DECLARATION OF TRUST
                                       OF
                              XL CAPITAL TRUST III


     THIS DECLARATION OF TRUST (this "Declaration"), dated and effective as of
October 19, 2001, by the undersigned trustees (together with all other Persons
from time to time duly appointed and serving as trustees in accordance with the
provisions of this Declaration, the "Trustees"), and XL Capital Ltd, a Cayman
Islands exempted limited company, as trust sponsor (the "Sponsor"), and by the
holders, from time to time, of undivided beneficial interests in the Trust to be
issued pursuant to this Declaration;

                              W I T N E S S E T H:

     WHEREAS, the Trustees and the Sponsor desire to establish a trust (the
"Trust") pursuant to the Business Trust Act for the sole purpose of issuing and
selling certain securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in certain Debt
Securities (as hereinafter defined) of the Debt Issuer (as hereinafter defined);

     NOW THEREFORE, it being the intention of the parties hereto that the Trust
constitute a business trust under the Business Trust Act and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of undivided beneficial
interests in the assets of the Trust, subject to the provisions of this
Declaration.


                                    ARTICLE I
                         DEFINITIONS AND INTERPRETATION


     SECTION 1.1. Definitions. Capitalized terms used in this Declaration but
not defined in the preamble above have the respective meanings assigned thereto
in this Section 1.1. A term defined anywhere in this Declaration has the same
meaning throughout.

     "Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act or any successor rule thereunder.


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     "Business Day" means any day other than a Saturday, Sunday or any day on
which banking institutions in New York, New York are authorized or required by
law to close.

     "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. C.ss. 3801, et seq., as it may be amended from time to time.

     "Certificate" means a Common Security Certificate or a Preferred Security
Certificate.

     "Common Security" means a security representing a common undivided
beneficial interest in the assets of the Trust with such terms as may be set out
in an amendment to this Declaration.

     "Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security.

     "Covered Person" means: (a) any trustee, officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates; and (b) any Holder.

     "Debt Issuer" means XL Capital Ltd, a Cayman Islands exempted limited
company, or any successor entity in a merger, consolidation or amalgamation, in
its capacity as the issuer of the Debt Securities.

     "Debt Securities" means the subordinated deferrable interest notes to be
issued by the Debt Issuer and purchased with the proceeds of the Securities.

     "Delaware Trustee" has the meaning set forth in Section 3.

     "Exchange Act" means the Securities and Exchange Act of 1934, as amended
from time to time, and any successor legislation.

     "Holder" means a Person in whose name a Certificate representing a Security
is registered, such Person being a beneficial owner within the meaning of the
Business Trust Act.

     "Indemnified Person" means (a) any Trustee; (b) any Affiliate of any
Trustee; (c) any officers, directors, shareholders, members, partners,

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                                      -3-


employees, representatives or agents of any Trustee; or (d) any employee or
agent of the Trust or its Affiliates.

     "Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.

     "Preferred Security" means a security representing a preferred undivided
beneficial interest in the assets of the Trust with such terms as may be set out
in an amendment to this Declaration.

     "Preferred Security Certificate" means a certificate representing a
Preferred Security.

     "Regular Trustee" means any Trustee other than the Delaware Trustee.

     "Securities" mean the Common Securities and the Preferred Securities.

     "Securities Act" means the Securities Act of 1933, as amended from time to
time, and any successor legislation.

     "Sponsor" means XL Capital Ltd, a Cayman Islands exempted limited company,
or any successor entity in a merger, consolidation or amalgamation, in its
capacity as Sponsor of the Trust.

     "Trustee" or "Trustees" means each Person who has signed this Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who from time to time be duly appointed,
qualified and serving as Trustees in accordance with the provisions hereof, and
references herein to a Trustee or the Trustees shall refer to such Person or
Persons solely in their capacity as trustees hereunder.

