10, 2006 investor conference call concerning the review of the company's
finite reinsurance contracts.
While at Zurich, he held responsibility for managing the run off of Centre Solutions, a US$10 billion business at the time of going into run-off which underwrote
Finite Reinsurance, Life and Health Reinsurance and Credit Enhancement transactions.
The case was originally filed in 2007, led by several Ohio public pension funds alleging a sham $500 million
finite reinsurance transaction between Berkshire Hathaway's Gen Re and American International Group Inc.
He was chair of the NAIC Property and Casualty Reinsurance Working Group that adopted additional disclosures for
finite reinsurance and required CEOs and CFOs to attest that the contracts transferred risk.
Finite reinsurance thus combines a multi-year banking transaction with limited reinsurance coverage and has five distinguishing features: (1) risk transfer and risk financing are combined in a single contract; (2) less underwriting risk is transferred to the reinsurer than under conventional reinsurance; (11) (3) finite risk contracts nearly always cover multi-year periods rather than being annually renewable; (4) investment income on the premiums paid by the primary insurer is explicitly included when determining the price, placing an emphasis on the time value of money not found in conventional reinsurance; and (5) there is usually risk sharing of the ultimate results (positive or negative balance at the end of the contract) between the reinsurer and the buyer.
Garand, former senior vice president and chief underwriter of the company's
finite reinsurance operations in the United States, is still awaiting sentencing.
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, experts say.
The five were convicted of 16 counts arising from a conspiracy to create a sham
finite reinsurance arrangement that helped artificially inflate AIG loss reserves by $500 million in the fourth quarter of 2000 and first quarter of 2001.
Nutter: One of the things that happened in December related to finite (risk transactions) is that the Financial Accounting Standards Board announced that it is going to undertake a review of rules related to insurance and reinsurance driven by the
finite reinsurance problems.
According to the report, there are two basic kinds of
finite reinsurance products: earnings smoothers--where insurers pay premiums in low loss years to reinsurers that repay a portion of those premiums when a loss occurs, allowing the balance sheet to remain smooth--and balance sheet strengtheners--where insurers boost their solvency by giving reinsurers some of their premiums, thereby reducing the capital needed to support the current level of underwritten business.
Spitzer's office and the Securities and Exchange Commission are investigating the questionable use of a product known as
finite reinsurance that can be used to make a company appear stronger than it really is.
On March 22, 2006, Fairfax revealed that the Securities and Exchange Commission ("SEC") had subpoenaed records of all of Fairfax's
finite reinsurance contracts in the previous year and that the SEC had subpoenaed V.
