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13 Feb 2009
$5.2 billion of rated securities affected.
New York, February 13, 2009 -- Moody's Investors Service has affirmed the debt ratings of XL Capital
Ltd (NYSE: XL) -- senior unsecured at Baa2 -- and the
A2 insurance financial strength (IFS) ratings of the company's principal
insurance and reinsurance operating subsidiaries, continuing a negative
For the fourth quarter of 2008, XL Capital reported a net loss of
$1.4 billion, comprising operating income of $189.5
million, a $990 million non-cash charge for the partial
impairment of goodwill associated with its 1998 acquisition of Mid Ocean
Limited, and other than temporary impairments of $608.5
million, which included an investment portfolio restructuring charge
of $400 million. For the full year 2008, the net loss
was $2.63 billion, including operating income of $840
According to Moody's, the rating affirmation reflects results for
the fourth quarter of 2008 that generally remain in line with Moody's
medium-term expectations for the company, and financial metrics
that are expected to remain within the tolerances of Moody's revised
rating drivers for the company. Moody's noted that although
the recent partial impairment of goodwill related to the acquisition of
Mid Ocean Limited is indicative of a decline in economic value,
this business segment continues to perform reasonably well for XL Capital.
According to Alan Murray, senior credit officer and lead analyst
for XL Capital, "The negative outlook reflects Moody's concerns
regarding XL's exposures to further investment losses; its heightened
financial leverage profile; the company's earnings and internal
capital generation capacity; and its ability to comfortably cover
its high fixed charges. Our focus is also on the group's ability
to sustain its position as a leading global insurance and reinsurance
provider given current market stress." Moody's further
noted that as several sectors of the mortgage and asset-backed
securities markets continue to come under increasing stress from deterioration
of the U.S. economy, the potential for further asset
impairments remains a concern.
XL's ratings reflect the group's overall good market positions in its
principal operating segments as well as its diversified earnings streams
by geography and line of business. The ratings also consider the
company's sound liquidity and capitalization at its flagship Bermuda operating
subsidiaries (where the majority of XL's capital resides) as well as its
solid core underwriting performance. These fundamental strengths
are tempered by the intrinsic volatility of XL's reinsurance businesses
and certain insurance lines, by the company's exposure to natural
catastrophes, by its significant financial leverage, and by
its past volatile profitability.
XL's ratings could be downgraded if one or more of the following occurs:
1) prospective organic capital generation declines due to materially lower
profits (e.g. returns on equity consistently in mid-single
digits); 2) realized investment losses and impairments in 2009 exceed
$750 million pre-tax; 3) GAAP common shareholders'
equity falls below $5.5 billion (following the conversion
of ESUs in February 2009); 4) adjusted financial leverage exceeds
35% on a sustained basis; or 5) the company's franchise value
in terms of new business and retention of existing business weakens materially.
Conversely, the outlook could be revised to stable if XL 1) stabilizes
its franchise; 2) successfully transitions under its new management
team to a simpler organization; 3) generates interest coverage above
5 times; and 4) stabilizes its financial flexibility, earnings,
The following debt ratings have been affirmed with a negative outlook:
XL Capital Ltd -- senior unsecured debt at Baa2; preferred
stock at Ba1;
XL Capital Finance (Europe) plc -- senior unsecured debt
XLLIAC Global Funding -- backed medium term notes at A2;
Stoneheath Re -- preferred stock at Ba1;
Premium Asset Trust Series 2004-9 -- senior secured
The following insurance financial strength ratings have been affirmed
at A2, with a negative outlook:
XL Insurance (Bermuda) Ltd;
XL Insurance Company Limited;
XL Insurance Switzerland;
XL Re Ltd;
XL Reinsurance America Inc.;
Indian Harbor Insurance Company;
Greenwich Insurance Company;
XL Specialty Insurance Company;
XL Insurance Company of New York, Inc.;
XL Life Insurance and Annuity Company.
XL Capital Ltd, headquartered in Hamilton, Bermuda,
is a leading provider of insurance and reinsurance coverages through its
operating subsidiaries to industrial, commercial and professional
service firms, insurance companies and other enterprises on a worldwide
basis. As of December 31, 2008, XL Capital Ltd reported
total invested assets of $34.3 billion and shareholders'
equity of $6.6 billion.
The last rating action occurred on December 19, 2008 when Moody's
downgraded the debt and insurance financial strength ratings of XL Capital
Ltd and subsidiaries, with a negative outlook.
The principal methodology used in rating XL Capital and its principal
subsidiaries is Moody's Global Rating Methodology for Property and Casualty
Insurers, which can be found at www.moodys.com in
the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating XL can also be found
in the Credit Policy & Methodologies directory.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
obligations. For more information, please visit www.moodys.com/insurance.
Visit Moody's website at www.moodys/insurance.com for more
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
Moody's affirms ratings of XL Capital Ltd; outlook remains negative
Financial Institutions Group
Moody's Investors Service
No Related Data.
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