insurance commissioners had offically adopted the model fronting act.

The National Association of Insurance Commissioners (NAIC) this week accepted the Act at its winter meeting in Hawaii.

The act requires that licensed US companies notify regulators of fronting transactions, but does not prohibit fronting.

The Act contains a clause including offshore captives in its measures. Mr.

Andrew Carr, president of Marsh & McLennan Management Services in Bermuda, said the Act had implications for the future, because if reinsurers wee unsure about the regulations that govern captives located offshore, they may decide that it is easier to stay onshore.

"However, there will not be a tremendous effect on captives here, un -less they have assumed underwriting or claims settling authority from the fronting company. There is no immediate problem,'' said Mr. Carr.

"The reason why we are disappointed is that a potential situation could come into being in the future where a captive may stay onshore for fear that in three or five years time, they may need to settle some claims with authority, and there may be more restrictions,'' he said.

The US insurance regulators justify the Act, which they say "would provide added protection to consumers from a sometimes-hazardous insurance practice -- `fronting'''.

They define fronting as the situation when an insurer domiciled or licensed in a state cedes business to an unlicensed reinsurer and delegates underwriting or claim settlement authority.

The NAIC stated that fronting has been abused in the past.

"The repercussions will be more in perception than in the actual effect that the Act has,'' said Mr. David Ezekiel, president and managing director of captive manager International Advisory Services Ltd.

"Only time will tell whether the new Act will affect Bermuda as a domicile.

There will be some increased reporting requirements for some captives on the Island.

"Bermuda has tended to have a well organised industry here, so in terms of our current clients and the response in the press or elsewhere, the news that Bermuda will not be badly effect will get out, but it will take time. Some rival domiciles will see this as an opportunity to chalk one up on us in the process.'' He said that every effort was taken to lobby the NAIC before the act was adopted.

"All of us in the industry, who have anything to do with responding, did get the message across, but it wasn't always well understood,'' said Mr. Ezekiel.

Mr. David Ezekiel.