Despite regulator's swift conclusion the investigation continues.
Investigations into reinsurance arrangements between General & Cologne Re Australia and Zurich Financial Services Australia's (ZFSA) general insurance arm, Zurich Australian Insurance (ZAIL), are still continuing four months after Zurich agreed to enforceable undertakings with Australian regulators.
ZFSA and ZAIL agreed to the undertakings with the Australian Prudential Regulation Authority (APRA) and the Australian Securities & Investment Commission (ASIC) in May, following an investigation into reinsurance arrangements with General Re in 2000. APRA's investigation has concluded, but the ASIC investigation is ongoing.APRA's investigation found “deliberate misrepresentations” over two transactions. “These resulted in ZAIL's profit in 2000 being overstated by A$61m. The effect was that ZAIL appeared to meet the regulatory solvency requirement when it did not,” an APRA statement said.
Zurich said in a statement to shareholders in May that the undertakings with APRA acknowledged a loss portfolio transfer and related transactions should have been characterised as financial reinsurance. When APRA finished its investigation, the regulator advised that the Australian entities were “financially sound” and said no policyholders had suffered any loss as a result of the reinsurance transactions. APRA said it would not take legal action against ZAIL or ZFSA.
APRA deputy chairman Ross Jones said the undertakings were accepted “in light of the co-operation of ZAIL and ZFSA” during the investigation, and remedial action taken to address the problems.
The undertaking noted the statutory accounts for 2000 to 2003 contained “a fundamental error”. Zurich's statement said, “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 said the companies' directors had acted in good faith, but it would continue its investigation into the reinsurance arrangements.
Zurich spokesperson Rob White said the company had heard nothing from ASIC since May and did not know when the regulator was likely to complete its investigation. “Nothing has happened since then. They certainly haven't advised us of anything.” An ASIC spokesperson would not comment.