(This is an amended version of a release issued earlier
today. It contains updated information in the fourth paragraph.)
XL Capital Ltd (XL) announced today that it plans to spin off 35% of its financial guaranty business via a proposed initial public offering (IPO) of a portion of the common shares of Security Capital Assurance Ltd (SCA). It is proposed that SCA will be a newly created holding company that will own XL's primary market financial guarantor XL Capital Assurance Inc. (XLCA) and reinsurance affiliate XL Financial Assurance Ltd. (XLFA). After reviewing the proposed spin-off, Fitch Ratings believes successful implementation of the IPO will reduce the rating volatility of XLCA and XLFA, which became a concern after the October 2005 one-notch downgrade of XL and its property/casualty reinsurance subsidiaries XL Reinsurance America Inc. and XL Insurance (Bermuda) Ltd.
Although the ratings of XLCA and XLFA were not directly affected by the XL downgrade, the financial guaranty ratings became susceptible to downward pressure to the extent XL's ratings would be lowered further in the future. Fitch believes the proposed IPO, upon successful implementation, reduces this susceptibility and achieves further ratings separation of up to three notches between the 'AAA' Insurer Financial Strength (IFS) ratings of XLCA and XLFA and the ratings of XL and its property/casualty subsidiaries. Following the IPO, ratings separation between XLCA and XLFA and XL is limited due to Fitch's concern that XL still maintains a majority economic interest and a majority control of SCA's board of directors.
Under the IPO plan, XL plans to retain 65% of SCA's common shares upon implementation of the IPO. XL expects to retain 50.1% voting control in the matter of electing board directors from a group nominated by independent directors and 47.5% of the voting control on all other matters submitted to the board. Fitch gains comfort from the fact that SCA's board of directors will comprise a majority of directors that would be viewed as independent from XL.
To provide sufficient capital to support the Fitch rating, inclusive of projected growth, the IPO proceeds will be invested in the capital base of XLCA and XLFA. Following the execution of the IPO, SCA will pay only nominal dividends for two years to its common shareholders. During this time, XLFA and XLCA dividends will be restricted to funds needed to support any SCA preferred dividends, nominal common shareholder dividends, debt payments, and holding company operating expenses.
As of Dec. 31, 2005, XLCA and XLFA maintained an aggregate of $81.9 billion of net par in force. XL is a Bermuda-headquartered holding company with subsidiaries providing insurance, reinsurance, and specialty financial products and services on a worldwide basis. The company reported consolidated GAAP assets of $58.4 billion and shareholders equity of approximately $8.5 billion at Dec. 31, 2005.
Fitch affirms the following XL financial guaranty related ratings with a Stable Outlook:
XL Capital Assurance Inc.
-- IFS 'AAA'.
XL Financial Assurance Ltd.
-- IFS 'AAA'.
Twin Reefs-Pass Through Trust
-- Long-term 'AA'.
Additionally, Fitch affirms the following ratings with a Stable Outlook:
XL Capital Ltd
-- Issuer Default Rating (IDR) at 'A+';
-- $594 million 5.25% senior notes due 2014 at 'A';
-- $825 million 2.53% senior notes due 2009 at 'A';
-- $350 million 6.375% senior notes due 2024 at 'A';
-- 8% series A preference ordinary shares at 'A-';
-- 7.625% series B preference ordinary shares at 'A-';
-- $650 million equity security units 'A'.
XL Capital Finance (Europe) PLC
-- Issuer Default Rating (IDR) at 'A+';
-- $255 million 6.58% senior notes due 2011 at 'A';
-- $600 million 6.50% guaranteed senior notes due 2012 at 'A'.
Fitch also affirms the following XL subsidiaries' insurer financial strength ratings (IFS) at 'AA-' with a Stable Outlook:
XL Insurance (Bermuda) Ltd
XL Re Ltd
XL Insurance Switzerland
XL Re Latin America Ltd
XL Europe Ltd
XL Reinsurance America Inc.
XL Insurance Company of New York, Inc.
