XL Capital Ltd. is back on a firm footing and competing well in a tough insurance market, according to the company's boss Michael McGavick.

The Bermuda-based business insurer's chief executive officer told The Royal Gazette the company's book of business had contracted during the second quarter — but by much less than expected.

Mr. McGavick was speaking after XL released second-quarter earnings on Tuesday evening which showed property and casualty (P&C) revenue fell 15 percent year on year.

This marked an improvement from the first quarter in which the loss of business was much higher.

"This quarter has shown that we are competing well," Mr. McGavick said. "We were able to shrink the book by less than we had forecast, thanks to improved retentions and pricing that we were able to achieve.

"These are very good signs for XL and while these times are always going to be difficult, to have your P&C operations with a 93 percent combined ratio for the quarter is a strong result."

Some of XL's smaller rivals have claimed to have seen benefits from clients looking to spread their business around with more carriers, rather than insure everything with one large company. This follows the near collapse of American International Group, the world's biggest insurer last autumn.

"Risk managers have, over the last three quarters of a year, looked to make their programmes more diverse," Mr. McGavick said. "And if you're one of the large lines underwriters — as XL is — you are going to see some impact.

"But the dollar effect of that is pretty small."

While XL's net income fell by 66 percent compared to the same period last year to $79.9 million, the decline was largely down to the effects of international currency exchange rates.

XL suffered huge losses in the second half of 2008, as it battled for survival. First it had to extricate itself from reinsurance exposures to an affiliated financial guaranty business that had been ravaged by the effects of the sub-prime mortgage crisis. Then the company was hit with big investment losses as the financial markets crashed.

But this year to date the stock price has virtually tripled as the company has made good progress with regaining the trust of brokers and clients, as well as de-risking its investment portfolio.

It has also benefited by an upturn in the credit markets, which resulted in its book value growing by a staggering 26 percent during the second quarter to $18.89 per share. Mr. McGavick said the improving market environment meant XL was experiencing the reverse of the markdowns that it had been forced to make last year. That is good news for investors and with a further $3 billion-plus of unrealised losses still being carried on the books, there is scope for further improvement.

In a conference call with analysts on Wednesday, XL revealed it had received 36 claims tied to fraudster Bernard Madoff's massive Ponzi scheme. The company provides insurance to clients protecting them against lawsuits. The total includes five claims from the second quarter, said David Duclos, who heads insurance operations for the firm.

He added that XL was "very confident" that the company had adequate reserves for its directors' and officers' business. Recent surveys showed that lawsuits were trending down, Mr. Duclos added.

The company's share of reinsurance claims relating to the Air France plane crash off Brazil was around $4.6 million, which was included in the second-quarter results.

On the eve of Cup Match a year ago, Mr. McGavick announced the start of job cuts that have seen the loss of around 70 posts at XL's Bermuda headquarters in the months since. The remaining XL staff had every reason to enjoy this year's midsummer holiday much more, the CEO said.

"Today the situation could not be more different," Mr. McGavick said. "We handled those difficult decisions with a decent and respectful approach.

"The company is performing well and our people are very excited about future prospects."

The noise that surrounded XL and the questions over its ability to survive, which reached a crescendo at the end of last year, had basically disappeared now, Mr. McGavick said.

"The kind of conversations I was having a year ago — they are just gone now," Mr. McGavick said. "People can see the strength of the franchise."