Best Removes XL’s Ratings From Under Review; Assigns Stable Outlook

August 26, 2008

A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of XL Capital Group and its members Best also removed from under review with negative implications and affirmed the ICR of “bbb” and all debt ratings of the holding company, XL Capital Ltd (Cayman Islands), along with all ratings of the life/health subsidiaries of XL Capital Ltd. All of the ratings have been assigned a stable outlook.

Best noted: “These rating actions follow several discussions with XL Capital’s management regarding its agreement with Syncora Holdings Ltd. (f/k/a Security Capital Assurance Ltd) (SCA) and SCA’s effects on ongoing operations.”

Best said that in its opinion, the XL Capital business franchise did sustain some negative effects during the July 2008 renewal season prior to reaching agreement with SCA; however, management’s determined efforts with clients, brokers and employees following the announced agreement successfully limited those effects to a relatively minor level.

“Going forward, XL Capital is expected to continue its solid operating performance, despite a soft pricing market with overall results anticipated to vary on a quarter to quarter basis due to the company’s continued exposure to mark to market adjustments from its credit exposed investment portfolio.”

Best added that it “believes that under the leadership of new CEO Mike McGavick, XL Capital possesses the necessary resources characteristic of a robust operating franchise. However, the company’s future success will be critically dependent on the CEO’s ability to preserve XL Capital’s core businesses and the strong intellectual capital supporting its business segments.

“XL Capital successfully recapitalized following an agreement with SCA to pay $1.775 billion in cash, issue eight million Class A ordinary shares to SCA and transfer all of XL Capital’s shares in SCA to a trust, all in exchange for the commutation of certain reinsurance arrangements thereby eliminating any XL Capital payment obligations to SCA. XL Capital issued ordinary shares and equity security units totaling approximately $2.875 billion to offset the payment to SCA and related charges.”

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

Source: A.M. Best

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