American International Group (AIG), the world's largest insurer, delayed publishing its annual results for a second time yesterday and admitted that inaccurate accounting might have falsely inflated its finances by $1.7bn (£904m).
AIG will now file its results, known as a 10K form, with the Securities and Exchange Commission by 30 April.
The news was the latest bombshell to come from AIG, which said this week that Hank Greenberg, its domineering chairman of almost four decades, was retiring. Mr Greenberg was personally involved in the negotiation of a major reinsurance contract which is being investigated by Eliot Spitzer, New York's attorney general.
The spotlight has now turned on Warren Buffett, the chairman of Berkshire Hathaway. Yesterday AIG said for the first time that the dealings between it and Berkshire Hathaway's subsidiary General Re were improperly recorded as insurance transactions.
Regulators opened the investigation because they suspected that a $500m transaction with General Re was really a loan to AIG designed to make its finances look better than they actually were, rather than reinsurance for some of the policies it had on its books. The deal did not actually transfer the risk of claims being made on those policies to General Re, making it bogus as a reinsurance deal.
AIG admitted yesterday that "the General 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".
It has emerged that Mr Buffett, one of the most respected businessmen in the US, was told by General Re's former chief executive, Ronald Ferguson, about the reinsurance deal with AIG, which was signed in 2000 and came into force in two tranches, in that year and in 2001. Mr Buffett will meet regulators in New York on 11 April to discuss the controversial deal.
While Mr Buffett's involvement has surprised his long-standing fans on Wall Street, Mr Spitzer's office said it sees him only as a witness in the investigation, not as a potential target. It has also stressed that Mr Buffett has been very helpful to investigators. Berkshire Hathaway said: "Mr Buffett was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions."
AIG, which has a complex corporate structure, with cross-holdings in a string of privately owned and foreign-based smaller entities, also admitted it had inappropriately used offshore reinsurance companies to take advantage of accounting benefits.
AIG is carrying out root and branch reform to try to restore investors' confidence.Reuse content