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Reinsurer Takes $33 Million Investment Guarantee Charge

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NU Online News Service, Jan. 15, 8:16 p.m. – Annuity & Life Re (Holdings) Ltd., Hamilton, Bermuda, says it is feeling the effects of low investment returns on a large annuity reinsurance contract.

The reinsurance contract, which is managed by another reinsurer, backs annuities that offer minimum interest rate guarantees.

Annuity & Life will take a $33 million charge for the fourth quarter of 2001 to cover costs related to the minimum rate guarantees, the company says.

XL Capital Ltd., Hamilton, which controls 13% of the equity voting power at Annuity & Life, has agreed to provide up to $10 million in additional protection against losses on the reinsurance contract, according to Annuity & Life.

Annuity & Life did not immediately identify either the ceding company or the name of the company or companies that wrote the underlying annuities.

Annuity & Life announced in October 2001 that it was taking a $10 million charge due to adverse mortality experience related to the contract; writing off $25 million in deferred acquisition costs related to the contract; and planning to take “appropriate action” to recover what it could from the ceding reinsurer.

Annuity & Life is giving few details about the problem annuity reinsurance contract, but it does say the underlying annuity contracts suffer from excessive lapse rates.

Annuity & Life is seeking damages from the ceding reinsurer, according to Jay Burke, the chief financial officer.

Company executives note that revenue has been increasing rapidly, and that operations other than those associated with the problem annuity reinsurance contract are profitable.


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