Intercargo Corp., a company Bermuda-based XL Capital Ltd. is in the process of acquiring.

Intercargo Corp., which XL Capital agreed to buy in December, had a net loss of the $4.3 million or 59 cents per share in the fourth quarter of 1998. For the year Intercargo had a net loss of $3.4 million in 1998, compared to $31.8 million in profits earned the year before.

The 1997 profits include an after-tax gain of $29.4 million for the sale of substantially all of the company's investment in Kingsway Financial Services.

During the 1998 quarter, the company increased its loss reserves by $4.2 million on a pre-tax basis for what it called "emerging development'' on the marine, professional liability, and other property and casualty lines of business.

News of the losses comes only three months after XL announced it had made a deal to buy Intercargo for $88 million as part of its bid to expand operations in the US. Since then XL has signed a agreement to purchase NAC Re.

The Intercargo deal is still in the process of being completed an XL Capital spokesman said. He declined to comment on the Intercargo results in relation to the XL purchase.

"This is not something that is going to delay the purchase,'' he said.

Intercargo provides coverage for companies in international trade, including US Customs bonds and marine cargo insurance.

Intercargo also announced a $1 million expense related to the merger with a subsidiary of XL, increased bad debt reserves by $761,000 and wrote off certain intangible assets of $390,000 as part of a decision to divest TRM Insurance Services.

During 1998 the company had net written premium of $55.2 million -- a gain of 5.51 percent. Intercargo also reported growth in its surety and property and casualty business. Marine cargo net written premium declined 4.4 percent to $22.6 million. The company attributed the fall to ongoing price competition in the market.

"The ongoing price competition and excess capacity in the global insurance market will continue to present challenges to underwriting profit,'' Intercargo stated. "The company will continue to compete by providing value-added products and services and by enhanced marketing to customers through its regional offices.'' Net-investment income for the year was $8.26 million compared to $53.78 million the year before. Total revenues were $61.3 million, a 45.l3 percent drop from 1997.

Expenses were $22.88 million compared to $18.91 million in the previous year.

The company announced it won't be paying a dividend. Intercargo is based in Schaumburg, Illinois. XL made the deal to purchase Intercargo at $7 million above its $81 million in market capitalisation, or at 1.08 of book value.