The head of Bermuda Fire & Marine Insurance Co. Ltd.'s international operations during the 1991 reorganisation continued to stand by her testimony that she believed the company had made adequate reserves for future claims.

Irmgard Viera, now head of BF&M Management Ltd., was facing tough questioning Wednesday in the Supreme Court over the way she managed Bermuda Fire's international business from Clare Montgomery, the lawyer for Bermuda Fire's liquidator Ernst & Young.

She was being asked about the reasons Bermuda Fire didn't reserve for future potential pollution claims and bad debt. Bermuda Fire's liquidator claims the 1991 reorganisation was a fraudulent transaction in which profitable domestic assets were stripped from the company to form BF&M.

The liquidator claims reserves were deliberately underestimated so the company would appear solvent for the reorganisation.

On Wednesday, Ms Montgomery went through documents from 1990 and 1991 which she claims made it obvious to Ms Viera that Bermuda Fire's international runoff business was facing more losses than anticipated.

Ms Montgomery also suggested that Ms Viera knew about the increasing risk of future losses for the company.

Ms Viera stuck by her testimony she believed the losses were under control and that the proper reserves had been made. Questioning began about Ms Viera's use of the highest anticipated range in actuarial firm Tillinghast estimates of the future losses in negotiations with a reinsurer.

At the time Bermuda Fire was negotiating to get money back on a disputed reinsurance policy.

Ms Viera answered that in such types of negotiation, called a commutation, Bermuda Fire was attempting to get as much money as possible in case claims were higher than anticipated.

She agreed with Ms Montgomery that in the case of such a "final transaction'' it was best to go with Tillighast's highest estimated range rather than the middle range chosen by Bermuda Fire when setting reserves.

It's anticipated that Ms Montgomery intends to use this line of questioning to establish that the 1991 reorganisation was of a similar "final transaction'' and that the company should therefore have chosen the highest estimated figure when setting the reserves.

She was also questioned about why she wrote letters and notes during the period advising that further reinsurance cover be bought to cover losses above $50 million on the international business.

By 1990 Tillinghast had estimated that Bermuda Fire needed $48.5 million in reserves for future losses. Bermuda Fire at the time was covered for up to $50 million in losses though a reinsurance policy.

Ms Viera said she believed the extra cover would be a good thing to have to be on the "safe side''.

"Is it true that you did expect further deterioration?'' Ms Montgomery said.

"I'm sure the numbers were not cast in concrete,'' Ms Viera said. "I would have been happy to have it (the extra cover) in place for any eventuality.'' Ms Montgomery suggested that Ms Viera's actions showed that she was anticipating further losses in the millions of dollars.

"There could be further deterioration, not necessarily in the millions,'' she answered.

She was "surprised'' when Tillinghast estimated further reserves of $10 million would be needed to cover future claims in 1990.

She agreed that most of the loss claims came in the fourth quarter of the year. The figures would then be used to calculate the reserves Bermuda Fire needed. Bermuda Fire's reorganisation was completed in September 1991.

She agreed that Tillinghast had put warnings in its report on the 1989 year and the 1990 year that the estimates on losses were uncertain.

She disputed Ms Montgomery's claim that she knew legal costs for defending against pollution claims were not included in the Tillinghast estimates. Ms Viera said she had always believed that legal costs were included. She now admits she made a mistake.

"These words are absolutely crystal clear,'' Ms Montgomery said.

"In hindsight it was but it must not have been crystal clear then,'' Ms Viera said.

Ms Viera couldn't recall how she concluded legal costs were not included.

Ms Montgomery persisted in going over the Tillinghast figures which she said Ms Viera could not have avoided knowing legal costs weren't included.

"Well then you will have to call me incompetent,'' she answered. "...I have since realised that I was wrong.'' She was shown a Cooper & Lines note which advised that the company might have to make more reserves because of further deterioration on the account, the exhaustion of reinsurance cover, and the possibility of future pollution claims.

She said she was aware of a suit in 1990 against the top three executives of H S Weavers and Drivers agencies in London alleging $100 million in commissions had been diverted from accounts. Bermuda Fire wrote its international business through Weavers and related agencies.

Ms Viera said the suit was at the time allegations and that it didn't have anything to do with Bermuda Fire's international operation which was in runoff.

Reinsurers would eventually claim they weren't liable to pay claims due to "moral hazard'' leaving companies like Bermuda Fire in the lurch.

She was asked why she wrote a memorandum on April 4, 1991 advising an additional $13.5 million reinsurance cover be purchased "in anticipation of further deterioration'' in claims against Bermuda Fire.

"Were you anticipating further losses Ms Viera?'' Ms Montgomery said.

"Not in earnest, no,'' Ms Viera said.

She said it was a memo and she may not have chosen her words "carefully''.

Ms Montgomery suggested that Ms Viera was anticipating losses to rise to $63.5 million.

"You are putting words in my mouth,'' Ms Viera said. "I'm not going to answer in affirmation because that was not the purpose.'' Bermuda Fire eventually didn't purchase the additional cover because the company decided the cost was too expensive. Cooper & Lines also advised there wouldn't be any advantage as the cost would have to be accounted for on the books, setting off any benefit.

Ms Viera was testifying on behalf of defendant BF&M. Her testimony continues today.

BUSINESS BUC