which Bermuda-based UK-owned captives fought hard to be allowed to join has run out of funds within a few months of being formed.

Last month's terrorist attack in the financial district of London is likely to cost an estimated $200 million more than the reserves of newly-formed Pool Re, a mutual company which about 40 Bermuda captives are eligible to join.

Any shortfall will be met by the UK Government, which it is believed plans to continue with the scheme despite this early setback.

Mr. Alan Cossar, executive director of Alexander & Alexander in Bermuda said: "It's ironic that after extensive lobbying on behalf of captives, including those from Bermuda, to be allowed to participate in this scheme that there should be claims which are more than its funds.'' Mr. Cossar was commenting on the local impact of an upsurge in terrorism in the UK after it was highlighted yesterday at International Risk Management's Bermuda Rendezvous conference at Marriott's Castle Harbour Resort.

At the conference, Mr. Alan Fleming gave an outline of the problems an increase in terrorist acts has caused for UK companies seeking insurance coverage.

The UK is now the only area in Europe where it is impossible to obtain terrorism cover in the traditional market, said Mr. Fleming during a seminar entitled "A Perspective of Insurance and Reinsurance Implications of Terrorism in the United Kingdom''.

At one stage near the end of last year, there was a danger that some companies would be left without any cover at all, either in the traditional or non-traditional marketplace, and faced possible bankruptcy if they incurred a loss.

Mr. Fleming said the sequence of frantic nature of the sequence of events which led to Pool Re being formed, at the initiative of the Association of British Insurers, exposed a number of concerns.

"For one, it highlighted the lack of liaison between the insurance market and their customers because the thing turned into a major public relations disaster,'' he said.

"There is still considerable bitterness among risk managers at the unilateral way which the Association of British Insurers handled the whole affair. Also, in spite of the fact that the British government was anxious to maximise the degree of insurance market cushion before their involvement, the scheme effectively debars significant sectors of the insurance market capacity.

"Comparatively quickly, Lloyd's was allowed to participate in the Pool but even now there's no sensible utilisation of the major reinsurance market capacity.'' City blast causes shortfall He added: "The underwriting guidelines which were laid down for Pool Re and effectively agreed by the Government were inevitably ill-considered and are extremely penal on target risks in major cities.

"Additionally, the scheme is administratively complex and, by the Department of Industry's own recent admission, there are a number of aspects which they would prefer to have laid down differently. But we are faced with a fait accompli.

"I believe the Association of British Insurers has lost a certain credibility with the Government over this. The whole issue could have been better handled in a more co-operative way.''