NEW YORK Bermuda-based reinsurer XL Capital Ltd (XL.N) has hired Goldman Sachs as an adviser to explore a sale of the company, Bloomberg reported on Wednesday, citing unnamed sources.
XL shares fell as much as 51 percent before closing down 32.6 percent, or $1.89, at $3.90 on the New York Stock Exchange. The stock has lost 94 percent of its value over the past year.
XL officials did not return several calls seeking comment, and Goldman Sachs declined to comment.
Last month, the insurer posted a quarterly net loss of $1.65 billion, hurt by charges related to a stake it held in troubled bond insurer Syncora Holdings Ltd SCA.N, impairments and investment losses.
Analysts said XL has been able to get rid of the liabilities by making a payment to Syncora, and has strong business prospects. Still, the list of potential buyers are slim.
"The buyer list has shrunk considerably," in recent months, said Cliff Gallant, an insurance analyst with Keefe, Bruyette & Woods in New York. "Stock prices are weaker, and investment portfolios have taken large hits. There are not that many bidders anymore, and for that reason I think XL is a hard sell," he said.
"We do not think there are any liquidity problems. It seems XL can pay their claims, but there is clearly some panic in the markets," Gallant added.
Rivals have been considering XL as a potential takeover target for months. Axis Capital Holdings Ltd (AXS.N) Chief Executive John Charman said in September that it was the first global property-casualty insurance franchise to come on the market since Cigna Corp's (CI.N) property-casualty unit was sold to Ace Ltd ACE.N nearly a decade ago.
At the time, Charman said he was looking closely at potential takeover targets.
But last month he told investors on a quarterly earnings conference call he was more interested in growing the company from within, citing market conditions that are expected to push insurance and reinsurance rates higher in 2009.
Reinsurers essentially provide insurance to other insurers, spreading the risk of losses among several carriers.
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(Reporting by Paritosh Bansal and Lilla Zuill; editing by Jeffrey Benkoe)