XL Capital Group's financial strength rating from AM Best will remain at A (excellent) after the Bermuda insurer published preliminary third-quarter results this week, the ratings agency said yesterday.

XL estimated it lost more than $1.6 billion in the July through September period, largely because of a $1.4 billion charge to virtually eliminate its exposures to bond insurer Syncora Holdings (formerly known as Security Capital Assurance) and more than $220 million of estimated losses due to hurricanes Gustav and Ike.

"While XL Capital continues to de-risk its investment portfolio, it remains exposed to the current credit market situation and the volatility in equity markets and credit spreads on corporate investments," Best said yesterday.

"Accordingly, AM Best will closely monitor any additional effects of capital market dislocations on XL Capital's investment portfolio, as well as any deterioration in its underwriting performance. If any significant unanticipated negative developments arise, AM Best will re-evaluate the company's ratings."

Last Friday Standard & Poor's affirmed its A+ financial strength rating on XL, which helped to reverse a slide in the company's share price and the Best announcement should also help to ease investors' immediate concerns.

However, XL's life insurance arm's financial strength rating was yesterday downgraded to A- from A by Best.

XL Life has been the subject of a "strategic review" which is expected to be concluded before the end of this year. XL's chief financial officer Brian Nocco said in a conference call on Tuesday that selling the operation was one of the alternatives being considered.

"These rating actions reflect XL Life's diminishing business profile within XL Capital, the pressure on capitalisation primarily due to FAS 115 [an accounting standard] adjustments and the generally declining premium produced by XL Life," Best said in its commentary yesterday.

"Although XL Capital has contributed capital to support both realised and unrealised losses, due to the uncertainty and volatility of the markets, additional mark to market adjustments and realised losses may occur in fourth quarter 2008."

XL shares rose 50 cents, or five percent, to $10.61 in New York Stock Exchange trading yesterday.

Meanwhile, Fitch ratings said yesterday that insurers and reinsurers in the US, Europe and Japan face a rising risk of downgrades because "unprecedented" volatility in credit and equity markets is causing investment losses for the firms.