Best Affirms All XL Ratings

April 12, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) and has assigned an issuer credit rating of “aa-” to the Bermuda-based XL Capital Group and its subsidiaries.

Best also said it has affirmed XL Capital Ltd.’s existing debt ratings of “a-” on senior debt, “bbb+” on subordinated debt and “bbb” on preferred shares.

The rating agency also affirmed the financial strength rating of “A+” (Superior) and has assigned an issuer credit rating of “aa-” to XL Life Insurance and Annuity Company (XLLIAC) of Schaumburg, Ill.

All the ratings have a negative outlook.

“These rating actions reflect XL Capital’s diverse earnings base, excellent capitalization and well-recognized position as a leading worldwide provider of coverage for insurance, reinsurance and financial products and services,” said Best. “These strengths are derived from the group’s multi-focused operating strategy, disciplined underwriting approach, strong risk management capabilities and experienced management team. XL Capital also maintains very strong financial flexibility with superior access to both debt and equity markets.”

The bulletin noted that “XL Capital’s fixed charge coverage has improved over the past year and debt-to-capital leverage ratios remain commensurate with its current debt ratings.” Best said it “expects the group’s coverage and leverage ratios to further improve barring any extraordinary catastrophes as projected earnings increase shareholders’ equity and the holding company liquidity.”

The announcement, however, indicated that partially “offsetting these strengths are the risks associated with the group’s catastrophe and U.S. casualty books of business. XL Capital recorded approximately $595 million in net incurred losses from the extraordinary third quarter 2004 hurricane activity in the United States and the fourth quarter tsunami damage in southern Asia, which resulted in an eight point increase in the group’s net loss ratio for the year. XL Capital also undertook a major casualty reserve study at the end of 2003 and recorded a substantial reserve strengthening charge for adverse development in U.S. casualty reinsurance lines primarily related to accident years 1997 to 2001. Although reserves for these accident years are currently developing within anticipated parameters, there is no assurance that this trend will continue.”

Best said the negative outlook is based on its opinion that “XL Capital’s risk-based capital position, which improved during 2004, has yet to reach the levels attained prior to its expansion into primary lines of business and the U.S. casualty reserve strengthening charge in 2003.

“The negative outlook is also based on XL Capital’s current situation with Winterthur Swiss Insurance Company, which is related to XL Capital’s acquisition of Winterthur International in 2001. Since both parties have agreed to proceed with a binding independent reserve valuation process, if XL Capital’s submission to the independent actuary is not closest to the number developed by the independent actuary it may be required to record an approximate charge of $909 million to reduce its recoverable position. A.M. Best will reassess XL Capital’s risk-based capital position and management’s plans to recapitalize, should the group have to record that charge.”

For a list of XL Capital Group’s subsidiaries’ financial strength, debt and issuer credit ratings, go to Best’s Website at:

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