found it cheaper elsewhere, have been served up a warning from XL boss Brian O'Hara, that when the excess capacity typical of today's market disappears, prices will go sky high.

Especially in their original core business of excess liability insurance, XL and ACE Insurance were the dominant players in their early years, before the capacity returned to what had been a depleted market.

ACE Ltd. was originally set up to provide US corporations with large limit, excess liability coverage, in a market that had virtually dried up. They sought to write at the top of the programme, $100 million in excess of $100 million.

The same interests soon formed EXEL Ltd. to provide the $25-million to $100-million layer of coverage.

Mr. O'Hara, the president and CEO of XL parent, EXEL Ltd., was quoted in a special supplement on Bermuda in the February edition of Reactions magazine, discussing how the company started.

He said that in an environment where founding shareholders would have been happy to break even in the beginning, he insisted that the company seek a profit.

"My experience in the industry has shown me that anyone with the goal of breaking even will go out of business,'' he said.

The flood of capacity which followed ACE Ltd. and EXEL into the market, after they were established in the mid-eighties, led to a bitter price war that has seen cover being offered by other carriers at half of what XL is quoting.

Mr. O'Hara said, "We're losing business at 50 percent less than the prices were quoting. Now our data is telling us that we can only just break even at those prices.

"If they're taking business from us for 50 percent less, they're going to make big losses. When the losses come in, reinsurance will disappear.'' O'Hara warns of `sky high' prices He said, "We could have put our prices up higher than we did when we first started, the demand for capacity was so high. But we decided not to.

"But when the correction comes, as it inevitably will, we won't be as benevolent as we were back in the 1980s.'' The article claimed that ACE and EXEL were "by far the biggest foreign businesses based in Bermuda''.

Meanwhile, ACE chairman, president and CEO, Brian Duperreault, agreed with Mr.

O'Hara's view that "Bermuda is the natural home for a global holding company.'' Mr. Duperreault said, "Bermuda is our home. So it's going to be the centre of where we are and what we do. We have a lot of Bermudian employees so the company has a Bermudian flavour. There's a community spirit here which I inherited.'' Mr. Duperreault said, "We're on a path to creating a global company which is active in most parts of the world.'' Mr. O'Hara said there would be tumultuous changes in the industry in the next two or three years that can be exploited.

He forecast an adverse reaction to the artificially high valuations which the market has put on successful insurers and reinsurers, when those companies begin to report losses created by the soft market.

He said that those firms which are writing business at known losses will have to show their hand soon, and their stock prices will take a beating when they do.

Those companies will then become prime targets for rich, acquisitive Bermudian companies as part of their global expansion plans.

Brian O'Hara