The authorized share capital of XL-Ireland is $9,999,900 and €40,000, divided into: (i) 500,000,000 ordinary shares, par value $0.01 each, (ii) 499,990,000 undesignated shares, par value $0.01 each and (iii) 40,000 subscriber shares, par value €1 each. Holders of ordinary shares are entitled to one vote for each share.

(In thousands)	2012		2011
Balance - beginning of year	$	315,646	$	316,396
Exercise of options		383		72
Net issuance of restricted shares		959		413
Share buybacks (1)		(18,306)		(31,692)
Issue of shares		-		30,457
Balance - end of year	$	298,682	$	315,646

(1) Includes share buybacks associated with authorized share buyback programs as well as purchases related to satisfying tax withholding obligations of employees in connection with the vesting of restricted shares granted under the Company's restricted stock plan.

On February 27, 2012, the Company announced that the XL-Ireland Board of Directors approved a share buyback program, authorizing the Company to purchase up to $750 million of its ordinary shares (the “February 2012 Program”). This authorization replaced the approximately $190 million remaining under the share buyback program that was authorized in November 2010. During 2012, the Company purchased and canceled 18.3 million ordinary shares under the February 2012 Program for $401.6 million. At December 31, 2012, $348.4 million remained available for purchase under the program. Between January 1 and February 25, 2013 the Company purchased and canceled an additional 3.8 million shares for $98.4 million. All share buybacks were carried out by way of redemption in accordance with Irish law and the Company's constitutional documents. All shares so redeemed were canceled upon redemption. On February 22, 2013, the Company announced that the XL-Ireland Board of Directors approved a new share buyback program, authorizing the purchase of up to $850 million of its ordinary shares. This replaced the approximately $250 million remaining under the February 2012 Program.

In August 2011, in accordance with the terms of the 10.75% equity security units (the “10.75% Units”), XL-Cayman purchased and retired all of the 8.25% senior notes due August 2021 (the “8.25% Senior Notes”) for $575 million in a remarketing. These notes comprised a part of the 10.75% Units. The proceeds from the remarketing were used to satisfy the purchase price for XL-Ireland's ordinary shares issued to holders of the 10.75% Units pursuant to the forward purchase contracts comprising a part of the 10.75% Units. Each forward purchase contract provided for the issuance of 1.3242 ordinary shares of XL-Ireland at a price of $25 per share. The settlement of the forward purchase contracts resulted in XL-Ireland's issuance of an aggregate of 30,456,600 ordinary shares for an aggregate purchase price of $575 million. As a result of the settlement of the forward purchase contracts, the 10.75% Units ceased to exist and were no longer traded on the NYSE.

(b) Preferred shares and Non-controlling Interest in Equity of Consolidated Subsidiaries

All of the preferred shares discussed in this section were issued by XL-Cayman. XL-Ireland has no preferred shares outstanding and has never issued any preferred shares.

On February 12, 2010, the Company repurchased a portion of its outstanding Redeemable Series C preference ordinary shares, which resulted in approximately 4.4 million Series C preference ordinary shares with a liquidation value of $110.8 million being purchased by the Company for approximately $94.2 million. As a result, a book value gain of approximately $16.6 million was recorded in the first quarter of 2010 to ordinary shareholders.

On February 16, 2011, the Company repurchased 30,000 of the outstanding Redeemable Series C preference ordinary shares with a liquidation preference value of $0.75 million for $0.65 million.

On August 15, 2011, XL-Cayman completed a cash tender offer for its outstanding Redeemable Series C preference ordinary shares that resulted in 2,811,000 Redeemable Series C preference ordinary shares with a liquidation value of $25 per share being repurchased and canceled by XL-Cayman for approximately $71.0 million including accrued and unpaid dividends and professional fees. Subsequent to the expiration of the tender offer, and on the same terms as the offer, XL-Cayman repurchased and canceled the remaining outstanding Redeemable Series C preference ordinary shares for approximately $0.9 million plus accrued and unpaid dividends. As of December 31, 2011, no Redeemable Series C preference ordinary shares were outstanding.

On October 15, 2011, XL-Cayman issued $350 million Series D Preference Ordinary Shares for consideration of cash and liquid investments which were held in a trust account that was part of the Stoneheath facility. Holders of the Stoneheath Securities issued by Stoneheath in December 2006 received one Series D Preferred Share in exchange for each Stoneheath Security. Dividends on the Series D Preference Ordinary Shares are declared and paid quarterly at a floating rate of three-month LIBOR plus 3.120% on the liquidation preference. XL-Cayman used the consideration it received as partial funding for the repayment at maturity of the outstanding $600 million XLCFE Notes that were issued by XLCFE, with the balance available for general corporate purposes. For further details regarding Stoneheath, see Note 15, “Off-Balance Sheet Arrangements.” The Series D Preference Ordinary Shares represent non-controlling interests in equity of consolidated subsidiaries.

