Hampton Re, a Bermuda life reinsurance company backed by JP Morgan, has gone into liquidation leaving investors millions of dollars out of pocket.

The company was set up by the blue-chip bank with industry veteran Bill Walker at its head in 2001 with $218 million in capital and was given an A- (Excellent) rating by AM Best - a rating that was reaffirmed by Best in January 2003, and then withdrawn at the company's request in September.

But a month later the company decided to cease operations. Staff have been laid off, the Hamilton offices of the Bermuda-based life reinsurer closed and investors left out of pocket by at least $72.7 million - a third of the original capital investment.

“The reason for winding down the business is two-fold,” said Mary Sedarat, spokesperson for J.P. Morgan Private Bank, the principal investors in the failed company.

“Investors foresaw a lack of future investment opportunity given the markets position for investment in safe-harbour life insurance. Secondly the changes in capital markets in the insurance sector which would limit exit opportunities for stakeholders for the foreseeable future.”

The company, which offered customised reinsurance solutions to life and annuity insurers and reinsurers, had the backing of blue chip bank J.P. Morgan.

According to Dick Major, head of structured finance at ratings agency A.M. Best, the company was set up mainly as an investment vehicle for the bank and its investors.

He said that the company mainly invested in hedge funds as a way to generate income, but following the collapse of the markets, the company decided to pull out of the business.

“It was an orderly process and we withdrew the company's rating at the request of the company because they were not doing any business,” said Mr. Major. “We withdrew the company's rating on September 19 at the company's request.”

The bank and its investors put up the capital with J.P. Morgan owning about seven percent of the company and its private bank customers owning most of the rest.

Mr. Major said: “It was mainly used as an investment vehicle for J.P. Morgan Private Bank.

“A significant part of the assets were in hedge funds and when that market generally fell short, the investors decided to shift investments elsewhere.

“There were no difficulties at the company as such. It served its purpose briefly and is now being wound down in an orderly fashion.”

Hampton Re officially went into receivership this month in Bermuda, with notices of its liquidation published in the Press.

“Shareholders voted in February for an orderly wind-down of Hampton Re,” said Ms Sedarat.

“The books of business were sold off and two thirds of the investors enjoyed positive results.”

When questioned what “positive results” were, Ms Sedarat said that they had got their investment back, and confirmed that the other one third of investors were left with a multi-million dollar loss. She would not comment on how much of J.P. Morgan's investment was recouped after the sale of the books of business.

But she said the closure of Hampton Re was not a negative thing. “It was pre-emptive and thought through and the most prudent course of action given what is happening in the markets. It is an orderly wind-down.”

The company's offices in Wessex House on Reid Street still have the signs up and all the office furniture inside, but are closed with papers boxed near the door. The company's telephone number has a voice recording asking to leave a message - with no mention of Hampton Re. Hampton Re was considered a good bet by analysts in 2001 because of the “underwriting expertise and experience of the executive management team drawing from insurance and reinsurance disciplines”, said A.M. Best in its analysis.

The rating agency also said that it recognised the roles of J.P. Morgan Chase & Co. and its affiliates in providing Hampton Re with investment management advice, investment banking services and a letter of credit facility. J.P. Morgan Ventures Corporation is listed as an investor in Hampton Re Holdings Ltd.

Mr. Walker, speaking to The Royal Gazette before the company's official launch in 2001 said that he expected the company, after its first full year in operation, to have assets of between $500 million and $700 million and have assets of between $3 and $4 billion within the next five years.

Mr. Walker, who had 40 years of industry experience, also said he expected corresponding premiums of between $100 million and $200 million and capital in excess of $200 million, and this to exceed $1 billion at two years. Mr. Walker, who was recruited by J.P Morgan who had the idea to set up a reinsurer, hoped to repeat the success he had at the helm of Hanover Re's US operations, where he worked from 1993 to the end of 2000, before being head-hunted by J.P. Morgan. He was also at Swiss Re for 25 years.

The company hoped at the time to focus on block transactions in life reinsurance and already had in 2001 about 15 to 20 transactions completed, mostly from the US.

Mr. Walker added that, as far as he knew, his company would not be in direct competition with other reinsurers in Bermuda.”We all have different business models. The only one that seems to be also focused on block life transactions is Max Re, and they have a radically different investment style.”

However in August 2002 he left the company to retire, but was to continue to serve as a marketing consultant to the company. Hank Sulikowski, who had served as chief operating officer, was appointed chief executive officer. In January this year the company announced several major staff changes. John Kleiman was to become their chief underwriting officer and Craig Wolf was hired as chief marketing officer to do “new business development”.