Greenberg, New York State Settle Long-Running Civil Case

One of Wall Street’s longest-running dramas closed Feb. 10 as New York State and Maurice “Hank” Greenberg finally ended a legal clash which began in 2005 under the stewardship of then Attorney General Elliot Spitzer.

Former American International Group, Inc. CEO Greenberg and the Attorney General’s office reached a settlement over accusations that the company engaged in fraudulent transactions to boost reserves and hide losses.

Greenberg, who was chairman and CEO of AIG from 1967 until his ouster in 2005 and now serves as chairman and CEO of C.V. Starr & Co., will pay some $9 million to end his role in the saga. Also, Howard Smith, former AIG CFO and Greenberg’s lieutenant will pay $900,000 to settle the charges stemming from two alleged transactions designed to misrepresent company finances.

This included a $500 million deal in the year 2000 with reinsurer General Re, part of businessman Warren Buffet’s Berkshire Hathaway Inc., to pad AIG’s loss reserves. Greenberg allegedly initiated the Gen Re deal with a call to the company’s CEO.

The two former AIG leaders were also said to be involved in a deal with Capco Reinsurance Co., which masked a $210 million underwriting loss as an investment loss.

The sums paid by the men are related to performance bonuses earned from 2001 to 2004, according to New York Attorney General Eric Schneiderman, who inherited the long-running conflict. Schneiderman sought to ban the men from the securities industry and from serving as directors and officers of public companies as part of the settlement, which ultimately did not include these provisions.

Schneiderman had previously dropped a $6 billion damage claim against Greenberg and others, once a class action settlement was approved in 2013 under which Greenberg paid $115 million to AIG shareholders.

A 2009 settlement with the U.S. Securities and Exchange Commission over charges related to AIG‘s accounting saw Greenberg pay $15 million and Smith $1.5 million to the agency.

Late last year Greenberg and the Attorney General’s office turned to mediation after trial testimony had already begun in state court. The mediation, which ultimately produced the settlement, was run by alternative dispute resolution specialist Kenneth Feinberg.

The finale to the case was perhaps more of a whimper than a bang, with settlements hardly headline-grabbing and no one admitting to much more than accounting slips.

In a press release from the N.Y. State Attorney General’s Office, Schneiderman sounded a triumphant tone. “Today’s agreement settles the indisputable fact that Mr. Greenberg has denied for 12 years: that Mr. Greenberg orchestrated two transactions that fundamentally misrepresented AIG’s finances,” Schneiderman said in the statement. “After over a decade of delays, deflections, and denials by Mr. Greenberg, we are pleased that Mr. Greenberg has finally admitted to his role in these fraudulent transactions and will personally pay $9 million to the State of New York.”

Greenberg, who was unapologetic, in his statement said, “The Gen Re transaction was done for the purpose of increasing AIG’s loss reserves, and the Capco transaction was done for the purpose of converting underwriting losses into investment losses. I knew these facts at the time that I initiated, participated in and approved these two transactions…As a result of these transactions, AIG’s publicly-filed consolidated financial statements inaccurately portrayed the accounting, and thus the financial condition and performance for AIG’s loss reserves and underwriting income.”

The pundits had their say as well, split as to what it all meant.

“The taxpayers of New York State should be furious,” said the Wall Street Journal’s Paul Gigot, editorial page editor. “The $9 million fine amounts to pin money for Mr. Greenberg…It won’t come close to covering the state’s costs for pursuing the case over so many years…The real lessons of the Greenberg case start with the absurd lengths that progressive prosecutors will go to punish capitalists they don’t like,” Gigot said.

Mr. Greenberg’s lawyer David Bois called the deal with the Attorney General a “nuisance settlement,” according to the New York Times.

Others were less forgiving of Mr. Greenberg. “Just because he hasn’t pled guilty to fraud doesn’t mean he’s been vindicated,” David Schiff, a former insurance analyst who followed AIG, told the Times.

Hank Greenberg Shares Concerns for Insurance Industry at RIMS Canada Conference

Hank Greenberg RIMS canada

QUEBEC CITY, CANADA—Currently on the mend from Legionnaires’ disease, Maurice “Hank” Greenberg appeared via live video stream to deliver the keynote address to the 2015 RIMS Canada Conference. The chairman and CEO of the Starr Companies and former chairman and CEO of AIG gave a frank and diverse address highlighting a number of concerns about potential impacts to the insurance industry due to the current climate.

“We’re living in a very troubled time on a global basis,” he said, emphasizing geopolitical instability. While such geopolitical uncertainty demonstrates the need for political insurance, other widespread conditions do not necessarily have such favorable implications for the industry.

