UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2018
	For the quarterly period ended June 30, 2018
	OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ______

Commission file number 1-10804

XL GROUP LTD

(Exact name of registrant as specified in its charter)



Bermuda		98-1304974
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

O'Hara House, One Bermudiana Road, Hamilton HM 08, Bermuda

(Address of principal executive offices and zip code)

(441) 292-8515

(Registrant's telephone number, including area code)

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 for 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

At ~~May~~August 1, 2018, there were 258,~~287~~794,~~127~~274 outstanding Common Shares, $0.01 par value per share, of the registrant.

XL GROUP LTD

INDEX TO FORM 10-Q

		Page No.
	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Consolidated Balance Sheets at March 31, 2018 and December 31, 2017	1
	Unaudited Consolidated Balance Sheets at June 30, 2018 and December 31, 2017	1
	Unaudited Consolidated Statements of Income for the Three Months Ended March 31, 2018 and 2017	2
	Unaudited Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017	2
	Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017	3
	Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017	3
	Unaudited Consolidated Statements of Shareholders' Equity for the Three Months Ended March 31, 2018 and 2017	4
	Unaudited Consolidated Statements of Shareholders' Equity for the Six Months Ended June 30, 2018 and 2017	4
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017	5
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	5
	Notes to Unaudited Consolidated Financial Statements	6
	1. Significant Accounting Policies	6
	2. Acquisitions and Disposals	89
	3. Segment Information	89
	4. Investments	1216
	5. Derivative Instruments	1721
	6. Fair Value Measurements	2226
	7. Goodwill and Other Intangible Assets	2834
	8. Losses and Loss Expenses	2934
	9. Notes Payable and Debt and Financing Arrangements	3037
	10. Related Party Transactions	3238
	11. Variable Interest Entities	3339
	12. Commitments and Contingencies	3340
	13. Share Capital	3441
	14. Computation of Earnings Per Common Share and Common Share Equivalent	3542
	15. Accumulated Other Comprehensive Income (Loss)	3643
	16. Guarantor Financial Information	3744
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4453
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7587
Item 4.	Controls and Procedures	8193
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	8294
Item 1A.	Risk Factors	8294
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8495
Item 5.	Other Information	8596
Item 6.	Exhibits	8696
	Signatures	8797

PART I – FINANCIAL INFORMATION



ITEM 1.		FINANCIAL STATEMENTS

XL GROUP LTD

UNAUDITED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share data)	~~March~~June 3130, 2018		December 31, 2017
ASSETS
Investments:
Fixed maturities available for sale (''AFS''), at fair value (amortized cost: 2018 - $30,268,346; 2017 - $30,157,581)	$	30,656,628	$	30,928,988
Fixed maturities available for sale (''AFS''), at fair value (amortized cost: 2018 - $29,689,322; 2017 - $30,157,581)	$	29,793,151	$	30,928,988
Short-term investments AFS, at fair value (amortized cost: 2018 - $500,844; 2017 - $816,638)	500,170		815,481
Short-term investments AFS, at fair value (amortized cost: 2018 - $623,158; 2017 - $816,638)	623,113		815,481
Fixed maturities trading, at fair value (amortized cost: 2018 - $2,055,722; 2017 - $1,946,501)	2,084,251		2,006,385
Fixed maturities trading, at fair value (amortized cost: 2018 - $1,965,372; 2017 - $1,946,501)	1,990,344		2,006,385
Short-term investments trading, at fair value (amortized cost: 2018 - $7,428; 2017 - $14,969)	7,425		14,965
Short-term investments trading, at fair value (amortized cost: 2018 - $5,777; 2017 - $14,969)	5,788		14,965
Equity securities, at fair value (cost: 2018 - $607,427; 2017 - $638,455)	637,872		713,967
Equity securities, at fair value (cost: 2018 - $586,220; 2017 - $638,455)	644,711		713,967
Investments in affiliates	1,~~900~~904,~~105~~010		1,911,996
Other investments	1,~~186~~151,~~983~~706		1,163,863
Total investments	$	36,~~973~~112,~~434~~823	$	37,555,645
Cash and cash equivalents	32,~~484~~903,~~763~~070		3,435,954
Restricted cash	~~155~~127,~~023~~497		157,497
Accrued investment income	265,~~701~~115		272,149
Deferred acquisition costs and value of business acquired	1,~~317~~162,~~797~~164		1,102,474
Ceded unearned premiums	2,~~950~~807,~~077~~369		2,198,217
Premiums receivable	78,~~988~~079,~~469~~074		6,934,482
Reinsurance balances receivable	1,~~210~~293,~~620~~477		930,114
Unpaid losses and loss expenses recoverable	7,~~271~~209,~~013~~084		7,247,723
Receivable from investments sold	~~258~~188,~~084~~781		201,515
Goodwill and other intangible assets	2,~~230~~201,~~506~~085		2,225,751
Deferred tax asset	~~356~~372,~~667~~520		332,024
Other assets	~~875~~863,~~809~~830		842,691
Total assets	$	6563,~~337~~585,~~963~~889	$	63,436,236
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss expenses	$	29,~~701~~181,~~568~~147	$	29,696,779
Deposit liabilities	~~982~~940,~~963~~557		1,042,677
Future policy benefit reserves	3,~~680~~380,~~958~~442		3,610,926
Funds withheld on GreyCastle life retrocession arrangements (net of future policy benefit reserves recoverable: 2018 - $3,261,122; 2017 - $3,191,584)	989,140		999,219
Funds withheld on GreyCastle life retrocession arrangements (net of future policy benefit reserves recoverable: 2018 - $2,971,191; 2017 - $3,191,584)	736,092		999,219
Unearned premiums	9,~~687~~539,~~293~~454		8,307,431
Notes payable and debt	3,~~240~~217,~~461~~123		3,220,769
Reinsurance balances payable	4,~~432~~071,~~331~~505		3,706,116
Payable for investments purchased	~~317~~217,~~339~~797		332,989
Deferred tax liability	57,~~995~~360		57,574
Other liabilities	1987,~~012,693~~406		1,000,436
Total liabilities	$	5452,~~102~~328,~~741~~883	$	51,974,916
Commitments and Contingencies
Shareholders' Equity:
Authorized shares, 999,990,000, par value $0.01; common shares issued and outstanding (2018 - 258,171,836; 2017 - 256,033,895)	$	2,582	$	2,560
Authorized shares, 999,990,000, par value $0.01; common shares issued and outstanding (2018 - 258,780,274; 2017 - 256,033,895)	$	2,588	$	2,560
Additional paid in capital	7,~~809~~841,~~895~~304		7,757,940
Accumulated other comprehensive income	~~312~~51,~~255~~264		889,431
Retained earnings	1,~~503~~764,~~797~~855		1,198,386
Shareholders' equity attributable to XL Group Ltd	$	9,~~628~~660,~~529~~011	$	9,848,317
Non-controlling interest in equity of consolidated subsidiaries	1,~~606~~596,~~693~~995		1,613,003
Total shareholders' equity	$	11,~~235~~257,~~222~~006	$	11,461,320
Total liabilities and shareholders' equity	$	6563,~~337~~585,~~963~~889	$	63,436,236

See accompanying Notes to Unaudited Consolidated Financial Statements

XL GROUP LTD

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended						Six Months Ended
	March 31,
	June 30,						June 30,
(U.S. dollars in thousands, except per share data)	2018			2017			2018			2017
Revenues:
Net premiums earned	$	2,~~600~~695,~~288~~169		$	2,~~522~~516,~~791~~917		$	5,295,457		$	5,039,708
Net investment income:
Net investment income - excluding Life Funds Withheld Assets	~~188~~201,~~083~~536			~~167~~177,~~168~~235			389,619			344,403
Net investment income - Life Funds Withheld Assets	30,~~398~~252			3331,~~364~~439			60,650			64,803
Total net investment income	$	~~218~~231,~~481~~788		$	~~200~~208,~~532~~674		$	450,269		$	409,206
Realized investment gains (losses):
Net realized gains (losses) on investments AFS - excluding Life Funds Withheld Assets	(3114,~~672~~100		)	1150,~~092~~379			(45,772		)	61,471
Net realized and change in net unrealized gains (losses) on equity securities - excluding Life Funds Withheld Assets	~~(36~~35,~~014~~194		)	—			(820		)	—
Net realized and change in net unrealized gains (losses) on other investments - excluding Life Funds Withheld Assets	89,~~649~~302			—			17,951			—
Other-than-temporary impairments ("OTTI") - excluding Life Funds Withheld Assets	(12,~~645~~564		)	(61,~~874~~160		)	(4,209		)	(8,034		)
OTTI transferred to (from) other comprehensive income - excluding Life Funds Withheld Assets	(~~161~~436		)	—(50		)	(597		)	(50		)
Net realized gains (losses) on investments and change in net unrealized gains (losses) on investments, trading - Life Funds Withheld Assets	~~(21~~63,~~309~~409		)	337,~~068~~459			42,100			40,527
OTTI - Life Funds Withheld Assets	~~(1,203~~—		)	—			(1,203		)	—
Total realized investment gains (losses)	$	~~(83~~90,~~355~~805	)	$	3756,~~286~~628		$	7,450		$	93,914
Net realized and unrealized gains (losses) on derivative instruments	416,~~221~~126			(~~7,069~~906		)	20,347			(7,975		)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	22(36,~~921~~120		)	(5034,~~101~~596		)	(13,199		)	(84,697		)
Income (loss) from investment affiliates	4516,~~669~~548			3830,~~261~~818			62,217			69,079
Fee income and other	68,~~717~~304			1310,~~661~~225			15,021			23,886
Total revenues	$	23,~~814~~022,~~942~~620		$	2,~~755~~787,~~361~~760		$	5,837,562		$	5,543,121
Expenses:
Net losses and loss expenses incurred	$	1,~~622~~721,~~006~~309		$	1,~~583~~529,~~456~~083		$	3,343,315		$	3,112,539
Claims and policy benefits	10,~~307~~117			7,~~291~~595			20,424			14,886
Acquisition costs	~~463~~471,~~827~~491			~~435~~433,~~869~~584			935,318			869,453
Operating expenses	~~472~~470,~~563~~508			~~468~~472,~~038~~778			943,071			940,816
Foreign exchange (gains) losses	9(12,~~841~~140		)	(35,~~336~~643		)	(2,299		)	(8,979		)
Interest expense	5348,~~545~~686			5054,~~711~~018			102,231			104,729
Total expenses	$	2,~~632~~709,~~089~~971		$	2,~~542~~491,~~029~~415		$	5,342,060		$	5,033,444
Income (loss) before income tax and income (loss) from operating affiliates	$	~~182~~312,~~853~~649		$	~~213~~296,~~332~~345		$	495,502		$	509,677
Income (loss) from operating affiliates	1051,~~282~~187			1342,~~609~~704			61,469			56,313
Provision (benefit) for income tax	3127,~~902~~036			1329,~~092~~006			58,938			42,098
Net income (loss)	$	~~161~~336,~~233~~800		$	~~213~~310,~~849~~043		$	498,033		$	523,892
Non-controlling interests	817,~~585~~804			618,~~006~~423			26,389			69,429
Net income (loss) attributable to common shareholders	$	~~152~~318,~~648~~996		$	~~152~~301,~~843~~620		$	471,644		$	454,463
Weighted average common shares and common share equivalents outstanding, in thousands – basic	~~256~~258,~~922~~375			~~265~~260,~~690~~990			257,653			263,327
Weighted average common shares and common share equivalents outstanding, in thousands – diluted	~~261~~263,~~176~~822			~~269~~264,~~767~~943			262,610			267,279
Earnings (loss) per common share and common share equivalent – basic	$	01.5923		$	01.5816		$	1.83		$	1.73
Earnings (loss) per common share and common share equivalent – diluted	$	01.5821		$	01.5714		$	1.80		$	1.70

See accompanying Notes to Unaudited Consolidated Financial Statements

XL GROUP LTD

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended						Six Months Ended
	March 31,
	June 30,						June 30,
(U.S. dollars in thousands)	2018			2017			2018			2017
Net income (loss) attributable to common shareholders	$	~~152~~318,~~648~~996		$	~~152~~301,~~843~~620		$	471,644		$	454,463
Change in net unrealized gains (losses) on investments AFS - excluding Life Funds Withheld Assets, net of tax	(~~330~~178,~~728~~467		)	~~102~~75,~~622~~855			(509,195		)	178,477
Change in adjustments related to future policy benefit reserves, net of tax	442,~~164~~314			53,~~132~~437			46,478			8,569
Change in net unrealized gains (losses) on investments AFS - Life Funds Withheld Assets, net of tax	(3599,~~754~~031		)	(2011,~~108~~956		)	(134,785		)	(32,064		)
Change in net unrealized gains (losses) on affiliate investments, net of tax	~~2,148~~127			(21,~~462~~006		)	2,275			(1,457		)
Change in net unrealized gains (losses) on other investments, net of tax	—			18,~~269~~068			—			9,338
Change in OTTI recognized in other comprehensive income, net of tax	31,~~616~~996			1,~~442~~497			5,612			2,939
Change in underfunded pension liability, net of tax	~~(189~~413		)	(~~357~~576		)	224			(933		)
Change in value of cash flow hedge	(4847		)	(48		)	(95		)	(96		)
Foreign currency translation adjustments, net of tax	(228,~~432~~296		)	41(1,~~938~~092		)	(30,728		)	40,846
Comprehensive income (loss)	$	~~(206~~58,~~575~~005	)	$	~~282~~377,~~271~~811		$	(148,570	)	$	660,082

See accompanying Notes to Unaudited Consolidated Financial Statements

XL GROUP LTD

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Three Months Ended
	Six Months Ended
	March 31,
	June 30,
(U.S. dollars in thousands)	2018			2017
Common Shares:
Balance - beginning of year	$	2,560		$	2,669
Issuance of common shares	7			1011
Buybacks of common shares	—			(51111		)
Exercise of stock options	1521			917
Balance - end of period	$	2,~~582~~588		$	2,~~637~~586
Additional Paid in Capital:
Balance - beginning of year	$	7,757,940		$	8,068,503
Buybacks of common shares	(1,~~191~~405		)	(~~154~~333,~~065~~747		)
Exercise of stock options	4862,~~163~~507			2342,~~287~~614
Share-based compensation and other	422,~~983~~262			(313,~~564~~543		)
Balance - end of period	$	7,~~809~~841,~~895~~304		$	7,~~934~~790,~~161~~913
Accumulated Other Comprehensive Income (Loss):
Balance - beginning of year	$	889,431		$	715,546
Reclassification due to the adoption of Accounting Standards Update ("ASU") 2016-01	(221,856		)	—
Reclassification due to the adoption of ASU 2018-02	3,903			—
Change in net unrealized gains (losses) on investments AFS - excluding Life Funds Withheld Assets, net of tax	(~~330~~509,~~728~~195		)	~~102~~178,~~622~~477
Change in adjustments related to future policy benefit reserves, net of tax	446,~~164~~478			58,~~132~~569
Change in net unrealized gains (losses) on investments AFS - Life Funds Withheld Assets, net of tax	(35134,~~754~~785		)	(2032,~~108~~064		)
Change in net unrealized gains (losses) on affiliate investments, net of tax	2,~~148~~275			(21,~~462~~457		)
Change in net unrealized gains (losses) on other investments, net of tax	—			19,~~269~~338
Change in OTTI losses recognized in other comprehensive income, net of tax	35,~~616~~612			12,~~442~~939
Change in underfunded pension liability, net of tax	~~(189~~224		)	(~~357~~933		)
Change in value of cash flow hedge	(4895		)	(4896		)
Foreign currency translation adjustments, net of tax	(230,~~432~~728		)	4140,~~938~~846
Balance - end of period	$	~~312~~51,~~255~~264		$	~~844~~921,~~974~~165
Retained Earnings (Deficit):
Balance - beginning of year	$	1,198,386		$	2,151,794
Reclassification due to the adoption of ASU 2016-01	221,856			—
Reclassification due to the adoption of ASU 2018-02	(3,903		)	—
Net income (loss) attributable to common shareholders	~~152~~471,~~648~~644			~~152~~454,~~843~~463
Dividends on common shares	(57115,~~644~~402		)	(59117,~~371~~508		)
Buybacks of common shares	(~~471~~651		)	(46116,~~372~~772		)
Share-based compensation and other	(7,075		)	(56,~~782~~089		)
Balance - end of period	$	1,~~503~~764,~~797~~855		$	2,~~193~~365,~~112~~888
Non-controlling Interest in Equity of Consolidated Subsidiaries:
Balance - beginning of year	$	1,613,003		$	2,022,167
Non-controlling interests - contributions	~~438~~1,924			25
Non-controlling interests - other	(7,361		)	3,036
Non-controlling interests - distributions	(12,153		)	(6,093		)
Non-controlling interest share in change in accumulated other comprehensive income (loss)	613			514
Non-controlling interests - other	(6,552		)	5,459
Balance - end of period	$	1,606,693		$	2,025,742
Non-controlling interest share in change in accumulated other comprehensive income (loss)	773			297
Total Shareholders' Equity	$	11,235,222		$	13,000,626
Balance - end of period	$	1,596,995		$	2,021,855
Total Shareholders' Equity	$	11,257,006		$	13,102,407

