non-US underwriters whose increasing business is having a structural impact on the American insurance business.

And Mr. Norman L. Rosenthal, managing director, Morgan Stanley and Company Incorporated, has issued a warning to the US market to understand why this has happened.

The senior securities analyst said, "No foreign market poses as great a tentative threat to the domestic insurance marketplace, as do underwriters on this Island.'' "Already Bermuda has become the world's leading market for captive insurance companies, excess liability and D&O (Directors and Officers) liability coverage, catastrophe reinsurance and finite coverages,'' Mr. Rosenthal told shareholders of Mutual Risk Management's IPC Companies at a conference at the Princess Hotel.

"The success of this market has led several of the leading US underwriters to establish either wholly-owned or Bermuda sponsored entities, such as AIG (American International Group) which has set up International Property/Catastrophe RE, a Lexington branch, a Starr Excess, Chubb, which has set up Chubb Atlantic and General Re which has sponsored Tempest Re. And I might also add not a domestic company, but a leading European company, Swiss Re which has sponsored Partner Re.

"Furthermore the Bermuda market is in my opinion significantly under-leveraged, writing at a premium to surplus of only about 0.5 to one and with additional writing capacity in my view of about $6 billion.

"The competitive advantages that Bermuda insurers and reinsurers possess vis a vis US-based underwriters are compelling and highlights the advantages that foreign carriers in general bring to the worldwide insurance marketplace.

"First, Bermuda companies are not burdened by the complex and expensive statewide regulatory system that commands significant amount of resources for domestic underwriters, particularly the cost associated with guaranteed funds.

"Second, insurance contracts issued by Bermuda companies typically permit legislation in the UK and Bermuda courts, thereby limiting their exposure to the plaintiff-friendly US judicial system.

"Third, brokers' commissions are typically lower for business placed in Bermuda than in the US. And finally, insurers and reinsurers established in Bermuda are not subject to most taxes, with the exception of the excise tax.

"We believe these features give Bermuda underwriters a significantly lower cost structure compared to their US counterparts and this expense benefit should permit these entities to rapidly expand their business in certain harder business lines, particularly high ticket commercial coverages.'' He said that other foreign markets don't have all of the competitive advantages that the Bermuda market possesses, but they still have several advantages. For example since European insurers are not subject to US regulations, they can establish catastrophe loss reserves to smooth their earnings over time.

They also have more control over their reported profits, because they are not required to report quarterly earnings.

"Although the carriers are subject to taxation in their jurisdictions,'' he said,"many foreign countries have tax laws that favour the insurance industry, unlike the US where the tax law is punitive for this sector.'' He estimated that foreign-controlled insurance companies currently control about 20 percent of the US market. Based on the competitive advantages that he cited and additional acquisition of US companies by foreign companies, the securities analyst forecast 30 percent domination of the US market by such companies by the turn of the century.