Another quarter in the books, another decent performance at XL Capital (NYSE:XL). "Decent" may not seem terribly exciting, particularly when companies like RenaissanceRe (NYSE:RNR) seem to be doing pretty well, but it's still an improvement for XL.

XL's most recent operating earnings soared 270% year over year, and returns on equity continued to improve. Granted, the good quarter's hardly surprising, since things have been relatively quiet on the catastrophe front. In addition, last year's results were hurt by a sizable reserve strengthening.

XL's insurance operations saw declines in gross premiums, net premiums, and underwriting profit. On the reinsurance side, though, strong pricing led to growth in gross and net written premiums, and the combined ratio looked pretty decent. Overall premium volume was down (after adjustments), but that was expected this time out.

For now, XL Capital's still about rebuilding credibility and better delivering on the underlying potential of the business. Though the company is well-balanced between insurance and reinsurance, property and casualty, U.S. and international, and short-term and long-term exposure, that's been true before, and the company hasn't always delivered.

It's also likely true that another big negative risk event would really set things back with this stock. There are still concerns about XL's risk exposure, and while the company seems to be focusing on better specific risk selection, you never really know until it's too late. By the same token, it may be worth remembering that last year's hurricane losses were exceptional and unusual. Even with a more active hurricane season, storms like Katrina will hopefully still be unusual events.

Quite frankly, XL Capital probably isn't the best insurance stock for newcomers to this sector. Turnarounds are tricky in general, often requiring a better-than-average appreciation and understanding of the industry. I see a lot of potential in XL Capital shares if management can stay on this path, but it's certainly not your run-of-the-mill opportunity.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).