David Small with Bear Stearns wrote that lower written premium numbers suggest the company is having a difficult time identifying areas for growth as it repositions its book from riskier lines of business.

Net premium earned and net premium written were down 5.7 percent and 9.8 percent, respectively, on a year-over-year basis, he noted.

In a conference call this morning, XL Insurance Chief Executive Clive Tobin said private market directors and officers insurance as well as new underwriting operations in Paris and Australia are producing promising growth figures.

XL Capital Chief Executive Officer Brian O'Hara said catastrophe lines are hardening much more than expected while some casualty risks are stabilizing.

For example, he said the decline in rates for directors and officers insurance has dropped from 15 percent last year to about 9 percent this year.

“We very much like the tone of the market,” he said.

Mr. Small expressed concern that the “upside surprise” of roughly $35 million of additional income from investment affiliates may not all recur in future earnings periods.

Bank of America securities analyst Brian Meredith took a more positive view, noting the quarter was the first one in a year not impacted by large reserve charges or catastrophe losses, “which should provide positive momentum for the shares.”

Morgan Stanley analyst William Wilt termed XL's shrinking premiums as “risk management payback for a disastrous second half in 2005.”