The bidding war between insurance giants XL Capital and ACE for Capital Re has hotted up, with XL yesterday increasing its offer to $14 a per share.

So far the fight has pushed up the stock value of Capital Re by nearly a third -- from $9.60 a share the day before XL muscled in and announced its interest on October 6 to $13.75 yesterday.

ACE upped the ante on Friday when it sweetened its offer to $13 a share in cash and stock.

But XL proved it was just as determined to get a piece of the speciality insurer when it increased its own offer to $14 a share in cash in a one-step merger transaction worth an estimated $511 million.

The current market capitalisation for the company based on yesterday's share price of $13.75 was $504.5 million, so the bid is over the company's market value.

And market analysts believe that the fight between the two companies could continue until the offer reaches $600 million.

Insurance consultant Bill Storie, of William Storie and Co., said that if ACE was willing to pay $606 million in June, then the value of Cap Re to ACE could still be the same.

"Nothing has changed about Cap Re apart from its market value. If they were prepared to cut a cheque for $600 million in June, I would hazard a guess that they still would. You would have to assume that ACE's piggy bank has not dried up since then and the companies would fight it out until then.'' He added that the figure of $550 million was more likely. "If ACE gets the company for $550 million, then that is still $50 million less than they would have paid with the June prices.'' The fight between the two giants for the comparative minnow of Cap Re began in earnest on October 6, when XL Capital made an unsolicited bid to buy the company in an all-cash offer for $12.50 a share, believed to be valued at $456 million.

ACE and XL battle for Cap Re This put paid to ACE's plans. ACE has been wooing the company since March 1998, when it formed a joint venture with Cap Re, ACE Capital Re. It then made an offer to buy Cap Re that at the time was worth an estimated $606 million.

ACE then bought $75 million worth of Cap Re stock through its subsidiary ACE Bermuda Insurance, which meant it owned 10 percent of the company.

But the day before a scheduled shareholders meeting to decide whether to accept the ACE offer, XL stepped in with its unsolicited cash bid, which could still scupper ACE's carefully-laid plans.

The following day ACE said it was still interested in buying Cap Re, which was shortly followed by a confidentiality agreement between Cap Re and XL.

ACE then appointed two board members to Cap Re. The following day XL raised its offer to $13 a share, on October 11. It also says it will pay a $25 million termination fee and set up a $50 million stand-by commitment for Cap Re if the XL bid is successful.

On October 15, ACE offered $13 a share cash and stock offer and yesterday XL upped this to $14 a share. ACE now has five business days to respond to the offer.

In demand: Capital Re has seen its stock rise from $9.9625 a share on October 1, 1999, to close at $13.31 on Monday.