The shares of Bermuda insurer and reinsurer XL Capital Ltd. plunged to their lowest level in almost eight years on Friday, after shedding 22 percent of their value in the space of two days.

But having dipped to $39.52 by the time the markets closed on Friday, the stock rebounded to some extent, gaining more than three percent in after-hours trading, as some investors sensed a bargain.

Thursday and Friday's sharp falls — 13 percent and 11 percent respectively — wiped more than $2 billion off the market capitalisation of XL and left the week's closing share price below $40 for the first time since 2000. At one point, the price dipped as low as $38.68.

XL has been impacted by its exposure to the US sub-prime mortgage crisis, particularly through its approximately 46-percent holding in bond insurer Security Capital Assurance (SCA).

SCA shares dipped nine percent on Friday and have lost around 95 percent of their market value over the past seven months.

Fellow Bermuda bond insurer RAM Holdings fell nearly eight percent on Friday, to close on $1.17 — dramtically down from its 52-week high of $17.34 in June last year.

And Assured Guaranty, another Island-based company, has also been a lesser affected case, falling five percent on Friday to close at $17.46, down more than $14 from its high last June.

Bond insurers, which provide coverage against debt defaults, have been badly hit by the crisis, as a proportion of the debt that some of them insure is linked to mortgage-related products.

They rely upon their AAA ratings, which reflect their ability to honour financial guaranty contracts, to win business from municipal authorities, who issue bonds to finance major projects, and from corporations.

Those ratings have come under pressure and on Friday the world's second-largest bond insurer Ambac had its financial strength rating reduced to AA by the rating agency Fitch.

The downgrade came after Ambac abandoned plans to raise $1 billion of extra capital and could lead to the company stopping writing new business and going into run-off.

The problem has deepened as more US sub-prime, or high-risk, mortgage borrowers — those with poor credit records — have defaulted on their loan payments, in the midst of falling property values and rising interest rates that rose through the first eight months of 2007.

According to comments made by the US Federal Reserve chairman Ben Bernanke earlier this month, some 21 percent of high-risk mortgage borrowers in the US with adjustable rate mortgages are at least 90 days delinquent or in foreclosure proceedings.

Major banks around the world have already reported losses of around $100 billion. And the problem has spread further because many mortgage lenders had passed the rights to the mortgage repayments — and the associated risks — on to other investors in the shape of what are known as mortgage-backed securities (MBS).

Two Bermuda reinsurers, RenaissanceRe and PartnerRe, last week announced a combined $255 million write-down linked to sub-prime mortgage crisis. Most of the losses arose from their stakes in bond reinsurer ChannelRe being rendered worthless by its expected losses in honouring contracts with bond insurer MBIA being greater than ChannelRe's entire shareholders' value.