This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

AIG Comes Clean on Gen Re

AIG also came clean about a number of offshore entities with which it has done business over the past decade, most notably Union Excess Reinsurance Co. and Richmond Insurance Co. Again, the issue is the use of favorable reinsurance accounting afforded transactions in which one insurer sells liabilities to another with the putative goal of diluting risk. Investigators suspect AIG exerted undue influence on a handful of smaller, mostly Caribbean-based companies to cut such deals simply to lighten its reserve balance.

The key issues are economic risk-transfer to the reinsurer and negotiation, two elements that must be present for the favorable accounting -- and which presumably wouldn't be if AIG controlled the counterparty. (For a story about what probably piqued investigators' interest in the offshore companies by TSC's Matt Goldstein, click here .)

"AIG has no direct equity interest in Union Excess," the company said. "However, based upon AIG's review to date, including consideration of previously undisclosed facts, AIG now believes that a significant portion of the ownership interests of Union Excess shareholders are protected under financial arrangements with Starr International Company, a private holding company, which owns approximately 12% of AIG's outstanding common stock and whose board of directors consists of current and former members of AIG management."

AIG said that if Union Excess is required to be treated as a consolidated entity by AIG, it would result in a maximum reduction of approximately $1.1 billion in AIG's consolidated shareholders' equity as of Dec. 31, 2004.

Regarding Richmond Insurance Co., AIG said: "Although AIG owns only a minority ownership interest in Richmond, the review of the operations of the Richmond subsidiaries has shown significant previously undisclosed evidence of AIG control."

AIG will treat Richmond as a consolidated entity on its financial statements, a move that will result in a small increase in consolidated assets with a similar increase in consolidated liabilities and a minimal impact on AIG's consolidated shareholders' equity as of Dec. 31, 2004.

In cutting its credit rating, S&P said Wednesday's disclosures raise questions about the company and its culture.

"The number and scope of inappropriate financial transactions -- some characteristic of aggressive financial management -- have diminished our assessment of management and its internal controls, corporate governance, and aggressive culture," S&P said. "In addition, the potential breadth of management involvement in these transactions raises broader enterprise risk-management concerns."

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AIG $56.99 0.00%
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%
TSLA $218.42 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs