 $2,052,652 $1,919,498
========== ========== ==========

Losses and loss expenses incurred comprise (U.S. dollars in thousands):

Loss payments.............................. $ 262,975 $ 299,492 $ 184,575
Loss expense payments...................... 4,251 3,150 3,929
Change in unpaid losses and loss expenses.. 98,099 102,715 252,418
---------- ---------- ----------
Losses and loss expenses incurred.......... $ 365,325 $ 405,357 $ 440,922
========== ========== ==========

38

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Reconciliation of unpaid losses and loss expenses:

YEAR ENDED NOVEMBER 30,
---------------------------------
1997 1996 1995
---------- ---------- ----------

Unpaid losses and loss expenses at
beginning of period..................... $2,052,652 $1,919,498 $1,665,434
Losses and loss expenses incurred in
respect of losses
occurring in:
Current year........................... 644,108 390,892 440,394
Prior years............................ (278,783) 14,465 528
---------- ---------- ----------
Total.................................... 365,325 405,357 440,922
---------- ---------- ----------
Interest incurred on experience
reserves.............................. 886 1,752 1,646
Portfolio transfer..................... 34,593 28,687 --
Losses and loss expenses paid in respect
of losses
occurring in:
Current Year........................... 34,055 3,177 134
Prior years............................ 233,172 299,465 188,370
---------- ---------- ----------
Total.................................... 267,227 302,642 188,504
---------- ---------- ----------
Unpaid losses and loss expenses at end of
period.................................. $2,186,229 $2,052,652 $1,919,498
========== ========== ==========

During 1997, the Company established three new 1997 casualty indemnity
reserves totalling $145 million. Historically, such losses have not emerged
this quickly. The nature of the Company's losses are low frequency, high
severity. The Company's reserving model, which was enhanced in 1996, reacts to
loss experience relative to its loss history. Accordingly, one or two losses
outside of the expected frequency can have a significant impact on any given
year, and the high level of the 1997 current year incurred losses was a result
of this. Should actual loss history prove to be different than the model's
indicated outcome, these reserves will be adjusted accordingly.

The 1997 current paid losses represents, reinsurance treaty losses on the
Company's short tail business.

The 1997 losses were offset by the release of $279 million in reserves that
related to prior years. The change in frequency relative to historical
experience resulted in the reserving model reducing the required reserves.

Losses and loss expenses incurred for prior years during 1996 and 1995 are
not attributable to any single event or group of related events, but the
development of losses at a higher rate than the expected loss emergence
pattern.

7. CONTINGENCIES AND COMMITMENTS

The Company has committed to unsecured letters of credit totalling $138.6
million and (Pounds)10.2 million as at November 30, 1997.

On December 24, 1997, the Company received a firm commitment from a
syndicate of commercial banks led by Mellon Bank to replace its existing
letter of credit facility with a $500 million letter of credit facility which
will be secured against the Company's investment portfolio. Existing letters
of credit will become part of this facility.

8. CREDIT AGREEMENT

On November 16, 1996, the Company established a revolving line of credit
with Mellon Bank. On June 11, 1997, this was replaced by two unsecured
revolving lines of credit of $250 million each, one for 364 days (short-term)
and the other for 5 years (long-term). During the year a total of $620 million
was borrowed at a weighted

39

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

average rate of 6.058%. Total interest expense and facility costs amounted to
$7.18 million for the year ended November 30, 1997. As at November 30, 1997,
the outstanding balance was $130.0 million and is repayable within the next
twelve months.

The Credit Agreement for both facilities contains various financial and non-
financial covenants, including a requirement for the Company to maintain
consolidated net worth of at least $1.2 billion. The Company was in compliance
with all covenants under the Credit Agreement as at November 30, 1997.

On June 27, 1996, the Company borrowed $11.0 million from the Bank of
Bermuda (New York) Limited in order to fund its investment in Pareto Partners,
Inc., an investment management company. The loan is repayable in five years.
During the year the weighted average interest rate charged on the loan was
6.0532%. Total interest expense amounted to $0.7 million for the year ended
November 30, 1997.

9. SHARE CAPITAL

Authorized and Issued

The authorized share capital is 999,990,000 ordinary voting shares of a par
value of $0.01 each.

