AIG subsidiary files bankruptcy amid ongoing lawsuit by former execs

A subsidiary of insurer American International Group Inc. filed for Chapter 11 bankruptcy Tuesday, a move panned by a group of former executives suing the insurer.

AIG Financial Products Corp. made the filing Wednesday in the U.S. Bankruptcy Court for the District of Delaware and plans to reorganize. AIG said in a regulatory filing that the reorganization won't have a material impact on its consolidated balance sheets or those of Corebridge Financial Inc. (formerly AIG Life & Retirement).

AIG Financial Products has no material operations or businesses and no employees.

Meanwhile, a group of former executives say the timing of the bankruptcy filing is designed to avoid legal obligations.

"The real impetus for AIGFP’s bankruptcy filing is to avoid repaying certain deferred compensation it owes to the Employee Plaintiffs, 46 former employees from whom AIGFP borrowed approximately $194 million during the 2008 financial crisis but has never repaid," the plaintiffs said in a Thursday court filing.

During the 2008 financial crisis, AIGFP "borrowed" hundreds of millions of dollars from two deferred compensation plans for AIG employees, the plaintiffs said. AIG would go on to restore its financial condition thanks to a much-debated government "bailout" facilitated by the Obama administration.

Money dispute

The insurer and the 46 executives have been tied up in court since 2019 over the missing money. Plaintiffs are asking the court for more than $500 million in total damages.

"The Plans provided that AIGFP could borrow from its employees’ deferred compensation accounts, but AIGFP had the unequivocal obligation to restore those account balances after borrowing from them," the plaintiffs say in the Thursday brief.

Earlier this year, a judge set Dec. 14 as a deadline for AIGFP to produce a raft of documents related to the money and the insurer's obligations to employee accounts.

"Rather than comply with this court order, AIG and AIGFP are now weaponizing the Bankruptcy Code in bad faith," plaintiffs said in their brief.

In its bankruptcy filing in Delaware, AIGFP said its reorganization plan would create a $1 million pool for the 46 plaintiffs to share.

"In the event that the Debtor does not receive the requisite votes to confirm the Plan or otherwise fails to meet the requirements for confirmation under section 1129 of the Bankruptcy Code, the Debtor intends to pursue and consummate a [sale] to the highest and best bidder pursuant to Court-approved bidding and auction procedures," the AIGFP filing states.

An AIG spokeswoman did not return a phone call for comment.

The reorganization will complete AIG's winding down of AIG Financial Products, which it's been working on since the 2008 financial crisis.

AIG was slammed by the deterioration in the credit markets in 2008 amid concerns that complex, structured investments it insured would increasingly default. Its problems did not come from its traditional insurance subsidiaries, but instead from its financial services operations, and primarily its insurance of mortgage-backed securities and other risky debt against default.

The Associated Press contributed to this report.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.