Fitch Rates XL Capital Finance -Europe- PLC $600MM Sr Nts `A+'

Business Wire, Jan 8, 2002

Business Editors

CHICAGO--(BUSINESS WIRE)--Jan. 8, 2002

Fitch has assigned an `A ' rating to XL Capital Finance (Europe) PLC's (XL Finance) offering of $600 million of 6.5% senior notes due in 2012. XL Finance is a special finance subsidiary of XL Capital Ltd. (XL). XL Capital guarantees the senior notes of XL Finance. XL Capital has a Fitch senior debt rating of `A '. The Rating Outlook is Stable.

Proceeds from the offering will be used to repay outstanding revolving credit facility debt, and for general corporate purposes. The rating reflects 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.

XL's financial leverage increased significantly in the last year due to previous financing activity. Following the completion of the $500 million senior notes offering, the company's consolidated pro forma debt-to-total capital ratio will increase to approximately 24.5%, up from 7.4% at year-end 2000. The ratio is expected to decline to between 20%-22% in the near term due to growth in retained earnings.

While XL has historically produced underwriting results and operating profits that exceed industry norms, results for 2001 have deteriorated significantly due mainly to losses related to the events of September 11. XL reported consolidated GAAP pretax insured losses from the September 11 event of $1.8 billion gross and $750 million net of reinsurance. XL reported a net loss of $492.5 million in the first nine months of 2001, compared with net income of $505.7 million in the same period for 2000.

To offset losses related to the events of September 11 and replenish capital, XL completed an issuance of 9.2 million shares of common stock at $89 per share in November 2001 that raised net proceeds of approximately $788 million.

Fitch believes that in the aftermath of the events of September 11, the property/casualty insurance market will be characterized by rapidly rising prices, diminished capacity and a flight to quality. Fitch further believes that XL's capital position, underwriting franchise and financial strength, positions the company to significantly benefit from improving insurance market conditions. Operating results are expected to return to previous historical levels in 2002, barring any other unusual large catastrophic events.

XL is a Bermuda-based holding company with subsidiaries providing insurance, reinsurance and specialty financial products and services on a worldwide basis. The company reported consolidated GAAP assets of $25.7 billion and shareholders equity of $4.8 billion at Sept. 30, 2001.

Entity/Issue/Type                Action     Rating/Outlook

XL Capital Finance (Europe) PLC
-- $600MM senior notes           Assigned   `A '/Stable.