XL Capital Ltd. chief executive officer Michael McGavick has shown his confidence in his company bouncing back from its recent hard times by spending $2 million of his own money on the Bermuda-based insurer's shares.

A regulatory filing on Thursday showed that Mr. McGavick purchased 110,000 XL shares on the open market at $18.19 apiece, thereby quadrupling his holding in the company he leads.

Another insider to give personal financial backing to the company was former Bermuda Governor Sir John Vereker, an XL director, who invested nearly $50,000 in its shares, also on Thursday.

Mr. McGavick has been in the XL hot seat for three months, succeeding Brian O'Hara, and has experienced a baptism of fire during one of the most difficult periods in the company's history.

The global business insurer's share price recently hit a 16-year low, having lost about three-quarters of its value over the past year, largely because of investors' uncertainty over potential future losses related to bond insurer Security Capital Assurance Ltd. (SCA).

Last Monday evening, XL announced it had agreed a deal worth about $1.9 billion with SCA — comprising $1.78 billion in cash, plus eight million shares — to virtually eliminate its reinsurance exposure to the financial guarantor.

To pay for the deal, XL announced it would raise $2.5 billion from a share offering, and on Friday the company said it expected gross proceeds to total around $2.875 billion when the offering closes tomorrow.

But the past week has been bittersweet for XL. The liberation of cutting loose from the SCA ball and chain has been tempered by the unpleasant process of eliminating 165 jobs — some four percent of its global workforce. Included are 47 posts to go at its Bermuda headquarters, as first reported on The Royal Gazette website on Wednesday afternoon.

The job losses are part of an effort to streamline the company's corporate infrastructure to fit with the strategy of refocusing on its property and casualty insurance operations and were entirely separate from the SCA agreement.

"On one hand, it's a very difficult experience we have overcome, on the other hand we know there will be some painful situations," Mr. McGavick told The Royal Gazette. "Here it amounts to about 47 positions that may be eliminated. We're in the process of consultation with employees in those kinds of jobs and that will go on."

The company is also considering options for the future of its life reinsurance operations. Asked whether XL would sell the unit, the CEO replied: "In a strategic review, you consider any and all choices. It's a thorough examination."

The situation for XL and its employees could have been far worse, had the negotiations that led to the SCA deal failed. Mr. McGavick revealed that there was a real possibility of SCA becoming insolvent after a dramatic deterioration in the bonds it insures — some of them backed by sub-prime mortgages — during late June. Had SCA folded, XL would have been hit with claims of up to $5 billion, the CEO said.

Regulators the Bermuda Monetary Authority and the New York Insurance Department were involved in the negotiations, which also included some of the counterparties to the SCA contracts.

"If you think about it, for all of those involved in the negotiations, apart from XL, it was either in their self-interest or their regulatory interest to have the payment be greater," Mr. McGavick said. "It was a lonely experience."

Explaining the rationale behind the agreement, he added: "We were sitting on $65 billion of notional exposure and even if all of that business was good, there was going to be a cost to the option of having that exposure through the guarantees. So ridding the company of a $65 billion exposure was the first thing.

"The second thing was: 'What was the likelihood of payment?' You've seen public numbers of $900 million to $1.1 billion of what we viewed those ground-up exposures to be. Although that would have been before late June when we learned there had been dramatic deterioration at SCA. So those numbers would have gone up some on their own."

He said the deterioration had surprised not only XL, but also SCA. "This raised the spectre of insolvency at SCA," he added.

XL, which spun off SCA in 2006, was exposed through reinsurance and guarantees to financial guaranty business written by SCA before the company floated on the stock market. Some credit-default swap contracts had triggers that would have required claims to be immediately payable by XL in the case of SCA's insolvency — claims estimated between $3 billion and $5 billion.

Aside from the economic considerations, Mr. McGavick said there was a good business reason for coming to the agreement.

"It was clear to us that with the rating agencies becoming concerned, expressed in certain watches like by Moody's, that if we didn't take action, there would be damage to the franchise," Mr. McGavick.

"I want to make it clear that we had terrific retention numbers right through this time. But it was clear that the noise was getting very loud and if we hadn't got this behind us in a timely manner, there would have been real damage.

"We believe that this was the right thing to do and are pleased to be able to say that SCA is behind us."

The deal eliminates 98 percent of XL's exposure to SCA business. All that remains is a group of seven contracts related to five public infrastructure projects in the European Union, including toll roads and a hospital.

"They add up, in notional value, to $1.1 billion in exposure, but they're all performing well," Mr. McGavick said.

"They're triple-B rated by S&P. And we're very comfortable with those exposures. We view them as benign risks.

"At the same time, the contracts require SCA to use best commercially reasonable efforts to say these need to be extinguished and we expect them to be extinguished."

Mr. McGavick spent some of last week calling the brokers and clients, who, along with staff had stuck by XL throughout the SCA saga. He said XL "could not be more grateful" for their support.

The XL brand name had been stressed, but not damaged, he added. "With this behind us, XL is XL, one of the greatest underwriting organisations in the world," Mr. McGavick said. "And we're awfully proud of that fact. Now we can talk to people about their risks and not our risks. That's a relief to the franchise."