Exhibit 10.3

PERFORMANCE UNIT AGREEMENT

                    AGREEMENT, by and between XL Capital Ltd, a Cayman Islands
corporation (“the Company”), and You (the “Grantee”) is effective as of
_________________.

                    WHEREAS, Grantee is an employee of the Company and/or any of
its subsidiaries (collectively called the “Company”); and

                    WHEREAS, the Company regards Grantee as a valuable employee
of the Company and has determined it to be in the interest of the Company to
grant to Grantee an award of Performance Units under the Company’s 1991
Performance Incentive Program;

                    NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, and for other good and valuable consideration, the
Company and Grantee agree as follows:

                    (a) Grant of Performance Units.

                    The Company has granted to Grantee an award (the “Award”) on
_________________ (the “Grant Date”) with a target amount of Performance Units
(the “Target Amount”), subject to the restrictions set forth below (the
“Performance Units”). The percentage of the Award that will be earned will range
from 0% to 200% of the Target Amount, depending on achievement of the
performance goals for the Performance Period established by the Management
Development and Compensation Committee of the Board of Directors (the
“Committee”). Notwithstanding the foregoing, the Committee, in its independent
judgment, reserves the authority to increase or decrease the payout amount,
including the authority to make no payout at all—regardless of the actual
achievement of performance goals—in response to economic conditions at the time
of payout, better or lower than expected performance in other important
business/financial measures, or any other reason. The Award is granted pursuant
to the terms of the Company’s 1991 Performance Incentive Program, which is
incorporated by reference herein. Any capitalized terms used herein and not
defined shall have the meanings given to those terms in the 1991 Performance
Incentive Program.

                    (b) Vesting.

                    Except as otherwise provided in paragraph (e) below, (i) the
percentage of the Award that will be earned will be determined following the end
of the Performance Period based on the level of achievement of the performance
goals set forth as adjusted (if applicable) by the Committee (the “Earned
Award”), and (ii) the Earned Award will vest only if Grantee remains
continuously employed by the Company through the Payment Date. The Payment Date
will be after January 1 of the calendar year immediately following the end of
the Performance Period and on or prior to March 15 of such calendar year, as
determined by the Company. Except as otherwise set forth in paragraph (e) below,
the portion of the Award, if any, that is not vested immediately following
termination of Grantee’s employment shall be immediately forfeited. The
Performance Period will begin on January 1, 2010 and end on December 31, 2012.

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                    (c) Distribution of Stock.

                    On the Payment Date in accordance with paragraph (b) above,
the Company shall distribute to Grantee a number of Ordinary Shares, US$0.01 par
value per share, of the Company (the “Shares”) equal to the number of
Performance Units, if any, that vested. To the extent applicable, Shares shall
be distributed as set forth in paragraph (e) below. Prior to the Company’s
delivery of the Shares, Grantee shall pay to the Company an amount of cash equal
to the par value for each of such Shares delivered.

                    (d) Rights and Restrictions.

                    The Performance Units shall not be transferable other than
pursuant to will or the laws of descent and distribution. Prior to vesting of
the Performance Units and delivery of the Shares to Grantee, Grantee shall not
have any rights and privileges of a shareholder as to the Shares subject to the
Award. Specifically, Grantee shall not have the right to receive dividends or
the right to vote such Shares prior to vesting of the Award and delivery of the
Shares.

                    (e) Early Termination.

                         (i) Death of Grantee. In the event Grantee dies while
in the employment of the Company, the following portion of the Award will vest
and Shares equal to the number of such vested Performance Units will be
distributed at the time set forth in this clause (i) below: (x) the percentage
of the Award earned based upon the extent, if any, of attainment of the
performance goals for the Award as measured at the earlier of the end of the
calendar year during which such death occurs or the end of the Performance
Period, multiplied by (y) a fraction, the numerator of which is the number of
days during the Performance Period ending on the date of Grantee’s death and the
denominator of which is the number of days in the Performance Period. Such
Shares will be distributed to Grantee’s estate or beneficiary on the earlier of:
(x) the date after January 1 of the calendar year immediately following the
calendar year during which such death occurs and on or prior to March 15 of such
calendar year, as determined by the Company, or (y) the Payment Date described
pursuant to paragraphs (b) and (c) above.

