allowance for money they were unlikely to recover from the company's reinsurers, the Supreme Court heard. Ahmed ElAmin reports Bermuda Fire & Marine former directors and accountants not only refused to acknowledge mounting future pollution losses on the accounts, but also ignored warnings to add in estimates for millions of dollars in bad debt owed by failed reinsurers, the lawyer for the company's liquidators claimed in court yesterday.

The power punch combination caused a cash crunch that increased the pressure on Bermuda Fire directors to split the company in two in 1991 leaving the international business to eventually collapse in 1993, Gabriel Moss claimed yesterday.

The deliberate underestimation of future pollution losses and bad debt allowed Bermuda Fire directors, accountants and legal advisor to claim the company was solvent even though they knew or suspected the company's impending insolvency, he alleged.

Mr. Moss, the lawyer for liquidators Ernst & Young, is in the seventh day of his opening presentation before Puisne Judge Vincent Meerabux. On Tuesday he went through documents he claimed showed the defendants deliberately chose to ignore escalating potential pollution losses Yesterday he went thorough documents going back to 1985 he said was evidence the defendants -- in particular the five former directors on the finance committee and Coopers & Lines -- were warned to make allowance for money they were unlikely to recover from the company's reinsurers.

He claimed that if Bermuda Fire had put in the estimates the company would have been deemed insolvent and the 1991 split would not have occurred, depriving international policyholders of assets currently held by local insurer BF&M Ltd.

When it entered international business Bermuda Fire paid premiums to about 1,000 reinsurers to help protect the company from any potential losses.

However, as billions of dollars in asbestos and pollution claims began to hit the world's insurance markets during the 1980s, some began to fail, leaving insurers like Bermuda Fire unable to collect on the coverage they had. Bermuda Fire then became liable for all of the sums being claimed.

The company first established a bad debt provision of $350,000 in 1985 for claims made for policies covering the 1984 claim year, Mr. Moss told the court. The bad debt provision was increased to $750,000 in 1986 as Bermuda Fire became concerned about the problem -- especially in regards to Deutsche Ruck.

Accountancy firm Cooper & Lines also advised the company to consider making bad debt provision for reinsurance on future potential claims -- known in the business as "incurred but not reported'' (IBNR) losses.

IBNR losses from pollution and the bad debts they couldn't collect from busted reinsurers would eventually be the bomb that exploded on Bermuda Fire's books leaving the company insolvent.

By 1987 actuarial firm Tillinghast was also advising Bermuda Fire to make bad debt provision for bad debt on IBNR losses. Tillinghast would make similar recommendations for every year up to the 1991 split.

During that period the company increased its bad debt provision to $9.57 million for the 1990 year when discounted estimates in relation to the IBNR loss reserve were included as liabilities for the first time, Mr. Moss said.

In 1990 London-based Weavers, which handled underwriting, claims and reinsurance on behalf of Bermuda Fire's international operation, was in serious trouble and was itself about to become bankrupt. Weavers stopped handling Bermuda Fire's business, leaving the company in the lurch to meet the payments out of its own cash reserves.

Mr. Moss is expected to continue his presentation on bad debt provision for the 1991 year today.

Mr. Justice Meerabux BUSINESS BUC