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Insurance industry

AIG Fires Executives Amid Investigations into Reinsurance Deals

Strategic Insights

— 1 min read

American International Group Inc. (AIG) has fired two executives, Howard I. Smith and Christian M. Milton, after they refused to answer certain questions from state and federal investigators probing into finite reinsurance transactions. The move comes as AIG is being scrutinized for its involvement in certain finite reinsurance transactions, particularly a 2001 deal with Berkshire Hathaway Inc.'s General Reinsurance Corp. and its relationships with two offshore reinsurers, Richmond Insurance Co. Ltd. and Union Excess Reinsurance Co. Ltd. The firings indicate that AIG's new management recognizes the need to cooperate with the spreading probe.

Key Takeaways:

  • AIG has fired two executives, Howard I. Smith and Christian M. Milton, after they refused to answer questions from investigators.
  • The firings come as AIG is being investigated for its involvement in finite reinsurance transactions, including a 2001 deal with General Reinsurance Corp.
  • AIG's relationships with two offshore reinsurers, Richmond Insurance Co. Ltd. and Union Excess Reinsurance Co. Ltd., are also under scrutiny.
  • Donald Light, senior analyst with Celent Communications, stated that the focus on AIG's relationships with these companies "may spell more serious trouble" for the insurer.
  • AIG's financial records show that the insurer bought reinsurance from the two companies, then experienced losses on the insurance contracts.
  • The losses on the insurance contracts were offset by an asset of $1.2 billion for reinsurance recoverables on AIG's balance sheet.
  • AIG's new CEO, Martin J. Sullivan, has stated that the company is cooperating fully with all investigations.
  • AIG has also delayed the filing of its Form 10-K annual report with the SEC due to management changes and an ongoing internal review of accounting for certain transactions.

Statistics:

  • Investors are seeking information about $1.2 billion for reinsurance recoverables on AIG's balance sheet.
  • AIG has taken an after-tax charge of $53 million in the fourth quarter of 2004 in connection with a $126 million settlement with the SEC and federal prosecutors in Indiana.
  • The settlement included an $80 million penalty paid to the Justice Department, but no admission of wrongdoing.
  • The company's stock was trading at $57.03 a share on the afternoon of March 22, down 1.5% from the previous close.

Sources:

  • American International Group Inc. (via COMTEX)
  • Joseph Norton, AIG spokesman (via COMTEX)
  • Donald Light, senior analyst with Celent Communications (via COMTEX)
  • William Wilt, equity analyst with Morgan Stanley (via COMTEX)
  • A.M. Best Company, Inc. (via COMTEX)

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