BADEN-BADEN, Germany ? XL Re Europe, the European unit of Bermuda-based reinsurer XL Re, expects recent downgrades of its competitors by ratings agencies to help the company win more business in 2004.

?For a number of years, AA or AAA was the sort of rating most people felt necessary to lead business or to even have significant shares on casualty business,? Chief Executive Charles Werner Skrzynski said.

?That has changed because Munich Re is no longer AAA, Swiss Re is no longer AAA, and the sort of benchmark has gone down,? Skrzynski said.

?XL Re Europe has an A+ insurance financial strength rating (by S&P) like Munich Re, and more than ever, clients and brokers have to think seriously about long-term security and stability of their partners and decide whether the partner is strategically committed.?

Skrzynski made his comments in an interview with Dow Jones Newswires on the sidelines of a reinsurance conference in Baden-Baden, Germany.

Parent group XL Re is the ninth largest reinsurance group in the world in terms of gross premiums written, just behind French reinsurer Scor SA and Axa SA?s reinsurance operations, according to data by US ratings agency A.M. Best Co.

XL Re had $4.2 billion in consolidated gross premiums in 2002.

By comparison, Scor and Axa Re had $5.3 billion and $4.4 billion of premium income, according to A.M. Best data. Germany?s Munich Re, the world?s largest reinsurer, wrote 25.4 billion in gross premiums in its 2002 reinsurance business.

Bermuda-based reinsurers are trying to break in the European market, which has led established European reinsurers such as Munich Re, Swiss Re, Hannover Re and Scor to become worried about price undercutting.

Ratings are expected to play an important role in this year?s reinsurance contract renewal round, Skrzynski said. Traditionally, reinsurers kick off informal talks on next year?s renewals in the southern German spa town of Baden-Baden in the last week of October.

XL Re Europe and XL Re have an insurance financial strength rating of A+ by Standard & Poor?s Corp. and of Aa2 by Moody?s Investors Service Inc.

But both reinsurers themselves are threatened by a downgrade after XL Re?s parent, XL Capital Ltd., recently issued a profit warning.

S&P and Moody?s changed their outlook to negative after XL Capital, a Bermuda-based reinsurance and insurance holding company, issued a profit warning on Oct. 17.

XL Capital, which is listed on the New York Stock Exchange and the Bermuda Stock Exchange, said third-quarter results will be lower than expected due to higher-than-expected losses in its North American reinsurance operations.

As a result of reserve strengthening of XL Reinsurance America Inc., XL Capital expects third-quarter net income to be curbed by $184 million. XL Capital?s third-quarter earnings are due Wednesday after the market close.

Skrzynski said the charge XL Capital is taking to boost reserves at its North American unit is small. He also said it won?t tighten the financial basis of the European unit.

?The reserve charge of $184 million represents seven percent of the total reserves of XL Re America and also two percent of the net assets of XL Capital,? Skrzynski said.

XL Capital said on its website it has consolidated net assets of around $39.2 billion at the end of June and consolidated shareholders? equity of $7.6 billion.

Skrzynski noted that XL Re Europe?s capital base of 282 million in net assets is way above solvency requirements and that the unit can grow further without a capital injection.

?But if we were in need of extra capital, we would have access to that from the parent.?

XL Re Europe, formerly Le Mans Re, became a 100 percent owned European subsidiary of XL Capital in September, when XL Capital bought out the 33percent it did not already own of the Le Mans, France headquartered company.

XL Re Europe swung to a net profit or 12 million in 2002, after two years of net losses.

Of the 406 million that XL Re Europe had in gross premiums written in 2002, 89 percent was in non-life reinsurance and 11 percent in life reinsurance.

Most of XL Re Europe?s non-life reinsurance business is in property and property catastrophe reinsurance, followed by motor casualty, general casualty, marine and engineering. XL Re Europe does most of its business via insurance brokers.

Skrzynski said the recent restructuring of the European business will provide a solid basis for further growth in Germany and the rest of Europe.

Subsequently, XL Re Europe will increase reinsurance exposure and capacity in selected segments, he said.

These include property-catastrophe reinsurance, which provides cover for storms, floods and earthquakes, and property per-risk reinsurance with a single loss, such as fires.

XL Re Europe also wants to step up general casualty reinsurance cover, such as for medical malpractice. It also sees chances for growth in engineering reinsurance and credit reinsurance, he said.

?We now want to move to be a proactive player to lead some business, to participate in the price-making and terms- and conditions-setting in the whole of Europe, and Germany is one of our targets.?

XL RE Europe said it wants to grow further in its core markets of France, Italy, Germany, and Spain.

?We are already there, but we are still small there, and there are shares or competitors who are showing signs of weaknesses,? Skrzynski said.

He said the reinsurer?s shift toward more profitable business in several European markets is also expected to continue to help organic growth.

XL Re Europe last December moved bulk of its business to so-called non-proportional business where reinsurers only pay a claim if it exceeds a certain size. Its German reinsurance business will likely follow in January, he said.

The non-proportional business is more profitable, but generates lower premiums. Previously, the reinsurer and insurer shared the entire risk and claims.

XL Re Europe doesn?t plan acquisitions at the moment, after the integration of Le Mans Re was just completed, but wouldn?t rule out further acquisitions.