EXEL LTD, 10-K405, 1997-02-24

EXEL LTD
10-K405, 1997-02-24
SURETY INSURANCE

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(FEE REQUIRED)
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1996
COMMISSION FILE NUMBER 1-10804

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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)

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

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Ordinary Shares, Par Value $0.01 per Share New York Stock Exchange, Inc.
</TABLE>

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 10, 1997
was approximately $3.7 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 10, 1997 there were outstanding 86,290,820 Ordinary Shares
(excluding 25,438,900 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 APRIL 11, 1997 IS INCORPORATED
BY REFERENCE IN PART III OF THIS FORM 10-K.

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<PAGE>

EXEL LIMITED

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
PART I

<C> <S> <C>
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 11
Item 3. Legal Proceedings.............................................. 11
Item 4. Submission of Matters to a Vote of Security Holders............ 11

PART II

Market for the Registrant's Common Stock and Related
Item 5. Stockholder Matters............................................ 13
Item 6. Selected Financial Data........................................ 14
Management's Discussion and Analysis of Financial Condition and
Item 7. Results of Operations.......................................... 15
Item 8. Financial Statements and Supplementary Data.................... 23
Changes in and Disagreements with Accountants on Accounting and
Item 9. Financial Disclosure........................................... 44

PART III

Item 10. Directors and Executive Officers of the Registrant............. 44
Item 11. Executive Compensation......................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and Management. 44
Item 13. Certain Relationships and Related Transactions................. 44

PART IV

Exhibits, Financial Statement Schedules, and Reports on Form 8-
Item 14. K.............................................................. 44
</TABLE>
<PAGE>

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. 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.

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 tailored 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 currently offered up to a maximum generally 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 the Company and CIGNA Property &
Casualty ("CIGNA"). The product provides combined capacity for traditional
casualty and property coverages provided by subsidiaries of the Company 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.

XLRe provides large net line capacity for specialized programs to insurance
and reinsurance companies. X.L. reinsures XLRe for 75% of each risk written.
In general, XLRe provides third party liability cover up to $100 million,
directors and officers liability and professional liability up to $75 million
per claim, high excess property reinsurance up to $50 million per occurrence
and financial reinsurance, credit enhancement, swaps and other collateralized
transactions up to $100 million in limits. In general XLRe provides cover on
either an excess of loss or quota share basis.

GENERAL LIABILITY

The general liability policies 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 the inception date (or retroactive date, if applicable,
but not prior to January 1,

1
<PAGE>

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 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 reserves (IBNR). 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 (generally not in high risk classes of business) an endorsement
providing for either fully or partially prepaid policy premiums for two
additional annual periods (aggregating a total of three years), with
reinstatement of the annual aggregate limit at each anniversary. 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.

2
<PAGE>

The Company also offers an alternate rating methodology to be used with
multi-year general liability policies, which is offered to potential insureds
through non-U.S. brokers. 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 (although the combined exposure on single and multi-year policies issued
to any insured is not presently anticipated to exceed $150 million in any
year.)

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.

3
<PAGE>

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 and annual report with
accompanying Form 10-K (or equivalent). 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 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 the Company, through its subsidiaries, provides an
excess policy for the balance of capacity and coverages required. Programs are
typically custom designed to meet specific needs with each customer.

SPECIALTY 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 XLRe.

REINSURANCE

4
<PAGE>

approximately 22.1% of the issued and outstanding stock of RCHI. Under the
terms of the policy, X.L. and X.L.E. 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 RCR,
all the reinsurers are rated, of which the lowest as rated by Standard & Poors
("S&P") is A-.

Property quota share reinsurance of 17.5% (subject to catastrophe occurrence
limit restrictions) of the X.L. and X.L.E. property policy limits was purchased
from two Bermuda based property reinsurers effective from April 14, 1994. The
quota share was increased to 25% of the X.L. and X.L.E. property limits,
effective April 14, 1995, with the additional cover provided by Mid Ocean
Reinsurance Company, Ltd., a wholly-owned subsidiary of Mid Ocean Limited
("MOCL"). The Company owns approximately 29.9% of the issued and outstanding
voting shares of MOCL. All property reinsurers are rated, two having S&P
ratings of A or higher and the reinsurer not rated by S&P having an A.M. Best
rating of A-.

X.L. cedes one third of the first $75 million in limits of employment
practices liability to a U.S. insurer pursuant to a quota share reinsurance
policy and cedes 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.

RATES

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.
Rates are individually determined 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. The 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 XLRe.
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.
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 generally of 12% or less of gross premiums. Neither X.L. nor X.L.E.
nor XLRe 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 XLRe. All
policy applications are subject to approval and acceptance by the Company's
subsidiaries. Although the Company believes that it is not dependent on the
services of any one broker for the placement of its business, since the
Company's inception, affiliates of Marsh & McLennan, Incorporated ("Marsh")
have placed a significant amount of insurance business with the Company's
subsidiaries. In fiscal 1994, 1995 and 1996, approximately 42%, 36% and 38%,
respectively, of the

5
<PAGE>

Company's consolidated gross premiums were placed by Marsh and approximately
13%, 14% and 14%, respectively, were placed by J&H Intermediaries Limited.
Alexander Howden Group Limited placed 12% of the Company's consolidated gross
written premium in 1996. 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 XLRe 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 claims and related expenses with respect to insured
events which have been reported to the Company.

After a claim is reported to X.L., X.L.E. or XLRe, 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 the 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
"incurred but not reported" ("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 were 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. As the Company now
has ten years of historical loss experience, 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 (i.e., 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 XLRe 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.

6
<PAGE>

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.

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 1996.

ANALYSIS OF CONSOLIDATED LOSS AND LOSS EXPENSE RESERVE DEVELOPMENT

<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------- -------- -------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 $2,052,652
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
Three years
later.......... 141 869 76,844 267,777 235,095 340,551 482,251 619,186
Four years
later.......... 145 902 87,639 296,095 258,589 432,506 688,064
Five years
later.......... 145 903 107,863 302,028 260,385 610,936
Six years later. 145 903 107,863 303,791 341,337
Seven years
later.......... 145 903 107,863 384,717
Eight years
later.......... 145 903 107,863
Nine years
later.......... 145 903
Ten 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 $2,052,652
One year later.. 23,558 193,989 383,949 654,931 808,642 973,711 1,203,360 1,435,500 1,667,334 1,689,390
Two years later. 34,050 191,815 348,152 654,160 700,733 929,176 1,282,051 1,441,018 1,628,191
Three years
later.......... 31,278 152,944 329,403 587,758 557,782 876,071 1,270,410 1,485,101
Four years
later.......... 24,446 135,943 279,106 447,360 531,264 878,597 1,359,848
Five years
later.......... 20,264 101,274 159,117 434,326 465,605 967,410
Six years later. 14,613 903 107,863 444,213 479,940
Seven years
later.......... 145 903 107,863 452,662
Eight years
later.......... 145 903 107,863
Nine years
later.......... 145 903
Ten years later. 145
Redundancy
(deficiency).... 25,702 172,639 273,243 163,949 319,282 (10,066) (190,845) (125,400) 37,243 230,108
Gross liability
end of period... 1,665,434 1,920,500 2,099,096
Reinsurance
recoverable end
of period....... -- (1,002) (46,444)
---------- ---------- ----------
Net liability end
of period....... 1,665,434 1,919,498 2,052,652
========== ========== ==========
</TABLE>

7
<PAGE>

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

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Unpaid losses and loss expenses at beginning
of period................................... $1,919,498 $1,665,434 $1,359,701
Losses and loss expenses incurred in respect
of losses occurring in:
Current year............................... 390,892 440,394 368,209
Prior years................................ 14,465 528 75,469
---------- ---------- ----------
Total.................................... 405,357 440,922 443,678
---------- ---------- ----------
Net interest effect on experience reserves... 1,752 1,646 799
Portfolio transfer........................... 28,687 -- --
Losses and loss expenses paid in respect of
losses occurring in:
Current year............................... 3,177 134 42
Prior years................................ 299,465 188,370 138,702
---------- ---------- ----------
Total.................................... 302,642 188,504 138,744
---------- ---------- ----------
Unpaid losses and loss expenses at end of
period...................................... $2,052,652 $1,919,498 $1,665,434
========== ========== ==========
</TABLE>

The computation of the Company's reserves for 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 decreased from $811 million
in 1995 to $787 million in 1996 after the payment of $300 million in losses.
The relative increase 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 part due to the application of
the new reserving methodology together with its impact on known loss
development. The previous methodology would apply half of the known losses
against reserves estimated through the loss reserve emergence pattern. Credit
was only given for reserve redundancies upon the review of claims notices for
potential development. The current methodology recognizes both the impact of
loss development and limit or no loss development in adjusting the estimated
frequency of losses in developing reserves. In short, this methodology is
sensitive to actual loss experience.

As a consequence, loss years 1989, 1991 and 1992, which have had the most
significant loss experience, resulted in increases in IBNR reserves, with
modest increases in 1989 and 1992, and a $75 million increase in 1991 before
increases in case and loss adjustment expense ("lae") reserves of $60 million.
Both 1991 and 1992 years reflect the product liability claim, reported by
several insureds, relating to silicon implants. The 1995 year recognizes the
development of losses that have occurred at a rate faster than normally
expected. Due to the immaturity of this year, the methodology recognizes the
potential for further liability and established a further $84 million in
reserves before increases in case and lae reserves of $78 million. The
additional reserves were covered to a large extent, by releases from reserves
established for 1993 and 1994 due to the lesser amount of known loss activity
and its recognition by the methodology. An amount of $14 million was incurred
in the current year for prior years losses.

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.

8
<PAGE>

CLAIMS ADMINISTRATION

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 the Company 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, 1996, the Company's fixed income investment portfolio includes U.S. and
non-U.S. sovereign government obligations, corporate bonds and other
securities, over 72% 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. The Company's current investment guidelines do not
permit investments in high-yield bonds and do not provide for interest rate
hedging activity. At each of November 30, 1996, 1995 and 1994, less than 14%
of the Company's investments in fixed maturity and short term investments and
less than 45% of the Company's investments in equity securities were
represented by securities of non-U.S. corporate 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, 1996,
1995 or 1994.

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, 1996:

<TABLE>
<CAPTION>
NET-PRE PRE-TAX
TAX REALIZED ANNUALIZED
AVERAGE INVESTMENT GAINS EFFECTIVE
YEAR ENDED NOVEMBER 30, INVESTMENTS(1) INCOME(2) (LOSSES) YIELD
----------------------- -------------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
1992......................... 2,687,258 172,411 84,927 6.42
</TABLE>
- --------
(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).

REGULATION

Bermuda

The Insurance Act 1978 of Bermuda, amendments thereto and related
regulations (the "Act"), regulates the business of X.L. and XLRe. 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.

9
<PAGE>

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 Jurisdictions

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, there can be no assurance that the Internal Revenue Service ("IRS")
will not contend to the contrary. If the Company were subject to U.S. income
tax, it could result in a material adverse effect on the Company's
shareholders' equity and earnings.

EMPLOYEES

At November 30, 1996, the Company and its subsidiaries employed a total of
159 employees, of which 125 were located in Bermuda and 34 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.

COMPETITION

Although the insurance business is highly competitive, the amount of excess
coverage the Company offers currently is only offered by a few other insurers.
A similar level of coverage can be achieved, however, by layering coverages of
lesser amounts from multiple insurers. The Company competes with other
insurers on the basis of price, financial strength, policy forms and service.

10
<PAGE>

The Company believes it is the leading excess general liability insurer 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 which limit
coverages to their industry and several large European insurers. There is no
one or small group of dominant insurers in the directors and officers and
professional excess liability insurance areas; the Company believes it is a
significant competitor at its attachment point and limit levels.

ITEM 2. PROPERTIES

The Company's and X.L.'s principal executive offices are at Cumberland
House, Hamilton, Bermuda, XLRe'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. The Company continues to assess its
need for office space on an ongoing basis.

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 all of the 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, 1996, 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 are
the executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------------------------------------------------
<S> <C> <C>
Brian M. O'Hara.......... 48 President, Chief Executive Officer and Director of
the Company and Chairman and Chief Executive
Officer of X.L.
Robert J. Cooney......... 42 Executive Vice President of the Company and
President and Chief Operating Officer of X.L.
Brian G. Walford......... 43 Executive Vice President, Chief Financial Officer
and Secretary of the Company.
K. Bruce Connell......... 44 Executive Vice President and
Chief Underwriting Officer of XLRe.
James J. Ansaldi......... 45 Senior Vice President of X.L.
</TABLE>

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.

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.

11
<PAGE>

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.

K. Bruce Connell has been Executive Vice President and Chief Underwriting
Officer of XLRe since December 1995, having previously served as Senior Vice
President of X.L. from 1990 to 1995.

James J. Ansaldi has been Senior Vice President of X.L. since 1988.

12
<PAGE>

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.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995:
1st Quarter............................................. $21.500 $18.500
2nd Quarter............................................. 23.688 21.438
3rd Quarter............................................. 27.500 23.313
4th Quarter............................................. 31.375 26.750
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
</TABLE>

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, 1996 was 172.

(c) The Company paid four regular quarterly dividends, one of $0.20 per
share to all shareholders of record on February 2, 1996 and $0.25 per share to
all shareholders of record on April 15, 1996 and July 12, 1996 and October 11,
1996. All amounts have been adjusted for the one for one stock dividend on
July 26, 1996.

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,
1996 X.L. could legally have paid dividends in the amount of approximately
$1.1 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

13
<PAGE>

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.

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.

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE
AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Gross premiums
written.............. $ 729,446 $ 698,020 $ 638,294 $ 564,376 $ 459,745
Net premiums written.. 597,102 694,337 627,987 530,885 434,505
Net premiums earned... 517,892 558,049 521,177 456,815 409,057
Net investment income. 198,598 200,145 182,262 163,816 172,411
Realized gains
(losses)............. 206,212 49,774 (95,197) 160,885 84,927
Equity in net income
of affiliate......... 59,249 51,074 25,028 18,221 --
Losses and loss
expenses............. 405,357 440,922 407,172 353,256 316,325
Acquisition costs and
administration
expenses............. 79,476 83,602 81,219 66,396 62,990
Income before income
tax expense.......... 497,118 334,518 144,879 380,085 287,080
Net income............ 494,313 332,798 143,954 379,216 286,124
Net income per share
(1)(2)............... $ 5.39 $ 3.22 $ 1.32 $ 3.41 $ 2.51
Weighted average
shares
outstanding (2)...... 91,731 103,438 108,676 111,226 114,158
Cash dividends per
share (2)(3)......... $ 0.95 $ 0.71 $ 0.62 $ 0.54 $ 0.36
Balance Sheet Data:
Total investments..... $3,772,976 $3,355,295 $2,943,712 $3,040,012 $2,639,648
Cash and cash
equivalents.......... 252,734 673,433 456,176 264,484 244,220
Investment in
affiliates........... 414,891 351,669 230,852 195,485 100,000
Total assets.......... 5,031,538 4,721,466 3,853,152 3,626,996 3,067,328
Unpaid losses and loss
expenses............. 2,099,096 1,920,500 1,665,434 1,359,701 1,169,003
Shareholders' equity.. 2,116,038 2,006,133 1,684,393 1,843,094 1,627,312
Book value per share
(2).................. $ 24.27 $ 21.22 $ 15.73 $ 16.86 $ 14.87
Fully diluted book
value per share (2).. $ 24.21 $ 21.11 $ 15.73 $ 16.81 $ 14.25
Operating Ratios:
Loss and loss expense
ratio................ 78.3% 79.0% 78.1% 77.3% 77.3%
Underwriting expense
ratio................ 15.3 15.0 15.6 14.6 15.4
Combined ratio........ 93.6 94.0 93.7 91.9 92.7
</TABLE>
- --------
(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.
(3) The 1996 amount represents four regular quarterly dividends, one at $0.20
per share and three at $0.25 per share. The 1995 amount represents four
regular quarterly dividends, three at $0.17 per share and one at $0.20 per
share. The 1994 amount represents four regular quarterly dividends, three
at $0.15 per share and one at $0.17 per share. The 1993 amount represents
four regular quarterly dividends, three at $0.13 per share and one at
$0.15 per share. The 1992 amount represents three regular dividends of
$0.12 per share.

