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India to sell 5 tonnes of gold, 1,670 tonnes of silver
Details Emerge on Obscure Barbados Reinsurer Tied to AIG
By Theo Francis, Glenn R. Simpson,
and Charles Fleming
The Wall Street Journal
Thursday, May 12, 2005
When American International Group Inc. disclosed that it would slice
about $2.7 billion, or 3.3%, off its net worth because of accounting
issues, the biggest single chunk stemmed from dealings with an
obscure Barbados company.
Now, some details are emerging about Union Excess Reinsurance Co.,
including names of some of its investors during the 1990s. Investor
lists from then show seven insurers outside the U.S., including a
unit of French insurance titan AXA SA, an insurer tied to Chevron
Corp. and two small Bermuda operations, according to people familiar
with the lists.
The details shed light on relationships among the companies and
individuals with roles at Union Excess. American International Group
is a big customer of several Union Excess investors, some of which
also have ties to other offshore ventures that have drawn regulatory
scrutiny.
State and federal authorities investigating AIG's accounting are
interested in Union Excess's structure. AIG attorneys have said AIG
intentionally misled regulators about at least one transaction with
Union Excess and about AIG's control over another offshore firm,
Richmond Insurance Co. AIG says it is cooperating with all
investigations.
AIG's transactions with Union Excess account for about $1.1 billion
of the expected hit to its net worth. In detailing its accounting
woes in recent statements, the big insurer said its "control over
certain transactions undertaken directly or indirectly" with the
reinsurer meant it couldn't treat those deals as reinsurance.
Insurers buy reinsurance to spread the risk of losses from the
policies they sell. In doing so, insurers move claims liabilities
off their own books. To count as reinsurance, the transaction must
transfer significant risk of loss to the reinsurer.
In addition, AIG said it should consolidate Union Excess's results
with its own, because of "certain facts and circumstances related to
the formation of Union Excess," as well as because of ties between
Union Excess and Starr International Co., a Bermuda investment
company historically run by AIG executives. Starr provided a
guarantee of sorts that protected "a significant portion of the
ownership interests of Union Excess shareholders."
Chevron acquired its Union Excess stake through its merger with
Texaco -- which invested through a Bermuda-based insurance unit,
Heddington Insurance Ltd., in 1993, the year Union Excess was
founded, Chevron spokesman Andy Norman said. Records show Heddington
also owned about 10% of Richmond, another offshore reinsurer whose
financial results AIG has said it will consolidate with its own.
Heddington's former president and chief executive is Robert C.
Golden, an insurance-industry veteran who previously headed Texaco's
risk operations and served on boards, including at XL Capital Ltd.
Mr. Golden also is listed as a 1% owner of Richmond in a 1986 share
register obtained by newsletter KYC News.
"Heddington has never used Union Excess for reinsurance purposes,"
Mr. Norman said, but it isn't clear why Heddington invested in Union
Excess. Mr. Golden couldn't be reached to comment yesterday.
Another investor, the people familiar with the investor lists said,
has been Western General Insurance Co., a Bermuda-based insurer
indirectly owned by Chicago's Pritzker family, the Hyatt Hotel
chain's owners. Western General's president and general manager,
insurance-industry veteran John L. Marion, served on the boards of
both Union Excess and Richmond during the early 1990s, and was a
vice president of Richmond, according to biographical material in a
prospectus for another company. Mr. Marion didn't return calls to
his office.
A person answering Western General's telephone said the closely held
firm doesn't respond to press inquiries. A Pritzker family attorney
couldn't be reached to comment.
U.K. insurer Aviva PLC acquired "passive stakes" in Union Excess and
another Barbados reinsurer with ties to AIG -- now-defunct Coral
Reinsurance Co. -- in 1994, upon acquiring insurer Abeille from
French conglomerate Suez SA, an Aviva spokeswoman said. The Union
Excess stake has since been reduced to 3% from 6%, and the Coral
stake was "very small," she said.
Coral was set up by investment-banking firm Goldman Sachs Group Inc.
in the mid-1980s to sell reinsurance to AIG. AIG came under scrutiny
from state insurance regulators in the mid-1990s for allegedly
undisclosed ties to Coral, a relationship AIG defended as
legitimate. But as scrutiny mounted, AIG unwound its ties to Coral.
AXA also owns about 3% of Union Excess, acquired in 1995 when it
bought an Abeille reinsurance unit, said spokeswoman Clara Rodrigo.
AXA doesn't currently do business with Union Excess, she said.
Another investor, Overseas Partners Ltd., formerly an offshore
reinsurer for United Parcel Service Inc., didn't return calls; a UPS
spokesman declined to comment. A spokesman for Bank of Bermuda,
parent to investor Woodbourne Insurance Ltd., declined to comment. A
representative for another investor, Antares Ltd., couldn't be
reached. Bermuda incorporation records say Woodbourne was dissolved
in late 2000.
AIG, the world's biggest reinsurance buyer, does business with at
least three Union Excess investors. Of $885 million in reinsurance
proceeds that Western General was obligated as of Dec. 31 to pay to
U.S. insurers, 90% was owed to AIG, state regulatory filings show.
About 38% of such payments from Overseas Partners was owed to AIG,
and about 12% of Heddington's, the records show.
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