See accompanying Notes to Unaudited Consolidated Financial Statements

XL GROUP LTD

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	Six Months Ended
	March 31,
	June 30,
(U.S. dollars in thousands)	2018			2017
Cash flows provided by (used in) operating activities:
Net income (loss)	$	~~161~~498,~~233~~033		$	~~213~~523,~~849~~892
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Total realized investment (gains) losses	83(7,~~355~~450		)	(3793,~~286~~914		)
Net realized and unrealized (gains) losses on derivative instruments	(420,~~221~~347		)	7,~~069~~975
Net realized and unrealized (gains) losses on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	~~(22~~13,~~921~~199		)	5084,~~101~~697
Amortization of premiums (discounts) on fixed maturities	3260,~~298~~900			4283,~~178~~551
(Income) loss from investment and operating affiliates	(3996,~~800~~051		)	(2894,~~921~~078		)
Share-based compensation	1531,~~448~~910			1229,~~694~~959
Depreciation and amortization	2244,~~481~~916			1936,~~429~~567
Accretion of deposit liabilities	1116,~~125~~721			1120,~~430~~013
Changes in:
Unpaid losses and loss expenses	(~~240~~169,~~207~~596		)	~~290~~343,~~788~~776
Future policy benefit reserves	(51151,~~981~~977		)	(55121,~~634~~082		)
Funds withheld on GreyCastle life retrocession arrangements, net	(24200,~~578~~344		)	(~~107~~219,~~596~~050		)
Unearned premiums	1,~~310~~376,~~888~~976			1,~~222~~381,~~570~~596
Premiums receivable	(~~979~~1,~~464~~271,167		)	(1,~~152~~280,~~760~~244		)
Unpaid losses and loss expenses recoverable	36(54,~~804~~083		)	(~~153~~257,~~063~~264		)
Ceded unearned premiums	(~~730~~651,~~516~~018		)	(~~797~~830,~~191~~558		)
Reinsurance balances receivable	(~~272~~385,~~531~~871		)	(59164,~~052~~010		)
Deferred acquisition costs and value of business acquired	(~~205~~76,~~798~~773		)	(~~205~~174,~~830~~227		)
Reinsurance balances payable	~~695~~435,~~220~~956			~~849~~905,~~492~~779
Deferred tax asset - net	2522,~~190~~985			109,~~852~~058
Derivatives	844,~~162~~421			5821,~~104~~701
Other assets	(4221,~~006~~504		)	(~~100~~118,~~791~~147		)
Other liabilities	(~~51,327~~805		)	(~~128~~257,~~606~~159		)
Other	25(50,~~022~~648		)	(939,~~323~~227		)
Total adjustments	$	(~~399~~1,~~357~~109,650	)	$	(~~261~~645,~~346~~834	)
Net cash provided by (used in) operating activities	$	(~~238~~611,~~124~~617	)	$	(47121,~~497~~942	)
Cash flows provided by (used in) investing activities:
Proceeds from sale of fixed maturities and short-term investments	$	47,~~369~~431,~~199~~308		$	26,~~492~~387,~~005~~610
Proceeds from redemption of fixed maturities and short-term investments	~~701~~1,~~404~~440,191			12,~~228~~084,~~356~~182
Proceeds from sale of equity securities	7884,~~716~~068			46228,~~379~~914
Purchases of fixed maturities and short-term investments	(48,~~917~~781,~~191~~847		)	(38,~~633~~719,~~007~~024		)
Purchases of equity securities	(3344,~~230~~954		)	(47277,~~967~~329		)
Proceeds from sale of affiliates	~~244~~302,~~340~~199			~~168~~236,~~237~~861
Purchases of affiliates	(76103,~~014~~222		)	(3551,~~926~~891		)
Other	(2629,~~782~~985		)	235,~~429~~127
Net cash provided by (used in) investing activities	$	~~340~~297,~~442~~758		$	~~241~~(105,~~506~~550	)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common shares and exercise of stock options	$	4660,~~504~~855		$	2342,~~296~~630
Buybacks of common shares	(12,~~663~~057		)	(~~200~~450,~~488~~629		)
Employee withholding on share-based compensation	(16,696		)	(2223,~~871~~957		)
Dividends paid on common shares	—(113,726		)	(58115,~~392~~589		)
Distributions to non-controlling interests	(1545,~~946~~094		)	(2573,~~400~~708		)
Contributions from non-controlling interests	~~439~~1,924			2625
Contingent consideration paid on business combination	(5,000		)	—
Proceeds from the issuance of debt	—			558,311
Deposit liabilities	(71,124		)	(7,771		)
Contingent consideration paid on business combination	(5,000		)	(7,304		)
Net cash provided by (used in) financing activities	$	(63,486	)	$	(291,600	)
Deposit liabilities	(119,113		)	(11,150		)
Effects of exchange rate changes on foreign currency cash	7,503			30,273
Net cash provided by (used in) financing activities	$	(238,907	)	$	(81,371	)
Increase (decrease) in cash, cash equivalents and restricted cash	$	46,335		$	(67,318	)
Effects of exchange rate changes on foreign currency cash	(10,118		)	43,423
Increase (decrease) in cash, cash equivalents and restricted cash	$	(562,884	)	$	(265,440	)
Cash, cash equivalents and restricted cash - beginning of year	3,593,451			3,580,492
Cash, cash equivalents and restricted cash - end of period	$	3,~~639~~030,~~786~~567		$	3,~~513~~315,~~174~~052

See accompanying Notes to Unaudited Consolidated Financial Statements

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies

(a) Basis of Preparation and Consolidation

Unless the context otherwise indicates, references herein to the "Company" include the accounts of XL Group Ltd, a Bermuda exempted company ("XL Group"), together with its consolidated subsidiaries.

These Unaudited Consolidated Financial Statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. In the opinion of management, these unaudited financial statements reflect all adjustments considered necessary for a fair statement of financial position and results of operations at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. All inter-company accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure about 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 materially from these estimates. For further information, see Item 8, Note 1(a), "Significant Accounting Policies - Basis of Preparation and Consolidation," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

In May 2014, the Company ceded the majority of its life reinsurance business to GreyCastle Life Reinsurance ("GCLR") via 100% quota share reinsurance (the "GreyCastle Life Retro Arrangements"). Under the terms of the transaction, the Company continues to own, on a funds withheld basis, assets supporting the GreyCastle Life Retro Arrangements consisting of cash, fixed maturity securities and accrued interest (the "Life Funds Withheld Assets"). The Life Funds Withheld Assets are managed pursuant to agreed investment guidelines that meet the contractual commitments of the XL ceding companies and applicable laws and regulations. All of the investment results associated with the Life Funds Withheld Assets ultimately accrue to GCLR. Because the Company no longer shares in the risks and rewards of the underlying performance of the supporting invested assets, disclosures within the financial statement notes included herein separate the Life Funds Withheld Assets from the rest of the Company's investments. For further information, see Item 8, Note 1(a), "Significant Accounting Policies - Basis of Preparation and Consolidation," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

To facilitate period-to-period comparisons, certain reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation.

(b) Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted in 2018

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standards update concerning the accounting for financial instruments. The guidance retains the basic existing framework for accounting for financial instruments under GAAP, while achieving limited convergence with IFRS in this area. The guidance: (1) requires equity investments (except consolidated entities and those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income; (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (3) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for non-public business entities; (4) eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet; (5) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial statements; (7) requires separate presentation of financial assets and financial liabilities by measurement category and form of asset in the financial statements; and (8) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to AFS securities in combination with the entity's other deferred tax assets. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Adoption is required to be applied by means of a cumulative effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, except the amendments related to impairment of equity securities without readily determinable fair ~~values. The Company adopted this guidance as of~~

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

values. The Company adopted this guidance as of January 1, 2018. As of that date, accumulated unrealized gains and losses relating to investments in equity securities and certain of our other investments, net of tax, which were included in accumulated other comprehensive income, were reclassified to retained earnings. At January 1, 2018 the amount of the reclassification was a net unrealized gain of $233.8 million, less deferred tax of $11.9 million. Adoption of this update has an effect on results of operations going forward, as mark-to-market movements on equity securities now impact net income; however, it does not have a material impact on the Company's cash flows.

ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued an accounting standards update concerning the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The amendments in this update are intended to address areas where GAAP is unclear and diversity in practice exists. The following areas are covered in this update: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments; (3) contingent consideration payments following a business combination; (4) proceeds from settlement of insurance claims; (5) proceeds from settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separation of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this guidance as of January 1, 2018 using the retrospective transition method required by these amendments. As required in adopting this standard, the Company made a formal accounting policy election regarding classification of distributions received from equity method investees, choosing to use the Nature of Distribution approach. This approach is consistent with historical practice utilized by the Company in classifying these distributions. Overall, adoption of the guidance did not have a material impact on the Company's cash flows, and had no impact on the Company's financial position or results of operations.

ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued an accounting standards update concerning the tax effects of intra-entity asset transfers within a group. The guidance requires an entity to reflect the income tax consequences of an intra-entity transfer of an asset other than inventory when that transfer occurs. This is a departure from previous GAAP, which prohibited recognition of tax on such transfers until the asset had been sold to an external party or otherwise realized. The amendments are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. The amendments are required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted this guidance as of January 1, 2018. This guidance did not have a material impact on the Company's financial condition, results of operations, or cash flows.

ASU 2016-18, Statement of Cash Flows: Restricted Cash

In November 2016, the FASB issued an accounting standards update concerning the presentation of restricted cash within the statement of cash flows. Previous GAAP did not provide guidance on the presentation or classification of movements in restricted cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included as a component of cash and cash equivalents when reconciling beginning-of-period and end-of-period totals within the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The guidance is required to be applied retrospectively to all periods presented in the statements of cash flows. The Company adopted this guidance as of January 1, 2018. As result, the net amount of the change in the restricted cash balances during each reporting period is no longer being presented as a discrete line item "Change in restricted cash" within investing cash flows for each applicable period, as was previously reported in the Company's Unaudited Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March~~June 3130, 2017. This guidance did not have an impact on the Company's financial position or results of operations.

ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued an accounting standards update concerning the presentation of costs related to defined benefit pension plans and similar plans. The amendments in this ASU principally require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by relevant employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in the update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments relating to presentation in the income statement are required to be applied retrospectively. Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption. The Company

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

adopted this guidance as of January 1, 2018. The impact of this guidance on the Company is disclosure-related only, and it does not have an impact on the Company's financial position, results of operations or cash flows. As the impact of adopting this standard is not material, updated disclosure on the Company's defined benefit pension plans has not been provided for either the current or the prior quarterly period. For the Company’s most recent disclosures, see Item 8, Note 17, "Retirement Plans" to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued an accounting standards update concerning the stranded tax effects resulting from tax rate changes legislated by the U.S. Tax Cuts and Jobs Act. Under GAAP, the effects of all changes in tax rates on deferred tax balances are reflected in income, even if the tax balances relate to items of accumulated other comprehensive income. This update permits companies to make an election to reclassify from accumulated other comprehensive income to retained earnings such stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. Certain disclosures are also required by the update. The amendments are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those financial years. For public business entities, early adoption is permitted, including adoption in any interim period for reporting periods for which financial statements have not yet been issued. The amendments should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. Tax Cuts and Jobs Act is recognized. The Company early-adopted this guidance by making the permitted election in the first quarter of 2018, recognizing a reclassification of $3.9 million from accumulated other comprehensive income to retained earnings in the period of adoption. In general, in accounting for the release of income tax effects from accumulated other comprehensive income, the Company applies the individual item approach with respect to available-for-sale debt securities, and the portfolio approach with respect to pension, postretirement benefit plan obligations and currency translation matters.

ASU 2018-05, Income Taxes: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118

In March 2018, the FASB issued an accounting standards update concerning the income tax accounting implications of the U.S. Tax Cuts and Jobs Act. The update codifies SEC-related material within the Accounting Standards Codification pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 (‘SAB 118’). SAB 118 provided clarifying guidance for how a public business entity should address the situation in which the accounting for certain income tax effects of the U.S. Tax Cuts and Jobs Act was not completed by the time financial statements were issued for the reporting period in which the legislation was enacted. In such circumstances, the incomplete effects are reported when a reasonable estimate can be determined, based on that estimate. Provisional amounts can be updated during a measurement period not exceeding one year. Disclosures concerning any incomplete effects and adjustments are required. The Company complied with the requirements of SAB 118 in its Form 10-K for the year ended December 31, 2017 and no further changes were required to comply with this update when adopted in the three months ended March 31, 2018. During the ~~three~~six months ended ~~March~~June 3130, 2018, there were no changes to any outstanding items as reported in Item 8, Note 23, "Taxation" to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

Recently Issued Accounting Standard Not Yet Adopted

ASU 2018-11, Leases: Targeted Improvements

In July 2018, the FASB issued an accounting standards update that aims to reduce costs and ease implementation of the leases standard (ASU 2016-02) for financial statement preparers. The amendments in this update add a new transition option for the provisions of ASU 2016-02, and also provide a practical expedient that permits lessors to avoid separating lease and nonlease components. As originally published, ASU 2016-02 required transition at the beginning of the earliest comparative period presented in the financial statements. This new additional transition option allows entities to adopt the provisions of ASU 2016-02 by means of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In this situation any comparative periods prior to adoption would continue to be presented in accordance with existing US GAAP Topic 840, including associated disclosure requirements. The practical expedient allows lessors to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees, subject to certain restrictions. The transition option is effective as part of the adoption of ASU 2016-02, which for public business entities is mandatory for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. For entities which have not already adopted ASU 2016-02, the practical expedient for lessor separation of nonlease components is effective at the same time as that standard. The Company is currently evaluating the impact of this guidance.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2. Acquisitions and Disposals

(a) Merger with AXA SA ("AXA")

The Company has entered into a definitive agreement and plan of merger (the “Merger Agreement”) with AXA dated March 5, 2018, under which AXA, ~~would~~subject to the satisfaction or waiver of certain conditions set forth therein, will acquire 100% of the Company’s common shares in exchange for cash proceeds of $57.60 per common share of XL Group or approximately $15.3 billion in the aggregate (the “AXA Transaction”). The Merger Agreement provides that, ~~subject to~~ the ~~satisfaction or waiver of certain conditions set forth therein, the~~ Company will merge with an existing AXA subsidiary in accordance with the Companies Act 1981 of Bermuda (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of AXA. All preferred shares issued by subsidiaries of the Company will remain issued and outstanding upon completion of the Merger.

The Merger is expected to close during the second half of 2018,. ~~subject~~XL toreceived the necessary shareholder approval byon June 6, 2018; however, the ~~Company’s~~Merger ~~shareholders~~remains ~~and~~subject to other customary closing conditions, including the receipt of required regulatory approvals. The Merger Agreement, among other stipulations, permits: (i) the Company to pay out regular quarterly cash dividends not to exceed $0.22 per common share per quarter, (ii) subsidiaries of the Company to pay periodic cash dividends on preferred shares not to exceed amounts contemplated by the applicable bye-laws or resolutions approving such preferred shares, and (iii) subsidiaries of the Company to pay dividends to XL Group and XLIT Ltd. ("XLIT"), the Company’s holding companies, or any of its subsidiaries.

3. Segment Information

The Company's isProperty and Casualty ("P&C") operations are organized into two operating segments: Insurance and Reinsurance.