14
<PAGE>

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, 1996, 1995 AND 1994

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

Table I

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
CHANGE CHANGE CHANGE
FROM FROM FROM
AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR
-------- ---------- -------- ---------- -------- ----------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gross premiums written.. $729,446 4.5% $698,020 9.4% $638,294 13.1%
Net premiums written.... 597,102 (14.0) 694,337 10.6 627,987 18.3
Net premiums earned..... 517,892 (7.2) 558,049 7.1 521,177 14.1
</TABLE>

Changes in the levels of gross premiums written between years is affected 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 in 1994 also included
loss surcharge premiums of $12 million assessed on insureds that had adverse
loss experience in prior years. (Such surcharges are non-recurring unless the
insureds continue to experience losses.) In addition, during the fourth
quarter of 1995, a mandatory reinstatement premium was written, triggered by a
loss in excess of a specified threshold, resulting in a retrospective portion
of $7.3 million, 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 increased 1.4%, 11.1% and 1.7% for the 1996, 1995 and
1994 fiscal years, respectively.

Net premiums written were likewise impacted by the above mentioned
adjustments. In addition net premiums written in 1996 were affected by the
general liability quota share reinsurance policy which came into effect on
December 1, 1995. The policy covers general liability risks written on a
guaranteed cost form, with certain exclusions. X.L. and X.L.E. cedes 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 resulting adjustments noted in Table III
resulted in a decrease of 1.4% in 1996 from the prior year. The decrease is
reflective of the growth in the product lines of property, X.L. Risk Solutions
and employment practices liability. As each of these lines are reinsured,
growth will increase the amount of premiums ceded.

Net premiums written in 1994 included premiums ceded under a clash
reinsurance cover which was discontinued at the end of that year. Adjusting
for this premium and the effects of multi-year premiums, net premiums written
increased 10.5% in 1995 over 1994. In fiscal 1993, in addition to the clash
reinsurance cover X.L. and X.L.E. also purchased an aggregate excess of loss
cover which was commuted effective November 30, 1993. Taking these nuances
into account, net premiums written increased 2.9% in 1994 over the prior
reporting year.

The decline in net premiums earned in 1996 is due to the effect of the
general liability quota share policy. Adjusting for this policy and the
retrospective portion of reinstatement premium in 1995, net premiums earned
would have increased by 5.9%. As the growth in net premiums earned lags behind
the growth in net premiums written, net premiums earned will exceed the net
premiums written temporarily, when the growth in the latter slows. Following
the adjustment of the previously mentioned items as noted in Table III, net
premiums earned increased 6.1% and 7.3% in 1995 and 1994, respectively.

15
<PAGE>

Table II presents the split of gross premiums written by the Company's
subsidiaries by line of business and after multi-year adjustments, for the
years indicated:

Table II

<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------- -------------------------- -------------------------
X.L. X.L.E. XLRE TOTAL X.L. X.L.E. TOTAL X.L. X.L.E. TOTAL
-------- ------- -------- -------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
General liability....... $322,986 $51,044 $ -- $374,030 $366,714 $ 61,069 $427,783 $380,026 $60,199 $440,225
Directors & officers
liability.............. 20,819 2,099 -- 22,918 22,393 2,392 24,785 29,322 1,873 31,195
Professional liability.. 41,776 10,662 -- 52,438 42,430 10,825 53,255 45,561 9,032 54,593
Employment practices
liability.............. 3,006 -- -- 3,006 -- -- -- -- -- --
Property................ 25,472 810 -- 26,282 20,035 1,708 21,743 9,753 -- 9,753
X.L. Risk Solutions..... 8,252 -- -- 8,252 -- -- -- -- -- --
Specialty reinsurance
assumed................ 13,265 14,602 75,392 103,259 45,658 16,020 61,678 -- -- --
-------- ------- -------- -------- -------- -------- -------- -------- ------- --------
Annualized premium...... 435,576 79,217 75,392 590,185 497,230 92,014 589,244 464,662 71,104 535,766
Multi-year premiums..... 14,993 13,096 111,172 139,261 99,188 9,588 108,776 93,057 9,471 102,528
-------- ------- -------- -------- -------- -------- -------- -------- ------- --------
Gross premiums written.. $450,569 $92,313 $186,564 729,446 $596,418 $101,602 $698,020 $557,719 $80,575 $638,294
======== ======= ======== ======== ======== ======== ======== ======== ======= ========
</TABLE>

The growth in gross written premiums adjusted to an annual basis in 1995 was
principally due to the introduction of Specialty Reinsurance Assumed ("SRA")
and the growth in the property product. Similarly, in 1996, these lines
continued to experience growth together with the introduction of two new
product lines; X.L. Risk Solutions and employment practices liability. This
growth was however offset by lower premiums written on general liability and
modest decreases on the directors and officers, and professional liability
lines.

SRA policies assumed by X.L., X.L.E. and XLRe tend to be few in number but
generate significant levels of premiums due to the nature of the risks, their
sensitivity to losses and the multi-year coverage. Similar to existing
contracts written under the applicable alternate rating methodology, some of
these contracts maintain loss accounts contractually defined as a percentage
of premiums received net of losses paid. Where reinsureds are loss free, such
loss accounts are returnable, resulting in potentially significant return
premiums. This was the case during the third quarter in 1996 when two insureds
canceled and entered into new contracts. The previous and new contracts cover
property risks and, when canceled, resulted in the return of $10.8 million and
unearned premium for years two and three of $48.5 million. Because of the
intent of these respective reinsureds to cancel and rewrite their contracts
after one year where they were loss free, only the first year of the renewal
premium has been recorded as premium. The intent of other existing property
reinsureds will be assessed on the first anniversary of their contracts and
will be accounted for in accordance with their intent at that time.

SRA premiums assumed by X.L.E. relate solely 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.
It is expected this program will continue to decline from its existing level.

X.L. Risk Solutions, one of the Company's new product lines, was introduced
late in the second quarter of 1996. X.L. Risk Solutions is an initiative with
CIGNA to provide combined limits of capacity for two or more

16
<PAGE>

of the Company's stand alone product lines over three or more years. In
addition, the Company has commenced providing combined property capacity
coverage with CIGNA which is reflected in the property line, together with the
continuing growth of the Company's traditional property cover. 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 deemed need for this capacity. While the Company is optimistic
that further growth will be experienced in this area, there are no assurances
that this will be the case.

General liability insurance results continue to reflect the impact of
competitive pressures from the U.S. domestic market in both terms and pricing.
Despite these pressures, this division managed to retain 87.9% of its
business. Excluding insureds acquired by existing insureds, this ratio
increased to 89.7%. Retention ratios for 1995 and 1994 were 89.7% and 93%,
respectively. Average attachments were $78.7 million, $73.0 million and $63.7
million and average limits were $80.2 million, $72.8 million and $75.0 million
for the years ending November 30, 1996, 1995 and 1994, respectively.
Accordingly, the decrease in premiums has been a factor of 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.

17
<PAGE>

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

Table III

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------
GROSS PREMIUMS WRITTEN NET PREMIUMS WRITTEN NET PREMIUMS EARNED
---------------------------- ---------------------------- ---------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- -------- -------- -------- --------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
General liability....... $432,002 $446,730 $533,045 $319,745 $446,730 $524,757 $325,777 $427,944 $431,838
Directors and officers
liability.............. 27,612 24,785 31,195 27,612 24,785 30,596 23,893 27,522 31,193
Professional liability.. 56,517 53,983 60,301 56,517 53,983 59,305 53,822 53,939 51,898
Employment practices
liability.............. 3,006 -- -- 1,849 -- -- 449 -- --
Property................ 40,691 18,293 13,753 30,678 14,610 13,328 20,622 13,760 6,248
X.L. Risk Solutions..... 24,757 -- -- 15,840 -- -- 2,263 -- --
Specialty reinsurance
assumed................ 144,861 154,229 -- 144,861 154,229 -- 91,066 34,884 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Per financial
statements............. 729,446 698,020 638,294 597,102 694,337 627,987 517,892 558,049 521,177
Adjustment for multi-
year premiums.......... (139,261) (108,776) (102,528) (139,261) (108,776) (102,528) -- -- --
Retrospective portion of
mandatory reinstatement
premium................ -- (7,253) -- -- (7,253) -- -- (7,253) --
Loss surcharges......... -- -- (12,000) -- -- (12,000) -- -- (12,000)
Clash reinsurance....... -- -- -- -- -- 9,881 -- -- 9,881
Reinsurance ceded
general liability quota
share.................. -- -- -- 112,257 -- -- 65,159 -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Adjusted premiums....... $590,185 $581,991 $523,766 $570,098 $578,308 $523,340 $583,051 $550,796 $519,058
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

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

Table IV

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------
1996 1995 1994
------------------- ------------------- --------------------
PERCENT PERCENT PERCENT
CHANGE CHANGE CHANGE
FROM FROM FROM
AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR
-------- ---------- -------- ---------- -------- ----------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net investment income... $198,598 (0.8)% $200,145 9.8% $182,262 11.3%
Net realized gains
(losses)............... 206,212 N.M. 49,774 N.M. (95,197) N.M.
Equity in net income of
affiliate(s)........... 59,249 16.0% 51,074 100.0% 25,028 37.4%
</TABLE>

Net investment income included unrealized currency (losses) gains of nil,
($3.1) million and $4.1 million for the years ended 1996, 1995 and 1994
respectively. The changes in net investment income over last three years
reflects the volatility of the U.S. bond market and its impact on investment
yields.

Significant gains were realized in 1996 for two reasons. Firstly, during the
first half of the year the Company had liquidated two fixed maturity
portfolios and one equity portfolio due to similarities in strategies between
managers. Secondly, during the fourth quarter of 1996, additional gains were
realized by investment managers due to the strength of both the bond and
equity markets. Of the total gains generated in this quarter $35 million was
realized by a synthetic equity portfolio. A further discussion of these
derivatives is included under Financial Condition and Liquidity. Gains
realized in 1995 reflect the strengthening of the US$ bond market over its
extremely weak position in 1994 and the overall rise in the equity market.

18
<PAGE>

The increase of equity in net income of affiliates is almost solely
attributable to MOCL. The increase over 1995 is reflective of its expansion in
operations. The increase of 1995 over 1994 is due to higher earned premiums
with comparable incurred losses, coupled with the turn around of the bond
market in 1995. The Company's share of net earnings from MOCL included
realized gains (losses) of $0.6 million, $0.4 million and ($5.2) million for
1996, 1995 and 1994, respectively.

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

Table V

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Loss and loss expense ratio............................. 78.3% 79.0% 78.1%
Underwriting expense ratio.............................. 15.3 15.0 15.6
Combined ratio.......................................... 93.6 94.0 93.7
</TABLE>

The loss and loss expense ratio increase in 1995 was due to an increase in
the 1995 underwriting year ultimate loss ratio from 75% to 77% reflecting the
discontinuation of the clash reinsurance and the price reductions experienced
as a result of competitive pressures. In addition, the retrospective portion
of the mandatory reinstatement premium was credited to loss reserves at 100%.
While the 1989, 1991, 1992, and 1994 loss years continue to develop beyond
expected loss emergence patterns, there has been no impact on the loss ratio
as reserves have been released from 1990 based upon a review of outstanding
loss notices.

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 XLRe to date has been short tail, 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 have been largely offset by
the release of reserves provided by good loss experience in 1993 and 1994.

The underwriting expense ratio in 1994 was impacted by a retroactive pension
plan for the Directors which increased the expense ratio by 0.4%.The 1995
underwriting expense ratio declined modestly to 15.0% from the adjusted 1994
ratio of 15.2%. Despite the continued operational expansion of the Company,
increased administration costs have been offset by lower acquisition costs as
a percentage of premiums written. The lower acquisition costs are attributed
to the new specialty reinsurance assumed and property product lines. The
increase in the underwriting expense ratio reflects the increased expansion of
operations necessary to pursue new business and retain existing business in an
increasingly competitive market.

The underwriting expense ratio in 1996 reflects the impact of the general
liability quota share reinsurance treaty. The reduction in net premiums earned
was offset by commissions earned on this business. In addition, during the
fourth quarter X.L. acquired the assets of the American Excess Insurance
Association ("AEIA"). X.L. is subject to a fee based upon the level of the
AEIA book which binds with X.L. This fee will be expensed over five years.
After adjusting for the aforementioned, the expense ratio would have been
15.8%.

The insurance industry uses the combined ratio as a measure of underwriting
profitability. The combined ratio reflects only underwriting results and does
not include investment income. Generally, a combined ratio under 100 indicates
underwriting profits and a combined ratio over 100 indicates underwriting
losses. Although the Company believes the combined ratio is significantly
better than the average ratio achieved by the industry, the Company does not
believe that comparing the industry's ratios to those of the Company is valid
for three reasons. Firstly, the Company's attachment points and limits are
materially higher than the rest of the industry. Secondly, the Company has
limited claims experience owing to its brief operating history as compared
with the rest of the industry. Thirdly, the Company has a relatively small
number of employees compared to the industry as a result of the higher
attachment points and limits.

19
<PAGE>

The underwriting expense ratios prepared in accordance with generally
accepted accounting principles reflect the deferral of acquisition costs and
are expressed as a percentage of net premiums earned whereas such ratios
prepared in accordance with statutory accounting principles do not reflect any
deferral of acquisition costs and are expressed as a percentage of net
premiums written. The Company's underwriting expense ratios prepared in
accordance with generally accepted accounting principles include expenses of
the insurance company, its parent company and all consolidated subsidiaries of
the parent whereas such ratios prepared in accordance with statutory
accounting principles include only the expenses of the insurance company,
including intercompany charges of affiliates. However, the loss and loss
expense ratio of the Company would be the same, and the underwriting expense
ratio would not be materially different, if such ratios were calculated in
accordance with Bermuda statutory accounting principles.

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 exempt from
income taxes in the jurisdictions (other than withholding taxes based on
dividend income) in which they operate. Income tax expense was $2,805,000 in
1996, $1,720,000 in 1995 and $925,000 in 1994.

Net income was $494.3 million, $332.8 million, and $144.0 million, or $5.39,
$3.22 and $1.32 per share in 1996, 1995 and 1994, respectively, representing
increases (decreases) per share compared to the preceding years of 67.4%,
143.9%, and (61.3%), respectively. The change in per share amounts in 1995
over 1994 reflects increased revenues from all categories but primarily due to
realized gains of $49.8 million compared to realized losses of $95.2 million.
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.

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, 1996, X.L. could have paid dividends
in the amount of approximately $1.1 billion. Neither the Company nor any of
its subsidiaries other than X.L. and XLRe 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,
1996 was $2.1 billion, of which $1.6 billion was retained earnings.

