Insurance investors will be watching XL Capital?s release of its third quarter results carefully tonight after the company said it expected to pay almost $1.5 billion catastrophe losses in the period.

XL, which will report earnings aftter the market close, is projected to report a loss of $3.08 per share in the third quarter and a profit of $2.73 for the year, according to analysts polled by Thomson Financial.

Although the quarterly proejctions ? and projections of a full year operating loss ? released last week knocked XL?s share price, some analysts are optimistic.

?XL has ample exposure to the lines of business where we expect to see improved market conditions following the losses from Hurricane Katrina,? a Merrill Lynch analyst told the Associated Press.

?Specifically, XL writes property catastrophe reinsurance, large property insurance and has an operation in the London Market, all segments of the business where we expect market conditions to tighten up.? The analyst rated the company at a ?Buy? and believes the stock will hit $77 within the next 12 months.

Forbes.com said on its website this weekend that XL chief executive Brian O?Hara has been upfront about the losses, but added that the company must raise more capital.

Losses from Katrina, which hit the Gulf Coast on August 29, are expected to be $1.16 billion, while Hurricane Rita, which struck in late September, is seen lowering profit by $263.6 million, the company said. XL also expects that pre-tax net losses from other natural catastrophes will be about $89.7 million for the quarter.

Shares of XL Capital have fallen about 15 percent so far this year.

By announcing the loss estimates ahead of its earnings announcement, XL probably will not see its shares knocked further.

But the company also has an arbitration result weighing on its shares stemming from its 2001 purchase of Winterthur International.

XL and Winterthur Swiss Insurance Company have entered into an arbitration regarding settlement of a reserve seasoning agreement.

If XL is unsuccessful in the independent actuary review process, the company could face a net pre-tax reserve increase of approximately $900 million.

That decision is expected in the next few months.