8The Company's general investment and financing operations are reflected in Corporate and Other. Subsequent to the transaction described in Note 1(a), "Significant Accounting Policies - Basis of Preparation and Consolidation," GCLR reinsures the majority of the Company's life reinsurance business through the GreyCastle Life Retro Arrangements. The results of the run-off life operations not subject to the GreyCastle Life Retro Arrangements are also reported within Corporate and Other.

The Company evaluates the performance of both the Insurance and Reinsurance segments based on underwriting profit. Other items of revenues and expenditures of the Company are not evaluated at the segment level. In addition, the Company does not allocate investment assets used to support its P&C operations to the individual segments, except as noted below. Investment assets related to the Company's run-off life operations are held in a separately identified portfolio. Net investment income from these assets is included in the contribution from Corporate and Other. Certain structured products included in the Insurance and Reinsurance segments are also held in separately identified portfolios. As such, net investment income from these assets is included in the contribution from the applicable segment.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The ~~Company's~~following ~~general~~tables ~~investment~~summarize ~~and financing operations are reflected in Corporate and Other. Subsequent to~~ the ~~transaction~~segment described in Note 1(a), "Significant Accounting Policies - Basis of Preparation and Consolidation," GCLR reinsures the majority of the Company's life reinsurance business through the GreyCastle Life Retro Arrangements. The results offor the ~~run-off~~three ~~life~~and ~~operations~~six ~~not~~months ~~subject~~ended toJune ~~the~~30, ~~GreyCastle~~2018 ~~Life Retro Arrangements are also reported within Corporate~~ and ~~Other.~~2017:

The Company evaluates the performance of both the Insurance and Reinsurance segments based on underwriting profit. Other items of revenues and expenditures of the Company are not evaluated at the segment level. In addition, the Company does not allocate investment assets used to support its Property and Casualty ("P&C") operations to the individual segments, except as noted below. Investment assets related to the Company's run-off life operations are held in a separately identified portfolio. Net investment income from these assets is included in the contribution from Corporate and Other. Certain structured products included in the Insurance and Reinsurance segments are also held in separately identified portfolios. As such, net investment income from these assets is included in the contribution from the applicable segment.



Three Months Ended June 30, 2018 (U.S. dollars in thousands)	Insurance			Reinsurance			Total P&C			Corporate and Other (1)			Total
Gross premiums written	$	2,881,921		$	1,048,352		$	3,930,273		$	55,093		$	3,985,366
Net premiums written	1,929,564			889,675			2,819,239			2,505			2,821,744
Net premiums earned	1,748,355			944,309			2,692,664			2,505			2,695,169
Less: Net losses and loss expenses (2)	1,224,756			496,553			1,721,309			10,117			1,731,426
Less: Acquisition costs	237,694			232,538			470,232			1,259			471,491
Less: Operating expenses (3)	306,585			80,309			386,894			195			387,089
Underwriting profit (loss)	$	(20,680	)	$	134,909		$	114,229		$	(9,066	)	$	105,163
Net investment income - excluding Life Funds Withheld Assets (4)							182,009			7,227			189,236
Net investment income - Life Funds Withheld Assets										30,252			30,252
Net results from structured products (5)	1,810			6,572			8,382			—			8,382
Net fee income and other (6)	(4,991		)	1,140			(3,851		)	45			(3,806		)
Net realized investment gains (losses) - excluding Life Funds Withheld Assets							24,902			2,494			27,396
Net realized investment gains (losses) - Life Funds Withheld Assets							—			63,409			63,409
Net realized and unrealized gains (losses) on derivative instruments							—			16,126			16,126
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets							—			(36,120		)	(36,120		)
Net income (loss) from investment affiliates and operating affiliates							—			67,735			67,735
Less: Foreign exchange (gains) losses							—			(12,140		)	(12,140		)
Less: Corporate operating expenses							—			71,308			71,308
Contribution from P&C and Corporate and Other							325,671			82,934			408,605
Less: Interest expense (7)										44,769			44,769
Less: Income tax expense										27,036			27,036
Less: Non-controlling interests										17,804			17,804
Net income (loss) attributable to common shareholders													$	318,996
Ratios – P&C operations: (8)
Loss and loss expense ratio	70.1		%	52.6		%	63.9		%
Underwriting expense ratio	31.1		%	33.1		%	31.9		%
Combined ratio	101.2		%	85.7		%	95.8		%

The following tables summarize the segment results for the three months ended March 31, 2018 and 2017:

Three Months Ended March 31, 2018(U.S. dollars in thousands)	Insurance			Reinsurance			Total P&C			Corporate and Other (1)			Total
Gross premiums written	$	2,866,539		$	2,060,601		$	4,927,140		$	52,595		$	4,979,735
Net premiums written	1,481,867			1,670,744			3,152,611			3,107			3,155,718
Net premiums earned	1,665,789			931,392			2,597,181			3,107			2,600,288
Less: Net losses and loss expenses (2)	1,064,992			557,014			1,622,006			10,307			1,632,313
Less: Acquisition costs	221,962			240,854			462,816			1,011			463,827
Less: Operating expenses (3)	316,380			73,539			389,919			141			390,060
Underwriting profit (loss)	$	62,455		$	59,985		$	122,440		$	(8,352	)	$	114,088
Net investment income - excluding Life Funds Withheld Assets (4)							168,253			7,519			175,772
Net investment income - Life Funds Withheld Assets										30,398			30,398
Net results from structured products (5)	2,103			1,308			3,411			—			3,411
Net fee income and other (6)	(6,703		)	892			(5,811		)	69			(5,742		)
Net realized investment gains (losses) - excluding Life Funds Withheld Assets							(60,957		)	114			(60,843		)
Net realized investment gains (losses) - Life Funds Withheld Assets							—			(22,512		)	(22,512		)
Net realized and unrealized gains (losses) on derivative instruments							—			4,221			4,221
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets							—			22,921			22,921
Net income (loss) from investment affiliates and operating affiliates							—			55,951			55,951
Less: Foreign exchange (gains) losses							—			9,841			9,841
Less: Corporate operating expenses							—			70,043			70,043
Contribution from P&C and Corporate and Other							227,336			10,445			237,781
Less: Interest expense (7)										44,646			44,646
Less: Income tax expense										31,902			31,902
Less: Non-controlling interests										8,585			8,585
Net income (loss) attributable to common shareholders													$	152,648
Ratios – P&C operations: (8)
Loss and loss expense ratio	63.9		%	59.8		%	62.5		%
Underwriting expense ratio	32.4		%	33.8		%	32.8		%
Combined ratio	96.3		%	93.6		%	95.3		%

____________


(1)	Corporate and Other includes other items of our revenue and expenditures that are not evaluated at the segment level for reporting purposes. The underwriting profit (loss) and its components within this section are predominantly driven from the Company's run-off life operations.


(2)	The Company has reflected the amortization of certain fair value adjustments recorded in conjunction with the Company's acquisition of Catlin Group Ltd in 2015 ("Catlin Acquisition") within the respective segments.


(3)	Operating expenses of the segments exclude Corporate operating expenses, shown separately.


(4)	Net investment income - excluding Life Funds Withheld Assets does not include net investment income related to the net results from structured products.

(5) The net results from P&C structured products include net investment income and interest expense of $12.3 million and $83.9 million, respectively.

(6) Net fee income and other includes operating expenses of $12.51 million from the Company's loss prevention consulting services business.

9(7) Interest expense excludes interest expense related to structured products recorded in the Insurance and Reinsurance segments.


(8)	Ratios are based on net premiums earned from P&C operations.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



Three Months Ended June 30, 2017 (U.S. dollars in thousands)	Insurance			Reinsurance			Total P&C			Corporate and Other (1)			Total
Gross premiums written	$	2,576,754		$	977,676		$	3,554,430		$	58,519		$	3,612,949
Net premiums written	1,741,201			905,240			2,646,441			2,824			2,649,265
Net premiums earned	1,652,304			861,789			2,514,093			2,824			2,516,917
Less: Net losses and loss expenses (2)	1,077,087			451,996			1,529,083			7,595			1,536,678
Less: Acquisition costs (2)	231,908			200,394			432,302			1,282			433,584
Less: Operating expenses (3)	288,681			69,435			358,116			278			358,394
Underwriting profit (loss)	$	54,628		$	139,964		$	194,592		$	(6,331	)	$	188,261
Net investment income - excluding Life Funds Withheld Assets (4)							155,559			8,157			163,716
Net investment income - Life Funds Withheld Assets										31,439			31,439
Net results from structured products (5)	1,981			942			2,923			—			2,923
Net fee income and other (6)	(2,826		)	694			(2,132		)	135			(1,997		)
Net realized investment gains (losses) - excluding Life Funds Withheld Assets							57,140			(7,971		)	49,169
Net realized investment gains (losses) - Life Funds Withheld Assets							—			7,459			7,459
Net realized and unrealized gains (losses) on derivative instruments							—			(906		)	(906		)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets							—			(34,596		)	(34,596		)
Net income (loss) from investment affiliates and operating affiliates							—			73,522			73,522
Less: Foreign exchange (gains) losses							—			(5,643		)	(5,643		)
Less: Corporate operating expenses							—			102,162			102,162
Contribution from P&C and Corporate and Other							408,082			(25,611		)	382,471
Less: Interest expense (7)										43,422			43,422
Less: Income tax expense										29,006			29,006
Less: Non-controlling interests										8,423			8,423
Net income (loss) attributable to common shareholders													$	301,620
Ratios – P&C operations: (8)
Loss and loss expense ratio	65.2		%	52.4		%	60.8		%
Underwriting expense ratio	31.5		%	31.4		%	31.5		%
Combined ratio	96.7		%	83.8		%	92.3		%

____________


(1)	Corporate and Other includes other items of our revenue and expenditures that are not evaluated at the segment level for reporting purposes. The underwriting profit (loss) and its components within this section are predominantly driven from the Company's run-off life operations.


(2)	The Company has reflected the amortization of certain fair value adjustments recorded in conjunction with the Catlin Acquisition within the respective segments.


(3)	Operating expenses of the segments exclude Corporate operating expenses, shown separately.


(4)	Net investment income - excluding Life Funds Withheld Assets does not include net investment income related to the net results from structured products.


(5)	The net results from P&C structured products include net investment income and interest expense of $13.5 million and $10.6 million, respectively.


(6)	Net fee income and other includes operating expenses of $12.2 million from the Company's loss prevention consulting services business.


(7)	Interest expense excludes interest expense related to structured products recorded in the Insurance and Reinsurance segments.


(8)	Ratios are based on net premiums earned from P&C operations.

Three Months Ended March 31, 2017(U.S. dollars in thousands)	Insurance			Reinsurance			Total P&C			Corporate and Other (1)			Total
Gross premiums written	$	2,694,216		$	1,927,390		$	4,621,606		$	56,811		$	4,678,417
Net premiums written	1,508,591			1,471,169			2,979,760			3,310			2,983,070
Net premiums earned	1,635,315			884,166			2,519,481			3,310			2,522,791
Less: Net losses and loss expenses (2)	1,060,363			523,093			1,583,456			7,291			1,590,747
Less: Acquisition costs (2)	210,483			224,079			434,562			1,307			435,869
Less: Operating expenses (3)	285,729			71,757			357,486			233			357,719
Underwriting profit (loss)	$	78,740		$	65,237		$	143,977		$	(5,521	)	$	138,456
Net investment income - excluding Life Funds Withheld Assets (4)							146,566			7,227			153,793
Net investment income - Life Funds Withheld Assets										33,364			33,364
Net results from structured products (5)	2,269			645			2,914			—			2,914
Net fee income and other (6)	1,967			686			2,653			(438		)	2,215
Net realized investment gains (losses) - excluding Life Funds Withheld Assets							4,831			(613		)	4,218
Net realized investment gains (losses) - Life Funds Withheld Assets							—			33,068			33,068
Net realized and unrealized gains (losses) on derivative instruments							—			(7,069		)	(7,069		)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets							—			(50,101		)	(50,101		)
Net income (loss) from investment affiliates and operating affiliates							—			51,870			51,870
Less: Foreign exchange (gains) losses							—			(3,336		)	(3,336		)
Less: Corporate operating expenses							—			98,873			98,873
Contribution from P&C and Corporate and Other							300,941			(33,750		)	267,191
Less: Interest expense (7)										40,250			40,250
Less: Income tax expense										13,092			13,092
Less: Non-controlling interests										61,006			61,006
Net income (loss) attributable to common shareholders													$	152,843
Ratios – P&C operations: (8)
Loss and loss expense ratio	64.8		%	59.2		%	62.8		%
Underwriting expense ratio	30.4		%	33.4		%	31.5		%
Combined ratio	95.2		%	92.6		%	94.3		%

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



Six Months Ended June 30, 2018 (U.S. dollars in thousands)	Insurance			Reinsurance			Total P&C			Corporate and Other (1)			Total
Gross premiums written	$	5,748,460		$	3,108,953		$	8,857,413		$	107,688		$	8,965,101
Net premiums written	3,411,431			2,560,419			5,971,850			5,612			5,977,462
Net premiums earned	3,414,144			1,875,701			5,289,845			5,612			5,295,457
Less: Net losses and loss expenses (2)	2,289,748			1,053,567			3,343,315			20,424			3,363,739
Less: Acquisition costs	459,656			473,392			933,048			2,270			935,318
Less: Operating expenses (3)	622,965			153,848			776,813			336			777,149
Underwriting profit (loss)	$	41,775		$	194,894		$	236,669		$	(17,418	)	$	219,251
Net investment income - excluding Life Funds Withheld Assets (4)							350,262			14,746			365,008
Net investment income - Life Funds Withheld Assets										60,650			60,650
Net results from structured products (5)	3,913			7,880			11,793			—			11,793
Net fee income and other (6)	(11,694		)	2,032			(9,662		)	114			(9,548		)
Net realized investment gains (losses) - excluding Life Funds Withheld Assets							(36,055		)	2,608			(33,447		)
Net realized investment gains (losses) - Life Funds Withheld Assets							—			40,897			40,897
Net realized and unrealized gains (losses) on derivative instruments							—			20,347			20,347
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets							—			(13,199		)	(13,199		)
Net income (loss) from investment affiliates and operating affiliates							—			123,686			123,686
Less: Foreign exchange (gains) losses							—			(2,299		)	(2,299		)
Less: Corporate operating expenses							—			141,351			141,351
Contribution from P&C and Corporate and Other							553,007			93,379			646,386
Less: Interest expense (7)										89,415			89,415
Less: Income tax expense										58,938			58,938
Less: Non-controlling interests										26,389			26,389
Net income (loss) attributable to common shareholders													$	471,644
Ratios – P&C operations: (8)
Loss and loss expense ratio	67.1		%	56.2		%	63.2		%
Underwriting expense ratio	31.7		%	33.4		%	32.3		%
Combined ratio	98.8		%	89.6		%	95.5		%

____________


(1)	Corporate and Other includes other items of our revenue and expenditures that are not evaluated at the segment level for reporting purposes. The underwriting profit (loss) and its components within this section are predominantly driven from the Company's run-off life operations.


(2)	The Company has reflected the amortization of certain fair value adjustments recorded in conjunction with the Catlin Acquisition within the respective segments.


(3)	Operating expenses of the segments exclude Corporate operating expenses, shown separately.


(4)	Net investment income - excluding Life Funds Withheld Assets does not include net investment income related to the net results from structured products.

(5) The net results from P&C structured products include net investment income and interest expense of $1324.46 million and $1012.58 million, respectively.

(6) Net fee income and other includes operating expenses of $1124.46 million from the Company's loss prevention consulting services business.


(7)	Interest expense excludes interest expense related to structured products recorded in the Insurance and Reinsurance segments.


(8)	Ratios are based on net premiums earned from P&C operations.

