Bermuda-based insurer XL Capital Ltd.'s stock price slumped after it said today that it would take a $160 million after-tax charge to cover growing North American reinsurance losses, causing third-quarter per-share profit to fall about 57 percent below analyst forecasts.

Reuters reported XL's shares fell as much as 12 percent, their biggest one-day decline since a 12.1 percent drop in July, 2002.

XL said it expects third-quarter net income to fall about $1.16 per share below forecasts because of the charge, which would put profit at about 89 cents per share. Analysts polled by Reuters Research, a unit of Reuters Group Plc, on average estimated $2.05.

The Hamilton, Bermuda-based insurer is increasing reserves for new claims from 1997 to 2000 at NAC Re, a US reinsurer with which XL merged in 1999. It said these claims mainly concern general liability, medical malpractice, professional lines and surety.

“The announcement is extremely disappointing given the multi-year effort to get reserves right in the company's casualty reinsurance business,” Merrill Lynch & Co. analyst Jay Cohen said in a research report.

He cut his rating for XL shares to “neutral” from “buy,” and said the shares “will not rebound quickly”.

Standard & Poor's said it may cut XL's “A-plus” credit and senior unsecured debt ratings, its fifth highest investment grade. A downgrade might increase XL's borrowing costs.

XL Chief Executive Brian O'Hara said in a statement he will lead a claims audit and review of NAC Re's books to address XL's exposures from the late-1990s. He called the period “among the worst” ever for North American casualty insurers.

O'Hara said he hopes to finish the review by year-end so that claims will not adversely affect results after this year.

Cohen said XL management has been trying to regain credibility after taking material charges for casualty reinsurance in each of the last three years.

“This charge will clearly severely hurt that effort,” he said. A fourth-quarter charge is possible, he said.

XL said its charge is equal to about $184 million before taxes. The company said it expects to report third-quarter results on October 29.

XL shares traded this afternoon on the New York Stock Exchange at $70.55, down $8.85, or 11.1 percent, after falling as low as $69.90. Through Thursday, the shares had risen 2.8 percent this year.