Reserve Deficiency Report Sends AIG Stock Tumbling

NU Online News Service, Nov. 30, 4:00 p.m. EST

An analyst's report sent American International Group's stock tumbling downward today as the analyst said the company will have an $11 billion reserve deficiency by the end of this year.

Earlier today, CNBC's David Faber said a report issued by Todd Bault, an analyst with Sanford C. Bernstein, found that AIG would suffer an $11 billion reserve deficiency primarily in three lines of long-tail business--workers' compensation, general liability and professional liability.

Mr. Faber said Mr. Bault's report came out of an overall evaluation of the non-life insurance industry reserve adequacy when it came across the surprising result.

The report said the finding was "totally unexpected," according to Mr. Faber, and that if its analysis is correct, AIG will be faced with taking a reserve charge, which could lead to additional actions by the U.S. government. The U.S. government is the primary stakeholder since the company's bailout in the face of its economic difficulties.

The report went on to say that such a deficiency could open the doors to AIG's competitors (mentioned as ACE, Travelers and CNA), which would seek to exploit the company's diminished financial position, Mr. Faber said.

By mid-afternoon trading, AIG's stock had plummeted more than 14 percent to $28.49. The stock closed down 14.71 percent, or $4.90 a share, to $28.40.

An AIG spokesperson said the company was not commenting on the report.

This story was updated at 4:35 p.m. EST