Litigation

The New York Post reported on September 4th that insurer American International Group ("AIG") is considering forming a separate company to hold risky credit assets, which have caused it record losses in the past three quarters. The Post further reported that AIG is working with investment bank JPMorgan Chase to arrange the structure of the company, the Post said, citing people familiar with the matter.

Such a strategy is not without precedent in the insurance world, although the type of assets were different.

In 1996, Equitas, a group of companies  was set up specifically to reinsure liabilities that had accumulated in the syndicates at Lloyds on policies written from the 1930s up to and including 1992. This business was reinsured by Equitas Reinsurance Limited, which was also appointed as run-off agent. The liabilities were retroceded to Equitas Limited, to which Equitas Reinsurance Limited has also delegated its run-off function.

When Equitas first started it had £15 billion PV in liabilities, which were expected to take up to 40 years to settle. It also had assets amounting to 105% of the liabilities, making it the largest start-up company to date. It is not allowed to take on fresh business but it remained the largest solvent run-off reinsurer in the world, attracting a £7 billion reinsurance interest of Warren Buffett's National Indemnity in 2007.