Best Affirms XL Group, P&C Subs ‘A’ Ratings; Outlook Stable

September 22, 2011

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of ‘a’ of the property/casualty subsidiaries of the holding company, XL Group plc, which is based in Dublin, Ireland, and is led by XL Insurance (Bermuda) Ltd .

Best has also affirmed the ICR of ‘bbb’ of the Cayman Islands-based XL and XL Group Ltd., as well as all of its debt ratings for XL Group Ltd. The outlook for all of the ratings is stable

The rating affirmations reflect the organization’s “excellent risk-based capitalization, strong worldwide market presence and the completed de-risking of the group’s investment portfolio,” Best explained.

The report also indicated that even though “XL subsidiaries’ property/casualty operating results are unprofitable through the first six months of 2011 (with a combined ratio of 110 percent due to the worldwide catastrophes), the group averaged a favorable combined ratio of 92.3 percent for the previous five years.”

Best added that it “remains encouraged by the strategies implemented by the XL management team. These strategies are supported by an enhanced risk management program and a continued focus on underwriting as the key component of the group’s business approach. Management’s focus on its core underwriting strengths has been exhibited by the recent addition of a substantial number of new senior underwriters.

“Furthermore, as a result of XL’s completed de-risking of its investment portfolio, the organization has successfully reduced the level of market volatility in its investment results, which for the past several years over shadowed the solid operating performance of its core businesses.

“XL’s debt-to-capital ratio is expected to remain in the 15 percent-25 percent range as capital is anticipated to be enhanced by strong earnings. The fixed charge coverage stabilized in 2010 and is expected to remain comparable with the current level over the near term.”

As partial offsetting factors Best cited XL’s “exposure to large severity events and the current soft pricing stage of the underwriting cycle. Additionally, investment returns are expected to be muted by low interest rates and financial market variability.”

Best summarized the ratings affected by its actions as follows:
The FSR of ‘A’ (Excellent) and ICR of ‘a’ have been affirmed for the following subsidiaries of XL Group plc:
— XL Re Ltd
— Indian Harbor Insurance Company
— Greenwich Insurance Company
— XL Insurance Company of New York, Inc.
— XL Insurance America, Inc.
— XL Select Insurance Company
— XL Reinsurance America Inc.
— XL Specialty Insurance Company
— XL Insurance (Bermuda) Ltd
— XL Re Latin America Ltd
— XL Insurance Company Limited
— XL Re Europe Limited
— XL Insurance Switzerland, Ltd.

The following debt ratings have been affirmed:
XL Group Ltd.—
— ‘bbb’ on $600 million 5.25 percent senior unsecured notes, due 2014
— ‘bbb’ on $350 million 6.375 percent senior unsecured bonds, due 2024
— ‘bbb’ on $325 million 6.25 percent senior unsecured notes, due 2027
— ‘bb+’ on $1.0 billion Series E non-cumulative preference shares, redeemable 2017

XL Capital Finance (Europe) plc (guaranteed by XL Company Switzerland GmbH) —
— ‘bbb’ on $600 million 6.5 percent senior unsecured notes, due 2012

The following indicative ratings on shelf securities have been affirmed:
XL Group Ltd.—
— ‘bbb’ on senior unsecured
— ‘bbb-‘ on subordinated
— ‘bb+’ on preferred stock

XL Capital Finance (Europe) plc (guaranteed by XL Group Ltd)—
— ‘bbb’ on senior unsecured

Source: A.M. Best

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