Fitch Ratings affirms the ratings of XL Capital Ltd (XL) and its property/casualty (re)insurance subsidiaries, including the 'A+' Issuer Default Rating (IDR) for XL, and the 'AA-' Insurer Financial Strength (IFS) rating of lead (re)insurance companies XL Insurance (Bermuda) Ltd and XL Re Ltd. (See the full list below.) The Rating Outlook is Stable.

XL's ratings reflect its strong competitive position with worldwide capability in commercial insurance and reinsurance, recent improvements in operating results, reasonable financial leverage, solid capitalization of its (re)insurance subsidiaries and conservative investment portfolio.

Offsetting these positives is XL's earnings volatility and weak operating performance in recent years which was primarily attributable to catastrophe losses, losses from the events of Sept. 11, 2001, and adverse prior-year loss reserve development.

XL reported an operating return on equity of 20.1% in 2006, above XL's guidance for this metric. XL reported net income after preference share dividends of $1.7 billion in 2006 following a record net loss after preference share dividends of $1.3 billion in 2005.

Over the past 18 months, XL has taken several measures to reduce its catastrophe exposure and earnings volatility. Going forward, solid operating performance is also dependent on minimal prior-period adverse loss reserve development. XL posted favorable reserve development in 2006 and thus far in 2007, following adverse development totaling nearly $2.9 billion from 2001-2005. Overall, Fitch believes that loss reserves are stronger than in recent years but some uncertainty remains regarding certain lines, particularly in casualty reinsurance and professional liability.

To sustain the current ratings, it is important for XL to demonstrate consistent operating profitability. Fitch believes that despite softening market conditions across many lines of business, XL's capital position, underwriting franchise and financial flexibility should enable the company to produce favorable earnings.

XL is a Bermuda headquartered holding company with subsidiaries providing insurance and reinsurance on a worldwide basis. The company reported consolidated GAAP assets of $62.1 billion and shareholders equity of $11.3 billion at March 31, 2007. The company's equity-adjusted debt to total capital was 17.2% at March 31, 2007.