Berkshire, HIH face insurance probe

By David Plumb
New York
The Age
May 23, 2005

Ronald Ferguson, the former chief executive officer of Berkshire Hathaway's General Re unit, has refused to answer questions from United States federal prosecutors and regulators probing reinsurance accounting, prompting the company to sever remaining ties.

US federal prosecutors are probing General Re's transactions with Reciprocal of America, a failed medical malpractice insurer, and Australian regulators are looking at whether General Re contributed to the collapse of HIH, the country's second-biggest general insurer, in 2001. Reinsurers provide insurance coverage for other insurance companies.

Ferguson, who stepped down as CEO in 2001, cited his Fifth Amendment right to avoid self-incrimination in response to subpoenas from the Department of Justice and the US Securities and Exchange Commission. In response General Re, the largest US reinsurer, said Ferguson will no longer be a consultant.

Ferguson's refusal to answer questions underscores the extent to which Berkshire Hathaway, run by iconic billionaire investor Warren Buffett, is embroiled in probes of accounting abuses by its customers.

American International Group, the world's largest insurer, is one of at least three General Re clients being investigated in a probe of non-traditional reinsurance, which can be used to mask losses or smooth earnings figures.

The main protagonists have gone to ground. Joseph Brandon, General Re's chief executive, didn't respond to voicemail and email messages. Ferguson's extension at General Re's office in Connecticut is now a non-working number. His home number couldn't be located.

The Justice Department, the SEC and New York Attorney-General Eliot Spitzer are all investigating a four-year-old General Re transaction with AIG. In March AIG said the transaction had improperly inflated its premiums and reserves for claims by $500 million.

Maurice "Hank" Greenberg, the 80-year-old ousted chairman and CEO of AIG, invoked his Fifth Amendment rights last month when queried about the transaction.

Mr Buffett, 74, has responded to questions and was called a "co-operative witness" by Mr Spitzer.

The Wall State Journal reported in March that Mr Greenberg had contacted Mr Ferguson directly in 2000 to initiate the transaction.

Berkshire, based in Omaha, Nebraska, didn't give details about the nature of questions that Mr Ferguson refused to answer, saying only that they related to the SEC's and Department of Justice's "ongoing investigations". A statement from Berkshire made no mention of Mr Spitzer's probe.

The SEC has told at least three executives from General Re, including former chief financial officer Elizabeth Monrad, that it may sue them. Berkshire said on May 13 that the US Attorney for the Eastern District of Virginia, which has been investigating the case, was targeting a former officer, whom it didn't identify.

Berkshire shares have fallen 4.4 per cent this year, compared with a 1.8 per cent drop in the NYSE Composite Index. The stock rose $US299.90 ($A395) to $US84,000 in New York Stock Exchange Composite trading yesterday.

Copyright © 2005 The Age Company Ltd.

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