Questions over AIG Accounting Mount; Restatements Reportedly Could Reach Billions; Delay in Annual Report Possible

Insurance giant American International Group, under increasing scrutiny by state and federal regulators and its own internal auditors, is looking at the possibility of fixing up to $3 billion in accounting mistakes made over the past five years, the Wall Street Journal reported today.

The Journal reported that AIG has reviewed about 30 transactions valued at between $1.5 billion and $3 billion that may have been incorrectly reported, although it is not known if restating them will cause income to go up or down. The insurer is said to be still reviewing as many as 60 other transactions as well, raising questions about whether it will be able to file its already-delayed annual report with the Securities and Exchange Commission by its deadline of next week.

AIG has been keeping officials at the SEC, the New York Attorney General’s office and the New York Department of Insurance informed as its investigations proceed.

Most of the transactions being audited involve AIG’s relationships with various reinsurers, including General Re and Barbados-based Richmond Insurance Co. and Union Excess Reinsurance Co. In addition, AIG’s relationship with Starr International Co., which handles deferred compensation for AIG executives, is reportedly also under review.

If the results show that AIG’s finances have not been quite as solid as reported, rating agencies could downgrade AIG’s credit rating, making it costlier for AIG to borrow. However, in a separate report, the Wall Street Journal also notes that AIG is very rich in assets and much of its current debt is long-term and rated triple-A and not subject to refinancing for years. Thus any modest credit downgrade is unlikely to pose a serious problem for the insurer, the Wall Street Journal’s Aaron Lucchetti wrote.