Fitch Affirms XL Capital Ltd. Ratings

Fitch Ratings announced that it has affirmed the ‘A’ long-term issuer and senior debt rating and ‘A-’ preferred stock rating of XL Capital Ltd. and the ‘AA’ insurer financial strength rating of XL’s property/casualty insurance and reinsurance subsidiaries. The outlook is stable.

“The ratings reflect XL’s position within the global insurance and reinsurance markets, historical underwriting and earnings performance, strong operating cash flow, and adequate capital position at the parent and subsidiary level,” said Fitch.

The report noted that “XL reported strong growth in earnings in the first half of 2004 as net income increased to $815.8 million versus $371.7 million for the full year 2003. The underwriting combined ratio was 88.2% in the first six months of 2004, compared with 102.6% for the full year 2003. Earnings in 2003 were adversely affected by more than $900 million of adverse reserve development from prior underwriting periods, primarily within XL’s NAC Re U.S. casualty reinsurance operation.”

It also indicated that “while current underwriting period performance is expected to remain favorable, this previous unfavorable reserve development creates some uncertainty regarding future earnings potential.” Fitch said it “believes that XL needs to maintain profitability consistent with recent quarterly results and demonstrate less reserve volatility to maintain its current ratings over the longer term.”