AIG runs into further accounting problems

American International Group Inc. (AIG) has hit another hurdle in attempts to deal with accounting irregularities that will require the insurer to restate five years of its financial results. AIG says that a review of its books by auditor PricewaterhouseCoopers LLP may not be completed until the end of May this year, thus producing the third and most recent delay for release of the company’s 2004 annual report.
While the accounting review initially revealed an estimated US$1.7 billion overstatement in AIG’s net worth, this overvaluation has now been bumped up to an even more alarming US$2.7 billion. The inflated value on the company’s balance-sheet is attributed mainly to a series of complicated reinsurance-type transactions known as finite arrangements which can in some instances be misused as a form of “loan” or “deposit” between reciprocal parties rather than an actual transfer of risk. The internal accounting review established by AIG was sparked by investigations launched earlier this year by the Securities Exchange Commission (SEC) and New York’s attorney general Eliot Spitzer.
The furor that blew up surrounding the accounting review findings resulted in AIG’s chairman/CEO Maurice Greenberg resigning. Martin Sullivan, the company’s new CEO, says “we are taking actions that will enable AIG to reinforce its credibility and the trust and confidence of our stakeholders”. As a result of the latest developments, rating agency Fitch Ratings lowered AIG’s “AAA” financial credit rating to “AA”.