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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.
VP - Senior Credit Officer
Moody's Investors Service
Moody's Investors Service
No Related Data.
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