Best Revises XL’s Rating Outlook to Negative

December 21, 2007

A.M. Best Co. has revised the outlook to negative from stable on the financial strength rating (FSR) of ‘A+’ (Superior) and the issuer credit ratings (ICR) of “aa-“of Bermuda’s XL Capital Group and its members.

Best also revised the outlook to negative from stable on the ICR of “a-” and all existing debt ratings of XL Capital Ltd. (Cayman Islands). (See link below for a detailed listing of the companies and ratings.)

Best said the revisions reflect its concerns “regarding the financial pressures being experienced by Security Capital Assurance (SCA) (Bermuda) and the potential financial and operational impacts to XL Capital due to its 46 percent ownership of SCA. Additionally, XL Capital provides SCA with reinsurance support and guarantees certain SCA obligations, which further expose XL Capital to SCA’s financial situation.”

Best also noted that XL Capital “has exposure to related subprime issues through its underlying investment and liability portfolios, which could compound the current situation.”

In addition Best cited some past problems, which have resulted in “XL Capital’s risk management abilities” being below Best’s expectations. The rating agency noted “significant losses from NAC Re reserve charges, the valuation charge related to the Winterthur acquisition
and $1.6 billion of 2005 hurricane losses,” as the major historical difficulties.

At the end of May Best concluded a ratings review of XL. It said at the time that the “likelihood of unanticipated large loss events would be curtailed given management’s previous representations concerning enhancements to risk controls and processes.”

However, Best has now determined that “as a result of these recent issues,” it will “reevaluate XL Capital’s enterprise risk management processes and capabilities and assess any further impact to its ratings.

For a complete listing of XL Capital Ltd’s FSRs, ICRs and debt ratings,
go to:

Source: A.M. Best –

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