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Jas
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March 30, 2005
The scandal-hit American International Group (AIG) has admitted it accounted improperly for a deal with General Reinsurance and is delaying its fourth quarter earnings report for a second time in order to complete a review.
General Reinsurance is a unit of Warren Buffett’s Berkshire Hathaway Group. Yesterday, Mr Buffett sought to distance himself from the transaction, said to be worth around $500 million, after it emerged that the SEC had demanded a meeting with him to discuss the matter. A spokesman for Mr Buffett denied claims that he had personal information about the deal, saying it was his policy to leave operating decisions to individual managers.
"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," AIG said in a statement.
Earlier this year, AIG said it hoped to report its results by March 31, but now says it hopes to have the report filed by April 30.
The group, which is America’s largest insurance company and a component of the Dow Jones index, said the delay would give its board and new management "adequate time to complete their extensive review" of its books and records.
The company said it wasn’t able to determine if the adjustments identified to date would require a restatement of prior period results or a change to the published results for the fourth quarter of 2004.
But it did say that, "In view of its continuing review, management has not yet completed its assessment of the effectiveness of AIG’s internal control over financial reporting as of Dec. 31, 2004. The assessment will be made prior to the filing of AIG’s Form 10-K."
AIG added, however, that it currently believes the maximum total effect on its consolidated shareholders’ equity would be a decrease of 2 per cent from its previously reported total of $82.87 billion.
Yesterday the company distanced itself further from former long-time chief executive Maurice "Hank" Greenberg.
In a letter to AIG’s board of directors on Monday, Mr Greenberg retired as non-executive chairman, a position he assumed earlier this month after being ousted as CEO. He will not stand for re-election to the board and is expected to formally retire later this week.
Regulators including Spitzer and the SEC are investigating whether AIG used so-called finite risk reinsurance to manipulate its financial statements. The probes precipitated Mr Greenberg’s departure as CEO after almost 40 years in charge of the firm he owns a 16 per cent stake in.
AIG shares fell 1.4 per cent to $57.40 in early trading.
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