Risk Management

GE, CNA Receive Finite-Risk Subpoenas

ACE, PartnerRe Ltd., Bristol West Holdings Inc., XL Capital Inc., Renaissance Re, and Philadelphia Consolidating Holding Corp. have also been reque...
Stephen TaubJune 21, 2005

General Electric Co. and Loews’ CNA are two of the latest companies to receive a subpoena from the U.S. Attorney’s Office for the Southern District of New York as part of a growing investigation into finite risk insurance.

General Electric, which stated that it intends to cooperate fully, added that GE Insurance Solutions had already received a similar subpoena from the New York Regional Office of the Securities and Exchange Commission on April 29. In a press release, the company stated that its Insurance Solutions unit has made limited use of reinsurance with finite characteristics to manage the risks of catastrophic events and to protect itself and GE shareowners from the volatility.

Loews announced that its CNA unit has received subpoenas, interrogatories, and inquiries from a number of state and federal regulatory authorities, including the SEC, concerning finite risk and related products. The commission subsequently requested that CNA produce documents relating to its restatement of 2004 results, including its relationship with and accounting for Accord Re Ltd. CNA intends to cooperate fully in these investigations, Loews added.

Bermuda-based ACE Ltd. announced that it plans to comply with a subpoena from the U.S. attorney; the insurer had already received similar subpoenas from the SEC and from New York Attorney General Eliot Spitzer.

Last week, a number of small reinsurance companies also received subpoenas from the U.S. attorney’s office, according to the Associated Press, including PartnerRe Ltd., Bristol West Holdings Inc., XL Capital Inc., and Renaissance Re. All of the companies announced that they are cooperating, the wire service noted; all of them also noted that they had previously received subpoenas from the SEC.

Also last week, Philadelphia Consolidating Holding Corp. announced that it received a subpoena from the SEC requesting information regarding any non-traditional insurance products entered into by the company’s insurance subsidiaries — Philadelphia Indemnity Insurance Co. and Philadelphia Insurance Co. — with General Re Corp.

So-called finite insurance transfers a prescribed amount of risk for a particular liability. Regulators are investigating whether companies such as American International Group Inc. have used finite insurance to inflate their financial results. (But as CFO.com deputy editor David Katz recently observed, finite coverage can also help finance executives to manage hard-to-quantify risks, clinch a merger deal, and even produce better-quality earnings.