A Bermuda Supreme Court judge has allowed more time for liquidators to find a taker for the life insurance business of the Bermuda branch of British American Insurance Company (BAICO) before it is wound up.

As the search for an alternative insurer to take on BAICO's non-health Bermuda book continues, liquidators have revealed they are looking for capital to reduce the likely shortfall faced by policyholders to "an acceptable level".

Thousands of life insurance clients have been left in limbo since a winding up petition was filed against BAICO in Bermuda in July.

On Friday, Judge Ian Kawaley allowed regulator the Bermuda Monetary Authority's (BMA) request for a two-month adjournment of the petition.

Attorney Christian Luthi, of Conyers Dill & Pearman, representing the BMA, told the court: "It is hoped that by that time, there will be a proposal with respect to the life business, which is one of the main outstanding items, as far as the Bermuda liquidation is concerned."

The case was adjourned until February 12, 2010.

BAICO is a Bahamas-based company, whose ultimate parent, Trinidad-based CL Financial, announced earlier this year that it had run into financial difficulties. As the problems worsened, the BMA filed a petition to wind up the Bermuda branch on July 29.

The Argus Group agreed to take on BAICO's 500 or so health insurance clients in Bermuda.

But the branch also wrote around 5,500 non-health policies, the majority of which were Home Service Life insurance policies.

That information was revealed in the latest update for concerned policyholders from KPMG Advisory Ltd., the agents for the liquidator, who is the Official Receiver and Registrar of Companies, Stephen Lowe.

The update, posted last week on the website giving updates for concerned BAICO clients (www.kpmg.bm/ba), also states that the liquidators are "in the process of realising the assets of the company for the benefit of policyholders".

KPMG believes that a portion of those assets have been "ring-fenced" exclusively for Bermuda clients, which "would make a solution for non-health policyholders more feasible".

The liquidators have warned BAICO clients that they face a shortfall in the value of their policies and investments, but that extra capital is being sought to narrow the gap.

"As the company is insolvent, it is probable that any solution "As the company is insolvent, it is probable that any solution that would allow for the continuation of policies through a transfer would involve policyholders taking a discount on the benefits under their policies," the liquidators state.

"However it is anticipated that this discount would not be as large as the reduction in policy value that would be suffered if no such transfer was to take place.

"In order to limit the reduction of policyholder benefits to what we believe will be an acceptable level, we are working to find additional capital that could be introduced to further bridge the funding gap between assets available to pay claims and the total claims likely to be made to policyholders."

Life policyholders have been advised to continue paying their premiums so that their policies will be in full effect if an alternative insurer is found. If no company emerges to take on BAICO's life book of business, then all premiums paid since July 29 will be repaid in full.

"Should you continue to pay your premium, there is no guarantee that cover will be re-established in the future under your policy, however we are working towards this goal," the KPMG update stated.

Policyholders who opt not to continue paying premiums can crystallise their claims against BAICO by surrendering their policies, KPMG advises. Those who do so will be repaid the premiums they have paid since July 29 this year and will have a claim in the winding up or transfer of BAICO's business.

Claims that have arisen since the winding up petition was filed have not been paid. "These claims will be dealt with in the appropriate manner depending on the way all other policies are treated in the overall solution, or should no solution be found, in liquidation," the liquidators add.

A meeting of BAICO policyholders will be scheduled, advertised in this newspaper and posted on the www.kpmg.bm/ba website, once more details are available on a possible solution. Anyone with a query is asked to call the British American hotline on 294-2651.