On September 29, 1993, the Company initiated its first of several buy back
programs from the public market. The following table summarizes these programs
and their related costs from September 29, 1993 to November 30, 1997:

(SHARE UNITS AND US DOLLARS IN THOUSANDS)

AUTHORIZATION COMPLETION
------------------------ ------------------------------------
SHARES
DATE SHARES DATE COST
-------- ------ -------- ------ --------

09/29/93 2,000 09/30/94 2,000 $ 44,310
09/30/94 4,000 06/23/95 4,000 91,044
09/23/95 10,000 10/11/95 10,000 270,035
12/01/95 6,000 07/08/96 6,000 207,670
06/28/96 5,000 04/09/97 5,000 189,792
01/24/97 3,000 -- 595 25,240
------ ------ --------
30,000 27,595 $828,091
====== ====== ========

The following table is a summary of shares issued and outstanding (in
thousands):

YEAR ENDED
NOVEMBER 30,
------------------
1997 1996
-------- --------

Balance, beginning of year............................ 87,170.6 94,550.8
Exercise of options................................... 342.5 600.9
Issuance of restricted shares......................... 284.2 224.0
Repurchase of treasury shares......................... (3,389.7) (8,205.1)
-------- --------
Balance, end of year.............................. 84,407.6 87,170.6
======== ========

Stock plans

The Company's executive stock plan, the "1991 Performance Incentive
Program", provides for grants of non qualified or incentive stock options,
restricted stock awards and stock appreciation rights (SARs). The plan is
administered by the Company and Compensation Committee of the Board of
Directors. Stock options may be

40

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

granted with or without SARs. Grant prices are established at the fair market
value of the Company's common stock at the date of grant. Options and SARs
have a life of 10 years and vest annually over three years from date of grant.

Restricted stock awards issued under the plan vest over a five year period
from the date of grant. These shares contained certain restrictions, for said
period, relating to among other things, forfeiture in the event of termination
of employment and transferability. As the shares are issued, deferred
compensation equivalent to the difference between the issue price and the
estimated fair market value on the date of the grant is charged to
shareholder's equity and subsequently amortized over the five year restriction
period. Restricted stock issued under the plan totalled 274,300 shares,
120,500 shares and 98,000 shares in 1997, 1996 and 1995, respectively.

The Company also has stock plans in place for its non-employee directors.
The "Stock and Option Plan", issues non qualified options to the directors
4,000 shares at the commencement of their directorship and 2,000 shares each
year thereafter. All options vest immediately on grant date.

Under this plan, directors may also make an irrevocable election preceding
the beginning of each fiscal year, to defer cash compensation that would
otherwise be payable as his or her annual retainer in increments of $5,000.
The deferred payments are credited in the form of shares calculated by
dividing 110% of the deferred payment by the market value of the Company's
stock at the beginning of the fiscal year. Each anniversary thereafter, 20% of
these shares are distributed. Shares issued under the plan totalled 3,048,
4,048 and 3,372 in 1997, 1996 and 1995, respectively.

A second stock plan, intended to replace the directors' "Retirement Plan for
Non-Employee Directors", provides for the issuance of share units equal to the
amount that would have been credited to the Retirement Plan, divided by the
market price of the Company's stock on December 1 of each year. These units
receive dividends in the form of additional units equal to the cash value
divided by the market price on the payment date. During 1996 the directors
could elect to convert to this plan. Stock units totaling 6,716 and 14,960
were provided for in 1997 and 1996 respectively.

The Company has adopted only the disclosure provisions of Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation". Had compensation costs been determined based on the fair value
of the stock option awards granted in 1997 and 1996, net income and earnings
per share would have been reduced to the proforma amounts indicated below:

1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT EARNINGS
PER SHARE)

Net income-as reported................................. $676,961 $494,313
Net income-proforma.................................... 672,145 492,722
Earnings per share-as reported......................... $ 7.84 $ 5.39
Earnings per share-proforma............................ $ 7.78 $ 5.37

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:

1997 1996
-------- --------

Dividend yield.......................................... 2.64% 2.66%
Risk free interest rate................................. 5.37% 5.96%
Expected volatility..................................... 18.49% 19.28%
Expected lives.......................................... 10 years 10 years

Total stock based compensation recognized in net income was $3.2 million and
$1.3 million in 1997 and 1996, respectively.

