Updated from 3:14 p.m. EDT

Maurice "Hank" Greenberg's four-decade reign at

American International Group

(AIG) - Get Report

may be over, but he continues to play a leading role at a reinsurance firm that is a major subsidiary of the scandal-tainted insurer.

To date, Greenberg's forced departure from AIG has not impacted his standing as chairman of

Transatlantic

(TRH)

, a reinsurance firm in which AIG owns a 60% equity stake and lists as a subsidiary.

Transatlantic, which has existed as an independent publicly traded company since 1990, is an important business partner of AIG. Last year, 15% of the reinsurance premiums underwritten by Transatlantic, worth about $639 million, were with other AIG subsidiaries.

Reinsurance is a policy between insurers in which a reinsurer assumes all or a portion of the risk of loss on an underlying insurance policy. Reinsurance coverage enables a primary insurer to free up capital so it can underwrite more policies and reduce the reserves it needs to cover potential claims.

In many ways, Transatlantic's fate is intimately linked to that of AIG, and that could have repercussions for both companies.

Shares of Transatlantic are down 12% to $60.95 since March 14, when Greenberg stepped down as CEO of AIG in the face of a widening state and federal investigation into allegations of earnings management and accounting irregularities at the nation's largest insurer.

Through Friday, shares of AIG had fallen 20% over the same period. The stock rallied $2.66, or 5.2%, to $53.61 Monday after New York attorney general Eliot Spitzer said a civil settlement was an "achievable" resolution to the company's legal entanglements.

To be sure, trading in Transatlantic shares is often sparse. On a typical day, no more than 25,000 shares are traded. Not surprisingly, trading volume has spiked of late, with more than 100,000 shares changing hands on both Monday and last Friday.

The slide in Transatlantic's stock means the value of AIG's investment in the New York reinsurer has fallen by $351 million. AIG owns 39 million shares.

The decline also has been bad news for

Davis Selected Advisors

, a Phoenix-based investment management firm that owns 22% of Transatlantic's outstanding stock. Davis, which manages $35 billion in assets, was founded by Shelby Davis, who is described by some as the "Warren Buffett of the Southwest."

Davis Funds declined to comment.

Steven Skalicky, Transatlantic's chief financial officer and executive vice president, could not be reached for comment. So far, the company has not issued any statements on the AIG account scandal and its potential ramifications for Transatlantic.

As chairman of Transatlantic, Greenberg draws no salary, but serves on the company's compensation and executive committees. He owns 141,000 shares of Transatlantic, more than any another board member except for Robert Orlich, Transatlantic's chief executive officer and president.

But the web of potential conflicts of interest between AIG and Transatlantic goes beyond Greenberg's continuing presence on the reinsurers board.

In all, four of Transatlantic's nine board members are either current or former AIG executives, including Howard Smith, AIG's former chief financial officer, who was fired on March 22. AIG dismissed Smith for refusing to cooperate with the joint state and federal investigation. AIG's board ousted its finance officer after learning that Smith had asserted his constitutional right against self-incrimination during an interview with investigators.

Transatlantic rents its headquarters office at 80 Pine St. in New York from AIG. The address is a stone's throw from AIG's own Pine Street headquarters in lower Manhattan. An AIG subsidiary also serves as an investment manager for Transatlantic, collecting about $4.4 million in annual fees.

Since AIG treats Transatlantic as a subsidiary, it includes the reinsurer's profits in its own income statement. There is no issue of AIG trying to use Transatlantic to bolster its balance sheet, as it has done with a number of unaffiliated offshore reinsurers that AIG secretly had control over.

But AIG's transactions with Transatlantic could raise questions about the independence of the dealings between the two entities, says a former AIG employee, who did not want to be identified.

Orlich, Transatlantic's CEO and president, is a stockholder in

CV Starr

, according to Transatlantic's corporate filings. CV Starr is an insurance brokerage that has ties to

Starr International

, the controversial AIG executive compensation company that owns 12% of AIG's shares.

Neither Starr International nor CV Starr are considered subsidiaries of AIG.

In Transatlantic's most recent annual report, the company said it paid $12 million in commissions to CV Starr in 2004, in conjunction with reinsurance coverage purchased by some AIG subsidiaries.

Greenberg, who remains chairman of Starr International, is also a shareholder and officer of CV Starr.