A Goldman Sachs Group Inc. analyst slashed his price target for XL Capital Ltd. because of the insurer's exposure to beleaguered bond insurer Security Capital Assurance Ltd.
Analyst Thomas Cholnoky cut his price target to $38 from $55.
XL Capital owns a roughly 46 percent stake in SCA.
Cholnoky said potential liabilities and claims that XL Capital might have to cover because of problems at SCA creates uncertainty about XL Capital's future potential earnings.
XL Capital could incur a charge of between $1 billion and $1.5 billion because of its exposure to SCA, Cholnoky wrote in a research note. SCA's financial strength rating has been downgraded by ratings agencies amid concerns it does not have enough spare capital to cover a potential spike in claims tied to insurance on mortgage-related securities.
Ratings agencies fear rising defaults among mortgages could lead to increased defaults among bonds backed by the troubled loans.
Earlier this week, Fitch Ratings cut SCA's critical financial strength rating to a junk rating of "BB" from "A." Bond insurers typically need top-notch ratings to book new business.
Shares of XL Capital rose 8 cents to $30.04 in afternoon trading. SCA shares rose 2 cents, or 2.7 percent, to 63 cents.
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