U.S. outlines its case against ex-insurance executives in finite reinsurance case

The United States government has started to present its case against five former executives of General Reinsurance Corp. and American International Group Inc. in a fraud case surrounding a finite reinsurance transaction.
The insurers have denied the fraud charges. They will present their case following the government’s opening statements.
The insurance executives have reportedly argued the government’s case is based on a fundamental misunderstanding of how finite reinsurance contracts work.
The National Association of Insurance Commissioners defines finite reinsurance on its Web site as “a type of reinsurance that transfers only a finite or limited amount of risk [from an insurer] to the reinsurer.”
U.S. Attorney Raymond Patriccio told a Hartford, Conn. courtroom that the ex-insurance executives put together a finite reinsurance transaction that they knew in advance contained no real possibility of risk.
The true purpose of the deal, Patriccio submitted to the court, as reported by A.M. BestWire, was to allow AIG to book US$500 million in loss reserves. Doing this would allow the insurer to suggest it had more capital available than it in fact had, the government argued.
In addition, the deal included a US$5-million payment from AIG to Gen Re. The payment was to show the company’s commitment to the deal, the government argued, according to A.M. Best.
In each case but one, if convicted, each individual executive faces a maximum of up to 230 years in jail and a fine of up to US$46 million.