Bermuda-based reinsurer Imagine has been drawn into a US investigation of AIG?s finite risk dealings with offshore entities.

Imagine ? set up in Bermuda in January, 2001 with a focus on finite risk reinsurance ? was subpoenaed at the end of last year by the US Securities and Exchange Commission (SEC) as part of its review in conjunction with New York Attorney General Eliot Spitzer.

It is believed that investigators are interested in business AIG conducted with a company Imagine says it wholly owns, Pillar Insurance (Bermuda) Limited.

Mr. Spitzer has been probing the insurance industry since early last year. A wide-ranging nine-month investigation of the sector implicating ?virtually every line (of business)? saw Mr. Spitzer bring stinging charges against global broking giant Marsh & McLennan. Marsh later settled the dispute by establishing an $850 million fund to compensate victims of an alleged illegal bid rigging scheme it hatched with several insurers it places business for ? including a US arm of Bermuda-based ACE Limited and New York-based commercial insurance giant AIG.

But a settlement was only hatched after Marsh sacked its CEO Jeffrey Greenberg, the son of longtime AIG leader Maurice (Hank) Greenberg and brother of Evan Greenberg, CEO of ACE Limited.

AIG?s Maurice Greenberg was himself forced out last week after 37 years steering AIG?s course, and announced his retirement as chairman on Tuesday after mounting pressures on the company from continuing scrutiny by US regulators.

Regulatory interest in AIG increased when both Mr. Spitzer and the SEC late last year widened the insurance probe to include finite risk products questioning whether they are, as designed, an insurance product or instead a vehicle being used to help companies smooth earnings.

Yesterday AIG admitted it had effectively been buying insurance from itself through a Bermuda-based firm ? Richmond Insurance Company Limited ? that it previously said it only had a 19.9 percent stake in, while Munich Re was the larger owner. AIG said it will now include Richmond in its financial statements.

Regulatory interest in Imagine?s Pillar Insurance connection to AIG may be for similar reasons ? a belief by investigators that AIG could be the company?s sole client, something Pillar?s owner ruled out.

Speaking with from Barbados yesterday, Imagine president and CEO Brad Huntington conceded that AIG was a Pillar client, but did not have an ownership interest, nor was it Pillar?s only client.

?To date, Imagine has received only a single subpoena. It was received in late 2004 from the SEC relating to what they described as non traditional products.? ?I have no knowledge that it [the subpoena is specific to Pillar, related to AIG or any other entity. It was very general in nature.?

When asked if the authorities had asked more specific questions of Imagine in the months since the subpoena was issued, Mr. Huntington said: ?To date we have complied fully with the requests from SEC, and intend to continue to comply fully with those requests. They [the questions relate to a variety of transactions, which may include Pillar transactions.?

Although Mr. Huntington was reported as saying in another news report yesterday that it would be ?rare? for a giant company like AIG to show any interest in a rent-a-captive structure, he told The Royal Gazette that?s what Pillar is.

?Pillar is not material to Imagine?s earnings or its balance sheet. It is essentially a rent-a-captive and it has a variety of clients, including the AIG relationship. AIG is not its sole client.?

Mr. Huntington said the relationship with AIG was ?purely a reinsurance relationship. It is contractual in nature and there is no ownership or control in Pillar by AIG?.

Meanwhile, Barbados-registered Union Excess Reinsurance has also come under regulatory scrutiny, and a connection was yesterday admitted by AIG.

In a Press statement, AIG said that while it was not the outright owner of Union, it now believed that a significant portion of the ownership interests of Union Excess shareholders are protected under financial arrangements with Bermuda-based Starr International Company Limited (SICo), a private holding company that owns approximately 12 percent of AIG?s outstanding shares.

Union?s Barbados address is local law firm Chancery Chambers.

The sole principle of Chancery Chambers is Dr. Trevor Carmichael, a director of the Imagine Group since its inception.

AIG?s Press statement yesterday made no mention of any connection to Pillar Insurance.

Another Chancery lawyer, Andrew Ferreira, was named in a news report as the Union contact at Chancery.

Mr. Ferreira is understood to serve on the Imagine board as an alternate to Dr. Carmichael.

Dr. Carmichael was also a director of Coral Reinsurance, the former Barbados-based insurer closed a decade ago after insurance regulators in the state of Delaware probed AIG?s use of this offshore entity for similar ownership and control issues. No sanctions were ever brought against AIG for its allegedly improper use of Coral Re, although a report from the time said the company promised to ?not do it again?.

Yesterday, Imagine?s Mr. Huntington was asked if either Dr. Carmichael or Mr. Ferreira might sit on the Pillar board ? as they do Imagine?s, he said: ?No, certainly not. It is not the same directors as our holding company; it is essentially an internal management board.?

Imagine also set up a Pillar Insurance unit in Gibraltar in 2003, but Mr. Huntington stressed that the interest from authorities was in the Bermuda-based Pillar Insurance Limited. The Bermuda company, he said, had originally been incorporated as Imagine Insurance Company Limited, and then the name changed.

Imagine CFO Mike Daly said Pillar is a Bermuda firm, not a Barbados-based entity as stated in some recent news reports. The Office of the Insurance Supervisor of Barbados said yesterday it did not immediately find a Pillar Insurance in its incorporation records.

The Imagine Group?s primary investor is Canadian-based financial firm Brascan Corporation and Trilon International Corporation (Brascan owns Trilon which provided initial funding in Imagine, and still retains a majority stake in Imagine).