VIATICAL & LIFE SETTLEMENTS CONSUMER INFO

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AIG and Coventry

It has long been rumored that Pennsylvania-based Coventry First was financed by AIG, the world's largest commercial insurance company. Coventry (originally named Montgomery Capital LLC) was founded by Alan and Constance Buerger in 1999. The Buergers also formed other companies such as Coventry Financial and Coventry Capital, with the stated goal of developing insurance-related financial products.

When Coventry First entered the life settlement marketplace, its chief competitors (in terms of apparent size, wealth, globalization and name recognition) were Kelco and Mutual Benefits Corporation. The financing of AIG and the government actions against Kelco and MBC enabled Coventry to rise quickly to the top of the heap. It soon became the largest and wealthiest life settlement company. And it received high praise from Florida's chief financial officer, Tom Gallagher. Gallagher publicly stated that Coventry was the type of viatical and life settlement company that Florida wanted to encourage.

In our newly published, "Viatical & Life Settlements: An Investor's Guide" we confirmed rumors that Coventry was financed by AIG. Now Eliot Spitzer, the attorney general of New York who challenges giant companies that no one else would touch (not even federal agencies) alleges that AIG fiddled with accounting for policies it purchased from Coventry so as to create the impression of greater profits for AIG. (See below for Spitzer's exhibits)

Attorney General Spitzer's complaint does not allege any wrongdoing by Coventry. The name "Coventry" is mentioned in the action because AIG formed a trust company known as "Coventry Life Settlement Trust" to act as the purchaser of policies. This trust was "ostensibly owned by an independent third party but controlled by AIG." Spitzer's complaint alleges that one AIG entity lent Coventry Life Settlement Trust all the money required to invest in viaticals, while another issued "a fake surety policy" to Coventry Life Settlement Trust.

The complaint does not allege that Coventry is the "ostensible third party owner." An attorney for Coventry informed us that Coventry does not own or control the Coventry Life Settlement Trust or its assets.

In effect, AIG used the Coventry name for financial transactions related to Coventry. This is similar to the "John Doe Trusts" (John Doe being the name of the viator) formed by many viatical companies. These trusts purchased and administered policies on behalf of investors. Investors have no ownership or control of these trusts or their assets.

Spitzer's complaint alleges that Coventry Life Settlement Trust filed false claims to AIG to fund its operations, then split the profit with AIG by purchasing more bogus insurance. Apparently AIG had booked life settlement investments as insurance assets, instead of investment assets as currently required by accounting law. If it were recorded as a viatical investment, it would have been booked at cash surrender value.

On May first AIG admitted that "certain aspects of its prior accounting for this business were incorrect." Once AIG made the correction, the profits from life settlement investments decreased shareholders' equity by "approximately $100 million."  

In USA Today (May 27, 2005) AIG claimed that in less in two years it turned a profit of $76 million on its life settlements investment of $927 million. That's a profit of 8 percent in less than two years. Considering that this is a high-risk investment, is 8 percent a good return?

A spokesman for AIG reported that the company bought fewer than 1,500 policies since 2001. If it is true that AIG invested $927 million, that means the company paid an average of $618,000 to each insured. It would be interesting to know the face amounts (death benefits) of these policies, or what percentage of the face amount was paid to the insureds.

Exhibits One through Three

Exhibits Four through Six

Originally published May 27, 2005; updated June 8, 2005

Also see, Spitzer's Fraud Complaint against Coventry