When billionaire investors like Wilbur Ross and Warren Buffett start seeing bargains in the Bermuda insurance market, it's a sign that there are some undervalued companies around.

Mr. Buffett's Berkshire Hathaway was one of the bidders for Bermuda reinsurer IPC Holdings Ltd., reportedly tabling a $1.7 billion cash offer in a bidding war that was eventually won by Bermuda-based Validus Holdings Ltd.

Mr. Ross, who has made a reputation as an investor in distressed and undervalued assets, has made clear his feelings about Bermuda insurers.

The New York-based boss of WL Ross & Co. told The Royal Gazette last month: "I believe both that the Bermuda companies are severely undervalued and that there should be consolidation among them."

Last week, Franklin Montross, chief executive of General Re Corp., a Berkshire Hathaway company, said further consolidation among the Bermuda market's smaller reinsurers would be "logical".

Validus' acquisition of IPC, and PartnerRe's takeover of Paris Re, fuelled much expectation of increased consolidation.

A group of Bermuda reinsurers in the $1 billion to $2.5 billion of shareholders' equity range — including Flagstone Re Holdings, Montpelier Re Holdings, Max Capital Group and Endurance Specialty — have been mooted as the most likely merger targets.

However, Ed Noonan, chairman and CEO of Validus, believes there are reasons why consolidation craze will not catch on — even where it might appear logical — and nor does it need to happen.

After his own experience of fighting and winning a six-month takeover battle for IPC, Mr. Noonan said merging two insurers was no simple matter.

"The idea of a broad wave of consolidation in the Bermuda market, I would discount heavily," Mr. Noonan said in an interview.

"In Bermuda there are a handful of companies that are easily recognised, like Ace, XL, Axis and Arch — then the rest, most of them very good companies, with unique strategies.

"Those strategies are not so different that investors are able to distinguish between them easily, particularly in reinsurance."

While those factors raised the potential for consolidation, and more capital was clearly an advantage in a business based on the ability to pay claims, the practicalities of merging companies were problematic, he added.

"When you try to put two well run businesses together, you have two management teams and two CEOs who have done a good job," Mr. Noonan said. "They can't both be in charge and that is a real challenge.

"Also the insurance sector is trading at depressed share prices. When you put two companies together, everybody wants a premium to book value — and there is no reason why they should not. If both companies are trading at low valuations, it's going to be difficult, though it doesn't mean it can't happen."

Some industry observers have suggested that reinsurers need to be in the $3 billion-plus league, in order to be a serious global competitor. Mr. Noonan rejected that notion, even though Validus crossed the $3 billion threshold through its acquisition of IPC.

"If we had been unsuccessful in our efforts to acquire IPC, I would have gone to work the next day with a very good business," Mr. Noonan said.

"Bermuda has some very profitable and well-run businesses in the $1 billion to $2 billion range, and I don't see that kind of size as being inhibitive of success. Of course, those companies can continue to thrive."