Chubb ( CB) said it would get out of the assumed reinsurance business by helping to fund a new reinsurer called Harbor Point Ltd.

Warren, N.J.-based Chubb said Harbor Point is being formed by Stone Point Capital LLC. Harbor Point will be based in Bermuda and is expected to have an initial capitalization of about $1.5 billion. Chubb and Stone Point's Trident III fund will be the lead investors in Harbor Point.

"It's clear there are dislocations in the reinsurance marketplace as a result of recent catastrophe experience, among other issues. This transaction offers Chubb an outstanding opportunity to leverage its position in that marketplace in a way that should achieve the greatest opportunity for significant upside capital appreciation," said CEO John D. Finnegan.

Chubb will transfer to Harbor Point its continuing reinsurance business and certain related assets, including renewal rights, effective Jan. 1. Harbor Point won't assume the reinsurance liabilities of Chubb relating to reinsurance contracts incepting prior to Dec. 31, 2005. Chubb will retain those liabilities and the related assets and reserves.

Chubb will receive from Harbor Point a $200 million, five-year 6% convertible note and warrants, representing a total, on a fully converted and fully diluted basis, 16.25% of the new company. Trident III has agreed to invest $200 million in the new company. The management team of Harbor Point also is expected to have a meaningful investment in the company. Harbor Point will write a diverse portfolio of both property and casualty reinsurance products.

The Chubb Re management team, led by Chubb Re's current CEO, John Berger, will manage Harbor Point. Stephen Friedman, a senior adviser to Stone Point Capital, will serve as nonexecutive chairman of Harbor Point. Friedman was formerly chairman of Goldman Sachs ( GS).

The closing of the transaction is subject to the condition that $1.1 billion be raised from investors, other than Chubb and Trident III, and certain customary closing conditions. It is expected that the closing will occur by the end of November and that Harbor Point will then commence underwriting upon receipt of necessary regulatory approvals.

Late Tuesday, Chubb shares rose 92 cents to $86.95.

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