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Rating Action:

MOODY'S LOWERS RATINGS OF XL CAPITAL LTD (SENIOR TO A2) AND CERTAIN REINSURANCE SUBSIDIARIES; RATINGS AND OUTLOOKS FOR FINANCIAL GUARANTY SUBSIDIARIES NOT AFFECTED

14 Jan 2004
MOODY'S LOWERS RATINGS OF XL CAPITAL LTD (SENIOR TO A2) AND CERTAIN REINSURANCE SUBSIDIARIES; RATINGS AND OUTLOOKS FOR FINANCIAL GUARANTY SUBSIDIARIES NOT AFFECTED

Leading Bermuda-based international insurer and reinsurer.

New York, January 14, 2004 -- Moody's Investors Service has lowered the ratings of XL Capital Ltd (senior unsecured debt to A2 from A1) and debt-issuing affiliates, as well as the insurance financial strength ratings of members of the XL Reinsurance America Inc intercompany pool and XL Re (to Aa3 from Aa2). Ratings and outlooks on other XL Capital subsidiaries -- including its financial guaranty insurance and reinsurance subsidiaries, XL Capital Assurance Inc. and XL Financial Assurance Ltd. and other primary insurance subsidiaries, such as XL Insurance (Bermuda) Ltd - are not affected. The outlooks for all rated members of the XL Capital group are now stable.

According to Moody's, the downgrades primarily reflect Moody's concerns about the magnitude of XL Capital's fourth quarter reserve charge, in combination with related charges taken in the third quarter primarily related to XL Reinsurance America Inc, which have exceeded the high end of the expected range considered at the time Moody's confirmed these entities ratings, shifting their outlooks to negative from stable, on October 21, 2003. Moody's added that the charges are material to the normalized earnings capacity and capitalization of the XL America companies, and that they, together with others taken in 2002 and at the time of the acquisition of XL Reinsurance America Inc in 1999 call into question the quality of that operation's underwriting and actuarial controls, and highlight the magnitude of risk inherent in excess casualty insurance and reinsurance lines of business. Moody's noted that despite its separate and distinct business and risk profile, XL Re Ltd's rating also considers the significant reinsurance it provides to the XL America pooled companies -- including XL Reinsurance America Inc and its primary insurance affiliates. .

The rating agency further noted that XL Capital's consolidated earnings have been repeatedly impacted -- and its internal capital generation dampened -- since Moody's first assigned ratings to the in mid-2001 as a result of losses related to the events of 9/11/01 (in 2001 and 2002), as well as significant investment-related losses and reserve charges related to XL Reinsurance America in 2002, and the most recent reserve charges in 2003. Moody's added that despite significant volatility in its underlying earnings, XL Capital's shareholder dividends have remained relatively high, as compared with peers, and that dividend payments have further reduced capital retention. Consequently, the rating agency increasingly views XL Capital's shareholder dividends as having a significant fixed charge component, reducing the group's effective fixed charge coverage to a level that has been below average for its similarly-rated peers. The rating agency added that the current ratings and outlooks assume the completion of a significant recapitalization of the affected subsidiaries through the issuance of at least $750 million of new securities by XL Capital Ltd over the near term, one that should not result in a significant increase in its overall financial leverage profile.

Despite the downgrade, Moody's believes that XL Capital's senior management remains committed to maintaining a high overall credit profile at its principal insurance and reinsurance subsidiary operations, as well as at the holding company, and that subsidiary capital adequacy, operational discipline, risk management and the maintenance of financial leverage and fixed charge coverage levels for the consolidated enterprise will remain at levels commensurate with the group's overall strong financial and business profile.

The following debt and financial strength ratings have been lowered:

XL Capital Ltd -- senior unsecured to A2 from A1; preferred stock to Baa1 from A3;

XL Capital Trust I, II, III -- trust preferred securities shelf to (P)A3 from (P)A2;

XL Finance (UK) plc -- senior unsecured shelf to (P)A2 from (P)A1;

XL Finance (Europe) plc -- senior unsecured to A2 from A1, senior unsecured shelf to (P)A2 from (P)A1;

NAC Re Corporation -- senior unsecured to A3 from A2;

XL Re Ltd -- insurance financial strength ratings to Aa3 from Aa2.

Members of the XL America intercompany pool:

XL Reinsurance America, Inc. -- insurance financial strength ratings to Aa3 from Aa2;

Indian Harbor Insurance Company -- insurance financial strength ratings to Aa3 from Aa2;

Greenwich Insurance Company -- insurance financial strength ratings to Aa3 from Aa2;

XL Specialty Insurance Company -- insurance financial strength ratings to Aa3 from Aa2;

XL Insurance Company of New York, Inc. -- insurance financial strength ratings to Aa3 from Aa2.

XL Capital Ltd, through its operating subsidiaries, is a leading provider of insurance and reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. As of September 30, 2003, XL Capital Ltd had consolidated assets of approximately $39.6 billion and consolidated shareholders' equity of approximately $7.4 billion.

New York
Alan Murray
VP - Senior Credit Officer
Insurance/Financial Institutions
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Ted Collins
Managing Director
Insurance/Financial Institutions
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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