Bermuda-based Sphere Drake Holdings Ltd. was hit with a loss of $7.6 million for the second quarter to June 30, compared with a profit of $11.4 million for the same period last year.

The loss came after the company was forced to add to its reserves, and, while writing a fraction of the amount of Alternative Risk Transfer (ART) business it once wrote in Bermuda. Figures show the ART business as a declining percentage of Sphere Drake's total business.

Net premiums written for the ART business dropped nearly 14 percent to $3.6 million for the three month period when compared with the same period last year. That is demonstrably removed from the $22.7 million it recorded for the same quarter in 1995 or the $16.7 million in 1994.

The ART loss and loss adjustment expenses (LAE) ratios were 73.1 percent for the three month period and 112.7 percent for the first six months. ART Net premiums written for the six month period were down over the comparative period from $22.6 million to $12.1 million.

ART Net premiums earned for the three month period were down from $12.1 million to $6.9 million. For the first six months, they dropped for $30.3 million to $15.8 million.

Yet president and CEO, Michael Watson, was upbeat yesterday about the company's overall future, in light of its pending acquisition.

He said, "The second quarter of 1997 saw a very positive development for Sphere Drake with the announcement of the proposed acquisition by Fairfax Financial Holdings Ltd. Results for the period were in line with our expectations before taking into account reserve strengthening of $13 million to which further additions are likely if recent trends continue. "The transaction with Fairfax remains on track for closure in the fourth quarter of 1997. The acquisition has been welcomed by our brokers and customers and is already leading to an increased showing of quality business. "It has also received favourable endorsement by both Standard & Poor's and AM Best, who have placed the company's claims-paying ability ratings under review with positive implications.'' The company reported an operating loss, excluding realised investment gains or losses, net of tax, of $8 million (43 cents a share), compared with operating income of $12.6 million (69 cents a share) for the second quarter of 1996. Net premiums written shot up more than 55 percent for the quarter to $66.7 million, in the main because the company's whole account reinsurance protection, which was included in the first quarter 1997, was not written until the second quarter of 1996. The GAAP combined ratio for continuing operations was 124.4 percent for the second quarter, compared with 100.1 percent a year ago. Of the quarter's combined ratio, 18.4 percent was attributable to prior year reserve strengthening, principally in the company's US excess and surplus lines business. Net investment income dropped from $15.5 million during last year's second quarter to $12.8 million. The average investment yield was 6.1 percent, compared with 7 percent for the second quarter 1996.

Meanwhile, Sphere Drake Holdings Ltd. has declared a regular quarterly cash dividend of four cents per share, to be paid August 29 to shareholders of record August 18.