After winning a long, drawn out battle to combine with IPC Relast year in a merger deal valued at $1.6 billion, ValidusHoldings' Chief Executive Officer Ed Noonan hinted recently thatthe deal, which he often describes as “transformational,” may nothave been transformational enough.

While the 2009 deal that propelled Validus to more than $4.0billion of capital from just about $1.9 billion at year-end 2008had all the intended benefits, including giving Validus aleadership position in the property-catastrophe reinsurance market,the combined company remains a specialist in short-tailed lines,Mr. Noonan noted during a recent conference.

During a Bank of America Merrill Lynch Insurance Conference latelast month, Mr. Noonan, when asked about his appetite foracquisitions going forward, mused about the possibilities–at somefuture date–of moving into the U.S. market and diversifying thebook to include casualty business.

“We don't think of ourselves as an acquisition company, althoughwe have done two sizable ones in two years,” Mr. Noonansaid–referring to the IPC amalgamation and to a 2007 deal toacquire Talbot, a Lloyd's operation writing short-tailed insurancebusinesses like marine hull, terrorism and energy.

“We have a higher cost of capital because we're in a volatileclass,” he said, referring to the heavy weighting of the company'sbusiness in catastrophe lines.

“Long term, that probably isn't where we ought to be. Weprobably ought to find ways to diversify the company further tobring down the cost of capital,” he said.

He continued by noting that the Bermuda company is “justdramatically underweight to the U.S. market.”

“From the time we've been a company, we've just felt that theUnited States has been an overly competitive market…but the daywill come when [it] will be attractive,” he said. “I don't knowwhen that day is, but it's a huge opportunity at some point in timedown the road.”

Mr. Noonan added that “someday, [Validus] will need the abilityto issue U.S. paper,” suggesting that the onshore energy andaviation segments are areas where this might occur.

Should Validus Holdings' operating units ever include a surpluslines or specialty admitted company in the United States, it wouldfollow in the footsteps of RenaissanceRe, set up in the wake ofHurricane Andrew, Montpelier Re (one of the “Class of 2001″ group)and Ariel Re (a “Class of 2005″ company), which like Validusitself, got up and running in the wake of Hurricane Katrina.

Referring specifically to his monitoring of casualty pricingindices and broader casualty business trends, he said that “it's agreat spectator sport for us at this point.”

“Accident-year loss ratios are unprofitable for most companies.It's a question of when do reserve redundancies run out? We knowwe're getting close, but I don't know how close we are,” hesaid.

“It's a class we watch. It's obviously a huge class, but I don'tthink we're going to see post-9/11 turn where you can just show upand have the world throw casualty business at you. So there'sprobably some advanced positioning you have to do,” he said.

Like Mr. Noonan, David Cash, CEO of Endurance Specialty, has hissights on casualty business, but he said his company is bent onorganic growth in the casualty arena, rather than growth viaacquisition.

“I'm surely not going to signal aggressive growth. That's notthe message that should come from this meeting,” he said, alsomaking his remarks at the Merrill Lynch conference.

While Mr. Cash did not indicate whether the incremental growthhe envisions in casualty lines would be in insurance or reinsurancebusiness (or both), or what parts of the world Endurance mightfocus on, he did highlight the company's current positioning in theexcess casualty market rather than the primary market, ultimatelypainting a brighter picture of the casualty segment than some ofhis Bermuda brethren.

“When I look at the casualty space, I don't believe we're in atoxic casualty market by any means. To me a casualty market thathas gone wrong is 1998 and 1999,” he said, noting that those yearswere riddled with “weak business practices” and contrasting them tobetter practices generally in place today.

In the late 1990s, “you had genuinely unprofessionalunderwriting, and you had ethical lapses that weren't justisolated, they were systemic. And you had balance sheets that wereweak,” Mr. Cash said.

Today, strong financials may create potential for competition,but he said that balance sheets are stronger, “in part, becausemanagements have been more realistic about how they view thatbusiness.”

“I view the casualty space as being generally profitable,” heconcluded. In particular, he noted that Endurance has generated“very significant returns” over time in the large-risk casualtyarena–writing excess casualty insurance for Fortune 1000 clients.“Claims just don't come through that frequently,” he said.

John Charman, CEO of AXIS, has a very different view. “Casualtybusiness breaks me out in spots,” Mr. Charman said at the sameconference.

“I don't like it. I've never liked it,” he said, referring tothe insurance side of the casualty market in particular. “For thelast two or three years, casualty insurers have “seriouslyunderpriced their products and seriously been too optimistic onreserving.”

“We do not…and will not have that issue,” he said, noting thatcasualty insurance represents just 14 percent of AXIS'inception-to-date portfolio.

At Aspen Insurance Holdings, CEO Chris O'Kane admits that hiscompany was recently burned by losses in the U.S. casualtyinsurance arena, but he still has hopes for slowly building aspecialty insurance brand in the United States.

U.S. insurance has “been the least successful thing that we'vedone, and in some places, it's been unsuccessful,” he said,referring, in particular, to a contractors book in New York. “It'sone very local, specific issue,” he said.

“I believe we're going to make a quite a bit of money in a fewyears.” But for now, activity is limited to “hiring teams andasking them to do, paradoxically speaking, not very much,” he said,explaining that Aspen, which sells property, primary casualty andumbrella insurance in the United States, changed U.S. divisionleadership and hired a team to start up professional lines lastmonth.