AIG SCANDAL 2005.pdf

This document a short presentation of the AIG SCANDAL that happened in 2005.
One of the most serious financial crises of 2000s was seen in the collapse of the insurance giant American International Group (hereinafter referred to as ‘AIG’). AIG is a global company holding the assets worth $1 trillion approximately. AIG was caught in a scandal (American International Group Scam) for fraudulent accounting with the help of General Reinsurance Corporation (hereinafter referred as ‘GRC’). The company declared the loss of revenue by $60 million approximately which also led to a drop in its stocks in the New York Stock Exchange as it was seen as a measure of the falling financial health of the company. To rescue the situation, AIG sought help from the GRC. GRC created two sham transactions of $250 million each to boost the losses in revenue of AIG. These two transactions helped to cover up the losses as AID need not mention the amount in its income statement as no actual risk was transferred but they mentioned the $500 million in their premium revenue which made up the loss reserves to pay claims. As a result of this, there was a false increase in the loss reserves as well as in their total increase for the year 2000 and 2001. For the next five years, at least, AIG crated misleading account statements to deceive investors, regulators and policyholders into believing that the company is running into usual and sometimes exceptional profits.This came into catch when the Attorney General’s office and the Insurance Department started investigating against the malpractices of AIG in the year 2004. Soon after, the U.S. Securities and Exchange Commission (hereinafter referred to as ‘SEC’) joined the investigation accusing AIG of fraud. The officers of the company who provided for this fraud did not face any criminal charges whereas the AIG had to pay a penalty of $1.64 billion to SEC.

1. AIG SCANDAL 2005
ILYES MAICHE

2. American International Group, Inc. (AIG) is a world
leader in insurance and financial services. It is
headquartered in New York City, and operates in more
than 130 countries and jurisdictions. Its primary
activities include General Insurance and Life Insurance
& Retirement Services.
ABOUT COMPANY

3. WARDIERE INC.
ABOUT COMPANY
General Reinsurance Corporation is a global property/casualty and life/health
reinsurance company offering a range of reinsurance products and services.
The company established in 1921 and headquartered at Connecticut, is a
direct reinsurer and is represented in all major reinsurance markets
worldwide through a network of more than 40 offices. Gen Re is a member of
the Berkshire Hathaway Inc group of companies.

4. WARDIERE INC.
2022
Company
HANK GREENBURG,
CEO OF AIG
❖ Born 1925
❖ Admitted to NY Bar in 1953
❖ Joined AIG in 1962
❖ Named CEO in 1968
❖ Led AIG for 38 years
❖ Stepped down March 21, 2005

5. RON FERGUSON,
CEO OF GEN RE
❖ Born 1942
❖ Fellow of CAS
❖ Co-developer of B-F method
❖ Joined Gen Re in 1966
❖ Named CEO in 1987
❖ 1998 Berkshire Hathaway acquired Gen Re
❖ Retired 2002

6. AIG is caught in scandal for fraudulent accounting with the help of General
Reinsurance Corporation. In October 2000, AIG announced a decrease in their loss
revenues by $59 millions, which was followed by a drop of 6% of their stock in New
York Stock Exchange.

7. AIG & GEN RE

10. During the Financial Crisis of 2008, people were losing a
lot of money and the employment rate increased
drastically. Sensing such non-availability of funds, banks
decided not to give loans to individuals or business firms.
As a result, businesses were highly affected.
However, AIG found an opportunity to maximise its
profits by finding a loophole in Basel II regulation. The
Basel II regulation determines how much amount the
banks are supposed to keep with themselves. They used
somewhat called CDS