Not all of the new insurance companies set up in Bermuda because of the shortage in capacity following the September 11 terrorist attacks on the United States will not make it, according to the head of a leading reinsurance company.

Patrick Theale, chief executive officer of PartnerRe Ltd., said that the environment was different for the third generation of insurers coming in this time around and that all of them may not make it.

He said: “I think there will be some companies that won't really be able to trade their way into the world.”

His views echo those in the industry, including those of James Stanard, head of Renaissance Re and its new reinsurance venture DaVinci Re.

Earlier this year Mr. Stanard said that there was not as much of a crunch for capacity as there has been in the two previous waves which have helped make Bermuda one of the world's leading insurance markets.

When asked if the new companies worried him, Mr. Theale said: “Not really, and that is not meant to sound arrogant.

“It is sort of a natural phenomenon of the reinsurance industry, we lose a few at the top end and we generate ourselves at the bottom end.

“We are the second generation and they are the third, so I have a lot of sympathy for the task that they have in front of them.”

Bermuda's kick start into the world player stakes of insurance started with the US liability crisis in the mid-1980s.

Hurricane Andrew in 1992, triggered the second wave of company formation in Bermuda....and the recent withdrawal of capacity has helped create Bermuda's third wave.

After the first crunch between 1985-1986 when there was a liability crisis, ACE Ltd and XL Capital were set up by Marsh and other US investors to provide big-ticket liability insurance as large court awards dried up coverage in the US.

It was followed by the second crunch in 1993-1995 caused by Hurricane Andrew when six major reinsurers were set up to soak up demand for large-scale property catastrophe reinsurance after Hurricane Andrew. Those reinsurers included RenaissanceRe, PartnerRe & IPC Re.

The third wave came within weeks of September 11, as seven reinsurers headed for Bermuda.

At the moment the figure stands at 11. In total 74 insurance companies have set up on the Island since September 11.

March & McLennan formed Axis Specialty, through its private equity subsidiary MMC Capital, and Bermuda-based RenaissanceRe Holdings Ltd. started DaVinci Reinsurance to address an industry's capacity shortage.

The other seven are Allied World Assurance, Endurance Specialty Insurance, Arch Reinsurance, Montpelier Reinsurance, Goshawk Reinsurance, Olympus Reinsurance and Queens Island Reinsurance. Other new start-ups, include Michigan Re, set up by Trenwick and Catlin Insurance set up by WestGen.

Mr. Theale said that these new companies faced some very strong, very tough competition, Partner Re included, who are providing substantial capacity to clients - at a price.

He added: “The capacity is there and we have the personal relationships, both direct and through the brokers and we can trade on that pretty well.

“I think it was 92, 93, 94, when Partner Re was born, there was a world-wide shortage of capacity in the property cat market. This is different. One, this is a broader market turn and two, there is a reasonable amount of capacity without them. So I think it is going to be a little more difficult this time around.”

He said that in 1993 and 1994 virtually everybody that started up was reasonably successful, and most everybody went public.

He said: “I don't think that is going to happen this time. My assumption is that some will be successful and will become publicly traded insurers and reinsurers and will forget their origins in two or three years. But in this generation I think there will be some companies that won't be some companies that won't really be able to trade their way into the world.”

He said that Partner Re stared in 1992, but it has taken us until 2002, two acquisitions “and an enormous amount of work” to become a multiline, multi-geography reinsurer.

He added: “It doesn't happen overnight, It takes a long time.”