General Re Reveals Probes, Legal Action

SEC, Spitzer looking into finite insurance deals; Australian carrier sues

Berkshire Hathaways General Re unit is being probed by regulators over finite insurance product transactions, while the liquidator of an Australian insurer plans to make claims against the carrier.

The disclosures came in the Omaha, Neb.-based Berkshires annual report.

Berskshirerun by billionaire investor Warren Buffettsaid that in December 2004, General Re received a request from the Securities and Exchange Commission for documents and information relating to non-traditional products. Additionally, in January 2005, General Re was served with subpoenas for the same information by both the SEC and New York State Attorney General Eliot Spitzer.

Berkshire stated that it cannot “predict the outcome of these investigations, is unable to estimate a range of possible loss, if any, and cannot predict whether or not that outcome will have a material adverse effect” until the probes are completed or resolved.

Berkshire also disclosed that the liquidator of HIH Insurancethe giant Australian insureris planning to make claims against General Re for the insolvent company. HIH became its country's biggest corporate failure in 2001 with losses of $5.3 billion. Berkshire did not discuss whether any extended legal action might result.

According to the liquidator, General Re engaged in deceptive conduct that assisted the firm in improperly accounting for certain transactions as reinsurance, and such deception was a causal factor that led to the insolvency of HIH, Berkshire's report stated.

Berkshire Hathaway joins a growing list of companies that regulators are questioning in regard to non-traditional finite reinsurance. In the past two weeks, CNA Financial and RenaissanceRe Holdings Ltd. also said they are being investigated regarding such products.

Regarding 2004 financial results, Berkshire said its insurance businesses reported $1.01 billion in 2004 net underwriting gain, down slightly from $1.11 billion the year before.

The companys GEICO auto insurance unit posted significantly improved underwriting income of $970 million for 2004, compared with $452 million for 2003.

General Re reported $3 million in underwriting income for 2004, down from $145 million one year ago. Berkshire Hathaway Reinsurance Group posted a $417 million underwriting profit, down from $1.05 billion in 2003, while Berkshire Hathaway Primary Group improved to $161 million, up from $74 million.

Commenting on GEICO's performance, Mr. Buffett said the auto insurer made significant headway in the New Jersey market after its reentry last August following changes in insurance regulatory statutes there. The response from New Jersey drivers, he said, “is multiples of my expectations. We are now serving 140,000 policyholdersabout 4 percent of the New Jersey market.”

Reproduced from National Underwriter Edition, March 10, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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General Re Reveals Probes, Legal Action

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