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New reinsurance-related and arbitration developments from Carlton Fields

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Accounting for Reinsurance

SEC CHARGES AND SETTLES WITH FORMER AIG EXECUTIVES

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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.

IN PARI DELICTO DOCTRINE BARS DERIVATIVE CLAIMS AGAINST ALLEGED AIG CO-CONSPIRATORS

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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.

UPDATE ON ANALYSIS OF NAIC CONSIDERATION OF REINSURANCE REGULATORY MODERNIZATION AND COLLATERAL CHANGES

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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.

STOP-LOSS POLICY PREMIUMS SUBJECT TO MISSOURI’S DIRECT PREMIUM TAX

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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.

RECENT REPORTS PROVIDE COMPREHENSIVE VIEW OF REINSURANCE INDUSTRY

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Readers may obtain a fairly comprehensive view of the global reinsurance industry from reading three reports:

This post written by Rollie Goss.