The close ties between insurance giant White Mountains and Olympus Re ? a little talked about but highly capitalised Bermuda reinsurer ? could be reconsidered now that such arrangements are coming under increasing regulatory scrutiny, according to the head of Olympus Re.

White Mountains, a US public company that redomiciled to Bermuda in 1999, faces potential scrutiny for its connections to Olympus, a reinsurer it effectively established, because the two have common investors, directors and the former provides most, if not all, of the latter's business.

Sheila Nicoll, president and chief underwriting officer of the three-year old Olympus Re, told the current regulatory environment could lead to a re-evaluation of Olympus' ties with its major business source, White Mountains reinsurance units, although she maintained there was no conflict of interest in the arrangement.

Concerns over opaque dealings between insurers follows a regulatory eye being turned to ties between some US-listed insurers and offshore reinsurers on the heels of a high-profile probe uncovering improper accounting of Barbados and Bermuda entities secretly controlled by commercial insurance behemoth AIG.

Under US accounting rules, reinsurance should be consolidated into the books of the ceding company if the business is done with an affiliated company.

Now White Mountains could face its own questions for reinsurance coverage it gets from Olympus, which says between 95 and 99 percent of its business came from White Mountains subsidiaries in the last three years, while also sharing investors and directors with that same single customer.

A Bloomberg story on Friday said a reinsurer set up for the use of one customer raises questions, according to Mark Rouck, a senior director at Fitch Ratings in Chicago. "If there is a reinsurance company with only one customer, I think there are sometimes questions about why the reinsurer exists," he told the newswire.

In the AIG probe, failure to disclose the company's control of Bermuda and Barbados companies, and consolidate some of the numbers behind those deals on to its balance sheet, ultimately meant its net worth was disclosed as $1.2 billion higher than it should have been, the company said.

AIG has now admitted to closer ties than previously disclosed with several offshore units, including Bermuda-based Richmond Insurance and Barbadian Union Excess.

No regulatory actions are known to have been initiated against White Mountains in relation to its Olympus ties but two White Mountains' units are known to have come to the attention of regulators both in New York and Florida.

White Mountains' largest US unit, OneBeacon, was subpoenaed for information on unspecified transactions by New York Attorney General Eliot Spitzer last December.

More recently, the Florida Department of Insurance Regulation took action against one of its reinsurance units for "unfair or deceptive acts or practice" after allegations health policies were being sold in the state without a licence.

A notice of hearing was sent out by Florida regulators at the end of last month alleging White Mountains' wholly-owned subsidiary Sirius International Insurance Corporation, through its managing general agency International Medical Group of Indianapolis (IMG), had sold health policies to expatriates in the state, without a licence.

The company has said it is cooperating with the regulatory action. However, the close ties between White Mountains group and Olympus may also be on the radar of US regulators with asked last month to share a dossier of information on the connections between the two companies by public company watchdog, the US Securities and Exchange Commission (SEC), after a routine call to the SEC in connection with this story.

The SEC declined to comment on White Mountains, saying it does not comment on any company or investigation.

In late 2001 White Mountains drove efforts to set up Olympus Holdings Ltd. and its subsidiary company, Olympus Reinsurance Ltd. as a means of boosting capacity for its US reinsurance arm Folksamerica.

The company admits to, with the help of outside advisor Gil & Roeser, being the architects of Olympus' formation.

Olympus was one of a wave of highly-capitalised insurers and reinsurers to set up shop on the Island in response to a severe void in insurance capacity as the toll of billion dollar claims from the September 11, 2001 terrorist attacks took hold. The market was suddenly a place of opportunity with prices skyrocketing and insurance and reinsurance seeing a spike in demand.

Estimates put the total capital that came flooding into the Bermuda insurance market in the region of $15 billion ? some of it to back new ventures, other capital going to increase the capacity of established players, thereby handing them the ability to sell more insurance or reinsurance coverage.

White Mountains' management have said previously they are a company that doesn't go after growth, instead standing by to pick up the pieces from companies that zealously overshoot their bounds.

