Alea Posts $10.7 Million 1H Loss; Continues Run-Off Operations

Bermuda-based Alea Group Holdings announced a net loss of $10.7 million for the first half of 2006, compared to a $19.5 million net profit in the same period last year.

Other first half figures and comments included the following:
— Net insurance premium revenue of $209.7 million – June 30, 2005: $610.7 million, “with the reduction reflecting the impact of the Group’s decision to cease writing new/renewal business and place its operations into run-off.”
— Net asset value of $2.57 per share compared with 30 June 2005 of $4.12 per share. “Net asset value at 30 June 2006 was impacted by cumulative unrealized losses on investments of $49.3 million (30 June 2005: cumulative gains of $17.2 million).”
— Basic and diluted loss per share of $0.06 (30 June 2005: earnings per share of $0.11).
— Investment income of $49.2 million (30 June 2005: $43.0 million).
— Insurance contracts liabilities decreased from $2.872.5 billion at 31 December 2005 to $2.4517 billion at 30 June 2006.
— Other operating expenses for the six months ended 30 June 2006 were $42.5 million compared with $61.2(5) million in the six months ended 30 June 2005.
— Limited adverse development (net of commutations) of $3.1 million representing 0.1% of gross claims outstanding.

The bulletin also noted that during the period, Alea “entered into an agreement to sell Alea North America Specialty Insurance Company (“ANASIC”) to a member company of Praetorian Financial Group, Inc. 2006 performance remains within the financial covenants under the Group’s bank credit agreement.”

Concerning the state of its run-off operations, Alea said: “Following the announcement of the Group’s intention to cease underwriting and place its insurance operations into run-off, the Group adopted a run-off plan that includes a proactive cost management program including consolidation of certain operations to improve operational efficiency, and an aggressive claims management and commutation strategy. The key elements of the plan are to preserve net assets through effective management of the run-off of the Group’s balance sheet, manage other operating expenses and finance costs to levels less than or equal to investment income by year end 2007, and ultimately return capital to shareholders.

“Effective 1 September 2006, Mark Cloutier was appointed Chief Executive Officer of the Group and with Kirk Lusk, Group Chief Financial Officer, joined the Board of Directors.”

The Group’s first half 2006 performance met its expectations. However, it noted: “Notwithstanding our performance, there can be no certainty as to the timing or amounts of future distributions to shareholders. Any future distributions will be subject to execution of commutations on economic terms acceptable to the Group, appropriate regulatory approvals being obtained to fund intra-group distributions, applicable legal restrictions, repayment of the Group’s $150 million term loan and $50 million revolver and the retention of adequate capital to meet other obligations.”

John Reeve, Non-executive Chairman of the Board of Directors, commented: “The first half of 2006 has been a challenging time for Alea, despite which the Group’s results and run-off strategy are on plan. The Group is making progress in its efforts to reduce volatility in the balance sheet while at the same time achieving the operating efficiencies needed to sustain a successful run-off. We are pleased with the partnership of Mark Cloutier as Group CEO and Kirk Lusk as Group CFO and welcome them as executive members of the Board of Directors.”

Cloutier added: “The Group’s operating results excluding finance costs are slightly better than plan, which is encouraging given the significant changes implemented in the transition to run-off. We made considerable improvements in the areas of staff and organizational restructuring, claims and commutation strategies, and expense and cash flow management. Additional progress has been made with respect to reducing volatility in the portfolio and accelerating our exit from active exposures through commutations and unearned premium cut-offs. As we move ahead, we will remain keenly focused on expense reduction initiatives, further embedding of cash and claim management strategies, and an acceleration of commutation activity.”