involved with reinsuring pollution and other high-risk international business on the London-based H.S. Weaver's stamp between 1968 and 1983.

"Weaver's were in effect brokers operating similar to Lloyd's of London,'' said a local source.

"They served as underwriters for direct business and for reinsurance business and created what they call a stamp.

"The Weaver's stamp had approximately 27 companies: Bermuda Fire and Marine, the KWELM group and 21 other companies.'' The KWELM group comprised five companies, including Bermuda-registered Mutual Reinsurance Company, all of which shared the same parent as Weaver's, London United Investments.

The KWELM group is currently in liquidation, with total claims against it in excess of $5 billion, with the possibility that they may exceed $9 billion.

"In effect, Bermuda Fire & Marine and all the other companies would take a percentage of the risk of the business written on the Weaver's stamp,'' The Royal Gazette was told.

"In Bermuda Fire & Marine's case the percentage was four percent. This may not appear much, in itself, but the sheer volume of business written on the stamp meant it added up to a huge exposure for the company.'' London United Investments was placed into administration in England in May, 1990.

Creditors of Bermuda Fire & Marine believe that it was after LUI's collapse that plans were initiated to split up Bermuda Fire & Marine into "good'' and "bad'' business in an alleged bid to protect the company's assets.

One observer said: "The directors and officers of Bermuda Fire realised the train was coming down the track with a very bright headlight full of losses.'' On September 5, 1993, a complicated deal was struck in which a new company, confusingly called BF&M Ltd., bought the "good'' local business of Bermuda Fire & Marine for $56 million.

The "bad'' international business went into run-off with serious doubts among local businessmen that the company would have sufficient reserves to meet its liabilities.

The fact Bermuda Fire & Marine applied yesterday to wind up its affairs would appear to prove these doubts correct, although the company is not saying publicly what its reserves are.

Under the separation deal, Bermuda Fire & Marine passed a resolution whereby its convertible preference shares were converted into redeemable preference shares.

What happened next is best explained in the Bermuda Fire & Marine's annual report of 1991. It stated: "This resolution entitled the company to redeem all of the preference shares on the expiration of 10 days notice of the date of redemption at a price equal to the issue price.

"Subsequently on 10th September, 1991, two million shares were redeemed for cash at their issue price of $5 per share. This redemption reduced share premium by $8 million.

"Immediately after the redemption of the preference shares, the company distributed by way of a dividend in specie 2.88 million common shares of BF&M Ltd. held by the company to the holders of common shares in the company pari passu in proportion to their holdings of common shares in the company.

"The fair value of the common shares was deemed to be $33.18 million, being the difference between the fair value of the companies sold and the cash, note receivable, and preferred shares of BF&M Ltd.

"The general reserve was transferred back to retained earnings as part of the corporate action.

"The excess of appraised value of land over cost of $2.75 million recorded in the accounts at 31st December, 1990, was realised during the year and formed part of the sale agreement (of its domestic business). In addition, unrealised depreciation on investments in common shares of $174,653 at 31st December, 1990, was also realised during the year.'' One local source said: "My interpretation is that they, in effect, stripped out several millions of dollars which cannot now be reached by any of the creditors of Bermuda Fire & Marine.

"In effect, several million dollars was declared as an in specie stock dividend to shareholders.'' As joint provisional liquidator Mr. Gareth Hughes, of Ernst & Young, flew into Bermuda last night from London. Many believe he will have a difficult task on his hands to sort out a mess that has widespread ramification for Bermuda's entire international business community. The other joint provisional liquidator is expected to be Mr. Anthony Joaquim, of Ernst & Young in Bermuda.