LONDON (AFX) - Specialty insurer Alea Group Holdings Ltd warned it expects to make a loss for the full year as it raised its estimate of the hit from Hurricane Katrina to 55-70 mln usd, from a previous estimate of 20-30 mln.

The group added that it expects a further insured loss of 5-10 mln usd as a result of Hurricane Rita, and an additional hit of 10-12 mln usd because of floods in Europe.

Alea, which in September put itself up for sale after the Standard & Poor's agency cut its credit rating to BBB+ from A-, said talks with potential buyers were continuing, although it stressed that there was no certainty of a deal.

The S&P credit downgrade, closely followed by another from the AM Best agency, effectively denied Alea access to business referrals from insurance brokers. Insurers usually need a credit rating of at least A- in order to remain on brokers' list of recommended providers.

Alea said today that it is also working on plans to put any parts of the group that are not sold into run-off, where no new customers are taken on and the business simply pay claims to existing clients.

Analysts believe Alea's UK insurance unit and its US reinsurance business are the most likely candidates for run-off, while its US insurance business could be sold as a going concern. Another option is that the group could be bought by private equity group KKR, Alea's biggest shareholder with a 41 pct stake.

Alea's performance has suffered over the past 18 months because of a higher than expected risk of future claims, which have forced it to set aside more cash than originally planned. In August, the company posted a 50 pct drop in interim profits, weighed down by a surprise 34.7 mln usd addition to its claims reserves.

The group had been planning to raise fresh capital through a 210 mln usd rights issue, but this was abandoned in the wake of the credit rating downgrades.

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