XL Capital shares closed almost nine percent lower on Friday as investors reacted to an actuarial decision that is expected to reduce the Bermuda-based company?s fourth-quarter earnings by $830 million.

The actuary?s decision relates to an agreement made in 2001 when XL purchased Winterthur International from Credit Suisse subsidiary Winterthur Swiss Insurance Co. The seller agreed to replenish Winterthur International?s reserves after three years if they proved inadequate, however Winterthur Swiss and XL fell into dispute over the degree to which the reserves needed replenishing with XL requesting $1.45 billion and Credit Suisse?s putting its tab at $550 million.

As a result of the actuary?s independent valuation process ? which is expected to be be finalised on December 5 ? XL said that it will receive $575 million including interest from Winterthur Swiss as payment for the seasoning of reserves and unearned premiums for business in force prior to the acquisition date.

US markets were closed for the Thanksgiving holiday on Thursday when the draft report was released, but on Friday investors pushed the price of the stock as much as 12 percent lower to $65 in morning trading on the New York Stock Exchange. Shares recovered to $67.42 by market close.

Average daily trading volume of 1.5 million surged to a volume of 7.7 million on Friday. Analysts also reacted harshly to the report since up until the company?s third quarter earnings call earlier this month, XL executives vehemently insisted that the company would emerge the victor in this dispute. The actuary?s decision also follows a quarter in which the company posted a $1.05 billion loss due mostly to hurricanes.

?Most investors, including us, were assuming a win,? Nick Pirsos, an analyst at Sandler O?Neill, wrote in a note to clients on Friday. He cut XL Capital to ?hold? from ?buy? while Merrill Lynch analyst Jay Cohen dropped the stock to ?neutral? and Bear Stearns analyst David Small reiterated his ?underperform? rating on the stock.

In a statement released Friday, president and chief executive officer Brian M. O?Hara said the finding was ?extremely disappointing? but ?the independent actuary?s draft report removes the uncertainty that has existed since the IA review process began.?

?I do believe, however, that this draft report reinforces the soundness of XL?s reserving policies and practices on this book,? Mr. O?Hara said adding that the Winterthur acquisition is ?both a strategic and a financial success, irrespective of the IA process? and that the outcome should be viewed in the context of the final cost of the Winterthur International acquisition. XL paid $330 million for the Winterthur International business in 2001.

Mr. O?Hara said: ?The original transaction was completed just ahead of a major hardening of the market for property and casualty insurance. The acquisition was a critical strategic milestone in XL?s development as a global company. It gave us the valuable competitive advantages of a global network, strong customer relationships and intellectual capital. The assets, resources and reach of the Winterthur International business allowed us to optimise the growth opportunities we have seen since 2001.

?Winterthur International has been a significant generator of run-rate profitability to XL over the past four years as we have successfully integrated and built upon the business and network we acquired in 2001. Viewing Winterthur International on a standalone basis, I believe the net cost to XL of the WI purchase continues to represent an attractive price to earnings multiple.?

XL is working with rating agencies and its financial advisers to execute a capital raising strategy that will bring in an amount sufficient to redress the capital impact of the actuary?s draft report as well as the recent catastrophes while meeting rating agency requirements and supporting growth in 2006.