Are sellers unrealistic in their price expectations?

"I'm not sure they're unreasonable," Mr. Deutsch said, noting that Heritage and others are certainly aware of prices paid to Lloyd's operations last year--referring, for example, to the acquisition of Kiln Ltd. by Tokio Marine & Nichido Fire Insurance. "Maybe they thought their business was as valuable as those companies," he added.

The deal for Kiln--which had re-domiciled to Bermuda in mid-2007 and wrote four-times as much premium as Heritage in 2006--came with a ?442 million price tag (nearly $900 million), according to a December 2007 announcement.

"I think Heritage is a good company, or else we wouldn't have gone after it," Mr. Deutsch said. "But at some point, we need to exert price discipline, and we just couldn't see eye to eye on the price."

For Don Kramer, chairman of Ariel Re--which bagged Atrium Underwriters in a deal valued at ?193 million (over $380 million)--it was expanding to the United States that proved to be difficult.

"I had looked at business opportunities in the United States, and candidly, some of the expectations of companies for sale were off the charts," he said. "They weren't realistic about the oncoming environment, where prices are coming down and competition is becoming severe."

Instead of paying a huge premium-to-book value "for something I felt was in a period of decline, I'd rather start from scratch and build it myself with great care," he said, explaining Ariel's October 2007 purchase of a shell company, Valiant Insurance, from Zurich North America.

The process will be slower, but even in a soft market, "I have good technicians capable of finding sweet spots," he said. "I'd rather do that than buy somebody and [see] their earnings decline a year after I bought them at some staggering price."

With licenses in 48 states and six people already on board, Valiant is targeting specialty insurance lines such as professional liability, setting it apart from what is primarily a property-catastrophe reinsurance book with a sprinkling of marine and property insurance for Ariel in Bermuda.

"The longer-tailed business has lower [underwriting] margins but earns more from accumulated assets. Valiant will take time before it builds earning power," Mr. Kramer said, adding that earnings over time should be more stable than earnings on cat business.

Mr. Kramer declined to disclose Ariel's earnings for 2007, noting that the company is in the process of preparing an S-1 (a filing used by public companies to register their securities with the U.S. Securities and Exchange Commission). "I don't know if I'll use it," he said of the filing.

"We wrote a decent amount of volume," but probably the least of the Class of 2005 Bermuda companies that started up in the wake of 2005's hurricanes, he said, speculating that Ariel's combined ratio was the lowest of the group. "The amount of money you make when nothing happens in staggering," he added.

"If you asked me six months ago, I'd tell you we were nothing more than opportunistic capital catching a dislocation in the market, but the dislocation seems to be over," Mr. Kramer said. "From Day One, I never wanted to be a property-cat-only company. If you want to build sustaining value, you have to build diversification in."

Like Mr. Kramer, David Cash, chief underwriting officer of Endurance Specialty Holdings, described his company's opportunistic roots and evolution since its early days in 2002. Initially, "we entered the markets we felt were most disrupted [and] easiest to get into" after the Sept. 11, 2001 World Trade Center attacks, Mr. Cash said.

"They were the markets where you have large-scale risk syndication," such as catastrophe reinsurance, where clients need hundreds of millions of dollars in capacity.

"They can't buy it all from one company," he explained, so with risks syndicated across the market, "it's pretty easy to enter. That's the good news." The bad news is a lot of competitors enter, too, he added.

"It's the right way to build a company quickly," Mr. Cash said. Since then, Endurance has worked to enter markets that are harder to get into--"where there's not as much syndication, where distribution is more private," he said, giving the example of smaller-limits U.S. business placed through independent agents.

"We've been trying to grow our footprint in that space" in several ways, Mr. Cash said, highlighting a California workers' compensation venture dating back to mid-2006 and the acquisition of an agricultural underwriting company last year.

The workers' comp initiative, netting roughly $200 million in premiums, involves a strategic partner that handles the policy issuance. The third-quarter 2007 acquisition of a managing general agency known as ARMTech represents some $400-to-$450 million in gross crop insurance premiums, Mr. Cash said, noting that individual "small-ticket" policies are placed with rural independent agents.

Endurance CEO Kenneth LeStrange said during a third-quarter 2007 earnings conference that the ARMTech deal would likely bring the company's split of insurance and reinsurance business close to a 50-50. Through nine months, 34 percent of $1.5 billion in total gross premiums was in insurance, compared to 24 percent in 2006, according to financial reports.

"We're trying to move ourselves closer to the fragmented distribution channel [for] local domestic U.S. insurance," said Mr. Cash, adding that the business "tends to be stickier," pushing up overall renewal ratios.

"The [profit] margins are probably lower than what we have seen on some of the truly high-octane syndicated risks in Bermuda, but they're more stable and will likely persist through the soft market," he added.

Commenting more broadly on business strategies that may emerge for Bermuda market competitors, Mr. Cash observed that they won't all pursue build-or-buy strategies.

