Skeleton of Coral Re Deal Drops AIG Stock
By Daniel Hays
NU Online News Service, Feb. 28, 4:27 p.m. EST?American International Group shares dropped by 2.27 percent today amid news that investigators were examining additional company transactions.[@@]
Before the latest reports, AIG had previously revealed it was under scrutiny by the Securities and Exchange Commission and the New York Attorney General's Office for its involvement with non-traditional insurance products that can sometimes serve to mask losses from company financial statements.
The two areas now said to be under scrutiny are the company's relationship with C.V. Starr & Company, a managing general agency created by AIG's founder, Cornelius Vander Starr, and Coral Re, a Barbados-based reinsurance operation that was in the spotlight more than a decade ago.
According to Financial Times of London, New York Attorney General Eliot Spitzer is looking at both companies considering whether their dealings with AIG were proper
AIG's relations with Coral Re were examined by a number of insurance departments in the 1990s, and New York and Delaware issued highly critical reports but took no action against AIG.
At issue was whether the company properly laid off its risk with an independent reinsurer or had created a shell company that it controlled to disguise financial losses.
Darryl Reese, director of the Delaware Bureau of Examination Rehabilitation and Guaranty, said there has lately been a spate of requests for the department's report, which suggested Coral Re might be affiliated with AIG.
Asked whether Mr. Spitzer's office asked for the document, he said, "it appears he may already have a copy."
The AIG dealings with C.V. Starr are the subject of a civil lawsuit by the Teachers Retirement System of Louisiana, alleging the company is used to funnel additional compensation to AIG directors and officers.
C.V. Starr has also come under the eye of North Carolina Treasurer Richard Moore, who wrote SEC Chairman William Donaldson on Jan. 5 to complain that AIG did not have strong prohibitions against "self-dealing practices."
In November 2004, AIG–in response to survey questions from the treasurer–wrote Mr. Moore a letter in which it said the company was seeking to dismiss the Louisiana pension group's stockholder suit, alleging breaches of fiduciary duty by AIG directors. AIG said management believed the transactions with C.V. Starr were legitimate and were regularly reviewed by an audit committee, which vetted them from conflicts of interest.
At the market close, AIG shares traded on the New York Stock Exchange were down $1.55 to $66.80.
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