10-K/APeriod: FY2004

AMERICAN INTERNATIONAL GROUP, INC. Annual Report (Amendment), Year Ended Dec 31, 2004

Filed March 16, 2006For Securities:AIG

Summary

This filing, an amendment to AMERICAN INTERNATIONAL GROUP, INC.'s (AIG) 2004 Form 10-K, addresses significant restatements of its financial results for the years ended December 31, 2000 through 2004. The primary driver for these restatements was an internal review that uncovered numerous errors and issues related to accounting for derivatives, balance sheet reconciliations, income tax accounting, and other financial practices. These issues led to two major restatements: the "First Restatement" impacting periods up to 2003 and the "Second Restatement" which further adjusted prior periods, including 2004, to correct errors primarily identified during the remediation of internal control weaknesses. Investors should note the significant impact of these restatements, which required corrections to prior period financial statements. The company also disclosed substantial settlements in February 2006 with the SEC, DOJ, NYAG, and DOI, resulting in a significant after-tax charge. Additionally, AIG announced a significant increase to its loss reserves in Q4 2005, impacting its General Insurance segment. These events collectively highlight a period of considerable financial and regulatory scrutiny for AIG.

Key Highlights

  • 1AIG is filing an amendment (10-K/A) to restate its financial statements for the years 2000-2004 due to identified accounting errors and weaknesses in internal controls.
  • 2The company underwent two significant restatements: the "First Restatement" and the "Second Restatement," impacting multiple prior periods.
  • 3Key areas of restatement include accounting for derivatives (FAS 133), balance sheet reconciliations, income tax accounting, and the evaluation of risk transfer in insurance transactions.
  • 4In February 2006, AIG announced settlements with the SEC, DOJ, NYAG, and DOI, leading to an after-tax charge of approximately $1.15 billion in Q4 2005.
  • 5AIG also announced a Q4 2005 charge of approximately $1.2 billion related to an increase in loss reserves, primarily impacting its Domestic Brokerage Group.
  • 6The company identified material weaknesses in internal control over financial reporting, including issues with control environment, risk transfer evaluation, balance sheet reconciliations, derivative accounting, and income tax accounting.
  • 7Credit rating agencies downgraded AIG's ratings from AAA to AA or equivalent in early 2005, impacting borrowing costs and potentially competitive positioning.

Frequently Asked Questions

AIG is filing this amendment to restate its financial statements for several prior years (2000-2004) due to the discovery of accounting errors and material weaknesses in its internal controls over financial reporting identified during an internal review and subsequent investigations.

The restatements were primarily driven by issues found in the accounting for derivative instruments and hedging activities under FAS 133, inaccuracies in balance sheet reconciliations, errors in income tax accounting, and concerns regarding the evaluation of risk transfer in insurance and reinsurance transactions. The company also identified instances of senior management overriding internal controls.

AIG reached settlements with the SEC, DOJ, NYAG, and DOI, resolving investigations into its accounting, financial reporting, and brokerage practices. These settlements resulted in a significant after-tax charge of approximately $1.15 billion recorded in the fourth quarter of 2005 and included payments totaling approximately $1.64 billion.

Major rating agencies downgraded AIG's long-term senior debt ratings from 'AAA' to 'AA' or equivalent. This has adversely affected AIG's borrowing costs, potentially reduced its ability to compete in certain financial transactions (requiring more collateral posting), and lessened the competitive advantage of its prior top ratings.