NEW YORK (Bloomberg) - XL Capital Ltd., the Bermuda-based insurer, led the Standard & Poor's 500 Index this year with an almost fivefold advance as CEO Michael McGavick's cost-saving and asset moves led to a profit return.

XL climbed $14.71 to $18.41 this year through yesterday in New York Stock Exchange composite trading after plummeting more than 90 percent in 2008 when it was the second-worst performer in the index. The shares traded as low as $2.56 in February, falling from $85.67 as of July 2007.

The insurer had "a significant rebound in 2009, really from the depths of despair," said Michael Paisan, an analyst at Stifel Nicolaus & Co. Mr. McGavick "took over a company that was essentially on the brink of going out of business. Now it is a company that is financially very sound".

XL lost more than $3 billion in the second half of 2008 after investments tied to subprime mortgages tumbled and the insurer rescued the bond guarantor it created. Mr. McGavick, 51, has since sold higher-yielding assets to cut risk, eliminated jobs and slashed the dividend to build capital. The insurer's book value, or measure of assets minus liabilities, has increased by 54 percent this year.

"As the year's performance shows, the market can see the progress we are making at XL," Mr. McGavick said in a telephone interview this week while on vacation in Idaho. "As investors saw that strength continue, they came back into the stock."

XL's percentage gain this year is the biggest among S&P 500 companies since 2003, when Avaya Inc., a Basking Ridge, New Jersey-based maker of phone systems, surged 428 percent. Avaya has since been acquired by buyout firms Silver Lake and TPG.

The S&P 500 saw a surge in companies that doubled returns this year as they began to bounce back from the worldwide credit crunch and recession. Forty-eight index companies rose 100 percent or more in 2009, compared with the average of about 14 a year since 1990, according to data compiled by Bloomberg.

Tenet Healthcare Corp., a Dallas-based owner of hospitals, ranked second for the year on the S&P 500 through Wednesday. The company's stock more than quadrupled as it cut costs and tried to refinance debt. Marshall & Ilsley Corp., Wisconsin's largest bank, was the index's worst performer, dropping 60 percent.

Mr. McGavick joined XL in May 2008, replacing Brian O'Hara as CEO. In his first three months, he agreed to bail out the bond guarantor XL co-founded, Syncora Holdings Ltd. The unit formerly called Security Capital Assurance Ltd. faced a wave of claims as collateralized debt obligations it insured declined in value. XL sold $2.8 billion in stock in part to fund the rescue.

"There were obviously challenges when this management team was assembled," Mr. McGavick said in the interview.

Mr. McGavick cut XL's dividend in March by almost half to 10 cents a share and announced a 10 percent staff reduction in February. XL posted a net income available to ordinary shareholders totaling $247 million in the first three quarters of 2009.

The insurer has shifted its investment portfolio to lower- yielding assets including U.S. Treasuries and cash to reduce risk. Investment income in the third quarter fell 25 percent to $327.1 million from $436.3 million a year earlier. Mr. McGavick said XL has completed 70 percent of a plan to reallocate investments.

"You saw fairly aggressive actions from management to reduce its exposure to the financial crisis," said Paul Newsome, an analyst at Sandler O'Neill Partners LP. "At one point people were doubtful the company was going to survive.

"Now I think people are confident it will."

Performance returns include companies tracked by the S&P 500 at the end of the year. Among 29 firms removed in 2009 was CIT Group Inc., the commercial lender whose stock was wiped out when the firm went bankrupt, and MBIA Inc., the mortgage insurer removed less than two weeks before the end of the year.