Exhibit 4.16(d)

                                                                  EXECUTION COPY

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                    PREFERRED SECURITIES GUARANTEE AGREEMENT

                                 XL CAPITAL LTD

                            Dated as of June 2, 2004

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                                TABLE OF CONTENTS

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ARTICLE I  DEFINITIONS AND INTERPRETATION.....................................................................1

SECTION 1.1.             DEFINITIONS AND INTERPRETATION.......................................................1

ARTICLE II  TRUST INDENTURE ACT...............................................................................4

SECTION 2.1.             TRUST INDENTURE ACT; APPLICATION.....................................................4
SECTION 2.2.             LISTS OF HOLDERS OF SECURITIES.......................................................4
SECTION 2.3.             REPORTS BY THE PREFERRED GUARANTEE TRUSTEE...........................................4
SECTION 2.4.             PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE......................................4
SECTION 2.5.             EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.....................................4
SECTION 2.6.             EVENTS OF DEFAULT; WAIVER............................................................5
SECTION 2.7.             EVENTS OF DEFAULT; NOTICE............................................................5
SECTION 2.8.             CONFLICTING INTERESTS................................................................5

ARTICLE III  POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE.........................................5

SECTION 3.1.             POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.................................5
SECTION 3.2.             CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE........................................6
SECTION 3.3.             NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE................................8

ARTICLE IV  PREFERRED GUARANTEE TRUSTEE.......................................................................8

SECTION 4.1.             PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.............................................8
SECTION 4.2.             APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE TRUSTEES.................9

ARTICLE V  GUARANTEE..........................................................................................9

SECTION 5.1.             GUARANTEE............................................................................9
SECTION 5.2.             WAIVER OF NOTICE AND DEMAND..........................................................9
SECTION 5.3.             OBLIGATIONS NOT AFFECTED............................................................10
SECTION 5.4.             RIGHTS OF HOLDERS...................................................................10
SECTION 5.5.             GUARANTEE OF PAYMENT................................................................11
SECTION 5.6.             SUBROGATION.........................................................................11
SECTION 5.7.             INDEPENDENT OBLIGATIONS.............................................................11

ARTICLE VI  LIMITATION OF TRANSACTIONS; SUBORDINATION........................................................11

SECTION 6.1.             LIMITATION OF TRANSACTIONS..........................................................11
SECTION 6.2.             RANKING.............................................................................11

ARTICLE VII  TERMINATION.....................................................................................12

SECTION 7.1.             TERMINATION.........................................................................12

ARTICLE VIII  INDEMNIFICATION................................................................................12

SECTION 8.1.             EXCULPATION.........................................................................12
SECTION 8.2.             INDEMNIFICATION.....................................................................12
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ARTICLE IX  MISCELLANEOUS....................................................................................13

SECTION 9.1.             SUCCESSORS AND ASSIGNS..............................................................13
SECTION 9.2.             AMENDMENTS..........................................................................13
SECTION 9.3.             NOTICES.............................................................................13
SECTION 9.4.             BENEFIT.............................................................................14
SECTION 9.5.             GOVERNING LAW; WAIVER OF JURY TRIAL.................................................14
SECTION 9.6.             NO RECOURSE AGAINST CERTAIN PERSONS.................................................14
SECTION 9.7.             FORCE MAJEURE.......................................................................14
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                    PREFERRED SECURITIES GUARANTEE AGREEMENT

            This GUARANTEE AGREEMENT (the "PREFERRED SECURITIES GUARANTEE"),
dated as of June 2, 2004, is executed and delivered by XL Capital Ltd, a Cayman
Islands exempted limited company (the "GUARANTOR"), and The Bank of New York, a
New York banking corporation, as trustee (the "PREFERRED GUARANTEE TRUSTEE"),
for the benefit of the Holders (as defined herein) from time to time of the
Preferred Securities (as defined herein) of XL Capital Trust III, a Delaware
statutory business trust (the "ISSUER").

                                   WITNESSETH:

            WHEREAS, pursuant to an amended and restated Declaration of Trust
(the "DECLARATION")to be entered into by the Issuer, the trustees of the Issuer
named therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer will
issue Trust Preferred Securities (the "PREFERRED SECURITIES") pursuant to the
Issuer's Registration Statement on Form S-3, filed with the Securities and
Exchange Commission on June 2, 2004 (the "REGISTRATION STATEMENT"), the specific
terms of which will be set forth in a prospectus supplement to the Registration
Statement;

            WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein;

            WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "COMMON SECURITIES GUARANTEE") with substantially identical terms
as this Preferred Securities Guarantee for the benefit of the holders of the
Common Securities (as defined herein), except that if an Indenture Event of
Default (as defined herein), has occurred and is continuing, the rights of
holders of the Common Securities to receive Guarantee Payments under the Common
Securities Guarantee are subordinated to the rights of Holders of Preferred
Securities to receive Guarantee Payments under this Preferred Securities
Guarantee.

            NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.

                                    ARTICLE I

                         DEFINITIONS AND INTERPRETATION

SECTION 1.1. DEFINITIONS AND INTERPRETATION

            In this Preferred Securities Guarantee, unless the context otherwise
requires:

            (a)   capitalized terms used in this Preferred Securities Guarantee
                  but not defined in the preamble above have the respective
                  meanings assigned to them in this Section 1.1;

            (b)   a term defined anywhere in this Preferred Securities Guarantee
                  has the same meaning throughout;

            (c)   all references to "the Preferred Securities Guarantee" or
                  "this Preferred Securities Guarantee" are to this Preferred
                  Securities Guarantee as modified, supplemented or amended from
                  time to time;

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            (d)   all references in this Preferred Securities Guarantee to
                  Articles and Sections are to Articles and Sections of this
                  Preferred Securities Guarantee, unless otherwise specified;

            (e)   a term defined in the Trust Indenture Act has the same meaning
                  when used in this Preferred Securities Guarantee, unless
                  otherwise defined in this Preferred Securities Guarantee or
                  unless the context otherwise requires; and

            (f)   a reference to the singular includes the plural and vice
                  versa.

            "AFFILIATE" has the same meaning as given to that term in Rule 405
of the Securities Act of 1933, as amended, or any successor rule thereunder.

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

            "COMMON SECURITIES" means the securities representing common
undivided beneficial interests in the assets of the Issuer.

            "COVERED PERSON" means any Holder or beneficial owner of Preferred
Securities.

            "EVENT OF DEFAULT" means a default by the Guarantor on any of its
payment or other obligations under this Preferred Securities Guarantee after
giving effect to all applicable cure periods.

            "GUARANTEE PAYMENTS" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined
in the Declaration) that are required to be paid on such Preferred Securities to
the extent the Issuer has funds available therefor, (ii) the redemption price,
including all accrued and unpaid Distributions to the date of redemption (the
"REDEMPTION PRICE"), to the extent the Issuer has funds available therefor, with
respect to any Preferred Securities called for redemption by the Issuer, and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination of
the Issuer (other than in connection with the distribution of Subordinated Notes
to the Holders in exchange for Preferred Securities as provided in the
Declaration), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid Distributions on the Preferred Securities to the date of
payment, to the extent the Issuer shall have funds available therefor, and (b)
the amount of assets of the Issuer remaining available for distribution to
Holders in liquidation of the Issuer (in either case, the "LIQUIDATION
DISTRIBUTION"). If an Indenture Event of Default has occurred and is continuing,
the rights of holders of the Common Securities to receive payments under the
Common Securities Guarantee are subordinated to the rights of Holders of
Preferred Securities to receive Guarantee Payments.

            "HOLDER" shall mean any holder, as registered on the books and
records of the Issuer, of any Preferred Securities; PROVIDED, HOWEVER, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.

            "INDEMNIFIED PERSON" means the Preferred Guarantee Trustee, any
Affiliate of the Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives or agents of the
Preferred Guarantee Trustee.

            "INDENTURE" means the Indenture dated as of June 2, 2004, between
the Guarantor and The Bank of New York, as trustee, and the First Supplemental
Indenture thereto pursuant to which certain subordinated debt securities of the
Guarantor are to be issued to the Property Trustee (as defined in the
Declaration), as from time to time amended.

            "INDENTURE EVENT OF DEFAULT" has the same meaning as that given to
the term "Event of Default" in the Indenture.


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            "MAJORITY IN LIQUIDATION AMOUNT OF THE SECURITIES" means, except as
provided by the Trust Indenture Act, a vote by Holder(s) of Preferred
Securities, voting separately as a class, of more than 50% of the liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all Preferred Securities
outstanding as of the date of determination.

            "OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by two Authorized Officers (as defined in the Declaration) of
such Person. Any Officers' Certificate delivered with respect to compliance with
a condition or covenant provided for in this Preferred Securities Guarantee
shall include:

            (a) a statement that each officer signing the Officers' Certificate
      has read the covenant or condition;

            (b) a brief statement of the nature and scope of the examination or
      investigation undertaken by each officer in rendering the Officers'
      Certificate;

            (c) a statement that each such officer has made such examination or
      investigation as, in such officer's opinion, is necessary to enable such
      officer to express an informed opinion as to whether or not such covenant
      or condition has been complied with; and

            (d) a statement as to whether, in the opinion of each such officer,
      such condition or covenant has been complied with.

