Rating Action on XL Capital - Analyst Blog

Rating agency A.M. Best affirmed the rating of XL Capital’s (XL) subsidiaries with a stable outlook. It includes the affirmation of a financial strength rating (FSR) of “A-“ and an issuer credit rating (ICR) of “a-" for XL Life Ltd., FSR of “A-“ and ICR of “a-" of XL Life Insurance and Annuity Company as well as the ICR of “a-" and the debt ratings for XLLIAC Global Funding.

The rating agency acknowledges XL Life’s adequate capitalization and strong support of the parent. It accounts for life insurance and reinsurance operations of the group.

However, negatives to the ratings include XL Life’s thinning business profile within the group, declining premiums and unfavorable operating results. Moreover, uncertainty and volatility in the markets have led to mark-to-market adjustments and realized losses recently.  

XL Capital’s performance has deteriorated in the recent years due to softer policy sales coupled with investment losses. Thus, the company is focusing on those lines of business within its insurance and reinsurance operations that provide the best return on capital over the pricing cycle. The company will be highly selective about new business, emphasizing short-tail lines where applicable in its reinsurance operations, exiting other businesses (e.g., casualty facultative business), not renewing certain insurance programs as well as continuing to reduce long-term agreements (within the insurance operations) in order to reap the benefit of improving pricing. We expect that this selective exposure will result in a reduction in both gross and net premiums written in 2009, and hence further restrict its top-line growth.
 
Last week, XL Capital announced its intention of shifting its place of incorporation to Ireland from the Cayman Islands.

XL Capital is expected to release fourth quarter 2009 results on Feb. 9, 2010. The Zacks Consensus Estimate for the quarter is a gain of 69 cents per share.

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