Bermuda-based Mutual Risk Management (MRM) yesterday reported fourth quarter net losses nearing $100 million, which puts the company in violation of some bank and debenture covenants.

In light of its poor results, the firm said it would not “rule out” becoming part of a “more stable” company.

The company reported its fourth quarter net losses as $99.7 million or $2.38 per share, in marked contrast to an announcement on December 21, 2001 of anticipated losses between $6 and $8 million. The net loss included $63 million as a valuation allowance against its US net deferred tax asset.

In comparison its 2000 fourth quarter losses were $37.7 million or 91 cents per share.

It also reported its net loss for the year ending December had widened to $86 million or $2.07 per share from $5.5 million or 14 cents per share a year ago.

The magnitude of MRM's fourth quarter loss lead the company to negotiations with its banks and debenture holders - lead by XL Capital - to obtain waivers and amend certain additional covenants.

And, in a conference call with analysts yesterday, MRM chief executive Robert Mulderig said “becoming part of a more stable financial services organisation” was one of the “strategic alternatives” being looked at.

Following the release of its unaudited results, MRM - which is listed on the New York Stock Exchange - saw its shares dip as low as $1.51 yesterday.

The company's 52-week high is $12.35 while MRM shares reached a 52-week low of $1.64 at market close yesterday.

Rating agency AM Best yesterday reacted negatively to MRM's poor results, moving its rating down from A- (Excellent) to B (Fair) with a negative outlook, which implies AM Best anticipates the rating could be lowered further.

Mr. Mulderig cited the downgrade as having a “negative affect” on its business. He added that MRM and its subsidiaries could be forced to carry “greater retentions going forward” and that it could generate a “shortfall in cash flow” as business could be lost following the downgrade.

Mr. Mulderig said: “Programmes have the ability to move if the rating falls below A-.” He said in order to get a rating upgrade he expected AM Best would look for improved capitalisation, a period of stable operating results and an increase in reinsurance recoverables.

In order to service debt the company also announced its plans to sell off its fund administration company, Bermuda-based Hemisphere Management.

MRM's investor relations contact Fran Tucker would not comment on whether or not a buyer has yet been identified for Hemisphere.

But a press statement said MRM is in negotiations with a potential purchaser and a “definitive agreement” should be executed by early next month. Proceeds from the sale of Hemisphere are expected to be in the region of $100 million.

The MRM board has approved the sale but it will also require the consent of MRM's banks and debenture holders. Mr. Mulderig said the company has not yet received approval from the banks or its debenture holders on the sale of Hemisphere Management.

An XL Capital spokesman would not comment.

In releasing the company's fourth quarter results Mr. Mulderig and president John Kessock said: “Last year was a tumultuous year for the property-casualty insurance industry and Mutual Risk Management. Our 2001 results are certainly disappointing.”

But looking on the bright side Mr. Mulderig said MRM was currently at its “highest capital level in MRM history”, with shareholder equity of $268 million.

He predicted better fortunes in future based on current market conditions.

“The market is presently experiencing a dramatic improvement in pricing. This is leading to greatly increased demand for Alternative Market services.

We believe we are the industry leaders in the Alternative Market which makes up more than one-third of the commercial property-casualty market in the United States.”