UPDATE 1-Argus, Tremont settle Madoff insurance suits in NY

* Insurance policy claims settled

* Loans to policy holders (Adds Argus to offer loans to policy holders)

NEW YORK, Sept 1 (Reuters) - Argus Group Holdings Ltd and Tremont International Insurance Ltd have reached a settlement with buyers and holders of life insurance and annuity policies lost in the Bernard Madoff fraud, according to court documents on Tuesday.

Policy holders sued the companies following the arrest in December of former Nasdaq non-executive chairman Madoff, who is serving a 150-year prison sentence after pleading guilty to running a Ponzi scheme of as much as $65 billion. The Ponzi scheme -- one in which early investors are paid with the money of new clients -- collapsed in the declining economy when redemptions overwhelmed the funds available.

Bermuda-based Argus said in a statement that the settlement would incorporate loans to policy holders and assign certain Argus claims to a litigation trust. It said no financial settlement will be paid to policyholders.

The settlement document said Argus denied and disclaimed any wrongdoing or liability with the claims and allegations made against it.

The settlement is subject to approval by Judge Thomas Griesa in U.S. District Court in Manhattan.

The lawsuits were filed on behalf of investors who bought or held variable universal life or deferred variable annuity policies issued by Tremont International Insurance or Argus International and managed by Tremont Capital Management or Rye Investment Management from May 10, 1994 through Dec. 11, 2008, the day the FBI arrested Madoff.

The Tremont Group invested with Madoff, who orchestrated Wall Street's largest investment fraud at his New York firm.

Tremont Group invested with Bernard L. Madoff Investment Securities LLC, which ran a brokerage and an investment advisory unit. Madoff, 71, admitted in court in March that the investment unit ran the multibillion-dollar fraud over at least two decades.

The settlement applies to the insurance litigation portion of three groups of lawsuits that were consolidated and identified Rye, New York-based Tremont Group Holdings as the main defendant.

"The settling parties intend to fully, finally and forever resolve, discharge, dismiss and settle the claims against the Argus defendants," the document said.

The case is in Re: Tremont Securities Law, State Law and Insurance Litigation 08-cv-11117 in U.S. District Court for the Southern District of New York (Manhattan) (Reporting by Grant McCool, editing by Gerald E. McCormick, Bernard Orr)