Hiscox has defended a reinsurance policy it took out with fellow insurer Ace after being named in a US Securities & Exchange Commission (SEC) inquiry.
The company was mentioned in Ace's recent $80m pre-tax settlement with the states of New York, Illinois and Connecticut, following an investigation into Ace's business practices.
Bronek Masojada, chief executive of Hiscox, told Insurance Times that the company had not been contacted by the SEC or the office of the New York Attorney General Eliot Spitzer.
He said the insurer had kept both Lloyd's and the FSA informed on developments.
The filing made to the SEC relates to a reinsurance contract between Hiscox Syndicates and Ace in 1998, for a primary policy underwritten by Hiscox. The primary contract had a $45m limit, but had already suffered losses of $40.8m.
It is understood that both insurers predicted the $50m limit placed on the policy would be breached and agreed a side deal that meant Ace would not have to pay any claims for four years in order to generate investment income to cover any losses.
According to the filing, Ace's external auditors refused to approve the deal.
Masojada said: "At the time it was handled by [Hiscox] auditors and audited, it was signed off by them. What we have done has been accounted for correctly."
Ace and the SEC refused to comment on the settlement.