But opportunity was knocking, and White Mountains, like many others, wanted a piece of the action.

They achieved this in two ways: a high-profile backing, with other investors, of a $1 billion capitalised reinsurer Montpelier Re and the quieter establishment of Olympus Re, with $500 million in capital. White Mountains presented the investment opportunities for both Montpelier ? a Bermuda company later taken public in a profitable IPO ? and Olympus to investors already familiar with White Mountains' lucrative track record. There was a keen response from investors with some taking a stake in both Montpelier and Olympus.

White Mountains, which sells insurance and reinsurance around the world, has total net assets of about $19 billion. One of the company's largest shareholders is General Re-New England Asset Management, a division of Warren Buffett's Berkshire Hathaway.

It is understood that Olympus was set up as a pure underwriting play to take advantage of market conditions. Investors were given the opportunity to make a profit in the improved market while holding an annual put option should they want out.

There was never any question that the company would follow the IPO route that most of the other 2001 Bermuda companies have taken ? and it would likely only be in operation while market conditions were strong.

Also setting it apart from its peer companies in the so-called 'Class of 2001', Olympus never ramped up its staff and infrastructure. The company is a lean organisation with only two staff writing its multi-million dollar book of business from a single office in Cumberland House.

Although Olympus' major investors don't include White Mountains ? the company holds a minority stake (a fraction of one percent) through investment management agreements held by Prospector Partners ? its directors and management together hold 46 percent ownership of the company either personally or through the companies they head, according to White Mountains' latest proxy statement.

Former White Mountains CEO and chairman, the now retired industry legend John J. Byrne was one of those personally investing in Olympus as was White Mountains Re CEO Steven Fass, Ms Nicoll confirmed.

Mr. Byrne, who continues to hold a large stake in White Mountains, has been involved with the company since 1985, coming to the firm after reviving Berkshire Hathaway insurance unit, Geico.

In total, officers of White Mountains own approximately three percent of the common shares of Olympus.

While White Mountains itself may not have a significant stake in Olympus ? a company that now has capital in the region of $600 million, says Ms Nicoll ? it profits handsomely from its business arrangements with the reinsurer.

Folksamerica inked a quota share agreement with Olympus as part of its initial business plan that sees it reinsure 75 percent of its short-tailed excess of loss business and 50 percent of its proportional property business with Olympus, regulatory filings reveal. A year ago the business arrangement expanded to include a quota share agreement between another White Mountains reinsurance unit, Sirius International, where 25 percent of the latter's short-tailed proportional and excess of loss business gets reinsured by Olympus.

Reinsurance gives the ceding company, as the firm passing on the risk, additional underwriting capacity without having to make a corresponding increase in capital or surplus.

As such, the quota share arrangement frees up capacity for Folksamerica and Sirius ? both reinsurance units under White Mountains Re ? to write more business. At the same time Olympus contributes significantly to revenues as White Mountains is due profit and override commissions from Olympus for the business ceded through the quota share agreements.

Last year alone White Mountains said its fee income from Olympus was $68.7 million, according to its 2005 proxy statement.

Olympus posted a smaller net income than it paid in fees for that period, $66 million, according to its 2004 financials.

The company posted $100 million in net income and $200 million in net income in 2002 and 2003 respectively, Ms Nicoll said.

Fee income from Olympus to White Mountains in 2003 and 2002 was $98.4 million and $48.9 million, respectively.

Other arrangements with Olympus are also profitable for White Mountains according to its regulatory filings, including an agreement for White Mountains Underwriting (WMU), a reinsurance advisory unit, to recommend business. In 2004, Olympus said 86 percent of its business came from Folksamerica while nine percent was garnered from WMU, for which it pays a 20 percent profit commission and override commissions. White Mountains' investment division also has an agreement to handle Olympus' investments, for which it also receives a profit-based fee.