On December 5, 2011, the Company repurchased and held 5,000 of the outstanding Series D Preference Ordinary Shares with a liquidation preference value of $5.0 million for $3.7 million, including accrued dividends. As a result of these repurchases, the Company recorded a gain of approximately $1.3 million through Non-controlling interests in the Consolidated Statement of Income in the fourth quarter of 2011.

On March 15, 2007, the Company issued 1.0 million Fixed/Floating Series E Perpetual Non-Cumulative preference ordinary shares, par value $0.01 each, with liquidation preference $1,000 per share (the “Series E preference ordinary shares”). The Company received net proceeds of approximately $983.8 million from the offering. The Series E preference ordinary shares are perpetual securities with no fixed maturity date and are not convertible into any of the Company's other securities. Dividends on the Series E preference ordinary shares are declared and paid semi-annually at a rate of $32.50 per share.

On February 16, 2011, the Company repurchased 500 of the outstanding Series E preference ordinary shares with a liquidation preference value of $0.50 million for $0.47 million. As a result of these repurchases, the Company recorded a reduction in Non-controlling interests of approximately $0.13 million in the first quarter of 2011.

The Company's performance incentive programs provide for grants of stock options, restricted stock, restricted stock units and performance units and stock appreciation rights. Share-based compensation granted by the Company generally contains a vesting period of three or four years, and certain awards also contain performance conditions. The Company records compensation expense related to each award over its vesting period, incorporating the best estimate of the expected outcome of performance conditions where applicable. Compensation expense is generally recorded on a straight line basis over the vesting period of an award.

In connection with, and effective upon, the completion of the Redomestication, XL-Ireland assumed the existing liabilities, obligations and duties of XL-Cayman under the NAC Re Corp. 1989 Stock Option Plan (the “1989 Plan”), the XL Group plc Amended and Restated 1991 Performance Incentive Program (the “1991 Program”), the XL Group plc Amended and Restated 1999 Performance Incentive Program for Employees (the “1999 Program”), the XL Group plc Directors Stock & Option Plan (the “Directors Plan”), the XL Group plc 2009 Cash Long-Term Incentive Program (the “2009 Program”), the XL Group plc Supplemental Deferred Compensation Plan (the “DC Plan,” and together with the 1989 Plan, 1991 Program, the 1999 Program, the Directors Plan and the 2009 Program, the “Programs”). Furthermore, in connection with, and effective upon, the completion of the Redomestication, the Programs were amended by XL-Cayman, among other things, to (i) provide that XL-Ireland and its Board of Directors will succeed to all powers, authorities and obligations of XL-Cayman and its Board of Directors under each Program, (ii) provide that the securities to be issued pursuant to each Program will consist of ordinary shares of XL-Ireland and (iii) otherwise to reflect the completion of the Redomestication.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2012	2011	2010
Dividend yield	1.90%	1.90%	3.25%
Risk free interest rate	1.15%	2.60%	2.67%
Volatility	46.00%	50.03%	71.09%
Expected lives	6.0 years	6.0 years	6.0 years

The risk free interest rate is based on U.S. Treasury rates. The expected lives are estimated using the historical exercise behavior of grant recipients. The expected volatility is determined based upon a combination of the historical volatility of the Company's stock and the implied volatility derived from publicly traded options.

The following is a summary of the stock option plans for the three years ended December 31:

(U.S. Dollars in thousands except for weighted average fair value)	2012		2011		2010
Options granted to purchase ordinary shares under directors and employees incentive compensation plans		1,209		974		1,023
Weighted average grant date fair value	$	7.65	$	9.81	$	9.17
Total intrinsic value of stock options exercised	$	3,357	$	301	$	667
Options exercised during the year		383		72		91
Compensation expense related to stock option plans	$	7,716	$	11,848	$	12,766
Estimated tax benefit related to stock option plans	$	26	$	722	$	2,347

The following is a summary of the stock options at December 31, 2012, and related activity for the year then ended for the Company:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
(U.S. Dollars in thousands, except for option price and term)	Shares		Price		Term		Value
Outstanding - beginning of year		12,997	$	46.30		4.9 years	$	20,585
Granted		1,209		20.71
Exercised		(383)		14.49
Canceled/Expired		(1,732)		89.90
Outstanding - end of year		12,091	$	38.50		5.0 years	$	46,803
Options exercisable		9,856	$	42.50		4.2 years	$	37,435
Available for grant (1)		15,695

(1) Available for grant includes shares that may be granted as either stock options, restricted stock, restricted stock units or performance units.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of the 2012 fiscal year and the exercise price, multiplied by the number of in-the-money-options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012. Total unrecognized stock-based compensation expense related to non-vested stock options was approximately $9.9 million at December 31, 2012, related to approximately 2.2 million options, which is expected to be recognized over a weighted-average period of 1.3 years. The exercise price of the Company's outstanding options granted is the market price of the Company's ordinary shares on the grant date, except that during 2004, 295,000 options were granted with an exercise price of $88.00 when the market price was $77.10.

