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July 31, 2009


Fresh Air

Cross-investment within the same holding company is definitely not reinsurance. I wonder if the N.J. & N.Y. regulators aren't concerned by this because Ms. Walsh has her facts wrong.

Not that AIG isn't a house of cards, or a disaster in general, but no risk manager at any insurance company would consider cross-investment as legitimate reinsurance. All of this would also be disclosed on the insurance companies' state filings, so Walsh shouldn't have to ask an expert what's happening, she should be able to read it off the footnotes for herself.

Rick Ballard


Better wait until Uncle Ben's 'Washed in the Blood of the Fed' debt monetization program starts winding down. AIG's dirty portfolios should be clean as a new lamb by spring (no guess as to what year).

John Smith

Change the name to "Ponzie Scheme" and see how it flies.....


Anyone who think eliot spitzer's vendetta against Hank Greenberg turned out well, raise your hand!


Not many specifics in that article or in the comments from the "experts."

Investing in the stock of related companies is typically called stacking capital. It all comes out in GAAP consolidated financials but since each regulated entity files separate statutory statements, the stacking is less apparent and the illusion of excess capital is created.

Reinsuring with affiliated entities is also not illegal but typically requires regulatory approval of the contracts. Even 100% reinsurance for some business is not unusual or prohibited. Where it can become a concern is if the business is being reinsured to a less credit worthy entity - one that leverages itself more highly than the ceding company or has a history of deficient reserves. The article didn't make those points. Looking at the Bests ratings of the various AIG entities would give clues about that or if the business was flowing offshore to affiliates in less regulated climes.

Hank Greenberg did have a well deserved reputation for telling insurance regulators to pound sand, but all the article does is raise smoke about a bunch of permitted insurance industry practices. The 2005 restatement AIG booked showed they were not above some chicanery, but some specifics would have been nice.

Melinda Romanoff

A concise summation of the re-in industry's methodology.


And my Daley's a bit of a power freak, but that's just me.

And it's not Janet.


Melinda - Are you speaking of me? Heh!

Greenberg was cooking the books no question before the 2005 restatement, turning losses in the car warranty business into realized investment losses as I recall. He and his CFO got a little too cute with the games.

A company like AIG that was posting 14% quarter after quarter growth in income in a cyclical industry was too good to be true. With its size and dominance of markets its results should have reverted to the mean unless they were cheating or cooking the books. They were doing both. They were paying extra commissions for business flow to make an playing field unlevel, for which Spitzer fined the big brokers and their books were phony. Whether there is enough crap left on their books from the Greenburg days is a valid question. When the company was a virtual dictatorship it's tough to find all the sins of the past.

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