Note on Financial Strength and Financial Enhancement Ratings of XLCA and XLFA
The XLCA's insurance financial strength is currently rated "A3" (Under review for possible downgrade) by Moody's Investor Services ("Moody's"), "A-" (CreditWatch with negative implications) by Standard & Poor's ("S&P") and "BB" (Outlook Negative) by Fitch, Inc. ("Fitch"). In addition, XLCA has obtained a financial enhancement rating of "A-" (CreditWatch with negative implications) from S&P. These ratings reflect Moody's, S&P's and Fitch's current assessment of XLCA's creditworthiness and claims-paying ability.  XLFA's insurance financial strength is rated "A3" (Under review for possible downgrade) by Moody's, "A-" (CreditWatch with negative implications) by S&P and "BB" (Outlook Negative) by Fitch. In addition, XLFA has obtained a financial enhancement rating of "A-" (CreditWatch with negative implications) from S&P. The ratings of XLFA, XLCA or any other member of the SCA group of companies are not recommendations to buy, sell or hold securities, and are subject to revision or withdrawal at any time by Moody's, Standard & Poor's or Fitch.

Recent Developments

Moody's Investor Sevices
On March 4, 2008, Moody's Investors Service ("Moody's") announced rating actions on Security Capital Assurance Ltd ("SCA"), XL Capital Assurance Inc. ("XLCA"), XL Financial Assurance Ltd ("XLFA") and XL Capital Assurance (U.K.) Limited ("XLCA-UK"), as well as on certain Moody's-rated securities that are guaranteed or "wrapped" by XLCA, XLFA and XLCA-UK. Moody's placed the "A3" insurance financial strength ratings of XLCA, XLFA and XLCA-UK on review for possible downgrade. Moody's placed SCA's "(P)Baa3" senior debt rating, its "(P)Ba1" subordinated debt rating and its "Ba2" preference shares rating on review for possible downgrade. In addition, the "Baa2" rating of XLFA's Twin Reefs Pass-Through Trust was placed on review for possible downgrade. Finally, the "A3" rating of Moody's-rated securities that are guaranteed or "wrapped" by XLCA, XLFA and XLCA-UK, except those securities with higher public underlying ratings of "A3" or higher, were also placed on review for possible downgrade.

In taking the rating actions described above, Moody's noted that: "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." Moody's also noted that: "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."

On February 7, 2008, Moody's announced rating actions on SCA, XLCA, XLFA and XLCA-UK, as well as on certain Moody's-rated securities that are guaranteed or "wrapped" by XLCA, XLFA and XLCA-UK. Moody's has downgraded the insurance financial strength rating of XLCA, XLFA and XLCA-UK to "A3" from "Aaa". Moody's has downgraded SCA's senior debt rating to "(P)Baa3" from "(P)Aa3", its subordinated debt rating to "(P)Ba1" from "(P)A1" and its preference shares rating to "Ba2" from "A2". In addition, XLFA's Twin Reefs Pass-Through Trust was downgraded to "Baa2" from "Aa2". Finally, the Moody's-rated securities that are guaranteed or "wrapped" by XLCA, XLFA and XLCA-UK were also downgraded to "A3", except those securities with higher public underlying ratings.

Moody's release explained that Moody's evaluated SCA along five key rating factors: 1) franchise value and strategy, 2) insurance portfolio characteristics, 3) capital adequacy, 4) profitability, and 5) financial flexibility. The Moody's release noted that the rating actions reflect Moody's assessment of SCA's weakened capitalization and business profile resulting, in part, from its exposures to the U.S. residential mortgage market. Moody's outlook on SCA's ratings is negative.

In addition, Moody's noted in the release: "Based on the risks in SCA's portfolio, as assessed by Moody's according to the approach outlined above, capitalization required to cover losses at the Aaa target level would exceed $6 billion. This compares to Moody's estimate of SCA's claims paying resources of $3.6 billion, which Moody's considers to be more consistent with capitalization at the single A rating level."

On December 14, 2007, Moody's issued a comment that it has updated its evaluation of U.S. mortgage market stress on the ratings of financial guaranty companies. The announcement reflects the results of the updated analysis outlined most recently in Moody's December 5, 2007 report. The rating announcements result from Moody's reassessment of the financial guaranty insurers' capital adequacy in light of higher expected losses from credit enhancement provided to residential mortgage backed securities ("RMBS") and collateralized debt obligations of asset backed securities ("ABS CDO") that include RMBS, and are also based on Moody's assessment of financial guaranty insurers' current capital positions, their plans for capital strengthening going forward, and other strategic and operational considerations. As a result of these reviews, the Aaa ratings of XLCA, XLFA and the Moody's-rated securities guaranteed by XLCA were placed on review for possible downgrade. As described in the comment, Moody's analysis suggests that the current capitalization of SCA's operating subsidiaries, XLCA and XLFA, is above the Aaa target level, but would fall below the Aaa minimum level under Moody's present stress scenario. The comment notes that Moody's review of SCA's ratings for possible downgrade will focus on the execution of SCA's capital remediation plan and, to the extent SCA is able to rebuild its capital position and adequately address its capital adequacy shortfall, Moody's would likely confirm SCA's ratings at their current levels. Moody's notes, however, that if SCA is unable to resolve the current stress on its capitalization over the period of the review, which Moody's would expect to conclude within the next few months, Moody's believes SCA's ratings would likely be downgraded. The magnitude of any potential downgrade would depend on a number of variables, including capital remediation measures enacted, as well as SCA's prospective strategic plan and business profile.

