Primus Guaranty reports income drop of 7.5% in Q4

Bermuda-based credit protection insurer Primus Guaranty, Ltd., which floated on the New York Stock Exchange last year, said net income fell 7.5 percent to $13.7 million in the fourth quarter of 2004 from $14.8 million in the same quarter a year earlier.

For the full 2004 year, Primus said net income plunged 68.7 percent or $52.1 million from $75.8 million in 2003 to $23.7 million, largely due to a slump in unrealised gains from net credit swap revenue.

Nonetheless, Primus chief executive officer Thomas Jasper said 2004 "was a very successful and exciting year ..., highlighted by our initial public offering and listing on the NYSE in the third quarter".

Mr. Jasper said the company's portfolio expanded to about $10.5 billion "despite a challenging spread environment for a number of months during the year", and Primus also marketed its second credit swap asset management transaction in which the company manages a portfolio of credit default swaps on behalf of third parties.

The company said the quarterly net income for fourth quarters 2004 and 2003 include net realised and unrealised gains of $10.1 million and $14.3 million respectively for the periods.

Total revenues for the quarter rose by $250,000 to $24.8 million, whereas total expenses were $1.1 million higher.

Net credit swap revenue, which comprises net premiums earned, as well as realised and unrealised gains and losses on the swap portfolio, decreased 9.3 percent to $21.6 million in the fourth quarter of 2004 from $23.8 million for the same period in 2003.

The company said the decline was due to lower realised gains from the termination of swaps sold and unrealised losses on the portfolio of credit swaps purchased for investment purposes.

Total operating expenses, excluding financing costs, were $10 million for the fourth quarter 2004, compared with $9.5 million in the fourth quarter of 2003. The total operating expenses of $10 million included a one-time expense of $3.3 million, or $0.08 per diluted share, which was due to the accelerated vesting of employee restricted stock and options as a result of the initial public offering.

For the year, total revenues for 2004 were $53.8 million, compared with $106.1 million in 2003. Total expenses, including financing costs, were $30 million in 2004, compared with $27.8 million in 2003.

UK hedge-fund Man sets new bond

LONDON (Reuters) ? UK-based Man Group has launched a new capital-guaranteed bond for private investors based on the returns of its flagship AHL hedge fund and other investments, the company said.

The bond is an offshore product registered in Bermuda. Man aims to sell it to sophisticated private investors around the world from February 7 to March 21 and will charge annual management fees of around three percent and performance fees of up to 20 percent.

Investors can opt for dollar or Euro bonds with principal protection of 120 percent and 115 percent respectively, the world's largest-listed hedge fund firm said in a statement.

Citibank N.A. London Branch, part of US investment bank Citigroup, is the guarantor of the bonds, which can be redeemed monthly and will mature on March 31, 2018.

A profit lock-in feature will allow for a portion of net new trading profits to be locked in, which may raise the amount guaranteed at maturity.

The bond, Man AP Enhanced Series 2, will use the portfolio construction, risk management and style selection expertise of Man Global Strategies, one of Man Investments' core managers.

AHL is one of Man Investments' managed futures programmes, which trades more than 100 liquid futures contracts on stock indexes, bonds, currencies, short-term interest rates, energy and metals around the world.

The managed futures hedge fund investment strategy uses computer programmes that seek to identify and take advantage of market trends and mispriced assets. Man Group's assets under management at end-December 2004 were $42 billion.

Virgiania execs admit illegal deal

Two officers of malpractice insurance companies in Virginia have pleaded guilty to conspiracy to commit insurance fraud ? including making an illegal transaction with an affiliated Bermuda-based reinsurance company.

The Richmond Times Dispatch in Virginia reported yesterday that Kenneth R. Patterson and Carolyn B. Hudgins appeared before a federal judge late on Monday to waive indictment.

Both pleaded guilty to conspiracy to commit insurance fraud, and Patterson also pleaded guilty to two counts of mail fraud.

The maximum penalties are 15 years for Patterson and five years for Hudgins. Sentencing is set for June 28 before US District Judge James R. Spencer. Patterson was president and chief executive officer of Reciprocal of America and Hudgins was executive vice president of the company when it was placed into receivership in January, 2003.

Reciprocal and its associated companies were formed to provide medical-malpractice insurance to Virginia doctors and hospitals and later offered liability and worker's-compensation insurance for health facilities.

The companies ran into financial difficulties when they attempted to expand into such states as Alabama, Mississippi and Arizona, where there is a history of large malpractice awards.

The newspaper said that a fraud alleged in court documents involved First Virginia Reinsurance, a Bermuda-based reinsurance company created by Reciprocal of America. The reinsurer was short of the amount of money it needed in a trust account to avoid the scrutiny of state insurance regulators.

At the same time, the parent company had barely the amount of surplus it needed to avoid the regulators, so that it could not use its assets to prop up the reinsurer.