While the insurance industry remains an unattractive bet for investors, the head of one of Bermuda's top companies in the sector believes the current wave of consolidations will position survivors for the future.

Brian O'Hara, president and chief executive officer of XL Capital Ltd., said he believes companies are positioning themselves to taken advantage of the next upswing in the market.

Speaking at an International Insurance Society, Inc. convergence in Berlin, Germany earlier this month, Mr. O'Hara said it's not hard to understand investors' negative outlook on the industry.

"Current industry fundamentals are not pretty,'' he said.

"Sluggish and, in some cases, negative premium growth, ferocious price competition, a glut of capital, underwriting losses in North America and Europe, lower investment returns and the strong likelihood that the short-term future will bring more of the same, are all combining to make the non-life insurance sector in general an unattractive bet for most investors.'' Combined US property and casualty insurers' consolidated net income fell by about 16 percent last year to $30.9 billion, while underwriting loss was six percent of earned premiums of $276.8 billion compared to 2.1 percent of $271.5 billion in 1997.

Meanwhile in the US consolidated surplus grew 8.1 percent to reach $333.5 billion.

He believes that in the absence of organic growth in the business, the pace of consolidation in the industry is unlikely to slow. The consolidation trend also applies to the re-insurance industry.

The number of reinsurers in the US market has fallen to 38 companies from 100 in over ten years. Worldwide, the 10 largest re-insurers are believed to control 60 percent of the market.

Gaining market share, expanding distribution channels and developing economies of scale, especially in technological developments, were important components of many of these deals, he said.

"Consolidation alone is unlikely to solve the problem of overcapacity,'' he said. "Only when one company buys another for cash and for more than book value does capital actually leave the industry and return to shareholders.

"However, consolidation will help property and casualty insurance companies to weather some of the storms caused by overcapacity.'' He believes that consolidation will give companies the kind of scale they need to compete through offering a variety of products instead of relying on typical insurance offerings.

Companies will also gain a range of distribution systems and access to technology. He also expects to see the $26 trillion capital market showing a renewed interest in the industry through taking on risks by buying catastrophe bonds.

Although the outlook for the property and casualty industry is negative, Mr.

O'Hara said investors can still find value companies.

"These much-prized nuggets will include value-oriented companies that have clearly focused strategies, solid, unencumbered balance sheets and strong distribution networks,'' he said.

He recited his oft-quoted phrase that the companies that perform well will be the ones that own what he labels the "convergence zone''' between financial services and insurance.

"These solutions will address the emerging paradigm of structured enterprise risk -- a management process which evaluates the whole spectrum of risks facing an organisation and how best to structure and manage those risks to obtain the most efficient use of capital,'' he said.

"This new view of risk encompasses not just traditional property and casualty fortuitous risks, but also day-to-day operational risks associated with he business environment in which the enterprise operates.'' He said that even with the dismal forecast for the industry a case can be made that now is a better time to commit capital to the US property and casualty industry than a year ago when stocks were at an all time high.

"Currently, reported results and Wall Street expectations are far closer to economic reality with a number of property and casualty stocks trading at below book value compared to just a year ago,'' he said.

Brian O'Hara