Florida Official Subpoenas Reinsurers
April 25, 2005
Florida's insurance regulation commissioner has subpoenaed officials of 17 insurance companies in a probe over the alleged improper use of reinsurance to overstate the value of a company, according to the commissioner's Web site.
The Florida probe is part of a widespread investigation by U.S. authorities into business practices in the insurance and reinsurance industries.
The list of companies subpoenaed last week includes units of American International Group Inc., Chubb Corp., Swiss Re AG and Hannover Re AG.
The deals used finite reinsurance, a form of reinsurance that limits the amount of risk transferred from the ceding insurance company to the reinsurance company through the use of various provisions.
If a company misstates the amount of risk in a finite reinsurance transaction, it can receive favorable accounting treatment for which it doesn't qualify.
"The improper use of finite reinsurance can hinder the ability of insurance regulators and the public to ascertain and assess the true financial condition of an insurer," according to a statement posted on the Web site by Florida's insurance regulation commissioner, Kevin McCarty.
AIG has received multiple subpoenas from regulators seeking information on how the company accounted for a number of insurance transactions.
New York Attorney General Eliot Spitzer, the New York Insurance Department and the U.S. Securities and Exchange Commission are examining whether AIG sought to hide liabilities or boost its income through use of offshore reinsurers, possibly misleading its shareholders.
AIG said earlier this month that an internal investigation had turned up a raft of accounting issues in prior financial statements that could sap the company's net worth by about 2 percent, or as much as $1.77 billion.
Spitzer said earlier this month his office expects to reach a civil settlement with AIG.
A Hannover Re spokeswoman said the company hasn't yet received the subpoena from the Florida insurance commissioner, but that the company will fully cooperate with the authorities.
"We're watching developments calmly as we don't see any grounds for accusations," Hannover Re spokeswoman Gabriele Handrick said. "We consider this as routine, as all major financial reinsurers are on the list," Handrick said.
A Swiss Re spokesman reiterated a statement the company made in November that Swiss Re will fully cooperate with all such requests, but declined to comment further.
The companies subpoenaed are:
ACE Ltd.'s unit ACE Tempest; Acordia Re; AIG Reinsurance and its units Transatlantic Reinsurance Co., and National Union Fire Insurance Co.; Alea London Ltd., Benfield Group Ltd.'s unit Benfield Re; BIG Re; Chubb's Chubb Atlantic Reinsurance Specialist Ltd.; Guy Carpenter; Hannover Re and its units Hannover Re Ltd. and E+S Reinsurers Ltd.; Jardine Sayer; Berkshire Hathaway Inc.'s unit National Indemnity Company of the South; PartnerRe Ltd.'s unit Partner Reinsurance Co. of the U.S.; and Swiss Re's unit Swiss Reinsurance American Corp.