Beleaguered policyholders of the five insolvent insurance companies that comprise Kwelm, subsidiaries of the failed London United Investments PLC, can look forward to a bit of summer cheer in form of a $221 million in claims payment.

This brings the total funds paid to, or set aside for, creditors to $1.8 billion since the arrangement for paying the Kwelm companies was set up in 1993 by accounting firm Coopers & Lybrand. The five Kwelm companies collapsed in the early 1990s, owing approximately $9.2 billion to 100,000 creditors.About 90 percent of the creditors are U.S.-based and a significant number are Fortune 500 companies, insurance companies and professional firms, including several major law firms, ''Big Six'' accounting firms and several large US hospital groups.

Kwelm is an acronym comprised of the first letter of the names of the five companies involved: Kingscroft Insurance Co., Walbrook Insurance Co., El Paso Insurance Co., Lime Street Insurance Ltd. and Mutual Reinsurance Co. Together the Kwelm companies represent the world's largest non-life insurance solvency to date.

They all specialized in U.S. property/casualty business, professional indemnity, medical malpractice, asbestos and pollution risks - the reason for their downfall.

Creditors learned the news in the fourth annual report to creditors released Tuesday, produced by the plan's administrators, Chris Hughes and Ian Bond, a partner and retired partner respectively at Coopers & Lybrand.

There will be a Kwelm creditors meetings in Los Angeles on June 23 and in London on July 2.

''If you went through a Who's Who of prominent risks, whether it's medical malpractice, asbestosis, breast implants or blood products, etc., this company had a pretty broad and deep basket of some of these risks. It had written such a volume of business that was brought down by an aggregation of these problem areas,'' he added.

After the claims payment plan was created, a periodic payment plan for creditors was approved in December 1993. The first payment followed one year later. The fifth such distribution starts this summer.

The arrangement has two major sources of income: reinsurance and investment return. Mr. Hughes said, ''Some very good progress has been made on several fronts, but the level of annual income will inevitably fluctuate.''

The lastest announcement lifts the average payout since the scheme started by 25 percent, to 15 percent of money owed to individual creditors.

Given the nature of the business written, he added, ''it is still too early to predict the level of the final payout.''

Mr. Hughes said it would be at least 10 years before the amount was settled.

Commenting on the latest figures, Mr. Hughes said he was particularly pleased with the amount of money recovered in 1997 from reinsurers who covered excess risks for the five companies. For 1997, $264 million worth of reinsurance was recovered.

''This is the highest recovery we have made in any single year,'' he said.