1012

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize the Company's net premiums earned by product type for the three months ended March 31, 2018 and 2017:



Six Months Ended June 30, 2017 (U.S. dollars in thousands)	Insurance			Reinsurance			Total P&C			Corporate and Other (1)			Total
Gross premiums written	$	5,270,970		$	2,905,066		$	8,176,036		$	115,330		$	8,291,366
Net premiums written	3,249,792			2,376,409			5,626,201			6,134			5,632,335
Net premiums earned	3,287,619			1,745,955			5,033,574			6,134			5,039,708
Less: Net losses and loss expenses (2)	2,137,450			975,089			3,112,539			14,886			3,127,425
Less: Acquisition costs (2)	442,391			424,473			866,864			2,589			869,453
Less: Operating expenses (3)	574,410			141,192			715,602			511			716,113
Underwriting profit (loss)	$	133,368		$	205,201		$	338,569		$	(11,852	)	$	326,717
Net investment income - excluding Life Funds Withheld Assets (4)							302,125			15,384			317,509
Net investment income - Life Funds Withheld Assets										64,803			64,803
Net results from structured products (5)	4,250			1,587			5,837			—			5,837
Net fee income and other (6)	(859		)	1,380			521			(303		)	218
Net realized investment gains (losses) - excluding Life Funds Withheld Assets							61,971			(8,584		)	53,387
Net realized investment gains (losses) - Life Funds Withheld Assets							—			40,527			40,527
Net realized and unrealized gains (losses) on derivative instruments							—			(7,975		)	(7,975		)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets							—			(84,697		)	(84,697		)
Net income (loss) from investment affiliates and operating affiliates							—			125,392			125,392
Less: Foreign exchange (gains) losses							—			(8,979		)	(8,979		)
Less: Corporate operating expenses							—			201,035			201,035
Contribution from P&C and Corporate and Other							709,023			(59,361		)	649,662
Less: Interest expense (7)										83,672			83,672
Less: Income tax expense										42,098			42,098
Less: Non-controlling interests										69,429			69,429
Net income (loss) attributable to common shareholders													$	454,463
Ratios – P&C operations: (8)
Loss and loss expense ratio	65.0		%	55.8		%	61.8		%
Underwriting expense ratio	30.9		%	32.4		%	31.5		%
Combined ratio	95.9		%	88.2		%	93.3		%

Three Months Ended March 31, 2018(U.S. dollars in thousands)	Insurance			Reinsurance		Corporate and Other		Total
P&C Operations:
Professional	$	320,717		$	64,608	$	—	$	385,325
Casualty	481,010			149,963		—		630,973
Property catastrophe	—			136,503		—		136,503
Property	406,778			258,089		—		664,867
Specialty	457,650			44,261		—		501,911
Other (1)	(366		)	277,968		—		277,602
Total P&C Operations	$	1,665,789		$	931,392	$	—	$	2,597,181
Corporate and Other:
Run-off Life operations - Other Life	—			—		3,107		3,107
Total Corporate and Other	$	—		$	—	$	3,107	$	3,107
Total	$	1,665,789		$	931,392	$	3,107	$	2,600,288
Three Months Ended March 31, 2017(U.S. dollars in thousands)	Insurance (2)			Reinsurance		Corporate and Other		Total
P&C Operations:
Professional	$	305,482		$	52,926	$	—	$	358,408
Casualty	474,195			156,634		—		630,829
Property catastrophe	—			148,406		—		148,406
Property	450,503			272,346		—		722,849
Specialty	402,687			36,626		—		439,313
Other (1)	2,448			217,228		—		219,676
Total P&C Operations	$	1,635,315		$	884,166	$	—	$	2,519,481
Corporate and Other:
Run-off Life operations - Other Life	—			—		3,310		3,310
Total Corporate and Other	$	—		$	—	$	3,310	$	3,310
Total	$	1,635,315		$	884,166	$	3,310	$	2,522,791

____________

(1) Corporate and Other ~~within~~includes ~~the~~other ~~Insurance~~items ~~segment~~of ~~includes:~~our ~~surety~~revenue and ~~certain~~expenditures ~~discontinued~~that ~~lines.~~are ~~Other~~not ~~within~~evaluated at the ~~Reinsurance~~ segment ~~includes~~level ~~multiline,~~for ~~whole~~reporting ~~account~~purposes. ~~contracts,~~The ~~credit~~underwriting profit (loss) and ~~surety,~~its ~~accident~~components ~~and~~within ~~health~~this ~~and~~section ~~other~~are ~~lines~~predominantly driven from the Company's run-off life operations.

(2) ~~Amounts~~The ~~from~~Company ~~the~~has ~~prior~~reflected ~~year~~the ~~have~~amortization ~~been re-presented to reflect current mapping~~ of ~~underlying~~certain ~~lines~~fair ofvalue ~~business~~adjustments torecorded bein ~~consistent~~conjunction with the ~~manner~~Catlin inAcquisition ~~which~~within ~~they are reflected in~~ the ~~current~~respective ~~period~~segments. ~~The most significant movements include movements out of Other are in the Insurance segment, and include: livestock business into Specialty; and credit surety into Casualty.~~

11(3) Operating expenses of the segments exclude Corporate operating expenses, shown separately.


(4)	Net investment income - excluding Life Funds Withheld Assets does not include net investment income related to the net results from structured products.


(5)	The net results from P&C structured products include net investment income and interest expense of $26.9 million and $21.1 million, respectively.


(6)	Net fee income and other includes operating expenses of $23.7 million from the Company's loss prevention consulting services business.


(7)	Interest expense excludes interest expense related to structured products recorded in the Insurance and Reinsurance segments.


(8)	Ratios are based on net premiums earned from P&C operations.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize the Company's net premiums earned by product type for the three and six months ended June 30, 2018 and 2017:



Three Months Ended June 30, 2018 (U.S. dollars in thousands)	Insurance			Reinsurance		Corporate and Other		Total
P&C Operations:
Professional	$	335,442		$	63,781	$	—	$	399,223
Casualty	512,307			155,069		—		667,376
Property catastrophe	—			129,727		—		129,727
Property	429,472			253,796		—		683,268
Specialty	470,765			47,293		—		518,058
Other (1)	369			294,643		—		295,012
Total P&C Operations	$	1,748,355		$	944,309	$	—	$	2,692,664
Corporate and Other:
Run-off Life operations - Other Life	$	—		$	—	$	2,505	$	2,505
Total Corporate and Other	$	—		$	—	$	2,505	$	2,505
Total	$	1,748,355		$	944,309	$	2,505	$	2,695,169

Three Months Ended June 30, 2017 (U.S. dollars in thousands)	Insurance (2)			Reinsurance		Corporate and Other		Total
P&C Operations:
Professional	$	306,070		$	54,304	$	—	$	360,374
Casualty	537,655			149,627		—		687,282
Property catastrophe	—			164,057		—		164,057
Property	406,230			286,493		—		692,723
Specialty	403,103			47,676		—		450,779
Other (1)	(754		)	159,632		—		158,878
Total P&C Operations	$	1,652,304		$	861,789	$	—	$	2,514,093
Corporate and Other:
Run-off Life operations - Other Life	$	—		$	—	$	2,824	$	2,824
Total Corporate and Other	$	—		$	—	$	2,824	$	2,824
Total	$	1,652,304		$	861,789	$	2,824	$	2,516,917

____________


(1)	Other within the Insurance segment includes: surety and certain discontinued lines. Other within the Reinsurance segment includes multiline, whole account contracts, credit and surety, accident & health and other lines.


(2)	Amounts from the prior year have been re-presented to reflect current mapping of underlying lines of business to be consistent with the manner in which they are reflected in the current period. The most significant movements include the following movements out of Other in the Insurance segment: livestock business into Specialty; and credit surety into Casualty.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



Six Months Ended June 30, 2018 (U.S. dollars in thousands)	Insurance		Reinsurance		Corporate and Other		Total
P&C Operations:
Professional	$	656,159	$	128,389	$	—	$	784,548
Casualty	993,317		305,032		—		1,298,349
Property catastrophe	—		266,230		—		266,230
Property	836,250		511,885		—		1,348,135
Specialty	928,415		91,554		—		1,019,969
Other (1)	3		572,611		—		572,614
Total P&C Operations	$	3,414,144	$	1,875,701	$	—	$	5,289,845
Corporate and Other:
Run-off Life operations - Other Life	$	—	$	—	$	5,612	$	5,612
Total Corporate and Other	$	—	$	—	$	5,612	$	5,612
Total	$	3,414,144	$	1,875,701	$	5,612	$	5,295,457

Six Months Ended June 30, 2017 (U.S. dollars in thousands)	Insurance (2)		Reinsurance		Corporate and Other		Total
P&C Operations:
Professional	$	611,552	$	107,230	$	—	$	718,782
Casualty	1,011,850		306,261		—		1,318,111
Property catastrophe	—		312,463		—		312,463
Property	856,733		558,839		—		1,415,572
Specialty	805,790		84,302		—		890,092
Other (1)	1,694		376,860		—		378,554
Total P&C Operations	$	3,287,619	$	1,745,955	$	—	$	5,033,574
Corporate and Other:
Run-off Life operations - Other Life	$	—	$	—	$	6,134	$	6,134
Total Corporate and Other	$	—	$	—	$	6,134	$	6,134
Total	$	3,287,619	$	1,745,955	$	6,134	$	5,039,708

____________


(1)	Other within the Insurance segment includes: surety and certain discontinued lines. Other within the Reinsurance segment includes multiline, whole account contracts, credit and surety, accident & health and other lines.


(2)	Amounts from the prior year have been re-presented to reflect current mapping of underlying lines of business to be consistent with the manner in which they are reflected in the current period. The most significant movements include the following movements out of Other in the Insurance segment: livestock business into Specialty; and credit surety into Casualty.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Investments

(a) Fixed Maturities, Short-Term Investments and Equity Securities

Amortized Cost and Fair Value Summary

The cost (amortized cost for fixed maturities and short-term investments), fair value, gross unrealized gains and gross unrealized (losses), including non-credit related OTTI recorded in accumulated other comprehensive income ("AOCI"), of the Company's investments AFS at ~~March~~June 3130, 2018 and December 31, 2017 were as follows:

Included in AOCI

March 31, 2018(U.S. dollars in thousands)

Cost orAmortizedCost

GrossUnrealizedGains

Gross Unrealized Losses

Fair Value

Non-credit Related OTTI (1)

June 30, 2018(U.S. dollars in thousands)

Cost orAmortizedCost

GrossUnrealizedGains

Gross Unrealized Losses

Fair Value

Non-credit Related OTTI (1)

Fixed maturities - AFS - Excluding Life Funds Withheld Assets

U.S. Government and Government Agencies ("U.S. Government")

43,~~207~~984,~~380~~381

2923,~~290~~802

(4847,~~711~~892

)

43,~~187~~960,~~959~~291

—

U.S. States, municipalities and political subdivisions

1,~~953~~810,~~202~~556

6351,~~586~~485

(3,~~626~~899

)

21,~~013~~858,~~162~~142

—

Non-U.S. Governments

5,~~260~~117,~~650~~027

9874,~~496~~297

(5275,~~495~~464

)

5,~~306~~115,~~651~~860

—

Corporate

910,~~759~~059,~~732~~449

~~131~~96,~~175~~627

(~~148~~205,~~237~~981

)

9,~~742~~950,~~670~~095

—(5

)

Residential mortgage-backed securities ("RMBS")

4,~~606~~348,~~275~~536

2622,~~883~~531

(~~103~~117,~~435~~031

)

4,~~529~~254,~~723~~036

(8,~~434~~158

)

Commercial mortgage-backed securities ("CMBS")

1,~~292~~410,~~559~~363

21,~~263~~901

(3548,~~303~~414

)

1,~~259~~363,~~519~~850

(~~736~~406

)

Other asset-backed securities

1,~~588~~683,~~637~~029

2623,~~172~~438

(67,~~413~~324

)

1,~~608~~699,~~396~~143

(3029,~~764~~367

)

Total fixed maturities - AFS - Excluding Life Funds Withheld Assets

28,~~668~~413,~~435~~341

~~377~~294,~~865~~081

(~~398~~506,~~220~~005

)

28,~~648~~201,~~080~~417

(3937,~~934~~936

)

Total short-term investments - Excluding Life Funds Withheld Assets

~~500~~623,~~844~~158

~~773~~652

(~~1,447~~697

)

~~500~~623,~~170~~113

—

Total investments - AFS - Excluding Life Funds Withheld Assets

29,~~169~~036,~~279~~499

~~378~~294,~~638~~733

(~~399~~506,~~667~~702

)

2928,~~148~~824,~~250~~530

(3937,~~934~~936

)

Fixed maturities - AFS - Life Funds Withheld Assets

U.S. Government

98,~~420~~801

2,~~196~~133

—

1110,~~616~~934

—

Non-U.S. Governments

~~432~~347,~~390~~074

~~152~~120,~~016~~846

—

~~584~~467,~~406~~920

—

Corporate

~~919~~719,~~151~~866

~~202~~149,~~052~~728

—

1869,~~121,203~~594

—

RMBS

~~455~~412

4871

—

~~503~~483

—

CMBS

~~105~~97,~~505~~003

2422,~~565~~608

—

~~130~~119,~~070~~611

—

Other asset-backed securities

~~132~~102,~~990~~825

2720,~~760~~367

—

~~160~~123,~~750~~192

—

Total fixed maturities - AFS - Life Funds Withheld Assets

1,~~599~~275,~~911~~981

~~408~~315,~~637~~753

—

21,~~008~~591,~~548~~734

—

Total investments - AFS

30,~~769~~312,~~190~~480

~~787~~610,~~275~~486

(~~399~~506,~~667~~702

)

3130,~~156~~416,~~798~~264

(3937,~~934~~936

)

____________


(1)	Represents the non-credit component of OTTI losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

1216

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



			Included in AOCI
December 31, 2017 (U.S. dollars in thousands)	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-credit Related OTTI (1)
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
U.S. Government	$	4,358,503	$	37,782	$	(33,545	)	$	4,362,740	$	—
U.S. States, municipalities and political subdivisions	1,977,796		87,832		(988		)	2,064,640		—
Non-U.S. Governments	5,135,526		114,918		(48,863		)	5,201,581		—
Corporate	9,644,799		207,668		(57,334		)	9,795,133		(18		)
RMBS	4,717,542		41,983		(35,123		)	4,724,402		(8,795		)
CMBS	1,246,406		7,468		(9,857		)	1,244,017		(817		)
Other asset-backed securities	1,488,958		26,877		(6,472		)	1,509,363		(34,016		)
Total fixed maturities - AFS - Excluding Life Funds Withheld Assets	$	28,569,530	$	524,528	$	(192,182	)	$	28,901,876	$	(43,646	)
Total short-term investments - Excluding Life Funds Withheld Assets	816,638		744		(1,901		)	815,481		—
Total equity securities - Excluding Life Funds Withheld Assets	638,455		80,679		(5,167		)	713,967		—
Total investments - AFS - Excluding Life Funds Withheld Assets	$	30,024,623	$	605,951	$	(199,250	)	$	30,431,324	$	(43,646	)
Fixed maturities - AFS - Life Funds Withheld Assets
U.S. Government	$	9,050	$	2,266	$	—		$	11,316	$	—
Non-U.S. Governments	433,664		150,870		—			584,534		—
Corporate	909,589		227,624		—			1,137,213		—
RMBS	448		67		—			515		—
CMBS	97,356		24,916		—			122,272		—
Other asset-backed securities	137,944		33,318		—			171,262		—
Total fixed maturities - AFS - Life Funds Withheld Assets	$	1,588,051	$	439,061	$	—		$	2,027,112	$	—
Total investments - AFS	$	31,612,674	$	1,045,012	$	(199,250	)	$	32,458,436	$	(43,646	)

____________


(1)	Represents the non-credit component of OTTI losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

The amortized cost and fair value of trading investments at ~~March~~June 3130, 2018 and December 31, 2017 were as follows:

March 31, 2018(U.S. dollars in thousands)	AmortizedCost		Fair Value
June 30, 2018(U.S. dollars in thousands)	AmortizedCost		Fair Value
Fixed maturities trading - Life Funds Withheld Assets
U.S. Government	$	9,~~729~~524	$	9,~~320~~633
Non-U.S. Governments	~~485~~476,~~495~~698		~~497~~489,~~108~~276
Corporate	1,~~507~~428,~~879~~176		1,~~525~~440,~~761~~572
RMBS	~~1,023~~985		~~893~~919
CMBS	7,~~358~~227		7,~~472~~411
Other asset-backed securities	4442,~~238~~762		4342,~~697~~533
Total fixed maturities trading - Life Funds Withheld Assets	$	21,~~055~~965,~~722~~372	$	21,~~084~~990,~~251~~344
Total short-term investments trading - Life Funds Withheld Assets	$	75,~~428~~777	$	75,~~425~~788
Total investments trading - Life Funds Withheld Assets	$	21,~~063~~971,~~150~~149	$	21,~~091~~996,~~676~~132

1317

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



December 31, 2017 (U.S. dollars in thousands)	Amortized Cost		Fair Value
Fixed maturities trading - Life Funds Withheld Assets
U.S. Government	$	11,640	$	11,042
U.S. States, municipalities and political subdivisions	30		31
Non-U.S. Governments	473,849		485,171
Corporate	1,412,846		1,460,292
RMBS	1,020		932
CMBS	7,345		7,580
Other asset-backed securities	39,771		41,337
Total fixed maturities trading - Life Funds Withheld Assets	$	1,946,501	$	2,006,385
Total short-term investments trading - Life Funds Withheld Assets	$	14,969	$	14,965
Total investments trading - Life Funds Withheld Assets	$	1,961,470	$	2,021,350

At ~~March~~June 3130, 2018 and December 31, 2017, approximately 3.5% and 3.3%, respectively, of the Company's fixed income investment portfolio at fair value, excluding cash and Life Funds Withheld Assets, was invested in securities that were below investment grade or not rated. Approximately 3.59% and 4.2% of the gross unrealized losses in the Company's fixed income investment portfolio, excluding cash and Life Funds Withheld Assets, at ~~March~~June 3130, 2018 and December 31, 2017, respectively, related to securities that were below investment grade or not rated.