     SECTION 1.2. Interpretation. Each definition in this Declaration includes
the singular and the plural, and references to the neuter gender include the
masculine and feminine where appropriate. Terms which relate to accounting
matters shall be interpreted in accordance with generally accepted accounting
principles in effect from time to time. References to any statute mean such

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statute as amended at that time and include any successor legislation. The word
"or" is not exclusive, and the words "herein," "hereof" and "hereunder" refer to
this Declaration as a whole. The headings to the Articles and Sections are for
convenience of reference and shall not affect the meaning or interpretation of
this Declaration. Reference to Articles, Sections and Exhibits means the
Articles, Sections and Exhibits of this Declaration. The Exhibits are hereby
incorporated by reference into, and shall be deemed a part of, this Declaration.


                                   ARTICLE II
                                  ORGANIZATION


     SECTION 2.1. Name. The Trust created by this Declaration is named "XL
Capital Trust III." The Trust's activities may be conducted under the name of
the Trust or any other name deemed advisable by the Regular Trustees.

     SECTION 2.2. Office. The address of the principal office of the Trust is
c/o XL Capital Ltd, XL House, One Bermudiana Road, Hamilton HM11, Bermuda. At
any time, the Regular Trustees may designate another principal office.

     SECTION 2.3. Purpose. The exclusive purposes and functions of the Trust are
(a) to issue and sell Securities and use the proceeds from such sale to acquire
the Debt Securities and (b) except as otherwise limited herein, to engage in
only those other activities necessary or incidental thereto. The Trust shall not
borrow money, issue debt or reinvest proceeds derived from investments or pledge
any of its assets.

     SECTION 2.4. Authority. Subject to the limitations provided in this
Declaration, the Regular Trustees shall have exclusive and complete authority to
carry out the purposes of the Trust. An action taken by the Regular Trustees in
accordance with their powers shall constitute the act of, and serve to bind, the
Trust. In dealing with the Regular Trustees acting on behalf of the Trust, no
Person shall be required to inquire into the authority of the Regular Trustees
to bind the Trust. Persons dealing with the Trust are entitled to rely
conclusively on the power and authority of the Regular Trustees as set forth in
this Declaration.

     SECTION 2.5. Title to Property of the Trust. Legal title to all assets of
the Trust shall be vested in the Trust.


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                                      -5-


     SECTION 2.6. Powers of the Regular Trustees. The Regular Trustees shall
have the exclusive power and authority to cause the Trust to engage in the
following activities:

     (a) to issue and sell the Preferred Securities and the Common Securities in
accordance with this Declaration; provided, however, that the Trust may issue no
more than one series of Preferred Securities and no more than one series of
Common Securities; and, provided further, there shall be no interests in the
Trust other than the Securities and the issuance of the Securities shall be
limited to a one-time, simultaneous issuance of both Preferred Securities and
Common Securities;

     (b) in connection with the issue and sale of the Preferred Securities,
under the direction of the Sponsor, to:

          (i) execute and file with the Securities and Exchange Commission a
     registration statement on Form S-3 prepared by the Sponsor in relation to
     the Preferred Securities, including any amendments thereto to be prepared
     by the Sponsor;

          (ii) determine the states in which to take appropriate action to
     qualify or register for sale all or part of the Preferred Securities and to
     take any and all such acts as they deem necessary or advisable to comply
     with the applicable laws of any of those states;

          (iii) execute and file an application prepared by the Sponsor to the
     New York Stock Exchange, Inc. or any other national stock exchange and/or
     the Nasdaq National Market for listing upon notice of issuance of any
     Preferred Securities;

          (iv) execute and file with the Securities and Exchange Commission a
     registration statement on Form 8-A prepared by the Sponsor relating to the
     registration of the Preferred Securities under Section 12(b) or 12(g) of
     the Exchange Act, including any amendments thereto; and

          (v) designate underwriters to be party to a purchase agreement with
     respect to the offer and sale of the Preferred Securities and to execute
     and enter into such purchase agreement;

     (c) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and man-


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                                      -6-


agers, contractors, advisors, and consultants and provide for reasonable
compensation for such services;

     (d) to incur expenses which are necessary or incidental to carry out any of
the purposes of this Declaration; and

     (e) to execute all documents or instruments, perform all duties and powers,
and do all things for and on behalf of the Trust in all matters necessary or
incidental to the foregoing.

