NEW YORK (Bloomberg) - XL Capital Ltd. received its third ratings downgrade this year when Moody's Investors Service cut ratings on the Bermuda-based business insurer's debt and claims- paying ability.

XL said on January 23 it lost as much as $1.2 billion in the fourth quarter, in part because of its investment in bond insurer Security Capital Assurance Ltd., prompting Fitch Ratings and AM Best Co. to lower their ratings on XL. Moody's began a review for possible downgrade, culminating in in Friday's action.

"The downgrade reflects the company's relatively weak profitability," Moody's said in a statement citing losses related to Security Capital. The cut also reflects "sub-prime exposure within its investment portfolio."

Security Capital, founded by XL, has lost 88 percent of its market value in the past year. Losses on sub-prime mortgage-related bonds left bond insurers struggling to retain the top credit ratings they use to guarantee $2.4 trillion in assets.

New York-based Ambac Financial Group Inc., the second-largest bond insurer after Armonk, New York-based MBIA Inc., lost its AAA grade from Fitch on January 18 on concern that claims will rise from bonds tied to sub-prime mortgages.

Moody's cut XL's claims-paying ability to A1 from Aa3 and lowered the senior debt rating to Baa1 from A3.

New York Insurance Superintendent Eric Dinallo is trying to organise a bank-led rescue of Ambac to prevent further downgrades that may roil credit markets, according to two people briefed on the plan.

Mr. Dinallo has organised a group of eight banks including Citigroup Inc. and UBS AG to provide financing, said one of the people, who declined to be identified because the details have not been completed.

XL said on January 23 it expects to take charges including at least $550 million on the reduced value of its 46 percent stake in Security Capital. XL also set aside $300 million for claims on reinsurance obligations tied to the firm, also based in Bermuda. XL will also report about $500 million in investment losses, mostly on structured debt investments, XL said in its January 23 statement.

XL rose $1.44, or 3.2 percent, to $46.44 in New York Stock Exchange composite trading. The stock lost 36 percent in the fourth quarter. Security Capital rose 18 cents, or 5.7 percent, to $3.33.

XL is scheduled to release final fourth-quarter results on February 5.