and financial strength, and confirms the outlook is stable.

This comes just two days after Standard & Poor's affirmed `AA' ratings for both XL Insurance and XL Europe. For all three companies the ratings agency said `AA' reflects their status as core to their parent's (XL Capital) business plan implementation, in house risk management and prospective earnings potential.

The agency said that XL Re is, in addition, the lead reinsurer for XL Capital's reinsurance segment, which has taken three years to develop.

XL Capital's global reinsurance market position has been enhanced since 1998 by operational integration, improved efficiencies and international platforms, and XL Re continues to generate growth opportunities and to produce strong underwriting and operating results. But the agency feels these positive factors have been mitigated by XL Capital's aggressive acquisition strategy and its continuous restructuring efforts to improve accountability for its main insurance and reinsurance subsidiaries.

Standard & Poor's believes that although XL Capital's growth initiatives for its reinsurance segment and execution of XL Re's business plan have been successful, cultural and operational risks could remain for another two years.

XL Re's improved geographic and risk portfolio diversification will provide increased earnings potential through cross selling opportunities, new broker relationships, and leveraging of acquired underwriting expertise. But the agency said XL Re must maintain and improve its underwriting discipline for continued operational and earnings stability.

The major rating factors were: Extremely strong capital adequacy. XL Re's pro forma capital adequacy ratio of 224.2 percent as of September 30, 2000 is considered extremely strong and is enhanced through consistent underwriting discipline, strong earnings and limited retrocession protection.

Strong global market presence. Through XL Re Group, XL Capital has increased its global reinsurance market position ranking as the 18th largest reinsurer based on 1999 net premium writings. Combined with affiliates and strategic business units, XL Re has leveraged this position to enhance product diversification and market presence to effectively compete with its larger industry peers.

Strong operating performance. Expectations are that with XL Re becoming more involved with XL Capital's in house risk management strategies, prospective underwriting and operating profitability measures will still compare favourably with some Bermuda peers, but will be below XL Re's historical averages.

Good exposure management. XL Re's underwriting process incorporates both quantitative and qualitative analyses through a combination of third party catastrophe and proprietary risk management models to provide guidance for underwriting capacity, internal return measures and capital allocation.

Parent's extremely strong financial flexibility. As of September 30, 2000 XL Capital's debt-to-total-capital ratio was modest at 7.5 percent. Standard & Poor's believes XL Capital's financial flexibility is extremely strong regardless of XL Capital's share repurchasing and dividend distribution policies.

Aggressive management strategies of parent. XL Capital's investment and capital management strategies remain focused on superior returns for its shareholders. Such strategies could subject XL Re to increased investment risk.

Global reinsurance market conditions. Although modest signs of rate improvements have occurred in certain business lines, client consolidation, globalisation and non-traditional competition continue to cause global reinsurance pricing to remain inadequate.