XL Capital Ltd. last night reported a first-quarter net income of $211.9 million — down 57 percent on the same three months of last year.

The global business insurer put the $337.8 million decline in profit down to a variety of factors, particularly to a fall in earnings from investments.

In the last quarter of 2007, XL lost $1.2 billion, much of that loss related to its involvement with struggling bond insurer Security Capital Assurance (SCA).

XL, which has written down the value of its SCA ownership to zero, is determined to convince investors that its sub-prime problems are behind it.

Before yesterday's results were announced, XL shares closed in New York trading at $30.04, down 39 cents. But they dropped another $2.54 to $27.50 in early after-hours trading. The share price has fallen 40 percent this year.

The company reported that the total investments available for sale on its balance sheet fell by $4.1 billion during the first quarter, from $36.3 billion to $32.2 billion. The company said this was mainly due to "asset sales to fund the redemption of the company's muni-GIC liabilities".

A muni-GIC (Guaranteed Investment Contract) is an insurance contract issued to a municipality that gives the buyer a guaranteed rate of interest on a sum of money that has been raised for a specific project. The term of the contract is typically short and the average life is dependent on the time it takes to complete the project.

XL said net unrealised losses on investments, net of tax, as at the end of the quarter, were $1.4 billion, an increase of $1.1 billion over the first quarter.

The company said this was "substantially due to continuing widening credit spreads on corporate and structured credit investments, and unfavourable foreign exchange rate movements, partially offset by declines in interest rates".

Excluding realized investment losses, XL earned $1.57 cents a share, missing the $2.24 average estimate of 19 analysts surveyed by Bloomberg. Chief executive officer and acting chairman Brian O'Hara said: "Although XL is steadily navigating through some extremely difficult global credit market conditions, which is reflected in our lower investment performance relative to the outstanding results in the prior year quarter, we have still achieved another solid performance from our insurance, reinsurance, and life operations."

Mr. O'Hara will step down as CEO at the end of this month, to be replaced as of May 1 by Michael McGavick, the former CEO of Seattle-based insurer Safeco.

XL made net realised losses on investments of $102.3 million, including charges of $114.8 million for what the company described as "other than temporary impairments".

Earnings in the reinsurance segment climbed from $43.6 million to $67.4 million. And life operations contributed $27.4 million to earnings, up $4.3 million on the same period in 2007.

But the insurance division saw its underwriting profit fall from $116.8 million in the first quarter of last year to $40.7 million in 2008, even though gross premiums written rose 3.1 percent.