Cologne Re, the IFSC company at the centre of international investigations into malpractice in the reinsurance sector, has stopped taking new business and set aside more than €10 million to cover legal and other professional fees arising from the inquiries.
While contracts with the giant US insurer AIG are at the heart of the US investigations into the company, annual accounts filed this week in the Companies Office reveal that transactions involving other unidentified counterparties and individuals are under investigation in Britain by the Financial Services Authority.
Signed off three weeks ago, the 2004 accounts say that the company "cannot at this time predict the outcome of these matters and is unable to estimate a range of possible loss, if any, and cannot predict the extent to which the outcome may affect the company's business or results".
However, the financial statements show that the Dublin business went into the black last year with pretax losses of $620,000, only a year after it made pretax profits of $19.6 million. This was despite an increase in gross premium income of some $269.58 million from $239.5 million.
The fact that Cologne Re is not taking on new business is seen as a clear indication that the company will withdraw from Dublin once current contracts run out.
Its chief executive James Maher declined to comment on the accounts yesterday, but said that "all obligations towards all shareholders will be fully met" by the company.
Some of Cologne Re's activities have been under investigation for some time by the Irish Financial Services Regulatory Authority, although there is no sign that that process is nearing completion. The Office of the Director of Corporate Enforcement is also conducting a "preliminary evaluation of certain matters related to the affairs of the company" and its dealings with AIG, the accounts say.
Transactions connected to its direct parent in Germany are also being examined by the German Federal Financial Supervisory Authority.
Such investigations follow the report of an Australian investigation which found that questionable transactions booked in Dublin had a role in the 2001 collapse of the major Australian insurer, HIH.
Cologne Re is a wholly-owned subsidiary of US-based GenRe, a global reinsurance provider within the Berkshire Hathaway conglomerate, controlled by the billionaire financier Warren Buffett.
At issue in the investigations is whether big contracts for a form of reinsurance known as finite reinsurance were used by clients of the company to illegally inflate their reserves.
The former chief executive of Cologne Re's Dublin unit, John Houldsworth, pleaded guilty last June to a criminal charge in the US of conspiring with others to use such transactions to mis-state certain financial statements made by AIG.
He was immediately sacked by Cologne Re.
In a directors' report with the new accounts, the board says the company is co-operating with all the investigations and "has not needed" to make any adjustment to its statements as a result of the transactions with AIG.
"The company has estimated that the professional fees relating to the various investigations and the legal proceedings may amount to $12 million (€10.02 million) and the company has provided fully for this anticipated cost," the directors say.
"The company is not currently accepting new business other than existing contractual arrangements and the directors are continuing to conduct an evaluation of the future direction of the company and its operation."
The company paid no dividend in 2004, a year after it paid a $17 million dividend to its parent. Its 19 staff were paid a total of $2.8 million last year, almost $1 million more than in 2003.
