Two New Bermuda Reinsurers Launched

Mr. Kramer 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–yet to be named–will have capital of at least $750 million.

Rosemont Re and its U.K. parent, Goshawk Insurance Holdings, revealed the deal last week, 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's destruction by terrorists. 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, that 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 discussions regarding these proposals had broken off, adding 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 it anticipates that roughly $4-to-$7 million will eventually come due as a result of these terms, but stressed there was no certainty with respect to this amount. The transaction is subject to various conditions and shareholder approval.

As a consequence of recent events, Rosemont Re is now in runoff, the company said, adding there is a provision for certain existing staff to remain available to provide runoff services as part of the deal. Rosemont also said that it remains exposed to further hurricane activity.

Meanwhile, Warren, N.J.-based Chubb announced last week that it entered into a strategic agreement with a private equity firm to launch a Bermuda-based reinsurer with $1.5 billion of initial capital. Company management said they saw an opportunity in the wake of hurricane losses that have shaken the reinsurance market.

Chubb will invest in the new global reinsurance company–Harbor Point Ltd.–to be formed by Stone Point Capital LLC, a private equity firm in Greenwich, Conn.

Chubb will also transfer the ongoing business of its reinsurance arm, Chubb Re, to the new venture, along with certain related assets, including renewal rights effective Jan. 1, 2006.

Chubb, along with Trident III, L.P., a private equity fund managed by Stone Point Capital, will be lead investors in Harbor Point. The transaction's closing is subject to the condition that $1.1 billion be raised from investors other than Chubb and Trident III, and certain customary closing conditions.

It is expected that the closing will occur by the end of November and that Harbor Point will then commence underwriting upon receipt of necessary regulatory approvals, the company said.

Chubb Re will no longer engage directly in the assumed reinsurance business. Harbor Point, however, will have the right–for a transition period–to have Chubb front certain reinsurance business in cases where Harbor Point is unable to underwrite that business because of the absence of necessary regulatory licenses or approvals.

It was explained that any reinsurance policies issued by Chubb under this fronting arrangement during the transition will be ceded to Harbor Point under quota-share reinsurance deals to be entered into by the parties, with Chubb retaining a limited portion. Harbor Point will not assume the reinsurance liabilities of Chubb relating to reinsurance contracts incepting prior to Dec. 31, 2005. Chubb said it will retain those liabilities and the related assets and reserves.

"It's clear there are dislocations in the reinsurance marketplace as a result of recent catastrophe experiences, among other issues," said John Finnegan, Chubb's chairman and chief executive officer, in a statement announcing the launch. "This transaction offers Chubb an outstanding opportunity to leverage its position in that marketplace in a way that should achieve the greatest opportunity for significant upside capital appreciation."

Harbor Point will be led by John Berger as president and CEO. Mr. Berger has 28 years of experience in the reinsurance industry and has served as president and CEO of Chubb Re since 1998. Stephen Friedman, a senior advisor to Stone Point Capital, will serve as non-executive chairman of Harbor Point. He was formerly chairman of Goldman, Sachs & Co.

Through Trident III, Stone Point invests exclusively in the financial services sector and has historically focused primarily on the insurance sector. "A number of our previous ventures–including ACE, XL, Mid Ocean and AXIS–have addressed supply and demand imbalances in the insurance and reinsurance markets," said Charles A. Davis, CEO of Stone Point. "Harbor Point is in the tradition of these previous investments."

Stone Point Capital serves as the manager of the Trident Funds, which have raised more than $3 billion in committed capital to make investments in the insurance, employee benefits and financial services industries. Prior to the formation of Stone Point Capital in 2005, the principals of the firm led the private equity firm MMC Capital Inc.

"It's clear there are dislocations in the reinsurance marketplace as a result of recent catastrophe experiences, among other issues. This transaction offers Chubb an outstanding opportunity to leverage its position in that marketplace…"

John Finnegan, Chairman & CEO

Chubb