Fraud Charges Filed Against Ex-RenassanceRe Execs
The fallout from the broad probe into a type of reinsurance known as finite reinsurance continues. On September 20th 2006, a superseding indictment was handed up by a New Haven federal grand jury in the case of former General Re and AIG executives, including Ronald E. Ferguson, 63 years old, GenRe chief executive officer from about 1987 through September 2001. A week later, the former CEO of Renaissance Re, James Stanard, and two other ex-RenRe employees, Martin Merritt and Michael Cash, were charged with civil fraud by The Securities and Exchange Commission. The charges accuse these RenRe executives of setting up two sham reinsurance transactions with a Bermuda-based reinsurer in which RenRe had an equity interest for no purpose other than to smooth out and defer $26 million in earnings.
As this Wall Street Journal article explains, “Insurers buy reinsurance to help spread out the risk that they will have to make payments under policies they write. Authorities have been concerned some finite reinsurance policies are little more than disguised loans that don't truly transfer risk. Mark Schonfeld, director of the SEC's Northeast Regional Office, said, ‘The defendants enabled RenRe to take excess revenue from one good year and, in effect, 'park' it with a counterparty so it would be available to bring back in a future year when the company's financial picture was not as bright.’”