THIRD FINANCIAL GUARANTEE REINSURER TO ENTER MARKET

HAMILTON, Bermuda-Plans are being made for a new Bermuda-domiciled financial guarantee reinsurer to begin operations early this year.

RAM Reinsurance Co., a subsidiary of RAM Holdings Ltd., would join the two other monoline financial guarantee reinsurers, New York-based Enhance Reinsurance Co., a unit of Enhance Financial Services Group Inc., and New York-based Capital Reinsurance Co., a Capital Re Corp. unit.

It would be welcome in the industry for the additional capacity it would provide, say financial guarantee insurers and others.

According to market reports, the new reinsurer, which is expected to open for business sometime during the first quarter, will focus principally on facultative reinsurance for structured financial transactions, though it will do some municipal bond reinsurance as well.

The driving force behind the reinsurer is Robert A. Meyer, formerly president of financial guarantee insurer Bond Investors Guaranty Insurance Co., which was acquired by MBIA Inc. (BI, Oct. 16, 1989).

Mr. Meyer, who observers say has been attempting to organize the company for the past five years, now is in the final stages of raising about $85 million in capital with the help of investment banking firm Smith Barney Inc. in New York.

One of the investors is said to be the PMI Group, which operates San Francisco-based PMI Mortgage Insurance Co. and is expected to invest $20 million to $25 million in the venture. A PMI spokesman could not be reached for comment.

A spokeswoman for Smith Barney said neither Mr. Meyer nor Smith Barney would comment.

There are no immediate plans to bring the reinsurer public, though that may be done at a future date. The reinsurer is expected to get an AAA rating from Standard & Poor's Corp., but there are no immediate plans to seek a rating from Moody's Investors Service Inc.

Meanwhile, in November, Capital Re said it also was forming a Bermuda-domiciled reinsurance company, Capital Global Underwriters Ltd., in a joint venture with GCR Holdings Ltd., which operates catastrophe reinsurer Global Capital Reinsurance Ltd. CGUL will primarily specialize in financial reinsurance, including financial guarantee, mortgage guarantee and finite risk reinsurance.

The availability of an additional reinsurer will enable primary insurers to further spread risk and increase their capacity to insure large single risks.

Arthur Dubroff, Enhance's executive vp and chief financial officer, noted that Enhance Re and Capital Re now each have about a 30% market share, with the remaining financial guarantee reinsurance business written by a number of European companies, including a unit of French insurer AXA-UAP.

"Our expectation is that if RAM Re does succeed in its venture and actually closes the transaction, that it will have a relatively modest impact on the amount of financial guarantee reinsurance we write," said Mr. Dubroff.