            "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 GUARANTEE TRUSTEE" means The Bank of New York, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.

            "PROPERTY TRUSTEE" shall have the meaning ascribed to such term in
the Declaration.

            "RESPONSIBLE OFFICER" means, with respect to the Preferred Guarantee
Trustee, (a) any vice president, any assistant vice president, any assistant
secretary, the treasurer, any assistant treasurer, any trust officer or
assistant trust officer or any other officer of the corporate trust department
of the Preferred Guarantee Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject and (b) who shall have direct responsibility for the
administration of this Agreement.

            "SUBORDINATED NOTES" means the series of subordinated debt
securities of the Guarantor issued pursuant to the Indenture and held by the
Property Trustee.

            "SUCCESSOR PREFERRED GUARANTEE TRUSTEE" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.

            "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended.

            "XL" means XL Capital Ltd, a Cayman Islands exempted limited
company.


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                                   ARTICLE II

                               TRUST INDENTURE ACT

SECTION 2.1. TRUST INDENTURE ACT; APPLICATION

            (a) This Preferred Securities Guarantee is subject to the provisions
of the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions.

            (b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.

SECTION 2.2. LISTS OF HOLDERS OF SECURITIES

            (a) The Guarantor shall provide the Preferred Guarantee Trustee with
a list, in such form as the Preferred Guarantee Trustee may reasonably require,
of the names and addresses of the Holders of the Preferred Securities ("LIST OF
HOLDERS") on or before either (i) April 1 and October 1 in each year, if the
Subordinated Notes are Original Issue Discount Securities (as that term is
defined in the Indenture) of any series which by their terms do not bear
interest prior to maturity (other than upon a default in any payment upon such a
security), or (ii) each Interest Payment Date (as that term is defined in the
Indenture), if the Subordinated Notes are Securities (as that term is defined in
the Indenture) of any other series, but in no event less frequently than
semi-annually, and at such other times as the Trustee may request in writing;
PROVIDED, HOWEVER, that the Guarantor shall not be obligated to provide such
List of Holders at any time the List of Holders does not differ from the most
recent List of Holders given to the Preferred Guarantee Trustee by the
Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.

            (b) The Preferred Guarantee Trustee shall comply with its
obligations under Section 311(a), 311(b) and Section 312(b) of the Trust
Indenture Act.

SECTION 2.3. REPORTS BY THE PREFERRED GUARANTEE TRUSTEE

            Within 60 days after each September 30 of each year, commencing with
the first September 30 following the date of this Preferred Securities Guarantee
Agreement, the Preferred Guarantee Trustee shall provide to the Holders of the
Preferred Securities such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with
the requirements of Section 313(d) of the Trust Indenture Act.

SECTION 2.4. PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE

            The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 of the Trust
Indenture Act (if any) and the compliance certificate required by Section 314 of
the Trust Indenture Act in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act.

SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT

            The Guarantor shall provide to the Preferred Guarantee Trustee with
a certification of compliance with any conditions precedent, if any, provided
for in this Preferred Securities Guarantee that relate to any of the matters set
forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) of the Trust
Indenture Act may be given in the form of an Officers' Certificate.


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SECTION 2.6. EVENTS OF DEFAULT; WAIVER

            The Holders of a Majority in liquidation amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default and its consequences. Upon such
waiver, any such Event of Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured, for every purpose of this
Preferred Securities Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.

SECTION 2.7. EVENTS OF DEFAULT; NOTICE

            (a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default that is actually known to the Preferred
Guarantee Trustee (or as soon as reasonably practical thereafter), transmit by
mail, first class postage prepaid, to the Holders of the Preferred Securities,
notices of all Events of Default actually known to the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice;
PROVIDED, HOWEVER, that the Preferred Guarantee Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee, or a trust committee of directors and/or Responsible Officers of the
Preferred Guarantee Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Preferred Securities.

            (b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee shall
have received actual knowledge, or a Responsible Officer charged with the
administration of the Declaration shall have obtained written notice, of such
Event of Default.

SECTION 2.8. CONFLICTING INTERESTS

            The Declaration shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.

