XL Capital Ltd., a Bermuda-based insurer that found an $878 million shortfall in reserves last year, said first-quarter profit rose 85 percent on an increase in premiums.

Net income rose to a record $462.2 million, or $3.25 a share, from $250 million, or $1.74, a year earlier, according to a statement.

XL Chief Executive Brian O'Hara oversaw profit growth after a fourth-quarter loss from increasing reserves to pay reinsurance contracts.

XL found that a reinsurance company it had bought in 1999 sold policies too cheaply in prior years, requiring it to add to reserves to pay claims. XL's focus now is casualty insurance, an area in which prices continue to increase after three years.

“I am pleased to announce record first quarter results with all segments of our business being profitable and contributing to this impressive performance,” Mr. O'Hara said in the statement.

The company said net income, excluding realised gains and losses on investments and credit and derivative instruments, rose 31 percent to $328.8 million, or $2.36 per share, from $250.2 million, or $1.82 per share, a year earlier. On that basis, analysts polled by Reuters Research on average forecast per-share profit of $2.20.

XL said revenue rose 20 percent to $2.16 billion, while expenses rose 12 percent to $1.65 billion. It said net premiums written from general operations rose 19 percent to $2.78 billion. XL shares rose 15 cents to close at $76.50 on the New York Stock Exchange.

“Our problems are behind us - we're convinced of that,” Mr. O'Hara said in an interview with Bloomberg two weeks ago. “It's a matter of just demonstrating that quarter to quarter.”

XL cut Mr. O'Hara's pay 61 percent to $1.23 million last year as shares of XL rose less than one percent amid a 24 percent surge in the Standard & Poor's 500 Property & Casualty Insurance Index. The stock has fallen 1.4 percent this year, compared with a 4.6 percent gain in the index.

“Shareholders and analysts need to see the earnings,” O'Hara said.

With files from Reuters and Bloomberg