     SECTION 2.7. Filing of Certificate of Trust. On or after the effective date
of this Declaration, the Trustees shall cause the Certificate of Trust for the
Trust in the form attached hereto as Exhibit A to be filed with the Secretary of
State of the State of Delaware.

     SECTION 2.8. Duration of Trust. The Trust, absent termination pursuant to
the provisions of Section 5.2, shall have existence for fifty-five years from
the date hereof.


                                   ARTICLE III
                                    TRUSTEES


     SECTION 3.1. Trustees. The number of Trustees shall initially be four, and
thereafter the number of Trustees shall be such number as shall be fixed from
time to time by a written instrument signed by the Sponsor. The Sponsor is
entitled to appoint or remove without cause any Trustee at any time; provided,
however, that the number of Trustees shall in no event be less than three; and
provided further that one Trustee, in the case of a natural person, shall be a
person who is resident of the State of Delaware or which, if not a natural
person, has its principal place of business in the State of Delaware and meets
the requirements of applicable Delaware law (the "Delaware Trustee").

     Except as expressly set forth in this Declaration, any power of the Regular
Trustees may be exercised by, or with the consent of, a majority of the Regular
Trustees; provided, however, that if there are two or fewer Regular Trustees,
all powers of the Regular Trustees shall be exercised by, or with the consent
of, all of the Regular Trustees.

     The initial Regular Trustees shall be:


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                                      -7-


                           Brian M. O'Hara
                           Jerry de St. Paer
                           Paul S. Giordano

     The initial Delaware Trustee shall be:

                           First Union Trust Company



     SECTION 3.2. Delaware Trustee. Notwithstanding any other provisions of this
Declaration, the Delaware Trustee, in its capacity as Delaware Trustee, shall
not be entitled to exercise any of the powers, nor shall the Delaware Trustee
have any of the duties and responsibilities, of the Regular Trustees described
in this Declaration. The Delaware Trustee shall be a Trustee for the sole and
limited purpose of fulfilling the requirements of Section 3807 of the Business
Trust Act.

     SECTION 3.3. Execution of Documents. (a) The Regular Trustees are
authorized to execute on behalf of the Trust any documents that the Regular
Trustees have the power and authority to cause the Trust to execute pursuant to
Section 2.6.

     (b) The Regular Trustees may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 their
power for the purposes of signing any documents which the Regular Trustees have
power and authority to cause the Trust to execute pursuant to Section 2.6.


                                   ARTICLE IV
                       LIMITATION OF LIABILITY OF HOLDERS
                        OF SECURITIES, TRUSTEES OR OTHERS


     SECTION 4.1. Exculpation. (a) No Indemnified Person shall be liable,
responsible or accountable in damages or otherwise to the Trust or any Covered
Person for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Indemnified Person in good faith on behalf of the
Trust and in a manner such Indemnified Person reasonably believed to be within
the scope of the authority conferred on such Indemnified Person by this
Declaration or by law, except that an Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such


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                                      -8-


Indemnified Person's gross negligence or willful misconduct with respect to such
acts or omissions.

     (b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Trust and upon such information, opinions, reports or
statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which distributions to
Holders might properly be paid.

     SECTION 4.2. Fiduciary Duty. (a) To the extent that, at law or in equity,
an Indemnified Person has duties (including fiduciary duties) and liabilities
relating thereto to the Trust or to any other Covered Person, an Indemnified
Person acting under this Declaration shall not be liable to the Trust or to any
other Covered Person for its good faith reliance on the provisions of this
Declaration. The provisions of this Declaration, to the extent that they
restrict the duties and liabilities of an Indemnified Person otherwise existing
at law or in equity, are agreed by the parties hereto to replace such other
duties and liabilities of such Indemnified Person.

