yesterday after the No. 4 US municipal bond insurer said it held talks with an undisclosed third party about selling the company.

But one analyst who asked not to be named said the possible buyer could be Bermuda-based insurance giant XL Capital, which has already set up two joint ventures with the company and recently raised its stake in Financial Security to eight percent.

XL Capital and White Mountains Insurance Group, another Bermuda insurer, each bought more than 922,000 shares in Financial Security during the last quarter, according to a Reuters report. White Mountains is now the largest shareholder with 22 percent of its shares.

Representatives of XL Capital were not immediately available for comment yesterday.

XL Capital lost out to its local rival ACE Ltd. last year in taking over another bond insurer, Capital Re, which ACE finally bought in December for $448 million.

Financial Security's stock price rose 13-13/16 to close at 58-9/16 on the New York Stock Exchange, after hitting a 52-week high of 62-1/8 earlier in the day. At its closing price, the company's market value was around $1.9 billion.

The New York-based firm, which guarantees scheduled payments of principal and interest of municipal bonds and asset-backed securities, said in a statement it could not assure whether a sale would actually happen.

The company would not comment on the terms of the possible deal, and said it would withhold further comment until it reached a definitive agreement.

Financial Security is America's fourth-largest municipal bond insurer behind long-time market leader MBIA Insurance Co., a unit of MBIA Inc., Ambac Financial Group Inc.'s Ambac Assurance Corp., and Financial Guaranty Insurance Co., a unit of General Electric Co.'s GE Capital Services.

Financial Security made a net profit of $125 million last year on $258 million total revenue. It insured $26 billion-worth of bonds, representing 23 percent of the U.S. municipal bond market in that year.

Its book value at the end of last year was $52.57 per share, or about $1.7 billion for the whole company.