XL Capital had its financial strength and debt ratings affirmed yesterday, but ratings agency A.M. Best assigned the company a negative outlook based on the Bermuda-based insurer?s risk capital position.

XL received an ?A+? (Superior) financial strength rating and an issuer credit rating of ?aa-?, while its existing debt ratings of ?a-? on senior debt, ?bbb+? on subordinated debt and ?bbb? on preferred shares were also affirmed.

The rating agency also affirmed the financial strength rating of ?A+? (Superior) and has assigned an issuer credit rating of ?aa-? to XL Life Insurance and Annuity Company of Schaumburg, Illinois.

?These rating actions reflect XL Capital?s diverse earnings base, excellent capitalisation and well-recognised position as a leading worldwide provider of coverage for insurance, reinsurance and financial products and services,? Best said.

Best noted that ?XL Capital?s fixed charge coverage has improved over the past year and debt-to-capital leverage ratios remain commensurate with its current debt ratings.?

It expects the group?s coverage and leverage ratios to further improve barring any extraordinary catastrophes as projected earnings increase shareholders? equity and the holding company liquidity.

But Best cautioned that XL recorded approximately $595 million in net incurred losses from the 2004 hurricane season in the United States and from the Boxing Day Asian tsunami and had also had to strengthen reserves for adverse development in US casualty reinsurance lines primarily related to accident years 1997 to 2001.

?Although reserves for these accident years are currently developing within anticipated parameters, there is no assurance that this trend will continue,? Best said.

Best said the negative outlook was based on its opinion that ?XL Capital?s risk-based capital position, which improved during 2004, has yet to reach the levels attained prior to its expansion into primary lines of business and the US casualty reserve strengthening charge in 2003.

?The negative outlook is also based on XL Capital?s current situation with Winterthur Swiss Insurance Company, which is related to XL Capital?s acquisition of Winterthur International in 2001.

?Since both parties have agreed to proceed with a binding independent reserve valuation process, if XL Capital?s submission to the independent actuary is not closest to the number developed by the independent actuary it may be required to record an approximate charge of $909 million to reduce its recoverable position.?