XL Capital?s shares dropped two percent yesterday following confirmation that the Bermuda-based insurer had lost its arbitration dispute with Swiss insurer Winterthur.

XL?s shares closed down $1.37 to $65.65 on volume of more than 5 million shares on the news, which means Winterthur will pay $575 million, less than half the amount Bermuda-based XL had sought, to end a disagreement over claim reserves.

An actuary delivered a final ruling, reiterating a draft decision made last month, which came down closer to Winterthur?s estimate of reserves than XL?s, Credit Suisse said in a statement.

The decision pertained to reserves needed by a business unit that Winterthur sold to Bermuda-based XL in 2001.

?Final reports confirm Winterthur wins the dispute with XL,? said Credit Suisse, the second-largest Swiss bank.

XL had sought $1.45 billion, according to a March 11 Securities and Exchange Commission filing. The company last month said it expected to record a loss of about $830 million related to the dispute in the fourth quarter. In a statement on its Web site today, XL said the draft ?has become final? and that it ?expects to record the previously announced charge?.

The decision may make it easier for Credit Suisse to proceed with plans to list Winterthur on the stock market.

Credit Suisse Chief Executive Officer Oswald Credit Suisse chief executive officer Oswald Gruebel, 62, told Gruebel, 62, told investors last December he was weighing a share offering of the insurance business after failing to find a buyer.

Credit Suisse said Winterthur?s final payment would include $541 million of provisions set aside, plus a further $6 million, and an unspecified amount of interest.

After XL bought the Winterthur International unit from the Swiss insurer four years ago, the two companies agreed to wait three years to determine how much in reserves the unit required. When they couldn?t agree, they submitted independent assessments to the actuary in February.

The drop in XL?s share price also reflected a cut by stockbrokers Friedman Billings Ramsey of both XL and rival ACE to market perform, saying expectations of improved property and casualty reinsurance market pricing are moving ahead of reality.

XL Capital Ltd. said last week that it plans to sell $2.15 billion in ordinary shares. The company said it also plans to raise $650 million from an offering of equity security units. The company plans to use the proceeds for general corporate purposes.