A.M. Best Places Ratings of XL Group plc and Its Subsidiaries Under Review with Negative Implications

A.M. Best has placed under review with negative implications the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of “a+” of the on-going property/casualty subsidiaries of XL Group plc (XL) (Ireland) [NYSE: XL] based on the recent announcement that XL entered into an agreement to acquire Catlin Group Limited. Concurrently, A.M. Best has placed under review with negative implications the ICRs of “bbb+” of XL and XLIT Ltd (Cayman Islands), as well as the debt ratings of XLIT Ltd. (See below for a detailed listing of the companies and ratings.)

The under review status reflects A.M. Best’s concern associated with the complexity of an acquisition of this size and scope. Furthermore, in order to achieve the greatest efficiencies and long-term gains, a successful integration must be achieved within a reasonable time period, which includes retention of key management teams, optimization of capital structure, operation and systems infrastructure, in addition to company cultures. There is execution risk while this transition is taking place, which is partially mitigated by the collaborative nature of this transaction. During the integration period, A.M. Best also believes there is greater inherent risk to the ongoing operations of the combined company. During this heightened risk period, debt leverage for the consolidated organization is anticipated to increase toward the higher end of A.M. Best’s acceptable range.

Looking beyond the aforementioned risk factors, the proposed transaction has favorable attributes which include combining two quality companies with solid management teams, global capabilities and strong risk-adjusted capital positions. The combined organization would have greater scale, a broader product offering, and it would be expected to have increased influence in the market.

The under review status will be removed once the transaction has closed and A.M. Best reviews the final integration plan. Factors that could lead to a negative outlook or rating downgrade include A.M. Best’s view that the transaction and integration plan represent a potentially material risk to the organization. Factors that could lead to a stabilization of the ratings include a sound and streamlined integration plan, retention of key personnel and moderate debt and leverage measures.

The FSR of A (Excellent) and the ICRs of “a+” have been placed under review with negative implications for the following subsidiaries of XL Group plc:

• XL Re Ltd
• Indian Harbor Insurance Company
• Greenwich Insurance Company
• XL Insurance Company of New York, Inc.
• XL Insurance America, Inc.
• XL Select Insurance Company
• XL Reinsurance America Inc.
• XL Specialty Insurance Company
• XL Insurance (Bermuda) Ltd
• XL Re Latin America Ltd
• XL Insurance Company SE
• XL Re Europe SE
• XL Insurance Switzerland Ltd

The following debt ratings have been placed under review with negative implications:

XLIT Ltd.—

-- “bbb+” on $350 million 6.375% senior unsecured notes, due 2024

-- “bbb+” on $325 million 6.25% senior unsecured notes, due 2027

-- “bbb-” on $999.5 million 6.5% Series E non-cumulative preferred securities, redeemable 2017

-- “bbb+” on $400 million 5.75% senior unsecured notes, due 2021

-- "bbb+" on $300 million 2.30% senior unsecured notes, due 2018

-- "bbb+" on $300 million 5.25% senior unsecured notes, due 2043

-- “bbb-” on $345 million Series D non-cumulative preferred securities

The following indicative ratings on shelf securities have been placed under review with negative implications:

XLIT Ltd.—

-- “bbb+” on senior unsecured debt

-- “bbb” on subordinated debt

-- “bbb-” on preferred stock

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

• Analyzing Insurance Holding Company Liquidity

• Catastrophe Analysis in A.M. Best Ratings

• Insurance Holding Company and Debt Ratings

• Rating Members of Insurance Groups

• Risk Management and the Rating Process for Insurance Companies

• Understanding BCAR for Property/Casualty Insurers

• Understanding Universal BCAR

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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