The Australian Prudential Regulation Authority (APRA) has accepted enforceable undertakings from two former Zurich executives who were involved in transactions that misled APRA and auditors and resulted in company profits being falsely inflated.
Mr Malcolm Jones and Mr Florian Salzgeber offered the enforceable undertakings to APRA acknowledging their roles in transactions that resulted in APRA and auditors being misled about the solvency of Zurich Australia Insurance Limited (ZAIL) in 2000. They have agreed not to act as a director or senior manager of a general insurer, authorised non-operating holding company or agent of a foreign general insurer for 14 and 12 years, respectively.
APRA had previously disqualified Mr Jones on 7 May 2007 and Mr Salzgeber on 19 December 2006. Both sought a review of their disqualifications in the Administrative Appeals Tribunal (AAT). APRA accepted the undertakings in settlement of the appeal proceedings, but this announcement of the undertakings was delayed until after the 31 July 2009 decision by the AAT rejecting appeals against disqualification by former Zurich executives Mr John Butler and Mr Alan Parsonson for their roles in the same matter.
This now brings to an end action against former Zurich employees following an investigation by APRA into the affairs of ZAIL and Zurich Financial Services Australia Limited (ZFSA). The investigation examined two financial reinsurance transactions that ZAIL entered into with General & Cologne Re Group Australia (GCRA) in 2000 that resulted in ZAIL appearing to meet its regulatory solvency requirement when it did not. A total of seven former Zurich employees have now been removed from the industry, with two employees of GeneralCologne Re group companies also removed.
On 26 May 2005, APRA accepted an enforceable undertaking from ZAIL and ZFSA in respect of the two GCRA financial reinsurance transactions which resulted in ZAIL's profits in 2000 being overstated by $61 million.
APRA reviewed the conduct of Mr Jones and Mr Salzgeber in respect of the transactions and disqualified them under section 25A of the Insurance Act 1973 on the basis that their knowledge of and involvement in the transactions demonstrated that they were not fit and proper to hold senior roles in the insurance industry in Australia.
Mr Jones was a director and Chief Executive Officer of ZAIL from July 1998 to March 2002. He was also a director of ZFSA during that time. Mr Jones acknowledges that he played an integral role in ZAIL entering into and implementing these transactions, and that ZAIL/ZFSA auditors and APRA were not provided with information that would have disclosed the true nature of the transactions.
Mr Salzgeber was an executive of ZAIL and ZFSA from January 1999 to May 2003 and a member of their financial team responsible for capital management and APRA reporting.
The terms for both individuals' removal from the industry commence from the date of their original disqualifications.
APRA Deputy Chairman Mr Ross Jones said enforceable undertakings were viewed by the regulator as an effective alternative to other enforcement actions in some circumstances.
'Enforceable undertakings provide a useful discipline on the parties and can, if necessary, be enforced by application to the Federal Court,' he said.
The Jones undertaking and the Salzgeber undertaking are available on the APRA website. Click here for more details.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $3.4 trillion in assets for 21 million Australian depositors, policyholders and superannuation fund members.