The latest brickbats have been fired by Business Insurance, a prestigious US-based publication. David Fox reports Bermuda this week continues to face less than complimentary scrutiny over the EMLICO (Electric Mutual Liability Insurance Co.) affair.

A leading insurance publication yesterday questioned decisions taken by Bermuda insurance regulators and implied they were uncooperative and lacking credibility.

Business Insurance (BI) also cited EMLICO opponents, who disagree with the assertion of the Minister of Finance that the Government has no power under the Companies Act 1981 to send EMLICO back to Massachusetts.

Regulation of Bermuda's insurance market comes under the Ministry of Finance and its Registrar of Companies.

The publication's editorial, titled "Grab chance to fix mess,'' said those opponents believe the Bermuda Act (Sect. 184) gives the Registrar authority to seek a court order staying the liquidation.

BI said, "Opponents also argue -- and EMLICO, in its own court filings, has conceded -- that the Bermuda Attorney General's office could bring its own proceedings to quash the redomestication, which had been conditioned on a valid approval by Massachusetts.'' BI did not reserve all its criticism for Bermuda, however. In stating that the "mess'' of EMLICO's liquidation "keeps getting worse'', the article reflects the concern that "the debacle has already undermined confidence in Massachusetts regulation.'' It declared: "If this case could be more spectacularly botched -- in both jurisdictions -- it's hard to imagine how.'' BI advocates that Massachusetts regulators aggressively seek to regain control over the EMLICO estate.

The publication concedes: "That end will be difficult to achieve, though, without the cooperation of Bermuda authorities, and that cooperation sadly appears unlikely if Bermuda's current attitude is any indication.

"From the start of this affair, the Bermuda Government has pointedly sat on the sidelines, insisting it was aware of the risk of EMLICO's insolvency when it admitted the company and that alleged misrepresentations to US regulators are not its problem.

"That's an unusual position for a country whose insurance industry relies in large measure on its image as a well-regulated domicile and on the support of US companies and regulators.'' It has been widely rumoured that Massachusetts insurance commissioner Linda Ruthardt intends to bring her battle for control of the company to the Bermuda Supreme Court. BI suggests that if, and when she does, that the Bermuda Government should support her.

But the publication concludes: "So far, though, it (the Bermuda Government) has shown no sign of doing any of this. Although one can readily understand any nation wishing to defend the integrity of its institutions, little of how (the) EMLICO case was handled bears defending, we believe.

"If they act properly, Massachusetts and Bermuda regulators can still untangle the EMLICO mess and return the company for liquidation in Massachusetts, where it belongs.

"In doing so, they would move a long way toward restoring their own credibility.'' Attention is increasingly being trained on Bermuda as an insurance jurisdiction, especially since the Massachusetts court ruled that EMLICO, an insurer founded by powerful General Electric Co. (GE), was never authorised to re-locate to Bermuda in 1995.

EMLICO purportedly came to Bermuda and promptly petitioned the Bermuda Supreme Court to be wound up, less than four months later.

EMLICO's reinsurers found out about both moves after each was a fait accompli , and have claimed that EMLICO and GE schemed to hide the insurer's insolvency so that the US state insurance regulators would allow the move to Bermuda.

They further alleged a calculated deception amounting to fraud, including plans for EMLICO to declare bankruptcy in Bermuda all along.

They have also spotlighted EMLICO's liquidators, David Lines and Peter Mitchell of Coopers & Lybrand Bermuda and their London partner Christopher Hughes, noting that the chartered accountants were consulted before the company even came here.

The reinsurers' view of this matter has been dismissed by EMLICO, its liquidators and GE. They have denied any wrongdoing and have suggested the reinsurers may simply be trying to avoid their own contractual obligations to EMLICO.

BI said that reinsurers "cite evidence'' suggesting that EMLICO misled commissioner Linda Ruthardt about its financial condition, as part of a plan to liquidate in a jurisdiction more favourable to GE than Massachusetts.

That "evidence'' includes documents showing that EMLICO consulted London law firm Clifford Chance before the move, for advice on possible winding-up sites, jurisdictions that included Bermuda.

Island rapped over EMLICO BI added: "Other documents obtained by Massachusetts regulators in a fraud probe show that EMLICO lawyers were in touch with Coopers & Lybrand partners in Bermuda before the redomestication on the subject of a `proposed action plan for EMLICO restructuring.' "The probe ended before it could be learned what, if anything, EMLICO and Coopers & Lybrand discussed before the fact about an eventual liquidation.'' Joint liquidator, Peter Mitchell, declined to comment at any length on the BI article, noting that it did not break any fresh ground on an issue already widely reported in the press.

It is not the first time BI has criticised local authorities for their handling of the EMLICO issue.

Ten months ago, an editorial stated: "The Bermuda Government has steadfastly maintained that this was Massachusetts' problem to solve. While Bermuda authorities could have undertaken their own investigation, they did nothing; they appear instead to agree with EMLICO that this is a mere business dispute and seem content to gain the jobs the EMLICO liquidation will generate.

"Even if Bermuda regulators didn't believe they were deceived in the redomestication, though, they should not have remained inert when evidence suggested their US counterparts were duped.'' At the time, the industry responded by letter that the Registrar "conducted an extensive internal review before concluding that an independent investigation would not be appropriate. Nor would it have been appropriate, in view of the legal actions that had been commenced at that time, for the registrar to have discussed this review in public.'' It continued: "The Bermuda regulators have not been persuaded that US regulators were duped. As was indicated in the Registrar's affidavit, the Bermuda regulators were aware from the outset that the nature and the number of adverse developments in the area of environmental claims was such that EMLICO could be rendered insolvent.'' The March 24 BI article stated: "Bermuda's hands-off attitude in this case should be a concern to all companies -- particularly reinsurers -- that do business in the domicile.'' The insurance industry letter responded: "Bermuda has worked long and hard to strike the right balance between onerous regulation and weak, meaningless controls.'' Yesterday, the Minister of Finance was not available for comment.

BERMUDA-FOUL! -- The oxygen of publicity over EMLICO has left a sour smell.

This cartoon appeared in Business Insurance.

MAGAZINE NJ COURT CTS