                         (ii) Termination of Employment Due to Permanent
Disability. In the event Grantee’s employment with the Company is terminated by
the Company by reason of Grantee’s Permanent Disability, the following portion
of the Award will vest and Shares equal to the number of such vested Performance
Units will be distributed at the time set forth in this clause (ii) below: (x)
the percentage of the Award earned based upon the extent, if any, of attainment
of the performance goals for the Award as measured at the earlier of the end of
the calendar year during which such termination of employment occurs or the end
of the Performance Period, multiplied by (y) a fraction, the numerator of which
is the number of days during the Performance Period ending on the date of
Grantee’s termination of employment and the denominator of which is the number
of days in the Performance Period. Such Shares will be distributed to Grantee on
the earlier of: (x) the date after January 1 of the calendar year immediately
following the calendar year during which such termination of employment occurs
and on or prior to March 15 of such calendar year, as determined by the Company,
or (y) the Payment Date described pursuant to paragraphs (b) and (c) above. For
purposes hereof, “Permanent Disability” means those circumstances under which
Grantee has been unable to perform his or her duties and responsibilities with
the Company for at least 60 continuous days

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because of physical, mental or emotional incapacity resulting from injury,
sickness or disease, and will be unable to continue to perform his or her duties
and responsibilities for a total of six (6) months in any twelve (12) month
period because of physical, mental or emotional incapacity resulting from
injury, sickness or disease; provided, however, that with respect to any Grantee
who has entered into an employment agreement with the Company, term of which has
not expired at the time a determination concerning Permanent Disability is to be
made, Permanent Disability shall have the meaning attributed in such employment
agreement.

                         (iii) Termination of Employment Due to Retirement. In
the event Grantee’s employment with the Company is terminated due to his or her
Retirement, the following portion of the Award will vest and Shares equal to the
number of such vested Performance Units will be distributed at the time set
forth in this clause (iii) below: (x) the percentage of the Award earned based
upon the extent, if any, of attainment of the performance goals for the Award as
measured at the end of the Performance Period, multiplied by (y) a fraction, the
numerator of which is the number of days during the Performance Period ending on
the date of Grantee’s Retirement and the denominator of which is the number of
days in the Performance Period. Such Shares will be distributed to Grantee on
the Payment Date described pursuant to paragraphs (b) and (c) above. For
purposes hereof “Retirement” shall mean the termination of employment by Grantee
if (i) such termination of employment occurs after (x) Grantee has reached age
55, and (y) the sum of Grantee’s age and full years of continuous service with
the Company equals or exceeds 65, and (ii) a determination has been made by the
Committee, in its sole discretion, that it is appropriate under the
circumstances (taking into account, without limitation, the intention of Grantee
with respect to future employment) for the Performance Units to become vested at
the time of such termination of employment.

                         (iv) Termination Not For Cause. In the event Grantee’s
employment with the Company is terminated by the Company not for Cause (as
defined below), the following portion of the Award will vest and Shares equal to
the number of such vested Performance Units will be distributed at the time set
forth in this clause (iv) below: (x) the percentage of the Award earned based
upon the extent, if any, of attainment of the performance goals for the Award as
measured at the end of the Performance Period, multiplied by (y) a fraction, the
numerator of which is the number of days during the Performance Period ending on
the date of such termination of employment and the denominator of which is the
number of days in the Performance Period. Such Shares will be distributed to
Grantee on the Payment Date described pursuant to paragraphs (b) and (c) above.
For purposes hereof, “Cause” shall mean (I) conviction of Grantee of a felony
involving moral turpitude or dishonesty; (II) Grantee, in carrying out his or
her duties for the Company, has been guilty of (A) gross neglect or (B) willful
misconduct; provided, however, that any act or failure to act by Grantee shall
not constitute Cause for this purpose if such act or failure to act was
committed, or omitted, by Grantee in good faith and in a manner reasonably
believed to be in the overall best interests of the Company; (III) Grantee’s
continued willful refusal to obey any appropriate policy or requirement duly
adopted by the Company and the continuance of such refusal after receipt of
notice; or (IV) Grantee’s sustained failure to perform the essential duties of
Grantee’s role after receipt of notice. The determination of whether Grantee
acted in good faith and that he or she reasonably believed his or her action to
be in the Company’s overall best interest will be in the reasonable judgment of

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the General Counsel of the Company or, if the General Counsel shall have an
actual or potential conflict of interest, the Committee.

                         (v) Change of Control. In the event there is a Change
of Control of the Company during the period that Grantee is employed by the
Company, the Award will vest at target (100%) and Shares equal to the number of
such vested Performance Units will be distributed to Grantee at the time of the
Change of Control; provided, however, that, if the Performance Units are
deferred compensation for purposes of Section 409A of the Code, distribution of
such Shares will be accelerated to the time of the Change of Control only if the
event constituting a Change of Control also constitutes a “change in control
event” (as defined in Treas. Reg. Section 1.409A-3(i)(5)) with respect to the
Company.

