S&P, Fitch Rate XL’s Senior Notes ‘A’

August 19, 2004

Both Standard & Poor’s Rating Services and Fitch Ratings have assigned an “A” senior debt rating to XL Capital Ltd.’s $300 million senior notes issue due 2014. The debt issue is a draw down from the company’s $1.93 billion shelf registration filed on June 7, 2004.

S&P also affirmed its “A” counterparty credit ratings on XL and related holding company XL America Inc. as well as its “AA-” counterparty credit and financial strength rating on XL’s core operating subsidiaries. The outlook on the holding companies remains negative, and the outlook on all the core operating subsidiaries remains stable.

Fitch also affirmed that the “rating is equivalent to XL’s long term issuer rating and the rating of its existing senior debt.”

The net proceeds from the debt issuance (together with about $17 million in cash) will be used to retire all of the outstanding Liquid Yield Option Notes (LYON). There is no change in financial leverage at XL solely because of the debt issuance, as one form of debt is being swapped for another.

S&P said the “ratings are based on XL’s strong capital adequacy base and global presence. Offsetting these positive factors are the company’s historically persistent adverse loss reserve development (principally from the acquisition of Nac Re on July 1, 1999, on its North American casualty book), which has resulted in below-market operating profitability, increased financial leverage, and reduced interest coverage.”

Explaining the negative outlook on XL’s holding companies, S&P said that, “although XL has generated strong earnings through June 30, 2004, the outlook on the holding companies will remain negative until earnings stabilize at a level consistent with the current rating. The negative outlook reflects the potential for narrowed notching because of low profitability and below-rating-range interest coverage. Current expectations are for very strong financial performance from the group in 2004 and 2005. XL is expected to maintain its debt leverage ratio at or below the current levels, with no changes anticipated because of the new shelf registration.”

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