Fitch Rates XL Financial Assurance Ltd. `AAA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 6, 2000

Fitch rates `AAA' the insurer financial strength of XL Financial Assurance Ltd. (XLFA), a financial guarantee reinsurance company. Fitch also rates `AAA' the insurer financial strength of XL Capital Assurance Inc. (XLCA), a financial guarantor. The ratings reflect the companies' business strategies, capitalization, reinsurance arrangements, risk guidelines, and ownership structures.

Bermuda-based XLFA was formed in 1998 as part of a joint venture between XL Capital Ltd (XL Capital, NYSE ticker symbol: XL) and Financial Security Assurance Holdings Ltd. (FSA Holdings). XLCA was formed in 1999 as an indirect, wholly owned New York domiciled subsidiary of XL Capital. XL Capital is one of the two largest insurance holding companies in Bermuda with approximately $16.4 billion in consolidated assets and $5.6 billion in shareholders' equity as of Sept. 30, 2000. FSA Holdings is owned by The Dexia Group, a large European banking group. FSA Holdings' principal subsidiary, Financial Security Assurance Inc. (FSA), is a U.S. based financial guarantor whose insurer financial strength Fitch rates `AAA'.

XLCA will reinsure on an arms-length, pro rata basis 90% of its premiums and exposure to XLFA. This reinsurance arrangement is integral to XLCA's rating given its relatively small capital base. XLFA may in turn, cede selected XLCA exposures to XL Insurance Ltd (XLI), XL Capital's principal insurance subsidiary. XLFA will also assume financial guaranty business written directly by XLI, continue to assume business through its joint venture with FSA, and seek financial guarantee reinsurance business from other monoline and multiline insurance companies. From business written to date through a separate XL Capital subsidiary and through its joint venture with FSA, XLFA and XLI have financial guaranty net par in force totaling just over $12 billion. XLCA has no exposure to this existing business.

XLCA's origination focus is asset-backed securities (ABS), mortgage-backed securities (MBS), collateralized debt obligations (CDOs), and structured single risk transactions, including essential infrastructure project finance, future flow-backed transactions, and selected municipal obligations. XLCA will limit its involvement in U.S. municipal finance to lower risk transactions, particularly those that other `AAA' financial guarantors cannot insure due to capacity constraints. All XLCA and XLFA insured transactions are underwritten to an investment-grade, zero-expected loss standard. In addition, the companies have established conservative portfolio concentration limits by sector, region, originator, servicer, and obligor.

Subsequent to a capital injection today from XL Capital and FSA Holdings, XLFA's surplus totals approximately $274 million. XLCA's surplus, currently $84.6 million, will increase to approximately $100 million following its expected purchase of an insurance company shell within the next couple of months, bringing the combined surpluses of XLCA and XLFA to $374 million. The purchase of the shell will facilitate the acquisition of additional state insurance licenses, although XLCA already has licenses to operate in 10 states including New York. To supplement its capital resources, XLI has provided an unlimited and unconditional guarantee to XLFA for its reinsurance obligations to XLCA. XLI is rated `AA' by Standard & Poor's. In addition, XLFA benefits from a nine-year stop loss reinsurance facility provided by a triple-A rated reinsurer which provides XLFA with coverage of $100 million for losses in excess of $250 million.

Both XLCA's and XLFA's investment portfolios are externally managed, with preservation of capital as the primary investment objective. Consistent with other `AAA' financial guarantors, guidelines mandate that all investments be fixed-income securities rated no lower than `A-', with the portfolio maintaining an average credit quality of `AA'.