XL Confirms Settlement with Swiss Re over Credit Derivative Contract

XL Capital Ltd announced that its insurance subsidiary, XL Insurance (Bermuda) Ltd, and Swiss Re Financial Products Corp. (SRFP) have withdrawn their respective claims in a lawsuit filed in London in 2001 related to a contractual disagreement over the validity of a “reference entity” and the operation of certain other terms and conditions contained in a credit default swap between the two companies.

XL’s announcement explained that the disagreement involved a credit default swap in which protection was purchased in 2000 by SRFP on a number of reference entities, “a term applying to companies whose bankruptcy or credit deterioration can trigger payments by the seller of protection in a credit default swap.”

The companies mutually acknowledged that such a contractual dispute may occasionally arise” as the industry fine tunes processes and definitions associated with credit derivative contracts.” XL affirmed that its Bermuda subsidiary was never “under any obligation to make payments under the swap and the suit did not involve any such allegations.”

The settlement provides that the swap will be continued on its original terms with certain restatements and amendments. Neither the identity of the “reference entities,” nor other relevant terms of the agreement were disclosed.

Topics Swiss Re