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CHIEF SETTLEMENT
Former AIg chief executive officer, Maurice “hank”
QUICk FACTS
greenberg and five other defendants have agreed
Eight of the 10 costliest
to pay $115 million to settle a shareholder lawsuit,
hurricanes in US history
according to sources. The cost is expected to be largely have impacted Florida, and
regained through an insurance policy that covers
seven of those Florida storms
occurred within just two years:
company directors and officers against the cost of
2004 and 2005. hurricane
lawsuits. The development came days after greenberg
Andrew in 1992 was the
and former AIg chief financial officer howard Smith
costliest hurricane for Florida
reached an agreement to settle accusations by the US
in recent years, causing $23.8
billion in insured losses (in
Securities and Exchange Commission that they had
2008 dollars).
altered AIg’s financial records from 2000 to 2005 to
inflate the insurer’s earnings.
Six tropical storms are
predicted as the most likely
The settlement is contingent on the lawsuit getting
number to occur in the north
class action status, on which a decision could be
Atlantic during the July to
‘MEGA-BET’ FOR
november period, with a
reached by the end of August. The lawsuit was
DISASTER-pRONE STATES
70 percent chance that the
brought by several Ohio pension funds in 2004, number will be in the range
Several states that are prone to natural disasters are claiming the funds lost money on their investment
three to nine. This represents
below normal activity relative
contemplating gambling on a ‘mega-bet’. in AIg because of fraudulent practices related to
to the 1990-2005 long-
brokerage compensation by AIg from 1999 to 2004,
term average of 12.4. An
Public insurance programmes in some coastal states in
and includes AIg’s restatement of its financial results
Accumulated cyclone energy
the US are considering the prospect of saving millions
in 2005. greenberg, who built AIg into the world’s
(ACE) index of 60 is predicted
of dollars each year by reducing or even cancelling the as the most likely value, with
largest insurer during more than 38 years as CEO,
coverage they buy from private reinsurers. These states
a 70 percent chance that the
was forced to resign in 2005 because he refused to index will be in the range 40
say that they are either tired of paying huge amounts of
co-operate with an internal investigation into the
to 80—which is below normal
money for reinsurance policies that are seldom needed,
relative to the 1990-2005
insurer’s accounting practices, which were unrelated to
or too damaged financially to maintain coverage
average of 131.
the company’s current financial woes. If the settlement
that has saved state residents from paying billions in
is finalised, it will be one more issue related to AIg that hurricane season in the
hurricane damage claims.
greenberg, 84, can put behind him. greenberg, Smith
Atlantic runs from June 1 to
november 30.
Some states have more than strongly hinted at moving and the corporate entities associated with them have
away from reinsurance. Texas, less than a year after been embroiled for more than four years in lawsuits
More than 4.5 million
reinsurers paid out $1.5 billion in claims related to brought by AIg, its shareholders or the regulators.
people are short of water in
hurricane Ike, will buck this hurricane season with Apart from the recent settlement of SEC charges, a
northern China as a severe
drought continues, state
no reinsurance. California is also looking to reduce its jury last month found that the greenberg-controlled
media Xinhua said. The
coverage, while Florida hasn’t had private reinsurance Starr International had improperly raided a block of drought is spreading and
for years. Instead, it has a public programme to reinsure AIg shares that were once used to fund long-term
crops and livestock in the
south are also under threat.
its public insurance programme. These three states, compensation for AIg executives. US district Judge
together with louisiana, are pushing Congress to Jed rakoff is expected to reach a final decision on that
hurricanes are by far most
pass a bill that would make the federal government a matter in September.
common in the Pacific
co-signer for states that borrow money to pay damage
Ocean, with the western
Pacific being most active. In
claims after natural catastrophes—meaning that the
some years, the Philippines
states could replace reinsurance with debt. The millions is struck by more than
normally used to pay for reinsurance could be put away
20 tropical storms and
typhoons. The term applied

into a reserve account and used later to pay claims and
to various storms depends
service loans: the savings could be huge. This could
on their location. Only
also seriously backfire: one major storm could lead to a one hurricane-force storm
constantly debt-ridden state. Policyholders would have to
has ever occurred in the
South Atlantic— hurricane
pay it back through fees on all sorts of insurance policies,
Catarina in 2004.
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from auto coverage to inland property insurance.
September 2009 | INTELLIGENT INSURER | 9
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