Tower Group, a New York insurer in line to profit Allstate?s decision to curtail the number of policies it sells in the region, is fortifying its position through an agreement with a new reinsurer being formed in Bermuda, its chief executive claimed.

Through the arrangement Tower will have access to ?a stable source of reinsurance not available in the marketplace,? Mr. Lee said, in a Tuesday call with investors.

Reinsurance is bought by insurers to spread the risk in policies sold to corporations and individuals. Mr. Lee said Tower was finding it difficult to buy reinsurance in the post-hurricane market, citing a constriction in reinsurance capacity available to regional insurers like Tower.

Hurricanes Katrina, Rita and Wilma are expected to leave insurers with a bill of up to $80 billion after wreaking havoc last year along the US Gulf Coast and in Florida.

Some insurers and reinsurers have curtailed the policies they sell because of losses, including Allstate.

The Illinois-based company, which is the second-largest seller of home and auto insurance policies in the US, last month said it was not selling new homeowners? policies in the New York City area, in a bid to reduce its exposure to losses in that part of the country.

Mr. Lee told investors Tower was seeing growth as a direct result of Allstate?s withdrawal. The company has projected 2006 earnings of between $1.58 and $1.68 a share, not factoring in the benefits it could realise under the new Bermuda arrangement.

Felice Gelman, an investment analyst with SuNova Capital said raising capital to take advantage of new business opportunities may have been more ?transparent? for shareholders than a partnership with a new Bermuda company.

Tower, founded by Mr. Lee in 1990, listed on the Nasdaq in October 2004.

Insurers often tap capital markets when business opportunities ripen because regulatory controls require companies increase capital as they sell more policies. A capital boost generally dilutes the value of existing shareholders? investments.

Mr. Lee said Tower analysed numerous scenarios to take advantage of growth opportunities, including raising capital, but decided the arrangement with a Bermuda reinsurer would maintain shareholder value, and possibly boost returns by allowing the company to put more money to work on the investment side.

Tower expects to boost its revenues under the contract which includes commissions and fee income on the business it cedes, or passes on to the Bermuda reinsurer.

Tower is making a $15 million investment in the new Bermuda reinsurer, which has not been named. And it is being formed by three departing Tower executives: Joel Weiner, Robert Hedges and Joseph Beitz.

And Mr. Lee will be chairman and chief executive of the new Bermuda holding company.

A Tower spokesman declined to reveal any further details of the new entity. And Mr. Lee declined, on the investor call, to say if he, Mr. Weiner, Mr. Hedges or Mr. Beitz were making personal investments in the Bermuda company.

Under the Bermuda deal, which is structured as a quota-share agreement, Tower will cede, or pass on, between 25 percent and 45 percent of its insurance premium and losses to the new reinsurer, Mr. Lee said.

The group is also in talks to share insurance risks with the new Bermuda insurance group, that will include a reinsurer and specialty insurance unit, Mr. Lee said.

Investors pushed up Tower?s shares 12 percent, or $2.23, to $20.32 in 4 p.m. composite trading on the Nasdaq yesterday.