Could lead to new guidelines on the legitimate use of finite reinsurance, say experts
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 deal is yet another black eye, said a story in BestWeek.
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.
One executive likened it to the ongoing steroid allegations against baseball legend Roger Clemens, and how every professional pitcher is worried about being deemed guilty simply by association.
“The insurance industry ought not to be cheering at this point.
Selva Ozelli, an international tax attorney
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 were former General Reinsurance Corp. executives and one worked for American International Group Inc. Prosecutors said the defendants arranged a sham finite reinsurance deal that purported to transfer $500m 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.’
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