Contractual Maturities Summary

The contractual maturities of AFS fixed maturity securities at ~~March~~June 3130, 2018 and December 31, 2017 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2018				December 31, 2017
	June 30, 2018				December 31, 2017
(U.S. dollars in thousands)	AmortizedCost		FairValue		AmortizedCost		FairValue
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
Due less than one year	$	1,~~716~~763,~~039~~966	$	1,~~717~~764,~~129~~182	$	1,556,688	$	1,564,360
Due after 1 through 5 years	12,~~520~~570,~~942~~233		12,501,~~887~~952		12,243,590		12,309,732
Due after 5 through 10 years	5,~~882~~728,~~207~~279		5,~~876~~658,~~041~~654		6,268,217		6,362,314
Due after 10 years	1908,~~061,776~~935		1959,~~155,385~~600		1,048,129		1,187,688
	$	2120,~~180~~971,~~964~~413	$	2120,~~250~~884,~~442~~388	$	21,116,624	$	21,424,094
RMBS	4,~~606~~348,~~275~~536		4,~~529~~254,~~723~~036		4,717,542		4,724,402
CMBS	1,~~292~~410,~~559~~363		1,~~259~~363,~~519~~850		1,246,406		1,244,017
Other asset-backed securities	1,~~588~~683,~~637~~029		1,~~608~~699,~~396~~143		1,488,958		1,509,363
Total mortgage and asset-backed securities	$	7,~~487~~441,~~471~~928	$	7,~~397~~317,~~638~~029	$	7,452,906	$	7,477,782
Total fixed maturities - AFS - Excluding Life Funds Withheld Assets	$	28,~~668~~413,~~435~~341	$	28,~~648~~201,~~080~~417	$	28,569,530	$	28,901,876
Fixed maturities - AFS - Life Funds Withheld Assets
Due less than one year	$	6647,~~237~~308	$	6848,~~315~~710	$	47,143	$	49,233
Due after 1 through 5 years	~~274~~218,~~247~~872		~~296~~235,~~715~~681		286,524		313,227
Due after 5 through 10 years	~~167~~146,~~949~~695		~~201~~174,~~133~~746		168,897		205,536
Due after 10 years	~~852~~662,~~528~~866		1889,~~151,062~~311		849,739		1,165,067
	$	1,~~360~~075,~~961~~741	$	1,~~717~~348,~~225~~448	$	1,352,303	$	1,733,063
RMBS	~~455~~412		~~503~~483		448		515
CMBS	~~105~~97,~~505~~003		~~130~~119,~~070~~611		97,356		122,272
Other asset-backed securities	~~132~~102,~~990~~825		~~160~~123,~~750~~192		137,944		171,262
Total mortgage and asset-backed securities	$	~~238~~200,~~950~~240	$	~~291~~243,~~323~~286	$	235,748	$	294,049
Total fixed maturities - AFS - Life Funds Withheld Assets	$	1,~~599~~275,~~911~~981	$	21,~~008~~591,~~548~~734	$	1,588,051	$	2,027,112
Total fixed maturities - AFS	$	3029,~~268~~689,~~346~~322	$	3029,~~656~~793,~~628~~151	$	30,157,581	$	30,928,988

1418

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	March 31, 2018				December 31, 2017
	June 30, 2018				December 31, 2017
(U.S. dollars in thousands)	AmortizedCost		FairValue		AmortizedCost		FairValue
Fixed maturities trading - Life Funds Withheld Assets
Due less than one year	$	6648,~~532~~626	$	6547,~~428~~686	$	59,962	$	59,605
Due after 1 through 5 years	~~493~~519,~~369~~812		~~495~~522,~~899~~579		486,847		492,998
Due after 5 through 10 years	~~691~~664,~~074~~273		~~690~~665,~~354~~029		645,573		657,093
Due after 10 years	~~752~~681,~~128~~687		~~780~~704,~~508~~187		705,983		746,840
	$	21,~~003~~914,~~103~~398	$	21,~~032~~939,~~189~~481	$	1,898,365	$	1,956,536
RMBS	~~1,023~~985		~~893~~919		1,020		932
CMBS	7,~~358~~227		7,~~472~~411		7,345		7,580
Other asset-backed securities	4442,~~238~~762		4342,~~697~~533		39,771		41,337
Total mortgage and asset-backed securities	$	5250,~~619~~974	$	5250,~~062~~863	$	48,136	$	49,849
Total fixed maturities trading - Life Funds Withheld Assets	$	21,~~055~~965,~~722~~372	$	21,~~084~~990,~~251~~344	$	1,946,501	$	2,006,385

Pledged Assets

Certain of the Company's invested assets are pledged in support of insurance and reinsurance liabilities as well as to collateralize ~~our~~other obligations, such as credit facilities. Such pledges are largely required by the Company's operating subsidiaries that are "non-admitted" under U.S. state insurance regulations, in order for the U.S. cedant to receive statutory credit for reinsurance. Also included in pledged assets are Life Funds Withheld Assets, as noted in Note 1(a), "Significant Accounting Policies - Basis of Preparation and Consolidation." Additionally, certain deposit liabilities and annuity contracts require the use of pledged assets. At ~~March~~June 3130, 2018 and December 31, 2017, the Company had $17.90 billion and $18.8 billion in pledged assets, respectively.

(b) Gross Unrealized Losses

The following istable ansets ~~analysis~~forth ofthe ~~how~~fair ~~long~~value, ~~the~~gross ~~AFS~~unrealized ~~securities~~loss atand ~~March 31,~~length ~~2018~~of ~~and~~time ~~December 31,~~AFS ~~2017~~securities had been in a continual unrealized loss position at June 30, 2018 and December 31, 2017:

Less than 12 months

Equal to or greaterthan 12 months

March 31, 2018(U.S. dollars in thousands)

FairValue

GrossUnrealizedLosses

FairValue

GrossUnrealizedLosses

June 30, 2018(U.S. dollars in thousands)

FairValue

GrossUnrealizedLosses

FairValue

GrossUnrealizedLosses

Fixed maturities and short-term investments - AFS

U.S. Government

3,~~080~~206,~~855~~426

(3835,~~758~~641

)

~~515~~597,~~999~~622

(1112,~~350~~672

)

U.S. States, municipalities and political subdivisions

~~278~~302,~~946~~220

(3,~~222~~496

)

15,~~869~~479

(~~404~~403

)

Non-U.S. Governments

2,~~061~~050,~~869~~935

(2530,~~703~~310

)

~~487~~693,~~103~~514

(2645,~~836~~414

)

Corporate

56,~~509~~489,~~770~~744

(~~114~~154,~~092~~483

)

~~510~~730,~~757~~166

(3451,~~148~~514

)

RMBS

2,~~973~~921,~~309~~798

(6879,~~157~~813

)

~~846~~799,~~423~~053

(3537,~~278~~218

)

CMBS

~~991~~1,~~765~~081,418

(2638,~~681~~410

)

~~131~~128,~~116~~671

(810,~~622~~004

)

Other asset-backed securities

~~396~~510,~~287~~637

(23,~~502~~572

)

~~132~~129,~~119~~668

(3,~~914~~752

)

Total fixed maturities and short-term investments - AFS

1516,~~292~~563,~~801~~178

(~~279~~345,~~115~~725

)

23,~~639~~094,~~386~~173

(~~120~~160,~~552~~977

)

	Less than 12 months					Equal to or greaterthan 12 months
December 31, 2017(U.S. dollars in thousands)	FairValue		GrossUnrealizedLosses			FairValue		GrossUnrealizedLosses
Fixed maturities and short-term investments - AFS
U.S. Government	$	2,687,083	$	(21,514	)	$	727,246	$	(13,902	)
U.S. States, municipalities and political subdivisions	88,235		(622		)	19,583		(366		)
Non-U.S. Governments	1,527,323		(14,959		)	560,648		(33,931		)
Corporate	2,959,416		(25,757		)	543,973		(31,577		)
RMBS	2,198,391		(14,030		)	925,191		(21,093		)
CMBS	583,656		(4,117		)	138,065		(5,740		)
Other asset-backed securities	256,823		(1,111		)	175,146		(5,364		)
Total fixed maturities and short-term investments - AFS	$	10,300,927	$	(82,110	)	$	3,089,852	$	(111,973	)

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company had gross unrealized losses totaling $399.7 million on 4,061 securities out of a total of 7,851 held at March 31, 2018 in its AFS - Excluding Life Funds Withheld Assets portfolio, which either it considers to be temporarily impaired or reflects non-credit losses on other-than-temporarily impaired assets. Individual security positions comprising this balance have been evaluated by management, in conjunction with our investment managers, to determine the severity of these impairments and whether they should be considered other-than-temporary. Management believes it is more likely than not that the issuer will be able to fund sufficient principal and interest payments to support the current amortized cost.



	Less than 12 months					Equal to or greater than 12 months
December 31, 2017 (U.S. dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturities and short-term investments - AFS
U.S. Government	$	2,687,083	$	(21,514	)	$	727,246	$	(13,902	)
U.S. States, municipalities and political subdivisions	88,235		(622		)	19,583		(366		)
Non-U.S. Governments	1,527,323		(14,959		)	560,648		(33,931		)
Corporate	2,959,416		(25,757		)	543,973		(31,577		)
RMBS	2,198,391		(14,030		)	925,191		(21,093		)
CMBS	583,656		(4,117		)	138,065		(5,740		)
Other asset-backed securities	256,823		(1,111		)	175,146		(5,364		)
Total fixed maturities and short-term investments - AFS	$	10,300,927	$	(82,110	)	$	3,089,852	$	(111,973	)

The Company had gross unrealized losses totaling $506.7 million on 4,673 securities out of a total of 7,847 held at June 30, 2018 in its AFS - Excluding Life Funds Withheld Assets portfolio, which either it considers to be temporarily impaired or reflects non-credit losses on other-than-temporarily impaired assets. Individual security positions comprising this balance have been evaluated by management, in conjunction with our investment managers, to determine the severity of these impairments and whether they should be considered other-than-temporary. Management believes it is more likely than not that the issuer will be able to fund sufficient principal and interest payments to support the current amortized cost.

The following ~~represents~~table ansets ~~analysis~~forth ofthe gross and net realized gains (losses) on investments and unrealized gains (losses) on mark to market investments for the periods presented:

Net Realized Investment Gains (Losses)	Three months ended ~~March~~June 3130,						Six months ended June 30,
(U.S. dollars in thousands)	2018			2017			2018			2017
Net realized gains (losses) on investments AFS - excluding Life Funds Withheld Assets: (1)
Gross realized gains	$	1925,~~330~~288		$	3991,~~397~~771		$	44,618		$	131,168
Gross realized losses	(5139,~~002~~388		)	(2841,~~305~~392		)	(90,390		)	(69,697		)
OTTI, net of amounts transferred to other comprehensive income	(13,~~806~~000		)	(61,~~874~~210		)	(4,806		)	(8,084		)
Total	$	(3317,~~478~~100	)	$	449,~~218~~169		$	(50,578	)	$	53,387
Net realized and change in net unrealized gains (losses) on equities securities - excluding Life Funds Withheld Assets:
Net realized and change in net unrealized gains (losses) on equity securities - excluding Life Funds Withheld Assets:
Gross realized gains	$	94,~~693~~556		$	—		$	14,249		$	—
Gross realized losses	(~~126~~97		)	—			(223		)	—
Change in net unrealized gains (losses) on equity securities	~~(45~~30,~~581~~735		)	—			(14,846		)	—
Total	$	~~(36~~35,~~014~~194	)	$	—		$	(820	)	$	—
Net realized and change in net unrealized gains (losses) on other investments - excluding Life Funds Withheld Assets:
Gross realized gains	$	317,~~004~~208		$	—		$	20,212		$	—
Gross realized losses	(1,~~163~~261		)	—			(2,424		)	—
Change in net unrealized gains (losses) on other investments	(6,~~808~~645		)	—			163			—
Total	$	89,~~649~~302		$	—		$	17,951		$	—
Net realized gains (losses) on investments and change in net unrealized gains (losses) on investments on trading securities - Life Funds Withheld Assets:
Gross realized gains	$	1267,~~909~~749		$	3530,~~151~~100		$	80,658		$	65,251
Gross realized losses	(2,~~551~~444		)	(~~677~~322		)	(4,995		)	(999		)
OTTI, net of amounts transferred to other comprehensive income	(1,203		)	—
OTTI	—			—			(1,203		)	—
Change in net unrealized gains (losses) on trading securities	$	(311,~~667~~896	)	$	(122,~~406~~319	)	$	(33,563	)	$	(23,725	)
Total	$	~~(22~~63,~~512~~409	)	$	337,~~068~~459		$	40,897		$	40,527
Total realized investment gains (losses)	$	~~(83~~90,~~355~~805	)	$	3756,~~286~~628		$	7,450		$	93,914

____________

(1) AFS in the prior year includes net realized gains (losses) on equity securities and other investments. Due to the implementation of ASU 2016-01, as ~~described~~noted in in Note 1(b), "Significant Accounting Policies - Recent Accounting Pronouncements," the ~~net~~movements ~~realized gains (losses)~~ on these investments are now shown separately.

