AIG admits to improper Gen Re reporting

AIG has admitted that finite reinsurance transactions dating back to 2000-2001 regarding Berkshire Hathaway’s Gen Re were improperly documented, and as such, the company would be even later in filing its 10-K annual financial reports. AIG says it will not meet the end of March 2005 extended due date for the 10-K filing as the company completes an extensive review relating to investigations into non-traditional insurance products and assumed reinsurance transactions.

“Based on its review to date, AIG has concluded that the Gen Re transaction documentation was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance,” an AIG statement notes. AIG says its financial statements will record the transactions as deposits. While the change will “have virtually no impact on AIG’s financial condition as of December 31, 2004”, it will reduce reserves by US$250 million and increase other liabilities by US$245 million.

But the Gen Re transaction is not the only instance of improper accounting, the AIG statement goes on to say, with other transactions appearing “to have been structured for the sole or primary purpose of accomplishing a desired accounting result”. AIG says that, while its investigation is ongoing, so the ultimate impact on financial results for prior periods or unaudited fourth-quarter 2004 results is unknown, it expects the impact to be about a 2% decrease on previously reported shareholders’ equity of US$82.87 billion.

The admission follows the retirement of long-time AIG CEO and chairman Maurice “Hank” Greenberg, as well as the departure of CFO Howard Smith. Greenberg had intended to stay on as non-executive chairman but has since decided not to run for re-election.