2008 1007 - GOV - THE CAUSES AND EFFECTS OF THE AIG BAILOUT

  •  THE CAUSES AND EFFECTS OF THE AIG BAILOUT- AIG Bailout Oversight Hearing, Panel 1
  • 1:31 - Martin Sullivan Compensation - in Background
  • 1:31 - nobody knows, - Lynn Turner
  • 1:33 ish - CDS - AIG Rating, Downgraded, frightening, Collateral Call.  There's no there there. - Dinallo
  • (p54) - 1:34 - 1:41 - Mr. BRALEY / Dinallo

(p54) - 1:34 - 1:41

Mr. BRALEY.

  • Mr. Dinallo, I want to start with you.
  • Twenty-five years ago, I was a research assistant to Professor Alan Whitus, who was updating the Keeton and Whitus basic text on insurance law; and I think both Professor Whitus and Professor Keeton would be rolling over in their graves seeing what has happened to the industry that they were so passionate about.
  • I think you would agree with me that industry has changed radically in the 25 years that I’ve been talking about.

Mr. DINALLO. Yes. In particular going from mutual companies to publicly traded companies

Mr. BRALEY. And a lot of those demutualizations resulted in a
significant financial loss to policy owners who owned the shares of those mutual companies—who owned the mutual companies and during the conversion in many cases were screwed out of their financial share of those companies.

Mr. DINALLO. I might not use the same verb, but I will agree.

Mr. BRALEY. I think you get my point.

Mr. DINALLO. Well, I think it’s important for everyone to know
there’s a very strong tension between policyholders’ interest and shareholders’ interest in a publicly traded company. The board and management has a fiduciary interest to shareholders under our law, fiduciary interest to shareholders, but, at the same time, whenever they release capital to satisfy that to get a bigger return on equity, they are necessarily taking incremental protection against policyholders.

Mr. BRALEY. And you also have a fiduciary obligation to policyholders under their contractual obligation with the policyholder.

Mr. DINALLO. Yes. Sadly, there is some debate, actually,  because they’ve been so trained under our law and after Enron, etc., to worry about fiduciary duty to shareholders that there is a good argument that, although it’s in their blood to worry about policyholders, the legal requirements are a little bit gray, actually.

  • Mica - and I know exactly why.... <I don't>