Don Kramer, former vice chairman of ACE Ltd., is heading a private investor group that will buy the infrastructure and renewal rights of troubled Rosemont Re, to set up a new Bermuda reinsurer.
The new reinsurer said it will have capital of at least $750 million. A name for the new entity was not announced.
Rosemont Re and its U.K. parent, Goshawk Insurance Holdings, announced the deal today, after recently announcing that Rosemont's business would be put in runoff as a result of heavy losses from Hurricane Katrina.
Bermuda reinsurers have been launched in the wake of prior industry events, such as Hurricane Andrew and the World Trade Center attacks. It appears the new reinsurer to be set up by Mr. Kramer as others is the first Bermuda company to be launched in the wake of Hurricane Katrina.
Among the reinsurers set up in Hurricane Andrew's wake was Tempest Re, which was founded by Mr. Kramer.
Rosemont Re was set up in 2001, specializing in catastrophe reinsurance in the marine and non-marine property markets. On Oct. 7, Rosemont announced that gross losses from Katrina would fall between $99 million and $130 million, and net losses would be roughly $60 million, and that it was considering proposals involving either a capital injection or sale.
Ten days later, however, the company said that discussions regarding these proposals had broken off, adding that the likely consequence was putting the business into runoff.
That announcement prompted a downgrade by A.M. Best–to "B" (fair) from "A-minus" (excellent)–and a second announcement saying that the downgrade would severely impair Rosemont Re's ability to write existing or new business, making the prospect of runoff more likely.
According to Goshawk and Rosemont, the investors setting up the new reinsurer will pay Rosemont Re a fixed upfront payment of approximately $2.5 million for its existing infrastructure and 8 percent commission payments based on the renewing Rosemont Re business as it is bound by the new reinsurer in 2006.
Rosemont said that it anticipates that roughly $4 to $7 million will eventually come due as a result of these terms but stressed that there was no certainty with respect to this amount.
The transaction is subject to various conditions and approval by Goshawk shareholders.
As a consequence of recent events, Rosemont Re is now in runoff, Rosemont said, adding that there is a provision for certain existing Rosemont Re staff to remain available to provide runoff services to Rosemont Re as part of the deal.
Rosemont also said that it remains exposed to further hurricane activity.
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