Well-known AIG Bermuda executive Michael Murphy was fired on Sunday for refusing to cooperate with US government and regulatory investigations, the company confirmed yesterday.

CEO of AIG's Bermuda operation, American International Company (AICo), George Cubbon - who assumed the position at the beginning of the year from long-time AIG Bermuda executive Joseph Johnson - confirmed Mr. Murphy's employment had been terminated, saying the decision on the future employment of the executive had been decided in the US.

He added that he was not aware of any other outstanding subpoenas against Bermuda-based AIG executives, after news reports yesterday said the US Securities and Exchange Commission had sent subpoenas to as many as 12 AIG executives.

AIG spokesman Joe Norton told The Royal Gazette from the company's New York headquarters that Mr. Murphy, who worked for AIG for 32 years, was let go for “failure to cooperate with governmental and regulatory enquiries”. The company took a similar stand last week when it fired top executives Howard Smith, who had been AIG's chief financial officer, and vice-president Christian Milton, when they also refused to cooperate with government authorities investigating the company.The dismissals of Mr. Smith and Mr. Milton, and now Mr. Murphy - the first Bermuda executive to be affected in the matter - followed AIG's legendary leader Maurice (Hank) Greenberg stepping down after nigh on 40 years as CEO earlier in the month.

Mr. Greenberg's involvement in a reinsurance arrangement with Berkshire Hathaway's General Re to boost AIG's reserves by $500 million, has been pointed to as the reason for his shock ouster last week.

AIG has been under investigation by New York Attorney General Eliot Spitzer - as he probed the insurance sector, and the relationship between brokers and insurers - and the SEC since last year.

Although no details are known on what investigators wanted to speak with Mr. Murphy - who is said to be a close confidante and legal advisor to Mr. Greenberg - about, it is understood from international news reports that some of the Bermuda operations at AIG were being probed.

Mr. Murphy was yesterday understood to be on the Island although he did not return a call to his home by The Royal Gazette. His US-based legal counsel, Sean O'Shea, also did not return calls from The Royal Gazette yesterday.

According to a report last week in Barron's, investigators had uncovered materials suggesting that AIG used Barbados-based Union Excess and Bermuda-based Richmond “to improve AIG's earnings, underwriting results and capital position over a period of years by various finite-risk reinsurance schemes. Among other things, these companies appeared to be convenient dumping grounds for poorly performing property and casualty insurance policies to get them off AIG's books. By laying off business on these supposedly independent reinsurers, AIG was able to write off more business than its true capital position might otherwise have permitted.”

The story said that AIG, if it did indeed have secret control of Richmond and Union Excess, would have been in a position to negotiate itself better finite risk deals than it could have with independent market players. It would however be on the hook for any claims that came in.

Mr. Johnson has been named in media reports (and in the Bloomberg News story on this page) on the matter as president of Richmond, although attempts by The Royal Gazette to confirm that information were unsuccessful, with messages left at the company for Mr. Johnson from last week not being returned by Press time last night.

Mr. Murphy's colleagues in the Bermuda offices at AIG were apparently told of his sudden departure in a company-wide e-mail to AICo staff, as well as Starr Excess Bermuda employees, yesterday morning. The message, from Mr. Cubbon, said that said Mr. Murphy was no longer employed with them “effective immediately”.

Security measures were also stepped up at the Richmond Road headquarters of the Bermuda operation, according to a staff memo leaked to The Royal Gazette. Dated from Sunday, the memo - also to AICo and Starr Excess employees - said there had been no access permitted to the building from lunchtime on Saturday until 7 a.m. yesterday morning.

“The reason for this was to ensure the security of certain files held in the building,” the memo read.

It also informed staff that effective yesterday new security measures were to be followed, including a regulation that visitors to the company must be accompanied by a staff member at all times except in the lobby area, building access cards were to be closely guarded and no documents were to be destroyed and no files to be removed from the building without the knowledge and agreement of Mr. Cubbon.

Meanwhile, the news of Mr. Murphy's sudden departure from AIG was greeted with sadness by some of those who have long had dealings with him.

Those who know him yesterday talked about his unassuming manner - his dress style was described as “scruffy” and his pastimes include walking his dogs on the beach while he collects seaweed for garden fertiliser - and say the praise given to his Mr. Johnson recently “not one to seek the limelight” could be just as apt a way to describe Mr. Murphy.

Beyond a quiet exterior, however, they say is a keen intellect. Mr. Murphy also reportedly possesses an ‘elephant memory'; never forgetting a face or name.

Mr. Murphy, a US tax attorney by trade and a naturalised Bermudian, joined American International in Bermuda in 1972 as a director and general counsel of American International Reinsurance Company (AIRCo). At the same time, he was appointed to similar positions in the other Bermuda AIG companies shortly thereafter.

It is thought that Mr. Murphy may have designed some of AIG's Bermuda structures including Coral Re and possibly, Richmond.

In wider Bermuda circles, Mr. Murphy is known within the Bermuda insurance industry for having assisted the Bermuda Government in several insurance-related legislative endeavours over the past 30 years, including the preparation of the earliest drafts of the Bermuda Insurance Act and assistance with the negotiation and ratification process of the United States-Bermuda tax treaty.

A passage in Catherine Duffy's 2004 book, ‘Held Captive: A History of International Business in Bermuda' says of Mr. Murphy: “Mike Murphy of American International Group played a vital part in keeping up the momentum and in guiding the committee as to the correct protocols of dealing with Washington.”

He is widely regarded as a close ally to Government in its lobby efforts in years past.

Mr. Murphy was also secretary of the Bermuda Commodities Exchange (BCOE), the short-lived marketplace for hedging and investing in catastrophic insurance risk that was a joint venture between AIG, Chase Manhattan, Guy Carpenter and Marsh.

At the time of pulling the plug on the BCOE in 1999, Mr. Murphy told Web-based newsletter InsideBermuda: “It never covered its expenses, not by any means, compared with what we put into it.” AIG is understood to have lost a significant amount of money in the venture.

He is better known for his involvement in helping Bermuda orchestrate a pivotal tax treaty with the US in the mid-eighties.

AIG colleague Mr. Johnson was also one of the architects of the US/Bermuda Tax Treaty.

Opposition leader Grant Gibbons, who worked with Mr. Murphy when he was Finance Minister during the mid- to late-90s, said: “Because of his very strong legal background and legislative experience, Mike Murphy has been extremely helpful to the Bermuda Government and technical people here in interpreting US legislative process for us, and also facilitating, in a corresponding way, a better understanding among key US legislators of Bermuda's regulatory environment and legislative process. That was extremely helpful during a lot of the tax treaty negotiations, and also in recent years.

“He has also been very helpful in making sure Bermuda is up to speed on both US and international regulatory requirements. He has certainly been a friend of Bermuda's over the years and has played an active role on some of the committees that have advised Government on international business.”