With the Year 2000 problem about to affect computers in less than ten months, rating agency A.M. Best Co. predicts that all but a few insurance companies will be fully operational in January 2000.

The task of fixing the affected computers has not been cheap. Based on responses to an industry questionnaire, A.M. Best estimates insurance companies will pay a total of between $6 to $8 billion for the fix.

Even for companies with the task well in hand, the ratings agency also believes the coming months will be a critical testing period.

The deadline is looming when many computers that tell time by using a two-digit year, instead of a four-digit year, may not correctly identify the year 2000.

"Many companies will need to exert tremendous human and monetary resources in the final months of this year,'' A.M. Best stated in a report about the survey. "...The companies' 1999 estimates probably are optimistic, given the national shortage of technological personnel and the anticipated surge in demand for their skills in the third and fourth quarters.'' By the end of 1998 companies in the life and health sector were on average 40 percent complete in efforts to rid their systems of the problem. The property and casualty industry was further along but only 60 percent complete.

About two-thirds of the companies had contingency plans in place in case failures occur from third parties, mainly agents and brokers.

The survey found about half the companies are using only in-house resources, while the rest outsourced some portion of their compliance efforts to other vendors.

In light of the Best report The Royal Gazette reviewed the quarterly reports publicly traded insurance and reinsurance companies based in Bermuda have filed with the US Securities and Exchange Commission.

The SEC requires publicly traded companies to reveal their efforts regarding dealing with the Year 2000 problem and to outline whether possible glitches could have a "material'' effect on financial results.

Companies were required to detail four elements, including the state of readiness, costs to address the Year 2000 issue, the risks associated with the issue and contingency plans.

The reports indicate Bermuda companies are in having to spend much less than many of their US-based counterparts. Many are already well on the road to compliance.

XL Capital Ltd. chief information officer Ellen Lim said the difference stems from the fact that most Bermuda companies are relatively young and bought computer systems and programmes that aren't as much affected by the Year 2000 legacy problem.

According to an SEC filing, XL Capital estimates that up to August 31 it spent $3 million to complete half of the fixing and testing the company needed to do. The company expects to be complete by June this year.

"Future costs of remediation are not expected to have a material impact on the company's financial position, results of operation or cash flows, although no assurance can be given in this regard,'' XL stated. The company stated that formal contingency plans will not be formulated until areas are identified where there is a substantial risk of the Year 2000 problem affecting operations.

ACE Ltd. stated in its SEC filing that an executive steering committee was formed to deal with the problem in March 1998. The company also hired a consultant to help deal with the problem. The company expects to have completed preparations by the second quarter this year. As of December 31, 1998 the company had spent $2 million out of a $4 million budget allocated to deal with the problem.

Terra Nova (Bermuda) Holdings began its Year 2000 project in March 1997 and expects to have completed the programme by the first half of 1999. The company estimates it will have spent $3 million by the time the project is completed.

RenaissanceRe has back-up systems in place in the event of a system failure and doesn't believe that any failure will have a material impact on operations or financial condition.

LaSalle Re Holdings Ltd. contracted out its Year 2000 programme to International Business Machines Corp. (IBM). IBM calculated that certain of the company's systems, applications and business interfaces have Year 2000 date problems that would require 359 person-days to correct.

The target date for compliance is March 31, 1999 for a cost of $300,000, including $60,000 to IBM. The company also surveyed its suppliers and brokers.

As of February 4, 63.5 percent of suppliers and 61.5 percent of its brokers had provided an "adequate'' response to the questionnaire.

The company stated it will decide this month whether to continue a relationship with those who have not responded to the survey.

"The company's worst case scenario would be the failure of the company's computerised reinsurance systems to process transactions,'' the report stated.

"As a contingency plan, the company intends, prior to January 1, 2000, to extract a hard copy from its computerised reinsurance systems of all information required to initiate a manual system for processing transactions in the event of a system failure.'' Mutual Risk Management began its Year 2000 programme in 1997 and stated that as of September 30, 1998 the costs were "immaterial''.

"The company's lack of legacy systems is fortunate, most of its applications are PC databases, some networked but most from a programming stand point, easily corrected,'' Mutual Risk stated. "As of this disclosure date, management has not identified any hardware or software computer system within the company with a significant Year 2000 compliance problem that is expected to have a materially adverse effect on the company's financial condition or results of operations.'' Stirling Cooke Brown Holdings stated that its programme began in 1997 with the appointment of a committee. The company expects to have completed its compliance work by first quarter of this year. During the year all critical systems will be retested. The company expects to spend $700,000 on fixing its Year 2000 problem.

About $500,000 was related to the cost of reprogramming or replacing software.

The rest was spent on buying hardware.

IPC Re Holdings Ltd. completed testing its systems by September 30 after some "minor remedial work'' for a "nominal'' cost. An audit was done by technology consultants provided by the American International Group, Inc.

(AIG).

IPC gets administrative services through an AIG subsidiary. The subsidiary has put in place an independent power supply designed to kick in should the local electricity fail.

Newly-established Annuity & Life Re Holdings Ltd. stated that all its computer systems were purchased since April 17, 1998 are are fully Year 2000 compliant.

The company does not expect to incur any material costs.

Information was not available for PartnerRe Holdings Ltd. at press time.