Merrill Lynch Forms Bermuda Reinsurance Co.

Merrill Lynch has established a reinsurance company in Bermuda, the fourth U.S. investment bank, after Goldman Sachs, Lehman Brothers and J.P. Morgan Chase, to do so.

According to a report from Reuters News Agency, Merrill is hoping, as are the others, that the new demand for reinsurance after Sept. 11, and the rising premium rates will spur the demand for securitizations, producing more CAT bonds that can be sold to investors.

Securitizations, or ART’s, were widely expected to take an increasing share of the reinsurance market, but have not progressed as expected, mainly due to their higher cost and complexity as compared to the lower costs offered by classic reinsurers.

Merrill apparently hasn’t yet released the name of its new subsidiary, nor has it given any further details concerning the venture, but it did indicate that it’s a “Class 3” insurer, which would give it a capitalization of at least $1 million, but would leave it in the second tier of Bermuda-based companies. Most of the larger ones, such as ACE, XL, etc. are “Class 4” insurers