insurance industry are expected to be adopted in the US by year-end, the Registrar of Companies said this week.

Mr. Malcolm Butterfield said drafters for the National Association of Insurance Commissioners are working through the summer to revise the latest version of the Model Fronting Bill, which will control insurance fronting programmes.

Mr. Butterfield, who was at the NAIC's big June meeting in Washington, said regulators were expected to come up with a draft that will be considered by the entire Reinsurance Task Force at an interim meeting in August. It will then be put before the NAIC at its September meeting and if approved could well be adopted at this year's final meeting in December.

Once adopted by the NAIC, individual states are responsible for regulating insurers. Bermuda gets 75 percent of its insurance business from the US.

The NAIC has been working since December 1990 on developing "model legislation'' that would impose severe restrictions on "fronting'', the method commonly used to pass insurance business from the US parent company to the captive in Bermuda and other offshore insurance centres.

Typically, the US owners of Bermuda captives use a separate US insurance company as a go-between or "front'' when dealing with their captives. The captive owner buys insurance from the fronting company, which then passes all or most of the business on to the captive in Bermuda.

This is done because the fronting company holds the insurance licences from the necessary US states. The Bermuda captive finds them impractical or impossible to obtain.

Captive managers here say they believe big highly-publicised insurance insolvencies in the US have made regulators nervous about fronting. But they argue that few Bermuda captives have collapsed, and fronting played little or no part in those disasters.

Though there has been some severe criticism of the proposed changes from major US insurance organisations as well as from captive centres like Bermuda, Mr.

Butterfield said he believed that the final draft will be "acceptable to all parties''.

He said he felt there was still much work to be done, adding that he believed members of the Reinsurance Task Force felt the same way. "I hope the draft that is adopted is something that we can all live with that addresses the real insurance solvency problems,'' he said.

"I think without a doubt there will be some kind of an impact on Bermuda's insurance industry. I don't think there will be a flight of companies out of here.

Mr. Butterfield said it is vital that Bermuda insurance leaders collectively promote the fact that captives have proven to be successful alternative risk financing vehicles.

"Our position in Bermuda is that we are in favour of good sound insurance regulation,'' he said. "We support any effort that improves insurance regulations internationally.

"We have a good balance of regulation already, but the process involves a constant review.'' Premier the Hon. Sir John Swan, who spoke at the NAIC June meeting, argued that Bermuda-based insurance companies are rigorously examined, and that harsh action from the US was not needed.

These captive insurance companies were designed to insure the corporations and associations that set them up, he said, and should be viewed and regulated differently than companies that insured "innocent third parties''.