Joint provisional liquidators this week substantially increased their estimate as to how deeply Bermuda Fire & Marine Insurance Company (BFMIC) Ltd. is in debt.

They estimated to creditors that the Bermuda insurer's gross liabilities could now exceed $500 million, with a potential deficiency of $300 million.

At Wednesday's first formal meeting of creditors, the meeting's chairman, Mr.

Gareth Hughes of Ernst & Young, London said, "There are potential future reinsurance recoveries in excess of $200 million which will become due to the company.'' But as it currently stands, the review reinforced the position that a "proposed Scheme of Arrangement is in the best interests of creditors of BFMIC, notwithstanding the limited funds available in the estate at present''.

Representatives of some 80 creditors at the meeting agreed to the appointment of permanent liquidators and elected a Committee of Inspection.

An application will be made to the Supreme Court for the appointment of Mssrs.

Tony Joaquin and John McKenna of Ernst & Young, Bermuda, together with Mr.

Hughes as permanent liquidators of the company.

Mr. McKenna, who specialises in run off operations, was nominated to join the two provisional liquidators in anticipation of the Scheme of Arrangement being proposed for BFMIC within the next four to six months.

The Committee of Inspection to assist the liquidators will, subject to court approval, consist of representatives from the major creditor groups. They include representatives from Transit Casualty Company, ITT Hartford Fire, Crum & Forster, the Federation of Jewish Philanthropists, the International Policyholders Association and Anderson, Kill, Olick & Oshinsky. Mr. Joaquin said, "We are now in a position to move quickly forward to implement the scheme, continue efficient collection from reinsurers, and pursue other matters of interest to creditors, including the 1991 transaction.'' The 1991 transaction relates to the controversial split up of the company that critics say stripped BFMIC of the significant assets of the company that could be a party to current proceedings.

The directors successfully recommended a plan to shareholders in 1991, to move all the assets and liabilities relating to domestic operations to various subsidiaries, with the shares of the subsidiaries distributed to BFMIC's shareholders.

The company then continued the run-off of its international business until October 1993 when draft unaudited statements for the year to December 1992 showed the company did not meet insurance company solvency margin requirements.

This week the provisional liquidators reported to creditors: "A decision on whether it is appropriate to pursue legal proceedings in relation to the 1991 (transaction) reorganisation and, if so, against which individuals or entities, will be taken by the permanent liquidators and Committee of Inspection...'' "...we have approached this question with the utmost seriousness and, if we are appointed permanent liquidators, it would be our intention to take whatever steps are considered necessary in the interests of creditors.''