XL Capital Ltd.'s share price plunged 33 percent yesterday after a report that the Bermuda-based insurance giant is putting itself up for sale.

The Bloomberg business news agency reported that XL, which employs around 280 people at its Bermuda headquarters, had brought in New York bank Goldman Sachs to gauge interest from potential buyers.

Last night, XL responded to the story, stating it was "continuing to explore value-enhancing opportunities available to it and is being assisted in that effort by one of its long-standing financial advisers, Goldman, Sachs & Co."

XL also gave guidance on its fourth-quarter investment losses (read more in Business, page 21).

After the story came out at lunchtime yesterday, XL's stock price plunged as much as 51 percent, as the share hit $2.83, the lowest price in its 17 years as a public company.

It recovered somewhat in mid-afternoon and reached $3.90 — a fall of $1.89 — at the close of trading on the New York Stock Exchange.

The news came out on an extraordinary day for Bermuda international business. The US Senate's Finance Committee yesterday proposed legislation that would close a "tax loophole" that gives some Bermuda-based insurance groups a tax advantage over their US rivals.

And three Bermuda-based companies - Tyco International, Foster Wheeler and Weatherford - announced plans to move their XL has been buffeted in recent months by hundreds of millions of dollars in losses stemming from the global credit crisis and as its share price has plummeted, it has become a more affordable takeover target.

A year ago its market capitalisation — the total number of shares multiplied by the share price — was around $20 billion. Yesterday, it closed at $1.29 billion. Bloomberg suggested that Bermuda rival Everest Re, as well as Zurich Financial Services and Ace Ltd. were among the potential buyers. Ace spokesman Patrick McGovern told The Royal Gazette: "We don't comment on market speculation."

Rumours have also linked two other Bermuda insurers, Axis Capital and Arch Capital, with an interest in buying XL. Neither company responded to our messages by press time yesterday.

Axis chief executive officer John Charman said at a conference in New York in September that the industry was actively poring over XL as a potential takeover target.

He said XL was attractive as it was a global property-casualty insurance franchise. He did not specifically say that Axis was interested in buying XL.

XL's major problem this year was its exposure to the sub-prime mortgage crisis through reinsurance agreements and guarantees with Bermuda-based bond insurer Syncora Holdings.

XL terminated virtually all of its business with Syncora by making a $1.9 billion cash-and-shares payment to its former affiliate in August. It had to raise capital through selling shares to pay for it.

In addition, XL's fixed income investment portfolio — valued at $33.3 billion at September 30 this year — has suffered losses amid market turmoil, as have those of most of its peers. But XL has been more exposed than most to credit-related securities.

"The primary problem is that their investment portfolio is aggressively invested in credit-sensitive securities, so the problems in the mortgage-backed and sub-prime world have hit them harder than other insurers," Paul Newsome, a Chicago-based analyst at Sandler O'Neill & Partners, told Bloomberg.

XL's chief executive officer Michael McGavick, who succeeded Brian O'Hara in May, has led efforts to "de-risk" the portfolio. With many insurers suffering from similar problems to XL, it may not be easy to find a buyer with the financial wherewithal to purchase the global heavyweight, which employs around 4,000 staff in 77 offices in 27 countries.

The plunge in XL's stock price yesterday was "the exact opposite of the normal reaction to news of a sale, and suggests that Goldman is going to have to look far and wide for a buyer", Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, told Bloomberg.

"The issue is how many potential buyers Goldman can line up for a troubled company in these troubled times."

While rumours continue to plague XL, the company's credit ratings are still among the best of the Bermuda insurance sector. The group has a financial strength rating of A+ from both Fitch and Standard & Poor's, though both agencies have a negative outlook on that rating.

And AM Best gives XL an A rating, with a stable outlook.