XL Capital Ltd announced yesterday that on March 14, it made a $72.75 million investment in Primus Guaranty, Ltd. ("Primus"), a newly formed company specialising in providing credit risk protection for individual corporations, sovereigns and financial institutions.

XL is the lead investor in a group of four financial institutions, with XL taking an approximately 43% ownership of Primus in equity capital.

Robert Lusardi, CEO of XL's Financial Products and Services operations, said: "We believe that credit risk protection will be one of the fastest growing risk transfer markets over the next five years. Credit risk is inherent in corporate trade and buyer/supplier transactions, is embedded in virtually every structured finance transaction and is the dominant issue in the corporate loan and investing communities. The market for credit risk protection, as measured by the credit default swap market, has expanded exponentially over the past couple of years. Primus is a new entrant with large financial capacity and the highest counterparty ratings.

"XL, through our financial guaranty operations, provides credit protection but only on pools of corporate obligations and only on an excess basis. We had been actively studying the single name, ground up credit default insurance market when we were introduced to Primus. In turn, Primus had spent considerable time and effort developing pricing and trading models and credit and control systems and had successfully recruited extremely experienced credit and management executives."

"Over the past several months, XL and Primus worked together to create a corporate structure and develop institutional backing to ensure Primus becomes one of the stronger entities in the credit risk market, as evidenced by the `Triple A' ratings from S&P and Moody's. Primus fits in XL's strategy of developing and investing in businesses at the forefront of the `convergence' of insurance and capital markets and aligning ourselves with highly talented people."

XL will receive two seats on Primus' Board of Directors with XL Chairman Michael Esposito, Jr. serving as the Chairman of Primus and Robert Lusardi serving as a director and Chairman of the Finance and Investment Committee.

Primus Financial Products, Inc., a subsidiary of Primus Guaranty, Ltd., is the only triple-A rated company dedicated to providing investment grade credit risk protection to derivatives dealers and credit portfolio managers. Primus Financial seeks to invest in credit risk.