Rating agency Standard & Poor's Corp. has identified four insurers that it believes distorted their financial statements by using "financial risk reinsurance." In a report released Nov. 16, S&P claims that the financial results of Atlantic Mutual Insurance Co., Argonaut Group Inc., CNA Financial Corp. and Liberty Mutual Insurance Co. were "materially distorted in an accounting context that contrasts with Standard & Poor's perception of the true economics of the transactions."

ACE Limited disclosed on Monday it had received subpoenas from the U.S. Securities and Exchange Commission and the New York Attorney General requesting documents in connection with an investigation into what the company calls nontraditional, or loss mitigation, insurance products.

"The issue is that some clients are suspected of using this type of insurance to transfer losses off their balance sheet or are increasing their capital on an accounting basis under GAAP or under statutory accounting while the economics of these transactions would indicate that appropriate risk transfer and loss absorption have not taken place," S&P writes.

"If financial-engineering products are used to smooth earnings or otherwise distort the appearance of financial results of an insurance company or other corporation, these transactions could be considered cause for civil or criminal actions," the report states.

"Those insurance and reinsurance companies that have sold these products--as well as those organizations that brokered such products--are likely to come under investigation," the report states.  

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