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Alea shares slump on further reserve boosts

Shares in run-off (re)insurance group Alea Group Holdings slumped almost twenty percent in early trading this morning after the group predicted a full-year loss of $200mn-$240mn.

The company - which closed for new business last year following downgrade blows by Standard & Poor's and then AM Best which put paid to a capital raising rescue plan - saw its shares fall 19 percent to 68.75p by 9.00am on the London Stock Exchange.

The sell-off was sparked by news that the company was again raising its legacy loss reserves for the year by a further $69mn, taking a full-year estimated reserve charge at $95mn, together with a separate run-off charge of $95mn-$105mn.

In addition, the company estimates (unchanged) 2005 storm losses of $108mn-$125mn.

The (re)insurer - which says it is continuing to examine sale options for some of its operations - will boost reserves on its pre-1999 (Rhine Re) reserves by $18mn, while claim reserves for its London market operations are increased by $28mn across the 2001-2004 underwriting years. The company also added $11mn to its US operations' reserves and $8mn for its Continental European business.

Alea warned that it will be in breach of a financial covenant in its bank credit agreement if the year's loss is at the high end of its $200mn-$240mn estimate. The company added that the figures in today's announcement are unaudited and may differ materially from the final results.

The reinsurer said that following the decision to stop underwriting new business, the group's "revised strategy will be to preserve value for shareholders through pro-active management of its insurance and reinsurance contracts". It noted that it is in discussions with its bank lenders regarding the group's business outlook and strategy.

Following redundancies and the sale of renewal rights, headcount had fallen from 400 a year ago to a current 240 employees, the company added.

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