41

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Options

Following is a summary of stock options and related activity :

YEAR ENDED NOVEMBER 30,
-------------------------------------------------
1997 1996
------------------------ ------------------------
NUMBER EXERCISE NUMBER EXERCISE
OF PRICE RANGE OF PRICE RANGE
SHARES PER SHARE SHARES PER SHARE
--------- ------------- --------- -------------

Outstanding at beginning
of year................. 2,112,148 $ 5.00-$35.36 2,228,582 $ 5.00-$27.07
Granted.................. 1,006,990 $37.75-$51.88 487,400 $31.19-$35.56
Exercised................ (346,241) $ 5.00-$22.75 (600,938) $ 5.00-$22.75
Repurchased and canceled. (200) $ 18.75 (2,896) $18.75-$22.75
--------- ------------- --------- -------------
2,772,697 $12.75-$51.88 2,112,148 $ 5.00-$35.36
========= ============= ========= =============
Options exercisable...... 1,135,598 1,180,382
Options available for
grant................... 4,469,701* 3,265,304*

- --------
* Available for grant includes shares which may be granted on either stock
options or restricted stock.

Voting

EXEL's Articles of Association restrict the voting power of any person to
less than 10% of total voting power.

10. CONTRIBUTED SURPLUS

Under the laws of the Cayman Islands, the use of EXEL's contributed surplus
is restricted to the issuance of fully paid shares (i.e. stock dividend or
stock split) and the payment of any premium on the redemption of ordinary
shares.

11. PREMIUMS

Premiums comprise (U.S. dollars in thousands):

YEAR ENDED NOVEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------

Gross premiums written.. $ 441,290 $ 729,446 $ 698,020
Reinsurance premiums
ceded.................. (124,664) (132,334) (3,683)
--------- --------- ---------
Net premiums written.... 316,626 597,102 694,337
Change in unearned and
prepaid premiums....... 224,027 (79,210) (136,288)
--------- --------- ---------
Net premiums earned..... $ 540,653 $ 517,892 $ 558,049
========= ========= =========

12. REINSURANCE

The Company is contingently liable with respect to reinsurance ceded to the
extent that any reinsurance company fails to meet its obligation to the
Company.

42

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. DIVIDENDS

In 1997, four regular quarterly dividends were paid, three of $0.32 per
share to shareholders of record at February 6, April 22 and July 11, and one
of $0.40 per share to shareholders of record at September 25.

In 1996, four regular quarterly dividends were paid, one of $0.20 per share
to shareholders of record at February 2, and three of $0.25 per share to
shareholders of record at April 15, July 12 and October 11.

In 1995, four regular quarterly dividends were paid, three of $0.17 per
share to shareholders of record at February 2, April 17 and July 7, and one of
$0.20 per share to shareholders of record at October 12.

14. TAXATION

Under current Cayman Islands law, EXEL will not be obliged to pay any taxes
in the Cayman Islands on its income or gains until May 2006, pursuant to the
provisions of the Tax Concessions Law, as amended.

Bermuda presently imposes no income, withholding or capital gains taxes. As
a result, X.L. and X.L.I. are exempted until March 2016 from any such taxes
pursuant to the Bermuda Exempted Undertakings Tax Protection Act 1966, and
Amended Act 1987.

X.L.I.B. qualifies as an exempted company under the provisions of the
International Business Companies Act 1991-24 and as such is subject to a
maximum tax rate in Barbados of 2.50%.

X.L.E. has been approved to carry on business in the International Services
Centre in Dublin. Under Section 39 of the Finance Act 1990, X.L.E. is entitled
to benefit from a 10% tax rate on profits (including investment income) until
the year 2005.

15. FOREIGN EXCHANGE

At November 30, 1997, 1996 and 1995, forward foreign exchange contracts
having notional principal amounts of $859.3 million, $683.3 million and $127.2
million, respectively, were outstanding. At November 30, 1997, the market
value of the outstanding forward foreign exchange contracts was $862.0
million. Contracts with a notional principal amount of $185.3 million and a
market value of $188.0 million directly hedge the Company's foreign currency
assets and are not held for trading purposes. Changes in the value of these
contracts due to currency movements offset the foreign exchange gains and
losses of the foreign currency assets being hedged. The balance of the
contracts are utilized to reduce the foreign exchange risk on foreign currency
assets, but due to the inability to specifically identify and match the hedges
to the assets, the contracts are treated as speculative and their value is
included in realized gains and losses.

The Company is exposed to credit risk in the event of non-performance by the
other parties to the contracts, however the Company does not anticipate non-
performance. The difference between the notional principal amounts and the
associated market value is the Company's maximum credit exposure. This is
included in net unrealized appreciation (depreciation) of investments in
shareholders' equity and amounted to $2.7 million for the year ended November
30, 1997.

