A Bermuda company may yet have the chance to run off the reinsurance business of Gerling Globale Ruck (GGR), the loss-making reinsurance subsidiary of Gerling Konzern, the German insurance group.

The planned sale of GGR to Lago Achte, the company controlled by former Frankona head Achim Kann, has failed to win the necessary approval by BaFin, the German financial sector watchdog. The agreement with Mr. Kann regarding the transfer of GGR is therefore invalid, returning the loss-making company to the hands of Gerling.

Gerling decided to close GGR in the wake of the events of September 11, 2001, and to exit the reinsurance business.

The collapse of the proposed sale is expected to hinder Gerling in its efforts to meet statutory requirements regarding equity capital, and to hamper its efforts to sell off its main areas of activity.

Gerling is therefore expected to appeal against the decision by BaFin, which is to be formalised this week.

Reports from Germany suggest that Gerling may seek to strike a fresh deal with Mr. Kann, or, alternatively, an agreement with US investor Christopher Flowers, who heads Bermuda-based company Castlewood, which specialises in reinsurance companies being wound down, such as GGR. Rolf Gerling owns a 65.5 per cent majority stake in the Gerling group, while German banking giant Deutsche Bank holds the balance of 34.5 per cent.

J. Christopher Flowers, who formerly managed the financial institutions group at investment bankers Goldman Sachs, subsequently invested $15 million into a US company called Enstar. Last year, John Oros, who had worked with Mr. Flowers at Goldman Sachs, joined Enstar as chief operating officer. As of a year ago, the company had an investment pool of approximately $100 million and a significant tax loss carried forward.

"Chris Flowers and I have worked together in various capacities at Goldman Sachs covering a 22-year period," Mr. Oros explained in a telephone interview from his office in New York City. "He ran the financial institutions group, in which I was a partner. We were on the investment banking side."

Mr. Flowers was named investment banker of the year 1999. He was a senior partner at Goldman Sachs, having been the youngest person ever to be named a partner in that firm. He put together the Ripplewood Group in the US and was instrumental in restructuring the Shinsei Bank, now possibly Japan's most solvent bank, since the Japanese Government has guaranteed its performance.

Castlewood commenced runoff operations in 1993. "We met Chris Flowers later, when he was looking to expand into reinsurance," explained Paul O'Shea, speaking from London. Mr. O'Shea is a principal of Castlewood, which has offices in Bermuda, the Lloyd's Building in London and Guildford, a city near London. "Chris was the largest single shareholder in Enstar. We had done business with him before."

Mr. Frazer outlined the genesis of the relationship between Enstar and Castlewood thus: "We were looking at a particular insurance company, as a potential investment. We had retained Castlewood to administer run-offs with us. It transpired that we were not interested in that target, but much more interested in establishing a relationship with Castlewood," he said.