Fitch to Rate XL's Equity Security Units 'A-'; Preference Ordinary Shares 'BBB+'

Business Wire, July 28, 2008

CHICAGO -- Fitch Ratings expects to assign the following ratings to the proposed new offerings for XL Capital Ltd (NYSE:XL) listed below:

--Equity security units 'A-';

--Series C preference ordinary shares 'BBB '.

XL's ratings are currently on Rating Watch Negative by Fitch. Once the capital raising is completed, Fitch expects to remove all ratings from Rating Watch Negative and affirm XL's ratings with a Stable Rating Outlook.

The equity security units are considered similar to three-year mandatory convertible debt. The units consist of a debt security plus a forward contract to purchase XL common stock. The purchase contracts mature on Aug. 15, 2011. Based on its hybrid rating criteria, Fitch has assigned a class A designation to the equity security units that will allocate 0% of the principal to adjusted equity and 100% to adjusted debt in evaluating the financial leverage of XL for the first two years. The equity security units will then be assigned a class C designation in the third year that will allocate 50% of the principal to adjusted equity and 50% to adjusted debt. Key features supporting the equity credit class of the equity security units include the senior ranking of the debt security, the inability of XL to defer interest payments on the senior notes, and three-year period to conversion.

XL will issue the series C preference ordinary shares following the exercise of its put option under its Mangrove Bay contingent capital facility entered into in July 2003. Based on Fitch's hybrid rating criteria, the series C preference ordinary shares have a high equity component. Fitch has assigned a class D designation to the preference ordinary shares that will allocate 75% of the principal to adjusted equity and 25% to adjusted debt in evaluating the financial leverage of XL. Key features supporting the equity credit class of the preference ordinary shares include the junior subordination, option to defer dividends on a cumulative basis and redemption option after July 15, 2033.

Besides these securities, XL is concurrently issuing approximately $2 billion of common stock. A portion of the total capital raising effort is intended to offset the $1.775 billion cash payment XL will make to Security Capital Assurance (SCA) as part of the termination and release of certain agreements between the two companies. The remainder of the proceeds will be used for general corporate purposes, including the injection of capital into certain operating subsidiaries.

Upon issuance of the equity security units preference ordinary shares, and common equity XL's level of hybrid securities is expected to be comfortably within Fitch's stated 30% guideline maximum for hybrid securities as a percentage of an insurance holding company's total capitalization. As of June 30, 2008 XL's equity-adjusted debt-to-total capital, excluding any FAS 115 adjustment for unrealized losses, was 21.4%. Following issuance and payment to SCA, XL's financial leverage is expected to remain near that level.

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.