Mr. Houldsworth's testimony is about a 2000 reinsurance deal in which CRD purportedly ceded $600 million in liabilities to an American International Group Inc. unit for a $500 million premium. Prosecutors charge that the deal was orchestrated simply to allow AIG to inflate its loss reserves and that the two companies agreed that it would transfer no risk, that AIG would secretly refund a $10 million initial premium payment and would pay Gen Re a $5 million fee for entering the deal.
Assistant U.S. Attorney Eric Glover asked Houldsworth how he came up with the figure of $600 million for the contract’s liability limit.
“I just pulled it out of the air,” Mr. Houldsworth said. “It had to be more than $500 million, and $600 million was the next round number.”
Houldsworth also told jurors that two of the six underlying contracts included in the portfolio transfer—comprising about $315 million of the $500 million in reserves—had already been retroceded by Cologne Re Dublin to other reinsurers. This meant that there was no risk transferred to AIG on that business and that it was “impossible that (losses on) the remaining contracts could ever add up to $500 million, let alone $600 million,” Mr. Houldsworth testified.
In one of those underlying contracts, representing $254 million of the reserves, Cologne Re Dublin had assumed business from Coral Reinsurance Co. Ltd., a Barbados-based AIG affiliate. The Gen Re unit had then retroceded 100% of the business to another AIG subsidiary.
“We’re giving them their own losses back, effectively, there. So we thought that was quite sweet,” Mr. Houldsworth is heard to say in a recorded Nov. 15, 2000, conversation with Ms. Monrad and Richard Napier, a former Gen Re senior vp who finished testifying for the government earlier this week.
Mr. Houldsworth and Mr. Napier have pleaded guilty to conspiracy charges and are cooperating with the government.