Fitch affirms ratings of XL subsidiary

Fitch Ratings has affirmed the ratings of XLIT, a Cayman Islands subsidiary of XL Group, and its property/casualty re/insurance subsidiaries.

The affirmations include XL's issuer default rating (IDR) at 'A-' and the insurer financial strength (IFS) rating of its core operating companies at 'A+'.

Fitch's affirmation of XL's ratings reflects the company's large diversified market position in both insurance and reinsurance lines, 'Strong' capitalisation, favourable underwriting results and reasonable financial leverage. Partially offsetting these positives are overall earnings volatility and weak fixed charge coverage.

The ratings also reflect Fitch's negative sector outlook on global reinsurance. The shifting market landscape in reinsurance is pressuring profitability and sparking consolidation as companies aim to enhance their relative competitive position.

Fitch views XL as having thus far reasonably managed the integration of Catlin during the first year of the acquisition, with the transaction having closed on May 1, 2015. However, significant risks remain as the operations and risk management practices of the two companies continue to be combined.

Successful integration of Catlin could provide longer-term positive credit benefits relating to further diversification of earnings and business profile, leveraging the benefits of a larger organisation, it said.

XL recently announced a proposed change in the parent holding company's incorporation to Bermuda from Ireland, with XL Group (Bermuda) replacing XL Group (Ireland). This redomestication is subject to regulatory and shareholder approval and will not result in any rating changes to XL and its subsidiaries.