S&P Affirms ‘AAA’ Ratings on Two XL Units, Lowers ERC to ‘AA+’

Standard & Poor’s announced that it has affirmed its triple-‘A’

ratings on two units of Bermuda-based XL Capital, XL Financial Assurance Ltd. (XLFA) and XL Capital Assurance Inc. (XLCA), and has lowered its ratings on GE Capital’s Employers Re Group to double-‘A+’.

S&P affirmed XLFA’s triple-‘A’ counterparty credit, financial strength, and financial enhancement ratings “because of its strategic importance to parent XL Capital Ltd. (XLC) and status as core to affiliate” XLCA; it affirmed the triple-‘A’ rating on XLCA because of implied support from its parent and “an arms-length quota share reinsurance agreement” with XLFA, “on up to 90% of all business written.”

The rating agency stressed both company’s strong capital positions and their strategic position and support with the XL group.

“As a start-up, XLCA needs to build market acceptance and product demand and generally develop sustainable earnings,” S&P stated. It noted the strong capital commitment from XL, but indicated that, “most of XLCA’s competitors have established strong relationships and market share, both domestically and internationally, which could create a large barrier for entry. Conversely, to date, XLCA has made satisfactory progress in establishing market presence. In addition, it maintains extremely strong capital, has an experienced management team, and has good risk-portfolio diversification.”

In another ratings action, S&P announced that it has lowered its counterparty credit and financial strength ratings on Employers Reinsurance Corp. and its wholly owned subsidiaries (collectively, ERC) “to double-‘A’-plus from triple-‘A’ based on ERC’s Strong market position, very strong capitalization and liquidity, and improved financial leverage offset by deterioration in current operating results.”

S&P explained that “The rating actions reflect ERC’s very strong stand-alone financial characteristics.” According to credit analyst Grace Osborne, “Rating support for ERC’s strategic importance to GE was not included following a recent change in Standard & Poor’s group methodology criteria on April 23, 2002.”

S&P’s change in method “limits the amount of support provided to a strategically important subsidiary to within one notch of the parent. Standard & Poor’s assessment of ERC’s underlying fundamentals remains unchanged.”|”sp, affirms, ‘aaa’, ratings, on, two, xl, units,, lowers, erc, ‘aa+’