A Bermuda-based insurer has hit out at comments regarding the impact on its business of the recent tax case lost by its biggest customer, United Parcel Service, it was revealed in a top reinsurance magazine.

The October edition of Reactions has an article about Overseas Partners (OPL) in which the company says it is to continue working with UPS and maintains that the court judgment will not have an adverse effect on its financial ability.

In August a federal judge ruled that the Atlanta-based shipping giant UPS had illegally used Bermuda company OPL to reduce its tax.

In 1993, UPS created a subsidiary in Bermuda which was later called OPL. It was subsequently spun off but remained owned by UPS employees.

Its purpose was to provide reinsurance -- a way of spreading risk -- for UPS packages insured for over $100, according to the court documents.

That arrangement was found to be an illegal offshore tax shelter by Tax Court Judge Robert P. Ruwe, who ruled on August 9 that UPS was "motivated by the reduction of federal income tax'' in what the judge called a "sham transaction''.

But in the October issue of Reactions, OPL's vice president Mark Bridges claimed that much of the Press coverage at the time was incorrect.

"Much of the Press coverage had been speculative and some of it has been factually inaccurate.

"Fortunately, and most importantly, our business partners fully understand that the tax ruling has no impact on our financial strength or our ability and willingness to do business with them.'' The transaction which was at issue with the Internal Revenue Service in the United States involved UPS insuring its shippers' risk with National Union Fire Insurance, an AIG subsidiary, which then ceded risks onto OPL. UPS paid all the damage claims itself, but passed on the risks for lost parcels to the insurer and reinsurer.

UPS has strongly opposed the judgment and may appeal. In the mean time it has taken a charge of $1.8 billion to pay for the unpaid taxes an the interest they have accrued. It has also cancelled its shippers risk programme with OPL.

Reactions reported that OPL has stressed that it was not named in the case, neither is it owned or controlled by UPS.

The company has said it has no intention to sever links with UPS in the aftermath of the court decision, the magazine claimed.

"The close relationship with UPS has been, and will continue to be, very important to OPL,'' Mr. Bridges told Reactions.

It added that OPL would continue to reinsure some of UPS's risks. "The tax ruling did affirm the deductibility of premiums paid by UPS for certain other lines of business. We continue to explore opportunities with UPS to reinsure some of their other exposures that may currently be self-insured or placed with other carriers.'' This week AM Best reaffirmed the company's A minus rating after placing OPL under review.

Mark Bridges