NEW YORK (Bloomberg) ? XL Capital Ltd. yesterday sold $750 million of debt that converts into stock to replenish its capital.

In February, XL reported a fourth- quarter loss of $305 million after setting aside $694 million to increase reserves for policies sold too cheaply in the 1990s.

XL took the multi-million dollar charge after an exhaustive, three-month long review of its reserves, with particular scrutiny given to casualty business written through Nac Re, a company it acquired in 1999.

A ?ground up? claims audit review led by Mr. O'Hara and other senior management boosted reserves for its American reinsurance subsidiary - XL Re America - by $663 million. The company also boosted reserves across the group, for its insurance and reinsurance business, by $150 million and $62 million respectively.

The combined charge taken by the company was off-set by a positive development in their reserves set aside for possible claims from the September 11 terrorist attacks, with $181 million coming back into its coffers.

The expense to increase reserves has prevented the company from benefiting as much as rivals from the highest commercial insurance rates in a decade.

Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. managed the sale.

XL expected to offer approximately 30 million equity security units priced at $25 per unit.

XL also expected to grant the underwriters an over-allotment option to purchase up to approximately 3 million additional equity security units at the offering price.

The bonds automatically convert into stock on May 15, 2007, and pay an annual interest rate of 6.5 percent quarterly. If the price of XL Capital is equal to or below $75.19 on May 15, 2007, investors in the company get 0.3325 of a share in the insurer for each share they own.

If the price is between $75.19 and $93.99 an investor gets between 0.3325 and 0.2660 shares for each XL share they own; if it?s equal to or above $93.99, the investor gets 0.2660 of the company?s stock for each share they own.

XL Capital shares fell one cent to $75.18 today in New York Stock Exchange composite trading.