Fitch Downgrades XL Capital Ltd Ratings

Business Wire, Oct 26, 2005

CHICAGO -- Fitch Ratings downgraded ratings of XL Capital Ltd (XL) and its property/casualty reinsurance subsidiaries by one notch. Ratings actions include downgrading XL's long-term issuer rating to 'A-' from 'A' and lowering the insurer financial strength rating of lead reinsurance companies XL Insurance (Bermuda) Ltd and XL Re Ltd to 'AA-' from 'AA'. The ratings of XL's financial guaranty affiliates are not affected by these actions and are affirmed at 'AAA'. The Rating Outlook is Stable. All ratings are listed below.

The rating actions are based primarily on longer term operating returns on capital and earnings volatility that was not consistent with the previous rating category. This volatility was primarily attributable to catastrophe losses and adverse loss reserve development through the past several years.

XL reported recently that the company would report net losses from third-quarter catastrophe events, particularly Hurricane Katrina, of approximately $1.47 billion. Following these losses, the company expects to report an operating loss for the full-year 2005.

There remains some uncertainty regarding the timing and execution of future capital-raising plans to offset the impact of recent catastrophe-related losses and the resolution of an independent valuation process regarding the settlement of a reserve seasoning agreement related to XL's July 2001 acquisition of Winterthur International.

XL's ratings were originally placed on Rating Watch in February 2005 following the announcement that it was entering into an independent actuarial process with Winterthur Swiss Insurance Co. (Winterthur) regarding settlement of a reserve seasoning agreement related to XL's July 2001 purchase of Winterthur International.

If XL is unsuccessful in the independent actuary review process, the company could face a net pretax reserve increase of approximately $900 million. The independent actuarial process is expected to be completed by year-end 2005.

XL is a Bermuda headquartered holding company with subsidiaries providing insurance, reinsurance, and specialty financial products and services on a worldwide basis. The company reported consolidated GAAP assets of $53.3 billion and shareholders equity of approximately $8.4 billion at June 30, 2005.

XL Capital Ltd.

-- Long-term issuer rating downgraded to 'A-' from 'A', Outlook Stable

Fitch's ratings for the following XL Capital Ltd related securities issues are downgraded to 'A-' from 'A', Outlook Stable

XL Capital Ltd

-- $100 million 7.15% senior notes due 2005;

-- $594 million 5.25% senior notes due 2014;

-- $825 million 2.53% senior notes due 2009;

-- $350 million 6.375% senior notes due 2024.

XL Capital Finance (Europe) PLC

-- $255 million 6.58% senior notes due 2011;

-- $600 million 6.50% guaranteed senior notes due 2012.

Fitch's ratings for the following XL Capital Ltd securities issues are downgraded from 'A-' to 'BBB ', Outlook Stable

-- 8% series A preference ordinary shares;

-- 7.625% series B preference ordinary shares.

Fitch insurer financial strength ratings (IFS) of the following XL Capital Ltd insurance subsidiaries are downgraded from 'AA' to 'AA-', Outlook Stable

XL Insurance (Bermuda) Ltd

XL Re Ltd

XL Insurance Switzerland

XL Re Latin America Ltd

XL Europe Ltd

XL America Pool:

XL Reinsurance America Inc.

XL Insurance Company of New York, Inc.

XL Specialty Insurance Company

Indian Harbor Insurance Company

Greenwich Insurance Company

XL Insurance Company Limited

XL Select Insurance Company

Additionally, Fitch affirms the following XL financial guaranty related ratings with a Stable Outlook:

XL Capital Assurance Inc.

-- IFS 'AAA'.

XL Financial Assurance Ltd.

-- IFS 'AAA'.

Twin Reefs Pass-Through Trust

-- Long-term 'AA'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.