XL Capital ratings revised
–04 January 2008
AM Best has revised the outlook to negative from stable on the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-”of XL Capital Group (XL Capital) (Bermuda) and its members.
Concurrently, the ratings agency revised the outlook to negative from stable on the ICR of “a-” and all existing debt ratings of XL Capital Ltd (Cayman Islands).
The revised rating outlook reflects A.M. Best’s concerns regarding the financial pressures being experienced by Security Capital Assurance (SCA) (Bermuda) and the potential financial and operational impacts to XL Capital due to its 46% ownership of SCA. Additionally, XL Capital provides SCA with reinsurance support and guarantees certain SCA obligations, which further expose XL Capital to SCA’s financial situation.
XL Capital also has exposure to related subprime issues through its underlying investment and liability portfolios, which could compound the current situation.
Historically, XL Capital’s risk management abilities have been below A.M. Best’s expectations after experiencing significant losses from NAC Re reserve charges, the valuation charge related to the Winterthur acquisition and $1.6 billion of 2005 hurricane losses.
At the conclusion of the May 2007 ratings review, it was A.M. Best’s expectation that the likelihood of unanticipated large loss events would be curtailed given management’s previous representations concerning enhancements to risk controls and processes. As a result of these recent issues, A.M. Best will re-evaluate XL Capital’s enterprise risk management processes and capabilities and assess any further impact to its ratings.
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