HARTFORD, CONN.--A Merrill Lynch analyst testifying at the securities fraud trial of five insurance executives testified that after he looked at American International Group reserves, that prosecutors say were inflated with a sham transaction, he sent out a positive investors note.

Jay Cohen, who has been a property-casualty insurance analyst with Merrill since 1995, appeared as a government witness to give evidence concerning the deal that took place between the last quarter in 2000 and first quarter of 2001.

He was the second analyst to testify in U.S. District Court here concerning the finite reinsurance transaction between AIG and General Reinsurance unit Cologne Re Dublin.

On trial for conspiring to boost the AIG financial picture are Ronald Ferguson (former Gen Re chief executive officer), Elizabeth Monrad (Gen Re's former chief financial officer), Christopher Garand (a former Gen Re senior vice president), Christian Milton (former AIG vice president for reinsurance) and Robert Graham (Gen Re's former senior vice president and counsel).

According to the testimony, in the third quarter of 2000 before then AIG Chief Executive Officer Maurice Greenberg approached Mr. Ferguson about the deal, his companies reserves had dropped by $59 million.

The transaction that was worked out with Cologne re allowed AIG to book 2000 fourth quarter loss reserves of more than $100 million and $260 million in premium and lift reserves in the first quarter of 2001 by $63 million.

Mr. Cohen, under questioning by Assistant U.S. Attorney Adam Safwat, said as a result of seeing the AIG financials he had written a note to investors that said in part, "given the renewed premium growth, we would expect reserves to continue rising..."

In other testimony, he said that Mr. Greenberg and unindicted coconspirator in the case, who was forced to leave the company in 2005, had failed to appear at a Merrill investors conference on Feb. 14, 2005 after news reports that the New York State Attorney General's Office and Securities Exchange Commission had subpoenaed his company concerning the deal with Gen Re.

Mr. Cohen said the disclosure of the subpoenas was significant news to analysts. "One of the qualitative things we look at is management and allegations like that raise questions."

The government entered various articles written at the time reporting that management at AIG and Gen Re may have been involved in the transaction.

Earlier in the trial Alice Schroeder a former Morgan Stanley analyst testified she raised AIG's rating in 2001after the reserve increases were reported and that she probably would not have if she had known the company's reserves were actually decreasing.

Special Reports /

Analyst Says AIG, Gen Re Deal Triggered Positive Note

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