convergence of the insurance and capital markets.

In the wake of the completion of the merger that saw EXEL Ltd. take over Mid Ocean Ltd., EXEL's newly-consolidated reinsurer is in the news again.

X.L. Mid Ocean Reinsurance Company, Ltd. -- the newly merged reinsurance operations of X.L. Global Reinsurance Company, Ltd. and Mid Ocean Reinsurance Company Ltd. -- has successfully placed a $200-million retrocessional property catastrophe cover.

It is believed to be the first open market bid process between reinsurers and the capital markets.

The transaction was offered in two tranches and covered the upper layers of XL Mid Ocean Re's hurricane and earthquake exposure in the United States and its territories and possessions in the Caribbean.

EXEL initiated and managed this innovative process in which three markets -- the traditional reinsurance, the non-traditional reinsurance and risk securitisation via the capital markets -- were approached simultaneously with the goal of obtaining the best financial solution for protecting EXEL's catastrophe exposure.

The risk securitisation structure is unique in that it provides retrocessional cover in financial swap form, with claim recovery triggered by catastrophe losses actually incurred by XL Mid Ocean Re, rather than by a catastrophe index or industry size event.

Robert R. Lusardi, executive vice president and chief financial officer of EXEL, said yesterday of the innovative transaction: "Insurance risk transfer to the capital markets is only in its formative stages and it is unclear in which direction this market will develop, how cost effective it will be as an alternative to the more traditional markets, and how it will interact with those markets.

"EXEL intends to participate fully in all facets of the insurance capital markets as they emerge. It will not only act as an issuer of insurance securities, as in the transaction announced today, but will also continue as a purchaser of risks in bond or swap form, using its underwriting knowledge and skills to act as a manager of the company's and other investors' funds for this asset class as it develops.'' "The formation of XL Mid Ocean Re establishes the company as one of the largest catastrophe writers in the world with core strengths in catastrophe risk modeling and detailed underwriting expertise,'' commented Henry C. V.

Keeling, executive vice president of EXEL and president and chief executive officer of XL Mid Ocean Re. "This transaction will further establish our organization's reputation in this new market, in addition to our more traditional markets.'' Mr. Lusardi continued: "The capital market transaction was structured in swap form instead of a more traditional catastrophe bond due to time constraints surrounding the EXEL Ltd. and Mid Ocean Ltd. merger, which closed on August 7, 1998.

"We are further encouraged that through this process we were offered significantly greater capacity than the $200 million being sought particularly if you consider that our investor universe was limited by the fact that this was a swap rather than a bond offering.

"We accomplished our goals of ceding the upper layers of our catastrophe program in a financially attractive form and in further enhancing EXEL's name in the capital and reinsurance markets.'' Goldman Sachs was lead agent of a group of placement agents, which included Aon Capital Markets, Guy Carpenter Advisors, Lehman Brothers and Merrill Lynch.