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November 24, 2004

A.I.G. brought to heel

Something else to be thankful for this holiday season:

A.I.G. Will Accept Monitor and Pay $80 Million to Close Inquiries [NYT permalink]

The American Insurance Group copped a plea. The company will pay an $80 million fine and submit to an external monitor.

A.I.G. is accused of using insurance contracts to "smooth out" earnings. The NYT article explains why forrays into so-called "finite insurance" have gotten so many leading insurance companies in to serious regulatory trouble:

Finite risk or loss mitigation insurance was developed in the 1990's. The policies have become the subject of investigations because they sometimes do not operate like insurance - which protects against unexpected events - but may simply amount to loan agreements, possibly violating accounting standards. Payments of insurance claims should be recorded, for example, as income. But a loan must be recorded as a liability. A crucial test in insurance is whether there is a transfer of some risk from an insurance company's customer to the insurance company. If there is no transfer of risk, there is no insurance.

Update: Reuters reports that A.I.G. has agreed to pay $126 million to settle earnings inflation charges (as opposed to the $80 million figure cited above).


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I found your comments about transfer of risk to be interesting. Does this mean, for example, that an "insurer" (It could be AIG who, given the following...
*held, moneys demanded against an allegedly insured's line of credit with a third party, and
*in which the authorization of such third party payments had never happened or were denied to have happened and
*in which the alleged insured denied having contracted with insurer and
"in which insurer, claiming--in refute of demands for return of monies--that those monies received consituted consideration, and thereby a binding contract, during a four month term, for "benefits in due course" only during those four months, and thus
*sought to claim a right to those monies, and in which
*there was no reasonably conceivable prospect that any claim of benefit could ever be paid respecting the alleged term of the contract, and
*in which the alleged insured's purported act, had it occurred, would have consituted an attempt to gain unlawfully by fraudulent intent from the insurer and thus would be unpayable...

...given as stated, would the impossibility that any benefit could be legally obtained or enjoyed by any beneficiary, mean that the alleged insurance did not in fact exist, as insurance per se, and that the moneys held were if fact (as stated in your piece)or could be construed as an advance (that is, constructively, a loan) to insurer, and for which insurer, having no realizable liability respecting a benefit, has an obligation to pay on demand?

Perhaps, the answer is a qualification process.
for the insurance a committment to stay within the guidelines of loss mitigation. So this would require the individual to sign a financial discipline committment to retain a reputable organization to negotiate on the behalf of the homeowner.An organization similar to prepaid legal. solution? i think so ....
please contact me with any interest about developing a safer
finite risk plan for homeowners, who have been plundered by ARM's
Not much is being done to police this market now.
In closing prevention is the best cure and in a market with waxing and waning industry numbers developing a proactive indusrty augmented from an already established industry, that is very low overhead seems to make sense.

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