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AIG restates profits for five years, increases reserves


NEW YORK—American International Group Inc. cut its reported net income for the five years through 2004 by $3.92 billion as a result of its restatement for the period, the insurer revealed in its long-delayed 10K filing with Securities and Exchange Commission, which was made today.

The reduction in profits includes a $1.32 billion, or 11.9%, decrease in its previously reported 2004 income, to $9.73 billion. Restated results for 2004 reflect an $850 million reserve increase for 2004's fourth quarter.

The New York-based insurer also reported a 2.7% reduction in its shareholder equity for year-end 2004 from the previously reported number, to $80.61 billion.

Martin J. Sullivan, AIG president and chief executive officer, said in a statement the 10K filing "reflects the result of our detailed and thorough review of AIG's major business units globally."

Mr. Sullivan said, "We are embarking on a new era for AIG that will be marked by changes in the way we operate--including greater responsiveness and transparency--while preserving the core values that have enabled us to build an unequaled franchise and effectively meet our customers needs. I am confident that the changes we are initiating throughout the organization will make AIG an even stronger and better company."

AIG, though, remains besieged. Last week, New York Attorney General Eliot Spitzer and New York State Insurance Superintendent Howard Mills filed suit against AIG, former Chairman and Chief Executive Officer Maurice R. Greenberg and former Chief Financial Officer Howard I. Smith, charging them with embarking on numerous questionable transactions in order to manipulate the insurer's financial results.

Many of the issues raised in the lawsuit, including the questions surrounding loss reserves, net investment income, the conversion of underwriting losses to capital losses and the adequacy of risk transfer are also described in the 10K filing as factors in the restatement.

Many observers expect AIG to settle the lawsuit, although criminal charges may still be filed against Mr. Greenberg and Mr. Smith. The company also faces numerous other lawsuits in both federal and state courts, as well as ongoing investigations by regulators and government authorities, including the SEC and Justice Department.

"Management has identified a number of material weaknesses in AIG's internal control over financial reporting," says the SEC filing.

In addition to 2004's reduction, AIG reported a $1.27 billion decrease, or 13.6% reduction, in its 2003 net income, to $8.01 billion; a 6.3% increase, in 2002 to $5.87 billion; a 22.2% reduction, in 2001 to $4.17 billion; and a 7.5%, reduction in 2000 to $6.14 billion.

The company said in its 10K that it will increase its net asbestos reserves by $650 million and its net environmental reserves by $200 million for fourth quarter of 2004. It said the increase was based on a consideration of actual calendar experience, input from claims officers on latest year events; deterioration in report year claims experience; survival ratios; industry experience and reinsurance recoverables. The company said, though, that "significant uncertainty remains as to AIG's ultimate liability related to asbestos and environmental claims."

Meanwhile, AIG said it plans to issue its delayed first quarter results by the end of June.The company also announced in a statement that it will commission a comprehensive independent actuarial review of the loss reserves of its principal property/casualty insurance operations, which is expected to be completed before AIG reports its full year 2005 financial results.