At November 30, 1996, total investments and cash net of the payable for
investments purchased were $4.0 billion, compared to $3.8 billion at November
30, 1995. 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
likely that claims payments will increase due to the increased exposure to
events which occurred in prior years but have not yet been reported or paid.
It is likely that the excess funds available for investments will 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
equivalents) at November 30, 1996 represented approximately 80% of invested
assets and were managed by several outside investment managers with different
strategies. Of the fixed income securities 90% are of investment grade, and
over 90% of the portfolio is in U.S. and non-U.S. sovereign government (each
of which is a member of the Organization for Economic Cooperation and
Development) obligations and corporate and other securities with 73% rated Aa
or AA or better by a nationally recognized rating agency. In addition, total
investments and cash net of the payable for investments purchased included
$210.6 million in cash and cash equivalents at November 30, 1996.

20
<PAGE>

In fiscal 1994, 1995 and 1996 the total amount of losses paid by the Company
was $138.7 million, $188.5 million and $302.6 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 0.9 to 1 for the year
ended November 30, 1994, 0.8 to 1 for the year ended November 30, 1995 and 0.5
to 1 for the year ended November 30, 1996. This ratio has declined largely due
to the increased levels of reinsurance ceded during 1996. XLRe had a ratio of
0.08 to 1 for the year ended November 30, 1996 due to the 75% quota share
treaty with X.L.

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

On September 30, 1994, the Company's Board of Directors authorized the
Company to repurchase 4 million of its shares as circumstances warrant. As of
November 30, 1994, the Company had repurchased 1.1 million shares at a cost of
$21.9 million. The balance of the repurchase program was completed by June 23,
1995, at a cost of $69.2 million. On June 23, 1995, the Company's Board of
Directors authorized the repurchase of a further 10 million shares as
circumstances warrant. This repurchase program was completed by October 11,
1995, at a cost of $270.0 million. On December 1, 1995, the Company's Board of
Directors authorized the Company to repurchase a further 6 million of its
shares as circumstances warrant. This repurchase program was completed by July
8, 1996 at a cost of $207.7 million. On June 28, 1996, the Company's Board of
Directors authorized the Company to repurchase a further 5 million shares. As
at November 30, 1996 2.2 million shares had been repurchased at a cost of
$74.7 million. There are 2.8 million shares remaining in this program. All
shares amounts are adjusted for the one for one stock dividend paid to
shareholders of record July 26, 1996.

On November 19, 1996 the Company established a $200 million revolving line
of credit with Mellon Bank. This facility will be drawn upon in the event
cashflow from operating activities is insufficient or its timing does not
coincide with outgoing cashflow commitments in the future. This facility has
not been established to fulfill an existing obligation and was not drawn upon
in fiscal year 1996.

The Company has also contracted to a letter of credit totalling $108.1
million through Mellon Bank on behalf of Venton Underwriting Agency, Ltd.
("VUA") on November 26, 1996. The Trident Limited Partnership, L.P.
("Trident"), an investment fund of which the Company is a 7.5% limited
partner, and RCHI have invested in Venton Holdings, Ltd., which owns VUA. All
fees and drawdowns are, in effect, covered on a pro rata basis by Trident and
RCHI.

Both the Company's revolving credit facilities and the letters of credit on
behalf of VUA are collateralized by the Company's investment portfolio.

21
<PAGE>

FOREIGN CURRENCY RISK MANAGEMENT

The Company undertakes no obligation to update publically its beliefs
expressed herein.

Foreign Exchange Contracts

As part of its current investment strategy, the Company invests in non-U.S.
Dollar denominated fixed maturities and equities. The Company attempts to
hedge 100% of the foreign currency exposure 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. When an
investment is sold, the related foreign exchange sale contract is closed by
entering into an offsetting purchase contract. At November 30, 1996 the
Company had, as hedges, foreign contracts for the sale of $215.2 million and
the purchase of $32.6 million of foreign currencies at fixed rates, primarily
Canadian Dollars (31% of net contract value), French Francs (20%), German
Marks (18%), British Pounds (18%), and Japanese Yen (10%). The market value of
non-U.S. Dollar fixed maturities held by the Company as at November 30, 1996
was $188.5 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, 1996, unrealized deferred gains
amounted to $0.2 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, 1996, realized
deferred gains amounted to $3.3 million.

The Company uses foreign exchange contracts to manage the foreign exchange
risk of fluctuating foreign currencies on the value of its non-U.S. Dollar
equity investments. 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, 1996 the Company
had such forward contracts outstanding of $355.5 million with unrealized gains
of $2.9 million with no realized gains or losses 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, 1996 would have resulted in approximately $10.1 million in unrealized
gains and $5.1 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, 1996, the Company had $1.3 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, 1996 would have had no
material effect on income.

Speculative Financial Instruments

In accordance with its current investment guidelines, the Company may invest
up to 30% of its investment portfolio in equity securities. During 1996 these
guidelines were amended so that this exposure could 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
with an exposure approximately equal in amount to the market value of
underlying assets held in this fund. As at November 30, 1996, the portfolio
held $248.2 million in exposure to S&P 500 Index futures together with fixed
maturities, short-term investments and cash amounting to $247.6 million. Based
on this value, a 5% increase or decrease in the price of these futures would
have resulted in positions of $260.6 million and $235.8 million respectively.
The value of the futures is updated daily with the

22
<PAGE>

change recorded in income as a realized gain or loss. For the year ended
November 30, 1996, net realized gains from index futures totalled $37.4
million as a result of the 27.5% increase in the S&P 500 Stock Index during
the twelve month period.

ACCOUNTING STANDARD

The Financial Accounting Standards Board has issued Statement No. 123,
"Accounting for Stock-Based Compensation", effective for fiscal years
beginning after December 15, 1995, recognizing awards granted in the first
fiscal year after December 15, 1994. This Statement defines a fair value based
method of accounting for stock options or similar equity instruments in which
an entity acquires goods or services by issuing same. Entities can either
adopt the new method or continue to use APB Opinion No. 25, providing pro
forma disclosure of net income and earnings per share as if the fair value
based method had been adopted. The Company intends to follow the latter
alternative, providing the necessary disclosure for the fiscal year ending
1997. (The presentation of 1996 pro forma disclosure needs only to be provided
whenever financial statements for said fiscal year are presented for
comparative purposes with financial statements for later fiscal years.)

CURRENT OUTLOOK

The Company believes competitive pressures will continue into 1997 and
constrain growth in the Company's traditional markets. However, the Company
believes specific opportunities will exist in 1997 for growth in the Company's
property, X.L. Risk Solutions and employment practices liability product
lines, XLRe's specialty reinsurance lines, and further developments in non-
U.S. business, although no assurances can be given. The Company undertakes no
obligation to update publicly changes in its beliefs expressed herein.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES PAGE
- ------------------------------------------------------------ ----
<S> <C>
Consolidated Balance Sheets as of November 30, 1996 and 1995.............. 24
Consolidated Statements of Income for the years ended November 30, 1996,
1995 and 1994............................................................ 25
Consolidated Statements of Shareholders' Equity for the years ended
November 30, 1996, 1995 and 1994......................................... 26
Consolidated Statements of Cash Flows for the years ended
November 30, 1996, 1995 and 1994......................................... 27
Notes to Consolidated Financial Statements for the years ended
November 30, 1996, 1995 and 1994......................................... 28
Independent Auditors' Report.............................................. 43
</TABLE>

23
<PAGE>

EXEL LIMITED

CONSOLIDATED BALANCE SHEETS AS AT NOVEMBER 30, 1996 AND 1995

(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---------- ----------
<S> <C> <C>
Investments:
Fixed maturities, at market value (amortized cost:
1996--$2,812,415;
1995--$2,343,143)................................... $2,844,877 $2,434,470
Equity securities, at market value (cost: 1996--
$595,149; 1995--$652,847)........................... 812,050 838,132
Short-term investments, at market value (amortized
cost: 1996--$115,791;
1995--$82,696)...................................... 115,999 82,693
---------- ----------
Total investments.................................. 3,772,926 3,355,295
Cash and cash equivalents.............................. 252,734 673,433
Investment in affiliates (cost: 1996--$280,748; 1995--
$261,617)............................................. 414,891 351,669
Investment in limited partnerships..................... 23,803 10,067
Accrued investment income.............................. 55,729 53,149
Deferred acquisition costs............................. 30,383 40,954
Prepaid reinsurance premiums........................... 63,467 2,438
Premiums receivable.................................... 345,082 234,028
Reinsurance balance receivable......................... 46,444 1,002
Other assets........................................... 26,079 2 ,871
---------- ----------
Total assets....................................... $5,031,538 $4,724,906
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Unpaid losses and loss expenses...................... $2,099,096 $1,920,500
Unearned premiums.................................... 679,535 539,296
Premiums received in advance......................... 24,256 4,880
Accounts payable and accrued liabilities............. 39,171 16,983
Reinsurance premiums payable......................... 31,347 823
Payable for investments purchased.................... 42,095 236,291
---------- ----------
Total liabilities.................................. $2,915,500 $2,718,773
---------- ----------
Contingencies and commitments
Shareholders' Equity:
Ordinary shares (par value $0.01; authorized,
999,990,000 shares; issued and outstanding,
87,170,644 shares (excluding 24,205,100 shares held
in treasury) and 94,550,790 shares (excluding
16,000,000 shares held in treasury) at November 30,
1996 and 1995, respectively)........................ 872 473
Contributed surplus.................................... 282,980 295,209
Net unrealized appreciation on investments............. 256,430 283,289
Deferred compensation.................................. (4,169) (1,657)
Retained earnings...................................... 1,579,925 1,428,819
---------- ----------
Total shareholders' equity......................... $2.116,038 $2,006,133
---------- ----------
Total liabilities and shareholders' equity......... $5,031,538 $4,724,906
========== ==========
</TABLE>

See accompanying notes to Consolidated Financial Statements

24
<PAGE>

EXEL LIMITED

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994

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

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Net premiums earned.............................. $517,892 $558,049 $521,177
Net investment income............................ 198,598 200,145 182,262
Realized gains (losses) on sale of investments
(Note 3)........................................ 206,212 49,774 (95,197)
Equity in net income of affiliates............... 59,249 51,074 25,028
-------- -------- --------
Total revenues................................. 981,951 859,042 633,270
-------- -------- --------
Expenses:
Losses and loss expenses......................... 405,357 440,922 407,172
Acquisition costs................................ 35,556 53,016 54,315
Administration expenses.......................... 43,920 30,586 26,904
-------- -------- --------
Total expenses................................. 484,833 524,524 488,391
-------- -------- --------
Income before income tax expense................... 497,118 334,518 144,879
Income tax expense................................. 2,805 1,720 925
-------- -------- --------
Net income......................................... $494,313 $332,798 $143,954
======== ======== ========
Weighted average number of ordinary shares and
ordinary share
equivalents outstanding........................... 91,731 103,438 108,676
======== ======== ========
Net income per ordinary share and ordinary share
equivalent........................................ $ 5.39 $ 3.22 $ 1.32
======== ======== ========
</TABLE>

See accompanying notes to Consolidated Financial Statements

25
<PAGE>

EXEL LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994

(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Ordinary Shares:
Balance-beginning of year............... $ 473 $ 535 $ 547
Issuance and redemption of shares
(aggregate par value less than $1 in
1995 and 1994)......................... 1 -- --
Stock dividend.......................... 441 -- --
Exercise of stock options............... 4 1 --
Repurchase of treasury shares........... (47) (63) (12)
---------- ---------- ----------
Balance-end of year................... 872 473 535
---------- ---------- ----------
Contributed Surplus:
Balance-beginning of year............... 295,209 328,374 335,203
Issuance of restricted shares........... 7,493 1,926 121
Exercise of stock options............... 6,045 4,603 13
Repurchase of treasury shares........... (25,767) (39,694) (6,963)
---------- ---------- ----------
Balance-end of year................... 282,980 295,209 328,374
---------- ---------- ----------
Net Unrealized Appreciation (Depreciation)
on Investments:
Balance-beginning of year............... 283,289 (110,410) 79,696
Net change in investment portfolio...... (26,621) 378,158 (174,574)
Net change in investment portfolio of
affiliate.............................. (238) 15,541 (15,532)
---------- ---------- ----------
Balance-end of year................... 256,430 283,289 (110,410)
---------- ---------- ----------
Deferred Compensation:
Balance-beginning of year............... (1,657) (837) (1,406)
Issuance of restricted shares........... (3,799) (1,800) --
Amortization............................ 1,287 980 569
---------- ---------- ----------
Balance-end of year................... (4,169) (1,657) (837)
---------- ---------- ----------
Retained Earnings:
Balance-beginning of year............... 1,428,819 1,466,731 1,429,054
Net income.............................. 494,313 332,798 143,954
Cash dividends paid..................... (86,586) (71,253) (66,539)
Repurchase of treasury shares........... (256,621) (299,457) (39,738)
---------- ---------- ----------
Balance-end of year................... 1,579,925 1,428,819 1,466,731
---------- ---------- ----------
Total shareholders' equity.......... $2,116,038 $2,006,133 $1,684,393
========== ========== ==========
</TABLE>

See accompanying notes to Consolidated Financial Statements

26
<PAGE>

EXEL LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994

(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows provided by operating
activities:
Net income............................. $ 494,313 $ 332,798 $ 143,954
Adjustments to reconcile net income to net
cash provided by
operating activities:
Net realized (gains) losses on sale of
investments............................. (206,212) (49,774) 95,197
Unrealized loss (gain) on foreign
exchange................................ -- 3,069 (4,092)
Amortization of premium on fixed
maturities.............................. 7,021 5,006 12,954
Equity in net income of affiliate net of
cash received........................... (44,329) (43,703) (25,028)
Amortization of deferred compensation.... 1,287 980 569
Unpaid losses and loss expenses.......... 178,596 255,066 305,733
Reinsurance balances receivable.......... (45,442) (1,002) --
Unearned premiums........................ 140,239 138,726 106,810
Prepaid reinsurance premiums............. (61,029) (2,438) --
Premiums received in advance............. 19,376 (6,874) (5,742)
Deferred acquisition costs............... 10,571 (5,237) (6,514)
Premiums receivable...................... (111,054) (116,312) (83,353)
Reinsurance premiums payable............. 30,524 823 --
Accrued investment income................ (2,580) 6,929 (413)
Accounts payable and accrued liabilities. 22,188 5,108 1,312
---------- ---------- ----------
Total adjustments...................... (60,844) 190,367 397,433
---------- ---------- ----------
Net cash provided by operating
activities............................ 433,469 523,165 541,387
---------- ---------- ----------
Cash flows used in investing activities:
Proceeds from sale of fixed maturities
and short-term investments.............. 4,283,613 5,504,741 4,507,059
Proceeds from redemption of fixed
maturities and short-term investments... 119,706 81,000 44,000
Proceeds from sale of equity securities.. 591,366 221,212 187,997
Purchases of fixed maturities and short-
term
investments............................. (5,059,795) (5,276,683) (4,678,855)
Purchases of equity securities........... (374,565) (401,379) (221,874)
Deferred gains (losses) on forward
contracts............................... 418 40,233 (43,638)
Investment in affiliates................. (19,131) (59,549) (25,871)
Investment in limited partnerships....... (13,736) (5,642) (4,426)
Other assets............................. (20,208) 1,605 (691)
---------- ---------- ----------
Net cash (used in) provided by
investing activities.................. (492,332) 105,538 (236,299)
---------- ---------- ----------
Cash flows used in financing activities:
Issuance of restricted shares............ 695 126 121
Proceeds from exercise of share options.. 6,049 3,135 12
Repurchase of treasury shares............ (282,435) (343,454) (46,990)
Dividends paid........................... (86,145) (71,253) (66,539)
---------- ---------- ----------
Net cash used in financing activities.. (361,836) (411,446) (113,396)
---------- ---------- ----------
(Decrease) increase in cash and cash
equivalents........................... (420,699) 217,257 191,692
Cash and cash equivalents--beginning of
year...................................... 673,433 456,176 264,484
---------- ---------- ----------
Cash and cash equivalents--end of year..... $ 252,734 $ 673,433 $ 456,176
========== ========== ==========
Taxes paid................................. $ 1,571 $ 1,056 $ 1,009
========== ========== ==========
</TABLE>

See accompanying notes to Consolidated Financial Statements

27
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994

(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. 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.I. on November 16, 1987 under
the laws of Bermuda. X.L.I. in turn provided the capital to incorporate
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, XLRe was incorporated under the laws of Bermuda as a
wholly-owned subsidiary of X.L. and subsequently commenced operations
effective December 1, 1995.

