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Posted On: Apr. 27, 1997 12:00 AM CST

To the editor: I am writing on behalf of one of the several hundred reinsurers intentionally damaged by Electric Mutual Liability Insurance Co.'s redomestication to Bermuda, to respond to the April 14 letter to the editor, "Bermuda Defends EMLICO Response," in which Roger Scotton unfairly criticizes your March 24 editorial about EMLICO.

Your editorial quite rightly criticized the Massachusetts and Bermuda insurance regulators for their inappropriate actions and inaction in the face of evidence surfacing-despite General Electric Co.'s and the EMLICO liquidators' vigorous efforts to suppress it-that indicates GE and EMLICO engaged in an elaborate scheme to "export" EMLICO from Massachusetts to Bermuda, in violation of both Massachusetts and Bermuda law.

Mr. Scotton asserts that "as a matter of prudent regulation the island has chosen to remain neutral and stay out of what is essentially a disagreement between contracting parties. . . ."

The fact of the matter is that GE and EMLICO did not simply breach EMLICO's reinsurance contracts; we contend they also violated Bermuda law, which prohibits the incorporation in Bermuda of an insolvent insurer such as EMLICO. When Bermuda law is violated, and its regulatory process is abused, the public interest of Bermuda is implicated, a fact that Bermuda court judge recently pointed out.

As your editorial justly maintained, it is not in the best interest of Bermuda for its insurance regulators to remain inert in the face of compelling evidence suggesting that GE and EMLICO engaged in serious misconduct against both Bermuda and Massachusetts. GE and its hand-picked EMLICO liquidators have repeatedly relied on Bermuda's inaction as "evidence" that no fraud occurred; hence, Bermuda's "neutrality" in effect is aiding the wrongdoers.

Mr. Scotton also suggests that the reinsurers have a "range of legal and other remedies open to them" to redress the fraud. He conveniently overlooks that:

Private arbitration can do nothing to reverse the fraudulent redomestication and repatriate EMLICO to Massachusetts.

Private arbitration can do nothing to punish those individuals responsible for the violations of Bermuda and Massachusetts law and restore the confidence of the industry and the general public in the regulatory process of the two jurisdictions.

Representatives of the regulators have indicated that the regulators will resist reinsurers' efforts to call their employees and themselves to testify in the private arbitrations, even though they are key witnesses.

Mr. Scotton also makes the amazing claim that "Bermuda's regulators have maintained close contact with Massachusetts' regulators and. . .have not been persuaded that the U.S. regulators were duped."

This claim flies in the face of the

Massachusetts Insurance Division's statements that they received virtually no cooperation from the Bermuda regulators and that there is strong evidence that deliberate misrepresentations were made to the Massachusetts division by EMLICO during the redomestication application. Mr. Scotton must be aware that the two Bermuda judges who reviewed the evidence have both concluded that reinsurers have raised "a serious issue of fraud." In the face of these holdings by Bermuda's own courts, and similar observations by two Massachusetts judges who reviewed evidence of the fraud, Business Insurance's criticism of the inaction of the Bermuda regulators can hardly be challenged.

Finally, Mr. Scotton seems to suggest that the actions of GE and EMLICO and the passivity of the Bermuda regulators reflect "the spirit of a very real working partnership between the regulated and the regulators, which produces an efficient regulatory environment that does not stifle private-sector innovation." With all due respect to Mr. Scotton, one cannot condone the clever manipulation of the regulatory process and any violation of Bermuda and Massachusetts law as "private-sector innovation" that deserves immunity from scrutiny and prosecution.

Unfortunately, when our representatives contacted Mr. Scotton to discuss the mistaken assumptions in his letter, he preferred "not to be drawn into" this matter.

One would have thought that, having voluntarily and publicly interjected himself into the EMLICO affair, Mr. Scotton would be anxious to know the actual facts when he professes to speak for the "Bermuda insurance industry."

The only thing that reinsurers desire-and rightly deserve-from the Bermuda and Massachusetts regulators is a public evidentiary hearing into the highly questionable circumstances surrounding the EMLICO redomestication.

The Bermuda and Massachu-setts regulators are wrong to deny reinsurers this fundamental due process, and they should take no actions that in effect condone this flagrant abuse of the regulatory process.

Business Insurance is to be commended for speaking out against this injustice. I am sure that the reputable, law-abiding insurance companies domiciled in Bermuda, as well as reinsurers that do business in that country, support the views expressed in your editorial.

The onus now is on the insurance regulators to do the right thing and fully investigate this matter in a public hearing, regardless of any political pressure brought to bear by GE and its allies or any embarrassment a public airing of the evidence may cause them.

Richard J. Marcus

Chief Underwriting

and Claims Counsel

Kemper Reinsurance Co.

Long Grove, Ill.