Chubb latest company to receive subpoena in SEC probe of finite re

New Jersey-based Chubb Corp. is the latest to receive a subpoena from the U.S. Securities Exchange Commission related to a probe of finite risk reinsurance products.
The SEC probe mirrors one being undertaken by New York Attorney General Eliot Spitzer into finite re, and other companies having received SEC subpoenas include Swiss Re and ACE Ltd.
Rating agencies Fitch and Standard & Poor’s have publicly come out against the use of finite re or “financial engineering” products, which they say are less about risk transfer than about smoothing earnings.
In a statement in mid-November, Fitch says, “It is Fitch’s view that the purchasers of finite risk reinsurance are driven less by risk transfer and more by a means to either improve current period earnings, smooth earnings, effectively discount reserves and/or enhance capital.”
AIG recently agreed to pay US$126 million in fines and interest into a victim trust fund, stemming from the sale of “structured finance products” to by its AIG Financial Products operation to PNC Financial. The SEC and DOJ alleged those products helped PNC to conceal weaknesses in its financial results. “This action is a message to insurance companies and others that sell structured finance or other products to public companies that are designed for no purpose other than to improve those companies’ accounting results,” says Stephen Cutler, director of the SEC’s enforcement division. “In appropriate circumstances, marketers of such products will be held liable for the resulting misstatements in their customers’ financial disclosures.”