Exel, hope to exploit the chance for profit by becoming a Annuity & Life shareholders, writes Ahmed ElAmin Backed by key investors Bermuda-based startup Annuity & Life Re Holdings Ltd.

is hoping to initially target what it sees as lucrative opportunities in the US market.

"By focusing on annuity and life reinsurance, the company will seek to participate in what it believes to be a market with significant growth potential,'' the company's prospectus states. ".. .Management believes that annuity reinsurance presents an attractive opportunity because of the large potential size of the market coupled with the limited number of companies currently providing such reinsurance on a third-party basis.'' The company cites studies which state that new life reinsurance business production grew at a compounded annual rate of about 28 percent from 1993 to 1996.

Other studies show that at year end 1996 US annuity assets under management totalled about $919 billion, and about $17.6 trillion of life insurance was in force.

Annuities are a form of insurance policy guaranteeing a fixed or variable payment to a holder over time.

The principals state that the demand for annuity and life reinsurance is growing due to the trends such as the increasing risk-based capital and reserve requirements set by regulatory bodies and rating agencies, consolidation in the industry, the divesting of large blocks of business to reinsurance, and the trend toward demutualisation by mutual life insurers.

"Management believes that through controls on overhead costs and the absence of a corporate level tax in Bermuda on the company's revenues and earnings, the company will be able to capitalise on these trends by having one of the lowest cost structures in the annuity and life reinsurance industry,'' the prospectus states.

The company expects to have an equity capitalisation of about $293 million assuming that the initial public offering of 16,750,000 shares at $15 a share.

Along with direct sales to key investors the company will have about 21 million common shares outstanding, plus two classes of warrants.

Rating agency A.M. Best has assigned the company's wholly-owned subsidiary Annuity Reassurance a preliminary rating of "A-'' (Excellent). Duff & Phelps Credit Rating Co. has assigned the company a preliminary claims paying ability of "A''.

At that minimum $15 price, The Prudential Insurance Co. of America, Bermuda-based Exel Ltd. and Risk Capital Reinsurance Co. have agreed to purchase a aggregate of 3,865,249 common shares and warrants to purchase another 272,500.

Exel and Risk Capital with 1.4 million shares each will be the company's two largest shareholders, according to the prospectus. Exel holds a 28 percent stake in Risk Capital.

The company's directors and officers will also receive the right to purchase up to 463,639 common shares.

Annuity states that it will begin business with ten employees. Marsh & McLennan Management Services (Bermuda) Ltd. will provide claims processing and administrative services. The company intends to keep costs down by focusing on large blocks of business, rather than on going after a larger number of policies. Annuity will also limit the maximum aggregate risk on any one life to $1 million and require the purchaser to retain at least ten percent of the risk.

President and chief executive officer Lawrence Doyle, chief underwriter Robert Reale, chief financial officer William Atkin and chief actuary Robert Mills will be the four main senior managers of the company.

Mr. Doyle founded catastrophe-risk reinsurer GCR Holdings Ltd. in 1993. The company was bought by Exel Ltd. last year. According to the prospectus Mr.

Doyle will receive an annual salary of $240,000 which will increase to $350,000 a year, plus monthly housing and travel allowance of $8,333.

He will also be eligible for 60 percent of any performance bonuses up to a maximum of $2 million a year. He will receive options to buy 632,367 common shares at the end of the public offering. The exercise price will be equal to the initial offering price per share.

Mr. Reale was previously a consultant at Tillinghast-Towers Perrin. Before that position he was vice president of Swiss Re Life & Health. While at Swiss Re Life & Health Mr. Reale was responsible for overall pricing in the US life and annuity reinsurance market.

Mr. Atkin was previously the chief financial officer of Security Mutual Life Insurance Co. of New York.

Mr. Mills previously served as actuary for Allmerica Financial, a life insurance provider.

The chairman of the board is Frederick Hammer, vice chairman of Inter-Atlantic Capital Partners, Inc. He was previously chairman and chief executive officer of Mutual of America Capital Management Corp. until 1994.

The company also notes its fortunes would be harmed if the current US budget proposals by the Clinton administration are enacted.

"These provisions include a tax on exchanges between certain types of annuity and life insurance products, including exchanges among investment options within a variable annuity, and increased taxes on the owners of certain corporate-owned life insurance polices,'' the prospectus states. "If these proposed tax changes were enacted into law, they would adversely affect the company.'' The company plans on listing on the Nasdaq stock exchange.

Exel spokesman Gavin Arton said the company made the investment because it recognised the opportunity for profit and because it knew the management.

"We recognise the opportunity for Exel to take advantage of the unique opportunities that Annuity Re has to bring large sums of long term money offshore for higher returns.'' ANNUITY FACTFILE President, CEO: Lawrence Doyle Initial number of employees: 10 Listing on Nasdaq stock exchange Likely equity capitalisation:$293m IPO of 16,750,000 shares Max. agg. risk limit on a life: $1m Gavin Arton