ACE Insurance Company, Ltd., XL Insurance Company, Ltd. and Risk Capital Reinsurance Company have agreed to form a political risk insurance entity, it was announced yesterday.

The Bermuda-based managing general agency will provide underwriting services to the three organisations for political risk insurance coverage.

The move is a response to increasing foreign direct investment, including projects in developing countries, and rising demand for political risk insurance, ACE and EXEL said.

This line insures businesses with operations abroad against losses from political upheavals including war, revolution, confiscation and incontrovertibility of currency.

The new company, Sovereign Risk Insurance Ltd., will issue subscription policies with ACE and XL underwriting 45 percent each. RC Re will take ten percent.

Sovereign will initially offer limits up to $50 million per project and $100 million per country. Per country limits are expected to increase to $500 million by fifth year.

Marsh & McLennan Risk Capital Corp. advised on the transaction.

ACE chairman, president and CEO Brian Duperreault expects the company to soon be a major player in the political risk line.

XL chairman and CEO Brian O'Hara said combined resources of the three companies will provide significant new capacity.

Price Lowenstein, formerly with Guy Carpenter & Co., Inc. in San Francisco, will become president and CEO of Sovereign. He has nine years experience in this line. His office will be located at Cumberland House on Victoria Street.

Risk Capital Holdings, through subsidiary Risk Capital Reinsurance, provides capital and reinsurance for insurance companies with capital needs that cannot be met by reinsurance alone.