Colonial Insurance Group is getting into the reinsurance business.

Colonial and its affiliates in the Bahamas and the Cayman Islands are setting up Colonial Re, which will self-insure some of its catastrophe insurance issued throughout the Caribbean.

Colonial chief executive officer Alan Peacock said the company expects to receive a about $1 million in premium income in the first year.

Some of the risk will then be passed on to other commercial reinsurers, but the company would retain a substantial portion.

He said the reinsurer was being formed because catastrophe reinsurance premiums in the region remained high in the wake of a series of serious hurricanes in the last few years.

?As we build up surpluses and if the wind does not blow, we would look to increase our retentions,? Mr. Peacock said.

He said some of the catastrophe coverage written in Bermuda, which is usually classified as windstorm insurance, would be reinsured by Colonial Re.