XL Specialty Insurance Company
Indian Harbor Insurance Company
Greenwich Insurance Company
XL Insurance Company Limited
XL Select Insurance Company
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
XL Capital Ltd (XL) announced today that it plans to spin off 35% of its financial guaranty business via a proposed initial public offering (IPO) of a portion of the common shares of Security Capital Assurance Ltd (SCA). It is proposed that SCA will be a newly created holding company that will own XL's primary market financial guarantor XL Capital Assurance Inc. (XLCA) and reinsurance affiliate XL Financial Assurance Ltd. (XLFA). After reviewing the proposed spin-off, Fitch Ratings believes successful implementation of the IPO will reduce the rating volatility of XLCA and XLFA, which became a concern after the October 2005 one-notch downgrade of XL and its property/casualty reinsurance subsidiaries XL Reinsurance America Inc. and XL Insurance (Bermuda) Ltd.
Although the ratings of XLCA and XLFA were not directly affected by the XL downgrade, the financial guaranty ratings became susceptible to downward pressure to the extent XL's ratings would be lowered further in the future. Fitch believes the proposed IPO, upon successful implementation, reduces this susceptibility and achieves further ratings separation of up to three notches between the 'AAA' Insurer Financial Strength (IFS) ratings of XLCA and XLFA and the ratings of XL and its property/casualty subsidiaries. Following the IPO, ratings separation between XLCA and XLFA and XL is limited due to Fitch's concern that XL still maintains a majority economic interest and a majority control of SCA's board of directors.
Under the IPO plan, XL plans to retain 65% of SCA's common shares upon implementation of the IPO. XL expects to retain 50.1% voting control in the matter of electing board directors from a group nominated by independent directors and 47.5% of the voting control on all other matters submitted to the board. Fitch gains comfort from the fact that SCA's board of directors will comprise a majority of directors that would be viewed as independent from XL.
To provide sufficient capital to support the Fitch rating, inclusive of projected growth, the IPO proceeds will be invested in the capital base of XLCA and XLFA. Following the execution of the IPO, SCA will pay only nominal dividends for two years to its common shareholders. During this time, XLFA and XLCA dividends will be restricted to funds needed to support any SCA preferred dividends, nominal common shareholder dividends, debt payments, and holding company operating expenses.
As of Dec. 31, 2005, XLCA and XLFA maintained an aggregate of $81.9 billion of net par in force. XL is a Bermuda-headquartered holding company with subsidiaries providing insurance, reinsurance, and specialty financial products and services on a worldwide basis. The company reported consolidated GAAP assets of $58.4 billion and shareholders equity of approximately $8.5 billion at Dec. 31, 2005.
Fitch affirms the following XL financial guaranty related ratings with a Stable Outlook:
XL Capital Assurance Inc.
-- IFS 'AAA'.
XL Financial Assurance Ltd.
-- IFS 'AAA'.
Twin Reefs-Pass Through Trust
-- Long-term 'AA'.
Additionally, Fitch affirms the following ratings with a Stable Outlook:
XL Capital Ltd
-- Issuer Default Rating (IDR) at 'A+';
-- $594 million 5.25% senior notes due 2014 at 'A';
-- $825 million 2.53% senior notes due 2009 at 'A';
-- $350 million 6.375% senior notes due 2024 at 'A';
-- 8% series A preference ordinary shares at 'A-';
-- 7.625% series B preference ordinary shares at 'A-';
-- $650 million equity security units 'A'.
XL Capital Finance (Europe) PLC
-- Issuer Default Rating (IDR) at 'A+';
-- $255 million 6.58% senior notes due 2011 at 'A';
-- $600 million 6.50% guaranteed senior notes due 2012 at 'A'.
Fitch also affirms the following XL subsidiaries' insurer financial strength ratings (IFS) at 'AA-' with a Stable Outlook:
XL Insurance (Bermuda) Ltd
XL Re Ltd
XL Insurance Switzerland
XL Re Latin America Ltd
XL Europe Ltd
XL Reinsurance America Inc.
XL Insurance Company of New York, Inc.
XL Specialty Insurance Company
Indian Harbor Insurance Company
Greenwich Insurance Company
XL Insurance Company Limited
XL Select Insurance Company
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.