NEW YORK (Bloomberg) — XL Capital Ltd., the insurer that rose more than fourfold in New York trading this year, may give up more reinsurance business in next year's renewal of treaties should rates not be adequate.

"At the reinsurance side of our business we are perfectly willing to shrink," chief executive officer Michael McGavick said in an interview in Monte Carlo yesterday, where reinsurers meet clients to discuss next year's rates.

"We are not going to chase the market to foolish pricing. At the peak, XL was a $3 billion reinsurance operation and this year we might end up with $1.7 billion to $2 billion in premiums."

McGavick, 51, replaced Brian O'Hara, who served as XL's CEO for about 13 years, in May last year.

The company's capital was depleted by sub-prime losses and ties to Syncora Holdings Ltd., the troubled bond insurer formerly known as Security Capital Assurance Ltd., which XL co-founded. XL had to raise more than $2.8 billion in capital to replenish funds. Now it has to fend off a decline in policy sales as customers scale back purchases amid the recession.

"Our company's troubled times in the past are no longer a topic in conversations with our clients," McGavick said. "We are also no longer seen as a takeover target as there wouldn't be many bidders out there that could afford to pay more than $5 billion right now."

A former CEO at Seattle-based Safeco Corp., McGavick helped boost XL shares from record lows in February by saying the insurer has adequate funds after it reported a 2008 net loss of $2.55 billion. He also announced job cuts totalling about 10 percent of the workforce.

"Right now we like pricing in the US catastrophe business where we see good rate increases achievable and we like the pricing on the financials directors and officers segment," McGavick said. "We also expect to see better prices in aviation."

XL, which said on July 29 it has received a total of 36 claims tied to Bernard Madoff's $65 billion Ponzi scheme, has no reasons to change its view on expected losses related to that, McGavick said. XL sells coverage to clients protecting them against lawsuits. Madoff confessed in December to a fraud that may cost insurers as much as $3.8 billion to reimburse clients for losses and legal defense expenses, Aon Corp. wrote in January.

XL started the year at $3.70 in New York Stock Exchange trading and has since risen 355 percent to $16.99, valuing the company at $5.8 billion.