XL Capital Ltd. said last month?s tsunami in Asia and higher-than-expected claims from US hurricanes cost the company $139 million in the fourth quarter.

The after-tax expense results from $75 million in tsunami claims and $74 million in hurricane damage, XLsaid last night. The company said it underestimated hurricane claims in the third quarter, when it reported $446 million.

Also yesterday, XL Capital took a knock when a respected analyst downgraded its stock yesterday from ?buy? to ?neutral? and predicted the property casualty insurance sector would see slower earnings growth.

CBS MarketWatch reported yesterday that Merrill Lynch insurance analyst Jay Cohen had lowered the ratings of XL and US insurer Chubb Corp. from ?buy? to ?neutral? and had moved from a positive view of the industry to a a neutral one.

XL shares dropped sharply yesterday, falling $1.53 to $76.75 while Chubb dropped $1.64 to $75.90. But there was good news for Bermuda-based ACE Ltd., as Mr. Cohen said he favoured less cyclical stocks like ACE, American International and the Hartford. Nonetheless, in a generally bad day for insurance stocks, ACE fell 17 cents to $43.68 and AIG fell 46 cents to $66.55. Mr. Cohen said that since the sector dropped in October, property and casualty shares had gained an average of 18 percent, twice as much as the Standard & Poor?s 500 Index, Mr. Cohen explained in a note to clients.

The average property and casualty stock now trades for 1.6 times book value, Cohen noted.

?These multiples have expanded since the middle of 2004 when valuations were negatively impacted by news of increasing price competition in commercial lines,? Mr. Cohen added. ?The competitive conditions have not ameliorated, but multiples have expanded.?

Cohen said he expected the underwriting environment to deteriorate ?in a rational fashion?, with slowing premium growth and gradually rising loss ratios. Still, there?s a chance that underwriting conditions may worsen more quickly than expected, he added. Positive earnings revisions that have characterised the industry in the past year could be replaced by reductions in profit estimates as 2005 progresses, Mr. Cohen said.