The latest property/casualty edition of Best's Review has declared the liquidation of Bermuda-domiciled Electric Mutual Liability Insurance Co.

(EMLICO) has presented unique problems, but also touched on wider issues.

Best's Review, a monthly magazine on insurance issues and analysis from top insurance ratings agency, AM Best Co. Inc., said: "The evidence and allegations mounted against EMLICO and GE (General Electric Co.) by the reinsurers are imposing.'' The just published September issue said the EMLICO/GE controversy shows regulators and reinsurers that they need to consider the broader picture.

Written by a New York law firm associate, the article stated: "The alleged involvement of a single corporate policyholder -- GE -- in transporting its insuring subsidiary to a domicile that would give it substantial control over the liquidation and secure more favourable policy recoveries, raised unique issues of corporate domination and self dealing.'' The article continued: "Yet, the very significant ability of EMLICO's liquidators to calculate and demand incurred-but-not-reported (IBNR) reserves from its reinsurers raised a more frequently asked question of fairness.

"The sudden switch to Bermuda from Massachusetts law, which doesn't permit IBNR calculation, drastically modified the reinsurers' payment obligations.

"Across the US, statutory liquidators and rehabilitators have built such plans of payment into liquidation and rehabilitation plans, and states have been rewriting insolvency statutes to allow such estimation.

"The EMLICO redomestication underscores that such fundamental changes must be approached carefully.'' EMLICO is GE's (General Electric Co.) long time liability insurer which successfully applied to Massachusetts and Bermuda regulators to move from the US to Bermuda in 1995, claiming a surplus of $230 million. GE is EMLICO's founder, beneficial owner and today, its sole policyholder.

Four months later, it applied for a winding up petition in the Bermuda Supreme Court, declaring insolvency by more than $500 million. Liquidators are David Lines and Peter Mitchell of Coopers & Lybrand Bermuda and Christopher Hughes of Coopers & Lybrand London.

Reinsurers are still fighting the EMLICO move to Bermuda and want it redomiciled in Massachusetts. They have alleged that GE and EMLICO used fraud and deception to gain the necessary regulatory approvals for the redomestication to Bermuda.

The article stated: "Bermuda was a favourable site for EMLICO's liquidation for several reasons. That country's liquidation statutes would permit GE, as sole creditor, to assume substantial control over the liquidation under a "scheme of arrangement'' unavailable in the US.