Fitch Downgrades XL’s Ratings; Outlook Stable

Following its decision to downgrade SCA and XL’s financial guaranty subsidiaries, Fitch Ratings announced that it has also downgraded XL Capital Ltd. and its P/C insurance reinsurance. Fitch lowered the Group’s Issuer Default Rating (IDR) for XL to ‘A’ from ‘A+’, and the Insurer Financial Strength (IFS) rating of lead (re)insurance companies XL Insurance (Bermuda) Ltd. and XL Re Ltd. to ‘A+’ from ‘AA-‘. Their rating outlook is stable.

Fitch, along with A.M. Best (see related article) took the rating action following XL’s announcement of its fourth quarter losses and writedowns (See IJ web site –

Fitch added that it “believes the current charges reflect poorly on the company’s enterprise risk management capabilities and reduces Fitch’s confidence in XL’s overall earnings potential. Fitch had previously stated that XL would have to demonstrate consistent operating profitability in order to maintain the current ratings. Given the recent charges, Fitch views XL’s volatility of earnings to be much greater than comparably rated peers and more than we would expect from a ‘AA-‘rated company.”

XL’s difficulties with unanticipated “significant charges” – NAC Re, Winterthur as well as catastrophe losses – has, in Fitch’s opinion “hurt the company’s ability to grow its capital position as much as other competitors have during the recent hard market.”

However, the rating agency did recognize that “XL’s strong competitive position with worldwide capability in commercial insurance and reinsurance, recent strong operating results of the company’s core property/casualty and life operations, reasonable financial leverage and adequate capitalization of its (re)insurance subsidiaries,” should be considered as offsetting positive factors.

Fitch also said it “believes that despite softening market conditions across many lines of business, XL’s capital position, underwriting franchise and financial flexibility should enable the company to produce adequate earnings on its core operations going forward. Fitch believes there could be some future uncertainty related to asset valuations within the investment portfolio given continued credit market volatility.”

Source: Fitch Ratings –