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

Third party liability coverage, generally 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, for United States and non-
United States risks, 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.

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 the Company and CIGNA Property &
Casualty ("CIGNA"). The product provides combined capacity for traditional
casualty and property coverages provided by subsidiaries of the Company 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 stringent
underwriting requirements.

28
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

XLRe 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 XLRe 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.

A clash reinsurance policy covering all excess liability business written by
X.L. and X.L.E. with limits of $100 million ultimate net loss each occurrence
and in the aggregate excess of $150 million ultimate net loss each occurrence
had been arranged. For the year ended November 30, 1994 the placement was 90.0
percent. Due to unacceptable renewal terms, this reinsurance policy was not
renewed on December 1, 1994.

Property quota share reinsurance of 17.5% (subject to catastrophe occurrence
limit restrictions) of the X.L. and X.L.E. property limits was purchased from
two Bermuda based property reinsurers, effective April 1, 1994. The quota
share was increased to 25% of the X.L. and X.L.E. property limits, effective
April 14, 1995, with the additional cover provided by Mid Ocean Reinsurance
Company, Ltd. ("MOR"), a wholly-owned subsidiary of MOCL. All property
reinsurers are rated, two having Standard & Poors ("S&P") ratings of A or
higher and the reinsurer not rated by S&P having an A. M. Best rating of A-.

Effective December 1, 1995, X.L. and X.L.E. 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 Risk Capital
Reinsurance Company ("RCR"), a wholly-owned subsidiary of Risk Capital
Holding, Inc. ("RCHI"). Under the terms of the policy, X.L. and X.L.E. 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 RCR, all the reinsurers are rated, of which the lowest as rated
by S&P is A-.

With respect to employment practices liability cover, X.L. quota shares 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.

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.

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.

29
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 1996 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.

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.

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.

(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. Foreign
exchange on hedged assets and liabilities and forward foreign exchange
contracts hedging said assets and liabilities are deferred and included in
shareholders' equity. Realized gains and losses on the maturity of these
forward contracts are deferred and included in shareholders' equity until the
corresponding asset is sold or liability settled. Revenue and expense
transactions are translated at the average exchange rates prevailing during
the year.

30
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(e) Investment in Affiliates

The Company has investments in MOCL and RCHI. Both are carried on the
equity basis. The Company owns 29.9% and 29.6% of the issued voting shares and
28.1% and 27.9% of the total issued shares of MOCL as at November 30, 1996 and
1995, respectively. Outstanding share purchase options if exercised would
reduce the Company's ownership position to 29.6% and 29.3% of the issued
voting shares and 25% and 24.8% of the total issued shares, as at November 30,
1996 and 1995, respectively. The Company, through its subsidiary XLRe,
provides reinsurance cover to MOR, on an excess basis.

The Company owns 22.1% of the issued shares of RCHI. Outstanding share
warrants if exercised would dilute the Company's ownership to 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.

(f) Investment in Limited Partnerships

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 $23.8 million and $10.1 million
as at November 30, 1996 and 1995, respectively, with commitments to invest a
further $41.2 million and $44.9 million respectively, over the next ten years.
Any income or loss generated by the partnerships is not recorded until such
time as it is allocated to the individual partners. During the years ended
November 30, 1996 and 1995, there was no such income or loss recorded on these
investments, however 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.

(g) 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 insureds 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 excess liability
insurance industry.

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 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.

31
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(h) 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.

(i) 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):

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities, short-term investments and cash
and cash equivalents............................... $200,711 $205,123 $180,276
Equity securities................................... 11,752 10,001 13,976
-------- -------- --------
Total investment income........................... 212,463 215,124 194,252
Investment expenses............................... 13,865 14,979 11,990
-------- -------- --------
Net investment income............................. $198,598 $200,145 $182,262
======== ======== ========
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities and short-term investments:
Gross realized gains.......................... $103,830 $176,518 $ 125,770
Gross realized losses......................... (53,463) (145,737) (236,478)
-------- -------- ---------
Net realized gains (losses)................. 50,367 30,781 (110,708)
Equity securities:
Net realized gains............................ 155,845 16,969 15,511
Net realized gain on sale of investment in
affiliate.................................... -- 2,024 --
-------- -------- ---------
Net realized gains (losses) on investments...... 206,212 49,774 (95,197)
-------- -------- ---------
Change in unrealized gains (losses):
Fixed maturities and short-term investments... (58,654) 183,627 (120,590)
Equity securities............................. 31,616 154,298 (10,346)
Deferred gains on forward contracts........... 418 40,233 (43,638)
Investment portfolio of affiliates............ (239) 12,560 (15,532)
-------- -------- ---------
Net change in unrealized (losses) gains on
investments.................................... (26,859) 390,718 (190,106)
-------- -------- ---------
Total realized and change in unrealized
gains
(losses) on investments.................... $179,353 $440,492 $(285,303)
======== ======== =========
</TABLE>

32
<PAGE>

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):

<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
NOVEMBER 30, 1996 COST GAINS LOSSES VALUE
- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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 (27) 98,614
Non-U.S. Sovereign Government
bonds........................... -- -- -- --
---------- -------- -------- ----------
Total short-term investments... $ 115,791 $ 236 $ (27) $ 115,999
========== ======== ======== ==========
Total equity securities........ $ 595,149 $231,158 $(14,257) $ 812,050
========== ======== ======== ==========
<CAPTION>
NOVEMBER 30, 1995
- -----------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and Government
agency.......................... $1,396,367 $ 54,086 $ (610) $1,449,843
Corporate bonds.................. 682,712 29,367 (3,555) 708,524
Non-U.S. Sovereign Government
bonds........................... 264,064 14,563 (2,524) 276,103
---------- -------- -------- ----------
Total fixed maturities......... $2,343,143 $ 98,016 $ (6,689) $2,434,470
========== ======== ======== ==========
Short-term investments:
U.S. Government and Government
agency.......................... $ 36,118 $ 42 $ -- $ 36,160
Corporate bonds.................. 35,778 161 (2) 35,937
Non-U.S. Sovereign Government
bonds........................... 10,800 -- (204) 10,596
---------- -------- -------- ----------
Total short-term investments... $ 82,696 $ 203 $ (206) $ 82,693
========== ======== ======== ==========
Total equity securities........ $ 652,847 $198,568 $(13,283) $ 838,132
========== ======== ======== ==========
</TABLE>

The portfolio of fixed maturities as of November 30, 1996 and 1995 matures
as follows (U.S. dollars in thousands):

<TABLE>
<CAPTION>
NOVEMBER 30, 1996 NOVEMBER 30, 1995
--------------------- ---------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due after 1 through 5 years...... $ 945,746 $ 952,360 $ 851,888 $ 868,268
Due after 5 through 10 years..... 989,547 1,002,937 421,772 438,497
Due after 10 through 15 years.... 81,736 87,003 83,567 93,169
Due after 15 years............... 528,678 537,639 543,250 584,644
Mortgage-backed investments...... 266,708 264,938 442,666 449,892
---------- ---------- ---------- ----------
$2,812,415 $2,844,877 $2,343,143 $2,434,470
========== ========== ========== ==========
</TABLE>

33
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. LOSSES AND LOSS EXPENSES

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

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Reserve for reported losses................ $ 786,515 $ 811,327 $ 685,244
Reserve for losses incurred but not
reported.................................. 1,248,759 1,098,575 974,854
Reserve for loss expenses.................. 17,378 9,596 5,336
---------- ---------- ----------
Unpaid losses and loss expenses.......... $2,052,652 $1,919,498 $1,665,434
---------- ---------- ----------

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

Loss payments.............................. $ 299,492 $ 184,575 $ 132,608
Loss expense payments...................... 3,150 3,929 6,136
Change in unpaid losses and loss expenses.. 102,715 252,418 268,428
---------- ---------- ----------
Losses and loss expenses incurred........ $ 405,357 $ 440,922 $ 407,172
========== ========== ==========
</TABLE>

Reconciliation of unpaid losses and loss expenses:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Unpaid losses and loss expenses at
beginning of period...................... $1,919,498 $1,665,434 $1,359,701
Losses and loss expenses incurred in
respect of losses
occurring in:
Current year............................ 390,892 440,394 368,209
Prior years............................. 14,465 528 75,469
---------- ---------- ----------
Total..................................... 405,357 440,922 443,678
---------- ---------- ----------
Interest incurred on experience reserves.. 1,752 1,646 799
Portfolio transfer........................ 28,687 -- --
Losses and loss expenses paid in respect
of losses
occurring in:
Current year............................ 3,177 134 42
Prior years............................. 299,465 188,370 138,702
---------- ---------- ----------
Total..................................... 302,642 188,504 138,744
---------- ---------- ----------
Unpaid losses and loss expenses at end of
period................................... $2,052,652 $1,919,498 $1,665,434
========== ========== ==========
</TABLE>

Losses and loss expenses incurred for prior years during 1996, 1995 and 1994
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.

5. CONTINGENCIES AND COMMITMENTS

On November 19, 1996 the Company established a $200 million revolving line
of credit with Mellon Bank.

The Company has also contracted to letters of credit totalling $108.1
million through Mellon Bank on behalf of Venton Underwriting Agency, Ltd.
("VUA"). The Trident Limited Partnership, L.P. ("Trident"), an investment fund
of which the Company is a 7.5% limited partner, and RCHI are invested in
Venton Holdings, Ltd., which owns VUA. All fees and drawdowns are, in effect,
covered on a pro rata basis by Trident and RCHI.

Both the Company's revolving credit facilities and letters of credit on
behalf of VUA are collateralized by the Company's investment portfolio.

34
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. 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 30, 1994, the Company's Board of Directors authorized the
Company to repurchase four million shares as circumstances warrant. As of
November 30, 1994, the Company had repurchased 1.1 million shares at a cost of
$21.8 million. The balance of the repurchase program was completed by June 23,
1995, at a cost of $69.2 million. On June 23, 1995, the Company's Board of
Directors authorized the repurchase of a further ten million shares as
circumstances warrant. This repurchase program was completed by October 11,
1995, at a cost of $270.0 million. On December 1, 1995, the Company's Board of
Directors authorized the Company to repurchase six million of its shares as
circumstances warrant. This program was completed on July 8, 1996 at a cost of
$207.7 million. On June 28, 1996, the Company's Board of Directors authorized
the Company to repurchase a further 5 million shares. As at November 30, 1996
the Company has purchased 2.2 million shares at a cost of $74.8 million.

Following is a summary of shares issued and outstanding (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year................ 94,550.8 107,050.0 109,314.2
Exercise of options....................... 600.9 254.6 0.8
Issuance of restricted shares............. 224.0 102.8 5.6
Repurchase of treasury shares............. (8,205.1) (12,856.6) (2,270.6)
-------- --------- ---------
Balance, end of year.................... 87,170.6 94,550.8 107,050.0
======== ========= =========
</TABLE>

Options

Employees and Directors also hold options, which are exercisable at prices
between $5.00 and $35.56 per share, within a period of ten years from the date
of the award. Total options exercisable at November 30, 1996, 1995 and 1994
were 2,112,148, 2,228,582 and 1,890,284, respectively.

Following is a summary of outstanding options (number of shares in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF PRICE RANGE OF PRICE RANGE OF PRICE RANGE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 2,228 $ 5.00-$27.07 1,890 $ 5.00-$22.75 1,344 $ 5.00-$22.75
Granted................. 488 $31.19-$35.56 640 $18.75-$27.07 602 $19.31-$21.69
Exercised............... (601) $ 5.00-$22.75 (254) $ 5.00-$22.75 (2) $15.50
Repurchased and
canceled............... (3) $18.75-$21.69 (48) $18.75-$22.75 (54) $15.50-$22.75
----- ------------- ----- ------------- ----- -------------
2,112 $ 5.00-$35.56 2,228 $5.00-$ 27.07 1,890 $5.00-$ 22.75
===== ============= ===== ============= ===== =============
</TABLE>

35
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Voting

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

7. 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.

8. DEFERRED COMPENSATION

Restricted stock awards to certain officers and key employees are at the
discretion of the Compensation Committee of the Board of Directors under the
terms of the 1991 Performance Incentive Program. These shares contain certain
restrictions, for a five-year 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 value on the date of the grant
is charged to shareholders' equity and subsequently amortized over the five-
year restriction period. Awards under the 1991 Performance Incentive Program
were made in the 1996 and 1995 years of 120,500 shares and 98,000 shares,
respectively.

9. PREMIUMS

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

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Gross premiums written...................... $729,446 $698,020 $638,294
Reinsurance premiums ceded.................. (132,344) (3,683) (10,307)
-------- -------- --------
Net premiums written...................... 597,102 694,337 627,987
Change in unearned premiums................. (79,210) (136,288) (106,810)
-------- -------- --------
Net premiums earned....................... $517,892 $558,049 $521,177
======== ======== ========
</TABLE>

10. 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.

11. DIVIDENDS

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.

In 1994, four regular quarterly dividends were paid, three of $0.15 per
share to shareholders of record at January 27, April 8 and July 8, and one of
$0.17 per share to shareholders of record at October 13.

12. 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.

36
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Bermuda presently imposes no income, withholding or capital gains taxes. As
a result, X.L., X.L.I. and XLRe 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.

13. FOREIGN EXCHANGE

At November 30, 1996, 1995 and 1994, forward foreign exchange contracts
having notional principal amounts of $683.3 million, $127.2 million and $961.1
million, respectively, were outstanding. At November 30, 1996, the market
value of the outstanding forward foreign exchange contracts was $686.4
million. Contracts with a notional principal amount of $182.6 million and a
market value of $182.4 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. Effective 1996 the balance
of the contracts are utilized to reduce the foreign exchange risk on foreign
currency equities, 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 $3.1 million for the year ended November
30, 1996.

Net unrealized foreign currency (losses) gains of nil, ($3.1) million and
$4.1 million are included in net investment income for the years ended
November 30, 1996, 1995 and 1994, respectively.

14. FINANCIAL INSTRUMENTS

In accordance with its current investment guidelines, the Company may invest
up to 30% of its investment portfolio in equity securities. During 1996 these
guidelines were amended so that this exposure could 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
with an exposure approximately equal in amount to the market value of
underlying assets held in this fund. As at November 30, 1996, the portfolio
held $248.2 million in exposure of S&P 500 Index futures together with fixed
maturities, short-term investments and cash amounting to $247.6 million. 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, 1996, net realized
gains from index futures totalled $37.4 million.

15. STATUTORY FINANCIAL DATA

Under The Insurance Act, 1978, amendments thereto and related regulations of
Bermuda (the "Act"), X.L. and XLRe 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.

