A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of the property/casualty subsidiaries of the holding company, XL Group plc (XL) (Ireland) (NYSE: XL) led by XL Insurance (Bermuda) Ltd (Hamilton, Bermuda). Concurrently, A.M. Best has affirmed the ICR of “bbb” of XL and XL Group Ltd. (Cayman Islands) as well as all debt ratings for XL Group Ltd. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)

The rating affirmations reflect the organization’s excellent risk-based capitalization, strong worldwide market presence and the completed de-risking of the group’s investment portfolio. Although XL subsidiaries’ property/casualty operating results are unprofitable through the first six months of 2011 (with a combined ratio of 110% due to the worldwide catastrophes), the group averaged a favorable combined ratio of 92.3% for the previous five years. A.M. Best remains encouraged by the strategies implemented by the XL management team. These strategies are supported by an enhanced risk management program and a continued focus on underwriting as the key component of the group’s business approach. Management’s focus on its core underwriting strengths has been exhibited by the recent addition of a substantial number of new senior underwriters. Furthermore, as a result of XL’s completed de-risking of its investment portfolio, the organization has successfully reduced the level of market volatility in its investment results, which for the past several years over shadowed the solid operating performance of its core businesses.

XL’s debt-to-capital ratio is expected to remain in the 15%-25% range as capital is anticipated to be enhanced by strong earnings. The fixed charge coverage stabilized in 2010 and is expected to remain comparable with the current level over the near term.

Partially offsetting these positive factors is XL’s exposure to large severity events and the current soft pricing stage of the underwriting cycle. Additionally, investment returns are expected to be muted by low interest rates and financial market variability.

The FSR of A (Excellent) and ICR of “a” have been affirmed for the following subsidiaries of XL Group plc:
  • XL Re Ltd
  • Indian Harbor Insurance Company
  • Greenwich Insurance Company
  • XL Insurance Company of New York, Inc.
  • XL Insurance America, Inc.
  • XL Select Insurance Company
  • XL Reinsurance America Inc.
  • XL Specialty Insurance Company
  • XL Insurance (Bermuda) Ltd
  • XL Re Latin America Ltd
  • XL Insurance Company Limited
  • XL Re Europe Limited
  • XL Insurance Switzerland, Ltd.

The following debt ratings have been affirmed:

XL Group Ltd.—-- “bbb” on $600 million 5.25% senior unsecured notes, due 2014-- “bbb” on $350 million 6.375% senior unsecured bonds, due 2024-- “bbb” on $325 million 6.25% senior unsecured notes, due 2027-- “bb+” on $1.0 billion Series E non-cumulative preference shares, redeemable 2017

XL Capital Finance (Europe) plc (guaranteed by XL Company Switzerland GmbH) -- “bbb” on $600 million 6.5% senior unsecured notes, due 2012

The following indicative ratings on shelf securities have been affirmed:

XL Group Ltd.—-- “bbb” on senior unsecured-- “bbb-” on subordinated-- “bb+” on preferred stock

XL Capital Finance (Europe) plc (guaranteed by XL Group Ltd) -- “bbb” on senior unsecured

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition , which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; “Natural Catastrophe Stress Test”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; and “A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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