AIG Names Inside Hire to Head Mortgage Insurance Unit

American International Group (AIG: 1.65 -0.60%) this week picked Eric Martinez Jr. to take over the CEO position at the firm’s United Guaranty Corp., a mortgage guaranty insurance provider.

He replaces William Nutt, whose reasons for leaving the company were not disclosed before this story went to press.

In his months since joining AIG in January, Martinez negotiated the disposition of several properties, including AIG’s prime real estate holding in Japan for $1.2bn. He previously served in executive roles at Safeco and AGL Resources, an insurance provider and energy services company, respectively.

Martinez’s new role will place him at the helm of AIG’s financial services businesses just as the company faces continuing political and public criticism over its damaging financial products division.

The chief restructuring officer at AIG, Paula Rosput Reynolds, in a media statement described Martinez as well-suited for the challenge of developing a strategy for United Guaranty in the face of AIG’s ongoing realignment.

In the latest loss to the company’s stability, chairman and CEO Edward Liddy said in May he would leave the company as soon as a replacement can be found.

AIG Replaces Nutt as Chief of Mortgage Insurance Unit

June 1 (Bloomberg) -- American International Group Inc., the insurer bailed out by the U.S., replaced the head of its mortgage insurance unit as the company weighs whether to shut the money-losing business.

Eric Martinez has been named to replace William Nutt as chief executive officer of United Guaranty Corp., said David Monfried, a spokesman for New York-based AIG. Martinez previously worked for AIG restructuring chief Paula Reynolds at Safeco Corp. as executive vice president for claims.

“Paula has a lot of confidence in his leadership capabilities,” Monfried said of Martinez in an interview today. The unit is based in Greensboro, North Carolina and employs about 950 employees worldwide.

United Guaranty turned unprofitable amid the worst U.S. housing slump since the Great Depression, posting more than $3 billion in operating losses in the past eighth quarters. AIG said in October that it may be difficult to find a buyer for the unit, which reimburses mortgage lenders when borrowers don’t meet their obligations and foreclosure fails to cover costs.

AIG is weighing whether to shut the business, two people familiar with the matter said in April. AIG may wind down any parts of the mortgage insurer that can’t be sold, said one of the people, who asked not to be identified because the plans are confidential.

‘All Options’

AIG is “considering all options on United Guaranty,” Monfried said today.

AIG’s other ties to the housing market include a unit that originated mortgages and another that invested in securities backed by home loans. Those bets helped force AIG to seek a government rescue, and the insurer has since promised to sell businesses to repay a loan included in a government bailout package valued at $182.5 billion.

The insurer has announced about $5.6 billion of asset sales since the September bailout. The company has disclosed plans to place its two biggest non-U.S. life insurers into trusts for eventual initial public offerings or sales as the credit crisis hobbles potential buyers’ ability to make bids.

United Guaranty was ranked the fifth-largest U.S. mortgage insurer by 2008 sales, behind No. 1 ranked MGIC Investment Corp., Genworth Financial Inc., Radian Group Inc. and PMI Group Inc., according to Inside Mortgage Finance, a trade journal.

Profitable Coverage

United Guaranty was founded in 1963 and sold to AIG in 1981. The business generated $2.8 billion in operating income and $600 million in dividends for AIG in the eight years prior to the housing slump, the company said.

Until 2007, private mortgage policies had been among the most profitable types of coverage sold by insurers. From 2004 to 2006, members of the Mortgage Insurance Companies of America reported a profit margin of at least 35 cents for every dollar they collected in premiums. Auto insurers made less than 5 cents on every dollar in 2006, according to A.M. Best Co.

Last year, United Guaranty spent $3.57 on claims and expenses for every dollar it earned in premiums.

AIG, Uncle Sam and Sharia

A federal judge in Michigan has declined to dismiss an ex-Marine's lawsuit that insurance giant AIG is using tax dollars to promote Islamic Sharia law and charities that may be funneling money to terrorist organizations.

Just when you thought the government's massive bailout of AIG couldn't get more complicated or controversial.

The facts of the case "raise a question of whether the government's involvement with AIG has created the effect of promoting religion and sufficiently raise Plaintiff's claim beyond the speculative level," U.S. Dist. Judge Lawrence P. Zatkoff ruled.