"A lot of the Bermuda companies are wrestling with this issue," he said. "You set up a company [and] manage business with a small staff. You can write quite a bit, but when the market softens, you may find yourself marginalized."

At that point, he added, "you either manage expenses and stay small [or] you say, 'There are too many people coming in. We now need to build out an onshore operation'" that doesn't deal as much with syndicated risk.

There are definitely Bermuda companies that have used the first strategy, he said, citing IPC Re and RenaissanceRe, which have historically focused on property-catastrophe reinsurance.

"The [current] market issues are challenging, [and they do] create, for the next year or two, a moment of truth for many reinsurers as respects their business models," he said. "This year for us is one of executing on the insurance side."

For Scott Carmilani, chairman and CEO of Allied World Assurance Corp., where the mix of business has always been tilted toward insurance, the market moment suggests a different path. Although Mr. Carmilani said the overall mix--nearly 60 percent insurance/40 percent reinsurance--won't change in 2008, Allied World will write more reinsurance in the United States.

"There has been some softening in the U.S. casualty market, and it's easier to manage the business--you can get closer to the cedents from the United States," he said--noting, for example, that more in-depth management through audits is possible onshore.

"Being offshore, you are almost a step removed" from U.S. insurers, he said, noting that tax and regulatory issues "prevent you from having deeper dives on their territory and from having close working relationships with them."

To grow the U.S. reinsurance book, Allied World bought a fully licensed company, Converium Insurance (North America), in a deal that he said would close by the end of January. The new carrier, which is to be renamed Allied World Reinsurance Company, is licensed for insurance as well, "but it will predominately be used to start our U.S. reinsurance capabilities," Mr. Carmilani said--noting that up to now, all reinsurance had been written from Bermuda.

The U.S. reinsurance book will be focused on casualty, while property-catastrophe will continue to be managed from Bermuda. A stable, client-focused property-cat market exists in Bermuda, and "there's no need to shift any of that," according to Mr. Carmilani.

While the distribution of insurance and reinsurance business is not likely to change this year, "there will be some organic growth to the business because we will be marketing and working on areas that we haven't concentrated on before."

"Our strategy is really to diversify geographically and by product," positioning the company to better handle market cycles and creating a better spread of risk, he said.

Asked if there were any particular areas he will seek to move into, Mr. Carmilani said "there are a number. It's too early to announce what we're doing, but we're going to be adding some capabilities."

One recent area of product expansion for Allied World's insurance book--which historically has had an excess casualty and professional liability focus--was in the specialty program business area, partially fueled by a program manager agreement with C.V. Starr announced last May.

"We continue to look for opportunities in the specialty area--to organically grow where we can and [to] look for acquisitions," said Mr. Carmilani, noting that Allied World hopes to at least double the number of programs--less than a dozen--in the near term.

Current programs on the books include a casualty construction program, a municipalities program, a professional liability program, and a Long Island, N.Y., construction property program, he noted.

Outside the United States, Mr. Carmilani revealed that Allied World--which currently has operations in Dublin and London, including a Lloyd's box--plans to start operations in Hong Kong this year, and to add capabilities in Europe, possibly Switzerland.

While Endurance has beefed up its European and Asian capability with some recent executive hires, back in the United States, the goal of getting closer to local distribution partners has been partly accomplished by adding specialty insurance underwriting teams in cities including Atlanta, Boston, Los Angeles and Seattle.

Asked how Endurance distinguishes itself to attract U.S. teams, Mr. Cash pointed to long-standing relationships with the Endurance management team, going on to describe what he sees as a separation among Bermuda insurers--between those with management teams having U.S. experience and those with London experience.

The latter "are very skilled at navigating through Lloyd's, which is a legitimate way to access U.S. business," he said.

"People will tell you it's almost a matter of preference, [and] for us the more natural approach is to build onshore in the United States," he said. "But if you don't have those relationships, you might be better off trying to do it from London."

"There are numerous good reasons to be in London at this point," said Ironshore's Mr. Deutsch. "A lot of the London business is actually [comprised of] U.S. insureds, but it might be business that we don't see in Bermuda or the United States."

Reasons for this may be historical, he added. "It could be because of a relationship that a London broker has with the account. It could be a type of binding authority that is prevalent in London, or it could be a specialty class of business where the expertise is in London for underwriting it," said Mr. Deutsch.

Although developing a Lloyd's platform is a high priority, Ironshore was able to attract onshore talent to start up two U.S. specialty units--including American International Group veterans Greg Flood and Mike Mitrovic to head up IronPro (a New York-based management and professional liability facility), and Joe George, a large-account casualty expert who leads IronBuilt (a Boston-based specialty construction unit).

