XL Capital Ltd. is expected to continue producing solid operating results following the resolution of its problems related to troubled bond insurer Syncora Holdings (formerly known as Security Capital Assurance), according to ratings agency AM Best.

Yesterday Best announced it had affirmed the company's financial strength rating of A (excellent) and issuer credit rating of "a" and removed the ratings from review with negative implications. The outlook is stable.

Best suggested that XL's July renewal business had suffered some negative impact, but that this had been minimised by the company's actions to address the problem.

But the agency also aniticipated some volatility in XL's future financial results, due to varying market values of its investments that have been impacted by the credit crisis. And it says XL's future prosperity will depend heavily on its ability to keep its best staff.

Earlier this month, XL paid Syncora nearly $1.8 billion, plus eight million shares, to terminate reinsurance contracts and guarantees that amounted to 98 percent of XL's exposure to the bond insurer.

XL raised almost $2.9 billion by selling ordinary shares and equity security units to fund the deal.

Before the agreement, investors' uncertainty over what exposure XL had to Syncora was a major factor in XL shares losing around three-quarters of their value in the space of a year.

"In AM Best's opinion, the XL Capital business franchise did sustain some negative effects during the July 2008 renewal season prior to reaching agreement with SCA; however, management's determined efforts with clients, brokers and employees following the announced agreement successfully limited those effects to a relatively minor level," Best said in its statement yesterday.

"Going forward, XL Capital is expected to continue its solid operating performance, despite a soft pricing market with overall results anticipated to vary on a quarter-to-quarter basis due to the company's continued exposure to mark to market adjustments from its credit-exposed investment portfolio."

"AM Best believes that under the leadership of new CEO Mike McGavick, XL Capital possesses the necessary resources characteristic of a robust operating franchise. However, the company's future success will be critically dependent on the CEO's ability to preserve XL Capital's core businesses and the strong intellectual capital supporting its business segments."