Besieged Bermudan reinsurer Alea sells off key parts of its business.
First it sold off the main portions of its US primary programme business, then it parted with the renewal rights of its London-based business, and most recently Alea announced heads of terms to sell its European renewal rights to French reinsurer SCOR.
Already struggling following 2004 storm losses and reserve increases, the 2005 hurricane season and Katrina in particular was the nail in the coffin as far as Alea's long-term future was concerned. Expecting pre-tax losses from Hurricane Katrina of between $20m and $30m, its initial intension to raise some $210m in capital via an equity rights issue was halted in its tracks following downgrades by both Standard & Poor's and AM Best from “A-” to “BBB+” and “BBB” respectively.
Then on 22 November, Alea announced it was selling the renewal rights of certain portions of its US primary programme business to subsidiaries of AmTrust Group, a privately held, New York-based insurance and financial services company. Terms of the agreement include an upfront payment of $12m along with additional payments of 3% of gross premiums over the next five years (estimated to be in the range of $20m-$40m with a $75m cap).
In a separate deal the sale of renewal rights of part of its London-based facilities insurance and reinsurance business to Canopius Holdings UK was announced on 5 December. Combined payments are expected to be in the range of $8m-$12m, capped at $30m.
Finally, on 8 December Alea announced it would sell the bulk of its European business to French reinsurer SCOR. Heads of terms are that SCOR will pay Alea 9.5% of gross premiums written on renewed reinsurance business in 2006, estimated to be in the range of $10m-$20m.