For Start-Up Insurer, Flirting With Disaster Ended Badly

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By Jerry Knight
Monday, March 27, 2006

To the list of those hit hard financially by last year's Gulf Coast hurricanes, add some new names:

Nigel Morris, former vice chairman of Capital One Financial Corp., the credit card giant based in McLean.

Russell Ramsey, co-founder of Friedman, Billings, Ramsey Group Inc., the Arlington investment banking firm.

And FBR itself.

All three invested millions of dollars in a start-up insurance company based in Bermuda that was pretty much blown away by hurricanes Katrina, Rita and Wilma.

Founded by Ramsey and financed by FBR, Quanta Capital Holdings Ltd. suffered such serious losses from last fall's storms that it is now struggling to survive.

Last week, Quanta told shareholders it can't file its year-end financial reports for 2005 because it still doesn't know how bad its hurricane losses will be. Current estimates are that Quanta lost nearly $100 million last year -- on top of a $54.6 million loss the previous year.

Last year's losses will wipe out much of the $135 million in new capital that Quanta raised in a pair of stock offerings last December.

FBR managed those stock offerings and now, less than four months later, has been hired to seek a buyer or find some other way to save the business.

That won't be easy, say analysts who follow Quanta. Even FBR's own insurance industry analysts agree in their reports that the company has only three choices: shut down, sell off all or part of its operations, or try to reinvent itself on a much smaller scale.

Quanta's stock, which sold for as much as $10 a share last year, closed Friday at $2.94. The total stock market value of the firm has plunged from almost $650 million to about $200 million.

Small investors haven't been hurt too badly, because 95 percent of Quanta's shares are owned by institutions and insiders. But FBR and its clients have taken a serious hit.


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