On November 8, 2007, Moody's issued a comment indicating that it is re-estimating capital adequacy ratios to reflect deterioration in the expected performance of RMBS transactions within the insured portfolios of financial guarantors. At the same time, Moody's is updating an earlier stress test (the results of which were described in a September 25, 2007 report published by Moody's) by determining the impact of higher subprime cumulative loss assumptions on both the financial guarantors' direct RMBS and ABS CDO exposures using granular underlying collateral information as it relates to vintage, originator, and performance to date. Based on an initial analysis of the updated data Moody's noted there is a "moderate risk" of XLCA falling below Moody's Aaa capital adequacy benchmark under a stress scenario.

Fitch Inc.
On March 26, 2008, Fitch Ratings ("Fitch") announced certain ratings actions on Security Capital Assurance Ltd ("SCA") and its operating subsidiaries. Fitch downgraded the Insurer Financial Strength ("IFS") rating of XL Capital Assurance Inc., XL Capital Assurance (U.K.) Ltd. and XL Financial Assurance Ltd to "BB" from "A". SCA's Long Term Issuer Rating was downgraded to "B-" from "BBB" and SCA's Fixed/Floating Series A Perpetual Non-cumulative Preference Shares were downgraded to "CCC" from "BBB-". SCA's Twins Reefs Pass-Through Trust Securities were downgraded to "B" from "BBB".  In addition, Fitch announced that the Rating Outlook is Negative.

In taking the ratings actions described above, Fitch noted that: "The downgrade of SCA and its financial guaranty subsidiaries centers on Fitch's updated assessment of SCA's capital position, a review by Fitch of the company's current capital enhancement plans, and an update on Fitch's current views of U.S. subprime related risks. The downgrade also reflects what Fitch views as the material erosion in SCA's franchise value and competitive business position following downgrades to well below "AAA" by each of the three major rating agencies."

Further, Fitch noted in its release that, "[it] believes that SCA's current level of capital and claims paying resources is no longer consistent with [its] guidelines for an investment grade IFS rating" and that "SCA's current claims paying resources fall below the agency's targeted 'AAA', 'AA', 'A' and 'BBB' IFS rating ranges by the following amounts:  "AAA" capital shortfall of $5.6 to $5.9 billion; "AA" capital shortfall of $3.9 to $4.5 billion;  "A" capital shortfall of $1.3 to $2.5 billion;  "BBB" capital shortfall of $600 million to $1.2 billion."  In addition, the release mentioned that "SCA has been aiming to restore the company's financial and capital position," and that SCA's "suspension of new underwriting is expected to help SCA's capital position as the company will benefit from the amortization of existing insured obligations, some of which exhaust a material amount of targeted capital."

Fitch stated that, going forward, it believed that "it will be very difficult to stabilize the ratings of SCA until the company can both raise external capital and more effectively limit the downside risk from its [structured finance collateralized debt obligations ("SF CDOs")] through reinsurance or other risk mitigation initiatives. Fitch does not anticipate removing the Negative Rating Outlook over the near-to-intermediate-term until the risk of loss on the SF CDOs portfolio can be more definitively quantified."

On January 23, 2008, Fitch announced certain ratings actions on Security Capital Assurance Ltd and its operating subsidiaries. Fitch downgraded the Insurer Financial Strength rating of XL Capital Assurance Inc. ("XLCA"), XL Capital Assurance (U.K.) Ltd. and XL Financial Assurance Ltd. ("XLFA") to "A" from "AAA".  SCA's Long Term Issuer Rating was downgraded to "BBB" from "AA" and SCA's Fixed/Floating Series A Perpetual Non-cumulative Preference Shares were downgraded to "BBB-" from "AA-". SCA's Twins Reefs Pass-Through Trust Securities were downgraded to "BBB" from "AA". In addition, Fitch announced that the ratings remain on Rating Watch Negative. Fitch noted that the downgrades follow SCA's announcement on January 23, 2008 that SCA has determined not to raise new capital at the present time.

