Losses spill into insurance industry from Parmalat S.p.A. scandal.

More than 30 major insurance groups held exposures totaling at least $1.17 billion in scandal-plagued and insolvent Italian dairy group Parmalat Finanziaria S.p.A. prior to the company receiving bankruptcy protection from the Italian government in December 2003, according to A.M. Best Co. data.

The list includes three insurers--Aflac Inc, American International Group Inc. and John Hancock Financial Services Group--whose exposures topped $100 million each.

Questions about Parmalat's solvency began to arise last December, when it failed to make payment on two issues of outstanding notes. They were exacerbated when officials from Bank of America Corp. announced they had no record of an account Parmalat claimed was held in a New York branch of the bank by subsidiary Bonlat Financing Corp. Parmalat had claimed the account held cash and cash assets worth 3.95 billion euro (about $5 billion), but now cannot account for the money.

An investigation by Italian authorities into alleged fraud at the company has thus far netted the arrest of the company's founder and former chief executive, Calisto Tanzi, who has reportedly confessed to diverting some of the missing funds to private accounts.

Aflac held the largest exposure, with $383.6 million in notes, but the company sold its holdings in early December prior to revelations that Parmalat had a hole in its financial statements reported to be potentially as large as 10 billion euro (about $13 billion). Aflac said it expects to realize a $257 million investment loss in the fourth quarter on the sale of its Parmalat securities holdings.

Ten different units of AIG held Parmalat notes with a total book value of $122.1 million, while Hancock, which is currently in the process of merging with Canadian insurer Manulife, held senior and guarantee notes totaling $106.2 million.

Hancock estimated its total investment in Parmalat's public and private bonds to be $152 million.

Other insurance groups with major exposures to Parmalat include Pacific Life Group, with $62.5 million; Prudential of America, with $59.3 million; UnumProvident, with $62.5 million; TIAA-CREF, with $77.5 million; and Cigna, with $32.3 million.

Criterion Research Group LLC reported life insurers held $1.43 billion of bonds in Parmalat.

The updated figures include the industry's exposure to Parmalat's special-purpose vehicles Food Holdings Ltd., Dairy Holdings Ltd. and USPP Trust. Those subsidiaries weren't included in the analysis showing that 30 major insurance groups held exposures totaling at least $1.17 billion.

According to Criterion, the data show that the pending bankruptcy proceedings of Parmalat would mark a "significant credit event for the insurance industry."

According to Criterion analyst William Dinielli, however, the level of fraud allegedly committed by Parmalat executives, who are subject to lawsuits and prosecution by regulators in Europe, the United States, South America and Australia, was so massive that the insurers couldn't have known what was happening.

The implosion of Parmalat S.p.A may also affect the world's second-largest captive domicile, among other places.

Two of Parmalat's special-purpose vehicles--Food Holdings Ltd. and Dairy Holding Ltd.--are domiciled in the Cayman Islands and are now beginning the liquidation process.

The two SPVs are not related to captive insurance, but several industry insiders, said regulators in captive domiciles do worry about the possible impact of the scandal on the industry's reputation.

Andrew Jones, an attorney with Cayman Islands-based law firm Maples & Calder who represents the Parmalat SPVs, said provisional winding-up orders were issued by the Caymans' Grand Court on Dec. 24, appointing Ernst & Young as provisional liquidator for the two entities.

Jones, whose firm does work in the captive insurance industry, said the Parmalat issue should not have an effect on the captive sector in the Caymans, but added it would be easy for anyone unfamiliar with how offshore domiciles work to misunderstand the significance of the issue. "Every Fortune 500 company has some connection to the Caymans, just as every one of those companies has some connection to New York City via Wall Street," he said. "It shouldn't surprise anyone to find that when one of these large international companies has problems, they have an offshore presence."

Life Insurers' Exposure
To Parmalat S.p.A.

Criterion Research Group LLC
reports U.S. life insurers held $1.43
billion in Parmalat bonds. The largest
exposures include:

($ Millions)

Aegon                   $75.5
Allstate                $51.9
American Int'l Group   $162.1
Cigna                   $43.3
John Hancock            $79.7

New York Life           $54
Pacific Life            $68.5
Principal               $50.2
Prudential             $104.8
UnumProvident           $54.2

Source: Criterion Research Group LLC

Note: Table made from bar graph.