SEC issues salvo of finite transaction subpoenas against insurers

Hannover Reinsurance Co. and General Electric Co. are among the latest targets of the U.S.’s Securities Exchange Commission (SEC) in its investigation into finite reinsurance transactions. The SEC’s interest in the use of finite reinsurance by insurers was sparked earlier this year when both the commission and New York’s attorney general Eliot Spitzer revealed that they had begun investigations into the books and accounting practices of American International Group Inc. (AIG) the latter has since disclosed an estimated "inflated book value" of about US$2.7 billion. In addition to Hannover and GE, the SEC has also filed subpoenas against AIG, Munich Reinsurance Co., Converium Holdings Ltd. and AXA Re.A GE statement confirms that the company has been subpoenaed regarding the use of finite reinsurance, and notes that it will cooperate fully with the SEC. The GE statement says the company which operates in the property and casualty insurance industry through subsidiaries GE Insurance Solutions and Employers Reinsurance Corp. is confident that its use of finite reinsurance was properly structured and accounted for with the appropriate level of risk transfer involved with the transactions in question. "GE Insurance Solutions has made limited use of reinsurance with finite characteristics to manage the risk of catastrophic events such as storms or hurricanes, and to protect itself and GE shareholders from the volatility that is inherent in its business," the statement notes.Rating agency Moody’s Investors Service has cut the debt and financial strength ratings of GE Insurance Solutions and Employers Reinsurance Corp. based on concerns of the insurance operation’s financial performance and that parent owner GE may look to spin off its insurance interests. Moody’s has reduced GE Insurance Solutions senior debt rating to "Baa1" from "A1" and lowered Employers Reinsurance Corp.’s financial strength rating to "Aa2" from "A1".