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Benfield's profit warning comes after departures

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LONDON—Benfield Group Ltd. has issued a profit warning in the wake of the resignation of several senior members of its facultative reinsurance team.

The reinsurance broker said that profit for the year would be approximately £10 million ($18.6 million) lower than previously expected. In September, the company said it expects this year's profit to be at least equal to the £86 million ($159.6 million) achieved in 2004.

London-based Benfield said that although facultative business makes up less than 6% of its revenues, the departure of several senior members of its facultative team had meant that it had "found it necessary to commence a legal process in order to protect its business interests."

The leader of Benfield's facultative team, Elliot Richardson, recently left the broker to join Aon Ltd. as head of its global cedent facultative reinsurance team.

A spokesman for Aon said the broker could not comment further than its announcement last month of Mr. Richardson's appointment.

A spokesman for Benfield said there had been 20 resignations from its facultative team, from a global team of about 110.

He said the broker had commenced legal proceedings to protect its business interests and had been advised that it had a strong case.

London-based investment bank Keefe, Bruyette & Woods Ltd. said the profit warning highlighted its concern that the growth strategy embarked on by Benfield last year "is not without risks."

The bank said in a note that it has now reduced its expectation of a profit for Benfield to £80 million ($148.5 million) for 2006 and to £108 million ($200.4 million) for 2007--an 11% reduction from the bank's previous estimate.

"We sense that what was initially expected to be a friendly departure by a small number of senior facultative managers has turned into a more widespread attempt by a competitor to poach the whole team," the bank said.

"With matters now more acrimonious, we expect that a proportion of the £10 million relates to legal fees and higher costs for retaining the 80 or so staff who have not yet walked with the key 20," it added.

In addition, KBW said that while there is no direct link between the facultative staff defections and the creation last year of Benfield's primary broking arm, Benfield Corporate Risks, it had "long warned that Benfield's expansion strategy was not without risks," and that the strategy might be "tougher and higher risk" than "superficially seemed the case last year."