NU Online News Service, March 30, 2005, 10:17 a.m. EST
American International Group Inc., New York, says its shareholders’ equity may fall as much as 2%, or up to $1.66 billion, as a result of accounting changes.[@@]
AIG made that disclosure today in an announcement that it plans to delay the filing of its Form 10-K annual financial report until the end of April.
AIG is reviewing the accounting for a variety of transactions, including one with a Barbados reinsurer that has the potential to reduce shareholders equity as of Dec. 31, 2004, by $1.1 billion the company says.
AIG also says its heavily investigated $500 million reinsurance transaction with General Reinsurance was improperly reported.
But AIG will report about $11 billion in earnings for 2004, and the company says at this point that it is still unable to determine whether its accounting reviews will lead it to adjust the preliminary results released for the fourth quarter of 2004 or restate results for earlier periods.
The firm says it believes the maximum aggregate effect on AIG’s consolidated shareholders’ equity at Dec. 31, 2004, of known errors and changes in accounting estimates, including the Barbados reinsurance transaction, would be a 2% reduction in shareholders’ equity of $82.87 billion. That would amount to a $1.66 billion drop in shareholders’ equity.
The company’s accounting 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.
A portion of one major deal reduced premiums and reserves for losses and loss expenses by about $250 million when it was commuted in November 2004. Another $250 million remains on AIG’s books.
AIG says the documentation of that transaction “was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance.” The proceeds from the transaction will now be included in deposits rather than in consolidated net premiums, AIG says.