ERC FRANKONA FACES LOSSES AS EAGLE STAR RE SHOWN INSOLVENT

Eighteen months after agreeing to buy the fading Eagle Star Re, ERC Frankona is facing an underwriting black hole with its new subsidiary declared insolvent to the tune of £109.9m at the end of last year. IFD ’s sister publication the Re report notes that this represents a remarkable change in fortunes, since the FSA returns showed that at the close of 1998 Eagle Star Re and its own subsidiary Threadneedle Insurance had a net worth of £193.1m. Just 12 months later the liabilities exceeded the assets by £50.7m with a horrendous loss in excess of £196m having emerged in 1999. All past liabilities have been transferred to another group company and a £43.3m injection of capital has taken place. The news is a humiliation for Tim Carroll, the current chairman of the International Underwriting Association, who headed up the London operations of ERC Frankona, itself part of the giant General Electric, which bought Eagle Star Re from the Zurich group in March 1999. At the time both parties were reluctant to disclose the amount paid for the reinsurer and it is understood that the price has still not been finalised. Following the purchase, underwriting continued for six months but in September 1999 the decision was taken to renew the Eagle Star business in the name of ERC Frankona. According to the Re report , the explanation in the statutory returns for the dramatic change in fortunes at the Eagle Star operation is contained in just three words — “late reported claims”.