XL Capital CEO Brian O?Hara has pledged the $694 million pre-tax charge the company announced this week ?fully and completely addressed? its legacy issues.

XL said it would take the multi-million dollar charge after an exhaustive, three-month long review of its reserves, with particular scrutiny given to casualty business written through Nac Re, the company it acquired in 1999.

A ?ground up? claims audit review led by Mr. O?Hara and other senior management boosted reserves for its US reinsurance subsidiary ? XL Re America ? by $663 million.

On top of that the company boosted its reserves across the group, for its insurance and reinsurance business, by $150 million and $62 million respectively. The combined charge taken by the company was off-set by a positive development in its reserves set aside for possible claims from the September 11 terrorist attacks, with $181 million coming back into its coffers.

In total, the company was left with an after-tax reserve charge of $647 million, which broke out to a charge in the fourth quarter of $4.73 per share.

The company?s massive reserve increase followed another after-tax charge of $160 million in the third quarter to pay for potential claims from its North American casualty lines of reinsurance, inherited through its acquisition of NAC Re in 1999.

XL also announced it will issue at least $750 million of capital to pay for the latest charge, but that it cannot move forward with that until reviews by the rating agencies are completed in the next few weeks.

In a conference call with analysts yesterday, Mr. O?Hara said the company had ended four years of reserve shortfalls at the reinsurance unit. He said the estimates it had made at the Bermuda Angle conference for 2004, took into account the cost of raising the money for its charge, and remained at $9.05 to $9.25 a share.

Mr. O?Hara told analysts that the completion of the review concluded ?a difficult chapter?, and told investors their concerns had been taken seriously.

?We are acutely aware that this legacy adverse development at the former Nac Re has been unacceptably recurring and costly to our shareholders and has damaged our credibility,? he said.

?To address this in this painful overhanging period of the last two months we have used extensive internal and external resources to achieve a demonstrable outcome and expect to go forward without this issue detracting from our earnings in 2004 and beyond. We have heard and acknowledged your message that there is zero tolerance, in regards to this past issue repeating in our future.

?The review that we have undertaken included an extraordinary claims audit review of our North American reinsurance operations going well beyond our long established processes.?

?This was driven by an acceleration in claims in the third quarter relating to business underwritten during the 1997 to 2001 years. This trend continued in the fourth quarter, in response to which we have changed the actuarial development patterns that normally would have applied to the expected loss development of this business.?

An analyst on the call asked if the company, in hindsight, regretted its acquisition of Nac Re, but Mr. O?Hara said that was not the case, in spite of it having cost the company a lot of money.

He said XL maintained that Nac Re had been a good fit strategically, and said it had done all the due diligence on the purchase that it could have done. And he pointed out that XL had not been the only firm vying for the company, with three or four other carriers bidding for the business.