In taking the ratings actions described above, Fitch had the following comments:
"As Fitch announced on Dec. 12, 2007, when it placed SCA on Rating Watch Negative, the company has a modeled capital shortfall of more than $2 billion at the 'AAA' rating threshold. The downgrade places XLCA and XLFA's insurer financial strength (IFS) ratings at a level commensurate with an 'A' rating stress level under Fitch's most recent capital modeling.

"The downgrade of the IFS ratings to 'A' coupled with the continuation of the Negative Rating Watch, reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction; uncertain capital markets and the impact of SCA's recent decisions on future financial flexibility; the company's future capital strategy; ultimate loss levels in its insured portfolio; and the challenges in the financial guaranty market overall. Fitch expects to resolve the Negative Rating Watch after the agency evaluates these various qualitative factors, as well as the progress SCA makes with respect its ongoing future capital enhancement plans.

"The downgrade in the holding company debt ratings reflects greater uncertainties surrounding SCA's future earnings and ability to pay dividends on its Fixed/Floating Series A Perpetual Non-cumulative Preference Shares, together with movement to the more typical notching used at the 'A' IFS rating level.

"Fitch notes that when it placed SCA on Rating Watch on Dec. 12, 2007, the agency stated if a downgrade were to occur, it would expect the IFS rating of XLCA and XLFA to be downgraded to the 'AA' rating category, assuming little change to the company's current capital position. However, that view assumed SCA would have likely addressed at least a portion of its capital shortfall. While Fitch believes SCA continues to work towards addressing its capital enhancement plan, to date progress has fallen materially short of Fitch's prior expectations. Fitch will comment on the impact of the downgrade of SCA's IFS rating on the ratings of securities insured by XLCA in a separate release."

On December 12, 2007, following the completion of its capital adequacy analysis as described below, Fitch issued a press release indicating that it was placing XLCA and XLFA on "Rating Watch Negative" and that its review indicates that SCA's capital adequacy under Fitch's Matrix financial guaranty capital model currently falls below the guidelines for an "AAA" insurer financial strength ("IFS") rating by more than $2 billion due to sharp downgrades by Fitch in a number of SCA's insured structured finance collateralized debt obligation ("SF CDO") exposures. This press release also noted that if within the next four to six weeks, SCA is able to obtain firm capital commitments, and/or put in place reinsurance or other risk mitigation measures that enable SCA to meet capital guidelines, Fitch would expect to affirm SCA's ratings with a "Stable Rating Outlook". If SCA is unable to meet capital guidelines in the noted time frame, Fitch would expect to downgrade SCA's ratings. Assuming little change to SCA's current capital position, based on the results of Fitch's updated capital analysis, Fitch would expect the IFS rating to be downgraded to the "AA" category. On December 12, 2007 and December 13, 2007, SCA issued press releases indicating that it has a plan to address Fitch's additional capital requirements. This plan involves a range of options for increasing SCA's capital position within the time frame indicated by Fitch. Components of the plan include, but are not limited to, the following possible actions: the use of traditional and non-traditional reinsurance; the commutation and restructuring of certain CDO obligations with SCA's counterparties; the receipt of capital credit for certain contractual obligations in favor of SCA; and the raising of additional debt or equity capital from external sources. Although SCA and its subsidiaries are actively working to address such additional capital requirements, none of SCA, XLCA or XLFA can give any assurance as to whether this plan will be successful or whether one or more other rating agencies will require additional capital following the completion of their review of SCA and its subsidiaries.

On November 5, 2007, Fitch issued a press release indicating that it was updating its capital adequacy analysis for the financial guaranty industry in light of recent rating actions by the rating agencies with respect to SF CDOs with exposure to subprime mortgage-backed securities. Fitch's preliminary observation is that there is a "moderate probability" that SCA may experience pressure in its capital cushion under Fitch's updated stress analysis due to relatively high SF CDO exposures relative to its most recently measured capital cushion. Fitch noted that it would consider actions taken by a financial guarantor to mitigate risk or enhance its capital position while Fitch completes its review over the next four to six weeks.

Standard & Poor's
On February 25, 2008, Standard & Poor's Ratings Services ("S&P") announced several rating actions on certain subsidiaries of Security Capital Assurance Ltd ("SCA"). S&P's release announced that the financial strength, financial enhancement and issuer credit ratings of XL Capital Assurance Inc. ("XLCA"), XL Financial Assurance Ltd ("XLFA") and XL Capital Assurance (UK) Ltd. ("XLCA-UK") were lowered to "A-" and placed on CreditWatch with negative implications. In addition, the rating of XLFA's Twin Reefs Pass-Through Trust was also lowered to "A-" and placed on CreditWatch with negative implications.

