The net loss of Bermuda insurance company Annuity and Life Re (Holdings) tripled during the last quarter to $69 million, after the company tried to restructure its balance sheet, get rid of poorly performing business and downsize.

And almost a third of this figure, $21 million, was due to XL Life pulling out of a contract with the life and annuity insurance company which has been fighting to get back on its feet for the past few years.

But the company's chief executive officer and chief financial officer Jay Burke, said that the Bermuda-based business had dealt with most of the "recapturing" and "termination" of business, and was now focusing on the future - and hoped to return to profit by 2004.

"The loss in the second quarter of 2003 was primarily the result of losses associated with recaptures and terminations of life and annuity reinsurance agreements and adverse claims experience under the company's life and annuity reinsurance agreements," the company said in a release.

The company has shed 40 percent of its work force and is being "downsized" and terminating life and annuity reinsurance agreements as well as its largest guaranteed minimum death benefit.

"While we expect one or two more companies to recapture their agreements with us in the third quarter, the downsizing of the company through the recapture and termination of life and annuity reinsurance agreements is essentially complete," said Burke. "During the second quarter, we were able to successfully negotiate the termination of our largest guaranteed minimum death benefit contract, which eliminated a drain on our earnings. With our downsizing essentially completed, we are now shifting our focus toward the future."

In May ratings agency A.M. Best Co. downgraded the financial strength ratings to C+ (Marginal) from B- (Fair) and said the actions reflected "the continuing deterioration of the company's capital base, and the ongoing concern about the company's ability to meet its collateral obligations, as plans to raise additional capital have not succeeded."

Best said the ratings also incorporated Annuity & Life's expectations for additional losses in the second quarter of 2003 from the company's efforts to restructure its balance sheet through the recapture, retrocession, novation or sale of its in-force business to meet or reduce collateral obligations.

Last week the company reported financial results for the three month period ended June 30 with a net loss of $68,716,440 as compared to a net loss of $20,293,998 for the same period a year earlier.

Net realised investment gains for the three month period ended June 30 were $4,896,176 or $0.19 per fully diluted share as compared with net realised investment gains of $1,837,672 or $0.07 per fully diluted share for the three month period ended June 30. The increase in net realised investment gains during the three months ended June 30 is attributable to the strong credit quality of the company's portfolio and low interest rates, the company said.

Mr. Burke said that on August 5 the company was told by XL Life Ltd that it intends to recapture its 50 percent quota share reinsurance contract with Annuity & Life - a move which cost Annuity & Life $21 million.

Mr. Burke said in a release: "This caused us to expense approximately $21 million of deferred acquisition costs associated with that contract. We continue to discuss a comprehensive termination and settlement of all of our reinsurance relationships with XL Life and its affiliates."

Mr. Burke also said the company had made further progress in reducing its unsecured letter of credit facility at Citibank, stating that its exposure was now $29 million compared to $89 million in the summer of 2002 when the company first agreed to reduce or eliminate its exposure.

"While we were not able to collateralise the credit facility by June 30, Citibank continues to work with us," added Mr. Burke.

"We expect further reductions to occur in the coming quarters."

He also said that the company had "made significant progress" in reducing future operating expenses.

"We have reduced our staffing levels by 40 percent, and are now turning our efforts toward normalising our costs associated with outside professional services," said Mr. Burke.

"We have completed an analysis of our remaining book of business, including anticipated third quarter recaptures.

"After repositioning the investment portfolio through the second half of 2003 we expect to see a small profit in 2004. With respect to the annuity business, which now consists of four accounts, while we expect a slight profit, results from this segment have historically been volatile.

"Overall, while we still face certain challenges, we have made great strides toward stabilising the company and bringing our operating costs in line with the company's expected premium volume."