Archive for the ‘Accounting for reinsurance’ Category.
August 26, 2009, 5:00 am
On August 6, 2009, the SEC filed a Complaint in the Southern District of New York against former AIG Chairman and CEO Maurice “Hank” Greenberg and former Vice Chairman and CFO Howard Smith in connection with multiple accounting transaction allegedly inflating AIG’s financial statements between 2000 and 2005. The complaint charges Greenberg and Smith as control persons for AIG with numerous violations of securities laws including sham reinsurance transactions making it appear that AIG had legitimately increased its general loss reserves.
The complaint charges that Greenberg and Smith were aware of and responsible for AIG’s misleading financial statements over the last several years. According to an SEC Release, both Greenberg and Smith, without admitting or denying the allegations in the complaint, consented to a judgment enjoining them from violating several securities laws under penalty of fine. Smith also consented to the entry of an SEC order that will suspend him from appearing or practicing before the Commission as an accountant. Securities and Exchange Commission v. Greenberg, Case No. 09-6939 (USDC S.D. N.Y. Aug. 6, 2009).
This post written by John Black.
August 26, 2009, 5:00 am
On August 6, 2009, the SEC filed a Complaint in the Southern District of New York against former AIG Chairman and CEO Maurice “Hank” Greenberg and former Vice Chairman and CFO Howard Smith in connection with multiple accounting transaction allegedly inflating AIG’s financial statements between 2000 and 2005. The complaint charges Greenberg and Smith as control persons for AIG with numerous violations of securities laws including sham reinsurance transactions making it appear that AIG had legitimately increased its general loss reserves.
The Complaint charges that Greenberg and Smith were aware of and responsible for AIG’s misleading financial statements over the last several years. According to an SEC Release, both Greenberg and Smith, without admitting or denying the allegations in the complaint, consented to a judgment enjoining them from violating several securities laws under penalty of fine. Smith also consented to the entry of an SEC order that will suspend him from appearing or practicing before the Commission as an accountant. Both Greenberg and Smith entered into Consent Judgments to settle the charges, with Greenberg paying a file of $15 million and Smith a fine of $1.5 million. Securities and Exchange Commission v. Greenberg, Case No. 09-6939 (USDC S.D. N.Y. Aug. 6, 2009).
This post written by John Black.
August 12, 2009, 5:00 am
The AIG Consolidated Derivative Litigation continues – this time the court grants a motion to dismiss claims against alleged co-conspirator defendants. We covered a prior ruling on a motion to dismiss in our April 29, 2009 post, where the court found that the plaintiffs had stated well-pled breach of fiduciary duty claims against certain high-ranking AIG officers who were allegedly involved in two conspiracies, viz., a “bid-rigging” conspiracy and a “fake reinsurance writing” conspiracy, as well as other illegal activities. The question raised in the most recent ruling was: “may AIG sue its co-conspirators for the harm that AIG suffered as a result of two alleged, illegal conspiracies involving AIG and those third-party conspirators?” The court answered the question in the negative, holding that the in pari delicto doctrine bars this type of suit. A primary purpose of the doctrine is to prevent courts from having to engage in “inefficient” and “socially unproductive” accountings between conspirators. Rather than assessing the conspiracy and shifting responsibility, the court held that it would leave the conspirators as they are, potentially jointly and severally liable for the harms caused by their alleged conspiratorial acts. American International Group, Inc. Consolidated Derivative Litigation, Case No. 769-VCS (Del. Ct. Chanc. June 17, 2009).
This post written by Brian Perryman.
April 22, 2009, 7:00 pm
On April 13, 2009 we posted about the actions of the NAIC, at its recent meetings, to move forward on the regulation of reinsurance, collateral for reinsurance agreements and the modification of credit for reinsurance rules. Our partner Tony Cicchetti has posted a more detailed analysis of the regulatory and collateral proposals on several occasions, and he has updated that analysis to provide a comprehensive view of these issues.
This post written by Tony Cicchetti.
March 12, 2009, 5:00 am
American National Life Insurance Company of Texas (“American National”) sells stop-loss insurance policies in Missouri, and a dispute developed as to whether premiums for such coverage were subject to the state’s direct premium tax. American National paid the tax under protest and filed a claim for refund, which was denied by the Department of Revenue, which was affirmed in an administrative hearing. The Missouri Supreme Court reviewed the decision because the case involved the construction of state revenue laws. American National argued that the stop-loss policies are reinsurance and not subject to the direct premium tax. The court looked to Black’s Law Dictionary and other sources and concluded that a tax on “direct premiums received” is a tax imposed upon consideration paid by an insured to an insurer for a contract of insurance. The court rejected American National’s reinsurance argument, affirming the decisions below. American National Life Insurance Co. of Texas v. Director of Revenue, Case No. SC89064 (Mo. Nov. 4, 2008).
