Buffett group faces SEC questioning

Berkshire Hathaway, the US conglomerate run by Mr Warren Buffett, has been caught up in a widening investigation into alleged misuse of insurance products to manipulate company earnings.

Regulators at the Securities and Exchange Commission (SEC) have requested documents and other information from General Re, Berkshire's reinsurance subsidiary, relating to the sale of so-called "loss-mitigation" products.

Though there is no allegation of wrongdoing at this stage, the document request forms part of a wider SEC probe into the legality of such products.

In some cases, companies buying these financial products have been accused of wrongly treating them as insurance when they are more like loans.

This could have the effect of hiding losses from investors, although the accounting rules in this area remain in dispute. Several other insurance providers have been asked to hand over documents relating to the sale of these products, also known as "non-traditional", "retroactive" or "finite" insurance.

As one of the largest reinsurers, Berkshire's General Re, was expected to be quizzed about its involvement. Nevertheless, yesterday's admission from the company that the SEC has requested information demonstrates the widening scope of the investigation.

Mr Buffett has been a leading critic of financial scandals elsewhere in the US, but has so far managed to keep his group clear of any involvement.

Berkshire Hathaway declined to comment further but said it and General Re would co-operate fully with the SEC's request.

Retroactive reinsurance and finite-risk reinsurance provide less than 1 per cent of net income at Berkshire Hathaway.

Analysts also point out that not all finite reinsurance is bad.

The products have been sold for decades and are often tailor-made to fit specific circumstances.

Regulators are only interested in cases where there is not a clear transfer of risk from the company purchasing the product to the insurance provider.