     (b) Unless otherwise expressly provided herein:

          (i) whenever a conflict of interest exists or arises between an
     Indemnified Person and Covered Persons, or

          (ii) whenever this Declaration or any other agreement contemplated
     herein or therein provides that an Indemnified Person shall act in a manner
     that is, or provide terms that are, fair and reasonable to the Trust or any
     Holder,

the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person
the resolution, action or term so made, taken or provided by the Indemnified

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                                      -9-


Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.

     (c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision:

          (i) in its "discretion" or under a grant of similar authority, the
     Indemnified Person shall be entitled to consider such interest and factors
     as it desires, including its own interests, and shall have no duty or
     obligation to give any consideration to any interest of, or factors
     affecting, the Trust or any other Person; or

          (ii) in its "good faith" or under another express standard the
     Indemnified Person shall act under such express standard and shall not be
     subject to any other or different standard imposed by the Declaration or by
     applicable law.

     SECTION 4.3. Indemnification. (a) To the fullest extent permitted by
applicable law, the Sponsor shall indemnify and hold harmless each Indemnified
Person from and against any loss, damage or claim incurred by such Indemnified
Person by reason of any act or omission performed or omitted by such Indemnified
Person in good faith on behalf of the Trust and in a manner such Indemnified
Person reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Declaration except that no Indemnified Person shall
be entitled to be indemnified in respect of any loss, damage or claim incurred
by such Indemnified Person by reason of gross negligence or willful misconduct
with respect to such acts or omissions.

     (b) To the fullest extent permitted by applicable law, expenses (including
legal fees) incurred by an Indemnified Person in defending any claim, demand,
action, suit or proceeding shall, from time to time, be advanced by the Sponsor
prior to the final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Sponsor of an undertaking by or on behalf of the Indemnified
Person to repay such amount if it shall be determined that the Indemnified
Person is not entitled to be indemnified as authorized in Section 4.3(a).

     SECTION 4.4. Other Businesses. Any Covered Person, the Sponsor and the
Delaware Trustee may engage in or possess an interest in other business ventures
of any nature or de-


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                                      -10-


scription, independently or with others, similar or dissimilar to the business
of the Trust, and the Trust and the Holders shall have no rights by virtue of
this Declaration in and to such independent ventures or the income or profits
derived therefrom and the pursuit of any such venture, even if competitive with
the business of the Trust, shall not be deemed wrongful or improper. No Covered
Person, the Sponsor or the Delaware Trustee shall be obligated to present any
particular investment or other opportunity to the Trust even if such opportunity
is of a character that, if presented to the Trust, could be taken by the Trust,
and any Covered Person, the Sponsor and the Delaware Trustee shall have the
right to take for its own account (individually or as a partner or fiduciary) or
to recommend to others any such particular investment or other opportunity. Any
Covered Person and the Delaware Trustee may engage or be interested in any
financial or other transaction with the Sponsor or any Affiliate of the Sponsor,
or may act on any committee or body of holders of securities or other
obligations of the Sponsor or its Affiliates.

                                    ARTICLE V
                     AMENDMENTS, DISSOLUTION, MISCELLANEOUS


     SECTION 5.1. Amendments. At any time before the issue of any Securities,
this Declaration may be amended by, and only by, a written instrument executed
by a majority of the Regular Trustees, the Delaware Trustee and the Sponsor.

     SECTION 5.2. Dissolution of Trust. (a) The Trust shall dissolve and its
affairs shall be wound up:

          (i) upon the bankruptcy of the Sponsor;

          (ii) upon the filing of a certificate of dissolution or its equivalent
     with respect to the Sponsor or the revocation of the Sponsor's Certificate
     of Incorporation;

          (iii) upon the entry of a decree of judicial dissolution of the
     Sponsor or the Trust; or

          (iv) before the issue of any Securities, with the consent of all of
     the Regular Trustees and the Sponsor.

