XL Capital Assurance in Moody's downgrade threat

Moody's Investors Service has placed the A3 insurance financial strength ratings of the operating subsidiaries of Security Capital Assurance Ltd ("SCA"), including XL Capital Assurance Inc. ("XLCA"), XL Capital Assurance (U.K.) Limited ("XLCA-UK") and XL Financial Assurance Ltd ("XLFA") on review for possible downgrade.

Moody's is also reviewing for possible downgrade the debt ratings of the holding company, Security Capital Assurance Ltd (senior debt at (P)Baa3), and a related financing trust. This rating action was prompted by SCA's recent SEC filing which stated that the company was delaying the filing of its 2007 Form 10-K and that the company's independent auditor is evaluating the need to include a going concern explanatory paragraph in its audit opinion with respect to SCA's audited financial statements for the year ended December 31, 2007.

IMPACT ON RATINGS OF INSURED OBLIGATIONS

As a result of this review for possible downgrade, the Moody's-rated securities that are guaranteed or "wrapped" by XLCA, XLCA-UK and XLFA are also placed on review for possible downgrade, except those securities with public underlying ratings of A3 or higher. A list of these securities will be made available under "Ratings Lists" at www.moodys.com/guarantors.

Moody's stated that a going concern explanatory paragraph indicates that the auditor concludes that there is substantial doubt regarding the entity's ability to continue as a going concern for a reasonable period of time without substantial disposition of assets outside the ordinary course of business, restructuring of debts, externally forced revisions of its operations, or similar actions. Moody's notes that SCA's disclosure suggests that it has not yet been determined whether a going concern paragraph will be included in the auditor's opinion letter, nor does it indicate what the rationale for a going concern paragraph would be. Nonetheless, the fact that the need for such a paragraph is being evaluated by SCA's auditor is further indication of disruption in the company's operating profile.

The company also noted in its filing that it expects to incur approximately $1.5 billion of net mark-to-market losses on its credit derivative portfolio, including approximately $645 million in net credit impairment charges, as well as $44 million in net losses arising from its direct RMBS exposures, primarily from transactions backed by second lien mortgage collateral. Moody's stated that the magnitude of credit impairments announced by SCA falls within the range of losses previously considered by Moody's in its rating action of February 7, 2008, when the insurance financial strength rating was downgraded from Aaa to A3.

According to Moody's, the ratings review will focus on developments related to the potential issuance of a going concern explanatory paragraph by SCA's auditor, as well as additional details related to SCA's capital plans and strategic direction.