NEW YORK (Reuters) - XL Capital Ltd., a large Bermuda-based reinsurer, posted a 16 percent drop in quarterly profit yesterday, hurt by investment losses and a drop in revenue.

Hamilton, Bermuda-based XL recorded first-quarter net income of $178.4 million, or 53 cents a share, compared with $211.9 million, or $1.19 a share, a year earlier.

Excluding net realised gains and losses, XL had an operating profit of $212.4 million, or 63 cents a share, missing analysts' average expectations of 64 cents a share, according to Reuters Estimates.

Operating income was $276.9 million, or $1.55 a share, a year earlier.

XL said net realised losses on investments were $171 million in the period, part of about $1 billion in mark to market losses in the quarter.

Gross written premiums fell 30 percent to $1.89 billion from to $2.7 billion in the first quarter of 2008.

XL shares closed down about 5.4 percent at $8.48 on the New York Stock Exchange. The earnings report was issued after US markets closed. XL shares have fallen nearly 80 percent from their 52-week high of $38.30 set last May 2, according to Reuters data.

Mike McGavick, CEO of XL, said: "I believe this first quarter performance demonstrates that XL is on solid footing and remains on track to deliver long-term shareholder value.

"The P&C operations' combined ratio of 93 percent in the first quarter is an improvement over the same quarter last year, and for the full year 2008.

"This strong result supports our intention to focus on those lines of business within our insurance and reinsurance operations that provide the best return on capital.

"While gross premiums written have decreased this quarter, they are within the range of our expectations and confirm our strict adherence to underwriting discipline."