The components of OTTI charges for the three months ended March 31, 2018 and 2017, as defined in Note 1(g), "Significant Accounting Policies - Other-Than-Temporary Impairments of Available for Sale," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, for investments excluding Life Funds Withheld Assets were:20

	Three months ended March 31,
(U.S. dollars in thousands)	2018		2017
Fixed maturities:
Credit loss impairments	$	765	$	226
Equities and other investments:
Impaired more than 11 months or more than 50%	—		4,975
Currency Losses	1,041		1,673
OTTI, net of amounts transferred to other comprehensive income	$	1,806	$	6,874

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The components of OTTI charges for the three and six months ended June 30, 2018 and 2017, as defined in Note 1(g), "Significant Accounting Policies - Other-Than-Temporary Impairments of Available for Sale," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, for investments excluding Life Funds Withheld Assets were:



	Three months ended June 30,				Six months ended June 30,
(U.S. dollars in thousands)	2018		2017		2018		2017
Fixed maturities:
Credit loss impairments	$	748	$	162	$	1,513	$	388
Equities and other investments:
Impaired more than 11 months or more than 50%	—		—		—		4,975
Currency Losses	2,252		1,048		3,293		2,721
OTTI, net of amounts transferred to other comprehensive income	$	3,000	$	1,210	$	4,806	$	8,084

The following table sets forth the amount of credit loss impairments on fixed income securities, for which a portion of the OTTI loss was recognized in Other Comprehensive Income ("OCI"), held by the Company at the dates or for the periods indicated and the corresponding changes in such amounts:

Credit Loss Impairments	Three months ended ~~March~~June 3130,						Six months ended June 30,
(U.S. dollars in thousands)	2018			2017			2018			2017
Opening balance at beginning of indicated period	$	4341,~~332~~466		$	6158,~~595~~628		$	43,332		$	61,595
Credit loss impairment recognized in the current period on securities not previously impaired	~~590~~—			~~124~~—			590			124
Credit loss impairments previously recognized on securities that matured or were paid down, prepaid or sold during the period	(~~1,156~~436		)	(~~836~~3,071		)	(1,592		)	(3,907		)
Additional credit loss impairments recognized in the current period on securities previously impaired	~~175~~748			~~102~~162			923			264
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(1,~~475~~042		)	(21,~~357~~282		)	(2,517		)	(3,639		)
Closing balance at end of indicated period	$	4140,~~466~~736		$	5854,~~628~~437		$	40,736		$	54,437

5. Derivative Instruments

The Company enters into derivative instruments for both risk management and investment purposes. The Company is exposed to potential loss from various market risks, and manages its market risks based on a comprehensive framework of investment decision authorities ("Authorities Framework") adopted by the Risk and Finance Committee of XL Group's Board of Directors ("RFC"). The Authorities Framework is intended to align the risk profile of our investment portfolio to be consistent with the Company's risk tolerance and other guidelines established by the RFC. The following table summarizes information on the notional amounts and gross amounts of derivative fair values contained in the Unaudited Consolidated Balance Sheets at ~~March~~June 3130, 2018 and December 31, 2017:

	March 31, 2018										December 31, 2017
	June 30, 2018										December 31, 2017
(U.S. dollars in thousands)	AssetDerivativeNotionalAmount		AssetDerivativeFair Value			LiabilityDerivativeNotionalAmount		LiabilityDerivativeFair Value			AssetDerivativeNotionalAmount		AssetDerivativeFair Value			LiabilityDerivativeNotionalAmount		LiabilityDerivativeFair Value
Derivatives designated as hedging instruments:
Foreign currency exposure	$	~~585~~953,~~573~~438	$	1560,~~155~~325		$	~~534~~166,~~856~~497	$	154,~~025~~277		$	580,194	$	5,655		$	339,221	$	3,968
Total derivatives designated as hedging instruments	$	~~585~~953,~~573~~438	$	1560,~~155~~325		$	~~534~~166,~~856~~497	$	154,~~025~~277		$	580,194	$	5,655		$	339,221	$	3,968
Derivatives not designated as hedging instruments:
Investment Related Derivatives:
Interest rate exposure	$	—	$	—		$	~~238~~239,~~215~~109	$	~~726~~387		$	181,975	$	423		$	—	$	—
Foreign currency exposure	33126,~~070~~239		~~313~~1,958			~~336~~211,~~055~~809		36,~~674~~360			263,722		6,931			141,300		2,256
Credit exposure	5,000		~~128~~65			45,000		65,~~262~~730			5,000		187			45,000		6,784
Financial market exposure	—34,580		—2,317			~~40,823~~—		~~3,873~~—			30,001		1,271			6,998		42
Other Non-Investment Derivatives:
Credit exposure	20,242		334			—		—			—		—			25,526		169
Guaranteed minimum income benefit contract	35,288		17,841			35,288		17,841			36,171		18,136			36,171		18,136
Modified coinsurance and funds withheld contracts, including life retrocession embedded derivative (1)	917,921		2,132			4,230,047		—			51,653		—			5,014,284		31,541
Other	—		—			—		—			16,000		191			—		—
Total derivatives not designated as hedging instruments	$	1,011,521	$	20,748		$	4,925,428	$	32,376		$	584,522	$	27,139		$	5,269,279	$	58,928
Total derivatives			$	35,903				$	47,401				$	32,794				$	62,896
Counterparty netting			(7,239		)			(7,239		)			(3,579		)			(3,579		)
Total derivatives net of counterparty netting			28,664					40,162					29,215					59,317
Cash collateral held/paid (2)			(6,060		)			(17,338		)			(3,920		)			(1,312		)
Total derivatives as recorded in the Unaudited Consolidated Balance Sheets			$	22,604				$	22,824				$	25,295				$	58,005

1721

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) The fair value movements in derivative assets and liabilities relating to modified coinsurance and funds withheld contracts are included within the associated asset or liability at each period end on the face of the Unaudited Consolidated Balance Sheets. Notional amounts associated with reinsurance agreements under which the Company assumes reinsurance risk are recorded as asset derivative notional amounts. Notional amounts associated with the GreyCastle Life Retro Arrangements and other outward reinsurance contracts under which the Company cedes risk are recorded as liability derivative notional amounts. Included in the liability derivative notional amount at March 31, 2018 is the cumulative net realized and unrealized loss on the life retrocession embedded derivative of $1.1 billion.



	June 30, 2018										December 31, 2017
(U.S. dollars in thousands)	Asset Derivative Notional Amount		Asset Derivative Fair Value			Liability Derivative Notional Amount		Liability Derivative Fair Value			Asset Derivative Notional Amount		Asset Derivative Fair Value			Liability Derivative Notional Amount		Liability Derivative Fair Value
Other Non-Investment Derivatives:
Foreign currency exposure	—		—			24,534		468			—		—			—		—
Credit exposure	19,553		57			—		—			—		—			25,526		169
Guaranteed minimum income benefit contract	35,400		17,822			35,400		17,822			36,171		18,136			36,171		18,136
Modified coinsurance and funds withheld contracts, including life retrocession embedded derivative (1)	47,351		—			4,456,743		12,607			51,653		—			5,014,284		31,541
Other	—		—			—		—			16,000		191			—		—
Total derivatives not designated as hedging instruments	$	268,123	$	22,219		$	5,012,595	$	43,374		$	584,522	$	27,139		$	5,269,279	$	58,928
Total derivatives			$	82,544				$	47,651				$	32,794				$	62,896
Counterparty netting			(7,627		)			(7,627		)			(3,579		)			(3,579		)
Total derivatives net of counterparty netting			74,917					40,024					29,215					59,317
Cash collateral held/paid (2)			(43,420		)			(3,089		)			(3,920		)			(1,312		)
Total derivatives as recorded in the Unaudited Consolidated Balance Sheets			$	31,497				$	36,935				$	25,295				$	58,005

____________

(21) AtThe ~~March~~fair ~~31,~~value ~~2018,~~movements ~~the~~in ~~Company~~derivative ~~held~~assets ~~cash~~and ~~collateral~~liabilities ~~related~~relating to ~~foreign~~modified ~~currency~~coinsurance ~~derivative positions~~ and ~~certain~~funds ~~other~~withheld ~~derivative~~contracts ~~positions~~are ofincluded ~~$6.1~~within ~~million~~the ~~for~~associated ~~derivatives in an~~ asset ~~position~~or ~~and~~liability ~~paid~~at ~~cash~~each ~~collateral~~period ofin ~~$17.3~~the ~~million~~Unaudited ~~for~~Consolidated ~~derivatives~~Balance inSheets. aNotional ~~liability~~amounts ~~position.~~associated Atwith ~~December~~reinsurance ~~31,~~agreements ~~2017,~~under which the Company ~~held~~assumes ~~cash~~reinsurance ~~collateral~~risk ~~related~~are torecorded aas ~~foreign~~asset ~~currency~~ derivative ~~position~~notional ~~and~~amounts. ~~certain~~Notional ~~other~~amounts ~~derivative~~associated ~~positions~~with ofthe ~~$3.9~~GreyCastle ~~million~~Life ~~for~~Retro ~~derivatives~~Arrangements inand another ~~asset~~outward ~~position~~reinsurance ~~and~~contracts ~~paid~~under ~~cash~~which ~~collateral~~the ofCompany ~~$1.3~~cedes ~~million~~risk ~~for~~are ~~derivatives~~recorded inas a liability ~~position.~~derivative ~~The~~notional ~~assets~~amounts. ~~and~~Included ~~liabilities~~in ~~related to~~ the ~~net~~liability ~~collateral~~derivative ~~paid~~notional oramount ~~held~~at ~~were~~June ~~recorded~~30, as2018 ~~Other~~is ~~assets and Other liabilities within~~ the ~~Unaudited~~cumulative ~~Consolidated~~net ~~Balance~~realized ~~Sheets as the collateral~~ and ~~derivative~~unrealized ~~positions~~loss ~~are~~on ~~not~~the ~~intended~~life toretrocession beembedded ~~settled~~derivative onof a$0.9 ~~net basis~~billion.

(2)

At June 30, 2018, the Company held cash collateral related to foreign currency derivative positions and certain other derivative positions of $43.4 million for derivatives in an asset position and paid cash collateral of $3.1 million for derivatives in a liability position. At December 31, 2017, the Company held cash collateral related to a foreign currency derivative position and certain other derivative positions of $3.9 million for derivatives in an asset position and paid cash collateral of $1.3 million for derivatives in a liability position. The assets and liabilities related to the net collateral paid or held were recorded as Other assets and Other liabilities within the Unaudited Consolidated Balance Sheets as the collateral and derivative positions are not intended to be settled on a net basis.

Derivative instruments in an asset or liability position are included within "Other assets" or "Other liabilities," respectively, at fair value in the Unaudited Consolidated Balance Sheets on a net basis where the Company has both a legal right of offset and the intention to settle the contracts on a net basis. Certain embedded derivatives within reinsurance contracts are included in "Reinsurance balances payable." The Company often enters into different types of derivative contracts with a single counterparty and these contracts are covered under netting agreements. Changes in the fair values of derivatives are shown in the Unaudited Consolidated Statements of Income as "Net realized and unrealized gains (losses) on derivative instruments," unless the derivatives are designated as hedging instruments. The accounting for derivatives that are designated as hedging instruments is described in Item 8, Note 1(h), "Significant Accounting Policies - Derivative Instruments," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

(a) Derivative Instruments Designated as Hedges of a Net Investment in a Foreign Operation

The Company utilizes foreign currency contracts to hedge the fair value of certain net investments in foreign operations. During the three and six months ended ~~March~~June 3130, 2018 and 2017, the Company entered into foreign currency contracts that were formally designated as hedges of investments in foreign subsidiaries, the majority of which have functional currencies of ~~either~~Canadian ~~the~~dollar, British pound, Euro or ~~Canadian~~Swiss ~~dollars~~Francs. There was no ineffectiveness in these transactions.

The following table provides the weighted average U.S. dollar equivalent of foreign denominated net assets that were hedged and the resulting derivative gain (loss) that was recorded in the foreign currency translation adjustment, net of tax, account within AOCI for the three months ended March 31, 2018 and 2017:22

Derivative Instruments Designated as Hedges of a Net Investment in a Foreign Operation - Summary	Three months ended March 31,
(U.S. dollars in thousands)	2018			2017
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	1,094,210		$	1,677,145
Derivative gains (losses) (1)	$	(2,323	)	$	29,398

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



Derivative Instruments Designated as Hedges of a Net Investment in a Foreign Operation - Summary	Three months ended June 30,					Six months ended June 30,
(U.S. dollars in thousands)	2018		2017			2018		2017
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	1,119,999	$	1,659,312		$	1,107,105	$	1,668,229
Derivative gains (losses) (1)	48,099		(49,370		)	$	45,776	$	(78,767	)

____________


(1)	Derivative gains (losses) from derivative instruments designated as hedges of the net investment in a foreign operation are recorded in the cumulative translation adjustment account within AOCI for each period.

As described in Note 9, "Notes Payable and Debt and Financing Arrangements," the Company has issued debt denominated in Euros that is designated and qualifies as a non-derivative hedging instrument against an equal amount of the Company's currency exposure to the Euro resulting from net investments in foreign operations. Accordingly, the foreign currency revaluation of this debt is recorded in AOCI, offsetting the foreign currency translation adjustment of the related net investments that is also recorded in AOCI.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(b) Derivative Instruments Not Formally Designated As Hedging Instruments

The following table provides the total impact on earnings relating to derivative instruments not formally designated as hedging instruments. The impacts are all recorded through "Net realized and unrealized gains (losses) on derivative instruments" in the Unaudited Consolidated Statements of Income for the three and six months ended ~~March~~June 3130, 2018 and 2017:

Net Realized and Unrealized Gains (Losses) on Derivative Instruments	Three months ended ~~March~~June 3130,						Six months ended June 30,
(U.S. dollars in thousands)	2018			2017			2018			2017
Investment Related Derivatives:
Interest rate exposure	$	~~997~~(1,317	)	$	~~(214~~372	)	$	(320	)	$	158
Foreign currency exposure	(3,~~318~~378		)	(~~745~~988		)	60			(1,733		)
Credit exposure	(4138		)	(~~854~~525		)	(79		)	(1,379		)
Financial market exposure	(17,~~348~~492		)	~~185~~—			6,144			185
Other Non-Investment Derivatives:
Foreign currency exposure	—			~~(1,210~~34		)	—			(1,176		)
Credit exposure	~~615~~—			~~632~~138			615			770
Modified coinsurance and funds withheld contracts, including life retrocession embedded derivative	26,~~492~~611			~~(3,925~~238		)	9,103			(3,687		)
Other	~~4,824~~—			(~~938~~175		)	4,824			(1,113		)
Net realized and unrealized gains (losses) on derivative instruments	$	416,~~221~~126		$	(~~7,069~~906	)	$	20,347		$	(7,975	)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	$	22(36,~~921~~120	)	$	(5034,~~101~~596	)	$	(13,199	)	$	(84,697	)

The Company's objectives in using these derivatives are explained below.

Investment Related Derivatives

The Company, either directly or through third-party investment managers, may use derivative instruments within its investment portfolio, including interest rate swaps and options on interest rate swaps, total return swaps, credit derivatives (including single name and index credit default swaps and options on credit default swaps), equity options, forward contracts and futures (including foreign exchange, bond and stock index, interest rate and commodity futures), primarily as a means of reducing investment risk by economically hedging exposures to interest rate, credit spread, equity price changes and foreign currency risk or, in limited instances, for efficient portfolio management. When using exchange-traded or cleared over-the-counter derivatives, the Company is exposed to the credit risk of the applicable clearing house and of the Company's futures commission merchant. When using uncleared over-the-counter derivatives, the Company is exposed to credit risk in the event of non-performance by the counterparties to such derivative contracts. To manage this risk, the Company requires appropriate legal documentation with counterparties that has been reviewed and negotiated by legal counsel on behalf of the Company and complies with the Company's documentation standards, investment guidelines and policies.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Investment Related Derivatives – Interest Rate Exposure

The Company utilizes risk management and overlay strategies that incorporate the use of derivative financial instruments, primarily to manage its fixed income portfolio duration and net economic exposure to interest rate risks. The Company may also use interest rate swaps to convert certain liabilities from a fixed rate to a variable rate of interest or use them to convert a variable rate of interest from one basis to another.

Investment Related Derivatives – Foreign Currency Exposure

The Company has exposure to foreign currency exchange rate fluctuations through its operations and in its investment portfolio. The Company uses foreign currency contracts to manage its exposure to the effects of fluctuating foreign currencies on the value of certain of its foreign currency fixed maturities and equities. These contracts are not designated as specific hedges for financial reporting purposes and, therefore, realized and unrealized gains and losses on these contracts are recorded in income in the period in which they occur. These contracts generally have maturities of twelve months or less.

In addition, certain of the Company's investment managers may, subject to investment guidelines, enter into forward contracts.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Investment Related Derivatives – Credit Exposure

Credit derivatives may be purchased within the Company's investment portfolio in the form of single name and basket credit default swaps and swaptions, which are used to mitigate credit exposure through a reduction in credit spread duration (i.e., macro credit strategies rather than single-name credit hedging) or exposure to securities of selected issuers. Credit derivatives may also be used to efficiently gain exposure to credit markets, subject to guidelines that prohibit the introduction of effective leverage.

Investment Related Derivatives – Financial Market Exposure

Stock index futures may be purchased within the Company's investment portfolio to create synthetic equity exposure and to add value to the portfolio with overlay strategies where market inefficiencies are believed to exist. Stock index futures may be sold to facilitate the timely and efficient reduction of equity exposure. Equity option strategies, including both purchases and sales of options, may be used to add value or reduce exposure with overlay or other strategies. From time to time, the Company may enter into other financial market exposure derivative contracts on various indices and other underlying financial instruments including, but not limited to, equity options, total return swaps, and commodity contracts.

Other Non-Investment Derivatives

Credit Exposure

During the year ended December 31, 2017, the Company entered into a non-investment related credit derivative relating to a number of reference pool mortgage tranches associated with actual mortgage loans that were securitized into agency mortgage-backed securities and sold as Structured Agency Credit Risk Notes. At ~~March~~June 3130, 2018, there was no reported event of default on this obligation. The credit derivative is recorded at fair value based upon models developed by the Company. Significant unobservable inputs considered in the valuation include the impact of changes in interest rates, future defaults, delinquency and prepayment rates, credit spreads, changes in credit quality, and other market factors.

