first time, with XL Capital head to head with ACE in an attempt to acquire Capital Re.

XL has put in a hostile cash bid believed to be worth $456 million which has blocked, if not scuppered, a stock bid worth $606 million by ACE to buy Capital Re.

A decision on whether to accept ACE's bid was to be made yesterday at a shareholder meeting, but the meeting was postponed after the unsolicited bid was received.

The shareholders of the struggling reinsurance company will now have to set another date to consider XL's offer which would lead to the merger of the two companies.

It is now believed that if XL's bid is accepted by Capital Re, ACE would come in with a higher offer, sparking a bidding war between the rival insurance companies. Capital Re, a specialist bond reinsurer, saw its stock climb yesterday after XL made the all-cash offer to buy Capital Re for $12.50 a share.

On June 14, ACE said it would buy Capital Re for $606 million in stock. The stock deal that ACE offered was valued at $22 per share in June.

A day later, ACE, through its subsidiary, ACE Bermuda Insurance Ltd. bought $75 million worth of Capital Re stock. It now owns 10 percent of the company.

Capital Re also said Ace had also put an additional $95 million toward ACE Capital Re Ltd., a joint venture launched by the two insurers. Capital Re's shares shot up from $11 a share to $12.38 -- a climb of $1.38 straight after the bid was made public. The 52-week high for the stock is $25.38.

A Capital Re spokeswoman said yesterday no new date had been set for the vote, and said that the bid was for 100 percent of the shares, but would put no figure on the amount of cash being offered.

Based on the fact that there are 66.5 million outstanding shares and the offer is for $12.50 a share, the bid would be valued at $456.25 million.

A spokeswoman for ACE said the company was still interested in buying Capital Re, but could not say whether it would raise its bid.

She told the Gazette : "ACE believes that the combination of ACE and Capital Re is the better option in the long term. The two companies already have a joint venture together.

"There is a considerable up-side to the venture -- least of all that it is tax free. In the long term it would be an excellent deal.'' The fall in the price of Capital Re's shares was sparked in May after its reinsurance with International Financial Services Life Insurance Co.

At the time Capital Re said this insurer was "under orders of rehabilitation'' from US regulators after an apparent looting of its funds which was under criminal investigation.

Just before this was revealed, ACE signed a binding letter of intent with Capital Re late in May in which ACE offered 0.6 ACE shares for each Capital Re share.

The letter also said ACE would not pay more than $22 a share.

At that time, the deal was worth $18.90 per Capital Re share, a 1.8 percent discount on the value of the company at the time.

But the decline in ACE's share price since then has cut the value of its offer.

It was worth $10.575 per Capital Re share at Wednesday's close.

Yesterday ACE shares fell 50 cents to $16.56 on the New York Stock Exchange, while XL shares added $1.56 to $48.31.

ACE's offer now values the whole of Capital Re around $340 million -- well down from the $606 million value placed on the deal in May.

XL's cash offer contains no stock-related component. An XL spokesman declined to comment on the offer.