million and becoming one of the world's largest insurance failures.

The liquidation has not only tested Bermuda's ability to settle the collapse of international companies, it has also provided some vitally important lessons not only for insurers, but the whole of the Island's international business community.

Bermudian liquidator Mr. Charles Kempe said the liquidation is 85 percent complete, but added that the next and final stage is one of the most difficult yet. Together with his joint liquidator in the UK, Mr. Nigel Hamilton, Mr.

Kempe is working on developing a scheme of arrangement to make a final payment within the next 30 months. Still to be worked out, though, is the estimated value of liabilities that will not reach maturity until 2016-2020.

If they succeed in satisfying the 700-odd creditors and announce a final dividend within that time, Mr. Kempe said it would be a feather in Bermuda's cap.

"That would close the liquidation within ten years,'' Mr. Kempe said. "It would be phenomenal. I think so far, Bermuda's reputation has been strengthened by the manner in which this liquidation has been handled.'' But he is quick to point out that it wasn't always that way. An attempt was made to oust Mr. Kempe as liquidator in 1989, when creditors were complaining the process was taking too long and costing too much money.

Prior to Mentor's collapse, Mr. Kempe said the company was one of the world's front line insurers. He said the failure dealt a heavy blow to Bermuda, leaving many with fears that the Island's reputation would be spoiled.

"Time has shown that those fears were exaggerated,'' he said. "You look at the experiences of other jurisdictions, and it's been proved that they're all susceptible to these problems. Bermuda is a market in which we see the same forces as elsewhere.

"I think the liquidation of Mentor has added to the bank of experience that we have in Bermuda, not just for the people directly involved but the entire insurance community here.'' He said one of the greatest lessons learned in the liquidation is that insurers have cleaned up the way they operate their businesses. There are generally two hallmarks that are uncovered in company insolvencies: The complete absence of any sound record-keeping or controls; and The failure by management to recognise the grave state of the company and do something about it.

Both factors were present when Mentor collapsed in 1985, Mr. Kempe said.

"Had the records and controls been better, I think there would have been some realisation that the company's position was far worse that the management had imagined,'' he said. "I think an awful lot of lessons have been learned in the past decade.'' First, he said companies have a greater degree of underwriting control. He said there is a realisation that the company itself must control the assumption of liability and not delegate it to agents and sub-agents in an uncontrolled manner.

Secondly, he said accounting practices are far more stringent than they had been, making financial statement presentation less susceptible to manipulation.

And thirdly, he said regulators are keeping a far more watchful eye on business practices. While some of the regulation has not been all that constructive, he said it has been well-intentioned. For example, he said the National Association of Insurance Commissioners' proposed anti-fronting model law sweeps a broad brush over the entire insurance industry, not only getting rid of any bad elements, but also forcing out potentially good business.

Mr. Kempe said the problem with company insolvencies now is "untangling the myriad of commercial partnerships'' in a company. He said there will be some insolvencies that are bound "to provide a lifetime of work for an army of liquidators''.

Despite the long shadow cast by Mentor in the mid-1980s, Mr. Kempe said Bermuda continues to host a pool of business whose quality and efficiency is better than most jurisdictions. He said Bermuda's size and its sophisticated structure had kept loose business practices out. The US, he added, could probably never be quite so effective.

And he said that as long as those standards are maintained, Bermuda will steer clear of a "phenomenal'' amount of insolvency business.

Even the traditional London market, which shunned the growth of the Bermuda market, has shown the respect it now has for Bermuda.

"We are still young compared to the London market,'' he said. "But there are telltale indications of Bermuda's success. Lloyd's brokers all have a presence here. I think that's indicative that they have more respect for us even if they don't say so out loud.'' Mr. Kempe said Bermuda is an ideal location that will change to meet the needs of the market.

"Some in the industry see us as spoilers,'' he said. "Others see us as a very useful market because of our ability to take advantage of cycles elsewhere. Bermuda springs in and acts as an adjustment mechanism.

"I can say this much: We won't be small players in whatever we do.'' MR. Charles Kempe.