XL Capital's operating subsidiaries have had their A+ (superior) financial strength ratings affirmed by AM Best.

Additionally, Best has affirmed the ICR of "a-" and the existing debt ratings of "a-" on senior debt, "bbb+" on subordinated debt and "bbb" on preferred shares of XL Capital.

The outlook for all ratings is stable. Best said their actions reflected XL Capital's record earnings reported for 2006, with consolidated net income of $1.763 billion as the group's diversified portfolio of risks and lack of catastrophe activity enabled it to nearly recoup the $1.97 billion in pre-tax net losses incurred related to the 2005 natural catastrophes.

Enhancing net income is a growing asset base, which has increased the contribution of net investment income to operating results, the agency said.

Although market conditions are softening within the global reinsurance industry, Best believes that XL Capital is well positioned to manage the current underwriting cycle, albeit at potentially reduced operating margins given rate softening and increased global capacity.

In 2007, XL Capital raised capital of $1.325 billion, including a $1.0 billion preferred security issuance, the proceeds from which are to be used primarily for the purchase of approximately $830 million of XL Capital's Class A ordinary shares.

A.M. Best believes that XL Capital continues to maintain solid financial flexibility with strong access to both debt and equity markets. The group's market capitalisation remains above its book value and well above its tangible book value. Best expects XL Capital to maintain financial leverage as measured by debt and preferred-to-total capital below 30 percent and to maintain fixed charge coverage in the mid to upper single-digit range.

XL Capital has taken steps to reduce its susceptibility to shock losses through discontinuing some of its catastrophe-related programmes. And its agreement with Cyrus Re that began in 2006 in which XL Capital retroceded 50 percent of its property catastrophe premiums to Cyrus Re to reduce volatility.