Joint liquidators for failed Bermuda reinsurer, Aneco Reinsurance Underwriting Ltd., believe they may be able to provide an initial distribution to creditors by the middle of next year.

But they are continuing to pursue litigation against their former broker Johnson & Higgins in London, after a UK court already awarded Aneco Re a $14.5-million judgment against J&H for misrepresentation.

The ruling included an award of $10.9 million, plus interest of $3.6 million and costs.

Joint liquidator Peter C.B. Mitchell of PriceWaterhouseCoopers has informed creditors that a decision has been taken to appeal the finding on the quantum of damages. That appeal is currently scheduled to be heard next June.

General reinsurer Aneco was focusing mainly on captive reinsurance until after 1988 when it increased its emphasis on property and catastrophe business, with most of the business written through the Lloyd's market.

But the firm began having difficulties in late 1989, early 1990, caused by a number of inter-company transactions which resulted in the company being under-capitalised.

Aneco also placed reinsurance through their related Turks & Caicos entity, that reinsurance company auditors later said was uncollectable.

The auditors refused a clean audit opinion for Aneco and local insurance regulators at the Registrar of Companies began an investigation of the company.

Aneco's cedants in England obtained a mareva injunction preventing it from using its UK assets. And when the Turks & Caicos company failed to secure its reinsurance obligations, the Bermuda Supreme Court ordered the company wound up in December 1991.

Mr. Mitchell and the accounting firm's London partner Christopher Hughes were appointed joint liquidators and the liquidation has mostly been conducted in Bermuda.

By this past summer, they had received claims against the estate totaling $120 million, although set-off and IBNR assessments were yet to be included.

It was only after the court judgment, that liquidators began considering a scheme of arrangement to provide an accelerated run-off and early distribution to creditors.

Aneco's business with NT Bullen Syndicates at Lloyd's began in 1989 -- a substantial facultative obligatory treaty reinsurance, which they subsequently reinsured on an excess of loss basis with other Lloyd's syndicates, and also various London market and overseas companies. All the business (both inward and outward) was brokered by J&H.

By December 1997, the total inwards losses totaled $38 million, and the outward billings (net of premium) amounted to $16.7 million. Liquidators concluded there was scope for more loss development.

An arbitration panel in 1995 determined that certain Lloyd's underwriters were could avoid payments under the excess of loss contracts they underwrote. The panel found that J&H had failed to represent the contracts properly, when presenting them to the Lloyd's underwriters.

Other reinsurers relied on the same grounds in 1996 to avoid the excess of loss contracts.

By August 1997, Mr. Justice Cresswell ruled that J&H had not made a fair presentation of the risk to the Lloyd's and company market underwriters.

J&H had not only failed to disclose the Bullen Treaty was a facultative obligatory treaty, but had in fact told some underwriters it was a quota share treaty. J&H had also failed to disclose other pieces of key information.

Aneco liquidators pursue litigation against J&H Aneco's primary case had been that J&H should have advised them during the placement in 1988, and prior to Aneco's acceptance of the Bullen Treaty, that there would not be sufficient market support to enable J&H to place the proposed reinsurance programme.

Aneco claimed they would have never participated, and therefore were demanding that J&H pay for all the Bullen Treaty losses accruing to Aneco, together with other losses arising from a similar situation involving a smaller treaty for the Bohling Syndicate.

Despite what Mr. Mitchell described as "powerful evidence to the contrary'' Justice Cresswell found that J&H would have been able to place the excess of loss protections at a similar price, even if a fair representation of the risk had been made, "even though none of the underwriters who gave evidence would have accepted the risk if a fair representation had been made''.

Justice Cresswell found that the correct measure of damages was by reference to the extent Aneco was unable to recover under the reinsurances in place.

But if the court had adopted Aneco's view, that J&H is liable for an amount equivalent to the entirety of losses arising under the Bullen Treaty, it would have represented a further $20 million, excluding IBNR and interest.

Aneco Re is appealing the finding on damages, with the case to be heard in June. J&H did not appeal the $14.5 million judgment against them.

COURTS CTS