ALEA Alea

RNS Number:5825H
Alea Group Holdings(Bermuda) Ltd
20 January 2005




Alea reports positive outlook for 2005 amid continued strong trading conditions

                  Global reserve review substantially complete


BERMUDA (20 January 2005) - Alea Group Holdings (Bermuda) Ltd ("Alea", or "the
Group") the specialty insurer and reinsurer, today provides an update on trading
conditions and unaudited 2004 operating performance before entering close period
ahead of reporting preliminary results on 16 March 2005.


Overview

   * January renewal season is performing in line with expectations with
     rates in target portfolios holding firm
   * Net book value at 31 December 2004 estimated to be in excess of 200p
   * 2004 gross premiums written and net premiums earned are expected to
     increase by 17% and 38% over 2003, respectively
   * Alea's preliminary estimate of the 2004 Group combined ratio is between
     103% and 105%, reflecting third quarter storm losses and strengthening of
     reserves
   * Strengthening of reinsurance reserves expected to add between 5 to 7
     percentage points to the half year combined ratio of 95.7
   * Reserve strengthening will receive limited tax relief: consequently, the
     full year tax rate will be significantly higher than the tax rate of 32% at
     the 2004 half year
   * Total invested assets at the end of 2004 in excess of $2.2 billion
     compared to $1.6 billion at the end of 2003
   * Alea reaffirms goal of post-tax operating profit return on equity of 12%
     to 15%

A conference call for investors and analysts is scheduled at 10 am Greenwich
Mean Time (5am EST), which will be broadcast live at www.aleagroup.com. Please
contact Robert Bailhache on +44 20 7269 7200 for details.

Comment from Mark L. Ricciardelli, Group Chief Executive:

"Since I became CEO of Alea in June 2004, I have implemented a number of
initiatives as to how we conduct and control our businesses, including the
realignment of the North American operations and the addition of new management
talent. One key addition was a Chief Actuary who was tasked with conducting a
comprehensive reserve review of all our global underwriting offices. This
in-depth study is nearing completion and has produced the estimated adjustments
reported today. I believe these changes place Alea in a very strong financial
and operational position as we move into 2005.

"In brief, the review identified two areas of adverse reserve development. The
first area, which constitutes the majority of the development, was primarily the
result of a small number of US casualty reinsurance contracts written between
1999 and 2002. These contracts were principally professional liability lines and
have subsequently not been renewed. These accounts were not part of our core
strategy of focusing on small to mid size specialty business in low to medium
risks in both insurance and reinsurance. The second area was development in
European reinsurance accounts written by Rhine Re in 2000 and prior.

"We are addressing these issues by instituting more rigorous actuarial and
underwriting control processes, including the realignment of our actuarial
staff.

"The review has also reinforced our belief in Alea's business model as our core
insurance and reinsurance portfolios continue to perform in line with
expectations. In addition, the review reaffirmed our belief in the high quality
of our underwriting and reserving systems.

"We remain committed to our goal of a 12% to 15% post tax operating profit
return on equity. Looking ahead to 2005, our renewals experience to date, and
claims and expense initiatives lead us to anticipate steady growth at attractive
rates and terms.

"I am also pleased to report that we currently anticipate paying a 2004 final
dividend of US$0.07 per share in 2005, subject to Board and shareholder 
approval."

Market conditions

Insurance

Insurance rates in our target property, motor, general and professional casualty
lines of business are expected to increase between 0 and 5% in 2005. US workers'
compensation, rates are expected to be down between 0 and 2%, although these
rate declines are expected to be offset by benefits from US regulatory reforms.
Commissions and terms are stable.

Reinsurance

Reinsurance rates in our target lines of motor, general and workers'
compensation and professional liability are up between 0 and 10%, with the
exception of non-US general liability which is forecast to reduce by up to 5%.
Proportional property reinsurance pricing in Europe is down by approximately 5%.
Property catastrophe rates outside the US are down by approximately 5% to 10%,
with the exception of areas affected by the 2004 hurricanes where significant
increases are being seen. US property catastrophe pricing is flat. Commissions
and terms are stable.

Operating performance

2003 and 2004 claims activity

2004 was the costliest year on record for natural catastrophes with industry
estimates placing the total insured loss from the hurricanes in the Caribbean
and Southeastern US and the Pacific typhoons estimated at $35 billion to $40
billion. We remain very comfortable with our ultimate net loss estimate for
these events of up to $55 million. More recently, the South Asian earthquake and
tsunami resulted in a significant loss of life and destruction. Although it is
too early to produce a reliable estimate of insured losses for this tragedy, the
Group's exposure is expected to be minimal. It is also too soon to estimate our
exposure to recent Northern European wind storms.

Overall loss development for 2003 and 2004 across our insurance and reinsurance
portfolio remains in line with expectations.

2002 and prior claims activity

During 2004, we further strengthened our claims and actuarial practices,
creating a global claims management team and recruiting a Chief Actuary, Thomas
A. Weidman. Our Chief Actuary has led a comprehensive review of Group reserves
and associated procedures, which is now nearing completion. We continue to use
independent advisers.

A preliminary assessment of our internal review indicates that reserve
strengthening will add 5 to 7 percentage points to the 95.7 combined ratio
recorded in the first half of 2004. Approximately two-thirds of the reserve
strengthening relates to US casualty reinsurance business written between 1999
and 2002, the majority attributable to five non-core reinsurance accounts and,
which are mainly professional liability lines. The remainder of the US casualty
reinsurance reserve adjustment reflects the market deterioration experienced in
these lines during the 1999 to 2001 period.

