Bermuda-based Annuity and Life Re have announced that they have stopped writing new policies and expect to report "significant losses for the fourth quarter of 2002".

Owing to what they describe as "adverse mortality" rates, the company (Annuity) have had to boost reserves in the fourth quarter to deal with unexpectedly high levels of reported claims in the life reinsurance business.

The company had previously reported a $59 million exposure on its largest guaranteed minimum death benefit contract, unrealised losses from embedded derivatives, and a high level of expenses related to the company's efforts to raise capital.

Despite significant progress in collateral requirements under its various reinsurance treaties, it has not yet satisfied all such requirements as of December 31, 2002.

Annuity is currently contesting levels of collateral obligations required to be satisfied by one ceding company and is also continuing its efforts to raise capital and to negotiate the recapture, retrocession, novation or sale of certain of its reinsurance contracts.

Annuity's sole business is reinsuring life and annuity insurance contracts in the US and Canada which provide a one-off payment (in the case of the life insurance) or a guaranteed periodic payment (in the case of the annuity insurance) in exchange for fixed amounts of yearly premiums.

Their difficulties were highlighted in November last year when they announced that they would be restating financial results for 2000, 2001 and the first and second quarters of 2002.

The share price fell dramatically at the news and shareholders launched a class action in the District Court of Connecticut alleging misrepresentation of Annuity's true financial condition.

Annuity chief financial officer, John (Jay) Burke, is a defendant in each class action along with Lawrence S. Doyle, and chairman Frederick S.Hammer.

In 2002, the company came under review by the SEC for its accounting practices and suffered a rating downgrade. This led to a further blow in the fourth quarter when Annuity was not able to secure or replace a $15 million letter of credit issued in its favour in connection with a stop loss reinsurance facility provided by The Manufacturers Life Insurance Company.

In a positive development in January, however, the company's liquidity was significantly improved when it managed to novate five blocks of life reinsurance to XL Capital.

However this transaction itself incurred a $26 million charge which is not included in the projected loss announced on Monday.

The company has not ruled out starting to write business again in the future and said that although it will not accept new business under existing treaties on their current terms, it will continue to collect the considerable premium flow that will be generated by existing treaties.

There will be no common share dividend in the first quarter of 2003.