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The Actuary The magazine of the Institute & Faculty of Actuaries

Guilty verdict in AIG/Gen Re court case

Four former executives of Gen Re, including renowned actuary Ron Ferguson (as in the Bornhuetter-Ferguson reserving method), are potentially facing indefinite jail terms following conviction by a jury at a federal court in Hartford, Connecticut in late February. One former executive of AIG was also convicted.

All five faced corporate fraud and conspiracy charges in connection with a reinsurance deal that prosecutors said misled AIG investors because it enabled the company to improperly inflate its loss reserves, painting an artificially bright picture of its financial results.

The Gen Re defendants are understood to face maximum terms in jail of 210 years each. Ferguson’s lawyers indicated that an appeal is planned.

To the outsider, the case appears to have a number of strange features:
>> It is agreed that Gen Re accounted for the contentious transaction entirely appropriately, while it was AIG that accounted inappropriately, yet the defendants came mainly from the former
>> The case is not unlike ‘Hamlet without the prince’ in that no evidence has been heard from the well-known leaders of the two organisations — Warren Buffett of Gen Re owner, Berkshire Hathaway, and ousted AIG chief executive officer Maurice ‘Hank’ Greenberg.

The Actuary suspects that this case will be appealed all the way, and that it will be some years before a final resolution is available to guide the general insurance and reinsurance actuaries of the future.