37
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Statutory capital and surplus.................... $872,586 $807,264 $676,298
======== ======== ========
Minimum statutory capital and surplus required by
the Act......................................... $302,802 $332,089 $163,699
======== ======== ========
</TABLE>

XLRe's statutory capital surplus and minimum required by the Act for the
year ended November 30, 1996 were $271.4 million and $100 million,
respectively.

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 will only allow 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 $1.1
billion, $930 million and $1.1 billion at November 30, 1996, 1995 and 1994,
respectively. XLRe was classified as a Class 4 reinsurer upon its
incorporation.

Net income of X.L. calculated under Bermuda statutory accounting regulations
was $380.5 million, $628.9 million and $183.3 million for the years ended
November 30, 1996, 1995 and 1994, respectively. The principal differences
between statutory capital and surplus and net income of X.L. and shareholders'
equity and net income of EXEL relate to deferred acquisition costs and the
accounting for the investments of X.L. in its subsidiaries.

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").

38
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

16. UNAUDITED QUARTERLY FINANCIAL DATA

The unaudited quarterly financial data for 1996 and 1995 follows (U.S.
dollars in thousands, except per share amounts):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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 affiliate...... 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
======== ======== ======== ========
1995
Net premiums earned.................... $130,746 $135,145 $139,219 $152,939
Net investment income.................. 50,170 56,797 39,085 54,093
Realized gains (losses)................ (6,874) 14,890 26,162 15,596
Equity in net income of affiliate...... 5,053 15,545 18,449 12,027
Total revenues......................... $179,095 $222,377 $222,915 $234,655
======== ======== ======== ========
Income before income tax expense....... $ 57,179 $ 95,063 $ 93,319 $ 88,957
======== ======== ======== ========
Net income............................. $ 56,882 $ 94,531 $ 92,903 $ 88,482
======== ======== ======== ========
Net income per share and share
equivalent............................ $ 0.53 $ 0.88 $ 0.91 $ 0.92
======== ======== ======== ========
</TABLE>

17. ACCOUNTING STANDARDS

39
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

18. INVESTMENT IN AFFILIATE

Summarized condensed financial information of Mid Ocean Limited, a 28% owned
affiliate, which is accounted for by the equity method, is as follows:

INCOME STATEMENT DATA

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net premiums earned............................. $436,097 $379,390 $301,017
Net investment income........................... 83,261 73,835 51,457
Net realized gains (losses) on sale of
investments.................................... 2,126 1,476 (18,196)
Net income...................................... 211,644 182,935 90,978
======== ======== ========
Company's share of net income................... $ 59,249 $ 51,074 $ 25,028
======== ======== ========
</TABLE>

BALANCE SHEET DATA

<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash, investments and accrued interest................ $1,539,259 $1,275,588
Other assets.......................................... 483,440 379,920
---------- ----------
Total assets.......................................... $2,022,699 $1,655,508
========== ==========
Reserves for losses and loss expenses................. 422,252 328,990
Reserves for unearned premiums........................ 287,494 200,859
Other liabilities..................................... 195,754 156,865
Shareholders' equity.................................. 1,117,199 968,794
---------- ----------
Total liabilities and shareholders' equity............ $2,022,699 $1,655,508
========== ==========
Company's share of shareholders' equity............... $ 314,256 $ 273,867
========== ==========
</TABLE>

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

40
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SUPPLEMENTARY FINANCIAL INFORMATION
X.L. EUROPE INSURANCE

BALANCE SHEETS AS AT NOVEMBER 30, 1996 AND 1995

(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
ASSETS 1996 1995
------ -------- --------
<S> <C> <C>
Investments:
Fixed maturities, at market value (amortized cost: 1996,
$166,553; 1995, $137,595)................................. $170,881 $141,160
Short-term investments, at market value (amortized cost:
1996, $7,328; 1995, $7,332)............................... 7,521 7,128
-------- --------
Total investments........................................ 178,402 148,288
Cash and cash equivalents.................................... 52,940 43,883
Accrued investment income.................................... 3,594 3,423
Deferred acquisition costs................................... 6,669 5,570
Prepaid reinsurance.......................................... 46,270 38,954
Premiums and accounts receivable............................. 35,472 19,966
Amount due from affiliate.................................... -- 3,181
Other assets................................................. 1,943 1,852
-------- --------
Total assets............................................. $325,290 $265,117
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Unpaid losses and loss expenses............................ $ 70,927 $ 49,532
Unearned premiums.......................................... 67,016 57,192
Premiums received in advance............................... 24 390
Unearned commission........................................ 7,937 6,516
Amount due to affiliate.................................... 10,900 --
Accounts payable and accrued liabilities................... 5,164 3,928
Reinsurance premium payable................................ 2,518 --
-------- --------
Total liabilities........................................ $164,486 $117,558
-------- --------
Commitments and contingencies
Shareholders' Equity:
Ordinary shares (par value $1.00; authorized, 100,000,000
shares; issued and fully paid, 100,000,000 shares;
November 30, 1996 and 1995, respectively)................. $100,000 $100,000
Net unrealized appreciation on investments................... 7,793 6,228
Retained earnings............................................ 53,011 41,331
-------- --------
Total shareholders' equity............................... $160,804 $147,559
-------- --------
Total liabilities and shareholders' equity............... $325,290 $265,117
======== ========
</TABLE>

41
<PAGE>

EXEL LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SUPPLEMENTARY FINANCIAL INFORMATION
X.L. EUROPE INSURANCE

STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994

(EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues:
Net premiums earned.................................. $24,495 $25,423 $15,938
Net investment income................................ 10,442 10,055 8,890
Realized gains (losses) on investments............... 3,130 3,483 (1,802)
Commission earned.................................... 10,545 10,566 8,698
------- ------- -------
Total revenues..................................... $48,612 $49,527 $31,724
------- ------- -------
Expenses:
Losses and loss expenses............................. 21,054 20,909 12,894
Acquisition costs.................................... 8,764 9,435 8,607
Administration expenses.............................. 5,714 4,869 3,576
------- ------- -------
Total expenses..................................... 35,532 35,213 25,077
------- ------- -------
Income before income tax expense....................... 13,080 14,314 6,647
Income tax expense..................................... 1,400 1,448 696
------- ------- -------
Net income............................................. $11,680 $12,866 $ 5,951
Retained earnings-beginning of year.................... 41,331 28,465 22,514
------- ------- -------
Retained earnings-end of year.......................... $53,011 $41,331 $28,465
======= ======= =======
</TABLE>

42
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders of EXEL Limited:

We have audited the accompanying consolidated balance sheets of EXEL Limited
as of November 30, 1996 and 1995, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in
the period ended November 30, 1996. 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, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
November 30, 1996 in conformity with accounting principles generally accepted
in the United States of America.

Coopers & Lybrand

Hamilton, Bermuda
January 23, 1997

43
<PAGE>

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, 1996.

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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:

<TABLE>
<CAPTION>
SCHEDULE
NUMBER PAGE
-------- ----
<S> <C> <C>
--Auditor's Report on Financial Statement Schedules included
in
Form 10-K................................................ 46
--Consolidated Summary of Investments--Other than
Investments in
Related Parties, as of November 30, 1996................. I 47
--Condensed Financial Information of Registrant, as of
November 30,
1996 and 1995, and for the years ended November 30, 1996,
1995, and
1994..................................................... II 48
--Reinsurance, for the years ended November 30, 1996, 1995
and 1994................................................. IV 51
--Supplementary Information Concerning Property/Casualty
Insurance
Operations for the years ended November 30, 1996, 1995,
and 1994................................................. VI 52
</TABLE>

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

44
<PAGE>

3. EXHIBITS

<TABLE>
<C> <S>
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.
10.5 Retirement Plan for Nonemployee Directors of EXEL Limited, as
amended.
10.6 EXEL Limited Directors Stock and Option Plan, as amended.
10.7 EXEL Limited Stock Plan for Nonemployee Directors.
10.8 Agreement for Consulting Services, entered into on February 28,
1996, by the Company and John W. Weiser.
11.1 Statement regarding computation of per share earnings.
21.1 List of subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand.
27 Financial Data Schedule.
</TABLE>

(b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the last quarter of 1996.

45
<PAGE>

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 44 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, 1997

46
<PAGE>

EXEL LIMITED

SUPPLEMENTAL SCHEDULE I

CONSOLIDATED SUMMARY OF INVESTMENTS-OTHER THAN
INVESTMENTS IN RELATED PARTIES

NOVEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
AMOUNT AT
COST OR WHICH SHOWN
AMORTIZED MARKET IN THE
TYPE OF INVESTMENT COST(1) VALUE BALANCE SHEET
------------------ ---------- ---------- -------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds and notes:
U.S. government and government agencies
and
authorities............................. $1,031,963 $1,033,460 $1,033,460
Non-U.S. sovereign governments........... 1,340,845 1,361,456 1,361,456
All other corporate...................... 439,607 449,961 449,961
---------- ---------- ----------
Total fixed maturities................. $2,812,415 $2,844,877 $2,844,877
---------- ---------- ----------
Equity Securities:
Public utilities/transportation.......... $ 9,670 $ 12,864 $ 12,864
Banks, trust and insurance companies..... 40,409 68,818 68,818
Industrial, miscellaneous and all others. 545,070 730,368 730,368
---------- ---------- ----------
Total equity securities................ $ 595,149 $ 812,050 $ 812,050
---------- ---------- ----------
Short-term investments....................... $ 115,791 $ 115,999 $ 115,999
---------- ---------- ----------
Total investments............................ $3,523,355 $3,772,926 $3,772,926
========== ========== ==========
</TABLE>
- --------
(1) Investments in fixed maturities and short-term investments are shown at
amortized cost.

47
<PAGE>

EXEL LIMITED

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS-PARENT COMPANY ONLY

FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995

(IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---------- ----------
<S> <C> <C>
Investment in subsidiaries............................. 1,756,442 1,642,299
Investment in affiliate (cost: 1996--$188,137; 1995--
$186,517)............................................. 320,885 276,569
Investment in limited partnerships..................... 22,635 10,067
Amount due from subsidiaries........................... 14,408 80,077
Other assets........................................... 3,264 183
---------- ----------
Total assets......................................... $2,117,634 $2,009,195
========== ==========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Accounts payable and accrued liabilities............... $ 1,596 $ 3,062
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C>
Ordinary shares........................................ $ 872 $ 473
Contributed surplus.................................... 282,980 295,209
Net unrealized appreciation on investments............. 256,430 283,289
Deferred compensation.................................. (4,169) (1,657)
Retained earnings...................................... 1,579,925 1,428,819
---------- ----------
Total shareholders' equity........................... $2,116,038 $2,006,133
---------- ----------
Total liabilities and shareholders' equity........... $2,117,634 $2,009,195
========== ==========
</TABLE>

See accompanying notes to Consolidated Financial Statements

48
<PAGE>

EXEL LIMITED

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENT OF INCOME--PARENT COMPANY ONLY

FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994

(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net investment income............................... $ 568 $ 988 $ 1
Realized gains...................................... -- 2,024 --
Equity in net income of subsidiaries (Dividends were
$302,000,
$497,976 and $142,682 in 1996, 1995 and 1994,
respectively)...................................... 439,361 282,933 124,243
Equity in net income of affiliate................... 59,374 51,074 25,028
-------- -------- --------
Total revenues...................................... 499,303 337,019 149,272
Administration expenses............................. 4,990 4,221 5,318
-------- -------- --------
Net income.......................................... $494,313 $332,798 $143,954
======== ======== ========
</TABLE>

See accompanying notes to Consolidated Financial Statements

49
<PAGE>

EXEL LIMITED

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENT OF CASH FLOWS--PARENT COMPANY ONLY

FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994

(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income..................................... $494,313 $332,798 $143,954
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................................... (136,106) 139,465 18,437
Equity in net income of affiliate net of
dividends................................... (44,592) (43,703) (25,028)
Amount from subsidiaries..................... 65,669 (25,883) 1,837
Accounts payable and accrued liabilities..... (1,466) 193 2,058
Amortization of deferred compensation........ 1,287 980 569
-------- -------- --------
Total adjustments.......................... (115,208) 69,028 (2,127)
-------- -------- --------
Net cash provided by operating activities.. 379,105 401,826 141,827
-------- -------- --------
Cash flows provided by (used in) investing
activities:
Other assets................................... (3,081) (318) 483
Investment in affiliate........................ (1,620) -- (25,871)
Investment in limited partnership.............. (12,568) (5,642) (4,426)
Proceeds from sale of shares in affiliate...... -- 15,549 --
-------- -------- --------
Net cash (used in) provided by investing
activities................................ (17,269) 9,589 (29,814)
-------- -------- --------
Cash flows used in financing activities:
Issuance of restricted shares.................. 695 126 121
Proceeds from exercise of options.............. 6,048 3,135 12
Dividends paid................................. (86,145) (71,253) (66,539)
Repurchase of treasury shares.................. (282,434) (343,454) (46,990)
-------- -------- --------
Net cash used in financing activities...... (361,836) (411,446) (113,396)
-------- -------- --------
Net change in cash and cash equivalents.... -- (31) (1,383)
-------- -------- --------
Cash and cash equivalents--beginning of year..... -- 31 1,414
-------- -------- --------
Cash and cash equivalents--end of year........... $ -- $ -- $ 31
======== ======== ========
</TABLE>

See accompanying notes to Consolidated Financial Statements

50
<PAGE>

EXEL LIMITED

SCHEDULE IV--REINSURANCE

FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994

(IN THOUSANDS)

<TABLE>
<CAPTION>
ASSUMED
CEDED FROM
GROSS TO OTHER OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
-------- --------- --------- --------
<S> <C> <C> <C> <C>
1996...................................... $584,585 $132,344 $144,861 $597,102
1995...................................... $543,791 $ 3,683 $154,229 $694,337
1994...................................... $638,294 $ 10,307 -- $627,987
</TABLE>

51
<PAGE>

EXEL LIMITED

SCHEDULE VI

SUPPLEMENTARY INFORMATION

CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS

FOR THE YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994

(IN THOUSANDS)

<TABLE>
<CAPTION>
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
----------- ---------- -------- -------- ---------- -------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1994 $35,717 $1,665,434 $400,570 $521,177 $182,262 $368,209 $138,744 $138,744 $54,315 $627,987
</TABLE>

52
<PAGE>

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 24, 1997

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Brian M. O'Hara President, Chief Executive January 24, 1997
____________________________________ Officer and Director
Brian M. O'Hara (Principal Executive
Officer)

/s/ Brian G. Walford Executive Vice President and January 24, 1997
____________________________________ Chief Financial Officer
Brian G. Walford (Principal Financial
Officer and Principal
Accounting Officer)

/s/ Michael Esposito, Jr. Director and Chairman of the January 24, 1997
____________________________________ Board of Directors
Michael Esposito, Jr.

/s/ Robert Clements Director January 24, 1997
____________________________________
Robert Clements

/s/ Gilbert Gould Director January 24, 1997
____________________________________
Gilbert Gould

/s/ Ian R. Heap Director January 24, 1997
____________________________________
Ian R. Heap

Director
____________________________________
John Loudon

/s/ Robert S. Parker Director January 24, 1997
____________________________________
Robert S. Parker

/s/ Cyril Rance Director January 24, 1997
____________________________________
Cyril Rance

/s/ Alan Z. Senter Director January 24, 1997
____________________________________
Alan Z. Senter

/s/ John T. Thornton Director January 24, 1997
____________________________________
John T. Thornton

/s/ Ellen E. Thrower Director January 24, 1997
____________________________________
Ellen E. Thrower

/s/ John Weiser Director January 24, 1997
____________________________________
John Weiser
</TABLE>

<PAGE>

EXHIBIT 10.4

FIRST AMENDMENT TO 1991
PERFORMANCE INCENTIVE PROGRAM

The EXEL Limited 1991 Performance Incentive Program (the "Program") is
hereby amended, effective as of December 4, 1996, as follows; provided, however,
that this amendment shall be contingent upon approval by the affirmative votes
of the holders of a majority of voting securities of EXEL Limited at a meeting
duly held during calendar year 1997.

