NEW YORK - American International Group Inc., the world's largest insurer, said yesterday that it engaged in improper accounting that might have inflated the company's net worth by as much as 2 percent, or $1.7 billion, since 1991.
AIG said in a statement yesterday that it had manipulated company accounts through transactions with reinsurers, including a subsidiary of Warren E. Buffett's Berkshire Hathaway Inc.
AIG also announced that it had not yet completed an in-house review of its accounting and would have to delay filing its 2004 annual report until April 30. AIG earlier had said it expected to file the report today.
Two weeks ago, Maurice R. "Hank" Greenberg, 70, was forced to step down as chief executive of a company he built into an insurance empire. The company had fired its chief financial officer and two other executives for failing to cooperate with regulators.
"The depth and breadth of troubles and apparent lack of accounting controls at AIG is alarming," said William M. Wilt, a Morgan Stanley analyst.
AIG's statement prompted Standard & Poor's to lower the company's senior debt rating to AA+ from AAA. S&P warned it might lower the rating further when the company files its annual report in April.
The company's shares declined $1.04, or 1.7 percent, to $57.16 yesterday on the New York Stock Exchange.
The stock has fallen 22 percent in six weeks as New York Attorney General Eliot Spitzer and the Securities and Exchange Commission expanded their investigations into AIG's accounting.
Buffett, Berkshire Hathaway's chairman and chief executive, is to speak with investigators April 11 and with Greenberg the next day. A Spitzer spokesman described Buffett as "very cooperative."
The investigators are looking at a number of reinsurance transactions, which involve insurance purchased by insurers like AIG.
Reinsurance traditionally has been used to spread out risk among insurers but, in some cases, it has been used for the questionable purpose of polishing a company's financial statements.
If there is no risk transfer, the deal shouldn't be booked as insurance. In the case under review, AIG purchased reinsurance from General Re in the fourth quarter of 2000 and first quarter of 2001.
Investigators have said that AIG used the deals to pump up its reserves when markets were uneasy about the company's outstanding liabilities.
