Billionaire investor Wilbur Ross believes that Bermuda's insurance companies are trading at bargain share prices and that some should merge.

His comments come as rumours circulate within the Bermuda insurance community of a mega-merger being planned, involving three companies combining to create a $5 billion re/insurer.

One source linked Mr. Ross to such a move.

In an e-mailed response to our questions, Mr. Ross told The Royal Gazette yesterday: "We do not comment on merger and acquisition rumours, but it is true that I believe both that the Bermuda companies are severely undervalued and that there should be consolidation among them."

Mr. Ross is renowned for extracting value out of failed or under-valued companies by investment through his New York-based company WL Ross & Co.

His remarkable track record of success in "bottom fishing" means he carries influence on Wall Street.

He made headlines in Bermuda last year when WL Ross & Co pledged to invest as much as $1 billion in Island-based bond insurer Assured Guaranty.

Separately, Mr. Ross is a director of Bermuda-based reinsurer Montpelier Re Holdings Ltd.

According to Bloomberg data, WL Ross & Co held 10.2 percent of the outstanding shares of Assured and owned an eight percent stake in Montpelier, as of June 30 this year.

The news that such an influential investor sees such value in the Bermuda market will only serve to crank up expectations of more merger and acquisition activity.

Last month, two Bermuda reinsurers, IPC Holdings Ltd. agreed to be sold to Validus Holdings Ltd. in a $1.7 billion deal. Shareholders of the two companies will vote on the deal on Friday next week.

Max Capital Group Ltd. had initially agreed to merge with IPC, but IPC shareholders voted against the deal in June after Validus made its hostile takeover bid. Another Bermuda reinsurer, Flagstone Reinsurance Holdings Ltd., also tabled a bid for IPC. It also emerged in regulatory filings that one company - reportedly Warren Buffett's Berkshire Hathaway - also offered $1.7 billion in cash for IPC.

At least 16 companies expressed interest in buying IPC over the past year in a protracted bidding war.

The high level of interest in IPC raised expectations that others with a capital base of between $1 billion and $2 billion would also seek merger deals to beef themselves up into $3 billion-plus companies to increase their opportunities in a market seeing sharply rising property-catastrophe rates.

Most of the Island's re/insurers are trading close to book value - an accounting measure of a company's worth - or even below it, such as the two in which Mr. Ross' company is a major stakeholder.

Montpelier's book value per share, as of June 30 this year, was $18.49, but its share price closed at $16.15 yesterday. Assured shares closed on $20, compared to its book value of $21.18 at the end of the second quarter.

Montpelier is one of the companies, in the $1 billion to $2 billion of shareholders' equity range, cited as a merger candidate, as well as the likes of Max, Flagstone and Lancashire Holdings.

Many Bermuda companies suffered investment losses during the market turmoil of last year, as well as catastrophe losses emanating from hurricanes Ike and Gustav.

But, they have achieved strong recoveries in the first half of this year as investment holdings have rocketed on the back of soaring financial markets.