Zurich pays $25m fraud settlement

by David Masters

Story link: Zurich pays $25m fraud settlement

Zurich Financial Services Group has agreed to pay a $25 million settlement to the US Securities and Exchange Commission (SEC) in connection with charges of civil securities fraud.

A related charge was also settled against Converium Holding AG, which operated under the name Zurich Re until it was spun off in 2001.

In paying out the settlement, the companies neither admitted nor denied any wrongdoing.

US federal regulator SEC accused the two companies of designing reinsurance transactions to make it appear that risk had been transferred to a third party, when, in truth, the risk remained with Zurich controlled businesses.

This enabled Zurich Re and Converium to artificially inflate performance figures, allowing them to receive a significant windfall when Zurich Re was spun off as Converium in December 2001.

A statement by Zurich said the individuals involved in these transactions all left Zurich several years ago.

Regulators in the US have recently been scrutinising the risk management practices of a number of insurance companies.

As in the case brought against Zurich, risk management products have allegedly been used by a number of insurance companies to artificially enhance performance figures.

Currently under investigation are Ace Ltd., American International Group Inc., RenaissanceRe Holdings Ltd., and General Reinsurance Corp.

James Clarkson, SEC’s New York regional office acting director, said the result against Zurich was a vital victory in the effort to root out a widespread industry practice.