“Clearly commercial insurance rates are under pressure,” he said. “The absence of catastrophes has masked that rates have gone down so much, and that has allowed some companies to survive.”

He also noted that investment income is suffering because of interest rates, and expressed concern that many companies are turning to long-tail reserves for income. What’s more, he said, accident year results for many companies are turning negative, and many are finding their reserves inadequate, particularly as expense ratios are frequently increasing rather than remaining steady. Companies that aren’t very efficient will find it very hard to be competitive and show returns this year, he cautioned.

Further examining the industry, Greenberg criticized insurers for “not doing a very good job of training underwriters,” seeing a stark comparison to the rigorous, diverse experience previously customary in the London market, for example.

“It takes years of experience to train an underwriter—they are not just qualified because of a college degree,” he said. “It takes years of work and a lot of common sense to develop the wisdom to know what can be underwritten and at what price.”

When it comes to this talent concern, he noted, it is not a question of which companies are doing better, but a problem across the board. “I don’t think we have the discipline, as an industry, to do the job properly,” Greenberg said.

Greenberg also shared some of his political opinions, both international and domestic. Of China, the US-ASEAN Business Council chairman emeritus and vice chairman of the Council on Foreign Relations said he does not share the widespread dubious feelings on China. “They’ve had some missteps. What country hasn’t?” he said.

He spent some of his time addressing the burgeoning 2016 U.S. election. Greenberg noted Donald Trump’s campaign as part of what he views as growing dissatisfaction – and perhaps inadequacy – of the current political system. “People are fed up with the political system as it currently exists. Why else would somebody like Trump, who has no experience but is speaking about things people care about be doing so well?” he said.

He also told the crowd that Jeb Bush would personally be visiting him Wednesday. Greenberg does not yet endorse any particular candidate, however, and expressed some concern about the Republican party’s position amid acute socioeconomic changes and resulting political demands nationwide.

“You have to give people the opportunity to succeed—that’s the American Dream. That’s why people came here,” he said. “If we’re going to deny that opportunity, the Republican party will have to change its name.”

RIMS Inducts Three Industry Legends into Risk Management Hall of Fame

NEW ORLEANS—Today, Gary E. Bird, James D. Hinton and Reginald A. Pitchford were recognized as the 2015 inductees to the Risk Management Hall of Fame (RMHF), a joint venture between AIG and RIMS that celebrates risk professionals who have made exceptional contributions to advancing the discipline.

“With an eye on the future, it’s important that we remember the risk management leaders who have laid the groundwork, generously volunteered their experiences and demonstrated an unwavering commitment to advancing the profession,” said RIMS Executive Director Mary Roth. “Gary, James and Reginald are shining examples of this industry’s best and it is a privilege to announce their induction into the Risk Management Hall of Fame.”

“Throughout their professional careers, these industry leaders have gone above and beyond to make significant achievements in risk management,” said Rob Schimek, President and CEO of the Americas for AIG. “It is truly an honor to recognize them for their success.”

gary bird

Before his death on September 11, 2001, Gary Bird served as director of risk management at the Phelps Dodge Corporation and senior vice president of construction risk management at Marsh & McLennon. He also authored the first three editions of The Wrap-Up Guide, an internationally recognized series that explores strategies and best-practices for managing liability policies designed to serve as all-encompassing insurance for all contractors and subcontractors. For his contributions to the field, IRMI changed the name of its annual construction risk management award in his honor, annually celebrating a risk or safety manager who has implemented an innovative risk management program for a construction project with the Gary E. Bird Horizon Award.

Jim Hinton

James “Jim” Hinton spent 33 years managing risk with the Hospital Corporation of America (HCA) and its predecessor companies and served as president of Health Care Indemnity, Inc., HCA’s captive insurance company. In addition to developing innovative loss prevention programs, he lobbied successfully with industry colleagues to change the legal environment by investing heavily in tort reform efforts. Hinton also dedicated much of his life to leading a number of charities dedicated to aiding individuals with cerebral palsy and other disabled adults, spurred by his son’s struggle with the disorder. In recognition of his dedication to both risk management and social service, the James D. Hinton Memorial Captive Insurance Volunteer Award was created and awarded to Jim after his death in 2012 for his outstanding leadership within the captive insurance community.

reginald pitchford

After serving in the Royal Air Force medical service during World War II, Reginald Pitchford worked his way up in the Canadian risk and insurance fields, becoming a champion of risk management in Manitoba and the RIMS Manitoba Chapter (MARIMS) before it even achieved chapter status in 1976. His work as corporate risk manager at United Grain Growers Insurance Department was characterized by his belief that a primary risk function established a strong foundation, ultimately leading to one of the first successful applications of a series of risk processes that would later be called Enterprise Risk Management. In the early years of MARIMS, he was critical in its growth, serving as chapter president while also holding the position of president of the Insurance Institute of Manitoba and sitting on the Council of the Insurance Institutes of Canada, and taught during the 1960s and ’70s as a Fellow of the Insurance Institute of Canada.

