in Bermuda, can now expect to face a probe by US federal prosecutors.

A grand jury subpoena has been served on an EMLICO reinsurer, Kemper Reinsurance Company, by the US Attorney's office in Boston requiring that they hand over "any and all documents relating to the redomestication of EMLICO'', Business Insurance (BI) is reporting this week.

The subpoena specifically seeks a copy of the memorandum prepared for EMLICO before their controversial move in mid-1995 by London law firm Clifford Chance. The memo, which was later leaked to reinsurers, discussed the option of running off the insurer's business in Bermuda.

That memo appears to have existed at a time that EMLICO had claimed to be solvent.

The subpoena also seeks a copy of a 1994 memorandum prepared by EMLICO outside counsel, Chadbourne & Park, the magazine said.

It included a 1994 flow chart showing what would happen if the company was liquidated in Massachusetts, after posting reserves for huge General Electric Company (GE) pollution and toxic tort claims.

Kemper Re applied to the Massachusetts Appeals Court for permission to turn over the memorandum and flow chart, because the state court had previously placed the documents under limited seal after a request by EMLICO.

Kemper Re is just one of several EMLICO reinsurers who believe that EMLICO deliberately misled Massachusetts and Bermuda regulators about its solvency and plans to liquidate.

Lloyd's of London underwriters, units of General Re Corp. and Allstate Insurance Company are some of the other reinsurers who are convinced that EMLICO fraudulently schemed to take advantage of "creditor-friendly'' laws in Bermuda involving insolvencies.

EMLICO had been GE's liability insurer for decades. But within just a few months of splitting off the good business into another company, Electric Insurance Company, and moving the troubled portion to Bermuda, EMLICO declared it was under-reserved by $750 million and insolvent by more than $500 million.

The Massachusetts Insurance Division has asked the state appeals court for permission to copy the memo and flow chart for use in its examination of Electric Insurance Company.

BI reported that the division's filings did not name names, but said, "The examiners will likely be conducting examinations under oath of certain individuals involved in the matters that are the subject of the two documents.'' The Bermuda Supreme Court ordered EMLICO wound up in July, refusing an application by Kemper Re to have the order stayed or delivered with pre-conditions.

There was one restriction requiring liquidators to consult the court before admitting any proof of debt lodged in GE's contingent claim.

The order handed down by Puisne Judge Justice Ground, however, did not come before he agreed that Kemper Re had demonstrated a serious issue to be tried.

COURTS CTS