No NewYork subpoena received

In a statement yesterday, Fairfax said it has not received a separate subpoena from federal prosecutors in New York — headed by U.S. Attorney Michael Garcia — and it has not been informed it is the “ target” of an investigation.

Officials at Fairfax did not return a call seeking further comment on the situation, which caused the company to issue two statements in as many days to clarify media reports on the U.S. investigation.

In New York, Fairfax shares gained US$2 yesterday, after falling US$ 19.17 to close at US$ 149 on Monday when Canadian markets were closed.

Several insurers in the U.S. have been subpoenaed by regulators seeking more information about finite risk reinsurance, which has been used by some companies to smooth earnings.

Perhaps the most publicized case has been American International Group (AIG), whose chairman Maurice “Hank” Greenberg stepped aside amid a probe by the SEC and Eliot Spitzer, New York’s Attorney General.

AIG has since said the use of reinsurance contracts may have helped inflate its net worth by more than as US$ 1.5- billion.

The purpose of reinsurance is to transfer risk by selling part of a policy to one or more third parties. But in some transactions there is no discernible transfer of risk even though money changes hands. So, while the transactions are not illegal, and may even be onside with accounting requirements, some observers contend they should be classified as loans rather than mitigators of risk.

Last week, Canada’s top financial services regulator said it will require all licensed insurers to hand over information on finite reinsurance transactions beginning early next year.

The requirement of the Office of the Superintendent of Financial Institutions will affect Canadian insurers ranging from large firms such as Manulife Financial and Great- West Life Assurance Co. to dozens of smaller property and casualty insurers.

Canadian insurers have downplayed their use of finite reinsurance, and highlighted the riskmitigating purpose of the instrument, according to analysts. Regulators have not suggested there has been any impropriety.

But some analysts have called for more disclosure on all types of reinsurance.

“Fairfax has used a lot of it, so they should pique your interest,” said Quentin Broad, an analyst at CIBC World Markets who downgraded his outlook on the insurer to “ sector underperform” last week citing increasing hurricane losses at Fairfax operating units.