Bermuda's insurance and reinsurance industry is likely to come through the sub-prime mortgage crisis with minor damage — until shareholders' claims against erring corporate management start to roll in.

That is the view of Mario Torsiello, chief executive officer of New York company Torsiello Capital Advisors and a director of Bermuda-based Max Capital, who said yesterday that in terms of their investments the Island's insurers had come off relatively lightly in the crisis, which has seen banks lose billions of dollars.

But the sting in the tail for the industry will come in claims on directors and officers (D&O) and errors and omissions (E&O) insurance that could take years to unfold. "Within financial services, it's fair to say that the banks have taken the brunt of it, while the insurance industry has not been holder of many of these assets," said Mr. Torsiello, whose work includes providing strategic advice to insurance and reinsurance company management.

"On the other hand, litigation is already starting to happen and more is forthcoming. It would not surprise me if we saw a big rise in claims on D&O (directors and officers) and E&O (errors and omissions) insurance. Some Bermuda companies will be exposed to that."

Last week Bear Stearns insurance analyst David Small estimated sub-prime related insurance claims could reach $9 billion and others have estimated double that, but Mr. Torsiello said the numbers were all speculation at this stage. "Stock values have declined — in some cases by 80 or 90 percent — and when you see a lot of shareholder value lost, you'll see litigation," he added.

The Bermuda companies that have been hardest hit so far by the sub-prime debacle are the bond insurers, companies like Security Capital Assurance (SCA) and Ram Holdings, which provide insurance against debt default on securities linked to risky mortgages, as well as municipal and corporate bonds.

Bond insurers are reliant on top ratings from the credit rating agencies such as Fitch and Standard & Poor's, to be able to attract new business. Last week Fitch downgraded SCA from AAA to A.

"I think the bond insurance industry will survive," Mr. Torsiello said. "Some companies will survive as AAA, some as AA and some as A. If you look at the industry historically, there have always been bond insurers operating at single and double A, so I don't think the industry's going away, but it's going to go through a transformation."

Meanwhile, the Island's insurers and reinsurers are looking to put the capital they have accumulated over the past two years to good use as they grapple with the challenges of falling rates.

"2006 and 2007 were good years for the industry as they were pretty much free of major catastrophes," Mr. Torsiello said.

"There is a lot of capital in the industry. People are talking about upwards of 10 percent softening of prices across all lines."

Companies are looking to diversify, he added, or considering growth through consolidation, and some are aiming to establish a presence in Europe. For example Validus and Ariel last year acquired Lloyd's of London-based Talbot Holdings and Atrium Underwriting respectively.

Before forming Torsiello Capital, Mr. Torsiello was a managing director and head of the North America Insurance Practice of Dresdner Kleinwort Wasserstein, an international investment-banking firm with offices in 34 countries.