A.M. Best Assigns Rating to XL Life Insurance and Annuity Company

Business Wire, July 16, 2004

OLDWICK, N.J. -- A.M. Best Co. has assigned a financial strength rating of A (Superior) to XL Life Insurance and Annuity Company (XLLIAC) (Schaumburg, IL), an indirect wholly-owned subsidiary of XL Capital Ltd (XL Capital) (NYSE: XL). The financial strength ratings of A (Superior) of XL Capital Group (Bermuda) and its affiliated companies are unaffected. Consistent with the rating of XL Capital Group, XLLIAC's rating outlook is negative.

A.M. Best considers XLLIAC a core subsidiary of XL Capital, a publicly-traded holding company domiciled in the Cayman Islands, with a market capitalization in excess of $10 billion as of March 31, 2004. Through its operating subsidiaries, XL Capital 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.

XLLIAC is part of XL Capital's Financial Products and Services segment--branded "XL Financial"--which provides financial guaranty insurance and reinsurance, institutionally oriented life contracts and weather and energy risk management products. XLLIAC's role within XL Financial is to build a presence in the institutional funding agreements market--leveraging the group's disciplined underwriting culture, capital markets expertise, strong asset-liability management and vast investment resources. XL Financial improves XL Capital's diversification, providing a stable source of earnings essentially uncorrelated to the company's other businesses.

The rating assignment reflects XL Capital's commitment to the funding agreement business. This is evidenced by its strong operational and financial support of XLLIAC, including direct capital contributions ($75 million in 2003) and a financial guarantee provided by an affiliate. To date, XLLIAC has issued four funding agreement contracts totaling $875 million, including two deals of $125 million and $200 million during 2004. A substantial portion of the current year's issues and all future sales are reinsured to an affiliate through an internal reinsurance program. The full and complete performance of all obligations under the reinsurance program is guaranteed by a core subsidiary of XL Capital.

The rating reflects XLLIAC's strong capitalization, management's experience in the funding agreement business, its focused and prudent strategy, the strong operating fundamentals demonstrated by XL Financial and the group overall, as well as the support provided through the reinsurance program and related guarantee. The rating incorporates A.M. Best's expectation that XLLIAC will not expand its current product offerings or grow rapidly, while at the same time maintaining risk-adjusted capital sufficient for its rating on a stand-alone basis.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.