Munir Sjamsoeddin, chairman of the Dewan Asuransi Indonesia (DAI), or the Insurance Council of Indonesia, told Reuters that he would lead a delegation to Singapore on Wednesday to try to sort out problems that have stalled claims payments.

"The board of the DAI is going to Singapore on Wednesday to have a meeting with the Singapore Reinsurers' Association (SRA). It is probably the last time we will have a meeting to discuss things before we reach the end of the road," Munir said.

"But we at the DAI are prepared for the worst if there is a stalemate," he added.

The two sides are deadlocked over whether damage from the riots is covered by insurance and reinsurance policies. The DAI says they are, the SRA insists they are not.

The stand of reinsurers is crucial as they are theultimate underwriters of insurances that would be called on to pay claims.

If insurers pay claims and have reinsurance in place, they can pass on their liabilities and pay only relatively small sums.

SRA members include regional operations of the world's to preinsurers who cover the world's worst exposures to catastrophic losses in an industry worth about $150 billion a year.

The standoff arose over the definition of the riots that saw major commercial properties destroyed including banks, shopping centres and motor dealerships.

The DAI says the riots fall within the definition of riot, strike and malicious damage clauses included in most commercial insurance policies in Indonesia.

In a letter from the SRA to the DAI made public by Munir last week, the reinsurers' body said it interpreted the events that preceded the ouster of former president Suharto as more a civil commotion or popular uprising, not covered by their policies.

That stance, if followed by all SRA members, could devastateIndonesia's insurance industry, analysts say.

Local insurers' balance sheets have been ripped apart by an economic crisis that has seen the rupiah lose about 80 per cent of its value against the US dollar and wiped billions off stock market and property investments.

Paying even relatively few claims could make many bankrupt.

The reinsurers' stand is a bitter blow not only for insurers, but also for their clients who so far have only had about 10 per cent of their claims paid, according to industry sources.

Indonesian retailers were hit hard by violence which erupted between May 13 and 15 and desperately need the cash to rebuild broken businesses, already suffering from an economic crisis that has prompted IMF-led loans to the nation of some $47.4 billion.

Some will not be paid anyway due to massive under-insurance caused by the rupiah's huge devaluation, or because they own policies with compensation limits denominated in rupiah but with dollar deductibles.

"A $10,000 deductible will wipe outwhatever claim is paid to some policyholders," said the head of one Indonesian insurer.

The DAI is prepared to take the fight to the courts if it cannot persuade the SRA this week of the validity of claims.

"We have consulted a law firm here to, if necessary, assist the members in their claims, but it will be up to the individual members how they eventually decide to proceed," Munir said.

The situation should not deteriorate that far, however, as the SRA's decision is not legally binding on members, several of whom have already said publicly they will be considered, case by case.

And privately, most leading reinsurers say they are likely to make at least some payments.

"There are many ways to pay claims," the chief Singapore representative of one leading European reinsurer said. "You do not have to admit liability to make payments."

Another saving grace for DAI members is that reinsurers in the London market, who are estimated by industry sources to have about half of the exposure to the Mayriots, have not said they would deny claims and are already working on some.

But with London players carefully watching events in Singapore, Southeast Asia's regional reinsurance hub, the final stance could be pivotal to future payments.

"The fact that they will not admit liability is a worry,"said Munir, adding that he found the attitude "extremely disappointing", given that reinsurers are usually bound to follow the settlement decisions of insurers, especially in claims of a catastrophic nature -- what industry players call a "Big One".

"This is a Big One and it is what we as insurers and reinsurers are here for -- to pay for someone else's misfortune," Munir said. "We just expect everyone to pay their share."