                                   ARTICLE III

                          POWERS, DUTIES AND RIGHTS OF
                           PREFERRED GUARANTEE TRUSTEE

SECTION 3.1. POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE

            (a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee for the benefit of the Holders of the Preferred
Securities, and the Preferred Guarantee Trustee shall not transfer this
Preferred Securities Guarantee to any Person except a Holder of Preferred
Securities exercising his or her rights pursuant to Section 5.4(b) or to a
Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred
Guarantee Trustee of its appointment to act as Successor Preferred Guarantee
Trustee. The right, title and interest of the Preferred Guarantee Trustee shall
automatically vest in any Successor Preferred Guarantee Trustee, and such
vesting (and cessation as to the Preferred Guarantee Trustee) of title shall be
effective whether or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Preferred Guarantee Trustee.

            (b) If an Event of Default has occurred and is continuing, the
Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee
for the benefit of the Holders of the Preferred Securities.

            (c) The Preferred Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Preferred Securities Guarantee, and no implied covenants shall be
read into this Preferred Securities Guarantee against the Preferred Guarantee
Trustee. In case an Event of Default has occurred (that has not been


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cured or waived pursuant to Section 2.6), the Preferred Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Preferred Securities
Guarantee, and use the same degree of care and skill in its exercise thereof, as
a prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.

            (d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

            (i) prior to the occurrence of any Event of Default and after the
      curing or waiving of all such Events of Default that may have occurred:

                  (A) the duties and obligations of the Preferred Guarantee
            Trustee shall be determined solely by the express provisions of this
            Preferred Securities Guarantee, and the Preferred Guarantee Trustee
            shall not be liable except for the performance of such duties and
            obligations as are specifically set forth in this Preferred
            Securities Guarantee, and no implied covenants or obligations shall
            be read into this Preferred Securities Guarantee against the
            Preferred Guarantee Trustee; and

                  (B) in the absence of bad faith on the part of the Preferred
            Guarantee Trustee, the Preferred Guarantee Trustee may conclusively
            rely, as to the truth of the statements and the correctness of the
            opinions expressed therein, upon any certificates or opinions
            furnished to the Preferred Guarantee Trustee and conforming to the
            requirements of this Preferred Securities Guarantee; but in the case
            of any such certificates or opinions that by any provision hereof
            are specifically required to be furnished to the Preferred Guarantee
            Trustee, the Preferred Guarantee Trustee shall be under a duty to
            examine the same to determine whether or not they conform to the
            requirements of this Preferred Securities Guarantee (but need not
            confirm or investigate the accuracy of mathematical calculations or
            other facts stated therein);

            (ii) the Preferred Guarantee Trustee shall not be liable for any
      error of judgment made in good faith by a Responsible Officer of the
      Preferred Guarantee Trustee, unless it shall be proved that the Preferred
      Guarantee Trustee was negligent in ascertaining the pertinent facts upon
      which such judgment was made;

            (iii) the Preferred Guarantee Trustee shall not be liable with
      respect to any action taken or omitted to be taken by it in good faith in
      accordance with the direction of the Holders of not less than a Majority
      in liquidation amount of the Preferred Securities relating to the time,
      method and place of conducting any proceeding for any remedy available to
      the Preferred Guarantee Trustee, or exercising any trust or power
      conferred upon the Preferred Guarantee Trustee under this Preferred
      Securities Guarantee;

            (iv) no provision of this Preferred Securities Guarantee shall
      require the Preferred Guarantee Trustee to expend or risk its own funds or
      otherwise incur personal financial liability in the performance of any of
      its duties or in the exercise of any of its rights or powers, if the
      Preferred Guarantee Trustee shall have reasonable grounds for believing
      that the repayment of such funds or liability is not reasonably assured to
      it under the terms of this Preferred Securities Guarantee or adequate
      indemnity against such risk or liability is not reasonably assured to it;
      and

            (v) whether or not therein expressly so provided, every provision of
      this Preferred Securities Guarantee Agreement relating to the conduct or
      affecting the liability of or affording protection to the Preferred
      Securities Guarantee Trustee shall be subject to the provisions of this
      Section 3.1.

SECTION 3.2. CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE

            (a) Subject to the provisions of Section 3.1:


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            (i) The Preferred Guarantee Trustee may conclusively rely, and shall
      be fully protected in acting or refraining from acting upon, any
      resolution, certificate, statement, instrument, opinion, report, notice,
      request, direction, consent, order, bond, debenture, note, other evidence
      of indebtedness or other paper or document believed by it to be genuine
      and to have been signed, sent or presented by the proper party or parties.

            (ii) Any direction or act of the Guarantor contemplated by this
      Preferred Securities Guarantee shall be sufficiently evidenced by a
      Direction (as defined in the Declaration) or an Officers' Certificate.

