Troubled Bermuda insurance company Annuity and Life Re (Holdings), Ltd. has been forced to restate its third quarter earnings after reporting what it called an ?accounting error? leaving it with $3.7 million of a loss compared to a small profit.

The huge loss for the third quarter was due to an annuity reinsurance contract with Transamerica which has been pending shareholder litigation through its reinsurance agreement with CIGNA.

The company also reported a net loss of $132 million for the year ended December 31, 2003 up from a net loss of $129 million for the year earlier (including the re-adjusted third quarter figures) after litigation from all sides plus poor investment returns hit the bottom line over and over again.

Jay Burke, chief executive officer of the company put a brave face on the results: ?We regret that we had to restate our third quarter 2003 financial results.

?While the restatement increases our loss for the year, it is important to note that the restatement does not change our view that the Transamerica contract should breakeven or produce a very small profit in the future.

?The company had reported that it moved from the red into the black during the third quarter of 2003 after a $9 million settlement from XL Capital subsidiary, XL Life, which boosted its profits.

?In the third quarter, the company incorrectly released approximately $3.8 million of liabilities associated with its Transamerica annuity reinsurance contract,? the company said in a press release.

?The company plans to file an amended Form 10-Q later this week. The amended filing will reflect an increase in previously reported liabilities and will reduce previously reported net income of $33,392 to a loss of $(3,786,905), or a $3,820,297 reduction.

The company also reported a net loss of $7 million for the three month period ended December 31, 2003 as compared to a net loss of $100 million for the same 2002 period.

Mr. Burke added: ?This quarter?s results, while a loss, reflect significant progress towards stabilising our company.

?We incurred a charge from the MetLife recapture, but have now put the MetLife contract and its related expense and resource drain behind us.

?While we received more death claims than we anticipated on a few treaties that were recaptured earlier this year, exposure to any additional deterioration on these treaties should be minimal. The MetLife recapture was effective May 5, 2003 so we already have seven months of claims reported to us.?

Mr. Burke added that the company was still holding a large portion of its general account investment portfolio in very short duration assets because of the low interest rate environment and the risk that interest rates may rise.

?The low interest rate environment is hindering our ability to restructure our portfolio to improve our yield,? he said. ?We plan to continue to hold a relatively large portion of our assets in very short duration investments until interest rates rise or we conclude they are not going to rise in the foreseeable future. We expect our expense reduction efforts to begin taking hold in the second quarter of 2004.?

Transamerica had alleged that the company owed $14.9 million under its annuity reinsurance contract with Transamerica but the company said that it had not agreed that amount that was owed to Transamerica ?and the parties are attempting to resolve their disputes? last quarter.

Transamerica said that it will attempt to put the company into liquidation if it does not get a satisfactory solution to the problem.

But Mr. Burke said that in February, the company paid Transamerica substantially all amounts it claimed were owed by the company, subject to a $5.0 million offset for investment related expenses Annuity felt were owed to it by Transamerica.

He said Transamerica has demanded arbitration, asserting that the $5.0 million offset is not justified and that the company owes interest on the amounts that Transamerica alleged were due.

?I continue to caution that the company continues to face other significant issues as well,? he said. ?We still have the pending shareholder litigation, GMDB/GMIB exposure and unresolved collateral demands associated with our reinsurance agreement with CIGNA, and, while we have narrowed the gap in our dispute with Transamerica, we still have the economic exposure from that agreement to contend with.

?Now that the MetLife arbitration is resolved, we have begun a review of potential products that we may be able to market in the future. While we are in the early stages of assessing whether we can, should, or will begin selling new products, and while it may take time to come to fruition, the good news is we feel we are now in a position to at least consider the possibility.

?If we can reposition our general account investment portfolio to achieve a substantially higher yield within our investment guidelines, successfully defend ourselves against the shareholder class action suit, and improve the long run returns on the Transamerica portfolio, we believe we can achieve breakeven or a very modest profit in 2004.

?Our failure to achieve any one of these objectives could have a material adverse effect on our financial condition and results of operations.?