Future impact: the use of finite reinsurance is tied to federal guilty verdicts.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 Finite Reinsurance A type of reinsurance that transfers over only a finite or limited amount of risk. Risk is reduced through accounting or financial methods, along with the actual transfer of economic risk. deal is yet another black eye, experts say. [ILLUSTRATION OMITTED] 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. 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 are former General Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. Corp. executives and one worked for American International Group
American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. Inc. Ronald Ferguson Major Ronald Ivor Ferguson (born on October 10, 1931 – died on March 16, 2003) was the father of Sarah Ferguson, former wife to Prince Andrew. He is the maternal grandfather of Princesses Beatrice and Eugenie of York. was the chief executive officer of Gen Re; Elizabeth Monrad was Gen Re's chief financial officer; Robert Graham Robert Graham is the name of several persons:
AIG American International Group, Inc AiG Answers in Genesis (religious group in defense of Scripture) AIG Artificial Intelligence Group AIG Australian Industry Group . 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. She also noted there may be bigger troubles ahead because prosecutors have indicated they might go after other top executives that allegedly were involved in the sham transaction but haven't been indicted INDICTED, practice. When a man is accused by a bill of indictment preferred by a grand jury, he is said to be indicted. . Unindicted co-conspirators Maurice "Hank" R. Greenberg's, the former chief executive and chairman of AIG, and Joseph Brandon's, the current chief executive of Gen Re, connections to the transaction were highlighted during the trial. Ron Shelp, author of Fallen Giant, a book about AIG and Greenberg, its long-time chief, said the verdict seems to have emboldened em·bold·en tr.v. em·bold·ened, em·bold·en·ing, em·bold·ens To foster boldness or courage in; encourage. See Synonyms at encourage. Adj. 1. prosecutors. "I'm not sure what they'd do. They've said they want to go higher up the chain. That can't be good for Hank Greenberg
While it's hard to speculate where prosecutors are heading, there's no doubt what impact this case and others have had on the use of finite reinsurance. Andy Barile, a reinsurance consultant based in California, said there's some concern the scrutiny of finite transactions will reach extreme proportions. "All of us, as practitioners, we've tried to use a product that basically helps insurance companies survive and now it's turned into something illegal," he said. "The verdict sends a shock wave through the practitioners of the industry that says, 'when you use these types of products in the future, you better have the scrutiny of everyone involved such as your outside accounting firm and outside legal firm.' It may get to the point where the board has to sign off." At the height of the finite reinsurance investigations in 2005, former New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of state Superintendent of Insurance Howard Mills issued new regulations requiring chief executive officers to certify that their companies' finite reinsurance deals involved a genuine risk transfer. Now a consultant at Deloitte & Touche USA, Mills said while such preventative measures were important, more is needed from the regulatory community to resolve persistent confusion about the permissible use of finite reinsurance. "There are legitimate uses of finite reinsurance, and one of the things I was concerned about while a regulator was that this entire product was being painted very broadly. Regulators need to spell it out This article or section contains unconfirmed rumors and/or speculation. Information must be and based on . Please remove rumors and speculation and discussion from the article. ," he said. Mills said the interested parties now have an incentive to develop a "road map." As a result of all the negative attention, there's very little market appetite for finite reinsurance deals, said Paul Hummer, an attorney who chairs the insurance practice group at the law firm of Saul Ewing Saul Ewing LLP is a Philadelphia-based law firm. In addition to their main headquarters (located in the heart of the business district in Center City, Philadelphia, Pennsylvania,) Saul Ewing has seven Mid-Atlantic regional offices in Baltimore, MD, Chesterbrook, PA, Harrisburg, PA, . But Hummer believes finite re would either return, albeit under a great deal of scrutiny, or an alternative vehicle could be developed in its place. "I suspect some variant of it would come back because there's a legitimate business need for reinsurance of this type" he said. Accounting Has Landed Insurers in Trouble Before When compared with embezzlement embezzlement, wrongful use, for one's own selfish ends, of the property of another when that property has been legally entrusted to one. Such an act was not larceny at common law because larceny was committed only when property was acquired by a "felonious taking," i. , consumer fraud or conspiring to restrict competition, charges of improper accounting generally are perceived to be among the more minor "white collar crimes white collar crime n. a generic term for crimes involving commercial fraud, cheating consumers, swindles, insider trading on the stock market, embezzlement and other forms of dishonest business schemes. " Nonetheless, allegations related to the failure to keep proper books have landed a number of industry executives in prison in recent years. Some notable cases follow.--R.J. Lehmann Company: HIH Insurance HIH Insurance was Australia's second largest insurance company, which was placed into provisional liquidation on 15 March 2001. The demise of HIH is considered be the largest corporate collapse in Australia's history, with liquidators estimating that HIH's losses totalled up to $5. Ltd. Defendant: Dominic Fodera, former chief financial officer Forum: New South Wales New South Wales, state (1991 pop. 5,164,549), 309,443 sq mi (801,457 sq km), SE Australia. It is bounded on the E by the Pacific Ocean. Sydney is the capital. The other principal urban centers are Newcastle, Wagga Wagga, Lismore, Wollongong, and Broken Hill. (Australia) Supreme Court Charges: Pleaded guilty to knowingly or recklessly failing to act honestly in the discharge of his duties in November 2007. A jury previously convicted him in May 2007 of authorizing a prospectus that omitted material information. Sentence: The second set of charges carried a sentence of three years and four months in prison, which Fodera is serving concurrently with his earlier three-year sentence. Summary: The Australian Securities and Investments Commission The Australian Securities & Investments Commission (ASIC) is an independent Australian government body that acts as Australia's corporate regulator. ASIC's role is to enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors. alleged Fodera failed to inform HIH's board and its auditor of key details related to reinsurance deals entered into with several Hanover Re subsidiaries. Company: HIH Insurance Ltd. Defendant: Ray Williams Ray Williams can refer to:
