FBI turns industry probe toward allegations of corporate fraud.

The U.S. Federal Bureau of Investigation is mobilizing dozens of agents from its Financial Crimes Section to investigate allegations of corporate fraud in the insurance industry, raising the specter of possible criminal charges against companies or executives in connection with probes of such industry practices as the use of finite reinsurance.

Agents from throughout the bureau's 56 field offices who investigate insurance-related corporate fraud cases will be asked to coordinate inquiries with the Washington headquarters, where investigators will look for broader patterns, the bureau confirmed in connection with the release of its 2005 Financial Crimes Report.

With the disclosure, the FBI becomes the latest federal agency to confirm a probe of the industry. Investigations into the alleged use of loss-mitigation, or finite, products to smooth companies' earnings statements have gained momentum over the past six months, leading to subpoenas issued by the U.S. Securities and Exchange Commission, the U.S. Justice Department and New York state Attorney General Eliot Spitzer to many property/casualty insurers and reinsurers.

Pennsylvania Insurance Commissioner Diane Koken, who serves as president of the National Association of A Insurance Commissioners, further confirmed that state insurance regulators have been tapped by the FBI to

provide guidance on the "technical requirements for accounting and reporting of reinsurance transactions, including arrangements that limit a reinsurer's risk of loss:'

However, the commissioner said such technical assistance "routinely" is provided by regulators to both state and federal investigations, adding that details of any specific investigation of insurers' activity are "treated as confidential"

Among the most high-profile insurance-related targets of recent federal investigations has been a $500 million finite reinsurance transaction between American International Group Inc. and Berkshire Hathaway Inc.'s General Reinsurance Corp., as well as AIG transactions with Bermuda-based Richmond Insurance Co. Ltd. and with Union Excess Reinsurance Co. Ltd. and Capco Reinstwance Co. Ltd., both of Barbados. AIG already has admitted that those transactions had been improperly accounted for, in that not enough risk actually had been transferred for them to be called insurance deals.

But according to consultant Donald Light of Celent Communications, those investigations could pale in comparison with the potential consequences should the FBI pursue criminal convictions, particularly given the old saw that no financial services firm has ever survived criminal indictment.

"There are a lot of financial services firms, and a lot of criminal indictments, and who knows what might have happened in 1927, but in recent memory, it's certainly been true,' Light said. "Any time you have 75 agents looking at one thing, criminal indictment is absolutely a threat."