The management of Bermuda-based Inter-Ocean announce the company's voluntary entry into run-off
Bermuda's Inter-Ocean Holdings surprised the market last month (April) by announcing it had voluntarily entered into run-off and ceased writing new business.
No reason was given for shutting up shop and management are refusing to say any more on the issue - but this finite risk reinsurer had just had its rating downgraded by AM Best and was involved in the decision by one of its owners RenaissanceRe to restate its results earlier this year.
"After much consideration, the board of directors of Inter-Ocean has decided to put the company into voluntary run-off. Current management will be retained in order to direct the company's run-off operations," said a spokeswoman.
Inter-Ocean, which will continue to handle claims obligations from its outstanding contracts, is owned by 11 separate highly capitalised companies: Associated Electric & Gas Insurance Services Ltd, American Re-Insurance Co, Converium Holding Ltd, Federal Insurance Co - a unit of Chubb Corp, GMAC Insurance Holdings Inc, Hannover Ruckversicherung AG, Platinum Underwriters Holdings Ltd, RenaissanceRe Holdings Ltd, Swiss Reinsurance Co, Westfield Insurance Co, and XL Capital Corp.
The speculation in the industry is that management feared it would be difficult to continue to attract business with the current US scrutiny on finite risk insurance.
The US Securities and Exchange Commission and New York Attorney General Eliot Spitzer have subpoenaed a growing list of re/insurers that sell finite risk insurance. Investigators are concerned that insurance companies' corporate customers could be using finite risk insurance to sidestep accounting regulations by labelling what could be considered loans as insurance. Part of the focus is on reinsurance companies owning other reinsurance companies which then do business with each other.
Standard & Poor's said Inter-Ocean was one such closely held company that it has researched and said in some instances, Inter-Ocean Re acted as a "pass through", with potential claims sent from one of its insurance company owners to Inter-Ocean and then back to a different unit of the same insurer, said Mark Puccia, S&P global chief quality officer for insurance ratings.
"There may or may not be economic risk transfer to justify the use of favourable insurance accounting," Mr Puccia said. S&P stopped rating Inter-Ocean in December at the company's request, while the company was under review for a possible downgrade.
Inter-Ocean, which has between 20 and 30 staff with units in Bermuda and Ireland, was set up in Bermuda in 1990, with Inter-Ocean Re incorporated in 2002 in the jurisdiction.
The shareholders have helped produce much of the company's business and act as 100% retrocessionaires of its two units, Inter-Ocean Re and Inter-Ocean Reinsurance (Ireland) Ltd. The two units retain no net underwriting risk and have collected only fees and, in some cases, profit commissions on the business they assume.
Best downgraded Inter-Ocean's financial strength rating in February to A- from A, citing the impact of the regulatory pressure on Inter-Ocean's ability to "generate deal flow". It then downgraded the financial strength rating of the company and subsequently withdrew its rating following Inter-Ocean's announcement that it had voluntarily entered into run-off.