Bermuda-based business insurer XL Capital Ltd. posted a net loss of $40.3 million in the fourth quarter of 2009 as investment losses outweighed an underwriting profit.

The results released last night mean that XL achieved net income of $206.6 million for 2009, having come back from a $2.6 billion loss in 2008.

XL CEO Mike McGavick said the results marked "XL's re-emergence as a leading property and casualty company".

The realised after-tax investment losses totalled $254.8 million, some of which was realised through the selling off of mortgage-linked securities, both residential and commercial.

XL focused much effort last year in "de-risking" its investment portfolio, lowering the proportion of credit-linked securities.

"One of our key initiatives throughout the year has been to reposition the investment portfolio to one more typical of a P&C company, and to reduce its inherent volatility," Mr. McGavick said.

"During the quarter, we saw market prices approach intrinsic values for certain asset classes as a result of a technical driven spread rally but where the holdings were still exposed to weak fundamentals.

"We seized this opportunity to further de-risk our investment portfolio by selling $1.2 billion of such assets. The repositioning of our P&C portfolio is now 80 percent complete, and further reductions in legacy positions are more likely to occur over time from natural cash flows.

"Our attention has now turned to the optimal realignment of the portfolio rather than pure de-risking actions."

The $40.3 million fourth quarter net loss broke down to 12 cents per share, compared to a loss of $1.43 billion, or $4.33 per share in the same period in 2008.

Underwriting operations were profitable, as the company achieved a combined ratio — the percentage of premium dollars spent on claims and expenses — of 96.4 percent for the quarter and 93.6 percent for the year.

Operating income was $235.8 million for the quarter and $917.3 million for the year.

Mr. McGavick said XL's top line in the fourth quarter of 2009 was "within three points of the same quarter a year ago".

The company had achieved a turnaround while maintaining underwriting discipline, even in the continuing soft market.

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Book value grew for the third straight quarter, by three percent to $24.60 per share. Total shareholders' equity increased from $9.2 billion to $9.4 billion in the quarter.

"We are tremendously proud of the turnaround XL made in 2009," Mr. McGavick said, adding that the company had achieved a 72 percent rise in tangible book value and produced an operating return on equity of 13.5 percent.

He added: "No one can state with certainty when or how the underwriting cycle will turn, but we believe we have taken the steps necessary to position XL well, both in the face of current challenges and for when market conditions improve."