Bermuda's new wave of insurers are set to get a bit of competition from a new Luxembourg-based insurance venture.

The company has been formed by six leading European insurers and reinsurers who last week agreed to form a new insurance venture to provide cover against terrorism.

The decision, which follows similar moves by AIG in the US and several Bermuda-based start-up ventures, is aimed at capitalising on a growing demand for terror cover in the wake of the September 11 attacks.

Cover against the risk of terrorist attacks on large office buildings has been in short supply since the destruction of the World Trade Center. Insurers and reinsurers, which suffered billions in losses as a result of the attacks, moved quickly to limit their exposure to such claims, driving up premiums.

The new insurance venture, which is supported by Zurich Financial Services, Allianz, Hannover Re, Swiss Re, XL Capital, and Scor, will offer limited coverage for physical loss. Business interruption losses, a large part of the September 11 bill, will not be covered.

Last night, Allianz said the maximum loss per event would be limited to $241.5 million within a 600-metre radius of the covered property.

The venture, to be known as Special Risk and Reinsurance Luxembourg, will have committed capital of 500 million at its disposal, allowing it to underwrite risks of up to 5 billion.

The move comes as Allianz and other insurers continue to press the German government to act as an insurer of last resort in cases of acts of terrorism.

Henning Schulte-Noelle, Allianz chairman, has been a keen advocate of the British Pool Re system which was set up in response to devastating bomb attacks by the IRA.

Allianz, which has been criticised by other insurers for undermining the industry's claims for state backing, insisted the new venture would complement state-sponsored efforts and was "not meant to replace them".

Analysts said pool systems tended to provide "plain vanilla" blanket cover on a mutual basis. The Luxembourg vehicle would cover specific building risks.

Bob Yates of Fox-Pitt, Kelton said the move into "an extreme catastrophe market" was a gamble but the odds looked favourable, according to the Financial Times.

He told the British newspaper premium rates were likely to fall quickly if there were no further terrorist attacks over the near term.

French reinsurer Scor is taking a 9.1 percent stake in the new venture. The other five partners will 18.2 percent each. The company plans to start underwriting business in the second quarter of this year.