XL, Bermuda's Biggest Insurer, Is Said to Seek Buyer (Update4)
By Zachary R. Mider and Erik Holm
December 10, 2008
Dec. 10 (Bloomberg) -- XL Capital Ltd., the biggest Bermuda- based insurer by assets, is seeking a buyer after reporting investment losses larger than its market value, four people with knowledge of the matter said.
XL plunged 33 percent in New York trading to the lowest level since the company went public 17 years ago. The property and casualty underwriter has been buffeted this year by losses stemming from the global credit crisis and downgrades from three major credit-rating companies.
XL hired Goldman Sachs Group Inc. to gauge interest from potential bidders, said the people, who declined to be identified because the talks are confidential. XL's market value has shrunk to less than $1.3 billion from more than $20 billion a year ago, making it more affordable for rivals including Everest Re Group Ltd., Zurich Financial Services AG and Ace Ltd.
The stock drop "suggests that Goldman is going to have to look far and wide for a buyer,'' said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. "The issue is how many potential buyers Goldman can line up for a troubled company in these troubled times.''
Melissa Daly, a spokeswoman for New York-based Goldman Sachs, declined to comment, as did Ace's Stephen Wasdick and Sean Kevelighan from Zurich Financial. Spokeswoman Elizabeth Farrell at Bermuda-based Everest didn't respond to a phone call seeking comment.
"It's not XL's policy to comment on market rumors and speculation,'' XL spokeswoman Carol Parker Trott said.
XL sank $1.89 to $3.90 at 4:15 p.m. in New York Stock Exchange composite trading, after touching $2.83 earlier today.
Chief Executive Officer Michael McGavick, 50, pledged an end to "big mistakes'' when he succeeded Brian O'Hara in May. McGavick has been forced to issue more than $2.8 billion of new XL shares and rescue the insurance operations of Syncora Holdings Ltd., a bond insurer created by XL and formerly known as Security Capital Assurance Ltd. Syncora faced a wave of claims after collateralized debt obligations it insured declined in value.
XL had $292.9 million in investment losses in the third quarter, took a $1.4 billion charge tied to Syncora and said unrealized losses widened to $2.59 billion.
Those losses followed a series of unanticipated expenses related to the 1999 purchase of NAC Re Corp., legal costs tied to the 2001 deal to buy Winterthur International and higher-than- expected claims from Katrina and other hurricanes that struck during the record 2005 storm season.
"XL has gone from debacle to debacle to debacle,'' said David Havens, a credit desk analyst at UBS AG in Stamford, Connecticut. "This company has incurred several hundred million dollars worth of self-inflicted wounds.''
XL and Ace were both founded in Bermuda in the 1980's by a group of the world's largest companies to provide coverage, then in short supply, of corporate liability risks of as much as $100 million. They helped establish Bermuda as the world's insurance capital. Ace moved its corporate headquarters to Zurich earlier this year.
XL's "primary problem is that their investment portfolio is aggressively invested in credit-sensitive securities, so the problems in the mortgage-backed and subprime world have hit them harder than other insurers,'' said Paul Newsome, a Chicago-based analyst at Sandler O'Neill & Partners.
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