Chief Executive Officer Michael McGavick explained during a conference call that XL continues to "de-risk" its investment portfolio as part of a strategy outlined last year, and that fourth-quarter restructuring charge allows the company to accelerate the portfolio's repositioning.

The non-cash goodwill charge, he said, primarily relates to XL's 1998 acquisition of Mid Ocean Re. "This is a great business [and] XL is the better for having bought it," but generally accepted accounting principles "require that we recognize current market conditions in how we carry the goodwill that came with Mid Ocean," he explained, noting that reinsurance franchises like Mid Ocean "were valued more highly in days gone by."

(Goodwill generally refers to the value of intangible assets in an acquisition, typically accounted for initially as the amount paid for a target company over book value.)

Mr. McGavick said the job cutbacks at XL are a consequence of meaningful reductions in premium being planned for 2009, although he noted the cuts would not involve underwriting talent, instead being "focused on corporate and functional support areas overwhelmingly."

"Obviously, if you're going to see top-lines come down, you're going to have to do real work on your expenses to meet returns expected by shareholders," he said, noting that some $100-to-$120 million in annual expense savings are expected from the staff cuts for 2010 and beyond.

Explaining the premium reductions, he said they reflect management's decision to "concentrate firepower" on those businesses that deliver appropriate returns. "We must focus XL's resources in those places where we compete best in the marketplace, on those places [where] in this particular [set of] global conditions, we can deliver the best results," he explained.

XL's near-term emphasis will be on shorter-tail lines, he said, noting the company is reducing long-term insurance agreements to capture the benefits of a hardening market. While actions to reduce premiums will mean some areas are de-emphasized, the company is not exiting any property-casualty insurance or reinsurance businesses it's currently in, he added.

"This plan was built with the fresh eyes that this management team has," according to Mr. McGavick.

Mr. McGavick said the premium reductions also, "to a lesser extent, reflect rating agency reality," referring to rating agency actions last year to push the financial strength ratings of XL's operating companies down to "A" from "A-plus."

When A.M. Best made the move in January 2008, several analysts noted that the drop might put XL at a competitive disadvantage in writing primary long-tail casualty and professional and management liability lines for large companies.

Mr. McGavick reported this month that the actions to cut expenses have been reviewed with rating agencies, also reporting that A.M. Best will not go to committee to review the ratings again. A.M. Best's last action on the ratings was an affirmation in mid-October 2008.

As Mr. McGavick spoke during the earnings conference call, Standard & Poor's, which had lowered XL from "A-plus" to "A" on Dec. 15, released a statement announcing a rating affirmation but maintaining a negative outlook.

"If, in the next two years, XL continues to develop its [enterprise risk management], there are no additional investment losses that more than offset operating income and no negative surprises arise that dampen consolidated results, we could revise the outlook to stable," the New York-based rating agency said.

S&P added, however, that the occurrence of unexpected adverse events or inadequate progress related to ERM, among other developments, would likely prompt a rating downgrade.

Characterizing XL's competitive position as "still strong," S&P said that "perceived franchise issues borne from a string of material earnings and capital charges over the past several years continue to hurt" that position. The current rating, S&P said, "incorporates the expectation that XL will sustain its business profile without compromising pricing or terms."

James Veghte, chief executive of XL's reinsurance operations, and David Duclos, CEO of XL's insurance operations, commented on the impact of 2008's rating actions on 2009 renewals so far.

Mr. Veghte said that XL had lost 11 percent of its reinsurance portfolio due to security decisions made by clients as a result of the December rating agency actions. "Not surprisingly, the impact was most significant in Europe, given the timing of the actions and Standard & Poor's significance in that market," he said.

Still, "the Jan. 1 renewal process reconfirmed our status as a lead market," he said, noting that XL was asked to provide quotes on 86 percent of property-catastrophe renewals written out of Bermuda and 100 percent of its U.S. casualty reinsurance renewals.

"Our success in this regard is due to the skill and dedication of our underwriters. I would like to thank them and to express my appreciation to our customers and brokers for the support and commitment they continue to show this franchise," he said.

Mr. Duclos said Jan. 1 insurance renewals in Europe averaged 87 percent across all product lines, while other regions were "also at or near historical levels," adding the "only significant impact"--an anticipated downward effect--was on longer lines that are rating sensitive, such as U.S. professional liability and excess casualty.

Two days after XL's earnings announcement, Moody's affirmed its "A2" insurance financial strength ratings for the insurance and reinsurance operations while keeping a negative outlook in place to reflect concerns about XL's exposure to further investment losses, as well as the company's earnings and capital generation capacity, among other issues.

The outlook could be revised to stable if XL "stabilizes its franchise," Moody's said, adding that the outlook could also stabilize if XL "successfully transitions under its new management team to a simpler organization [or] stabilizes its financial flexibility, earnings and capitalization."

On the other hand, events that might prompt a downgrade include:

o "Prospective organic capital generation declines due to materially lower profits," such as returns on equity consistently in mid-single digits.

o 2009 realized investment losses and impairments in excess of $750 million pre-tax.

o Shareholders' equity dropping below $5.5 billion.

In addition, Moody's said that if "the company's franchise value in terms of new business and retention of existing business weakens materially," that could also spark a downgrade.

Mr. McGavick, responding to further questions about XL's workforce during the earnings conference call, countered reports of an "exodus" of employees leaving to join other firms, noting that turnover last year was slightly below historical norms. "We have done some work with some of our more high-profile people to make sure they have incentives to stay," he added.

Recognizing that some current and potential employees may still wonder what they should do next given "all the tumult going on at XL," he advised, "I'd rather be at a firm that's already got [the] tough work done behind it, than a firm that has yet to recognize how difficult this economic crisis is," referring specifically to actions to de-risk the investment portfolio and strengthen the company.

"It ain't going to get harder in our view....It's hard to imagine it being more difficult than it was in the fourth quarter, and we continued to deliver," he said,

Highlighting some results that he said pointed to a "solid year" behind all the noise, Mr. McGavick noted that the fourth-quarter combined ratio of 89.4 was four points better than fourth-quarter 2007, and that the full-year combined ratio of 95.7 indicated an underwriting profit.

Underwriting results benefited from favorable prior-period development of $268 million, according to financial schedules released by XL.

"I know given all the noise, some of these results may surprise some of you. They may even displease our competitors, and that's fine with us," Mr. McGavick said, adding that "key metrics"--such as retention of customers and employees--"point to a franchise at XL that is ready to take on the opportunities that 2009 presents."

"In many different parts of the reinsurance and insurance space, rates are improving, [and] we expect with our solid franchise to be able to take advantage of these opportunities," he said.