Keefe, Campbell & Associates, LLC

Editor’s comment: Having already ponied up $170 billion to support AIG, will U.S. taxpayers have to pay for more of AIG’s tomfoolery? In the last week, we noted the following claim hit the web:

SAFECO INSURANCE COMPANY OF AMERICA and OHIO CASUALTY INSURANCE COMPANY, individually, and on behalf of a class consisting of members of the National Workers Compensation Reinsurance Pool vs. AMERICAN INTERNATIONAL GROUP, INC., AIG CASUALTY COMPANY F/K/A BIRMINGHAM FIRE INSURANCE COMPANY OF PENNSYLVANIA, AIU INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, AMERICAN INTERNATIONAL PACIFIC INSURANCE COMPANY F/K/A AMERICAN FIDELITY COMPANY, AMERICAN INTERNATIONAL SOUTH INSURANCE COMPANY F/K/A AMERICAN GLOBAL INSURANCE COMPANY, AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY F/K/A ALASKA INSURANCE COMPANY, COMMERCE AND INDUSTRY INSURANCE COMPANY, INC., GRANITE STATE INSURANCE COMPANY, ILLINOIS NATIONAL INSURANCE COMPANY, INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, NEW HAMPSHIRE INDEMNITY COMPANY, NEW HAMPSHIRE INSURANCE COMPANY, THOMAS R. TIZZIO, JOSEPH C. SMETANA, and RICHARD L. THOMAS

This action allegedly arises out of the AIG Defendants’ long-term fraudulent underreporting of workers compensation premium and evasion of related financial obligations to Plaintiffs and the class. Plaintiffs brought this action individually and on behalf of all members of the NWCRP, other than AIG and the AIG Companies, in their capacity as representative class members of the NWCRP.

The NWCRP was established in 1970 based on a concept that insurance companies writing workers compensation insurance should be able to participate in an arrangement that equitably apportions the premium, losses and expenses arising from the residual, or assigned risk, workers compensation insurance market. In general terms, the residual market is comprised of employers who have been unable to get an insurer to voluntarily provide workers compensation coverage, and coverage is “assigned” to a specific insurer who must provide coverage under rates and terms specified by law. Generally, the residual market system operates pursuant to a variety of state laws, regulations and contracts aimed at making workers compensation insurance available to all employers and, using reinsurance and related mechanisms, provides an equitable premium-based apportioning of the losses associated with residual market workers compensation policies. This system is predicated on insurance companies acting honorably and truthfully in their disclosure of annual workers compensation premium and other financial reporting. The NWCRP Class has filed the instant action to recover its damages from the AIG Officers and to ensure that the members of the NWCRP have a means of recovering their damages resulting from AIG’s underreporting from all of the AIG Defendants should NCCI be found to lack standing or the issue of NCCI’s standing remain subject to challenge by AIG.

In 2005, in the midst of federal and state investigations and ensuing enforcement action taken against AIG and the AIG Companies for false financial reporting, bid-rigging and other unlawful conduct, it was disclosed the AIG Defendants had engaged in a series of longstanding false premium reporting practices with the purpose and effect of evading state insurance taxes and residual market obligations. The revelations from this investigation confirmed AIG’s senior management, directed or caused wholly-owned and controlled AIG affiliates, to submit false and falsely certified financial statements and reports that deliberately underreported workers compensation premium information. These disclosures revealed AIG and the AIG Companies had been intentionally issuing false statements and reports for decades in order to increase earnings and obtain other valuable benefits by understating the true amount of the workers compensation premium written by the AIG affiliated companies. This false reporting activity rendered past and current public and other financial reporting for AIG and the AIG Companies inaccurate and misleading.

Please note the above allegations are taken from the complaint filed in Federal court in Chicago. We have no idea if there is any accuracy or veracity to the allegations and it will all be subject to proof. If you have thoughts and comments, please send a reply.

Editor’s comment: Several news sources report the world’s largest insurer is again on the verge of bankruptcy. American International Group, Inc. which was rescued twice last year by the U.S. government, is in talks with authorities for more aid as it looks to post its largest-ever quarterly loss. Several different news outlets indicate AIG is expected to post a whopping $60 billion fourth-quarter loss.

On February 25, 2008, their stock price was about $50 per share—it is now about 50 cents per share. If the loss is $60 billion, it may be the largest in world history, exceeding Time-Warner’s $54 billion loss in 2002. Such a quarterly loss would dwarf the $24.5 billion loss this insurer posted in the third quarter, when our government’s first bailout increased the rescue package to about $150 billion. We find it impossible to imagine the government will provide over $200 billion in borrowed dollars from the taxpayers, particularly while our new President is vowing to lower the annual deficit. The major problem they are trying to avoid is the major hit the stock markets will take if this company disappears. But the related problem is what to do if they keep hemorrhaging case with no end in sight.

The same sources report the latest round of talks includes the possibility of additional funds for the insurer and trading debt for equity. The situation is ever-changing and other options are being discussed, adding it was unclear where talks might lead. AIG has said it plans to sell all assets except its U.S. property and casualty business, foreign general insurance and an ownership interest in some foreign life operations, as it looks to raise money to pay back the feds.

The discussions with AIG are going on as the federal government tries to slow the problems on other fronts as well. Citigroup Inc. whose stock has dropped with fears the government may seize the bank and wipe out shareholders, is also in talks to give the government a larger stake and quell nervous shareholders.

AIG remains a major player in the Illinois WC markets and there will be lots of scrambling if they disappear or get dramatically remodeled in a bankruptcy. If you have thoughts or comments, let us know.