XL Capital Ltd. estimated yesterday that it made the biggest quarterly loss in its history around $1.6 billion in the three months through September this year.

After the company issued preliminary third-quarter results before the markets opened yesterday, XL's share price rose 55 percent to close on $11.54. The share has risen 188 percent since the close of trading last Thursday.

In a conference call yesterday morning, XL's chief executive officer Michael McGavick said the company had released estimated results early to show counter rumours that he believes sparked a massive sell-off of XL last week

.XL lost 80 percent of its value in two days, plunging to a closing price of $4.01 last Thursday. Mr. McGavick said the precipitous fall had shown what "market rumours in a time of panic" could do.

He said rumours were exaggerating company losses by "many multiples". "The rumours emerged on Wednesday and on Wednesday night the short selling ban came off and I can't imagine that was helpful at that particular time," Mr. McGavick said.

The rumours had caused a "significant disconnect", he said, a situation he hoped to rectify by putting out preliminary third-quarter earnings, as well as an estimate of September 30 book value of between $21.50 and $21.65, and information on actions being taken to reduce risk in the company's $38 billion investment portfolio.

XL's loss in what Mr. McGavick described as "a tough quarter by any measure" was largely down to factors the company had reported previously. They included a $1.4 billion charge tied to terminating its exposures to troubled bond insurer Syncora Holdings (formerly known as Security Capital Assurance), net losses related to hurricanes Gustav and Ike of around $223 million and a net charge of $41.7 million related to the company's corporate streamlining, which included the elimination of some 165 jobs worldwide, including 47 in Bermuda.

The net loss was probably about $1.62 billion to $1.67 billion, or $6.08 to $6.17 a share, compared with net income of $371.6 million, or $1.82 per share in the year-earlier period, the company said yesterday.

Last week, the company estimated that the value of its fixed-income investment portfolio had fallen by between $1 billion and $1.2 billion.

In their conference call, XL executives spoke about the action they are taking to "de-risk" their portfolio and how market conditions for selling insurance seem to be improving. As the conference call was concluding, XL's shares then opened around 50 percent higher than their Monday closing price of $7.43.

Mr. McGavick said the "confidence of all concerned is moving back to XL" and added that in the third quarter the company had enjoyed "positive sales momentum".

The figures illustrated the point as gross premiums in the company's insurance operations were 3.8 percent higher than in the same period last year and 9.9 percent higher in the reinsurance segment.

However, claims arising from catastrophes, as well as other property losses resulted in an overall underwriting loss for the quarter of $89.77 million and a combined ratio the percentage of premiums and expenses spent on claims of 107.1 percent.

In order to pay for the $1.9 billion deal in cash and shares which eliminated virtually all of XL's exposure to Syncora, in August XL sold shares and equity units to raise $2.88 billion in extra capital. The decision to raise more than $1 billion on top of the Syncora deal needs had "proved prudent', Mr. McGavick said, after higher than average property and catastrophe claims in the third quarter. He added that there was no need to raise any more capital through the sale of shares. Chief investment officer Sarah Street described how XL was "de-risking" its investment portfolio. Moves included the selling of holdings in US mortgage giants Fannie Mae and Freddie Mac and small stakes in troubled Icelandic banks.

She added that the company had also sold $800 million worth of commercial mortgage-backed securities at a loss of $21 million, which had reduced the company's exposure in that area by 25 percent.

XL also has holdings of residential mortgages, both "sub-prime" the highest risk category and Alt-A, the next tranche up. Ms Street explained that for accounting purposes, independent price providers had assessed the value of the sub-prime holdings at 67 cents on the dollar, and the Alt-A at 63 cents.

XL is continuing with its "strategic review" of its life reinsurance operations, which it expects to be concluded this quarter. This could result in the sale of the unit.

Last Friday, Standard & Poor's affirmed XL's A+ financial strength rating, a development that helped to stop last week's sell-off.