XL Capital Ltd. made a net loss of $1.43 billion in the fourth quarter of 2008, cut its dividend payout to shareholders by almost half and plans to cut its global workforce by 10 percent.

The announcements came in the Bermuda-based insurer's earnings statement released last night, in which chief executive officer Michael McGavick said 2008 had been "the toughest year in XL's history".

The quarterly loss broke down to $4.36 per share, and widened from the net loss of $1.22 billion, or $6.88 per share in the same period in 2007.

The loss was driven by a $990 million non-cash charge for the partial impairment of goodwill related to the acquisition of reinsurer Mid-Ocean in 1998. Goodwill is an accounting term, referring to the amount paid over and above the listed book value of a company being acquired. Goodwill is added to the acquiring company's balance sheet as an asset, and then depreciated over a period of years.

XL also took a $400 million charge related to the restructuring of its investment portfolio in the October through December period, which Mr. McGavick said would help it to "accelerate our de-risking activities through selective and targeted sales, thereby lowering our exposure to credit market volatility".

Full-year net loss was $2.63 billion, or $11.02 per share, compared to $206.4 million, or $1.15 per share in 2007.

The company's underwriting operations were profitable, as combined ratio - the percentage of premium dollars spent on claims and expenses - was 89.4 percent for the fourth quarter, an improvement of 3.9 points on the prior year, and 95.7 percent for the full year.

The markets reacted positively to XL's news in after-hours New York trading as the company's share price rocketed 14.4 percent from its closing price of $2.90 to reach $3.31 by 8.58 p.m. Bermuda time. The company's share price fell 93 percent in 2008 and has fallen more than 20 percent so far this year.

The company is now trading at less than a quarter of its book value per ordinary share, which, at the end of 2008, was $15.46, compared to $21.65 at the end of September.

XL said the $6.19 per share fall in book value was down primarily to the $990 million goodwill charge and a reduction in the value of its investment portfolio of $858.7 million, or $2.60 per share.

Last year XL went through the expensive process of decoupling from bond insurer Security Capital Assurance (SCA, now known as Syncora Holdings Ltd.). It wrote down its more than 40 percent stake in SCA to zero and paid the financial guarantor around $1.9 billion in cash and shares to terminate reinsurance and guarantee agreements that were weighing heavily on it.

Its investment portfolio also suffered losses because of its exposure to the credit markets and Mr. McGavick, who took over as CEO from Brian O'Hara in May, has set about "de-risking" those investments over the past two quarters.

"No one is happier to see 2008 behind us or more excited to have 2009 before us than we are at XL," Mr. McGavick said. "2008 has been the toughest year in XL's history; albeit one in which we have put a number of issues behind us and emerged on a solid footing. Not only did we deal with the SCA overhang, we took major steps to de-risk our investment portfolio and simplify our balance sheet."

XL's board of directors has cut the quarterly dividend paid to shareholders to 10 cents per share from 19 cents, which "brings our prospective yield much more in line with where we expect industry yields to be in 2009", Mr. McGavick said.

Property and casualty gross premiums written fell to $1.18 billion from $1.4 billion in the fourth quarter of 2007.

Mr. McGavick said retention levels had been good, with just 11 percent of reinsurance renewals lost in January 2009 to clients making security decisions based on rating agency actions. And in the primary insurance segment, the company managed a business renewal rate of 83 percent, as compared to 86 percent in 2007.

"Our January renewals came out well and I am heartened by the confidence shown in us by our customers, our employees and by the rating agencies," Mr. McGavick said. "The expense initiatives noted above will only make us more efficient and we believe we are well-positioned to capitalise on the market turn, and remain committed to providing value to our clients and our shareholders."

XL sold the renewal rights for its life, accident and health business during the fourth quarter and continues to "explore strategic options" for its US life company and annuity business.