& Marine have come under heavy fire from a US Congress sub-committee.

In a report entitled "Wishful Thinking: A World View of Insurance Insolvency Regulation'', the House of Representatives sub-committee has criticised local regulators for allowing Bermuda Fire & Marine to be split into two separate companies -- One for "good'' local business and the other for "bad'' international underwriting.

"The Bermuda Fire & Marine episode is a prime example of outrageous irresponsibility by an offshore insurance company, exacerbated by a cavalier disregard for the consequences on people living elsewhere,'' said the report, whch was released this week.

"This example highlights the sub-committee's findings that foreign countries and their business leaders, especially in cosy regulatory environments, cannot be expected to protect the legitimate interests of the American public.

"Although the Bermuda Government is reportedly planning to raise the capital and surplus requirements...,'' the report continued, the "actual effects of such changes will remain shrouded by the cloak of secrecy which characterises that Island's insurance industry.'' In 1991, Bermuda Fire & Marine was broken up and its profitable local busienss was sold off to a new entity which was controlled and owned by the same shareholders.

The international company went into liquidation last November after suffering more than $31.1 million in losses, largely due to participation in the "Weavers stamp'', a London based insurance vehicle.

The sub-committee on Oversight and Investigations of the Committee on Energy and Commerce, chaired by Rep. John Dingell, also recommends that all non-US licenced insurers and reinsurers doing business with policy-holders in the US be supervised by a federal agency, in some cases almost as if they were licenced in the US.

It also calls for information exchange agreements between the US and domiciles doing business in the US. Those companies that are not in countries were such an agreement does not exist, should be banned from the US market.

Local insurance officials have said that these recommendations could affect the Bermuda market.

Rep. Dingell said the report resulted from a six year investigation into the causes of insurance company failures.

While criticising everyone from US regulators to just about every insurance market in the world, the report concludes that "regrettably, most authorities are regulating solvency with a pronounced disregard for the known causes of insurer failures, as well as a blind eye to human behaviour and experience.

In the section on Bermuda -- entitled "Lost in the Bermuda Triangle'' -- the report highlightd the triangular reinsurance connection involving Bermuda Fire & Marine, the Transit Casualty receivership in the US, and Weavers.

It criticised the local insurer for separating its assets through corporate re-structuring, thus stripping it "from the reach of international creditors'' and shielding its Bermudian shareholders "from the cascading losses coming from Weavers''.

The report continues: "Condoning the split, Bermuda's Finance Minister characterised the stock transfer as "correct'' and said that there was no need for him to get involved.

"He argued that nothing "illegal or improper'' was done and added, "They took measures to protect themselves and that is something not unheard of in the day-to-day activities in business.'' The report continues that the US federal government must prevent companies from entering the US marketplace, that are domiciled "in countries that harbour and defend deadbeat insurers''.

Bermuda is included in a list of domiciles whose regulatory apparatuses are said to be small and underfunded, "relative to the size of the industry they regulate. Start up capital and licencing requirements are weak. And public information is restricted.'' The committee also concluded that Bermuda was one of four of the Islands that shared secrecy laws and it called into question the quality of the annual examinations of individual companies.

The insurance industry has been studying the document and some executives believe Bermuda's reputation remained relatively unscathed, because much of the criticisms can be countered.

Mr. Mike Murphy of American International's legal department points to the criticism of the regulators, as an example. The Dingell report had questioned how 18 people in the Registrar of Companies could inspect the entire insurance register.

"That comment is out of context. It shows the lack of understanding of how our system works,'' said Mr. Murphy.

"The vetting of these companies takes place with the auditors, who can get sued in the tens of millions of dollars. That's our deterrent in the system, so the auditors go to the actuaries, providing two levels of people looking over the shoulders of the company.

"And then they have to pass all the statutory requirements, and then the insurance commissioner gets it, who vets the items that pop up as a result of the two reviews.

"Plus we use the old fashioned insurance system, where everybody in the industry is looking at everywhere else. Everyone knows what's going on with other companies.'' "I think that the Government and the industry would be able to deal with the criticisms.'' Finance Minister the Hon. David Saul could not be reached for comment last night.