            (iii) Whenever, in the administration of this Preferred Securities
      Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a
      matter be proved or established before taking, suffering or omitting any
      action hereunder, the Preferred Guarantee Trustee (unless other evidence
      is herein specifically prescribed) may, in the absence of bad faith on its
      part, request and conclusively rely upon an Officers' Certificate which,
      upon receipt of such request, shall be promptly delivered by the
      Guarantor.

            (iv) The Preferred Guarantee Trustee shall have no duty to see to
      any recording, filing or registration of any instrument (or any
      rerecording, refiling or reregistration thereof).

            (v) The Preferred Guarantee Trustee may consult with counsel of its
      selection, and the advice or opinion of such counsel with respect to legal
      matters shall be full and complete authorization and protection in respect
      of any action taken, suffered or omitted by it hereunder in good faith and
      in accordance with such advice or opinion. Such counsel may be counsel to
      the Guarantor or any of its Affiliates and may include any of its
      employees. The Preferred Guarantee Trustee shall have the right at any
      time to seek instructions concerning the administration of this Preferred
      Securities Guarantee from any court of competent jurisdiction.

            (vi) The Preferred Guarantee Trustee shall be under no obligation to
      exercise any of the rights or powers vested in it by this Preferred
      Securities Guarantee at the request or direction of any Holder, unless
      such Holder shall have provided to the Preferred Guarantee Trustee such
      adequate security and indemnity as would satisfy a reasonable person in
      the position of the Preferred Guarantee Trustee, against the costs,
      expenses (including attorneys' fees and expenses) and liabilities that
      might be incurred by it in complying with such request or direction,
      including such reasonable advances as may be requested by the Preferred
      Guarantee Trustee; PROVIDED, HOWEVER, that nothing contained in this
      Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee
      Trustee, upon the occurrence of an Event of Default, of its obligation to
      exercise the rights and powers vested in it by this Preferred Securities
      Guarantee.

            (vii) The Preferred Guarantee Trustee shall not be bound to make any
      investigation into the facts or matters stated in any resolution,
      certificate, statement, instrument, opinion, report, notice, request,
      direction, consent, order, bond, debenture, note, other evidence of
      indebtedness or other paper or document, but the Preferred Guarantee
      Trustee, in its discretion, may make such further inquiry or investigation
      into such facts or matters as it may see fit.

            (viii) The Preferred Guarantee Trustee may execute any of the trusts
      or powers hereunder or perform any duties hereunder either directly or by
      or through agents or attorneys, and the Preferred Guarantee Trustee shall
      not be responsible for any misconduct or negligence on the part of any
      agent or attorney appointed with due care by it hereunder.

            (ix) Any action taken by the Preferred Guarantee Trustee or its
      agents hereunder shall bind the Holders of the Preferred Securities, and
      the signature of the Preferred Guarantee Trustee or its agents alone shall
      be sufficient and effective to perform any such action. No third party
      shall be required to inquire as to the authority of the Preferred
      Guarantee Trustee to so act or as to its compliance with any of the terms
      and provisions of this Preferred Securities Guarantee, both of which shall
      be conclusively evidenced by the Preferred Guarantee Trustee's or its
      agent's taking such action.


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            (x) Whenever in the administration of this Preferred Securities
      Guarantee the Preferred Guarantee Trustee shall deem it desirable to
      receive instructions with respect to enforcing any remedy or right or
      taking any other action hereunder, the Preferred Guarantee Trustee (i) may
      request instructions from the Holders of a Majority in liquidation amount
      of the Preferred Securities, (ii) may refrain from enforcing such remedy
      or right or taking such other action until such instructions are received,
      and (iii) shall be protected in acting in accordance with such
      instructions.

            (xi) In no event shall the Trustee be responsible or liable for
      special, indirect, or consequential loss or damage of any kind whatsoever
      (including, but not limited to, loss of profit) irrespective of whether
      the Trustee has been advised of the likelihood of such loss or damage and
      regardless of the form of action.

            (xii) The rights, privileges, protections, immunities and benefits
      given to the Trustee, including, without limitation, its right to be
      indemnified, are extended to, and shall be enforceable by, the Trustee in
      each of its capacities hereunder, and each agent, custodian and other
      Person employed to act hereunder.

            (b) No provision of this Preferred Securities Guarantee shall be
deemed to impose any duty or obligation on the Preferred Guarantee Trustee to
perform any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it in any jurisdiction in which it shall be illegal, or
in which the Preferred Guarantee Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts or to exercise
any such right, power, duty or obligation. No permissive power or authority
available to the Preferred Guarantee Trustee shall be construed to be a duty.

SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE

            The recitals contained in this Preferred Securities Guarantee shall
be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee
does not assume any responsibility for their correctness. The Preferred
Guarantee Trustee makes no representation as to the validity or sufficiency of
this Preferred Securities Guarantee.