1. The definition of "Change of Control" in Section I.B. of the Program is
hereby amended to read as follows:

"'Change of Control' shall be deemed to have occurred if and when any
person, meaning an individual, a partnership, or other group or association
as defined in Sections 13(d) and 14(d) of the United States Securities
Exchange Act of 1934 (other than a group of which the Grantee is a member
or which has been organized by the Grantee for the purpose of making such
acquisition), acquires, directly or indirectly, 40 percent or more of the
combined voting power of the outstanding securities of the Company having a
right to vote in the election of directors. Ownership of 40 percent or more
of the combined voting power of the outstanding securities of the Company
by any person controlled directly or indirectly by the Company shall not be
deemed a Change of Control of the Company."

2. The definition of "Committee" in Section I.B. of the Program is hereby
amended to read as follows:

"'Committee' shall mean the entire Board or the Compensation
Committee, or such other committee of the Board as may be designated
by the Board to administer the Program."

3. The definition of "Company" in Section I.B. of the Program is hereby
amended to read as follows:

"'Company' shall mean EXEL Limited, a Cayman Island corporation, any
other entity in which EXEL Limited owns 20% or more of the ordinary
voting power or equity, and any successor in a reorganization or
similar transaction."

4. The definition of "Participant" in Section I.B. of the Program is
hereby amended to read as follows:

"'Participant' shall mean any employee of the Company and any member
of the Board (whether or not an employee of the Company) who, in the
judgment of the
<PAGE>

Committee, is in a position to make a substantial contribution to the
management, growth, and success of the Company and is thus designated by
the Committee to receive an Award."

5. The definition of "Termination of Employment" in Section I.B. of the
Program is hereby amended to read as follows:

"'Termination of Employment' shall mean a cessation of the employee-
employer relationship between a Participant and the Company for any reason
or, in the case of a member of the Board, termination of the director's
service on the Board for any reason."

6. Section II.C. of the Program is amended by increasing the number of
shares available under the Program to 8,000,000.

7. Section V.A.3. of the Program is amended by deleting the last sentence
thereof.

8. Section VII.D.2. of the Program is amended by adding the following at
the beginning thereof: "Except as otherwise determined by the Committee and set
forth in the applicable Award Agreement,"

<PAGE>

EXHIBIT 10.5

RETIREMENT PLAN FOR NONEMPLOYEE DIRECTORS OF EXEL LIMITED

Effective July 1, 1994

1. Purpose

EXEL Limited (the "Company") has adopted this Retirement Plan for
Nonemployee Directors of EXEL Limited (the "Plan") in order to enhance its
ability to attract and retain competent and experienced persons to serve as
Directors and to recognize the service of Directors to the Company by
providing such Directors with retirement benefits.

2. Definitions

Except as otherwise specified or as the context may otherwise require, the
following terms have the meanings indicated below for all purposes of this
Plan:

a. Board means the Board of Directors of the Company.

b. Compensation means the annual Board retainer fee (excluding meeting and
committee fees) established by the Board as in effect on the date of
the Director's termination of Service (disregarding any increase or
decrease in such fee that may be approved after such termination of
Service).

c. Director means any person who is serving on the Effective Date of the
Plan, or who in the future serves, as a member of the Board.

d. Effective Date means July 1, 1994.

e. Retirement Date means the first day of the calendar month coinciding
with or next following the date on which the Director's Service
terminates.

f. Service means service as a Director, including such service prior to
the Effective Date; provided, however, that Service shall not include
any period during which the Director was a salaried employee of the
Company or any subsidiary of the Company.
<PAGE>

-2-

g. Spouse of a Director means a person who is legally married to the
Director on the date of the Director's death, as determined under the
laws of the jurisdiction of domicile of the Director.

3. Eligibility

Any Director who has completed five or more years of Service shall be
eligible for retirement benefits as provided herein.

4. Benefits

The retirement benefits payable hereunder to a Director who meets the
eligibility requirements shall be an annual amount equal to the Director's
Compensation; provided, however, that, in the case of a Director whose
Service includes a partial year, the Director's final annual payment shall
be equal to the Director's Compensation multiplied by a fraction, the
numerator of which shall be the number of days of the Director's Service
following completion of his or her last full year of Service and the
denominator of which shall be 365. Benefits shall commence after a
Director's Retirement Date and, except for the final payment to a Director
whose period of Service includes a partial year, shall be payable in equal
annual installments. The first annual benefit payment hereunder shall be
made within the first week of December which includes or follows the
Director's Retirement Date, and subsequent installments shall be paid
annually within the first week of each December thereafter until all annual
installments have been paid. If a Director is married at the time of his or
her death, after the Director's death the annual benefits hereunder shall
be paid to the Director's Spouse. Payments shall cease upon the earlier of
(i) the date of death of the last to die of the Director or his or her
Spouse or (ii) the completion of a number of payments equal to the number
of full and partial years of Service of the Director.

5. Provision of Benefits

All benefits payable hereunder shall be provided from the general assets of
the Company. No Director shall acquire any interest in any specific assets
of the Company by reason of this Plan. A Director shall have the status of
an unsecured general creditor of the Company with respect to any benefits
which become payable pursuant to this Plan.
<PAGE>

-3-

6. Amendment and Termination

The Board reserves the right to terminate this Plan or amend this Plan in
any respect at any time; provided, however, that no such termination or
amendment may reduce the retirement benefits then being paid to any retired
Director (or his or her Spouse) or the retirement benefits then accrued by
any Director who has completed at least five years of Service.

7. Administration

This Plan shall be administered by the Board. The Board's decision, in
making any determination or construction under this Plan and in exercising
any discretionary power, shall in all instances be final and binding on all
persons having or claiming any rights under this Plan.

8. Miscellaneous

Nothing herein contained shall be deemed to give any Director the right to
be retained as a Director, nor shall it interfere with the Director's right
to resign as a Director at any time.

No benefit payable hereunder shall be subject to alienation or assignment.
The retirement benefits herein contained are in addition to all other
awards, arrangements, contracts or benefits, if any, that any Director may
have by virtue of service for the Company, unless and to the extent that
any such award, arrangement, contract or benefit otherwise provides.

Except for a determination of whether a person is a Spouse of a Director
which shall be made in accordance with the laws of the jurisdiction of
domicile of the Director, the validity, construction and effect of the Plan
shall be determined in accordance with the laws of the State of New York
without giving effect to principles of conflict of laws.
<PAGE>

FIRST AMENDMENT TO THE RETIREMENT PLAN
FOR NONEMPLOYEE DIRECTORS OF EXEL LIMITED

The Retirement Plan for Nonemployee Directors of Exel Limited (the "Plan")
is hereby amended, effective as of December 1, 1995, as follows:

1. The first sentence of Section 2 is amended to read as follows:

"Except as otherwise specified in Section 9 or elsewhere in the Plan or
as the context may otherwise require, the following terms have the
meanings indicated below for all purposes of this Plan:"

2. New Section 9 is added to the Plan to read as follows:

"9. Plan Benefits Frozen

Notwithstanding any provision of this Plan to the contrary,
effective as of December 1, 1995, no additional retirement
benefits for Directors will accrue under this Plan; provided,
however, that retirement benefits shall continue to accrue in
accordance with the terms of this Plan for Directors over the age
of 65 on December 1, 1995 who elect in writing to continue to
participate in, and accrue additional benefits under, the Plan in
lieu of participation in the Exel Limited Stock Plan for
Nonemployee Directors ( the 'Continuing Directors'). Except in the
case of Continuing Directors, a Director's accrued retirement
benefit under the Plan will be determined based on his or her
annual Board retainer fee in effect on December 1, 1995 and his or
her Service as of December 1, 1995; provided, however, that a
Director's Service after December 1, 1995 shall be taken into
account in determining the Director's eligibility, under Section 3
of the Plan, to receive his or her retirement benefits accrued as
of December 1, 1995.

A Director (other than a Continuing Director) may elect, in
accordance with the terms set forth in the Exel Limited Stock Plan
for Nonemployee Directors (the 'Stock Plan'), to convert his or
her retirement benefits accrued as of December 1, 1995 under the
terms of this Plan into an equivalent amount of Exel Limited
ordinary share units, which units shall be subject to the terms
and conditions of the Stock Plan. A Director who so elects to
convert his or her retirement benefits shall, as of the effective
date of the election, have no further right to retirement benefits
under this Plan."

<PAGE>

EXHIBIT 10.6

EXEL LIMITED

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

DIRECTORS STOCK & OPTION PLAN

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

1. Purposes. The purposes of the Directors Stock & Option Plan are
to advance the interests of EXEL Limited and its shareholders by providing a
means to attract, retain, and motivate non-employee directors of the Company
upon whose judgment, initiative and efforts the continued success, growth and
development of the Company is dependent.

2. Definitions. For purposes of the Plan, the following terms shall
be defined as set forth below:

(a) "Board" means the Board of Directors of the Company.

(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.
(c) "Company" means EXEL Limited, a corporation organized under the
laws of the Cayman Islands, or any successor corporation.
<PAGE>

-2-

(d) "Director" means a non-employee member of the Board.

(e) "Fair Market Value" means, with respect to Shares on any day, the
following:

(i) If the Shares are at the time listed or admitted to trading on any
stock exchange, then the Fair Market Value shall be the closing selling
price per share of Shares on the day preceding the date in question on the
stock exchange which is the primary market for the Shares, as such price is
officially quoted on such exchange. If there is no reported sale of Shares
on such exchange on such date, then the Fair Market Value shall be the
closing selling price on the exchange on the last preceding date for which
such quotation exists; and

(ii) If the Shares are not at the time listed or admitted to trading
on any stock exchange but are traded in the over-the-counter market, the
Fair Market Value shall be the closing selling price per share of Shares on
the day preceding the date in question, as such price is reported by the
National Association of Securities Dealers through the NASDAQ National
Market System or any successor system. If there is no reported closing
selling price for Shares on such date, then the closing selling price on
the
<PAGE>
-3-

last preceding date for which such quotation exists shall be determinative
of Fair Market Value.

(f) "Fiscal Year" means a twelve-month period beginning on December 1
and ending on November 30.

(g) "Option" means a right, granted under Section 5, to purchase
Shares.

(h) "Participant" means a Director who has been granted a Director's
Option or who has elected to defer compensation under the Plan.

(i) "Plan" means this Directors Stock & Option Plan.

(j) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Securities Exchange Act of 1934.

(k) "Shares" means ordinary shares, $.01 par value per share, of the
Company.

3. Administration. To the extent the Plan relates to Director's
options, it is intended to operate automatically and not require administration.
However, to the extent that administration is necessary with respect to such
grants, the Plan shall be administered by the Secretary of the Company.
<PAGE>

-4-

Since the Director's Options are awarded automatically, this function will be
limited to ministerial matters. The plan administrator will have no discretion
with respect to the selection of Director optionees, the determination of the
exercise price of Director's Options, the timing of such grants or number of
Shares covered by the Director's Options. The portion of the Plan which relates
to a Director's election to defer receipt of all or part of his or her annual
retainer shall also be administered by the Secretary of the Company. Since the
deferral of compensation is based on elections by Directors, this function will
be limited to ministerial matters.

4. Shares Subject to the Plan.

(a) Subject to adjustment as provided in Section 5(f), the total
number of Shares reserved for issuance under the Plan shall be 250,000. If any
Shares subject to an Option hereunder are forfeited, cancelled, exchanged or
surrendered any Shares counted against the number of Shares reserved and
available under the Plan with respect to such Option shall, to the extent of any
such forfeiture, cancellation, exchange or surrender, again be available under
the Plan.

(b) Any Shares distributed pursuant to an Option or as payment of
deferred compensation may consist, in whole or in part, of authorized and
unissued Shares or treasury Shares in-
<PAGE>

-5-

cluding Shares acquired by purchase in the open market or in private
transactions.

5. Director's Options.

(a) Initial Grant. Each Director in office on December 1, 1993 shall
be granted, on December 1, 1993, an Option to purchase 1,500 Shares with an
exercise price equal to $43.375 (the Fair Market Value of one Share on December
1, 1993); provided, however, that such Options are contingent on, and shall be
exercisable only upon, approval of this Plan by the affirmative votes of the
holders of a majority of voting securities of the Company. Each Director who is
first elected to the Board subsequent to December 1, 1993 shall be granted an
Option to purchase 1,500 Shares on the date such Director is first elected to
the Board and such Option shall have an exercise price equal to 100% of the Fair
Market Value of one Share at the date of grant; provided, however, that such
price shall be at least equal to the par value of a Share.

(b) Annual Grant. On December 1 of each year, beginning with December
1, 1993, each Director in office on such date shall automatically be granted an
Option to purchase 500 Shares with an exercise price equal to 100 percent of the
Fair Market Value of one Share at the date of grant; provided, however, that
such price shall be at least equal to the par value of a Share; and provided,
further however, that such Options
<PAGE>

-6-

granted on December 1, 1993 are contingent on, and shall be exercisable only
upon, approval of this Plan by the affirmative votes of the holders of a
majority of voting securities of the Company.

(c) Exercisability. Except as provided in paragraphs (a) and (b) above
with respect to Options granted on December 1, 1993, each Option granted to a
Director under this Plan shall be fully exercisable on the date of grant and
shall expire on the tenth anniversary of the date of grant. Exercisability of an
Option shall not be dependent upon the Director's continuing service on the
Board.

(d) Time and Method of Exercise. The exercise price of an Option shall
be paid to the Company at the time of exercise in cash.

(e) Nontransferability. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the Director, an Option shall be exercisable only by him
or her or by his or her guardian or legal representative.

(f) Adjustments. In the event that subsequent to the Effective Date
any dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolida-
<PAGE>

-7-

tion, spin-off, combination, repurchase, or share exchange, or other such
change, affects the Shares such that they are increased or decreased or changed
into or exchanged for a different number or kind of Shares or other securities
of the Company or of another corporation, then in order to maintain the
proportionate interest of the Directors and preserve the value of the Director's
options, (i) there shall automatically be substituted for each Share subject to
an unexercised Director's Option and each Share to be issued under this Section
5 subsequent to such event the number and kind of Shares or other securities
into which each outstanding Share shall be changed or for which each such Share
shall be exchanged, (ii) the exercise price shall be increased or decreased
proportionately so that the aggregate purchase price for the Shares subject to
any unexercised Director's Option shall remain the same as immediately prior to
such event, and (iii) the number and kind of Shares available for issuance under
the Plan shall be equitably adjusted in order to take into account such
transaction or other change.

(g) Nonqualified Options. All Options granted under the Plan shall be
nonqualified options, not entitled to special tax treatment under Section 422 of
the Code.
<PAGE>

-8-

6. Director's Fees

(a) Each Director may make an irrevocable election on or before the
November 30 preceding the beginning of a Fiscal Year of the Company by written
notice to the Company, to defer payment of all or a designated portion (in
increments of $5,000) of the cash compensation otherwise payable as his or her
annual retainer for service as a Director for the next Fiscal Year; provided,
however, that, except with respect to compensation payable prior to January 1,
1994, such election shall be effective only with respect to compensation that
becomes payable after the date six months following the date such election is
made.

