Washington–Markel Corp., a specialty insurer based in Richmond, Va., has been caught up in the apparently widening net federal and state regulators are casting into the use of finite insurance, a product used to manage earnings.
The company said in its quarterly 10-Q filing Nov. 2 that it has received a subpoena from the Securities and Exchange Commission "seeking documents concerning transactions by the Company in the securities of Fairfax Financial Holdings Limited (Fairfax) and 'non-traditional product' transactions between the Company and Fairfax." It said the subpoena was received late last month.
In its filing, Markel said it "has not historically purchased or sold finite reinsurance products or used other structures which would have the effect of discounting loss reserves."
Finite insurance arrangements have come under scrutiny because in some cases regulators have found them to have been employed improperly to improve company financial statements.
Markel said it is cooperating fully with the SEC probe being conducted by the regional office in New York and does not believe it has any transactions with Fairfax meeting the SEC's definition of "non-traditional products."
Steven Markel, a vice chairman of the company, said the firm believes the subpoena is linked to its sale of a reinsurance unit, Corifrance, to a Fairfax subsidiary in January.
"We have never bought any type of finite insurance," Mr. Markel said. "We're not interested in trading investment for underwriting income."
Markel insures in such niche markets as director's and officers' liability, dance studios, restaurants and delicatessens, homeless shelters, financial institutions, taxicabs, museums, snowmobiles and earthquakes.
It had earned premiums in 2004 of $2.5 billion, and reported net income of $165 million for the year.
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