Creditors of a Bermuda-registered reinsurance company that was shut down after it was discovered that it largest asset was in fact worthless may end up at least $7 million out of pocket.

Business Insurance reported last week that Hatteras Reinsurance Ltd., which was put into liquidation earlier this year, was set up with initial capital that was never actually transferred to the company by its founder.

And the liquidators, from KPMG, have also found that a 2005 Hatteras financial statement included a financial opinion from Deloitte & Touche in the Cayman islands that accounting firm says it never issued.

Hatteras was formed as a workers compensation reinsurer in 2004 in Bermuda.

It was shut down earlier this year when it was found that a financial statement for Pamlico Enhanced Cash Trust, a Delaware entity in which Hatteras claimed it had a $152 million investment, contained a false Deloitte & Touche audit opinion.

The liquidators have now determined that the asset is valueless, according to a filing in US Bankruptcy Court in New York.

The filing also asserts that a 2005 Hatteras financial statement included a purported audit opinion from Deloitte & Touche in the Cayman Islands that the accounting firm says it never issued, Business Insurance said.

The liquidators — partners of KPMG Financial Advisory Services Ltd. in Bermuda — note in the report that Hatteras' captive reinsurance clients are able to draw on trust accounts that were set up to pay their claims and that are not considered assets of the Hatteras estate.

They include captives of Philadelphia-based Aramark Corp., which has $151.8 million in trust accounts covering two workers comp programmes; Electronic Data Systems Corp. of Plano, Texas, which has $2.6 million in a similar account; and a unit of Intercontinental Hotels Plc of Windsor, England, which has $4.0 million in one account, according to court filings.

"Hatteras liquidators are meanwhile trying to recover potential assets of the reinsurer's estate," BI said.

"One of these is stock worth more than $13 million that Hatteras reported receiving as initial capital from its owner, Frank P. Meadows III, a Rocky Mount, North Carolina businessman. The stock is in The Nottingham Management Co., a privately held Rocky Mount company that Mr. Meadows controls, court filings say.

"While unaudited Hatteras financial statements describe the Nottingham stock as Hatteras' initial capital, Mr. Meadows now maintains that the stock was never actually transferred to Hatteras and is not an asset of the estate, Mr. Meadows' lawyer, Peter Anderson, confirmed. Mr. Anderson is with Sutherland, Asbill & Brennan in Atlanta."

Business Insurance said that in a June e-mail — a copy of which was filed in court by the liquidators — Mr. Meadows wrote that Hatteras auditors had disallowed the stock as an unacceptable form of statutory capital.

Hatteras liquidators Friday asked the New York bankruptcy court for an order blocking any sale of Nottingham shares by Mr. Meadows until ownership can be established.