16. FINANCIAL INSTRUMENTS

In accordance with its current investment guidelines, the Company may invest
up to 30% of its investment portfolio in equity securities. This exposure may
be obtained by direct holdings of publicly traded equities and by investing in
a synthetic equity portfolio. In this synthetic equity portfolio, S&P 500
Index futures are held

43

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

with an exposure approximately equal in amount to the market value of
underlying assets held in this fund. As at November 30, 1997 and 1996, the
portfolio held $188.8 and $248.2 million, respectively, in positions of S&P
500 Index futures together with fixed maturities, short-term investments and
cash amounting to $189.2 and $247.6 million, respectively. The value of the
futures is updated daily with the change recorded in income as a realized gain
or loss. For the year ended November 30, 1997 and 1996, net realized gains
from index futures totalled $46.3 and $37.4 million, respectively.

With the introduction of new fixed maturity and equity managers earlier in
1997, certain managers may utilize derivative instruments to add value to the
investments they manage where they believe market inefficiencies exist. All
managers are restricted from leveraging their derivative positions. At
November 30, 1997, bond and stock futures outstanding were $302.5 million with
underlying investments having a market value of $2.1 billion. For the year
ended November 30, 1997 net realized gains from bond and stock futures
totalled $19.5 million.

17. STATUTORY FINANCIAL DATA

Under The Insurance Act, 1978, amendments thereto and related regulations of
Bermuda (the "Act"), X.L. and XLGRe are required to prepare statutory
financial statements and to file in Bermuda a statutory financial return. The
Act also requires these companies to maintain certain measures of solvency and
liquidity during the year.

X.L.'s and XLGRe's statutory capital and surplus and the minimum required by
the Act were as follows (U.S. dollars in thousands):

YEAR ENDED NOVEMBER 30,
--------------------------------------------
X.L. XLGRE
-------------------------- -----------------
1997 1996 1995 1997 1996
-------- -------- -------- -------- --------

Statutory capital and surplus..... $882,366 $872,586 $807,264 $512,637 $271,398
======== ======== ======== ======== ========
Minimum statutory capital and
surplus required by the Act...... $310,240 $302,089 $332,089 $100,000 $100,000
======== ======== ======== ======== ========

Effective June 1995, the Insurance Act Amendment 1995 was enacted. As a
result, X.L. was classified as a Class 4 insurer which increases its minimum
solvency requirements. One such requirement only allows the payment of
dividends in any one financial year in excess of 25% of the prior year's
statutory capital and surplus if the insurer's directors attest that such
dividends will not cause the insurer to fail to meet its relevant margins.
X.L., being a heavily capitalized company, was not affected by this change.
X.L. could legally have paid dividends in the amount of approximately $1.5
billion, 1.1 billion and $930 million at November 30, 1997, 1996 and 1995,
respectively. XLGRe was classified as a Class 4 reinsurer upon its
incorporation.

Net income of X.L. calculated under Bermuda statutory accounting principles
was $196.3 million and $367.3 million for the years ended November 30, 1997
and 1996, respectively. The principal differences between statutory capital
and surplus and statutory net income and shareholder's equity and net income
on a GAAP basis relate to deferred acquisition costs and the accounting for
the investments of X.L. in its subsidiaries. Net income for XLGRe under these
regulations was $58 million and $21.4 million for the years ended November 30,
1997 and 1996 respectively.

44

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

X.L.E. is permitted to cover risks throughout the European Community
(subject to certain restrictions) pursuant to the "Third Directive" relating
to non-life insurance. Its head office is in the Republic of Ireland and it is
subject to regulation under Irish regulatory authority. The principal
legislation and regulations governing the insurance activities of Irish
insurance companies are the Insurance Acts 1909 to 1990 (the "Irish Acts") and
a comprehensive network of regulations and statutory provisions empowering the
making of regulations of which the most relevant are the European Communities
(Non-Life Insurance) Regulations, 1976, the European Communities (Non-Life
Insurance Accounts) Regulations, 1995, the European Communities (Non-Life
Insurance) Framework Regulations, 1994 and related administrative rules (the
"Irish Regulations".)

X.L.E.'s insurance activities are subject to extensive regulation in the
Republic of Ireland, principally under the Irish Acts and Irish Regulations,
which impose on insurers headquartered in the Republic of Ireland minimum
solvency and reserve standards and auditing and reporting requirements and
grant to the Minister for Enterprise and Employment (the "Irish Minister")
wide powers to supervise, investigate and intervene in the affairs of such
insurers. The Irish Minister's powers and functions are exercised through the
medium of the Department of Enterprise and Employment.

