American International Group is in the process of forming two new Bermuda-based insurance subsidiaries which the company expects to have operational by the end of July.

One of the new firms will be a catastrophe reinsurer and the other an excess casualty business.

AIG chairman Mr. Maurice Greenberg confirmed the two company formations at AIG's annual general meeting earlier this week in New York. Mr. Greenberg said that AIG would have a 25 percent stake in the new catastrophe reinsurer, with the remaining 75 percent being placed with private investors.

The new company would be initially privately owned but Mr. Greenberg speculated that it might be spun off to the public in an initial public offering.

He said AIG was creating the catastrophe reinsurer not only to underwrite its own catastrophe reinsurance, but also to create a new vehicle to respond to urgent market needs.

Although AIG has not confirmed that both new companies will be based in Bermuda, it is widely expected in the industry that the Island has been chosen as their domicile.

AIG is one of Bermuda's oldest international companies. Although it no longer has its corporate headquarters in Bermuda, the company maintains more assets here than any other company and contributes enormously to the local economy in terms of employment and foreign currency earnings.

The new company formations will add to Bermuda's growing worldwide reputation as a leading centre for insurance and reinsurance, rivalled perhaps only by New York and London.

Only six months ago, the Island benefitted from the setting up of property catastrophe reinsurer Mid Ocean Reinsurance Company with a capitalisation of more than $350 million to fill a much-needed gap in the market.

It is known that other attempts are currently being made to raise enough capital to fill similar shortfalls in the insurance market which have been caused by a contraction in the worldwide marketplace, particularly at Lloyd's of London.

There are reports that Johnson & Higgins is also in the process of a major new business development on the Island, although no-one has been able to confirm them.