XL Capital Ltd. yesterday reported a fourth-quarter loss of $1.06 billion as it suffered from the effects of its exposure to the US sub-prime mortgage crisis.

The figure surpassed even the $1.04 billion loss the global business insurer made after Hurricane Katrina, in the third quarter of 2005, and wiped out the past two quarters of earnings. However XL was still able to post a full-year profit of $360.4 million for 2007.

Charges "related to credit market conditions" totalled $1.5 billion, more than $900 million of which was related to XL's investment in and reinsurance of bond insurer Security Capital Assurance (SCA).

Excluding the charges, net income for the quarter was $439.9 million for the quarter.

XL's chief executive officer and acting chairman Brian O'Hara said: "I believe that these previously announced fourth-quarter charges, while disappointing, have reduced uncertainty and increased investors' ability to recognise the strength of XL's diversified and global insurance and reinsurance franchise, which continues to perform very well as evidenced by our full-year combined ratio of 88.8 percent.

"In addition, our investment fund and manager affiliates have had another strong performance in 2007. We remain committed to building shareholder value as we execute our strategy."

XL lost $6.01 a share, compared with net profit of $481.1 million, or $2.62 a year earlier, the company said in its earnings statement. Excluding investment losses, XL earned 66 cents a share.

Some of the securities that SCA guarantees have declined in value as a wave of mortgage delinquencies has swept the US. Last month SCA was downgraded from its all-important AAA rating by Fitch, which will hamper its ability to write new business. On the same day, XL warned it could lose as much as $1.2 billion in the fourth quarter.

Chairman Michael Esposito resigned from XL's board in December to focus on his duties as chairman of Security Capital, which is 46 percent owned by XL. SCA's share price has declined more than 80 percent in the past year.

The charges quoted in yesterday's statement include $523.7 million for the reduction in value of XL's investment in SCA.

The full-year net income of $360.4 million was about 80 percent down from the $1.72 billion XL made in 2006.

Combined ratio for property and casualty operations was 93.3 percent for the quarter and 88.8 percent for the year, while net investment income for the quarter increased 7.3 percent to $560.5 million. Gross premiums declined 7.4 percent "primarily due to competitive market conditions across most lines" the company said.

Return on ordinary shareholders' equity was 3.9 percent for the 12 months ended December 31, 2007 compared to 19.6 percent for 2006.

XL shares fell $1.05, or 2.3 percent, to close at $44.00 in New York Stock Exchange composite trading at 4 p.m. The company has lost 37 percent in the past year.

Report card

Net income: $1.06 billion loss compared to $481 million profit in 2006

Combined ratio: 93.3 percent compared to 88.9 percent in 2006

Gross premiums written: $1.4 billion compared to $1.66 billion in 2006