If HIH and FAI found it easy enough to turn their losses into book profits via the arcane wonders of reinsurance, has anyone else tried the same arrangements? That’s the question that has been hovering around the media and other interested observers at the HIH Royal Commission in Sydney for the past few weeks of hearings. And a GeneralCologne Re witness made it clear yesterday that other insurance companies have indeed done the same.

Former General & Cologne Re treaty manager Andrew Allison, now Copenhagen Re’s GM in Australia, gave the Royal Commission a handwritten note containing the names of three other insurance companies he alleges have done the same thing as HIH and FAI – using financial reinsurance contracts to effectively hide exposures and losses. The Royal Commissioner, Justice Neville Owen, immediately declared that the names provided by Mr Allison will be passed on to APRA.

The evidence of the reinsurers has raised a debate about whether such contracts are even reinsurance at all. After all, what the Royal Commission calls “side letters” reduce the risk to the reinsurer to a nonsensical level.

Mr Allison’s declaration before the Royal Commission supported the contention made on January 31 by former FAI MD and HIH director Rodney Adler that FAI “did not enter into any reinsurance arrangements that were not typical of the industry”.

Mr Adler will eventually get his chance in front of Justice Owen. This week GeneralCologne Re MD Geoff Barnum will take the stand to detail his knowledge of the reinsurance arrangements set in place for FAI and HIH. But few believe Justice Owen will spare the time to go hunting the companies named on the Allison list. That will be left to APRA.

Interestingly, Mr Allison said yesterday that he was reprimanded by a more senior GCR manager for questioning the FAI arrangement at a company seminar, where he expressed the view that it was not allowed by APRA. He said he was told by then Deputy MD Ekhart Volkening: “How dare you criticise these contracts. We have run them past our lawyers.”

The Royal Commission has a lot of ground left to cover, and it seems determined to nail down just how long HIH was insolvent, and how it managed to evade detection, before it moves on. The speculation over who is on the Allison list will continue. And a major question remains to be answered: were the financial reinsurance deals illegal?