ERROR RG P4 24.3.1998 Due to an editing error, the caption for a photo of Exel Ltd.'s Big Ben jigsaw puzzle stated it was the largest jigsaw in the world. It is not. The world's largest jigsaw measured 11,302.2 sq. ft. and had only 2,250 pieces. Exel's Big Ben fits quite nicely on a table in the company's board room.

Over the past year Bermuda-based Exel Ltd.'s management has been putting the pieces of a puzzle together, trying to figure out how to grow the company in a competitive market.

The overall picture of what Exel will look like a few years hence fell into place with the announcement last week the company had reached agreement to buy the remaining 75 percent of Bermuda-based Mid Ocean Ltd. for $2.2 billion in stock.

A reinsurer's size and ability to write bigger chunks of business was becoming an increasingly important factor in the marketplace.

The decision was one of the outcomes of a year-long review the company underwent when faced with declining premium volume, a huge capacity, and increased competition from the bigger players.

More acquisitions in the US are planned, as are an increased presence in Europe, and Latin America.

The company's gross premiums written after multi-year adjustments suffered a 37-percent decline to $441.3 million during the two years ended fiscal 1997, according to the company's annual report recently released to shareholders.

During that time the company's general liablity business shrunk to making up half of its annualised premiums from making up 61 percent at fiscal 1995. The company was moving into taking on more reinsurance business. annualised premium grew by 134 percent to $144.3 million during the two years.

"The strategic review identified the challenges facing our industry today, recognised the need to reorganise the structure of our core businesses and identified new areas of opportunity for the company,'' Exel president and chief executive officer Brian O'Hara stated in the report. ".. .The company has been building its capabilites beyond simple risk transfer resulting from fortuitous loss from physical damage or third party liability.'' Management was taking Exel through a transition in 1997, the 11th year since the company began as an insurer offering general, and directors and officers liability.

From its beginnings in 1986 the company moved into writing errors and ommissions, property, multi-line reinsurance, marine, employment practices liability, financial products and political risk insurance, attempting to develop lines of business which differentiated it from competitiors. That development is continuing.

"We recently formed dedicated customer business units (CBUs), to concentrate a mix of skills and sophistication on reducing customers' extraneous risk, allowing them to focus on their principal business goals,'' he stated. "The CBUs offer our core customers a broad range of insurance and financil products to provide solutions to their risk management needs.'' The company's XL Risk Solutions unit, started two years ago, is a key component of the strategy. The unit was formed to provide multi-disciplinary, multi-year programmes combining a mix of catastrophe and finanical protection.

For example businesses can purchase foreign currency protection to reduce fluctuations in their non-core financial risks. The product is provided in combination with affiliate Pareto Partners.

Exel has also put together a team to further develop the company's financial risk management products.

"The convergence between the insurance, banking and investment industries is a critical part of the puzzle of building shareholder value at Exel,'' Mr.

O'Hara continued. "Our Pareto Partners affiliation allows us to extend a leading proprietary currency and investment expertise to our customers which can be blended into a comprehensive multi-line risk solution programme.'' The company's access to distributing its products is another important piece of the puzzle Mr. O'Hara and his management team have been building. The company increased its involvement with Lloyd's managing agency Venton Underwriting Agencies, in which it has a 20 percent stake.

After the merger announcement Mr. O'Hara said last week Exel would boost its involvement at Lloyd's through Mid Ocean's managing agency The Brockbank Group as a means of boosting growth internationally.

Other acquisitions and stake holdings round out Exel's growing global reach in the insurance and insurance markets. This includes a majority share holding in Latin American Reinsurance Co. Ltd. The company will target the Latin American market where it sees opportunities due to significant economic growth in the region and a lack of competition in specialised reinsurance.

In North America the company was going to pursue "middle market business'' through Folksamerica General Insurance Co., which it is in the process of buying.

"This acquisition provides an unencumbered platform to develop and grow a presence in the middle or commercial markets which have not traditionally conducted business in Bermuda,'' he stated in the annual report. "...This platform also broadens our ability to make business acquisitions that are more suitably run in the United States while preserving our advantage of leveraging the cash flow from these businesses from our Bermuda base.'' The hiring of chief financial officer Robert Lusardi, who has experience in mergers and acquisitions and in financial products, is an indication of more to come after the merger with Mid Ocean. The merged companies would seek to grow business by making more acquisitions.

"We are considering a number of opportunities,'' Mr. O'Hara said about future acquisitions during an interview with The Royal Gazette.

The merger will create a powerhouse with $8 billion in market capital and $9.1 billion in assets making it one of the 20 largest US-listed property-casualty insurance companies.

The merger is the biggest chunk of the puzzle the company is assembling as a solution to remain competitive and in business.

As an exercise and theme for its annual report the company assembled a three-dimensional jigsaw puzzle in the shape of London's Big Ben clock tower.

The company's shareholders are counting on Mr. O'Hara and his management team to ensure the puzzle they have created will stack up in the face of the much larger powerhouses who have become more voracious as the smaller players eat into their business.

"With size being increasingly important, scale is necessary to compete,'' Mr.

O'Hara said last week. "Consolidation is going on at an ever increasing rate.

There won't be any room at the table for small or medium sized companies.'' Exel's Big Ben is the world's largest jigsaw