XL Capital's outgoing CEO Brian O'Hara is not worried by the race-based requirements of Government's proposed workplace equity legislation because his company already embraces the concept of diversity in its workforce.

However, he said diversity was not something that could be forced on employers, because of Bermuda's small population and the specialised talent required by employers in the insurance sector.

The proposed workplace equity law would require companies to reflect the racial balance of the workforce throughout its departments, otherwise face hefty fines.

"We haven't needed anyone to tell us to embrace diversity," Mr. O'Hara said in an interview with The Royal Gazette while he was attending the World Insurance Forum in Dubai.

"That is a core value of the company. We really aren't bothered or troubled by it. We think we do it naturally.

"And I would say it's not something you could really force, given the limited population and limited talent and the requirements for talent, but we always recognise the benefits of diversity. And that happens in all of our offices around the world."

He added that the company had so far been virtually unaffected by work permit time limits, which have also caused concern among international business employees.

"The concept is worrying, but we haven't seen the execution," Mr. O'Hara said.

XL's chief operating officer Henry Keeling said: "XL is one of the largest private employers on the Island and we've actively tried to recruit and train Bermudians.

"We have a very good balance in our workforce. And you have the key person exceptions and that's going to be very beneficial for us. And so I don't see that as a major issue for XL."

Mr. O'Hara added: "We've seen the benefits of having Bermudians on staff. It's less expensive, more stable, so we always try to get Bermudians whenever possible.

"And I think the Government knows that, so we have an excellent working relationship.

"We are helping to train, on a secondment basis, people for the BMA (Bermuda Monetary Authority) and the Registrar's department."

XL has gone through a difficult year because of its exposure to the US sub-prime mortgage crisis through its investment in and reinsurance of bond insurer Security Capital Assurance (SCA).

XL posted a loss of more than $1 billion in the the fourth quarter of 2007, because of credit market related problems. The company's share price has lost more than half of its value since last summer.

The company has already written down the value of its stake in SCA to zero and Mr. O'Hara said there were good reasons for investors to buy shares that have been trading more than 30 percent below book value.

"Our core property and casualty business has been operating terrifically for eight straight quarters," Mr. O'Hara said. "We, touch wood, expect that to continue through 2008. It's just this one problem with our minority affiliate, SCA.

"It's not alone, of course, the financial guarantors have huge problems. And SCA was really following the lead of the main industry player, MBIA and Ambac, and the whole industry got it very wrong."

Bond insurers have paid the price for straying beyond their relatively stable, traditional business of insuring municipal bonds against debt default, and guaranteeing collateralised debt obligations (CDOs), securities backed by assets including risky mortgages.

A wave of delinquencies amid a slump in US property values have caused steep losses linked to the sub-prime mortgages.

Mr. O'Hara said: "We decided that it was not a compatible strategy to be in both property and casualty and the financial guaranty industry, and we have been actively pursuing a disengagement strategy.

"What we found is that one of the attractions our board embraced 10 years ago was that the triple AAA financial guaranty business (companies rated AAA by all three major ratings agencies) had a high barrier to entry and so there were a limited number of players.

"And we saw that this would restrict competition. What we found was that the triple AAA business has a higher barrier to exit."

He added that said the company's remaining reinsurance exposure to SCA, which applies chiefly to business written before the sub-prime-linked CDOs came into play, was not so great as the markets appeared to believe.

"The requirements placed on us by the rating agencies in the exiting is behind why we have this overhang from a reinsurance relationship," Mr. O'Hara said.

"We're working with SCA and, in due course, with regulators in New York and Bermuda, to find solutions that will stabilise the situation and preserve resources for the shareholders, and at the same time we'll dispel this overhang that people think we have, a big financial exposure, which we don't believe we have."

All companies making write-downs connected with the credit crisis have suffered from accounting rules which require financial statements to show market values of its investments at a particular point in time, described as mark-to-market valuations.

American International Group CEO Martin Sullivan has led calls for a better way to be found to establish a fair accounting value..

"Certainly the mark-to-market rules have not helped," Mr. O'Hara said. "For anything associated with the credit crisis, in many areas there isn't a real market. There are artificial indices that are used as a basis for valuation and they can distort values dramatically.

"In many asset values, there is no liquidity at all and eventually liquidity will come back. The problem is no one can say when it will come back. What markets hate are uncertainties and in this market there are uncertainties."

The "fair value accounting" could cause more problems for insurers if the mark-to-market rules are applied to liabilities, as well as assets, as has been suggested.

"I don't know if anyone has any great solution at hand," Mr. O'Hara said. "The irony is that international authorities embrace fair value accounting so much, they want to apply those rules to the liabilities side of the balance sheet, which we find even more problematic and troubling, because there is definitely no market for many of our liabilities and there are no indices.

"You'd have to create indices, but they would be so artificial that they could be manipulated. It opens a can of worms. It works great in theory but we can't work out how it would work in practice with any reliability."

It was announced last October that Mr. O'Hara would be stepping down this year and last week XL named his successor as Michael McGavick who will take over on May 1.

Mr. O'Hara, who has been CEO for 13 years, will stay on as non-executive chairman through April 2009.