AIG’s CFO, VP are Latest Victims of Spitzer Investigation

Citing “people familiar with the matter,” the The Wall Street Journal reported that insurance giant American International Group Inc. fired two of its executives because they indicated they would invoke their Fifth Amendment rights against self-incrimination in the midst of investigations over some of AIG’s reinsurance dealings and financial accounting.

The Wall Street Journal reported that AIG has fired its former chief financial officer, Howard Smith, who took leave last week at the time CEO Maurice “Hank” Greenberg retired. Christian Milton, a vice president who may have dealt with transactions involving reinsurance that are under review, has also been fired, the newspaper said.

AIG has said it been cooperating with authorities from New York State and the Securities and Exchange Commission in their investigations of accounting practices and reinsurance arrangements, as well as conducting its own internal probes. Both men “were terminated pursuant to company policy that requires employees to cooperate with government authorities on matters pertaining to the company,” AIG spokesman Chris Winans told the newspaper.

In addition to probing AIG’s relationship with Berkshire Hathaway-owned General Reinsurance, authorities are reportedly interested in AIG’s dealings with two other reinsurers, Union Excess Reinsurance Co. and Richmond Insurance Co., and how AIG accounted for business it did with them. In November, AIG agreed to a $126 million settlement with the SEC.

The newspaper reported that AIG claimed $500 million in premium revenue from General Re and then posted the same amount in reserves to its balance sheet in late 2000 and early 2001. Regarding the Barbados-based Union Excess Reinsurance Co. and Richmond Insurance Co., officials are curious as to why AIG has been their only customer and if, as AIG’s accountants have claimed, the two firms are unaffiliated with and not under the control of AIG.

Greenberg’s Successor
On March 14, AIG announced that Greenberg, who has been at AIG for 40 years, would retire and that its board elected Martin J. Sullivan as president and chief executive officer to succeed him. Greenberg will serve in the capacity of non-executive chairman.

Sullivan, who has served in a variety of senior positions during his more than 30-year career at AIG, was most recently vice chairman and co-chief operating officer. He said that in his new position Greenberg would be available to consult with him during the transition and “going forward.” Sullivan handled questions at a morning conference call with analysts at which Greenberg appeared to introduce him. Greenberg said it was “terrific” that the long-time AIG employee would be succeeding him.

For his part, Sullivan stressed that he believes the fundamental strategies at AIG are sound and that the company will continue to grow under the new management team.

“We had record results in 2004 and we’re off to a good start in 2005,” Sullivan said. “With regard to any regulatory issues, I would like to get these behind us and soon as possible and move forward.”

As part of the management shake-up, Steven J. Bensinger was elected executive vice president, chief financial officer, treasurer and comptroller. He succeeds Howard I. Smith as CFO, who has taken leave. Bensinger, who joined AIG in 2002, had been senior vice president, treasurer and comptroller. AIG officials would not elaborate on Smith’s reasons for taking leave at this time.

Citing the management realignment, the departure of CFO Smith, and investigations by Spitzer and SEC, Standard & Poor’s a placed AIG’s AAA long-term credit rating on credit watch with negative implications, pending release of the company’s annual report. Fitch Ratings lowered AIG’s long-term issuer rating and unsecured senior debt obligations to AA-plus from AAA.

Sullivan said he did not expect any downgrades to have serious effect on AIG’s earnings. “Our internal reviews are underway and we can say with a reasonable degree of assurance that we don’t think it will have any affect on our financial situation,” Sullivan said.

“It is a daunting task to step into the shoes of Hank Greenberg,” the new CEO added. “Thanks to his leadership, AIG’s business units are managed by tested professionals who are leaders in their fields. … We have an extremely strong business and our financial fundamentals remain intact. The company is committed to cooperating with the governmental authorities in their ongoing investigations. We take these matters seriously and want to bring them to resolution.”

Sullivan was elected AIG vice chairman and co-chief operating officer in May 2002, when he was also elected to the AIG board of directors. He first joined the company in the finance department of AIG’s nonlife company in the United Kingdom in 1971.

Topics Reinsurance AIG