XL Financial Assistance ‘AAA’ Ratings Affirmed

S&P has affirmed its triple-‘A’ counterparty credit, financial strength, and financial enhancement ratings on XL Financial Assurance Ltd. (XLFA) because of its strategic importance to parent XL Capital Ltd. (XLC) and status as core to affiliate XL Capital Assurance Inc. (XLCA).

S&’s also said that the outlook on this company is stable.

Hard capital ($299 million), a conservative investment portfolio, and capital contributions from XLC should provide XLFA with a prospective marketing tool to expand into other risk sectors. Under XLC’s management, XLFA’s invested assets are viewed as extremely strong based on a conservative investment strategy and good asset allocation that prospectively should produce solid operating cash flows.

Lack of XLCA’s market acceptance, limited product demand, and the loss of any significant client will adversely affect XLFA’s prospective earnings. In addition, S&P believes that for assumed, nonaffiliated, third-party exposures, it will take XLFA two to four years to gain credibility, solid market accessibility, and good client relationships to develop a globally diversified risk portfolio.

Expectations are that about 20 percent of XLFA’s risk portfolio will consist of third-party cessions by 2005 as product diversification and strong operating performance emerges.

However, it will depend primarily on XLCA’s market acceptance and XLFA’s ability to confront large loss activity associated with economic stress, without support from its parent or affiliate.