Reinsurance Record Isn’t Spotless
Oct 24, 2010
The article was published in The Ledger on October 24, 2010:
As Floridians coped with the hit of hurricanes and property insurance collapses in 2005, regulators in other states unleashed investigations on the offshore underwriters.
Eliot Spitzer, then attorney general of New York, accused multiple Bermuda reinsurers of creating sham contracts to hide profits.
As a result, two of Florida’s largest reinsurance providers, ACE Ltd. and Renaissance Reinsurance, entered settlements with the U.S. Securities and Exchange Commission.
In addition, Spitzer’s office accused reinsurers and brokers of rigging bids to steer contracts. Court records show the list of victims included the Miami-Dade water department. Again, ACE was accused and paid a $4.5 million settlement to states including Florida.
The financial strain of Hurricane Katrina claimed four reinsurers, toppling PXRE, Alea Group, Rosemont Re and Quanta Capital. All sought to raise more money from investors, but were shut down by rating agency downgrades and forced to liquidate.
In the cases of PXRE and Quanta, angry investors filed civil suits alleging the reinsurers had misled them about the extent of their hurricane losses. U.S. judges dismissed both cases contending there was no evidence of intentional fraud.
None of those cases resulted in a public sanction or warning from regulators in Bermuda.
In a white paper released during the global financial crisis in 2008, Bermuda’s Monetary Authority insisted that secrecy over enforcement is essential to protecting the reputation of the firm and “the jurisdiction” – meaning Bermuda itself.