A.M. Best Affirms Rating for XL Capital Group; Debt Ratings Assigned

March 7, 2002

A.M. Best Co. has affirmed the financial strength rating of “A+” (Superior) for the core operating subsidiaries of XL Capital Ltd., Bermuda, and the “a” rating on the $100 million 7.15 percent senior notes, due 2005, issued by NAC Re Corporation, Stamford, Conn.

Also, A.M. Best assigned an “a+” debt rating to the existing senior debt obligations issued and guaranteed by XL Capital Ltd., and assigned indicative debt ratings to the recently filed universal shelf offering.

These ratings reflect XL Capital’s global market capabilities, strong capitalization and well-recognized position as a leading provider of specialized insurance coverage. The strengths are derived from the group’s focused operating strategy, disciplined underwriting approach, strong risk management capabilities and experienced management team. Additionally, XL Capital maintains a distinct competitive advantage as a Bermuda-domiciled organization given its favorable regulatory environment.

XL Capital maintains significant financial flexibility as demonstrated by the successful acceptance of recent offerings to the capital markets. Market capitalization at Dec. 31, 2001, was approximately $12.5 billion. The group’s financial leverage–while significantly elevated over the prior year’s levels–remains commensurate with its current rating level at 25 percent debt and preferred to capital. Notwithstanding the significant losses incurred during 2001–as a result of losses emanating from the World Trade Center attacks and the exposures associated with Enron’s bankruptcy–XL Capital has consistently generated favorable earnings, providing for strong coverage of its debt obligations. A.M. Best expects earnings to rebound in 2002, providing fixed charge coverage in the low double-digit range.

Offsetting these positive factors are the ongoing competitive market challenges associated with the group’s large account and reinsurance segments, along with integration and financial risks associated with its large acquisitions in recent years. XL Capital carries a significant amount of goodwill associated with its acquisitions. The group is still experiencing adverse prior period loss development on its acquired U.S. casualty book of business, thus necessitating additional reserve strengthening in 2001. Additional risk is also imposed by XL Capital’s structured finance products.

However, strong capitalization and management’s demonstrated ability to optimally manage risk mitigate these concerns. Accordingly, A.M. Best views the rating outlook as stable.

For Dec. 31, 2001, XL Capital Ltd. reported total assets of $27.9 billion and shareholders’ equity of $5.4 billion.

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