AIG 3rd qtr net falls, employees get SEC notice

By Ed Leefeldt
Nov 14, 2005

NEW YORK, Nov 14 (Reuters) - American International Group (AIG.N) on Monday said its quarterly earnings fell and employees received notices of possible disciplinary action by the U.S. Securities and Exchange Commission.

AIG did not identify those who received "Wells Notices," which related to investigations of the firm's accounting practices. It did say that additional current and former employees may receive similar notices in the future as the regulatory investigations continue.

A Wells Notice indicates possible SEC action, but gives the recipient a chance to respond before a formal recommendation by the SEC. AIG spokesman Chris Winans declined to comment further.

Profit for the world's largest insurer by market value was $1.7 billion, or 65 cents, a share, compared with earnings of $2.69 billion, or $1.02 per share a year ago, which were restated because of accounting errors.

The latest quarter earnings were hurt by Hurricanes Katrina and Rita, which struck the Gulf Coast during August and September. AIG suffered $1.57 billion in losses from hurricanes and other catastrophes.

"AIG has achieved profitable results even as it sustained the most costly quarter for catastrophes ever recorded," Chief Executive Martin Sullivan said.

AIG said its adjusted net income per share was $1.8 billion or 68 cents compared with $2.34 billion or 89 cents a year ago.

AIG said previously it would restate several years of earnings for a second time to fix accounting errors related to financial derivatives. It warned investors not to rely on prior financial statements.

AIG is the subject of state and federal investigations, including SEC probes, into its accounting practices since the errors were discovered.

The company said last week will restate its earnings from 2002 through 2004, as well as selected consolidated financial data for 2001 and 2000 and quarterly data for 2004 and the first half of this year. That was the second time this year the company said it would restate several years of financials.

"It was disappointing to have another restatement, but the company still earned $1.8 billion," said Rob Haines, an insurance analyst with CreditSights.

In after-hours trading, AIG was trading at $67.32, down from its close of $67.50 on the New York Stock Exchange. Its year high is $73.45, while its year low is $50.

The combined ratio, excluding catastrophe losses, fell to 91.61 from 93.87 from a year earlier. The combined ratio represents the company's losses divided by premiums it has received from investors.

AIG's life insurance operating income before capital gains and losses increased 12.9 percent, the company said, and its foreign life insurance business produced "excellent results," with strong first-year growth in China and Japan. Domestic life was hurt by the interest rate environment, AIG said.

The nation's largest insurer said it was taking further steps to improve its financial controls and governance, including a majority voting and mandatory age retirement guidelines.

Michael Sutton, former chief accountant of the SEC, has been named as a director and now serves on AIG's audit committee.

Copyright © 2005 by Reuters

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