Centre Solutions (Bermuda) Ltd may not be writing enough new business to cover the company's portfolio which has been placed in run-off, according to Standard & Poor's Rating Service.

The US ratings agency, which grades businesses to help investors decide on the value of stock, placed its ratings on Centre Solutions (Bermuda) Ltd. and related operating companies on CreditWatch with negative implications.

It said it had done so “because of concerns that the in-force portfolio being placed in managed run-off will not be offset by new business written to the extent initially believed”.

Much of the business at Centre was placed in run off after its parent Zurich Financial Services said that it was going to focus on its “core business”.

Most of the staff were let go and the E-venture Centre, one of Centre's venture capital projects, was ended.

“Although the senior management of Zurich, Centre's parent, still considers Centre a key part of its core operations, Standard & Poor's has changed its view of Centre's strategic significance to Zurich,” said Standard & Poor's credit analyst Grace Osborne.

“As a result, Standard & Poor's has reduced the level of implied Zurich support that has been historically included in the rating.”

The agency said that almost all transactions written before 2003 were placed under the supervision of centre's chief risk officer. And it revealed that Centre posted its largest pre-tax operations loss of $252.7 million in 2002, largely related to its credit enhancement and financial guaranty business.

Earnings are expected to be under pressure in 2003 as reserves for transactions placed in run-off are strengthened, added the report.

It said that Centre's business strategy will focus on developing non-traditional customised finite-risk insurance and to a lesser extent reinsurance solutions.

“Over its 15-year history, Centre has demonstrated a consistent trend of technical competency for designing structured risk solutions that entailed offering large limits of capacity for its clients,” said the report.

“With the voluntary change to its business model, Standard & Poor's expects that Centre's lowered net limits will present an operational challenge for these types of transactions to be underwritten at comparable profit margins.”

It said that expectations were that Centre's earnings will be modest and volatile over the medium term, but Standard & Poor's believes that capital support for Centre's pre-2003 book will remain at an adequate level to meet all financial obligations on a timely basis.

The resolution of the CreditWatch status of the ratings is expected by the fourth quarter 2003 following discussions with Zurich on its plans to provide parental support, if any, to Centre as it embarks on building its portfolio of risk, said Standard & Poor's.

“The ratings could be affirmed or lowered, but if they are lowered, they will not fall to below investment grade,” it added.