18. UNAUDITED QUARTERLY FINANCIAL DATA

The unaudited quarterly financial data for 1997 and 1996 follows (U.S.
dollars in thousands, except per share amounts):

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------

1997
Net premiums earned..................... $119,837 $129,817 $138,034 $152,965
Net investment income................... 51,557 54,160 56,109 54,726
Realized gains (losses)................. 32,613 126,313 116,400 60,613
Equity in net income of affiliates...... 13,155 15,739 16,219 20,769
-------- -------- -------- --------
Total revenues.......................... $217,162 $326,029 $326,762 $289,073
======== ======== ======== ========
Income before income tax expense........ $110,711 $211,842 $207,438 $152,049
======== ======== ======== ========
Net income.............................. $108,118 $211,580 $206,560 $150,703
======== ======== ======== ========
Net income per share and share
equivalent............................. $ 1.23 $ 2.46 $ 2.41 $ 1.75
======== ======== ======== ========
1996
Net premiums earned..................... $130,258 $131,952 $124,537 $131,145
Net investment income................... 47,773 50,249 50,310 50,266
Realized gains (losses)................. 136,059 16,020 (4,603) 58,736
Equity in net income of affiliates...... 16,113 14,282 13,081 15,773
-------- -------- -------- --------
Total revenues.......................... $330,203 $212,503 $183,325 $255,920
======== ======== ======== ========
Income before income tax expense........ $208,326 $ 89,481 $ 64,938 $134,373
======== ======== ======== ========
Net income.............................. $207,089 $ 88,986 $ 64,545 $133,693
======== ======== ======== ========
Net income per share and share
equivalent............................. $ 2.17 $ 0.95 $ 0.72 $ 1.52
======== ======== ======== ========

19. ACCOUNTING STANDARDS

The Financial Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings per Share", effective for fiscal years ending after December 15,
1997. Earlier application is not permitted. This statement simplifies the
standards in APB-15 for computing earnings per share by replacing primary
earnings per share

45

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(EPS) with basic earnings per share. Neither basic nor diluted EPS as
calculated in accordance with SFAS 128 would be materially different from
primary and fully diluted EPS as presented in these financial statements and
by altering the calculation of diluted earnings per share, which replaces
fully diluted earnings per share.

FASB also issued SFAS No. 129, "Disclosure of Information about Capital
Structure", effective for fiscal years ending after December 15, 1997. This
statement consolidates existing disclosure requirements and eliminates the
exemption for non-public entities for certain disclosure.

FASB issued Statement of Financial Accounting Standard No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", which the Company will be required to adopt
for Fiscal year 1998. This statement will require the Company to report in its
financial statements, as an addition to net income, comprehensive income and
its components including, as applicable, foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. Upon adoption, the Company will
also be required to reclassify financial statements for earlier periods
provided for comparative purposes. The Company currently expects that the
effect of adoption of SFAS 130 may be primarily from foreign currency
translation adjustments and has not yet determined the manner in which
comprehensive income will be displayed.

FASB issued Statement of Financial Accounting Standards No. 131, ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related Information",
which the Company will be required to adopt for fiscal year 1998. This
statement established standards for reporting information about operating
segments in annual financial statements and requires selected information
about operation segments in interim financial reports issued to shareholders.
It also established standards for related disclosures about products and
services, geographic areas and major customers. Under SFAS 131, operating
segments are to be determined consistent with the way that management
organizes and evaluates financial information internally for making operating
decisions and assessing performance. The Company has not determined the impact
of the adoption of this new accounting standard on its consolidated financial
statement disclosures.

Apart from SFAS No. 131, these new standards are expected to have a minimal
impact on the Company's financial statements and disclosures.

46

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

20. INVESTMENT IN AFFILIATE

Summarized condensed financial information of Mid Ocean Limited, a 25% owned
affiliate, which is accounted for by the equity method, is as follows:

INCOME STATEMENT DATA

YEAR ENDED OCTOBER 31,
--------------------------
1997 1996 1995
-------- -------- --------

Net premiums earned.............................. $486,741 $436,097 $379,390
Net investment income............................ 103,429 83,261 73,835
Net realized gains on sale of investments........ 9,603 2,126 1,476
Net income....................................... 245,008 211,644 182,935
======== ======== ========
Company's share of net income.................... $ 62,038 $ 59,249 $ 51,074
======== ======== ========

BALANCE SHEET DATA

OCTOBER 31,
---------------------
1997 1996
---------- ----------

Cash, investments and accrued interest................ $1,703,393 $1,539,259
Other assets.......................................... 567,212 483,440
---------- ----------
Total assets.......................................... $2,270,605 $2,022,699
========== ==========
Reserves for losses and loss expenses................. 479,160 422,252
Reserves for unearned premiums........................ 307,166 287,494
Other liabilities..................................... 111,318 195,754
Shareholders' equity.................................. 1,372,961 117,199
---------- ----------
Total liabilities and shareholders' equity............ $2,270,605 $2,022,699
========== ==========
Company's share of shareholders' equity............... $ 340,783 $ 314,256
========== ==========

The Company received dividends from its affiliate of $29.0, $13.0 and $7.4
million for the years ended November 30, 1997, 1996 and 1995, respectively.

