Bermuda-based XL Capital reported fourth-quarter net income of $471 million, compared with a loss of $822 million for the catastrophe-scarred comparable period in 2005.

Gross premium written for the quarter decreased 1.1 percent, the company said, as a result of corporate risk management initiatives and fewer long-term agreements.

Bear Stearns & Co. Inc. analyst David Small found that the better than expected results were driven by a number of special factors including a lower than expected tax rate.

Mr. Small said that excluding those items, and taking into account foreign exchange and unrealized investment losses, the company missed the analyst estimate due to greater than expected expenses driven by an increase in performance-based compensation costs.

“Top line production was essentially in line with our expectations,” he noted. “While gross premiums written were lighter than estimated, the company appears to be retaining more of its insurance business.”

The analyst expects reserve release to continue through 2007. “On an accident-year basis we anticipate the eventual erosion of profitability as competition continues to increase,” according to Mr. Small.

“Finally, it remains unclear how XL will put its capital to work and whether the company will join the fray of share repurchases,” he said.

Special Reports /

XL Quarterly Net Soars After Loss

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