AIG chief to quit amid probe|
By Ellen Kelleher, David Wighton and Adrian Michaels
Published: March 14 2005
Maurice "Hank" Greenberg will step down as chief executive of American International Group amid a widening investigation into the role he played in handling accounting practices at the world's biggest insurer.
The board of AIG was meeting yesterday to agree the terms of Mr. Greenberg's retirement and to decide whether to allow him to stay on as chairman of the world's biggest insurer.
Mr. Greenberg, who joined AIG in 1960, has dominated the group since becoming chief executive in 1968.
The board were considering naming British-born Martin Sullivan, a protege of Mr. Greenberg who is currently chief operating officer, to replace him.
The departure of 79-year-old Mr. Greenberg, who has built the insurer into one of the most valuable companies in the world, comes as regulators investigate whether he misled investors about an increase in the insurer's reserves in 2000.
In recent days, some members of AIG's board such as Frank Zarb, the former head of the Nasdaq stock market acted to remove Mr. Greenberg from his job amid allegations that he signed off on a reinsurance deal AIG arranged with General Re, a subsidiary of Warren Buffett's Berkshire Hathaway group, which regulators believe manipulated the insurer's balance sheet.
Mr. Greenberg has not commented on the regulators' allegations.
Investigators are focusing on comments made about reserves in the insurer's annual results announcement of February 2001.
Mr. Greenberg said in a press release that AIG had boosted its reserves in the fourth quarter of 2000. "We added $106m to AIG's general insurance net loss and loss adjustment reserves for the quarter," Mr. Greenberg said.
But according to people familiar with the matter, investigators believe AIG used a reinsurance contract it purchased from General Reinsurance to inappropriately inflate its reserves by hundreds of millions of dollars in that quarter and the following one.
The statement by Mr. Greenberg, who has received a subpoena over the matter, has drawn attention because it indicates that AIG only boosted its reserves out of earnings. Mr. Greenberg has hired Robert Morvillo, a criminal lawyer, to defend himself against any possible charges.
Shares in AIG have dropped more than 10 per cent in the month since the insurer revealed it had received subpoenas from Eliot Spitzer, New York's attorney general, and the Securities and Exchange Commission “related to investigations of non-traditional insurance products and certain assumed reinsurance transactions and AIG's accounting for such transactions".
In early trading yesterday, shares in the insurer were down 1.65 per cent to $63.64 on news of Mr. Greenberg's departure.
Over the past year, AIG has come under intense scrutiny from regulators.
At the centre of their current investigation are so-called finite reinsurance contracts, a product that regulators fear AIG used to manipulate its earnings statements and sold to other companies looking to do the same.
The regulatory inquiries have widened as the Justice Department has begun to look at accounting practices at the insurer. Mr. Greenberg, who took the company public in 1968, was only the second person to run AIG since its foundation in Shanghai in 1919 by Cornelius Vanderbilt Starr.