For most 72 year olds, current projects might involve a bit of gardening, a spot of baby sitting and perhaps a world cruise. For Michael Morrison, president and CEO of Allied World Assurance Holdings Ltd, however, retirement will have to wait. He has his hands full running a new billion dollar insurance company. Having worked for nearly 40 years at American International Group, Inc. (AIG), the largest commercial insurer in the world, Mr. Morrison had been retired for four years when the events of September 11 created a worldwide shortage of insurance capacity.

“If you're going to be in the insurance business, now's the time to be in it.” says Mr. Morrison, explaining why he took up the offer from AIG chairman and CEO, Maurice (Hank) Greenberg, to come out of retirement and start up a new AIG subsidiary in Bermuda.

Asked how he broke it to his wife that retirement plans would have to wait, Mr Morrison laughs and says that no apology is necessary about a move to Bermuda.

The last time that Mike Morrison lived in Bermuda was 1935. His father was in the regular British Navy and they lived in a house in Mangrove Bay, Somerset. He says he recently went back and found the house. “Everything seemed much smaller than I recalled.” Despite spending most of his time in Bermuda these days, he hasn't had much time for sightseeing or the local social scene. Asked whether he is involved in any local charities he says “I'm involved in getting this company going. It's a full time job right now.”

This is the second time that Mike Morrison has delayed his retirement. The first time he put it off was back in 1994 - he took up an offer to go to Shanghai for AIG instead.

“We were supposed to go for a year - we stayed for three.” From his office on the Bund, the old centre of colonial commerce in Shanghai, Mr Morrison could see the burgeoning skyline of Pudong, “Like Manhattan”. A visible symbol of the new China market. At that time, most people would have said that the big insurance story of the next decade would be China... Few could have anticipated the hard market that was just around the corner.

At the moment we are on the up,” says Mr. Morrison. “I think it's going to last through 2003, through 2004 and may be right into 2005.”

He has several reasons for this analysis; under-pricing during the last soft market combined with poor investment results means that many insurers will fall into the deep hole that they have dug for themselves. Their loss will be others' gain, as stronger companies scramble to take up the slack.

With 50 years in the industry behind him, Mr. Morrison has a useful perspective which comes of having experienced several insurance cycles.

Recently, the industry has seen hedge fund-affiliated insurance companies take a battering. Echoing the sentiments of industry leaders such as ACE chief executive Brian Duperreault, Mr. Morrison says that it's time for insurers to attend to their core business of underwriting - they can no longer rely on investment results to cover up underwriting losses.

For those who failed to make sufficient provision and are still licking their wounds from big claims this year and last, Mr. Morrison warns: “Not all the bad news is out yet.”

For example, he suspects that the directors and officers segment is a likely source of further claims: “I can't believe that the only bad guys were all identified in the same month.”

Without naming names, Mr. Morrison implies that several reinsurers have insufficient reserves. “You've got downgrades, some companies are not even aware of how bad their results are. Some are probably bust and don't know it.” If those insurers take a big hit, the ultimate result will be more capacity for the likes of AWAC to fill.

AWAC began business in Bermuda on November 13, 2001. They had raised around US$1.5 billion in equity capital from investments led by AIG, Chubb Corporation and GS Capital Partners 2000, L.P., an investment fund managed by Goldman Sachs & Co. This pedigree helped to earn AWAC an A.M. Best rating of A+ superior.

On the ground in Bermuda, there were only three of them: Mike Morrison, Jordan Gantz, head of casualty, and John Murphy, head of property.

“At the beginning it was quite challenging,” says Mr. Morrison, recalling the early days when they had hardly any contacts at the brokerage firms. At that time he did not know how the new firm would be received.

But he was careful not to rush into new hires: “If you want to know what was needed to get this business started, the answer to my mind is the right people. I've been involved in every hire.”

Right from the start, Mr. Morrison had a clear idea about where the company was going. He took three floors at the Commercial Bank of Bermuda in anticipation of the growth. A diagram shows the company structure of AWAC, highlighted boxes indicate the staff positions that have been filled. Half a dozen remain open.

Initially a pure property and casualty specialist, AWAC has now started to write policies in the professional liability segment. There is still a space on the chart for further expansion into other segments. Mr. Morrison won't reveal which area AWAC will go into next. “I have my tentacles out...” he says, adding: “We will not write anything until we have the expertise to do it.” That is something, he says, which distinguishes them from certain other companies.

Two other distinguishing factors are that AWAC are a primary insurer, not a reinsurer and they don't reinsure much of their own book. Secondly AWAC writes low down, so if there is a loss event, they will have to pay the first portion of the insurance claim.

Mr. Morrison explains that most other Bermudian insurers like ACE and XL only have to step up to the plate if losses exceed a much higher level. Putting it another way, it's a bit like having a low deductible. “We are closer to the claims,” says Mr. Morrison, “but this allows us to charge higher premiums.”

Because they were doing something a little different, the reception from brokers turned out to be warm: AWAC gave them a new area to work in.

Now approaching its first year anniversary, AWAC has come a long way in a year. “Time flies” says Mr. Morrison.

He now has about 60 staff in Bermuda of which approximately two-thirds are Bermudians or spouses of Bermudians. They have a marketing office in London and have just announced a new European head office in Dublin.

As for whether an IPO is in the pipeline, Mr. Morrison says that it is some way down the road, adding: “I've always been a believer that you have to build something before you sell it.” The original investors are clearly in no hurry to be repaid.