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April 24, 2005

AIG faces further troubles after new review

By FT.COM





A bigger restatement is likely at American International Group after an internal investigation by lawyers uncovered additional problems in the insurer's accounting.

Last month, AIG said it expected that inaccurate financial reporting could reduce its book value by up to $1.7bn (£887m).

However, the scope of accounting problems outlined in a report by Simpson Thacher and Paul Weiss, indicates that figure is low, according to people close to the investigation.

A draft of the report outlining the full range of the insurer's accounting problems was sent to PwC, AIG's auditors, over the weekend for review and it is expected AIG's board will sign off on it this week.

Regulators expect a formal copy of the report this week. A spokesman for AIG declined to comment.

Information from the report is expected to be included in AIG's annual filing. At the heart of questions about AIG's accounting are its use of so-called finite reinsurance products, which blend elements of insurance and financing, and its cozy relationships with reinsurers in offshore locales.

The lawyers' report indicates that AIG's ties to Union Excess, a Barbados reinsurer, were so close it should be treated as an affiliate.

Last month, when it issued a mea culpa, AIG admitted that the ownership interests of shareholders in Union Excess such as Munich Re, the German reinsurer, were protected by financial arrangements with Starr International, a private holding company which owns 12 per cent of AIG's shares and is headed by Maurice"Hank" Greenberg, AIG's deposed chief executive. At the time, it also conceded that it secretly controlled two other offshore reinsurers- Richmond Insurance in Bermuda and Capco Reinsurance in Barbados.

Shares in AIG have lost 30 per cent of their value since accounting methods in February. Moody's and Standard & Poor's have removed AIG's prized AAA credit rating. The insurer delayed its annual filing to the US Securities and Exchange Commission until the end of the month.

On Friday, AIG shares closed down 3 per cent at $50.35.



© Copyright The Financial Times Limited 2005.