Bermuda-based XL Capital Ltd. saw its shares fall as much as 5.3 percent on Friday after the company raised reserves for reinsurance claims, cutting second-quarter profit by $183 million.

XL increased reserves to pay recently reported claims on professional liability and corporate board coverage sold between 1997 and 2001, among other policies, the company said yesterday.

The cost, equivalent to $1.31 a share, would erase more than half the $2.43 a share XL was expected to earn before investment gains and losses, according to a Thomson Financial poll of analysts.

XL, which sells reinsurance to help other insurers limit their losses, had already boosted reserves for its North American reinsurance business twice in 2003, cutting profit by more than $800 million. At the time, the company said it believed it had uncovered all shortfalls after a thorough review.

?We acknowledged your message that there was zero tolerance for any further adjustments,? chief executive Brian O?Hara told investors on a conference call on Friday. ?Nobody is more disappointed than me to be discussing our adjustments with you today.?

Shares of XL fell $3.37, or 4.6 percent, to $70.51 at 10:44 a.m. in New York Stock Exchange Composite trading after earlier dipping to $69.98. The shares closed on Friday at $70.99.

The shares have fallen six percent in the past year compared with an 11 percent gain in the KBW Insurance Index.

Michael Paisan, an analyst at Legg Mason Wood Walker, said today that he?s ?lost all confidence in management?. O?Hara ?has used up most, if not all, of his past goodwill,? said Paisan, who has a ?hold? rating on the stock.

?We believe the board of directors should do something about it.?

XL said 82 percent of the increase is tied to coverage sold before 2001.

Several ratings of XL Capital Ltd remained on Rating Watch Negative by Fitch Ratings on Friday including XL Long term issuer ?A?.

XL Insurance (Bermuda) Ltd Insurer financial strength ?AA? and XL Re Ltd. Insurer financial strength ?AA?.

Fitch said in its ratings watch that XL?s earnings have been significantly affected by adverse development of prior years? reserves in recent years, with a large portion of this development related to the US reinsurance operations. Adverse loss reserve development relating to XL?s General and financial operations totalled $267.6 million in 2004, $937.3 million in 2003, and $400 million in 2002.

?This continued adverse development creates further uncertainty regarding long term reserve adequacy and the sustainability of earnings going forward, and adds downward pressure to the ratings at the current level,? the agency said.

XL?s ratings were originally placed on Rating Watch Negative by Fitch in February 2005 after XL announced it would enter an independent valuation process with Winterthur Swiss Insurance Company (Winterthur) regarding settlement of a reserve seasoning agreement related to XL?s July 2001 purchase of Winterthur International.

If XL is unsuccessful in the independent actuary review process, the company could face a net pre-tax reserve increase of approximately $900 million.

Fitch said that it would review XL?s capital position and any plans to replenish capital from this potential charge, but there is a strong likelihood that the ratings would be downgraded at that time, most likely by one notch.

If XL is successful in the process, however, Fitch is likely to affirm the ratings at the current level and remove them from Rating Watch Negative.