This post written by Dan Crisp.
March 9, 2009, 5:16 am
Readers may obtain a fairly comprehensive view of the global reinsurance industry from reading three reports:
This post written by Rollie Goss.
March 4, 2009, 6:18 am
The most recent development in the saga of Ren Re’s finite reinsurance story is a civil enforcement action by the SEC alleging federal securities fraud against Ren Re’s founder and former CEO and Chairman, James Stanard. After a bench trial, the court entered a detailed set of findings and conclusions, concluding that the accounting for one of the reinsurance transactions at issue had been fraudulent. The court found Stanard liable for violations of the anti-fraud provisions of Securities Act Section 17(a) and Exchange Act Section 10(b). The court also determined that Stanard violated Exchange Act Rule 13(a)-14, Rule 13b2-1 (Falsification of Accounting Records), Rule 13b2-2, 13(b)(5) and found Stanard liable for aiding and abetting liability for the above violations.
The court entered a final judgment permanently enjoining Stanard from future violations of the federal securities laws but did not bar him from serving as an officer or director of a public company in the future. The court ordered Stanard to pay $100,000 as a civil penalty. SEC v. Standard, Merritt & Cash, Case No. 06-7736 (USDC S.D.N.Y. Jan. 27, 2009).
This post written by John Black.
February 6, 2009, 4:00 pm
The New York Insurance Department has proposed a revision to Regulation No. 20 (121 NYCRR 125) – Credit for Reinsurance from Unauthorized Insurers. The Department has published a summary of the proposed amendment, and the Notice of Proposed Rule Making notes that comments will be accepted until 45 days after the publication of the Notice. We have confirmed with the Department that the comment period closes February 9, 2009. The amendment proposes to apply principle-based credit risk management standards to all licensed ceded insurers, and provides an alternative credit for reinsurance ceded to unauthorized reinsurers, which adjusts the credit that the ceding insurer may take on its financial statement based upon the financial strength of the unauthorized assuming reinsurer. The financial strength determination is based upon ratings by Standard & Poor’s, Moody’s Investor Services, Fitch Ratings, A.M. Best Company or any other rating agency recognized by the Securities Valuation Office of the NAIC.
This post written by Rollie Goss.
February 2, 2009, 6:18 am
AIG’s former vice-president of reinsurance has been sentenced in the criminal finite reinsurance prosecution to four years imprisonment, and fined $200,000. The court also has entered a Final Order of Forfeiture, in the amount of $5 million jointly and severally for all defendants. Gen Re has paid the $5 million amount in full. Perhaps more significantly, defendant Ferguson has appealed his conviction, and the government has appealed his sentence. The appeal means that the issue of the criminalization of the underlying disputed reinsurance contracting will be addressed by the Second Circuit.
This post written by Rollie Goss.
February 1, 2009, 10:28 am
On Tuesday, January 27, 2009, this author attended the NAIC Capital and Surplus Relief Working Group public hearing in Washington, D.C. The Working Group met to discuss its draft recommendations on nine insurance industry proposals offered by the ACLI designed to provide capital and surplus relief on life insurers’ December 31, 2008 statutory financial statements. One proposal offered by ACLI requested that regulators allow insurers to utilize the 2001 CSO Preferred Mortality Tables for contracts based on the 2001 CSO Mortality Table and issued prior to the January 1, 2007 effective date on which the Mortality Tables were set to become applicable. The Technical Group assigned to consider this proposal expressed concern that some companies may already be addressing the overly conservative reserves through a questionable reinsurance accounting practice. The Technical Group recommended that Insurance Commissioners consider requiring companies to demonstrate that they have not used such reinsurance accounting practices before allowing the company to utilize the new Mortality Tables. Another proposal related to collateral for reinsurance transactions. After spirited discussion among regulators, industry representatives, and consumer advocates, the Working Group formally approved each of its prior draft recommendations and forwarded its recommendations to the NAIC Plenary Body.
On Thursday, January 29, the NAIC Executive Committee held a teleconference vote on the proposals forwarded by the Capital and Surplus Relief Working Group. The Executive Committee, in a near unanimous vote, rejected the Working Group’s recommendations noting that neither the ACLI nor any insurance company provided sufficient information to justify enacting these proposals on an emergency basis.
The Executive Committee concluded that NAIC Working and Technical groups should continue to provide feedback and guidance during the current financial crisis. The Committee commented that companies should continue to work with their state regulators to maintain sufficient capital, and that the NAIC was open to considering these issues again in the future. Read the NAIC's release on the action..
This post written by John Black.
