XL Capital Ltd. announced last night that it expects to post a loss of at least $1 billion for the last three months of 2007 — one of the biggest quarterly losses ever made by a Bermuda company.

The insurer and reinsurer has been hit hard by exposure to the US sub-prime mortgage crisis, which has seen major banks all over the world incur huge losses after many Americans defaulted on their mortgages.

Most of XL's exposure is through its investment in a company in which it holds a 46-percent stake, Security Capital Assurance (SCA). In a statement, XL said it would take charges "related to credit market conditions" amounting to between $1.5 billion and $1.7 billion for the September to December period.

But thanks to the profits it accumulated in the first three quarters of the year, XL still expects to make a profit of between $200 million and $400 million for 2007. SCA is a bond insurer which provides coverage against debt default. Some of the cover it provides is for bonds linked to mortgages classed as sub-prime — that is, held by borrowers with poor credit.

XL's share price hit an eight-year low last Friday and has since rebounded somewhat, but is still down 32 percent down on its value a year ago.

SCA's shares have lost 86 percent of their value over the past 12 months, plummeting in the second half of last year as its sub-prime exposure became apparent.

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