Forum: New South Wales (Australia) Supreme Court Charges: Pleaded guilty in December 2004 to authorizing or making misleading statements in financial reports and prospectuses, in violation of Australia's Corporations Act. Sentence: Sentenced in April 2005 to four years and six months. Was released in January 2008. Summary: Prosecutors charged Williams signed a "misleading" October 2000 letter to purchasers of HIH HIH abbr. Her (or His) Imperial Highness notes that claimed the company had managed its FAI General Insurance Co. Ltd. subsidiary in compliance with obligations of the note program, when it actually was in breach of certain "fundamental obligations." Company: HIH Insurance Ltd. Defendant: Rodney Adler Rodney Stephen Adler (born on 19 August 1959) is an Australian businessman and former director of telecommunications company One.Tel and insurance company HIH, both of which collapsed in 2001. He was jailed in 2005 for his role in the collapse of HIH. , former director Forum: New South Wales (Australia) Supreme Court Charges: Pleaded guilty to four counts of making false statements and failing in his fiduciary duties. Sentence: Sentenced in April 2005 to four years and six months. Adler later lost an appeal of that sentence before the New South Wales Court of Appeal in May 2006, but was released in October 2007. Summary: Adler was targeted in part for taking part in an HIH directors meeting where an A$2 million (US$1.9 million) investment by HIH in Business Thinking Systems Pty. Ltd was ratified, without disclosing negative or adverse information about the financial position of BTS BTS - Bug Tracking System at the time. Company: FAI Security Group Defendant: Bradley Cooper, former chairman Forum: New South Wales (Australia) Supreme Court Charges: Convicted in October 2005 on six counts of giving a series of cash benefits to influence an HIH agent and seven counts of publishing false or misleading statements with intent to obtain financial advantage. Sentence: Sentenced in June 2006 to at least five years before he would become eligible for parole. Summary: Regulators charged Cooper paid about A$124,000 ($115,425) to former HIH finance general manager William Howard to facilitate A$4.9 million ($4.5 million) of payments by HIH to Cooper and entities associated with him, and forgiveness of A$1.79 million ($1.66 million) he owed to HIH. Company: Independent Insurance Co. Ltd. Defendant: Michael Bright, former chairman and managing director Forum: Southwark (U.K.) Crown Court Charges: Found guilty on two counts of conspiracy to defraud. Sentence: Sentenced in October 2007 to seven years imprisonment Imprisonment See also Isolation. Alcatraz Island former federal maximum security penitentiary, near San Francisco; “escapeproof.” [Am. Hist.: Flexner, 218] Altmark, the German prison ship in World War II. [Br. Hist. . Summary: Bright was accused of hiding tens of millions of pounds in liabilities, including directing employees to record losses on white-board spreadsheets but not in official financial statements, prior to Independent's June 2001 collapse. Bright was forced to resign in April 2001. Company: Independent Insurance Co. Ltd. Defendant: Dennis Lomas, former finance director Forum: Southwark (U.K.) Crown Court Charges: Found guilty on two counts of conspiracy to defraud. Sentence: Sentenced in October 2007 to four years imprisonment. Summary: Lomas, currently serving out his sentence at Ford Open prison in West Sussex West Sussex, nonmetropolitan county (1991 pop. 692,800), 768 sq mi (1,990 sq km), S England. A chalk ridge runs from the county's east to west edge. In the south the land flattens into a gentle plain. After early Roman invasions, the Saxons moved across Sussex. , is reportedly seeking to appeal his conviction. Company: Independent Insurance Co. Ltd. Defendant: Philip Condon, former deputy managing director Forum: Southwark (U.K.) Crown Court Charges: Found guilty on one charge of conspiracy to defraud, but acquitted on another. Sentence: Sentenced in October 2007 to three years imprisonment. Summary: Condon recently joined Lomas and Bright in challenging confiscation confiscation In law, the act of seizing property without compensation and submitting it to the public treasury. Illegal items such as narcotics or firearms, or profits from the sale of illegal items, may be confiscated by the police. Additionally, government action (e.g. by the Serious Fraud Office of assets seized from the trio. Company: Reciprocal of America Defendant: Kenneth R. Patterson, former president Forum: U.S. District Court for the Eastern District of Virginia Charges: Pleaded guilty in February 2005 to one count of conspiracy to commit insurance fraud and two counts of mail fraud. Sentence: Sentenced in June 2005 to 12 1/2 years in prison; full restitution. Summary: Patterson admitted he arbitrarily reduced the company's case reserves without reviewing individual cases by about $18.7 million and backdated the changes to individual case reserves from Nov. 8, 2001, to Sept. 28, 2001. Company: Reciprocal of America Defendant: Carolyn Hudgins, former executive vice president Forum: U.S. District Court for the Eastern District of Virginia Charges: Pleaded guilty to one count of conspiracy to commit insurance fraud. Sentence: Sentenced in June 2005 to five years in prison and made to pay full restitution. Summary: Hudgins admitted to assisting in the fraudulent transfer of $10 million in capital to the trust of First Virginia Reinsurance, an offshore reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. that had common management with ROA ROA See: Return on assets ROA See: Right of accumulation ROA See return on assets (ROA). . |
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