NEW YORK (Bloomberg) — Bermuda companies Aspen Insurance Holdings Ltd., Arch Capital Group Ltd. and Endurance Specialty Holdings Ltd. may seek to buy reinsurers after Island-based rivals Validus Holdings Ltd. and PartnerRe Ltd. announced takeovers this week.

"There's always been a herd mentality," said Michael Paisan, an analyst at Stifel Nicolaus & Co. "If you get one or two that all of a sudden become more competitive in the industry through an acquisition, like a PartnerRe will or like a Validus, it tends to force others to follow suit."

Validus announced yesterday it agreed to buy IPC for about $1.7 billion, beating an offer Flagstone Reinsurance Holdings Ltd. made last week. PartnerRe said on July 5 it agreed to buy Paris Re Holdings Ltd. for about $2 billion in stock. Reinsurers are looking to buy rivals to raise capital and take a larger market share after investment losses eroded profits.

Paisan said Arch, Aspen and Endurance may be looking to acquire rivals. Companies including Montpelier Re Holdings Ltd., Lancashire Holdings Ltd., Max Capital Group Ltd. and Flagstone could become targets or merger partners, he said. Publicly traded reinsurers have clustered in Bermuda, where they face less regulatory oversight.

"Mergers and acquisitions are going to heat up on the island," said Joshua Shanker, a Citigroup Inc. analyst.

Billionaire investor Wilbur Ross said in March he's considering buying and combining reinsurance companies with a market value of $1 billion to $2 billion. "We're certainly looking," Ross said, without identifying potential targets. "Most companies are trading at or below their book value."

Montpelier, Aspen and Endurance are among reinsurers in Bermuda that have a market value of $1 billion to $2 billion, according to Bloomberg data. More deals may emerge within five months, Paisan said. "Capital is king, more so today than it ever has been," he said. "There seems to be that imaginary threshold of $3 billion. You need more than that to be a viable longer-term player in the industry."

Arch, Aspen and Endurance are on the $3 billion threshold and "might look to move into that larger category", Paisan said. "The ones with less with $2 billion are probably the most vulnerable to take out."

"The sweet spot in the industry in terms of capital and premium is rising as a result of this financial and economic crisis," said PartnerRe chief executive officer Patrick Thiele in a July 6 conference call. "It is better to be larger, all things being equal, than it was a year to two years ago. So we want to maintain our preferred position within the industry, but the industry is moving."

Industry executives believe there are "more companies than there are distinct strategies and there should be some combination", said Flagstone chairman Mark Byrne in a July 6 conference call before IPC decided on Validus. "A little bit of stirring up the pot, and boards being reminded of what their obligations are in terms of producing shareholder value is a positive thing."

Further consolidation could allow remaining insurers to raise rates, Paisan said. Consolidation "tends to take out some capacity or at least put some undisciplined capacity into some more disciplined hands", he said.