GE now part of Finite Reinsurance probe
As the following article indicates, the broad investigation into the practice of finite reinsurance continues to expand. The investigation by the U.S. Attorney's Office for the Southern District of New York has now touched General Re, AIG, General Electric's Employers Re, Ace Ltd., CNA Financial, and St. Paul Travelers. One might note that these companies have disclosed their involvement through securities disclosure filings with the SEC. What has not yet been actively discussed or disclosed is what contact the investigators have had with the several large European insurers and reinsurers that were active in the United States market from 1996 or so to present. Hence, there has been little news about SCOR, Swiss Re or Munich Re's activities in the finite reinsurance sector or their possible involvement in the probe. The other group of finite reinsurance participants that there has been little news about are the companies located down in Bermuda and the Carribean. Hence, there also is likely to be news at some point about XL, Partner Re, Inter-Ocean Re, and the many other small special purpose reinsurers set up in 1990s.
GE subpoenaed by U.S. attorney
List of companies quizzed in federal finite probe grows
By Alistair Barr, MarketWatch
Last Update: 7:12 PM ET June 20, 2005
SAN FRANCISCO (MarketWatch) -- General Electric Co., the Fairfield, Conn.-based conglomerate, became one of the latest companies to be subpoenaed by federal prosecutors as part of a broad investigation into finite reinsurance.
GE (GE: news, chart, profile) , among the largest companies in the world, said Monday that it got the inquiry from the U.S. Attorney's Office for the Southern District of New York.
Earlier this year, the company's insurance division GE Insurance Solutions received a similar subpoena from the Securities and Exchange Commission, GE said, adding that it will cooperate with both inquiries.
GE joins a growing list of companies, including Ace Ltd. (ACE: news, chart, profile) , CNA Financial (CNA: news, chart, profile) and St. Paul Travelers (STA: news, chart, profile) , that have been contacted by the office of U.S. attorney David Kelley as part of an investigation into finite reinsurance.
There is no clear definition of finite reinsurance, but generally it's a blend of traditional reinsurance and financing. The agreements limit the risk assumed by the reinsurer.
Regulators, including the Justice Department, New York Attorney General Eliot Spitzer and the Securities and Exchange Commission, are investigating whether companies have used finite reinsurance to manipulate their financial statements.
The probes precipitated the departure of longtime American International Group (AIG: news, chart, profile) Chief Executive Maurice "Hank" Greenberg in March, and forced AIG to admit to a series of accounting improprieties.
Spitzer filed a civil lawsuit against AIG, Greenberg and the company's former chief financial officer, Howard Smith, in May. Among the complaint's allegations were claims that the defendants accounted for finite-reinsurance agreements incorrectly, deceiving investors and regulators.
When GE Insurance Solutions first disclosed its involvement in the probes on April 29, the firm said it had made "limited use" of finite reinsurance "to manage the risks of catastrophic events such as storms or hurricanes and to protect itself and GE shareowners from the volatility that is inherent in its business."
In addition to being contacted by the U.S. Attorney for the Southern District of New York, CNA Financial said late Monday that the SEC had requested more information.
The Wall Street watchdog has asked for documents relating to CNA's previously disclosed restatement of results and its relationship with Accord Re Ltd. and how it accounted for transactions involving that firm, the company disclosed in an SEC filing.
CNA restated its results from 2002, 2003 and 2004 in May because the company said it had accounted for finite-reinsurance agreements with Accord Re incorrectly.
CNA, which used to own part of Accord Re, said its reinsurance agreements with the Bermuda-based firm didn't transfer enough risk to count as bona-fide insurance, so should have been recorded as loans instead.
Chicago-based CNA also said it would undergo a state-insurance examination of its main Continental Casualty Co. unit that included a study of whether certain finite reinsurance used by the company transferred enough risk.
The Loews Corp. (LTR: news, chart, profile) subsidiary also said the state examination could result in more restatements.