General Re responds to probe

GENERAL Re, the reinsurance company whose Dublin branch is at the centre of an international investigation, yesterday agreed to respond to a regulatory probe in Australia.

General Re, owned by the world’s second-richest man Warren Buffett, responded to inquiries by the Australian Prudential Regulation Authority (APRA).

Products sold by General Re’s alternative solutions group, based in Dublin’s International Financial Services Centre, are at the centre of the probe into the collapse of the Australian financial services firm HIH four years ago.

A Royal Commission investigation into the collapse of HIH, which cost investors €3 billion, recommended that six senior executives with General Re be barred from the Australian financial industry. Two of these executives work at the General Re Dublin branch. All of the executives are appealing the bans.

The APRA wrote to General Re asking the company to “show cause” why it should not be investigated further. The APRA believes several transactions conducted out of the Dublin branch for so-called “finite” reinsurance products helped contribute to the eventual failure of FAI, a subsidiary of HIH.

Yesterday General Re replied to the APRA’s demand with a submission to the agency.

The Australian investigation is the not the only inquiry General Re is facing. The Irish Financial Services Regulatory Authority (IFSRA) is looking at the activities of the company in Ireland and it has been targeted by America’s Securities & Exchange Commission and New York’s Attorney General Elliot Spitzer.

A spokesperson for IFSRA was not available for comment yesterday. In addition to looking at the overall Dublin operation, it must judge whether individuals have the fitness and probity to act as directors and executives of Irish registered companies.

Reinsurance transactions are not illegal and are used to remove risks from company balance sheets to give a short-term boost to profits.

The transactions between General Re and FAI/HIH are not the only ones in the spotlights.

Investigators are also looking at transactions between General Re and American International Group (AIG) and with links to Zurich Financial Services. The claims against General Re, which was bought by Mr Buffett in 1998, were first aired in the New York Times, which said that Ireland was the ideal base for reinsurance companies because of the loose regulatory environment in the past.

General Re is among at least 10 insurers that have received information requests from New York Attorney General Eliot Spitzer.

Separately yesterday it was reported that Mr Buffett, whose other investments include Coca Cola, would interviewed by Mr Spitzer over General Re.