Credit Suisse yesterday cut its share price target on Bermuda-based business insurer XL Capital Ltd. to $4 from $21.

The decision came the day after Bloomberg reported that the company was seeking a buyer.

Credit Suisse said in yesterday's research note: "We believe exploration of alternatives is in part a response to a weak capital position, since raising capital currently could be very difficult." It has a "neutral" rating on the stock.

XL stated late on Wednesday night that it was being advised by Goldman Sachs on "value-enhancing opportunities available to it".

Normally, such news would be expected to spark a rise in a company's stock price. Certainly so when, as in XL's case, the company's book value stood at $21.65 at the end of September, while its shares were trading at around $6.

However, the opposite happened. On Wednesday, XL's share price plunged 33 percent. And yesterday the stock fell another 12 percent to close at $3.44, leaving XL with a market capitalisation of $1.14 billion.

In the current economic conditions, and with other insurers having seen their capital eroded by investment and catastrophe losses, the market seemed to fear a lack of potential buyers.

According to TradeTheNews.com, Keefe Bruyette & Woods were suggesting that XL would struggle to find a bidder at all.

XL announced on Wednesday night that its fourth-quarter investment losses were "largely in line" with those sustained in the third quarter and said it had lost between $200 million and $220 million in net losses from its alternative investment portfolio.

XL has been ravaged by losses related to reinsurance exposure to financial guarantor Syncora Holdings. XL took a $1.4 billion charge in the third quarter related to a deal that extricated the company from the Syncora problems.

But investors have also been concerned about XL's investment portfolio, which has declined in value substantially this year. Almost all insurers have suffered the same fate, but there are concerns that XL has a heavier weighting of riskier investments than its peers.

Chief executive Michael McGavick, who took over from Brian O'Hara in May this year, has addressed those fears by ongoing moves to "de-risk" the portfolio. For example the company sold off $800 million worth of commercial mortgage backed securities in the third quarter, reducing its exposure to that asset class by 25 percent.