Troubled accountancy giant Arthur Anderson may be on the verge of bankruptcy according to speculative media reports.

The speculation follows the company's failure to pay a $100 million premium to a Bermuda insurer that was to be used to pay a $217 million settlement in an Arizona fraud case.

The Wall Street Journal reported yesterday that Professional Services Insurance Co. Ltd, a Bermuda-based company partially owned by Andersen, had been forced into insolvency following the failure to place $100 million of premium with the company.

The fraud involved the Baptist Foundation of Arizona, which Anderson had been auditing since 1984, and which filed for Chapter 11 Bankruptcy protection in 1999.

The Baptist Foundation was set up in 1948 with a stated mission to raise money for religious causes by selling notes to churches and private investors, mainly Baptists, but bad real estate deals led to big losses for the fund, with 11,000 investors losing $570 million in what Arizona officials said became nothing more than a "Ponzi scheme".

The collapse of the fund was the largest failure of a non-profit entity in US history.

Professional Services Insurance Co. reached a settlement with the Arizona attorney general's office on March 1, the last business day before a trial was scheduled to start on March 4.

State and investor attorneys have said they will ask the case mediator to force Andersen and the insurance firm to pay although it seems the case may well be heading back to trial with a new date set for April 29.

Some observers have said that Andersen's decision to back away from its settlement agreement in the Arizona case might make sense for a company contemplating bankruptcy as Andersen would want to retain as much cash as possible.

The delay could prove costly for Baptist Foundation victims as lawsuits against Andersen from Enron investors continue to pile up, clients abandon the company and its criminal trial on one count of obstruction of justice is scheduled for May and the financial future of Andersen is uncertain.

Before the agreement was scrapped, investors were told they would see approximately 70 cents on the dollar, whereas investors are now left uncertain of how much money they will see or what the future holds. Without money from Andersen, investors could see less than 40 cents on the dollar.

Just two weeks after signing the settlement agreement in the Baptist Foundation case, Andersen was indicted and charged with obstruction of justice in connection with the shredding of thousands of documents related to its audit of Enron Corp., the bankrupt energy trading firm.

By signing the Baptist Foundation settlement, Andersen had put a stop to a huge number of legal actions against the firm, most of which were quickly reinstituted on Friday.

State and attorneys for the foundation's bankruptcy trust were notified in a letter that Professional Service Insurance Co., Andersen's insurer, had rejected the settlement and "was unable to approve or pay claims at this time due to its financial position."

Arizona Attorney General Janet Napolitano said Andersen Worldwide owns the insurance company and that its rejection of the settlement was equivalent to Andersen breaking its promise. She accused the company, already under fire in the Enron scandal, of acting in "bad faith."

However, Patrick Dorton, a spokesman for Andersen, told members of the media that the firm negotiated in "100 percent good faith".

Partner at the Bermuda Arthur Anderson branch Scott Hunter said yesterday that the local office was not involved in the matter and that he could not comment on any inquiries from the media.