Fitch Affirms XL Capital Assurance & XL Financial Assurance ‘AAA’ Ratings

December 24, 2003

Fitch Ratings announced that it has affirmed the “AAA” insurer financial strength (IFS) ratings of XL Capital Assurance Inc. (XLCA) and its affiliate, XL Financial Assurance Ltd. (XLFA). Both companies were assigned a stable outlook.

“XLCA is a New York-based monoline financial guaranty insurance company that provides an unconditional and irrevocable guaranty to pay debt service on all of the bonds in its insured portfolio,” said Fitch. “XLFA is a Bermuda-based monoline financial guaranty reinsurer that derives the majority of its business from XLCA.”

Fitch noted that “these ratings are based on an arm’s-length reinsurance treaty whereby XLCA cedes up to 90 percent of its premiums and exposure to XLFA, stable revenue stream from the high-quality insured and investment portfolios, committed long-term ownership from XL Capital Ltd. (long-term debt rated ‘A’; Rating Outlook Stable by Fitch), and experienced management teams.

“In a demonstration of support for the growth of the financial guaranty business, XLCA received a $100 million capital infusion from its parent company, XL Reinsurance America Inc. in December 2003. Some of the concerns of the two entities center on the large concentration of CDO net par in force and lower returns relative to peers.”

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