Zurich Settles with APRA over 2000 Accounting Info

Zurich Financial Services Group announced that its Australian entities Zurich Financial Services Australia Limited (ZFSA) and Zurich Australian Insurance Limited (ZAIL) have reached “Enforceable Undertakings with both the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) following an investigation into certain reinsurance arrangements entered into in 2000.”

Australian regulators have been investigating Zurich, as well as other global insurers – notably Hannover Re and General & Cologne Re – in connection with a number of finite reinsurance transactions involving loss mitigation transfers that were subsequently entered in financial reports. APRA determined that as a result ZAIL had overstated its 2000 profits by A$61 million (U.S. $46.5 million).

Zurich’s statement reads follows:

“Undertakings agreed between APRA and the Australian entities of Zurich state that a Loss Portfolio Transfer and related transactions should have been properly characterized as financial reinsurance. The APRA Undertakings state that material made available by APRA indicates that information was withheld and misstatements were made regarding the true nature of the arrangements.

“As part of the finalization of issues with APRA (on the terms set out in the APRA Undertakings), APRA will not take any legal action against ZAIL and ZFSA or any other entity of Zurich Financial Services Group, in relation to any matters arising from the investigation. APRA has advised it is satisfied that Zurich’s Australian entities are financially sound and ZAIL currently exceeds APRA’s Minimum Capital Requirement.

“As stated in the Enforceable Undertaking reached with ASIC, the local statutory accounts of the Australian entities for the years 2000 to 2003 contained a fundamental error. This error has been corrected with the agreement of ASIC by means of a note to the companies’ audited 2004 accounts and by the addition of audited supplementary notes to the companies’ 2000 to 2003 accounts. ASIC acknowledges that the companies’ directors have acted in good faith in the preparation of the 2004 accounts. However, ASIC is continuing its investigation into the reinsurance arrangements.”

Zurich’s cooperation and its agreement to “strengthen its global governance, control and reporting processes,” has apparently satisfied APRA and ASIC concerning the company’s good faith. The two regulators, however, have indicated that their investigations had found a number of deliberate misrepresentations by individuals, and they have indicated that they intend to take further action against them as a result. The names and positions of those involved have not been announced.