WSJ: AIG got warning in '92

Report says insurer was told that workers' comp reporting 'permeated with illegality.'

Wall Street Journal
April 27, 2005

NEW YORK - In 1992, American International Group Inc.'s (AIG) top lawyer said in a memo to then-Chief Executive Maurice R. "Hank" Greenberg that the insurer's reporting of workers' compensation premiums "is permeated with illegality" that was "so serious it could threaten the existence of senior management if disclosed," people who have seen the document told The Wall Street Journal.

That legal conclusion was backed by AIG's outside attorneys a few months later, yet regulators believe the reporting practice continued for years after that, people familiar with the matter said. Mr. Greenberg, ousted last month as regulatory scrutiny increased, has become a focus of authorities investigating whether AIG officials duped investors and regulators with misleading financial information.

At issue was whether American International Group could report to New York state insurance officials some premiums as revenue from general-liability insurance policies - as one person familiar with the matter said AIG had done since the 1970s - or if the giant insurance company had to report all the revenue as coming from workers' compensation policies.

The distinction is significant because state officials have the power to levy fees on sellers of workers' comp coverage of 1% of premiums for a fund used to pay benefits due from insolvent insurers. Any revenue improperly booked as coming from general-liability policies could have lowered that burden.

It is unclear what motive AIG would have had for undercounting the workers' comp premiums because, from about 1990 until mid-2001, the Workers Compensation Security Fund was flush enough that New York law barred the state from collecting the assessment from publicly traded insurers. Insurers also must pay into four other state funds, but those fees weren't based on premiums until after 1999.

"This practice largely had been corrected by 1997," said AIG spokesman Chris Winans . "As we have said in the past, on all regulatory matters we are committed to being as cooperative as possible." Mr. Winans declined to elaborate. A lawyer for Mr. Greenberg said his client couldn't comment on the matter without having received information about it from investigators.

-Wall Street Journal Staff Reporters Monica Langley, Ian McDonald and Theo Francis contributed to this article. Dow Jones Newswires

Copyright (C) 2005 Dow Jones & Company, Inc.

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