Effects Of Accounting Woes Could Linger At AIG

Regulatory investigations and actuarial reviews could continue to cause headaches for American International Group Inc. in coming months.

When AIG, New York, filed its long-delayed, much-revised Form 10-K annual report with the U.S. Securities and Exchange Commission last week, AIG President Martin Sullivan emphasized the fundamental strength of the company. “AIG’s financial position is sound, our insurance cash flow is strong and our global franchise is unmatched,” he said.

Moody’s Investors Service, New York, reacted to the 10-K by confirming the Aa2 rating the firm has assigned to AIG’s long-term senior debt. “Moody’s believes that AIG will continue to distinguish itself as the leading global insurance enterprise, in terms of business breadth, consolidated revenues and earnings, and market capitalization.”

AIG’s financial restatements focused mainly on accounting for property-casualty operations and other non-life operations. The only life-related business affected by major accounting changes was the life settlement business.

But AIG says rating agencies’ decisions to take away its AAA credit ratings already have forced it to post about $1.2 billion in additional collateral with counterparties to municipal guaranteed investment contracts and financial derivatives transactions.

If Moody’s cut AIG’s long-term senior debt ratings by one notch or Standard & Poor’s Ratings Services, New York, cut AIG’s ratings by two notches, counterparties to derivatives transactions and municipal GIC transactions could ask AIG to supply $2.3 billion in additional collateral, AIG says.

“Further,” AIG says, “additional downgrades could result in requirements for substantial additional collateral, which could have a material effect on how AIG manages its liquidity.”

AIG also is ordering an independent actuarial review of its property-casualty loss reserves that could require it to come up with cash to beef up the loss reserves.

Meanwhile, AIG says efforts to address weaknesses in internal financial controls could lead to delays in future SEC filings. AIG now has more than enough cash, but the company “does not expect to be able to access the public capital markets until all of its filings with the SEC are up to date,” the company says.

Because of all the regulatory problems, securing SEC approval of updated registration statements could take several months, AIG says.