Bermuda's insurance regulators have told their Massachusetts counterparts that only an Act of the Bermuda Parliament can return insolvent Electric Mutual Liability Insurance Co. (EMLICO) to Massachusetts.

This was revealed by Massachusetts Commissioner of Insurance Linda Ruthardt in a letter sent last week to a committee of the state's House of Representatives.

She stated: "Notwithstanding my own frustrations with that state of affairs, I see no gain from years of litigation which has little chance of achieving any practical result.'' The Commissioner was referring to the flurry of litigation involving EMLICO and its reinsurers. She believes a settlement agreement she has proposed, which would establish, concurrent with EMLICO's Bermuda liquidation, a parallel receivership in Massachusetts should satisfy all parties to the dispute. A state judge's decision on whether to approve that settlement is pending.

But a Massachusetts state Senate committee has followed the state's House of Representatives' lead, and launched an investigation into how the Commissioner's Division of Insurance (DOI) allowed EMLICO to redomesticate to Bermuda in the first place.

The Senate Post Audit and Oversight Committee is now seeking documentation on the issue from the DOI.

The new probe comes as EMLICO reinsurer, Kemper Re, said it will appeal to the Privy Council in London a recent Bermuda Court of Appeals ruling.

The Court of Appeals said on Tuesday it had no jurisdiction to hear an appeal against an October Bermuda Supreme Court decision that blocked judicial review of the local regulators' decision to approve EMLICO's move to Bermuda in July, 1995. EMLICO obtained a ruling in October setting aside an earlier decision allowing judicial review.

But Kemper Re expressed optimism yesterday in a prepared statement, that they "will eventually overcome the procedural hurdles which have thus far prevented it from having a trial on the merits of the allegations of fraud''.

Kemper Re has claimed EMLICO and GE obtained permission to move to Bermuda through the use of fraud, an allegation the two companies have denied.

Kemper Re counsel Richard J. Marcus said: "EMLICO has done all it can in the Bermuda and Massachusetts courts to avoid an evidentiary hearing of the fraud allegations. No ruling by any court has cast any doubt on the strength of Kemper Re's case that EMLICO's redomestication to Bermuda was procured by fraud.'' Two Bermuda Supreme Court Justices have already indicated there could be a case to answer.

Meanwhile Ms Ruthardt has responded to the preliminary report from the House Post Audit and Oversight Bureau that had been highly critical of her office's handling of the entire EMLICO issue. The Bureau is the investigative arm of the House Post Audit and Oversight Committee.

The embattled Commissioner insisted in a letter to the committee that the application for EMLICO to redomesticate to Bermuda was subject over four months to "a high level of scrutiny'', more so than other companies applying to leave the state.

She denied EMLICO's move to Bermuda would reduce the total amount of environmental claims paid by GE and its related entities, or harm the public interest.

She further denied that there was any evidence that Lloyd's of London reinsurers, or Kemper Re, faced additional reinsurance obligations to EMLICO as a result of the redomestication.

The Commissioner indicated a strong belief that her settlement proposal, negotiated with EMLICO liquidators and GE, would remove any potential disadvantage to all concerned.

Ms Ruthardt conceded that the word "state'' in relevant legislation needed a better definition. Reinsurers and legislators had argued the DOI had no right to approve EMLICO's move to Bermuda, because the legislation applied to redomestication to other American states, not foreign countries.

She also admitted she was "very concerned'' about how quickly EMLICO filed a winding-up petition after being allowed to move to Bermuda. But she said the settlement agreement would nullify any benefits the move may have gained EMLICO or GE.