Shares of Bermuda-based Alea Group Holdings Ltd. had their biggest drop since the reinsurer first sold stock 15 months ago after Alea said it will set aside as much as $80 million for US professional liability reinsurance claims.

The reserve strengthening in 2004 may increase Alea?s combined ratio, or claims and expenses as a percentage of premiums, to between 103 percent and 105 percent after US and Caribbean storm losses are added, indicating unprofitable underwriting, Alea said in a Regulatory News Service statement.

?While unexpected, the proposed additions to reserves are of a magnitude that can easily be absorbed by the group?s very strong capital base,? the credit rating agency Standard & Poor?s said in a statement. Alea will join other reinsurers, including Switzerland?s Converium Holding Ltd., in adding reserves for liability coverage written in past years for executives of failed US companies.

The reserve strengthening relates mainly to US business written between 1999 and 2002, Alea said yesterday. ?Operating controls, particularly those governing prior underwriting years, will require further management review to ensure that financial strength is not affected,? said Standard & Poor?s, whose A- stable rating for Alea was unchanged.

The reinsurer will provide an update on the reserves in March, said Alea.

Alea is ?in a very strong financial and operational position as we move into 2005,? chief executive Mark Ricciardelli said.

?We remain committed to our goal of a 12 percent to 15 percent post-tax operating profit return on equity.?

Alea doesn?t expect ?out of the ordinary? increases in reserves in the future, Ricciardelli added in a telephone interview.

The company estimates losses of $55 million from the four hurricanes that struck the US and Caribbean last year.

?What concerns us most is that the reserves review is not over yet,? Credit Suisse First Boston analyst Laurent Rousseau said in an e-mailed note to investors.

?There?s a risk of getting into a Converium scenario where investors did not touch the stock until a full reserves review was achieved,? said Laurent, who has a ?neutral? rating on the stock.

Alea expects gross premiums in 2004 to rise by 17 percent, the company said.

The company also said it plans to pay a final dividend of seven cents a share in 2005.

Alea shares fell 16 pence, or 7.9 percent, to 185.5 pence in London.

Alea?s stock has lost more than one-quarter of its value since the company first sold shares to the public in November, 2003.

Alea promoted Ricciardelli to chief executive in June, replacing Dennis Purkiss, who had headed the company since May 2000.

The company?s largest shareholder is Kohlberg Kravis Roberts & Co, the world?s biggest buyout firm, which holds a 41 percent stake, according to Bloomberg data. (Bloomberg News)