The remainder of the reserve strengthening relates to European reinsurance
business written by Rhine Re in 2000 and prior, primarily for marine, aviation,
credit and other classes of business no longer written by Alea.

The outcome of the final reserve report will be provided in our preliminary
statement of results to be issued in March.

With respect to our insurance portfolio, loss development remains in line with
expectations.

Premium growth

Gross premiums written and net premiums earned for 2004 are approximately 17%
and 38% higher than 2003, respectively. Excluding the Bristol West reinsurance
contract - which, as previously indicated, we did not renew in 2005 - gross
premiums written are approximately 25% higher than 2003. This contract has now
been commuted with gross premiums written of approximately $92 million, lower
than the $116 million assumed at the 2004 half year.

As anticipated, our insurance portfolio continues to grow. Insurance business is
approximately 40% of the Group's gross written premiums for the whole of 2004,
or 42% excluding Bristol West. The majority of the growth is attributable to the
US (Alea Alternative Risk), where the growth rate is approximately 70%. Alea
London has grown at a slower rate with insurance business broadly comparable to
2003. Insurance remains key for Alea, although it is expected to show slower
growth rates in 2005.

Our reinsurance portfolio has grown at a slower rate than insurance, with gross
premiums written approximately 6% higher than 2003, or 16% higher excluding
Bristol West. Alea Europe's gross premiums written are approximately 25% higher
than 2003. Alea North America's gross premium growth is approximately 10% over
2003. At Alea London, reinsurance premiums are approximately 8% lower than 2003,
although excluding Bristol West they are expected to have increased by 16%.

Total insurance and reinsurance premiums for Alea London are approximately 7%
lower than 2003. Excluding Bristol West, they are 6% higher.


Investment performance

The second half of 2004 saw reductions in the yield curve leading to a
significant improvement in the movement in the group's unrealised losses on its
fixed income investment portfolio. The full year unrealised loss is expected to
be less than $10 million, compared to an unrealised loss of $29 million at the
half year. The Group's investment income yield before realised and unrealised
gains and losses is approximately 3.7%. Our strategy of investing in high grade
bonds matched to our liabilities for currency and duration remains unchanged.

Tax

As the 2004 reserve strengthening primarily relates to underwriting years
absorbed by our Bermudian company, and therefore does not receive tax relief,
the Group's effective tax rate is expected to be significantly higher than the
32% reported at the half year. However, the underlying tax rate, excluding
reserve development, is still expected to be less than 25%, reflecting the
continued growth in Bermudian invested assets and cash from $550 million at the
end of 2003 to approximately $850 million at the end of 2004.

Balance sheet management

During 2004, Alea continued to enhance its capital structure. We have completed
the issuance of $120 million of hybrid capital in the form of 30-year pooled
trust preferred securities priced at LIBOR plus 285 basis points. The
transaction triggers a one-time tax charge of approximately $3 million in 2004
and has a net positive impact on the Group's tax position over time.

Legal and regulatory developments

In November 2004, Alea North America Insurance Company received a subpoena from
the Attorney General of New York and, together with Alea North America Specialty
Insurance Company, received requests for information purposes only from certain
US state insurance departments. The subpoena and requests relate to the ongoing
industry-wide investigations into US broker and agent compensation agreements.
Alea is co-operating fully and has provided responses to the subpoena and
requests for information and has conducted its own internal investigations.

To date Alea has not identified any transactions or related matters causing
concern.

We believe the recent World Trade Center two-occurrence ruling in New York will
have no impact on our $25 million loss estimate.

For further information please contact:

Media: 
Keith Anderson      +44 20 7621 3202

Analysts & Investors: 
Peter Brown         +44 20 7621 3383

Financial Dynamics
Robert Bailhache    +44 20 7269 7200


Notes to editors:
     
1.   Alea is a global specialty insurance and reinsurance company with expertise 
     in a wide range of property and casualty products and services. For more 
     information on Alea, see www.aleagroup.com.
2.   The trust preferred securities will not be registered under the United
     States Securities Act of 1933, as amended, and may not be offered or sold 
     in the United States absent registration or an applicable exemption from 
     such registration requirements.
3.   Exchange rate at 31 December 2004: US$1.92 = #1.

Certain statements made in this press release that are not based on current or
historical facts are forward-looking in nature including, without limitation,
statements containing words "believes," "anticipates," "plans," "projects,"
"intends," "expects," "estimates," "predicts," and words of similar import. All
statements other than statements of historical facts including, without
limitation, those regarding Alea Group Holdings (Bermuda) Ltd's financial
position, business strategy, plans and objectives of management for future
operations (including development plans and objectives relating to Alea Group
Holdings (Bermuda) Ltd's products and services) are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other important factors that could cause the actual results, performance or
achievements of Alea Group Holdings (Bermuda) Ltd to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. In particular, forecasting of reserves for future
losses is based on historical experience and future assumptions. As a result
they are inherently subjective and may fluctuate based on actual future
experience and changes to current or future trends in the legal, social or
economic environment. Such forward-looking statements are based on numerous
assumptions regarding Alea Group Holdings (Bermuda) Ltd's present and future
business strategies and the environment in which Alea Group Holdings (Bermuda)
Ltd will operate in the future. These forward-looking statements speak only as
at the date of the document or other information concerned. Alea Group Holdings
(Bermuda) Ltd expressly disclaims any obligations or undertaking (other than
reporting obligations imposed on us in relation to our listing on the London
Stock Exchange) to disseminate any updates or revisions to any forward-looking
statements contained herein to reflect any changes in Alea Group Holdings
(Bermuda) Ltd 's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.




                      This information is provided by RNS
            The company news service from the London Stock Exchange

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