A.M. Best Co. on Wednesday assigned a debt rating of “bbb” to the $350 million of non-cumulative perpetual preferred securities issued by XL Capital sidecar Stoneheath Re, a Cayman Islands exempted company. The rating outlook is stable.

The issuer is licensed as a restricted Class B reinsurer under the laws of Cayman Islands and was formed to provide multi-year reinsurance capacity to certain insurance and reinsurance subsidiaries (ceding insurers) of XL, Best said.

The issuer’s business activities will be limited to the following: issuing the issuer preferred securities; investing in eligible assets; entering into the reinsurance agreement, the securities issuance agreement, the asset swap agreement, the interest swap agreement and related agreements; and other necessary activities related to the performance of the aforementioned documents.

Proceeds from the issuance of the issuer preferred securities will be deposited into a trust account and will be available to satisfy obligations of the issuer to the ceding insurers under the reinsurance agreement. Upon a payment by the issuer to the ceding insurer under the reinsurance agreement or upon the occurrence of certain other events, XL Capital, pursuant to the securities issuance agreement entered into between XL Capital and the issuer, will issue and deliver to the issuer series D preference ordinary shares (XL preferred securities) of XL Capital in an amount equal to the payment made by the issuer.

The terms of the reinsurance agreement between Stoneheath Re and XL Capital provide XL Capital the flexibility to amend the attachment point, which is the trigger event for XL Capital to issue preferred shares, without affecting any other terms and conditions.

As a result, A.M. Best has assigned XL Capital’s preferred share debt rating to Stoneheath Re’s perpetual preferred shares.