AIG: Equity Readjustment Could Hit $1.6 Billion

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By Daniel Hays

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NU Online News Service, March 30, 10 :10 a.m.EST?American International Group announced today that adelayed report of its financial condition could reduce shareholderequity by up to $1.66 billion.

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The company also said its heavily investigated $500 millionreinsurance transaction with General Reinsurance was improperlyreported.

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The disclosure came as the company said that its Form 10-Kfinancial filing with the Securities and Exchange Commission willbe delayed until the end of next month while it looks at a varietyof transactions--including one with Barbados reinsurer Union Excessthat has the potential to reduce shareholders equity as of Dec. 31,2004 by $1.1 billion.

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But for AIG, which had $11 billion in earnings, the disclosuresdid not appear to shake the confidence of some analysts.

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Alan Murray of Moody's Investors Service said he did not believethere would be any "material impact on funding strategy or needs."Moody's on March 15 said its outlook for the company wasnegative.

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AIG said at this point it is still unable to determine whetherthe adjustments identified to date as a result of its ongoingreview will require restatement of prior-period results or anadjustment to fourth quarter 2004 published unauditedinformation.

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The firm said it believes the maximum aggregate effect on AIG'sconsolidated shareholders' equity as of Dec. 31, 2004 of knownerrors and changes in accounting estimates, including the UnionExcess transaction, would be a 2 percent reduction in shareholdersequity of $82.87 billion?which translate into a $1.657 billiondrop.

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The company's review was sparked by investigations by New YorkAttorney General Eliot Spitzer and the Securities and ExchangeCommission into non-traditional insurance products and assumedreinsurance transactions such as the Gen Re deal.

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A portion of that deal reduced premiums and reserves for lossesand loss expenses by approximately $250 million when it wascommuted in November 2004. Another $250 million remains on AIG'sbooks.

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"The Gen Re transaction documentation was improper and, in lightof the lack of evidence of risk transfer, these transactions shouldnot have been recorded as insurance," the company said. "They willnow be listed as deposits rather than consolidated netpremiums."

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(For more details about the AIG announcement and other newsabout the company, see NU's April 4 edition.)

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