                                   ARTICLE IV

                           PREFERRED GUARANTEE TRUSTEE

SECTION 4.1. PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY

            (a) There shall at all times be a Preferred Guarantee Trustee which
shall:

            (i) not be an Affiliate of the Guarantor; and

            (ii) be a corporation organized and doing business under the laws of
      the United States of America or any State or Territory thereof or of the
      District of Columbia, or a corporation or Person permitted by the
      Securities and Exchange Commission to act as an institutional trustee
      under the Trust Indenture Act, authorized under such laws to exercise
      corporate trust powers, having (or in the case of a subsidiary of a bank
      holding company that guarantees the obligations of the Preferred Guarantee
      Trustee under this Preferred Securities Guarantee, such bank holding
      company parent shall have) a combined capital and surplus of at least 50
      million U.S. dollars ($50,000,000), and subject to supervision or
      examination by Federal, State, Territorial or District of Columbia
      authority. If such corporation or holding company parent publishes reports
      of condition at least annually, pursuant to law or to the requirements of
      the supervising or examining authority referred to above, then, for the
      purposes of this Section 4.1(a)(ii), the combined capital and surplus of
      such corporation or holding company parent shall be deemed to be its
      combined capital and surplus as set forth in its most recent report of
      condition so published.


                                      -8-
<PAGE>

            (b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).

            (c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.

SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE
             TRUSTEES

            (a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may
be appointed or removed without cause at any time by the Guarantor.

            (b) The Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has
been appointed and has accepted such appointment by written instrument executed
by such Successor Preferred Guarantee Trustee and delivered to the Guarantor.

            (c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.

            (d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 30
days after delivery of an instrument of resignation or removal, the Preferred
Guarantee Trustee resigning or being removed may (at the expense of the
Guarantor) petition any court of competent jurisdiction for appointment of a
Successor Preferred Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Preferred Guarantee Trustee.

                                    ARTICLE V

                                    GUARANTEE

SECTION 5.1. GUARANTEE

            The Guarantor irrevocably and unconditionally agrees to pay in full
to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.

SECTION 5.2. WAIVER OF NOTICE AND DEMAND

            The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.


                                      -9-
<PAGE>

SECTION 5.3. OBLIGATIONS NOT AFFECTED

            The obligations, covenants, agreements and duties of the Guarantor
under this Preferred Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:

            (a) the release or waiver, by operation of law or otherwise, of the
      performance or observance by the Issuer of any express or implied
      agreement, covenant, term or condition relating to the Preferred
      Securities to be performed or observed by the Issuer;

            (b) the extension of time for the payment by the Issuer of all or
      any portion of the Distributions, Redemption Price, Liquidation
      Distribution or any other sums payable under the terms of the Preferred
      Securities or the extension of time for the performance of any other
      obligation under, arising out of, or in connection with, the Preferred
      Securities (other than an extension of time for payment of Distributions
      or other sum payable that results from the extension of any interest
      payment period on the Subordinated Notes permitted by the Indenture);

            (c) any failure, omission, delay or lack of diligence on the part of
      the Holders to enforce, assert or exercise any right, privilege, power or
      remedy conferred on the Holders pursuant to the terms of the Preferred
      Securities, or any action on the part of the Issuer granting indulgence or
      extension of any kind;

            (d) the voluntary or involuntary liquidation, dissolution, sale of
      any collateral, receivership, insolvency, bankruptcy, assignment for the
      benefit of creditors, reorganization, arrangement, composition or
      readjustment of debt of, or other similar proceedings affecting, the
      Issuer or any of the assets of the Issuer;

            (e) any invalidity of, or defect or deficiency in, the Preferred
      Securities;

            (f) the settlement or compromise of any obligation guaranteed hereby
      or hereby incurred; or

            (g) any other circumstance whatsoever that might otherwise
      constitute a legal or equitable discharge or defense of a guarantor;

it being the intent of this Section 5.3 that the obligations of the Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.

            There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.

SECTION 5.4. RIGHTS OF HOLDERS

            (a) The Holders of a Majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting of
any proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of this Preferred Securities Guarantee or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this Preferred Securities
Guarantee.

            (b) If the Preferred Guarantee Trustee fails to enforce this
Preferred Securities Guarantee, any Holder of Preferred Securities may institute
a legal proceeding directly against the Guarantor to enforce its rights under
this Preferred Securities Guarantee, without first instituting a legal
proceeding against the Issuer, the Preferred Guarantee Trustee or any other
Person.