47

INDEPENDENT AUDITORS' REPORT

To the Shareholders of EXEL Limited:

We have audited the accompanying consolidated balance sheets of EXEL Limited
as of November 30, 1997 and 1996, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in
the period ended November 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EXEL Limited
as of November 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
November 30, 1997 in conformity with accounting principles generally accepted
in the United States of America.

Coopers & Lybrand

Hamilton, Bermuda
January 11, 1998

48

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes in nor any disagreements with accountants on
accounting and financial disclosure within the twenty-four months ending
November 30, 1997.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year pursuant
to Regulation 14A, which proxy statement is incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year pursuant
to Regulation 14A, which proxy statement is incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year pursuant
to Regulation 14A, which proxy statement is incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year pursuant
to Regulation 14A, which proxy statement is incorporated by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) FINANCIAL STATEMENTS AND EXHIBITS.

1. FINANCIAL STATEMENTS
Included in Part II--See Item 8 of this report.

2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:

SCHEDULE
NUMBER PAGE
-------- ----

--Auditor's Report on Financial Statement Schedules included
inForm 10-K................................................. 61
--Consolidated Summary of Investments--Other than Investments
in Related Parties, as of November 30, 1997................. I 62
--Condensed Financial Information of Registrant, as of Novem-
ber 30, 1996 and 1995, and for the years ended November 30,
1997, 1996, and 1995........................................ II 63
--Reinsurance, for the years ended November 30, 1997, 1996
and 1995.................................................... IV 66
--Supplementary Information Concerning Property/Casualty In-
surance Operations for the years ended November 30, 1997,
1996, and 1995.............................................. VI 67

49

Other Schedules have been omitted as they are not applicable to the Company.

3. EXHIBITS

3.1 Memorandum of Association, incorporated by reference to Exhibit
3.1 to the Company's
Registration Statement on Form S-1 (No. 33-40533).
3.2 Articles of Association, incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-1 (No. 33-
40533).
4.1 Shareholders' Rights Plan, incorporated by reference to the
Company's current report on Form 8-K dated December 1, 1995.
10.1 Money Accumulation Savings Program, incorporated by reference to
Exhibit 10.15 to the
Company's Registration Statement on Form S-1 (No. 33-40533).
10.2 1991 Performance Incentive Program, incorporated by reference to
Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (No. 33-40533).
10.3 1991 Management Incentive Plan, incorporated by reference to
Exhibit 10.17 to the
Company's Registration Statement on Form S-1 (No. 33-40533).
10.4 First Amendment to the 1991 Performance Incentive Program,
incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended November 30, 1996.
10.5 Retirement Plan for Non-employee Directors of EXEL Limited, as
amended, incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended November
30, 1996.
10.6 EXEL Limited Directors Stock and Option Plan, as amended,
incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the year ended November 30, 1996.
10.7 EXEL Limited Stock Plan for Nonemployee Directors, incorporated
by reference to Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the year ended November 30, 1996.
11.1 Statement regarding computation of per share earnings.
21.1 List of subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand.
27.1 Financial Data Schedule.

(b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the last quarter of 1997.

50

AUDITORS' REPORT ON FINANCIAL STATEMENT

SCHEDULES INCLUDED IN FORM 10-K

Our report on the consolidated financial statements of EXEL Limited is
included on page 43 of this Form 10-K in connection with our audits of such
financial statements. We have also audited the related financial statement
schedules listed in the index on page of this Form 10-K.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as whole,
present fairly, in all material respects, the information required to be
included therein.

