In a surprise move that is sure to shock Bermuda's insurance industry, Overseas Partners Limited (OPL) has announced it is bowing out of the market .

The privately-held company, set up in 1983 as United Parcel Service's (UPS) reinsurer, yesterday said it plans an “orderly runoff” of its reinsurance operations.

Staff reported the decision as coming “out of the blue” and one industry insider was said to be “flabbergasted” by the announcement that the company is closing up shop. The company reportedly has capital in the region of $1.3 billion and a strong balance sheet, loss reserves independently reviewed and approved by two outside actuarial and consulting firms, and significant operating strength in terms of employees, and customer and broker relationships.

The company has had its share of trouble including loss of its core business following a UPS court battle with the US Internal Revenue Service (IRS) resulting in the loss of its UPS shippers risk coverage. The loss of that revenue, which accounted for close to 40 percent of OPL's 1999 premium revenue, left it struggling to reposition itself in the global reinsurance market.

The company remains firmly tied to UPS however with its shareholder base made up of 98,000 past and present employees of UPS.

But while losing the UPS shipper's risk business was a blow the company had already moved in to other lines of business and with the hiring of CEO Mary Hennessy in 2000, OPL began its turn-around. The company had been widely viewed as a venture that fought its way “back from the brink”.

OPL's move to exit the insurance market is understood to have resulted from a push by shareholders who may feel they could maximise the return on their investment through other vehicles.

Last night OPL's chief financial officer Mark Bridges said: “We agree that many industry observers will be surprised, at least initially, given the hardening market conditions and our success over the last two years.

“However, our company is a private organisation with a unique history and shareowner base. Our shareowners have become used to receiving generous dividends and having the ability to sell their shares back to the company as and when they wish. This is a drain on capital but reflects the fact that we are not a publicly quoted company, unlike the ACE's, XL's... and so these are the only forms of liquidity available to our shareowners.”

Mr. Bridges underscored that current market conditions put OPL at a disadvantage.

“Unfortunately we are in a very capital-intensive industry and recent events and market entrants have raised the bar; we are no longer able to support both the provision of regular liquidity to shareowners and satisfy the new capital levels required for long-term success,” he said.

Poor underwriting results may also have driven the decision. Yesterday market analyst Morgan Stanley said: “The decision to exit the market likely stems from the company's poor underwriting results in recent years.” The analysis went on to say however that the move could be a positive for the market as it “reduces capacity”.

The company reported an underwriting loss of $524.6 million in 2000.

Losses from September 11 and Enron did not contribute to the decision: “OPL's own losses from the September 11 events were less than ten percent of our equity and so did not contribute to the decision at all,” Mr. Bridges said.

“However the decision does reflect the fact that the September 11 events gave rise to the need for higher capital levels to remain truly competitive, particularly with those publicly traded entities that have much easier access to capital than ourselves.”

As part of the run off OPL's catastrophe reinsurance business is being taken over by its “strategic partner” Renaissance Re. OpCat wrote more than $60 million in premiums last year and had $400 million in capital supporting it. RenRe saw its shares move up yesterday following the announcement.

OPFinite's business is to be run off with the company writing no new business but handling claim obligations. And its US-based operation OPUS Re, which was formed after OPL's acquisition of Reliance Re, the US reinsurance unit of bankrupted insurer Reliance Group Holdings, is on the sales block.

The Royal Gazette understands that up to 20 of the Bermuda office's 60 staff will be made redundant by April. A source said “staff severance packages are being worked out”. Staff have reportedly been told that they will lose their severance package should they speak with the Press. It is understood that the severance package could be six-months pay.

OPL has another 55 staff in the US who are expected to retain their jobs through the sell-off of OPUS Re.

The company could keep up to 40 Bermuda staff as it runs off business which Mr. Bridges said could take between three and five years.

The company has had a reputation for being one of the best Bermuda insurers to work for with a skilled team.

David Ezekiel, head of the International Companies Division (ICD) of the Chamber of Commerce, and CEO of Insurance Advisory Services (IAS) said he thought the announcement had come as a surprise to the industry: “It did come as a surprise to me, I certainly had not heard anything,” he said.

“For the market, it is clearly a disappointment - OPL has been a stellar local corporate citizen.

CEO Hennessy, who was previously president and COO at TIG, was quoted in Bermudian Business last year as saying: “At TIG I felt I didn't get the chance to finish the job I started. (With OPL) it is a chance to get behind the wheel and drive the car.”

Ms Hennessy was asked yesterday if she was satisfied with OPL's conclusion: “I thoroughly enjoyed the drive,” she said.

“We are obviously all very disappointed that our journey finished earlier than originally contemplated. However our responsibility is to our shareowners and the Board's decision reflects the desire of many of our shareholders to have greater liquidity than we believe would otherwise be available in what has become an even greater capital-intensive business.”