Quanta Puts Specialty Lines into Runoff; Retains Lloyd’s, ESC Business
Bermuda-based Quanta Capital Holdings Ltd. announced that “following the evaluation of strategic alternatives, and in consultation with its financial advisors, the Board has decided to cease underwriting or seeking new business and to place most of its remaining specialty insurance and reinsurance lines into orderly run-off.”
Quanta will continue to operate its Lloyd’s syndicate and ESC, its environmental consulting business. “The Company intends to eventually wind up the insurance business that it has placed into run-off over some period of time, which is not currently determinable,” the bulletin continued.
Quanta was heavily impacted by the hurricanes of 2004 and 2005. It undertook a review of its operations last October following a negative credit watch placement by A.M. Best (See IJ Website Oct. 6, 2005). The company said at the time, “Pending the outcome of this analysis, we will discontinue the writing of new business in these areas.” Best downgraded Quanta’s financial strength ratings to “B++” (Very Good) from “A-” (Excellent) earlier this year, following increased estimates of its hurricane related losses (See IJ Website March 3).
Quanta said the “decision includes the run-off of all of Quanta’s remaining U.S. specialty lines, as well as its Bermuda reinsurance operations, and its Quanta Europe subsidiary. The remaining U.S. specialty insurance lines placed into run-off consist of the program business including the HBW program, professional liability, environmental, fidelity and crime, and structured products. The decision follows previous exits from property, casualty and marine and aviation reinsurance, technical risk property insurance, surety, trade credit and political risk insurance.”
The bulletin also noted that Quanta has reached an agreement with Liberty International Underwriters, and its affiliate companies to take over the renewal rights of Quanta U.S. Holdings Inc.’s environmental liability business. “Quanta may consider similar transactions with additional third parties as it continues to work with its advisers to implement its strategy,” the bulletin continued. “This strategy may include the sale of the Company or some or all of its business lines, the commutation of certain contracts, sale of renewal rights of certain business lines, the engagement of an administrator to run-off all or a portion of the Company’s book of business or a combination of one or more of these alternatives.”
Chairman James J. Ritchie, commented: “While Quanta had made progress in its transition to a specialty lines focused carrier, the decision of A.M. Best to downgrade Quanta below the A level in March interrupted that effort and significantly impacted our ability to write attractive business. After consideration of alternatives, Quanta’s Board has made a decision that it believes enables the company to best protect the value of its capital. We also believe this approach offers us the flexibility to support our syndicate in the A-rated Lloyd’s market and to protect the value of our ESC consulting operation, which provides us with fee-for-service business.”
Quanta’s bulletin also indicated that it “anticipates that A.M. Best will further downgrade the Company’s financial strength rating as a result of the decisions contained in this announcement. We believe that any such rating action would not affect the Lloyd’s ‘A’ ratings.”
Quanta went on to explain that if Best does in fact downgrade its financial strength rating, “the company will be in default under its credit facility. There are currently no outstanding borrowings under the credit facility. The company presently has approximately $215 million of letters of credit issued under the credit facility, which are fully secured. These letters of credit are principally used to secure the company’s obligations to pay claims. While any default continues to exist, the company will be, among other things, prohibited from paying any dividends to its shareholders, including the holders of its series ‘A’ preferred shares. The company will work diligently with its syndicate of lenders and its clients with respect to any default and its consequences.”