Alea, the distressed reinsurer, announced plans to put its UK business into run-off yesterday, selling the division's renewal rights to Canopius Holdings for about $10m (£5.7m), and opening talks with its 125 London employees who are set to lose their jobs.
The move takes Alea one step closer to closing down, having conducted a similar transaction with its US business last month. It said yesterday it was in talks with other potential buyers, with a view to selling its European assets and its US state licences.
Alea has struggled since floating on the London market two years ago, landing investors with a string of earnings disappointments. The company was also hit particularly hard by the US hurricane season this year, generating combined losses of about $80m (£46m), excluding Hurricane Wilma, for which it has yet to produce a loss estimate.
After having its credit rating downgraded by AM Best, the specialist insurance ratings agency, and Standard & Poor's, in September, the group was forced to abort efforts to raise capital through a rights issue.
Alea said yesterday it expects to receive between $8m and $12m for its UK renewal rights, payable in instalments over the next two years. Explaining its reasoning for the UK sale, the company said: "The renewal rights transaction and decision to cease underwriting was taken as a result of the inability to attract a suitable volume and quality of business stemming from rating agency downgrades in the third quarter of 2005."
The company is on course to turn a net loss for 2005, having made a profit of about $11m last year. Since listing on the London market at 250p in November 2003, its shares have more than halved. After rising slightly in early trading yesterday, they closed down 3.5p at 111.25p, giving the company a market value of £193m.
Elsewhere, Atrium Underwriting, the Lloyd's of London insurer, said it expects its losses from this year's US hurricanes to total £27.6m, admitting it was more likely than not to make a loss for 2005 as a result.
However, it added that it was now upbeat about the outlook for the market. "The recent hurricanes have acted as a catalyst for market improvement in insurance and reinsurance trading conditions," Nick Marsh, the company's chief executive, said.Reuse content