Guaranteed Minimum Income Benefit Contract

The Company has derivatives embedded in certain reinsurance contracts. For a certain life reinsurance contract, the Company pays the ceding company a fixed amount equal to the estimated present value of the excess of the guaranteed benefit over the account balance upon the policyholder's election to take the income benefit. The fair value of this derivative is determined based on the present value of expected cash flows.

Modified Coinsurance and Funds Withheld Contracts, including Life Retrocession Embedded Derivative

The Company has modified coinsurance and funds withheld reinsurance agreements that provide for a return to be paid based on a portfolio of fixed income securities. As such, the agreements contain an embedded derivative. The embedded derivative is bifurcated from the funds withheld balance and recorded at fair value, with changes in fair value recognized in earnings through "Net realized and unrealized gains (losses) on derivative instruments."

In addition, the Company entered into the GreyCastle Life Retro Arrangements, as described in Note 1(a), "Significant Accounting Policies - Basis of Preparation and Consolidation." The embedded derivative related to the GreyCastle Life Retro Arrangements is recorded at fair value with changes in fair value recognized in earnings through "Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets."

2024

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The impact of the GreyCastle Life Retro Arrangements on the Company's results was as follows:

Impact of GreyCastle Life Retro Arrangements	Three months ended ~~March~~June 3130,						Six months ended June 30,
(U.S. dollars in thousands)	2018			2017			2018			2017
Underwriting profit (loss)	$	—		$	—		$	—		$	—
Net investment income - Life Funds Withheld Assets	30,~~398~~252			3331,~~364~~439			60,650			64,803
Net realized gains (losses) on investments, trading - Life Funds Withheld Assets	1065,~~358~~305			3429,~~474~~778			75,663			64,252
Net unrealized gains (losses) on investments, trading - Life Funds Withheld Assets	(311,~~667~~896		)	(122,~~406~~319		)	(33,563		)	(23,725		)
OTTI - Life Funds Withheld Assets	~~(1,203~~—		)	—			(1,203		)	—
Foreign exchange gains (losses)	10(14,~~719~~794		)	314,~~294~~964			(4,074		)	18,259
Other income and expenses	(3680		)	(7019		)	(116		)	(90		)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	22(36,~~921~~120		)	(5034,~~101~~596		)	(13,199		)	(84,697		)
Net income (loss)	$	4142,~~490~~667		$	19,~~555~~247		$	84,158		$	38,802
Change in net unrealized gains (losses) on investments AFS - Life Funds Withheld Assets	(3599,~~754~~031		)	(2011,~~108~~956		)	(134,785		)	(32,064		)
Change in adjustments related to future policy benefit reserves	442,~~164~~314			53,~~132~~437			46,478			8,569
Change in cumulative translation adjustment - Life Funds Withheld Assets	(914,~~900~~050		)	(410,~~579~~728		)	4,149			(15,307		)
Total changes to other comprehensive income as a result of GreyCastle Life Retro Arrangements	$	(4142,~~490~~667	)	$	(19,~~555~~247	)	$	(84,158	)	$	(38,802	)
Comprehensive income (loss)	$	—		$	—		$	—		$	—

As shown in the table above, although the Company's net income (loss) is subject to variability related to the GreyCastle Life Retro Arrangements, there is no net impact on the Company's comprehensive income in any period. The life retrocession embedded derivative value includes the interest income, unrealized gains and losses, and realized gains and losses from sale of the Life Funds Withheld Assets.

Other

The Company has entered into short-term weather derivative swap agreements as the fixed rate payer which provide for a return to be paid to the Company based on the occurrence of certain industry weather events. The derivatives are recorded at fair value with changes in fair value recognized in earnings through "Net realized and unrealized gains (losses) on derivative instruments."

The Company may designate certain of its derivative instruments as fair value hedges or cash flow hedges, in which case it formally and contemporaneously documents all relationships between the hedging instruments and hedged items and links the hedging derivatives to specific assets and liabilities. The Company assesses the effectiveness of the hedge both at inception and on an on-going basis, and determines whether the hedge is highly effective in offsetting changes in fair value or cash flows of the linked hedged item.

Settlement of Fair Value Hedges

During the fourth quarter of 2010 and the third quarter of 2012, the Company settled five interest rate contracts designated as fair value hedges of certain of the Company's structured indemnity contracts. The gain on settlement of these contracts, which represented the effective portion of the hedging relationship, was recorded as an increase in the carrying value of the deposit liabilities and is being amortized through interest expense over the remaining term of the structured indemnity contracts.

A summary of the fair value hedges that have been settled and their impact on results up to the indicated periods, as well as the remaining balance of the fair value hedges and average years remaining to maturity at March 31, 2018 and 2017, are shown below:25

Settlement of Fair Value Hedges - Summary	Fair Value Hedges - Structured Indemnity Contracts March 31,
(U.S. dollars in thousands, except years)	2018		2017
Cumulative reduction to interest expense	$	124,255	$	122,118
Remaining balance	$	108,940	$	111,077
Weighted average years remaining to maturity	18.3		18.7

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



Settlement of Fair Value Hedges - Summary	Fair Value Hedges - Structured Indemnity Contracts June 30,
(U.S. dollars in thousands, except years)	2018		2017
Cumulative reduction to interest expense	$	125,935	$	117,818
Remaining balance	$	107,260	$	115,377
Weighted average years remaining to maturity	18.0		19.4

(d) Contingent Credit Features

Certain derivative agreements entered into by the Company or its subsidiaries contain credit rating downgrade provisions that permit early termination of the agreements by the counterparty if collateral is not posted following failure to maintain certain credit ratings from one or more of the principal credit rating agencies. If the Company were required to terminate such agreements early due to a credit rating downgrade, it could potentially be in a net liability position at the time of settlement of such agreements. The aggregate fair value of all derivative agreements containing such rating downgrade provisions that were in a liability position and any collateral posted under these agreements at ~~March~~June 3130, 2018 and December 31, 2017 were as follows:

Contingent Credit Features - Summary:(U.S. dollars in thousands)	~~March~~June 3130, 2018			December 31, 2017
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	~~(7,872~~—	)	$	7,464
Collateral posted to counterparty	$	~~6,720~~—		$	40

6. Fair Value Measurements

Fair value is defined as the amount that would be received for the sale of an asset or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the factors that market participants would use in valuing the asset or liability. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The fair values for AFS investments are generally sourced from third parties. The fair value of fixed income securities is based upon quoted market values where available, "evaluated bid" prices provided by third-party pricing services ("pricing services") where quoted market values are not available, or by reference to broker quotes where pricing services do not provide coverage for a particular security. While the Company receives values for the majority of the investment securities it holds from pricing services, it is ultimately management's responsibility to determine whether the values received and recorded in the financial statements are representative of appropriate fair value measurements.

The Company performs regular reviews of the prices received from its third-party valuation sources to assess whether the prices represent a reasonable estimate of the fair value. The approaches taken by the Company include, but are not limited to, annual reviews of the controls of the external parties responsible for sourcing valuations that are subjected to automated tolerance checks, quarterly reviews of the valuation sources and dates, comparisons of executed sales prices to prior valuations, regular ~~deep~~comprehensive ~~dives~~analyses on a sample of securities across our major asset classes and monthly reconciliations between the valuations provided by external parties and valuations provided by third-party investment managers at a portfolio level.

In addition, the Company assesses the effectiveness of valuation controls performed by external parties responsible for sourcing appropriate valuations from third parties on its behalf. The approaches taken by these external parties to gain comfort include, but are not limited to, comparing valuations between external sources, completing recurring reviews of third-party pricing services' methodologies and reviewing controls of the third-party pricing service providers to support the completeness and accuracy of the prices received. Where broker quotes are the primary source of the valuations, sufficient information regarding the specific inputs utilized by the brokers is generally not available to support a Level 2 classification. The Company obtains the majority of broker quoted values from third-party investment managers who perform independent verifications of these valuations using pricing matrices based upon information gathered by market traders. In addition, for the majority of these securities, the Company compares the broker quotes to independent valuations obtained from pricing services, which may also consist of broker quotes, to assess if the prices received represent reasonable estimates of the fair value.

For further information about the Company's fair value measurements, see Item 8, Note 1(b), "Significant Accounting Policies - Fair Value Measurements," and Item 8, Note 8, "Fair Value Measurements," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.26

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

obtains the majority of broker quoted values from third-party investment managers who perform independent verifications of these valuations using pricing matrices based upon information gathered by market traders. In addition, for the majority of these securities, the Company compares the broker quotes to independent valuations obtained from pricing services, which may also consist of broker quotes, to assess if the prices received represent reasonable estimates of the fair value.

(a) Fair Value Summary

The following tables set forth the Company's assets and liabilities that were accounted for at fair value at ~~March~~June 3130, 2018 and December 31, 2017 by level within the fair value hierarchy:

March 31, 2018(U.S. dollars in thousands)	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantOtherUnobservableInputs(Level 3)		CounterpartyNetting			Balance atMarch 31, 2018
June 30, 2018(U.S. dollars in thousands)	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantOtherUnobservableInputs(Level 3)		CounterpartyNetting			Balance atJune 30, 2018
Assets
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
U.S. Government	$	—	$	43,~~182~~955,~~925~~271	$	5,~~034~~020	$	—		$	43,~~187~~960,~~959~~291
U.S. States, municipalities and political subdivisions	—		21,~~013~~858,~~162~~142		—		—			21,~~013~~858,~~162~~142
Non-U.S. Governments	—		5,~~306~~115,~~651~~860		—		—			5,~~306~~115,~~651~~860
Corporate	—		9,~~740~~948,~~542~~048		2,~~128~~047		—			9,~~742~~950,~~670~~095
RMBS	—		4,~~522~~248,~~786~~089		65,~~937~~947		—			4,~~529~~254,~~723~~036
CMBS	—		1,~~259~~363,~~519~~850		—		—			1,~~259~~363,~~519~~850
Other asset-backed securities	—		1,~~588~~699,~~659~~143		~~19,737~~—		—			1,~~608~~699,~~396~~143
Total fixed maturities - AFS - Excluding Funds Withheld Assets, at fair value	$	—	$	28,~~614~~188,~~244~~403	$	3313,~~836~~014	$	—		$	28,~~648~~201,~~080~~417
Short-term investments, at fair value (1)	—		~~500~~623,~~170~~113		—		—			~~500~~623,~~170~~113
Total investments AFS - Excluding Funds Withheld Assets	$	—	$	2928,~~114~~811,~~414~~516	$	3313,~~836~~014	$	—		$	2928,~~148~~824,~~250~~530
Fixed maturities - Life Funds Withheld Assets
U.S. Government	$	—	$	1110,~~616~~934	$	—	$	—		$	1110,~~616~~934
Non-U.S. Governments	—		~~584~~467,~~406~~920		—		—			~~584~~467,~~406~~920
Corporate	—		1869,~~121,203~~594		—		—			1869,~~121,203~~594
RMBS	—		~~503~~483		—		—			~~503~~483
CMBS	—		~~130~~119,~~070~~611		—		—			~~130~~119,~~070~~611
Other asset-backed securities	—		~~160~~123,~~750~~192		—		—			~~160~~123,~~750~~192
Total fixed maturities - AFS - Life Funds Withheld Assets, at fair value	$	—	$	21,~~008~~591,~~548~~734	$	—	$	—		$	21,~~008~~591,~~548~~734
Total investments - AFS, at fair value	$	—	$	3130,~~122~~403,~~962~~250	$	3313,~~836~~014	$	—		$	3130,~~156~~416,~~798~~264
Fixed maturities trading
U.S. Government	$	—	$	9,~~320~~633	$	—	$	—		$	9,~~320~~633
Non-U.S. Governments	—		~~497~~489,~~108~~276		—		—			~~497~~489,~~108~~276
Corporate	—		1,~~525~~440,~~761~~572		—		—			1,~~525~~440,~~761~~572
RMBS	—		~~893~~919		—		—			~~893~~919
CMBS	—		7,~~472~~411		—		—			7,~~472~~411
Other asset-backed securities	—		4342,~~697~~533		—		—			4342,~~697~~533
Total fixed maturities trading - Life Funds Withheld Assets, at fair value	$	—	$	21,~~084~~990,~~251~~344	$	—	$	—		$	21,~~084~~990,~~251~~344
Short-term investments trading, at fair value (1)	—		75,~~425~~788		—		—			75,~~425~~788
Total investments trading	$	—	$	21,~~091~~996,~~676~~132	$	—	$	—		$	21,~~091~~996,~~676~~132
Cash equivalents (2)	522,096		1,409,637		—		—			1,931,733
Cash equivalents - Life Funds Withheld Assets (2)	1,514		77,938		—		—			79,452
Equity securities, at fair value	474,118		163,754		—		—			637,872
Other investments (3)	—		580,946		231,368		—			812,314
Other assets (4)	—		17,728		18,175		(7,239		)	28,664
Total assets accounted for at fair value	$	997,728	$	35,464,641	$	283,379	$	(7,239	)	$	36,738,509
Liabilities
Funds withheld on GreyCastle Life Retro Arrangements (net of future policy benefit reserves recoverable) (5)	$	—	$	1,085,099	$	—	$	—		$	1,085,099
Other liabilities (4)	—		29,560		17,841		(7,239		)	40,162
Total liabilities accounted for at fair value	$	—	$	1,114,659	$	17,841	$	(7,239	)	$	1,125,261

2327

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017(U.S. dollars in thousands)	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantOtherUnobservableInputs(Level 3)		CounterpartyNetting			Balance atDecember 31,2017
June 30, 2018(U.S. dollars in thousands)	Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantOtherUnobservableInputs(Level 3)		CounterpartyNetting			Balance atJune 30, 2018
Assets
Cash equivalents (2)	380,587		1,080,353		—		—			1,460,940
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
Cash equivalents - Life Funds Withheld Assets (2)	—		64,885		—		—			64,885
U.S. Government	$	—	$	4,344,450	$	18,290	$	—		$	4,362,740
Equity securities, at fair value	492,472		152,239		—		—			644,711
U.S. States, municipalities and political subdivisions	—		2,064,640		—		—			2,064,640
Other investments (3)	—		533,090		218,222		—			751,312
Non-U.S. Governments	—		5,201,581		—		—			5,201,581
Other assets (4)	—		64,665		17,879		(7,627		)	74,917
Corporate	—		9,793,841		1,292		—			9,795,133
Total assets accounted for at fair value	$	873,059	$	34,294,614	$	249,115	$	(7,627	)	$	35,409,161
RMBS	—		4,724,402		—		—			4,724,402
CMBS	—		1,244,017		—		—			1,244,017
Other asset-backed securities	—		1,504,131		5,232		—			1,509,363
Total fixed maturities - AFS - Excluding Funds Withheld Assets, at fair value	$	—	$	28,877,062	$	24,814	$	—		$	28,901,876
Short-term investments, at fair value (1)	—		815,481		—		—			815,481
Equity securities, at fair value	557,510		156,457		—		—			713,967
Total investments AFS - Excluding Funds Withheld Assets	$	557,510	$	29,849,000	$	24,814	$	—		$	30,431,324
Fixed maturities - Life Funds Withheld Assets
U.S. Government	$	—	$	11,316	$	—	$	—		$	11,316
Non-U.S. Governments	—		584,534		—		—			584,534
Corporate	—		1,137,213		—		—			1,137,213
RMBS	—		515		—		—			515
CMBS	—		122,272		—		—			122,272
Other asset-backed securities	—		171,262		—		—			171,262
Total fixed maturities - AFS - Life Funds Withheld Assets, at fair value	$	—	$	2,027,112	$	—	$	—		$	2,027,112
Total investments - AFS, at fair value	$	557,510	$	31,876,112	$	24,814	$	—		$	32,458,436
Fixed maturities trading
U.S. Government	$	—	$	11,042	$	—	$	—		$	11,042
U.S. States, municipalities and political subdivisions	—		31		—		—			31
Non-U.S. Governments	—		485,171		—		—			485,171
Corporate	—		1,460,292		—		—			1,460,292
RMBS	—		932		—		—			932
CMBS	—		7,580		—		—			7,580
Other asset-backed securities	—		41,337		—		—			41,337
Total fixed maturities trading - Life Funds Withheld Assets, at fair value	$	—	$	2,006,385	$	—	$	—		$	2,006,385
Short-term investments trading, at fair value (1)	—		14,965		—		—			14,965
Total investments trading	$	—	$	2,021,350	$	—	$	—		$	2,021,350
Cash equivalents (2)	279,224		1,271,483		—		—			1,550,707
Cash equivalents - Life Funds Withheld Assets (2)	—		67,982		—		—			67,982
Other investments (3)	—		570,931		221,708		—			792,639
Other assets (4)	—		14,467		18,327		(3,579		)	29,215
Total assets accounted for at fair value	$	836,734	$	35,822,325	$	264,849	$	(3,579	)	$	36,920,329
Liabilities
Funds withheld on GreyCastle Life Retro Arrangements (net of future policy benefit reserves recoverable) (5)	$	—	$	1889,~~112,969~~813	$	—	$	—		$	1889,~~112,969~~813
Other liabilities (4)	—		4429,~~591~~829		1817,~~305~~822		(37,~~579~~627		)	5940,~~317~~024
Total liabilities accounted for at fair value	$	—	$	1919,~~157,560~~642	$	1817,~~305~~822	$	(37,~~579~~627	)	$	1929,~~172,286~~837

