Problems at U.K. insurer Goshawk Insurance Holdings deepened last week with news that it needed to boost reserves for catastrophe losses at Rosemont Re, its Bermudian reinsurer, which is now in run-off.
Because of increasing catastrophe loss estimates, Rosemont has put an additional $25 million into its reserves for hurricanes Katrina, Rita and Wilma, bringing aggregate reserves for these events to $130 million.
In addition, Goshawk warned shareholders in a statement that it is likely to have to increase reserves for non-catastrophe business written in previous years.
The continuing reserve increases are bad news for Goshawk's long-suffering shareholders as they may prevent Goshawk from accessing funds from Rosemont Re.
Goshawk put Rosemont into run-off and sold the reinsurer's continuing business and physical assets to Bermuda start-up Ariel Re for $12.5 million at the end of last year. But Goshawk retained Rosemont's run-off business and still depends on funds from the reinsurer.
Despite being in run-off the unit is still regulated by the Bermuda Monetary Authority. On Nov. 3, Goshawk announced that the BMA had amended Rosemont Re's Class 4 insurance license. The change stipulates that any future distributions by Rosemont Re to its parent company will require the BMA's approval.
At that time Goshawk's board said it believed that the BMA may not agree to Rosemont Re remitting any further funds to Goshawk until most of Rosemont Re's claims liabilities have been settled. This process may take several years to complete, it said. It added that if it seems likely that Rosemont Re will not be allowed to remit any capital to Goshawk, the company's directors may decide to put Goshawk into administration.
The recent reserve boost could make matters worse. The reserve charge has pushed Rosemont's statutory solvency below the level required by the BMA for a license.
Goshawk has previously said that it might try to meet the terms of Rosemont's BMA licence by raising cash through an equity issue to boost its capital. However, it warned that "there can be no certainty at this stage that this will lead to a resolution of these matters".
A spokesman for Goshawk says that the management believed that if the group could achieve an orderly run-off then there would be funds available to shareholders. But he adds: "Shareholders may first need to put some money in to reassure the Bermuda authorities".
Further complicating matters for Goshawk, the former Lloyd's company continues to be in breach of covenants and undertakings to its banks.
Majority shareholder Phoenix Asset Management forced a change in senior management in November last year. Rory Macnamara was appointed chairman and Michael Dawson, a former director of Cox Insurance, was named chief executive officer.
Phoenix spokesman Tristan Chapple declined to comment on whether his firm would support an equity issue by Goshawk.
