XL Capital and its insurance operating subsidiaries have seen their outlook lowered by Moody's Investor Service.

But the Bermuda-based insurance giant's Baa1 senior debt rating and the A1 insurance financial strength ratings of its subsidiaries have been affirmed by the ratings agency.

"The negative outlook on XL reflects further stress on the company's capital and financial flexibility resulting from the downgrades of XL Capital Assurance (XLCA) and XL Financial Assurance (XLFA)," said Moody's in a statement.

XLCA and XLFA are wholly-owned subsidiaries of Security Capital Assurance, which is about 46 percent-owned by XL. The rating agency expects XL's ratings could be downgraded if additional losses in excess of $1 billion were to result from XL's exposure to Security Capital Assurance or its investment portfolio of structured mortgage securities deteriorates further.