            (c) Notwithstanding subsection 5.4(b), any Holder of Preferred
Securities may directly institute proceedings against the Guarantor to obtain
Guarantee Payments in respect of the Preferred Securities owned by such Holder,
without first waiting to determine if the Preferred Guarantee Trustee has
enforced this Preferred Securi-


                                      -10-
<PAGE>

ties Guarantee or first instituting a legal proceeding against the Issuer, the
Preferred Guarantee Trustee or any other Person.

SECTION 5.5. GUARANTEE OF PAYMENT

            This Preferred Securities Guarantee creates a guarantee of payment
and not of collection.

SECTION 5.6. SUBROGATION

            The Guarantor shall be subrogated to all (if any) rights of the
Holders of Preferred Securities against the Issuer in respect of any amounts
paid to such Holders by the Guarantor under this Preferred Securities Guarantee;
PROVIDED, HOWEVER, that the Guarantor shall not (except to the extent required
by mandatory provisions of law) be entitled to enforce or exercise any right
that it may acquire by way of subrogation or any indemnity, reimbursement or
other agreement, in all cases as a result of payment under this Preferred
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Preferred Securities Guarantee. If any amount shall be
paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.

SECTION 5.7. INDEPENDENT OBLIGATIONS

            The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.

                                   ARTICLE VI

                    LIMITATION OF TRANSACTIONS; SUBORDINATION

SECTION 6.1. LIMITATION OF TRANSACTIONS

            (a) So long as any Preferred Securities remain outstanding, if an
Event of Default or Indenture Event of Default shall exist, then (a) the
Guarantor shall not declare or pay any dividend on, or make any distribution
with respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock, and (b) the Guarantor shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Guarantor which rank PARI PASSU with or
junior to the Subordinated Notes.

            (b) Notwithstanding subsection 6.1(a) or any other language to the
contrary contained in this Preferred Securities Guarantee, nothing shall prevent
the Guarantor from: (i) declaring or paying any dividend on, or making any
distribution with respect to, or redeeming, purchasing, acquiring or making a
liquidation payment with respect to, any of its capital stock in or with
securities of the Guarantor (including capital stock) that rank junior to such
capital stock or (ii) paying any interest, principal or premium on, or repaying,
repurchasing or redeeming, any debt securities issued by the Guarantor which
rank PARI PASSU with or junior to the Subordinated Notes, with (x) securities of
the Guarantor (including capital stock) that rank junior to such debt securities
or (y) securities (including capital stock) of XL.

SECTION 6.2. RANKING

            This Preferred Securities Guarantee constitutes an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right of
payment to all other liabilities of the Guarantor, except those liabilities of
the Guarantor expressly made PARI PASSU with or subordinate to this Preferred
Securities Guarantee by their terms,


                                      -11-
<PAGE>

(ii) PARI PASSU with the most senior preferred or preference stock issued by the
Guarantor from time to time and with any guarantee now or hereafter entered into
by the Guarantor in respect of any preferred or preference stock of any
Affiliate of the Guarantor and (iii) senior to the Guarantor's common stock.

                                   ARTICLE VII

                                   TERMINATION

SECTION 7.1. TERMINATION

            This Preferred Securities Guarantee shall automatically terminate
upon the earliest to occur of (i) the full payment of the Redemption Price of
all Preferred Securities, (ii) the distribution of Subordinated Notes to the
Holder(s) of all of the Preferred Securities or (iii) full payment of the
amounts payable in accordance with the Declaration upon liquidation of the
Issuer. Notwithstanding the foregoing, this Preferred Securities Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any Holder of Preferred Securities must restore payment of any sums paid
under the Preferred Securities or under this Preferred Securities Guarantee.

                                  ARTICLE VIII

                                 INDEMNIFICATION

SECTION 8.1. EXCULPATION

            (a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor 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 in accordance with this
Preferred Securities Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by this Preferred Securities Guarantee or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's negligence or willful misconduct
with respect to such acts or omission.

            (b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence, 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, the Redemption Price or the Liquidation
Distribution to Holders of Preferred Securities might properly be paid.

            (c) The provisions of this Section 8.1 shall survive the termination
of this Preferred Securities Guarantee.

SECTION 8.2. INDEMNIFICATION

            (a) The Guarantor 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 in accordance with this Preferred Securities Guarantee and
in a manner such Indemnified Person reasonably believed to be within the scope
of authority conferred on such Indemnified Person in accordance with this
Preferred Securities Guarantee, 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 negligence or willful misconduct with
respect to such acts or omissions.


