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DENVER-When one thinks of the kind of safe, liquid investments that most insurance companies favor, defaulted pre-World War II German government bonds don't normally come to mind.

Most insurance companies, though, aren't like American International Sureties Ltd. of Antigua.

AIS, a marine, aviation and surety underwriter, has reported assets of more than $80 million, nearly all of it Weimar-era German bonds denominated in U.S. dollars and supposedly backed by gold.

While the Securities and Exchange Commission and others have challenged the value of these bonds in other cases, AIS officials insist they will collect the full value or sue the German government and stockbrokers involved in the 70-year-old transactions.

That this could take awhile apparently does not bother AIS Chairman Marvin A. Rosenblum.

"We have not represented that they will be used to pay claims," he said of the bonds. "We do not represent that they are liquid."

"If that raises concerns-and it should to some people, justifiably-they should not purchase products from us," Mr. Rosenblum said.

The Colorado Insurance Department hit AIS and several other offshore insurers with a cease and desist order earlier this year, charging the compaines had written aviation business in the state illegally.

Also named in the order are

Trans International Insurance Co. Ltd. of St. Vincent and the Grenadines, Paramount Reinsurance Ltd. of Barbados and Underwriters Reserve Insurance Co. (see related story).

American International Sureties is not related to American International Group Inc.

AIS is the only one of the four insurers to respond to the order so far, and is expected to file a formal reply by June 1.

Mr. Rosenblum said he hopes to have the order "expunged."

"We have never walked into the state of Colorado to sell one dime of insurance to anybody," he said. "We are doing everything we can to create an honorable industry in the Caribbean."

Officials of the offshore companies, including AIS, have worked for other companies that are no strangers to regulatory inquiries.

Mr. Rosenblum, for example, formerly headed Capital General Corp., a self-described holding company that in 1989 launched ill-fated bids to acquire two U.S. insurers. The insurers were to act as front companies for offshore reinsurers lined up by Consortium of 89 Ltd., a now-defunct London intermediary (BI, Dec. 11, 1989).

Capital General itself was capitalized with $2.1 million in assets, including intellectual property rights to Shirley Temple movies and a collection of nostalgic sheet music and movie posters, according to SEC filings.

Both proposed acquisitions fell apart in the face of regulatory opposition.

AIS officers and directors also include:

Eamon Baird, senior vp. Until last year, Mr. Baird was an officer of Tangent Insurance Co. Ltd. of Antigua; in 1994, he was sued by the U.S. Department of Labor for his role in placing reinsurance for a fraudulent union health benefit trust with offshore insurers that later failed to pay claims (BI, Feb. 24; May 18, 1992).

William A. Stehl, a "non-executive director." Mr. Stehl operates Financial Surety Services Inc., a unit of another company Mr. Rosenblum heads, Allstate Acceptance Corp.

In the early 1990s, Mr. Stehl and FSSI supplied millions of dollars of "Kwajalein guarantees" to New York broker Underwriters Financial Group Inc. to finance an acquisition push. The guarantees were purportedly backed by future payments the U.S. government owes to landowners on a Marshall Islands atoll, though Marshall Islands officials questioned their validity. UFG filed for bankruptcy in 1995 (BI, Aug. 14, 1995).

The British Department of Trade and Industry has also investigated AIS and Allstate Acceptance over a "cashback" promotion in which merchants would offer their customers an Allstate Acceptance-guaranteed refund of the purchase price of consumer goods after five years, documents show.

A DTI official would not confirm or deny an investigation.

Allstate Acceptance recently changed its name to Mineral Acceptance Corp. after Northbrook, Ill.-based Allstate Insurance Co. sued it for trademark infringement over its use of the name.

AIS itself was incorporated in Antigua in 1984 but was inactive until mid-1995, when it started writing reinsurance for European ceding companies, company documents say. Last year, it started writing direct insurance, including marine, aviation and surety coverages.

The company is not licensed or authorized to write business anywhere in the United States, though it has relied on regulatory exemptions for certain lines of coverage, including marine insurance.

AIS, Mr. Rosenblum says, is "a company that believes in total disclosure."

Perhaps for this reason, its year-end 1995 financial statement-its most recent-takes the unusual step of reporting in separate columns the "historic cost" of its assets and their "supplemental current value."

The difference is startling: The largest asset by far, for instance, is the block of pre-World War II German bonds, which AIS reports at a cost of $37,500 but a current value of $82.1 million.

The cost figure, Mr. Rosenblum says, is the "arbitrary" amount AIS paid him for the bonds, and doesn't reflect their actual value.

The original bonds were convertible to gold, and the current value is based on the increased value of gold since the 1920s, according to Daniel A. Zimmerman, a Westbury, N.Y., lawyer and AIS director.

Mr. Rosenblum wouldn't say where he got the bonds, but said he acquired them eight or 10 years ago as "historical documents." He became convinced of their value, he said, after a "very extensive review."

"I would not give them up for my life. I feel that strongly about the value of these bonds," he said.

His faith may be misplaced, government authorities suggest: A German federal agency has issued a warning about the validity of many such bonds, and the SEC challenged their worth in an unrelated case earlier this year.

According to Germany's Federal Debt Administration, the German government and other German issuers sold the dollar-denominated bonds between 1924 and 1930 to investors in the United States and other countries.

Germany's Nazi government later repudiated the debt, and when Berlin fell in 1945 many of the bonds that had been held in the city's banks were looted and illegally put back into circulation.

In 1953, the German government agreed to a procedure for exchanging some of the bonds for new securities. Since this settlement, the Weimar bonds have generally been considered void unless a holder clears several legal hurdles, according to the debt administration.

