Australia Probing Gen Re Over Finite Deals
National Underwriter News
April 14, 2005
The Australian Prudential Regulation Authority, a financial regulatory agency, said it is investigating General Reinsurance sales of finite reinsurance that may have contributed to Australia's largest corporate collapse.
Involved are non-traditional finite reinsurance contracts that the Berkshire Hathaway Inc. unit sold to FAI Insurance that are suspected of being used to inflate FAI's financial picture.
FAI was sold to Australian insurance giant HIH Insurance in 1998 while the finite reinsurance contracts were in force. HIH Insurance collapsed in March 2001 with debts in excess of $4 billion and the company's liquidator has charged that General Re's finite deals with FAI ultimately contributed to the HIH's failure.
General Re, one of the biggest providers of non-traditional reinsurance products, is already under intense scrutiny in the United States over its finite transactions with the American International Group.
The Australian regulator said that its investigation will involve "General Re's complex financial products in relation to financial and finite reinsurance and the marketing and promotion of those products."
"This includes ensuring that any transactions entered into are properly recorded and are appropriately treated in regulatory and financial reporting," according to Ross Jones, deputy chairman of the Australian Prudential Regulation Authority.
The U.S. investigations have forced the resignation of AIG's longtime boss Maurice Greenberg, first as the CEO and then as non-executive chairman of the board.
This week, the widening U.S. probes saw investigators question Berkshire Hathaway Chairman and Chief Executive Warren Buffett regarding his knowledge about the GenRe transactions with AIG.
Former AIG Chairman and CEO Maurice Greenberg was also questioned and his lawyers said rather than answer he had invoked his Fifth Amendment right against self incrimination.