Sphere Drake Holdings Ltd. president and CEO Michael Watson described this week's restructuring announcement as a watershed for the insurer/reinsurer.

"Part of announcing these changes is to draw a line in the sand,'' separating the company's checkered past from future operations, Mr. Watson said.

"The major restructuring marks the conclusion of a comprehensive strategic review of the company's five major business segments.'' Mr. Watson added: "Announcing the restructuring doesn't guarantee success. We have to execute it. There is ample evidence financially where we have fared well through skill not luck.'' As part the restructuring, Sphere Drake which has $350 million in surplus, will take a $15 million charge spread over three quarters and cut staff by at least a third.

Sphere Drake Holdings is the holding company for Bermuda and London-based operating subsidiaries.

The company's review revealed a diverse portfolio with uneven financial performance. Excellent results in reinsurance lines were contrasted by unprofitable marine business.

As a result, Sphere Drake is withdrawing from its marine operations to concentrate on its successful reinsurance business and specialty insurance lines.

The reinsurance lines include: property excess of loss, marine and aviation excess of loss, casualty, and alternative risk transfer.

The specialty insurance lines are US excess and surplus, as well as UK and Europe property.

Prior to the restructuring, Sphere Drake participated in 17 lines of business through its two companies with most traditional subscription lines.

Over the past ten years, the marine insurance lines just have not been profitable and particularly difficult, Mr. Watson said.

"In marine there has been a lot of competition. London has had a leading position and now that Lloyd's is over a period of doubt, perhaps the desire to rebuild premium is making for more competition,'' Mr. Watson said.

"Sphere Drake has significantly improved its capital to premium ratios during the year and has adequate capital in the near term to support its present level of business in continuing lines,'' the company said in its release on Monday.

The company has taken significant steps to strengthen its balance sheet, Mr.

Watson said.

Checkered past still haunts Sphere Drake Sphere Drake started last year with net worth of about $250 million, bolstered reserves by about $98 million, and still managed to finish the year worth around $247 million, he said.

In 1995, Sphere Drake added $88 million, about half in fourth quarter, to reserves after displaying what Mr. Watson called a weakness in that area. As well, the company strengthened reinsurance recoverable reserves to $24 million from $14 million.

Sphere Drake buys a significant amount of reinsurance and there are questions as to whether or not all of it is recoverable, Mr. Watson said.

In 1996, the company added another $4 million to reinsurance recoverable reserves.

But despite these balance sheet moves, "we have not quelled all the doubts'' due in part to Sphere Drake's "checkered'' past, he said.

Many in the industry remember the "gang of four'' scandal in London when Sphere Drake was used in the early 1980s as the vehicle by another company to funnel money offshore.

"Sphere Drake had no financial exposure as a result of that, but there is a degree of mystery and rumour about the company's development which has proved difficult to shake off,'' Mr. Watson said.

A year ago, Ian Dean suddenly resigned as Sphere Drake president and CEO, to be replaced by Mr. Watson.

And more recently, the company's largest individual shareholder, John C. Head, resigned from the board.

It was reported that Mr. Dean resigned due to an internal disagreement over how to resolve revelations of a pattern of undisclosed related party transactions involving at least one of the firm's managers while Mr. Head resigned after failing to persuade his board colleagues that there should be an independent investigation into the transactions.

On the future of Sphere Drake, Mr. Watson said: "We believe there is a role for company the size of Sphere Drake, we don't believe that all buyers want to buy from the biggest companies where it can be difficult to establish relationships. Some clients are afraid that with a big company, there might not be the same continuity of going forward,'' he said.

"Clearly there has been a lot of consolidation in the world's insurance and reinsurance market (but) there will certainly be a role for smaller companies like us,'' he said.

"During 1997, I believe we will have the opportunity to demonstrate we can execute this strategy.'' In future, the company is also looking to improve its ratings.

In April, Standard & Poor's lowered to triple B from triple B plus its ratings of Sphere Drake's Bermuda and London companies.

Though the downgrading was disappointing, Mr. Watson said he was pleased with the rating agency's move to affirm the current ratings in the wake of restructuring announcement.

In a previous announcement, S&P welcomed the more conservative bias of Sphere Drake. On Monday, S&P added it believed Sphere Drake management had made good progress toward achieving its goal of greater company stability.

On the $15 million charge, Mr. Watson said that amount covers two broad categories.

Firstly, the usual costs associated with withdrawal from the various lines of business being runoff instead of sold, which include associated software development costs and the termination of leases, Mr. Watson said.

Secondly, "we've spent a lot of time looking at how we process business.

We've been working with consultants to identify ways to be more efficient.'' Part of that is the major staff reduction.

When completed, the restructuring will reduce staffing from 450 to 300, possibly more, Mr. Watson said.

With the sale of the Groves, John and Westrup business, about 30 people will go to the new owner. Sphere Drake is looking for a buyer for the protection and indemnity business and that will ultimately affect another 20 staff. These numbers are part of the reduction to 300 staff.

"The company is looking at losing one-third of its staff and 25 percent of its premium. It's significant.'' He also said: "I don't believe companies can shrink their way to success.''