RIMS and AIG Announce 2013 Risk Management Hall of Fame Inductees

Robert Nighan (second from left) accepted the honor for Hall of Fame inductee David Sterling while the late Robert Spencer’s honor was accepted by his wife Charlotte (third from right) and daughter Libby (second from right). (Photo: Joe Zwielich)

David C. Sterling and Robert S. Spencer are the newest members of the Risk Management Hall of Fame, RIMS and AIG announced today. The Risk Management Hall of Fame serves as a means to maintain the history of the field of risk management and recognizes risk practitioners who have made significant contributions to advancing the discipline. Both honorees were officially inducted at RIMS 2013 Annual Conference & Exhibition in Los Angeles.

In order to be selected, the Risk Management Hall of Fame considers the following criteria: considerable contributions to the field; significant achievements, innovation and trend setting; demonstrated leadership, character and service; and the highest caliber of ethical and professional conduct.

So with this in mind, here are some of the accomplishments of the 2013 inductees:

DAVID C. STERLING

David C. Sterling joined The Hartford Financial Services Group, Inc. in 1964 after serving two years with the U.S. Army at Fort Kobbe, Panama Canal Zone.  He retired from The Hartford after 42 years as assistant vice president and senior risk manager, where he managed The Hartford’s worldwide risk programs and exposures to accidental loss including the placement of all insurance and non-insurance programs designed to protect the organization.

David is a risk and insurance pioneer. He purchased and implemented one of the first EPLI (employment practices liability insurance) programs in the insurance industry; purchased and implemented one of the first cyber risk liability, property and crime insurance programs; and implemented one of the industry’s first blended multi-year program for a financial institution and rolled the program over several times to achieve significant savings.

Throughout his career, he shared his professional experiences and expertise with students and risk professionals who expressed interest in advancing their careers.

At the West Hartford Branch of the University of Connecticut, he taught the Insurance Institute of America’s Risk Assessment program, one of three courses required for The Institute’s Associate in Risk Management (ARM) designation.

Additionally, he was a reviewer of The American Institute for CPCU (now called “The Institutes”) texts for the Chartered Property Casualty Underwriter (CPCU) designation program which focuses on risk management and insurance, as well as a reviewer of other texts published by them. For more than 30 years, he served The Institutes on its CPCU Exam Review Committee. He also authored a CPCU monograph entitled “Environmental Liability: An Insurance Perspective.”

David is currently a member of RIMS Connecticut Valley Chapter, the CPCU Society and the Society of CIC. He holds 28 professional risk management and insurance designations, as well as a State of Connecticut’s producer’s license and a State of Connecticut’s certified insurance consultant license.

ROBERT SPENCER

During his 17-year career, Robert S. Spencer held numerous risk management positions including vice president of insurance for Fuqua Industries Inc.

At Fuqua, he was responsible for the development and implementation of the organization’s risk management program that included a very diverse portfolio that includes everything from the manufacturing of lawnmowers and sporting good to being the eighth-largest trucking company in the United States. In 1976, he co-founded Fuqua’s Bermuda-based captive, Fuqua Insurance Company Ltd.

Robert is credited with setting standards on the dealings of captives with reinsurance markets, both domestic and international. He was also responsible for a workers compensation self-retention program that was adopted by 31 U.S. states in the Fuqua program.

Robert served the Atlanta Chapter of RIMS in all officer positions including president in 1973. He also served as a vice president of RIMS from 1974 – 1977 and RIMS president from 1977 – 1978. He was a founding member of the Canadian Institute of Chartered Accountants.

Most importantly, Robert was quick to share the knowledge he gained with others so that the principles of “good” risk management could be passed on without reinvention. He fostered numerous programs at both the Atlanta Chapter and international levels of RIMS to support students, and expose them to the risk management profession.

Thirty-four years after his death in 1979, his legacy continues to provide educational opportunities for young men and women seeking to advance their education in business, insurance, actuarial sciences, and the risk management fields through the Spencer Educational Foundation.  Established in 1979 in his memory, the Foundation funds the education of tomorrow’s risk management and insurance industry leaders.  Since 1999, the charitable organization has awarded $4.7 million in student scholarships and $2.2 million in educational grants.

Additionally, Robert was responsible for establishing RIMS’ Anita Benedetti Student Involvement Program in 1978.