Through all this AIG mess, we’ve been assured that all the financial badness was confined to the company’s London-based operation that made all those bad insurance guarantees. We were told that the multitude of other AIG subsidiaries were in fine shape. But now it’s being reported that that might not be true.
Thomas Gober, a former Mississippi state insurance examiner who has tracked fraud in the industry for 23 years and served previously as a consultant to the FBI and the Department of Justice, says he believes AIG's supposedly solvent insurance business may be at least as troubled as its reckless financial-products unit. Far from being "healthy," as state insurance regulators, ratings agencies and other experts have repeatedly described the insurance side, Gober calls it "a house of cards." Citing numerous documents he has obtained from state insurance regulators and obscure data buried in AIG's own 300-page annual reports, Gober argues that AIG's 71 interlocking domestic U.S. insurance subsidiaries are in hock to each other to an astonishing degree.However, AIG denies this:
Most of this as-yet-undiscovered problem, Gober says, lies in the area of reinsurance, whereby one insurance company insures the liabilities of another so that the latter doesn't have to carry all the risk on its books. Most major insurance companies use outside firms to reinsure, but the vast majority of AIG's reinsurance contracts are negotiated internally among its affiliates, Gober says, and these internal balance sheets don't add up.
AIG spokesman Mark Herr took strong exception: "We strongly disagree with Mr. Gober's analysis, which lacks a fundamental understanding of our commercial insurance operations' inter-company risk sharing agreements or even the basics of statutory accounting…[blah, blah, blah]Well, who knows. I only bring this up because of the AIG operation here in Springfield that employs hundreds of people. I have no idea if or how any of this relates specifically to the AIG operation here, but it does raise some concerns in my mind.