                    (f) Status of Shares.

                    Upon issuance, the Shares shall rank equally in all respects
with the other outstanding Shares of the Company and shall be fully paid.

                    (g) Adjustments for Recapitalizations, Etc.

                    In the event of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations, exchanges of shares,
spin-offs, liquidations, reclassifications or other similar changes in the
capitalization of the Company, the number of Shares subject to this Award shall
be proportionately adjusted by the Board on an equitable basis.

                    (h) Obligations as to Capital.

                    The Company agrees that it will at all times maintain
authorized and unissued share capital sufficient to fulfill all of its
obligations under this Agreement.

                    (i) Dividend Equivalents.

                    Dividend equivalents will not be paid with respect to
Grantee’s Performance Unit Award.

                    (j) Withholding.

                    Grantee agrees to make appropriate arrangements with the
Company for satisfaction of any applicable income tax withholding requirements
or social security or similar requirements arising out of the Award. Such
withholding tax obligations may be satisfied by withholding Shares from this
Award; provided that the amount of tax withholding to be satisfied by
withholding Shares shall be limited to the minimum amount of taxes, including
employment taxes, required to be withheld under applicable law.

                    (k) Transfer Restrictions.

                    Grantee shall comply with the Company’s stock ownership
guidelines as in effect from time to time.

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                    (l) References.

                    References herein to rights and obligations of Grantee shall
apply, where appropriate, to the estate or personal representative of Grantee
without regard to whether specific reference to them is contained in a
particular provision of this Agreement.

                    (m) Notice.

                    Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or by courier, or sent by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the party concerned
at the address indicated below or to such changed address as such party may
subsequently by similar process give notice of:

 

 

 

If to the Company:

 

 

 

XL Capital Ltd

 

XL House

 

One Bermudiana Road

 

Hamilton HM08, Bermuda

 

 

 

Attn.: General Counsel

 

 

 

If to Grantee:

 

 

 

At Grantee’s most recent address shown on the Company’s corporate records, or at
any other address which Grantee may specify in a notice delivered to the Company
in the manner set forth herein.

                    (n) Section 409A.

                    It is intended that this Agreement will comply with Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”) and any
regulations and guidelines promulgated thereunder (collectively, “Section
409A”), to the extent the Agreement is subject thereto, and the Agreement shall
be interpreted on a basis consistent with such intent. Notwithstanding any
provision to the contrary in this Agreement, if Grantee is deemed on the date of
his or her “separation from service” (within the meaning of Treas. Reg. Section
1.409A-1(h)) with the Company to be a “specified employee” (within the meaning
of Treas. Reg. Section 1.409A-1(i)), then with regard to any payment that is
considered deferred compensation under Section 409A payable on account of a
“separation from service” that is required to be delayed pursuant to Section
409A(a)(2)(B) of the Code (after taking into account any applicable exceptions
to such requirement), such payment shall be made on the date that is the earlier
of (i) the expiration of the six (6)-month period measured from the date of
Grantee’s “separation from service,” or (ii) the date of Grantee’s death (the
“Delay Period”). Upon the expiration of the Delay Period, all payments delayed
pursuant to this paragraph (whether they would have otherwise been payable in a
single sum or in installments in the absence of such delay) shall be paid to
Grantee in a lump sum and any remaining payments due under this Agreement shall
be paid in accordance with the

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normal payment dates specified for them herein. Notwithstanding any provision of
this Agreement to the contrary, for purposes of any provision of this Agreement
providing for the payment of any amounts upon or following a termination of
employment that are considered deferred compensation under Section 409A,
references to Grantee’s “termination of employment” (and corollary terms) with
the Company shall be construed to refer to Grantee’s “separation from service”
(within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company.
Whenever payments under this Agreement are to be made in installments, each such
installment shall be deemed to be a separate payment for purposes of Section
409A.

                    (o) Clawback Policy.

                    Notwithstanding any term of these Performance Units to the
contrary, the Company reserves the right to cancel these Performance Units or
require the return of Shares received under these Performance Units (or the cash
value of the Shares, as determined by the Board in its sole discretion) to the
extent provided under, and in accordance with, the Company’s Clawback Policy as
in effect from time to time, which Policy is incorporated into this Agreement by
reference. As a condition to the grant of these Performance Units, the Employee
agrees that he or she will be subject to, and comply with the terms of, the
Company’s Clawback Policy as in effect from time to time as it applies to any
compensation, including equity awards, bonus and other incentive awards.

                    (p) Governing Law.

                    This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to the
principles of conflict of laws.

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