- What is AIG’s stance on the allegations they are facing?
- What further investigations do you propose to be conducted?
- Have you researched other articles and publications about AIG and their future state?
- What are your personal feelings about AIG and the decisions that they have made?
(See attached files for full problem description)
Through investigations conducted by the Securities Exchange Commission and other investigation bodies, American International Group (AIG) were questioned regarding financial legalities and business legalities in terms of transactions with other companies. One particular probe against AIG is issue regarding financial fraud wherein the company is said to be involved in reinsurance activities. AIG used the following data which is assumed to have illegalities, found by different research bodies such as the Morgan Stanley Equity Research, to dismiss two senior executives.
• $250 million reserves that were made to be less visible for liabilities
• AIG reinsurance transactions with other companies and housing Richmond Insurance Company without proper transfer of risk.
The consequence of AIG’s decision of firing the two senior executives gives them the following problems: strengthening the assumptions that the company intended the fraud, thus they need to eliminate people who were part of the fraud and who can reveal the truth; and the problem of who can support or defend the information found against AIG when the two executives were already fired. Because of the company’s decision, AIG is now in a serious problem with financial investigation bodies.
The financial data found on AIG is significant because they can serve as reasons for conducting further investigation on issues filed against AIG. However, such data has limitations to be able to conclude that AIG has really committed fraud. This is because the data are still not enough and further information is still to be investigated.
Hays, Daniel. Taking The Fifth A ‘Serious Problem’ For AIG, Spitzer Says.
Retrieved on August 5, 2005, from Online. Web site:
Taking The Fifth A ‘Serious Problem’ For AIG, Spitzer Says
(Sourced Article) Reproduced from National Underwriter Edition, March 25, 2005. Copyright © 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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What is AIG’s stance on the allegations they are facing?
They are trying to put the entire blame on the two executives. AIG is trying to make the two executives the scapegoats. It is impossible that the two executives on their own could pull off such an elaborate caper. Reinsurance is simply excess and surplus insurance called E&S excess and surplus. They purposely would underestimate the risk in writing AIG’s original policies in order to be able to steal the bids from everybody else. They would purposely underbid. Then they would go to their offshore subsidiary Coral, which was a reinsurance company and get Coral to sell a reinsurance policy on a contract on insurance policy or contract or fidelity instrument or guaranty instrument, etc. They would get Coral to write a reinsurance policy and get Swiss Re to buy it. But it wasn’t worth anything because they had underbid the original insurance contract. So the reinsurance contract effectively wasn’t worth anything. Coral then collected the premiums from Swiss Re. Swiss Re, in turn, re-brokered most of its Coral policies directly through Lloyds of London. This then had a ripple effect that nearly took Lloyds of London down. AIG used its offshore subsidiary, Coral Reinsurance, to issue, or to resell bogus reinsurance policies to Swiss Re. That was the real connection. And it’s what put Swiss Re into trouble. Swiss Re is the biggest reinsurer in the world. In short AIG is trying to wriggle out of the situation by palming off the blame of the entire fraud on two …