A bondholder has to prove, for example, that the bond was held outside Germany in 1945, that there is an unbroken chain of ownership to the current holder and that the bondholder is not at fault for missing the 1950s settlement deadline.

"Attempts are frequently made to deposit as securities bonds which are generally worthless since they cannot be accepted even belatedly due to lack of sufficient proof," the debt administration warned.

In February, the SEC sued a Miami stock broker who was selling the Weimar bonds to the public.

Among other things, the SEC charged that "the vast majority of the German bonds currently in circulation may be invalid and unredeemable."

One former law enforcement official compared the bonds to Confederate money, valuable only as collectors' items.

Mr. Rosenblum and Mr. Zimmerman dismissed the German government's position, with Mr. Zimmerman calling it "a version of the Big Lie." Both men pointed to a 31-page legal opinion AIS obtained from a Texas attorney saying the bonds are enforceable.

AIS's valuation of its bonds was also accepted by its auditor, Edmond A. Morrison, an accountant with J.H. Cohn & Co. of Roseland, N.J. Mr. Morrison also acts as financial consultant and chairman of AIS's advisory board.

"There is a big question about those bonds, and I'm not going to disagree with it," Mr. Morrison said. But AIS consultants "appear to be of the opinion that they are collectible. The only question is when, not if."

The "when," however, raises the question of whether the bonds make sense as investments for an insurance company. Insurers' financial strength is usually judged in part on the spread and liquidity of their investments.

"For an American insurance company, no, they would not satisfy the National Assn. of Insurance Commissioners," Mr. Morrison conceded. "For an Antiguan insurance company, yeah, it meets their criteria."

"We explicitly say they are not convertible to cash," Mr. Rosenblum said of the bonds.

"I doubt very much that any insurance company doing business in the U.S. today started with very much more than we started with," he added. "It's the American way."

AIS hasn't demanded payment on its bonds from the German government "because we know what the result would be of a demand," Mr. Zimmerman said.

Instead, AIS will wait to see if Germany decides on its own to pay. If not, AIS may sue the German government and several of Wall Street's largest stock brokerages, which acted as trustees on the original bond sales, Mr. Rosenblum says.

The Weimar bonds aren't AIS's only asset: The insurer also reported owning reserves of "precious metals bearing cinder ore" located at a mine site in the Mojave desert near Baker, Calif.

The "supplemental current value" of this ore is $983,599, though the cost to AIS was only $1, according to the 1995 financial statement.

Overall, AIS reported assets with current values totaling $83.9 million and shareholders equity-the equivalent of policyholders surplus-of $82.8 million at the end of 1995.

On a historical cost basis, though, the assets totaled $824,779 and AIS reported a shareholders equity deficit of $316,502.

AIS booked $7.7 million in earned premiums and paid claims of $5.3 million in 1995, according to the financial statement.

Until earlier this year, AIS assumed business through London managing general agent CRM Insurance Services Ltd., which also represented the fraudulent Dai Ichi Kyoto Reinsurance Co. S.A. of Belgium.

Dai Ichi is the subject of criminal investigations in the United States, United Kingdom and Belgium. In April, Belgian police arrested CRM Chairman Michael A. Reeve in Antwerp and held him for questioning. Mr. Reeve has denied wrongdoing.

AIS has since parted company with CRM-largely because of the Dai Ichi scandal, Mr. Morrison said-and now underwrites largely through its Antigua office, headed by General Manager David Boorman.

Mr. Boorman has separately operated Allied General Investments Ltd., a Jersey, Channel Islands, company that is owned by two Liberian trusts and that has acted as a managing agent for AIS.

The Colorado aviation business that triggered the cease and desist order passed through several intermediaries, all of them named in the order.

Snoaspen Insurance Group Inc., an Arvada, Colo., surplus lines broker, produced the business for AIS and the three other offshore insurers.

Documents show that money related to some of these risks was wired from an Irvine, Calif., claims adjuster to EJT (1996) U.K. Ltd., a British company operated from the Netherlands by Elwyn J.T. Llewellyn; and Eastwood Intermediaries Ltd., another British company headed by Christopher J. Boatwright, a former manager of Dai Ichi Kyoto.

EJT and Eastwood share the same registered address in Surrey, England.

Mr. Boatwright did not respond to written questions he requested by fax.

Mr. Llewellyn confirmed that EJT acted as an intermediary placing aviation risks with AIS through another agency, Van De Velde NV of Antwerp, Belgium.

Jan Van De Velde confirmed handling the business for AIS and said he has binding authority for the company. Mr. Rosenblum and Mr. Zimmerman acknowledged Mr. Van De Velde as a producing broker but denied that he has binding authority.

Meanwhile, a document has surfaced in the cease and desist action claiming that AIS reinsures its aviation business with: EJT; Merrion Reinsurance Co. Ltd. of Dublin, Ireland; and "TIG Reinsurance Co. Ltd." of London.

The origin of this document, apparently a promotional brochure, is unclear. Officials of AIS, EJT and Merrion Re all deny the purported reinsurance arrangement, and Mr. Llewellyn called the document "nonsense."

Officials of TIG Reinsurance Co. in Stamford, Conn., said TIG has never reinsured AIS and has no London unit called "TIG Reinsurance Co. Ltd." TIG Re has written to Mr. Rosenblum complaining about the use of its name.

Snoaspen, the surplus lines broker, has cooperated with the Colorado department's investigation, but Carolyn Burkett, a Snoaspen official, declined to comment.

All in all, the Colorado controversy is probably not what AIS intended by its corporate motto: "Famam extendere factis." Borrowed from Vergil's "Aeneid," the line translates to mean that to spread his reputation by deeds is the test of a man's virtue.