Ex-Bermuda Fire chief predicted company reserves would run out By Ahmed ElAmin The former head of Bermuda Fire & Marine Insurance Co. Ltd.'s international business wrote a note in 1988 predicting that the company's reserves for claims would run out in 1995, a court heard yesterday.

Keith White, now chief administrative officer at ACE Ltd., was in the second day of giving testimony in the Bermuda Fire case, under subpoena from the company's liquidator Ernst & Young.

Mr. White was head of Bermuda Fire's international division until he left in 1989 to join ACE Ltd. Clare Montgomery, Ernst & Young's lawyer, has been going through minutes of meetings he attended and reports he wrote or saw to get evidence about the company dealt with the mounting international losses.

Bermuda Fire's liquidator alleges that Bermuda Fire's management and board underestimated the reserves and incurred but not reported losses the company would need to meet future claims so as to hide the company's insolvency.

Mr. White was questioned yesterday about rough notes he wrote for himself outlining the company's international problems. Mr. White said the notes were preliminary to the company getting excess of loss cover from Sun Alliance.

The policy was taken out later that year, and covered Bermuda Fire from losses on its book between $32 to $50 million.

In his notes Mr. White stated that if the 1987 payout pattern on claims continued then the reserve "funds would be insufficient to go beyond 1995''.

Mr. White said that in negotiations with Sun Alliance the company wanted an option to get 40 percent ownership in Bermuda Fire for "helping it over the hump''.

However, Sun Alliance didn't want to get the shareholding now as it was wary that it might take a "double hit'' if the coverage came into effect. Mr.

White explained that the company was worried that with an equity stake and the policy in place Sun Alliance would lose on both fronts.

Sun Alliance also wanted to put its own director on the Bermuda Fire board and gain a share in the local reinsurance coverage the company was writing in return for the "goodwill'' it was showing in providing the coverage.

Sun Alliance put John Moore as its representative on the Bermuda Fire board when the policy was written.

Cooper & Lines partner David Lines in 1990 was eventually to observe in handwritten notes of Bermuda Fire's 1989 accounts that the company "appears to have exhausted their excess of loss cover'' with Sun Alliance.

Mr. White was also questioned about the 1987 prospectus to raise $10 million from the sale of preference shares in which potential investors are told Bermuda Fire expected "opportunities for growth'' overseas.

Mr. White said the prospectus was referring to the company's captive insurance business, financial reinsurance business being done through subsidiary Fortress Insurance Co. Ltd., Marine Indemnity Insurance Co. of America, and the takeover over the North American Life portfolio of Bermuda business being done in Canada.

The liquidator claims that one of the reasons Bermuda Fire directors created BF&M Ltd. and paid off preference shareholders was the fear that the shareholder might sue them on the allegation that they had been mislead by false statements in the prospectus about the company's prospects.

In an earlier minute of a finance committee meeting in 1987 at which Mr. White was present members were told that Tillinghast suggested that an additional $10 million be set aside to cover potential pollution claims.

Mr. White said the Tillinghast estimate was based on uncertainty on whether Bermuda Fire was protected from such claims by exclusion clauses on the policies.

He said Bermuda Fire believed it didn't have to make such an additional reserve because it was protected from such claims.

Mr. White is married to Judy Panchaud White, currently the head of the general and life business at BF&M Ltd., the company created in 1991 to hold Bermuda Fire's domestic assets which the liquidators claim were fraudulently transferred.

BUSINESS BUC