Bermuda insurance giant XL Capital Ltd. reported a net loss of $314.8 million after taking an already announced one-off hit for reserve charges of $647.1 million for its XL Reinsurance America operations.

But management was upbeat in its fourth quarter and year-end release last night, looking at the company's positive growth, XL's strong position and underwriting results.

Net income for the fourth quarter of 2002 was $214.1 million, or income of $1.56 per ordinary share.

Net income for the year was $371.7 million, only six percent down on the figures for 2002, when profits were $396.0 million.

“The positive underlying dynamics in our fourth quarter reflect the continuing favourable underwriting market conditions and XL's strong position in our chosen markets,” said Brian O'Hara, president and chief executive officer of XL.

“We are producing solid growth and strong underlying profitability. I am confident that the realignment of our management team in both our insurance and reinsurance operations should enhance our execution of the encouraging business opportunities at hand.”

The Bermuda-based insurer made the announcement that it was to take the multi-million dollar hit on January 13 after reviewing contracts sold between 1997 and 2001 by NAC Re Corp., an American reinsurance company XL bought for $1 billion in 1999.

Claims against North American reinsurance contracts written in the late 1990s have mounted recently, forcing reinsurers such as XL to pay out more than they had expected.

The pre-tax charge will total $694 million, of which $663 million is designated for North American reinsurance claims.

The insurer also said it would increase the reserves for its other lines of business by a pre-tax amount of $31 million after conducting its usual year-end review of reserves.

Problems for XL began in the third quarter of last year, when tort and malpractice claims started to affect XL Re. In October, XL took a $160 million after-tax charge against third-quarter earnings to pay for potential claims in its North American business for medical malpractice and professional liability.

In a conference call with investors at the time, Mr. O'Hara pledged an intensive audit designed to quantify the firm's exposure and said this was “among the worst in the industry's history” given “the marked expansion of liability in the US tort system”.

Other insurers of US risks have also made significant additions to their reserves.

In 2002, ACE added $514 million to its reserves to cover liabilities resulting from its acquisition of Cigna's US business (now ACE INA) and Westchester Specialty.

Scor, the French reinsurer, reported a $415.9 million third quarter loss as a result of bolstering its claims reserves for US exposures it underwrote in the late 1990s.

CNA Financial Corp., an American company, also took huge reserves charges.

Mr. O'Hara said at the time he did not expect the reinsurance claims to affect the results of future quarters.