AIG - a leopard can never change its spots

With crisis after crisis hitting the headlines, it is sometimes difficult to keep track of events and trends of the past. AIG’s unfortunate set of current circumstances are possibly linked back to the good old days of Hank and the boys. Remember this breaking news back in 2005:

But priorities have changed for Houldsworth, the former chief executive of Cologne Reinsurance, the Dublin-based subsidiary of Berkshire Hathaway that is suspected of helping American International Group pad its accounts. He sold his modest two-story row house last October - homes in Wyvern Estates where he lived do not change hands for less than $1 million - about the time that Australian insurance regulators banned him from the market there for improprieties related to the collapse of a major insurer.

Read the full article here

Earlier this year a US Federal jury heard further evidence relating to the AIG / Cologne Re fraud case, see here:

***HARTFORD, Conn.—Former Cologne Re Dublin Chief Executive Officer John Houldsworth understood from his first conversations with General Re Corp. officials about a proposed reinsurance deal with American International Group Inc. that the deal would include no risk transfer, Mr. Houldsworth told a federal jury Wednesday.

In a late evening phone call on Nov. 13, 2000, Elizabeth Monrad, Gen Re’s former chief financial officer, told Mr. Houldsworth about former AIG CEO Maurice R. Greenberg’s request that Gen Re—Cologne Re Dublin’s parent company—cede up to $500 million in reserves to AIG, Mr. Houldsworth said.

Ms. Monrad told him that AIG wanted to appease stock analysts concerned about AIG’s reserve levels and made it clear that as part of any reinsurance deal, Gen Re would not send a cash premium to AIG, would insist on avoiding adverse tax consequences for Cologne Re Dublin and “would not be charging (AIG) with any losses, if we had any,” Mr. Houldsworth told jurors.

The testimony came in the third week of the trial of Ms. Monrad and four other Gen Re and AIG executives on charges that they engineered a fraudulent loss portfolio reinsurance deal that allowed AIG to inflate its loss reserves by $500 million in the last quarter of 2000 and the first quarter of 2001.

Those charged in addition to Ms. Monrad are Ronald E. Ferguson, Gen Re’s former CEO; Christopher P. Garand, former senior vp in charge of U.S. finite underwriting for Gen Re; Robert Graham, former senior vp and legal counsel for the reinsurer; and Christian M. Milton, AIG’s former vp for reinsurance.

Mr. Houldsworth’s testimony follows that of Richard Napier, a former Gen Re senior vp who completed his testimony Tuesday. Both men have pleaded guilty to conspiracy in the case and are cooperating with the government.

Prosecutors played recordings of a series of phone calls Mr. Houldsworth had with some of the defendants and others at Gen Re in mid-November 2000.

In one Nov. 14, 2000, call, Ms. Monrad is heard telling Mr. Houldsworth not to worry about “whether we are transferring deposit liabilities or not.”

“Any way we structure this, it’s going to look like a deposit because they are not really looking to take risks,” she adds later in the conversation, referring to AIG.

Gen Re ultimately accounted for the deal as a deposit, while AIG accounted for it as a risk-bearing reinsurance transaction, allowing it to report the reserves on its balance sheet.

Ms. Monrad also cautioned Mr. Houldsworth that the proposal was highly confidential: “If we ever talked about it, our name would be mud with AIG,” she says on the recording.

Asked by Assistant U.S. Attorney Eric Glover why the concern with confidentiality, Mr. Houldsworth replied: “It obviously involved a U.S. public company looking to amend or misrepresent its financial statements.”

Prosecutors also played recordings in which Mr. Houldsworth discussed the deal with Mr. Garand; Milan Vukelic, Mr. Houldsworth’s boss at Cologne Re’s Alternative Solutions unit in London; and Peter Gerhardt, Mr. Vukelic’s superior at Cologne Re in Cologne, Germany.

Mr. Houldsworth also testified about the reinsurance slip he drafted for the deal, which showed AIG assuming up to $600 million in liabilities for $500 million in reserves. He included the $600 million limit “to give the appearance of risk transfer,” Mr. Houldsworth said.***

Article source from here

That is not the end of AIG’s history of fraud scandals. Remember the previous New York Attorney, Eliot Spitzer and his massive probe into insurance bid-rigging between AIG and Marsh, see here:

Here we are in 2008 with Hank Greenberg and a few chums attempting to take AIG back, this is the guy in charge when these scandals exploded, it happended on his watch.

Now we have a ridiculous situation where AIG is being bailed out for business activities which smack of more of same from the past history of scandals.

Now we hear AIG’s new CEO comment as follows:

***Mr. Liddy said that while AIG may have lost six or seven percentage points of its directors and officers business, other lines are “doing fine” and AIG is working to hold to as much business as possible so it can “go back and fight another day. We’re making good progress in doing that,” said Mr. Liddy.

At the same time, the insurer will not sacrifice underwriting discipline in an effort to keep business, he said. “We’re really good at that. I’m all about pricing and underwriting discipline,” he said. “I don’t want to solve one problem and create another.”***

Excuse me but ‘doing fine’ is a bit OTT. AIG are leaking like a siff. Yes, it is true that AIG are fighting tooth and nail to retain market position however, the facts of the matter still remain that AIG’s future survival is highly questionnable. Markets are already voicing considerable concerns regarding AIG’s ability to dispose of assets and repay the $85bn plus interest. AIG has a natural preference (understandably) to return to core competence of P&C underwriting. They may have to sell some P&C operations throughout the world to achieve loan repayment in full. Also, their underwriting and pricing disciplines are gone out the window. Any person with half a brain can see through these empty statements from Liddy and more locally Sean Hehir, MD of AIG Ireland.

Max,while it may be reasonable to assume that “AIG are leaking like a siff” given the recent events, do you have something to substantiate this? Have they issued financials recently? Are you referring to AIG globally or locally?

Also you say that " Any person with half a brain can see through these empty statements from Liddy and more locally Sean Hehir, MD of AIG Ireland." Now, while i have heard and read stuff from Liddy i haven’t seen anything yet from Ireland MD. Do you have a Link or can you expand of the kind of statements he is making or has made recently?

:laughing: Have they issued financials recently? XX

:laughing: Appears Mr. Hehirs statements had limited circulation to the anointed few. 8DD