The St. Paul Travelers Companies Inc., the nation's second-biggest commercial insurer, has been subpoenaed amid an industry-wide investigation into the use of reinsurance transactions that federal prosecutors allege have been used to hide losses. 

St. Paul Travelers disclosed the news of the subpoena Friday in routine filings to the Securities and Exchange Commission (SEC), saying it received requests for relevant documents from David Kelley, U.S. attorney for the Southern District of New York.  The commission and the New York state attorney's office have initiated similar probes. 

"We are working hard to provide all the information that has been requested," Joan Palm, spokeswoman for the insurer, said Friday. 

The subpoena comes after guilty pleas by Richard Napier and John Houldsworth, two former General Re Corp. executives.  A statement of facts signed by Napier says American International Group Inc. (AIG), an insurance industry giant, made a deal with General Re to raise AIG's loss reserves by $500 million on paper in 2000 without taking on any real risk. 

General Re was paid $5 million in return.  AIG admitted earlier this year that its net worth "may have been overestimated" by $1.7 billion through a combination of questionable transactions and accounting practices. 

Terry Larkin, an independent insurance consultant in Minnetonka, said insurance companies often try to spread their risks by going to reinsurance companies to protect themselves from losses. 

"When the World Trade Center fell down, the public learned that large risks have multiple insurance claims on them," he said. " Insurance companies would rather make a little bit of money and have small risk." 

Larkin said that, in the wake of the AIG scandal, prosecutors are investigating whether other insurance companies are engaging in similar practices to mask their losses and hide their risks. 

"Many of the regulators have looked at [AIG's] behavior and said, 'I wonder if this is a unique occurrence, or if any of the other companies are doing the same?'"  Larkin said. 

There have been no allegations made against St. Paul Travelers or the seven other insurers that have disclosed that they were subpoenaed. 

"It just appears to be a fishing expedition in the [insurance] industry," Larkin said. " If there ever is a fishing expedition by the regulators, they are going to throw a hook into St. Paul's lily pond."