Swiss insurer Zurich Financial has admitted to the Australian authorities that it used reinsurance transactions with IFSC-based Cologne Re to mislead regulators about the poor state of its finances in 2000.
The admission on Thursday by Zurich's Australian divisions that information was "withheld and misstatements were made" came as New York attorney general Eliot Spitzer implicated Cologne Re in "sham contracts" with AIG, the world's biggest insurer.
Zurich's original contracts were with Cologne Re's Australian affiliate General & Cologne Re Group Australia. However, legal undertakings signed this week by Zurich make it clear that payments linked to the transaction went to the Dublin unit.
The case follows a separate Australian investigation which implicated Cologne Re in questionable transactions that were instrumental in the collapse in 2001 of Australia's second-biggest insurer, HIH.
Cologne Re's chief executive in 2000, John Houldsworth, was one of two Dublin-based executives barred from working at a senior level of the Australian insurance industry as a result of the HIH investigation.
While Mr Houldsworth is appealing that disqualification, he was named by Mr Spitzer as a central figure in the effort to cover up fraudulent reinsurance deals between Cologne Re's parent, General Re, and AIG.
Cologne Re's current chief executive James Maher said Mr Houldsworth remained on "administrative leave" from the company but declined to discuss the legal undertakings signed by Zurich or the issues raised by Mr Spitzer. "I have no comment on the lawsuit against AIG and its senior management."
The Australian Prudential Regulatory Authority said it identified deliberate misrepresentations concerning the nature and accounting treatment of reinsurance transactions with Zurich.
With the inspector appointed to investigate Zurich's contracts finalising his work, the Australian regulator said it was "separately considering the role of individuals in these transactions".
A spokesman for the Irish Financial Services Regulatory Authority declined to comment on the issues raised by Mr Spitzer but said the regulator was "aware" of the Australian investigation into the contracts with Zurich. "If any issues arise here, we will co-operate with our Australian counterparts."
