AIG Under Fire For Use Of Offshore Reinsurance Companies

by Leroy Baker, Tax-News.com, New York

25 March 2005

American International Group, which lost legendary CEO Hank Greenberg earlier this month amongst SEC investigations into past reinsurance deals, is alleged to have misused two reinsurance companies in Bermuda and Barbados according to press coverage this week.

AIG, which has had major interests in Bermuda for 50 years, has been under investigation since last year by New York Attorney General Eliot Spitzer and the US Securities and Exchange Commission. Mr Greenberg's departure (he is to become non-executive Chairman) is said to be linked to a reinsurance arrangement with Berkshire Hathaway’s General Re which aimed to boost AIG’s reserves by $500 million.

Reports allege that AIG used Barbados-based Union Excess Reinsurance Co and Bermuda-based Richmond Insurance Co. Ltd to park reinsured risks off its balance sheet, although it perhaps should have treated them in filings as affiliated companies.

Delaware regulators several years ago investigated AIG's use of a Barbados-based reinsurer, Coral Reinsurance Co., to determine if the firm was controlled by AIG; AIG said it voluntarily would phase out its use of the company and the state levied no penalties.

At worst, AIG could have to take a charge of nearly $1.2 bn by writing back reinsurance recoverable from the two companies, if it is eventually made to consolidate their accounts with its own. An article in Barron’s said that Bermuda-based Richmond had “a tiny capital base of $44 million to support the $666 million it owed AIG at the end of 2003”.

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