Coopers & Lybrand

Hamilton, Bermuda
January 23, 1998

51

EXEL LIMITED
SUPPLEMENTAL SCHEDULE I

CONSOLIDATED SUMMARY OF INVESTMENTS-OTHER THAN
INVESTMENTS IN RELATED PARTIES

NOVEMBER 30, 1997
(IN THOUSANDS)

AMOUNT AT
WHICH
SHOWN IN
COST OR THE
AMORTIZED MARKET BALANCE
TYPE OF INVESTMENT COST(1) VALUE SHEET
------------------ ---------- ---------- ----------

Fixed Maturities:
Bonds and notes:
U.S. government and government agencies and
authorities................................ $1,055,581 $1,062,287 $1,062,287
Non-U.S. sovereign governments.............. 1,545,473 1,589,882 1,589,882
All other corporate......................... 543,588 544,703 544,703
---------- ---------- ----------
Total fixed maturities.................... $3,144,642 $3,196,872 $3,196,872
---------- ---------- ----------
Equity Securities:
Public utilities/transportation............... $ 14,787 $ 18,064 $ 18,064
Banks, trust and insurance companies.......... 71,992 73,410 73,410
Industrial, miscellaneous and all others...... 643,109 746,353 746,353
---------- ---------- ----------
Total equity securities................... $ 729,888 $ 837,827 $ 837,827
---------- ---------- ----------
Short-term investments.......................... $ 220,138 $ 219,969 $ 219,969
---------- ---------- ----------
Total investments............................... $4,094,668 $4,254,668 $4,254,668
========== ========== ==========

- --------
(1) Investments in fixed maturities and short-term investments are shown at
amortized cost.

52

EXEL LIMITED

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS--PARENT COMPANY ONLY

FOR THE YEARS ENDED NOVEMBER 30, 1997 AND 1996
(IN THOUSANDS)

ASSETS 1997 1996
------ ---------- ----------

Investments in subsidiaries............................ $2,123,993 $1,756,442
Investment in affiliate (cost: 1997--$188,137; 1996--
$188,137)............................................. 358,423 320,885
Investments in limited partnership..................... 19,259 22,635
Amount due from subsidiaries........................... -- 14,408
Other assets........................................... 3,256 3,264
---------- ----------
Total assets....................................... $2,504,931 $2,117,634
========== ==========

LIABILITIES
-----------

Amount due to subsidiaries............................. $ 24,683 $ --
Accounts payable and accrued liabilities............... 1,118 1,596
---------- ----------
Total liabilities.................................. $ 25,801 $ 1,596
========== ==========

SHAREHOLDERS' EQUITY
--------------------

Ordinary shares........................................ $ 844 $ 872
Contributed surplus.................................... 290,085 282,980
Net unrealized appreciation on investments............. 188,444 256,430
Deferred compensation.................................. (11,362) (4,169)
Retained earnings...................................... 2,011,119 1,428,819
---------- ----------
Total shareholders' equity......................... $2,479,130 $2,116,038
---------- ----------
Total liabilities and shareholders' equity......... $2,504,931 $2,117,634
========== ==========

See accompanying notes to Consolidated Financial Statements

53

EXEL LIMITED

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF INCOME--PARENT COMPANY ONLY

FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)

1997 1996 1995
-------- -------- --------

Net investment income............................... $ 112 $ 568 $ 988
Realized gains...................................... -- -- 2,024
Equity in net income of subsidiaries (Dividends were
$186,548, $302,000 and $497,976 in 1997, 1996 and
1995, respectively)................................ 617,376 439,361 282,933
Equity in net income of affiliate................... 62,135 59,374 51,074
Income from limited partnership..................... 4,342 -- --
-------- -------- --------
Total revenues...................................... 683,965 499,303 337,019
Administration expenses............................. 7,004 4,990 4,221
-------- -------- --------
Net income.......................................... $676,961 $494,313 $332,798
======== ======== ========

See accompanying notes to Consolidated Financial Statements

54

EXEL LIMITED

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS--PARENT COMPANY ONLY

FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)

