Zurich Financial to pay $25 million fine to settle SEC fraud charges over insurance deals

Associated Press
December 11, 2008


WASHINGTON (AP) - Zurich Financial Services Group on Thursday agreed to pay a $25 million penalty to settle federal regulators' charges of civil securities fraud in connection with insurance transactions.

The Securities and Exchange Commission announced the settlement with Zurich Financial and a related one with Converium Holding AG, now known as SCOR Holding AG.

The companies neither admitted nor denied wrongdoing under the settlements, but they did agree refrain from future violations of the securities laws.

Zurich Financial's reinsurance division operated under the name Zurich Re and was spun off in December 2001 as Converium.

Reinsurance is purchased by primary insurance companies as a way of spreading risk.

The SEC alleged that Zurich Financial and later Converium improperly used reinsurance accounting for three transactions, enabling the Swiss companies to artificially inflate their performance figures. The sham transactions were designed to make it appear that risk had been transferred to third parties when it actually remained with entities under Zurich Financial's control, the SEC said.

The misconduct allowed Zurich Financial to receive a substantial windfall when it spun off Converium, according to the SEC.

In recent years, regulators have investigated dozens of insurance companies in the U.S. and abroad for their use of finite risk insurance, which combines elements of conventional insurance and financing. Regulators have said the products are sometimes used improperly to help companies pump up their financial statements without a real transfer of risk.

"Today's cases against Zurich and Converium, along with the previous enforcement actions brought by the SEC in this area, have been critical in curbing a widespread industry practice," James Clarkson, acting director of the SEC's regional office in New York, said in a statement.

Companies caught up in the investigations include insurers Ace Ltd., American International Group Inc., RenaissanceRe Holdings Ltd., MBIA Inc., and General Reinsurance Corp., a subsidiary of billionaire Warren Buffett's Berkshire Hathaway Inc.

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