A US analyst has identified Terra Nova (Bermuda) Holdings Ltd. as a prime takeover target, and a stock which investors should consider buying.

But the prospect of a takeover is more likely to come from outside of Bermuda, Dowling & Partners Securities, LLC stated in a report entitled "All Dressed Up And Waiting For An Offer''.

The firm's analysts note the continued attractivness of the company's Bermuda base, and of its presence in the London market through London-based Terra Nova Insurance Co., and its Lloyd's of London Octavian syndicates.

"To our mind, the prospect of a Bermuda-based buyer has been greatly reduced over the past quarter,'' analysts at Dowling & Partners state. "Nevertheless, a non-US buyer or an innovative US buyer (reverse merger type) will find Terra Nova has three attractive businesses: (a) London market insurer/reinsurer (b) Lloyd's-Octavian (c) Bermuda reinsurer. Bermuda is a `better mouse trap' and Terra Nova is a platform.'' The report comes on the heels of Terra Nova (Bermuda) Holdings Ltd. first quarter results in which the company declared net income of $24.4 million, or 94 cents per share, a gain of 32 percent compared to the same period ended March 31 last year.

As the accompanying graph shows, Terra Nova's gross premiums written in first quarter 1998 was $338.2 million, a gain of 49 percent over first quarter 1997.

Of that 86 percent came from the UK. The Bermuda share decreased slightly by about one percent.

Most of the increase in gross premiums was due to the group's participation in the Lloyd's market through Octavian syndicates, from some related insurance from "orphan'' Lloyd's syndicates, and from Paris-based Compagnie de Reassurance d'Ille de France (Corifrance), which the company purchased in September last year.

The analysts also noted Terra Nova's board and ownership as being oriented toward shareholder value, and its prospects for growth as indications of attractiveness to a suitor.

"As Terra Nova's balance sheet continues to perform as/better than expected, we remain confident TNA will maintain earnings momentum through 1999,'' Dowling & Partners state.

The firm expects growth to come from the Octavian syndicates as Terra Nova increases participation to 53 percent in 1998 from 41 percent, and from Corifrance.

Dowling & Partners also expects growth from Terra Nova's London-based subsidiary and through the expansion of programme business in the US. Terra Nova Bermuda company's larger capital base will also help provide new opportunities for the group.

"Terra Nova has a very financially sophisticated, shareholder-oriented board of directors with significant insurance, private capital, and investment banking expertise (Donaldson, Lufkin & Jenrette which has owned the shares since December 1994),'' the firm stated. "The board has clearly been watching the Bermuda insurance market as it continues to consolidate.'' This year Bermuda-based EXEL Ltd. bought Mid Ocean Ltd., and ACE Ltd. bought CAT Ltd.

Dowling & Partners, which is based in Hartford, Connecticut, maintains its buy rating for investors.

"Even if we are wrong and no deal occurs, the stock is not expensive at 11.7 times 1998 earnings and 156 percent of book,'' Dowling states.

Quoting from an unnamed source, presumably a Terra Nova executive, the firm noted the company's plan to increase participation at Lloyd's.

GPW GAIN -- Terra Nova's gross premiums written (GPW) in first quarter 1998 was $338.2 million, a gain of 49 percent over first quarter 1997. Of that, 86 percent came from the UK.