XL Capital Ltd., the Bermuda-based business insurer whose stock is down 86 percent this year, jumped in New York trading amid speculation the company may have to consider a sale, according to an analyst.

XL surged $2, or 36.83 percent, to close at $7.43 in New York Stock Exchange composite trading, among the biggest gainers in the 24-stock KBW Insurance Index. The stock is down by more than half in the last month.

Meanwhile Standard & Poor's affirmed its A+ financial strength rating on the company on Friday and said in its commentary that XL's capital adequacy is strong. However, the agency maintained its negative outlook on that rating, saying there was potential for further decline in the insurer's investment portfolio.

This morning, XL will release preliminary third-quarter results and hold a conference call.

"XL's recent precipitous stock price drop could cause brokers and clients to question XL's sustainability as an entity," said analyst William Yankus of Fox-Pitt Kelton Cochran Caronia Waller yesterday in a research note, XL "may have to consider a hasty sale of the company".

XL, led by chief executive officer Michael McGavick, was battered in the third quarter by investment losses and claims tied to Hurricanes Ike and Gustav. The insurer also sold more than $2.8 billion in stock to fund a bailout of bond insurer Syncora Holdings Ltd.

XL's book value per share, or assets minus liabilities, probably declined by about half to around $22 in the three months to the end of September, the company said last Friday.

XL has already announced that it expects unrealised losses of $1 billion to $1.2 billion in its investment portfolio for the third quarter and also a net loss of $195 million to $270 million related to Hurricane Ike.

S&P said that the retention of $1.1 billion from the stock and equity unit sale "offset our previously communicated concern regarding the heightened potential for investment declines and impairments. Pro forma September 30, 2008, capital adequacy is strong and incorporates both the market valuation of XL's investment portfolio and expected Hurricane Ike and Gustav losses that, though material, were within our expectations."

S&P said its negative outlook on the ratings reflected concerns about potential further investment portfolio declines and XL's enterprise risk management (ERM).

"We believe XL's need to access the financial markets twice in the past three years to address such issues has hurt the company's financial flexibility," S&P added. "However, we believe that management is proactively addressing its shortfalls in ERM practices, especially strategic and operational risk management.

"Moreover, we believe there is adequate management, at least with respect to its core insurance-related risks.

"We expect XL to produce a strong, steady earings stream from its ongoing core operations at a level equal to that of similarly rated peers, despite soft market pressures."