XL Capital Ltd. chief executive officer Brian O'Hara said yesterday that any new legislation that would force global insurers to pay more US tax would end up hurting policy-holders who lived in hurricane-prone areas.

Some Democratic Party politicians have proposed legislation to claim tax from previously US companies which redomiciled to offshore juridictions such as Bermuda for tax reasons.

Since the Democrats won mid-term elections last year to take control of both the House of Representatives and the US Senate, the prospect of some form of US tax legislation impacting on Island companies has become more real.

Speaking during XL's conference call yesterday, after the company announced record first-quarter earnings of $549.7 million on Tuesday, Mr. O'Hara answered an investor's question about the tax issue.

"We have not seen anything specific, but we continue to monitor the situation," Mr. O'Hara said.

"We are working with other insurers and reinsurers to ensure that Congress understands the dynamics of the world-wide insurance market and the implications to the US insurance buyer of anti-competitive, protectionist legislation which is being proposed under the guise of levelling the playing field.

"By reducing competition, prices will be driven up for policy-holders, particularly those in coastal areas, areas suffering from recent hurricanes, thus hurting insurance buyers.

"Buyers, as a result of this, are opposed to efforts to increase taxes paid by global insurers, because they know that this sort of legislation will decrease insurance supply and increase cost."

He concluded: "Over the years we have observed that simplistic political assertions eventually meet up with the rich complexity of global free-trade realities."

The spectacular performance of XL Capital's hedge fund investments in the first quarter was also a hot topic in the conference call.

The company makes a significant portion of its profit from investing the premiums it receives — some of those investments in hedge funds and other "alternative investments".

Net income from investment affiliates, such as Highfields Capital Management and and MKP Capital Management, came in at $118.9 million in the period, up from $106.4 million a year earlier, XL said.

Analyst Brian Meredith, of UBS, was expecting $37 million from the most recent quarter. XL's alternative portfolio returned 5.5 percent in the quarter as several managers capitalised on the subprime mortgage market shakeout, Fiona Luck, XL's acting chief financial officer, said.

XL's shares rose 6.5 percent in trading yesterday.