The financial strength of Bermuda-based insurer Trenwick is being reviewed by Moody's Investors Service, with a view to downgrading .
The move comes after the insurer and reinsurer posted a loss of $50.8m for the second quarter of 2001.
A month ago, its UK-based subsidiary, Trenwick International, reported a pre-tax loss of £8.6m for financial year 2000. In 1999, the company's pre-tax profit was £2.2m.
Now all seven of the group's capital markets debt ratings face being downgraded by Moody's. This follows losses caused by incidents such as the tropical storm Allison.
Trenwick America Reinsurance Corporation's rating, currently A3 (good), may also be changed.
Senior analyst of property and casualty insurance at the ratings agency, Karen Davies, said: “This action follows the company's announ-cement that its second-quarter earnings would be negatively impacted by adverse loss reserve development.”
This means the company may have under-reserved for hurricane Allison.
Moody's said about the potential downgrade: “The nature and frequency of such charges suggests continuing weakness in the firm's operating model”.
Prior to the acquisitions of Chartwell Re in 1999 and Lasalle Re in 2000, Trenwick reported strong earnings. But Moody's said these purchases increased the company's risk profile.
Davies added: “Earnings have been weak. Even after taking into account the recent reserve charge, we believe that Trenwick's recent accident years may continue to develop unfavourably.”
Director of insurance at Fitch Ratings, Chris Waterman, said: “The results are clearly disappointing and reflective of Trenwick's fairly volatile portfolio of catastrophe losses.
“It is quite likely it will have to make additional reserves for discontinued business.”
Trenwick refused to comment.
