AIG Staring at Possible Formal Action

May 25, 2005

The Wall Street Journal reported Wednesday that New York State Attorney General Eliot Spitzer and the State’s Insurance Department are near completion on producing a civil complaint against American International Group (AIG).

The action is a result of the company’s reported improper accounting practices.

AIG, the world’s largest insurer by market value, earlier in May reported a long list of accounting and other improprieties and said it would restate more than four years of financial reports, cutting $2.7 billion from its net worth.

In its statements, AIG disclosed a range of improper accounting procedures that involved overstating investment income, hiding underwriting losses and valuing assets too highly.

Back in late April, Spitzer and Insurance Superintendent Howard Mills announced that the Insurance Department would appoint a consultant to audit years of alleged improper booking of workers’ compensation premiums at AIG.
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The practice to be audited, now apparently discontinued, reportedly involved booking premiums for workers’ comp coverage as premiums for general liability coverage. The conduct appears to have taken
place for over a decade, and continued even after AIG insiders repeatedly challenged its legality.

By booking the income as something other than workers’ comp premiums, AIG reportedly avoided paying its true share into various workers’ comp funds.

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