The purchase by Marsh & McLennan Cos. (M&M) of rival Johnson & Higgins (J&H) for $1.8 billion, may have a positive effect on the Bermuda insurance industry, a leading local insurer has said.

CEO and president of EXEL Ltd. Brian O'Hara said the latest merger could be viewed with optimism.

Mr. O'Hara said yesterday, "I am optimistic and hopeful that this will be very positive for the local market. They (M&M and J&H) were our two largest brokers and the combination thereof is a pretty powerful force in the large risk market. I believe ACE and EXEL are also powerful forces in the large risk market and the combination will be positive.

"In the brokerage market there is way too much competition. And even the mergers and acquisitions going on among customers in the large risk market continue to shrink the playing field for customers.

"Also, with the improvements in communication technology and computers and the like, there is just less need for the number of players that were in the market a couple of years ago.

"Could this have negative implications? You never know, but I'm an optimist.

I'm hopeful.'' Marsh & McLennan assured the retention of its status as the world's largest insurance broker, when they agreed to pay about $600 million in cash and provide the rest in stock to acquire closely held J&H, the fifth largest insurance broker in the world. The new company, J&H Marsh & McLennan Inc., will operate as a subsidiary of Marsh & McLennan Cos. and be a top competitor in insurance, financial consulting and investment management.

The strategic business combination comes just two months after Aon Corp.

swallowed Alexander & Alexander Services Inc. for $1.2 billion.

Mr. O'Hara said, "There is no doubt that there is a much greater concentration in our market place. We need only focus on four or five major Merger could be good news for the island's insurance industry From Page 9 the island now, instead of eight or ten, when you look back over the past three or four years.

"On the other hand, there is still a major role for local independents, and maybe even a greater role in the aftermath of these big mergers. There is always going to be room for independents and in speaking with a couple of them, they think this is positive for their business.'' Many insurance brokerages have become concerned about stagnating and decreasing commissions as insurance premium rates, the basis for the commissions, have slumped in the prevailing soft market.

Analysts said the combined Marsh & McLennan and Johnson & Higgins could cut costs by shutting redundant operations and cutting overlapping support services.

M&M expects the acquisition to add to their earnings and allow them to achieve annual pre-tax cost savings of at least $150 million.

Marsh & McLennan, which last year had revenues of $4.1 billion, has about 27,000 employees and does business in more than 80 countries.

Johnson & Higgins, with 9,000 employees and 145 offices around the world, had total revenues of $1.2 billion in 1996, primarily from its insurance-related operations.

Marsh & McLennan Chief Executive A.J.C. Smith told the Associated Press the company will gain a strong position in the Netherlands through the acquisition of Johnson & Higgins as well as strength in the US retail middle market.

Johnson & Higgins also will bring strength in professional areas, such as health and construction, Smith said.

The company is still in talks with St. Paul Cos. Inc. about the possible purchase of its Minet Group brokerage, but the firms have had trouble agreeing on a purchase price.

"We continue to talk to Minet and St. Paul,'' Smith said in a telephone interview. "If we can reach an agreement, we would go ahead with a transaction with St. Paul and Minet.'' He also moved to quash recent speculation about the company's plans for its Putnam asset management business. Speculation has circulated in recent months that Marsh & McLennan might sell a minority stake in Putnam to the public to establish a more fair market value for the business.

"It's a very fine company with marvellous prospects and so we like owning it and we plan to continue owning all of it,'' Smith said.

The merger announcement said Smith, who is chairman and chief executive officer of Marsh & McLennan, will assume those positions at the new company while Johnson & Higgins Chairman David Olsen will become a vice chairman of Marsh & McLennan.

Marsh & McLennan said it would finance the cash portion of the purchase with bank financing and by selling commercial paper.

The acquisition, subject to approval by regulators and other conditions, was expected to close by the end of June, the company said.

Marsh & McLennan stock was trading up $6.50, at $128.50 in late afternoon trading on the New York Stock Exchange, and traded as high as $129.625.