Bermuda-based finite risk reinsurer Inter-Ocean Holdings Ltd. has ceased underwriting and will run off the business of its reinsurance units, according to a report in Business Insurance.

?After much consideration, the board of directors of Inter-Ocean has decided to put the company into voluntary runoff,? an Inter-Ocean spokeswoman said. ?Current management will be retained in order to direct the company?s runoff operations.?

The spokeswoman declined to comment further on the decision, but finite insurance has recently come under the scrutiny of the Securities and Exchange Commission and New York Attorney General Eliot Spitzer. Both regulators have subpoenaed a number of insurers and reinsurers for information regarding finite transactions and Business Insurance reports that some analysts cite this increased regulatory scrutiny as a potential problem for Inter-Ocean?s future business prospects..

A.M. Best Co. downgraded Inter-Ocean?s financial strength rating in February to A- from A, citing the impact of the regulatory pressure on Inter-Ocean?s ability to ?generate deal flow?. Last week it downgraded the financial strength rating to B++ and the issuer credit rating to ?bbb? from ?a-? for the reinsurance subsidiaries of Bermuda-based Inter-Ocean Holdings Limited. Best also downgraded Inter-Ocean?s issuer credit rating to ?bb? from ?bbb-?. The action was in preparation for a withdrawal of the ratings on Inter-Ocean and its reinsurance subsidiaries in response to management?s request that the operating subsidiaries be removed from A.M. Best?s interactive rating process.

?The rating downgrade follows Inter-Ocean?s announcement that it has voluntarily entered into runoff and has ceased writing new business,? said Best. ?As a runoff entity, Inter-Ocean?s liabilities will continue to be supported by its 11 shareholders who originally sourced all of the company?s business and continue to maintain a strong level of expertise in the global insurance and reinsurance market. One of these shareholders ultimately assumes all the underwriting or timing risk for each transaction undertaken by Inter-Ocean.?

Business Insurance reports that those 11 reinsurance and insurance companies: ?Have helped produce much of the company?s business and act as 100% retrocessionaires of its two units, Inter-Ocean Reinsurance Co. Ltd. of Bermuda and Inter-Ocean Reinsurance (Ireland) Ltd. The two units thus retain no net underwriting risk and have collected only fees and, in some cases, profit commissions on the business they assume, analysts say.?

The 11 shareholders in the company are Associated Electric & Gas Insurance Services Ltd.; American Re-Insurance Co.; Converium Holding Ltd.; Federal Insurance Co., a unit of Chubb Corp.; GMAC Insurance Holdings Inc.; Hannover Ruckversicherung A.G.; Platinum Underwriters Holdings Ltd.; RenaissanceRe Holdings Ltd.; Swiss Reinsurance Co.; Westfield Insurance Co.; and XL Capital Corp.

Mr. Spitzer and the SEC recently subpoenaed Bermuda-based RenaissanceRe, which restated earnings for 2001 through 2003 after its independent directors said in the company?s annual report that five executives ?made mistakes and in some instances lacked due care in connection with the original accounting? in a 2001 aggregate excess of loss reinsurance arrangement under which RenaissanceRe ceded business to Inter-Ocean.

RenaissanceRe masked the true nature of the arrangement by breaking it into two parts, the company said in its annual report. Viewed together, the transactions failed to transfer risk to Inter-Ocean, according to an internal review conducted by law firm Boies, Schiller & Flexner LLP for RenaissanceRe?s board.