XL Capital Ltd last night posted a third quarter loss of $1.05 billion or $7.53 per share due mostly to Hurricane Katrina. This compares with income of $22.5 million or 16 cents per share in the same period of 2004.

The Bermuda-based insurer also announced plans to enter into a quota share reinsurance treaty with a newly formed reinsurance company to take advantage of opportunities emerging from the quarter?s catastrophes. The new company was not identified.

The 2005 third quarter loss includes previously announced losses from Hurricane Katrina of $1.16 billion, Hurricane Rita of $263.6 million and other natural catastrophes of $89.7 million.

Chief executive officer Brian M. O?Hara said: ?The third quarter?s insured market catastrophe losses, which we estimate at $60 billion to $72 billion, were greater than our industry has seen in any previous calendar year. Our loss estimation process has embraced the extraordinary breadth, magnitude and complexity of these events.?

The company posted a third quarter 2005 operating loss of $1.12 billion or $8.01 per share compared with an operating loss of $31.2 million or 23 cents per share in the third quarter of 2004.

For the nine months ended September 30, 2005, the loss to shareholders was $470.4 million, or $3.39 per share, compared with income of $838.2 million or $6.05 per ordinary share for the nine months of 2004. The nine month operating loss was $667.2 million or $4.81 per share compared with net income of $621.3 million or $4.49 per share for the first nine months of 2004.

The combined ratio for general operations in the 2005 third quarter was 182.2 percent compared to 110.7 percent in the 2004 quarter.

Mr. O?Hara said that the company is committed to maintaining its financial strength and leadership position in catastrophe exposed lines of business and announced XL?s plans for a strategic initiative to augment its underwriting capacity to take advantage of ?significant opportunities across the board? in the wake of the catastrophes.

The agreement in principal is for XL to enter into a quota share reinsurance treaty with a newly formed reinsurance company which will be funded with $500 million to $1 billion of dedicated capital from its parent holding company, which, in turn, will be owned by a group of institutional investors.

?The lead investor in this company is expected to be investment funds managed by an alternative asset manager with which XL has had a long-standing relationship,? Mr. O?Hara said.

?XL will not be an equity investor in this new company. Under this agreement, XL expects to cede to this company specified portions of XL?s property catastrophe and retrocessional lines of business.

?We believe that this treaty will reinforce XL?s leadership position in these lines of business, reduce our volatility, provide incremental earnings, and therefore maximise our shareholders? risk adjusted return.?

Yesterday, ahead of the earnings release, shares of XL Capital rose $1.96, or three percent, to close at $64.06 on the New York Stock Exchange.