Local regulators are set to probe possible Bermuda links with a major international insurance racket uncovered this week.

And Police in Britain yesterday denied earlier reports that a Lloyd's-based broker at one of the 170 accredited firms had been arrested after their investigation sparked raids on offices in and outside of London.

But Lloyd's of London continued to play down the matter, stressing it had swiftly quashed the scam in which dummy insurance companies passed on legitimate liability to Lloyd's underwriters via reinsurance.

An article in Britain's Sunday Times alleged the fraud was set up by grubby US crime syndicates with mafia, drugs and money-laundering links.

Bogus Caribbean-registered reinsurance companies were said to have used cut-price premiums to tempt aviation and shipping companies and developing countries into paying premiums which were siphoned into offshore accounts.

Those customers were duped into believing the companies had the resources to pay out multi-million-dollar claims since their balance sheets were bolstered by rentals of property or shares from legitimate firms.

But any large claims would quickly lead to the offshore insurance firm folding, leaving other insurance firms to pay the bills.

Bermuda Registrar of Companies Kymn Astwood told The Royal Gazette yesterday he was currently working out the best possible tactics the body should adopt to deal with the scandal.

He would not rule out contacting the City of London fraud squad directly to uncover any Bermuda-links.

"Based on the recent Sunday Times' report we are in the process of investigating the matter. Right now we are determining the best way to thoroughly look into this so we can act accordingly.'' And until his inquiry was complete Mr. Astwood would not even confirm that it was unlikely any locally registered firms were involved because of Bermuda's strict regulations.

Months of investigation and cooperation by Police, Lloyd's regulators, the UK's Financial Services Authority and US authorities sparked the recent raids on UK brokers' firms.

And Lloyd's chiefs yesterday again reassured investors that no losses had been found in the market, insisting any immediate losses would have been suffered by those companies and governments that were victim of the fraud.

But a spokesman for the City of London Police said the investigation into the scam was likely to last several more months.

And he said although no arrests were imminent there could be some "further down the road''.

The spokesman also confirmed a number of documents had been seized and fraud squad officers were now combing through these.

Lloyd's director of regulation David Gittings could not confirm reports in London that $161 million was involved. He said it was not possible to talk about "a finite sum of money'' tied up in the scam.

"To the best of our knowledge no reinsurances found their way into Lloyd's,'' he said.

And the market's systems of checks and balances were vindicated by the early successful exposure of the plot.