"An independent analysis of whether the insurance industry has been setting aside enough money to pay its claims estimates that the [AIG] has a shortfall of $11.9 billion in its property and casualty [P&C] business. The conclusion is at odds with the often-repated refrain that AIG's troubles can all be traced to its derivatives portfoliom and that its insurance operations are sound. ... In a report distributed to clients on Monday, the investment research firm Sanford C. Bernstein pointed to a big shortfall in AIG's [P&C] insurance business--which has been renamed Chartis and is intended to be the future core of the company's operations. ... Todd R. Bault ... said the inadequacy of AIG's reserves had grown in recent years--'nearly the opposite behavior that we would expect,' since the claims-paying reserves of other insurance companies had been growing. ... Bault saaid inadequate reserves could prompt regulators to penalize AIG, or customers to flee. Once he had excluded AIG from his industrywide data, he wrote, all other companies appeared to have more than enough reserves", Mary Walsh at the NYT, 1 December 2009, link: http://www.nytimes.com/2009/12/01/business/01aig.html.
If Bault is right, where was PriceWaterhouseCoopers or the NY State Insurance Commission in recent years? See my 8 October 2008 post: http://skepticaltexascpa.blogspot.com/2008/10/yves-smith-on-aig.html.
4 comments:
Are you suggesting AIG is "smoke and mirrors"? Propped up by accounting tricks...
And their auditor is not looking very closely?
Wasn't the recent article [link] in the Washington Post about the trouble that Joe Cassano of AIG had verifying the accounting for the swaps portfolio so the auditors would sign off?
That Washington Post article seems very odd... who leaked those emails? And why those particular ones which seems to push all the blame on Cassano?
Where is everyone on this story? It's the biggest theft of government resources since Teapot Dome...
Anonymous:
I'll read the Washington Post article and tell you what I think. I have believed AIG's accounting was "smoke and mirrors" for almost two years and have posted on same. You may look under the AIG tab to find my comments. I go further, PWC knew or should have known AIG's accounting was fictitious. PWC "audited" AIG's counterparty the Vampire Squid (VS). PWC should have known CDSs were a zero-sum game and that whatever AIG gained from a CDS, VS lost and vice versa.
Either PWC is a totally incompetant CPA firm, or it was "wilfully blind" to the obvious. You decide. But PWC is a Big 87654 firm. So?
IA
Anonymous:
I read the WaPo article. I see it as a pro-DOJ piece of junk. Cassano was likely a fool who believed his mathematical models. I have posted many times on the misuse of mathematics in finance. PWC's "professional" behavior was appalling. The "material weakness" it found was nonsense. PWC "lacked adequate insight" into the economics of Cassano's business. Unless PWC understood it all too well, having had it explained to them by Vampire Squid's (VS) executives and PWC acted under VS's orders at all times. I have a post on PWC's actions too.
The SDNY US attorney's office has a problem in prosecuting Cassano: it can't without bringing VS in. If Cassano's lawyers are smart, they should tell Preet Bharara and his clown circus, they will use a "doomsday defense" and the Feds can't stop it any more than Mike Nifong could prosecute the Duke Three. The blogosphere will "out" VS. The Feds will have difficulty in even making motions in limine in advance of trial as any action the Feds take will be public. The Feds want to bludgeon Cassano into copping a plea. He should hang tough. After all, wasn't it the VS that talked about a 25-sigma event?
IA
Anonymous:
See for example my 20 February 2008 and 13 May 2009 posts under the AIG tag.
IA
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