"We always expected to diversify our portfolio because that's truly how you build value for shareholders," said Mr. Deutsch, who is the former chief financial officer of CNA and one of the founders of Executive Risk. He also sits on the boards of directors of Platinum Underwriters in Bermuda and Chaucer Holdings PLC at Lloyd's.

"We don't think we would have a long track record of success if we just focused on one line," he said. He did note, however, that the need for property-catastrophe insurance still exists in the United States, albeit to a lesser extent than when Ironshore launched to respond to a capacity crisis in coastal states.

In terms of geographic spread, Ironshore has written in all 50 states, and 25 percent of the business is outside the United States, he said--listing Australia, Bengladesh, Mexico and Russia as areas where risks have been written. "We have major business in the Caribbean, the Bahamas, Jamaica and the U.S. Virgin Islands," he added.

Having written $330 million in premiums in 2007--$315 million of property business from Bermuda and $15 million of liability from New York--Mr. Deutsch said that in 2008 the liability book could grow to $60 million, given that IronPro only opened its doors in September.

To further develop the U.S. platform, Ironshore acquired two shells--grabbing one (authorized to write E&S business in 40 states) from TIG Insurance Company in January, and the other (an admitted carrier from Folksamerica) late last year.

At Ariel, the acquisition of Zurich's shell--Valiant--was overshadowed by the summer announcement that it would acquire Atrium at Lloyd's.

According to the offering document, Atrium and Ariel each reported gross premiums of $300 million in 2006. But while 85 percent of Ariel's was in short-tailed reinsurance business, product lines for Atrium's Syndicates 570 and 609 include aviation, marine and energy insurance, MGA-sourced U.S. casualty business, and U.S. professional liability, in addition to worldwide reinsurance.

With Atrium writing "a significant amount of U.S. surplus lines business," Mr. Kramer said "the combination may have some slight symbiosis," pointing to the long relationships that the Lloyd's underwriters have with U.S. E&S brokers, and the fact that some business may move back to the admitted market, where Valiant can offer admitted paper as conditions soften.

"The constraint is that we still lack a rating that reflects our capital strength," he said, pointing to the fact that Ariel and Valiant are still rated "A-minus"--the highest level given to recent start-ups.

For Atrium, on the other hand, "I get Lloyd's 'A-plus' rating," he said, pointing to that derivative rating as a major acquisition benefit and a big draw to Lloyd's for other nontraditional Bermuda insurers.

With lower start-up ratings, such insurers, he said, are forced to be more conservative in their risk-taking than they might otherwise be because of the constraints of capital adequacy ratios associated with those ratings.

"The object of this game is to generate a high return-on-equity, and that's associated with how much risk you take, he said. "I'd be willing to take a little more risk to generate a little higher ROE, but the rating agencies won't let me."

At Lloyd's, he added, "I can get that kind of leverage because it is so well-established [and] because they have a security fund."

Nontraditional companies looking to expand from their Bermuda roots also gain access to 39 U.S. states and all of Asia and Europe through Lloyd's, he added.

In addition, he said, prior concerns about Lloyd's were put to rest when Berkshire Hathaway agreed to reinsure all of the liabilities of Equitas--the market's runoff facility for old liabilities--in late 2006. "The legacy risk of some shock-loss from historic events is pretty much out of the market," he noted.

Putting all those things together, he said, "London is going through a flowering period," noting that even Goldman Sachs set up a syndicate (Arrow Syndicate 1910) last year. "People are coming with fresh capital and reasonably new ideas of things that will make Lloyd's more valuable."

Mark Spurlock, a consultant for Smart Business Advisory and Consulting in London, said that not only is London becoming attractive to Bermudians, but more and more London operations are finding their way to Bermuda. He pointed to the fact that Hiscox, Omega and Kiln have all re-domiciled since 2006, following the lead of Catlin some years earlier.

"Initially, it was very much, 'let's test the waters'" and see if this can be done, he said. Now, many are seeing that it has been done and that regulatory burdens were not too onerous, he noted, adding that Bermuda's flowering--from a center of narrowly focused businesses emphasizing reinsurance to one of broadly diversified platforms--is further driving the moves.

Technology, he suggested, is another force driving Londoners and Bermudians together, he said. "You have less of a need for face-to-face negotiations and the physical stamps to come down," he said, adding that being able "to do things electronically instead obviously helps Bermuda."

"More and more, Bermuda and London are becoming one market. I think it can be too attractive to look at this as a London-vs.-Bermuda thing," he said, noting that moves occur in both directions, with neither trend obviously predominant.

"It's a global market and increasingly insurers are everywhere. So when you have Hiscox being domiciled in Bermuda, but at the same time, they're one of the largest syndicates in Lloyd's, what are they? Are they a London-based underwriter? Are they a Bermuda-based underwriter?" he asked.

"The fact is, they're both," he said, noting that the distinction is only really important to regulators and tax authorities, adding that Bermuda's lighter touch on regulation and lower tax rates continues to attract insurers.