Bermuda insurance company Allied World Assurance Company is ending an agreement under which it out-sourced certain functions to its largest shareholder, American International Group Inc.

The agreement, under which AIG staff were contracted to do AWAC?s administrative function, was originally set down to run for up to a decade, but chief executive Scott Carmilani said the contract carried an early termination clause. Six years ahead of the original expiration date, the growing company decided it was time to bring those services in-house.

?Our whole purpose has been to strengthen our infrastructure and create independence for the company, both from a governance standpoint, and operationally,? Mr. Carmilani said.

The development has seen AWAC take dozens of AIG staff on to its own payroll.

?Those staff were 100 percent dedicated to AWAC as part of our service agreement,? he said. ?As the company grew it made sense, including from an economic perspective, to be the immediate employer.?

He said Through 2004, AWAC had paid out nearly $80,000 for the services ? but the amount was increasing each year with the fee based on business volume.

In 2002, AWAC?s first full year of operation, for example, it paid AIG companies $11,656 for services. By 2004 the fees handed over to AIG had tripled to $34,000.

Under the employee transfer, 47 AIG staff moved over to AWAC this year ? 32 of whom were Bermuda transfers, and 15 elsewhere.

The transfers are in addition to AWAC moving over the AIG staff that handled its claims and actuarial functions in 2004, Mr. Carmilani told in an interview.

?This is part and parcel with us ending our service agreement with AIG, which terminates at the end of this year.?

The latest transfers brought legal, accounting and IT staff over.

AWAC, one of a wave of insurance companies to form in the wake of an insurance capacity crunch following the September 11 2001 terrorist attacks in the US, was formed by investments from American International Group, The Chubb Corporation and Goldman Sachs Capital Partners, and others including Swiss Re Capital Partners, Thomas H. Lee Investors, Arthur J. Gallagher and Company and Mellon Bank.

American International continues to be AWAC?s largest shareholder with a 23.3 percent stake.

While the make-up of AWAC?s board has reflected its investor base since its 2001 formation, Mr. Carmilani said: ?The plan has always been to have the company be governed independently. And that has happened: AIG is now a financial investor.?

Former AIG chief executive Maurice (Hank) Greenberg was AWAC chairman until 2004 when Kevin H. Kelley took over the reins. Mr. Kelly is an executive of Lexington Insurance, a member company of AIG.

And many of the company?s first, and most senior staff, hail from long careers with the giant commercial insurance giant.

Both Mr. Carmilani and his predecessor, Michael Morrison, who is now retired but remains on AWAC?s board as vice-chairman, have AIG pedigrees.

Mr. Morrison, who retired to Maine but returns to the Island for board meetings, spent his career working for AIG all over the world ? from Bermuda to China. Mr. Carmilani had himself climbed the AIG ranks, and was president of AIG?s merger & acquisitions insurance unit when he was recruited to AWAC.

It is not clear when or if AWAC will take its final stance of independence ? an initial public offering that would give investors the opportunity to sell part or all of their stakes to public investors, most likely for a healthy profit.

The IPO route is one already followed by all of the major reinsurance and insurance companies in the so-called ?Class of 2001? save for AWAC.

Mr. Carmilani conceded AWAC is last to shed being a privately-held company, and he doesn?t rule out going public. But he would not be drawn on when it could happen: ?It is always a possibility...?

Investors are not the only ones who could do well out of an IPO.

AWAC, through the end of 2004, had about 2.4 milllion warrants outstanding as part of its employee benefit plan.

Through May, 2007, employees granted warrants have the right to require the company to purchase or reduce at book value any warrants held, if the company has not yet gone public.

But based on the below $2,000 costs recorded in this area, it appears most employees are holding out to redeem the warrants for shares in the event of a public offering.

Generally staff in a private company that lists on a major exchange are able to make a healthy return by being able to trade warrants for shares in the company.

While AWAC is asserting its independence, it will, at least figuratively, remain in the shadow of its largest shareholder ? AIG.

AWAC is set to move next year to new headquarters currently under construction. Their new address? The Richmond Road address that has been AIG?s Bermuda office for 50 years, and counting.

Some might see the move as AWAC actually emerging from AIG?s shadow, and having attained the stature to stand side by side.

In total AWAC has grown to 240 staff ? 150 of whom are based on the Island.

?I think makes us one of the bigger Bermuda companies,? Mr. Carmilani said. Of those, roughly 60 percent of staff are Bermudian.

While the bulk of the company?s Bermudian staff are based here, some work in units overseas. An example of that is Bermudian Peter Aeschliman, a property underwriter in AWAC?s San Francisco office.

In 2005, there were 35 promotions in the Bermuda office ? 32 went to Bermudians.

?We like to send young staff overseas to gain experience: It is good for them and good for the company.?

The overseas opportunities have developed as AWAC shed its original game plan of having all operations based on the Island, and to depend on contracts with overseas agencies, instead of setting up its own US and European operations.

?As we grew, we felt we would be better served to do it ourselves,? Mr. Carmilani said.

Outside of Bermuda, its units are, on the US side, Allied World Assurance (US) Inc., and in the European market, Allied World Assurance Holdings (Ireland), Ltd. Allied World Assurance Company (Reinsurance) Ltd. and Allied World Assurance Company (Europe), Limited.

While AWAC has gone from a handful of staff to 240 in four years, the pace should now slow, according to Mr. Carmilani.

Many in the sector are ramping up staff at the minute because of a general expectation that premium prices are going to go up in 2006, largely because hurricanes Katrina, Rita and Wilma could wipe as much as $75 billion from insurers? balance sheets.

?I think we?ve got the right balance of professional staff to be able to handle it. We won?t be adding huge volumes of people but we may add incremental staff,? Mr. Carmilani said.

The company also isn?t planning to change the course it set at the beginning, with a primary focus on insurance. Mr. Carmilani characterises AWAC, in the simplest of terms, as ?an insurance company with a reinsurance department?.

And he expects AWAC?s steady course to result in steady business.

While he said the company could sell more policies in 2006, he thinks that will have more to do with hard work than hard market conditions, and it will be contained.

?We expect to write more business, but we don?t expect 50 percent growth...more like ten percent growth.?

He also hopes the staff base the company has built up won?t see much change.

The demand for reinsurance and insurance staff has spiked since the formation of a 12 new reinsurers in the last six weeks, setting up in Bermuda to take advantage of the expected rise in rates. Some of AWAC?s peers have lost staff to some of the new companies, as a result.

Mr. Carmilani said he?s aware there is pressure for staff: ?That?s part of life. I have heard of some departures from the other companies but I don?t know of any at AWAC.

?If there is a career opportunity that makes sense, you can?t stop someone,? he said.