     (b) As soon as is practicable after the occurrence of an event referred to
in Section 5.2(a), the Trustees shall file a Certificate of Cancellation for the
Trust with the Secretary of State of the State of Delaware.


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                                      -11-


     SECTION 5.3. Governing Law. This Declaration and the rights of the parties
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware and all rights and remedies shall be governed by such laws
without regard to principles of conflict of laws.

     SECTION 5.4. Successors and Assigns. Whenever in this Declaration any of
the parties hereto is named or referred to, the successors and assigns of such
party shall be deemed to be included, and all covenants and agreements in this
Declaration by the Sponsor and the Trustees shall bind and inure to the benefit
of their respective successors and assigns, whether or not so expressed.

     SECTION 5.5. Partial Enforceability. If any provision of this Declaration,
or the application of such provision to any Person or circumstance, shall be
held invalid, the remainder of this Declaration, or the application of such
provision to any Person or circumstances other than those to which it is held
invalid, shall not be affected thereby.

     SECTION 5.6. Counterparts. This Declaration may contain more than one
counterpart of the signature page and this Declaration may be executed by the
affixing of the signature of each of the Trustees to one of such counterpart
signature pages. All of such counterpart signature pages shall be read as though
one, and they shall have the same force and effect as though all of the signers
had signed a single signature page.



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     IN WITNESS WHEREOF, the undersigned has caused this Declaration of Trust of
XL Capital Trust III to be executed as of the day and year first above written.

                               TRUSTEES:


                               /s/ Brian M. O'Hara
                               -------------------------------------------------
                               Brian M. O'Hara, as Regular Trustee



                               /s/ Jerry de St. Paer
                               -------------------------------------------------
                               Jerry de St. Paer, as Regular Trustee



                               /s/ Paul S. Giordano
                               -------------------------------------------------
                               Paul S. Giordano, as Regular Trustee



                               FIRST UNION TRUST COMPANY, as Delaware Trustee


                               By:  /s/    Stephen J. Kaba
                                    --------------------------------------------
                                    Name:  Stephen J. Kaba
                                    Title: Authorized Signatory

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                                      -13-


     IN WITNESS WHEREOF, XL CAPITAL LTD, as Sponsor, has caused this Declaration
of Trust to be duly executed as a deed the day and year first before written.

The common seal of )
XL CAPITAL LTD     )
was hereunto       )
affixed in the     )
presence of        )



/s/ Brian M. O'Hara
---------------------------------------------
Name:   Brian M. O'Hara
Title:  President and Chief Executive Officer


Witness:

/s/ Paul S. Giordano
---------------------------------------------
Name:   Paul S. Giordano
Title:  Executive Vice President, General
        Counsel & Secretary





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                              CERTIFICATE OF TRUST

                                       OF

                              XL CAPITAL TRUST III


     THIS CERTIFICATE OF TRUST of XL CAPITAL TRUST III (the "Trust"), dated
October , 2001, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Business Trust Act (12 Del. Code
Section 3801 et seq.).

     1. Name. The name of the business trust being formed hereby is XL Capital
Trust III.

     2. Delaware Trustee. The name and business address of the trustee of the
Trust with a principal place of business in the State of Delaware is First Union
Trust Company, One Rodney Square, 920 King Street, Suite 102, Wilmington,
Delaware 19801.

     3. Effective Date. This Certificate of Trust shall be effective as of its
filing.

     IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first above written.


                               ------------------------------------------------
                               Brian M O'Hara, as Regular Trustee


                               ------------------------------------------------
                               Jerry de St. Paer, as Regular Trustee


                               ------------------------------------------------
                               Paul S. Giordano, as Regular Trustee

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                               FIRST UNION TRUST COMPANY,
                                  as Delaware Trustee


                               By:
                                    --------------------------------------------
                                    Name:
                                    Title: Authorized Signatory