AIG: Equity Readjustment Could Hit $1.6 Billion
By Daniel Hays
National Underwriter News
March 30, 2005
American International Group announced today that a delayed report of its financial condition could reduce shareholder equity by up to $1.66 billion.
The company also said its heavily investigated $500 million reinsurance transaction with General Reinsurance was improperly reported.
The disclosure came as the company said that its Form 10-K financial filing with the Securities and Exchange Commission will be delayed until the end of next month while it looks at a variety of transactions--including one with Barbados reinsurer Union Excess that has the potential to reduce shareholders equity as of Dec. 31, 2004 by $1.1 billion.
But for AIG, which had $11 billion in earnings, the disclosures did not appear to shake the confidence of some analysts.
Alan Murray of Moody's Investors Service said he did not believe there would be any “material impact on funding strategy or needs.” Moody's on March 15 said its outlook for the company was negative.
AIG said at this point it is still unable to determine whether the adjustments identified to date as a result of its ongoing review will require restatement of prior-period results or an adjustment to fourth quarter 2004 published unaudited information.
The firm said it believes the maximum aggregate effect on AIG's consolidated shareholders' equity as of Dec. 31, 2004 of known errors and changes in accounting estimates, including the Union Excess transaction, would be a 2 percent reduction in shareholders equity of $82.87 billion—which translate into a $1.657 billion drop.
The company's review was sparked by investigations by New York Attorney General Eliot Spitzer and the Securities and Exchange Commission into non-traditional insurance products and assumed reinsurance transactions such as the Gen Re deal.
A portion of that deal reduced premiums and reserves for losses and loss expenses by approximately $250 million when it was commuted in November 2004. Another $250 million remains on AIG's books.
“The Gen Re transaction documentation was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance,” the company said. “They will now be listed as deposits rather than consolidated net premiums.”