XL Capital shares soared 61 percent yesterday as investors saw value in strong underwriting results and looked beyond the company's $2.6 billion net loss in 2008.

Despite a traumatic year for the company, in which it lost billions of dollars through the combination of investment losses amid market turmoil and extricating itself from an ill-fated association with bond insurer Syncora Holdings Ltd., insurance operations remained profitable.

In a conference call with investors yesterday, XL chief executive officer Michael McGavick was upbeat about the prospects for 2009.

"XL has been made tougher by what we have been through and we will be stronger going forward," he said.

The message he was giving to staff was that he would rather be at a firm that has got the hard work of adjustment to difficult times behind it than one which still has much more to do. "Then we can enjoy the benefits of the strong comeback we believe we will deliver," he added.

He also emphasised that XL did not need to seek new capital and, answering a question over reports in December that XL was seeking a buyer, he said the company was "focused on operating as an independent company".

XL took a $400 million charge in the fourth quarter to help it reduce the amount of risk in its investment portfolio, which contributed to its $1.43 billion net loss for the three-month period, but was a move which went down well with at least one influential analyst.

"The assets sold in 'portfolio restructuring' could act to limit additional 2009 losses," said Joshua Shanker, an analyst at Citigroup Inc. in a research note yesterday. He added that fourth-quarter investment losses were "much improved from potential expectations". Mr. Shanker rates XL a speculative "buy".

Those comments helped to propel XL's share price from its closing price of $2.90 on Tuesday to $4.68 by the close of New York Stock Exchange trading yesterday.

A bulletin from Barclays was not so optimistic. "XL believes it has adequate capital to support its ratings, which appears optimistic to the firm in light of further potential investment losses and franchise erosion," the bulletin stated.

It added that XL's balance sheet challenges continued in the fourth quarter and that "its future depends on its ability to avoid further investment write-downs and rating agency downgrades, as well as prevent franchise erosion".

XL's combined ratio — the percentage of premium dollars spent on claims and expenses — was 95.7 percent for 2008, meaning that its insurance and reinsurance operations made a profit despite the approximately $230 million in claims resulting from hurricanes Gustav and Ike. In an interview with The Royal Gazette Mr. McGavick said: "We are extremely proud of what our underwriters have achieved in difficult circumstances."

The impact of rumours swirling around XL and the decision by two rating agencies to downgrade the company close to the January renewals period had added to underwriters' challenges. But business had been renewed at around historical rates and staff retention had been high.

"The rumours had it that we were bleeding customers — nope," Mr. McGavick said. "And they had it that we were bleeding our good people — nope. The statistics show that people want to be insured by XL and they want to be part of the great underwriting culture at XL."

Just three of the 75 people who can make reinsurance commitments on behalf of the company had left by the end of the year, Mr. McGavick said. On the insurance side, XL hired more underwriters than it lost, even as rumours about the company's financial situation circulated.

On the efforts to stop a pattern of investment losses, Mr. McGavick said: "The $400 million restructuring charge we have chosen to take in the fourth quarter will allow us to accelerate the 'de-risking' of the portfolio that we have been engaged in for some time. If the volatility in the markets were similar in future, then we would see less impact on the portfolio."

The $400 million will give XL flexibility through selective sales of assets to result in fewer investments with exposure to the credit markets.

He added that ratings agencies AM Best and Standard & Poor's had indicated to XL that there would be no action taken on XL's ratings, following the release of fourth-quarter results. Both agencies give the company a financial strength rating of A.