In taking the ratings actions described above, S&P noted that: "The downgrade reflects [its] assessment that [SCA]'s evolving capital plan has meaningful execution and timing risk. In [S&P's] opinion, [SCA]'s ability to access additional capital resources is uncertain. Based on each of [XLCA's, XLFA's and XLCA-UK's] current claims-paying resources and projected theoretical losses generated by Standard & Poor's capital adequacy model, each of [these] companies' margin of safety falls in the 'A' category. The CreditWatch Negative designation reflects the potential that the capital plan will not be successful."

On January 31, 2008, S&P announced ratings actions on certain subsidiaries of SCA, as well as on other bond insurance companies. In its release, S&P commented that the various rating actions announced are the result of their most recent review of all the bond insurance companies' capital plans. The release noted that S&P's review covered the scope of each plan relative to the projected losses for that company, the success each company has had to date in implementing its plan, and S&P's assessment of the likelihood that the companies could implement the remaining components of their plans. The review is part of S&P's ongoing assessment of the potential subprime-related losses that bond insurers might incur and how they are managing their capital positions to handle the losses. S&P noted that further reviews will occur as circumstances warrant.

S&P's release announced that the "AAA" financial strength, financial enhancement and issuer credit ratings of XL Capital Assurance Inc., XL Financial Assurance Ltd. ("XLFA") and XL Capital Assurance (UK) Ltd. were all placed on CreditWatch with negative implications. In addition, the "AA-" rating of XLFA's Twin Reefs Pass-Through Trust was also placed on CreditWatch with negative implications. S&P noted that the negative CreditWatch placement reflects S&P's assessment that there is increased execution risk regarding SCA's ability to successfully implement its capital plan to offset projected losses. S&P noted that SCA has tabled the third-party capital-raising component of its plan due to unfavorable market conditions. S&P believes that successful implementation of the remaining components of the capital plans will be necessary to enable SCA to manage its capital relative to projected losses.

S&P stated that CreditWatch is used in a changing credit situation when a rating change is not yet certain. S&P may place ratings on CreditWatch when an event or deviation from an expected trend has occurred or is expected, when this event or deviation increases the probability of a rating action, and when additional information is necessary for S&P to take a rating action. The greater the likelihood of a rating change, the more likely S&P is to use CreditWatch, with guidelines of at least a one-in-two likelihood of a rating change occurring in the short term, typically within 90 days. S&P notes that, from time to time, events may present such significant uncertainty to an issuer's creditworthiness that a rating is placed on CreditWatch without the need to assess this threshold of potential change.

On December 19, 2007, S&P issued a comment detailing the results the completion of its third in a continuing series of stress tests of monoline financial guarantors with respect to their domestic subprime mortgage exposure. S&P notes that for this review, following unprecedented deterioration in the domestic mortgage market, S&P updated its stress scenario, incorporating a broad vintage period and including a wide group of asset classes as well. S&P's research has led them to the conclusion that the potential for further mortgage market deterioration remains uncertain and will challenge the ability of the insurers to accurately gauge their ongoing additional capital needs in the near term. As a result, S&P is effectively adopting a negative outlook for those firms with significant exposure to domestic subprime mortgages and/or meaningful lower credit quality exposures. The assignment of a negative outlook also reflects S&P's assessment with regard to the strength of a company's capital position when weighed against projected stress case losses as well as the comprehensiveness and degree of completion of projected capitalization strengthening efforts underway.

As a result of the review, the outlook on the financial strength and debt ratings of XL Capital Assurance Inc. ("XLCA"), XL Financial Assurance Ltd. ("XLFA") and Security Capital Assurance Ltd. ("SCA") were revised to negative, while their respective ratings were affirmed. S&P commented that the outlook change was warranted because of the absolute size of stress scenario losses relative to the combined capital cushion of $645 million. There were no adjustments to XLCA and XLFA's Dec. 31, 2006 combined capital cushion. The theoretic stress case scenario total after-tax net loss on residential mortgage backed securities ("RMBS") and collateralized debt obligations ("CDO") for XLCA and XLFA was estimated by S&P to be $884.1 million. S&P stated that for those insurers whose theoretic losses exceed their updated capital cushions, any rating action taken will reflect S&P's assessment of the comprehensiveness and degree of completion of projected capitalization strengthening efforts.

S&P noted that in order to address the strain on the companies' claims paying resources due to the current conditions in the RMBS and CDO markets, SCA's management has developed a capital plan that includes the following components: the commutation/restructuring of several CDO transactions; reshaping of the insured portfolio through reinsurance transactions with third parties; and capital infusions from third parties.

On November 26, 2007, Standard & Poor's issued a press release indicating it is preparing another in its series of comments on bond insurers' subprime exposure. Among other things, the release generally described new and updated data that Standard & Poor's is incorporating into its stress modeling in order to test bond insurers' ability to withstand further subprime stress. A credit opinion will be published by Standard & Poor's upon completion of this process.