Fitch Affirms XL Capital Ltd. Ratings

Fitch Ratings has affirmed XL Capital Ltd.’s (XL) long-term issuer and senior debt rating at ‘A+’, and preferred stock rating at ‘A’. Fitch has also affirmed the ‘AA’ insurer financial strength rating of XL’s property/casualty insurance subsidiaries, led by XL Insurance Ltd, and XL Re Ltd. The Rating Outlook is Stable.

The ratings continue to reflect XL’s position within the global insurance and reinsurance markets, history of favorable underwriting and earnings performance, strong interest coverage and operating cash flow, and adequate capital position at the parent and subsidiary level.

XL’s financial leverage remains somewhat high relative to its current debt ratings. Further increases in outstanding debt from current levels or future volatility in reported earnings and fixed charge coverage are more likely to lead to adjustments to XL’s debt ratings than subsidiary financial strength ratings.

XL historically produced underwriting results and operating profits that exceeded industry norms. However, results for 2001 deteriorated significantly due mainly to losses related to the events of Sept. 11 and adverse reserve development from prior underwriting periods. XL reported a $576 million consolidated GAAP after-tax loss in 2001, and the combined ratio was 140 percent.

XL returned to profitability in 2002, but profits remained below expectations due to further reserve development and significant realized investment losses relating in large part to the bankruptcies of telecommunications firms, including WorldCom and Adelphia, as well as losses on other investments with other than temporary declines in value. Net income was $221 million in 2002, and the combined ratio improved to 97.3 percent for the year.

Operating results improved strongly in the first half of 2003, as XL reported a 60 percent increase in revenues for the period and net income of $588 million. This revenue growth is primarily attributable to benefits from improved market pricing and a flight to quality in XL’s core insurance and reinsurance segments, and new business written in the life sector. The combined ratio improved to 89.2 percent for the first six months of 2003, compared with 100.8 percent for the same period in 2002.

XL’s financial leverage increased significantly in the last few years due to several new securities offerings. The company’s debt-to-total capital ratio is currently approximately 20 percent down from 22 percent at year-end 2002, but up from 7 percent at year-end 2000.

The company reported consolidated GAAP assets of $39.2 billion and shareholders equity of $7.6 billion at June 30, 2003.