XL Capital Ltd. chief executive officer Brian O'Hara told investors in New York this week that the Bermuda insurer is "way undervalued" and he believes the markets will understand that before long.

XL shares have lost 47 percent of their value over the past 12 months and, by the close of trading yesterday, were worth less than they were eight years ago.

The plunge in the company's market capitalisation has come as the global business insurer has suffered from its exposure to the sub-prime mortgage crisis through Security Capital Assurance (SCA), a bond insurer which XL founded and in which it still owns a 46-percent stake.

Last week XL reported a fourth-quarter loss of $1 billion, as it took a $1.5 billion charge related to credit market conditions. At the Merrill Lynch investor conference on Wednesday, Mr. O'Hara said XL had taken the charges to put the SCA situation behind them and to ensure "nothing more will be coming out of the woodwork to impede us" during 2008.

"Clearly we are way undervalued and this has to be a result of the overhang from what people think we have liabilities for — but we don't think we do, as we keep trying to tell people," Mr. O'Hara said.

"In time, I think investors will get their minds around that. Clearly we should be trading above book value, like our peers."

Book value is an accounting measure of a company's assets at a particular point in time. Last week financial statements showed XL's book value was $51.16 per ordinary share at the end of 2007. Yesterday its shares ended the day at $38.06, more than 20 percent below that.

While the markets seem unconvinced that XL has drawn a line under its SCA-related troubles, Mr. O'Hara reiterated that the company's remaining exposure was to business written by SCA before it floated on the stock market in 2006. That business included virtually none of the sub-prime mortgage-linked collateralised debt obligations (CDOs) that caused SCA's problems.

Mr. O'Hara said XL had reduced its stake in SCA before the problems surfaced and had intended to cut its interests further before the crisis struck. One investor asked him whether this meant he had seen the crisis coming.

Mr. O'Hara responded that he had raised his own concerns about loose lending practices, but had been assured by financial guaranty experts that a collapse was highly unlikely, because of the way the mortgage-linked securities were structured.

"They all got it wrong, even the most experienced companies in the industry, like Ambac and MBIA," Mr. O'Hara said. "Nobody saw it coming.

"I did worry about the credit bubble, but nobody anticipated it would collapse as broadly and rapidly and have such a knock-on effect to the financial guaranty industry."

XL has been downgraded by credit rating agencies AM Best and Fitch, but still has "excellent" financial strength ratings that are better than most of its competitors in the business insurance field, he added. Another agency Standard and Poor's (S&P) had affirmed its A+ financial strength rating of the company and customers had continued to be supportive.

"We have seen no impact on our business to date and we intend to keep it that way," Mr. O'Hara said. "Our competitors are trying to make it have an impact, but most of our real competition comes from companies with lower ratings than ours."

He said XL had built a solid reputation as a prompt claims payer over its 21 years and had maintained its integrity as "the only major player to refuse to participate in the bid-rigging scandal" uncovered a few years ago by former New York Attorney General Eliot Spitzer's investigation.

"Our reputation is not going to be tarnished by going a notch down (in credit rating)," Mr. O'Hara said. "And in Europe, S&P is the important one so it hasn't bothered us at all."

XL announced last October that Mr. O'Hara would step down as CEO in the middle of this year and one investor asked how the search for a successor was going. Mr. O'Hara said the search committee expected to reach a decision by early to mid-spring.

He added: "I have impressed on them that uncertainty is not the friend of value. They have made a lot of progress and have used outside consultants to vet our list of internal candidates and we also have a list of external candidates.

"XL is entering a new chapter in our history and we're doing everything we can to make sure it's a bright one."