Zurich settles US reinsurance fraud case
Zurich Financial Services will pay $US25 million ($37 million) in civil penalties after settling a reinsurance fraud case brought by the US Securities and Exchange Commission (SEC).
The SEC brought civil securities fraud charges against Zurich and Converium Holding AG – now known as Scor Holding (Switzerland) AG – over a series of finite reinsurance transactions dating back to 1999.
It alleged that Zurich’s former reinsurance group, which operated under the name Zurich Re and was later spun off in 2001 as Converium, designed three reinsurance transactions to make it appear risk was transferred to third parties when the risk in fact remained with Zurich entities.
Because the ultimate risk under the reinsurance contracts remained within Zurich, the transactions were improperly accounted for as reinsurance, the SEC claimed.
Those actions altered Converium performance figures to the benefit of Zurich when it later divested Converium under an initial public offering (IPO).
The SEC claims among several misleading figures Converium understated reported pre-tax loss by about $US100 million ($149 million) in 2000. The watchdog alleged Converium continued the scheme following the IPO.
The regulator has settled with both parties incorporating cease-and-desist orders, but without an admission of liability.
SEC New York office Acting Director James Clarkson says the case has assisted in “curbing a widespread industry practice”.
In a statement, Zurich said it was “in the best interests of the company to resolve this matter… and thus eliminate the burden, expense and uncertainty of potential enforcement proceedings relating to historical events and former employees”.
The SEC brought civil securities fraud charges against Zurich and Converium Holding AG – now known as Scor Holding (Switzerland) AG – over a series of finite reinsurance transactions dating back to 1999.
It alleged that Zurich’s former reinsurance group, which operated under the name Zurich Re and was later spun off in 2001 as Converium, designed three reinsurance transactions to make it appear risk was transferred to third parties when the risk in fact remained with Zurich entities.
Because the ultimate risk under the reinsurance contracts remained within Zurich, the transactions were improperly accounted for as reinsurance, the SEC claimed.
Those actions altered Converium performance figures to the benefit of Zurich when it later divested Converium under an initial public offering (IPO).
The SEC claims among several misleading figures Converium understated reported pre-tax loss by about $US100 million ($149 million) in 2000. The watchdog alleged Converium continued the scheme following the IPO.
The regulator has settled with both parties incorporating cease-and-desist orders, but without an admission of liability.
SEC New York office Acting Director James Clarkson says the case has assisted in “curbing a widespread industry practice”.
In a statement, Zurich said it was “in the best interests of the company to resolve this matter… and thus eliminate the burden, expense and uncertainty of potential enforcement proceedings relating to historical events and former employees”.