(b) Deferrals of compensation hereunder shall continue until the
Director notifies the Company in writing, prior to the commencement of any
Fiscal Year, that he wishes his compensation for such Fiscal Year and all
succeeding periods to be paid in cash on a current basis; provided, however,
that a deferral election may not be revoked or changed except as to payments
made at least six months after any such election to revoke or change is made in
writing.

(c) All compensation which a Director elects to defer pursuant to this
Section 6 shall be credited in the form of units to a bookkeeping account
maintained by the Company in the
<PAGE>

-9-

name of the Director. Each such unit shall represent the right to receive one
Share at the time determined pursuant to the terms of the Plan. In consideration
for forgoing cash compensation, the number of units so credited will be equal to
the number of Shares having an aggregate Fair Market Value (on the date the
compensation would otherwise have been paid) equal to 110% of the amount by
which the Director's cash compensation was reduced pursuant to the deferral
election. Notwithstanding any other provision of this Plan, in the case of any
deferral election made prior to the date of approval of this Plan by the
affirmative votes of the holders of a majority of voting securities of the
Company the crediting of Share units to the Director's bookkeeping account shall
be contingent on such shareholder approval. If such shareholder approval is not
obtained within one year from the Effective Date of this Plan, compensation
deferred pursuant to a prior election hereunder will be paid to the Director in
cash at the end of such year.

(d) If any dividends are payable on Shares during the deferral period,
dividend equivalents equal to the dividend that would have been payable on the
units credited to a Director's account if such units had constituted Shares
shall be paid to the Director in cash at the time the corresponding dividends
are paid on Shares.
<PAGE>

-10-

(e) The amount to which a Director is entitled hereunder that is
represented by Share units shall be distributed to the Director, whether or not
the Director's service continues, in the form of one Share for each Share unit
in accordance with the following schedule:

<TABLE>
<CAPTION>
Percentage
of Unit Time of Distribution
---------- -------------------------------------
<S> <C>
20 1st anniversary of Date Unit Credited
20 2nd anniversary of Date Unit Credited
20 3rd anniversary of Date Unit Credited
20 4th anniversary of Date Unit Credited
20 5th anniversary of Date Unit Credited

</TABLE>

(f) The right of a Director to amounts described hereunder (including
Shares) shall not be subject to assignment or other disposition by him or her
other than by will or the laws of descent and distribution. In the event that,
notwithstanding this provision, a Director makes a prohibited disposition, the
Company may disregard the same and discharge its obligation hereunder by making
payment or delivery as though no such disposition had been made.

7. General Provisions.

(a) Compliance with Legal and Trading Requirements. The Plan shall be
subject to all applicable laws, rules and regulations, including, but not
limited to, U.S. federal and state laws, rules and regulations, and to such
approvals by any
<PAGE>

-11-

regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the issuance or delivery of Shares under the Plan and
under any Option until completion of such stock exchange or market system
listing or registration or qualification of such Shares or other required action
under any U.S. state or federal law, rule or regulation or under laws, rules or
regulations of other jurisdictions as the Company may consider appropriate, and
may require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Shares in compliance with applicable laws, rules and regulations. No
provisions of the Plan shall be interpreted or construed to obligate the Company
to register any Shares under U.S. federal or state law or under the laws of
other jurisdictions.

(b) No Right to Continued Service. Neither the Plan nor any action
taken thereunder shall be construed as giving any Director the right to be
retained in the service of the Company or any of its subsidiaries or affiliates,
nor shall it interfere in any way with the right of the Company or any of its
subsidiaries or affiliates to terminate any Director's service at any time.
<PAGE>

-12-

(c) Taxes. The Company is authorized to withhold from any Shares
delivered under this Plan or on exercise of an Option, any amounts of
withholding and other taxes due in connection therewith, and to take such other
action as the Company may deem advisable to enable the Company and a Participant
to satisfy obligations for the payment of any withholding taxes and other tax
obligations relating thereto. This authority shall include authority to withhold
or receive Shares or other property and to make cash payments in respect thereof
in satisfaction of a Participant's tax obligations.

(d) Amendment. The Board may amend, alter, suspend, discontinue, or
terminate the Plan without the consent of shareholders of the Company or
Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's shareholders within one year after such Board action if such
shareholder approval is required by any U.S. federal law or regulation
(including Rule 16b-3, if applicable) or the rules of any stock exchange or
automated quotation system on which the Shares may then be listed or quoted;
provided, however, that, without the consent of an affected Participant, no
amendment, alteration, suspension, discontinuation, or termination of the Plan
may impair the rights or, in any other manner, adversely affect the rights of
such Participant under any Option
<PAGE>

-13-

theretofore granted to him or her or compensation previously deferred by him or
her hereunder. Notwithstanding the other provisions of this paragraph, Section 5
and the other provisions of this Plan applicable to Director's Options may not
be amended more than once every six months other than to comport with changes in
the Code, the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.

(e) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Option or a deferral
election, nothing contained in the Plan or any Option shall give any such
Participant any rights that are greater than those of a general creditor of the
Company; provided, however, that the Company may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Shares, or other property pursuant to any award, which
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Company otherwise determines with the consent of each
affected Participant.

(f) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the shareholders of the Company for approval
shall be construed as cre-
<PAGE>

-14-

ating any limitations on the power of the Board to adopt such other compensation
arrangements as it may deem desirable, including, without limitation, the
granting of options on Shares and other awards otherwise than under the Plan,
and such arrangements may be either applicable generally or only in specific
cases.

(g) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option. Cash shall be paid in lieu of such
fractional Shares.

(h) Governing Law. The validity, construction, and effect of the Plan
and any Option shall be determined in accordance with the laws of the State of
New York without giving effect to principles of conflict of laws.

(i) Effective Date; Plan Termination. The Plan shall become effective
as of December 1, 1993 (the "Effective Date"), upon approval by the affirmative
votes of the holders of a majority of voting securities of the Company. The Plan
shall terminate as to future awards on the date which is ten (10) years after
the Effective Date, or, if earlier, at such time as no Shares remain available
for issuance pursuant to Section 4, and the Company has no further obligations
with respect to any Option granted or compensation deferred under the Plan.
<PAGE>

-15-

(j) Titles and Headings. The titles and headings of the Sections in
the Plan are for convenience of reference only. In the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
<PAGE>

FIRST AMENDMENT TO EXEL LIMITED
DIRECTORS STOCK & OPTION PLAN

The EXEL Limited Directors Stock & Option Plan (the "Plan") is hereby
amended, effective as of December 1, 1995, as follows; provided, however, that
this amendment, and the grant of the additional Options provided for herein,
shall be contingent upon approval of this amendment by the affirmative votes of
the holders of a majority of voting securities of EXEL Limited at a meeting duly
held during calendar year 1996.

1. Section 5(b) of the Plan is hereby amended to read as follows:

"(b) Annual Grant. On December 1 of each year, beginning with December
1, 1995, each Director in office on such date shall automatically be
granted an Option to purchase 1000 Shares with an exercise price per share
equal to 100 percent of the Fair Market Value of one Share at the date of
grant; provided, however, that such price per share shall be at least equal
to the par value of a Share."
<PAGE>

SECOND AMENDMENT TO EXEL LIMITED
DIRECTORS STOCK & OPTION PLAN

The EXEL Limited Directors Stock & Option Plan (the "Plan") is hereby

amended, effective as of December 4, 1996, as follows.

1. Section 5(a) of the Plan is hereby amended by adding the following

sentence at the end thereof:

"Notwithstanding the foregoing, effective December 4, 1996, no additional
Options will be granted under this Section 5(a)."

2. Section 5(b) of the Plan is hereby amended by adding the following

sentence at the end thereof:

"Notwithstanding the foregoing, effective December 4, 1996, no additional
Options will be granted under this Section 5(b)."

3. Section 6(a) of the Plan is hereby amended by deleting "November 30"

therefrom and replacing it with "October 31 immediately."

4. Section 6(a) of the Plan is hereby further amended by deleting the

following therefrom:

"; provided, however, that, except with respect to compensation payable
prior to January 1, 1994, such election shall be effective only with
respect to compensation that becomes payable after the date six months
following the date such election is made."

5. Section 6(b) of the Plan is hereby amended to read as follows:

"(b) Deferrals of compensation hereunder shall continue until the
Director notifies the Company in writing, on or prior to the October 31
immediately preceding the commencement of any Fiscal Year, that he wishes
his compensation for such Fiscal Year and all succeeding periods to be paid
in cash on a current basis."

6. Section 7(d) of the Plan is hereby amended by deleting the last
sentence thereof.

<PAGE>

EXHIBIT 10.7

EXEL LIMITED STOCK PLAN
FOR NONEMPLOYEE DIRECTORS

SECTION 1. Introduction.

The EXEL Limited Stock Plan for Nonemployee Directors (the "Plan")
provides deferred compensation for nonemployee directors of EXEL Limited as a
supplement to their cash retainers and attendance fees, and is expected to
encourage qualified individuals to accept nominations as directors of EXEL
Limited and to strengthen the mutuality of interest between the nonemployee
directors and EXEL Limited's other shareholders. Benefits under the Plan are
payable in the form of ordinary shares of EXEL Limited.

SECTION 2. Definitions.

For purposes of the Plan, the following terms shall be defined as set
forth below:

(a) "Board" means the Board of Directors of the Company.

(c) "Company" means EXEL Limited, a corporation organized under the
laws of the Cayman Islands, or any successor corporation.

(d) "Director" means a member of the Board who is not employed by the
Company or any of its subsidiaries, but shall not include any member of the
Board who is over age 65 on December 1, 1995 and who has elected in writing
(which election shall be irrevocable) to continue to accrue benefits under the
Retirement Plan for Nonemployee Directors of EXEL Limited in lieu of
participation in the Plan; provided, however, that solely for purposes of the
election set forth in Section 5(b) hereof (and any additional Share units
credits under Section 5(c) in connection therewith), "Director" shall also
include any other member of the Board in office on the Effective Date of this
Plan who has accrued benefits under the Retirement Plan.
<PAGE>

-2-

(e) "Fair Market Value" means, with respect to Shares on any day, the
following:

(i) If the Shares are at the time listed or admitted to trading on any
stock exchange, then the Fair Market Value shall be the closing selling
price per share of Shares on the day preceding the date in question on the
stock exchange which is the primary market for the Shares, as such is
officially quoted on such exchange. If there is no reported sale of Shares
on such exchange on such date, then the Fair Market Value shall be the
closing selling price on the exchange on the last preceding date for which
such quotation exists; and

(ii) If the Shares are not at the time listed or admitted to
trading on any stock exchange but are traded in the over-the-counter
market, the Fair Market Value shall be the closing selling price per share
of Shares on the day preceding the date in question, as such price is
reported by the National Association of Securities Dealers through the
NASDAQ National Market System or any successor system. If there is no
reported closing selling price for Shares on such date, then the closing
selling price on the last preceding date for which such quotation exists
shall be determinative of Fair Market Value.

(f) "Plan" means this Stock Plan for Nonemployee Directors.

(g) "Plan Benefits" means the benefits described in Sections 5 and 6
hereof.

(h) "Retirement Plan" means the Retirement Plan for Nonemployee
Directors of EXEL Limited.

(i) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Securities Exchange Act of 1934.

(j) "Shares" means ordinary shares, $.01 par value per share, of the
Company.

SECTION 3. Administration.

To the extent the Plan relates to Share unit awards, it is intended to
operate automatically and not require administration. However, to the extent
that administration is neces-
<PAGE>

-3-

sary with respect to such awards, the Plan shall be administered by the
Secretary of the Company. Since the Share unit awards are made automatically,
this function will be limited to ministerial matters. The plan administrator
will have no discretion with respect to the selection of Share unit award
recipients, the timing of such awards or number of Share units awarded. The
portion of the Plan which relates to a Director's election to convert his or her
accrued benefit under the Retirement Plan to an equivalent amount of Share units
shall also be administered by the Secretary of the Company. Since the conversion
is based on elections by Directors in accordance with the terms of this Plan,
this function will be limited to ministerial matters.

SECTION 4. Shares Subject to the Plan.

(a) Subject to adjustment as provided in Section 7(g), the total
number of Shares reserved for issuance under the Plan shall be 100,000. If any
Shares subject to a Share unit award hereunder are forfeited, cancelled,
exchanged or surrendered, any Shares counted against the number of Shares
reserved and available under the Plan with respect to such Share unit award
shall, to the extent of any such forfeiture, cancellation, exchange or
surrender, again be available under the Plan.

(b) Any Shares distributed pursuant to the Plan may consist, in whole
or in part, of authorized and unissued Shares or treasury Shares including
Shares acquired by purchase in the open market or in private transactions.

SECTION 5. Share Unit Accounts.

The Company shall maintain a Share unit account (an "Account") for
each Director. Share units will be credited to each such Account as follows:

(a) As of December 1 of each year, beginning with December 1, 1995,
there shall be credited to each Director's Account that number of Share units
(including fractional units) determined by dividing the amount of the annual
retainer fee for a Director by the Fair Market Value of a Share on that date;
provided, however, that such Share units awarded as of December 1, 1995 shall be
contingent upon approval of this Plan by the affirmative votes of the holders of
a majority of voting securities of the Company at a meeting duly held during
calendar year 1996.
<PAGE>

-4-

(b) Each Director (which for purposes of this Section 5(b) (and
related Share unit credits under Section 5(c) below) only shall include all
members of the Board in office on the Effective Date hereof who have accrued
benefits under the Retirement Plan) may make an irrevocable written election
prior to April 30, 1996 to convert the present value of the Director's benefit
accrued as of December 1, 1995 under the Retirement Plan (the "Accrued Benefit")
into a number of Share units (including fractional units) under this Plan,
determined as set forth below. The number of Share units shall be an amount
determined by dividing the "present value", as of the effective date of the
election, of the Director's Accrued Benefit, by the Fair Market Value of a Share
on the effective date of the election. The election shall be effective six
months after it is made and delivered to the Company; provided, however, that
any election under this Section 5(b) shall be contingent upon approval of this
Plan by the affirmative votes of the holders of a majority of voting securities
of the Company at a meeting duly held during calendar year 1996. For this
purpose the "present value" of the Director's Accrued Benefit shall be
determined, as of the effective date of the election, by (i) assuming payment of
benefits under the Retirement Plan would begin on the December 1 following the
date the Director attains age 72; (ii) using a discount rate of 6%, compounded
annually; and (iii) assuming that the Director's death will occur after all
annual retirement payments to which the Director is entitled under the
Retirement Plan have been made.

(c) As of each date on which a cash dividend is paid on Shares, there
shall be credited to each Account that number of Share units (including
fractional units) determined by (i) multiplying the amount of such dividend (per
share) by the number of Share units in such Account; and (ii) dividing the total
so determined by the Fair Market Value of a Share on the date of payment of such
cash dividend. The additions to a Director's Account pursuant to this Section
5(c) shall continue until the Director's Plan Benefit is forfeited or fully
paid.

SECTION 6. Plan Benefits.

(a) Form. The Plan Benefit of a Director shall consist of Shares
equal in number to the Share units in the Director's Account. Any fractional
Share unit shall be paid in cash.
<PAGE>

-5-

(b) Distribution.

