XL Capital Ltd. said second-quarter profit fell 61 percent after it raised reserves for reinsurance claims.

Net income fell to $146 million, or 97 cents a share, from $373.7 million, or $2.62, a year earlier, the company said in statement this week. Profit excluding investment gains was 72 cents, compared with a $1.11 average estimate of analysts polled by Thomson Financial. XL, which previously announced a $183 million cost to boost reserves for North American property and casualty reinsurance, said shortfalls for life reinsurance contracts pushed the total reserve cost to $249.6 million in the quarter. The company has set aside extra funds to pay North American claims at least three times since 2003.

?Since the pre-announcement for the last reserve charge, they have taken an enormous hit to their credibility,? said Mark Lane, an analyst at William Blair & Co. in Chicago who has an ?outperform? rating on XL shares. ?This is just another little nick and it doesn?t help.?

XL said it was reviewing life reinsurance reserves when it announced the property and casualty cost on July 7. The $63.3 million expense announced today is more than three times what Lane had estimated. Insurers buy reinsurance to limit their losses.

Net investment income surged 53 percent to $367.4 million, partly because of an increase in invested assets. XL?s profit margin narrowed on the reserve increase; the company used 97.9 percent of premiums to pay claims and expenses, compared with 87.1 percent a year earlier. XL said reinsurance sales fell 36 percent to $347.5 million, while sales directly to policyholders dropped 7 percent to $1.1 billion. Almost a third of the property and casualty reserve boost stems from a single insurance client?s workers? compensation claims. The increase also stems from recently reported claims on professional liability and corporate board coverage that clients sold between 1997 and 2001, among other policies. XL acquired its NAC Re Corp. North American reinsurance unit in 1999. ?XL continues to disappoint as a result of its ill-advised acquisition of NAC Re,? said Michael Paisan, an analyst at Legg Mason Wood Walker who has a ?hold? rating on XL shares, in a report published before the earnings announcement. ?This brings the total amount of charges related to boosting reserves to over $1 billion, roughly what it paid for the company.?