The judge's ruling, a surprise to many legal scholars who think the suit will never go to trial, adds a troubling religious dimension to an already troubling economic crisis. It also shines a spotlight on Sharia-compliant financing, a growing part of the $1 trillion Islamic banking industry.
Sharia, or Islamic law, encourages trade and investment, but bans interest and prohibits investments in certain areas such as gambling, alcohol, pornography, abortion, human cloning, conventional banks or insurers, and most forms of entertainment. Under Sharia, making money from money, such as charging interest, is usury and therefore not permitted. Western banks and investment companies have established Sharia-compliant accounts overseen by imams and Islamic scholars.

According to the lawsuit, filed by the conservative Christian Thomas More Law Center, at least a portion of AIG's $40 billion federal bailout has been used to support Sharia-compliant financial products. The suit claims that violates the First Amendment's establishment clause. "It is outrageous that AIG has been using taxpayer money to promote Islam and Shariah law, which potentially provides support for terrorist activities aimed at killing Americans," Richard Thompson, President and Chief Counsel of the Thomas More Law Center, said in a statement.

The federal judge hasn't ruled on the merits of the case, but he did acknowledge that "at least two of AIG's subsidiary companies practice Sharia-compliant financing, one of which was unveiled after the influx of government cash." He also noted "That after the government acquired a majority interest in AIG and contributed substantial funds to AIG for operational purposes, the government co-sponsored a forum entitled "Islamic Finance 101."

Many legal experts doubt that such actions constitute a violation of church (or mosque) and state.

"The government no more cares about advancing Sharia through the AIG bailout than my local Ralphs supermarket cares about advancing kosher laws by selling products that are certified kosher," UCLA law professor Eugene Volokh, who expects the case to be thrown out, wrote in his Volokh Conspiracy blog.

Robert Tuttle, constitutional law professor at George Washington University, told Fox News that he doubts the case will go to trial: "The question is whether the government has funded religion, not whether the religion is good or bad that the government has funded. Then the next question is whether the government is responsible for what AIG has done. I can't imagine any court saying, under existing law, that the government will be responsible for what AIG does."

Anti-Islam conspiracy theorists will have a field day with this one, regardless of what happens to the lawsuit. But the case does raise some interesting questions about the application of Sharia law in western democracies and economies.

Are companies that pursue religious clients endorsing that religion? Can and should every faith group have its own financial products? Can democracy accommodate any aspect of Sharia? Could capitalism survive without interest?

For now, I'll go with On Faith panelist and Interfaith Alliance chief Welton Gaddy's bottom line on Sharia in the West: "If a conflict arises between American law and religious laws, the Constitution prevails."

Car Tax Prices Online

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Ex-AIG CEO Hank Greenberg launches new insurer

Maurice "Hank" Greenberg, one-time CEO of American International Group and one of the insurer's largest shareholders, is reuniting with some of his former colleagues for a new insurance venture.

Greenberg's firm, C.V. Starr & Company, has launched Iron-Starr Agency Limited, a joint venture with Ironshore Inc. Iron-Starr Excess will act as a specialty lines insurance and reinsurance managing general agency, domiciled in Bermuda, according to an announcement from C.V. Starr.

Initially, Iron-Starr Excess will focus on the production of excess financial and commercial lines insurance and reinsurance products through U.S. insurers, Bermuda or other offshore carriers, including catastrophic excess casualty insurance for Fortune 2000 and other clients. It will issue policy limits up to $75 million.

"There are significant opportunities in this market, and C.V. Starr together with Ironshore has the team to get the job done," Greenberg said in a statement.

Kevin Kelley, Ironshore's CEO who used to work under Greenberg at AIG's Lexington Insurance subsidiary, said in a prepared statement that the partnership allows his company to enter the excess casualty market "with additional backing and support to offer larger limits, consistent with the needs of these clients."

"We look forward to developing a long-standing relationship with C. V. Starr and are excited about this new venture," he said. "This arrangement will assure customers that during these challenging times, they have a syndicated alternative that understands their needs and has the experience to be a long-term solution on Finance."

Ironshore also features six former AIG employees as its executives.

Greenberg has been a frequent critic of the $150 billion federal bailout of AIG, the company he left in 2005 amid money mismanagement claims by former New York Attorney General Eliot Spitzer.

In November, Greenberg told that while the impact of the relief funding will take years to realize, he believes AIG will be minimized to a worldwide property-casualty company with "some modest life remaining assets, but it is hard to tell."

Greenberg has also been skeptical of the government's 79.9% ownership role in the insurer, as it could hurt raising capital in the future.

C.V. Starr is an independently owned holding company with insurance agencies and a portfolio of global investments. Through its insurance operations, C.V. Starr writes specialty lines covering aviation, marine, energy, excess casualty and property, accident and health, including risks with international exposures.