Bermuda-based insurers, ESG Re, have received a further set-back in relation to their financial statements.

Deloitte & Touche resigned as auditors last month and have now announced that they have withdrawn both their audit report related to the year ended December 31, 2001 and various review reports for 2002 saying those reports should not be relied on.

The problem surrounds ESG's accounting treatment of a co-insurance contract with ACE Limited.

Under the contract, ACE assumed approximately 50 percent of the risks in respect of ESG's North America Medical business directly from the customer, with ESG assuming the remaining 50 percent of the risk.

Deloitte & Touche have complained that ESG apparently presented premiums written during the retroactive period as 100% written by ESG with the co-reinsurance to ACE treated as a retroactive retrocession arrangement (ACE reinsuring ESG and not the customer for approximately 50 percent of the risk).

Deloitte & Touche have said that the information relating to amount of premiums earned and related losses in respect of the ACE share of the risks needs to be restated and have passed the restated figures to BDO International, who replaced them as auditors. Standard insurance accounting practice is to show all premims earned (gross premiums) as the top line of the financial statements, with a subsequent deduction for premiums ceded to a reinsurer.

In this case, ESG Re appears to have deducted the premiums ceded from the top line, rather than including it separately as a deduction from gross premiums. The net result does not affect the company's profitability, but is merely a presentation error. The company said they are working with their new auditors to determine the proper reporting of these adjustments and will restate their results if necessary.

BDO International are the worlds fifth largest auditing firm and are represented by Arthur Morris Christensen & Co in Bermuda.