Zurich Australia Insurance is under investigation by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) for past reinsurance arrangements. APRA has appointed an inspector to investigate financial reinsurance arrangements taken out in 2000.

The company has been quick to react, with managers contacting industry leaders to point out that the investigation is based on past – “and now unwound” – reinsurance contracts. And spokesmen are also saying Zurich is co-operating fully with the regulators.

It is believed that two of the reinsurance contracts under review were held with General Cologne Re Australia, which was cited for possible improper conduct during the HIH Royal Commission regarding a reinsurance deal with FAI.

The Royal Commission revealed that General Re helped to inflate FAI’s profits by more than $28 million before it was brought by HIH, through a loan disguised as a reinsurance contract. Last month ASIC ordered General Re to pay $27.2 million to the liquidator of FAI.

Accounts filed with ASIC for Zurich Australia show that the company posted a $37 million profit in 2000 compared to a $126 million loss the previous year.

A spokesman told Sunrise Exchange News yesterday that the arrangements “relate to something that happened a long time ago. It’s four years old and has absolutely nothing to do with the day-to-day business of Zurich today. And it certainly doesn’t have anything to do with our managed funds and superannuation business.”

APRA Head of General Insurance Steve Somogyi agrees that the investigation is into a past issue, and says he is confident that Zurich’s “obligations to policyholders are adequately protected”. It is understood that APRA has received assurances that Zurich will maintain its capital strength in Australia.

Zurich says the insurance arm is financially strong and has nearly double APRA’s minimum capital requirement, following a recent independent liability valuation undertaken at APRA’s initiative.