January 17, 2008 / 1:44 AM / 12 years ago

UPDATE 1-Reinsurers with MBIA ties to record Q4 charges

(Recasts throughout to include PartnerRe charge, Channel Re background, “no comment” from RenRe, byline)

By Lilla Zuill

NEW YORK, Jan 16 (Reuters) - Bermuda reinsurers RenaissanceRe Holdings Ltd (RNR.N) and PartnerRe Ltd PRE.N said on Wednesday they will write off 3-year-old investments in Channel Re, a reinsurer formed solely to do business with MBIA Inc (MBI.N), the world’s largest bond insurer.

The announcement comes after Channel Re notified the companies that fourth-quarter losses stemming from its business with MBIA are expected to exceed its shareholders equity.

RenRe said its investment in Channel Re carried a value of $126.7 million at the end of September. PartnerRe said it would take a $74 million fourth-quarter charge, equal to about $1.31 per share, to write down its investment.

Reinsurers effectively insure other insurers, spreading the risk of losses among more than one party.

Channel Re expects $200 million in credit impairments from a $3.3 billion mark-to-market charge at MBIA, according to Partner Re’s statement.

David Lilly, an outside spokesman for RenRe, declined to comment further on the Channel Re development. PartnerRe could not immediately be reached for comment.

Rising defaults in mortgage-related bonds have threatened to wipe out a significant amount of capital for bond insurers such as MBIA, putting ratings under threat of downgrade.

Last month MBIA took steps to shore up capital, securing up to $1 billion from private equity firm Warburg Pincus, and last week sold $1 billion of surplus notes.

Investors appear to still have doubts; MBIA shares fell 16.5 percent to $13.40 on Wednesday.

OFFSHORE PROTECTION

Channel Re was jointly formed in Bermuda in 2004 by MBIA, RenRe, PartnerRe and Koch Financial to do business exclusively with MBIA, which held a 17 percent stake. RenaissanceRe was the largest owner with about 33 percent, Koch owned roughly 30 percent and Partner Re, 20 percent.

Channel Re had a triple-A rating, with a stable outlook, from McGraw-Hill Co’s MHP.N rating firm Standard & Poor’s.

Bermuda, an offshore reinsurance center, is home to more than 1,500 insurers and about half a dozen bond reinsurers, including another that counted MBIA as a large customer, Ram Reinsurance Holdings RAMR.O.

Separately, RenaissanceRe said it will also take a $55 million charge in the fourth quarter to increase its incurred, but not realized, reserves for subprime-related exposures in its casualty clash reinsurance business.

RenRe said it expects to post a profit in the fourth quarter and for the full year despite the charges. It is due to report quarterly earnings on Feb. 5.

Editing by Jeffrey Benkoe, Richard Chang

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