HARTFORD, Connecticut -- Bermudian insurers, still enjoying a prolonged holiday from major catastrophe losses, are feeling rested and ready to shop for US and European insurers in 1998, analysts say.

"I think Bermudian companies will continue to acquire, but I don't think you'll see a lot of consolidation amongst themselves,'' said Donald Watson, director of global reinsurance ratings at Standard & Poor's, New York.

"The Bermuda companies are all, as a rule, strong organisations,(with) good capital bases, and are well-managed,'' said ACE Ltd chairman, chief executive and president Brian Duperreault.

"As a result, (Bermudian insurers are) great candidates to acquire other companies,'' Duperreault said. "The question really is when, not if.'' ACE has been one of Bermuda's leading acquirers. In early January it completed a $338-million, cash acquisition of Westchester Specialty Group in the United States. The Atlanta-based Westchester has branches in Los Angeles and San Francisco.

Westchester gives ACE a solid foothold in the United States with "excellent'' long-term growth potential, Duperreault said. Bermuda's insurance market has grown rapidly in a short time, and acquisitions are proving a key part of that growth.

The British colony's catastrophe insurance and reinsurance industry was jump-started in 1992 and 1993, when eight strongly-capitalised catastrophe reinsurers were established to meet an unsatisfied demand for such cover.

In 1994, Bermuda replaced London as the world's leading catastrophe reinsurance centre, and the following year Bermudian insurers began to make some big acquisitions.

"Bermudian companies have shown themselves to be prime movers in that area, in various ways, both internally in Bermuda and externally,'' said Mid Ocean Re chief operating officer Henry Keeling.

Mid Ocean Re is part of Bermuda-based Mid Ocean Ltd.

Seeking a London market presence, Bermudian insurers began to invest in Lloyd's managing agencies in 1995. ACE invested in Methuen, and Mid Ocean Ltd invested in Brockbank Group, among other moves.

Keeling said most of the Bermudan insurers who want a London presence are already there.

"I think what you'll see is more of an increase in their existing (Lloyd's) positions, rather than acquiring additional positions,'' Keeling said. ACE has increased its position within its own syndicates, we increased our position within our own syndicates, and I think that sort of process will continue,'' he said. Another major Bermudian acquisition was Partner Re Ltd 's July 1997 purchase of French reinsurer SAFR for about 5.4 billion French francs ($900 million).

Bermudian companies are deemed unlikely to be takeover targets by US and European firms, because of their relatively steep pricing and other factors, analysts said.

Another obstacle is the US Controlled Foreign Corporation Act, which discourages US firms from buying stakes of more than 25 percent in foreign companies.

"It's unlikely that the US companies would buy a Bermuda company, because the Bermudian operations would be incorporated into the tax returns of the parent, so it would lose its tax advantage,'' Duperreault said.

Watson said Bermuda's burgeoning insurance industry is feeling pressured to diversify beyond its heavy focus on property-catastrophe insurance.

That is because the relatively mild weather of the past few years, and increased capacity, has led to falling premium rates and slower topline growth.

As a result, Bermudian insurers are stepping up acquisition activity to capture new markets and product lines. "My expectation is that many of the Bermuda companies will look to acquire additional insurance companies in 1998,'' Watson said. "I expect these operations to be primarily in the US.

"The Bermudian companies, by definition of their location, are limited in their ability to attract business,'' Watson said.

"Companies have to come to them. In order to get a broader market base, they need a US presence,'' he said. "I expect the diversification to be in the form of product line, giving them access to the US marketplace, they can then reinsure the risk back into Bermuda.'' He said the types of companies they will be interested in are those that will not have a large amount of claim activity or hold significant pre-1986 liability exposure. In 1986, policy forms changed to exclude unknown exposures to environmental claims.

Watson said Bermuda's biggest insurance companies in terms of capitalisation, EXEL Ltd, and ACE Ltd, were the ones most likely to make new acquisitions.

He added that mergers between Bermudian property-catastrophe companies would make little sense, as they would not bring product or geographic diversification.

Duperreault agreed that the Bermudian urge to acquire is being driven by a desire to diversify the risks a company takes on.

Asked about the likelihood of ACE making further shopping forays into the United States and Europe this year, Duperreault said, "We're always looking.'' Brian Duperreault