NEW YORK (Reuters) — Bermuda reinsurers, money burning a hole in their pockets after hefty 2006 earnings, are looking to expand into the Lloyd's of London insurance market, sources familiar with the situation said.Interest in joining Lloyd's, the world's oldest and largest insurance market, is coming largely from reinsurers, dubbed the "Class of 2005," that formed in Bermuda after Hurricane Katrina.

Bermuda's newest flock of reinsurers are interested in entering the market through acquisitions, or by forming their own underwriting units, or "syndicates," within the world's oldest insurance market.

Validus Reinsurance and Ariel Reinsurance, both formed after Hurricane Katrina, and Montpelier Re, another Bermuda reinsurer formed in late 2001, are each cited by industry sources as keen to establish a Lloyd's platform.

By entering the London market, insurers can quickly move into selling multiple types of coverage across more than 200 nations and territories where Lloyd's is licensed. Lloyd's syndicates also operate under the market's strong "A" financial rating, a boost to business prospects.

"You can write (business) all over the world," said Donald Kramer, chief executive of Ariel, a multiline reinsurer formed after Hurricane Katrina with $1 billion in capital from investors such as the Blackstone Group, Texas Pacific Group and Thomas H. Lee Partners.

Validus, which has filed to go public in a $200 million initial public offering, yesterday confirmed it is to buy out Lloyd's syndicate Talbot Underwriting.

Validus was founded by former Marsh & McLennan chief executive Jeffrey Greenberg's private equity fund in late 2005 to sell property-catastrophe reinsurance after Katrina created a shortage.

Talbot, which may have also earlier attracted interest from Ariel, in recent months hired a London investment bank to advise it on a possible sale.

Roddy Watt, an outside spokesman for Talbot, declined to comment. Sources in the Bermuda market said Talbot could fetch as much as two times book value, or up to $400 million.

Validus, which is restricted in speaking to the press because it is in a pre-IPO quiet period, and Ariel both declined to comment.

Former Lloyd's underwriter and now Montpelier Re Holdings Ltd. chief executive Tony Taylor has said in a recent conference call that he is seeking "meaningful opportunities for growth outside the Bermuda market."

Reinsurers such as Validus are looking to diversify into additional lines of business, key to winning strong financial strength ratings, and to broaden access to insurance buyers.

"For $50 million, you can be licensed on a surplus basis across the US," said Ariel's Kramer, as one example of the lucrative and affordable access reinsurers can gain through Lloyd's, a market of more than 60 underwriting syndicates that sell property and casualty policies to corporations with large and specialised risks.

Kramer, formerly vice-chairman of Bermuda insurer Ace Limited, was instrumental in that insurer's $500 million acquisition of Lloyd's syndicates Tarquin Underwriting Limited in 1998. He declined to say whether Ariel wanted to set up within Lloyd's.

"Lloyd's has value for the nontraditional insurer, for Bermuda companies it has tremendous value," Kramer said.

Renewed interest from Bermuda insurers, which make up the world's fourth-largest insurance market after Germany, the US and Switzerland, will buoy the Island market's already strong presence in the London market.

Wendy Baker, president of Lloyd's America, confirmed that insurers and reinsurers are coming to Lloyd's as they seek to expand.

"They have the capital, but they want the access to international markets and the world-wide licences that Lloyd's provides," Baker said.

Bermuda insurers have been tapping the Lloyd's market for decades, and were the market's third-largest source of capital in 2006, contributing more than $1 billion.

The development is good news for the London market, criticised in recent years for being too expensive and too bureaucratic.

In the last year Lloyd's unveiled a three-year plan to boost ease of access, efficiency and consequently its ability to turn a profit, and draw business participants.

Companies can, for example, now apply to form syndicates four times a year, instead of only once a year as in the past, said a spokesperson. The process remains "rigorous," but is open to those that can prove they meet certain criteria.

"I am certain you will see more of it, (Bermuda insurers joining Lloyd's), it feels like a natural time in the market for that to start happening," said one senior executive of a Bermuda reinsurer.

Bermuda companies eye Lloyd's expansion