Accounting firm Andersen was yesterday reported as being at risk of falling short on insurance coverage in the face of energy giant Enron's financial collapse.

The firm, which has a Bermuda office, was Enron's auditor and is coming under heavy fire.

A Reuters report yesterday questioned its ability to cover the costs in the face of potential law suits: "You can only insure against so much, and it looks like embattled accounting firm Andersen will go way over its limit. Andersen probably doesn't have enough insurance to cover the expected blockbuster payouts from settling lawsuits over its handling of Enron Corp.'s audit."

The firm, which has admitted shredding vital Enron documents in the lead up the company's financial collapse, is reported as having a maximum of $500 million in professional liability coverage in the commercial market, insurance sources say, plus funds held in several self-owned Bermuda insurance entities.

The Bermuda office said it could not comment on client matters and referred questions relating to the firm to its US press office. Calls to the press office by The Royal Gazette had not been returned by press time.

Enron investors - who lost almost $80 billion as the energy trader collapsed - have targeted Andersen, along with Enron executives, in a number of suits charging they misrepresented Enron's financial dealings.

"Typically, there's a limited amount of insurance available for accounting firms, and they are largely self-insured," the Reuters report quoted a US accountant advisor.

Any large settlements could put the accounting firm under huge financial pressure and impoverish its partners. "Who will pay for this? The partners, probably," Rickard Jorgensen, president of Jorgensen & Company, a specialist professional liability agency in Maywood, New Jersey, told Reuters.

"They themselves will pay for early litigation costs and so on out of day-to-day cash flow." After that, Andersen will look to its limited insurance coverage.

Insurance sources say that Andersen has a large deductible, meaning it pays the first few million dollars of claims itself.

Andersen augments coverage from insurers with a series of "captive" insurance companies in Bermuda and the Cayman Islands, sources said, and possibly some further reinsurance or "finite risk" arrangements, which are basically offshore funds set up to smooth losses.

"These captives have been funded over years, and they probably have the resources to fund a lot of losses," said Mr. Jorgensen.

But critics say the amount may not cover the full extent of Enron related costs.

Meanwhile Independent News reported that there is growing speculation that the fallout for Andersen may be that it is forced to consider a merger with one of the other "Big Five" firms - Ernst & Young, KPMG Peat Marwick, Deloitte & Touch and PriceWaterhouseCoopers.