There are four issues that John Burke, CEO and CFO of Annuity & Life Re Holdings Ltd. says need to be “resolved amicably for the company to have a reasonable basis of going forward.”
Over the past year liquidity and capital pressures have forced the company to put a hold on accepting new business.
The first two tasks, according to Burke, are reducing exposure to guaranteed minimum death benefit riders and guaranteed minimum income benefit riders in variable annuity contracts that have been ceded to the life reinsurer, based in Hamilton, Bermuda.
As of March 30, Annuity & Life Res annuity reinsurance business had total assets of $1.04 billion including minimum death benefit, enhanced earnings benefit and minimum income benefit VA guarantees.
The other two issues, says Burke, are resolving an annuity reinsurance contract with Transamerica as well as trueing up an agreement with XL Life Ltd., a subsidiary of XL Capital, to transfer life reinsurance business to XL.
The annuity reinsurance contract with Transamerica was the companys largest at the end of first quarter 2003, representing $695 million or 68% of its fixed portion of statutory reserves carried by the ceding company.
Annuity & Life Re has said it does not expect that block of business to generate significant income in the future. Roughly 65% of premiums paid in connection with those contracts are invested in convertible bonds whose equity component tracks the stock market. “It could be okay, but it could bite us,” says Burke.
And, he continues, work is under way now on post-closing adjustments to the XL transaction of the transfer of four blocks of its business. If an agreement is not reached, it may have to enter into arbitration proceedings.
Currently, Annuity & Life Re is in arbitration with Met Life, New York, and Hartford Life Insurance Company, Hartford, Conn. Burke says those actions are continuing, but there has not been significant change in their status.
The Hartford arbitration focuses on whether Annuity & Life Re should post an additional $59 million in collateral. The Met Life arbitration centers on an allegation by Annuity & Life Re that Met Life failed to disclose material facts related to the agreement.
Burke says talks with Citibank continue regarding fully securing a $40,605,000 letter of credit issued by Citibank. Annuity & Life Re had a June 30 deadline to secure or eliminate the LOC or face termination of the LOC at year-end.