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Troubled GoshawK doubles Katrina loss estimates

Shares in Bermuda headquartered GoshawK slumped 18 percent to a low of 19.5 pence this morning (7 October) after the troubled reinsurer more than doubled its estimate of net losses stemming from Hurricane Katrina and said it would have difficulty writing new business if it was unable to raise new capital.

In a statement to the London Stock Exchange, the company said it had increased its gross loss estimate for Hurricane Katrina by 30 percent from $99mn to $130mn. Its net loss estimate, however, increased by a far larger margin, doubling from an initial $25-30mn announced 6 September to a revised total of $60mn.

On Hurricane Rita, GoshawK said its initial net loss estimate came in at $30mn - and admitted that it was now looking at a "total loss" to its remaining marine retrocession limits.

The company said its core lines of property and marine business had been "heavily impacted" by the catastrophe losses of 2004 and 2005 - but said 2006 was expected to provide the best underwriting conditions in these two lines since 1992, "driven by supply and demand imbalances, higher capital requirements and fundamental changes in the assessment of frequency and severity of windstorm activity".

It added that the Board was considering "a small number of detailed proposals" for an injection of capital into the company or a sale.

It continued: "Subject to reaffirmation of Rosemont Re's rating by AM Best, the Board believes that any one of these proposals, if consummated, would allow Rosemont Re to participate fully in the excellent trading conditions expected in 2006 as a much stronger company. A firm proposal will be put to shareholders as soon as possible."

Ominously, however, GoshawK noted that its ability to write new business would be "severely impaired" if it was unable to raise new capital.

On 6 September GoshawK's "A-" financial strength rating was placed on watch for potential downgrade by AM Best.

This is not the first time that GoshawK has had to radically overhaul its loss estimates on hurricane damage. On 19 August 2005 it issued a profits warning after reassessing claims resulting from Hurricane Ivan, which struck the Gulf of Mexico in 2004.

It said the deterioration occurred after a late claims notification, but also because the company had burned through its retrocession cover.

Speaking to The Insurance Insider in the immediate aftermath of Hurricane Katrina, GoshawK CEO Russell Brooke said he was confident that, this time, the company's retrocession arrangements were strong enough to cover any eventual losses, adding that of its 10 most significant reinsurers, nine were rated "A" or above and only one was rated at "A-".

Numis Securities reacted to today's statement by downgrading GoshawK to hold from buy, pegging a price target at 24 pence per share. It said a long running dispute with the reinsurer's largest shareholder, Phoenix Asset Management (see July's edition of The Insurance Insider) , made a rights issue less likely, adding that failure to raise enough capital or to sell the business to a third party would likely lead to the business being placed in run-off with a reduced credit rating.

Shares in the company had been trading at circa 45 pence ahead of the 2005 hurricane season.

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