Fitch Ratings has placed the ratings of XL Capital Ltd. and its P/C (re)insurance subsidiaries, including the Issuer Default Rating (IDR) and the Insurer Financial Strength (IFS) rating of lead (re)insurance companies XL Insurance (Bermuda) Ltd. and XL Re Ltd. on its “Rating Watch Negative” list. (The companies affected are listed below.)
Fitch said its rating actions reflect its “concerns regarding XL’s exposure to Security Capital Assurance (SCA). XL has an ongoing exposure to SCA via a facultative reinsurance contract, an excess of loss reinsurance contract, and an unlimited guaranty in support of any losses payable on the pre-August 2006 initial public offering (IPO) financial guaranty portfolio.
“This guaranty is triggered upon the occurrence of both of the following events: default on payments of interest and principal by the underlying guaranteed obligation and failure of XL Financial Assurance (XLFA) to meet its obligations to XL Capital Assurance (XLCA) under its facultative quota share reinsurance agreement with XLCA.”
Fitch also noted that “XL is actively working to resolve its exposure to SCA and while Fitch views successful resolution of this exposure as a positive, the size of any charges, and the manner in which XL funds any charges, could have an impact on the ratings.”
There are a number of future possibilities, depending on what happens, Fitch continued. “If a large charge is ultimately taken that is not offset by an equity-like capital raise, ratings would likely be downgraded by one notch. If there are no additional charges or they are modest, or if a capital raise is executed in the event of a larger charge, Fitch would likely affirm the ratings and return to a Stable Outlook.”
Fitch has placed the following ratings on Rating Watch Negative:
XL Capital Ltd.
–$600 million 5.25% senior notes due 2014 ‘A-‘;
–$350 million 6.375% senior notes due 2024 ‘A-‘;
–$745 million 5.25% senior notes due 2011 ‘A-‘;
–$325 million 6.25% senior notes due 2027 ‘A-‘;
–6.375% series E preferred ordinary shares ‘BBB+’.
XL Capital Finance (Europe) PLC
–$600 million 6.50% guaranteed senior notes due 2012 ‘A-‘.
XL America Inc.
–IDR at ‘A’;
–$255 million 6.58% senior notes due 2011 ‘A-‘.
Fitch also placed the ‘A+’ IFS ratings of the following XL Capital Ltd. (re)insurance subsidiaries on Rating Watch Negative:
–XL Insurance (Bermuda) Ltd.
–XL Re Ltd.
–XL Insurance Switzerland
–XL Re Latin America Ltd.
–XL Europe Ltd.
–XL Insurance Company Limited
–XL Insurance America, Inc.
–XL Reinsurance America Inc.
–XL Re Europe Limited
–XL Insurance Company of New York, Inc.
–XL Specialty Insurance Company
–Indian Harbor Insurance Company
–Greenwich Insurance Company
–XL Select Insurance Company
Source: Fitch Ratings – www.fitchratings.com
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