AIG admits 'improper' accounting in deals with Buffett group

Mark Milner
Thursday March 31, 2005
The Guardian

American International Group, the world's biggest insurer, admitted yesterday that it had improperly accounted for a deal at the heart of a series of investigations.

The insurer said the agreement with General Re, a subsidiary of Warren Buffett's Berkshire Hathaway, had been wrongly characterised.

"Based on its review to date, AIG has concluded that the Gen Re transaction documentation was improper and, in the light of the lack of evidence of risk transfer, this transaction should not have been recorded as insurance," it said.

Berkshire Hathaway said this week that Mr Buffett, America's most respected investor, had not been briefed on the structure of the transactions between General Re and AIG or on "any improper use or purpose of the transactions". He is expected to talk to investigators in the next fortnight.

AIG said yesterday that improper documentation related to two transactions between AIG and General Re, each involving $250m (£133m). AIG said yesterday that the deals should have been accounted for as deposits.

Last month AIG acknowledged that it had received subpoenas from the New York attorney general, Eliot Spitzer, and the US securities and exchange commission relating to "non-traditional insurance products and certain assumed reinsurance contracts". The New York department of insurance is conducting inquiries into related matters.

The affair has already seen the departure of AIG's chairman and chief executive, Maurice "Hank" Greenberg. Mr Greenberg, who ran AIG for almost four decades, was forced to stand down as chief executive only two weeks ago and this week confirmed that he would quit his new role as non-executive chairman when he returned from a business trip in Asia. Three other executives have also left.

AIG said yesterday that it would have to delay further the release of its 2004 figures as it continued to investigate its records. It warned that shareholders' equity could be reduced by up to 2% and that it faced tax charges of up to $670m as a result of discoveries thrown up by the review.

AIG said it was reviewing the impact of fresh evidence of its relationships with a series of offshore companies with which it had done business.

It said it would have to consolidate the results of Richmond, a Bermuda-based reinsurance company, in which it holds a 19.9% stake, after finding "previously undisclosed evidence of AIG control".

It is also examining its relationship with the Barbados-based Union Excess. Though AIG has no direct stake in Union, it said yesterday that "a significant portion of the ownership interests of Union Excess shareholders are protected under financial arrangements with Starr International ... which owns approximately 12% of AIG's common stock and whose board of directors consists of current and former members of AIG management".

Labels: AIG, Eliot Spitzer, General Re, New York AG