Reinsurance companies may raise their rates by up to 300 percent in order to keep financially healthy, according to the boss of one of the new firms currently opening-up on the Island.

Allied World Assurance Company Ltd. (AWAC) chief executive Michael Morrison, whose new company brings the total of new insurance capital on the Island to over $6 billion, said a combination of decreasing rates and the September 11 terrorist attacks could force firms' hands.

His warning comes as a seventh new reinsurance company announced it had chosen Bermuda to set up on.

AWAC, which joins a handful of other firms in setting-up here in order to take advantage of New Year renewals, will write worldwide commercial property and casualty insurance and reinsurance and may expand into speciality lines in the future.

Mr. Morrison said he expected an increase in rates: "A lot of companies have been badly hurt (by September 11) and the rates have been going down for so long that it has weakened many companies. Companies are going to have to raise rates, and dramatically.

"I don't think 100, 200 or even 300 percent would be out of the picture on certain lines of business, and I'm sure we will explore that as we go."

A shortage of reinsurance capacity - exacerbated by the September 11 terrorist attacks - has spawned the industry boom.

During this month, six new insurance and reinsurance companies with combined capitalisation exceeding $6 billion have arrived - and the latest is (AWAC), bringing capital of $1.5 billion.

In an interview with The Royal Gazette, Mr. Morrison explained how the changing market spawned the new company, which opens its doors on Monday in an effort to capitalise on January renewals and opportunities created in the wake of the attacks on the US

Mr. Morrison said: "Mr. Greenberg, the chairman of AIG, saw immediately that there was going to be a shortage of capacity. I think some companies got hurt fatally and some maybe not fatally but at least wounded and will not be writing as much business as they had in the past.

"September 11 of course dramatically exacerbated the problems of the insurance industry, and those problems all came to roost virtually on that one day. It is a most unfortunate thing, but at the same time, for our business it created an opportunity.

"So Mr. Greenberg, forseeing that there would be a great shortage of capacity, led a move to put together an insurance and reinsurance facility and he invited Chubb and Goldman Sachs - many others have joined after the initial group."

He said that AWAC is an independent company, with AIG, Chubb and Goldman Sachs as investors.

He said: "Both Mr. Greenberg and Mr O'Hare (chairman and CEO of Chubb) are on the board, but we have to make our own way in the world."

Mr. Morrison said that he did not feel AWAC would compete with the companies that had invested in the new venture, who also have offices on the Island, but said: "Hopefully we will be able to write alongside them when the opportunity arises and alongside many other insurance companies. We will be a participant on many risks."

Mr. Morrison said Bermuda was chosen as a base for the company because of the Island's reputation as a centre of excellence for international business.

"I guess it's because of the name Bermuda has made for itself in the insurance and financial industry. There are many insurance companies and it seemed to be the place to be. A lot of brokers are used to directing their traffic to Bermuda and we will be able to hopefully be on the receiving end of some of that traffic." Ratings agencies cannot rate a company until it has produced a set of financial statements, but Mr. Morrison said they would try to get a rating as soon as they could but said the company's strong backing was attractive to potential clients when writing guarantees.

He said he hopes to establish links with the local business community as soon as possible. His first visit to the Island was only two weeks ago.

AWAC is currently operating out of a temporary space at the AIG building on Richmond Road, but a more permanent space has been leased and the company expects to move in shortly. Several senior underwriters from the US have already signed on.

"We think there is a great opportunity for this company. It has solid investors, it is well capitalised and we have a couple of good underwriting managers."

Mr. Morrison said they will hire as the company grows and added: "We will hire locally if we can. "It is very difficult to guess how many employees, and it would be a guess at this point. I think we have to see the degree to which we can fill the need, and we will staff as needed."

Mr. Morrison has a long and distinguished insurance career having started in London in 1953. He started as a broker, moved to underwriting and in 1959 went to work with a small New York broker for three and a half years before joining the forerunner of AIG in 1964.

He set up the domestic, (US and Canadian) branch structure for AIG and became president of Commerce Industry Insurance company, an AIG company that wrote property casualty.

Mr. Morrison then became president of American Home Assurance Co. which was the principal domestic property casualty underwriter for AIG.

After 30 years in the domestic market, Mr. Greenberg asked Mr. Morrison to go to Shanghai in China for three years from 1994 to 1997.

He then moved back to his native England where he did some special assignments for Mr. Greenberg in London, and his latest assignment brings him to Bermuda to head up one of the Island's most highly capitalised new insurance and reinsurance ventures.

Mr. Morrison said AWAC is a long term venture that looks forward to calling Bermuda home.

Investors in the new venture include $291 million from American International Group (AIG) and $250 million each from the Chubb Corporation and GS Capital Partners 2000, L.P. (GSCP), an investment fund managed by Goldman Sachs & Co., as well as other private and smaller stakeholders.