                                      -12-
<PAGE>

            (b) Expenses (including legal fees and expenses) incurred by an
Indemnified Person in defending any claim, demand, action, suit or proceeding
(whether such claim, demand, action, suit or proceeding arises between the
parties hereto or results from suits involving third parties) shall, from time
to time, be advanced by the Guarantor prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the Guarantor 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 8.2(a).

            (c) The Guarantor agrees

            (i) to pay to the Preferred Guarantee Trustee from time to time such
      compensation as the Guarantor and the Preferred Guarantee Trustee shall
      from time to time agree in writing for all services rendered by it
      hereunder (which compensation shall not be limited by any provision of law
      in regard to the compensation of a trustee of an express trust);

            (ii) except as otherwise expressly provided herein, to reimburse the
      Trustee upon its request for all reasonable expenses, disbursements and
      advances incurred or made by the Preferred Guarantee Trustee in accordance
      with any provision of this Agreement (including the reasonable
      compensation and expenses and disbursements of its agents and counsel).

            (d) The provisions of this Section 8.2 shall survive the termination
of this Preferred Securities Guarantee.

                                   ARTICLE IX

                                  MISCELLANEOUS

SECTION 9.1. SUCCESSORS AND ASSIGNS

            All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding.

SECTION 9.2. AMENDMENTS

            Except with respect to any changes that do not adversely affect the
rights of Holders (in which case no consent of Holders will be required), this
Preferred Securities Guarantee may only be amended with the prior approval of
the Holders of at least a Majority in liquidation amount of the Preferred
Securities. The provisions of Section 12.2 of the Declaration with respect to
meetings of Holders of the Securities apply to the giving of such approval.

            In executing, or accepting the additional trusts created by, and
amendment permitted by this Section or the modification thereby of the trust
created by this Agreement, the Preferred Guarantee Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such amendment is authorized or permitted by this
Agreement. The Preferred Guarantee Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Trustee's own rights, duties or
immunities under this Agreement or otherwise.

SECTION 9.3. NOTICES

            All notices provided for in this Preferred Securities Guarantee
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first class mail, as follows:


                                      -13-
<PAGE>

            (a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):

            The Bank of New York
            101 Barclay Street, Floor 8 West
            New York, New York 10286
            Attn: Corporate Trust Administration

            (b) If given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may give notice of to
the Holders of the Preferred Securities):

            XL Capital Ltd
            XL House
            One Bermudiana Road
            Hamilton HM11
            Bermuda
            Attention: Paul S. Giordano

            (c) If given to any Holder of Preferred Securities, at the address
set forth on the books and records of the Issuer.

            All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid.

SECTION 9.4. BENEFIT

            This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.

SECTION 9.5. GOVERNING LAW; WAIVER OF JURY TRIAL

            THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.

            EACH OF THE GUARANTOR AND THE PREFERRED GUARANTEE TRUSTEE HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT, THE NOTES OR THE TRANSACTION
CONTEMPLATED HEREBY.

SECTION 9.6. NO RECOURSE AGAINST CERTAIN PERSONS

            No past, present or future director, officer, employee or
stockholder, as such, of the Guarantor or any successor thereof shall have any
liability for any obligations of the Guarantor under this Preferred Securities
Guarantee or for any claim based on, in respect of, or by reason of, such
obligations or their creation and all such liability is hereby waived and
released. Such waiver and release are part of the consideration for the issue of
this Preferred Securities Guarantee and the Preferred Securities.

SECTION 9.7. FORCE MAJEURE

            In no event shall the Preferred Guarantee Trustee be responsible or
liable for any failure or delay in the performance of its obligations hereunder
arising out of or caused by, directly or indirectly, forces beyond its


                                      -14-
<PAGE>

control, including, without limitation, strikes, work stoppages, accidents, acts
of war or terrorism, civil or military disturbances, nuclear or natural
catastrophes or acts of God, and interruptions, loss or malfunctions of
utilities, communications or computer (software and hardware) services; it being
understood that the Preferred Guarantee Trustee shall use reasonable efforts
which are consistent with accepted practices in the banking industry to resume
performance as soon as practicable under the circumstances.


                                      -15-
<PAGE>

            IN WITNESS WHEREOF, XL CAPITAL LTD has caused this Preferred
Securities Guarantee Agreement to be duly executed as a deed the day and year
first before written.


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


<PAGE>

            IN WITNESS WHEREOF, the undersigned, being duly authorized, has
executed this Preferred Securities Guarantee Agreement as of the date first
above written.

                                            THE BANK OF NEW YORK,
                                              as Preferred Guarantee Trustee


                                           By: /s/ Remo J. Reale
                                               ---------------------------------
                                               Name:  Remo J. Reale
                                               Title: Vice President