XL executives remain on alert to any further deterioration within the US subprime mortgage sector, but for now are confident the company's $1.2 billion of exposure remains a sturdy segment of its multi-billion business.

That view was underlined during a conference call featuring a number of XL Capital's top officers, including chief executive officer Brian O'Hara, following Tuesday's announcement of $554 million profits - up $177m - for the second quarter.

Bermuda's second biggest insurer and reinsurer rolled out an impressive book of 2Q results together with the promise of ongoing growth through a joint insurance venture in Brazil and expansion of US-based operations.

The company's insurance gross premiums are up two percent year-on-year.

But it was XL's exposure to the shaky US subprime mortgage sector that generated a number of questions during the conference call live question and answer session.

Chief financial officer Fiona Luck said: "Given developments in the US subprime mortgage markets we thought it appropriate in this quarter to give an update on our holdings. Our overall exposure to subprime paper is approximately $1.2bn, which makes up three percent of our total fixed income portfolio holding.

"These are concentrated in 'AAA' and 'AA' securities which have a fair value of approximately $970m. We hold approximately $160m of 'BBB' rated exposures and a relatively small exposure to lower-rated 2005 and 2006 vintage securities.

"We have a good handle on our holdings and will continue to monitor what we expect to remain a volatile situation."

Providing further detail Sarah Street, chief investment officer, said the company had a total of $9.3bn exposure overall in the US mortgage sector with 94 percent being of AAA quality. Of this about $4.3bn is commercial and $5bn is residential "concentrated on high quality paper".

She added: "Our US mortgage portfolio is essentially flat, we have $160m decline on the value of this portfolio in the quarter, and the vast majority of this related to changing interest rates.

"Our subprime exposure is $1.2bn, of which $1bn is at the AAA or AA level. We did see deterioration in our BBB and asset-backed portfolios.

"A number of our alternative managers were on the right side of the subprime decline in the first quarter as they anticipated the deterioration in this sector. This continues to be the case and they are contributing positive performance to our alternative portfolio.

"Our alternative portfolio continues to benefit from this market, in the context of a $45m portfolio we feel these levels are very manageable and will continue to monitor them closely."