____________



December 31, 2017 (U.S. dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Counterparty Netting		Balance at December 31, 2017
Assets
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
U.S. Government	$	—	$	4,344,450	$	18,290	$	—	$	4,362,740
U.S. States, municipalities and political subdivisions	—		2,064,640		—		—		2,064,640
Non-U.S. Governments	—		5,201,581		—		—		5,201,581
Corporate	—		9,793,841		1,292		—		9,795,133
RMBS	—		4,724,402		—		—		4,724,402
CMBS	—		1,244,017		—		—		1,244,017
Other asset-backed securities	—		1,504,131		5,232		—		1,509,363
Total fixed maturities - AFS - Excluding Funds Withheld Assets, at fair value	$	—	$	28,877,062	$	24,814	$	—	$	28,901,876
Short-term investments, at fair value (1)	—		815,481		—		—		815,481
Equity securities, at fair value	557,510		156,457		—		—		713,967
Total investments AFS - Excluding Funds Withheld Assets	$	557,510	$	29,849,000	$	24,814	$	—	$	30,431,324
Fixed maturities - Life Funds Withheld Assets
U.S. Government	$	—	$	11,316	$	—	$	—	$	11,316
Non-U.S. Governments	—		584,534		—		—		584,534
Corporate	—		1,137,213		—		—		1,137,213
RMBS	—		515		—		—		515
CMBS	—		122,272		—		—		122,272
Other asset-backed securities	—		171,262		—		—		171,262
Total fixed maturities - AFS - Life Funds Withheld Assets, at fair value	$	—	$	2,027,112	$	—	$	—	$	2,027,112
Total investments - AFS, at fair value	$	557,510	$	31,876,112	$	24,814	$	—	$	32,458,436

~~(1) Short-term investments consist primarily of U.S. and Non-U.S. Government securities, Corporate securities, and Other asset-backed securities.~~28

(2) Cash equivalents balances subject to fair value measurement include certificates of deposit and money market funds. Operating cash balances are not subject to recurring fair value measurement guidance.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(3) Excluded from Other Investments are certain investments that are measured using net asset value as a practical expedient in the amount of $201.8 million and $198.2 million at March 31, 2018 and December 31, 2017, respectively. Under GAAP, these investments are excluded from the fair value hierarchy table. In addition, the Other investments balance excludes loans held at amortized cost, which totaled $172.9 million at March 31, 2018 and $173.0 million at December 31, 2017. For further information, see Item 8, Note 6, "Other Investments," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.



December 31, 2017 (U.S. dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Counterparty Netting			Balance at December 31, 2017
Fixed maturities trading
U.S. Government	$	—	$	11,042	$	—	$	—		$	11,042
U.S. States, municipalities and political subdivisions	—		31		—		—			31
Non-U.S. Governments	—		485,171		—		—			485,171
Corporate	—		1,460,292		—		—			1,460,292
RMBS	—		932		—		—			932
CMBS	—		7,580		—		—			7,580
Other asset-backed securities	—		41,337		—		—			41,337
Total fixed maturities trading - Life Funds Withheld Assets, at fair value	$	—	$	2,006,385	$	—	$	—		$	2,006,385
Short-term investments trading, at fair value (1)	—		14,965		—		—			14,965
Total investments trading	$	—	$	2,021,350	$	—	$	—		$	2,021,350
Cash equivalents (2)	279,224		1,271,483		—		—			1,550,707
Cash equivalents - Life Funds Withheld Assets (2)	—		67,982		—		—			67,982
Other investments (3)	—		570,931		221,708		—			792,639
Other assets (4)	—		14,467		18,327		(3,579		)	29,215
Total assets accounted for at fair value	$	836,734	$	35,822,325	$	264,849	$	(3,579	)	$	36,920,329
Liabilities
Funds withheld on GreyCastle Life Retro Arrangements (net of future policy benefit reserves recoverable) (5)	$	—	$	1,112,969	$	—	$	—		$	1,112,969
Other liabilities (4)	—		44,591		18,305		(3,579		)	59,317
Total liabilities accounted for at fair value	$	—	$	1,157,560	$	18,305	$	(3,579	)	$	1,172,286

____________


(1)	Short-term investments consist primarily of U.S. and Non-U.S. Government securities and Corporate securities.


(2)	Cash equivalents balances subject to fair value measurement include certificates of deposit and money market funds. Operating cash balances are not subject to recurring fair value measurement guidance.

(3)

Excluded from Other Investments are certain investments that are measured using net asset value as a practical expedient in the amount of $227.2 million and $198.2 million at June 30, 2018 and December 31, 2017, respectively. Under GAAP, these investments are excluded from the fair value hierarchy table. In addition, the Other investments balance excludes loans held at amortized cost, which totaled $173.2 million at June 30, 2018 and $173.0 million at December 31, 2017. For further information, see Item 8, Note 6, "Other Investments," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

(4)

Other assets and other liabilities include derivative instruments. The derivative balances included in each category are reported gross of cash collateral by level with a counterparty netting adjustment presented separately in the Counterparty Netting column. The fair values of the individual derivative contracts are reported gross in their respective levels based on the fair value hierarchy. For further details regarding derivative fair values and associated collateral received or paid, see Note 5, "Derivative Instruments."

(5)

Funds withheld on GreyCastle Life Retro Arrangements (net of future policy benefit reserves recoverable) include balances related to the life retrocession embedded derivative, under which all investment results associated with the Life Funds Withheld Assets related to the GreyCastle Life Retro Arrangements described in Note 1(a), "Significant Accounting Policies - Basis of Preparation and Consolidation," accrue to the benefit of GCLR.

(b) Level 2 Asset Valuations

U.S. Government, Corporate and Non-U.S. Governments

Transaction activity inputs utilized in the valuation of fair value hierarchy Level 2 securities within these sub-categories include actual trades, dealer posts, results of bids-wanted, institutional secondary offerings, primary market offerings and Trade Reporting and Compliance Engine ~~("TRACE")~~ trade feeds. As part of the evaluation process, transaction activity is compared to prior evaluations and necessary adjustments are made accordingly. Market-color inputs include actively quoted benchmark issues, buy-side/evaluator dialogue, sell-side/evaluator dialogue and credit derivative indices.

U.S. States, municipalities and political subdivisions

Transaction activity inputs utilized in the valuation of fair value hierarchy Level 2 securities within this sub-category include actual trades, dealer posts, results of bids-wanted, institutional secondary offerings, primary market offerings, and Municipal Securities Rulemaking trade feeds. As part of the evaluation process, transaction activity is compared to prior evaluations and necessary adjustments are made accordingly. Market-color inputs include bids, offerings, two-sided markets, buy-side/evaluator dialogue and sell-side/evaluator dialogue. Credit information inputs include issuer financial statements, default and material event notices, developer reports and liquidation and restructuring analyses.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

buy-side/evaluator dialogue and sell-side/evaluator dialogue. Credit information inputs include issuer financial statements, default and material event notices, developer reports and liquidation and restructuring analyses.

RMBS, CMBS and Other asset-backed securities

As part of the fair valuation process, Level 2 securities in these sub-categories are analyzed by collateral type, deal structure, deal performance and vintage. Market inputs into the valuation process for each sub-category include reported or observed trades, results of bids-wanted, buy-side/evaluator dialogue, sell-side/evaluator dialogue, dealer offerings and market research reports. Cash flow inputs into the evaluation process include conditional prepayment rates, conditional decay rates, delinquency rates and loss severity rates. This assumptive data is reviewed and updated using third-party reported information to reflect current market convention.

Equity securities and other investments

Equity securities and other investment securities generally include investments in thinly traded equity funds and fixed income funds (including overseas deposits). Fair value is determined based upon prices received from pricing services as well as from net asset values ("NAV") received from the fund administrators.

Other assets and other liabilities

Other assets and other liabilities primarily include over-the-counter ("OTC") derivatives, which are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative independent pricing sources where an understanding of the inputs utilized in arriving at the valuations is obtained. Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms and specific risks inherent in the instrument as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as generic forwards, interest rate swaps and options, model inputs can generally be verified against observable inputs and model selection does not involve significant management judgment.

Funds withheld on GreyCastle Life Retro Arrangements (net of future policy benefit reserves recoverable)

The calculation of the change in fair value of the embedded derivative associated with the GreyCastle Life Retro Arrangements includes the interest income, realized and unrealized gains and losses on Life Funds Withheld Assets and certain expenses related to the Life Funds Withheld Assets. The fair value of the embedded derivative is included in "Funds withheld on GreyCastle life retrocession arrangements, net of future policy benefit reserves recoverable" on the Unaudited Consolidated Balance Sheets. The fair value of the embedded derivative is considered a Level 2 valuation.

25There were no significant transfers between Level 1 and Level 2 during each of the three and six months ended June 30, 2018 and 2017.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

expenses related to the Life Funds Withheld Assets. The fair value of the embedded derivative is included in "Funds withheld on GreyCastle life retrocession arrangements, net of future policy benefit reserves recoverable" on the Unaudited Consolidated Balance Sheets. The fair value of the embedded derivative is considered a Level 2 valuation.

There were no significant transfers between Level 1 and Level 2 during each of the three months ended March 31, 2018 and 2017.

The tables below present additional information about assets and liabilities measured at fair value on a recurring basis and for which Level 3 inputs were utilized to determine fair value. The tables present a reconciliation of the beginning and ending balances for the three and six months ended ~~March~~June 3130, 2018 and 2017 for all financial assets and liabilities measured at fair value using significant unobservable inputs (Level 3) at ~~March~~June 3130, 2018 and 2017, respectively. The tables do not include gains or losses that were reported in Level 3 in prior periods for assets that were transferred out of Level 3 prior to ~~March~~June 3130, 2018 and 2017, respectively. Gains and losses for assets and liabilities classified within Level 3 in the table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, the tables below do not take into consideration the effect of offsetting Level 1 and 2 financial instruments entered into by the Company that are either economically hedged by certain exposures to the Level 3 positions or that hedge the exposures in Level 3 positions.

In general, Level 3 assets include securities for which values were obtained from brokers where either significant inputs were utilized in determining the values that were difficult to corroborate with observable market data, or sufficient information regarding the specific inputs utilized by the broker was not available to support a Level 2 classification. Transfers into or out of Level 3 primarily arise as a result of the valuations utilized by the Company changing between either those provided by independent pricing services that do not contain significant unobservable inputs and other valuations sourced from brokers that are considered Level 3.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Fixed maturities and short-term investments

The Company's Level 3 assets consist primarily of U.S. Government securities, Corporates and Other asset-backed securities, for which non-binding broker quotes are the primary source of the valuations. Sufficient information regarding the specific inputs utilized by the brokers was not available to support a Level 2 classification. The Company obtains the majority of broker quotes for these securities from third-party investment managers who perform independent verifications of these valuations using pricing matrices based upon information gathered by market traders. In addition, for the majority of these securities, the Company compares the broker quotes to independent valuations obtained from pricing services, which may also consist of broker quotes, to assess if the prices received represent a reasonable estimate of the fair value. Although the Company does not have access to the specific unobservable inputs that may have been used in the fair value measurements of these securities provided by brokers, we would expect that the significant inputs considered are prepayment rates, probability of default, loss severity in the event of default, recovery rates, liquidity premiums and reinvestment rates. Significant increases (decreases) in any of those inputs in isolation could result in a significantly different fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

The remainder of the Level 3 assets relate primarily to private investments (including funds), hedge funds and certain derivative positions as described below.

Other investments

Included within the other investments component of the Company's Level 3 valuations are private investments (including funds) and hedge funds where the Company is not deemed to have significant influence over the investee. The fair value of these investments is based upon net asset values received from the investment manager or general partner of the respective entity. The underlying investments held by the investee that form the basis of the net asset value include assets such as private business ventures that require significant Level 3 inputs in the determination of the individual underlying holding values. Accordingly, the fair value of the Company's investment in each entity is classified within Level 3. Management reviews the values and incorporates factors such as the most recent financial information received, annual audited financial statements and the values at which capital transactions with the investee take place when applying judgment regarding whether any adjustments should be made to the net asset value received in recording the fair value of each position. Investments in hedge funds included in other investments utilize strategies including arbitrage, directional, event driven and multi-style. The funds potentially have lockup and gate provisions that may limit redemption liquidity. For further details regarding the nature of other investments and related features, see Item 8, Note 6, "Other Investments," to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

XL GROUP LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Derivative instruments

Derivative instruments recorded within other liabilities and classified within Level 3 include: credit derivatives sold providing protection on senior tranches of structured finance transactions where the value is obtained directly from the investment bank counterparty and sufficient information regarding the inputs utilized in such valuation was not obtained to support a Level 2 classification, and guaranteed minimum income benefits embedded within one reinsurance contract. The majority of inputs utilized in the valuations of these types of derivative contracts are considered Level 1 or Level 2; however, each valuation includes at least one Level 3 input that was significant to the valuation and, accordingly, the values are disclosed within Level 3.

	Level 3 Assets and Liabilities - Three Months Ended March 31, 2018
(U.S. dollars in thousands)	Balance, beginning of period		Realized gains (losses)			Movement in unrealized gains (losses)			Purchases and Issuances		Sales			Settlements			Net transfers into (out of) Level 3			Balance, end of period		Movement in total gains (losses) relating to investments still held
U.S. Government	$	18,290	$	(354	)	$	114		$	—	$	(13,016	)	$	—		$	—		$	5,034	$	(36	)
Corporate	1,292		—			43			—		—			(101		)	894			2,128		44
RMBS	—		—			—			980		—			—			5,957			6,937		—
Other asset-backed securities	5,232		—			(28		)	15,407		—			(874		)	—			19,737		—
Other investments	221,708		847			5,191			14,280		—			(10,658		)	—			231,368		5,338
Derivative Contracts - Net	22		—			312			—		—			—			—			334		312
Total	$	246,544	$	493		$	5,632		$	30,667	$	(13,016	)	$	(11,633	)	$	6,851		$	265,538	$	5,658
	Level 3 Assets and Liabilities - Three Months Ended March 31, 2017
(U.S. dollars in thousands)	Balance, beginning of period		Realized gains (losses)			Movement in unrealized gains (losses)			Purchases and Issuances		Sales			Settlements			Net transfers into (out of) Level 3			Balance, end of period		Movement in total gains (losses) relating to investments still held
U.S. Government	$	24,751	$	(19	)	$	(355	)	$	—	$	—		$	(311	)	$	(4,758	)	$	19,308	$	(373	)
Corporate	20,085		—			11			—		(10,284		)	(31		)	118			9,899		11
RMBS	—		17			(526		)	—		—			(173		)	4,063			3,381		(509		)
CMBS	99		—			2			—		—			—			—			101		2
Other asset-backed securities	1,131		30			101			—		—			(46		)	2,734			3,950		131
Short-term investments	—		—			—			11,693		—			(28		)	—			11,665		—
Other investments	205,528		(5,541		)	7,102			4,982		—			(5,397		)	(2,709		)	203,965		6,343
Derivative Contracts - Net	2		—			161			—		—			—			—			163		163
Total	$	251,596	$	(5,513	)	$	6,496		$	16,675	$	(10,284	)	$	(5,986	)	$	(552	)	$	252,432	$	5,768

Filing Compare · XL GROUP LTD