Best Affirms XL’s ‘A+’ (Superior) Rating

June 3, 2003

A.M. Best Co. announced that it has affirmed the financial strength rating of ‘A+’ (Superior) for the core operating subsidiaries of Bermuda-based XL Capital Ltd., and the existing debt ratings on “a+” senior debt, “a” subordinated debt and “a-” preferred shares. All of the ratings have a stable outlook.

“These ratings reflect XL Capital’s strong and diverse earnings base, solid capitalization and well-recognized position as a leading provider of specialized insurance and reinsurance coverage,” said Best. “These strengths are derived from the group’s focused operating strategy, disciplined underwriting approach, strong risk management capabilities and experienced management team. Furthermore, XL Capital maintains a distinct competitive advantage as a Bermuda-domiciled organization given its favorable regulatory environment.”

The rating agency ” expects XL Capital will continue to judiciously manage its capital base while maintaining financial leverage–debt plus preferred securities to total adjusted capital–in the low 20% range. Fixed charge coverage is expected to be restored to the mid to upper single digits.”

Best noted, however, that “these strengths are the risks associated with catastrophe and specialized books, particularly those imposed by financial products, which could cause earnings variability,” and constitute partially offsetting factors.

The announcement also indicated that “The group continues to experience adverse loss development in U.S. casualty lines for accident years 1997 to 2000 stemming from its acquisition of NAC Re, and XL Capital maintains a significant level of goodwill associated with its acquisitions. These concerns are mitigated, however, by its solid level of tangible capitalization, favorable market rates and management’s demonstrated ability to optimally manage risk.”

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