BestWeek: Guilty Verdict in Finite Re Trial Is Mixed Blessing for Industry, Experts Say
OLDWICK, N.J.--(Business Wire)--
To an industry slowly recovering from a four year period of
intense regulatory scrutiny, the recent federal jury decision to
convict five former senior insurance executives of securities fraud in
connection with a finite reinsurance deal is yet another black eye,
experts say in a story in BestWeek U.S./Canada.
Many are expecting the guilty verdicts--up to 16 counts for
most--and the potentially long jail sentences facing the defendants to
impact decisions in company boardrooms going forward. One executive
likened it to the ongoing steroid allegations against baseball legend
Roger Clemens, and how every professional pitcher is worried about
being deemed guilty simply by association.
Some have expressed hope, though, that this case would finally
force the regulatory community and the insurance industry to come
together to set new guidelines on the legitimate use of finite
reinsurance, which was the type of deal at the heart of the case.
Of the five defendants convicted on multiple counts of securities
fraud, conspiracy and making false statements to the U.S. Securities
and Exchange Commission, four were former General Reinsurance Corp.
executives and one worked for American International Group Inc.
Prosecutors said the defendants arranged a sham finite reinsurance
deal that purported to transfer $500 million of loss reserves to AIG
without AIG assuming any real risk.
Selva Ozelli, an international tax attorney who provided
jurisdictional analysis to state and federal regulators at the onset
of the investigations in 2005, said the reputational damage to the
industry is severe because the case involves AIG and Gen Re, and some
of the industry's most respected players.
"Two of the largest insurance companies were involved in these
fictitious transactions, using reinsurance transactions to manipulate
financial statements, as opposed to its intended use. The insurance
industry ought not to be cheering at this point," Ozelli said.
Also, in BestWeek Europe:
Lloyd's underwriter Beazley Group plc's establishment of a
Political and Contingency Group is a statement of confidence in what
Beazley sees as a very promising market.
Also, in BestWeek U.S./Canada:
The five former insurance executives found guilty on federal
charges of conspiracy and fraud in a plot to manipulate the loss
reserves of American International Group Inc. face essentially a whole
new trial in the sentencing process.
And in both editions of BestWeek:
The Best's Global Insurance Composite Index finished the week of
February 28 down 6.17% from a year ago. The composite index reflects
the performance of 170 insurance stocks. The week's top stocks were
Aioi Insurance Co., Jardine Lloyd Thompson Group, Nissay Dowa General
Insurance Co., Mitsui Sumitomo Insurance Co., and FPIC Insurance
Group.
The bottom five stocks were QBE Insurance Group, Meritz Fire &
Marine Insurance Co., Harleysville Group, American Safety Insurance
Holdings, and Independence Holding Co.
BestWeek is published by A.M. Best Co. for insurance
professionals. To subscribe, please call A.M. Best's customer service
department at (908) 439-2200, ext. 5742, or e-mail your request to
customer_service@ambest.com.
Founded in 1899, A.M. Best Company is a global full-service credit
rating organization dedicated to serving the financial and health care
service industries, including insurance companies, banks, hospitals
and health care system providers. For more information, visit
www.ambest.com.
A.M. Best Co.
Caroline Saucer, 908-439-2200, ext. 5774
caroline.saucer@ambest.com
Copyright Business Wire 2008
