Bermuda-based insurance giant XL Capital says it received a subpoena from the US Securities and Exchange Commission seeking information on insurance policies regulators are probing for their potential to be misused for income-smoothing purposes.

It is the third subpoena for XL in a widening regulatory probe by US authorities into insurance industry practices.

It is, however, the first SEC-issued subpoena for XL ? and its first relating to 'non-traditional' reinsurance, or loss-mitigation products, otherwise known as finite reinsurance.

Last October subsidiary XL America received two subpoenas from New York Attorney General Eliot Spitzer as part of a probe into how insurers were compensating brokers for placing their business.

A wave of subpoenas was sent out across the industry? including to a number of other Bermuda-based companies ? following a civil suit by the New York AG against leading broker Marsh & McLennan.

In recent months, regulators ? including Mr. Spitzer, the SEC, other state regulators and the US Department of Justice ? widened their probe to scrutiny of so-called finite risk products. AIG has been a large focus of this phase of the investigation after regulators called into question whether the commercial insurance giant used this kind of policy to hide losses.

Yesterday XL said in an SEC filing that it intends to "cooperate fully" with the investigation which was said to be "part of an inquiry into certain loss mitigation insurance products".

XL did not say whether the SEC's inquiry related to the selling or buying of this type of policy. However, XL Capital CEO Brian O'Hara said in February the company did not believe it had "any exposure to finite reinsurance as a buyer".

Yesterday, Mr. O'Hara, speaking generally, told an audience of industry peers at the 'Bermuda Perspective' Professional Liability Underwriting Society (PLUS) symposium that he thought the fallout from the wide industry probe by regulators could be positive.

"I think it is going to have, in the long run, a very positive impact on our industry, in that it is eliminating unnatural practices and behaviours that I think exacerbated the cyclicality of our business."

The insurance and reinsurance cycle is defined by hard and soft phases with pricing and conditions generally being more favourable to the insurer during a hard market while a soft market is characterised by an increase in capacity resulting in price cutting to sometimes unprofitable levels.

Most insurers say they would like to do away with the industry's cyclical pattern in favour of consistent pricing, terms and conditions.

Mr. O'Hara (pictured) said yesterday he thought a regulatory shove to a more "open, transparent" way of doing business was something that should be welcomed ? and that he did so, "wholeheartedly".

He also said he thought Mr. Spitzer had shifted from a wide attack of the industry during the early part of the investigation, to now an approach of rooting out "a few bad apples" while recognising the importance insurance played in a healthy economy.

He characterised the "political and regulatory backlash" aimed at the industry in the last year as the sector's biggest threat but said "I would like to think the biggest threat has already been present with us for some time now, and will dissipate in the next six months or a year ... we believe that the media and everyone will move on."

AXIS Capital chairman Michael Butt ? with that company also previously receiving subpoenas related to the US investigation of the sector ? told the PLUS delegates he thought it was "much too early to tell" what the impact of the probe would be.

"I think that is probably an appropriate response to the impact of Mr. Spitzer on our industry. Obviously he has highlighted issues that are of great concern to our clients, regulators, and that is obviously by no means finished. Unfortunately every stone has been unturned ... leading to some retroactive views on what was proper practice. I don't think this is by any means finished and I think it is doing very substantial damage to our reputation with large numbers of outside buyers of our services and protection. It is not terminal fortunately, because people have to continue to buy our products. I think we are all taking it very seriously and trying to understand the ramifications of broking compensation earlier, but that being only one manifestation of a much larger group of issues. It is, I hope, to make for a more transparent, less artificial marketplace, but it is too early to say that has happened."

Mr. O'Hara did not however rule out there being some negative fallout from the ongoing investigation.

"There are always going to be unintended consequences that are not always apparent, so we are not out of the woods...but I am an optimist, so I hope that it will be better going forward."

The senior management of other Bermuda-based reinsurance and insurance companies said they saw the "biggest threat" being how the industry handled themselves as the sector slips into a 'soft market' phase, with concerns that companies will repeat "the sins of the past" by undercutting competitors to sell insurance and reinsurance policies, even if prices have fallen to unprofitable levels.