Winterthur International, saying the acquisition will strengthen its presence in Europe.

And the agency also backed recent "streamlining efforts'' aimed at keeping the Bermuda insurer competitive as it affirmed its A (Superior) financial strength rating of XL Capital Ltd. and its group members.

AM Best also assigned an "a'' rating to existing senior debt of NAC Re Corp., which XL acquired last year.

AM Best said XL's global reach, strong capitalisation, sustained earnings and successful management contributed to the rating.

"In addition, the group maintains a distinct competitive advantage as a Bermuda-domiciled organisation given its favourable regulatory and tax environment.

"Through recent streamlining efforts and a number of significant acquisitions over the past several years, the XL group has strategically differentiated its market capabilities, enabling it to expand its distribution base and offer a broad range of high excess insurance and reinsurance products that meet the changing demands of its customers.

"The pending acquisition of Winterthur International will solidify the group's presence internationally -- particularly in Europe -- enhancing its distribution platform and providing long-term business prospects through cross-selling opportunities.'' But the agency warned that the insurer also faced "ongoing market challenges associated with the group's large account and reinsurance segments, along with integration and financial risks associated with its large acquisitions in recent years''.

"While recognising its contribution to the group, A.M. Best is modestly concerned with the additional risk imposed by its structured finance products,'' the agency said.