US insurance group AIG last night acknowledged accounting errors that could stretch back 14 years, including its treatment of a deal with Berkshire Hathaway which is at the centre of federal and state investigations.
AIG's sweeping disclosures - including the possibility it may be forced to reduce the book value of the company by $1.7 billion or 2% - were part of an effort to regain investor confidence. They came just days after chairman Maurice 'Hank' Greenberg said he would retire after almost 40 years of leading the insurance powerhouse.
AIG, which has lost more than $40 billion in stock market value since mid-February, saw its shares sink 1.8% to $57.16 in heavy trade on the New York Stock Exchange on Wednesday. Standard & Poor's cut AIG's AAA debt rating, potentially making it more costly for the insurer to borrow money.
AIG's disclosures follow a meeting earlier this week between its attorneys and representatives from the US Justice Department, the US Securities and Exchange Commission and New York Attorney General Eliot Spitzer's office.
The company now plans to delay filing its 2004 annual financial report - its second delay - until late April while it continues the review.
Among other transactions, authorities have looked at a 2000-2001 reinsurance deal AIG struck with General Re - a subsidiary of Warren Buffett's Berkshire Hathaway - that they believe AIG treated improperly in its accounting.
AIG admitted as much last night, saying the deal should have been classified as a deposit, not as insurance. AIG said the new accounting should have little impact on its financial condition but would cut loss reserves and expenses by $250m and raise other liabilities by $245 million.
The insurer also expects to take $670m of after-tax charges related to its general insurance operations. But whether it restates more than just its fourth-quarter 2004 results remains to be determined.
A Spitzer spokesman declined to comment on specifics of AIG's statement but called it 'a welcome step toward transparency and accountability as our investigation proceeds'.
