Bermuda- based Arch Capital Group Ltd. is to set up a Bermuda-based reinsurer as the investment group looks to take advantage of soaring reinsurance rates following the destruction of the World Trade Center.

Arch Capital said the venture, to be called Arch Reinsurance, would be backed by two private equity firms, Warburg Pincus and Hellman & Friedman, which would invest a total of $750 million in shares and warrants in Arch Capital.

Arch Capital shares rose $3.88, or 22 percent, to $21,32 on the Nasdaq yesterday.

"It'll be a broad-based multi-line reinsurance company, meeting the shortfall in capacity and increase in demand," said Jack Bunce, managing director of Hellman & Friedman.

The new reinsurer wants to open as soon as possible to sign up business in the January 1 renewals, which are being negotiated now.

"A lot of clean capital is viewed positively by potential customers," said Kewsong Lee, a Warburg Pincus managing director. "In the insurance business, a stream of volume tends to be written in January. If you are not in business in November to review contracts, you have missed a year."

The new venture currently has about $500 million in capital, Lee said. That is relatively small by reinsurance industry standards.

Arch Reinsurance is the third firm set up in the last month to meet surging demand for reinsurance after the September 11 hijacked jetliner attacks, as traditional firms, facing $70 billion in expected claims, lick their wounds.

Bermuda-based reinsurer RenaissanceRe Holdings Ltd. is setting up a new venture called DaVinci Reinsurance Ltd. with $500 million backing from investors, including State Farm, the largest US insurer.

Insurance broker Marsh & McLennan Cos. Inc. has also set up new firm, Bermuda-based Axis Specialty Ltd., to offer property, aviation, war and other insurance, while its main rival Aon Corp. has added some property and reinsurance lines to its own underwriting unit, Combined Specialty Corp.

Insurers American International Group Inc.and Chubb Corp. along with Goldman Sachs Group Inc., are also preparing to set up a new Bermuda venture.

These firms are part of the third wave of insurance capital heading to tax-free Bermuda in the past 20 years.

In the mid-1980s ACE Ltd.and XL Capital Ltd. 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

In the early 1990s, six major reinsurers were set up to soak up demand for large-scale property catastrophe reinsurance after Hurricane Andrew. Those reinsurers included RenaissanceRe and PartnerRe.

Under the terms of the Arch deal, New York-based Warburg Pincus will invest $500 million, while San Francisco-based Hellman & Friedman will invest $250 million in convertible preference shares and warrants in Arch Capital, which will give the firm more than $1 billion in capital.

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