Bermuda-based business insurer XL Capital Ltd. yesterday had its financial strength rating of A (excellent) affirmed by AM Best.

The company has managed to pull itself from the mire following last year's net loss of more than $2.6 billion and AM Best noted the "early achievements of XL's recovery plan" and its enhanced risk management.

Last year, XL paid out nearly $1.9 billion to terminate reinsurance contracts and guarantees related to Security Capital Assurance (SCA), since renamed Syncora Holdings, a bond insurer which XL span off in 2006.

And the company's credit-related investments also produced hefty losses during the treacherous market environment in the second half of last year.

But the company's strong recovery in 2009 has been reflected in its share price, which is up more than 360 percent this year to date.

"These rating actions reflect the early achievements of XL Capital's recovery plan following last year's settlement with Syncora Holdings Ltd., which included de-risking of the investment portfolio, reduction of corporate expenses, implementation of a more robust risk management programme and retention of key senior underwriting management," AM Best said yesterday.

"The group's core operating results remain strong in both primary and reinsurance segments. XL Capital's property/casualty combined ratio for the six months ended June 30, 2009 was 92.6 percent, reflective of the group's established market profile and worldwide presence, while risk-based capitalisation remains solid and fully supportive of the group's rating level."

The New Jersey-based rating agency said it was encouraged by XL's enhanced risk management programme, which, AM Best said, should enable the group to operate more efficiently and detect unfavourable trends earlier.

"The debt-to-capital ratio for XL Capital Ltd is expected to remain in the mid 20 percent range going forward," AM Best added. "Fixed charge coverage ratios over the past several years fell below expectations as earnings were reduced due to capital market volatility and settlement with Syncora Holdings Ltd.

"However, this concern was reduced by the substantial level of cash held at XL. On a going forward basis, the fixed charge coverage ratio is expected to stabilise and remain in the three times to five times range.

"AM Best anticipates that XL Capital will continue its solid operating performance, despite a soft pricing market. As XL Capital continues to de-risk its investment portfolio, the group will remain exposed to any volatility in equity markets and credit spreads on corporate investments.

"Accordingly, AM Best will continue to monitor the effect of capital market activity on the group's earnings."