Restricted stock awards issued under the 1991 Performance Incentive Program and the Directors Stock and Option Plan vest as set forth in the applicable award agreements. Each restricted stock award represents the Company's obligation to deliver to the holder one ordinary share. The employees and directors who are granted a restricted stock award shall have all the rights of a shareholder, including the right to vote and receive dividends. These shares contained certain restrictions prior to vesting, relating to, among other things, forfeiture in the event of termination of employment and transferability.

A summary of the restricted stock awards issued under the 1991 Performance Incentive Program and the Directors Stock and Option Plan for the three years ended December 31 is as follows:


(In thousands except for weighted average fair value)	2012		2011		2010
Restricted ordinary shares granted		325		49		63
Weighted average grant date fair value	$	20.92	$	23.33	$	17.26
Aggregate grant date fair value	$	6,811	$	1,140	$	1,080
Compensation expense related to restricted stock awards	$	5,399	$	7,101	$	18,420
Estimated tax benefit related to restricted stock awards	$	1,113	$	1,546	$	4,645

Total unrecognized stock based compensation expense related to non-vested restricted stock awards was approximately $5.8 million at December 31, 2012, related to approximately 0.5 million restricted stock awards, which is expected to be recognized over 1.4 years.

Non-vested restricted stock awards at December 31, 2012 and for the year then ended for the Company were as follows:

			Weighted
	Number		Average Grant
(In thousands except for weighted average grant date fair value)	of Shares		Date Fair Value
Unvested at December 31, 2011		390	$	42.86
Granted		325	$	20.92
Vested		(161)	$	31.08
Forfeited		(4)	$	43.06
Unvested at December 31, 2012		550	$	33.34

Each restricted stock unit represents the Company's obligation to deliver to the holder one ordinary share upon satisfaction of the three-year vesting term. Restricted stock units are granted at the closing market price on the day of grant and entitle the holder to receive dividends declared and paid in the form of additional ordinary shares contingent upon vesting.

A summary of the restricted stock units issued to officers of the Company and its subsidiaries for the three years ended December 31 is as follows:

(In thousands)	2012		2011		2010
Restricted stock units granted		1,312		1,318		1,392
Aggregate grant date fair value	$	27,194	$	30,027	$	25,887
Compensation expense related to restricted stock units	$	24,451	$	15,033	$	5,862
Estimated tax benefit related to restricted stock units	$	6,501	$	3,998	$	1,557

Total unrecognized stock-based compensation expense related to non-vested restricted stock units was approximately $32.5 million as of the end of December 31, 2012, related to approximately 2.4 million restricted stock units, which is expected to be recognized over 1.3 years.

Non-vested restricted stock units as of December 31, 2012 and for the year then ended for the Company were as follows:

			Weighted
	Number		Average Grant
(In thousands except for weighted average grant date fair value)	of Shares		Date Fair Value
Unvested at December 31, 2011		2,063	$	21.13
Granted		1,312	$	20.72
Vested		(836)	$	20.73
Forfeited		(93)	$	21.42
Unvested at December 31, 2012		2,446	$	21.04

The performance units vest after three years and entitle the holder to shares of the Company's stock. There are no dividend rights associated with the performance units. Each grant of performance units has a target number of shares, with final payouts ranging from 0% to 200% of the grant amount depending upon a combination of corporate and business segment performance along with each employee's continued service through the vest date. Performance targets are based on relative and absolute financial performance metrics. A summary of the performance units issued to certain employees of the Company for the three years ended December 31 is as follows:

(In thousands)	2012		2011		2010
Performance units granted		1,527		1,289		1,579
Potential maximum share payout		3,054		2,578		3,158
Aggregate grant date fair value	$	29,537	$	28,544	$	27,160
Compensation expense related to performance units	$	9,919	$	7,242	$	7,009
Estimated tax benefit related to performance units	$	1,943	$	1,419	$	1,470

Total unrecognized stock-based compensation expense related to non-vested performance units was approximately $27.2 million as of the end of December 31, 2012, related to approximately 2.5 million performance units, which is expected to be recognized over 1.9 years. Non-vested restricted performance units as of December 31, 2012 were as follows:

			Weighted
	Number		Average Grant
(In thousands except for weighted average grant date fair value)	of Shares		Date Fair Value
Unvested at December 31, 2011		1,735	$	19.47
Granted		1,527	$	19.34
Vested		(7)	$	17.20
Forfeited		(98)	$	20.34
Performance driven reduction		(601)	$	18.24
Unvested at December 31, 2012		2,556	$	20.07

XL-Ireland's Articles of Association restrict the voting power of any person to less than approximately 10% of total voting power.