BF&M chief executive officer Glenn Titterton said that in year one of Bermuda Fire's reorganisation he believed "costs were going to alter over time'', and that the company's losses would reduce as its troublesome overseas account was run off.

Cross-examining lawyer Clare Montgomery, who represents liquidators Ernst & Young, began the afternoon session in Supreme Court by questioning Mr.

Titterton on a Bermuda Fire board meeting of September 6, 1991, in which the company's management finalised its considerations of reorganisation.

After hearing the advice of both Cooper & Lines and Conyers Dill & Pearman, the board agreed to redeem preference shares in Bermuda Fire and distribute BF&M shares to Bermuda Fire shareholders by way of dividend.

"There was placed before the meeting a valuation done on a fair market basis of the shares of BF&M,'' said Ms Montgomery. "Did (CD&P lawyer) John Collis advise there should be a formal valuation done on a fair market basis?'' Mr.

Titterton did not remember this.

Ms Montgomery continued: "Finally, after the consideration of the financial statements and valuation, it was determined that the company had sufficient reserves -- taking into account all reasonably forseeable circumstances. Did anyone at the meeting on the 6th of September debate what reasonably foreseeably circumstances there might be?'' Mr. Titterton said he had no recollection of those specific words.

"Did Cooper & Lines point out in the course of their presentation to the board that there were quite unquantifiable items which didn't appear on their balance sheets which the directors themselves would have to assess before they could decide whether or not they'd left a sufficient amount behind?'' Mr. Titterton had no memory of this, or of similar Cooper & Lines references to liabilities on pollution claims and bad debt provisions.

In the opinion of Cooper & Lines, a $12 million figure represented a realistic margin for possible future deterioration.

"What about the question of a deterioration in reserves,'' Ms Montgomery continued. "Did anyone discuss what might be reasonably foreseeable in relation to say, Bermuda London Underwriting Agency (BLUA)?'' Tillinghast actuaries had considered BLUA a potentially volatile book of business. Mr.

Titterton again could not specifically recall such a discussion.

Moving on to 1992, Ms Montgomery asked: "Why, when you went through with the reorganisation, did you not leave a single member of staff working for Bermuda Fire's international operation?'' Mr. Titterton said: "My understanding was they would have worked for BF&M Management, and BF&M Management Ltd. would charge those costs back to Bermuda Fire. The fee agreed was costs plus.'' Such a decision, he said, was cost effective given that BF&M management was "very disciplined in the practice of charging out time''.

"You stripped it of staff because you thought the company would become insolvent?'' said Ms Montgomery. Mr. Titterton replied: "Absolutely not.'' Ms Montgomery then questioned Mr. Titterton on Bermuda Fire's subsequent decline in assets in 1993 -- specifically, when those assets fell below $12 million. "Had you worked out what administration costs were going to be?'' she asked. Mr. Titterton said he had not. Ms Montgomery said, "How did you know that $11 million was going to be enough?'' "I relied on the advice of people around me,'' Mr. Titterton said.

He said he had expected the roughly $900,000 a year from preference shares would be enough to cover costs, and the $11-12 million was a surplus.

"In year one,'' Ms Montgomery said, "I suggest you couldn't have allocated a single cent of that $11.8 million to add to reserves because you needed it to be generating income to pay daily running expenses. Did you make an account?'' "I personally did not,'' Mr. Titterton answered.

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