1997 1996 1995
--------- --------- ---------

Cash flows provided by operating activities:
Net income.................................. $ 676,961 $ 494,313 $ 332,798
Adjustments to reconcile net income to net
cash provided by
operating activities:
Realized gains from sale of shares in
affiliate................................ -- -- (2,024)
Equity in net income of subsidiaries net
of dividends............................. (438,135) (136,106) 139,465
Equity in net income of affiliate net of
dividends................................ (34,849) (44,592) (43,703)
Amount due from subsidiaries.............. 39,091 65,669 (25,883)
Accounts payable and accrued liabilities.. 478 (1,466) 193
Amortization of deferred compensation..... 2,163 1,287 980
--------- --------- ---------
Total adjustments....................... (431,252) (115,208) 69,028
--------- --------- ---------
Net cash provided by operating
activities............................. 245,709 379,105 401,826
--------- --------- ---------
Cash flows provided by (used in) investing
activities:
Other assets................................ (8) (3,081) (318)
Investment in affiliate..................... -- (1,620) --
Investment in limited partnership........... 3,376 (12,568) (5,642)
Proceeds from sale of shares in affiliate... -- -- 15,549
--------- --------- ---------
Net cash provided (used in) by investing
activities............................. 3,368 (17,269) 9,589
--------- --------- ---------
Cash flows used in financing activities:
Issuance of restricted shares............... 387 695 126
Proceeds from exercise of options........... 6,280 6,048 3,135
Dividends paid.............................. (115,372) (86,145) (71,253)
Repurchase of treasury shares............... (140,372) (282,434) (343,454)
--------- --------- ---------
Net cash used in financing activities... (249,077) (361,836) (411,446)
--------- --------- ---------
Net change in cash and cash equivalents. -- -- (31)
--------- --------- ---------
Cash and cash equivalents--beginning of year.. -- -- 31
--
--------- --------- ---------
Cash and cash equivalents--end of year........ $ -- $ -- $ --
========= ========= =========

See accompanying notes to Consolidated Financial Statements

55

EXEL LIMITED

SCHEDULE IV--REINSURANCE

FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

(IN THOUSANDS)

ASSUMED
CEDED TO FROM
GROSS OTHER OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
-------- --------- --------- --------

1997...................................... $418,370 $124,662 $ 22,918 $316,626
1996...................................... $584,585 $132,344 $144,861 $597,102
1995...................................... $543,791 $ 3,683 $154,229 $694,337

56

EXEL LIMITED

SCHEDULE VI

SUPPLEMENTARY INFORMATION
CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS

FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995

(IN THOUSANDS)

LOSSES AND LOSS
EXPENSES INCURRED
RESERVES RESERVES RELATED TO PAID AMORTIZATION
DEFERRED FOR LOSSES FOR NET NET ------------------ LOSSES OF DEFERRED NET
ACQUISITION AND LOSS UNEARNED EARNED INVESTMENT CURRENT PRIOR AND LOSS ACQUISITION PREMIUMS
COSTS EXPENSES PREMIUMS PREMIUMS INCOME YEAR (1) YEAR (2) EXPENSES COSTS WRITTEN
----------- ---------- -------- -------- ---------- -------- --------- -------- ------------ --------

1997............ $22,272 $2,342,254 $566,911 $540,653 $216,552 $644,108 $(278,783) $267,227 $46,108 $316,626
1996............ $30,383 $2,099,096 $679,535 $517,892 $198,598 $390,892 $ 14,465 $302,642 $35,556 $597,102
1995............ $40,954 $1,920,500 $536,858 $558,049 $200,145 $440,394 $ 528 $188,504 $53,016 $694,337

57

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

EXEL Limited

/s/ Brian M. O'Hara
By___________________________________
Brian M. O'Hara
President and Chief Executive
Officer

January 23, 1998

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Brian M. O'Hara President, Chief Executive January 23, 1998
____________________________________ Officer and Director
Brian M. O'Hara (Principal Executive
Officer)

/s/ Michael A. Siese (Acting Principal Financial January 23, 1998
____________________________________ Officer and Principal
Michael A. Siese Accounting Officer)

/s/ Michael Esposito, Jr. Director and Chairman of the January 23, 1998
____________________________________ Board of Directors
Michael Esposito, Jr.

/s/ Robert Clements Director January 23, 1998
____________________________________
Robert Clements

/s/ Gilbert Gould Director January 23, 1998
____________________________________
Gilbert Gould

/s/ Robert V. Hatcher, Jr. Director January 23, 1998
____________________________________
Robert V. Hatcher, Jr.

/s/ Ian R. Heap Director January 23, 1998
____________________________________
Ian R. Heap

/s/ John Loudon Director January 23, 1998
____________________________________
John Loudon

/s/ Robert S. Parker Director January 23, 1998
____________________________________
Robert S. Parker

/s/ Cyril Rance Director January 23, 1998
____________________________________
Cyril Rance

/s/ Alan Z. Senter Director January 23, 1998
____________________________________
Alan Z. Senter

/s/ John T. Thornton Director January 23, 1998
____________________________________
John T. Thornton

/s/ Ellen E. Thrower Director January 23, 1998
____________________________________
Ellen E. Thrower

/s/ John Weiser Director January 23, 1998
____________________________________
John Weiser

58