Olympus' Ms Nicoll said there are close to 80 investors in the company but only the names of its eight most major shareholders ? Leucadia National Corp., Fairholme Capital Management, Gilbert Global Equity Capital, Franklin Mutual Advisors, Och-Ziff Capital Management Group, Rho Capital Partners, Marshfield Associates and Third Avenue Funds ? are revealed on the company's website.

Ms Nicoll said the list is current.

Of its investors, the stakes held by Leucadia and Fairholme could draw the greatest regulatory scrutiny with the senior management of each firm potentially being conflicted by positions on the boards of both Olympus and White Mountains.

Leucadia president Joseph S. Steinberg is a White Mountains' director and chairman of both Olympus Re Holdings Ltd. and Olympus Reinsurance Ltd.

In those positions, Mr. Steinberg plays an oversight role for two companies that do significant business with each other, and that Leucadia also holds significant stakes in.

Leucadia is a 19 percent stakeholder in Olympus, according to a recent filing by White Mountains while the company is one of the largest institutional holders of White Mountain with 375,000 shares held at the end of 2004.

Another White Mountains director Bruce R. Berkowitz, founder and managing member of Fairholme Capital Management, holds the deputy chairman post for Olympus. White Mountains filings this year show that Mr. Berkowitz controls about 11 percent of the common shares of Olympus.

In addition to his directorships on both White Mountains' and Olympus' boards, Mr. Berkowitz is also one of three on the White Mountains' audit committee. The company says it considers him and its other directors as "independent" of any conflicts.

Neither Mr. Berkowitz nor Mr. Steinberg responded to repeated attempts by in recent weeks to get a comment on the matter.

White Mountains says it views the arrangement as "proper".

"The business between the companies is proper, appropriately disclosed and accounted for correctly in White Mountains' financial statements that have been audited by independent public accountants," the company said in a Press statement following questions put to company management by in recent weeks.

PricewaterhouseCoopers is the accounting firm acting for both White Mountains and Olympus.

Ms Nicoll said she also sees no conflict in Mr. Berkowitz's and Mr. Steinberg's dual roles on the boards of both Olympus and White Mountains.

"Our board is made up of our largest, most significant investors. They are experienced business people and we are happy to have them on our board.

"We have known from the beginning that they have investments in White Mountains as well. That has never been an issue," she said.

But when asked if the current regulatory environment now made this an area of concern, she said: "I guess everybody is re-looking at relationships, and potential conflicts. Maybe we'll have to consider if it is a conflict going forward."

Ms Nicoll said minority stakes held in Olympus by White Mountains senior management, both current and retired, were disclosed not because they had to be but because PricewaterhouseCoopers suggested they do so in the interest of full disclosure.

Beyond Mr. Steinberg's and Mr. Berkowitz' ties to Olympus and White Mountains, there are others that could possibly attract regulatory attention.

White Mountains shareholder 2005 filings show that investment funds managed by Franklin, which owns approximately 19 percent of White Mountains' common shares, also holds approximately 13 percent of Olympus' shares.

Two White Mountains' directors are associated with Franklin. White Mountains' director Edith E. Holiday is a director or trustee of various investment companies in the Franklin Templeton Group of Mutual Funds.

Another director Frank Olson, whose term on the White Mountains' board is due to expire this year, is a director of Franklin Templeton Investments. Franklin Mutual Fund Advisors Llc is invested in Olympus.

Olympus' investors also appear in other investments involving White Mountains. For example, Olympus' investors Och-Ziff Capital Management Group, Fairholme Capital Management and Prospector Partners last year invested alongside buyers Berkshire Hathaway Inc. and White Mountains Insurance Group Inc. in Safeco Life, now renamed Symetra.

Another Olympus investor, Third Avenue Funds, which also has millions invested in White Mountains and Montpelier Re, regarded White Mountains Re CEO Fass ? with management control of Folksamerica and Sirius ? as being in management control of Olympus, according to the investment firm's 2002 shareholder letter.

Another of Olympus' investors, Rho Private Equity, may also be confused on White Mountains role at Olympus with its website listing the former as the lead investor in the latter.