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American International Group (AIG)
AIG Improperly Accounted For a Controversial Transaction
Insurance giant American International Group (AIG) said this morning that it had discovered that a controversial transaction had been improperly documented, and said the error would result in a delay in the filing of its annual report until April 30. The stock fell only about 2% this morning, probably because the disclosure wasn't a complete surprise. Indeed, the stock had fallen about 20% in the last six weeks as the regulatory probes intensified.
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This morning's disclosure was the first time that AIG acknowledged that a deal between itself and Berkshire Hathaway's General Re unit was improperly recorded as an insurance transaction. It also said that other reinsurance arrangements with Bermuda-based companies such as Union Excess and Richmond Insurance may have been in error as well.
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AIG is already facing multiple regulatory probes by the SEC, the Justice Department and the New York State Attorney General's office into how it accounted for some nontraditional insurance products and assumed reinsurance products. Chairman Maurice Greenberg was ousted as CEO by the board a few weeks ago, probably due primarily to the investigations.
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The final impact of the error remains to be seen. In an official statement the company said, "Because AIG's review is not yet complete, AIG is not yet able to determine whether the adjustments identified to date as a result of the review will require restatement of prior period results or an adjustment to fourth quarter 2004 published unaudited information. Therefore, AIG is not currently able to determine the potential effects of any proposed adjustment on AIG's results of operations for any particular period."
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Some analysts expect the errors to cause Standard & Poor's to cut AIG's AAA credit rating, the highest possible, by at least one level. In any case, AIG will have to work hard to restore investor confidence in the coming months.
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Profile |
American International Group, Inc., is a holding company which through its subsidiaries is engaged in a broad range of insurance and insurance-related activities and financial services in the United States and abroad. AIG's primary activities include both general and life insurance operations. Other significant activities include financial services and asset management.
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