BestWeek: Guilty Verdict in Finite Re Trial Is Mixed Blessing for Industry, Experts Say

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 in a story in "BestWeek" U.S./Canada. 
 
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. 
 
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 $500 million 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,” Ozelli said. 
 
Also, in BestWeek Europe: Lloyd’s underwriter Beazley Group plc's establishment of a Political and Contingency Group is a statement of confidence in what Beazley sees as a very promising market. 
 
Also, in BestWeek U.S./Canada: The five former insurance executives found guilty on federal charges of conspiracy and fraud in a plot to manipulate the loss reserves of American International Group Inc. face essentially a whole new trial in the sentencing process. 
 
And in both editions of BestWeek: The Best's Global Insurance Composite Index finished the week of Feb. 28 down 6.17% from a year ago. The composite index reflects the performance of 170 insurance stocks. The week's top stocks were Aioi Insurance Co., Jardine Lloyd Thompson Group, Nissay Dowa General Insurance Co., Mitsui Sumitomo Insurance Co., and FPIC Insurance Group. 
 
The bottom five stocks were QBE Insurance Group, Meritz Fire & Marine Insurance Co., Harleysville Group, American Safety Insurance Holdings, and Independence Holding Co.