General Re chief faces fraud case

A SENIOR executive at the Dublin arm of reinsurance firm General Re is facing a civil fraud action by US financial regulator the Securities & Exchange Commission (SEC).

John Houldsworth, who is a senior figure at General Re’s IFSC office, has been linked to a number of transactions with American International Group (AIG), which are being probed by financial regulators in several countries.

Mr Houldsworth, a 46-year-old Englishman, is one of three people facing the civil fraud complaints taken by the SEC. If the SEC wins its case, it can impose a number of sanctions, ranging from fines to barring people from the industry.

The action follows a lengthy investigation of the whole reinsurance industry by the SEC and New York Attorney General Elliot Spitzer.

AIG has been forced to admit that several transactions booked through General Re’s Dublin office, were improper and inflated the company’s books.

One of the deals under review are two $250 million (€195m) deals that AIG concluded with General Re in December 2000 and March 2001. AIG booked these transactions as insurance premiums, which in turn boosted its revenue and profits.

AIG has admitted some of the transactions with General Re under scrutiny “appear to have been structured for the sole or primary purpose of accomplishing a desired accounting effect.”

The investigation of the reinsurance market has already claimed the scalp of AIG’s long-time chairman Hank Greenberg and tarnished the reputation of Warren Buffett, the world’s second-richest man and owner of General Re.

The activities of General Re are also under review in Australia. An investigation by an Australian Royal Commission into the €3 billion collapse of financial services firm HIH led to the country’s regulator banning six General Re executives from working in the insurance market there.

Two of these executives - Mr Houldsworth and Tore Ellingsen - work in the General Re Dublin office, which is home to the company’s “advance solutions group.” Mr Ellingsen has since left.

The inquiries have thrown the spotlight on the secretive and complex world of the reinsurance market in Ireland.

More than 20 reinsurance firms are based in the IFSC and billions of euro in premiums are written every year.

The scrutiny has led to some international commentators branding Ireland a financial “wild west,” a charge rejected by IFSRA.

However, a memo written by a General Re employee unearthed by the SEC investigators does explain why so many of the firms are based here.

It says that in Ireland, “reinsurers’ freedom from solvency constraints permits a latitude of product design and an ability to create a wide range of reinsurance solutions for customers. There is a similar freedom in terms of investment strategy”.