A reinsurance subsidiary of Bermuda-based White MountainsInsurance Group has increased its 2005 gross catastrophe lossestimates by $203 million.

Folksamerica Reinsurance Company has set its reserves foroffshore energy and marine exposures for Hurricanes Katrina andRita at full policy limits, and increased its reserves on otherexposures affected by the storms.

As a result of the announcement, A.M. Best has downgraded thesubsidiary from "A" to "A-minus" and placed the rating under reviewwith negative implications.

A total of $143 million of the loss will be ceded to OlympusReinsurance Company, a sum that threatens to exhaust the bulk ofthat company's capital.

White Mountains said it is in advanced discussions with Olympusand its two largest shareholders regarding an arrangement toreimburse Olympus for up to $137 million of the ceded losses.

The payments totaling $140 million, which would includecommission waivers, would bring Olympus' capital back to the levelprior to this adverse development and the carrier will continue toprovide retrocession cover for Folksamerica, the company said