(i) The Plan Benefit of a Director (other than the portion of the
Plan Benefit described in Section 5(b)) shall be distributed either (x) in
a lump sum at the time of termination of the Director's service on the
Board or (y) in up to ten annual installments commencing at the time of
termination of the Director's service on the Board, as elected by the
Director. Each Director's distribution election must be made in writing
within the later of (A) 60 days after execution of this Plan document or
(B) 60 days after the Director first becomes eligible to receive Share unit
awards under Section 5(a) of the Plan, and the election will be
irrevocable. The Plan Benefit of a Director described in Section 5(b) shall
be distributed in five annual installments commencing at the time of
termination of the Director's service on the Board. In the case of Plan
Benefits distributed in installments, the amount of Shares distributed in
each installment shall be equal to the number of Share units in the
Director's Account subject to such installment distribution at the time of
the distribution divided by the number of installments remaining to be
paid.

(ii) Notwithstanding Section 6(b)(i), in the case of the death of a
Director, the balance of any Plan Benefit shall be distributed, within a
reasonable time as determined by the Company, after the Director's death to
the Director's beneficiary or beneficiaries, as specified by the Director
on a form furnished by and filed with the Secretary of the Company. If no
beneficiary has been designated by the Director or if no beneficiary
survives the Director, the undistributed balance of his or her Plan Benefit
shall be distributed to the Director's surviving spouse as beneficiary if
such spouse is still living or, if not living, in equal shares to the then
living children of the Director as beneficiaries or, if none, to the
Director's estate as beneficiary.

(iii) The entire Plan Benefit of a Director shall be forfeited if
a Director's service as a director of the Company shall terminate, for any
reason whatsoever, before the Director has served on the Board for five
years; provided, however, that such forfeiture shall not apply if the
Director dies or reaches age 72 while serving as a director of the Company.
Years of service as a director of the Company prior to the effective date
of the Plan shall be taken into account. If a Director whose Plan Benefit
<PAGE>

-6-

is forfeited under this Section 6(b)(iii) resumes service as a director of
the Company, his or her Plan Benefit as of the date of forfeiture shall be
restored as of the date such resumed service begins.

(iv) If a Director shall, for any reason other than death, cease to
serve as a director of the Company prior to any Annual Meeting of the
shareholders of the Company, there shall be forfeited (A) the portion of
the Director's Plan Benefit represented by the most recent Share units
credited to his or her Account in accordance with Section 5(a); and (B) all
Share units credited to his or her Account in accordance with Section 5(c)
on account of Share units required to be forfeited by clause (A).

SECTION 7. General.

(a) Nontransferability. Except as provided in Section 6(b)(ii), no
payment of any Plan Benefit of a Director shall be anticipated, assigned,
attached, garnished, optioned, transferred or made subject to any creditor's
process, whether voluntarily or involuntarily or by operation of law. Any act
in violation of this subsection shall be void.

(b) Compliance with Legal and Trading Requirements. The Plan shall
be subject to all applicable laws, rules and regulations, including, but not
limited to, U.S. federal and state laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Shares
under the Plan until completion of such stock exchange or market system listing
or registration or qualification of such Shares or other required action under
any U.S. state or federal law, rule or regulation or under laws, rules or
regulations of other jurisdictions as the Company may consider appropriate, and
may require any Director to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Shares in compliance with applicable laws, rules and regulations.
No provisions of the Plan shall be interpreted or construed to obligate the
Company to register any Shares under U.S. federal or state law or under the laws
of other jurisdictions.

(c) Taxes. The Company is authorized to withhold from any Shares
delivered under this Plan any amounts of withholding and other taxes due in
connection therewith, and to take such other action as the Company may deem
advisable to en-
<PAGE>

-7-

able the Company and a Director to satisfy obligations for the payment of any
withholding taxes and other tax obligations relating thereto. This authority
shall include authority to withhold or receive Shares or other property and to
make cash payments in respect thereof in satisfaction of a Director's tax
obligations.

(d) Amendment. The Board may amend, alter, suspend, discontinue, or
terminate the Plan without the consent of shareholders of the Company or
individual Directors, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's shareholders within one year after such Board action if such
shareholder approval is required by any U.S. federal law or regulation
(including Rule 16b-3, if applicable) or the rules of any stock exchange or
automated quotation system on which the Shares may then be listed or quoted;
provided, however, that, without the consent of an affected Director, no
amendment, alteration, suspension, discontinuation, or termination of the Plan
may impair the rights or, in any other manner, adversely affect the rights of
such Director hereunder. Notwithstanding the other provisions of this paragraph,
this Plan may not be amended more than once every six months other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.

(e) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Director, nothing contained in the Plan shall give
any such Director any rights that are greater than those of a general creditor
of the Company; provided, however, that the Company may authorize the creation
of trusts or make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Shares, or other property pursuant to any award, which
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Company otherwise determines with the consent of each
affected Director.

(f) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other compensation arrangements as it may deem desirable, including,
without limitation, the granting of options on Shares and other awards otherwise
than under the Plan, and such ar-
<PAGE>

-8-

rangements may be either applicable generally or only in specific cases.

(g) Adjustments. In the event that subsequent to the Effective Date
any dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other such change, affects the Shares such that they are
increased or decreased or changed into or exchanged for a different number or
kind of Shares, other securities of the Company or of another corporation or
other consideration, then in order to maintain the proportionate interest of the
Directors and preserve the value of the Directors' Share units, (i) there shall
automatically be substituted for each Share unit a new unit representing the
number and kind of Shares, other securities or other consideration into which
each outstanding Share shall be changed or for which each such Share shall be
exchanged, and (ii) the number and kind of Shares available for issuance under
the Plan shall be equitably adjusted in order to take into account such
transaction or other change. The substituted units shall be subject to the same
terms and conditions as the original Share units.

(h) No Right to Remain on the Board. Neither the Plan nor the
crediting of Share units under the Plan shall be deemed to give any individual a
right to remain a director of the Company or create any obligation on the part
of the Board to nominate any Director for reelection by the shareholders of the
Company.

(i) Governing Law. The validity, construction, and effect of the Plan
shall be determined in accordance with the laws of the State of New York without
giving effect to principles of conflict of laws.

(j) Effective Date; Plan Termination. The Plan shall become effective
as of December 1, 1995 (the "Effective Date") upon approval by the affirmative
votes of the holders of a majority of voting securities of the Company at a
meeting duly held during calendar year 1996. The Plan shall terminate as to
future awards on the date which is ten (10) years after the Effective Date, or,
if earlier, at such time as no Shares remain available for issuance pursuant to
Section 4 and the Company has no further obligations under the Plan.

(k) Titles and Headings. The titles and headings of the Sections in
the Plan are for convenience of reference only.
<PAGE>

-9-

In the event of any conflict, the text of the Plan, rather than such titles or
headings, shall control.

<PAGE>

Exhibit 10.8

AGREEMENT FOR CONSULTING SERVICES
---------------------------------

THIS CONSULTING AGREEMENT ("Agreement") is entered into on February 8, 1996, by
Exel Limited ("Exel") and John W. Weiser ("Consultant").

1. SERVICES. Consultant agrees to perform for Exel the consulting services
("Services") described in Section A, during the period described in Section
B, of Attachment I hereto (by this reference made a part hereof).

2. COMPENSATION, EXPENSES, RECEIPTS. For satisfactory performance of the
Services, Exel shall pay to Consultant the compensation provided for in
Section C of Attachment I. Consultant shall submit to Exel, for its
approval, a detailed statement of the Services performed, including the
dates worked, and the costs related thereto (including Exel authorized
travel and communication expenses). Within thirty days after receipt of
Consultant's statement, Exel shall approve and pay the same or notify
Consultant that it disapproves in whole or in part Consultant's statement,
and the reasons for such disapproval. Consultant shall be responsible for
withholding and paying all income and other taxes due in respect of such
compensation.

3. INDEPENDENT CONTRACTOR. Consultant shall operate as and have the status of
an independent contractor and shall not act as or be an employee of Exel.
Consultant shall not be entitled to Worker's Compensation. Consultant
shall, however, be afforded protection under Exel's corporate general
liability insurance program to the extent that such third party liability
as the Consultant incurs arises out of the performance of the Services
under this Agreement.

4. DATA. Exel shall have a permanent, assignable, non-exclusive, royalty-free
license to use any concept furnished to Exel by Consultant, or otherwise
conceived or developed by Consultant in the performance of the Services.

5. TERMINATION. Unless the parties earlier terminate this Agreement by mutual
consent, this Agreement shall terminate on November 30, 1996. If the
Agreement is terminated, Consultant will be paid the compensation due for
the actual period of time services were performed. By mutual agreement, the
parties may extend the term of this Agreement.

<PAGE>

6. CONFIDENTIALITY. Consultant will not divulge to third parties, without the
written consent of Exel, any information obtained from or through Exel, or
developed or obtained by Consultant, in connection with the performance of
this Agreement unless (a) the information is known to Consultant prior to
obtaining it from Exel, (b) the information is, at the time of discovery by
Consultant, then in the public domain, or (c) the information is obtained
by Consultant from a third party who did not receive it directly or
indirectly from Exel. This confidentiality obligation shall survive the
termination of this Agreement for five years.

7. PERSONAL PERFORMANCE OF SERVICES. Unless otherwise agreed by Exel in
writing, Consultant shall personally perform the services specified herein.

8. GENERAL. Section headings are provided for convenience only and do not
modify the terms hereof. This Agreement: 1) is the entire agreement between
the parties and supersedes all prior or contemporaneous agreements related
to the subject matter hereof, 2) may be modified only in writing, 3) shall
be governed by Bermuda law, 4) may be executed by separately signed and/or
telecopied counterparts having authorized signatures, and 5) incorporates
the additional provisions set forth in the annexed Attachment.

Exel Limited

By: /s/
--------------------

Consultant

By: /s/
--------------------

<PAGE>

A. DESCRIPTION OF SERVICES
-----------------------

As authorized by Exel, Consultant shall provide advice in the area of
strategic alliances and general business transactions.

B. PERIOD OF PERFORMANCE
----------------------

The period of performance of the Services shall commence as of February 9,
1996, and shall continue through November 30, 1996, unless sooner terminated
or extended pursuant to Paragraph 5 of the Agreement.

C. COMPENSATION
------------

1. Exel shall pay to Consultant a sum of $2,000 per day, payable against a
retainer of $100,0000 for the period February 9 through November 30,
1996, for performance of the services described in Section A above.

2. Travel expenses (hotel, meals, airline tickets, taxis, etc.) incurred by
Consultant in the performance of the services when such travel is
necessary and appropriate for the services or when otherwise approved by
Exel in writing. Expenses incurred must be supported by airline ticket
stubs, hotel bills, restaurant receipts, etc. Exel may withhold
reimbursement for any unsupported expenses. Claims for reimbursement of
taxi fares of $75.00 or more and any other single expenditure of $75.00
or more must be supported by original receipts.

3. Other expenses incurred with the prior written approval of Exel.

D. AUTHORIZATION
-------------

All work must be authorized in writing by Brian O'Hara or Brian Walford.

E. INVOICING
---------

Consultant shall submit invoices (original and two copies) not more
frequently than monthly in accord with Section 2 of the Agreement to:

Exel Limited
Ninth Floor, Cumberland House
One Victoria Street
Hamilton, HMJX Bermuda

Attention: Brian O'Hara
------------

F. CONSULTANT'S ADDRESS. Consultant's address is:
--------------------- John W. Weiser
23 Spring Rd.
Kentfield, CA 94904

<PAGE>

EXHIBIT 11.1

EXEL LIMITED

COMPUTATION OF EARNINGS PER ORDINARY SHARE
AND ORDINARY SHARE EQUIVALENT

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Earnings per ordinary share and ordinary share
equivalent--primary:
Weighted average shares outstanding............... 90,734 102,652 108,176
Average stock options outstanding (net of
repurchased shares under the modified treasury
stock method).................................... 997 786 500
-------- -------- --------
Weighted average ordinary shares and ordinary
share equivalents outstanding.................... 91,731 103,438 108,676
======== ======== ========
Net income........................................ $494,313 $332,798 $143,954
======== ======== ========
Earnings per ordinary share and ordinary share
equivalent....................................... $ 5.39 $ 3.22 $ 1.32
======== ======== ========
Earnings per ordinary share and ordinary share
equivalent--assuming full dilution:
Weighted average shares outstanding............... 90,734 102,652 108,176
Average stock options outstanding (net of
repurchased shares under the modified treasury
stock method).................................... 1,120 1,120 500
-------- -------- --------
Weighted average ordinary shares and ordinary
share
equivalents outstanding.......................... 91,854 103,772 108,676
======== ======== ========
Net income........................................ $494,313 $332,798 $143,954
======== ======== ========
Earnings per ordinary share and ordinary share
equivalent......................................... $ 5.38 $ 3.21 $ 1.32
======== ======== ========
</TABLE>

<PAGE>

EXHIBIT 21.1

EXEL LIMITED

LIST OF SUBSIDIARIES

1. X.L. Insurance Company, Ltd. (Bermuda)

2. X.L. Reinsurance Company, Ltd. (Bermuda)

3. X.L. One Ltd. (Bermuda)

4. X.L. Two Ltd. (Bermuda)

5. X.L. Europe Insurance (Ireland)

6. X.L. Investments Ltd. (Bermuda)

7. EXEL Cumberland Limited (England)

8. X.L. Australia Pty Ltd. (Australia)

9. X.L. Investments (Barbados) Inc. (Barbados)

10. Cumberland Holdings, Inc. (Delaware)

11. Cumberland California, Inc. (Delaware)

12. Cumberland New York, Inc. (Delaware)

13. XLB Partners, Inc. (Barbados)

14. X.L. Investments Private Trust Ltd. (Bermuda)

15. X.L. Investments Private Trustee Ltd. (Bermuda)

16. First Cumberland Bank Inc. (Barbados)

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Form 10-K of our report dated January
23, 1997, on our audits of the financial statements and financial statement
schedules of EXEL Limited.

We further consent to the incorporation by reference in the registration
statements of EXEL Limited on Form S-3 (File No. 33-76170), Form S-8 (File No.
33-86826) and Form S-8 and S-3 (File No. 33-86824) of our report dated January
23, 1997 on our audits of the financial statements and financial statement
schedules of EXEL Limited.

Coopers & Lybrand

Hamilton, Bermuda
February 10, 1997

<PAGE>

<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of net income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<DEBT-HELD-FOR-SALE> 2,960,876
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 812,050
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,772,926
<CASH> 252,734
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 30,383
<TOTAL-ASSETS> 5,031,538
<POLICY-LOSSES> 2,099,096
<UNEARNED-PREMIUMS> 679,535
<POLICY-OTHER> 24,256
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 872
0
0
<OTHER-SE> 2,115,166
<TOTAL-LIABILITY-AND-EQUITY> 5,031,538
517,892
<INVESTMENT-INCOME> 198,598
<INVESTMENT-GAINS> 206,212
<OTHER-INCOME> 59,249
<BENEFITS> 405,357
<UNDERWRITING-AMORTIZATION> 35,556
<UNDERWRITING-OTHER> 43,920
<INCOME-PRETAX> 497,118
<INCOME-TAX> 2,805
<INCOME-CONTINUING> 494,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 494,313
<EPS-PRIMARY> 5.39
<EPS-DILUTED> 5.38
<RESERVE-OPEN> 1,919,498
<PROVISION-CURRENT> 390,892
<PROVISION-PRIOR> 14,465
<PAYMENTS-CURRENT> 3,177
<PAYMENTS-PRIOR> 299,465
<RESERVE-CLOSE> 2,052,652
<CUMULATIVE-DEFICIENCY> 230,108

</TABLE>