SEC Told AIG to Improve Reinsurance Disclosures

Source: Reuters - Suzanne Barlyn | Published on November 12, 2018

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The U.S. Securities and Exchange Commission told American International Group Inc to improve disclosures about its use of reinsurance to mitigate losses in its property and casualty unit, according to correspondence made public on Friday.

After reviewing AIG’s 2017 annual filing, SEC staff asked the insurer to add information that includes details about the amount of reinsurance it receives from a pact with Warren Buffett’s Berkshire Hathaway Inc.

The regulator also asked AIG to include a note about the methodology behind its reinsurance calculations as well as factors that may cause those amounts to change, according to a letter sent to AIG Chief Financial Officer Sid Sankaran on August 24.

In a reply to the SEC dated Sept. 18, Associate General Counsel James Killerlane, said AIG was making the changes.

AIG agreed last year to pay a reinsurance unit of Berkshire$10.2 billion to take over many long-term risks from U.S. commercial insurance policies that were losing money.

Those “long-tail” exposures can emerge many years after policies are issued, often because of poor underwriting assumptions about customer life spans or the cost of workers compensation.

Berkshire’s National Indemnity Co unit agreed to absorb 80 percent of net losses in excess of the first $25 billion, with a maximum liability of $20 billion. AIG did not receive any payments last year because its claims payouts did not reach the $25 billion threshold.