Bermuda-based business insurer XL Capital Ltd. recovered some of the enormous losses its share price suffered over the past week after the company announced estimated investment losses of around $1 billion for the third quarter.

XL, which had shed 80 percent of its value over the previous two days, rose 35 percent yesterday to close the week on $5.43.

A statement released yesterday morning helped to turn the tide. In it, the company estimated its book value — its assets minus its liabilities — at $21 to $22.50 a share, as of September 30. That's around half the $43.39 book value the company had reported at the end of the second quarter.

Amid panicky trading worldwide this week, concern over the quality of XL's fixed-income investment helped to drive the company's stock down dramatically.

Yesterday XL estimated the decline in market value of its fixed-income portfolio at between $1 billion and $1.2 billion for the third quarter.

The company also announced it would release preliminary third-quarter results next Tuesday morning and would hold a conference call immediately afterwards.

XL chief executive officer Michael McGavick said: "We are determined to provide investors with the information they need to assess the value of XL's shares. I believe that the preliminary estimates we have provided today will assist in these efforts. The next time that we expect to be able to provide further meaningful financial information is early next week and I look forward to doing so on our call on Tuesday."

All insurers will see their investments hit by the market meltdown. Yesterday Ace Ltd. estimated that its investment portfolio declined by an estimated $1.5 billion during the three months up to the end of September. And earlier this week, US life insurance giant MetLife announced unrealised investment losses of $17 billion during the third quarter.

The total value of XL's fixed-income investment portfolio, as at June 30 this year, was $34.27 billion, with around $10.9 billion of it invested in structured credit products.

Financial information published by the company also shows that at the end of the second quarter, XL had investments valued at $6.5 billion linked to US mortgages, and some $4 billion linked to other asset-backed securities.

"Fair-value" accounting rules mean companies have to declare the value of investments at a price they would fetch on the market currently in their financial statements, regardless of the fact that they normally intend to hold them until maturity, which can be years, or even decades later.

With the US property slump, structured investment products linked to mortgages, backed by property as collateral, have declined in value to the point that there has been no market for them.

Therefore investors, such as insurance companies, have had to dramatically write down the value of such holdings in their statements. Many executives believe the mark-to-market accounting rules have fuelled investor panic and accelerated the financial meltdown.

Insurers have also had to write down investments made linked to a number of institutions that have collapsed or have been rescued by the US Government in the past few weeks, including banks Lehman Brothers and Washington Mutual, insurer American International Group, and US mortgage giants Fannie Mae and Freddie Mac.

Exacerbating the problems for many Bermuda insurers and reinsurers have been two hurricanes, Gustav and Ike. The Bermuda market will have to pay a substantial share of total insured losses estimated at $12 billion.

XL also incurred a costly resolution of its exposure to the bond insurer it spun off, Syncora Holdings (formerly known as Security Capital Assurance) during the third quarter.

This cost it around $1.9 billion in cash and shares, funded by a $2.8 billion issue of shares and equity units, which effectively diluted the value of XL's shares.