Bermuda's insurance industry is poised to take advantage of business opportunities which have appeared in the wake of the September 11 attacks on the United States.

With premiums soaring and a certain insurance no longer available, there has already been an increase in interest in captives according to leaders in the field and there is expected to be a boom in this sector as companies fail to find suitable cover for their businesses.

On Friday it was announced that a new insurance company had been set up on the Island by Marsh & McLennan Cos Inc, the world's largest insurance broker, with a view to capitalise on higher insurance prices and industry cutbacks in coverage since the September 11 attacks.

The new insurer, to be called Axis Specialty Ltd, will have capital of $1 billion and will provide insurance and reinsurance coverage for risk property, aviation, war and political risks and begin underwriting in the fourth quarter of this year, according to an announcement made by Marsh & McLennan.

Insurance premiums have shot up while the availability of coverage has dropped significantly as the attacks on the World Trade Center and Pentagon leaving the insurance industry reeling, said Charles Davis, chief executive of MMC Capital, a private equity firm within Marsh & McLennan that is setting up the new firm.

The attacks are expected to cost insurers between $30 and $60 billion and it is considered to be the most expensive disaster ever for the industry.

Industry cutbacks and higher prices present an opportunity for the new firm to reap an attractive return on its coverage, said Mr. Davis.

But he said the company is also concerned about the risks of providing war and political risk-related coverage at a time when the threat of more attacks still looms.

"The risk in some of these areas is exponentially different and greater than it was three weeks (ago), so either the limits, the coverage, the terms and/or the price will have to take that into account," said Mr. Davis in an interview.

"And I don't think we're going to go in there write business aggressively that could be undermined by additional terrorist attacks."

Capacity shortages in the industry have prompted Marsh & McLennan to form new firms several times in the past.

The firm set up ACE Ltd in 1985 and XL Capital Ltd the year after to provide excess directors' and officers' liability coverages at a time when huge awards in lawsuits against corporate officials scared other insurers.

In 1992, it formed Mid Ocean Ltd to provide property catastrophe reinsurance in the aftermath of Hurricane Andrew that cost the insurance industry $20 billion.

"It's very typical of Marsh & McLennan," said Bear Sterns analyst Michael Smith.

"It's been very positive for them in the past and there's no reason it won't be now."

The new firm will be headed by industry veteran John Charman, the former president of ACE International who quit from his London post after internal wrangles and is believed to have been paid millions in severance pay.

He will now assume the position of chief executive at Axis.

Former Mid Ocean Ltd. Chairman Robert Newhouse Jr, will be the chairman.

Trident II LP, the largest fund managed by MMC Capital, will be the lead investor and provide $200 million, company spokeswoman Teryce James said.

The firm will try to raise the remaining amount through a private offering of equity, she said.